Amendment of the Law

Budget Resolutions and Economic Situation – in the House of Commons at 12:00 am on 29th March 1977.

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Motion made, and Question proposed,That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but

  1. (a) this Resolution does not extend to the making of amendments with respect to the surcharge imposed by the National Insurance Surcharge Act 1976 other than amendments for affording relief to charities; and
  2. (b) without prejudice to any authorisation by virtue of any Resolution relating to value added tax, this Resolution does not extend to the making of amendments with respect to that tax so as to provide—
    1. (i) for zero-rating or exempting any supply;
    2. (ii) for refunding any amount of tax;
    3. (iii) for reducing the rate at which tax is for the time being chargeable on any supply or importation otherwise than by reducing that rate in relation to all supplies and importations on which tax is for the time being chargeable at that rate; or
    4. (iv) for any relief other than relief applicable to goods of whatever description or services of whatever description.—[Mr. Healey.]
[Relevant Commission Documents: Nos.R/566/77, R/567/77, R/2361/76 and R/2520/76.]

4.56 p.m.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher Leader of Her Majesty's Official Opposition, Leader of the Conservative Party

It is the custom for the Leader of the Opposition to congratulate the Chancellor of the Exchequer on the manner in which he presented his Budget. I congratulate him most warmly this time. We have never had such a short Budget Statement—it lasted 1 hour 23 minutes—and that was much appreciated. I notice that the right hon. Gentleman took the usual refreshment. I am not sure whether it was brandy or whisky, but I am sure that he needed it, as we did as we listened to him.

By custom, the Chancellor of the Exchequer starts by giving the House some background to his Budget. There are three aspects of that background on which I should like to comment, but before I do that I must tell the right hon. Gentleman that what he said struck many of us as though, in this Budget he were really apologising for much of the damage that he had done in his other nine Budgets. We are glad that he is repenting the high level of direct taxation that he has imposed on people and, to some extent, the other levels of taxation that arise from the high level of public expenditure that it has been this Government's choice to impose on the economy and on the people.

Looking at the Budget as a whole one finds that it is still a take-away Budget rather than a give-away Budget. He has taken his fiscal stand on £1½ billion. That is not quite enough to restore us to last year's level and it is nothing like enough to restore us to the level of the 1973 Budget.

The Chancellor of the Exchequer said that much would depend on a satisfactory pay policy, but he made no attempt to say what that would constitute. He has given us no hint at all. I thought that the Government were still in charge. Perhaps they are not responsible. They do not like taking responsibility. The Chancellor of the Exchequer has staked everything on a satisfactory pay policy next time, yet he has left himself absolutely free to bring in the reliefs, regardless of what that pay policy is.

Last year the right hon. Gentleman said that there would be certain tax reliefs if the pay policy was set at 3 per cent., and he brought those reliefs in on the basis of 5 per cent. We have no means of judging what is in his mind.

There is another gap. It is customary for the Chancellor of the Exchequer to say something about the annual review of social security benefits. He has said nothing about that. Usually there is a reference to the annual review either by the Chancellor today or during the course of the Budget debate. I am not quite sure whether it will be coming or not.

Perhaps I may turn to three of the background factors. There seems this time to have been a singular unanimity in the forecasts of what will happen in the year ahead in Britain. They have not varied very much on a number of things. First, on the real gross domestic product that we may expect this coming year, what many of us are very worried about is that we are practically near the peak of the very temporary recovery and that we are in danger of going into a minor recession. Therefore, the whole Budget is against the background, once again, of stagnant or very slightly rising output; some forecasters say it is falling very slightly. But it is against a background of more or less stagnant output. That is one of the most serious aspects. Again, all commentators are agreed upon that.

The next thing that they are agreed upon is that consumer prices will rise by about 15 per cent. That, too, is pretty devastating in terms of the cost of living for those who have absolutely no margin left in their incomes, and it is much too high. I shall say something about that again shortly.

The third thing that they are agreed upon is that unemployment is likely to rise, particularly towards the end of the year, due no doubt to the stagnant output that is expected and to the increasing productivity that is expected.

That is the background. I have not for a long time remembered such unanimity among the several forecasters in what they are expecting in the coming year.

The second background factor is how we adjudge what the Chancellor says about his own forecasts. I heard his broadcast last year. It was extremely interesting. I remember watching it and admiring it for the Chancellor's very polished performance. He started off by saying that we were expecting or hoping for "an economic miracle". I am not quite sure what happened to that, but it did not come about. He said in the House: All that is required to achieve the formidable objectives which I have set is a marginal improvement in our industrial performance at every level. This will suffice to produce the economic miracle we need."—[Official Report, 6th April 1976; Vol. 909, c. 282.] The economic miracle never happened.

Perhaps I may look at some of his other forecasts and analyse what he said would happen. First, he said that World trade has already picked up and for once we are getting our proper share of it. World trade had picked up, but our share of it was in fact falling during the first three quarters of last year. Indeed, it fell from 9·2 per cent. to 8·6 per cent. according to Trade and Industry figures. So the Chancellor was not right about that one.

The Chancellor went on to say British industry is already on the move … and our output will be growing fast. First, our historic increase in output ever since 1948 has been on average over 3 per cent. per annum, but last year it was only 2¼ per cent.—the annual rate since the Budget. If one contrasts that with what many of our EEC colleagues were doing, one finds that, unlike us, they had got right back not merely to 1974 production but to their 1973 peak production, and over it. We are nothing like back there, in spite of the temporary increase during last year. Therefore, it could hardly be said that our output was growing fast.

The Chancellor then went on to say, In the next 12 months unemployment will be on the way down. In fact, in March 1976 it was 1,235,000; in March 1977 it was 1,328,000.

Finally—and I could go on and on—there is just one other factor that I shall take. The Chancellor went on to say Then our inflation will at last be down to the same level as it is in other countries. But, of course, it is not. On the figures that the Government have placed before us, ours is 15·1 per cent., at an annual rate, and the average in the OECD is 8·4 per cent., so we are way, way ahead on inflation—"behind" would perhaps be the more appropriate word. We are behind the OECD countries on taking advantage of increased output.

Somewhere during his speech today the Chancellor referred to the fact that other countries in Europe were having difficulty in getting their economies right. Of course, we all are, but I do not think that anyone except us has got pretty nearly all the indicators wrong together. Certainly Europe has difficulty with unemployment, although I believe that we are now slightly above the European average, but European countries have not got simultaneously difficulty with unemployment and inflation and the volume of increased production. Everything is going wrong with us simultaneously. Therefore, if we are to judge the Chancellor by his forecasts, we must look at them very circumspectly indeed.

The third background factor is the increase in inflation, which has not come about in any way through wage inflation but, indirectly, through the level of the public sector borrowing requirement and public spending. It seemed to me that the Chancellor ducked this in what he said, but he knows that if he looks at the quarterly figures and not at the annual figures that he has always been very careful to quote, he will find that they dodge about like a yo-yo. This is because his money supply and domestic credit expansion have been so very much related to his borrowing needs that he has had great difficulty with sterling. It went out in the summer, and because of that he has very much higher import prices. That was due to the level of public expenditure and to the level of the deficit, which is still, even on IMF figures, proportionately high as compared with that of other countries. Eltis and Bacon brought this out in an article in The Sunday Times last Sunday, and in The Times previously.

The CBI attributes to that mismanagement of borrowing, and sterling, and an increase of 6 per cent. in the level of inflation. That is a very great imposition on the British people—that large public sector borrowing requirement and that mismanagement of sterling, which the people now have to endure.

Perhaps I may say just one more thing about this factor. I know, or I deduce, that it is the Chancellor's policy to keep the £ sterling low to try to make export prices competitive. I believe that he bases this on the old German strategy that when they kept their exchange rate low they built up a big export trade, which has stood them in good stead ever since. But they were in circumstances that were very different from our present circumstances.

It seems to me that the policy of Switzerland has been very much better, namely, to follow what I would call conservative—with a small "c"—policies, which is to have a more balanced Budget—I know that it is not possible at present—which has led to them having only a 1 per cent. rate of inflation and a high exchange rate. Certainly a high exchange rate makes it difficult to export—although not with the quality of their goods. But it does two other things. It means low import prices and, therefore, low costs feeding into one cost element of their exports; and it means a low demand for increased pay because their inflation is low.

That seems to me a much better policy than the one that the Chancellor seems to be pursuing on the exchange rate. I hope that there will be no attempt now to hold the exchange rate down artificially, because that will land us in difficulties with the retail price index and inflation.

I come now to some of the proposals that the Chancellor has put before us. I think that we were all shaken, perhaps, by the extent to which he has loaded extra taxes on the motorist, which will undoubtedly react very heavily on a number of people in the rural areas who have to use their cars.

Concerning corporation tax, again we were very concerned this morning, as we have been for the past few days, to read that companies appear to be very short of cash. This is not when their stocks are high. This is when they have already liquidated their stocks, and, in fact, when they have had a year of low investment. The fact that they are short of cash is very worrying if one is wanting increased output next year.

I am particularly pleased that the Chancellor has raised the ceiling on premiums for retirement annuities for the self-employed. As for his income tax reductions, in the case of most of them he does not, in fact, even take us back to where we were last year. That is why it is, net, a take-away Budget and not a give-away Budget.

I notice that the Chancellor has spread his reliefs. I think that he has spread them wisely, because the people at the lowest end of the taxpaying scale are to have considerable relief. After all, it was the Chancellor who brought them into paying income tax. We pay the highest rate of income tax at the lowest level of income of any country in the EEC. That is the measure of Socialism—the effect on the poorer people of this country. He had to do something about that. I noticed that he said that he would take 845,000 people out of paying income tax. With due respect, since he has been Chancellor of the Exchequer he has brought more than 1·1 million people into paying income tax. He still has a long way to go to undo the damage that he has done.

The Chancellor was wise to give relief to those in the middle management band. There has been no more demoralised group in society than middle management. People in middle management have often seen their pay squeezed and have suffered heavy taxation on that pay. Many in middle management have had their standard of living drop not by 3 per cent. or 4 per cent.—which is the average—but by 20 per cent. or 25 per cent. They, at least, have managed to get some encouragement from the Chancellor's Statement.

One wishes that the Chancellor could have been able to do more for the real wealth creators. I accept that middle management does a great deal, but those at the top could have been helped more. On them depends the creation of extra jobs. That is the single most important thing. It is not that we should just add to jobs by artificial means; we should add to the numbers of jobs available by creating real jobs, whether in the manufacturing sector or in the services sector. Both are equally important.

The Chancellor certainly could not do without the very big bonus that he gets from the invisibles every time we have the balance of payments figure.

These are some of our initial comments. We are delighted that some of the direct tax is down. We know that the Chancellor is under the constraint of the IMF. There really is no Budget judgment this year, because it is an IMF Budget. In that sense the only judgment that the Chancellor of the Exchequer was able to make was whether he should be slightly tougher or take it at IMF terms. I notice that he has preferred to leave it roughly at the IMF level.

Finally, this is not a revival Budget for Britain. That is what we were hoping for. Instead, it appears to be a survival Budget for the Labour Government.

5.12 p.m.

Photo of Mr Alex Lyon Mr Alex Lyon , City of York

In the course of my right hon. Friend's Budget speech he indicated that all the representations that he had received in recent weeks had suggested to him that there ought to be a cut in income tax. When he talked about all the representations I do not know whether he was thinking about representations from the Labour Party. I certainly have made representations to him not to cut tax in the way that he has.

My right hon. Friend has given away the equivalent of £2,250 million in reduced taxation. The effect upon the average wage earner will be as little as £2 a week on a £80 a week income. The effect of that totally massive give-away on the living standards of the average worker will be minuscule. That undermines the whole of the approach both in the Chancellor's speech and in the speech of the Leader of the Opposition.

The fact is that we have made a disastrous shift from the policy which has been pursued by both Governments over the last 10 to 15 years. The policy has always been to provide for the standard of living out of public expenditure, leaving the ordinary wage earner to provide, out of his wage packet, only for the less essential Darts of his standard of living. The shift has been most marked in the last 12 months by successive attacks upon public expenditure and the reduction that has taken place, for the prospective year, of about £3,500 million worth of public expenditure and the shift back to personal income that has taken place in this Budget.

It is against that policy that I wish to argue in my immediate reaction to my right hon. Friend's speech. That policy is totally misplaced. The reason why it has become misplaced is that the concentration has been upon the effects of the borrowing requirement and the effect that a high borrowing requirement has had upon the whole economy. It is not necessary to have a high borrowing requirement if we have high public expenditure.

There is a sense in which we can take the Gladstonian rigid financial attitude towards high public expenditure by indicating that it will be paid for out of taxes, either direct or indirect. We could have a low borrowing requirement, if it were thought desirable, by ensuring that public expenditure was paid for out of income tax. That approach would have no more inflationary effect than the approach now being espoused both by the Opposition and by the Government.

It would not mean that we were creating a demand for the printing of money or borrowing in gilts; it would simply mean that there was a shift between what a man received in his standard of living out of the tax he paid, through the State and what he provided himself out of his wage packet. That balance must always be judged according to what a man gets. Too much of the judgment involved in the suggestion that we are paying too high personal taxation comes from people who are looking back to time when the standard of living was almost entirely provided out of the private wage packet.

The position just after the war, before the Welfare State was inaugurated, was that only the basic structure of government was provided through the State, with defence as the major item and education as perhaps the most important item after that. We now provide the whole of the education budget, certainly for the average worker, and most of the social security budget, including pensions. Any average worker would now be foolish to take out superannuation for himself when the present State superannuation, especially for someone under 45, will provide him with a better deal than he could get out of any insurance company.

We now provide a considerable share of housing expenditure and, although on a declining basis, some of the average worker's food. The essential part of his standard of living, which comes out of his pay packet, is the basic part of his food bill, some part of his housing bill, and his furniture and clothing bills. The rest, which he pays for himself, is either luxury or quasi-luxury. It is not part of the essential items in his standard of living.

In order to get money to provide a man with an extra £2 a week—which will rightly be seen as minuscule by comparison with his expenditure—we have to garner about £2,000 million from public expenditure. It is monstrous, when that money could have provided better education for his children, better social services for him and his family, and a better Health Service. I forgot to mention that the whole of the National Health Service comes out of public expenditure. It is that kind of false judgment that has plagued our thinking too much in the last 12 months, and it is now crowned by this Budget.

That is my immediate reaction to the tone and the overall effect of the Budget. But I have some misgivings, too, about the level at which the Chancellor has decided to aim at the motorist. It is true that there is a need to try to shift the balance of traffic from private transport to public transport—to the railways and the buses. I welcome that. But whether it is the right moment, when we are concerned about the effect upon the retail price index, to put such a heavy burden upon petrol, with the effect that it will have on industry and on the cost of living as a whole, seems questionable at the very least.

I return to my major point, that the style of the Government has become quite misplaced in relation to the proportion of the standard of living that comes out of public expenditure and that which ought to come out of private expenditure. It is also misplaced in terms of the barrage of criticism that comes from the Opposition, who take a different dogmatic view about the reality of the earning man's standard of living.

I am absolutely convinced that even if the Budget proves popular in the short term the overall cuts in public expenditure that will take place in the coming years will have a disastrous effect upon the average worker's standard of living. Ultimately, we, as a Labour Party, sworn to uphold that proportion of the average man's standard of living that comes out of public expenditure, will be the sufferers.

5.20 p.m.

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , Angus North and Mearns

I welcome the opportunity, so soon after the Chancellor's Statement, to enter the debate. I follow what the hon. Member for York (Mr. Lyon) has said about the effect on transport costs, which I regard as one of the most serious aspects of the Chanlor's Statement. While I welcome the general shift from direct to indirect taxation I must say that the way it has been done—and the little that has been done—means that the Chancellor is simply restoring what he took away in previous Budget judgments and replacing what has been eroded as a result of inflation following the failure of the Government's economic policies. While I welcome the shift in taxation, we must see it against that perspective.

One of the main things that concerns me in relation to this shift of direction is the area in which indirect taxation has fallen. For example, if the decision had been to make a marginal increase in VAT, that would have been relatively fairly shared among all those who have to spend. I am concerned about the way the increase in indirect taxation has been largely centred on road fuel duty and the increase in car licences.

Although the Chancellor may be right in saying that he wishes to see a shift from road transport—and I know the effect that heavy lorries have in my own constituency—what he must realise is that when he increases the cost of road transport and of travel for the private motorist he hits hardest those who live in the remoter areas of the country, far from centres of population. Further, it is not just the cost of living of the individual that is affected. It is the costs to industry, too. The Chancellor's actions will hurt those who live in these remote areas and for whom essentials have to be brought in by road. Transport costs cut far more into the cost of living for people in those areas than for people living elsewhere. The same is true of industry. We all want to see more industry and the employment base extended in these remoter areas. However, much of the raw materials has to be brought in by road and the finished product must leave in the same way.

It is all very well for the Chancellor to say that he would like to see a shift away from road transport. For the people and the industries I have in mind there is often no alternative form of transport. Areas in the North-East of Scotland, as well as being dependent upon road transport to bring in goods and food, also depend upon the transport industry for employment. The employment area of the city of Aberdeen contains a higher proportion of people employed in the road transport industry than any other area in the United Kingdom.

I ask the Chancellor to remember that the car is essential for the person living in the remote areas. Bus services are practically non-existent in some areas, while they are rapidly deteriorating in others. I was in Angus in my constituency at the weekend. There, people who require out-patient treatment at hospital must leave by bus at 9 o'clock in the morning to undertake a 40-mile journey if they are to be sure of keeping an appointment three or four hours later. Because of this, such people are desperately dependent upon the car.

Many of these people, particularly the older people, do not use their cars very often. They use the car on a limited scale socially, and perhaps once a week to go to the village or the town for shopping. They do not do a great mileage. This is when the cost of the licence will bear particularly heavily on them. I condemn this aspect of the Budget.

Although I welcome the shift from direct to indirect taxation I feel it could have been done in a fairer and less discriminatory way. The way chosen by the Chancellor adds to the cost of living and to the costs of industry in the areas I represent.

I come now to employment. We all wish to encourage employment and investment and to broaden the base of industry. I say this with a special feeling for my own part of Scotland. At one end of my constituency there is the Aberdeen area which has a low level of unemployment because of the industry inspired by North Sea oil development and so on. At the south end of my area in Tayside, there is a different situation. Unemployment is running at a relatively high level.

I took a deputation to meet the Minister of State responsible for industry at the Scottish Office last Friday. Fortunately, a threatened factory closure has been partly averted, but there will still be a great reduction in employment in the town of Brechin. The unemployment rate in this relatively small town will jump from about 7 per cent. to nearly 12 per cent. when this closure takes place. If the rate jumps to that level it will be very hard for the community. However, it will be rising only to the level that some other towns in the Tayside Region are suffering. I support anything that can be done to encourage employment and investment in such areas.

Although Tayside has not benefited from oil development to the same extent as other areas we must recognise the benefits that have been gained from North Seal oil. We are now towards the end of the exploratory stage, which will be seen to have created the greatest stimulant in the North-East of Scotland. We are moving into the production phase, in which there will not be so many jobs. As we enter this phase we must recognise that there will not be the same boost to employment from North Sea oil. We must broaden the base of employment, even in the Aberdeen area, and begin preparing for the day when we cannot have the same reliance on North Sea oil and the encouragement that the boost has given to the economy of that part of Scotland.

Notwithstanding the areas of oil development, there are small pockets of unemployment where new investment is needed. I appreciate the benefit of oil, as it has brought 50,000 or 60,000 jobs to Scotland. Equally I appreciate the benefits of the regional development policy as we have seen it developed over the years under successive Governments. A recent study by Dundee University has shown that, as a result of regional development policy, we invested about £220 million in Scotland from 1960 to 1970, leading to about 50,000 new jobs in private industry. That is something we must all welcome. The increase in new jobs as a result of the regional development policy is very nearly equivalent to the benefit that we have had from North Sea oil.

If the Scottish economy and Scottish industry had expanded at the same rate as that of the rest of the United Kingdom we would have required about another 90,000 jobs to keep pace. I am in no sense denigrating the benefits brought to us by the regional development policy. The benefits have been immense, but there has still been a shortfall in Scotland. That is the basis of much of the economic malaise in Scotland, compared with the rest of the United Kingdom. If we had not had the benefits of North Sea oil the shortfall in jobs in Scotland compared with the rest of the United Kingdom would have been even worse.

I support the regional development policy, but with the removal of the regional employment premium we must look for a new strategy to encourage the creation of new jobs and industries in areas such as Scotland. The Chancellor rightly mentioned a number of the short-term schemes that he is continuing and new schemes that he is proposing, that are designed to alleviate unemployment. I welcome them, as I am sure that they will be of help. However, although they are good in the short term we must recognise that, when they come to an end, we are left with basic weaknesses in our economy that must be put right. I hope that we shall use the breathing space provided by the temporary schemes to work out a better long-term strategy for regional aids to industry.

Various Committees of the House have drawn attention to present weaknesses in the economy and the schemes that we have introduced. I question whether we are getting the best advantage from investment of public money in terms of employment. In my area of the North-East of Scotland there are schemes being financed from public funds, and they would have gone ahead in any event because of North Sea oil and natural economic reasons; they would have gone ahead regardless of extra aid from public funds. I say that although I represent an area where the investment of public funds has taken place. I do not believe that investment to be sensible, even though my area has benefited. It is not the best use of public funds to continue to put them into investments that would have taken place in any event. The money might have been better spent in other directions.

We must take a fresh look at the amount of money that we put into industries that are highly capital intensive. The oil industry is an example. It is sometimes to be questioned whether the return in the number of jobs created has been commensurate with the amount invested from public funds. The money might have been spent in better ways and a Committee of the House has drawn attention to that argument.

Although a great deal has been done to bring new industry into Scotland, industry which has helped to broaden the Scottish economy—there have been American money and industry as well as money and industry from Common Market countries—it seems that when we come on had times the firms from outside the United Kingdom are often the first to end their operations. For example, we all welcomed the investment that was made by the National Cash Register Company in Dundee a number of years ago. The transformation from dependence on the old jute-based industry was remarkable, but in the longer term it is something that must be questioned. It was a good kickoff, but, on its own, was it in the best long-term interests of Dundee? When the company hit difficult times the whole of the town was faced with difficulties once again.

Another weakness we have seen in our policy to encourage regional development is that we have paid insufficient attention to encouraging local, indigenous industry based on Scottish enterprise. It is important that we encourage such industry to set up firms that have roots within Scotland and that will continue regardless of the economic climate. Such firms will be prepared to weather the storms so long as they do not continue too long. Indigenous Scottish industries might well provide a stronger economy for Scotland.

As I have said, the temporary schemes have given us time to think out a new strategy for industrial policy within Scotland. We should put more emphasis on selective assistance instead of a blanket system for which people qualify regardless of whether there is justification in terms of development in a particular area, development which might have taken place anyway, or development which will be far too expensive in terms of the investment of public funds in relation to the number of jobs provided. We should put increasing emphasis on selective assistance, using Government agencies, such as the Scottish Development Agency, to provide help for the areas that need it most. That assistance should be directed to areas that will offer the best return on public funds and the best long-term structural economy and employment prospects.

I have discussed greater selectivity with the Minister of State. I am glad to see the hon. Gentleman on the Government Front Bench. I thank him for his courtesy in meeting the deputation that took to him last Friday. I thank him for the considerate way in which he listened to the matters that were put to him, and for his response. I believe that he takes the same view as myself in these matters. I hope that, through the SDA, and the selective assistance for which I am arguing this afternoon, we shall give more encouragement to local enterprise within communities in Scotland. I believe that that, more than anything else, will help to secure a much stronger long-term economy in Scotland.

I deprecate certain parts of the Budget, especially those that affect the rural areas. I hope that the result of a rethink and a new industrial policy will be that some of my ideas may be carried through in Scotland.

5.40 p.m.

Photo of Mr John Parker Mr John Parker , Dagenham

In general, I support the Budget proposals. I disagree with my hon. Friend the Member for York (Mr. Lyon) about income tax. In the last six months or so, more of my correspondence has been about reducing income tax than about anything else—both from those with low incomes and from skilled workers who feel that they are not getting an adequate return for their skills. I therefore strongly support that main part of the Budget and I hope that it will assist the Government in reaching a further agreement on incomes with the unions.

My constituency is in outer London, and includes the main factory of the Ford Motor Company. I hope that we shall not have a policy that in the long run will damage the motor car industry, both on the home market and in exports. We should therefore think carefully about any increase in taxation on that industry. However, I support the higher taxation of the large lorry and look forward to the time when it pays its full complement for road maintenance and repair of the damage to amenities that it causes.

I would make a plea on behalf of those who spend a large amount of their income and their time travelling to and from work—whether by car or by public transport. This applies, for instance, to those travelling from outer London to the centre. Travelling expenses, especially on public transport, should be allowed against tax.

Many of the sons and daughters of those who work in Fords and neighbouring factories travel into central London to work. Travel costs are a serious impediment to their taking up the careers that they wish to follow.

This problem arises in every large conurbation and for those who travel from villages to work in cities. In Oxfordshire, for example, an enormous proportion of the village population work in Cowley and Oxford. Many villages are kept going by inhabitants who work some way away from home. We want them to continue as living communities. These costs should be considered in taxation policy. This disability will increase and inhibit future population movement.

The argument against my proposal is that a tax rebate will lead to more people moving still further from city centres. But the inconvenience of long travel to work is very serious and people are not anxious to suffer it. For instance, Leatherhead is 10 miles nearer London than is Dorking and the same kind of house is £1,000 dearer in Leatherhead than in Dorking, because of the shorter time spent travelling from Leatherhead into London. Since this disability will always exist, it will always counter the argument that many people are likely to move further out. This should be considered seriously in the long term as well as the short term.

I am a heretic, in that I believe strongly in concentrating on improving our manufacturing industry. More capital, whether Government or private, must go into developing our resources and thus our industrial base. But that will not, in my view, greatly affect unemployment in the long run. The more capital-intensive an industry becomes, the fewer people it will employ. We shall need new skills—I support the Government's training schemes—but as trade revives the expansion in employment will be in the service industries.

Over the last 15 years there has been a 5 per cent. drop in employment in manufacturing industry. That proportion may stabilise for a while and new industries may be developed, but I do not see a large increase in employment resulting from improving manufacturing industry, necessary as it is.

We must consider how to deal with the problem by longer holidays and earlier retirement when we are more prosperous. Retirement cannot be made compulsory, but in the long term we are mistaken if we believe that improving our industrial base will enormously increase employment. However, there will be more employment in the service industries. I hope that all parties will think about this long-term problem.

5.48 p.m.

Photo of Mr David Knox Mr David Knox , Leek

I join my right hon. Friend the Leader of the Opposition in commending the Chancellor on his brevity. I am sure that this was the shortest Budget speech since my arrival here in 1970. I hope that it sets a precedent. Chancellors who compile their speeches have always seemed to feel that they should be filled out and that we should all be kept sitting here bored for hours. It may seem churlish to say so, but the right hon. Gentleman could have dropped most of the first half hour of his speech, without great loss and to the great benefit of the House. However, it was a great improvement and I hope that we shall not revert to long Budget speeches.

I share the reservations of my hon. Friend the Member for North Angus and Mearns (Mr. Buchanan-Smith) about the Chancellor's proposals for the motorist. The increases in both road fuel duty and vehicle excise duty will eventually affect the retail price index. They will also place further burdens on people who live in rural constituencies like mine, where the car is not a luxury but an absolute necessity. I regret this additional burden and it seems from what has been said so far that others share that view.

My second detailed point concerns VAT. I was sorry that the Chancellor decided to take no action about VAT, because it strikes me that he missed a great opportunity to revert to a single rate. It was a great mistake to move away from this in his first Budget in 1974. Inevitably, two rates create much more work for small retailers, small business men and, indeed, larger business men. I believe that there would be substantial savings in administrative costs if the Chancellor decided to go back to one rate once again.

My third point concerns the direct tax changes. One must obviously welcome these changes. As the Chancellor rightly pointed out, they will encourage initiative and hard work. Even more important, they will help remove the very strong feelings of injustice and grievance among people at all income levels. I cannot recollect a time when people have felt more bitter about the level of direct taxation. Although the Chancellor's steps are modest by any standard they are nevertheless, steps in the right direction.

As my right hon. Friend the Leader of the Opposition rightly pointed out, the changes which the Chancellor has made go only a short way towards remedying the adverse effects that inflation has had over the past year, far less over the past three years. Nevertheless, one must welcome the changes as at least being a step in the right direction.

I also welcome the conditional tax changes. This was a continuation of the idea in last year's Budget. I welcomed the concept then. It seems to be that the level of incomes and settlements is inevitably bound up with the kind of concessions that the Chancellor can make. In introducing any Budget it is only fair that the Chancellor should allow himself some leeway to adjust tax rates on the basis of the eventually determined income settlements for the year ahead.

I now turn to certain more general matters. The Chancellor has now completed three years in office. I do not think that even his best friend would claim that his tenure has been anything other than disastrous. The past three years have been punctuated by a series of crises of confidence of great gravity demanding enormous borrowings abroad which, eventually, we shall have to repay. Moreover, during this period the balance of payments has been in substantial deficit. Inflation has been higher for longer than ever before and at one time achieved a rate of 25 per cent.

Unemployment has reached an unprecedented high level in the post-war era, reminiscent of the level during the 1930s. Moreover, as we heard yesterday, living standards during the past three years have fallen. That is during the period when the right hon. Member for Leeds, East (Mr. Healey) has been Chancellor. All in all, the last three years have been bad years economically for Britain.

It would, of course, be quite unfair to pretend that all this is entirely due to the Chancellor or his policies. It is certainly the case that he inherited problems in March 1974. Not all the consequences of the commodity price explosion in the previous two years had worked their way through the economy when the Chancellor took office. The effects of the quadrupling of oil prices in the previous few months still had to work their way through as well. No one would hold the right hon. Gentleman or his party responsible for those matters. But the right hon. Gentleman also inherited the consequences of the utterly irresponsible attitude of his party and himself to every wage and salary claim during the 1970–74 period and, above all, to the final miners' dispute.

It was that attitude which probably made inevitable the wage and salary explosion of 1974–75, to which the severity of our present situation can be directly attributed—particularly in relation to the balance of payments, inflation and unemployment. No one but the Chancellor and his friends can be held responsible for that.

It is important that the seriousness of the present level of unemployment should not be underestimated. I have no doubt that it is the most serious social problem in Britain today and that it has serious long-term social consequences. It is not just that unemployment is far too high today. Even more, it is that it has risen far too steeply during the last three years. The sharp rise in unemployment undoubtedly causes deep concern not only to those directly affected by it but to those at work who are worried that they might be next to lose their jobs.

According to the figures provided to me yesterday by the Department of Employment, unemployment in the Leek parliamentary constituency has more than doubled since February 1974—that is, since this Government came into office. In the town of Leek itself unemployment has more than trebled during the same period. The sharp rise has undoubtedly caused deep concern to my constituents. Many of those at present in employment are worried that they may be next to lose their jobs. That is in an area where, thank God, unemployment is still less than the national average. How much worse is it in other areas of the country where unemployment is higher than the national average?

We in this House must never forget that unemployment is a severe affront to human dignity. The feeling of not being wanted is an insult to the great majority of those who are without work today and whose only wish is the opportunity to earn their living and look after their families. Whether one likes it or not there is, unfortunately, still a stigma attached to being unemployed. This should not be the case, because the level of employment and unemployment is dependent on the demand for labour. It has very little to do with the qualities of those affected.

Unemployment hits the good worker just as it hits the bad worker. It hits the hard worker and the lazy worker alike. It hits the skilled worker and the unskilled worker alike; unemployment does not discriminate. The great majority of unemployed lose their jobs through no fault of their own.

The effects of unemployment on our society are very serious. It undoubtedly embitters those affected against society. It undermines their belief in our democratic system. It sours their attitude to their fellow men. It adversely affects the quality of their whole life, and not just during the period when they are out of work.

More than anything else I believe that it has encouraged work-spreading restrictive practices, which so plague our industry and result in so much of the overmanning that we now have in British industry. If people see their jobs being threatened, it is only natural that they should spread their work. If they see a lot of unemployment about, even if the threat to their job has disappeared, they are unlikely to drop these restrictive practices which they adopted in more difficult times. If we are treally serious about getting rid of overmanning in this country we must get rid of the main cause of it which is high unemployment.

The oil crisis in late 1973 and early 1974 made a temporary rise in unemployment inevitable. But had the present Government pursued sensible policies during their first year in office—had they pursued policies of restraint in public spending and wage and salary increases—I believe that that rise in unemployment would have been temporary and that things would by now have been back to normal. The fact that things are not back to normal, that unemployment is more than twice what it was in February 1974, is one of the measures of the Chancellor's failure in the past three years.

I turn to the question of inflation and incomes policy. I mentioned earlier that the seeds of the present Government's disastrous economic record were sown during their first year in office, and in particular during the period when the wages and salaries explosion took place in 1974 and 1975. During the period up to the summer of 1975, increases in wages and salaries of 30 per cent. and 40 per cent. were commonplace. Inevitably, these produced hyper-inflation, with a record rate of 25 per cent.

Then the Government introduced their incomes policy—a policy that they should never have abandoned in the first place. First we had the £6 limit and then, more recently, the 4·per cent. limit. There can be no doubt that both those policies have worked. Of course, they have not stopped inflation, but if one generates a 25 per cent. rate of inflation one cannot eliminate it in two years. It has already fallen considerably and it should fall further in the future.

In my view, phases 1 and 2 of this Government's incomes policy have played an important part in the improvement that has already taken place. I believe that wage and salary increases are less than they would have been had this policy not been introduced. If that is not the case, why has almost everyone received the full amount? If, as some people claim, the market should have been allowed to deal with the situation, surely, with the present high level of unemployment, most if not all the wage settlements should have been for less than the full amount.

The fact is that, as we have found again and again, the market cannot deal with the situation adequately. It does not do so, because the monopoly powers of trade unions and professional bodies and other imperfections in the labour market mean that the labour market works very crudely and that income-cost inflation will be contained only at an excessively high level of unemployment. The fact is that however much some people may dislike it, we need a third phase of the incomes policy to moderate income increases after the present limits end.

We have been hearing a great deal recently about a return to free collective bargaining. I should not mind if it were free collective bargaining. It may well be collective, but there is nothing free about it, and it is certainly not real bargaining, because of the imperfections of the labour market and the monopolies in it. In fact, the term "free collective bargaining" is a euphemism for the exploitation of the public by trade unions and professional bodies through the monopoly power they have in the labour market.

Free collective bargaining is freedom for the strong to exploit the weak. It is the very process that enabled the crippling income-cost inflation of recent years. We are always hearing about the defects and weaknesses of incomes policy. It is time to remind ourselves that in recent years the defects of so-called free collective bargaining have been far greater than those of an incomes policy.

Of course, phases 1 and 2 have not been perfect. They have had weaknesses. They have undoubtedly been somewhat rigid and inflexible. Therefore, it is essential that the next phase should be less rigid and more flexible than the previous two phases. It must allow for some restoration of differentials, but it cannot allow a total restoration, because the damage done in terms of extra wage-and-salary cost inflation would far exceed any benefits that might accrue.

In framing phase 3 of their policy, the Government might well closely examine phase 3 of the last Conservative Government's income policy, because there has never been a more flexible phase of any incomes policy introduced by any Government in this country. If inflation is to be reduced, first to single figures and then to less than 5 per cent., the next phase of incomes policy must be less generous than the two previous phases. But, whatever the next phase may be, I hope that those of us on the Conservative Benches will adopt the same responsible attitude to it as we did to the two earlier phases. Our attitude compared very favourably with that of the Labour Opposition to the Conservative Government's incomes policy between 1970 and 1974.

It may well be that the present Government do not deserve the Opposition's support for phase 3 of their incomes policy. But the country deserves it, the country expects it, and the Government will, I am sure, get the support of the Opposition for it.

6.6 p.m.

Photo of Mr Evelyn King Mr Evelyn King , South Dorset

It is not easy, a few minutes after a one-and-a-half-hour Budget speech, to make any useful comments. I shall certainly not range across the whole economic panorama. I wish merely to make one point briefly.

I should have liked to comment on the speeches of the hon. Members for York (Mr. Lyon) and Dagenham (Mr. Parker), but both have left the Chamber. I thought that the remark of the hon. Member for Dagenham, who said "I am a heretic; I support manufacturing industry", was worthy of inclusion in "Sayings of the Week". If the hon. Gentleman is a heretic, does that imply that he is the only one on the Labour Benches who supports manufacturing industry? If so, I feel even more frightened than I was before I heard him.

The hon. Member for York made a predictable speech, saying that he wanted more money spent in the public sector. I do not agree with him, but I do not think it worth following the matter up, because the disagreement is so fundamental. I still like Gladstone's remark that money fructifies best in the pockets of the people. I wish that all Governments would remember that phrase, because it is worth remembering.

I want to comment upon a matter that most closely affects my constituency. I am becoming desperately concerned about those whom I shall call the "responsibles"—mostly men of 60, 70 and even 80, who retired 10 or 20 years ago, having served their country faithfully for 40 years. They include retired civil servants, retired officers, and people retired from business. Such people are to be found all over my constituency, as they are to be found in most of South-West England. Being responsible people, they made their calculations and settled in a two-room or three-room bungalow. They had a small car. They thought that they would live upon their pensions and savings. Most of them had some savings, although those savings were not substantial.

Those to whom I am referring represent an enormous body of people throughout the country, but perhaps particularly in Dorset. Inflation has struck them like a bomb. I shall not say that their savings are valueless, but the income derived from them after dividends have been restricted is now trifling. When these people took their houses 10 or 20 years ago, rates might have been £30 a year. They are now probably £150.

Because of their age, these people can barely leave their houses. They thought that their greatest and most lasting asset was their little motor car, with which they could visit their children and grandchildren and see their lives out in that sort of style. Now the motor car is also being put beyond their reach.

I am glad that every hon. Member who has spoken so far has dwelt on the question of the motor car. The hon. Member for Dagenham was of course concerned because of the Budget's effect on the industry manufacturing motor cars. It is perhaps the more surprising that this anti-motor trend seems to exist in Government circles when North Sea oil is just beginning to come in and the dollar content of the cost of petrol is likely to be less than ever before. This is the moment when the Government choose to make motoring more difficult still.

I wish that I could bring home to Members of the Government the effect that this has in rural areas. I try to sound impartial when I say that I dread the trend that has been emerging over recent years—that economic policy always seems to benefit those who live in the cities. I hesitate to say that this is because they vote Labour, because that is not fair, but the point is that economic policy is generally unfair to those who live in the countryside. We do not wish to make that political distinction, but recent economic and financial measures are making the distinction apparent.

To illustrate the hardship that is being felt in the countryside I quote the example of the lovely town of Swanage, in my constituency, where two things have happened. Swanage is a little town at the end of a single road. In summer time that road is often impassable because of the number of tourists. The two things that have happened are that the maternity nursing home is to be closed and the town's ambulance is to be withdrawn. There have been protests, but if the ambulance stays it will have only one driver. Hon. Members should remember that this is a town of 8,000 to 10,000 people, yet it is being practically cut off from essential services. What about expectant mothers? There will be no services for them in the future. Here we have a community that is utterly dependent on the motor car.

If one wanders around South Dorset, Devon or Cornwall one can find countless other examples. There are numerous villages which have had their bus services withdrawn. The very last thing that I would want the Chancellor to do is to make transport more difficult in these areas. I am thinking not in economic terms but in human terms, because we are getting near the point at which the hardship could be described as cruelty. This hardship falls on people who have served their country well, and they are now suffering greatly. The Chancellor should use his influence to see that things change, and I hope that the Treasury Bench will take note of what I have said.

6.13 p.m.

Photo of Mr Roy Hughes Mr Roy Hughes , Newport (Monmouthshire/Gwent)

The hon. Member for Dorset, South (Mr. King), spoke of his constituency, which seems to be heavily populated by retired civil servants and officers—those he calls "the responsibles". I claim to represent equally responsible people, but they are essentially producers. They make the basic steel for our community and many manufactured products as well. In fairness, I should say that I do not entirely disagree with the hon. Member's remarks, as I shall make clear in a moment.

I endorse what the Leader of the Opposition said in her earlier remarks and what other hon. Members have said in congratulating the Chancellor on a very short Budget. Over the years we have grown accustomed to hearing much longer Budgets, with extended economic analyses. At least this one was relatively short.

One's comments on the Budget at this stage can express only one's immediate reactions and not one's considered judgment. I welcome the proposals that the Chancellor made in a further attempt to combat unemployment, which, of course, along with inflation is one of the twin pillars of evil at present. Certainly the assistance that he announced to the construction industry is most welcome. A week ago I received a deputation from building trades employers in my constituency and I am sure that they will welcome the Chancellor's proposals. One of the beneficial aspects of helping the construction industry is that it relies on very few imported materials and therefore is essentially a home producer industry.

One of our famous writers once said: Hope springs eternal in the human breast. I confess to being a little disappointed by the Budget this afternoon. Certainly my hopes for it have not been entirely realised. Perhaps I was over-optimistic, but from the Labour Party point of view I do not think that there is very much to cheer about.

I am not at all happy about the proposals on transport. I have already said that inflation is one of the twin pillars of evil at present, and of course these additional charges on essential transport will certainly not help the inflationary situation.

The Chancellor has imposed additional taxes on heavy vehicles. I appreciate the difficulties that these vehicles cause to the environment, and I know that we get many protests about them from our constituents. Nevertheless, these vehicles carry essential goods and the additional costs will inevitably be passed on to the consumer.

Then there is the question of individual motorists. Today, many work people use their cars to follow their employment, so the £10 additional tax on motor cars will be much resented. The extra 5½p on a single gallon of petrol will be even more resented. My own feeling is that there will be a pretty bitter reaction to these two proposals.

Speaking as a non-smoker, I would have thought that for health reasons alone tobacco could have been much more heavily taxed. This would have eased the tax on transport, which the Chancellor seems intent on levying.

On the Question of the future of the incomes policy, one of the Chancellor's main inducements to comply with this is a reduction in the basic rate of income tax from 35 per cent. to 33 per cent. In their economic strategy the Government attach great importance to the third stage of the incomes policy. However, I do not think that they have given anything like sufficient assistance to trade union leaders, who have the most difficult task of persuading their members that there are benefits in a further stage of restraint.

Undoubtedly there will be a major call for a return to free collective bargaining. There has been a disastrous toolroom strike at Leyland which has had catastrophic effects on our export performance, but in view of the inadequate proposals in the Budget I believe that in the weeks and months ahead the Government will face a great deal of trouble on the wages front.

We all know that on the narrow political front there is a by-election on Thursday. According to an opinion poll published today, the Conservatives now have a very slender lead. The Chancellor's proposals this afternoon might possibly have provided an inducement to win over, or indeed to win back, voters in what in the past has been a Labour constituency. We must appreciate that the constituency contains a large number of motor car workers. I do not believe that my right hon. Friend's proposals will be well received in the Midlands.

I sum up my few remarks by saying that I am a little disappointed in the Budget proposals, and I can only conclude that the Government's agreement with the Liberal Party will continue for a long time yet.

6.22 p.m.

Photo of Mr John Stokes Mr John Stokes , Halesowen and Stourbridge

I congratulate the Chancellor of the Exchequer on the fluency with which he produced his Budget speech. I also wish to commend him on the brevity of his remarks, which was appreciated in all parts of the House. I also wish to echo what was said by the hon. Member for Newport (Mr. Hughes), that certainly the Chancellor cannot be said to have tried to bribe the electors of Stechford in the forthcoming by-election.

I find the Budget on the whole disappointing. The income tax changes, which were so heralded at first glance, only take inflation into account and do not represent any real reductions in tax paid. There is too little incentive to work hard, as people can and do on the Continent. No doubt this is why so many of our best and brightest young people are going abroad. This represents a serious loss to the country and will become more serious as time elapses unless steps are taken to deal with the situation.

Unfortunately, the Chancellor of the Exchequer still bears down heavily on small businesses and on the self-employed. I represent a constituency that is almost wholly composed of producers—those in the wealth-creating sector of society from whose wealth everything else ultimately stems. That sector of the community believes—and I share that belief—that there have still not been enough cuts in public expenditure to allow for sufficient cuts in taxation. As a nation we still depend too heavily on foreign borrowing.

I wish to support the remarks of my hon. Friend the Member for Dorset, South (Mr. King), who mentioned the number of responsible retired people who have given of their best in lives dedicated to the service of the nation, who have saved money and who expected to live in modest comfort on the dividends and interest flowing from that money. In the whole of the Budget speech, there was no mention of any lifting of dividend restraint which bears so hard on those people. Even the changes in investment surcharge were not enough to take account of inflation.

I wish to deal mainly with the effect of the Budget on manufacturing industry, which is the great interest of the vast majority of my constituents in the West Midlands. Manufacturing industry is still clobbered by heavy taxation, and every kind of hindrance is put in the way of employers who wish to take on more people. I hope that the Chancellor will ensure that the Secretary of State for Prices and Consumer Protection does not ruin the profitability of industry by imposing too harsh a policy on controls and prices, and I hope that those controls will not last for too long.

The prime shortcoming of this country lies in our failure to produce. Because of that important factor, unemployment is unlikely to fall. I very much agree with the hon. Member for Dagenham (Mr. Parker) that in present-day industry we require not so much unskilled workers in the mass but scientists, technologists, engineers and skilled craftsmen. With the continuing improvement of automation and machine tools and every kind of production facility, machines will more and more replace men. Therefore, we must look to those engaged in export finance and other services to employ more people than they have done up to the present time.

A great deal is heard about the failure of industry to invest, but the first task of industry is to produce from the existing rate of investment. We all know that there is serious under-capacity. We require production and productivity before investment, which will come only at a later stage. There is not enough incentive to invest, because there is not sufficient reward either in terms of investment or on the part of the individual in terms of risk and effort.

So far, every contributor to this debate has mentioned the effect of the Budget on the motor car industry. I cannot see how the new taxes on the motorist will help British Leyland or, indeed, the British motor industry as a whole. If we are not careful, it will soon be regarded as a sin and anti-social to own and drive a motor car. We know from hon. Members who represent rural constituencies that the use of a motor car is essential following railway closures and the scarcity of buses.

The Chancellor spoke at some length about job creation, but I regard that instrument largely as artificial and bogus. What the country wants is real jobs in real firms—firms that have confidence that they can make what customers want. Those firms also want a fair return in profit terms, and they want to be satisfied that those profits will not be unduly taxed.

As the Budget debate unfolds, we shall hear a great deal about the importance of preserving or enhancing differentials. How can we expect men to become foremen, foremen to become managers, or managers to take on the responsibility and strain of directorships of enterprises if there is virtually no additional gross pay and certainly hardly any additional net pay? That is one of the great differences between this country and the Continent and is why so many of our executives are now looking across the Channel for higher gross salaries and higher net rewards. I do not believe that anyone—from the workers at the bench to the directors in the boardroom—really wants an egalitarian society.

High taxation, apart from being evil and inflationary, has many other disadvantages. It is one of the causes of the dishonesty of which we have heard today. It is because of the high level of taxes, and their often evident unfairness, that people feel that this is really too much. What was an honest nation could easily become a dishonest one unless taxes are substantially and regularly reduced.

People are becoming more fed up with the tax changes proposed by the Chancellor coming into force by courtesy of the trades unions, and that is once again a feature of the Budget. As a result, the tax paid by the people in this country—most of whom are not in unions—depends on the view that the trade unions take of the Government.

Photo of Mr William Molloy Mr William Molloy , Ealing North

Would not the hon. Member also consider the fact that the CBI and eminent economists concerned with commerce and industry have asked trade unions to do precisely what the Government are asking them to do? Has not the British trade union movement responded admirably over the past few years to requests that have been made by the Government, the CBI and British commerce? Surely that is a good thing.

Photo of Mr John Stokes Mr John Stokes , Halesowen and Stourbridge

I shall first finish what I was saying, as I gave way immediately to the hon. Gentleman, and I shall then return to his point. The majority of the people have to depend for their tax changes on the views of a minority of trade unionists and not on the view of Parliament, which represents everybody. That is wholly dangerous and wrong.

I had not proposed, in the short time remaining, to talk about incomes policy, but shall make just a few comments and I am sure that they will represent the views of a great many people not only in my constituency but throughout the country. I am wholly opposed to an incomes policy. Such affairs should be settled by firms themselves dealing directly with their own trade unions and elected representatives, either nationally or, better still, at plant level. The longer that these so-called incomes policies continue, the greater the distortion and unfairness that will be created. The trouble with the tool room workers at British Leyland was entirely due to that. Sooner or later such a straitjacket must give way. The country's economy may be worse at the end than at the beginning of such a policy.

I know that at a time of unemployment some attempt to hold down wages may reduce the speed at which unemployment arises, but in the end the damage that such a policy does to the whole economy, to incentives and to our efficiency as a great producing and manufacturing nation is far greater. Therefore, I am not an incomes policy man. I have the greatest faith in management and workpeople and in the good sense of most trade union representatives.

This is one of many Budgets that we have heard from the present Chancellor. I said earlier that I am disappointed in it. I certainly welcome his change of heart and humility now, but on the evidence of the past why should we believe his promises today? If the Chancellor has been wrong so many times before, why should he be right today? The Chancellor is no doubt an incurable optimist, but I am not at all sure that we do not need a pessimist at the Treasury.

The Budget exemplifies the failure of Socialism. Socialism cannot create wealth. It can only spend and distribute wealth that has been produced by others. I am old-fashioned enough to believe that we shall never get the economy right until we cut spending more substantially than we have done, balance the budget and in that way—it is the only way—halt inflation. Inflation is a kind of revolution by stealth that robs people of their savings almost without their knowing it. Next to civil strife, it is about the worst thing that could happen to any country, as we know from the example of Germany and other countries. There must be a tremendous change of attitude here. We must roll back the extent to which the State increasingly, and certainly at ever greater expense, intrudes and intervenes in every facet of our lives. That not only deprives us of our basic freedom but it is enormously expensive. In the end, the salvation of the country will come from individuals and not the State, and certainly not from a Socialist State.

6.37 p.m.

Photo of Mr Russell Fairgrieve Mr Russell Fairgrieve , Aberdeenshire West

It is obvious that no one could make a detailed assessment of the Budget so soon after hearing it delivered, but I should like to add my congratulations to those already given to the Chancellor for speaking this year for a shorter time than he has done previously.

There are two or three immediate points that I should like to make, albeit briefly. Today's Budget is not really aimed at attacking the twin evils of which hon. Members have spoken today—inflation and unemployment. This Budget will not attack them swiftly. We all know the harm that inflation does to everyone, whatever his wages, and how inflation is dangerously eating into people's jobs. With that is associated the whole problem of unemployment and what it does to people and to their morale.

The one area that could help unemployment and inflation is industry. I should have preferred the Chancellor to give more encouragement to industry, and to let industry raise its dividends and thus increase its investment and its earnings in order to create more jobs by taking on more people. I should have liked the Chancellor to take another look at the level of corporation tax, because it is only through the productive sector of private industry and small businesses that we can cure unemployment.

Naturally, we all welcome the Chancellor's cuts in direct taxation, but we must also realise that we have not gone back to where we were a few years ago because inflation has already eroded such tax cuts as we have received today. I certainly agree with the Chancellor's move to tax spending rather than earning by putting anything additional on indirect taxes—with one exception, on which I add my voice to the others who have spoken this afternoon, and that is the tax on petrol and the licensing of vehicles. That will bear hardly on all rural constituencies such as mine of Aberdeenshire, West. An hon. Member who spoke earlier made the point—although I do not want to become too political on this—that it is obvious that this type of taxation hits the rural areas harder than the cities, where there is often subsidised public transport. In rural areas today, with less public transport, a car is not a luxury but a necessity for various needs such as taking old people to hospital and transporting children and so on. Therefore, it is a retrograde step to increase the cost of transport in rural areas.

It is a great pity that the Chancellor did not take this opportunity to put right what he did wrong a few years ago when he introduced more than one level of VAT. Value added tax replaced purchase tax, and the thinking behind purchase tax is basically Socialist. It provides a series of rates of tax, and the Government—or, in reality, the man in Whitehall—decide what is a luxury and what is a necessity rather than leave it to the individual to make up his mind about what is a luxury and what is a necessity.

I hope that the day is not far distant when we shall return to one low rate of VAT on everything. If the Chancellor had returned VAT to 10 per cent., which is a far easier rate to operate anyway, the cost would not have been large and it would have been a first sensible step in the right direction.

Compared to our competitors in Western Europe, taxation in this country is still too high. This is because Government spending is too high. If we are to get a big reduction in taxation, we must have a cut in Government expenditure. This would allow money to be ploughed back into productive industry, and that would cure unemployment and inflation.

6.41 p.m.

Photo of Dr Alan Glyn Dr Alan Glyn , Windsor and Maidenhead

I have undertaken to speak for no more than five minutes. I regard this as a neutral Budget, and the one thing for which I must give the Chancellor credit is that it is not an electioneering Budget. It will not fire the imagination of the electorates at the forthcoming by-elections.

It is an unimaginative Budget and it does not tackle the main problems facing this country—unemployment and inflation. Right through the Budget, the reliefs and gifts do not match the inflation through which this country has passed. No incentives are provided for investment, which is so essential in the creation of jobs, for differentials or for people to earn more and to do better in society.

I welcome the move from direct to indirect taxation because I am a protagonist of that form of taxation. I believe that people should be allowed to have the maximum net amout of take-home pay and be allowed to decide on what they wish to spend it—and pay taxes accordingly.

It is unfortunate that most of the burden of the increases in indirect taxation has fallen on the motorist. Those in rural areas will be particularly hard hit. Hon. Members with large constituencies like my own will know that public transport is becoming increasingly costly and that people are being obliged to use their cars for themselves and for such things as visiting or taking people to hospital.

This Budget is almost the same as the sort of Budget that we had when the Government first came to office. It is an admission by them that inflation and other factors have overtaken us to such an extent that their forecasts have never materialised and we are back again or the same old treadmill of go-slow policies, with the Chancellor hoping that North Sea oil will help us to pay our debts and to live better lives. It is important for us to realise that we still have massive borrowings and that it may be a considerable time before we are able to pay them all off from the money that we get from North Sea oil.

We must encourage industry and investors and make our industrial concerns far more viable. I cannot go along with the Government's ideas of high taxation and high rates of public expenditure.

I do not want to pour cold water on the agreement with the trade unions, but the Government have not spelt out what bargain they will require or how far the unions will be expected to respond. It seems that the Chancellor has offered an open-ended commitment. He also suggested that he would want to introduce yet another Budget.

We must tackle inflation. It is eating into our way of life and into people's purses and savings and destroying the whole structure of life as we know it. Inflation and unemployment, which is equally destructive, must be tackled, and we shall do this only by making our country a place in which it is worth working, by giving more incentive and by creating an atmosphere in which people can work and earn more and increase the benefits for the country.

I have no hesitation in repudiating the Budget. It does not take sufficient cognisance of the high rate of inflation, and I do not believe that it is right to have a neutral Budget at this time.

When the Government came to power they said that our prosperity would increase. There is no indication of that prosperity in the Budget. I do not wish to be too political about these matters, but the Budget is an admission of three year of failure during which there has been no advance in the standard if living in this country.

6.46 p.m.

Photo of Mr William Molloy Mr William Molloy , Ealing North

The hon. Member for Windsor and Maidenhead (Dr. Glyn) was correct when he said that this is not an election Budget. It is to the Chancellor's credit that he has put the nation before any by-election or electoral gain.

I am reminded of the great consternation and no little anger caused by the late Sir Stafford Cripps when he introduced his famous Budget for the remarkable Labour Government of 1945–50 which did so much to put working people on the agenda for consideration. Sir Stafford Cripps' Budget was the day before the London County Council elections, but he did not hesitate to put enormous taxes on tobacco, drink and all sorts of fancy things.

The electorate were angry and annoyed, and the Labour majority in County Hall was greatly threatened. However, that did not deter that Labour Chancellor from putting Britain first without thought of electoral gain, and my right hon. Friend the present Chancellor has not been deterred from putting Britain first.

The Budget can be described as a strategic Budget and a Budget of recognition. It is strategic in that it maintains what has been achieved in the past 12 to 18 months in trying to get Britain out of the morass of inflation and the evils of unemployment that follow it.

It is about time that the House acknowledged that the inflationary blizzard through which we have been living is not the fault of Great Britain, the United States, Germany or even the EEC. If any people are chuckling with glee at the state of Western society and the massive unemployment in the United States, Great Britain, France and Germany, it will be those who despise and deplore the sort of system that allows us to come here and debate such issues. That ought to be recognised, and it is about time that the Leader of the Opposition recognised it. It is time she stopped talking about foreign countries and running her own country down. She should realise how dangerous that is. Slowly and surely, the right hon. Lady is becoming one of the finest recruiting sergeants for the Communist Party, and I should have expected that to be the last thing she wanted to do.

As I say, the Budget is a recognition Budget too. It recognises where people's standards have been pinched. Well-off people have felt the pinch. They have had to do away with the Rolls and put up with the Jaguar. Only the elder boy can go to a private school, and the other will have to go to a State school for a little time.

But then there are all the ordinary people, right down to old-age pensioners, who have been paying their income tax and making their contribution, helping to solve our problems and put the nation back on its feet. Our Chancellor of the Exchequer has done the right thing in recognising that these people have made the greatest contribution. He is not the first to do so. He is not the first to acknowledge that the comparatively poor have made the biggest contribution. I shall not remind the House in detail of the parable of the widow's mite, but the principle is the same and the Chancellor has recognised it. It is only right and proper that people at the lower end of the scale who are paying income tax should have recognition.

Income tax hurts and annoys, but people at the lower end of the scale have paid it. There have been no mass riots or terrible demonstrations. People have gritted their teeth in an ordinary British way and have paid up, although it has hurt. I am glad that their contribution is now acknowledged. They are to have some relief, having made their mite of contribution, and the rest of us will still be called upon to pay up, which is only right.

I turn now to another aspect of the same matter, and I put an appeal to the Opposition. Negotiations and agreements in industry today can no longer be left to a couple of heads of departments, and neither can we have the Government laying down the law. That is wrong. The skilled artisan today demands that his voice be heard, and he demands that his skills be properly recognised. I should have thought that Conservatives would realise that.

On the issue of differentials, I admit at once that Conservative Members are right when they say that there has been annoyance and irritation felt by those who no longer earn what they ought to earn according to the principle of differentials. But they should admit, for their part, that there is another side to the coin. There has been moaning and groaning, but people have carried on. Those of us who have experience in the Services know of the complaining and moaning that goes on among the other ranks. But they are always there when they are needed. That is why we are here in this place tonight—because they were always there.

Although there has been moaning and complaining, except in just one instance there has not been any real confrontation on the differentials issue. Everyone should give credit for that to men who have had an excuse almost handed to them on a plate by some individuals and Conservative politicians who now claim to support the toolroom workers. In normal circumstances, the last people in the world to wish to sustain or help the toolroom workers of British Leyland would be Conservative politicians. I hear no interruption in response to that.

Right hon. and hon. Members opposite know that what I am saying is true, and it is pointless to challenge the truth.

I believe that the time is very near when those differentials must be restored, but let the House of Commons tell the workers that it acknowledges their frustration and their anger, and that it recognises also that they did not hold the nation to ransom at a difficult time. They gritted their teeth and took what was coming. Let us give a little credit for that.

Many single people and married couples with families have been exasperated to see the enormous amount of tax which they have to pay out of their weekly or monthly earnings. They resent it, and they resent the size of it. They resent it all the more when, having to make their contribution out of £40 or £50 a week, they know that if only they had been taught to play the guitar and learned to make appalling noises into a microphone they could have earned £1 million a year and shoved off to a foreign country, thereby avoiding tax.

I am glad that the Chancellor has recognised the contribution which ordinary people make. The strategy of the Budget maintains the strategy which is getting us out of a difficult situation, and, above all, it recognises the position of those who have made the biggest contribution. For its overall philosophy, the Budget deserves to be highly successful, not just for the Chancellor's sake or for the Government's sake but for the sake of Britain.

Debate adjourned.—[Mr. Coleman.]

Debate to be resumed tomorrow.