We have now had 48 hours in which to chew over the Budget and as is usually the way with these things, we are beginning to see a certain amount of new light being shed upon it. The best way to describe the second thoughts that are clearly being had all round the place is in the phrase "growing disappointment." There is obviously growing disappointment in industry and in financial circles. There is clearly growing disappointment in trade union quarters, as has been made crystal clear. They have told the country exactly what they intend to do about it. I do not believe that the unions will have been very moved by the somewhat "Alice in Wonderland" lecture the Paymaster-General has just hopefully given them.

Whether there is growing disappointment in the Cabinet as well I am not so sure. Judging by the involvement of the Cabinet in this Budget it looks as though the growing disappointment has got into the Cabinet room. I would be interested to see whether we are to have a referendum arrangement for the Budget, too, with a licence to campaign against it outside the House and an undertaking not to speak against it in the House.

The other thing which we have seen over the past 48 hours is the Society for the Prevention of Cruelty to Chancellors, which has got into full swing. The Financial Secretary became a fully paid-up member of it last night. One way and another I suspect that the Chancellor will be able to look after himself.

The Paymaster-General thought he saw in the Budget significant reasons for futher investment. I would like to deal with this first. There is the £100 million that is to be handed out under the Industry Act. It is difficult to see if the terms are what might be called the "Bennery" terms, in other words, "You take the money and I take a slice of your firm", who will take this poisoned chalice. We should like to know what the terms will be. If they will be the "Bennery" terms, I cannot see much prospect of the £100 million doing much good. I believe that the Paymaster-General recognises that in the company sector the financial deficit is large.

There may be an end to the liquidity crisis in the sense that the imminent collapses of firms for financial reasons may have receded for the moment, but that does not mean that we are in for an era of profitability or anything like it. Liquidity has improved only because many firms have strongly cut back spending and costs, as they had to. The question we must all ask is, what happens when they have to finance expansion? Have they got the profitability which will allow that to happen? With 20 per cent. inflation, and rising, I do not see who will want to invest. Until there is profitability and the prospect of 20 per cent. and more inflation recedes, that will remain the difficulty.

As to the other aspects of the Budget on which the Paymaster-General commented, the one which has raised most eyebrows outside the House, and which is beginning to come through clearly, is the curiously passive rôle which the Government have played, despite the Chancellor's firm talk in the first part of his Budget statement, and despite the ferocious tax increases in the two crucial areas of our economy which lie behind our appalling inflation rate. First, on incomes, as the Paymaster-General in effect confirmed today, the Chancellor has clearly given up any attempt to do anything direct. He has washed his hands of the matter. The social contract is a sieve and there is a certain realism in his view. And if he did not say it explicitly, the Department of Employment figures today telling us of a 32·5 per cent. increase in basic wage rates last year say it clearly. That is the end of the matter. The Government decided that they could do nothing more direct. They have finished with the contract.

On the other key issue, public spending, the Chancellor had a different tune to play. It was "Not this year." He is saying, in effect. "Of course it is important, but for the moment if you are asking me to do something—no. Good afternoon. I shall come back to that next year." He has given us a list of what will happen next year and it amounts to a total, on 1974 survey prices, of £901 million. It excludes—no doubt the Minister of State will correct me if I am wrong—the reductions achieved by phasing out the nationalised industry subsidies, or most of them, in 1975–76. I do not know whether it will include the saving which will be achieved now that the Government, under pressure from the Opposition, have decided to postpone the nationalisation of aircraft and shipbuilding, which I believe was to cost approximately £300 million. Perhaps the Minister can tell us, now that the Government have decided to postpone it, where that saving will come from. It is a very good move, if I may say so. However, none of this answers the question about public expenditure—namely "Why not now?"

Last night the Chief Secretary put forward reasons why there are difficulties about rapid changes in capital programmes. There may be something in that, although I have always believed in the possibility—as I believe the Paymaster-General has; I understand that he has written something about it—of developing a shelf of public sector projects that can he taken down, and that can respond to changes for various reasons, fairly swiftly. Other countries have this. I imagine that a keen planning Government, in power for the last year, might have made some headway there, but clearly they have not.

But if there are difficulties on the capital spending side, if hon. Members look at the list which will apparently be published in Hansard tomorrow, one way or the other, they will find that of the £901 million at 1974 prices, £471 million is in current expenditure on goods, services and other transfer payments. In connection with that £471 million, the argument about postponing it until next year and not doing anything too disruptive does not apply. This is a point that my hon. Friend the Member for Oswestry (Mr. Biffen) made when we questioned the Chief Secretary and other Ministers yesterday. Why cannot this reduction be brought forward this year? In my view, the reply is "Well, we do not really need it until next year." Next year is the time, as the Chancellor has told us, when there will, regrettably, be about a million unemployed.

Now is the time when confidence is most precarious, when the world is expecting to see a vigorous operation on public spending, and when at least the current expenditure cuts could be brought forward. Treasury Ministers will have to forgive both hon. Members and commentators outside if they seem a little sceptical that these cuts will ever take place. If they are needed, they are needed now. They can and should be done now. We believe that unless they are done, there will be not only scepticism but a dangerously precarious lack of confidence continuing in our economic situation.

That is the curious aspect of this Bud get—the supine inertia of the Government on the two chief components of our appalling economic crisis, namely, incomes and public expenditure. The Government have chosen the third way, which is to hoist taxes on various fronts, and to hoist them up considerably. This is obviously the more natural way for a Socialist Government, as my right hon. Friend, the Leader of the Conservative Party, pointed out the other day. Maybe it makes many Socialists feel more comfortable. Even if it is half right, it is only one blade of the scissors, or, in the graphic phrase which came from the pen of the right hon. Member for Down, South (Mr. Powell), it is like trying to clap hands with only one hand. It is half the problem, and I am not sure that it is not the wrong half.

The approach of going all out for increased taxation and ignoring the public expenditure side at this stage, saying, "Never mind, that will come next year", has one virtue and one virtue only. The thing that dished the German Government in August to November 1923 was that the appalling inflationary impact on public spending, of the kind which in its incipient stages we are beginning to see here, was in no way matched by rising revenue. The revenue situation got totally out of control, and that led the way to disaster for the German Government.

It is true that as long as the Chancellor can at least keep revenue running along behind—even if it is falling away—and as long as he can manage this remarkable high-wire trapeze operation with the enormous public sector borrowing requirement, a very precarious operation, we shall at least be safe for the moment from the sort of Weimar outcome. That is a little comfort to Treasury Ministers.

Our inflation will be of a more genteel and less dramatic kind, but it will arise—and the Chancellor had plenty of words to describe this graphically—from a persistent overspending by Government and an unwillingness to do anything about it. As long as that remains, as long as the Government ignore that blade of the scissors, as they appear determined to do—despite their undertakings that it will happen next year, sometime or never—the only outcome can be wages and taxes chasing each other up the price inflation ladder. That is what the trade unions have indicated in unambiguous terms. That is what they intend to do.

It brings out the basic contradiction in the social contract which the Paymaster-General was trying to circle in rather a strange way at the beginning of his speech. The basic contradiction is between the Chancellor's proposition that we must all take a substantial cut in our living standard as a nation, both in the public and private sectors, and the proposition of the social contract that living standards will be maintained. The two do not add up. They never did, and the attempt to make them add up has only increased the tension and disappointment that already exist.

However, it does more than that. Because of the reflation last year, for which the Paymaster-General said the Chancellor takes credit, we are in a worse position in the face of the business recession than practically any other country. We shall be in a worse position to exploit the situation as world trade improves next year.

The situation is worse than that. The hon. Member for Meriden (Mr. Tomlinson) made the significant and perceptive comment yesterday that at the end of this process we shall have worse unemployment than anything the Chancellor is talking about or predicting now. The hon. Gentleman is right. That is the certain outcome of the present strategy and the failure to tackle the central components of inflation, which are mainly public spending.

The weight put on the taxes side has two other unfortunate effects, which both help to create the growing tension in our society of which the Chancellor warned us. First, there is the collective punishment for selective guilt, to which my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) rightly referred yesterday. If a person has gross pay of £80 a week, the increase of tax is just the same whether he has had that amount for four years or has just received it through a 33⅓ per cent. wage increase. Either way, one still takes the tax increase between the eyes. Although it may not look big, it is substantial, allowing for inflation. It is an unpleasantly unfair operation, and I do not think that that unfairness will pass unnoticed by many millions of people who have not been on the wages escalator and have not taken wage increases of 33⅓ per cent. or similar proportions. They will have their say.

Secondly, Treasury Ministers are led into the nonsense of the higher rate VAT. We warned them about this. Here we are moving into incomprehensible, complicated country. The late Sir Gerald Nabarro would have had a field day. On pages 12 and 13 of the Budget Resolutions we have a list of some of the items that will not be included in the higher rate VAT, together with some that will. It needs only a moment's study to see that we can get into a fine old muddle. Group 1 excludes tools of a kind used wholly or mainly for carpentry, metalwork or masonry work". That is all right, but further down we find that if they are used for horticultural purposes they catch the tax. In other words, if the drill is taken into the greenhouse it is taxed. If it is used in the garden shed or for any other form of carpentry in relation to horticulture, such as work connected with growing tomatoes, it is taxed. But if it is used in the house it is untaxed.

Under Group 2, if one has an intercom or internal telephone between the kitchen and the greenhouse, the end that is in the greenhouse carries the tax, but the end in the house does not. That is lunacy.

The lunacy goes even further. What is not mentioned in Group 2 is that the higher rate of VAT will apply not only to services but, as the Financial Secretary told us last night, to television rental payments, because, I understand, each payment is deemed to be for a fresh supply of the service of television viewing. Therefore, the people who bought their television sets made an even wiser decision than they thought, while those paying the weekly rental will be clobbered far harder than they thought. That is a recipe for mayhem in the television industry. It is grossly unfair.

Those are just some of the appalling consequences that are bound to follow from going into multi-rate VAT country. I do not know whether the Treasury Ministers are short of work, but they will take themselves into a nightmare of complications when it comes to the legislation and the anomalies which will come up again and again when they try to make the items on pages 12 and 13 of the Order Paper work in practice. Those items will not work. The anomalies will be shown up and will look absurd.

Those are the difficulties of sticking to the tax side only and ignoring the public spending side. Public spending is the root of the matter. When the Chancellor looked at the public spending issue, it was the one from which he walked away. Some pessimists predicted before the Budget that the public sector borrowing requirement would go up to about £7 billion to £8 billion—using "billion" to mean "thousand million". Some optimists said "No". The Chancellor will hold it at what it was believed to be in November—£63·3 billion." No one dreamt that it would go to £9 billion, and that it would have gone well over £10 billion but for the cut-backs and the increased revenue from tax. No one foresaw that it would go to the colossal, almost ungraspable figure of £9 billion.

We have a right to know how that sum will be financed. The Chancellor said that the supply of unconditional funds could well run out. If so, where will the money come from? In any case, how can we rely on the figure of £9 billion? We mistakenly relied last year—or perhaps the wise ones did not—on the Chancellor's aim to get the public borrowing requirement down to £2·7 billion. He was to slash it. He said that it was much too high and that it was inflationary. But it came out at £5 billion, then £6·3 billion, and finally more than £7 billion. What do we make of the figure of £9 billion this year? Where will it end? One hesitates to articulate the actual figures which, on past performance and present likelihood, might be the out-turn in 1975–76.

The Chancellor says that next year he will get a massive cut of £3 billion. There seems to be some hope that rising exports will produce rising incomes, which will produce rising revenues, which will in turn close the gap in that direction, and that his public spending cuts, if they ever materialise, will begin to close the gap the other way.

We should like to hear from the Minister of State today and from the Chancellor on Monday a good deal more about how this miraculous drop in the borrowing requirement will be achieved. This £3 billion cut will be a cut from what figure—from the £9 billion or a much bigger figure which was not foreseen and which nobody understood, because none of us realised the appallingly inflationary effect of public sector expenditure? The House has a right to know, because we are not only living on borrowed money but are in a most precarious situation, in which the gusts and eddies of international crisis could blow us over the edge at any moment. We have a right to know the score.

As for public spending control, the Chancellor made explicit and candid his problems here. I agree that it would be much more satisfactory if public spending were set out in current prices rather than in constant prices. My right hon. and learned Friend was right to make that point yesterday. That would make a vast difference. I had some experience here in the early 1970s, when we were trying to introduce new systems to reinforce the existing systems for public expenditure control. The inability to deal with things in money terms, the concentration on resource terms, was the Achilles heel of the whole matter, the weak link without which efficient public expenditure control is not possible. I agree with those who say that if public expenditure were in money terms, if one did not drain off price and wage effects, that would make departmental budgeting much more realistic. It would ease the load on the Chief Secretary, who has a poisonously difficult job, as we all recognise, and it would begin to bring the first shreds of realism back into departmental budgeting in Government. That is good. The Chancellor has said so. However, I do not know what he proposes to do about it. The Chancellor must take action in recognition of the fact that we are in a crisis.

I cannot give the same welcome to the talk of a conference with local authorities. That seems to me to be wishy-washy stuff. It does not reflect the nature of the crisis. There is a problem. I know that there are difficulties about interfering with the constitution or the lawful right of local authorities to conduct their affairs in their own way. However, we are in a crisis. We are living on the edge of a precipice. It should have been possible to introduce or devise measures with more punch in them than the proposed conference with local authorities.