Capital Transfer Tax

Budget Resolutions and Economic Situation – in the House of Commons at 12:00 am on 12th November 1974.

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Motion made, and Question proposed,That a tax be imposed on the value transferred by certain dispositions made on or after 26th March 1974 and on the value treated on death and in certain other circumstances as so transferred.—[Mr. Healey.]

5.15 p.m.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

It is always the privilege of the Leader of the Opposition after a Budget Statement to offer the congratulations of the House to the Chancellor of the Exchequer on the manner in which he has delivered it. This occasion is no exception to the rule. Indeed I add a particular congratulation, because I know, as some others may know, that the Chancellor has been suffering from a difficult throat—if I may put it that way. It is therefore all the more commendable that he should have given us a statement lasting an hour and three-quarters and that his endurance should have held up to the end. I therefore offer the Chancellor the congratulations of the House, and I should also like to offer some preliminary remarks to the House on what he has said.

Some outside observers have described this as the gravest Budget to be delivered since the war. I certainly agree that it is delivered in the gravest situation that we have had since the war, a situation that many of us have never ceased to emphasise. The Chancellor touched upon the world dangers at the beginning of his statement. He is, of course, absolutely right. The danger is the challenge to the Western world in the adjustment to the fivefold increase in oil prices over such a short time. There are, too, the internal challenges.

But what a difference there is in the statement made by the Chancellor today and his statement only nine months ago in March. What a difference between his statement in the House last July, the pre-election Budget Statement and the statement today, the post-election Budget Statement. That difference is now clear for all to see. The plain fact is that he has reversed so many of the policies that he produced last March, so many of the policies that he changed again last July for electoral purposes, and is now forced to change them again to deal with the economic situation.

This is the third Budget in nine months. I said at the time the right hon. Gentleman produced his first Budget that I should never criticise a Chancellor who produced a new Statement to deal with changing circumstances. That is not what he has done today. He has produced a Budget Statement to deal with the damage that he caused last March. That is what the Chancellor has done.

What is more, the right hon. Gentleman has reversed the attitude he adopted in his July statement and on which he fought the election. He never fought the election on what he has put forward today on taxation, and Labour Members know that full well. One can see that from their response to the Chancellor's speech. The Chancellor did not fight the election on the additional taxation that he has proposed; not at all. Indeed, the Chancellor has done the same as his predecessor, the present Foreign Secretary, who fought the 1966 election on the basis of no increase in taxation and then a month later imposed the selective employment tax and increased taxation by £250 million.

What if the Chancellor had gone to the country and said that he intended to increase taxation? What if he had gone to the country and said "We are going to cut back local government expenditure", instead of spending the whole campaign criticising his opponents on the alleged ground that they were going to cut back local government expenditure? What if he had gone to the country and told people about the increased taxes that he has just enumerated and added "Of course there is no possibility of avoiding increases in prices deliberately created by the Government".

Let us contrast that with telling the country that inflation was now down to 8·4 per cent. That figure was the Chancellor's responsibility in the General Election. It was never down to 8·4 per cent. It was deceit by the Chancellor—statistical deceit—and now it has been compounded by a deliberate increase in prices by the Government. The Chancellor says "Of course there is no way of avoiding it. We are doing it quite deliberately."

What is more, the Chancellor is putting up nationalised industry prices, but he has not told us by how much they are going up, when they are going up or what will be the impact on the retail prices index when they are put up. How, then, can we form any judgment of the extent to which the improvement in social service benefits will be able to cope with the increased rate of inflation, with the increased rate of the RPI, which the right hon. Gentleman has already given us, and with the increases in nationalised industry prices?

The Chancellor was not even prepared to tell us what the increase in the price of any grade of petrol will be. Can he not face the House or even tell his own back benchers? Very well then. What is it going to be, 10p or 12p? Why does not the Chancellor tell us how much the price is going up for each grade of petrol so that the country can know now? He has neither the guts nor the honesty to tell the House what the position is.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

I do not think that it would be right for me to interrupt the right hon. Gentleman's first electioneering speech.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

Does not the Chancellor know what he has done to the price of petrol?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

If he knows, why is he not prepared to tell the House? Why is he not prepared to tell the country. Why is he not prepared to tell the Press, so that the information can be published tonight? What a disgraceful performance by a Chancellor of the Exchequer.

Photo of Mr Cranley Onslow Mr Cranley Onslow , Woking

On a point of order, Mr. Deputy Speaker. As the Chancellor has said that he does know what the price increases will be, would he care, if he will not reveal them, to justify to the House the fact that he refuses to—

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. The hon. Gentleman knows that is not a point of order.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I am sorry, Mr. Deputy Speaker, that the Chancellor is unable to inform you of the implications of his Budget or about what measures he has actually taken.

I want to say to the Chancellor of the Exchequer that, although he gave us an account of what has been happening to the economy in the past, he did not give us an account of what he foresaw happening in the future. Indeed, I believe that he was extremely optimistic about the indicators in the economy at this moment. That is only in keeping with his attitude all through the election campaign.

However, in one sentence one point did emerge, and it is of the greatest importance if the Chancellor means it. He said that earnings under the social contract must do no more than keep pace with the cost of living. If they do that, he will certainly not have inflation down next year to the 10 per cent. that he has hitherto claimed. It will be nothing like it. It will still be much nearer 20 per cent., and the consequences of that for this country are enormous.

However, the Chancellor went on to say that if earnings did not keep within that range—in other words, if the social contract were broken, as it is constantly being broken today—the only alternative was to cut back demand and create unemployment. That is the most significant sentence in the whole Budget Statement today, because it shows that when we ask the Government what is their alternative to the social contract, or when the Foreign Secretary says "It is the social contract or nothing", what the Chancellor of the Exchequer believes is that, as the social contract has failed, his only purpose in future is to cut back demand and deliberately create unemployment. That is the only interpretation that can be put upon his statement today.

I want to mention these indicators because the Government indicators already show that industrial production is in fact lower than it was a year ago. Most worrying of all is the indicator of wholesale prices in October, which has just been published, showing that the cost of material and fuel bought by manufacturers in industry is up 3¼ per cent. in October on September—3¼ per cent. in one month alone. That must work itself through the economy in prices, and it is the most reliable indicator which the Government have as to what is happening. The price index for home sales of manufactured products rose by 1¾per cent. in October alone. That shows the increase which is now going on. The rise in the wholesale price index, which also has to work its way through industry, was for the last six months at an annual rate of 21·2 per cent., and if food, drink and tobacco are taken out the annual rate is 23·5 per cent. That is what is happening today. That is the level of inflation which has to work through the economy.

The Chancellor left all of it entirely untouched in his speech. And then one can look at the rest of the indicators which are clearly set out in the CBI survey. The Chancellor himself has paid tribute to that survey and said that if it did not exist he would have to invent it. Investment' is now the worst in the 16 years since the survey has been carried out, except for the immediate period after the July measures of 1966. A 10 per cent. fall in 1975 is what is expected as a result of that survey, and 15 months ago the forecasts were the highest ever on record. That is what the present Government have managed to do in 15 months to investment prospects in this country.

Unit costs are increasing to a record in history, and that is what is governing our competitive position. Export orders are slackening and we are losing competitiveness. This is what the CBI survey shows. This is why I say that the Chancellor in those charming words has been over-optimistic. In fact, he has not told the House the truth about what is going on.

Production at the moment is limited by reasons of credit and finance, and in a moment I shall deal with what the Chancellor has done about industry. Liquidity is extremely bad; he has done something about that. Employment is weakening. Those are the general indicators, but so far as exports are concerned the position is particularly worrying

What has the Chancellor done? First, he has revealed that the borrowing requirement is already £5,500 million—double what he prided himself on getting last March. It is under his administration that the borrowing requirement has gone up. On his own accounting, it has doubled. He has now increased it by another £800 million to the fantastic size of £6,300 million.

One remembers the criticisms that the right hon. Gentleman made of the last Conservative administration, and his boasts that he had brought the borrowing requirement down to £2,700 million, in fact as a result of the reductions in Government expenditure which he had inherited from us. Now we have a borrowing requirement of £6,300 million, most of which has to be covered by borrowing abroad. That is the situation that the Chancellor of the Exchequer has created here at this moment.

When it comes to public expenditure, the Chancellor has not given us any indication of what the cuts in Government expenditure will be or, indeed, whether there are to be any. He mentions defence. He mentions local authorities. I remember the indignation from all right hon. and hon. Members on his side every time there was any suggestion that any local government project should be cut. Now what is he doing? He is saying that it was wrong for local authorities to increase their projects or their expenditure on their own independent judgment, and so there must be control of local government activities. What do his supporters think about that as a general approach to local government? That, too, is where he has changed his whole position.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

Will the Leader of the Opposition examine the increased cost as a result of local government reorganisation?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

Of course. What the Chancellor of the Exchequer has said, which he would never say before for fear of offending local authorities and his own back benchers, is that action on local government expenditure has to be taken. We were taking that action and, of course, we were damned by the party opposite and damned throughout the election campaign for doing it. That is where the Labour Party has been returned on a fraudulent prospectus.

When it comes to the question of personal taxation, we welcome the tax relief for the elderly and what the Chancellor has had to say about that. We cannot support him, of course, in trying to put back the arrangement for the personal taxation of investment income, where he is hitting at savings and those who are living on comparatively small incomes. We believe that to be quite unjustified.

On the question of the pensions uprating and family allowances, as I have said we shall have to see how this stands in relation to the additional burdens that the Chancellor of the Exchequer is putting on the community.

On the question of the Price Code, this again is the consequence of what the right hon. Gentleman's Government and his colleagues did in tightening up that code on 1st April. Of course, when one has a stagnant economy one cannot possibly operate with a productivity allowance of 50 per cent. That was absolutely plain at the time. For political reasons, however, regardless of the consequences on industry, the Labour Government tightened up the code to that extent. The questions now are these: are the changes that are to be made workable? Are they so complicated that it will be made infinitely more difficult for industry, shops and services to work them? And will they be worth the trouble that they have caused?

We as a Government examined this question, and we know all the difficulties and complications of doing it. That is why we rejected it in the very first instance because we judged that selectivity could not be operated in this way, and if one tried to operate it the number of people who would get round it would be so large that it would be worthless".

The real situation with which we have to deal is that the unions have to all intents and purposes got a free-for-all on wages but there is still price control. It is what they have always wanted. It is what they asked for in the Chequers talks and the No. 10 talks, and we always said that one could not operate an economy with any degree of success or get profitability or investment if one had a free-for-all on wages and at the same time a strict control on prices. That goes to the heart of the matter when the Chancellor is dealing with prices.

Now we come to the real criteria on which we ought to judge this Budget, and I shall deal with them briefly. First, the real task is to prevent tthe immediate collapse of a large part of industry and the machinery for financing it. It is really the task of saving private enterprise, or enabling private enterprise to save itself.

When it comes to what the Chancellor has done, the open question is whether it is enough. The right hon. Gentleman set a total for next year of, I think, £1,600 million or £1,650 million—in other words, £1·5 billion. Most commentators believe that something between £2·5 billion and £3 billion is required. That is the general analysis. Therefore, it is an open question whether what the Chancellor has done will be enough to deal with the situation.

Here again we come to the Chancellor's statement on his first Budget: I see no reason why the mass of British business should find itself short of money…in the coming year."—[OFFICIAL REPORT, 1st April 1974 Vol. 871, c. 1007.] What a judgment that was in March.

Now the right hon. Gentleman comes along today and says "I must give them at least £1·5 billion in order to try to enable British industry to save itself". But here again the obligation on industry is still there. It is not being freed from tax. The tax obligation is still there. So how much confidence can industry have when at some future date it will have to meet that obligation just the same? If people in industry go to a bank and their creditworthiness is to be judged, this overhanging tax liability must be taken into account. The real problem of British industry at the moment is that so much of it cannot show the profitability that would enable it to go to a bank and prove its creditworthiness for a loan.

The Chancellor says that he has made arrangements for Finance For Industry to have large sums of money, but he did not give the actual amount.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I am sorry, I missed it. Others have said that the sum would be £1,000 million.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

The right hon. Gentleman did not listen.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

Yes, I did. I listened very carefully, but the Chancellor must realise that parts of his Budget Statement were extremely complicated. How will the FFI use the £1,000 million? The Chancellor said that it was a normal commercial transaction. If that is so, unless companies can show profitability which justifies something from FFI their position will remain the same as it is now.

Therefore, one comes back to this point: will what the Chancellor has done in postponing a tax obligation and changing the Price Code enable companies to get sufficient profitability to get investment from FFI? There must be grave doubts as to whether that is the case. Where one has profitability at the moment at a level of about 8 per cent. over British industry and inflation running at at least 17 per cent. and increasing, how can a firm show that it is justified in going either to a commercial bank or to FFI for the credit it ought to have? This is the crux of the matter so far as the Chancellor is concerned.

The right hon. Gentleman took one or two minor measures to help companies—well and good. However, he has done nothing to help agriculture in its present perilous plight. Agriculture is in a worse condition now than it has been since the 1930s, and it is constantly ignored by the Chancellor of the Exchequer. Whether what he has said about the capital transfer tax will be sufficient to enable people to pass on their farms to their heirs is something we must look at in order to see whether what again are complicated proposals are sufficient to do what is necessary. In any case we shall debate this matter many more times in future.

So far as the construction industry is concerned, naturally a change from 40 per cent. to 50 per cent. is welcome for industrial building. But that will not save the construction industry from the disaster it faces today. The decline in private housing means that it is 55 per cent. down in the third quarter of this year compared with the third quarter of last year. Public sector starts were 11 per cent. down last quarter compared with the previous quarter. That is the crisis that the construction industry is facing.

The Chancellor talks about the particular difficulties of individual industries, but he has done nothing basically to change the position of the construction industry. Therefore, looking at the problems of industry today, I take leave to doubt whether what he has said is sufficient to enable British industry to put itself on its feet again and to carry out the obligations that it has to the country.

Looking at the task of restoring industry and the City to the position in which they should be, I see nothing in the Chancellor's measures that in the longer term will solve the basic problems of industry and finance of which he spoke. When it comes to a restoration of private savings, there is nothing in this Budget to encourage private savings. When it comes to maintaining international confidence, with a borrowing requirement of £6,500 million everybody is bound to ask the extent to which the Budget will reinforce international confidence in this country, particularly when it is realised that insufficient has been done to help industry to get back on its feet.

Finally I use the criterion of the extent to which the Budget is mastering inflation. It is, of course, deliberately putting up prices, and that is demand deflationary—provided that wages and incomes do not rise proportionately. But, of course, it is the Chancellor's policy that they should rise proportionately and, therefore, one is still on the inflationary course.

If these increases were being used, as perhaps the Chancellor may hope, surreptitiously—because of those hon. Members on his side sitting below the Gangway—to reduce the standard of living, he could claim that he was beginning to get on top of inflation. But he cannot claim that because he knows full well that the wage increases over the past six months have been well above the increase in the cost of living, and all the indications are that they will remain so. That, then, is the real position when one comes to judge this Budget Statement against what is required to meet the present situation.

In his peroration the Chancellor echoed the Prime Minister in his Guildhall speech last night when he appealed for national unity which would bring us together and enable us to overcome these problems. There is nothing in the Chancellor's Budget which will help us to create national unity. In fact, what the Prime Minister said echoed what the Foreign Secretary said: that it is the social contract or nothing. What that means is that if the social contract is to be effective in order to have—let me use a neutral term—a sensible arrangement about wages, we have to accept a Socialist State, because that is what the other side of the social contract means. That is no basis for national unity in this country. The Government are trying to create a Socialist State and, on the other hand, we are still not getting a sensible response on wages.

How, then, can the Prime Minister, the Foreign Secretary or the Chancellor of the Exchequer appeal to us, to the House and to the country to have national unity in this situation? The plain truth is that the Chancellor, the Prime Minister and the whole Government would be in a far stronger position if they had been prepared when in opposition to support sensible measures to deal with national problems. Now they come along and bewail their fate. Having completely reversed their policies of last March and of last July, they now appeal for national unity.

I must tell the Chancellor of the Exchequer that on the basis which he has put forward there is no possibility of this country accepting a Socialist State in order to try to implement some nonexistent arrangement on wages. We face grave problems at this moment—the dire threat to British industry and to our financial institutions, the dire problems confronting agriculture, the indicators in relation to our export position and the other indicators which I have given today. The Chancellor's proposals are inadequate to deal with the present situation.

5.41 p.m.

Photo of Mrs Ann Taylor Mrs Ann Taylor , Bolton West

Thank you, Mr. Deputy Speaker, for calling me this afternoon to speak in this very important debate. I have already learnt that time in the House is precious and I am, therefore, particularly grateful to you for calling me today.

As this is my first speech to the House, I start by acknowledging the work of my predecessor, Mr. Redmond, during the four years that he was a Member. His predecessor, who is now my hon. Friend the Member for Widnes (Mr. Oakes), also earned the reputation in Bolton of a good constituency Member, and I recognise that I have high standards to maintain.

In a Budget debate there are many things which every Member, not least a new Member, would like to urge the Chancellor to do. All of us can think of many schemes and projects on which we would like him to spend money. We all have our own list of priorities. However, in view of the country's economic problems, it would indeed be irresponsible and foolish to expect that the Chancellor could meet all our demands.

We need to put forward policies that will improve our economic performance and our economic strength. This is, of course, what my right hon. Friend the Chancellor has been doing this afternoon. What we have to recognise is that we must concentrate attention not only where we want to spend money but where we think that resources can be saved. That is why I greatly welcome the statement made by the Chancellor this afternoon that we shall have a national campaign against waste.

I hope that we shall see action on this matter in the near future, because our society has yet to recognise that we cannot afford the luxury of wasting so many of our limited resources. We cannot continue for ever adopting the shortsighted attitude of a society in which everything must be disposable, in the short term at least. Today we live in a society where the paper cup and paper tablecloth, and even paper sheets and plastic spoons, are taken for granted. We never count the real cost of these items. Planned obsolescence is now accepted by our society and we are now conditioned not to expect anything to last any length of time.

There are many different ways in which our society wastes its resources. For example every housewife knows, when she empties her shopping bag and puts away the shopping, how much paper, rubbish, cardboard, polystyrene and all sorts of other packaging ends up in the dustbin. We have layer upon layer of excessive and expensive packaging, most of which is not needed to maintain the quality of the goods we buy. If one buys a pound of apples in a supermarket today, one buys also a plastic tray and a load of cellophane. The housewife cannot afford the extra cost of all this, and the country cannot afford the waste and misuse of resources in this way.

We as a society are also extravagant in not re-using the waste which we make. The Government's recent Green Paper "War on Waste" points the way and shows what recycling takes place and where waste is greatest. The recommendations of the Green Paper should lead to early action. Although this will cost money, it is money which we cannot afford not to spend.

However, what is needed is not only an increased amount of recycling but a change in attitude. The Government have shown that they are willing to lead the way. Now it is up to local authorities, companies and individuals to follow the Government's example. Many of the resources we use will become more expensive and more scarce, and in the end we shall have to use all our waste and there will be no alternative but to recycle the things we use at present. It would be better to step up recycling and reclamation now in a planned way than wait until emergencies arise.

As the Chancellor said, we are wasteful of both physical and human resources in the way in which we use roads for carrying goods which should be carried by rail and the way in which we use private vehicles and in our neglect of public transport. That is why we must accept as necessary the measure which the Chancellor mentioned of an increase in value added tax on petrol, even if some Opposition Members could not work out their sums and find out exactly what that would involve.

We are wasteful in our use of new land for building rather than reclaiming old land and derelict sites, and in the way in which we give insufficient attention to industrial injuries, industrial accidents and areas such as preventive medicine. This causes a great deal of suffering as well as losing us a great deal of money.

We are wasteful because we do not make full use of the talents of our children, when we prevent and discourage them from developing these to the full, because of the rigidities of our educational system. We do not make the best use of our womanpower because of the discrimination against women which exists in education and employment. I hope that this waste will diminish when the House leads the way in changing attitudes when it makes discrimination against women illegal. All these matters are important and have been neglected because of our short-sighted approach to them.

One other way in which we waste resources, and which is of particular concern to my constituents in Bolton, West, is the waste which results from not making full use of the resources of our regions. We have not yet developed successful regional economic policies to provide the new vigour which the regions need and which would increase the strength of the country.

In Bolton and the North-West there is a need for more and a greater variety of jobs in order to discourage young people from moving from the area. There is also a need for greater Government assistance with such problems as derelict land and buildings, which constitute not only an eyesore and a dent to the civic pride of our town but also an enormous waste of resources. The regions and the towns cannot alone solve the problems facing them and Government help is vital.

In the past, Governments have tried to bribe and persuade industry to move to the regions, but previous policies have had only a marginal effect on regional prosperity. We now have only one alternative, which is a more direct approach on the part of the Government. The time has come for the Government to be more interventionist to ensure that the development of industry takes place where it is needed most. I hope that the planning agreement system and the National Enterprise Board will help in that respect. I hope that by direct and selective intervention those two systems will bring new life to those areas, as the Chancellor indicated that he hoped they would.

Regional aid can clearly benefit the areas that receive it, but it could also benefit those areas that are becoming increasingly congested by reducing the pressures and problems of congestion. That in turn would plainly help the country as a whole by allowing a more efficient and a less wasteful use of resources.

We frequently hear—it is true—that all we want to do in respect of housing, education or social services depends upon the country's economic performance. With the failures in the private sector, the country's economic performance increasingly depends on the actions of the Government. That is why I welcome the measures outlined by the Chancellor today, particularly his assurance that the Government will give a lead to ensure that our society is less wasteful in the future.

I am glad that the Government have emphasised that power resources are limited. We must be realistic about that. We must realise that help at this stage can be given only to those who need it most. The measures about which we have heard this afternoon are realistic and relevant to the problems faced by this country. As such I welcome them and the action proposed by the Government.

5.51 p.m.

Photo of Patrick Cormack Patrick Cormack , Staffordshire South West

It is a pleasure and privilege to be able to congratulate the hon. Member for Bolton, West (Mrs. Taylor) on her maiden speech. I think that it is only the second time that I have had the privilege of congratulating a maiden speaker. The first was the hon. Member for Bolsover (Mr. Skinner). I am sure that the hon. Lady will make to the debates in the House contributions which will perhaps be a little less contentious than those of the hon. Member for Bolsover. When I first heard the hon. Gentleman I said that I hoped that the House would hear him many times in the future. I hope that the House will hear the hon. Lady many times in the future, but not in quite the same way.

The hon. Lady paid a gracious tribute to her predecessor, Robert Redmond, whom we on this side of the House miss very much. That tribute was in the best traditions of the House.

I thought that in concentrating upon the problem of scarce resources, reclamation and recycling, the hon. Lady underlined a problem that we should all have close to our hearts. I have taken a deep interest in the subject for a long time, and I believe that I coined the phrase "war on waste", which the Government have now claimed for their Green Paper. I am delighted about that, If the hon. Lady concentrates on that issue in the future she will be making a contribution in an area of national life that is of vital importance.

Having paid a tribute to the hon. Lady, which I am delighted to do—she will add grace and charm to our proceedings for some years to come, at least till the next General Election, I trust—I must now, regrettably, pay less of a tribute to the Chancellor of the Exchequer. I consider that, faced with a grave challenge and great responsibility, he has evaded the challenge and funked the responsibility.

I thought that the opening passages of his brilliantly delivered speech were extremely powerful—a good, and persuasive analysis, but when he came to the remedies he was less reliable. At the beginning the right hon. Gentleman talked about not disguising realities. When he explained his thoughts on fuel subsidies, and so on, I felt that at long last we were to have a real recognition of the realities of the situation. However, everything that the right hon. Gentleman said on that subject—and in so far as he did anything he did the right things—applies just as much to food subsidies and the money that the Government are squandering in that direction. That is merely disguising realities for our people. It is like putting a picture over a damp patch on the wall. The sooner the Chancellor recognises that and translates that into action, the better for us all.

The right hon. Gentleman said that he had come to do something for British industry. It seemed to me—and I am glad that my right hon. Friend the Leader of the Opposition seemed to have that impression as well—that the Chancellor had done something incredibly complicated. I could not help but wonder whether there was the hand of the Hungarian maestro in the background, and that it was perhaps an obstacle race run to Hungarian rules. However, let us hope that the Chancellor's provisions will help to regenerate confidence in British industry, because if they do not we shall all be feeling sick and sorry very soon.

Photo of Mr John Tomlinson Mr John Tomlinson , Meriden

The hon. Member should tell us what he would do.

Photo of Patrick Cormack Patrick Cormack , Staffordshire South West

I shall come to some of the things which the Chancellor should have done.

First, I do not believe that people in this country have yet woken up to the sort of crisis we are facing, because they have not felt it personally. The Chancellor should have done something, not to penalise the poorer sections of the community—of course not, and so far as he has helped them I welcome it—but to bring home the gravity of the situation.

I would have welcomed an extra tax on whisky and other drinks. It would have been the right thing to have done. I should have welcomed an extra tax on luxury goods. That would have been the right thing to have done. I should have welcomed it if the Chancellor had said that it was time that we did something about credit cards, although not to create the sort of problem which was created for certain people earlier in the year when there was a sudden, overnight change—which can throw real confusion into a family's budget. But if he had said that as from 1st January there will be restricted use of these cards, I should have welcomed it. It would have helped to bring home to ordinary people the fact that we cannot give ourselves more than we earn.

It is time that we had a Chancellor with the courage to do that sort of thing. I am not being wise after the event, because I made criticisms of my party when it was in Government. If the Chancellor had done these things at the beginning of his period of office he would have earned the approbation of many people. To some degree that answers the interjection made by the hon. Member for Meriden (Mr. Tomlinson).

It seems that when the Labour Government talk in terms of public expenditure they have only one thing in mind—defence. That should be the prime responsibility of any Government and the very last thing to be cut, because without an adequately and properly defended nation all the rest can go by the board. Therefore, to talk in terms of defence cuts as though those are the only cuts to make is ridiculous. We must cut our domestic public expenditure. We cannot afford so lavishly to equip our schools. When one is equipping a school there is absolutely no need to put in a colour television set rather than a black and white set. This applies to many things. The question comes down to this—when will we instruct local authorities to cut back such things as road widening schemes and lavish expenditure on the fixtures and fittings in schools, etcetera? There are many such things which we must con template sooner or later. The sooner we contemplate them the better it will be. That is what I should like to have heard the Chancellor talk about.

Photo of Mrs Renée Short Mrs Renée Short , Wolverhampton North East

Is the hon. Gentleman saying that the solution to our present economic difficulties is to cut television sets in schools? That is a silly argument. Is he not aware that education and the health services have already been cut by the Conservative Chancellor last December and are still reeling from the blows which he delivered to them? What else would the hon. Gentleman cut?

Photo of Patrick Cormack Patrick Cormack , Staffordshire South West

The hon. Lady does herself a disservice. Whatever else she is, she has a very acute mind and knows full well that in tossing off a particular example I was not suggesting for a moment that that was the be all and end all. I was merely taking a small, insignificant matter, but there are plenty of examples one can take from public expenditure.

Photo of Patrick Cormack Patrick Cormack , Staffordshire South West

To some degree this is a question of looking after the pennies and letting the pounds take care of themselves, but if the hon. Lady wants another example I shall say it in a word—motorways. A great deal of money is being spent on the motorway programme, which should be cut. Another big example is the ghastly hole that we contemplated digging when we talked yesterday about the Channel Tunnel.

Photo of Patrick Cormack Patrick Cormack , Staffordshire South West

So did I. I am glad that the hon. Lady and I marched shoulder to shoulder on that occasion.

However, when we come to some of the other things in the Budget, it seems to me that the Chancellor was throwing out the odd sop to his brethren on the far Left of his party—the Scan-geld of British political currency. I was appalled when the Chancellor said that he would reverse the decision of the House about the £10 million. That was so grotesquely irrelevant to the crisis which faces the nation as to be an insult to the intelligence of every hon. Member. It will not wash for him to do that and then to talk in terms of national unity.

I come to the capital transfer tax. There are very few who would welcome more than I do the abolition of estate duty and its replacement by something more sensible and comprehensive. But so much of this scheme is motivated by envy and malice. It is all very well for the Chancellor to talk in terms of the need for a profitable sector, but how on earth shall we have a profitable sector without profitable people? How shall we have a profitable sector without giving proper incentive and encouragement to people to aspire to earn more and to own more? As to its being any answer to our problems today, tomorrow and for the next five or ten years, it is totally irrelevant and should have played no part in this Budget.

In so far as the Chancellor talked of some relief for agriculture, we welcomed it. It will not be enough, and I hope that, at the very least, he will extend those provisions to cover forestry. There was no mention of forestry in the Chancellor's speech. Forestry is of vital importance to our economy and to anyone who regards for a moment the beauty of our environment.

When the Chancellor came to his peroration and talked in terms of what he had done, he skilfully avoided reiterating that enormous borrowing requirement. At a time of national crisis, to have stood at the Dispatch Box and talked of uniting the people, having produced a Budget which will increase the borrowing requirement by £800 million, is a black comedy, a grotesque farce. We should not be presented with a Budget which will increase the borrowing requirement at a time such as this, let alone by £800 million.

The Chancellor is banking on oil very much. I believe that we are all making a mistake when we talk of North Sea oil as though it will be the panacea for all our ills and the solution to all our problems. Apart from the territorial claims being wielded so effectively by the hon. Member for Western Isles (Mr. Stewart), there are other considerations. The oil will be very expensive to get out. What will happen when we are getting it out if the Arabs drop their prices astronomically, as they could? Our oil might not be quite the great national benefit that we hope it will be. For the Chancellor to base his judgment on this sort of thing coming right in three, four, five or six years time is wrong.

The Budget has unked the main issues. The Chancellor has not faced up to the crisis confronting the country. We have had a Budget which has not given ordinary people the opportunity to realise that we all have our backs to the wall. I predict that the Chancellor will be back at the Dispatch Box in six months' time, if he is still in office then, with even more severe measures. I hope that the next time he comes to the Dispatch Box, if we are still facing the sort of crisis to which he has probably added today, he will at least have the courage to produce measures which will bring home to ordinary people the fact that if as a united nation we are to face our problems we must, as a united nation, make individual sacrifices.

6.5 p.m.

Photo of Mr Mike Thomas Mr Mike Thomas , Newcastle upon Tyne East

Having heard the speech by the hon. Member for Staffordshire, South-West (Mr. Cormack) I find it almost impossible to do my duty and be non-controversial. The only thing I should find more difficult after listening to my right hon. Friend the Chancellor's speech would be voluntarily to join the staff of the Inland Revenue.

I come to this House in not altogether pleasing circumstances, and I wish to pay a tribute to the late Geoffrey Rhodes, my predecessor, whose dedication to his constituents was well known in this House and was certainly well known in my constituency. He has been missed there as I am sure he has been missed here too.

My constituency is in the unique position at the moment of having been represented here by three people who are currently hon. Members. There is myself, my hon. Friend the Member for South Shields (Mr. Blenkinsop) and the hon. Member for Altrincham and Sale (Mr. Montgomery). The last case, I can assure Conservative Members, was the result of a political aberration which will not be repeated by my constituents. I hope I shall have the support of all hon. Members and of my right hon. Friend the Leader of the House when from time to time I draw attention to the problems of my constituents and of Newcastle-upon-Tyne.

The concerns of my constituents are very much those of everyone in the Northern Region. I experienced some pleasure and some doubt in listening to my right hon. Friend the Chancellor addressing himself to these problems. The first thing that all of my constituents want is a decent home. After that comes a secure and rewarding job, and, thirdly, social benefits that do not mean poverty for anyone unfortunate enough to be old, ill, handicapped, unemployed or widowed. These are the priorities that my constituents would have me urge upon a Labour Chancellor.

On housing I was pleased to hear my right hon. Friend at least imply that housing will be one of the sectors he exempts or, at least, partially exempts—he was not clear on the point—from the public expenditure controls which he intends to implement. Housing construction and the public ownership of the land on which houses are to be built—land which by right is the community's—are provisions of high importance.

I was pleased to hear my right hon. Friend the Secretary of State for the Environment discussing the possibility of cheaper and more speedily constructed housing units. The sad reality for a large number of my constituents is that they are not adequately housed now by any reasonable standards and that they will not be in their lifetime. That is just not good enough. Every time I meet one of my constituents in my surgery and see the reality of their situation, I know that I must tell the Chancellor and the Secretary of State that this is not good enough. It is the job of a Labour Government to do something about it, and I am determined to see that they do. I hope that on that score my right hon. Friend will be studying the impressive record and sound proposals of Newcastle City Council in revitalising and renewing houses as well as in building new units.

I was pleased to hear my right hon. Friend commit himself against mass unemployment. Nevertheless, the prospect of any increase in unemployment is met with considerable worry and concern by people in the Northern Region and in cities such as Newcastle. It is all very well for the people who sit comfortably in the South-East to talk about unemployment going up "slightly" when it may not go up at all in the South-East but may go up much more than "slightly" in constituencies such as mine. The Chancellor's speech lacked positive proposals to do something about that. I have been more depressed since I entered this House by the fact that the whole range of regional policy appears to have fallen into a trough of despond than by any other single issue I have encountered.

This is not good enough. Regional imbalances and inequities are grotesque in Britain. To hear hon. Members from Scotland and Wales talk of the problems of those nations—and I accept in one sense that they are nations—when in several important social and economic dimensions the Northern Region of England is far worse off, and without even a spurious moral claim to any oil, makes me annoyed and concerned. I am pleased to see that the proposals for the National Enterprise Board include plans to set up industries in areas of high unemployment, and I was pleased to hear the Chancellor refer to this, but I agree that a selective approach, to which the Chancellor referred in a slightly opaque fashion, is important in this respect too.

We must put jobs into areas such as the North in order to use the skills of the people there to make commodities the community needs. It is no good if our policies to sustain and create unemployment are not soundly based because they will not fly in the face of economic logic for ever. And it is cruel to those involved to lead them into believing that in the short run their future is secure when they find in the medium and long term that it is not because no one has put industry there which will stay there.

On social benefits, I was pleased to hear the Chancellor proposing to increase pensions and family allowances, although I wish we could get around to the allowance for the first child. I am not sure what the administrative complications are which make it so easy to pay an allowance for the second and subsequent children but not for the first. I have 12,000 pensioners in my constituency and 3,000 children receiving free school meals—even when my constituents are employed they tend to be worse paid than people elsewhere. I therefore welcome the commitment on that front and hope that we can move ahead speedily with them.

I am proud to represent the interests of the cooperative movement in this House. I derive from it a personal interest in public and social ownership, in consumer affairs and in the general question of community participation—of people playing a larger part in the lives they lead and the things that happen around them. I hope to see early progress in the discussions between the Government and the cooperative movement with regard to the Cooperative Development Agency. I do not regard that in the way in which some Conservative Members regard support for industry—as a means of putting money into one sector of the economy. I see the Cooperative Development Agency promoting the whole idea of cooperative forms of ownership and participation. The cooperative idea is still grossly under-exploited. Let us consider, as well as the retail movement, cooperative housing, tenants' self-management and the whole issue of neighbourhood democracy and participation which I believe are still viewed with far too much scepticism by the political establishment. I can see a potential for the cooperative idea which has not yet begun to be exploited.

On consumer affairs, I was greatly worried by my right hon. Friend's references to pensions and subsidies. We are at present operating a system of price subsidies which is justified on exactly the reverse argument to that which the Chancellor used less than an hour ago. I am not privy to detailed discussions between my right hon. Friend the Secretary of State for Prices and Consumer Protection and my right hon. Friend the Chancellor, but I suggest that they should discuss the question a little more. I am worried above all about what happens when the ill wind that has blown us a Minister for consumer affairs stops blowing. I am referring to the ill wind of inflation, which must be regarded with mixed feelings by some of my hon. Friends who have fought for years for such a Minister since the idea was first put forward in 1953 by the cooperative movement. If that ill wind of inflation stops blowing, as we all hope it will, the Minister that it has blown us must not be allowed to go.

A great deal has been achieved in the past two years. I pay tribute not only to my right hon. Friend but to her predecessor, the right hon. and learned Member for Surrey, East (Sir G. Howe). Despite the achievements, there is a great deal still to be done. It is staggering that there is still no legal obligation upon a manufacturer to produce a product that is safe, and that the burden of proof still falls on the consumer to prove that it is unsafe. That is wrong. I should like the Government to address themselves to the matter soon.

We must also get away from the situation in which the common agricultural policy of the EEC at least appears to be dictated by an unholy alliance of farmers and governments. The consumer viewpoint needs strong representation there.

As early as 1951, only two or three years after the nationalised industries were established, there were already reports pointing out the weaknesses of the consumer consultative machinery and committees in the nationalised industries. In 1968 the Consumer Council and the Cooperative Party were reporting that nothing had improved. A little later the Select Committee on Nationalised Industries examined the problem and came up with modest suggestions for improvement, some of which were acted upon by the then Government. It is wrong that all these years later, all these reports and discussions later, the consumer voice in the nationalised industries is still hopelessly weak.

I was pleased to see that my right hon. Friend has included in her proposals for a national consumers' authority reference to examination of the consumer consultative machinery. I hope that she will remember that in our manifesto we made a specific commitment to finance that machinery independently of the State industries concerned. In considering the question of a National Consumers' Authority, for which my right hon. Friend the Chancellor will no doubt be asked to provide finance before the end of the Session, should we not think about its more general rôle? The review of the arrangements for consumer consultation in the nationalised industries seems to me, to judge from the White Paper, to be one of its very few specific functions.

The real issue before the House and the country in consumer matters is just how we help the consumer. Do we do it through the Government? Do we say that they are good enough, that they will be the consumers' representative and that we need little else, or do we do it through pressure groups, such as the Consumers' Association, which freely admits that it can claim to represent only a limited number of consumers, or through an agency such as the National Consumers' Authority? The answer is that we probably do it through a mix. The Government cannot abandon the interest of the consumer, yet the public interest is a wider matter.

I hope that we shall be considering these matters as we discuss our expenditure priorities, and that even in consumer matters we shall not spend money until we have worked out thoroughly what the relationship of a National Consumers' Authority is to be to the fair trading legislation, to the office of Fair Trading to the Consumer Protection Advisory Committee, to consumer advice centres, and even to the Secretary of State herself. After all, the original proposals for a National Consumers' Authority were published by the Labour Party before any of those institutions and persons were in being.

I hope that I shall be forgiven for having ranged wide. This seemed a unique opportunity to speak without interruption, a privilege that I do not expect to have afforded to me again in the House. It may be some time before I catch the eye of the Chair again. I hope that I have not spoken for too long, and that as a result I shall be better able to catch your eye again, Mr. Deputy Speaker. I thank the House for listening to me so kindly.

6.20 p.m.

Photo of Mr Donald Stewart Mr Donald Stewart , Na h-Eileanan an Iar

It is with great pleasure that I congratulate the hon. Member for Newcastle-upon-Tyne, East (Mr. Thomas) on his maiden speech. I also join the congratulations expressed by the hon. Member for Staffordshire, South-West (Mr. Cormack) to the hon. Member for Bolton, West (Mrs. Taylor) on her maiden speech. Both speeches were confident, lucid and well argued. Both had something that is not always found in the House; we could hear them, and it was a pleasure to hear them. I hope that we shall hear them again. The hon. Gentleman welcomed the chance to speak without interruption, but I do not think that when the time comes for his subsequent speeches he will be afraid if he is interrupted.

The Budget is disappointing in many ways, mostly because of its omissions. We had a great build-up about the grave crisis in which the country is alleged to find itself, but we have had another anticlimax of a Budget.

The Chancellor of the Exchequer referred to the balance of payments problem. That is something that a free Scotland would not face, even at present. We export more than we import. The publications of the Scottish Council (Development and Industry), which is not a Scottish National Party body, amply bear that out.

It is unfortunate that the Budget speech contained no urgent plans to assist agriculture in the present grave crisis in the industry. Hon. Members on both sides of the House would have welcomed a measure from the Chancellor to relieve the industry in the desperate situation in which it finds itself.

The same applies to fishing. The costs of gear and fuel have escalated, and at the same time the catches are lower and the prices are poorer. In many parts of the country vessel are up for sale in what was not so long ago a prosperous industry.

I am surprised that the Chancellor made no reference to television licences. I was hoping not that the fee would be increased but that the right hon. Gentleman would say something about a reduction for old-age pensioners. When the previous Conservative Government were in office, a Labour Member introduced a Private Members' Bill to give old-age pensioners a cheaper licence. I am sorry that the Chancellor is not considering such a measure.

I welcome the reference to assistance with the housing programme, which is urgently needed.

But it was with great fear and trepidation that I heard the Chancellor speak about the increased petrol tax, which will create difficulties for the outlying areas of the United Kingdom. It will be extremely burdensome on Scotland, and especially my constituency and the Highlands in general. It is a tax on distance and on places where the transport is poor in any case. We have to bear exorbitant costs for sea transport. Many goods are taken from the South of Scotland by motor lorry. Here we have another burden on top of the almost insupportable transport burdens we already have to bear.

There is also the unfortunate cut-back in local authority expenditure. In this area many urgent items are still outstanding. Instead of digging a hole in the ground to join us up with the Continent, instead of going on with the Concorde, instead of building motorways, we should provide such things as housing and water schemes, which are missing in so many areas of Scotland. We have schools that are more than 100 years old and schools that are bursting at the seams. Those are the priorities. The Government should put them before grandiose prestige projects.

The increase in old-age pensions is naturally welcome, and it is also good that the date of implementation has been brought forward. However, I ask the Chancellor to consider whether April is early enough. Rising costs since the last increase suggest that the increase should be brought in now.

I also welcome the proposed increases in family allowances, which will also be welcomed by families, but like the hon. Member for Newcastle-upon-Tyne, East, I am surprised that there should be a great difficulty about including the first child in these allowances. It would seem that there should be no great difficulty in including the first child.

It is regrettable nothing was said by the Chancellor about a national disability income. An announcement on this would have been welcomed on both sides of the House. Even a modest start in providing a national disability income would be welcome. We realise that it may be thought that it would not be appropriate to start such a scheme at present, but the appropriate time will never come along if a start is not made.

I offer these suggestions and hope that they will be dealt with in the concluding speech from the Government Front Bench.

6.26 p.m.

Photo of Mr John Mackintosh Mr John Mackintosh , Berwick and East Lothian

It is a pleasure to follow the hon. Member for the Western Isles (Mr. Stewart), and I always enjoyed the speeches of his predecessor. There must be something about the Western Isles which produces such speeches, whether they are delivered by members of the Scottish National Party or the Labour Party.

I also congratulate the two maiden speakers, my hon. Friends the Members for Newcastle-upon-Tyne, East (Mr. Thomas) and Bolton, West (Mrs. Taylor), who performed with great lucidity and skill. Seldom has a debate in the House been sustained with such vigour and clarity as has been shown today compared with what is normally regarded as the doldrums of the mid-afternoon.

In the past two weeks the Foreign Office took me on a journey across the United States from Los Angeles to Boston. During the trip I made 33 speeches, what are called, in America, one-night stands—advisedly I should say—talking to all sorts of audiences. No matter what I spoke about, questions seem to come down to one point. People asked: "Is Britain finished—is it defunct?" You have no idea, Mr. Deputy Speaker, the sort of Press which this country gets from people who like and admire it. People came to me and asked whether Britain was finished. There seems to be a general mental image of Britain that, like the "Titanic", it is sinking and a small group of Scots, like the hon. Member for the Western Isles, are trying to launch a life raft to enable the Scots to get away on their own before the British ship finally sinks. This is the kind of picture which has been painted by friends of this country.

I came here hoping that in this debate I should encounter a feeling of the guarded optimism with which I spoke. There are great resources of skill, energy and vitality in this country which must not be underestimated. We have faced challenges in the past and I am sure that we can face them in the next few years.

I shall now look at the difficulties which face the country in the months or years ahead. One of the most immediate fears is still that of a classic run on sterling. We have a £4,000 million balance of payments deficit and we could yet have a July 1966 or November 1967 situation. If there was a major run on the pound, particularly by the Arab holders of money in London, we would have to cut our standard of living by 6 per cent., which would be a major disaster.

How can we shield ourselves against such a danger? The best solution I believe is one upon which the Community has already embarked, namely taking a certain amount of the reserves of European countries and holding them in common. In such a situation there could not be a run on, say, Germany, France or Italy separately. It would be a run on the Community in toto. Such an arrangement allows the stronger members of the Community to support the weaker members. Having put $3 billion of our reserves together with the Community it is right for the Community to re-lend $2 billion to Italy as the country in greatest danger.

The present level of interdependence in Europe is the greatest safeguard for this country against a unilateral crash. No member can afford to let it happen to any other member of the Community. If we observe the attitude and pursue the policies which I suggest, we shall probably be saved from an immediate run on the pound.

If we can safeguard ourselves from this kind of crisis, a second major problem would be the sort of creeping crisis of the kind which has beset our Italian friends in the Community, a situation of steadily-increasing inflation of the kind we now have. The original effect of inflation is to make it harder for us to export. This and the lack of confidence at home discourages businessmen and reduces investment, leading to increased unemployment. The pound could then float further down and prices would rise even further. This miserable kind of creeping debility would get worse. This is probably the major danger facing us.

Much of the Government's strategy to combat this danger rests on the working of the social contract, which is basically its only answer to preventing wages going up and avoiding a further deterioration in our position. The Government have placed great reliance on the social contract backed by some use of the money supply.

I regretted the passage in the speech of the Leader of the Opposition in which he attempted to attack the social contract. When he was in power he attempted, during the meetings he held at 10 Downing Street and at Chequers, to reach a very similar kind of contract with the union movement and with industry. The Leader of the Opposition asked trade union leaders whether they would agree to follow guidelines in co-operation with the Government. He failed to get an agreement, but now the Labour Party has got some kind of agreement.

If the right hon. Gentleman believes in national unity, as I am sure he does to some extent, he should say that he hopes that the social contract succeeds. He should not attack it. He should wish it well and say that it would be a great blow to this country if it did not work. That should be the message from the Opposition. They should not put forward a mesage in which they condemn and belittle the social contract.

For our part I would like to see set up quickly a small committee comprised of representatives of the TUC and the Government which could examine what the guidelines of the social contract mean in individual cases. It is not sufficiently clear what the social contract means when it comes to considering the details of individual cases. Local union officials and shop stewards in my constituency telephone me saying that they fought the General Election together with me in part on the basis of the social contract. I know of cases of shop stewards who want to argue particular points, but need to know more about the particular application of the guidelines in the social contract. It is difficult to give such people clear and definite answers.

If Members of Parliament meet with such difficulty, what must be the position for rank and file trade unionists? We need clearer guidance about what the social contract means in individual cases, so that it can be properly applied.

If the social contract does not work there must be a fall-back position. I hope that it does work, but we need to know more about cases in which it may not be working and about how far it is not working. I have both advocated and defended the social contract, as have some hon. Gentlemen opposite. Those who talk about a voluntary system being best are in effect supporting a kind of social contract. It is in our interests that the social contract works, but we must know about cases in which it does not work and we must have a fall-back position.

I was pleased and interested to hear from my right hon. Friend the Chancellor about other measures relating to a fallback position.

Photo of Mr Timothy Raison Mr Timothy Raison , Aylesbury

Will the hon. Gentleman comment on the fact that one of the objections to the social contract is that it is exclusively a contract between the Labour Party and the trade union movement and that management and industry has no part in it or no control over it?

Photo of Mr John Mackintosh Mr John Mackintosh , Berwick and East Lothian

I would be delighted to comment on that but first I congratulate the hon. Gentleman on what is probably his first remark following his recent appointment as a shadow Minister. I hope he will go on shadowing in this way. I hope to come to his point in due course.

I turn now to other objectives which my right hon. Friend the Chancellor mentioned and which I believe are absolutely right, such as the attempts to push extra resources into exports and to get investment back from its abysmally low level.

If we are facing the prospect of a stagnant economy over the next year or two, and we have to shift resources into exports and investment, this will mean a decline in domestic consumption. This will put a further burden on the working of the wages policy in its various forms.

I come now to the point raised in the interjection. One major object of the Chancellor was to raise the level of investment. To help to do this as well as to prevent a wave of bankruptcies he eased the cash position of industry by £800 million. I would have preferred it if this relaxation had been done in a more simple and dramatic fashion, by cutting a particular tax on industry quite clearly, rather than through the elaborate devices which he has set out. In my experience businessmen are like all other groups in the community. They do not carry pocket accountants and computers around with them. They need to know clearly and simply about the change that has been made.

Also it would have been desirable, in return for the £800 million given to the liquidity of business, if there had been an attempt to draw up a further contract between the Government and industry with the Government saying in effect, "If we ease your position to this extent will you undertake to put a percentage of the money you make back into investment? Will you undertake to put up your investment level if your profits increase or are satisfactory over the next year or two?" A contract of this kind with industry is an essential supplement to the contract with labour because both go hand in hand as an agreement to push forward the economic policies we need to get us out of this immediate crisis.

I would have liked this idea of a contract with industry to be developed. Basically this is a voluntary approach to the planning agreements proposed by the Government. Such agreements are simply an attempt to get increased investment industry by industry. It might have been better to have sought this objective for industry as a whole, rather than firm by firm and to ask industry to undertake to put a certain percentage of its profits into investment, because the present abysmal rate of investment heralds great difficulty in future, when we shall not get the increases in productivity due to a lack of investment in these current years.

I have talked about the relationship between the Government and consumers and trade unions and the relationship between Government and industry. I feel it is also important to say a word in all these debates about the relationship between the Government and agriculture. Agriculture is sometimes regarded as a constituency or special interest. But in terms of the food we consume and what we as a nation pay for imported food, the health of the agricultural industry is not a sectional matter. It is not the problem of one particular industry. It is a national matter.

It is a great pity if, when the National Farmers' Union decides to hold demonstrations around the country, there are attempts to take over the demonstrations by the Conservative Party as if the NFU were a wholly-owned subsidiary of the Tory Party. Let us be clear. The interests of the consumers of this country in a healthy agricultural industry are far beyond the merits of one political party or one party's argument with another. At the moment farmers who could just make ends meet—given the present level of food prices and the cost of inputs into the agricultural industry—at £20 or £21 per live cwt. are getting £13 and £14 per live cwt. This is a disaster. What is so dangerous is that the disaster, like so many others, will not be apparent to the public until 18 months from now because there is sufficient meat in the pipeline, there are sufficient calves to be slaughtered. The full disaster will not come home until the meat shortages will be upon us in 1975 and 1976.

Photo of Mr John Lee Mr John Lee , Birmingham Handsworth

Will my hon. Friend now join with those of us who are opposed to Britain's entry to the Common Market and help to get rid of the common agricultural policy which has been largely, though not entirely, responsible for the present shambles?

Photo of Mr John Mackintosh Mr John Mackintosh , Berwick and East Lothian

I am sorry to listen to an interjection from a relatively intelligent Member which shows that he knows nothing whatever about the common agricultural policy. If we had taken the intervention price of the CAP we would not be in this present mess. Let me be clear about this. The Tory Party when in Government removed deficiency payments. The Labour Party, in Government, then opted out of the basic intervention system. They left the agricultural industry with absolutely nothing. They left it with escalated costs, but no fall-back position on prices. In this situation we should now be prepared, clearly and decisively, to help the agricultural industry because, just as we need to put liquidity back into industry, so we need to restore the position in agriculture.

I feel generally that the position in this country is not as gloomy as some of us have painted it and certainly not as gloomy as people abroad think it is. We have faced far greater crises in our time. The only thing that bothers me is perhaps a certain lack of psychological resilience. I do not see why we should not emerge from these problems satisfactorily but we have to tackle them with a certain degree of clarity, interest and lack of partisan bickering of the kind we have unfortunately seen this afternoon.

6.41 p.m.

Photo of George Young George Young , Ealing Acton

Many of us on the Tory benches will wish that the views of the hon. Member for Berwick and East Lothian (Mr. Mackintosh) were more widely shared on the Labour benches. The only fault in what I thought was a truly excellent speech was that he paid no tribute to his predecessor, Mr. Michael Ancram, who represented the constituency for eight months, until the last election. I am sure that the hon. Member will put that right when he next speaks. Obviously the hon. Member was not anticipating winning the last election because he had arranged an extensive lecture tour to take place immediately after it.

Many of us felt that the debate on the Gracious Speech was somewhat unreal because it took place against no financial framework. What the Chancellor has told us today has pulled the rug out from under the Gracious Speech. In the debate on the Address we had Minister after Minister, including the Prime Minister, hoisting up the sails and unfurling them. Now we have had the Chancellor from his vantage point in the crow's nest saying that there are storm clouds overseas and the sails have to come down again.

The Chancellor has totally undermined the credibility of the Gracious Speech which we debated last week. Many of us will disagree with the underlying philosophy of what the Chancellor said. He started on the basis that the social contract was working, whereas many of us believe that it is not. I go along with what the hon. Member for Berwick and East Lothian has said, that we must define the social contract a lot more clearly so that we know whether it is working.

The situation we have at the moment is a complete nonsense, with half the House saying that something is within the social contract and the other half saying that it is without it. We have to resolve that position as soon as possible. I hope that the clear warning which the Chancellor of the Exchequer gave in his speech of what would happen if the social contract failed will accelerate that process of definition.

The Chancellor appealed for national unity. It seems that no speech in this House is complete without such an appeal. One might have hoped that, given that appeal, he would have buried all partisan legislation. In fact he did exactly the reverse. He exhumed a particularly evil-smelling bone from the Labour Party's political cemetery and deposited it on the Floor of the House. I refer to the £10 million refund to the trade unions. It is an affront to the people of the country that this measure should be reintroduced.

The Labour Party had the grace to leave it out of its manifesto in February. I do not know whether it was in the more recent one. It is an affront to the common sense of the people that this £10 million should be repaid. Those sections of the community who might legitimately have expected something from the Budget, single-parent families, single child families, the disabled who are campaigning for an allowance of their own, will see that the Labour Party is giving £10 million hack to the unions but is ignoring them. People will draw their own conclusions about where the priorities of Labour Members really lie.

have three questions to put which I hope will be dealt with later in the debate. First, why is there no incentive to save in the Budget? There was nothing in what the Chancellor said to encourage people to save. In times past the money which industry has needed for investment has come from the private savings of individuals. Those have been eroded and investment now has to come from the public sector with complicated safeguards. We have to rekindle the incentive to save. There was nothing in the right hon. Gentleman's speech to do that.

Secondly, there was nothing to convince the overseas depositor, the institutions such as the IMF and countries in the Middle East, that we intend to conduct our affairs in a responsible fashion. It was the previous Chancellor, now the present Foreign Secretary, who in the last Labour Government had to admit that they were blown off course because of storm clouds overseas, because he forfeited the confidence of people outside the country whose funds we need if we are to survive. If that confidence is not won, the Chancellor will be back at that Dispatch Box within weeks with another Budget to deal with the run on the pound.

My third question, or series of questions, arises from what the Chancellor said about the nationalised industries. We on the Tory benches would like to know what, for example, would be the cost of postage if the nationalised industries are to be put on a viable footing. What will be the cost of a telephone call if the Post Office telecommunications sector has to pay its own way? What will be the cost of rail fares, for example London to Ealing Broadway, if British Rail is made profitable? What will happen to electricity and gas tariffs if the subsidies to nationalised industries are removed?

We can judge the effect of the Budget on the retail price index and on pensioners only if we have that information. I hope that the information I have requested, which I am sure is available somewhere, will be forthcoming during the debate. If the Chancellor thinks that he has tackled inflation, I suggest that his salary should be related inversely to the cost of living index.

The British people seem to have two partly conflicting characteristics. On the one hand, people respond generously and partriotically to a crisis and make deep personal sacrifices for the common good. On the other hand, if people perceive that certain sections of the community are not bearing their share of the burden they feel understanably resentful. What the Chancellor said will add to the feeling in the country that certain sections of the community will not have to bear the burden. The social contract is to remain unamended. Certain sections of the community will be free to secure large wage increases in the coming months, and other sections of the community will not have that power. That will contribute to a feeling of injustice, which is not the right atmosphere within which to tackle the economic crisis.

Many people would have been prepared to make greater sacrifices than were called for. As has been said, a tax on alcohol and increased betting levies would have been a fair way to get purchasing money out of the economy. Then we could have done something more for the sections of the community which I mentioned. Without the feeling that everyone is bearing an equal burden, I do not think that the Chancellor's measures have a chance.

6.46 p.m.

Photo of Mr Ken Lomas Mr Ken Lomas , Huddersfield West

I have been in the House for 10 years and I learn something every time I come into the Chamber. The hon. Member for Ealing, Acton (Sir G. Young) argued in favour of subsidies to keep down the cost of living. What a wonderful argument to come from a Conservative. I should like to take him up on that argument, but I promised Mr. Deputy Speaker not to keep the House for more than 10 to 12 minutes.

Photo of George Young George Young , Ealing Acton

I made no plea on behalf of subsidies. I merely asked for some information so that we could judge the impact of the Chancellor's measures.

Photo of Mr Ken Lomas Mr Ken Lomas , Huddersfield West

By implication the hon. Gentleman was saying that if subsidies were removed the price of a telephone call and of a rail journey from London to Ealing would be increased.

I agree with the hon. Gentleman that the Chancellor could have introduced an incentive to save. That would have been a useful exercise.

I have pleasure in congratulating my hon. Friends the Members for Bolton, West (Mrs. Taylor) and Newcastle-upon-Tyne, East (Mr. Thomas) on their maiden speeches. My hon. Friend the Member for Bolton, West is a maiden in the truest possible sense. She lives in my area in Colne Valley. Unfortunately the hon. Member for Colne Valley (Mr. Wainwright) is not here, although he is Liberal spokesman on economic affairs. I notice that no Liberal Member is present. The speeches of both my hon. Friends were fluent, and it is obvious that we shall hear a great deal more from them in future.

At the conclusion of the Chancellor's statement the Leader of the Opposition seemed to whip himself up into a hot lather. He seemed to be fighting two battles, one against the Chancellor, which he lost, and the second against his own party which he has already lost. It is unfortunate that the Leader of the Opposition should have been so upset when the Chancellor said only what we promised during the election campaign to say, that we would tell the country the truth, the whole truth and nothing but the truth. The Leader of the Opposition tried to make great play of the damage that the Chancellor had inflicted on the country in his March Budget. Whatever the Chancellor did in March was nothing compared with the damage inflicted by the Tory administration with the three-day working week in January and the cuts made in December 1973. It was because the previous Tory administration did those things that the Chancellor had to act as he did.

We must face the facts of life. No Labour supporter has ever blamed the Conservative Party for the rise in world prices or for the fivefold increase in the cost of oil. Constantly during the election campaign we said that the problem was that nothing had been done to protect the consumer against the effects of rising prices. That was precisely why we introduced food subsidies.

It is no use hon. Gentlemen showering abuse upon the social contract unless they are prepared to put something in its place. All that the Opposition could put in its place was confrontation.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

Does not the hon. Gentleman foresee the possibility of the TUC trying to see that the social contract is enforced, perhaps in the same way as the TUC tried to see that its own recommendations on the Industrial Relations Act were enforced?

Photo of Mr Ken Lomas Mr Ken Lomas , Huddersfield West

I hope that the leaders of the TUC, recognising that the Government in power will fulfil their side of the social contract in terms of social services and housing, will give their support. I would expect the support of the TUC and trade union leaders. I go along with what the hon. Gentleman may be implying, that those at the top end of the social or wage scale must be prepared to hang back so that those at the lower end, such as the ancillary health workers for instance, are allowed to catch up. I hope, from what has been said this afternoon by the Chancellor, that there will be some reaction from the TUC on this matter.

I am a litle unhappy about the Chancellor's statement on subsidies and nationalised industries, with the implication that almost an economic price should be paid for the services provided by the nationalised industries. We are dealing not just with pensioners but with the lower paid, and if the subsidies are removed from the lower-paid workers entirely, we are simply asking for them to put in another wage claim, which will start up the wages spiral all over again. I think that that is wrong.

The Chancellor was absolutely right to make it abundantly clear that the policy of the Labour Party is not to create unemployment to solve the problem, but to create employment in distress areas where necessary. If industries or companies come to the Government and say "We are x million pounds in the red and we want some help", in the interests of those employed in those industries we should make a loan. Then we are entitled to demand a commensurate share in the control of that industry, dependent on the amount of money we have invested. There are many other subjects that we shall discuss in Committee, among them the price code and corporation tax.

I welcome the Chancellor's statement about the social services. It will be made plain to the ordinary man and woman in the street and the trade union movement that when we make a promise we keep it. The fact that in April 1975 pensions go up to £11·60 for a single person and to £18·50 for a married couple is a step in the right direction to show that we as a party and as a Government are determined to honour our side of the social contract, but we have to be careful that the lower-paid workers—and there are many lower-paid workers on less than £20 a week—do not fall below what we are to pay retirement pensioners.

I agree with what has been said about family allowances. I cannot understand the difficulties, except the problem of cash, that prevent a payment for the first child. The latter should be looked at again to see whether something can be done. We welcome the fact that there is to be an increase for the second and subsequent children.

A political point has been made about the increase of VAT on petrol from 8 per cent. to 25 per cent. The Leader of the Opposition could not work it out. One almost felt like sending for Sir Alec Douglas-Home and his box of matches to help him. For every three or four miles that one travels it will cost one penny more. That is not asking a tremendous amount and it is a price we should be prepared to pay.

Photo of Mr Patrick McNair-Wilson Mr Patrick McNair-Wilson , New Forest

What is the hon. Gentleman's computation for a gallon of four-star petrol?

Photo of Mr Ken Lomas Mr Ken Lomas , Huddersfield West

Taking it on a basis of 54p or 55p, if one adds 8 per cent., it comes out at about 4p, which one multiplies by about three times, so that the answer is 12p extra per gallon.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

Perhaps I can help my hon. Friend. Some hon. Members seem to be having awful trouble, as my hon. Friend says. There are difficulties in the calculation, even for right hon. Gentlemen, because of the different grades of petrol. It would add about 8½p per gallon of four-star petrol.

Photo of Mr Ken Lomas Mr Ken Lomas , Huddersfield West

If it is 8½p per gallon, it depends how far one is going to travel on a gallon; it is as simple as that. It is an issue one can make a song and dance about, but I do not think that it is vital, because, as has been said, it will not affect public transport or derv in any way.

I was glad to hear the Chancellor say that at some time in the new year we shall have a White Paper on defence cuts. Although it is essential that we should have an adequate defence force we should look at the vast amount of money we are spending on defence to see whether there are ways in which it can be cut.

I sound a note of warning to the Chancellor on local government expenditure. It is no use telling local authorities that they must reduce expenditure when they are strained to breaking point trying to provide the schools and houses that are needed in their areas. My area of Kirklees has been neglected for years by Conservative-controlled and Liberal-controlled local authorities. Huddersfield, in particular, has never been Labour controlled.

We have been pressing for new schools. Only two days ago I had a letter from the Under-Secretary of State for Education saying that our constituency could have two new schools, Stile Common and Mount Pleasant. And everyone was delighted. But who will pay for them? Where will the local authority get the money?

We should recognise that we cannot squeeze local authorities much more unless we reduce the services that we are prepared to offer to the general public. I for one am not prepared to see services reduced when that reduction is in terms of reducing the number of schools or houses required. I hope that the Chancellor will take note of that.

Finally, I believe that this Budget is realistic and relevant. It is one in which we can go for the future, and it will see us through till the next one is presented in April next year. It deals with the present situation. I wish the Chancellor well, and I hope that his Budget, as it goes through its various stages, will receive the support of the House.

7.1 p.m.

Photo of Dr Reginald Bennett Dr Reginald Bennett , Fareham

I shall not follow in his wide discursus the hon. and gallant royal marine from Huddersfield, the hon. Member for Huddersfield, West (Mr. Lomas), except to say that I trust that in the White Paper, to which he is looking forward, his royal corps will not find itself ceasing to exist, of which I have some fears.

I will not go broadly into the considerations of the Budget as a whole. I wish to deal with one narrow point. Whether the social contract works or not we shall know in the darkest months of this winter. Probably most of my right hon. and hon. Friends will agree that something has been done to help industry in the Budget, and I, for one, am heartily glad.

The point on which I want to make favourable comment is the concession granted in connection with space heating installations. It is rather unexpected. I had a hand in attempting to draw attention to this injustice in the past. This matter relates to Statutory Instrument 2129/1973. Space heating installations were treated as if they were the same as ordinary consumer throwaway goods, whereas they were inalienable parts of the property to which they were fitted. They were fixtures in the most fixed way possible. One could not pull out the central heating pipes like spaghetti from under the floor or round the skirting boards.

It was a gross injustice, which I took up with the Minister at the time. I received a somewhat cooling letter. I had it confirmed in a letter I received, dated 30th October, from one of the companies in my constituency which approached me about the matter, that there was no hope of a concession, but that correspondence would be referred to the Chancellor.

I must say that I am heartily glad on behalf of prospective users of central heating, of those who manufacture it, and of the country's welfare as a whole, that the system of payment for central heating equipment will be changed from paying one-third deposit and two years to pay the rest to paying one-tenth deposit and five years to pay the rest. It is a very big difference in the treatment of what is, surely, a benefit all round but, in particular, a benefit towards the cause of fuel economy and a benefit for those who wish to invest in property of their own for their own comfort.

I make this short intervention to say how pleased I am, on behalf of those concerned, that this has been done to help the country in a narrow sector, but one which greatly needed relief.

7.4 p.m.

Photo of Mr Giles Radice Mr Giles Radice , Chester-le-Street

agree with the hon. Member for Fareham (Dr. Bennett) in his welcome for the concessions to the space heating industry. It will help employees in my constituency, too.

The House has heard tonight two excellent and lucid maiden speeches from my hon. Friends the Members for Bolton, West (Mrs. Taylor) and Newcastle-upon-Tyne, East (Mr. Thomas). The speech of my hon. Friend the Member for Newcastle-upon-Tyne, East was particularly effective when he was discussing the problems of the regions and when he made a plea for more help for the regions.

I welcome back to the House my hon. Friend the Member for Berwick and East Lothian (Mr. Mackintosh), who was in extremely good form.

The less said about the speech of the Leader of the Opposition, the better. The right hon. Gentleman appears to have abandoned his rôle during the election as the architect of national unity in favour of an electioneering posture for the leadership of the Tory Party. For a serious leader of a so-called serious party, that was not good enough. For somebody who has been calling for national unity to speak in the terms in which the right hon. Gentleman spoke this afternoon was deplorable.

In a world of scarce resources, any Chancellor's task is, by definition, very difficult. I think most people would agree that the problems facing my right hon. Friend are almost uniquely daunting. Our balance of payments, despite an encouraging and swift reduction in the non-oil deficit, remains extremely weak. We still have the largest current account deficit in the world, amounting to nearly 5 per cent. of our gross national product, and the improvement in our balance of payments is due not to an increase in exports or a reduction in imports but to a large rise in export prices and some reduction in import prices.

Whatever the exact figures—and we can argue about them—it is clear that our rate of inflation is extremely high, so much so that it threatens the existence of some firms, makes the life of the weaker groups—the old folk, the large families, the sick and disabled—almost intolerable and, as it has operated so far, ensures that there are no increases in real standards of living for ordinary people.

Next, employment. Here again, although there is uncertainty about the figures, there is no doubt that the trends show unemployment rising at an unacceptable level, particularly in the development areas. I know that in some quarters, particularly on the Opposition benches, there are those who say, "The unemployment figures have been grossly exaggerated and they are, in fact, far lower."

The right hon. Member for Leeds, North-East (Sir K. Joseph) has, I understand, suggested that at least half, if not more, of the unemployed are either between jobs or unemployable. It has been shown that the right hon. Gentleman has not done his homework, or he would have known that even those who are unemployed for eight weeks or less suffer considerable hardship. The majority do not receive redundancy payments. A significant minority do not even receive unemployment benefit and, equally important, a Department of Employment survey showed that at least one-quarter of the short-term unemployed had been unemployed at least twice during the previous year. As for the so-called unemployable group, a recent PEP study showed that the vast majority of the long-term unemployed want jobs but have not been able to get them, and they suffer greatly as a result.

If, instead of starting ill-considered hares, the right hon. Member for Leeds, North-East had devoted his attention to the problems of regional unemployment, and if he had said that the unemployment problem in this country was at least partly a regional problem, I should have had some sympathy with him. Like many other hon. Members from northern constituencies and constituencies in development areas, I, too, am deeply disturbed by the rise in the unemployment figures. For example, in the Northern Region the male unemployment level is now 6·2 per cent. That is the highest rate in the United Kingdom outside Northern Ireland—in many towns it is much higher—and it is three times higher than in the South-East. I am also certain, from all that has happened in the past, that if unemployment continues to rise as it has done it will be areas such as the Northern Region that will suffer most. For all those reasons I am glad that the Chancellor has made the maintenance of full employment one of his main objectives.

In facing the country's economic problems, the Chancellor has had many formidable handicaps. First, the information on which he had to base his Budget judgment is almost totally inadequate. We do not know what is happening with regard to unemployment, nor what will happen, and I should like to know the Treasury forecast for unemployment during 1975.

What is the real position concerning company liquidity and company investment intentions? What is happening, and will happen, to world prices, on which some of the Chancellor's strategy must be based? These are all vital questions to which the Chancellor does not have any adequate answers.

Some of the instruments with which the Chancellor must work in present conditions are unusable. Others, for social and other reasons, are entirely inappropriate, while others still are there only in embryo. I take three examples. There are some signs that our currency may be overvalued, but, for internal reasons, a straight devaluation would be totally impossible. Effective fiscal remedies against wage inflation would create a level of unemployment which would be totally unacceptable, and statutory controls as they have been worked in the past would not only be divisive but would be effective only in the short term. I am a strong supporter of the National Enterprise Board, particularly for the creation of regional employment, but I must admit that it is likely to be effective only in the medium term.

The Chancellor faces another handicap, and perhaps his most formidable one. All the familiar landmarks of the post-war world have gone, so much so that none of the economic pundits seems to have much idea of what ought to happen and what should be done. I do not believe that my own party has a monopoly of economic wisdom.

I am strongly in favour of an extension of public ownership, but I am not so naive as to believe that a change in ownership solves the problems of employment, inflation or the balance of payments. Any British Chancellor in the mid-1970s must be uncomfortably aware that his action in one area can affect what happens in another. On the other hand, he must be more uncertain than ever of the interconnection between the different economic and social variables.

So, in this uncertain and difficult world, what are the tests by which we should judge the Budget? There are basically three: first, has the Chancellor helped to create a climate in which Britain's problems can be tackled realistically and resolutely? Secondly, has he, by reducing some of the glaring inequalities in our society and helping some of the weaker groups, begun to forge a real sense of national purpose? Thirdly, has the Budget made any significant contribution to solving our major economic problems?

On realism, the Chancellor scores high marks. He did not mince his words and he made it absolutely clear that we face an extremely difficult problem. He explained extremely lucidly the effect of the increases in oil prices on the world economy and on the underdeveloped countries. He was realistic about the balance of payments problems, inflation and unemployment. He was clear in his objective that there should be a shift in resources to export and investment and that there must be realistic energy prices and some selective help to industry. The Chancellor has created the right climate for a realistic approach.

On social objectives, the Chancellor has done just about the minimum necessary, and no more. He has, in fact, come pretty close to it. He has increased pensions. I share the view of many hon. Members that it is a pity he has not extended family allowances to the first child. I believe that he could have done that. We must welcome the priority he is giving to housing and the health services in any public expenditure strategy, and we must welcome, too, the tax on capital transfer.

But it is in considering the Budget as a contribution to solving our major economic problems that I have some reservations. I do not think that he has done enough about the balance of payments. I accept that we cannot solve our balance of payments problems overnight. We probably cannot solve them in four or five years. We must rely extensively on borrowing. However, it is clear that, if there were a run on the pound, we should be very dangerously exposed. I hope that the Chancellor has emergency measures for direct controls on imports, because these may be needed.

As regards inflation, I thought that the Chancellor was not as enthusiastic as he might have been about the social contract. I disagree with what has already been said. I think that he relied far too heavily on the money supply. I feel that he should have placed greater emphasis on the social contract and on the necessity of making it work. I agree with my hon. Friend the Member for Berwick and East Lothian in that I think that this needs further elaboration.

I turn now to employment, the area about which I am most worried. I think that the Chancellor was right to help industry and to give that help on a selective basis. However, I am disappointed that he has not done more for the building industry, and, above all, that he has not done more for the regions.

It is true that we do not have the most effective instruments to hand. The National Enterprise Board is not yet in existence. But that strengthens the argument for having something now to tide us over the winter and carry us into 1975. After all, the regional employment premium is still less now, after being doubled, than it was in 1967. I know that everyone in the Northern Region will be extremely disappointed that we have not received something from the Budget to help us over the winter.

I believe that the Chancellor has made a brave attempt. He has been realistic about the problems, he has been clear in his objectives and he has produced a socialy concerned Budget. I only hope that he has got his sums on the economy right, particularly as regards employment, and especially employment in the regions.

7.18 p.m.

Photo of Mr Patrick McNair-Wilson Mr Patrick McNair-Wilson , New Forest

I agree with the hon. Member for Chester-le-Street (Mr. Radice) in hoping that the Chancellor has got his sums right, though he did caution us all about the dangers of economic forecasts. I hope that he will not be afraid to come back to the House should the situation change dramatically.

The Chancellor told us something, as did my right hon. Friend the Leader of the Opposition, about the serious situation which we now know that Britain faces, the most serious since the end of the war. Our situation is an amalgam of a number of different problems. The speed at which oil prices were increased during the last 12 months is one of those problems, but I do not think that any hon. Member thought that the world could carry on indefinitely without a rise in oil prices. It was the speed at which they rose which created the imbalance, not only for ourselves but for many other countries.

I was in the Gulf area on business only two weeks ago. Talking with oil producers, one finds that many of them wish to see oil prices substantially reduced. One must remember, however, that the members of OPEC are a large group, not confined to the Middle East. To reduce those prices requires agreement among many nations. However, the OECD report has made clear that, if prices remain as they are, by 1980 oil production will be about 42 million barrels a day, and consumption will be down to about 28 million barrels a day. These figures lead me to believe that, if we can overcome the short-term oil problem we may in the 1980s find that oil is not only plentiful but almost a glut on the market, because so many industrialised nations in the past simply did not seek alternative forms of energy.

The part of the Chancellor's speech which needs the most careful attention was that dealing with energy costs. He made a point to which I wholeheartedly subscribe, that energy costs should as nearly as possible reflect the true cost of producing that energy.

One has then to raise some questions which were not answered by the Chancellor in his speech. Does that mean, for instance, that the mine workers' wage increases—I shall not quarrel at the moment about whether they should have them—are to be reflected in the cost of coal to the consumer? If they are to be so reflected, the effect of the substantial wage claims which are already in the pipeline for the coal mining industry, quite apart from those which have already been granted, will be titanic, not only on electricity generation but upon the steel industry and all the products that flow from it, and will be every bit as difficult to absorb for the domestic consumer as any oil price increases over the past 12 months.

I caution the Chancellor and the Treasury Minister who is to wind up today to give us an indication of the time scale against which these increases are to take place. There is a danger that, if an attempt is made to create a commercial situation where there is a balance between the true cost of producing the energy and the cost to the producer, this will be a strain which our economy will not be able to manage.

We are a four-fuel economy and, to a greater or lesser extent, we depend almost exclusively upon two fuels, namely, oil and coal. It think it is said that previous Governments have not been nearly quick enough to increase the amount of electricity generation based on nuclear power. Even the announcement made by the Secretary of State for Energy before the General Election does not lead us to anything much more than a large pilot operation.

There is also the question in the Chancellor's speech of the use and conservation of products and the use of waste. Another area in the energy field to which one might devote many hours of careful attention is the burning of waste to produce space heating in homes and elsewhere.

Having said that about the increases which the right hon. Gentleman has suggested may flow from his statement, I should have thought that this produced for the coal mining industry the most wonderful opportunity that it has ever had. As a result of the increases in oil prices, the coal mining industry can play a more significant part in our direct economic survival than it has for many years. Those members of the National Union of Mineworkers who are to ballot in the next day or so as to their productivity deal should realise that the opportunity which now exists for that industry is enormous. Industrial peace, particularly if it can be related to the direct productivity of individuals in the industry, must be something for which we must work. The Chancellor's statement today should give those moderates who wish to see that deal put through a great deal of extra encouragement.

There is one part of the Chancellor's Budget which worries me considerably. It is the part related to the increase in the cost of petrol. It was said that the Chancellor did not have the courage to say at the Dispatch Box that we are now talking about 63p per gallon for four-star petrol. It required questions to his hon. Friend and a comment by the Chief Secretary to elucidate this fact. Some of us have predicted that before long petrol will be £1 per gallon.

The effect that these increases have on those living in rural areas is dramatic. In my constituency, in the New Forest, an area of 440 square miles, if one does not have a motor car it is difficult to survive. The running down of the railway services, and indeed the taking up of railway track, in the past together with the lack of effective rural bus services—I am not apportioning blame here—has led to a situation in which a car is not a luxury but an absolute essential.

The Chancellor told us that he hoped that the increase in the old-age pension would offset the costs to those pensioners using motor cars. It cannot be like that in the New Forest. The increase in cost will not be met by the increases in pensions which the right hon. Gentleman outlined today.

The Government must seriously consider providing some kind of relief for those living in rural areas. It will not be good enough merely to say that public services and those who can claim back their value added tax are the majority, of motorists. There are those who need a car essentially for shopping, for visiting the doctor, and so forth. An increase of 8p, to 63p per gallon, for four-star petrol will have an extremely deleterious effect on many individuals in my constituency. I should have thought that either the Chancellor could introduce some form of direct relief, which could be made available to those entitled to claim it, or that there should be the provision of perhaps a dyed petrol available at certain pumps for use by people in rural areas. I believe that this is a matter to which we must return later.

I do not know whether the very thin support on the Government benches this evening is any indication of the support which the Government have for the Budget. Hon. Members could be forgiven for feeling less than happy about it. Although the Chancellor faced a situation in which, as he said at the beginning, the most important decisions had to be taken, and as, indeed, the Press and the media had told us, it would be one of the most important Budgets since the war, he sat down leaving a large number of questions totally unanswered.

The right hon. Gentleman told us, as we had been told on successive occasions by the present Government, merely that a review of our defence costs is taking place. People in my constituency at the military port of Marchwood want to know what that means in terms of their livelihoods and their jobs. They want to know—not in a few weeks' time, which is the phrase which has been used on so many occasions: they want a firm date and some firm figures.

Those in local government service will also want actual figures put against the costs and the cuts which are to be made under this Budget. Those farmers in my constituency who need an immediate cash injection—it is not enough for the Minister just to shrug his shoulders—will feel that this Budget has taken no account of the real problem which this country faces, which is somehow to reduce our dependence upon imports and to do more for ourselves, to be more self-reliant.

I believe that this Budget, though it points to many of the problems which we face, does not provide the answers which are essential if we are to survive. It is in a sense a song without words.

7.29 p.m.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley , Caernarvon

I am very worried tonight because I cannot but feel that the Chancellor, after making a most interesting analysis of the situation, has not taken the steps necessary to meet the many worrying problems which face the countries of these islands at this time. What he has done may be too little, and it may not be soon enough. Many questions remain unanswered. I shall comment briefly on one or two aspects, and then delve more deeply into one or two serious matters which affect my constituency.

First, one feature that I welcome in the Chancellor's analysis is his flexibility. He has introduced a new flexibility. He referred to considering questions of industrial investment and help at plant level. That is something we shall greatly welcome, though companies will want to know what detailed proposals he has on this, as on many other matters. They will want to know whether projects already being undertaken may be affected.

Now that we have a net borrowing requirement of £5,500 million, the message is really coming home to us that we are living in a Britain that is next to bankrupt. Despite my constitution ambitions for the countries of these islands, I do not welcome that fact. It is something that will hit the ordinary people of these islands in a devastating way. I think the truth is coming home about the millions of pounds that have been spent on prestige projects over the past decade; projects which the countries of these islands could not afford, projects such as those mentioned yesterday, namely, the Channel Tunnel, Concorde and defence expenditure. If there is to be a reduction in expenditure to meet some of the problems now facing us it seems to me that after what we have heard today there will have to be a considerable reduction in defence expenditure, and the sooner we have a statement of the Government's intentions in this direction the better.

The Chancellor referred to some of the problems facing us. He referred to investment priority, to having prices set realistically, and to monetary control. These are all good intentions, but I wonder whether they will be undertaken in the right way. Investment must be a priority, but I wonder whether the Budget provides sufficient incentive for that investment. Is there sufficient incentive for the capital formation increase that is absolutely essential to the economy? We need a greater supply of capital in the economy to bring down the price of capital, and I am certain that the interest rates currently prevalent are one of the crucifying aspects of the economy in these islands.

If it is not possible—and from the proposals contained in the Budget it would appear not to be—to increase the voluntary capital formation, will the State have the necessary powers, and will it use those powers wisely enough to ensure that there is capital formation in the public sector? Can we have capital formation in the public sector at the necessary level when we have a net borrowing requirement of £5,500 million?

I come now to the question of prices being pitched realistically. What will be the effect, particularly in the short term, of fuel prices in the public sector, at a time when inflation is already serious? It has been said tonight that the inflationary rate will be pushed up from 20 per cent. to 22 per cent. per annum. I wonder whether this is the time to switch direction. I suspect that pitching prices realistically will defeat one of the Chancellor's other objectives, namely, the control of inflation.

I come to money control. There are arguments for looking at the monetary control aspect, but I wonder whether, at a time when unemployment is rising, as has been mentioned by hon. Gentlemen opposite, we are not in the situation that we may get runaway unemployment as a result of monetary control.

The aspect of the Budget that will hit my constituency and rural Wales hardest is increase in VAT on petrol. It is no exaggeration to say that a motor car is essential to life in constituencies such as mine. In Caernarvonshire, Merioneth and other constituencies in rural Wales the income per capita is extremely low.

A parliamentary answer that I received in May showed that income per capita in Caernarvonshire was £349, compared to £663 as an average in England. And yet the car ownership, per 1,000 population, is more than 300, compared to an average of 254 in England. That shows the need for a motor car in everyday life.

People with relatively low income have to travel perhaps 20, 30 or 40 miles, and the effect on them will be catastrophic—and this is in an area that has been hit by the Government's agricultural policy. Beef farmers have been hit very hard, and they will be hit hard again by the Budget.

We need positive action. I suggest that the Government look at the possibility of reducing or abolishing the road fund licence in rural counties, because these are geographically definable. I ask the Government to look at the possibility of assisted travel to work for those who have to travel farther than a threshold mileage, so that those who travel, say, 30 miles can have some allowance, either against their income tax or by some other method to meet their travelling costs. This is a matter of urgency in my constituency, and I ask the Government to look at the matter on this basis.

There are other aspects of the Budget that will not be welcomed in my constituency. We welcome, of course, the statement on capital transfer tax so far as agriculture is involved. This was an essential step, but I suspect that many small businesses will be hit by the Government's proposals. It would be good for small businesses on which many rural areas such as mine depend if it were possible for the Government to consider thresholds before bringing in this measure so that they could be exempted in some way.

I join other hon. Members in welcoming the increase in pensions, but, with the increase in energy costs that will inevitably follow, I wonder whether a pension increase in April will not have been swallowed up before it is granted.

We welcome the increase in family allowances, but, regrettably, the first child has not been included. We hope that it very soon will be. We hope also that it will be possible to increase these payments still further, because the cost of living for the families that need it so much will escalate in the coming months.

There are, therefore, considerable worries about the Budget. If there is to be a cut-back on expenditure on the public sector in local government, I implore the Government to make it very sensitively indeed, because if it means an increase in the rates there will be a rate rebellion on a mammoth scale.

In my area, and in most areas of Wales, we have been landed with a reorganisation of local government, with all the implications of cost increase. If we have been saddled with an unwanted reorganisation, let us at least have the manpower and resources to make it work, otherwise the whole machinery will be in danger of crumbling.

I add a plea for another sector that has not been mentioned in today's speech, namely, the disabled. I very much regret that the Chancellor was not in a position to guarantee disablement income. The disabled—even in these hard times, and perhaps even more so in these hard times—deserve our sympathy.

As I listen to speeches on the Budget I cannot help feeling that three Budgets in a year are too many, but I doubt whether we shall see our way through to April without having further reconsiderations of the financial position into which we are moving. I suspect that by January, in the depths of winter, we shall need another touch on the tiller, if not a complete change of the course on which we are moving. It is for that reason that I am somewhat depressed tonight.

7.37 p.m.

Photo of Mr John Lee Mr John Lee , Birmingham Handsworth

I have considerable sympathy for the hon. Member for Caernarvon (Mr. Wigley) and his constituents in some of the predicaments to which he referred, although I do not necessarily agree with him. It may be that some special provision can be made to assist or to relieve those who live in rural areas of some of the more unfortunate effects that might stem from the imposition of a high duty on petrol.

I feel bound to say that that increase in duty is regarded as disproportionately significant compared with the overall difficulties of our energy situation. I should not have been in the least sur- prised if the tax upon petrol, levied by whatever method, had not proved to be considerably greater. I braced myself for a higher increase than has been announced. In the context of the acute energy crisis that this country faces, it was not too much to expect.

I hope that a great deal of research will be devoted to diversifying our sources of energy, to using such unusual sources as geo-thermal energy, solar energy, tidal energy and so on, to supplement the four main sources referred to earlier by the hon. Member for New Forest (Mr. McNair-Wilson).

However, it is not that aspect of the Budget to which I wish to pay attention. I echo the view of the hon. Member for Ealing, Acton (Sir G. Young) when he referred somewhat scornfully to appeals for national unity as being almost a statutory obligation nowadays. It is certainly not an obligation that I accept. At best, it is muddle-headedness, and at worst it is based on cant. The fact remains—and Conservatives had better begin to understand the present misfortune in which they have landed themselves——that the working-class people of the country are no longer prepared to accept not just inferior differentials in earnings, but an inferior life style. This is probably the explanation behind the collapse of the Tory working-class vote in the big cities.

When the Leader of the Opposition talks about appeals to national unity, he is asking us to abandon the policies which recognise that situation. If we were to do so, we should land ourselves in an even worse industrial situation than the one we now have.

If the hon. Member for Staffordshire, South-West (Mr. Cormack) can bear it—I see he has just left the Chamber—I found myself in some agreement with certain of his comments about proposals which might have been included in the Budget. I think that there might have been a cut in road programmes, and that his suggestion on taxes on luxury goods would have been reasonable.

The Budget is neither all good nor all bad. Like most Budgets, it is, like the curate's egg, good in parts. We on this side welcome the land development tax. We certainly welcome the capital trans- fer tax, which is long overdue. The Chancellor referred to estate duty as being a voluntary tax. That was not rhetoric, but a statement of fact about the way in which such matters have existed for far too long. One's only questions are whether the rate will be high enough and whether it will be effective enough, in time, to ward off an even graver industrial siuation which may arise if the rates are not high enough? I do not know what will be said about that, but it seems that we have had to wait a long time, and at the end of the day the end product is not all that impressive.

The main weakness in the Budget—and I think that some of my hon. Friends below the Gangway will agree with this—is that its central strategy is the release of about £800 million to shore up a reluctant and mutinous private industry, with no guarantee that it will cease to be mutinous and cease to be reluctant in its investment programme. After all, Mr. Anthony Barber was responsible for providing £3,000 million tax relief. The result of that, in terms of investment, was anything but impressive, so one should not necessarily expect too much under these circumstances. If it fails, Treasury Ministers must explain to us what they are prepared to do to put the matter right. I hope they will be prepared to take over the private sector of the economy.

I do not know for how long it has been accepted as folklore by Labour Members that we have to live indefinitely with a mixed economy. It is certainly not what I was elected to this House to expound. I have always fought marginal seats, and I have never echoed those sentiments. I have always understood that it was our task to take over the economy, or at any rate its commanding heights, and, one would have thought, the significant foothills, too. The sooner the Government recognise that, the better. They may find themselves having to do so, because, if, as a result of providing tax relief there is no significant and substantial increase in investment, they will be faced with an acute dilemma. There will either have to be further tax concessions that may not necessarily find their way into investment, or they will have to take over investment, as in wartime.

I hope the Minister will give us an indication of what will happen in that eventuality.

My hon. Friend the Member for Berwick and East Lothian (Mr. Mackintosh) referred to a danger that is always present, or at any rate that has been with us since the Conservatives so unwisely introduced convertibility, namely the danger of a run on sterling. He then propounded a solution which, I should have thought, was almost totally unacceptable to us all, namely, that somehow we should rely upon our European partners to bail us out in that situation. Considering how difficult it is to get them to agree to equitable budgetary and regional policies, I regard that as an extraordinarily optimistic diagnosis.

I consider that the necessary action would be for the Government to reintroduce emergency powers. I can never quite understand why, having come into office last March with the emergency powers inherited from the previous Government, although they had been introduced for a different purpose, the previous Government having decided to have a punch-up with the miners, we should not have maintained those powers. They are wide ranging and can be applied to a host of different matters totally unconnected with industrial relations.

I imagine that the reason was that emergency powers have always earned a bad name in the mind of the Labour Party, because every proclamation of emergency powers that has been made since the Emergency Powers Act 1920, as far as I recall, has been directed at organised labour. But the powers may be used for other purposes, for example, to end the convertibility of sterling or to block movements of funk capital out of the country.

There were references in both the Chancellor's speech and, I believe, in the speech of the Leader of the Opposition, to the effect that, somehow or other, the inflow of capital into this country was always to be welcomed. I cannot believe that that is right. On more than one occasion we have suffered through hot money coming into the country and disappearing almost as quickly afterwards, often in circumstances of considerable embarrassment.

I should have thought that one of the very few things that Mr. Barber did that was any use at all during his unfortunate tenure as Chancellor of the Exchequer was to impose some kind of restriction at a time when money was flowing in at a particularly alarming rate. Mr. Barber recognised, at least on that occasion, that money that came into the country could go out again very quickly.

Budget debates, like debates on the Queen's Speech, are wide ranging. I turn now to a subject totally different from any raised so far, of which I hope hon. Members will take note. I have reason to believe that those in charge of the Department of Trade have the matter very much in mind. I refer to the reform of company law. I submit that it is relevant to raise the matter in this debate because so much Government money is being spent by way of subventions to private industry, with enormous contracts such as Concorde or the Channel Tunnel. I had the pleasure of voting against the Channel Tunnel motion last night.

One of the acute problems facing any Government today is the control of expenditure, not just in the broadest strategic sense but in the control of individual contracts. Those contract costs tend to increase out of all proportion to what was originally envisaged. Has there ever been a major construction contract the cost of which has not increased time and again? Concorde may be the most acute and horrible example, but it is not the only one. Does anybody truly believe that if the unfortunate Channel Tunnel project finally receives the approval of the House, as I earnestly hope that it will not—[HON. MEMBERS: "Hear, hear".]—my hon. Friends may be right; I hope they are—the estimates given now will be anything like accurate compared with the ultimate cost? We all know that they will not.

I suspect that one of the reasons is that audits of expenditure by public companies are thoroughly inadequate. I understand that that matter will be dealt with in the near future by one of the numerous Bills that we are promised on the reform of company law. Nevetheless, I want to make some suggestions as to what I believe ought to be included in relation to that aspect of company law reform. I should have thought that it would be a very good thing to start with if auditors were made responsible directly to the Department of Trade and not to the companies concerned. It would probably be a very good thing, too, if they were appointed by the Department, and if their terms of reference were such that they were required to inquire into the efficiency of the expenditure which they monitor. At present, as the House knows, the auditor of a company is required to challenge only expenditure which is improper. He is not required to pass judgment on the economic efficiency. He is not required—indeed, he has no power—to disallow expenditure.

One contrasts that with the situation in Government Departments. I draw for a moment on my experience as a civil servant working abroad years ago, when the Department of Audit could march in on a Government Department. Even if the expenditure were of a perfectly proper kind, if the auditors felt that there had been waste or inefficiency, the particular administrative officer with control over that allocation of money might well have found himself visited with a surcharge.

It may be that we need to introduce into company law the sort of powers which hon. Members of the Opposition are so pleased to have seen used recently in relation to one or two local government cases, although there again, I suppose that they would say that what the auditors were doing was disallowing that which had not been properly authorised. I am asking for something wider than that. I believe that auditors of a company should have the power to question and to challenge inefficient expenditure.

That is not the only reason for the escalation of big contracts. It may well be that the nature or the scale of the work makes it impossible for them to be completely controlled, but at any rate, I suspect that my suggestion is of some use in relation to this matter. We shall probably never get to the bottom of the matter until we have far more cost and works accountants and far more quantity surveyors.

Photo of Dennis Skinner Dennis Skinner , Bolsover

There are too many already.

Photo of Mr John Lee Mr John Lee , Birmingham Handsworth

I am afraid that I disagree with my hon. Friend. The fact is that they are a very useful profession and we do not have nearly enough of them. We could use those we have rather better.

As this is a wide-ranging debate, I turn briefly to one other matter which is of wider significance than the debate. I do not know whether Opposition Members still continue to be hostile to consumer subsidies. One gathers from one Opposition back bencher that that is still the case. Bearing in mind that the cost of living, whatever measures are taken and however fortunate and skilful the Government may be, is bound to go on rising, I should have hoped that we would be quite prepared to increase considerably the consumer subsidies this coming winter. Everyone agrees that this will be a rough winter and that people at the lowest end of the income scale will bear the brunt, as they always do in such situations.

Before returning to the House as a Member, I read a report of a Conservative Member bewailing the fact that if we were going to introduce consumer subsidies that were really effective, we should need an expenditure of up to £1,500 million. I think that he overstated his case because, whatever may be said to the contrary, the food subsidies that we have introduced have undoubtedly alleviated the lot of many people, Rut we need to carry this matter a good deal further. I hope that the subsidies will be reviewed over the next few months and that the Minister will not hesitate to increase them.

It is argued, of course, that we are subsidising the well off as well as those who are not well off. The real argument in favour of the general subsidy is illustrated by what happens if one does not have it and relies upon a system of application. We all know this from the fiasco of the family income supplement. At various times nearly 50 per cent. of those who might be eligible for FIS have not been able or have not had the "nous" to apply for it.

The real weakness of selective social service payments and of selective welfare, as we all know if we examine the case objectively, is that the people who need the most are so very often those who are least articulate in our society and least able to make a case in their favour or have the least initiative to apply. That is the case for the generalised subsidy. It is humbug for people to argue that we are subsidising those who do not need it.

I hope that my hon. Friends will take note of those observations and that we shall be successful with this Budget. I am bound to say that I have misgivings as to how far it will be effective. It is the most grave crisis imaginable. I should not have been in the least surprised, nor would I have been offended, if the rates of taxation had been considerably higher. I hope that we shall not have to return in a few months' time having to do something more, to introduce another intermediate Budget because the Government's strategy has not gone far enough or fast enough.

Certainly my hon. Friends would be prepared to put up with a good deal. I believe that the whole country is prepared to do so. Although the Leader of the Opposition lathered himself into indignation this afternoon in suggesting that only now is the truth coming out, if there is one thing which impressed all sorts of people during the recent election campaign it is that even people hostile to the Labour Party, some of whom said to me when I was canvassing that they were not prepared to vote for me, at least had the grace to concede that we had made no bones about saying that it was a serious situation.

In that context the people of this country will put up with a good deal, provided that the Government are really fair and effective.

7.58 p.m.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

I join with the hon. Member for Birmingham, Handsworth (Mr. Lee) when he almost refers to the Budget as "the Budget that never was". I do not join with him in his call for the complete takeover by the State of the rest of private industry. I regard that as dangerous, unsettling nonsense of just the sort which kills the confidence of industry and drags down the prospects of investment.

This is the third Budget in six months. In the spring Budget the Chancellor hit at business, at the saver and at the investor. In the July Budget he reduced VAT in order to encourage consumption prior to the General Election. Now, in his Budget today, he has gone some way to undo the damage he caused by his two earlier Budgets.

First, for business he has done something to ease price controls, and on consumption he has done something to end the subsidies to the nationalised industries, which I believe to be absolutely right. I hope that my right hon. and hon. Friends will feel able to resist the temptation to attack the Chancellor for doing so. Such a move will be unpopular but it is, I believe, profoundly right that we should not subsidise the nationalised industries, especially those using energy in one form or another, since that will only make worse our basic problem.

Four basic problems emerged quite clearly from the Chancellor's speech this afternoon—the balance of payments, inflation, unemployment and investment. The last is bound up with the other three. The Chancellor referred to the fact that oil-consuming countries must accept massive deficits and borrowings or we shall be in for a 1930-type slump. What exactly does that mean? To me it appears to mean that he is whistling in the wind and hoping that others will come to help us out. However, I noted in the Bank of England quarterly review last quarter a reference to the fact that there is a limit to the amount that we should be able to borrow abroad and a limit to the amount that those abroad would be prepared to lend us unless we start to put our house in order. One of the things that worries me is that on the balance of payments the Chancellor appears to be relying on faith, hope and international charity, and I am not sure that we can rely on those for very long.

On inflation the Chancellor seems to be relying on price increases to take up excessive consumption caused by the failure of the social contract. This must be looked at realistically. Four factors enter into a price change. The first is the commodity or raw material cost, the second is the tax paid by the company, the third the profit made by the business and the fourth wage inflation. By the last I mean paying ourselves more for the same amount of production so that the unit cost goes up.

While commodity prices rose savagely last year, many of them have fallen in the past few months and have moved in no overall general direction. The tax increases imposed by the Chancellor in his spring Budget are affecting the costs to industry. I am sorry that the House does not have the advantage of listening to a former Labour MP who was removed from the Labour benches because he failed to toe the party line and was opposed by an official candidate and defeated at the last election.

Photo of Dennis Skinner Dennis Skinner , Bolsover

He was one of yours.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

He was a junior Minister in the previous Labour Government. Of course I am referring to Mr. Dick Taverne. In the debate on the spring Budget he explained the direct relationship between tax increases and their effect on prices. There has been a tendency on both sides of the House to overlook the direct link between these two factors.

I now come to the question of profit. We all know how the true profits of British industry have been falling drastically and dangerously over recent years. I know that profit is a dirty word, but without profits there can be no investment and no jobs. Falling profits are not only a matter for this Government.

On wages the Government are relying on the social contract, an arrangement between themselves and the TUC. I have a simple question which I hope will be answered in the wind-up speech tonight. [HON. MEMBERS: "There is not one."] What is the TUC doing to try to secure fulfilment of the social contract? When the Conservative Party introduced the Industrial Relations Act it became apparent that the TUC really did have teeth because any union which failed to de-register as it was instructed by the TUC was promptly flung out. The TUC has strong disciplinary powers if it cares to use them. In what way is it using them to see that the social contract is enforced? The reality is that the Government have abandoned hope of that happening and are forced back to control of the money supply as the only real policy with which they can tackle inflation.

The Chancellor said that the true nature of the problem was the danger of unemployment. This is an important factor. Why is unemployment rising so fast and with little prospect of a limit to the increase? There have been several reasons. There has been a cut-back in expansion and investment, a lack of con- fidence, a shortage of cash and a degree of uncertainty in British industry greater than anything I have known since I became involved in political life.

The principal cause of these factors and the cause over which we have control has been the savage attack on private enterprise by the Government since they came to power. The remarks by the hon. Member for Handsworth further indicate the depth of contempt the Labour Party has for the private enterprise system. It is succeeding in killing the goose that lays the golden egg. Our entire standard of living and social services provision through which we seek to help the weakest in the community depend on the success of the private enterprise system which is being savagely attacked.

The spring Budget contained increases in corporation tax just at the time when industry needed more money to pay for dearer raw materials The advance corporation tax took millions out of industry just at the wrong time. The Chancellor said today that he would give part relief for stock appreciation to companies which are now paying corporation tax and which are showing in their accounts profits which are wholly phoney and do not exist, but he has excluded the smallest businesses from those provisions. All small businesses whose stock is worth less than £25,000 are to be denied the benefit the Chancellor have given to other companies.

The Chancellor talked gaily about making extra provision for them in 12 months' time, but how many of them will have gone bankrupt before then? I participate in a Committee in the House which looks after the interests of small businesses. I think that we shall have to rename ourselves The Committee for the Preservation of Bankrupt Small Businesses, for by the time the Chancellor's relief comes next year many businesses will not be in existence to claim it.

The Chancellor tells us that the business community will be able to go to the banks. The business community cannot go to the banks for its money, as the banks will lend on what they call a good risk, to a business that is creditworthy. To a banker, a creditworthy business is one that can repay within about three years in cash. What industry needs is money for long-term investment, money to put into stock and work in progress, and into the purchase of raw materials, buildings and machinery. It is no use borrowing from a bank, when the bank wants cash back, if all that one can say is "You can have a bit of that building, or some of my machinery that is getting worn out."

The Chancellor says that if businesses want long-term finance they should go to Finance for Industry, the old ICFC. That is no good, for that body demands a share in the equity, and many small businesses are not prepared to bring in a total stranger to have a share in the equity of the business.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

That question shows only too well how little the hon. Gentleman knows about the motivation of small businessmen.

The whole situation is made worse by the threat of the wealth tax hanging over the smaller business sector. Proprietors of small businesses are told by the Chancellor that in the not too distant future they will have to pay a capital levy on the whole value of their assets. Most small businessmen have all their assets locked up in their business, which means that they must keep back cash to pay the levy, because they will not be able to give the Chancellor a slice of their factories. At a time when industry should be investing, when it is in the national interest that it should do so, businessmen are holding back for fear that they will need the money to pay their wealth tax.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

The hon. Gentleman should keep in mind that in the statement of my right hon. Friend the Chancellor there was a reference to £1,000 million which will be lent to people such as he has described in the form of institutional lending. That is a sound idea. My right hon. Friend's scheme is infinitely better than the schemes advanced by the Tory Chancellor who, when in difficulty, printed money. If the hon. Gentleman wants a full exposition of that statement he needs only look to his left, to the right hon. Member for Down, South (Mr. Powell), where he can find it eloquently expressed.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

It is all very well for the hon. Gentleman to talk about printing money. With a £6,300 million borrowing requirement this year no Gov- ernment in history have printed money in the way the present Government are printing it. The Chancellor will go down in history as Mr. Inflation. Let us have no pussyfooting on that issue.

The Chancellor made an important point about unemployment being the central problem. The cut-back in investment by industry is central to that problem. The uncertainty about the Common Market has a substantial influence, for there are many companies whose main overseas market is in Europe. They know that some time next year they may find that they are cut off by the Common Market external tariff from the opportunities of selling in Europe. That uncertainty must mean that many boards of directors will say "We shall not lay out capital to increase production facilities when we do not know whether they will be required, when we do not know whether we may find ourselves partially locked out from our best overseas market".

There is also the threat of the National Enterprise Board. The hon. Member for Birmingham, Handsworth appealed for the end of the mixed economy. What dangerous nonsense that is. Such speeches frighten private enterprise out of its wits. They frighten private enterprise into saying "It is not worth while investing, it is not wise to take risks, because if we fail we get nothing, and if we succeed the Chancellor or the Labour Party will see that the fruits of our success are confiscated".

Photo of Mr John Lee Mr John Lee , Birmingham Handsworth

Is not the point that even under a Conservative Government, when there was no Labour Government in the offing for several years, certainly not one on the Left—even if the present Government could be called Left wing, and there may be argument about that—with £3,000 million remission of taxation, the investment just did not take place?

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

The hon. Gentleman obviously has no comprehension of the way in which the businessman's mind works. It is not the remission of tax but the prospect of profitability that is the criterion that decides investment. Unless there is profitability, with policies that will bring profitability for some considerable time, the investment decisions are not taken. From the time a business man decides to make an investment it takes about six months before he starts to place the orders, and another 12 months before that investment is seen on the ground. During the period in which there were tax reductions under the Conservative Government there was never long enough for the effects to work through properly.

If we were not suffering from a Labour Government we should be seeing a greater degree of confidence and investment in industry today. The present situation of industry can be compared with that of a person who is told that the local council will compulsorily purchase his house in six months' time. Would that person be expected to spend money on decorating the house or putting in new drains? When the Labour Party threatens to take over successful and unsuccessful businesses left, right and centre, with no particular criteria to guide it, is it surprising that people in industry say, "We will not spend money on investment the return from which is so uncertain"?

I turn to the fourth and, I believe, most important of all the problems. The Chancellor spoke of our slipping back compared with other countries in Europe. He said that our investment was falling behind, and that that was related to our inability to pay high wages. I agree. That was the most important and most profound statement in the whole of the right lion. Gentleman's speech. When British workers are the salt of the earth, why are they the lowest paid in Europe? The answer is that there is less capital behind each worker in this country than there is in the equivalent countries of Western Europe.

Success in industry is based upon a tripod of management, capital and worker, and there is, I believe, a cycle of deprivation at work. There is too little capital, which means too little profit and too little money available to pay high wages. When high wages are extracted there is too little profit to provide sufficient capital for investment, and so we are back again with the cycle of too little capital leading to too little profit per worker.

If this is, as I believe it is, central to the basic problem which affects British industry today, the Chancellor of the Exchequer ignores the logic of his own case at his peril and at the nation's peril. He is forgetting that we cannot get investment by destroying the investor and that we cannot create capital by clobbering the saver. People cannot be persuaded to invest money if their capital is being taken away by a wealth tax.

It is a sad and sorry fact that the motivations of envy which seem to inspire the Labour Party nowadays are motivations that are robbing industry of its proper flow of capital, leading to less capital per worker and, in turn, to the worker suffering from lower earning ability. The Chancellor has failed to face the reality to which he drew the attention of the House today. Because he has failed in that way he should stand condemned in the eyes of the House, and he will, I believe, prove to be condemned in the eyes of the country in the months ahead.

8.21 p.m.

Photo of Mr Frank McElhone Mr Frank McElhone , Glasgow Queen's Park

I have listened to the criticisms of the Opposition, particularly the criticisms of the hon. Member for Basingstoke (Mr. Mitchell), but I am sure that tomorrow's newspapers will record that my right hon. Friend the Chancellor of the Exchequer struck a fair balance in his Budget today.

It has been pointed out by all hon. Members on both sides of the House that we face a serious economic situation, for which no one has a panacea. Confrontation and many other measures have been tried over the past 25 years, but we must be honest and say that no Chancellor of the Exchequer has yet got the situation exactly right. There have been attempts to curb rising unemployment and, at the same time, control inflation. These are great imponderables which no one has been able to solve.

I hope that my right hon. Friend the Chancellor will not regard me as churlish or petulant if I make some criticisms of his speech. I do so with particular regard to the Scottish context of his proposals. I am deeply concerned about his proposal to remove subsidies from nationalised industries, which could have a significant effect on the Scottish economy. The steel industry in Scotland is in a serious position. A Government Minister is expected in Scotland within the next few days to tell the Scottish steel industry that it has to lose almost 5,000 jobs.

We accept that much of our steel industry is obsolete and that there must be changes, but we are concerned with the timing of the changes as well as the method. I accept that nationalised industries have responsibilities to the taxpayer, but these industries have social responsibilities as well.

There has been much talk about other countries, particularly those in Europe. Anyone who studies industries in Europe will know that nationalised industries there receive substantial subvention from central Government funds. I presume that it is proposed to remove subsidies from all our nationalised industries. I hope that the Chancellor will explain the time table for this plan.

Gas and electricity prices in Scotland are much higher than in other parts of the United Kingdom. Gas cookers, for example, are much more expensive in Scotland. That is a valid complaint, and one which was made by the Scottish Nationalists during the General Election campaign. The great merit about this Government, and the last Labour Government, is that they have been seen to be fair in spite of difficulties. I ask the Chancellor to re-think this proposal. In the City of Glasgow there are thousands of all-electric houses. One of the deep concerns of the social work department of the Glasgow City Corporation is the number of families who have had to leave their homes, not only because of the effects of the Tory Rent Act but because of the high cost of electricity. If we are now to ask the low-wage consumer to meet the commercial costs of electricity we face a serious social problem.

What value is there in trying to produce a commercially viable nationalised industry if it results in a great burden being placed on the social services? The Treasury will lose out financially over the years. I make a strong plea for the Chancellor to reconsider this proposal, at least in Scotland.

I was pleased to hear my right hon. Friend say that there would be help for the construction industry. This is particularly welcome to the special development areas in Scotland. I would have liked to hear him specifying more clearly his proposals for helping house building. I must add a note of caution here. In a recent speech the Secretary of State for the Environment suggested that because of the economic situation we might reduce building standards. Many of the social ills of our cities today stem from the fact that we built low standard council houses which did not help the environment or the families who lived in them. I hope that the proposal to reduce standards will not be taken seriously. It, too, will be costly.

I am not an economist but I have received complaints from several constituents about the abuses in the secondary banking sector in the past year or so. I would have expected secondary banking to loom large in my right hon. Friend's statement, because of the loss of confidence in it. Many poor people have lost money as a result of other people speculating.

I want to be brief because I recently signed a motion calling for 15-minute speeches. I cannot sit down, however, without referring to the pensions increases. These and the substantial increases in family allowances are more than welcome. They indicate compassion and concern on the part of the Chancellor for these groups in our society. There has been strong criticism from Tory benches about the repayment of the £10 million to the trade unions. We must spell it out quite clearly that this is not an abuse of the law. It was an abuse of the law by the Conservative Government which took the money from the pension funds of trade unionists. The loss of that money would have a serious effect on the families of trade unionists. I hope that the Liberal Party and the Scottish National Party, who combined with the Conservative Opposition to defeat us in the previous Parliament, will re-think their attitude. The Scottish people gave their answer at the last election, and I hope that hon. Members representing Scottish constituencies will have the good sense to vote with the Government on this measure.

The Chancellor is in a difficult situation bearing in mind all the options that are open to him. It has been said that his statement is like the curate's egg, good in parts. In the main I support my right hon. Friend who has struck a fair balance which will be seen by most people to be fair, and I hope that he has majority support in the Lobby on Thursday night.

8.30 p.m.

Photo of Mr Cyril Townsend Mr Cyril Townsend , Bexley Bexleyheath

Perhaps my main qualification for taking part in the Budget debate is that I am no economist. No one who heard the Chancellor of the Exchequer introduce his two previous Budgets can avoid being astonished at the turn round in his approach today; if the Chancellor is not a new man, he is certainly a wiser man who has learnt from some of his mistakes. Unfortunately, the country has had to learn from those mistakes day by day, and it has been painful for all concerned.

The Chancellor remains a puzzling man to me. From time to time he dons the mantle of the elder statesman, and from time to time he cannot resist making the most outrageous statements. I will mention just two. We remember the charge about conscription prior to the 1970 election. During the recent election we had the nonsense over the 8·4 per cent. It has not been sufficiently emphasised that when the Chancellor made that comment about inflation being at that level it was not after a last drink in a working men's club in the Midlands late at night, having been caught out by a zealous reporter. On the contrary, it was during a carefully stage-managed Press conference at the start of the campaign. I only hope that the Chancellor is tonight regretting that statement because it has undermined his whole position as Chancellor of the Exchequer at a time of national crisis.

For the first half-hour this afternoon many of us thought that we might have been listening to a Conservative Chancellor, until the right hon. Gentleman made a foolish attack on savings income. As Iain Macleod once said, such income has been earned and saved, and often it is the harvest of a good man's lifetime. I can only suspect that it was a sweetener for the Left which, on the whole, must have had a pretty sore afternoon. However, the proposal will be long held against the Chancellor in many small homes in my constituency, which is not a rich one.

One of our major problems this evening is that we are not au fait with the basic facts about the increased prices to be charged by the nationalised industries. It is hard to make rational intelligent comments on the Budget when those key ingredients are missing. I accept that prices charged by the nationalised industries must go up. I regret that the previous Conservative administration allowed the deficits to mount to an irresponsible level. In recent weeks British Rail reported a loss last year of £52 million. There has been a loss of £130 million for coal, £40 million for gas, £128 million for the Post Office and £176 million for electricity. That gives us some idea of the scale of the problem. The charges must not be put up too quickly—

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

It is only fair that the hon. Gentleman should recognise that publicly-owned industries have been commanded to keep prices down. That is the explanation. I do not deny the hon. Gentleman's figures.

Photo of Mr Cyril Townsend Mr Cyril Townsend , Bexley Bexleyheath

I entirely accept that. That is why the previous Conservative administration did it. The Conservative Government were conscious of the problem of rising prices. All I am saying is that I believe that it was the wrong approach. I suggest that the present Government should not make that same mistake.

May I quote from an article in The Times on 28th October on the nationalised industries? Referring to the leaders of the publicly-owned industry the article said: These men are stumbling through an unprecedented period of difficulties, lepers in Whitehall and unloved by their customers as services deteriorate under deficit fnancing … We all know there is a lot of truth in that. The chairmen of our State enterprises have become second class citizens. Their pricing policies are controlled by others, whatever the prices code may say. Management confidence is at a low ebb. Employee morale is beginning to fall. I agree with those comments and I should like to add just one more. Mr. David Nicolson, the Chairman of British Airways is quoted as saying: I believe we need neither doctrinaire left-wing policies nor doctrinaire right-wing policies now, but rather some good old doctrinaire management policies. Can we not start by taking the public sector of industry, which we are going to have to live with in our lifetimes, out of the arena of politics and ensure we learn how to operate it efficiently? I certainly back him in that statement.

I am not against grants for carefully costed capital projects. But let us allow the nationalised industries which are able to get out of the red to do so. A few weeks ago I visited the British Gas Corporation, and more than one manager told me how keen they were to be allowed to make a profit. They believed it would be feasible to do so, that it would help morale considerably and would not impose a too-savage price increase on the consumer.

The Chancellor referred to cuts in public expenditure. We have been forewarned in solemn tones about their size. What a pity we could not be told the details this afternoon. Parliament is often in a false position when calling for cuts at local level. After all, it is Parliament that imposes obligations on our local councils.

It looks as if the ratepayers are in the hot seat once again. In my part of the world the rating system is breaking down. I foresee real problems in the future if we put too much of a burden on the ratepayers. My own local authority, Bexley Council, has been faced with a huge bill as a result of HA cement being used in certain schools. To keep their budget down to within, say, an increase of 50 per cent.—and they have had savage cuts already—and to meet that bill, can only be done, in my view, by damaging the educational prospect of those in the area. Will that council have further charges put on it as a result of what we heard this afternoon?

I turn briefly to the increased tax on petrol. I represent a commuter area. As the train service is so inefficient, many of my constituents, of necessity, have to come to work by car. There are many policemen in my constituency, and the hours that they work make the use of public transport impracticable. I believe that the increased charges will impose a real burden on many people in my constituency, and I have listened to many of my hon. Friends who represent agricultural areas talking about the problems for those areas.

Nevertheless, it is important to relate costs at the petrol pumps to import costs. I welcome this proposal. It is a tough decision to make, but I happen to think that it is the right one. I only wish that at the same time the Government had done away with vehicle excise licences and the resulting bureaucracy.

Briefly, let me welcome the pensions proposal. I believe that the best thing in the long run is to have a six-monthly review.

A word about borrowing—and this frightens me. We are continuing to live well beyond our means. We seem to have great faith in our international creditors. We can only hope that our international creditors continue to have great faith in our country.

I was very relieved that the Chancellor did not mess around too much with VAT. I am not sure whether the Treasury realises the problems resulting from the 8 per cent. figure. To the brilliant brains in Whitehall 8 per cent. presents no mathematical problems, but I recently spoke to an official concerned with VAT in my constituency, and I understand that the 8 per cent. is creating a lot of difficulty. It would have been a disaster to go in for multiple rates to deal with luxury items. I only hope that in the long run we shall return to 10 per cent. and have fewer items included.

May I say something about inflation—the principal problem? That brings us, of course, straight to the hole in the middle of the social contract. Unfortunately, one remembers only too well the Prime Minister's solemn and binding pact with the unions that was not solemn, not binding and, of course, not kept.

Need I remind the House that the social contract was only dreamt up before the February election? I do not know about other hon. Members, but I found, during the last election, that this pact between a minority Labour Government and a major sectional interest was strongly resented by many. If a Conservative Government or, for that matter, a Liberal one had such a pact with a pressure group—be it the motorists, the farmers or the shopkeepers—I believe that that, too, would be bitterly resented.

I do not deny that the trade unions are a most important estate of the realm, but what about those 14 million non-union workers? The Leader of the Opposition carried out many long and detailed talks with the Confederation of British Industry and the Trades Union Congress. It was a major change in the conduct of economic policy, far in advance of anything tried before or since. I regret that the present Prime Minister apparently simply collected his route card from the TUC. It was a case of "There go the trade unions. I must find out where they want to go so that I can lead them".

In return, the unions have demanded a whole list of items, two of them being defence cuts and picketing. I for one believe that the proposed defence cuts are utterly irresponsible. I know that many hon. Members opposite have forgotten that this is one of the few countries in the Western world without conscription—that is right, we should not have conscription—but that surely places considerable moral obligation on us to make sure we pay a fair whack.

I shall not go into the subject of picketing, but I believe that a slackening of the rules is part of the contract, and a part that we on this side of the House certainly oppose.

The unions' demands appear to escalate. Now it is the wealth tax. Next, will it be choice in medicine or schools?

Everybody knows that the social contract is not working and many trade union leaders will make sure it does not work in the future. Ray Buckton said on 23rd June that he would not be shackled by any social contract between the Government and the TUC. Arthur Scargill on 16th June said: The NUM has only one social contract—a loyalty to the membership. There can be no contract with a capitalist system. I need not remind the House that industrial strikes are up compared with the first few months of last year, or of the recent events in Scotland.

The Prime Minister has recently shown signs of wishing to widen the social contract. He is right in endeavouring to do that, but unfortunately he is in an impossible position after his past comments and actions. If there could be a proper social contract between all the people of this country and the elected Government I believe that that would be a sound way forward. Clear guide lines would have to be laid down for controlling inflation. That is what the social contract must be about if it is to mean anything.

This Budget had a chance to do something about the cash crisis in industry and about industrial confidence. For cash, I believe some help has been given, although I suspect not enough, and only time will tell. But almost certainly the Budget did not do enough for confidence.

I do not believe that the Government could do more to restore confidence than by removing the present Secretary of State for Industry and giving him a different job.

Labour's third Budget is now before us. It has failed, as did its two predecessors, to match up to the level of events, and it has failed to match up to the seriousness of our crisis.

8.45 p.m.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

The hon. Member for Bexleyheath (Mr. Townsend) referred to himself as an economist.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

I am sorry. It was my mishearing. I intended saying that, if that were so, he is certainly a naive creature where trade union affairs are concerned. I must not devote much time either to the hon. Member or to his references to the social contract, but, since I was for many years a trade union official and I know something about the social contract, I cannot allow his remarks to go unchallenged. This is 1974, and for all this century and before the trade unions have been shackled principally by those who exploited the workers, and by their representatives in the Tory Party, and I find it difficult to believe that the remarkable transformation now brought about by the Trades Union Congress will not create the spirit that I firmly believe the social contract richly deserves. But I ask the hon. Gentleman and his hon. Friends to display at least some fair intelligence and an elementary spark of justice and realise that, if the social contract is only 75 per cent. successful, by Heaven, it will have made a solid contribution towards our economic well-being. There will certainly be a distinct difference from the industrial confrontation brought about by the hon. Member's own party.

I do not want to pursue that line, although I easily could because, imperfect creature though I am, I am saturated with the experiences of a trade union official, and some of them would make salutary reading.

Photo of Mr Cyril Townsend Mr Cyril Townsend , Bexley Bexleyheath

Does not the hon. Gentleman agree that the success so far of the social contract has been achieved mainly as a result of giving way? Anyone can obtain industrial harmony by always saying, "Yes, it is yours".

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

I go so far as to agree that the social contract is not all that we desire, but, if that contract achieves a 75 per cent. dividend, it will be a marked and solid contribution to our economic well being, as distinct from the confrontation in which the hon. Member's party engaged. More than that I will not say.

I revert now to the Budget. Unlike many hon. Members, I have been in this game for many years. I want to bring to the attention of the House one vitally important factor in relation to Labour Chancellors. I remember distinctly the late Sir Stafford Cripps. I go back more than 25 years; because Cripps was then arguing precisely the same kind of theory as has been argued today and, if I may say so, arguing it not only as a Socialist, but as a Christian. I do not think that there is any Member who looking back to those days could ever dispute the fact that Cripps earned both those titles—an honest-to-goodness Socialist and a deep, equally honest, Christian.

I bring Cripps to the attention of the House today because at that time I distinctly remember the national Press and the Tory Party dismissing Cripps with the name "Austerity Cripps", as though even at that time austerity was some kind of economic disease. I remember it so well and now, 25 years on, we still have not solved the problem that Cripps was arguing then. When members of the Tory Party make an adjudication upon Labour Chancellors they should train their memory as well as their partisan approach to these problems. I did not come into this game yesterday—I have been in it for many years. I could name other Chancellors. Let me speak of the Chancellors in the 1964–66 Parliament and the 1966–70 Parliament who, by 1970, transferred the largest deficit in the history of our country into the largest credit in our history. Is there any Tory Chancellor who have ever brought about such a remarkable feat as that? If there is, I want to know who he is.

Certainly the present has not done a perfect job. Who on earth with a measure of economic altruism would expect him to do a perfect job in the circumstances in which he finds himself now? I will not go into too great detail because, like the Leader of the Opposition, I want more time to study it. I think that that goes for about nine-tenths of the Members of this House.

Interrupting myself, I know from experience that between now and half-past three tomorrow the Financial Times, The Times and The Guardian will be studiously read so that prepared speeches can be made tomorrow from this side of the House as well as from the other side. But the debate must go on today. We are expected to give our own impressions of the Chancellor's measures.

Without being too dogmatic, I think that what the Chancellor has achieved is to see to it that the solution to the terrible burdens now unfortunately pressing themselves upon the economy of the nation will be borne substantially by those with the broadest backs. In short, the poorest elements in human society—the old-age pensioners, people with large families—will have an opportunity to survive the ordeal that undoubtedly will prevail in the next two years. To me, at any rate, having been brought up in a poor home, that means something of true substance.

I pay homage to the Chancellor for the fact that, notwithstanding our difficulties, he has succeeded in doing that. He has promised that by April next year old-age pensions will go up again. The £10 Christmas box, though it was certainly originated by the Tory Party, will be applied this year. He has also said that family allowances will be increased. One must record the man's humanitarian approach.

The Chancellor has done another thing that appeals to me very much. The Tory Party has always held the opinion that for some reason or other we are prejudiced against private industry. Frankly, I have always regarded that as an asinine conclusion to offer to the House. The fact that certain industries, because of the difficulties of getting capital to invest in them, were taken into public ownership to my mind has never justified the Conservative Party and sometimes the Liberal Party as well—though looking at the Liberal benches tonight, one wonders where on earth they are—claiming that because we have done that, we have demonstrated a prejudice against private industry. Seven out of every 10 employees in the country are in private industry. How on earth can we preserve anything relating to full employment if we are prejudiced against private industry?

I was very much in agreement with the Chancellor when he said that no less than £1,000 million was to be drawn from institutional investment in order to lend to these people so that they may have the fluid capital necessary to make some effort to reconstitute their industries and maintain employment within them. Of course we want to promote that. Indeed, I interrupt myself to say that I wish the Conservative Party had the same lack of prejudice against publicly-owned industry as we demonstrably have against privately-owned industry. I think what the Chancellor has done with regard to institutional lending is a case that justifies that point.

Here again I talk about the former Chancellor, who has now left the House, and in passing say that he has consolidated himself rather well in private industry. However, I do not think—and here I speak without prejudice—that anybody in this House laments his going. It is a fact that many times from 1970 to 1974, when he was in financial trouble, he printed money, and there is no more royal road to inflation than that. Indeed, anybody who needs any guidance on that should ask the former right hon. Member for Wolverhampton, South-West, now the right hon. Member for Down, South (Mr. Powell). He told the Tories time and time again of the harm they were doing to the basic economic needs of our country.

For that reason, I must say that we listen with a certain amount of justified scepticism to any remarks such as that made by the hon. Member for Bexleyheath with regard to subventing moneys to publicly-owned industry when we remember that.

May I make one brief reference to the Leader of the Opposition? We all know that he is making desperate efforts to retain the leadership of the Conserva tive Party. Greatly daring, I hope he succeeds, because, frankly, I am damned if I know who could succeed him, such is the paucity of talent now on the Tory benches.

Photo of Mr Myer Galpern Mr Myer Galpern , Glasgow Shettleston

The hon. Member must not keep staring at me in the Chair.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

I beg your pardon, Mr. Deputy Speaker. I take it that you yourself are not disinterested in the remarks I made.

The Leader of the Opposition said that the Chancellor's efforts were likely substantially to increase local authority rates throughout the country. He should remember what some of his Ministers did during their period of office. It is within my recollection, and, I am sure, within the recollection of Members in the former House, that his Government brought about local government reform. It would be a most useful exercise to find out the high local authority officials who resigned then at the ages of 54, 55 and 56, some eight or nine years before their normal retirement age, and find out how much in silver—or perhaps even golden—handshakes these people had. That was a definite result of the early retirement of people brought about by the reorganisation of local government, which to my mind was undoubtedly an act calculated to be, as it has been, an instrument that gave greater power to the Conservative Party.

The Leader of the Opposition may therefore be well advised—here I am greatly daring—to have a more comprehensive knowledge of what his Government did with regard to local authority finance before blaming this Chancellor for increasing rates by his Budget proposals.

I conclude my contribution, of such value as it is, by saying sincerely to the Government that, whatever economies they will be forced to adopt in the next months, or, possibly, the next year or two, nothing they will do should prejudice the building of the Central Lancashire new road—the Calder Valley Highway, the M65.

Successive Governments, and I include mine, have caused injury to this area. So many hon. Members, some on this side, but more on the other side of the House, believe Burnley and North-East Lancashire still to be an old cotton belt. They could not be more mistaken. There is more engineering in that area today than ever there was when cotton was at its full economic height.

In 1969, I was told by my right hon. Friend the Minister for Transport—he was in the same office then—that the M65 was going to be built. That was five years ago and, in the meantime, not a sod has been cut in order to make that road a practical proposition. What has happened? Successive Governments have advised the local authorities—particularly Burnley—to prepare for this highway, with the result that houses have been requisitioned, some tenants, found alternative homes, and other houses have been lived in by people in impossible conditions. Wittingly or otherwise—and I prefer to believe it otherwise—blight areas have been caused that are a disgrace to any town.

I say to the House, not without feeling, having been in those homes recently, that there is a marked contrast between the new homes built and the homes that have been declared empty for the reasons associated with the road. The latter have caused a blight on the lives of people—never mind the area—that is quite indefensible and intolerable. It should be realised that these measures have substantially been brought about as a result of Government references—both Governments, for I know of Ministers in the previous Government who gave firm pledges that the road plan would proceed, in just the same way that I had pledges in 1969 from Ministers in my own Labour Government that the road would be proceeded with.

Here we have a town that for over 100 years has made a handsome contribution to the economic well-being of the country. I think of places such as Milton Keynes and others within an hour's ride of London that have made little or no contribution to our economic well-being, yet Government expenditure in those areas has been massive and it continues. I am sorry if I register a measure of feeling in speaking this way, but I find it unavoidable. If that is justice, I am a Dutch man.

It is not justice, It is not remotely connected with justice. I repeat, I am advocating that road which could mean so much for employers in the area in terms of expansion and for new employers coming into the area, because it is an established fact that wherever employers go they have a right to expect reasonable communications. They should certainly have better communications than apply in my area today.

The road is needed for the human reason connected with the people who live in those blight areas. The local authority cannot provide houses overnight, and if the national economy were to catch a chill, North-East Lancashire might easily catch pneumonia. We must guard against that. With respect to my loyalty to the Labour Party—through the years I have served here, no one has questioned that loyalty, although at the same time I have sought to speak the truth—I owe a similar or even greater degree of loyalty to the people who sent me here as their representative.

In the name of those I represent I ask the Government, humbly and earnestly, that whatever economy measures they may be forced to adopt in view of the national economic situation, they will not apply those austere economies to my part of the country, which has served the nation so extraordinarily well

9.7 p.m.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

There is a restricted number of points in the Chancellor's Budget speech today to which I want to draw particular attention. I follow for a moment the closing comments of the hon. Member for Burnley (Mr. Jones). He is undoubtedly right.

The Select Committee on Public Expenditure, Trade and Industry Sub-Committee, of which I am a member, took evidence for its reports "Public Money in the Private Sector" and "Development Area Policy" on what were the most effective inducements the Government could offer to businessmen to set up new enterprises. Were they loans? Were they regional economic premia? Were they shadow factories, tax concessions, or what? The bulk of the evidence put before that Committee, whose report, incidentally, was unanimous, was that a good road system is the best single inducement any Government can offer because it is something which does not disappear when Government changes, and represents a permanent lowering in costs for the enterprise which comes to that area.

We have similar problems in the South-West, and the argument that has just been put forward by the hon. Member for Burnley for the area that he represents applies equally to the area from which I come, and which I represent.

That leads me to protest as vigorously as I can about the increase in taxation on petrol. In many rural areas there is not an alternative to the private car or motor cycle. The bus services, which the Chancellor rightly points out are exempted from this measure, are non-existent in many of these areas. The car is not a luxury in such areas. It is an essential means of personal transport. Studies which have been published in the Press recently indicate very forcefully that at any price, certainly at below £1 a gallon, the demand for petrol is not price-elastic. It is not, therefore, an argument for the Chancellor's proposed measure that this can be expected to reduce consumption of petrol and, therefore, the burden on our balance of payments.

It was extraordinarily foolish of the Chancellor earlier this year to reduce VAT from 10 per cent. to 8 per cent. but then to extend the taxation on petrol. He would have done much better to have left VAT where it was, at 10 per cent., which is easily calculated, and to have had a lower taxation burden on petrol. As it is, he then, and again now, has greatly increased the unavoidable costs of living in many parts of this country.

Some people who live in London have got into the habit of thinking that driving a car is some sort of indecent luxury. For many of us it is an essential, because there is no alternative transport to and from work or to and from medical, educational, shopping and other facilities. In deliberately increasing this cost the Chancellor is knowingly increasing the disparity of incomes between those in the peripheral areas of the country and those in the much more privileged areas in the centre. This follows as night follows day. If one increases the cost of living much more in the peripheral areas—and those who live in them are more dependent on the car—than one increases it in the central areas, one again increases the disparity.

Even at this late hour, therefore, I beg the Chancellor to have another think and to bear in mind that there is no evidence that the sort of change he is proposing in this Budget will result in any reduction of imports of hydrocarbons. That could be tile sole justification for his measure.

The Chancellor referred to finance for small enterprises which are exempted from his proposals. His proposals are intended to assist the liquidity of larger enterprises. Whether they will do that is another question. Off the cuff, he mentioned the name of the body which is now an amalgam of the old FCI and ICFC as though this were a useful source of finance for small enterprises. It is just about a useless source of finance, not a useful one.

In my constituency a firm took over a milk factory which closed down. It needed working capital so that it could provide employment which was previously provided by Express Dairies. It contacted ICFC and was told that it could have the money, but at 17 per cent., which, at the time, was even more than the bank wanted. It would also have had to tolerate the interference that went with the money. This is not an alternative source of capital.

The general manager of ICFC, which is supposed to be useful for the capital needs of small enterprises, gave evidence to the Trade and Industry Sub-Committee on the Public Expenditure Committee during its investigation into "Public Money in the Private Sector". He disclosed then that agriculture, the largest single industry in terms of turnover in Britain, received just about no support or assistance from ICFC. That industry is now starved of capital and is in most desperate straits.

I listened with something approaching disbelief and wonder as the Chancellor delivered an excellent lecture on the merit of dismantling subsidies which concealed from the public and the economy at large the true cost of providing services. A very worthy lecture it was, but sitting two seats away from him without even blushing was the Secretary of State for Prices. She has recently been responsible for increasing the subsidy on cheese at a time when she very well knows that there may be little or no home-produced cheese by next spring because of the shortage of milk.

The Chancellor was preaching the merit of removing distortions of this kind from the economy—and he made a very cogent case for doing so—and was telling us that nationalised industries should put before their consumers the true cost of providing services. I do not criticise him for that, but how can he do that when his right hon. Friend is engaged in doing the exact opposite? There is no consistency perceptible in the policy of a Government who follow such an asinine and harmful course of action.

What we need in agriculture and what the consumer will appreciate in a year's time when the only meat available is cow meat is a rescue operation for the livestock sector. This need involve no extra charge to public funds if the money presently thrown away in ludicrous subsidies, like the one on cheese, now running at over £100 million a year and designed to persuade people that an increasingly expensive and scarce commodity is cheaper than it really is, is diverted elsewhere. If that money were switched to a rescue operation for the livestock sector some sense at long last would be injected into Government policy.

It would be a no good rescue operation simply increasing returns to producers, because of the shortage of fodder. That shortage will mean that a third of our livestock herds may literally starve to death this winter. Merely supplying more purchasing power to drive up the cost of the available fodder without doing anything else will not keep one more beast alive. It might divert marginal quantities of sugar beet from the hard-pressed sugar extraction industry into animal fodder.

It is quite clear what the Government must do. They must buy from 10,000 to 20,000 beasts a week. That is between 5,000 tons and 10,000 tons on the hoof per week, and, at a 60 per cent. cutout, about 3,000 tons to 6,000 tons of edible meat each week. That meat should be taken off the market and canned, not frozen. If it is merely taken off the market into cold storage, which costs £1·50 a ton per week, that will not have the desired effect on market prices, because everyone will know that it is deteriorating in cold storage, waiting to be released to wreck the market again at some time in the future. Whether the meat is then kept for strategic stocks or sent to areas of the world where there is starvation on a massive scale is a political choice for the Government of the day.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

The more the hon. Gentleman speaks the more he puzzles me. I seem to recall reading about, and seeing on television, a group of farmers in the hon. Gentleman's area who were selling newly slaughtered meat so cheaply that people were coming from all over the country to buy it. If the hon. Gentleman can make a handsome profit—those are his words—why is that not generally done in the area?

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

Perhaps the hon. Gentleman does not know the requirements for slaughtering meat for human consumption.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

One cannot just slaughter one's animals and sell the meat to the public. In nineteenth-century Britain that could be done, but today it cannot. One must have a licensed slaughterhouse which is properly inspected. Normally we should expect to have about 55,000 prime beasts slaughtered each week. Last week slaughterings totalled 81,000. Even at that rate, up to one-third of the remaining herd may starve to death this winter because of shortage of fodder. The effect on breeding stocks will be seen in 18 months to three years, when there will be a chronic shortage of beef, and the housewife will wring her hands and curse the Government who took no action. On the contrary, the Government are spending public money to perpetuate the myth that what is in short supply and expensive to make is in abundant supply and cheap to make.

I have today been making inquiries which lead me to believe that the manufacturing capacity is available in Britain for the kind of rescue operation that I recommend. There is no point in recommending action that cannot be put into practice because the capacity does not exist. By February, when many of the 50,000 people employed in processing milk throughout the United Kingdom may be on short time or out of a job because there is not the milk to process, those factories that are clear for processing foods under the public health regulations, and whose employees are used to the necessary hygiene standards, could be engaged on canning beef instead of processing the milk that is not available.

It is clear from what the Chancellor said today that we can expect another massive increase in rates and water charges. This Budget was the last occasion for the Government to announce what action they were to take. Clearly they did not make an announcement because they do not intend to take action.

The hon. Member for Burnley referred to golden handshakes. The present Secretary of State for the Environment, speaking from the Dispatch Box on the Government side of the House when local government reform was being considered, accepted the Redcliffe-Maud recommendation on behalf of the then Government. Had it been decided in connection with local government reorganisation to have no authority between parish councils and county councils the number of golden handshakes would have been much greater than they have been, because there would have been no second tier authorities.

The Liberals wanted to impose yet another layer of local authority at regional level, the consequences of which would have had to be paid for by the unhappy ratepayers. I note that there are no Liberal Members in the Chamber at present, but we are used to that. Neither are there any Scottish nationalists, Welsh nationalists or Ulster Unionists present, but those of us interested in public finance will probably recall what the Liberal Party's attitude was on this matter.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

The hon. Gentleman is not quite correct in what he says. I was working for the Minister involved at the time of the Redcliffe-Maud proposals and it is not true to say that he accepted them. In regard to Lancashire, particularly north-east Lancashire, my right hon. Friend recommended unit 21 which would have had the reverse effect to that suggested, with less officials.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

It is a matter of public record that the right hon. Gentleman the present Secretary of State for the Environment accepted the Redcliffe-Maud recommendations, and we must remember that Redcliffe-Maud did not recommend having a local authority between parish councils and county council levels, although there was recommended a different configuration of county councils from that which now exists.

The liquidity position of small businesses will become even more desperate because of the Chancellor of the Exchequer's failure to extend to small businesses what pitiful relief he is offering to large businesses, and because of his failure to transmit from central Government taxation resources to local governments funds to mitigate the increases that he has predicted. We must bear in mind that grants from central Government, as announced by the Secretary of State for the Environment, do not in any way help business ratepayers. They help only domestic ratepayers. The position of the small business ratepayers is going to be parlous. Shortage of capital is endemic. It is no good saying that banks are to be asked to be more lenient in their lending. Banks will lend money to enterprises only if they can see that the money will be used in a way that will at least generate the interest that will be due on the loans.

In agriculture and in many other forms of enterprise the money being lent by banks today does not generate sufficient return to pay loan interests of, say, 16½ per cent. It is no help to those enterprises to be loaned money at rates of interest that they cannot service. Such a situation would lead to doom.

I hope that the Chancellor of the Exchequer will ponder carefully the points I have put forward before we deal with the Financial Resolutions. It may be he has not set out to sound the death knell of the small enterprises in this country. We must remember that mighty oaks from little acorns grow, and that the large enterprises in this country were once small enterprises.

The Chancellor has done nothing to help those small enterprises which are, by definition, the enterprises that do not have recourse to the money market and the share issue market for raising equity capital. Those firms are the majority employers in rural areas, and I do not doubt, in many non-rural areas too. Their position is now even more exposed than it was before the Budget.

9.29 p.m.

Photo of Mr Caerwyn Roderick Mr Caerwyn Roderick , Brecon and Radnor

I want to comment on a few points made by the Chancellor. I am concerned about his remarks on energy costs and his comment that publicly-owned industries must be made self-supporting in the long term. I am concerned about the effect of this on the social contract. If we need to conserve energy, particularly hydrocarbon products, then the answer is surely to ration these products. The Chancellor is proposing a system of rationing by price. I would prefer to see physical rationing introduced because we on the Labour benches believe that we are here to protect the lower-paid and the less well-off. Surely rationing by price is no part of our philosophy.

The Chancellor said that he wants the publicly-owned industries to balance their books, especially gas, electricity and coal. I know that these industries have been starved of investment funds. For a time I worked in the coal industry and I saw how money was wasted hiring equipment rather than buying it. The Coal Board's financing system is such that it could finance the borrowing required to hire equipment but could not finance the massive capital investment needed to buy that equipment. This was a thorough waste of money.

I know that we need increased investment funds in industry. But many of us have assumed that the publicly-owned industries were to be different, that their policies would be governed by social needs as well as by the profit motive. We must not forget that cheap fuel subsidises private industry. It is frequently said that the National Coal Board is subsidised by the Government, and that is money thrown down the drain. It is, however, an indirect subsidy to private industry and not a complete loss.

We must support coal, gas and electricity, not only to keep down the overall cost of living, but to keep down the direct cost of living. What concerns me is that the ordinary family will suffer if these commodities are made much more expensive. The attendant effect of such increases in costs must reflect itself in subsequent wage claims. Where do we stand with the social contract then?

One part of the Chancellor's speech cause me particular concern. He seemed to suggest that the National Enterprise Board would simply carry out baling out firms that were failing but would leave the successful firms alone. This is certainly not the NEB I envisaged. I hope that this will be corrected. I want the whole community to benefit from the profitable industries which can, if necessary, use their profits to help industries which find it difficult to be self-supporting.

I welcome the increase for old age pensioners. Who would not? I also welcome the raising of their tax threshold. I make a plea for the tax threshold of all taxpayers to be raised and for special provision to be made for single-parent families and single-member households. They are suffering from serious difficulties and are coming into the tax bracket much too early. They have the same basic needs as families. There is nothing special about age which warrants tax relief for some but not for others.

I beg the Chancellor also to return to the system of reduced rates of income tax. There is now an immediate jump into the standard rate. This system is less progressive than the one to which we have been accustomed, and we need to cushion the impact of entry into the tax threshold.

I am disappointed with the proposals for family allowances. Last week I was told by the Treasury that if child tax allowances were abolished there would be a gain to the Treasury of about £1,220 million a year. That sum could be used to supply £1.90 per child per week, including the first child. It would also supply young people over 19 who are in full-time education. It is assumed that the payments would be untaxed. Surely that would be a step forward to help families who are in real need. The burden would be borne by people like ourselves who can best bear it, and the lower paid would get the full benefit under that scheme. On the assumption that this money would be untaxed, there would surely be even more available if the payments were taxed.

Representing, as I do, a rural area, I am deeply concerned about the proposed increase in the price of petrol. The Chancellor said that public transport would be protected, but we have no public transport. People who earn the most modest wages are compelled to own cars to enable them to get to work. It is all very well discussing the proposal in the context of the cities, but I ask my right hon. Friend to believe that my constituents do not usually drive around unnecessarily in Jaguars. Visitors may do that. Many of my constituents have to travel great distances to their work, and they receive wages which on average are about £4 a week less than the United Kingdom average. Will my right hon. Friend set his mind to the problem of finding a formula to help people who are in that position?

Whilst I am a supporter of the principles embodied in the proposals for capital transfer tax, I am delighted that there will be certain exemptions for the working farmer. Our policy for many years has been to encourage by various financial incentives the amalgamation of farms of small acreage. It would be contrary to that policy if we were to encourage the fragmentation of such holdings which might be necessary (o enable a capital transfer tax to be paid.

I hope that the Financial Secretary will carry the messages I have tried to give to the Chancellor, because they could be embodied in a future Budget, if necessary, in April.

Debate adjourned.—[Mr. Coleman.]

Debate to be resumed tomorrow.