Amendment of the Law

Budget Resolutions and Economic Situation – in the House of Commons at 12:00 am on 11th April 1978.

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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 this Resolution does not extend to—

  1. (a) the making of any amendment with respect to value added tax so as to provide—
    1. (i) for zero-rating or exempting any supply;
    2. (ii) for refunding any amount of tax otherwise than by virtue of a provision relating to bad debts;
    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; or
  2. (b) the making of any amendment relating to the surcharge imposed by the National Insurance Surcharge Act 1976 and applying to some only of the persons by or in respect of whom the surcharge is payable; or
  3. (c) the making, except in relation to farming or market gardening, of any provision for affording relief from tax by the adjustment of fluctuating income.—[Mr. Healey.]

[Relevant European Economic Community Documents: R/1721/77, R/2080/77, R/2473/77, COM (77) 640, the Economic Situation Annual Report, R/654/78 and R/655/78 on the economic situation in the Community and economic policy guidelines.]

4.44 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 of the Leader of the Opposition always to congratulate the Chancellor of the Exchequer on the manner in which he has presented his Budget speech, although, as he will know, one reserves one's comments on the contents for a little later. I warmly congratulate the Chancellor on his different presentation. His speech was much shorter, which, I believe, is a great advantage. We had been told that it would be freer of jargon and a good deal simpler. However, I am bound to say that I did not notice it. This is, of course, the Chancellor's thirteenth Budget. The style has changed a great deal, and I think that the House has benefited from the change in style and from its being shorter.

With regard to my comment on the Budget, perhaps it is known in this House but not outside that this has to be wholly off the cuff—[Interruption.] The House knows that I have no advance knowledge whatsoever of what the Budget contains. Therefore, I know no more than the public knew in listening to this broadcast. I hope that they will not—

Photo of Mr Andrew Faulds Mr Andrew Faulds , Warley East

These are proceedings of the House. It is not a broadcast.

Photo of Mr Oscar Murton Mr Oscar Murton , Poole

Order. The hon. Member for Warley, East (Mr. Faulds) must restrain himself.

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

It is also the custom that the Opposition's reply is made tomorrow by the Shadow Chancellor. It will, of course, be made. Finally, the Leader of the Opposition makes some preliminary comments, or attempts to comment, on the Budget that we have just heard.

I noted that the Chancellor did not go into his own immediate history of his last 13 Budgets or of his last four years. Indeed, the way in which he started the Budget meant that we scarcely recognised the picture which he drew. As he knows, under his stewardship output in this country has not increased for four years. The right hon. Gentleman has presided over the biggest increase in unemployment in the post-war period. In terms of inflation he has presided over both the biggest increase and the peak in the post-war period.

Although the Chancellor now says that the year-on-year rate of inflation is down to 9·5 per cent.—he and we hope that it will soon be down to 7 per cent.—he omits to say that from the housewife's point of view this is 9·5 per cent. on top of 16·2 per cent. on top of 22·9 per cent. on top of 19·9 per cent. Therefore, it is not surprising that the housewife does not entirely see it in exactly the same way as the Chancellor.

The right hon. Gentleman also omitted to say that inflation is still three times as high as it is in Germany in the same world circumstances, twice as high as in Japan and higher than in any other major competitor country except Italy. He also omitted to say that under his stewardship the fall in the standard of living has been greater than any other we have experienced in the post-war period. Indeed, the average wage earner is £6 a week less well off than he was when the Labour Government came to power. He also omits to say that he has presided over the biggest increase in personal taxation.

All that the Chancellor is doing today is taking off just a little of the tax that he has put on. He also omits to say that the Budget is delivered against a background of 4¾ million people dependent on supplementary benefits and against a background in which industry is not in a competitive position because it has far lower profits than it should have in real terms and is still suffering from the old problem of far too many restrictive practices to be competitive.

I must say, therefore, that as I listened to the Chancellor I thought that the trailer to his Budget had been a good deal more exciting than the show itself. The fact is that the whole of his strategy during the last four years has failed and that instead of tinkering with the system we ought to go in a totally different direction. I believe that the whole of the right hon. Gentleman's strategy has been to take more of the nation's income to be spent by the Government and to leave less of it to be spent by the people from their own pockets. Indeed, if one studies what has happened in the past four years, every description shows it. The Government side of the House believes in the Government spending the people's income. The people believe in having a higher proportion to spend themselves.

The right hon. Gentleman did this—it was his strategy, I believe—to try to get higher growth, which he did not get, and to try to get better social services, which he has not got either. So the entire strategy has failed. He set out to create a Socialist paradise, and all that we have is Socialism. Therefore, the right hon. Gentleman starts off as the prisoner of his previous 12 Budgets and as the prisoner of his party's philosophy.

As we know, every Budget has two effects, and perhaps the right hon. Gentleman knows this better than most. It has the immediate effect of tax cuts which one can see. It has the longer-term economic effect, which comes with the money supply and the amount which he borrows, and sometimes the longer-term effect, which is not immediately seen, can be very damaging. But that effect ought to be foreseen.

May I deal first with what is seen with some of the tax cuts that he has mentioned? First, I take small businesses. Will the right hon. Gentleman please remember that it was his Government who successively damaged small businesses with capital transfer tax and then with one tax after another—[HON. MEMBERS: "VAT."]—with the Employment Protection Act and with one Act after another. I notice that people with small businesses, like other people, will have to take the increase in interest rates which he has announced, and they will be very harmful to them. We note that at last the right hon. Gentleman recognises that they are the prime source of innovation and that he has given them some reliefs. We welcome the reliefs which he has given to small businesses—especially those on capital gains tax, which will help a great deal—and especially the arrangements which he has announced about losses being allowed against previous income. We also welcome the changes on value added tax, although we wish that he had accepted our amendment last year and raised the threshold to £10,000. We are also very pleased about the relief for bad debts.

As for other tax changes, most of us welcome the intention to make stock relief permanent, although a number of us would have preferred it this year. This is causing great problems in the balance sheets of many companies particularly small businesses but almost all companies, and the sooner that deferred tax liability goes the better it will be.

I think that the right hon. Gentleman's main tax changes will very soon disappear without being noticed. He has announced changes on personal income tax to the tune of about £2,150 million. Last year, he announced changes on personal income tax to the tune of about £2,250 million, and they very soon disappeared without trace, in that they were absorbed—[Interruption.] I am reading from the right hon. Gentleman's broadcast last year, in which he said that it would cost a lot of money to do all that he proposed. He said that it would cost £2,250 million—[HON. MEMBERS: "Off the cuff."] Of course, I armed myself—[HON. MEMBERS: "Some cuff."] It is a very good cuff. Hon. Members should try having one themselves.

The Chancellor announced fairly moderate reductions in personal income tax, and I believe that most of us were expecting more, provided that he could make room for them in the public expenditure side of his Budget. I notice that he has brought back again the reduced rate band, one of his predecessors having abolished it. The reason why it was abolished, of course, was that it was very complicated administratively. One of the effects of bringing it back is that we could never, in fact, have a tax credit system—[Interruption]—

Photo of Mr Oscar Murton Mr Oscar Murton , Poole

Order. The House must listen to the right hon. Lady.

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

It is a great disappointment to many of us that the right hon. Gentleman has not reduced the standard rate of income tax. We left it at 30p. It is now still 34p. It still presses very hard on middle management—the very group of people whom we need to encourage if we are to get industry back into the position where it must be if it is to be competitive. The changes which the Chancellor has made on investment income are very small and could have been bigger.

On the whole, the right hon. Gentleman has done some double counting in the figures which he announced at the end of his speech. He omitted to point out that the increases in national insurance contributions which come into effect this same April will be offset against some of the tax reductions, and some people will notice very little difference in their net take-home pay.

I come to what I call the longer-term effect of the Budget, of which the two most important features are the public sector borrowing requirement and the money supply. I must warn the right hon. Gentleman that when he said that the public sector borrowing requirement would go back to £8·5 billion, many of us thought that it was very high if he was to keep down the level of inflation in future years. That in fact is reversing his previous policy. His previous policy had been to reduce public sector borrowing as a proportion of the gross domestic product. He has reversed that policy, and now he is increasing borrowing as a proportion of the gross domestic product. That gives rise to the very great dangers of laying the foundations of a future round of inflation in the years to come.

The Opposition are very glad that the right hon. Gentleman has reduced the money supply targets from a band of 9 per cent. to 13 per cent. to one of 8 per cent. to 12 per cent. He said that he thought the money supply would be just above this year's target, about 14 per cent. That is very much on the high side, bearing in mind the broad width of the target which he set himself originally. It is undoubtedly because he has overshot that target that the market has been signalling interest rate increases and, because he has overshot that target, the interest rate has to go up.

We utter a warning here that the tax cuts which he has made are welcome, provided that he is prepared to make sufficient reductions in his Government expenditure not to have inflation in future years. On that we shall reserve our judgment. The right hon. Gentleman knows full well the dangers. He announced them in his speech. We are not certain that on the programme which he has announced he will avoid inflation in future years. Many of us think that he has laid the very foundations for it.

I notice one or two features with regard to public expenditure. I notice, first, that we had to join Europe before the Labour Party could get school milk back for the 7 to 11 age group. I notice, secondly, that he announced with a very great flourish an increase in expenditure on school building of £40 million. That would be the equivalent of about £20 million in my time. It is about the smallest increase that I have ever heard of in relation to school building. It was almost not worth announcing—[HON. MEMBERS: "Oh."] I did not say that it was not worth giving. I said that it was not worth announcing in the Budget.

The question is how we are to judge what the Chancellor has said. We have to make a judgment not only of what he says that he has done but of whether it will be done. I have been through the right hon. Gentleman's previous Budgets, as I usually do, and noted the previous way in which he has set them out to the people. It has been one tale of euphoria after another. The Opposition are very conscious of the Budget which he introduced before the last election What he did then is very similar to what he appears to be doing now, in that apparently he is cutting tax in advance of a General Election.

At that time, he announced that his actions were taking the top off the peak which inflation would otherwise have reached and that this would give a solid prospect of a steady improvement in 1975. In fact, in the following year inflation went up to 27 per cent., so his forecast was totally wrong.

At the time of his next Budget, the Chancellor said that his main job was making sure that people had jobs that winter. What happened? The unemployment rate went up steadily. In the next Budget he said that he had laid the foundations … for a tremendous leap forward next year. Somehow he stumbled, and he did not look before he leapt. In his next Budget we were promised "an economic miracle," and somehow that foundered too.

The Chancellor could have made all the general comments that he made today—and he has made them—on almost every Budget that he has presented to date. But not one single Budget that he has presented has brought an improvement in prosperity to this country. Indeed, they have brought a flat output and a reduction in living standards.

We judge the Chancellor not by his words, because we have heard so many words before. We judge him not by world summitry, to which he gave a great deal of attention. It is not the first time that world problems have gone to world summits. We have had one every year, and every time the message has been of confidence, but we have not in fact seen any recovery as a result of that world summitry.

The truth is that the Chancellor is a very late convert to tax cuts. He said that he would make people howl with anguish over increased tax. He made everyone who worked for a living howl with anguish over the increases in taxes that he made. His policy and that of his Government is to take an increasing proportion of the national income for the Government to spend, so that the increased social wage is determined by the Government and there is a lower real wage in the wage packet. I see that hon. Members below the Gangway are nodding.

The Labour Government have told the people that they will take their money and look after it for them. Now, the people are saying that they want more of their own money to look after themselves in their own way. The Chancellor's conversion to tax cuts is only election-deep, and we shall deal with it accordingly.

Photo of Mr Andrew Faulds Mr Andrew Faulds , Warley East

On a point of order, Mr. Deputy Speaker. I wonder whether you would give some guidance to the House in the new circumstances of the broadcasting of our proceedings. The Leader of the Opposition, in her introductory comments, referred to the outside audience listening by mechanical means to our proceedings today. I have always understood that it is one of the conventions of the House that reference was not even made to those in the Strangers' Gallery. Therefore, how is it possibly right to make reference to an outside audience of a much larger number?

Secondly, it is surely improper that the Leader of the Opposition should refer to the proceedings of this House as "a broadcast". That is not what we are doing in this place. We are discussing specific matters on specific occasions. In this context the Leader of the Opposition made it quite clear by her statement that she was using this House not to argue the merits or demerits of the Budget but to make an overt party political broadcast, supposedly off the cuff.

Perhaps, Mr. Deputy Speaker, you could give us some guidance—or perhaps Mr. Speaker could do so on another occasion—on the conduct of Members in these new circumstances. Surely the guidance should be that Members should not make reference to the broadcasting of the House while we are conducting the proceedings, and that there should be direct comments—[HON. MEMBERS: "Reading.") No. I am not reading, I am referring to some notes that I have made. This is more off the cuff than the comments of the Leader of the Opposition.

Surely there should be direct comments in the House only to those who are actually here and not to the listening audience outside. In this the Leader of the Opposition patently failed.

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

Further to that point of order, Mr. Deputy Speaker. The hon. Member for Warley, East (Mr. Faulds), in addressing you, presumably forgot that while he was here in the Chamber, Mr. Speaker has asked whether the outside broadcast channels were switched on at the moment. Since Mr. Speaker was referring to the hon. Member for Warley, East in that case, the hon. Member must be alleging that Mr. Speaker was himself out of order, which is a somewhat improbable hypothesis.

Photo of Mr Oscar Murton Mr Oscar Murton , Poole

Order. The hon. Member for Warley, East (Mr. Faulds) must resume his seat. Broadcasting is now a fact of life in this place. On the question of the conventions, there are no conventions existing in that connection.

5.8 p.m.

Photo of Mr Terence Walker Mr Terence Walker , Kingswood

The whole House will congratulate the Chancellor on his Budget, not only on his presentation but on the content. After so much euphoria in the Press and on television, the Budget proposals, as put before the House, seem to come as an anticlimax. As this debate is going out on radio at the moment, we have a different situation from that which applied in the past. But, despite this, all the speculation about what the Chancellor would or would not do can only come to an end when the matter is brought to the House.

Certainly I believe that the Chancellor has made the right decision by going for greater tax allowances rather than reducing the basic rate of income tax. All of us, as constituency Members, find great difficulty in dealing with people who get into the poverty trap. It seems ridiculous that people who are retired and who have paid in for their pensions all through their working lives should suddenly find themselves still liable for tax when they retire. The increase in allowances will help these people in their commitments, as many of them will now find that they do not have to pay tax at all.

This will work through the tax system and will be of great benefit. I disagree with the Leader of the Opposition. I think that this action will be appreciated by people when they see that they have more money in their pockets. There will be great benefit to ordinary people and families.

It is important to note that the child benefits are being brought forward substantially by the Chancellor's proposals. This will help families. One-parent families, about whom we hear so much, are considerably assisted by the doubling of the amount from next November.

On the charges on school meals that were proposed for the autumn, hon. Members have played a considerable part in making sure that the Chancellor and the Government were aware of their feelings. It is more or less a victory for Back- Bench Members who have campaigned continually for this over a long period. It is a nonsense to suggest that these charges should be increased at this time, when we are curtailing the amount of money that people have in their pockets.

Another thing that must be welcomed, certainly by the Labour Party, is the restoration of free school milk for children between the ages of 7 and 11. Some of us will remember that when the provision of free school milk was reduced by the right hon. Member for Finchley (Mrs. Thatcher) and was taken away there was considerable feeling within the trade union movement and the Labour Party. However this has been achieved, whether or not it is through the Common Market, it is to be welcomed and I am sure will be welcomed by the Labour Party.

The measures announced by the Chancellor to help the National Health Service will also be widely welcomed by the Labour Party. We need more hospitals and we need to reduce the waiting lists. The help to provide 400 more kidney machines will be of immense benefit, to my constituents and many other people who are concerned over this matter.

The insulation of private houses is a matter about which we look forward to hearing more in due course. Many hon. Members on both sides of the House felt that the previous proposals for the public sector of housing created an anomaly, and we want to know more about this before saying very much more. This kind of thing has to come about if we are to conserve energy, which is vital.

Within the context of the Budget we shall wait to hear more about the amount set aside for environmental help and law and order. These matters are of concern to Members on both sides of the House. The resources that are offered should be used in the proper way.

The Budget that has been presented today is a move in the right direction. As the Chancellor said, it is the second phase of what was started by his announcements in October last year. In the improved economic situation I believe that the position of ordinary working people must also improve accordingly. That is why I hope that we shall go forward and that the Chancellor will have a chance to present another Budget after this one and another Budget after that. I do not agree with what the Leader of the Opposition said, that this is an electioneering Budget. I believe that it is a process that we are starting. That process is to provide for working people and their families a better deal and a fairer redistribution of wealth, power and influence in this country.

5.13 p.m.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

The Chancellor's thirteenth Budget cannot of itself smack of good financial management. To appear so many times in the House of Commons during a relatively short period and to present conflicting and varying Budgets is an extraordinary way in which to run the country's finances. It seems to me that if we are to try to restore any degree of stability or certainty either to individual or family budgeting or to company budgeting, we have somehow to go back to the system of annual budgeting, even though that is less convenient for a Chancellor and depends upon his making longer-term predictions on relative movements within the economy.

I should like to say a few words about the Chancellor's proposal to repay early some of the borrowing from the IMF and some of the other debt. I am greatly concerned—I have registered my opposition in the House on many occasions—at the degree to which the Government have put us in debt to a record and massive level. This is not only imprudent but immoral. I believe that the Government have saddled future generations with a level of debt which is improper and will place a considerable burden upon them. They have destroyed a heritage by their own profligacy and overspending, and have subsidised a rate of consumption which the country cannot afford by saddling future generations with the responsibility of repaying excessive borrowings. Therefore, I condemn this level of debt wholeheartedly and condemn the Government's policies, which led to effective receivership by the IMF a year ago.

I do not wish to be churlish about my support for early repayment of this debt, but I am bound to say that it seems to be repaying with one hand and borrowing with the other, for we are told that while some of those moneys may be repaid the Chancellor is to go to the New York bond market for, I believe, about £300 million-worth of foreign currency borrowing. This may appear relatively attractive at a time when the dollar is weak on international markets, but over the term of this loan it is quite possible that sterling will decline at a greater rate than the dollar. If the rate of inflation of this country is markedly higher than that of our industrial competitors, and the rate of inflation is much higher even than that prevailing in America, it is inevitable that in the long run sterling must be relatively weak. If that is so, the cost of repaying the debt will be considerable.

Though there may appear to be a short-term advantage in terms of interest rates, in borrowing a considerable amount on the American exchange, the reality will probably be that it will be very expensive to repay. I suspect that it is no coincidence that the right hon. Member for Leeds, East (Mr. Healey) will almost certainly not be the Chancellor who will be held accountable when the House has to repay that money. It is easy for him to borrow now, because he has not to bear the responsibility of paying back an increased real sum at the end of that period of borrowing.

I was interested to note—it was fairly unexpected—the substantial increase in the minimum lending rate which was announced today. This will have a severe impact on interest rates generally at a time when people were hoping that the gradual reduction over the last year would have a beneficial impact on the rate of inflation. As these higher rates of interest work their way through the economy there will be further pressure on the retail price index, much of which may negate the advantages and benefits of the tax cuts which the Chancellor has announced today.

More pertinently, many of us will be concerned that this will once more place pressure on the building societies to increase their mortgage interest rates. Though there has been a welcome decrease in these rates in recent months, it would be a matter of serious concern to many families if their mortgage interest rates were to increase again. Bearing in mind the many young families and young married couples who are now having to pay escalating prices for new homes throughout the country, it would be an impossible burden at a time of prospective wage restraint, with relatively little given away to many in middle management by way of tax cuts, if their mortgage interest burden were to increase substantially.

Though help has been given at the lower end of the incomes scale today, for those in the middle—that is, I suspect, the vast majority of earning people in this country—there are severe dangers that the year ahead will show that the benefits provided through tax cuts and tax relief will be more than offset by increases in costs that they have to face. Many of us are extremely concerned about this.

However, I wholeheartedly welcome some of the tax measures. As a Member representing a farming and agricultural constituency, I welcome the proposal to introduce an averaging system of a tax on farming income. Many of us in the Conservative Party have been pressing for this for some time. Given the vagaries of agricultural production and the relatively long-term nature of the product involved, it seems sensible to apply a different time scale in terms of tax assessment.

Clearly, the Committee stage of the Bill will give Parliament an opportunity to consider whether the 30 per cent. variation, which is the sine qua non for such assistance or averaging, is the appropriate figure to choose, bearing in mind the difficulties of many farmers in recent years and also the substantial costs which many farmers have in meeting the interest on mortgages or on borrowing to finance their stock and capital equipment. Therefore, although I welcome that move, I reserve the opportunity to examine carefully what tax relief is to be given and to consider whether the 30 per cent. variation between income in various years is too wide for a sufficient number of farmers to qualify for this help.

I turn now to the reduction in the level of basic tax to 25 per cent. on the first £750 of income. Although I welcome this, I hope that it will be followed in subsequent Budgets by increases in the band to which this rate should apply. I hope that this will be built upon and that the lower rate will apply for a wider band of income than has been announced today. I hope very much that this will be remembered by my right hon, and hon. Friends when we are returned to office.

Nevertheless, although I welcome this move, it is nonsense to have a 25 per cent. rate applying at the bottom end rising to 83 per cent. at the higher end. That is far too wide a band of taxation. It involves far too many levels of taxation within the range, and at the upper end it is totally ineffective because it restrains many people from giving of their best. If the higher marginal rates of tax were to be lowered, it undoubtedly would restore to this country a good deal of income from those who have a higher propensity to save then than do those at the lower end of the income range. This, in turn, would have a substantial and beneficial impact on the level of private investment.

I also welcome the announcement that profit-sharing arrangements will include a provision for £500-worth of shares to be given tax free to employees within companies. This is something which the Conservative Party has been pressing for for a long time. It is fundamental to our philosophy that we encourage personal ownership—whether a property-owning, share-owning or chattel-owning democracy. We believe in personal ownership. We believe that it is healthy for people to own things. We believe that it makes them more responsible for that ownership, and that it will encourage people to provide for themselves when age or disability falls upon them.

The sad fact is—this is a reflection on bad management by successive Governments since the war—that those who have worked hard during their lifetimes and who have consistently put aside a small proportion of their incomes so that in their retirement or when they are ill or suffer from disability can look after themselves without calling on their families or on the State find their savings taxed out of existence at one end and their real value eroded by inflation at the other end. This has been another immoral aspect of bad Government management successively and the impact of inflation on the savings of ordinary people.

I look to this Government in their remaining months in office, and particularly to the next Conservative Government, to make a real impact on encouraging people to save and protect the value of their savings. It is essential in the remaining part of this century to take this step. There is a total of 7,500,000 people aged over 65—a figure which is likely to remain constant until the end of the century. But it is interesting to note that there will be a dramatic increase in the number of people aged over 75. The figure in that respect will increase by 23 per cent. in the next 25 years to about 3,500,000 people, and over the same period the number of people aged over 85 will increase by 42 per cent. Therefore, towards the end of the century we shall have many more very elderly people in our community. It is also easily and empirically predictable that a higher proportion of those elderly people will not have gainful employment. Therefore, they will be an increasing financial burden on their families, the community and the Government.

I believe that we must accept the important responsibility of looking after the elderly in our community. I also believe that the severe financial burdens which this will place upon us, not just in the next year covered by the Budget but in the next 25 years, will not be met unless we recognise the importance of once more returning to people the ability and responsibility to look after themselves financially. We shall do that only if we give proper incentive and encouragement to enable people to save, to enable them, out of the product of their labours, to put by something for when they are elderly, and when they have done so to ensure that the product of those hard-earned savings is not taxed by effective surtax.

I come to one aspect of the tax changes which I find disappointing. I refer to the pitiful increase in the threshold for unearned income. I believe that "unearned income" is a misnomer. It is hard-earned income. There are many people who are living on fairly low incomes—this argument applies to many in my constituency, which contains a relatively high age group—and they now find that they are paying effective surtax on incomes substantially below those of an average industrial worker and where they have minimal other sources of income apart from those savings. They are asking "Is this right? We fought for the country, we worked hard all our lives and we took it upon ourselves to be reliant on nobody else but ourselves." This, perhaps, was regarded as a Victorian or Edwardian virtue. I think that it should be a modern virtue and should once more be encouraged. The minimal announcement of the Chancellor today that he intends to increase those threshold levels to a maximum of £2,500 for the higher rate of investment income surcharge does not begin to cope with the problem or to encourage people once more to save or to provide for themselves.

This shows a fundamental difference in attitude between the Conservative Party and the Labour Party. This is sad for me as a young politician, because I should like to move towards a modus vivendi on many of these aspects, but clearly Labour Members wish consistently to move towards a collectivist State, with centralised care—a State where services and subsidies are handed out indiscriminately and where the individual will not be allowed freedom of choice, or even to make financial provision to make that choice. This is wholly regrettable to the Conservative Party and the Chancellor has given us little cause to believe that the Government are taking our criticisms seriously.

The money supply expansion figures which the Chancellor announced today in a band of 8 per cent. to 12 per cent. for the year ahead may indicate a relatively higher rate of inflation for the year ahead than many of us had imagined. This endorses our suspicion that the benefits which have been so dramatically and theatrically given away on this occasion will in reality be absorbed by a high rate of inflation.

The fact that the band for monetary expansion last year was exceeded because of mismanagement by the Government gives us little cause to expect that it will be met in the year ahead, particularly when the expansion of domestic credit is expected to be £6 billion. Many of us hoped that the Chancellor would announce a much more radical means of administering monetary control. The movements in the last year in M3 and M1 indicate that the Government by concentrating predominantly on the management of M3 have had only a partial impact on economic movements and the rate of inflation because of the highly variable movements of M1, which in many cases have moved alarmingly against the trend set by M3.

If we take into account M4, which includes building society deposits, we find that there has been a marked tendency, partly because of the tax treatment of building society interest, for people to move their deposits from clearing banks into building societies. The real expansion in money supply over the last 12 months is therefore probably even higher than the Chancellor's announcement that it was slightly outside the band that he set of 9 per cent. to 13 per cent. Taking into account the growth of building society deposits over the last 12 months, it is clear that monetary expansion has been even larger and many of us would like to know the Government's predictions for the year ahead and what impact there will be on prices in the short term.

One of my greatest concerns is that while we have relatively high inflation in this country, the value of sterling is bound, in the long run, to come under further pressure. It is already clear that in the last two months the decline in the value of sterling by over 5 per cent. in its trade-weighted index value will soon have an impact on retail prices. The Financial Times reported today on the increases in wholesale and raw material prices which industry is having to pay. This is alarming and gives rise to concern for the future.

It is notable that the Chancellor's prophecies today went only to the end of this year. He told us little about the rate of inflation that we may expect next year. Many of us suspect that once more we shall be on a Socialist spiral of decline in the real value of net incomes and increasing burdens through higher prices.

In welcoming the Chancellor's statement as far as it goes, I issue a warning about dealing with the level of inflation and the management of monetary targets on which I hope we shall have some reassurance in this debate and on the Finance Bill.

5.33 p.m.

Photo of Mr Ken Lomas Mr Ken Lomas , Huddersfield West

I hope that the hon. Member for Chichester (Mr. Nelson) will forgive me if I do not discuss much of what he has said. I have limited myself to a maximum of 12 minutes and I shall try to confine my remarks to that time.

As one who is not seeking re-election, I find it possible to look at Budgets with a different and detached view from those who will be facing the hustings in six, 12 or even 17 months' time. Watching the faces of the Opposition during my right hon. Friend's statement, I was struck by the fact that they looked stunned, shocked and almost shattered by the fact that he had taken them to the cleaners. I conclude that the Conservative Party does not like good news.

I see that Liberal Members have gone away to think. It is always a good idea for them to do that. I believe that they will come back and decide to support us. They do not want a General Election.

I agree that we should be grateful that we are able to repay our debts ahead of time, but, like many others, I am disturbed about the high level of unemployment in this country and I do not believe that enough has been done in the Budget to try to get out of the impasse of 1·4 million people unemployed.

Hon. Members who were in the House 10 years ago will remember the debates on the document "In Place of Strife". If the then Labour Government had had the guts to stick by that we would not have been faced with the problems that have confronted us in the last four or five years. But that is water under the bridge.

I am glad that the Chancellor has decided to introduce a new series of savings certificates at 6·8 per cent. per annum. That is an extremely good move which will encourage savers. I am sure that everyone will be glad that pensions have been increased by £3·20 for a married couple and £2 for a single person. Of course, we shall be told that it is not enough, but then it never is.

I am also glad that the Chancellor has made money available for improvements in the National Health Service and I wholeheartedly welcome the fact that some of the money is to be used to provide an additional 400 kidney machines. This is long overdue.

I am pleased that we are restoring free school milk for children aged between 7 and 11 and that there will be no increase in the price of school meals in the autumn.

As a smoker, I believe that it is right that people should pay more for cigarettes with a high tar yield, and I therefore welcome the Chancellor's proposal that the price of cigarettes should go up if their tar yield is 20 milligrammes or more.

I hope that no hon. Member on the Government side of the House will be euphoric about the Budget. If it were an election Budget, the Chancellor would have given away far more. I do not agree with those who insist that we should have only one Budget a year. I am glad that we have got away from that arcane practice, which is crazy. It is right that we should bring forward new ideas and meet challenges as they arise through the year.

The Chancellor had a difficult job. He had to steer a course between the demands of the CBI and the hopes of the TUC. He has a pretty thankless job and he is always bound to be damned by most people and praised by only a few.

I have often said that whatever the Chancellor gave away over £2,000 million, he would have to take back in some other way. The one thing that is certain—this is stressed to me by my constituents—is that people want a reduction in taxation and a pretty rapid reduction at that. I am a little disturbed that when we already have 10 tax bands the Chancellor has now increased it to 11 bands. That is inefficient. I asked earlier this month what savings would be made in administrative costs if the 10 bands were reduced to five and I was told that savings would total £400,000. That is not a tremendous sum, but the bands are too close and should be widened.

Those in middle management earning between £8,000 and £10,000 a year should pay tax at 35 per cent. instead of the present 50 per cent. or 55 per cent. Those in lower senior management earning between £10,000 and £14,000 a year, who are paying 60 per cent. or 65 per cent., should have had that reduced to 40 per cent. In addition, no matter what the Chancellor or anyone else says, the top rate of 83 per cent. is penal and far too high to be justified. People want more money in their pockets. We must ensure that they can have that, while also ensuring that those at the lower end of the scale get the greatest benefits and, in that respect, the Chancellor has done well.

I would have been prepared to accept a move to a flat rate of VAT. A 10 per cent. rate for VAT would help the small business man and those who want to do their sums more quickly. An across-the-board rate of 10 per cent. would bring in about £600 million. That is the figure that appeared in a Written Answer in Hansard on 27th February in column 81.

I have mentioned the cost that would accrue if the Chancellor decided that there should be some change in the tax bands. I asked the Chancellor, in a Written Question, what would be the cost if the taxable income up to £7,000 was reduced to 30 per cent.; from £7,001-£10,000 to 35 per cent.; from £10,001-£14,000 to 40 per cent.; from £14,001-£21,000 to 60 per cent.; and over £21,000 to 70 per cent. The cost would be £2,375 million. These are the sort of problems with which we are faced all the time. I hope that something can be done.

I have referred to increasing the rate of VAT to 10 per cent. Such an increase would have increased the retail price index by about 0·8 per cent. That increase could easily be lost by other measures.

I am glad that the Chancellor has decided not to increase the employers social insurance contribution. On the other hand, he might have hinted that at some stage he will be thinking along the lines of the policy of the Labour Party—namely, that a wealth tax might be a good thing, to bring in some more revenue.

The Chancellor has missed his opportunity in another respect of easing the burden for those at the lower end of the wages and salary scale. That could be done by scrapping the road fund licence and with it the Swansea Driver and Vehicle Licensing Centre. The centre at Swansea has been one of the greatest disasters with which we have been faced. I have in mind the many letters that I have had to write to Swansea to get mistakes put right. The centre is a nonsense. If we were to get rid of the road fund licence and increase the tax on petrol, it would mean that the man who wants to have a large car that does only a few miles to the gallon would pay the price of having the privilege of driving such a car. In the same way the chap with a small family car—an Escort, or whatever—who takes his family to the seaside, but who drives fewer than 8,000 miles a year, which is the mileage that the average person drives, would benefit.

In addition, the offices at Swansea could be used on a more profitable basis. We should save a lot of form filling and letter writing. It would no longer be necessary to spend an enormous number of hours searching out those who have not paid for their road fund licences. My hon. Friend the Member for Newham, North-West (Mr. Lewis) would not have to wander around New Palace Yard and the House Car Park examining road fund discs to see whether the tax has been paid. That would save my hon. Friend a lot of time as well.

There has to be some restoration of the cuts that have been made in public expenditure. I am glad that my right hon. Friend has done so much for the National Health Service. In my opinion that is priority No. 1. However, housing is another factor that he should consider, for that is vital.

There is no point in hon. Members on both sides of the House blaming the Government, whichever Government they might be, when there are many employers throughout the country, and many in West Yorkshire, who are not prepared to take advantage of the new incentives and the new technology that is now available. On this point, I have in mind the wool textile industry in particular.

I must conclude even though there is so much more that I could say. However, I realise that others wish to speak. I do not believe that this is an election Budget. It is not a Budget that is giving massive handouts. It is a pretty fair Budget. It is moving in the right direction. There will probably be another Budget before the House rises for the Summer Recess, and probably there will be another one before the end of the year. However, this is not a Budget that panders to every whim of one political party or one section of society. It had to be a Budget that would chart the course for the next 12 months away from the stormy waters of international booms and slumps to a more sane and realistic society, in which all of us, whatever views we may hold, may share the benefits that the nation deserves.

When people ask "What is in it for me?" they should be asking "What is in it for them?" By "them" I mean that we should be giving consideration to the weak, the sick, the infirm and the disabled. I have tried to put my thoughts on record. When hon. Members have read my right hon. Friend's speech, I think that they will recognise that he has tried to be fair.

I did not like the way in which the Budget was presented. I refer to the fact that there are to be separate statements made by various Ministers. We shall have to collect them altogether. We should ignore the broadcasting box. My right hon. Friend should make the sort of Budget speech that he has made in the past, without pandering to the broadcasting people. If he had done that, the full story would have been in Hansard tomorrow. Instead, we shall have bits of paper all over the place. I hope that when my right hon. Friend presents his next Budget he will do that. I am sure that he will.

5.46 p.m.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley , Caernarvon

The Chancellor of the Exchequer referred to the much better balance that he perceives now exists in the economy compared with previous times. I find it difficult to accept that there is a much better balance at a time when throughout the United Kingdom there are 1½ million unemployed and when in my Wales 90,000 remain unemployed. That factor in the imbalance remains, and while it remains we cannot be satisfied with the balance as it exists.

In the Budget, the main thing for which my colleagues and I were looking was a positive step towards overcoming the crucial problem of the unemployment and false deployment of our manpower. The fact that we have 1½ million out of work means that we have human resources that are being wasted. That leads to economic wastage, and it can also lead to social tragedy. We hoped that steps would be taken in the Budget as part of a general strategy towards eliminating, or partially eliminating, our unemployment.

We do not accept the myths that are put forward from both sides of the House that an automatic transfer of resources from the public sector to the private sector or from the private sector to the public sector necessarily leads to greater employment, and although we hear such theories being put forward from both sides of the House to support their respective political theories, the fact is that a transfer of money by increasing taxation or lowering it does not necessarily mean anything in terms of jobs. Everything depends entirely on the implications of the taxation and the way in which the yield is used. Taxation can lead to higher or lower unemployment, and the outcome of this Budget remains to be seen. There are other possibilities, apart from the transfer of money., that can possibly generate employment. Having listened to the Chancellor, I am not certain about the direction of Government policy.

We understand that the supply of money, the M3 figure, will increase by 8 per cent. to 12 per cent., which suggests that possibly greater employment may come, from increasing inflation. However, at the same time the PSBR is to remain within a ceiling of £8,500 million. In that context we cannot see that there is a coherent strategy for ensuring that the transfers that are taking place are designed primarily to ensure greater employment.

Another factor that could be brought forward to ensure a greater increase in employment and a decrease in unemployment would be to restrict imports. That may or may not be acceptable for other reasons, but it would be a strategy. That too, has not been forthcoming. When I consider all these elements, I cannot see what is the strategy or that the tinkering around—I am sure that it is liked by some—with the taxation system will get to the nub of the problem of providing more jobs.

The Manpower Services Commission produced a report last year entitled "MSC Review and Plans", which included the cost to the Government of unemployment. The facts come home in a staggering way. In the first month of unemployment for a married man with two children, the cost to the Government, taking into account the loss of income tax revenue, the cost of unemployment benefit and the cost of supplementary benefit, is £330. Over 18 months the cost runs at about that level and terminates at £335. That is about £80 a week. If that is the amount of money that has to be spent to keep people unemployed, it implies that the money would be better used to ensure that those who find themselves unemployed are employed by the Government in something useful.

In Wales—and I am sure that the figures for Wales correspond to the Great Britain figures—we have 100,000 houses that are unfit, 60,000 families on the waiting list and 15,000 building workers unemployed. However, it seems that we cannot bring these problems together one with the other. That is the central thrust of strategy that we would have been seeking in the Budget, but it has not been forthcoming.

We would have hoped that when the Chancellor was looking at aid to smaller companies, which we welcome, he might have looked at the possibility of helping the entrepreneurs who are setting up for the first time and giving employment to other persons, by means of a tax reduction. That would have to be a once-off development, because obviously it would be open to a fiddle if it could be repeated. But I believe that there is a need for giving extra incentive to someone who takes the initiative of setting up employment not only for himself but for others and, therefore, saves the Government about £330 per month per person.

In the context of unemployment—unemployment in Wales and in Scotland and in the North-West and North-East regions of England, no doubt—there was again no reference to improving the Government's regional policies. Some 16 months ago the Government were forced to axe REP. Certain other short-term measures have taken its place, but they involve nothing like the expenditure nor the securing of jobs that REP helped to secure for Wales. We shall have lost probably 10,000 jobs in Wales as a result of this move. I do not believe that the Government have a positive strategy for responding to the regional dimension of unemployment.

I should like to follow the comments that were made about interest rates. If we are looking for stability for industry, one of the areas where we would have sought such stability would have been in interest rates. Having brought them down to 6½ per cent., I should have thought that they could possibly have stayed at that rate. One of the worst features for industry in planning expansion is the uncertainty of where to pitch its return rates in relation to interest rates which it has to use as a base measuring stick. I believe that in recent years one of the greatest uncertainties in the economy has been the high rate of interest. I am sure that this has crippled many companies. I had hoped that we were coming to a time when we could live with lower rates.

I turn now from the central theme of unemployment to one or two of the details. I welcome the two-year averaging for farmers. I suggest that a three-year average would be even better, for the reason that the exceptional factor that involves one year may continue into the year which immediately succeeds it. It may run over from one year to the next. I welcome the Government's moving in that direction.

I get the impression that the Government are dabbling with the idea of profit sharing. I am very much in favour of profit sharing, but I reserve judgment on the scheme which has been outlined.

We welcome the child benefit increases but regret that those who are on social security, invalidity benefit and so on will lose by one hand what they gain by the other hand. The increases in child benefit were because of the need for these resources to be available to the mother. That need is even greater for the families—particularly one-parent families—which are on supplementary benefit, invalidity benefit and so on. To take away by an offset in social security payments the increase that such families get from child benefit is to take away from those who need the most help. I regret that it has not been possible to find a way to overcome this problem in the Budget Statement that we heard this afternoon.

We welcome the increase in the tax thresholds. We have pressed over a number of years to get back to the level at which the tax thresholds stood five or six years ago. That would have needed another £1,000 million. I should have liked to see the standardisation of VAT at 10 per cent. That would have provided £700 million of that £1,000 million towards the further increase of the thresholds and would have taken more people out of the taxation net.

People say that this is not an electioneering Budget. I suggest that the fact that the Chancellor decided to give help to 4 million people within the lower band, whereas only 300,000 people were benefiting from the increase in the threshold, indicates that there is an element at least that he is trying to get the greatest possible number of people involved in the benefits rather than hitting at the end where it is most needed.

We welcome the proposals for pensions, school milk and school meals and the tightening on the avoidance of taxation.

Regarding the Health Service, the £50 million will help but it is a drop in the ocean. We are talking of a Budget of £5,000 million. Therefore, it is 1 per cent. Of course, 1 per cent. is better than nothing, but it is only 1 per cent., and likewise with education.

There are aspects of the Budget that we welcome, but our main criticism is the lack of strategy on the creation of jobs. That we greatly regret.

5.56 p.m.

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

I rather felt that the hon. Member for Caernarvon (Mr. Wigley) was a little uncharitable, because this afternoon my right hon. Friend the Chancellor of the Exchequer undoubtedly delivered a good Budget. That was why the Leader of the Opposition, in her opening remarks, spoke with such a forked tongue and at other times seemed so bitchy about the good proposals contained in the Budget.

Of course, we welcome the tax reliefs and the incentives that they provide.

Photo of Mr Oscar Murton Mr Oscar Murton , Poole

Order. The hon. Gentleman has used an expression which, although it does not come within the rules laid down in "Erskine May," is in my view unparliamentary.

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

I bow to your ruling, Mr. Deputy Speaker, and withdraw it.

Certainly we welcome the decision to reintroduce free school milk. The people of Britain have never forgotten who took it away from the 7-to-11-year-olds.

There is the promised help for areas which have been affected by steel closures. That, again, will be welcome, particularly to towns, such as Ebbw Vale, which are suffering so badly at the present time.

Another section of the population which has undoubtedly been helped by the Budget is the pensioners. The proposed increases of £3½20 for a married couple and £2 for a single person are, I suppose, generous. Likewise, the pensions allowances are welcome. Indeed, one may safely say that this Labour Government, throughout their period of office, have been generous to pensioners. But the fact must be faced that many of them are still suffering, and the question of justice for them still remains on the agenda.

There is the additional £50 million for the National Health Service. As the hon. Member for Caernarvon said, this additional amount is merely a drop in the ocean. I suppose that to a very limited extent it will help to reduce waiting lists. We know that standards in the Service have been deteriorating for quite a long time. I know that that is so in Newport. A good deal of the deterioration stems from the reorganisation of the Service carried out by the Conservative Government under the direction of the right hon. Member for Leeds, North-East (Sir K. Joseph), who believes in cuts in public expenditure. The fact is that, as a result of that reorganisation, many of the funds of the National Health Service are now being swallowed up by bureaucracy.

I come now to what to my mind is the central point of the Budget and the whole economic strategy of the Government. The Chancellor said that the present economic recession in the West is general in character. I suggest that there is specifically a United Kingdom problem as well. The Chancellor knows that he cannot reflate as much as he would like to do for fear of an inflow of imports.

My feeling is that, despite the welcome proposals in the Budget, the bulk of the 1·4 million people at present on the dole will remain there.

A question must be asked. How much longer can a Labour Government accept the direction of the Treasury which permits such a high level of unemployment, with all the waste and demoralisation that this involves? My blunt reaction is that if imports are keeping nearly 1½ million people on the dole it is time that imports were curbed.

With our ailing manufacturing industry, free trade is no longer good for Britain. Some of my hon. Friends say that there is nothing Socialist about import controls, but at least they are interventionist and there is a relationship with our Socialist philosophy. There are others, whom I would call Euro-fanatics, who are most anxious that we should curb Japanese imports, particularly cars. How will the British economy benefit if we halt the import of Datsuns and Hondas, which will only increase imports of Renaults, Fiats and Volkwagens?

The Government have it in their own hands to change course. The Cambridge Economic Policy Group in its recommendations a fortnight ago made some good proposals. First, it sounded an ominous warning when it said that if the present Government's policies continued unemployment could rise to 5 million in the next 10 years. That represents one in five of the working population of Britain. For those of us who have been brought up in the post-war era of full employment, this is a difficult figure to contemplate.

We know that manufacturing production in the country is no higher now than it was seven years ago, but imports of manufactured goods have risen by two and a half times. The facts speak for themselves. They lead to the road to ruin for an industrialised nation such as Britain. We are witnessing the de-industrialisation of Britain. The whole purpose of the Chancellor's strategy must be to try to reverse this trend. If he succeeds, the balance of payments problem will be eased and it will permit faster growth and more reflation than he was able to announce this afternoon.

To bring that about, we require a 50 per cent. increase in investment in manufacturing industry over the next 10 years. That would take the form of new and expanded manufacturing facilities. This would displace foreign suppliers in home and overseas markets. Our own suppliers would provide more of our own markets, and we should also be able to compete more successfully in overseas markets. In order to get the benefit from increased investment, we need import controls and discrimination in favour of our home manufacturers. Only in this way will the new money invested in our manufacturing industry be made to pay off.

I appreciate that the type of proposals that I am putting forward would not make us popular with the multinational companies or with the Common Market, but the priority of a Labour Government should be to stick by their principles and to look after the interests of the British people. I appreciate that there are other sides of the argument. For instance, people may have to wait a few months for the delivery of their favourite, new model, motor car, but surely that is better than keeping 1½ million people on the dole.

Let us think what would happen to the morale of our workers in the factories if such a policy were followed. Morale would be lifted overnight. We have heard the smears and innuendoes that car workers have suffered through the media over a long period. Not long ago our car industry was supplying over 90 per cent. of the British home market. Now it supplies only 50 per cent. Let us imagine what would happen to the British economy if we could achieve that former figure.

We have heard much in the House recently about the steel industry. If the British car industry could regain such a large section of the home market, the crisis in the steel industry would vanish almost overnight. What a benefit that would be to areas where steel is concentrated, such as South Wales. What is more, such policies would receive the overwhelming backing of the trade unions. I see a parallel with what happened in the 1930s. Ernest Bevin, the General Secretary of the Transport and General Workers' Union, saw the wisdom of the Keynesian analysis, whereas the mandarins in the Treasury were years behind.

The enigma of North Sea oil and the bounty that flows from it could have the effect of blurring our understanding of what is happening to industry in Britain. It could give us the opportunity to live in a fool's paradise for another decade or so. This should not be allowed to happen. North Sea oil revenues must not be frittered away in meaningless tax giveaways to produce another property speculators' boom such as we experienced in the early 1970s. North Sea oil revenues must be invested in manufacturing industry to try to reverse the trend which I have outlined so that our economy is put on a firm basis for the future.

6.9 p.m.

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

I shall speak briefly because other hon. Members wish to speak in this short debate today. I shall first mention two items which caused me to have some reservations and to experience slight amusement. I refer to the two proposals, important as they are, for school meals. I share my right hon. Friend the Leader of the Opposition's wry amusement that it has required a Common Market subsidy and incentive for a Labour Government to restore these measures.

The Chancellor's proposals on school meals are most important. I am worried, however, that, welcome though this move may be, it is being applied, as we argued at the time of legislation on school meals and school milk, across the board while other items of educational expenditure are being held in close rein. We already have schemes to help those who cannot afford school meals or school milk. Many parents and people involved in education would prefer the money to go towards improving facilities, buildings and so on. Therefore, welcome though this money may be, it is not necessarily being put to the best use for education.

One of the central features of the Budget, which I very much welcome, is the reduction of income tax. Specifically I welcome the new lower rate of income tax, which will be generally and rightly welcomed. When the Chancellor introduced it, he said that he particularly wanted to remove the anomaly in our society by which it is worth more for some people not to work. I am glad that he acknowledges that anomaly. None of us wishes to see an abuse of the social security system. The system is abused, I believe, because of its complexity, which makes the task of those who seek to abuse it that much easier.

I do not agree with hon. Members who believe that we could eliminate this abuse by wielding the big stick. The best approach is to use the carrot. The Chancellor's action to introduce lower rates of tax and an incentive that makes it worth more to work will also help to reduce or remove some of the abuses. His action comes not before time. The longer that abuses are allowed to continue, the less are people encouraged to look for an incentive to work and the more difficult it becomes to root out the abuses. I hope that this incentive will be increased in the future with higher thresholds.

I welcome, too, the Chancellor's action in relation to small businesses. All the items in the Budget are to be welcomed, and they will help small businesses. Our smaller businesses contain far greater potential for job and wealth creation than Governments in the past have been prepared to admit. Here, too, however, I have a reservation, as what the Government have given they have also taken away with the 1 per cent. increase in minimum lending rate. For many smaller businesses, the bank overdraft is what looms largest when the statement comes in. While the Chancellor has rightly attempted to give incentives, these are offset by the higher MLR.

I welcome the effect on small businesses in two specific respects. The first is the averaging of incomes for farmers. Representing as I do an agricultural constituency, I know how welcome that will be. I have argued for this move, but are we right to confine it to farming? There are other industries which have small firms which suffer from seasonal and other variations that are beyond their control. They do not have the resources of larger firms to weather the storm. I have tried to impress this point upon my right hon, and hon. Friends. The Chancellor's action will be most helpful to farmers and horticulturists, but there is a case for extending it to other smaller businesses and I hope that this will be considered.

The second aspect concerns building allowances for hotels. Our hotel and tourist industries have been treated as Cinderellas of the service sector for too long. Much lip service has been paid about what the tourist industry does for our foreign exchange earnings and for employment, particularly in areas with few alternative sources of work. The building allowance has been long deserved and is to be welcomed. But, while I do not wish to appear grudging, I must voice yet again my reservations. Why impose the 10-bedrooms restriction? It means benefit for the main centres of population because that is where the larger hotels are located, and they are doing well anyway. The employment problems are in the remoter areas which make a great contribution to the tourist industry and foreign exchange earnings but where the hotels have fewer than 10 bedrooms. May I suggest to the Chancellor that he increases this concession to give much wider benefits to employment by extending the scheme to the smaller hotels?

My next reservation concerning small businesses is that the Government have not looked widely enough at other service industries. For far too long these industries too have been treated as Cinderellas. Manufacturing industry has been regarded as good, and service industry has been regarded as of less value. If the Government genuinely want to increase the wealth-creating output of manufacturing industry, they must realise that that will lead to a greater demand for services.

Let me give one example from the oil industry in my area. One of the striking developments of that industry concerns not the manufacturing side but the smaller service concerns such as welders which are an integral part of the development of the industry. These firms are indigenous, being run by Scots or other British people, and they service manufacturing industry which is based abroad. The Chancellor said that the Government want more innovation and enterprise, but he should realise that it is extremely difficult, irrespective of how big the concessions are, for the small firm to move straight into the manufacturing sector. Often the route to innovation and manufacturing begins in the service side, where, by gaining skills and expertise, the small firms move on into the true innovating and wealth-creating roles to be found in manufacturing industry.

In relation to small firms, I beg the Government, and the Opposition as well, not to make the distinctions that we have made in the past between manufacturing industry and service industry, because very often service industry is the road through which we get our innovation, through which we encourage the small man to set up and through which we get job creation and everything else that goes with it.

I should like to make two concluding points. The first is about jobs. Here I echo very much what the hon. Member for Caernarvon (Mr. Wigley) said. I believe that we are becoming seriously out of balance in our attitude towards jobs and employment. I welcome, of course, as we all do, the temporary employment scheme that we have. I do not have them to any great extent in my constituency because of North Sea oil development, but they operate in Scotland generally and particularly in the West of Scotland.

However, my worry is that the temporary employment schemes, for which the Government take so much credit and in which so much money is invested, are in grave danger of becoming increasingly permanent. We are building up in these areas a great reliance on them, and the whole economy of the areas is becoming increasingly dependent on Government subsidy of one form or another. This is bad. It is bad in terms of the whole attitude and everything else in relation to these areas.

I am unhappy about the fact that, in all we are doing in regard to TES and so on, we are not doing enough to generate the longer-term jobs on which longer-term prosperity will really depend. I believe that we are in grave danger of treating all these schemes simply as substitutes for genuine long-term job creation in the future.

This is where I return to what I said a moment ago generally in relation to the encouragement of small firms. I believe that a great deal of the money that is going into temporary employment schemes should be given in the kind of way suggested by the hon. Member for Caernarvon—in first-time grants to get people set up in new business. This is where the Welsh Development Agency and the Scottish Development agency come in. I believe that far too great a part of the budget of those agencies is being used to prop up and to help firms that come on bad times. That may be needed; I am not saying that it is wrong. Over the years, however, I should like to see the balance of the budgets of these agencies change so that they become pump-priming operations and provide the money that sets up new industry and new jobs rather than simply propping up old jobs, which is not the way in which to build a modern and prosperous economy.

Lastly, I make one comment about the thing that makes possible what the Chancellor has done today. As we all know, the basis of it, quite simply, more than any other single thing, is oil. In relation to our balance of payments and the savings that oil makes, that is the one real thing that makes a minor expansionary Budget of this nature possible.

What worries me, however, is this. First, on the general front, the trouble is that we are doing this because of oil, but other countries in the Western world are doing just about the same without oil. That is the worry. We are not making enough of our opportunities with oil in relation to the rest of the economy as compared with the kind of expansion and prosperity which is beginning to be shared by other countries in the Western world.

Therefore, I hope that in relation to our whole economy and to the Chancellor's decisions—whether they are to give more away in terms of spending by the individual, which I believe is the right choice to exercise, or for the Government to use this money in terms of greater public expenditure, by which they hope to stimulate more activity of this nature—the Government do not use the wealth that oil provides simply to give us the breathing space or a bit of a pain-killing operation for the ills from which our economy now suffers.

I hope that the Government do not use our oil money in the sense of filling the gap or of making our economic ills less painful than they really are. I hope that the money and the time that it gives us will be used for the generation of new jobs and new investment in productive manufacturing industry, and to give us a real step forward and a real advantage that we can turn to our use as compared with our competitors in the rest of the Western world. Unless we are prepared to use oil in this sense as a springboard to make our economy stronger than other economies, this one-for-all opportunity that oil has given us, and which the Chancellor is using to some extent today, will be lost.

Several Hon. Members:


Photo of Mr Myer Galpern Mr Myer Galpern , Glasgow Shettleston

Order. I should like to accommodate at least four hon. Members before we start the Private Business at 7 o'clock.

6.25 p.m.

Photo of Mr Andrew Bennett Mr Andrew Bennett , Stockport North

I very much welcome the Budget, very many of its provisions are very welcome indeed. I am particularly pleased with the announcement that charges for school meals will not be increased in the autumn. That is probably one of the areas in which we can judge whether this is an election Budget.

I very much hope that this is not merely putting off an increase in school meal charges in the autumn but is, in fact, a clear change of policy by the Government and does not mean that at some future date there will have to be a larger increase. I hope that the Government have decided that they will not pursue the policy of moving towards an economic charge for school meals but will recognise that this is a very effective way of helping families and giving them support.

I also hope that it will be recognised in the debate that this should not be measured as money that should be given either for school meals or for other educational provision but rather that we ought to be making the comparison between expenditure on school meals and on other forms of family support.

Although it is clear that the school meals service has some relevance to education in that it is difficult to teach during the afternoon children who are not well fed at dinner time, it is much more significant in terms of family support and help for the family rather than in terms of the education service. If we make the comparison between money spent on school dinner subsidies and money on family support, we make a very good case for the school meals subsidy, whereas if we make it a comparison between that and education we find ourselves on rather more difficult ground.

Therefore, I particularly welcome the decision not to increase school meal charges, although I hope that it will not mean that we are deferring such a decision but that we have a clear change of policy.

This is particularly important for those who work in the school meals service. It has been particularly unfortunate that many of the women, who are already on very low pay, found their job security threatened because of the number of children who stopped taking school dinners last autumn. It would be far better for that group of people if we could have relative continuity in the service, and not merely defer an increase in the school meal charges for some time and then have a very large increase, which would have the effect of discouraging children from staying for meals and reducing the employment prospects in the area.

We also have to be careful about some of the effects of a large increase in charges on the children whom we protect from such increases. I have in my con stituency several instances of children who were protected from the increase. Because of the means test, they were entitled to free school meals. But they then found that their three or four best friends at school had switched to taking sandwiches, so they found that they had to eat their school dinner, which was free for them, on their own or go to the hardship of paying for sandwiches and not taking up the benefit to which they were entitled.

Therefore, I welcome this measure. I hope that it indicates a major change in the Government's policy that we shall continue to have school meals subsidised and that we shall see this as a significant form of family support.

I also welcome very much the announcement that child benefit will be uprated in November to £3 and next April to £4. I would have hoped that the Chancellor could have gone a little further, because in the child benefit scheme there is provision for different rates of benefit to be paid for children of different ages. I should have particularly liked my right hon. Friend to look at the possibility of paying out a higher rate for children who are aged between 16 and 18 and who remain in full-time education. It seems to me that in a great deal of the youth opportunities programme which has been developed we are developing facilities for the children who leave school but we are not giving encouragement to those who stay on at school.

I know that local authorities, on a means-test basis, can give small grants to children who stay on in sixth forms, but in practice very few of these are given. I should have thought that the Government could have looked this time at the possibility of introducing a higher rate of child benefit for children in the 16-to-18 age group as some indication that the Government offer support to families who encourage their children to stay on at school, and some encouragement to those children who stay on at school and often find that the amount of money they can have to spend is very much less than that of their friends who, in some instances, have quite well-paid jobs.

I also welcome the announcement of the uprating of pensions, but it is sad that upratings of any benefits are announced in April but do not take place until November. If we are to have annual upratings, I hope that the procedure can be simplified and the time scale narrowed.

I welcome the announcements about the provision of school milk to the 7-to-11-year-olds, although this is already done in many areas. Since there is still a substantial milk surplus in the Common Market, we should consider other ways of ensuring that youngsters get the milk rather than let it go to waste.

I am glad that more is to be spent on law and order. I hope that this means that the Home Office will quickly be able to approve Greater Manchester's application for an increased police establishment. I hope that there will then be more policemen available to Stockport—not so much for law enforcement and catching criminals as for crime prevention. The most important thing is that policemen should be seen on the streets. Policemen walking the beat are one of the most effective discouragements of vandalism.

I am rather disappointed that nothing has been done for the traditional training schemes, particularly apprenticeships. Newspapers like the Manchester Evening News have pages full of job advertisements. Many Stockport firms complain that they cannot recruit enough skilled workers. Some trade unionists say that they should pay more, but, certainly in Stockport and probably throughout the country, there is a shortage of skilled workers.

This is the paradox—a shortage of skilled workers and 1½million unemployed. There will be an increase in the labour force of 1½million people by 1986, and with more industrial investment the number of jobs will decrease. Thus, there is a possibility of 5 million people lacking jobs. Many of my constituents say that the logical answer is a shorter working life—with men retiring at 60—a shorter working week or a shorter working day. At the moment such schemes would cause problems for industry, particularly in Stockport, which would find difficulty in skilled recruitment.

The Chancellor should be considering ways of encouraging the number of traditional apprentices, particularly since the population figures mean that there will be a bulge of school leavers every year for the next four or five years—struggling for probably the same number of apprenticeships—followed by a steady decline in the number of school leavers. We should try to increase apprenticeships over the next few years. Those administering the youth opportunities scheme are doing a good job with new methods of training, but the Chancellor could have done something more.

It is odd that a firm investing in new machinery, which often reduces the number of employees, qualifies for tax relief but that a firm investing in apprenticeship programmes does not. The Chancellor could have made a small contribution to improving youth employment and increasing the number of skilled workers.

Something could have been done to help those who have been out of work for a long time. After being out of work for 12 months, my constituents are at a severe disadvantage when going for jobs. Employers tend to prefer someone who is changing jobs or who has been out of work for a short time. There are natural reasons for this. It is also difficult for someone unemployed for a long time to give a confident account of himself at an interview.

We should encourage these people to return to employment. A small amount of Government money—possibly a subsidy to employers or some assistance to the job applicant—would do much to help them. We should have particular sympathy for them. They are the hardest hit by the unemployment situation. Those who have been out of work for a short time, particularly if they had a good redundancy payment, are nothing like as badly affected financially. In those two areas particularly, the Chancellor could have done more.

Like my hon. Friend the Member for Huddersfield, West (Mr. Lomas), I regret that the Chancellor did not keep the promise that he made in his Budget Statement two years ago to abolish the road fund licence. His reason then was that it would have encouraged people to move to smaller cars, since the same revenue would obviously be raised by increasing petrol duty. The vehicle licensing set-up at Swansea is in complete disrepute, which is bad for the law. It is now difficult for the police to enforce the law, since people put notices on their windows saying "Tax applied for" and it is virtually impossible to check.

However much one complains about computers and the Swansea system, it is unfair to blame individuals. The basic flaw in the system is that we are all bad at filling in forms. When one went to one's local town hall or tax office, someone there could explain how to fill in the form. Now, it has to be posted and it takes a long time to put things right. Often complaints lead to more complications. I do not see how one can alter the computer. However hard one tried to improve the system one could not get rid of the basic flaw.

The road fund is a poll tax. Those who use their cars very little pay as much as those who use them a great deal. I would welcome help to those, in rural areas for instance, who have to use their cars to travel to work but use them very little otherwise. I should also like some assistance to be given to elderly people who build up a small mileage but who have to get out for shopping, holidays or days out.

I would not want to reduce the number of jobs at Swansea, as my hon. Friend the Member for Huddersfield, West suggested, but if those working there concentrated on keeping up to date with changes of ownership and worked on MOT and driving licence provisions they would still be in full employment.

I very much welcome the Budget. I hope that in the next month or two, or perhaps during the debate on the Finance Bill, there will be an opportunity to consider a little more tax relief for firms which are carrying out or increasing apprenticeship training. I hope that consideration will also be given to help for the long-term unemployed, those who have been out of work for more than 12 months, to make it easier for them to get back into work.

I very much welcome the provisions for putting off, or not carrying out, the increases in school meals charges. I also very much welcome the increases in child benefit.

6.40 p.m.

Photo of Mr Edward Gardner Mr Edward Gardner , South Fylde

I think that when the country has had a chance to reflect on the provisions of the Budget there will be a sense of disillusionment and disappointment that they have not satisfactorily matched up to the hopes that were raised in anticipation of the Budget.

One of the principal problems that the country has to face—failure to solve it will mean much despair and distress—is the problem of unemployment. Its most disturbing feature is not the total figure of unemployment but the fact that one-third of the 1½million people now unemployed are young people, under the age of 21.

This Government came into power in 1974 on the slogan "Back to work with Labour". I can identify nothing that gives any hope that the young people or any of the unemployed can hope to go back to work with this Budget.

However, I welcome, as the whole House and the country will, the increase in the pension for elderly persons, of whom I have many in my constituency. If one were trying to point to the real victims of the Labour Government and the inflation that has followed upon their policies, one would say that the elderly were the principal victims of inflation and the Labour Government. They deserve the relief now offered to them, because they are among those who have suffered most. But there are still the unsatisfactory and unjust—indeed, some might well describe them as penal—levels of taxation on investment income.

I am delighted, as I believe the whole House is, that the farmers will now be able to have their income taxed on a spread over a number of years. I was particularly pleased to hear the Chancellor say that there would be more money for farmers whose land, equipment and buildings had been damaged by flooding. In the North-West of England this has been a serious problem. I hope that the Government will not delay long in telling us exactly how much money such farmers can now look forward to, in the hope of repairing the immense damage that was done by the floods.

Can Ministers also give us some idea what is happening to the EEC funds that have been diverted, so far as one can see, almost exclusively to the South-East of England, leaving those who suffered in the floods in the North-West without any relief from that source?

I am equally pleased by the fact that the Government have decided, belatedly, to help small businesses. Small business men are also among those who have suffered worst at the hands of a Labour Government. I think that it will be realised—certainly by the small business men, who will not forget what has happened over the past four years—that the reliefs about to be given to them indicate not a change of heart but rather a change of tactics in anticipation of the forthcoming General Election.

The small business man and the philosophy of the small business are wholly incompatible with Socialism which is out of tune and out of sympathy with, and has no time for, the small business man. What it is doing now is merely an attempt to win support that it does not deserve. But I believe that the Government will be disappointed by the political results of their efforts, because I do not believe for one moment that these people are likely to forget what has happened to them over the past four years.

Photo of Cyril Smith Cyril Smith , Rochdale

I ask the hon. and learned Gentleman not to tell the Government. They might not do it.

Photo of Mr Edward Gardner Mr Edward Gardner , South Fylde

I do not want to discourage them. I believe that they dare not do anything but what they are doing now, because they must know that, as I believe the whole country appreciates, the key to solving the unemployment problem and the real hope for the unemployed lies not in big business but in small businesses.

The ability of the small business man and small businesses is one which this Government do not possess—the ability to reduce unemployment drastically. For that reason, from whatever source it comes and for whatever reason it may be given, I welcome the fact that help is now to be given to small businesses.

6.47 p.m.

Photo of Mr John Lee Mr John Lee , Birmingham Handsworth

In the very few minutes that I am allowing myself, I begin by observing that it is a thousand pities that for the second year running my right hon. Friend the Leader of the House has so arranged business that the debate is cut short prematurely at 7 o'clock. I believe that however important the cemeteries may be in Sheffield, they are less important than the country's economy. I find it extraordin that my right hon. Friend, who has the reputation of being a Back Bencher's man, should twice have been responsible for this kind of arrangement.

I should like to make a few general observations before returning briefly to the Budget. As several of my hon. Friends have pointed out, what is missing—to some extent this is because the Government are dependent upon the support of their parties, particularly the Liberal Party—is a coherent strategy with regard to unemployment. It is significant that my right hon. Friend the Chancellor of the Exchequer did not stick his neck out to say by how much he expected unemployment to be reduced as a result of these measures.

Another matter relates to the whole question of the level of sterling. I share with the hon. Member for North Angus and Mearns (Mr. Buchanan-Smith) disappointment that the minimum lending rate is being raised. I think that his criticism is valid, but it should be supplemented by something even more important. There is a considerable case for saying that the level of sterling is too high. This action is likely to raise it still further. If that happens, as I fear it will, this will lead to a diminution of our competitive bite in export markets, when we all know that the world recession is by no means over.

There is a particular reason why it is very important that we should keep our interest rates down. There are countries that can perhaps be described as the Third world, but we regard those in the most prosperous part of it—the developing nations, the Brazils, the Nigerias, the Mexicos, the Malaysias and so on, and the oil-rich countries such as Venezuela—we should in the next few years be seeking to replace them as the main recipients of exports of consumer durables that formed so much of the boom through the 1960s.

It may be forgotten sometimes that one major factor responsible for the sustained period of quasi-full employment in the 1950s and 1960s was the welcome introduction of the first-time car, the first-time television set, the first-time washing machine and so on. There was thus a mass market for consumer durables in this country and in the developed world.

One reason for the present recession, of course, was the increase in oil prices. Another is that, in terms of consumer goods, we have almost reached saturation point. What is now taking place, on the whole, is a process of replacement. I do not say that there will not be a further expansion. We hear—not with unalloyed enthusiasm—that there is scope for even more cars on the road. So there may be, but the great expansion of cars on the roads in this country and in Western Europe is obviously over, so that we look more and more to the richer of the developing nations for our markets.

If we allow sterling to rise, or encourage it to rise, which will be an inevitable outcome of the rise in minimum lending rate, I think that we shall suffer as a result. Certainly there has been no sign lately that the Bank of England and the Chancellor of the Exchequer have been taking measures to counter the appreciation of sterling. I do not share the views of those who say that sterling is endemically weak. It may, indeed, be pulled down temporarily as a result of the dollar weakness, but as a result of the fact that we know that we are to have increasing supplies of North Sea oil—not indefinitely, but for at least a very considerable time—sterling will on the whole be a strong currency.

That is in ironic contrast to the position only a year or so ago. I think, therefore, that one of the main tasks that the Chancellor of the Exchequer ought to set himself is to try to reduce the level of sterling and to take countervailing measures against the danger of its appreciating to such an extent as to blunt our competitiveness in the world markets. But it is particularly important that we should be competitive in the markets of the developing world with the Americans, the Germans and so on.

I have one or two other points to make. I shall try to be brief because I should like to leave enough time for one other hon. Member to speak in the debate.

Photo of Mr John Lee Mr John Lee , Birmingham Handsworth

I am looking anxiously at the clock and trying to be fair to other hon. Members, Mr. Deputy Speaker.

There are, of course, a number of things which are good about the Budget. In fact, it seems to me to be a very shrewd Budget in many respects. The right hon. Lady the Leader of the Opposition floundered around in the first part of her speech in a way that I believe no one has done in making an immediate reply to the Budget since Herbert Morrison's reply to the Butler budget of 1953. If it is suggested that it is an electioneering Budget, what is wrong with that? It has happened many times before and it will happen in the future. The weakness, from the tactical point of view, of the position in which the right hon. Lady finds herself has been made quite clear. It is not only in regard to school milk.

I am very glad to note the proposals concerning tax avoidance. This is an instance in which I believe it is right that legislation should be made retrospective. In general, retrospective legislation is not something that many of us would encourage, but in this case the kinds of schemes which the measure will be designed to scotch are quite clearly basically dishonest. Therefore, none of those who will be disadvantaged by it will have any real cause to complain.

It is right that the VAT level should be raised in the way that has been proposed. It is a bad tax. It is a spin-off from the Common Market and ought not to be there. That being so, the more people who can be cushioned against its operation, the better.

I think that we all welcome the fact that the Government have resisted the temptation to make an overall reduction in the rate of income tax rate from 34p and have confined themselves to selective measures. There has been a chorus of demands in the last few weeks for income tax to be cut across the board. I think that the measures taken to help people at the lower end of the scale, and the measures taken to benefit families, are wholly desirable. I also welcome the proposals concerning energy conservation. On the whole, although I am afraid that it is a Lib-Lab strategy and not a Socialist strategy, within that context it is a shrewd Budget. It is one with which the Leader of the Opposition had difficulty today. The right hon. and learned Member for Surrey, East (Sir G. Howe) will also have a great deal of difficulty with it tomorrow.

6.54 p.m.

Photo of Mr David Knox Mr David Knox , Leek

In common with most other hon. Members, I welcome the reductions in income tax which have been announced this afternoon. The fact is that this country is grossly overtaxed and the burden of direct taxation is particularly heavy. The Chancellor has started on the way back to a more realistic and more sensible income tax system, but he has a very long way to go yet.

It is just as well to remind ourselves that to restore the country to the position which the Chancellor inherited in March 1974 he would have had to cut income tax by about £5,000 million. Today's reductions should be measured against that figure. Although I believe that it should be the aim of the Chancellor of the Exchequer to reach that position eventually, it will certainly take a few years to achieve and it would have been imprudent of him to go the whole way this afternoon.

I am not trying to justify what the Chancellor of the Exchequer has done today; I am pointing out that it will take a long time to undo the economic harm and damage that the Chancellor's previous tax policy has done to this country.

By any standard, the Chancellor's stewardship of the British economy over the last four years has left a great deal to be desired. Whichever set of statistics we look at, the record of the Government is very bad. In particular, their record on economic expansion is deplorable.

The time has now come to change course. The course of economic expansion seems to me to be the one that the Government ought to take up. They ought to take it up because in the long run it is the only way to deal with the problem of unemployment which afflicts this country today. It is also the only real way to deal with investment, because we shall not get investment in industry in the future as long as there is spare capacity.

Any industrialist who can get out of his existing capital plant the goods that he can sell in the market will not spend money on investing in new plant and machinery. Therefore, in terms both of dealing with unemployment and getting more investment, we need expansion, and I think that the Budget will help a little in this respect.

The present is a particularly good time for getting this expansion. With North Sea oil we have a little leeway in terms of balance of payments for the next few years. The balance of payments problem has, of course, been a great constraint on economic expansion in Britain since the end of the war. North Sea oil will see us through for the next few years. We can afford to spend a little more on importing raw materials and, indeed, on importing, temporarily, some manufactured goods. We should take advantage of this opportunity and try to get expansion going and to build it up over the next few years. That would enable the country, in the long run, to have the very much higher standard of living that we all want and the very much better social and public services that we need.

The great weakness in the British economy is that we do not produce enough. It is not that public expenditure is too high or that consumption is too high. It is simply that we do not produce enough. I hope that the Budget will help to get economic expansion going once again.

Debate adjourned.—[Mr. Frank R. White.]

Debate to be resumed tomorrow.