This is the last day of the Budget debates. I appreciate that in opening the debates last week my right hon. Friend the Chancellor of the Exchequer said that he spoke with great humility and trepidation. My right hon. Friend is surely among the least spectacular examples of trepidation the House has seen on such an occasion. But perhaps his nervousness would have been more in evidence if he had known of the strange reception that was about to be given to some of his measures as well as some of the strange criticisms made of them.
I propose to discuss three aspects of the Budget at home: investment, prices and—oddly enough—the Stock Exchange. I hope to find time, without being too tedious, to deal with some of the international aspects of our affairs.
On the question of investment, my right hon. Friend the Chancellor of the Exchequer has been accused of perpetrating a Budget which is anti-industry in that it does not encourage investment but positively discourages it. It seems to me to be a strange charge which fails to take into account either the rôle of the Budget in our affairs at this time or the background against which the Budget was produced. The Budget does not pretend to be the exclusive means of influencing the direction of our economy. It was a Budget prepared, at three weeks' notice, against a crisis background that was not of our making, against the background of a three-day week which had to be removed, and of a nation that had to be brought back to full five-day-week production. The rôle of the Budget was to assist in the urgent task of getting the nation back to full production.
It would have been very strange if in the Budget, at this delicate point in the operation of moving from a three-day working week back to a five-day week and full production, my right hon. Friend had produced some sort of gimmicky rabbit from the hat to inspire confidence that he was keen on investment. He did a good deal better. He said quite plainly and unambiguously that his Budget was intended to initiate a policy of full employment and maximum growth. If his policy can live up to those words, that means that my right hon. Friend is favouring investment.
What is crucial for investment, as opposed to sudden budgetary appliances produced for newspaper effect, is the creation of the expectation among industrialists of a sustained and rising profitable demand. It is that which produces investment in the long run. It is that which in unambiguous terms my right hon. Friend outlined as being his policy.
If anyone has any sense of balance, looking at our kind of society and our mixed economy, it is plain that a Chancellor of the Exchequer who commits himself to a successful economic policy—which is to produce sustained growth—is committing himself to a necessary and profitable rôle, not only for public enterprise, but also for private enterprise; more particularly as there is in this programme some diversion of production to more profitable areas of exports. My right hon. Friend laid stress on the profitable opportunities which will be available to businesses in the export trade.
That is what my right hon. Friend is aiming for. He stated his position in terms which could not be faulted and which, if we are able to carry out our programme, will result for the first time in that sustained and expanding profitable demand which our industry needs so sorely.
If there is one ill from which British industry has suffered since the war it is from the series of "stop-go's" that we have seen. The "go's" were well intentioned and the "stops" became inevitable because of the lack of strategy and system behind the original goal.
I commend the position of my right hon. Friend which in plain terms says that he has had enough of bursts of unsupportable and unsustainable growth and that now the nation needs, and will get, a carefully-thought-out strategy for sustained and sustainable growth which is precisely what is required to produce the improvement in our investment performance that we need.
I do not claim that the previous administration were wicked men. I think that they were foolish men with good intentions unsupported by serious strategy. My right hon. Friend the Chancellor of the Exchequer has good intentions. He intends to support them with a careful strategy, and that cannot be a ground for complaint.
In the past these bursts of rapid unsustainable increases in production have produced immense rises in industry's intentions to invest. Instead, we want rises in actual investment. It is not spurts followed by uncertainty and then by a "stop" which produce real investment, as opposed to the paper intentions in the Financial Times. What produces real investment is sustained growth. That is what my right hon. Friend has aimed at, and that will be our target throughout our period in Government.
I can deal briefly with the criticism on some other grounds. The leaders of industry tell us that even at this moment bottlenecks are developing because of the speed and anxiety with which industry is seeking to get back to full production. What a moment to offer a gimmicky attraction to investment when there is the greatest difficulty in coping with the sudden spurt in demand now that we have released industry to get back to its full-time tasks. It would be a grave error to inject sudden extra demand, whether on the investment account or on any other account. We have still to get over this delicate period of recovery from the three-day working week and the bottlenecks which are occurring.
Other complaints have been made. My right hon. Friend is being told that he has ignored the liquidity problems of companies. We believe that there is no general shortage or difficulty of liquidity which would interfere with investment intentions. No one can be certain about this, and, if we are proved wrong, nothing could be more easy than to adjust as we went along. We must not have this naïve charade in which the Chancellor of the Exchequer is said to be decreeing for all time the level of liquidity to companies.
Although the GECs and ICIs have ample liquidity, I accept that, because of the astronomical rise in commodity prices and the difficulties of a three-day week, some companies may suffer from liquidity difficulties of a special kind. Here, the Governor of the Bank of England and the banks have been doing splendid, flexible work, and they will continue to do so to save these smaller industries from the damaging consequences of the three-day week and to help in the difficulties which may arise because they are in trades where cash flow is urgently required because of spectacular rises in the prices of commodities which may be their raw materials. That is hardly an anti-industry position which has been adopted by my right hon. Friend in enforcing and reinforcing the banks' active and flexible achievements to deal with uneven liquidity requirements.
There is another factor which militates against investment in the long run. I do not like to score party dialectical points, but the previous administration have many records to their credit—or perhaps the word should be "discredit". I am bound to mention another record. They achieved record interest rates. Nothing could be more inimical to the sound allocation of investment resources than the high interest rates that we have, and my right hon. Friend has said that it will be our intention to bring down those interest rates.
If the hon. Gentleman will be patient, he will hear.
Interest rates are partly an international phenomenon. But the Conservative Government must not ride off on that, as they sought to ride off other matters with a better case like commodities, which are an international phenomenon. I cannot say that they helped commodity prices by their sterling parity policies. But when our interest rate is almost double that in the rest of the world, we are entitled to question the enthusiasm of the gentlemen who allowed this to happen. I could wish that some of those who have been so vocal about my right hon. Friend's inability in three weeks to produce some contrivance to spur investment at the wrong time would have had something to say as vocal about the Conservatives' performance on interest rates at the right time, because high interest rates of this character have nothing to recommend them.
I have asked the hon. Member for Wycombe (Sir J. Hall) to contain himself. I shall he dealing with that, necessarily briefly—unless he wishes me to continue for the rest of the afternoon—[Interruption.] I should be happy to do that. I am encouraged by the reaction to my suggestion from the Liberal benches. I shall deal copiously with interest rates later.
What must be kept in mind is that the Budget is only the beginning of the economic management. It is not the be-all and end-all of modern investment management. It has a certain ritual panache which I suspect my right hon. Friend enjoyed to the full judging by the photographs in the newspapers. Frankly, it ceased to be the key action in the management of the economy.
Day by day, week by week, and month by month the Chancellor will be watching, standing at a whole host of controls available to him to keep pointed at his target. It is difficult to guarantee, but his target is the full employment of our people and the creation of added wealth for our society.
The next point that I want to make concerns prices. I do not know what, in the record of right hon. Gentlemen opposite, should give grounds for merriment. It would not be hard to improve on the record that they left as an inheritance for us. Indeed, it would be difficult not to improve upon it.
The second point on which the Chancellor has been criticised by the Opposition concerns the increase in nationalised industry prices. I will not waste a lot of time on this political charade. I know that this point has not been made by the right hon. Member for Altrincham and Sale (Mr. Barber) because the former Chancellor of the Exchequer indicated his intention to increase these prices. I am glad that right hon. Gentlemen on the Opposition Front Bench nod acceptance of this point. I want to put it publicly on record, with their assent, that these price rises were inevitable within our system. Whichever party took office, these price rises would have occurred. We may find a better way of running our nationalised industries so that we are not automatically enslaved to these price rises without having to undermine the commercial efficiency of the enterprises. That is another matter that will require time and thought.
All I want to say on prices is that what the Chancellor has done of great importance is, for the first time, to initiate an attack from the other end of the equation on inflation. In other words, instead of always looking at wage increases as the source of inflation, he has started—we have had a new initiative, the first since the war or the immediate post-war period of a substantial size—to tackle the problems of prices and to try subsidising food and the like.
What is the point of making food marginally cheaper and at the same time making electricity equally more expensive? Surely, in that whole operation they will cancel each other out?
The hon. Gentleman, not for the first time, is at odds with his own Front Bench. His right hon. Friends have accepted the inevitability of an electricity price rise. A moment ago they were all nodding in encouraging agreement. Therefore, he must go to his right hon. Friends who are nearer to him for the instruction. [HON. MEMBERS: "What is the answer?"] The answer is simple. The electricity price rise has been made inevitable by the previous Government. What was not inevitable was the holding back of food prices by my right hon. Friend's initiative. It is for that that I claim credit. We cannot avoid inheriting an electricity price rise. However, we were able to bring forward a new initiative which, for reasons to which I shall come later if I can get over some of the interruptions, has special importance at this time. In passing, it seems to me that all attempts to solve the inflation problem by assaults on real wages are foredoomed to failure, and rightly so, in our modern society.
The right hon. Gentleman will no doubt remember—he seems temporarily to have forgotten—that the point I made last week on behalf of the Opposition both in this House and outside was not about nationalised industry prices. I said that if we were to do that it would be folly and wrong at the same time to increase other prices by indirect taxation. The Chancellor admitted that the increases in prices as a result of VAT and excise duty have a bigger upwards effect on the cost-of-living than food subsidies have a downward effect.
Not if we include the rent freeze. That is a different point from that that was eagerly being made by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley).
One cannot fail to notice that since we were elected the stock market has been moving quite sharply downwards, though not as sharply as it moved downwards, immediately before we were elected, under the Conservative Government and the three-day week. The impetus was there, it is part of our inheritance, and it has continued downwards. I confess that the election of a Labour Government is not regarded on the Stock Exchange immediately as a bull point and that it causes a certain amount of dismay, but those who are normally participants on a large scale professionally in that area are rarely among the avant-garde in politics.
It is being said in some quarters that the reason for the stock market's slide is not only that the Chancellor and the Government are anti-industry, but that they are against the private enterprise sector and will not allow it to function prosperously. It seems difficult to know how we can hope to have any economic success if our aim is to cause the private sector to collapse in under-nourished dismay. [Interruption.] It is said that we are doing it not by accident but by conscious design, and that dislike of the private enterprise sector is motivating my right hon. Friend. If he is intent on doing that, he would surely be designing his own electoral downfall.
My right hon. Friend is intelligent enough to know that if he were designing the downfall of the private enterprise system in our society and the consequent damage to our standard of life, our exports, our services and innumerable other aspects, it would be right to attribute to him, to be coherent, the motive of intending a political coup. If I were persuaded that my right hon. Friend was out to bring about the collapse of the private enterprise system, it would be right to believe that he saw himself in the rôle of dictator—a genial but firm dictator—who had not troubled to go to the electorate in the usual manner. However, until I am persuaded of that as a second proposition, I shall not be persuaded of the first.
It is, and has been, said of every Labour Government since 1945—I realise how ancient as well as delapidated I am because I can recollect vividly the clichés of the 1945 Labour Government—that to them "profit" is a dirty word. If so, I must point out that my right hon. Friend had it on his lips several times and that his taxation arrangements relate closely to the success of that dirty word in industry and in private affairs.
At all times of a Labour Government we seem to have a kind of amnesia in which we forget that this is a party not of wreckers but of responsible government which has been in Government for 11 of the post-war years and had a responsible record of achievement in those years.
It is also true that not all people favour the particular adjustments and advances in social justice advocated by my party and by my right hon. Friends. But it is not possible for our society to remain wholesome and sound if we attempt to stay still. It is the neglect to bring up to date the relationship between our fiscal and economic management to the moral concepts of our society that endangers private enterprise. It is the adjustment that protects it or protects its rôle. The clearer it is that private enterprise is operating within a framework which broadly accords with our concepts of social needs and justice, the more extensive and durable will be the rôle of private enterprise in modern society.
I can state my own position without any diffidence. I have a quotation which I readily give to the House because it expresses my own views:
It is clear to the serious student of modern politics that a mixed economy is what most people of the West would prefer. The victory of Socialism need not be universal to be decisive. I have no patience with those socialists, so-called, who in practice would socialise nothing while in theory they threaten the whole of private property. They are purists and therefore barren. It is neither prudent nor does it accord with our conception of the future that all forms of private property should live under perpetual threat. In almost all types of human society different forms of property have lived side by side. Where the frontier between the public and the private sector should be fixed is a question that will be answered differently in different nations.
That exactly states my own position; the gentleman who wrote it, of course, was the late and much respected Aneurin Bevan. I am happy to find myself after his death in the complete identity with his views that I had on personal terms when he was alive.
As we move to a better economic climate, after the trials and tribulations of the confrontations, the three-day weeks and the strikes, we will hope to make improvements in the standard of life of everybody who is able to make a contribution to our economic achievements. I sometimes think that some private enterprises—I have great respect for them—ask too much. They sometimes ask that every member of this party, whenever he speaks, should always speak of them in affectionate and admiring terms in every aspect of their achievement. My advice to them would be that it is enough to be useful, reputable and properly rewarded in modern society and that they should not waste too much time in seeking to be loved as well.
All this is a preamble to my comment about the decline in the stock market. We are not directly concerned, but we are indirectly concerned. First, I should like to make it clear that we find it unwelcome that so many small savers should be adversely affected in this way. We are by no means indifferent to this fact. We get no joy out of anyone's losses, but least of all out of those of the many small savers and pension funds and the like who have invested in equities in the modern world. We are not unaware of this, and we greatly regret it.
But there is another, more fundamental reason that troubles us for the decline in the stock market. It is that at the moment, because of the quite unjustified nervous fears, not to mention the unhappy bruising experiences with the previous Government, the stock market is at a level at which capital assets are in effect on offer at a fraction of their replacement cost. I do not want to go into this at length, but so long as this position prevails there cannot be successful industrial investment. If existing capital assets can be bought for a fraction of their replacement cost, few people will be eager to bring into being new investment assets or even to replace the existing ones.
For this reason, although we are not directly concerned with the stock market, I have no doubt that it will in the end reflect the economic success at which we are aiming and which we are determined to achieve.
The right hon. Gentleman poses the question of the reaction of the stock market. Surely it assesses two things—not only capital assets but a discounted flow of future income. Is it not its great scepticism about the discounted flow of future income that is resulting in the present position?
The Stock Exchange is a remarkable institution and assesses many different things. If I had time, I would tell the hon. Gentleman some of the things that it assessed when his own Government were in office. Most of its fall occurred under the previous Government. All the various things assessed cannot be comprehended in one speech, even if I take up the rest of the afternoon as I have been encouraged by the Liberal Party to do.
I should like to move briefly to the international background against which our affairs have to be regulated. At the moment the world is in a curious state in international monetary affairs. We are between two systems—the one we used to have and the one we hope to have. This is a rather inconvenient time at which to be conducting the affairs of a great trading nation like Britain. Bretton Woods died finally in August 1971 when America officially declared the dollar unconvertible, but the system had been ailing for some time and the reason for its demise instead of its restoration in an adapted form was that European countries and the Japanese, who had made so remarkable a recovery under the stable financial system which had been brought about by Bretton Woods, were quite rightly readier to claim their new and growing rights to voice their opinions as their strength increased. But this claim was more swift than was the readiness to accept the new responsibilities which came with that recovery and with that growing monetary power.
However, whatever the reasons, which I cannot go into in massive detail this afternoon, that system collapsed. The floaters and the unreluctant adjusters took over. I have always been a reluctant adjuster. When one adjusts a parity downwards, the real wages of one's work-people go down. That is the object of the operation. So, of course, as I am reluctant to drive down the real wages of the people, I have always been a reluctant adjuster, which has been thought to be an offence under the old Bretton Woods system.
But the unreluctant adjusters and the floaters, so-called, took over, and, at a period when we needed desperately a higher level of international co-operation in monetary and trading affairs, we got a lower level of co-operation in monetary and trading affairs and even in politics as a consequence. What we needed was not the abandonment of international co-operation in favour of all sorts of unilateral mechanisms of managed floats and the like but a new co-operation, more subtle in operation than the previous one. in monetary and economic affairs.
For example, the somewhat simpliste liberalism of GATT, although it was useful in the immediate post-war period, had serious weaknesses which made themselves manifest as Western Europe and Japan recovered and the necessity for some new self-disciplines, unthought of in the early GATT enthusiasms, started to become evident.
We needed, in the monetary field particularly, subtler mechanisms of parity change when they had to occur, but above all we needed in the monetary field a more fundamental recognition of our interdependence as countries than on the absurd and naive parrot cries for equilibrium which have dominated the last quarter of a century.
A modern monetary system has to be one which organises a prosperous disequilibrium, not one which seeks to put a straitjacket of accounting equilibrium on the affairs between nations. I have preached this doctrine ever since I have been in this House, and I am sorry to have to record that the OPEC countries managed to be more convincing in one month behind this thesis than I have been able to be in 20 years. Everyone has now come to see that there is no choice but to be in current account disequilibrium of a major character.
Unhappily, of course, the commodity price changes, even before the oil price changes, have exposed the bankruptcy of 25 years of nonsense that has been preached about parity changes as the cure-all for the so-called non-problem of the balance of payments.
On this issue, I could have wished that we had present Mr. Enoch Powell, who has left our counsels. He was always a touching spectacle preaching to the recidivist flock around him who long ago abandoned the doctrine to which he was so patiently calling them. There he was, a kind of optimistic muezzin, calling the faithless to prayer, and they, oddly enough, showed a strong disinclination to join him in his nineteenth century temple. Alas, he is no longer with us to argue for parity as the cure-all. I should love to hear from him how one can allow free market forces to deal with the oil deficit by competitive parity devaluations.
The old theology is dead and a new theology is liable to rear its head. It is the theology which distinguishes between the oil deficit and the non-oil deficit as being the fundamental matter of great concern to us all. The true distinction is between that part of the deficit that one can cover without self-injury, and hence without injury to one's interdependent friends and trading partners, and that which must be financed. The oil deficit merely highlights the old problems that we are facing, because it presents them in a more sharply defined form.
I want to say something about the grave problems which the oil price rise presents; and to a lesser extent commodity price rises have a similar effect. The previous Chancellor rightly said that the oil price rise was both inflationary and deflationary, a matter which seemed to puzzle our departed muezzin.
The oil price rise is both inflationary and deflationary because it is demand deflationary and price inflationary. This presents real problems, because in a situation in which prices go up wages have to keep chasing prices in order merely to keep demand at its proper level, and it is demand deflationary because the OPEC countries cannot consume the purchasing power that has been transferred to them by the rising prices paid by our people. We would be faced with a slump were it not for the fact that wages rise to cope with rising prices.
But is this the wisest way of solving the problem? If we get into a chronic situation in which commodity price rises force a shortage of demand, that can be remedied only by wages chasing prices. Wages will catch up, but they will always be a little behind, and there will always not be quite enough demand, and always at the price of catching up to renew the problem by a further price rise. This is not the best solution that we can find, and it is in that context that I welcome my right hon. Friend's courageous attempt to do something at the beginning of the cycle; that is, to try to keep prices down and sustain demand other than by relying upon a wage chase.
How do we organise the orderly pricing of oil, without further addition to the international price spiral, in which the ventures concerned shift their prices upwards to cope with the eroding currency which in part is caused by their price rise and was adding another dangerous inflationary factor to our problems?
The second problem is what to do about the orderly reflux of balances that accrue to the oil-selling nations? Incidentally, the reaction of the previous Government was extremely ambiguous to the Kissinger initiative which called for international co-operation by consumers on this question. Their lurches into bilateral dealings were exceedingly dangerous, because if we ended up with $50 billion to $90 billion a year flowing from currency to currency and swirling around markets of the world it would distort one currency by forcing revaluation, and distort the value of another currency by forcing an unnecessary devaluation of money as that money flowed from currency to currency.
What is more, the political consequences would not be to the advantage of the oil producers—or the consumers—because the former would be tempted to exercise the kind of political power that would go with these financial holdings. There is evidence of that temptation having occurred. In the end, it could only poison relations between the oil-producing countries and their consumer customers if this kind of political power were to develop. The nightmare fantasies, as they largely are in relation to the American multinational companies, would be a reality in the hands of the oil-producing countries if we did not organise some orderly reflux of the balances. We have to deal also with the price inflationary consequences in the terms that I have mentioned, and we have to avoid the dangers of a slump which the demand deflationary consequences of oil prices would bring about.
Everybody pays lip-service to the case. Everybody says that we cannot possibly engage in a rat race of exports to cover the oil deficit, that we have to finance it, but as long as it remains lip-service to international co-operation not only shall we not be protected against a rat race but a rat race is inevitable.
Already round the world every nation is showing signs of joining in this bilateral dealing which can only result in disaster for us in the long run. I was disappointed in the former Leader of the Opposition, because towards the end of his period in office he appeared to lurch into a kind of Gaullist position in its worse sense, not in the sense of the great general's genius but in his more narrow and vulgarly anti-American postures and his unwillingness to take part in large-scale international co-operation.
I am sorry that the country in Europe which, apart from my own, I admire most, and whose culture, institutions, and lauguage I love most, France, is pursuing such a dangerous, foolish, and, indeed, suicidal course of seeking to prevent international co-operation to deal with the problems that I have outlined. They must be dealt with urgently if we are to avoid major disasters.
I thought that everybody was getting a little restive, but, if the House is anxious to hear me, let me tell hon. Members the following about interest rates. The present interest rates are outrageous, dangerous and destructive, and they have been brought about by the mismanagement of our international position, largely by the previous Government. World rates are high, but our rates are nearly double those, and it is that that I wish to deal with now.
We cannot cope with all the world rates, but the Chancellor can close the gap between our rates and the prevailing world rates. The first thing that he will do is to pursue economic policies that will tend to bring about the parity and stability that was woefully missing under the previous Government.
One reason for our high rates of interest was the absurd and naïve position adopted by the former Chancellor of the Exchequer. He took the view that Government borrowing was a shameful, guilt-ridden thing but if money oozed into the country as deposits in merchant banks, and so on, nobody was doing anything shameful. Billions of pounds sterling came into the country, and to keep it here we had to damage our own investment prospects, our home owners and our business. We had to do that to lure £6 billion at extortionate rates of interest.
The hon. Gentleman wants to know how I would bring down interest rates. The answer is that when we have a deficit such as the previous Government had, and no doubt we shall have, I take the view that it has to be financed. The previous Government should have had to finance it. I shall finance it sensibly and unashamedly. I shall do what the right hon. Gentleman once did; namely, borrow $2,500 million at proper rates of interest, not at anything like the rate that was paid by the previous Government. The rates when they were in office were 15 per cent., 16 per cent., 18 per cent., and even 20 per cent. It is no good the hon. Member for South Angus (Mr. Bruce-Gardyne) shaking his head. I am not used to talking nonsense in this area. I am telling him facts from knowledge. Under the Conservative Government this country has been paying to bring in sterling 15 per cent., 16 per cent., 18 per cent., and 20 per cent. interest.
On top of that, to our shame and cost, we have even paid a further sum, as has been recently announced, of £140 million insurance as well on the sterling balances which we have encouraged to be accumulated. So the hon. Gentleman must not shake his head, and he must not imagine that it is a task beyond human ingenuity to bring down rates of interest to those which are probably enjoyed by Hottentots. It does not need a singularly ingenious and constructive Government to bring this about. It needs just a reasonably sensible Government—not the kind of frivolous Government of parity changes that we had in the former Government, to my sorrow.
I do not want to run down the previous Government in many respects. The former Chancellor of the Exchequer was a courageous and purposeful man on the question of the economy, but he completely lacked strategy for handling our balance of payments, currency and parity problems. I drew his attention to this more than once, before we came to office, but he did not heed. I can only say that this country has suffered greatly, and one of the few advantages that have come about is the replacement of the former Government by the present Government.
In conclusion, clearly we are in a uniquely dangerous world situation in monetary and economic affairs. Clearly, in the modern world the tasks of Government in a country such as ours in that situation are very great. We have to ask ourselves, in all honesty, some serious questions. I do not attribute bad motives to any right hon. or hon. Members of the Opposition. They know that. As the right hon. Gentleman the Leader of the Liberal Party knows, I have never attributed malignity to the Conservatives when what is more obviously to be sought as the explanation for something is folly. It is always fair in the case of the Conservative Party to assume that if something is badly done it is done not from evil intention but simply from stupidity.
We are in a period of exceedingly great difficulty. I say that because any right hon. Members present are entitled to say it. Let him not boast who is putting on his armour like him who is taking it off. When we have achieved something of a solution to our problems I shall, perhaps, allow myself some vainglorious tribute. I recognise that there was no light task on the part of the Government in dealing with the complex industrial, social and monetary problems of the last few years. I recognise that we have a very difficult and complex task. One thing that I am sure of is that my right hon. Friend was absolutely right in recognising that our standards of social justice must be moved forward if we are to harness our people's efforts behind our economic attempts. This has been recognised by leading industrialists who have welcomed many of the things which my right hon. Friend has proposed. It is not only Left-wing Members of the Labour Party or of the Government who have recognised this; it is also leading industrialists.
The truth of the matter is that none of us has a ready-made, cut-and-dried solution for the problems of achieving full employment, of raising the standard of life and of holding our own in the world. But I am certain that there is no solution in attempts to dictate wages in the way attempted under the previous Government. There is no solution in the reduction of real wages in the modern society to our problems of inflation or the balance of payments, or to any other problem. Working people have recognised—certainly their leaders have recognised—that real wages are not merely the reward in modern society for their work and to support their standard of life, but are the propellant to industry itself, and that if a man is asked to accept an unnecessary reduction in his real wages he is not merely suffering a temporary reduction in his standard of living but threatening his job prospects because he is taking away the propellant in industrial life.
Of course real savings are necessary. But even I cannot be tempted into a new sidetrack at this point. I was about to wind up my speech.
We are dealing with these complex problems. The question is: which way should they be dealt with? We have tried confrontation, which has not worked. I do not say that it was evilly intended, or that right hon. Members of the Opposition sought confrontation. They did not. What they did, however, was to prepare their relationships with the trade union movement and our working people on a basis which could mean only confrontation and which led inevitably to confrontation, with all its disasters.
We shall try something different. I shall not boast of our success before we have achieved it, but I firmly believe that my right hon. Friend's Budget is a first step and that his performance and pledges are the right ones, as announced in his Budget, and I give it my warmest support in the House.
Right hon. and hon. Members on both sides of the House would wish me to say, first, how pleased they are that the health of the right hon. Gentleman the Chancellor of the Duchy has so recovered that he was able to take office, and, secondly, to see him at the Dispatch Box in such very good form. As he has done this at a sacrifice to his proper salary as a Minister, we owe him, perhaps, an even greater debt, although in fairness, the degree of the sacrifice was swiftly diminished by the actions of the Chancellor of the Exchequer.
But we also very much enjoyed the right hon. Gentleman's lecture on the importance of the Stock Exchange and of the free enterprise sector of the mixed economy. We think that it was a very good lecture to deliver to the Chancellor of the Exchequer. Our only regret is that he did not deliver it to the Chancellor of the Exchequer before the Budget instead of afterwards, or, if he did deliver it to the Chancellor of the Exchequer before the Budget, it is a great tragedy that the Chancellor of the Exchequer did not take notice of it.
I start by apologising to the Chancellor of the Exchequer and to other Ministers for not being present during their speeches last week That was due to 'flu, from which hon. Members will notice that my voice will suffer throughout my remarks.
The Budget was obviously of some interest to me from my television set as the various proposals came through and the discussions took place giving immediate reactions to the Budget. Those, I suppose, most in sympathy with the Government argued that the main strategy was in order to provide sufficient to please the trade unions enough to enter a social contract with the Government. This was given as the reason—to some extent, the excuse—for some of the proposals which were criticised on other grounds. Therefore, I presume that the Chancellor of the Exchequer will put as a very high test of the success of his Budget strategy the reaction and the degree to which he now obtains this voluntary restraint on wages that he is seeking in this particular way. The Chancellor of the Exchequer must already be aware that unless he puts something voluntary in the place of what we were endeavouring to do by statutory means, certainly his economic strategy will be in very serious difficulty.
Listening to the Chancellor's Budget proposals as they came through and having studied them since, I find it hard to believe that, for example, the Secretary of State for Employment, whose duty it is to deal with the trade unions during this difficult period, really went to the Chancellor and said One of the important things to provide is a food subsidy on bread, and the lads will not mind if you do this by increasing the price of their cigarettes." I find it hard to believe that the Secretary of State for Employment said "The important thing, a vital foodstuff, is milk. Therefore, if you can reduce the price of milk by 1p a pint the unions will not mind if you raise the price of beer by 1p a pint", or, "Council rent increases must be stopped, and the cost of that can be met by raising the price of sweets and ice-cream and the betting tax."
The real disappointment to many trade unionists must be that the myth created very much by the Chancellor of the Exchequer himself in the months before the General Election, that all this could be achieved by taxing the rich, has been so swiftly exploded. Even during the election campaign the story was the same. I remember being on a programme with the present Chancellor on the Sunday before polling day. I heard him explain how he would pay for it all. First, he said, there would be a tax on North Sea oil, which the Tories were letting the companies get away with. Of course, we know how much a tax on North Sea oil will contribute to the solution of his problems this year. The right hon. Gentleman knew before the election that there would be no contribution from that source for several years to come. Then he spoke of capital gains and of taking back from the rich what the Tories had given them.
At no stage during the election campaign—I have studied with interest the election addresses in Huyton, Leeds, East and Bristol, South-East—did either the present Chancellor or his right hon. Friends, in their election addresses or in their speeches, say that these important social ends would be achieved by taxing such things as beer, cigarettes, sweets, ice-cream, betting and petrol. They gave the impression that that was not needed.
Admittedly, the Prime Minister did express his views on the petrol tax when he spoke to an Eastern Region Labour Party rally after oil prices had risen last October. This is how he was reported:
Mr. Wilson said that higher petrol and oil prices would give a further twist to the inflationary spiral, but the Government had 'a ready weapon' to meet this threat—tax cuts and subsidies. The aim must be to keep down the cost of oil, whether as a motive power or as a fuel, to the present level.
As far as I know, those were the last expressed views of the Prime Minister upon the petrol tax. But, in fairness to him, since he has always taught us that a week in politics is a long time, one can only suppose that from last October to
the present must be a very considerable period indeed.
However, the Prime Minister has been backed up in more recent times. During the election campaign the right hon Gentleman the Deputy Leader of the Labour Party, the present Leader of the House, said at Stockport:
Of the 47½p you pay now for four-star petrol, 22½p goes straight to Mr. Heath in tax. A sensible Government who really wanted to restrain rises would reduce the tax.
It cannot be surprising to the Chancellor, therefore, to see the reaction to his Budget increases of ordinary people who buy certain basic commodiites and see themselves subsidising other commodities which, equally, they have to buy in their personal or household budgets. There has been no great enthusiasm from a large range of trade union leaders. Indeed, last weekend was hardly noteworthy for trade union leaders saying how marvellous the Budget was.
One thinks of the difficulty in which certain trade union leaders are placed. One can imagine the problem facing Mr. Scanlon, perhaps genuinely trying to persuade some of his more militant supporters of the importance of entering into a sensible arrangement with the present Government. Does he say "It is important to try to stabilise the price of bread. The Government have done this by arranging that you will have to pay a bit more for your tobacco. Likewise for milk, they have done it by putting up the price of your beer. Similarly for rents, they have done it by the betting tax and a tax on sweets." Might not those militant union leaders say that they could have done all that themselves?
It is not a social contract which the Government have sought with the unions. They are imposing a new household management contract which works on the basis of taxing the husband on his expenditure to give subsidies to his wife on some of hers. This is not the basis on which, before the election, the unions expected help to be given.
Before the right hon. Gentleman leaves that part of his speech, will he answer one question? Why was it that for months, knowing perfectly well that certain prices in the electricity industry had to be put up, he failed to take the action which he knew was necessary?
The biggest increase for the electricity industry has been the recent rise in fuel costs, and part of it, of course, is the substantial increase in pay costs. If one statement is proved true by the nationalised industry deficit, it is the statement of the present Prime Minister that one man's wage increase is another man's price increase.
The Labour Party's programme was quite specific on the social contract:
Workers can only be expected to moderate their expectations on money wages if firm action is being taken to hold down the cost of living.
Yet, on the Treasury's own admission, this Budget is itself inflationary. The Chancellor expects prices to rise faster as a result of his Budget than they would have done without it. Therefore, the minimal condition of the so-called social contract has already not been met by the Government. But, what is worse, the Treasury does not even know what the effects of the Budget will be upon the inflationary situation.
A remarkable reply was given by the Paymaster-General on Friday to my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont), who put down two Questions about the retail price index. My hon. Friend asked the Chancellor of the Exchequer
what he estimates will be the effect of the increases in nationalised industry prices announced in his Budget speech on the retail price index by July, October and December 1974 and April 1975.
The Paymaster-General replied:
I will let the hon. Member have a reply as soon as possible".
Surely, that was a fairly basic question to ask. It is all part of the Budget strategy. Next, my hon. Friend asked the Chancellor of the Exchequer
what he estimates the effect of all the changes mentioned in his Budget speech will be on the retail price index by July, October and December 1974 and April 1975".
Again, the Paymaster-General replied:
I will let the hon. Member have a reply as soon as possible".—[OFFICIAL REPORT, 29th March 1974; Vol. 871, c. 228.]
I hope that he will let the Chancellor of the Exchequer have a reply as soon as possible, too. He ought to have considered it before framing his Budget.
I come then to the problems of the Secretary of State for Trade, and I apologise again to him for not having been present to hear his speech. As someone who preceded him in certain of his responsibilities, I took a natural and somewhat detailed interest in what he said. My impression from reading his speech is that he almost felt that all that was needed was to have him as Secretary of State for Trade. Some of us would argue that much more was needed because he was Secretary of State.
I have strong criticism of the basic line of argument which the Secretary of State for Trade took in his speech. First, there was the method by which he tried to underestimate the impact upon our balance of payments of the considerable rise in commodity prices. He used the somewhat phoney argument—"Yes, but part of it is due to the devaluation of the pound". The Chancellor of the Exchequer knows full well that, if the terms of trade go considerably against him in the coming months, this will add to the devaluation of the pound. He knows that the two are closely interconnected. Certainly, the Chancellor of the Duchy of Lancaster knows it.
Could the right hon. Gentleman say why, since devaluation turns the terms of trade against one, a turning of the terms of trade against one is helped by a further turning of the terms of trade against one by devaluation?
The right hon. Gentleman is well versed in these matters. He knows that, whether one has a pegged pound or a floating pound, if the terms of trade go seriously against this country, either one has a weakening of the currency—
The right hon. Gentleman will be aware that precisely the same commodities went up to precisely the same extent against the deutschemark, but, because the Germans manage their economy sensibly, the value of the deutschemark went up and the West Germans had a balance of payments surplus last year amounting to £4,000 million.
West Germany has a totally different pattern of trade from that of Great Britain. The right hon. Gentleman knows that perfectly well. It is not a reasonable argument to try to compare two economies with totally different reserve positions.
In his second argument, the Secretary of State for Trade was quite irresponsible, if I may say so, from the Chancellor of the Duchy's point of view. If the Chancellor of the Duchy is to have responsibility in advising or actually negotiating future borrowing arrangements for this country, he does not want other Ministers to give a distorted account of what the balance of trade and balance of payments are all about. Yet the Secretary of State for Trade went out of his way to give the world the impression that the deterioration of our balance of payments and balance of trade was primarily caused by the import of consumer goods. He did it first by quoting the overall adverse balance for last year as being £1,468 million. A couple of paragraphs later he said,
Of the trade deterioration of the past two years, £1,000 million was contributed by the increase in consumer goods."—[OFFICIAL REPORT, 27th March 1974; Vol. 871, c. 502.]
What the right hon. Gentleman did not say was that £458 million was contributed by fuel, £1,562 million was contributed by machinery and £2,395 million was contributed by additional imported industrial materials. Therefore, while consumer goods imports went up by £1,000 million in that period, our industrial materials, fuel and machinery went up by £4,435 million.
We can see from those figures how dishonest is that particular argument. I hope that the Chancellor will explain what the Budget does to reduce the import of consumer goods. Does he believe that as a result of it British Leyland will be better able to compete with all the foreign motor manufacturers who are exporting to Britain? He should have a word with British Leyland, which will leave him in no doubt about how the Budget has worsened the competitiveness of our consumer goods manufacturers compared with those abroad.
The right hon. Gentleman made one remark which I objected to most strongly. He said that the Department of Trade and Industry had not given priority to trade. I do not mind criticism of myself, but I mind criticism of a Department which, compared with its counterparts in other countries, or even with the best performance in this country, has had a remarkable record over exports in recent years. The British Overseas Trade Board has been an outstanding success. ECGD is probably the strongest organisation of its type in the world. Our trade with Europe last year went up by more than £1,000 million, an increase of 37 per cent. In the last two years we have changed our trading relationship with China very much to our advantage. Exports to Iran increased by 44 per cent. last year, and already it is fairly certain that they will increase by at least 100 per cent. this year. By a massive effort by my old Department we created a new commercially-oriented department which resulted in a 71 per cent. increase in exports to Japan last year alone.
If the new Secretary of State for Trade is able, as we were in the first half of 1973 for the first time since the war, to increase Britain's proportion of world trade it will be an achievement for which he may rightly claim some credit. I am very sorry that he used his speech to suggest that the officials of my Department, all those involved in this enormous export effort with its considerable success, did not give proper priority to trade. Perhaps the best summary of our success in exports is to say that this February on a three-day week our exports were almost twice as much as the last February of the Labour Government on a five-day week. That goes to show what an enormous improvement has taken place in this sphere.
In fairness, however, the right hon. Gentleman, after condemning the lack of priority that we had given to trade, came to the conclusion that Britain had a very fine export order book. It is remarkable to have achieved by far the best order book in our history while having not given much piority to trade.
The right hon. Gentleman is perhaps right in saying that there is scope for putting up prices. I think that the Chancellor may count on prices being increased by our exporters for two reasons. First, their margins can afford to be increased in competition with others. Secondly, however, the increased costs imposed by the Chancellor will necessitate increasing prices.
However, I am worried about the broad strategy. The Chancellor has pursued a totally negative policy towards trade and investment overseas. General exports will suffer the burdens of considerably increased costs There must be considerable uncertainty about our future trade relationships with Europe while the present negotiations continue, and that uncertainty may well come at a very expensive price in the months ahead. As for the potentialities of new partnerships, I ask the Chancellor of the Duchy to direct his attention to the problem because he may succeed where I never could in persuading his colleagues to take the matter seriously.
There are new partnerships to be made with the oil-producing countries. For example, countries like Iran desperately want to become major industrial nations and, with goodwill and a lack of that patronising attitude which was so apparent on the Labour benches when I negotiated the recent agreements with the Shah of Persia, there is no doubt that massive advantages in the flow of money across the exchanges in trade and in investment can take place.
What my hon. Friends and I objected to about the right hon. Gentleman's dealings in Persia was not that we sold goods to that country, but that we were engaged in dealing with them in a kind of panic bilateralism instead of against a background of international cooperation which was absolutely essential in the handling of the problem.
The right hon. Gentleman completely misunderstood and did not bother to find out what the negotiations were all about. They started in July long before the oil crisis. We had been working hard to build up a totally new economic relationship with Iran for nine months. Already we had announced £260 million of projects for British industry, and, in addition, we announced the recent arrangements.
The real problem is that the Budget has a tendency to discourage outward investment, and that could be a serious mistake. One of the things I did in the Department of Trade and Industry was positively to try to encourage British retailers to buy retail outlets in Europe in order to sell British goods there. It may be very much to the advantage of the balance of payments for that to be encouraged and continued in every possible way. Likewise, it is very much to our advantage for British firms to invest in assembly plants throughout the world, sending British products out to them. It is also important to have access to new markets. That may well result in outward investment.
The Chancellor also fails in any way to encourage inward investment. The Budget does just the opposite. Its whole negative attitude towards investment is in complete contrast to the approach of the Tory Government. The Chancellor's attitude to Europe is the same. It might give him some delight to see additional tax paid by foreigners in London, but the delight is shortlived if those foreigners move their offices abroad, taking their business connections and purchasing power to foreign centres.
In recent years we have succeeded in building and improving the City of London as a financial centre and measures of this sort put it at a grave disadvantage. The Chancellor says that he is sorry about the poor chaps on the Stock Exchange losing their money and about the pension funds. He fits in with the new tone of The Guardian editorials which say that when the Stock Exchange slides like that it is not very good for ordinary people and that it is not just the few big investors who are adversely affected. But what a remarkable thing, when the Stock Exchange was already at low level, to impose the sort of measures on industry which the Chancellor imposed and, specifically for the Stock Exchange, to increase stamp duty from 1 per cent. to 2 per cent.! What a way to boost investment, and what a way of demonstrating that he is serious about trying to improve the state of the equity market!
Once again, there are disadvantages to this country with regard to our foreign earnings. We shall now be the only financial centre in Europe with a stamp duty. Does the Chancellor of the Exchequer think that that is an advantage to the City of London as a financial centre? All those Commonwealth companies registered in the United Kingdom will be well advised to consider registering elsewhere and saving the stamp duty.
I hope that the Chancellor of the Exchequer will take my next suggestion seriously. I think that the increased stamp duty is a mistake, but it may be part of the right hon. Gentleman's Socialist policy. However, if the right hon. Gentleman wants to impose it as a further tax on capital, I hope that in Committee on the Finance Bill he will consider, for international reasons and in the interests of the country, the possibility of exempting overseas investors. If he does not, he will find that a number of other markets in the world will thrive at the expense of London. He should also consider the possibility of exemption for life assurance and pensions investment.
The real criticism of the Budget is of the Chancellor of the Exchequer's attitude to the mixed economy. The Chancellor of the Duchy of Lancaster went out of his way this afternoon to say how he loved private enterprise, how Nye Bevan loved it, and how the Government had no hostility towards it. I was reminded of the last time I debated with the right hon. Gentleman, on the Companies Bill. The two main speakers for the then Opposition were the right hon. Gentleman and the present Secretary of State for Industry. The right hon. Gentleman will admit that his winding-up speech was much more of a reply to his right hon. Friend than was the winding-up speech for the Government. The two main Opposition speeches could not have been more diametrically opposed in their affections for the investor.
I have a feeling that we have been witnessing a similar occurrence today, that the right hon. Gentleman is put up to speak for the Government to utter pleasing sounds to the free enterprise system—"They all know Harold. Let him say that we love the Stock Exchange". In fact, the present Chancellor of the Exchequer has succeeded in putting down the Financial Times ordinary share index by a greater amount in one week, as a result of his Budget, than any Chancellor in history. Something needed to be said today. I gather that the fall has continued today, and that another firm was hammered on the Stock Exchange. Those are serious consequences, as the right hon. Gentleman understands, but nothing in the Budget did anything other than aggravate the situation.
When it comes to our attitudes to the mixed economy, whatever other criticisms can be made of the previous Government, it cannot be said that we treated the nationalised industries in a way that did other than to encourage their expansion through the whole range. The airlines went through a massive period of expansion under us. The railway investment programme was approved, and electricity power station programmes were approved and went ahead. We gave sanction for the Gas Corporation to buy the Frigg gas field from the Norwegians. I announced the biggest investment programme in our history for the steel industry, and the Coal Industry Act was passed to give a new future for the coal industry.
We may not like nationalisation. On occasions we may try to get rid of such concerns as Thomas Cook and Son. But we accept the mixed economy. We accept the nationalised industries in major parts of our economy and try to run them as well as possible and give them the finance for expansion.
The Labour Party's attitude towards the private sector is different. The House should note the contrast between the Government's treatment of the public sector and the private sector. For all sorts of reasons, the public sector is allowed price increases of 15 per cent. to 30 per cent. in the Budget. I wonder what price increases the Government will allow the private sector over the next few months. Already there are regulations which suggest delays of three months in approving them, and no applications may be made, no matter what extra costs are sustained. There is a very different atmosphere towards price control.
The overall Budget strategy withdraws £500 million from savings, almost certainly primarily in the private sector. There are positive threats towards the equity market for the future, and positive measures, such as the increased stamp duty, to deteriorate it. Already industry was facing rising raw material and fuel costs unparalleled in our history. It will face substantial rising wage costs.
It is no wonder the Chancellor of the Exchequer refuses to make any predictions for the first half of next year when he talks about encouraging investment. Asked why the Treasury is not giving the figures for the first half of 1975, figures that have been given since the present Home Secretary agreed to their being given, the Financial Secretary to the Treasury replied to my hon. Friend the Member for Worthing (Mr. Higgins) today:
the omission of figures for the first half of next year both mark the greater than usual uncertainties in the economic outlook.
If the Government are unwilling to predict what will happen in investment and exports and expansion of the economy, they cannot expect industry to be very confident.
Let the House consider the impositions the Government have put on industry, the extra bills for the coming year. Industry's fuel bill for oil and other fuels will be up by £500 million—an increase that is not all created by Government action. National insurance payments this year will be £430 million, and I believe that in a full year they will be £700 million, although that has not been confirmed. There will be increases in the cost of steel of £300 million, postage £75 million, telecommunications £35 million, rail freight £35 million and corporation tax £130 million, plus the speeding up of corporation tax payments for the coming year. They constitute a total imposition of between £1,600 million and £1,800 million, at a time when the Chancellor of the Duchy of Lancaster has told us that industry is facing great problems of liquidity, and that the Government wish to encourage industry and people in the private sector.
I hate to intervene again, but I said the very opposite. I said that we were satisfied that, in general industry did not face great problems of liquidity, but that should we be proved wrong we should take appropriate action.
The right hon. Gentleman says that the Government do not consider that industry faces great problems of liquidity, and that, therefore, they consider it reasonable to impose on industry the burden of extra cost that I have described. That will prove a disastrous judgment for many small and big businesses.
The Chancellor of the Exchequer says that he will introduce a second Budget. I hope that he will not be there to introduce one, but, if he is, I hope that it will come very soon, because the strategy for the Budget we are debating was totally wrong in its effect upon our industrial position. It will result in bankruptcies and rising unemployment unless it is altered.
The terrifying thing is that the country now has a Government in which the Secretary of State for Employment seeks to obey the wishes—indeed, it seems, almost the commands—of the strongest of the unions: the Secretary of State for Trade is noted for being anti-European and in every respect a Little Englander; and the Secretary of State for Industry seeks every possible opportunity to extend public ownership at the expense of free enterprise. Judging by his Budget, we have a Chancellor of the Exchequer who encourages all three.
That is a bleak prospect, except for one thing. I do not believe that any Government who pursue such policies can, should or will survive for long.
It is with great pleasure that I make my maiden speech in this Budget debate.
I should like first to say something about the constituency for which I am the Member. A new constituency on the eastern fringe of the large city of Bristol, it is made up of what were until today three local government areas, all three in a different parliamentary constituency. Therefore, in a way, I have three predecessors in the House, two of whom are still here. One is my right hon. Friend the Member for Bristol, South-East (Mr. Benn) and the other is the hon. Member for Christchurch and Lymington (Mr. Adley). The third of my predecessors is Sir Frederick Corfield, who for 19 years represented the constituency of Gloucestershire, South. He was a Minister, and will be well remembered on the Conservative benches.
Kingswood was mainly a highly industrial area. It was the place where Methodism was born. There are landmarks in the constituency to show where John Wesley and other leaders of the early Methodist movement spoke. In the latter part of the last century it had many coal mines, but many of them were closed in the 1920s and 1930s. There is none left now. It is also the birthplace of the boot and shoe industry. Over the past two decades that industry has been racked by take-overs. There is now only one factory in the area which is engaged in the boot and shoe industry.
My constituents are greatly concerned that local industry has been taken from the place where it has always been. Conservative Members would have us believe, and have said so in debate, that workers are worried about public ownership. My constituents are more concerned about private enterprise, which has condoned asset stripping. They have seen good local industries taken over and closed down without good reason being given. That is why so many of my constituents who are employed in the aircraft industry are concerned about their prospects.
The Concorde programme is of great concern to many of my constituents. They welcome Her Majesty's Government's discussions with managements, unions and our French partners. There would be great unemployment and hardship in the area, and in the great city of Bristol, should Concorde be cancelled. That is why it is most welcome that we should take all means possible to explore what can be done to save the project.
My constituents welcome the increased pensions, which are long overdue, and the action which has been taken to subsidise food. Those are matters which we promised in the election campaign. I am delighted to see that action has been taken.
The freeze of council house rents is most welcome. I hope that encouragement will be given to local authorities to increase their building programmes. That is a matter which must be given definite priority. In my constituency there are 1,200 families on the housing waiting list who need accommodation now. My right hon. Friend the Chancellor of the Duchy of Lancaster has said that moves will be made soon to help those with mortgages. That is a matter of great concern to many of my constituents. Now that we have helped those in rented accommodation by our plans to repeal the Housing Finance Act, it is necessary that we should assist those who need help with mortgages. That must be given great priority.
In three weeks of Government we have come a long way. The Chancellor must be congratulated on what he has done and the measures which he has proposed. Once again we have inherited an appalling mess from the previous Government. While I was listening to the right hon. Member for Worcester (Mr. Peter Walker), I wondered whether his message was that everything was all right until 28th February 1974. I understood that that was his message. If that is so, the country will decide that issue in due course. Everybody knows that matters were far from right before 28th February and that, in fact, the country was grinding to a halt.
It is regrettable that in our first Budget we have not been able to restore the savage cuts which were made to public spending by the previous Chancellor of the Exchequer. It must be hoped that in the Budget which the Chancellor has promised to introduce towards the end of the year some measures can be introduced to help redress the savage cuts which were made last year. In my constituency, as a result of those cuts, at least two schools and a hospital were axed. Those are facilities which are needed urgently.
Any money which is available must he spent on education and social services in areas of real need throughout the country. It is to be hoped that in our next Budget we can introduce a wealth tax on the rich. I feel that that is necessary if we are to bring about a fairer society. It is to be hoped that at the same time the Chancellor will take the opportunity to prune defence expenditure. We spend substantially more of our gross national product on defence than any of our Common Market partners. That must be rectified soon so that the money can be released for social purposes about which my right hon. and hon. Friends feel very strongly.
When the crisis faced the nation the Conservative Party chose to fight on fictitious issues. It chose to fight the miners. When that fight became too much it decided to run away. The present Government have met the crisis head-on. We have brought Britain back to work. In this Budget and the next one we shall redistribute wealth to the benefit of the people who need help in the new spirit of co-operation which is now abroad. I am sure that the House will accept the Budget proposals as a further step along the road to realism and to a united Britain.
Maiden speakers, like Chancellors of the Exchequer, do not lack advice. I have been told to speak about my constituency, about my predecessor and about non-controversial matters, and, above all, to speak briefly. The first two pieces of advice are comparatively easy to follow. In a Budget debate in which there are real differences of view on both sides of the House it is more difficult to follow the third piece of advice.
When I arrived at Coventry, East the Labour majority was 7,000. After the election it rose to 13,000. On my second attempt I fought Clapham. When I arrived there the Labour majority was a mere 500. After the election it rose to more than 4,000. The House may wonder how, with that track record, I managed to arrive here at all. At Eastbourne in 1974, despite a reduction in the size of the electorate of more than 10,000 people since 1970, the Tory majority increased, and, for the first time since 1918, the Labour Party candidate lost his deposit, and handsomely at that.
The constituency which I have the honour to represent comprises not only the town of Eastbourne but some of the most beautiful and historic villages in the country—Pevensey with its famous castle, Westham, East Dean, West Dean—and the spectacular scenery of Beachy Head and the Seven Sisters.
In Eastbourne we have as high a concentration of senior citizens as anywhere else in the country, and there is real need to rectify the present population imbalance, to provide more local employ- ment and to improve both the stock and the quantity of housing. To these matters I shall seek to return on another occasion, if I should have the good fortune to catch your eye, Mr. Speaker.
Because of its splendid situation, climate and amenities, my constituency has always attracted the retired. Among my constituents is the former Secretary of State for Foreign Affairs, now Lord George-Brown. The House will recall that he resigned from the previous Labour Government because he did not like the way in which it was run. He then came to live in my constituency, and I can assure the Government that when they can stand it no longer a warm welcome and happy retirement will await them in my constituency.
My predecessor was Sir Charles Taylor. He served in this House for 39 years, a record of service rarely equalled. It was a record of service recognised by the county borough when it conferred upon him the honour of freeman. He loved this House and his work in this House, and I believe that the House will miss him.
There are two proposals in the Budget which I warmly welcome. The first is the increase in pensions. For too long those who have been members of the working population have enriched themselves at the expense of the retired. One of the marks of a civilised and just society is how we treat those who have retired, and I welcome the Government's proposals unreservedly. But I have just one comment to make to the right hon. Lady the Secretary of State for Social Services. Last Wednesday she announced that in future pensions will be increased annually in proportion to the increase in national earnings. I believe that we want to make it clear that what worries retired people today is not so much increased earnings but the rate of inflation which is in prospect under the present Government.
I also welcome the decision to disallow non-business interest for tax purposes. I was in respectful agreement with the present Home Secretary in 1969 when, as Chancellor, he first disallowed such interest, and I was in respectful disagreement with my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) when he restored the allowance in 1972.
I am afraid that here the limited bouquets I offer to the Chancellor must end, but I will try not to be provocative. I believe that the whole philosophy of a £500 million food subsidy is grossly misconceived. If that amount of money is available to relieve hardship, the purpose would have been achieved much more effectively by increasing family allowances, by increasing the family income supplement, or by increasing the rate of supplementary benefit.
What is needed above all today is economic and financial realism. The introduction of food subsidies at this stage and on this scale will be a positive encouragement to the British people to believe that somehow they and the Government can opt out of the real world. Indiscriminate subsidies, whether on food or on housing or in the nationalised industries, encourage a retreat from reality and conceal the true costs involved.
For too long there has been a tendency by both Governments to hide from the British people the harsh truths of economic reality. Until that trend is reversed, I do not believe that the really serious economic problems which face our country will be overcome.
I want to recall with approval what was said by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) in the House on 21st November 1967 in the debate on the devaluation of the pound. He described the Labour Party—I do not believe that hon. Members will dissent from this—as being based on "interventionists, centralisers and subsidisers". I was uneasy at the extent to which the Conservative Party when in Government followed the very course which my right hon. Friend warned against in 1967. There is a danger for politicians, particularly when in Government, to succumb to the temptation to intervene, to centralise and to subsidise, and it is very much easier to subsidise than it is to withdraw the subsidy, as I believe the Government will discover to their cost.
Finally, I want to say something about the underlying strategy of the Budget. The House is entitled to assume that the Chancellor thinks that the Budget will solve, or at any rate will go a long way to solving, the grave economic dangers which our country is facing. Because of the widespread expectation that we are all entitled to a steady and regular improvement in our standard of living, it is particularly difficult for politicians, who have frequently encouraged that expectation, to disappoint it. But what was needed above all in this Budget was to secure a genuine switch of resources from domestic consumption into exports, to reduce the borrowing requirement and, perhaps most important of all, to secure real incentives for further investment in British industry.
None of these objectives has been achieved by the Budget. I wish the Chancellor and the Government well, but I fear that the Budget has only postponed that solution to the nations' problems which the people, with some degree of encouragement from the Labour Party, were entitled to expect.
I am happy to congratulate both my right hon. Friend the Chancellor of the Duchy of Lancaster and the right hon. Member for Worcester (Mr. Walker) today on their return to health, even though I cannot say the same of the Stock Exchange. I am also happy to congratulate the two maiden speakers who have preceded me on their extremely fluent and not wholly uncontroversial speeches.
My hon. Friend the Member for Kingswood (Mr. Walker) has two other even more distinguished predecessors whom he did not mention—Sir Stafford Cripps and Edmund Burke. The hon. Member for Eastbourne (Mr. Gow) has shown a capacity to disagree with his own party which I am sure will endear him to both sides of the House.
The speech of the right hon. Member for Worcester, in which he prophesied all sorts of dire results of the Budget, would have been more convincing if he had not consistently misled the country throughout the last year by giving the impression that, because there had been, as there was, a large increase in imports in value, both of raw materials and of machinery, we were not therefore facing a huge and dangerous increase in our total trade deficit. But we finished the year with an enormous deficit, at a rate which could not possibly have been sustained. The right hon. Gentleman must bear some responsibility for that.
We have now had almost a week to think over the Budget, and I believe that my right hon. Friend the Chancellor of the Exchequer did a remarkably good job in producing this Budget within only three weeks. He cannot, in present circumstances, be criticised for raising taxes.
Although it is probably harder than ever this year to make the Budget judgment, I suspect that it may not be disinflationary enough. After a year in which we ended with a Budget deficit running at over £4,000 million a year and a balance of payments deficit of nearly £3,000 million; a year in which bank credit was vastly inflated; in which we borrowed abroad on a huge scale; and prices rose more steeply than ever before —the most profligate finance in our history, producing all the classic symptoms of self-inflicted inflation—I cannot believe that any honest Chancellor would not have substantially cut back the deficit and held back excessive demand.
A new doctrine—my right hon. Friend the Member for Manchester, Central (Mr. Lever) called it a new theology—is now springing up apparently, to the effect that as a nation we are entitled to run a large balance of payments deficit almost indefinitely and borrow abroad as much as we can, thereby building up a still larger interest bill against us. Like my right hon. Friend I do not accept this new and, apparently for some people, rather comforting doctrine. We should not, I agree, try to extinguish the oil deficit quickly, but we ought to try to wipe out the non-oil deficit within a period of, say, two years from now. By then we ought to have set in motion a real major expansion of our capacity for home-produced coal and oil, in which we are better placed than almost any other European country.
Meanwhile, I suggest to my right hon. Friend that, on the problem of the huge Arab and OPEC balances, he should pursue the possibility of contriving that these, or a part of them, should be invested in the IMF and the World Bank, which could then lend on these funds to those countries, both developed and developing, which are most in need. If we can do that, many beneficial results, which it would take too long now to enumerate, could be achieved I hope that the Government pursue this practical suggestion.
There is no substance, in my view, in the Opposition attack, which we have now had all over again from the right hon. Member for Worcester today, on my right hon. Friend the Chancellor for raising some indirect taxes on items which are less essential. If we subsidise, as I think rightly, essentials like standard foodstuffs and rent we are, of course, creating even more excess purchasing power, unless we raise corresponding revenue from elsewhere. That has been obvious in every Budget since the war. If the Opposition object to the taxes on drink and tobacco and the rise in prices in nationalised industries, they are simply demanding still steeper rises in income tax and corporation tax. In any case, I noticed the right hon. Member for Leeds, North-East (Sir K. Joseph) nodding when my right hon. Friend said earlier that had the Conservative Government been returned they would have had to raise prices of nationalised industries' products to much the same extent as has now been done.
Meanwhile, every credit is due to my right hon. Friend the Chancellor—here I agree with the hon. Member for Eastbourne—for ending the scandal of indiscriminate tax relief for overdraft interest, one of the worst features of the previous Chancellor's rather unhappy record. I also congratulate my right hon. Friend on imposing a ceiling on mortgage interest relief—which was not mentioned by the hon. Member for Eastbourne. But I do not understand—perhaps we can have it explained this evening—why reform of the law relating to existing overdraft interest has to wait a further year and reform on existing bank loans for a further six years. I hope that when the Finance Bill is considered in Committee there will be an examination of whether these delays are necessary.
I also welcome the proposals for a gift tax to reinforce estate duty, and the so-called wealth tax. In general, I believe—I probably differ here from many hon. Members—that estate duty is one of the best taxes we have, and that it is both better fiscal policy and more acceptable to public opinion to levy taxation on capital gains and on inheritance at death than savings actually accumulated by the individual being taxed. There is an important distinction here.
I therefore wish that the Chancellor had forthwith raised the rate of capital gains on real property, as opposed to securities, and had cancelled the ridiculous and indefensible special relief on estate duty for agricultural land in the United Kingdom. This has continued for a generation—and far too long. Everyone knows that the rise in the value of agricultural land in the United Kingdom ever since it looked likely that we were to adopt the common agricultural policy is one of the scandals of the past few years; but this item gets away scot-free in the Budget. We should also have restored capital gains tax as well as estate duty at death, as was done when capital gains tax was first introduced.
It is perhaps a slightly odd feature of the Budget that it raises virtually no new revenue for the moment from three obvious sources—capital gains on real property, North Sea oil, and bank profits during the past year. I realise that proposals for diverting profits from land development and from home-produced oil are being prepared by the Government, and I hope that they are brought forward speedily. But I see no good reason for not having introduced a special tax on bank profits. The staggering total of over £600 million in bank profits last year was obviously, and flagrantly, produced by creating new money and should just as much accrue to the Exchequer as the profit on the fiduciary issue of the Bank of England has done for the past 100 years.
There ought to be a special surcharge on bank profits, perhaps proportionate to the expansion in credit in the year in question. The increase in bank profits last year, in no way due to special merit or efficiency by the banks, would go a long way to solving the mortgage interest problem, which is tormenting so many people.
My advice to the Chancellor on the wealth tax, which I have advocated since 1938, is that he should avoid, if he can, all the valuation difficulties by assessing the tax on investment income, and not worry about elaborate annual valuations of jewellery, works of art and the rest, which do not matter sufficiently to justify the bureaucratic effort involved. That is my first piece of advice. Secondly, if we are to have the other capital taxes which I have mentioned, we should put the minimum level for the wealth tax, considering present money values, at nearer £75,000 than the £50,000 which I advocated 30 years ago.
My only real quarrel with the Budget, at any rate in a brief speech—it is a minor one—is the imposition of value added tax on less essential foods such as confectionery and potato crisps. Certainly these are not a major element in living costs. But the Government should, as a principle, abolish taxes on food altogether. Nothing is gained by extending VAT in the way proposed. Indeed, on a day when my right hon. Friend the Foreign Secretary is, I gather, addressing the EEC Council of Ministers across the Channel, the House should realise that the decision to subsidise essential foods, which I heartily applaud and which resulted from the recent visit of my right hon. Friend the Minister of Agriculture, Fisheries and Food to Brussels, only touches the fringe of the evils of the common agricultural policy.
We are still, despite any decisions taken, imposing heavy EEC taxes on imported foods and subsidising them at the same time. That is an absurd and contradictory policy. The subsidy helps the consumer and contributes to the problem of an incomes policy, but in no way alters the damage done to our balance of payments by the high imported food prices inflicted on us.
Nor do the Government, as far as I know, propose to cancel this month's increases in food prices—for instance, for butter and cheese—imposed on us not by recent decisions of the Council of Ministers but by the Treaty of Accession signed in 1972. Perhaps we can be told whether I am correct in supposing that those increases are going ahead. I do not believe that this steady further rise in food prices enforced by the EEC should be allowed to continue, even though it is due to decisions taken by the Conservative Government. We cannot wait till the end of the renegotiation now starting to remove the present very heavy EEC food taxes or stop the indefensible practice of hoarding by the Intervention Board to keep prices up. I do not think the Government would be wise to continue, or could reasonably continue, these policies introduced by the Conservative Government and ask for a social contract with organised labour.
However, with that exception, I believe that the Government have done so much and promised so much in the matter of rents, pensions, food subsidies, industrial relations and property taxation that the obligation is now on organised labour to respond to the Government's extremely forthcoming gesture. If it responds, it will have been proved that conciliation is better than confrontation. If it does not, I do not see any other practical alternative policy which will get this country out of the lamentable plight into which the Conservative Government's policies have plunged it.
I join the right hon. Member for Battersea, North (Mr. Jay) in complimenting the hon. Members for Kingswood (Mr. Walker) and Eastbourne (Mr. Gow) on their maiden speeches. It was not long ago that I made my maiden speech, but I cannot remember it. I am sure that the House looks forward to hearing future speeches from both hon. Members.
One or two speakers in this debate have said that they are not economists. I am not an economist. I do not even claim to be an academic. But, although economists may have something to offer, I do not apologise for not being one, because I do not think that the economists have done a great deal of good for the country in the past 50 years. We seem to stagger from one crisis to another, and all the crises are planned, plotted, conceived or objected to by so-called professional economists. Therefore, it is not improper for a non-economist to take part in a Budget debate. It one should take notice of the views of economists at a time like this, the problem is which economist to take notice of because in all the advice given there seems to be six of one and half a dozen of the other.
I hope that in the second instalment of the Budget the Chancellor of the Exchequer will find it possible to be more visionary and more experimental than he has found it possible to be in this Budget and will implement new ideas. That is not a criticism of the Chancellor, simply a statement of my view of the Budget, but it is tempered by the fact that one accepts that he had only three weeks in which to prepare it and, therefore, the trying out of new ideas may have proved to be extremely difficult.
I wish to deal with one or two of the good things in the Budget. First, the Chancellor has given priority to taxing overseas loans, with which my party very much agrees. Secondly, there is to be a second Budget, which we in the Liberal Party welcome because we believe that it shows a flexible approach rather than the stiff approach indicated by the view that there should be one Budget a year, like it or lump it. Thirdly, I am told that the Budget is neutral. I am prepared to accept that as being a statement of fact because I am not in a position to challenge it. Fourthly, pensioners are greatly helped by the Budget, and that help is much overdue and much welcomed. Fifthly, there is some action on prices in the Budget.
I wish to qualify the latter two compliments which I pay to the Budget. First pensioner couples will still fall short of receiving the equivalent of one-third of average earnings, which the Liberal Party would like to see introduced. None the less, the Budget is a substantial step forward, and to that extent we compliment the Government on taking steps in the right direction.
On the question of action on food prices my party considers that food subsidies are a clumsy way of helping poorer members of the community because they are available to all, irrespective of wealth or economic standing. Therefore, we are not keen on the principle of food subsidies. At best, we see them as a very short-term remedy. We much prefer the giving of direct help to the needy. I much agree with what the hon. Member for Eastbourne said about that. We would have preferred to see family allowances increased and, if possible, payment made for the first child in a family, with the claw-back principle on tax. That is a much better way of assisting the poor than by giving direct food subsidies. In short, we prefer to subsidise people rather than things, and that basically determines the Liberal Party's approach to food subsidies.
I turn to my criticisms of the Budget. First, it fails to deal with the need to economise on energy use. In my party's view, the Secretary of State for Energy should be seriously involved in the need to economise on energy use. It is true that there is a change in the value of energy and that increased charges for coal and electricity and, indeed, domestic petrol may reduce consumption. But I suspect—and this is my criticism—that the prime object of the Budget in raising prices is simply to try to balance the books rather than effect a change in the uses of energy.
My second criticism relates to the increased burdens that are placed on industry. There is a limit to how far we can milk industry and continue to clobber the goose that lays the golden eggs. I am not saying that the present measures are intolerable. I am only sounding a warning note in terms of future policy. Increased burdens in the way of national insurance contributions, corporation tax, energy fuel, postage, and, outside the Budget, the increased rates applicable to industry levied by many local authorities means less incentive to industry and less ability to invest in capital development. That in turn may have a detrimental effect on exports and full employment. I hope that that does not prove to be so, but the danger is there.
The hon. Gentleman said that his party's policy is to go even further than the Government in increasing pensions. The Government have decided to pay for most of the pension increase through an increase in the employer's contribution, about which the hon. Gentleman has complained. Will he reconcile his desire for bigger rises in pensions with his complaint, with which I thoroughly agree, about the burden on industry?
The hon. Gentleman cannot say that, because that is precisely the way in which the Government, following the previous Government, are raising the money. While I sympathise with what the hon. Gentleman says about the burdens on industry, I hope that he will reconcile his arguments.
One accepts that there has to be increased taxation to pay for increased pensions. I have said in every speech I made during the General Election campaign and earlier that we must understand that we can take out of the system only what we put into it. Of course increased pensions mean increased taxes. My party believes that there are different ways of raising those taxes and that the whole spectrum of the tax system needs to be revised. I invite the right hon. Member for Leeds, North-East (Sir K. Joseph) to read the Liberal Party manifesto, which deals with the various ways in which taxes can be raised.
I will give way when I have finished the part of my speech dealing with business and incentive.
Small businesses—and here I declare an interest as managing director of a small company employing 50 people—will be faced with heavy increased expenditure. I am involved in engineering, and the price of steel to the engineering industry has increased, in addition to the increases to which I have referred. We were told in the Budget Statement that the increase in the price of steel would be 25 per cent., but I have had telephone calls from as far afield as Scotland to the House of Commons telling me that steel price increases have been notified to industry today of over 50 per cent., not 25 per cent. My own firm has suffered in this way within the last 12 hours. I should be interested to know whether the increase in the price of steel to which the Chancellor of the Exchequer referred is an average increase or a basic increase. I suspect, from some of the increases which have been quoted to me in the last two or three hours, that it is an average increase.
If one adds the increase in the price of steel to the burdens to which I referred it is obvious that if small companies are to survive they will have to increase their prices. There is no other way open to them. Therefore, one of my criticisms of the Budget in terms of industry is that it will increase prices.
One suspects that much of the Budget was devised to buy off the TUC. Whilst the people of the country, as a consequence of the Budget, will have to pay the price because they have no option in law, it remains to be seen whether or not the TUC will deliver the goods. My view is that the TUC, however willing, is constitutionally incapable of delivering the goods and that we shall achieve a balanced and controlled economy only by a statutory prices and incomes policy, which my party has supported under successive Governments of both political complexions. None the less, we wish the Government well in trying to obtain a voluntary prices and incomes policy, although we doubt whether it will be successful. All those are burdens which are added to industry which industry will have to face.
I was trying to help the hon. Member for Rochdale (Mr. Smith) against my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph). In the Liberal manifesto, which I have read, there is a proposal for increasing the national insurance contributions of those who settle a wage claim at too high a figure. As the miners have had an increase of more than 30 per cent., could not the hon. Gentleman suggest a swingeing increase in the miners' national insurance contributions as a means of raising the necessary revenue? That is, after all, Liberal policy.
With great respect, that is not Liberal policy. Liberal policy is that there should be increases in wages but that there should be increased national insurance contributions where wage increases are outside the norm allowed by the Government. Exceptions can be made within the Liberal prices and incomes policy because of abnormal circumstances. The shift in the relativity of coal in the economy and its importance to the economy which has become apparent in the last six months would, presumably, he an exceptional circumstance that would be taken into account in Liberal policy.
My third criticism of the Budget concerns the redistribution of wealth. Having spent 16 years in the Labour Party—indeed, as a Labour councillor—I wonder what would have been the Labour reaction if a Tory Chancellor of the Exchequer had dared at a stroke to put 30 per cent. on electricity, 15p on a bag of coal, 5p on 20 cigarettes, 1p on a pint of beer, 4p or 5p a gallon on petrol for domestic users only—which, incidentally, include many working people—3p on income tax and 10 per cent. on confectionery, sweets, potato crisps and the like.
The poor of this country fall into two categories, on the one hand the elderly, the sick, the disabled and those who are in receipt of social benefits, and, on the other hand, those with families and low earnings. The Budget helps the former category, but it is extremely debatable whether it does much for the low-earner family man, especially if he does not live in a council house.
The immediate way to tackle poverty is by family allowances. A longer-term way is by the introduction of a minimum wage in industry, a policy which the Liberals over the years have always advocated. That policy is fully supported by no less a union than the Transport and General Workers' Union, which only last week published a pamphlet on the need for a minimum wage in industry. Longterm solutions, such as the tax credit system, are in our view the answer.
In passing, one is entitled to ask what the Government are doing to reduce their own expenditure in these serious times. We know that there is to be a cut of £50 million on defence, but what are the other possibilities open to the Government?
I welcome the Chancellor of the Exchequer's reference to an attack on waste, since I referred to this subject many times in my election speeches. I am interested to see how this is to be done, because I have been advised by many eminent men that substantial financial savings could be made if the Government, whatever their political complexion, were to make a real attack on waste. I am not saying that those advisers are necessarily correct, but I shall be interested to see the Government's proposals.
The Liberal Party welcomes the withdrawal of tax relief on second mortgages, although we doubt whether the £25,000 ceiling on tax set-off for a first mortgage is high enough. We very much hope that ways will be found to contain the interest charges of building societies and that they will not be allowed to increase interest to a disgusting rate of 13 per cent. Housing is of concern to all hon. Members and I believe that the Government will have to give much more financial help to local authorities to maintain a sustained building programme.
In short, I very much hope that the second Budget will be better than the first; that there will be a serious attempt to tackle inflation; that property and land speculators will get their proper reward as promised by the Labour Party when in opposition—and that "proper reward" is a 100 per cent. tax on profits made from exploitation and speculation.
I hope that the second Budget will tax to the hilt luxuries such as fur coats, jewellery, and so on. I hope that it will look at those individuals who escape the effects of inflation by purchasing works of art, antiques and the like. I also hope that it will aim at a fairer and fuller redistribution. I hope that in the second Budget the wealth tax will be on the recipient and not on the donor, and thus will encourage a further spread of wealth.
The present Budget, in my view, is not pro-poor; it is not helpful to exports or employment; and it gives the small shopkeeper a very poor deal. It may be a technically correct Budget in economic terms, but it does not tackle long-term problems and makes little impact on the real priorities. The Government as a consequence of this Budget, can no longer pose as a Robin Hood. Their election ideas of robbing the rich and giving to the poor appear in all their nakedness in this Budget, which, although it is tolerable as a Budget, is not far-seeing or visionary. We await the second chapter with interest; we wait to see whether the Labour Government see their rôle as adopting a new approach or as merely continuing the old, outdated approach in a better way.
The hon. Member for Rochdale (Mr. Cyril Smith) spoke with approval of the Government decision to bring in a second Budget. I was not sure whether that approval signified support for the idea of flexibility in budgetary presentation or represented a decision by the Liberal Party to keep the Government in office beyond the autumn.
No doubt we shall learn as time goes by.
The right hon. Gentleman the Chancellor of the Duchy of Lancaster did not allow the prospect of a wealth tax to mar the even tenor of his paean of praise for the capitalist system and the mixed economy, but we have it on high authority from the Labour Party—a view endorsed in his' speech today by the right hon. Member for Battersea, North (Mr. Jay)—that the question of a wealth tax is not a question of whether but a question of how it will be introduced. I am not sure whether the difference between "whether" and "how" is as great as one might assume.
Mrs. Beeton, in her cookery book, in her recipe for jugged hare, said "first catch your hare". I think that sometimes there is a tendency to think that wealth should be measured as a tangible asset. In fact wealth is not wholly, or even mainly, a tangible asset. The value of ICI is to be measured not by its laboratories or premises but by its scientific formulae, its management skill, its experience, its goodwill and the confidence its commands. When we look at the equity market today we see that wealth, even when not yet subject to a wealth tax, can disappear almost overnight. I am not sure that the pursuit of a wealth tax may not be a little like the "Hunting of the Snark"—somewhat illusory—and that the wealth will be found, just like the Cheshire Cat in "Alice", to have disappeared.
I want to consider the problem of the balance of payments. I agree entirely with the Chancellor of the Duchy that it is false theology to separate the oil deficit from the non-oil deficit; although in so doing there is some convenience from the point of view of discussing the matter. However, the general considerations applying to the non-oil deficit apply equally to the oil deficit.
It is fair to say that although last summer we knew that there would be a large deficit in 1974, there was good reason to think that it could correct itself by the end of 1974 or the early part of 1975. But the consequences of the October war, the miners' strike and the three-day week have made a shipwreck of our balance of payments. The problem is how to bridge the gap of £3,000 million to £4,000 million that will confront us at the end of the coming year. It can be done partly by exports and partly by loans from institutions like the IMF, or through the banks; it can be done in part by encouraging private deposits and investment in this country.
On the subject of exports, I appreciate that the Government believe that the Budget, by some of the deflationary measures undertaken at home, should encourage exports or, rather, force industry to send more goods abroad. Industry takes a different view and regards itself as not being encouraged to expand but, indeed, as being "clobbered". It seems just possible that in the short term there might be an increase in exports, but I do not see how there can be a sustained increase in exports following a Budget that limits and discourages expansion in industry.
On the subject of loans, whoever has the key to No. 11 Downing Street is in a position to borrow a lot of money, but I regard our financial position in terms of borrowing as dangerous. The official sterling balances are subject to dollar guarantee. The new loan is a dollar loan. Further institutional loans are likely to be subject to dollar guarantees as well. We are getting pretty deeply into debt, and this with no great prospect of any substantial improvement in the position of sterling.
Interest rates play a great part in encouraging private deposits, but we know —as the Chancellor of the Duchy pointed out—the great disadvantages that flow from high interest rates, although I did not think that the right hon. Gentleman was very convincing in explaining how he would reverse this situation. Encouragement of foreign investment as distinct from deposits, depends on confidence in the projects in which foreign money would be invested. If home industry regards itself as clobbered, the prospect of foreign investment seems to be discouraging.
These general observations apply to the oil deficit just as much as they do to the non-oil deficit, but the significant thing about the oil deficit is that it is different in kind and in size. It is different in kind because a large number of oil producers, if not all, are unable to spend on buying goods and services from the United Kingdom all the money which they have accumulated through selling their oil. It is different in size, because if the oil producers switched their holdings of sterling overnight, for either specula- tive or political reasons, they could wreck our currency and almost any other, except perhaps the dollar.
I see little prospect of achieving a solution of this problem on a purely national basis. Like the Chancellor of the Duchy, I recognise the importance of Dr. Kissinger's initiative to bring together the principal industrial countries to try to consider how they should organise and regulate their consumption of oil. Certainly broad co-operation with the United States and Japan will be of great importance. But we have to remember that there is a considerable element of competition between the European countries, on the one hand, and the Americans and Japanese, on the other. The American time scale in approaching the oil crisis is very different from our own. For us, the oil crisis is an immediate problem. The oil embargo was a mortal threat while it lasted. The increase in the price of oil to countries whose economic stability is as much in danger as our own is also an immediate problem. For the Americans, it is not a matter of such urgency.
In these problems the best can sometimes be the enemy of the good. That is why, when the Conservative Party was in office, it was argued that we should obtain, if we could, a European agreement in advance on how Europe should regulate its relations with the oil producers. That is why we attached great importance to the European statement on Middle Eastern policy at the Summit meeting in Copenhagen. It is why we believed that it was important to go ahead with the French proposal for a Europe-Arab conference, and it is why I believe that it is essential to work for the creation of a European payments unit—a monetary union.
No single European currency—not even the deutschemark—is strong enough to give sufficient confidence to the oil producers to leave their money for any length of time in that currency. A European unit would be very different. It would be backed by the reserves of Germany and Holland. It would be backed by the gold of France—that held by the Bank of France and the very much larger amount of gold in private hands in France. It would also be backed by the massive prospects of this country in oil and nuclear energy.
If we could bring about a European monetary union of this kind, we should find a completely different situation. In the early stages it could be limited to external transactions, not to trade between members of the European Community or investment between them, but to trade between them and the outside world and investment from them outside Europe, or from outside into Europe. To begin with, it might be a floating currency. Alternatively, it could pool its reserves with perhaps a revaluation of gold.
A little more than a year ago, it seemed that my right hon. Friend the Leader of the Opposition and the Chancellor were on the brink of achieving something of this kind. The experts got at it, and it did not go ahead. But that was before the October war. It was also before the full extent of British oil resources had been recognised—pace Lord Rothschild—and before the full extent of the energy crisis facing Europe had been recognised.
It is my belief that this Government—indeed, any British Government—could make a great contribution to solving the world oil crisis if they could take the initiative in setting up a European payments union not hostile or antagonistic to the United States or Japan but strong enough to do business with them as a valid and viable partner. In the process, we might even extract concessions of the kind that the Government have been seeking from our partners in the European Community.
I do not know as yet what the Foreign Secretary has said in Brussels. Before I rose to speak. I inquired whether copies of the right hon. Gentleman's speech were available. They had not come through from Brussels. However, I see great dangers to our ability to solve the oil deficit if we deliberately turn our backs on the goals of monetary and political union. If the fears which are held in Bonn and Brussels today about the Foreign Secretary's real intentions prove true, that is the direction in which we are heading. I beg the Government, before they turn their backs on an historic opportunity, to think again on that vital subject.
In most respects I share the rather pessimistic assessment of the Budget which the hon. Member for Rochdale gave us just now. Like him, I doubt whether "the social contract" will be ratified. But I think that the Government recognise that unless it is ratified and unless it is supported by the bulk of the trade unions, the whole Budget strategy to which they are committed will fall apart.
At the General Election, my right hon. Friend the Leader of the Opposition asked who was to govern the country—Parliament or the trade unions? On an analysis of the vote it could be argued that 18 million people who supported the Conservative and Liberal Parties voted by implication for a statutory incomes policy. But the result that we have is a minority Government who appear already to be controlled by the Trades Union Congress.
The Chancellor of the Exchequer has left himself very little room for manoeuvre and to negotiate. During the coal dispute before the election, Labour Party supporters were frequently telling the then Government that they must negotiate. It was often implied that we had made a mistake in putting our cards on the table too soon in the National Coal Board's negotiations with the National Union of Mineworkers. But I am not sure that this Government have not done exactly the same. They have put all their cards on the table. They have no room to negotiate with the TUC or with individual unions.
This Government were elected in February. Many people think that the administration may come to an end in October. February to October: there is a rather ominous comparison which may have occurred to Labour Party supporters. In 1917, the Duma was called into existence in February. The conservative Prince Lvov and the liberal Mr. Miliukov failed to pull off their coalition. Mr. Kerensky took over. The Duma postured and debated, but all power had really passed to the Soviets.
The basic weakness of the Government is that the Chancellor of the Exchequer and his colleagues have put their heads into a noose. But the other end of the rope is in the hands of Mr. Scanlon and his friends. The parallel is one that politicians of all parties, including the Labour Party, might well ponder.
I have watched with fascination over the past three weeks to see how tempestuous the sea can be in this Chamber from time to time, but hon. Members on both sides of the House have assured me that in my maiden voyage the parliamentary seas will remain calm and I shall eventually reach safe harbour.
It is a nerve-racking experience to make a maiden speech. I feel rather like the bride before the consummation of her marriage. I have no idea what it will be like, but I hope that it will be good.
As most hon. Members will know, I have been given the onerous and difficult task of following a great parliamentarian into this House. I refer to my predecessor, Mr. Fred Lee. Fred served his country, this House, and the people of the Newton division with tremendous ability for over a quarter of a century. He held some of the highest offices in the land. He walked with monarchs; he walked with statesmen. But the finest tribute that can be paid to Fred Lee is that when he left this House the people of Newton still knew him as Fred Lee. He still retained the common touch.
The Newton constituency is very large, with 96,000 voters. It represents a large area of South Lancashire and now, because of local government reorganisation, a substantial area of North Cheshire. By one of the oddities of local government reorganisation, which many people regard unhappily and which comes into operation today, I have more local government units than my predecessor had. He had six units of local government—one county council, four urban districts and a rural district. I now have three county councils, three metropolitan districts and one county district—seven units in all. So to those responsible for drawing the new local government boundaries of the Newton constituency I say, "Thank you for nothing."
Newton is an ancient constituency, which can trace its parliamentary history back to 1559. Today its people—basically working people—who work in various industries—coalmining, steel. engineering and textiles—look to a Labour Government to usher in a fairer, a better, and a more just society, where the fruits of the people's labour are more equitably distributed.
I believe that my right hon. Friend the Chancellor of the Exchequer, in his first Budget, has set this country on the right road to achieving that fairer and better society, but that we have taken only a very small step on a very long road.
My right hon. Friend has done a truly magnificent job in the three weeks that have been at his disposal. In the normal course of events the Chancellor has about six months in which to frame his Budget. My right hon. Friend has introduced an extremely complex Budget—and the most significant point was his stated intention of bringing in an autumn Budget. I regard this Budget as a first-aid measure —a necessary binding up of the wounds in our bleeding economy, and I do not think that anyone can deny that the British economy was indeed bleeding to death.
I have had a recurring nightmare since the Budget Statement. I have wondered what on earth the Opposition would have done if, by some mischance, they had won the election. What measures would they have taken to get us out of the mess into which they undoubtedly plunged us during the past three and a half years?
I assure my right hon. Friend that I am grateful to him for dealing with three items which figure prominently in the Labour Party's manifesto.
First—pensions. Hon. Members on the Government benches are delighted that my right hon. Friend has not only honoured our pledge to raise pensions in the first Session of the new Parliament but—equally important—has decided to bring the pensions increases forward from October to 22nd July. It has long been a source of irritation and anger to millions of pensioners that Parliament has announced pensions increases in the first two or three months of the year, but they have had to wait until almost the end of the year before receiving them. Indeed, thousands of those pensioners never got the increases, because they had died in the meantime.
Second—prices. Again, it gives considerable pleasure to hon. Members on the Government side that the Chancellor has honoured our election pledge to take action on prices. It must be realised by now that, to the housewife, simply holding prices is a blessing, so used has she become to an ever-increasing spiral of price rises. Indeed, the housewife must find it scarcely credible that last weekend many supermarket chains announced substantial cuts in the prices of hundreds of items. The housewife must have wondered what on earth had been going on during the past few months. I assure hon. Gentlemen opposite, who may sneer at subsidies, that the housewife will not sneer at aid from whatever source it comes. She will be pleased that this Government are taking action on prices.
Third—housing. I believe that housing is the very first social service and that it is the right of every family in this land to have the benefit of a decent home. Indeed, if it is accepted that the basic foundation of the British way of life is a happy family life, if we deny many hundreds of thousands of our citizens the right to that decent home I suggest that we are denying them access to the British way of life.
It is true that the house building programme had virtually collapsed over the past 12 months in both the public and the private sectors. I am delighted that the Chancellor has taken action to improve the situation in the public sector. We still need hundreds of thousands of local authority houses. I heartily endorse the Government's action in giving back to local authorities the freedom to use their direct labour organisations to build houses for sale. This is not new or revolutionary. Ten years ago Hebburn Urban District Council, of which I was leader, built houses for sale at far cheaper prices than any private builder. I warmly welcome local authorities being given that freedom again.
Turning to housing in the private sector, the situation is more sombre. Indeed, in some respects it is threatening. I welcome the Chancellor's announcement that local authorities are now free to buy the many thousands of houses which are standing empty for lack of buyers. What worries me are the hundreds of thousands of homes occupied by working-class families, who are threatened, indeed, terrified, by the thought of mortgage interest rates rising to a scandalous 13 per cent. They are already far far too high, at 11 per cent. Many couples, particularly those with young children, are already at breaking point. They have just received notices of substantial increases in their rates which have virtually dealt them a stunning blow. Now they are dreading the thought of mortgage interest rates rising to an astronomical 13 per cent.
We must recognise that many of these people entered the private market in the first place because of the hopelessness of ever getting a local authority house, thereby helping not only themselves but poorer people, because their names were removed from local authority housing lists. It is now their turn to look to us for help.
I recognise that the longer-term job is to get general interest rates down to more reasonable levels, but I appeal to the Chancellor to take immediate action by looking again at the composite rate of tax paid by societies on investors' interest. I suggest that this would be the quickest and easiest method of bringing short-term relief for the owner-occupier and give us a breathing space for the longer-term job of bringing interest rates down permanently.
I said that the most significant thing about the Budget is the Chancellor's intention of bringing in another in the autumn. I have always been puzzled by the mystique which has surrounded an annual Budget. I agree with the hon. Member for Rochdale (Mr. Smith) that we should introduce as many Budgets or Finance Bills as are necessary to ensure that the economy runs smoothly and well. The Chancellor may be horrified at the thought of four or five Budgets a year, but if we are to manage the economy in an up-to-date way in the 1970s we should get away from the mystique of an annual Budget.
The second Budget will be the important one. We shall then see many of the things that we on this side want implemented as quickly as possible. A wealth tax is urgently needed if we are ever to start building a more equitable society. I look forward to my right hon. Friend introducing a stringent and far-reaching wealth tax in his autumn Budget.
There is a need for substantial cuts in defence expenditure. At the very most, we should spend on defence only that proportion of our gross national product that our European allies spend of theirs. It is in the interests of the British people that we should aim at that mark. If we are ever to introduce the social policies for which we in the Labour movement have argued for so many years—if we are to improve education, the social services and the hospitals—it is essential to swing a very big axe at the defence budget.
My right hon. Friend the Chancellor of the Duchy referred today to an illustrious predecessor of ours in the Labour movement, and I want to end also by quoting him. Nye Bevan said that the language of priorities is the religion of Socialism. Those words are even more relevant today than they were when he uttered them. I believe that this Government have got their priorities right.
This is the second time that I have made a maiden speech, with a long gap between them. It is pleasant to be back again, particularly in view of one of the outstanding contrasts which hon. Members will have noticed. I was not even a party when I was here before. According to Mr. Crossman, then the Leader of the House, there had to be two to be a party, so I did not qualify for a desk or a filing cabinet, and only the kindness of a Labour MP gave me a locker. Times have changed; I now have six colleagues. This is a pleasant contrast.
Another contrast is that I now represent a very different kind of constituency. Before, I represented an industrial constituency and I now represent the fair land of Moray and Nairn. I, too, will boast about the weather in my constituency, as did the hon. Member for Eastbourne (Mr. Gow). Hon. Members may be sceptical, but I can tell them that we have the highest rate of sunshine in Scotland. We have very fair towns and a mediaeval cathedral city, as well as the best farming land in Britain and mine is the second most afforested constituency in the United Kingdom. I recommend all hon. Members to visit it for their summer holidays.
I hope that the House will forgive me if I get on to the subject of Scotland as quickly as possible. The third contrast is that when I was last advancing my case for self-government for my country, the argument always was, "Scotland is too poor; you need us." Now, the argument is turned on its head. This is the most striking contrast of the lot. It is now said, "Scotland is too rich; we need you."
There is a clue to this in the Chancellor's Budget Statement:
We have at least one advantage to look forward to. Before too long, we shall have our own oil supplies from the North and Celtic Seas.
The sources of this oil are described in a variety of ways.
We must not imagine that this oil will be the answer to all our problems. At present, we cannot put a figure on the benefits it will offer, since we cannot predict the pattern of world energy supply and demand when it becomes available. But, provided the nation takes its rightful share of the profits, it is hound to bring substantial advantage to our balance of payments."—[OFFICIAL. REPORT, 26th March 1974 Vol 871, c. 288–9.]
My group have no doubt that we are the underwriters of this Budget—that the huge loan of $2,500 million has been negotiated with what we choose to call Scotland's oil. This is no secret. If it is then it is one that is shared by many leading newspaper columnists.
I want to make a series of pleas to the Chancellor to give us some consideration—as long as we are part of the United Kingdom against the background of our neglect by successive Governments, and bearing in mind that we were first in the industrial revolution, we need special consideration.
Our first problem in Scotland is that this is the opposite kind of Budget that we need. It is a misfit Budget. It is deflationary when, basically, we do not suffer from the disease of inflation. We have not had the chance to suffer from luxury living and overspending. We have been told for a long time that Scotland was about to go forward with its expansion, so we need the opposite to this Budget. We are now being stopped in that process. As we have a branch factory economy, hon. Members can imagine that if this is an austerity Budget in the United Kingdom, it is a high austerity Budget when translated to Scotland.
I know that REP is to be retained. I believe that a Conservative Government would have continued it as well. But it is an inefficient arrangement because it tends to help those industries which pay low wages.
I should like the Chancellor to reflect on a few facts about Scotland, none of which will be of any surprise to him. I received an answer today which showed that, across the board, the average wage of males and females in Scotland is consistently lower than in the rest of the United Kingdom. But, perhaps more significant, the most up-to-date Abstract of Regional Statistics shows that the average family income in Scotland is lower by £5·50 a week. Food prices are 5 per cent. higher and a ton of coal costs £1 extra. That is the kind of area which particularly hits the low paid and the old people.
Perhaps more alarming is the fact that if one relates unemployment to vacancies, the position in Scotland is seven times as bad as in England. There are parts of England with this problem, but I think that I am entitled to put these points to a House which is managing to achieve its Budget on the oil which is not yet even flowing from the North Sea.
The housing situation is no new matter. The Cullingworth Report, which was introduced when I was last a Member of this House, showed the shocking lack of a stock of homes, not just in the industrial belt but in the rural areas, and made the point that the slums of today would be with us until 1994. The Socialist Government have a better house building record than their predecessors, but even what they have done has never been enough.
We are told that there will be an oil boom in my constituency, but the fact is that local people cannot afford to buy houses. The only people who can afford them are incomers and those related to the two important bases in my constituency. The situation is getting worse, and I therefore welcome any move to assist those who are seeking mortgages.
Emigration is not often mentioned, but it is a serious problem. The situation has been improved, but it cannot be denied that Scotland has lost 1 million of her best people during the last 20 years. That is the kind of issue which makes people in Scotland feel that there is not sufficient machinery available in this House to cope with their problems.
I thank the hon. Lady for giving way and apologise for not having heard the beginning of her speech. I have a great deal of sympathy with what the hon. Lady has been saying—what she has said is true of many other regions of Britain—but it is worth bearing in mind that if one removes the four main categories of worker—male and female non-manual and male and female manual —and if one removes also London and the South-East, one finds that Scotland is better off in three out of those four categories than is the rest of England and Wales. This is not exclusively a Scottish problem. Scotland is better off once one removes the high salary areas of London and the South-East.
I do not accept the point made by the hon. Gentleman or the method by which the statistics are prepared. The answer that I received today depends, for the information that it gives, on the basis on which the counting is done—full-time or overtime. I stick to my point, and base it on the most up-to-date information that I have from the Abstract of Regional Statistics, which shows that a household in Scotland has £5·50 a week less than in England, and that incomes are 12 per cent. less. Perhaps the explanation is that not so many of us in Scotland need a lecture on the Stock Exchange, there not being so many of us who need that kind of advice.
The infrastructure in Scotland is in a chronic situation. I should like the Chancellor of the Exchequer to spare a few moments considering the A9. I should like him to come to my constituency via that road, so that he can appreciate the dangers and frustrations that abound. I protest against any proposal to make the A9 into a three-lane road, because that would lead to untold numbers of accidents. The road is often heavily covered with snow, and it would be impossible to see a white line down the middle. Not only my constituency but the whole of the north of Scotland is eager to know about this so-called motorway.
We welcome all the aspects of the Budget which advance social justice, and I do not propose to rehearse all the things that have been said. We accept that social justice involves levies on a progressive basis, which means that the higher the income the higher the tax, but there are certain ways in which the levies are regressive as they affect Scotland. We are affected in three respects, because we have different patterns of house ownership, different patterns—perhaps not to our credit—of consumption, and a different population balance, which is a fact of history.
Perhaps it is not to our credit that we spend 20 per cent. more per capita on tobacco and 11 per cent. more on alcohol and because we drink more whisky than beer, it appears that we end up by contributing 25 per cent. per capita to the revenue. If I call that the vice section of my speech, I have to admit that the situation is made worse by the fact that we bet and gamble more, and eat more sweets and carbohydrates, than do our English counterparts. In all, to make a serious point, that all adds up to a severe factor. Although the average household income is 12 per cent. lower in Scotland than in England. we pay almost the average tax.
I now come to the pattern of house ownership. It is no secret that, rightly or wrongly, fewer people in Scotland own their own homes than is the case in England. That is a pity, but that is how things are. The figure is about 30 per cent. for Scotland, compared with about 50 per cent. for England. That brings tax relief, but although our population share is one-tenth, we get only one-third. Could a way not be found of putting that shortfall into dealing with our housing situation, because there is an imbalance, and it is the opposite of what I call the progressive theory of taxation?
There are not many people with £25,000 mortgages. Few people could afford that kind of mortgage, even if they could find anyone who was willing to lend them the money.
The third regressive factor is the population imbalance. In sparsely populated areas, there is often no public transport. Lord Beeching is not regard as a pin-up boy in Scotland. We remember that our train services were cut, on the promise that there would be just as good a bus service instead. In my constituency there are few, if any, buses, and in many parts housewives are cut off from the towns. It is difficult for them to get into town in a reasonable way and be back in time to meet their children coming home from school. A car is not a luxury; it is a necessity. Although we total one-seventh less than the national average for car owners, we pay about the same percentage of tax per capita on petrol.
This is an area in which a little cushioning could be of advantage. Cushioning is not unprecedented. I remember the Secretary of State for Scotland who was the Secretary of State when I was last in the House introducing stop measures at a time when Scotland was not suffering from inflation. The right hon. Member for Kilmarnock (Mr. Ross) called those measures a silver lining for Scotland. There are a few measures which the Chancellor of the Exchequer could introduce as a silver lining to cushion Scotland so long as we are part of the United Kingdom.
The right hon. Gentleman should consider setting up a Scottish industrial development corporation with funds to be used for encouraging indigenous Scottish enterprises and industries. Funds are available for this purpose, because £40 million was received by way of licences for companies to start operations for oil. Incidentally, that is a farcical sum, and it is to the eternal disgrace of the main Opposition party that it dealt so ineptly with the oil companies. The House does not need to take that from me; it can read it in the report of the Public Accounts Committee.
I agree that the oil has not started flowing, but there was nothing in the Budget to spell out some principles which would alter the basis on which the inept negotiations were carried out by the previous Government. I suggest that that omission could lead to uncertainty. I assume that the matter will be dealt with in the second Budget, but before then the Chancellor should spell out principles of guidance and let it be known that there will be an entirely different approach in dealing with companies which make such large profits.
I said that funds were available for the Scottish development corporation from the sale of licences. If that money were used for that purpose the Government would show their good faith to the people of Scotland. It would show a good declaration of intent. Again, this is not entirely unprecedented. The noble Lord, Lord Crowther-Hunt, who is in charge of the investigations into devolution, suggested in his report that Scotland could have its own levy of value added tax. That was one of the proposals which he threw out for consideration. The oil has not started flowing, but my information is that in August or September one field will start to flow, probably on a very small basis to begin with, but within two years there should be enough flowing not only to cope with Scotland's 11 million tons annual demand but also to make Scotland an oil-exporting country.
I have mentioned the act of good faith which could be shown to the people of Scotland, who feel tired of not having a good situation and policies tailor-made to suit them. There is a case for different petrol duty in areas in which great distances have to be travelled with a sparsity or lack of public transport. There is a strong case for different old-age pensions. The very foods and fuels—gas and coal—which the old people need are higher in price. With the possible exception of Moray and Nairn, we have a cold climate. Being a tax across the board, VAT affects the higher prices that we are paying in addition, and it is an extra penalty.
With all these points, there is a case for a higher personal allowance. A new study produced by Glasgow University last week indicated that regional policy of United Kingdom Governments seemed to have worsened the problems in many ways over the years. I am looking forward to receiving a copy of that study, which I hope to refer to on another occasion should I catch the eye of Mr. Speaker.
I should welcome a proposal to require banks to lend at building society rates for house purchase, or to invest in building societies. The housing finance position is chronic in Scotland. It is slowing down building when houses are so badly needed all over Scotland.
I welcome the proposal about estate duty. No doubt others more intelligent on this subject than I could develop the point that there are small farmers in my constituency and in many other places who literally cannot afford to die. That means that there must be a radical reappraisal of the whole basis upon which they have farms. That is certainly a requirement of the Government, particularly of a Labour Government, if they really want to tackle the problem.
The hon. Lady said that she welcomed the estate duty proposals and then, in the same breath, that it was likely to affect her farmers. We are conscious of this problem all over the United Kingdom. Perhaps the hon. Lady would reconcile those two aspects. Many of us who represent constituencies with agricultural interests are very concerned about estate duty measures and would be interested to hear her views on the proposals.
I have not come to a conclusion of a detailed solution on this matter, but I have the problem isolated. I can give a simple example. My election agent bought a farm a few years ago. The price of borrowing from the bank then was not too severe. The farm is now valued at a very high price—one could say that that is to my agent's advantage —but he is very concerned not to have all this capital, which he does not want to realise, but to pass his farm on to his children. There is the problem. It may be solved by altering the whole basis of land tenure, but I do not know whether the Labour Government will ever do it.
No, I must continue. I have given way once already to the hon. Gentleman and another hon. Gentleman on this point. I shall try to finish my speech quickly to allow other hon. Members more time.
The Diplomatic spending of the present Government and the previous Government is an area which could be cut back. It is my understanding that we are second in spending to the United States in this area. It seems incredible that we are still pretending that we are a great power, as in the Victorian age.
On defence spending I am disappointed that a Government who would claim to be much more radical than is the main Opposition party in this matter have added on only £50 million to the £185 million by which the Conservative Party announced that it intended to reduce expenditure. That is a fairly small addition to what would have happened anyway. As an opponent of nuclear weapons, with my party, I must say that we find it strange that the Labour Party conference can show its wishes and yet we are, by this Government, still committed to an independent nuclear deterrent. If that is defence, it is certainly not the defence of Scotland. It may be the suicide of Scotland, because in addition to the amount of money required for the base, we are also made into an armoury. I suggest that it is for the defence of America and not of Scotland. This is an area for much heavier reductions in the budget.
We should also stop trying to prop up Arab sheikdoms on the Persian Gulf as if, again, we were still a world Power. What is the sum of money spent on this? I can find no reference to it in any statistics.
I come lastly to the European Economic Community. I want to extract one figure from the Chancellor of the Exchequer's Budget Statement. He said:
in the coming financial year we would be paying £210 million and getting back only about £120 million."—[OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 303.]
This does not seem to me to be very beneficial to Scotland. Again, my party is opposed to our involvement with the EEC. The farmers and fishermen of Scotland are opposed to it.
I assure the hon. Gentleman that I have talked to them. The Scottish NFU welcomed the EEC's agricultural policy at the beginning, but the farmers have turned against it. I have met them in the constituencies in the North-East of Scotland and I have met hundreds of them in the marts, and so on. The fishermen are very concerned about and opposed to the EEC fisheries policy.
I cannot see, from the point of view of finance, that we are getting a very good Budget.
Every time I attend Prayers in the House—which is not daily, I confess—a phrase in the Chaplain's prayer catches my attention—"Let the nations rejoice". The nation to which I belong cannot rejoice unless it gets some token that the social injustices from which it has suffered for generations will receive proper attention and time from the House of Commons. If the House of Commons does not have time to give these problems the attention that they merit—our losses of people and our other grievous problems—there is no doubt that, ultimately, my point of view will prevail and we shall have a self-governing Scotland.
I thank you, Mr. Deputy Speaker, for calling me on the final day of this Budget debate. It is a great pleasure to be able to speak in this House for the first time, particularly for a historian, and all the more so if one is representing a historic constituency like mine.
The Ripon constituency has been represented down the centuries by men who have held virtually all the great offices of State. There is a certain poignancy in the fact that two of them were notable Chancellors of the Exchequer. Prosperity Robinson held the office for one of the longest periods in the country's history, and then became Prime Minister for the very shortest time in our history. Mr. Aislabie was notable for the fact that he created and then burst the South Sea Bubble. It is probably still too early to say whether the right hon. Gentleman the present Chancellor of the Exchequer will take after one or other of those.
The Ripon seat is also accustomed to having a fairly long tenure of its Members. But this year we have had a very unfortunate quick turnover. Less than a year ago Sir Malcolm Stoddart-Scott died tragically and we had a by-election, and then quickly after that came the General Election. In the short time that I knew him, I found Sir Malcolm to be one of the kindest and gentlest of men—in a genuine sense, one of the nicest men I have ever met. I know that his friendship and kindness will be missed on both sides of the House.
He was known and respected locally for the assiduous care which he devoted to his constituents' problems and for the sense of duty which he showed over many years.
I was chosen as Sir Malcolm's successor for the General Election, in anticipation of his retirement. But, alas, my appearance in this House was delayed somewhat, though briefly, and Ripon, for the second brief time in its history became Liberal territory. In the half-year during which he served as its Member, Mr. Austick established a reputation for hard work and involvement in the community, a reputation which I hope to live up to.
The constituency of Ripon covers a large area, stretching some 30 miles from the Wharfe Valley—from Ilkley to Otley—northwards to the city of Ripon itself. Most people imagine that sort of territory to be solidly rural in character. In fact, that picture is somewhat misleading, although there is a successful agricultural industry, to the problems of which I shall turn in more detail on other occasions. At this stage, I do no more than pass on to the House what I heard on my return there at the weekend, after the Budget.
There is concern about several aspects of the Budget. There is concern, for example, at the exclusion of tax relief on overdrafts, and how this will affect the farming community. There is continuing concern at the changes in estate duty—or, rather, the lack of change—and concern also about the way in which the capital gains tax will affect farmers during this period of spiralling land prices. There is pressing concern also, I should add, at the way in which the £127 million has been given to milk, being put on milk as a subsidy instead of being used in a more effective way to encourage agricultural production; for example, by the restoration of the fertiliser and lime subsidies. If the latter had been done, there would still have been something left over for improvements in family allowances. I agree with the hon. Member for Rochdale (Mr. Smith) in urging that help should be directed to people, not to things.
The nature of the Ripon constituency has changed fast since the war, and it is still changing. There has been a surge of population into the Wharfe Valley on the edges of Leeds and Bradford. There are many retired people, notably at Ilkley, and there are great numbers of what one might today call the anxiety generation, those people—young businessmen and professional people—who have been encouraged by successive Government since the war to aim for and achieve better material standards but have found their incomes just not meeting the growing bills which they have to pay.
These people are over the margin of the £54-a-week wage earner of whom the Chancellor spoke. Their incomes go beyond that level, and they are the people who have gained nothing so far out of the Government's proposals and, specifically, nothing out of the Budget. Their expenses are constantly rising, their coal, fuel, petrol and telephone charges are rising, the cost of credit is a constant problem, their taxes and now their rates are going up.
Ripon is an area in which rateable values are high, and some of these people are having to pay £1 extra per week. Where is the sense in taking a penny off a pint of milk or a loaf and then putting an extra £1 a week on the rates? Then, if they have not been clobbered enough already, these people face substantial increases in their mortgage interest payments.
The folk of whom I am speaking took on heavy mortgages at a time when they expected their salaries to keep on rising at a good pace and when mortgage rates seemed likely to remain fairly stable. Now, however, at the same time as the international credit market has gone haywire, with the upward spiralling of interest rates, their salaries have been limited or frozen under the measures taken to meet our economic difficulties. Thus, these groups of professional and business people have had a difficult time trying to keep pace, and the situation now is such that within 18 months the average mortgage repayment has risen by about £2 a week, with another hefty increase in prospect.
As I have said, the Budget does nothing specifically for these people. It does nothing directly for the building societies. There is the promise of action on income bonds, which could help a bit, but apart from that there is nothing. The building societies still have to compete for their funds with the local authorities, whose interest rates now are very high in comparison. There is incentive in the Budget also for other forms of saving, which adds to the building societies' problems.
Unless we have an easier and more assured flow of funds into housing, owner-occupiers and would-be house owners—especially those to whom I have just been referring—will have perpetually recurring difficulty. They will be hit more and more heavily by mortgage problems, and the house building crisis itself will never be solved.
Builders cannot build enough houses to meet demand. They have their problems already in the acquisition of land and the cost of materials, but what they need above all is a regular flow of funds to even out demand. No one can do instant building. By the time a builder, especially the small man with high risk operations, has set about house construction at a period of high demand, a mortgage famine overtakes him and, very likely, he will be left with houses on his hands. This is all too common an experience.
It is no real answer—certainly no longterm solution—for the Chancellor to pay large sums of money to local authorities to buy these houses. He would have been better advised to put those funds directly into helping the building societies in their current financial problems.
The present crisis is twofold. For the short term, it is essential that the interest rate be prevented from rising to 13 per cent. To adapt a well-known phrase, this will call for a lot of "cash on the table." I applaud the Secretary of State's decision to set up the emergency committee, proceeding forward from the action of the Conservative Government in setting up the joint advisory body with the building societies to try to find ways of making more stable the situation in which they have to work. Nevertheless, as I say, if we are to prevent the rate rising to 13 per cent. large sums of cash will be needed. That is the short-term problem. For the longer term, we must guarantee a steadier flow of funds in order to offset the problem that the building industry is not readily sensitive to the needs of supply and demand.
More help should be given—I have a personal interest here—through a national scheme to assist house purchasers, especially young couples. In my own case, on a university salary, I found it impossible to meet the price of a house in my constituency, with mortgage repayments of about £100 a month. This is the constant worry facing a lot of professional and business people. There must be some system for making initial repayments easier for house purchasers, such as some builders have evolved for themselves, to guarantee a more stable demand for the builder.
Many of us would welcome it if the Chancellor eased the restrictions on the use of building society reserves. Also, the Government should establish a fund, to which the building societies could turn, fuelling this fund from the special deposits required of the clearing banks, and I for one would add the windfall profits which the banks inevitably make at a time of spiralling international interest rates. In other words, there should be a fund to which the building societies can turn for the supply of finance, at reduced rates of interest, as they need it when the problems they face are at their most acute.
I offer the further suggestion that the Chancellor should consider a scheme based upon the West German housing construction bonus Act. Under such a scheme we could develop a savings system specifically related to house purchase. Following the German model, everything a person saved directly for house purchase, through either the building societies or the national savings movement for example, would have an added bonus of 30 per cent, from the Government. Such a scheme could be developed in a flexible way so that people with larger families could have larger bonus payments of, say, 35 per cent., 40 per cent. or 45 per cent. In the same way, there could be supplementary payments for low-income purchasers to help them on the way to house buying.
In the present building crisis, and with the present demand problem, it makes sense to improve the existing housing stock. The Conservative Government switched substantial resources away from the sweeping demolition of town centres and into the rehabilitation and improvement of older housing. I hope that the Government will quickly re-establish and enact the provisions of the Housing Bill which fell with the election, which dealt particularly with this matter by strengthening the rôle of local authorities.
I should like to see tighter regulation of improvement grants, much as I applaud the improvement of older property. Like many Labour Members, I am sure, I have become more and more distressed at the way in which these grants have been misused. Tenants have been squeezed out, and there has been a perpetual running down of the private rented sector, which has now reached less than 12 per cent. of the housing stock. The profits derived from the sale of houses through improvement at the expense of public funds have then been pocketed by owners. We must stop the decline of the rented sector while at the same time improving the older housing stock. But I warn the Government that rent freezes and strict control of rents are not likely to encourage investment in this sector, and thus we risk it being perpetually run down.
I crave the indulgence of the House for not having followed the convention of being non-contentious. However, housing is a contentious matter, and it has not, I believe, been fully discussed in the debate. There is no dispute between the two sides of the House about the Chancellor's declared aim of increasing house building. On this side, however, we would certainly expect to see more done for the private sector, for the sort of people that I have been discussing and for the building societies than the Chancellor has so far put forward. There should be more help for the owner-occupier rather than the concentration on council house tenants and the public authorities, which at present seem to be his sole concern.
The right hon. Member for Manchester, Central (Mr. Lever) emphasised that we could not turn to the Budget for all the answers. The Chancellor has declared that housing is one of the Government's three top priorities for the first year. We welcome that, but while welcoming it we expect something soon, something more concrete than we have had so far.
I campaigned against the hon. Member for Ripon (Dr. Hampson) at the by-election last July but I now have no hesitation in congratulating him on an informed, elegantly-delivered and altogether impressive maiden speech. His composure, his knowledge of the problems of many of his constituents, his feeling for his beautiful Ripon constituency, and a very real grasp for the complex subject of housing must have commended him to hon. Members on both sides of the House. I was especially glad to hear his warm tribute to his predecessor, David Austick. Those of us who came to know David Austick became aware of his personal charm, his deep working knowledge of the Yorkshire economy and his conscientious application to his duties in the House. Most will agree that in a short span of time he made more than the average impact. The hon. Member must beat David Austick once more before he can regard the beautiful Ripon constituency as his own.
I pay tribute to my right hon. Friend the Chancellor of the Exchequer for his Budget. In construction and presentation it was admirable. In its social provisions it must surely appeal to most people in the country, irrespective of party. I think, however, that his fiscal measures will prove more controversial and I expect that hon. Members on both sides of the House are already looking forward to the Finance Bill, to the manner in which so many of those fiscal measures will be translated into law and will be defined. I shall say no more about its fiscal features. That subject belongs to a later stage. Instead, I wish to address myself to the broad strategy.
My right hon. Friend's neutral Budget judgment and bias on the side of caution was probably right. I would have preferred not to have seen the cautious bias. My right hon. Friend knew of my feelings—that I was anxious he should not be deceived by any illusion of buoyancy that the first flush of recovery from short-time working might have generated throughout the economy. I am especially concerned about a sag in demand during the course of the year. Given the hatch of statistics for the period that came to my right hon. Friend's hands during the week before Budget day, and realising the very unclear picture that they must have presented to him, I think that few can quarrel with his overall judgment.
I want to deal more with his strategy and with what I presume were his four basic aims, certainly as reflected in his demand management. The first was his obvious anxiety to protect the exchange rate. The second was his equally obvious duty to eliminate at the earliest possible stage a balance of payments deficit arising out of factors other than the energy crisis, and especially the oil crisis. Thirdly, there was his wish to check domestic inflation and, fourthly. his wish to promote the highest possible level of business activity. At this stage we can properly make an assessment of the Budget only on these four counts. That does not mean that we are not entitled to go beyond that and look at its technicalities, but they belong to the Finance Bill.
Let us take the first of those four criteria—my right hon. Friend's anxiety to defend the exchange rate. We are bound to take early note of the steps he has taken to strengthen the exchange rate through a sizeable foreign loan as well as by increasing the United Kingdom swap facility with the federal reserve. I am struck by the way in which he has done that on terms that are acceptable, if public reaction is a guide. Furthermore, the pound has strengthened since Budget day, though I grant that the causal relationship might be slight. It has strengthened nevertheless, whatever other factors might be involved. So, on the first count of protecting the exchange rate, I think the Chancellor deserves a plus.
What steps has he taken to eliminate the truly appalling non-oil balance of payments deficit? We heard during the debate last week and this evening that the pound is competitive. Export opportunities undoubtedly exist. I presume that it is part of the Chancellor's strategy to persuade or perhaps even to force British firms into overseas markets, on the lines of the Japanese model. In so far as that is so we must acknowledge the Budget's relevance to it and also mark that up in the Chancellor's favour. I shall say no more in that direction, because any comment must lie largely in the realm of speculation.
The problem of domestic inflation is much more pressing and is therefore of much more immediate concern. Through food subsidies and other social provisions the Budget has tackled the wage-price spiral at its crucially explosive point. It attempts to check and, hopefully, destroy the expectation that prices must rise. It lays siege to the psychological dimension of inflation which I regard as the greatest threat that we face—the belief that prices will go on rising with people taking steps accordingly, and, in that way, inflation becoming built in.
I do not have to disturb the minds of hon. Members further by reminding them that that has to go on for only another three or four years for the present price levels to be as high again, and that at that point the fabric of our society would be seriously under strain. Therefore, urgent action was required. Whatever view one may take about the cost, notably, the £500 million for food subsidies, it will require a stronger argument to decry the Chancellor's purpose in setting on one side a sum of that size not just for food subsidies but with a view to checking price inflation, undermining the expectation that prices must go on rising.
Just how necessary that approach is can be seen when we look at the present high level of interest rates. Many of us must be aware that, however appalling it may seem to hon. Members who do not easily see the relationship between interest rates and the present extent of price inflation or the present force of price rises, the two go together. It would be unreal for anyone to believe that we could have price inflation of the present force and not have an interest rate structure that corresponded to it and had not assumed its present size, so inhibiting so many policies, not only in housing. Therefore, secondly, my right hon. Friend was bound to act here.
Thirdly, it is noteworthy that for the first time in some years there is a significant reduction in the Government's borrowing requirement. It is easy to rib my right hon. Friend, as some hon. Members have done today, about the price rises for which they suggest he must be responsible, because at long last he is putting the nationalised industries on a realistic pricing basis. It is a matter not only of realistic pricing policy but of getting the money supply under control and easing some of the upward pressure on prices.
Although they have not spoken in the debate so far, some hon. Members have taken the view that perhaps the most significant item in the Budget is the reduction of the borrowing requirement by as much as £700 million. Thus, my right hon. Friend has taken positive steps towards easing the pressure on prices. He has in that way provided some of the essential conditions for a response.
It is no secret that the response for which many of us are looking—especially on the Labour benches, because we are looking to our own kind, to our colleagues in the industrial movement outside—is from the trade unions. Happily, those with whom I am in touch—my own union of the General and Municipal Workers—have been quick to acknowledge that we have a Government who are honouring their electoral pledges with unprecedented speed, thus fulfilling their side of the social contract. I make it seem easy when I put it like that, but time does not allow me to do anything else.
I do not wish to minimise the difficulties of the previous Government and, therefore, their performance. I recognise what they were up against. But when we set alongside their performance and achievement what the present Government have been able to do in less than a month, we see that we have made a tremendous start. We can look to those in the country who have put us here for a corresponding response.
We have already done all that we promised during the campaign, and more than some of us promised—certainly more than I promised. I was never more tentative than in the pledges I gave my constituents a month ago. I confined myself to one pledge—the increase in the old-age pension. Again and again I reminded my constituents that a Labour Government had no magic wand and that, therefore, no one was entitled to unreal expectations. Yet, when we reflect on what has been done during the past month all of us on the Government benches can say to our colleagues and comrades outside who put us here, "You must agree that we have done more than any of you could honestly have expected. We have gone most of the way towards fulfilling our side of the social contract and now we look to you."
On those first three aims of my right hon. Friend the Chancellor—his protection of the exchange rate, his steps towards elimination of the non-oil balance of payments deficit and an easing of domestic inflation—we can mark him up; we can give him a plus. We can grant him that he has done more than some of us could reasonably have expected during the recent election campaign.
I am not unmindful of the difficulties of the situation as it continues to develop. I am not even uncritical of my right hon. Friend; I am a bit uneasy about his fourth aim. I am not sure that he has yet come through as convincingly here as he has on the other counts. When I consider the fourth aim—the promotion of the highest possible level of business activity—I am reminded of some of the Press comments of the past week, echoed in the debate today. The Budget has struck some people as anti-industry. I have heard that said in my constituency, and my agent repeated it to me at my surgery in Sheffield on Saturday morning. Therefore, I cannot discount it. There may well be something in it, and it must be examined.
When I look at the stock market, I have to admit that there is pessimism about the months to come—perhaps about the latter part of this year. I know that to a large extent that pessimism arises from the same source as the feeling in industry that businessmen's liquidity position may have been adversely affected by the Budget, that they will not find it as easy to replace present stock and to go forward with investment plans, that there will be a cash shortage and that, where they can get it, money will be on stiffer terms. Therefore, there may be a knock to confidence.
Although profitability must, quite rightly, be closely examined, we must acknowledge that it is not last year's profits that matter so much as this year's with regard to the replacement of stock or the renewal of plant or its replacement later this year. Will investment be undertaken in the right measure, in the right places? Press reaction in some quarters is doubtful.
When we recall the short-time working through which industry has just passed we must admit that industry must be feeling a good deal more cost-conscious than formerly. Some sections of industry, notably in my constituency, which is very industrial, have learnt the lessons of improvisation and innovation. I wonder whether some of those firms may even have discovered how to manage without as many workers as were employed before, and whether we may be about to enter a period of labour shedding.
My second concern under the heading of business activity is unemployment. When my right hon. Friend is considering his second Budget I hope that he will monitor the strength of demand. As soon as unemployment asserts itself I hope that he will bring into play those instruments which are available to him to stimulate demand. I hope that he will continue to consider investment and to ask himself continually whether he is satisfied with his investment policy. I hope that he will ask himself whether it is not as important to redistribute and to reform taxes as it is to provide for wealth creation, and whether that third factor is not a precondition of the first two.
Is my right hon. Friend satisfied that industry can provide the necessary growth? I hope that he will bear in mind all these matters in his second Budget. I recognise that every Budget is a compromise. I think that my right hon. Friend has gone further than most Chancellors in satisfying the various sectional claims that arise in our society. Further, I believe that he has satisfied the technical requirements of all the purists. I hope that he will satisfy himself about future investment and any possible rise in unemployment. I am bound to acknowledge that his Budget enshrines a greater measure of social justice than we have had from a Chancellor for some years. My right hon. Friend is to be congratulated on a Budget which undoubtedly will represent a milestone in Budget making.
I congratulate my hon. Friend the Member for Ripon (Mr. Hampson) on a succinct, clear, lucid, intelligent and forthright speech—a maiden speech of which anyone could be proud.
If I may refer to the observations from the Government benches, I give the Chan- cellor of the Exchequer not a plus but a large minus. There is an old French quotation which suggests that the art of taxation is similar to plucking geese, in that the aim is to obtain the maximum amount of feathers with the least amount of hissing. Perhaps the Chancellor is not such a clever fellow as he thinks. He has produced the minimum of results—indeed, it has been called a neutral Budget—with the greatest outcry from the taxpayer.
The speech which gave me most pleasure and impressed me most during our debates on the Budget was the speech of my right hon. Friend the Member for Carshalton (Mr. Carr). He made a fine maiden speech in his new appointment as Shadow Chancellor. We went right to the heart of the problem. He referred to two vital omissions which, unless replaced, will mean that the Chancellor has little idea where the country will end in its search for growth. It seems that no estimate has been made of gross domestic product during the first half of 1975. Further, there is no idea of the scale of income increases during the next 12 months.
During my right hon. Friend's speech the Chancellor was evasive. He did not attempt to refute the statement that the Treasury has said that his Budget will add 2½ per cent. to the retail price index. There can be no answer as we see an ever-increasing list of price increases radiating from the 25 per cent. increase in steel prices and the 30 per cent. increase in the price of electricity. Other items, too numerous to mention, will be affected.
When the Government were in Opposition prior to the General Election they castigated my party. In their comments about prices they were derisory. However, in their first Budget they have been the biggest factor in price increases since inflation started.
My right hon. Friend the Member for Carshalton mentioned a family consisting of man, wife and two children, the man earning £38 a week. He did his sums, as no doubt every family in the land has done in the past few days. He came to the conclusion that such a family will not be better off under this Budget but far worse off.
I can substantiate that. I have the figures from a typical family in my constituency. The man of the family is a forklift driver who is paid £1,600 a year. He has a wife and three children. Under this Budget his tax will be cut from £2 a week to just over £1·50. The family will get cheaper milk. It drinks a lot of milk—21 pints—and it will be 1p a pint cheaper. However, the Budget, and particularly the increased cost of electricity, will hit the family hard. The wife says that she cannot imagine how she will cope. I suppose the Chancellor will tell them to have the traditional English meal of bread and milk, or milk sop, as it is called.
Such families, which are hard working and not highly paid by any stretch of the imagination, will be those that suffer most from the increased charges that will radiate from the nationalised industries. One of the biggest complaints that I have heard during the past weekend has been about the penal VAT on the price of petrol.
We are all pleased that the pensioners have received a well-justified increase, but the Budget hits right at the heart of their basic spending. It will not be long before it becomes apparent that the pension increase will be swallowed up in additional charges long before the end of the year.
The right hon. Member for Stepney and Poplar (Mr. Shore), when speaking on the Budget, could not resist the temptation—indeed, he has been unable to resist it for the past 18 months—of blaming many of our problems on the EEC. He observed that last year our imports from the Common Market were running at £5,197,000,000, whereas our exports to the Community, were only just over £4,000 million. He complains that the trade balance with the Market has deteriorated by no less than £1,100 million in the past two years.
There was considerable resistance by minorities to the United Kingdom joining the Common Market. Since then there has been the constant chant by the right hon. Member for Stepney and Poplar, and by his right hon. Friend the Secretary of State for Employment that, come the day, the next Labour Government would pull out of Europe. That has been said many times. I must respect both right hon. Gentlemen in that they have never wavered in their claim. There is no room for doubt that such expres- sions have in many cases delayed commercial and industrial enterprises from putting all their eggs into the European basket.
It was clear from the Chancellor's statement, when he mentioned the EEC, that even under existing policies which the Government are attempting to renegotiate the cost to the United Kingdom in the coming financial year will be the difference between the payment of £210 million and the claw-back of about £120 million. Therefore, the cost in the next financial year to the United Kingdom to maintain its place in Europe will be £90 million. That is a favourable figure when compared with the total subsidies of milk, which are running in the region of £310 million. We may be building bonny babies, but we must ensure that they have a bonny future within the Community.
I am delighted with the thought of renegotiation. The European Community is not a static political body but a flexible market place. Renegotiations have been going on since the inception of the Treaty of Rome, over 10 years ago.
I make a small constituency point. We all know that there has been a cut-back of late in the expenditure on roads and motorway systems. There has been an excellent environmental lobby requesting that more freight should be carried by the railways, certainly until the time comes when our motorways are brought up to some sort of Community standards. However, it will be possible, under the new regulations, with the value added tax on fuel, for the road haulage industry to claw back its costs in the normal way, which will keep down the overall costs of road transport within some foreseeable limit.
The reverse side of the coin is that the Chancellor is allowing rail freight charges to rise by 15 per cent. It is obvious, therefore, that railways will become less competitive with roads and that there will be a tendency for more of our freight to be carried on what are in many cases unsuitable roads. Environmentally, there should be a cut in rail freight charges and not a massive increase of 15 per cent. Perhaps the right hon. Gentleman will consider this and delay these charges until such time as he is confident that the road programme can be increased.
Perhaps the most divisive policy within the Budget is on housing. The Chancellor has introduced a freeze on all residential rents until the end of the year, quite regardless of the question whether tenants can afford them. In the private sector there are tenants who are better off than their landlords. But all this appears to be part of the irrational plan for holding down prices. If that is so, I do not object to it on that score, but when the right hon. Gentleman makes no mention of any help for those in the private sector of housing either to buy their own homes or with their mortgage repayments problems, it is time for the Opposition to be critical of his policy.
The right hon. Gentleman was all too ready to say that he would be putting £350 million into the hands of the local authorities in order to make an immediate increase in their building programmes. Where he has become divisive is that he knows full well, as he admitted, that in the private sector about 30,000 houses which have been completed have not yet been sold. In providing help so that they can be sold, he has given the money to the local authorities as an emergency measure so that they may buy these houses, with two provisos—that the houses must be of the right standard and that they can be acquired at reasonable prices.
Of course they can be acquired at reasonable prices. The Government have set up a monopoly situation where the only hands which will have any money to purchase or, indeed, to build will be those of the local authorities. Housing in the public sector for renting has become a national necessity, but the thought of the whole of the future housing of the country being municipally owned, with vast concrete council housing estates stretching from one end of the country to the other, is too depressing to contemplate. The Chancellor has his divisive programme for housing and he is clearly not going to attempt to help the private sector in any way. This is something on which we shall attack him again and again on every suitable occasion.
I have had an interesting question from a constituent concerning the loss of facili- ties to use the overdraft interest as tax relief on second homes. What will be the flexibility within the Department on the question of second homes purchased for dependants who would otherwise have been a housing liability on the State? Perhaps we can be given some indication of the Government's thoughts on this matter when the right hon. Gentleman replies to the debate.
This Budget has been called many things by many people. Indeed, The Times called it a Budget for the TUC. It went so far as to say that it gave too great a priority to the TUC and too low a priority to the economic climate. I am certain that when they thoroughly analyse the way in which the Budget will stifle investment and industrial growth, the TUC and industry, will conclude that, although it may contain some small items at this stage, the long-term fear of high unemployment in the not too distant future will be realised.
Britain earns its bread and butter from industrial production, and, as the Secretary of State for Trade has pointed out, there is great need for further expansion in the European market. There must be both sufficient liquidity left in industry so that it may diversify and expand in Europe and sufficient rewards for commercial, calculated risk to offset that risk.
There are few benefits in the Budget. Most of them aim at the section of our people that the Conservative Party would have equally protected—the pensioners. But the warning is there for the British people. The Chancellor said that he had at one stage one hand tied behind his back. God help the British taxpayer when the time comes, if it ever does, when he has both hands free. If this is a supposedly neutral Budget, Heaven protect us from the Chancellor's full blooded Budget. I do not think that the Opposition will give him the opportunity to put forward another Budget this year.
The hon. Member for Southampton, Test (Mr. Hill) has raised the question of the replacement of the Chancellor of the Exchequer before the next Budget. The debate and the Budget itself have suffered to some extent from the fact that we are only some four weeks away from the clash and clamour of the General Election which produced, for the first time in many years, a minority Government in the United Kingdom. Judging by the attendance in the House tonight, that clash and clamour has subsided very quickly.
All of us who listened to my right lion. Friend the Chancellor of the Duchy of Lancaster today were glad to see him back in his place and to some extent back to his old form and his old state of health again. He touched on a theme which my right hon. Friend the Chancellor of the Exchequer touched on earlier. He said that the job of the Budget was to harness our peoples efforts behind our economic aims, and my right hon. Friend the Chancellor of the Exchequer talked in terms of seeing that the benefits of the Budget were visited on the people who actually produced the wealth of the country.
If there is one overriding criticism of many of the speeches in the debate it is that the questions of speculation and investment, of finance and so on, important as they are, have superseded the real issues concerning wealth production. My right hon. Friend the Chancellor of the Exchequer, talking about the Budget judgment, said:
in the last resort success or failure will depend on the efforts of every man and woman in the country. It is they who produce the goods, who spend and save the money. The social and, indeed, the human climate is as likely to influence their efforts as anything which is done in the strictly economic field."—[OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 289.]
I think that this is the pattern that has to be followed, not only in dealing with the question of the Budget but through all the stages of the Finance Bill to follow.
When we talk of the Stock Exchange and of monetary gambling going on behind the scenes and underlying wealth production, we have to realise that, through this gambling and investment, the money, which is so often put into wrong directions, arises from the efforts of our people in factory, mine and mill. Too often has it been argued that it is the other way round—that the rewards have to go to the investors, to the speculators, and that it is all right to do this because at some time by an adjustment of taxation, be it by capital gains tax or anything else, we are going to claw something back.
My right hon. and hon. Friends in the Government must realise that it is not merely a question of taking rewards from people after they have gained benefits from the wealth production of the community. My right hon. Friend the Chancellor referred to land and property speculation, and spoke about measures which the Government will later introduce regarding public or social ownership of development land. At present some of that land is in private hands. There is an example in the new town of Cramlington, in my constituency. This town has grown and is prospering, to the benefit of all concerned in the North-East. In the last three or four months about £20,000 has been asked in annual rental for about three-quarters of an acre of land in that new town.
There are still social inequalities in areas which have been greatly assisted by investment of public money as part of the regional policies of successive Governments since the end of the Second World War. There remains tremendous wealth and income for the Chancellor to deal with. It has not been touched in the Budget. There is still much opportunity through taxation to reduce social inequalities and to aid the cost of running the social services and finding the money for pensions and other benefits. Sonic people profit from public expenditure and should be dealt with not only through taxation but by redistribution of assets, and, therefore, the social ownership of land must go well beyond the measures which have been discussed.
In the past few years speculators have taken great advantage of house improvement grants, which were introduced to help meet a basic housing problem by extending the life of older houses as well as increasing the range of housing available. But too often house improvement grants got into the hands of speculators. In the North-East, not far from my constituency, the National Coal Board sold houses at very low prices and improvement grants were given to speculators who became involved and reaped wide and vast rewards. I hope that the Government will look into such matters.
Often my right hon. Friend the Chancellor, in talking about capital gains tax or in dealing with increased profits arising from the sort of speculation which I have in mind, fails to realise that some of those builders who have benefited to the greatest extent—in my constituency and elsewhere—are now in the process of setting up subsidiary building companies in order to fend off the impact of the sort of taxation which the Chancellor is now considering.
We must bear in mind that this is only an interim Budget and that when the next Budget comes—as it must, in a short time—some of the loopholes which are still glaringly apparent must be stopped up.
The hon. Member for Test mentioned the Chancellor's reference to the European Economic Community. The hon. Gentleman said that my right hon. Friend the Member for Stepney and Poplar (Mr. Shore), by his speeches in this and previous Parliaments against entry into the Community, had stifled and halted industrial investment in this country. But I believe that it was not speeches by any hon. Member on this side, or indeed in any part of the House, that stifled the initiative on industrial investment. It was more to do with the structure and the set-up of the Community itself. That is why it was necessary for the Government to state in their election manifesto, and for the Chancellor to mention in his Budget speech, that a central part of our European Economic Community strategy rests on renegotiation. From Questions during the past week to three successive Ministers we have been able to extract a promise that renegotiation terms would be laid down—as indeed they have been laid down, in a White Paper today.
I hope that the hon. Gentleman will bear with me for a few moments. He referred to my speech. I was speaking about imports and exports deficits in relation to the Community, which had nothing to do with renegotiation of terms. It was pointed out by his right hon. Friend that we were suffering from a deficit of over £1,000 million because of our trade with Europe. My point was that our industrialists have had little encouragement from either sides of the House to put all their eggs in the European basket.
I welcome that intervention. While the hon. Gentleman did not mention renegotiation specifically, he cannot complain if I deal with it in reply to points which he raised. He will recollect that he took from the Chancellor's speech the fact that we were paying £210 million to Europe and receiving in return only about £120 million. But he struck at the core of the issue when he said, in relation to the Community, that we have to deal with the question of renegotiation. That is why I, first, made the point about the White Paper, and, secondly, referred to the strong emphasis which the Foreign Secretary has placed on the question of renegotiation.
Two factors emerge from that situation. First, the result of renegotiation will be put before the British people, in the form either of a referendum or of a General Election, and, secondly, if the renegotiated terms do not satisfy the House and the British people we shall come out of the Community and discuss with the Community the question of terminating our membership. That is the correct note to strike. That is the position which must be stressed in the coming months. If we deal with the question of renegotiation on the basis of this country remaining a member, our hands will be tied behind our backs. In addition, the basis on which a more equitable Budget could be introduced would have been lost because our financial commitments to the Community, if allowed to remain as they are, will have a crippling effect not only on British industry but on the hopes and aspirations of Britain and its people.
That is why we can welcome the Budget only to a limited extent. We can welcome it so far as it confers benefits on pensioners. We can welcome it so far as it deals with the question of social justice. But the Chancellor of the Exchequer, when he talks of the difficulty of finding money to finance these ventures and measures, must not forget that he has proposed a £50 million reduction in our defence costs whereas he should be talking in terms of much larger sums. The Labour Party's commitment to making cuts amounting to about £1,000 million in arms expenditure, made at its last annual conference, is another factor which must be taken into account.
But the overriding point is that the Budget is not just a means of shifting money from the better-off to those who need it more. A Budget must be the foundation of a policy involving a drastic reorganisation of the type of society in which we live, and the people who produce Britain's wealth must be given first access to it. Unless Chancellors of the Exchequer learn that lesson we shall not build the Britain for which many of us have worked.
This has been a wide-ranging debate, and I could not pretend to be able to follow all its twists and turns, but I am particularly glad to have had the opportunity of speaking after the hon. Member for Blyth (Mr. Milne), whose presence here is a symbol of a form of security of tenure which all of us have deeply at heart, although he has perhaps caused a lot of trouble at the United Nations.
The new constituency of Blaby, which I have the honour to represent, is in South Leicestershire. It is roughly 60 per cent. of the old Harborough division, whose Member, happily, continues to serve here as Member for the new Harborough division. Therefore, for me to pay the customary tribute to my predecessor would in the circumstances perhaps be in questionable taste—rather like publishing an obituary of the living. Therefore, I shall simply say that it is my ambition to serve my constituents as well as my hon. Friend did when they were his constituents.
Blaby is in a real sense the centre and heart of England. It is there that those two great Roman roads, Watling Street and the Fosse Way, cross. To come to the present day, it is in Blaby that the M6 meets the M1. As hon. Members of a monetarist persuasion will instantly recognise, that leads me logically to the subject of the Budget.
As a former professional Budget-watcher it was easy for me to recognise the parentage of this beast. It is by the TUC cart horse out of the Treasury grey mare. Therefore, I was not in the least surprised to hear the Chancellor of the Exchequer say that later in the year he intends to introduce a Budget of his own. In view of the speeches made earlier today, many of us on the Opposition side of the House would rather it was the Chancellor of the Duchy of Lancaster who introduced the subsequent Budget. However, I have always believed that every Chancellor should be allowed at least one Budget of his own. I am sure that will be the case on this occasion.
In his Budget speech the Chancellor said:
Unless we can somehow halt the accelerating inflationary trends in our economy, the resulting political and social strains may be too violent for the fabric of our democratic institutions to withstand."—[OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 290.]
Those were sombre words, but I fear that the right hon. Gentleman did not exaggerate. Yet there was nothing in that long and complex Budget which did anything to halt the Gadarene stampede to which he referred. Indeed, some measures in it may actively make matters worse. It seems that everything has been staked, indeed gambled, on the success or failure of the so-called social contract between the Government and the trade unions—the philosophy, we are told, on which the Budget has been based.
A social contract is all very well, but, like my right hon. Friend the Member for Worcester (Mr. Walker), I found it difficult, in looking at the Budget in detail, not to be a trifle sceptical about it. Are we supposed to believe that the stony heart of the militant shop steward will melt at the thought of paying more for his cigarettes, petrol and beer in order to allow his wife to pay a little less for bread and milk? Perhaps this rather touching picture of male altruism is well founded, but I doubt it. It seems to me more likely that the Labour Party, which has always had a strange predilection for sacred cows, has gone one step further and now believes in sacred milk, too. Are we to believe that the great mass of trade unionists will suddenly be reconciled to the paths of moderation in wage claims by the knowledge that in future 33 per cent., and not 30 per cent., of any wage increase will be taken from them in tax? That applies to a married man, with two small children, earning as little as £25 a week. If hon. Gentlemen do not believe it, they should look at Table 17 in the Red Book.
Are we meant to suppose that trade union activists will feel that an extra 2½ per cent. rise in the cost of living imposed by the Chancellor of the Exchequer "at a stroke" is a small price to pay for the promise that one day there will be a wealth tax?
The social psychology of clobbering the rich is a subject deserving of study. As one close student has written, there is
a curious tendency within the Labour Party towards a suspicious, militant, class-conscious Leftism.
That is the observation of the right hon. Gentleman the Secretary of State for the Environment in that classic work, "The Future of Socialism". Can it be that fostering this suspicious, militant, class-conscious Leftism is compatible with the stirring cry for national unity which the Chancellor made the theme of his peroration in his Budget speech?
Perhaps, after all that, it is not to the Budget that we should look for the key to the so-called social contract, the sop to the trade unions. Perhaps, instead, that key, that sop, is to be found elsewhere—in the repeal of the Industrial Relations Act and the "Footwork" that we are told will replace it. At first sight, that seems to be a more plausible candidate, but, even so, there is something curious about it.
When I was listening recently to the eloquent oration of the Secretary of State for Employment, I was struck by the passage in his speech in which he accused the previous Conservative Government of having conceived of the statutory incomes policy as
a kind of blunderbuss to brandish in the face of the Trades Union Congress and say to it 'Stand and deliver'."—[OFFICIAL REPORT, 18th March 1974; Vol. 870, c. 697.]
Most people in the country, and certainly the great majority of my constituents in Blaby, would say that if there is anyone these days who is inclined to say "Stand and deliver", it is the big trade unions. One of the more endearing characteristics of the right hon. Member for Ebbw Vale (Mr. Foot) is that he is inclined to live in the past. No doubt he imagines, even today, that he is marching alongside the Tolpuddle Martyrs or fighting the Taff Vale decision. But the rest of us know that times have changed
and with them the balance of industrial power—and the balance of weaponry, as some of his right hon. Friends can testify. Some of us recall, during the celebrated "In Place of Strife" saga, the plaintive cry addressed by the Prime Minister to Mr. Scanlon, "Get your tanks off my lawn, Hughie". I am afraid that Hughie's tanks are still on the Prime Minister's lawn and, in the light of that, the present Government's intentions towards trade union law in general and picketing in particularly are thoroughly alarming.
If I may draw an analogy following the "blunderbuss" of the right hon. Member for Ebbw Vale, there is in the United States considerable concern over the constitutional right of every citizen to bear firearms and the violence and bloodshed that result from it. Sensible people there are campaigning to try to get the right limited by law. The position of the Government in a similar situation boils down to saying, "Of course people will be frustrated if they have only rifles, and this will lead to violence. For real peace and good order you should let them have machine-guns, or even bazookas." That is a serious point. The central problem of our time, however much hon. Members on the Government benches may try to hide away from it, is the problem of the abuse of trade union power. If a social contract is to mean anything, it must mean that that power has to be used responsibly, but we will not ensure that by enlarging that power, or making its abuse still easier.
The link between trade union power and wage inflation sheds a spotlight on the basic fallacy that underlies the social contract/egalitarian approach. The mechanism of wage inflation rests on two simple and unequivocal facts. First, there are more groups of workers who feel strongly that their relative pay in relation to that of other groups of workers should be improved than there are groups who feel that their relative position should be allowed to deteriorate. Secondly, many of these groups—not all—have the economic and industrial power to be able, at least in the short term, to force the relative improvement they seek.
No amount of egalitarianism—of clobbering the so-called rich in the sacred name of the social contract—can make the slightest difference to this central issue. The right hon. Gentleman the Chancellor of the Exchequer can have Mr. Harry Hyams hanged in public—and drawn and quartered, if he so wishes—but it will not make a jot of difference to the differing views of ASLEF and the NUR on the relative standing of their respective members. Why should it? Again, the right hon. Gentleman can, if he likes, impose a 90 per cent. capital levy on second, third, fourth or even fifth homes, but it will not make the slightest difference to the view taken by mineworkers about their position in the industrial league table. Again, why should it?
Let us suppose that it made sense for the Government to base all their hopes on the all-important struggle against inflation on the social contract. The crucial fact remains that there can be no such thing as a contract, social or otherwise, unless there are sanctions against those who break it. The question is—and this is the crux of the matter—what are the sanctions to be against the TUC or its member unions if they break the social contract which the Government are currently endeavouring to negotiate?
There are three, and only three, possible answers. The first is that the Government could stand by and allow the strongest groups to grab what they can, but refuse to increase the money supply accordingly. They could let events take their course so that there are bankruptcies, falling real wages and large scale unemployment among the groups which are less strong. The second possible sanction is to take the "free" out of free collective bargaining, which would envisage a return to the statutory incomes policy and all that—assuming we ever leave it. The third possibility is to take the "collective" out of free collective bargaining, and move to curb trade union monopoly power—which sooner or later is bound to happen.
The question to which we want an answer is which of those three possibilities is to be chosen by the Government. It must be one of those three choices. What is to be the sanction against breach of the social contract? Trade union members have a right to know the small print of the contract which they are being asked to enter into. But, above all, we in this House and the country have a right to know, and I trust that we shall be given the answer before this debate draws to a close tonight.
Before entering the Chamber tonight, I took the trouble to read an essay which appeared in the Spectator on the subject of maiden speeches. It was written by my predecessor as editor—Iain Macleod, whose loss to this House, to the Conservative Party and to the country is still deeply felt by all of us. His principal piece of advice—indeed his only practical advice—was that a maiden speech should on no account exceed 15 minutes. I apologise to the House, for I fear that I may have transgressed that advice, but I shall try to do better next time.
The conventions of the House require that I congratulate the hon. Member for Blaby (Mr. Lawson) on his maiden speech. He delivered it very well and was rather witty at the expense of trade unions. He talked about militant shop stewards. But his view of the trade union movement is as inaccurate as his recollection of the figures contained in my right hon. Friend's Budget speech. I do not recognise the trade unionist whom the hon. Gentleman described as being the militant trade unionist who would not be prepared to sit back while some of the lower paid and weaker elements in our society got a rather better deal such as that which my right hon. Friend has offered them. Nor do I congratulate the hon. Gentleman on the accuracy of the figures which he quoted. He said that a married man with two children and an income of about £30 a week would pay more in income tax. He is wrong—
I repeat, I have not given way to the hon. Gentleman. A married man with two children earning that sum will pay £47 per annum less in income tax. In fact, he can earn £3,000 a year and still pay less tax—
As the House knows, my right hon. Friend the Chancellor of the Exchequer painted a sombre picture, and it ill-behoves Opposition Members to attack him for the solution which he has offered. Those of us who were in the House in the last Parliament know that the difficulties which we face stem directly from the actions of the previous administration, not least of the problems which we now have to resolve being our enormous balance of payments deficit. The concern of the House and of the country must be to resolve that problem as soon as possible, and I am glad to see that from many parts of the House now there is a realisation that somehow we have to embark on a policy of import saving in order to cut down on the enormous amount of imports which have been sucked in by the inflationary processes activated by the previous administration.
I have had the opportunity to consult my constituents since my right hon. Friend introduced his Budget. They are delighted with some of his proposals, not least being the pledge to increase the old-age pension and the undertaking by my right hon. Friend the Secretary of State for Social Services to see that the heating allowance for pensioners is improved.
Naturally enough, my constituents have some criticisms. They are surprised not to hear squeaks from the wealthy. The wealthy have not been squeezed very hard by the Budget. They understand that the increase in electricity bills will hurt ordinary people. They understand that the increase in railway fares which has been asked for will hurt them and many other ordinary people. They are concerned that value added tax is to be imposed on petrol, and they do not quite understand my right hon. Friend's object in doing that. Is it to conserve a scarce world resource by making it more expen- sive and therefore less attractive to use? They do not understand why the 50 mph limit has been removed from motor cars travelling on motorways. This has produced a saving of petrol. It has also produced a saving of life. In their view, my right hon. Friend is being a little inconsistent.
My constituents are also disappointed that a wealth tax has not yet been introduced, though they understand that my right hon. Friend had very little time in which to do it. They know that we have done a great deal of work on how to introduce a wealth tax. They are concerned that my right hon. Friend said that there must be yet another Green Paper. Across the tables at Transport House we have passed many green, white and variegated papers on a wealth tax. I hope that my right hon. Friend will look at some of the documents which he had a hand in helping to produce and will not take too long before bringing his proposals forward.
I am glad that my right hon. Friend has put up the tax on tobacco and spirits to produce more revenue. I think that he could have gone much further.
I am not sorry that my right hon. Friend has put value added tax on sweets, crisps, and such items, but I think that he ought to take VAT off toothbrushes and toothpaste, in the interests of dental health. This is an urgent matter, as the right hon. Member for Leeds, North-East (Sir K. Joseph), whom I am delighted to see, will know. This is a serious part of the failure of the National Health Service to carry out the conservation that the nation needs. If we can discourage people from eating things that damage teeth and at the same time encourage them to buy and to use the things that help to preserve teeth, this will be an extremely valuable contribution.
My constituents are concerned that the defence cuts in the Budget are derisory. They are far below the commitment that we made during the General Election. I am not referring to the decision that was made at the Labour Party Conference, referred to by my hon. Friend the Member for Blyth (Mr. Milne), because that was not the commitment that we made during the election. My right hon. Friends are well aware that in many areas of social need, not least being the National Health Service and housing, a saving of £500 million to £600 million on defence expenditure could make a valuable contribution.
There is no doubt that because of the incompetence of the Conservative Party we face the most serious housing situation of any Government for many a long day. In the public and private sector house building and housing starts have declined. This is a serious situation for people who want to buy and live in houses of their own or to seek houses from the local authorities.
My constituents are surprised that my right hon. Friend was so kind to the property speculators. Why have they been allowed to get away with it? What about the scandal of Centre Point? What about the scandal of unoccupied office blocks that appear in practically every town and city in the country? Are these people to be allowed to get away with it still until my right hon. Friend can deal with this matter in his next Budget?
People see high profits being made from property speculation and they are concerned about it. They see enormous quantities of building materials used for buildings that then remain empty. They see an enormous amount of skilled building labour used to put up buildings which are allowed to stand empty and provide large capital gains for their owners.
Several hon. Members have referred to the large profits that have been made by the banks. Indeed, one bank was so ashamed that it delayed the announcement of its profits until after the General Election. Why cannot the profits of the banks be used to help those who wish to buy homes of their own? I hope that my right hon. Friends the Chancellor of the Exchequer and the Secretary of State for the Environment will look at this considerable source of wealth that has been created by the inflationary situation and high interest rates to see whether some of it can be used for the provision of homes.
I wonder whether the Government would consider raising a loan especially for housing, a housing fund, which could be made attractive by being guaranteed against inflation and which would be raised at a low interest rate of, say, 2½ per cent. This would certainly help those who wanted to buy their own homes to borrow at a reasonable rate of interest. With the usual amount for the servicing of the loan, and so on, a low rate of interest could be provided for home owners, with the proviso that if the value of the house increased, as I suppose house values will in future, a proportion of the increase would accrue to the fund by means of an increase in the sum originally loaned.
In this way, the community would clearly benefit from any increase in the value of housing due either to inflation or to the collective effort of the community, and the purchaser would have the benefit of a very cheap loan. In view of the burden of inflation, which has never been less than 5 per cent. in the post-war years and shows no sign of abating, ordinary people who see their savings dwindle practically to nothing as the cost of living rises would certainly be glad to put their money into this kind of fund, where it would be protected.
Taking into account the enormous interest rates—14 and 15 per cent.—that local authorities pay to raise money on the open market, plus the burden of income tax and inflation, investors cannot but lose on the capital value of their investment. A loan guaranteed against inflation at a low rate of interest would attract more people than the building societies do. I hope that my right hon. Friend will consider this. Not being an economist, I do not know whether it would work, but it seems attractive both to lenders and to borrowers. That is surely something that we want to see, because it would make more money avail. able for house purchase.
On Thursday the Secretary of State for Social Services dealt with the introduction of a free family planning service. I was surprised to see in one of the national papers the other day the claim that she had made this statement without consulting the medical profession. I am sorry to see in the Press today reports of confusion about how this vital service is to be introduced. I do not know the facts of the case, but I hope that the problem will be speedily resolved.
Athough my right hon. Friend said that only the small sum of £1 million is to be made available for this service, I am sure that every hon. Member will agree that this is an important step towards the kind of service to which we on this side were committed at the last election, and which most of the medical and nursing professions, the social workers and ordinary men and women want.
This sum is not enough for a really effective service, but any expenditure will bring enormous savings. It is estimated that we need about £40 million a year for a really comprehensive service. There are about 300,000 unwanted and unplanned pregnancies every year and the Office of Health Economics has calculated that about 15 per cent. of married mothers would be happy if their pregnancies had not occurred. A large proportion of terminations of pregnancy are unwanted births, as are most illegitimate births. The savings from an investment of £40 million on completely effective service over 10 years would be considerable.
We are talking now about a saving of hundreds of millions of pounds over the period. If one thinks of the antenatal services, the health services, the education services, and so on, that are needed right through life, starting when a new life is born, it becomes clear that the investment would be well worth while.
If one considers it from the point of view of the national economy, it is a good investment. People may say that £1 million could be spent in other ways that would be more worth while to a different section of the community, but to put the interests of women first for a change is a well worthwhile way of using this money and I hope that a much larger proportion will be invested in this purpose.
I can think of much more worthwhile uses being made of the £1,000 million that has been earmarked for Maplin, or the £1,000 million that has been earmarked for the Channel Tunnel, or the extra money that is being spent on Concorde. I can think of many more productive and useful ways of spending these colossal sums of money, and I ask my right hon. Friend the Chancellor of the Exchequer, who I am delighted to see in the Chamber, to allow our right hon. Friend the Secretary of State for Social Services much more than a paltry £1 million to carry out a reasonable and comprehensive free family planning service.
There is good and bad in the Budget. One always says that about every Chan- cellor's Budget, but I think that this Budget has placed in the forefront those who really need greater help from the community. I think that in carrying out our election pledges my right hon. Friend has carried the whole country with him, except, of course, for a few Opposition Members and perhaps a few members of the Confederation of British Industry who do not necessarily represent industry. I am sure that most people will congratulate my right hon. Friend on the social aspects of his Budget, and I hope that the criticisms that I have made will be met when my right hon. Friend introduces his next Budget.
I have only three or four minutes in which to make my speech. I have the great advantage of having the Chancellor of the Exchequer here tidying up his own speech and I cannot resist catching his ear for a moment, since he described the Budget judgment as an art. I wish to put it on record that it is very much an art and that I believe the right hon. Gentleman got his judgment wrong this time.
I say that for a number of reasons. The right hon. Gentleman has underestimated the extent to which a deflationary hole has already been dug in the economy. He has failed to take account of what Wynne Godley described as £1,500 million worth of oil price rise effects. If that is added to the previous Chancellor's £1,200 million cut in public expenditure, and a further £200 million which the right hon. Gentleman admits he has taken out of demand, it means nearly £3,000 million worth of deflationary effects in the economy, all to bite in 1974 after a period, that is to say in late 1973, when, in any case, economic activity has been levelling out.
The Chancellor of the Exchequer, in his fiscal measures, was at some pains to try to levy taxes which he hoped would have the effect of people digging into their idle balances, or dis-savings, so that there would not be too much of a drop in demand. But the real yield this year compared to what the Chancellor estimated in terms of income tax is not the extra £700 million that the right hon. Gentleman has put on but the staggering increase, due to fiscal drag, of about £3,500 million. A great deal of the extra tax will fall not on those whom the right hon. Gentleman selected as being specially able to bear it but on those less wealthy who will float up into the higher tax rates without any real income increase. This further aspect should have been taken into account by the Chancellor, but I do not believe that he has taken sufficient account of it. Local authority rates, which amount to a direct tax and feature in the right hon. Gentleman's Red Book as part of the tax revenue system, are also to go up this year. There is to be a net increase of 20 per cent.—about £530 million extra. This more than offsets the subsidies that he is to give on the different kinds of foodstuff. If food subsidies are to reduce the retail price index by 1½ per cent., certainly the extra rates alone will put it up by the same amount. With the increase in the retail price index of 1½ per cent. on that side, added to perhaps another 1½ per cent. from the various nationalised industry charges, and so on, this Budget will put 3 per cent. on to the retail price index, apart from anything which may come from outside.
Thus, the Chancellor has in my view seriously underestimated the size of the hole which has been dug in the economy. His only expectation of the hole being filled, which can be deduced from the table forecasting economic growth, is to come from the hope that exports will rise. But will they really rise? When one considers what the Chancellor has done to profits, the disincentive that he has placed on the long-suffering business executive who is responsible for the big turn round towards exports, and all the extra burdens which industry has to bear, it is very risky to single out the sector in the economy which is to face the greatest challenge—the export sector—and then deliberately to clobber the people in that sector who are expected to effect the turn-round.
We shall, I believe, have substantially increased unemployment as a result of the Budget. The Chancellor must be very careful and he must come forward in plenty of time to counteract the effect of some of the deflationary features that we have had recently.
The debate has been notable for a series of maiden speeches, to which tribute has been paid by both sides in the winding-up speeches on previous days. It falls to me today to pay tribute to my hon. Friend the Member for Eastbourne (Mr. Gow), the hon. Member for Kingswood (Mr. Walker), the hon. Member for Newton (Mr. Evans), my hon. Friend the Member for Ripon (Dr. Hampson) and my hon. Friend the Member for Blaby (Mr. Lawson).
I must warn the House that these new Members are setting a very high standard. Some of them have even made speeches of very high quality without notes. My hon. Friend the Member for Blaby has just made an absolutely scintillating speech, which lasted for about 15 minutes, during which he had no notes in his hand at all. So the House will have to look to its laurels. We have obviously a fine new intake of Members on both sides of the House who combine strength of feeling with lucidity and force of expression. Collectively, from the Opposition side of the House, I wish all the maiden speakers well. We shall be listening to them with great interest in the future.
I shall be the only speaker who will not congratulate the right hon. Gentleman the Chancellor of the Exchequer on his extraordinary physical performance in a marathon of 2¼ hours. After all, Mr. Gladstone thought nothing of a four-hour Budget speech, and the right hon. Gentleman would not claim to be the most wilting flower among politicians.
I shall not speak as if the reign of virtue ended and the reign of vice began precisely on 5th March. There are lessons for all of us in these last years, years in which, under my right hon. Friend the then Prime Minister, the Conservative Government made a determined and by no means ignoble attempt, supported by the Labour Opposition, to accelerate the growth rate of this country.
In the circumstances I have some sympathy for the Chancellor of the Exchequer. I have had a few days in which to study his Budget. Though some features of the Budget are certainly welcome, my right hon. and hon. Friends and I think that it contains elements which are deeply damaging to the national interest. I shall explain what they are.
I shall not waste the time of the House with speculation on the so-called Budget judgment. All the pundits are in total disagreement. The margin of error in the factors involved in the Budget judgment is probably vaster than the Budget judgment itself, and it would be the merest guessing if I were to pit my views against those of the other side. It is the Chancellor—poor devil—who has to choose a series of assumptions and work on them.
However, that being so, the House is entitled to know what those assumptions are. My right hon. Friend the Leader of the Opposition, my right hon. Friend the Member for Carshalton (Mr. Carr) and my hon. Friend the Member for Worthing (Mr. Higgins) all asked the Chancellor to publish the relevant figures in Table 4 applicable to the first half of 1975. This publication is hallowed by precedent, but all that we have had so far has been an entirely negative answer from, I think, the Chief Secretary.
That is not good enough. The House and the country are entitled to know the assumptions on which the Chancellor is basing his Budget judgment, and I hope that the right hon. Gentleman will tell us tonight that we shall have published, either in answer to a Question or in some other way, the missing lines in Table 4.
In the light of the obscurity in the near, let alone the more remote, future, the Opposition welcome the Chancellor's undertaking to keep all the factors under review and to make a revision of policy whenever necessary.
I come now to a few gentle comments on the Budget proposals, before turning to our main criticisms. First, the prospect that the balance of payments deficit is likely to taper off later this year—the right hon. Gentleman acknowledged this in his Budget speech—is largely due to the action of my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) in introducing his December measures—the surcharge on surtax, the control on hire-purchase credit and the £1,200 million cut in public expenditure this financial year.
When my right hon. Friend, then Chancellor of the Exchequer, made that announcement, the present Chancellor was very rude about the cuts in public expenditure programmes. Those cuts were applied by my right hon. Friends and myself with great disappointment and regret. They cut into the social as well as the other programmes. This was the first time that the Conservative Government had touched the social programmes, and we hated doing it. I had hoped that the right hon. Gentleman, having expressed such regret, would do something to increase at least the most important programmes of all, that is, the health and social service capital programmes, but the House will have noted that despite the Opposition's rudeness when the cuts were made the present Chancellor in his Budget speech, specifically endorsed the action of my right hon. Friend the Member for Altrincham and Sale.
The Chancellor has been urged to cut defence spending sharply, and there have been speeches urging the same on him today. We note that he has cut the defence budget by £50 million. Neither party, in our view, should cut defence lightly. It is a dangerous world, and we need the alliance. I hope that the right hon. Gentleman will stand up to the urgings of his hon. Friends.
The Chancellor appears to be taking a pessimistic view of exports. As he says, they are competitive in price, and the price controls at home will tend to drive business men abroad. But will he explain why his right hon. Friend the Secretary of State for Trade predicts a 7 per cent. growth in world trade—in volume terms, I think—whereas he predicts an expansion of only 4½ per cent.—in value terms, I think—in our visible export trade? Value and volume are not compatible, but perhaps the right hon. Gentleman will tell us whether he is being deliberately pessimistic or whether there is some difference of judgment between him and his right hon. Friend.
The Budget embodies a complicated cat's cradle of trade-offs, including some subtle deflationary effects and several at any rate apparently deflationary features, such as indirect tax increases which may prove in fact to have inflationary consequences. The Budget will have a cumulative impact, producing tax and price increases at irregular intervals over the whole of the next year. The crunch for millions of households, on top of rate increases and price rises, will be nothing less than brutal, and I shall argue that the brutality has been intensified in some cases quite unnecessarily.
Already, the Government are being attacked on behalf of the poor. It is true that the tax threshold has been raised by the Chancellor, and that is welcome, but I calculate that he has raised it by only about half enough to make good the damage done by inflation
The poor and the hard pressed in our society—and there are, alas, still too many of them—can be helped only be expansion, which the Budget will stunt, and by tax-credit-type schemes. I hope that all the effort by the Conservatives on tax credits will not be wasted by the Government. We were supported by the Liberal Party on that score.
The Budget strategy is heavily dependent on the social contract. The Government have met most of the TUC shopping list and have paid cash in advance. Decisions, however, are not for the TUC but for the men and women on the shop floor. If a social contract means enlightened self-interest by the unions, each separately recognising the realities of the economy and the inter-dependence of all sections of society, we wish it well; if not, it will soon be shown up, and the Government with it, and there will then be problems as my hon. Friend the Member for Blaby so clearly emphasised.
The Government have announced a wealth tax and a gifts tax. We shall study the Green Paper with great care but it would be appropriate tonight to put down a marker. It is often said that many other countries more prosperous than ours have both wealth and gifts taxes. That is true, but in such countries the wealth tax and the gifts tax are alternatives and not additions to high rates of estate duty and direct taxation.
I shall not take the House's time by discussing policies where the Government may be right or may be wrong, where they have had to exercise the best judgment they can and where events are totally unpredictable. I shall concentrate on those parts of the Budget where in my view the Government are either certainly correct or certainly wrong. First, I have a wholehearted welcome for the pensions increase. May I add a personal special word of admiration—because I know something about the subject—for the staff at headquarters and in the offices all over the country for the monumental task they will carry out in ensuring payment by the end of July?
The country will realise, but perhaps I should repeat, that my right hon. Friends and I would certainly have raised pensions. There is no dispute about that. True, it would have been in the autumn. We would probably have raised them to well over £9, probably between £9 and £9·50—[Interruption.]It is true. Hon. Members have only to apply the same formula that we applied in 1973 to get that figure. I am not overstating the case. I have paid tribute to the Government's increase.
The higher contributions that the Government are demanding of employers which were commented upon by the hon. Member for Rochdale (Mr. Smith) will infallibly work through in higher prices several months after they start to be paid.
My right hon. and hon. Friends and I also understand the cutting of nationalised industry subsidies. My right hon. Friend the Member for Altrincham and Sale said that he would be reviewing subsidies when he made his December statement. It is right in principle that the Government should have cut the subsidies, but it is very hard on households, especially when added to the rate increases which have been made sharper than necessary.
I turn now to the three features in the Budget which we regard as dangerously wrong—the squeeze on company profits and liquidity, especially of small companies, the attack on enterprise, and the attack on management, the professions and the middle class. This is called a neutral Budget. In one sense—in the strictly economic balance of demand and supply—the Chancellor may so intend it. But neutral in its treatment of large numbers of the population it most certainly is not. The Budget treats many people very harshly and savages the hopes and expectations of hundreds of thousands of honourable men and women. The Budget may not soak the rich—if I may use that phrase—as much as the Chancellor's Left-wing friends would wish. However, it will do great damage, since much of this harm is quite gratuitous and disproportionate to the revenue produced. We shall examine the proposals extremely carefully when the Finance Bill comes before the House.
I shall try to explain the hidden horrors of the Budget, and I start by taking up the point made on Budget Day by my right hon. Friend the Leader of the Opposition when he spoke about the importance of growth to the economy. That is agreed by both sides of the House.
The fact is that no party knows infallibly how to accelerate the underlying growth rate of the economy. We all try, but none of us has succeeded in finding the way. What we must recognise is that it is only too easy to decelerate the underlying growth rate. How? By demoralising and disheartening the decision makers in our economy, and that is precisely what the Budget does.
The Chancellor of the Exchequer is a very intelligent man, yet he does not seem to understand the functions of profit, the delicacy of the processes of national wealth creation, or the central importance of working with human nature instead of against it. Despite the engaging speech of the Chancellor of the Duchy of Lancaster, Labour tends to disapprove of profits. It does not seem to recognise that profits earned in competition within the law serve a social function, that they are the best-known instruments of reconciling the interests of people as consumers, workers and investors. Most people have all three rôles, directly or indirectly. Profits subject to competition are the source of jobs, of improved standards of living, of growth and of taxes.
The Chancellor of the Exchequer made a reference to profits, but it might have been better if he had not, because it was alarmingly naive. My hon. Friend the Member for Pembroke (Mr. Edwards) elicited, in a reply to a Question only a few days after the Budget, the real trend in profits. The Chancellor of the Exchequer had, extraordinarily enough, referred to profits in gross terms in speaking of them to the House. He had taken no account of the effect of inflation on profits or even on stock appreciation. When he was asked the right question by my hon. Friend, the Chief Secretary to the Treasury revealed that, far from there being a healthy trend, profits had been trending dangerously downwards year by year and quarter by quarter. Now they have been reduced, from an average of 12 per cent. of the gross national product, during Labour's last term of office, to only 6½ per cent.
The Chancellor of the Exchequer is deceiving himself dangerously if he talks of profits being in a healthy state. The fact is that all too few companies yet use inflation accounting, taking account of the effect of inflation on stock and work in progress and other factors. The return on capital in all too many companies may well be negative. They may be paying dividends, and Governments may be levying taxation, on profits which, if they were properly judged, might be found not to exist. [Interruption.]
It is the return on capital, actual or estimated, that affects investment decisions.
There is not only a very low real return on capital now, if any, but a horrific catalogue of increased costs already in the pipeline, to which the Budget adds nationalised industry price increases and increased National Insurance contributions. Most of those inroads into profits are unavoidable, but the Government have gratuitously squeezed profits and liquidity by additions of their own. There are already pretty fierce price controls, so that firms cannot be sure of passing on increased costs. Now the price controls are to be tightened and made more uncertain by discretion, and delay of several months is built in. There is to be extra corporation tax and a 50 per cent. surcharge on advanced corporation tax.
Perhaps there are subtle timing reasons for some of these changes. But does the Chancellor of the Exchequer realise that merely to stay in business this year companies need substantially more capital than they had last year? The pressure on real profits and on liquidity will be intense on many companies, especially small companies. Of course, they can go to the banks, but at what cost in rates of interest?
I ask the Chancellor of the Exchequer to read Frances Cairncross's article in The Guardian this morning and to consider again what he has done. The Chancellor of the Duchy of Lancaster made a bland speech on the subject. He talked of the objective factors, but the crucial truth is that decision makers make their decisions about investment, expansion and employment not on objective but on subjective factors. If they feel the squeeze and feel they are deprived of profit they will not expand, they will not employ, and the country will suffer.
The Budget is infinitely depressing in its attitude to the position and prospects of management. British management has great strengths and some weaknesses. We who do not have to cope with the switchbacks of Government policies, with the incessant changes in laws as well as markets and competiton, day-to-day labour relations and all the rest should be modest in teaching management its business. Management's performance is crucial to much which we hold important.
If the Government want management to do a bad job, all that they have to do is to increase controls and, above all, sharply raise taxation on management. Believe it or not, that is precisely what the Government have done.
The Budget introduces vicious changes in taxation and in incentives for middle income people There is higher taxation for those at a £500 lower level of income than now, despite the falling value of money. Taxation is to be levied at 83 per cent. for successful managers. That is far above the rate in practically any other industrialised country. It introduces the ending of share option schemes, and mortgage interest facilities are on the way out. There is to be double stamp duty. Even the Chancellor's reaction to the Cayman Islands is ill-judged. My right hon. Friend the Member for Altrincham and Sale undertook to act in his next Budget, but the Chancellor proposes a sledge-hammer which will catch many worthy people who are doing vital, exhausting and exacting jobs of importance to the nation.
Marketing men who work for most of their lives in exporting, and overseas citizens who are working in London, will now go to other countries. They will be caught by a tax which will drive them, with their talents, away from the United Kingdom or United Kingdom employment.
Life was not easy for the middle class even under the previous Government. During the previous Government's administration, taxes went down, greatly to the benefit of the people. At the same time, prices rose and in the national interest my right hon. Friends, and I among them, for two years imposed ceilings on salary increases. Indeed, the ceilings are still present. Rates are now up sharply, and services are costing more. There is now to be an investment surcharge which will be payable from £1,000 per year instead of £2,000 per year. Stock Exchange share values have been halved—
The fall is still going on. If very successful the higher investment income receiver will have to pay, as a result of the Budget, 98 per cent. tax on his higher investment income. The Government still do not appreciate that we are one nation. The cumulative discouragement to the decision makers, to the managers, to professional people and to the middle class is formidable.
Overhanging all is Labour's attitude to profit. Why should managers take risks when companies are starved of funds? Why should they do so when, if a project succeeds it is called anti-social and if it does not it is said to be failing the nation?
Managers are paid more because they have skills and/or responsibilities. They are paid more because it is their job to worry, to get ulcers if need be, in order to satisfy clients, to maintain good relations with all at work, to make profit whilst at the same time meeting all the laws and regulations and more besides. It is no easy job. We all depend upon management, "we" including wage earners.
What is the incentive for management if the Budget goes through? There is a psychological dimension which this Budget outrages. What motive is there for the middle class if it can get no personal benefit from exceptional effort and if its dreams and hopes, that have often sustained it through long and exacting apprenticeships, are shattered? The anti-profit, anti-management, uncomprehending, perhaps vindictive or perhaps merely culpably unaware prejudices of Labour will wreck the driving force of the economy, our management and professional classes.
Even Mrs. Gandhi has just cut by 20 per cent the taxes on the highest earners in India. She has done so just when the Chancellor is raising taxes sharply to the highest level in industrial countries. Soaking the better off for vindictive purposes will achieve no good and will do much harm. It may be thought that a squeeze at home will stimulate exports, but by piling disincentives on to management the Chancellor will risk demoralising the very people on whose drive and optimism jobs and exports depend.
I am not saying that our tax system is perfect; there is always room for improvement. I am saying that the battery of special miseries on top of the extra 3p on income tax is, in the aggregate, destructive of the interests of those whose skills and energy are vital. The Chancellor is working against the grain instead of with it.
Several of the right hon. Gentleman's changes produce little revenue. They are ideological. I predict that he will destroy more wealth than he will redistribute because he will damage the drive and thrift that the nation needs. It is as if the Government have said, "Since we cannot do justice to all, let us do conspicuous injustice to some". This Budget is not neutral. The tax changes are, in the aggregate, deeply damaging psychologically as well as financially to the middle class.
The right hon. Gentleman blandly presents these changes as needed in order to win the TUC's support and/or to finance redistribution. They serve neither purpose. The Chancellor is, at best, culpably ignorant of what he is doing or at worst is lending himself to a vindictive attack which will injure the nation. What a package of vicious body blows to the key decision makers of our economy.
There is a hint of something more. It is not just the active middle class who are hit, but the retired as well. The Chancellor has brought the elderly into surcharge regardless of whether they are very rich, rich or only comfortable.
On Saturday, Dr. Kenneth Smith wrote to The Times. He said that he was writing
for those who are likely to suffer most under this Socialist Government. I refer to the large number of retired professional and university people who, like myself, after over half a century of hard work at an inadequate salary and service in two world wars, have managed to save a little money in addition to their
pensions. This, of course, is 'unearned income' and subject to surtax over one thousand pounds per annum.
It was, no doubt, with people like us in mind that Mr. Barber introduced his merciful provision that exempted persons over 65 from a second surtax demand. Now Mr. Healey has revoked this clause, saying that he saw 'no reason why a person should sit back and spend vast sums just because he was over 65. (Labour cheers)'. No comment is needed here.
This again is either culpably heedless or vindictive.
Ever since Lloyd George—I hope the Government will heed this—schemes nave been devised by Governments for soaking the rich. Many have succeeded, but increasingly the schemes hit also the less rich, the not-rich and now even the not-poor, too. The middle class have virtues, not exclusively but preeminently, that any Government need to encourage—thrift, self-sacrifice, foresight, kindness. The Government's job is to widen entry to the middle class, to level up, not level down. We want more and more people to have middle incomes. It is not possible to achieve this by redistribution; it is only possible by expansion.
Redistribution produces very little for the wage earner and at a cost of endangering the middle class and its values. Redistribution and expansion are awkward bedfellows. They conflict. The Government choose redistribution. The Opposition, as my right hon. Friends have emphasised, choose expansion. This Budget may signal—if the Government survive, let alone if they are returned with a majority—the twilight of the middle class. There is a sinister echo of an earlier period of decadence—bread and circuses. A penny off the loaf and circuses—throw the widows of engineers and headmasters to the Inland Revenue.
We know far too little of human behaviour to destroy without understanding the consequences. The classes in this country are inter-dependent. All classes need each other. The Budget attacks, either casually or deliberately—I do not know which—the very dynamics of our society. It will demoralise business and professional people and damage the middle class. The result may be a blunting of enterprise and the spread of hopelessness in the very class on which we depend for hope. When the economy stagnates, it is the poor who suffer most. The Budget will hurt the rich, or some of them. It will certainly hurt middle incomes, and the middle class. It is upon their drive, standards and skills that the jobs and progress of wage earners depend. Demoralise management today, and wage earners suffer tomorrow.
I hope that the Chancellor of the Exchequer will consider what I have said. We appreciate that he has been very rushed and he may not have had time properly to appreciate all that he was authorising, but let him consult with the business and professional world, and, if he is willing to amend the Budget, when we get to the Finance Bill we shall help him. If he ignores what we have said he will have declared war upon the middle class.
We are at the end of an interesting, thoughtful debate which has been distinguished, as the right hon. Member for Leeds, North-East (Sir K. Joseph) has said, by an exceptional number of maiden speeches. I join him in particularly congratulating those maiden speakers who have spoken today. My hon. Friends the Members for Kingswood (Mr. Walker) and Newton (Mr. Evans) made thoughtful speeches full of knowledge and concern. The hon. Member for Eastbourne (Mr. Gow) made an exceptionally witty speech, while the hon. Member for Ripon (Dr. Hampson)—the seat which I first fought in 1945—showed real concern for the housing problems in his constituency. The hon. Member for Blaby (Mr. Lawson) made, I understand, a brilliant speech although I did not have the pleasure of hearing it, and revealed himself as something of a connoisseur of bloodstock, while the hon. Member for Moray and Nairn (Mrs. Ewing) reminded us of her interest in Scotland.
I also pay tribute to the right hon. Member for Leeds, North-East, who, in a sense, was also making a maiden speech. He took skilful advantage of his comparative innocence of the economic errors committed by the Government which he so recently adorned to correct and revise the policies on which they fought and lost the last General Election. We were back to Selsdon at a stroke in the speech we have just heard from the right hon. Gentleman, and we now know that the battle for the succession is on.
However, the right hon. Gentleman at least made no attempt to disguise the sombre nature of the inheritance handed on to me—an inheritance made much worse by the three-day working week. I congratulate him on sparing us from that continuing refrain by all his predecessors in the debate from the Opposition Front Bench. He at least made no mention of the need for a statutory incomes policy. Indeed, how could he, because it was a statutory incomes policy which made the three-day week inevitable, costing the country twenty times more in output, although the Opposition when in power could have settled the matter six months earlier, as has finally been made clear.
The right hon. Gentleman re-echoed a complaint by some earlier speakers in the debate: I had not attempted to forecast in the Financial Statement this time the precise nature of the situation likely to face us in over nine months' time. Not one contributor to the debate from either side has denied that the objective judgment which I have had to make was exceptionally difficult because the future is clouded with three unique uncertainties.
First, we do not know how fast and evenly the economy will recover from the unnecessary three-day working week. Secondly, it is impossible to forecast the future course of world prices even three months ahead, never mind 12 months ahead. Thirdly, it is extremly difficult at this time to forecast the course and level of world trade over the next 12 months.
It would be ridiculous for me, or for any Chancellor, to pretend in March 1974 that he could make an accurate forecast for the first half of 1975. The hon. Member for Worthing (Mr. Higgins), who made a complaint about this a few days ago, should at least appreciate this fact, because in what must have seemed to him a far clearer prospect 12 months ago he made a forecast for the current half-year. His figures gave Britain a growth of 4·5 per cent. between the first half of 1973 and the first half of 1974. In the event, we expect a fall of the same magnitude.
Does the hon. Gentleman think it was useful for him to have published those forecasts? The price of crude oil has risen more than threefold since last April. Did the hon. Member take that possibility into account last year when he published the forecasts for the first half of 1974? Any one who based business decisions on forecasts like that must have come a terrible cropper. The fact that the Conservative Government made this mistake is no reason why I should make a fool of myself.
No one who has occupied the position which I hold can have failed to be conscious of the fact that economic forecasting is at best of times a hazardous and uncertain occupation, particularly today. But as evidence about what is happening becomes available over the weeks and months ahead, and as some of the uncertainties clear, I have pledged myself to make adjustments, if need be month by month—whether to assist investment or to maintain high employment—because my basic aim at all times, as I hope I made clear a week ago, is that Britain should make the maximum use of the manpower and resources available to her to achieve maximum output. But that output must be directed in future far more than it has been in recent years towards investment and exports.
Nevertheless, the right hon. Gentleman, in making his judgment and deciding what to do about taxes and their levels, must have had a figure in his mind for the growth target for the first half of next year. We want to know what it is.
The right hon. Gentleman must know that one would have to adopt different targets and different policies according to the extent to which, for example, the economy responds to the export opportunities which may or may not be open to it. It is impossible at this time responsibly to fix targets. Meanwhile, I am compelled to make a judgment, and most outside opinion thinks that probably I have got it right—
I am grateful to the right hon. Gentleman for giving way. I am sure that we were right last year to publish forecasts. The excuses which the right hon. Gentleman is making are pathetic, and they can be seen to be pathetic. The figures are available in the Treasury forecasts, and there is no reason why the House should not have them.
I do not think that by that intervention the hon. Gentleman either absolved himself from the idiocies which he perpetrated last year or fixed any blame on me.
The judgment which I have made in my Budget is the median position of most commentators. Yesterday, of the three more expensive Sunday newspapers, one thought that I had been too deflationary, the second thought that I had been too inflationary and the third accompanied a sermon, in which its city editor claimed that tax avoidance was now a patriotic duty, with two articles, one taking each of the opposing views.
But more important is the almost universal agreement inside and outside the House that, while we must begin to narrow the balance of payments deficit this year, we must do so slowly and steadily and cover the residual deficit by borrowing. It is extremely important that we should borrow in the right way and on the right scale in order to influence and protect the effective exchange rate. That is why I have reinforced the reserves with a Eurodollar loan amounting to $2,500 million, in which so much interest, rightly, has been shown. I thank the Leader of the Liberal Party for his kind words about the loan.
The House will be glad to know that the terms are first class from the Government's point of view. The period is 10 years. The interest rate will vary with the going Eurodollar at three, six or 12 months' periods at the Government's option. The margin on the inter-bank rate averages 0·5 per cent. for the first seven years and less than 0·6 per cent. for the whole 10 years of the loan. The loan will be drawn down at appropriate times of the Government's own choosing, although no decisions have yet been taken about that.
Some hon. Members asked why I did not go to the IMF. A drawing from the IMF would, under present rules, cost less than a Eurodollar loan, but it would be for a shorter term—for three to five years. I have not ruled out the possibility of using the United Kingdom's drawing rights in the IMF later in the year if that should prove to be necessary, but a drawing from the IMF could not possibly have been arranged in the three weeks available to me, and, in any case, I was determined in that period to make absolutely clear the Government's ability and determination to cover the prospective deficit. The efficiency and speed with which the Bank of England was able to make these loan arrangements through the clearing banks has been a source of considerable gratification on both sides of the House.
The rate at which we made this loan is far below that at which the previous Government sought to attract funds to London. Indeed, the rate at which the previous Government sought to attract private funds to London has been a major cause of excessive interest rates which are now both discouraging investment and wrecking the finance of the building societies.
I believe that the steps I have adopted will help us to maintain the present effective rate of sterling. The House must recognise that the fall in the rate of sterling from June 1972, when the pound was set afloat, has been an important cause of inflation. It was responsible for one-third of the rise in import prices in the following 15 months. It also cost us a great deal in guaranteeing our sterling balances. The House will be aware of the new guarantee which I have arranged for the holders of sterling balances. The new guarantee is in terms of the effective rate for sterling, and it will cost us much less than the last one, if we are ever called upon to implement it. I also believe that the steps I have taken will give us a much better chance of holding the exchange rate than did the policies followed by the previous Government.
I turn now to the consequences of the Budget and to some of the major criticisms that have been made of it in the debate. I will first say a word about the dog that did not bark in the night. Many hon. Members on both sides of the House believed that the advent to power of a Labour Government, or even the possibility that a Labour Government might come to power, might lead to serious pressure on the £ sterling. In fact, the effective devaluation of the pound has been a good deal less in the past three weeks than it was in the six months which preceded the General Election.
The Budget has been received very well abroad. The leader which has been widely quoted in the British Press from the New York Times was typical of foreign comment. This reception of the Budget abroad and the consequence for the parity of sterling will be important for the control of inflation in Britain. The reception of the Budget by those who take an interest in these matters abroad—who by no stretch of the imagination can be described as revolutionary Socialists—is in surprising contrast to the reaction of the Stock Exchange in Britain.
I admit that the Stock Exchange has been less than enthusiastic about my Budget. Indeed, there is some danger of people talking themselves into a recession—aided and abetted, as so often in the past, by the less responsible voices on the Conservative benches. But the central issue is the effect of the total Budget package on business profitability and on the prospects for investment. My right hon. Friend the Chancellor of the Duchy of Lancaster dealt with this matter in his inimitable way this afternoon, and I shall seek to decorate his remarks this evening.
Nobody can deny that there are some heavy burdens which business has to carry in Britain today. I refer to dividend control, price control, control of profits on domestic sales, the increase in the prices of the products of nationalised industries and the very high interest rates which I hope we may be able to keep down. But all these handicaps were either imposed or supported by the same right hon. Gentlemen who criticised them today.
On top of these specific handicaps of policy, there has been the effect on British business of the three-day working week, which was introduced by the Conservative Government and supported, to its eternal shame, by the CBI. What have I done to British business to compare with the handicaps imposed by the Conservative Government? I have closed some tax loopholes—but is there any Conservative who will get to his feet to say that I should not have done so? I recognise that there may be some aspects of the measures I have proposed affecting foreigners in Britain that will require careful consideration, and the House will have an opportunity to consider those matters when we discuss the Finance Bill. I can assure the Opposition that I shall not show myself to be doctrinaire on any matter relating to the Finance Bill; I am prepared to judge the issues on their merits.
All I have done—apart from closing tax loopholes which should never have existed—is to add 2 per cent. to the expected rate of corporation tax, bringing it up from 50 to 52 per cent.—where it will still be lower than the effective rate of company taxation in the United States. On top of that, I have asked for a 50 per cent. increase in advance corporation tax. But this measure encourages investment because it applies only to distributions. From this point of view it has little effect on close companies, which distribute very little of their profits. It will be offset by a reduction in mainstream corporation tax liability at the end of the year when business may need the money more than it does today.
There has been a great deal of talk in the House this afternoon about the liquidity problem from which business is now suffering. Let me give the House some facts. In the third quarter of last year—the last quarter for which we have figures—corporate liquidity in Britain amounted to £9,500 million. That is three times the total British defence bill, four times the total tax liability of the companies concerned, and 15 per cent. of our gross domestic product. It may well be that liquidity has fallen particularly during the three-day working week, but I see no reason why the mass of British business should find itself short of money for investment in the coming year. I understand that this is the CBI's view. The CBI's worries concern the following year. But if difficulties arise for specific companies, I have made it clear that I shall see that the banks do their best to help to provide them with money for investment or stock building. It is a great pity that last year business disposed of 21 per cent. of the funds available to it for productive investment simply by putting the money into the banks.
The most important contribution that we have made to business in terms of investment is to give it the guarantee of steady and continuous growth. It has this in this Budget. I have also given business the guarantee for which I was asked by the CBI before the Budget—that I shall monitor the situation to make sure that, however the world situation changes, this steady and continuous growth can be maintained.
No one knows better than the Leader of the Opposition that, historically, the level of profits in Britain has very little to do with the level of investment. I sympathised very much with his words when he attacked British business in a very well-publicised speech at a luncheon with the Institute of Directors. He said:
The curse of British industry is that it has never anticipated demand.
Speaking of his party, he went on:
When we came in we were told there weren't sufficient inducements to invest. So we provided the inducements. Then we were told people were scared of balance of payments difficulties leading to stop-go. So we floated the pound. Then we were told of fears of inflation: and now we're dealing with that. And still you aren't investing enough.
The Leader of the Opposition was quite right. It is very difficult to find any technique by which any British Government, Conservative or Labour, can stir British industry—
—I am glad to see that the right hon. Gentleman agrees with me—into using its money, when it has it, to provide productivity for the future.
Business is in a uniquely favourable position today. It has no limit on the profits that it can make from exports, and I hope that British business will now turn to exports for the profits out of which it can increase its investment.
The Stock Exchange has never been regarded as an accurate representative of productive industry in Britain. Nor, I fear, is the CBI always an accurate representative. But I hope that on this occasion the motto of British business in this respect will be, "Do as I do and not as I say." I notice that ICI, which has produced so many distinguished leaders of the CBI, decided the day after the Budget to go ahead with its biggest investment programme for many years and to invest £150 million in Britain. We were told by its chairman that spending is needed now to meet anticipated demand two or three years ahead and to increase the company's penetration into world markets. That sounds like good investment planning to me, and it is an example which every firm in Britain would do well to emulate.
I turn now to the major issues of the debate in this House. I deal first with redistribution. The right hon. and learned Member for Surrey, East (Sir G. Howe) made it crystal clear where the real disagreement in this House and in the country lies when he said that
…the central fallacy that underlies the thinking of the Government…
…that we can advance the social condition of the people of this country by redistribution. We have passed that point…".—[OFFICIAL REPORT, 28th March 1974; Vol. 871, c. 668.]
In this Budget, we have carried out a major redistribution which will have major effects on the life and social wellbeing of the community as a whole. I have increased income tax by £470 million in this Budget. Of that sum, £395 million comes from the 3·5 million taxpayers who are earning more than 1½ times average incomes—about £3,500 a year. Only £75 million comes from the 17·5 million people who are earning less than one and a half times average incomes. For nearly half of taxpayers, the 10 million incomes which are below £2,250 a year—just under average earnings—there is a net reduction in direct taxation. I believe that this type of redistribution through the tax system makes a major contribution to the health of the community as a whole—and I intend to go a great deal further before I have finished, especially in helping those I have had no power to help on this occasion who are too poor to pay income tax at all.
Leaving the matter of redistribution, where they have not a leg on which to stand, the Opposition then attempted to argue that I was redistributing in this Budget only by raising prices to everybody.
What are the facts? Food subsidies are cutting the RPI by 1·5 per cent. and the rent freeze is cutting the RP1 by 0·7 per cent., a total cut of 2·2 per cent. Indirect taxes are raising the RPI by 1·75 per cent., so there is a net gain on RPI of nearly 0·5 per cent. from the measures that I have mentioned.
The Opposition have tried to fix the whole of their case that I am raising prices by the increases in the nationalised industries' prices. But that argument was finally scuttled, to his credit, by the right hon. Member for Leeds, North-East tonight because he made it crystal clear that the last Government would have raised the nationalised industries' prices by the same amount as we have raised them.
Would the right hon. Gentleman have cut the subsidy, which now stands at £500 million after my measures, below £500 million? What further increases in the RPI would he have brought about to achieve that goal? Would he have cut it by less? In that event, by what increases in what sort of taxation? The right hon. Gentleman cannot escape these questions. The fact is that these increases in the nationalised industries' prices are the inevitable consequences of the previous Government's profligacy in the past. The responsibility for the inheritance that we carry belongs to the previous Government, not to this one.
It is interesting that the Opposition appear to accept that we should subsidise the nationalised industries to the tune of £500 million, although those subsidies are totally indiscriminate going alike to rich and poor, to the private individual and to the great corporation. Yet they say that to spend the same amount to subsidise basic foodstuffs is wrong although a subsidy on foodstuffs going to private individuals is more important the poorer a person is, the more children he has in the family and, above all, if he is an old age pensioner. In the end, the whole of the Opposition's critique of the Budget amounts to saying that we should not help the family and the housewife to the same extent as we are helping the nationalised industries.
I am not surprised that the Opposition have had some difficulty during the last eight days in flogging themselves into a fury over this particular matter. Although they use words like "national bankruptcy", and "a legacy extremely damaging to the national interest", they do not believe it and they know that they could not make the country believe it. That is why they are not dividing the House tonight.
The fact is that this whole debate has been a mock battle with wooden swords. The Opposition are handing in their swords to teacher tonight until the next time to play the game. They will not win the nation's respect in this way, nor even the respect of their own party and the country. I ask the House to reject the Opposition's party games and to accept this Budget as a first step to economic recovery and social justice.
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of amendments with respect to value added tax so as to provide—
I am now required, under Standing Order No. 94, to put successively without further debate the Question on each of the remaining 32 Ways and Means Resolutions, on the two procedure motions and on the Money Resolution, on all of which the Finance Bill is to be brought in. Instead of reading out each motion in extenso I propose to follow the procedure used in recent years; that it to say, I will first state the title of a motion and then put simply the Question "That the motion be agreed to."