My right hon. Friend the Chancellor outlined in his Budget Statement a package of measures which have been welcomed across the country as right for the economy and fair to all sections of the community.
Her Majesty's Opposition have been typically grudging in their reactions. I watched the right hon. and learned Member for Surrey, East (Sir G. Howe), the Shadow Chancellor, in his broadcast last night. An accomplished performance I thought—peppered with carefully chosen quotatioins: good for a laugh at the Chancellor's expense, but empty, utterly empty, of content.
I agree that one message came through loud and clear. The hon. and learned Gentleman would cut more taxes and hold down public expenditure. He alleged that public expenditure was out of control. What nonsense. Public expenditure continues to be under tight control. But I hope that the hon. and learned Gentleman who succeeded me as Member of Parliament for Dover will tell us just which parts of the public expenditure part of the package his right hon. Friend would have dropped. I know one for a start—the Government's decision to restore free milk to children up to the age of 11, snatched from them by the present Leader of the Opposition when she was Secretary of State for Education and Science. I suppose that out of loyalty to the unrepentant milk snatcher they would certainly have to oppose that.
I gather that the Conservative Party would go ahead with the school meal increases in September. What about job creation, rural industries, law and order, coastal protection and flood compensation? What about new capital for education? What about the extra £50 million for the National Health Service, the pensioners' increase and the new level of child benefit? I hope that when the hon. Gentleman speaks he will spell out the Tory approach to these issues.
This is a Budget to give new hope and encouragement to our people. The whole country has had to exercise great restraint over a very difficult period. Working people of all kinds have shown a remarkable degree of self-discipline. Wages and salaries have been held down with the co-operation of unions, employers and workers. Public services have had to be held back as we have struggled against a major world recession. The Government have had to take tough measures and they have been accepted by the people.
Now that the success of our policies is there for all to see, it is right that the whole community should share in the fruits of that success. That is why the Budget Statement contained what I think most would agree was a balanced set of proposals. The proposals were balanced between tax cuts and increases in spending; balanced between working people and those who are elderly, sick or disabled or unemployed through no fault of their own; balanced between those with children to support and those without; balanced between those who are managers or professional people and, on the other hand, those who work on the shop floor; balanced, in a word, between take-home pay and the social wage.
After a long period of restraint and recession, people are entitled to look for some light at the end of the tunnel. They saw a glimmer of it in October in the measures then introduced by my right hon. Friend the Chancellor. This Budget package is the reflationary engine which will help to pull us through the tunnel. It is part of a wider international effort to lift the world economy out of the recession.
The total size of the package has been well judged by my right hon. Friend the Chancellor to provide the necessary stimulus while keeping inflation firmly under control. In his statement to the House, the Chancellor dealt with the broad economic effects of the package and the details of his tax concessions. I intend to concentrate today on the public expenditure element and particularly the social importance of the measures outlined by my right hon. Friend.
I recognise that many Conservative Members would have been much happier if there had been virtually no increases in public spending. They insist on regarding public spending as some form of sin, and, being against sin, they are opposed to it. I think that the Government take a balanced view on these matters. Public spending, whether on goods and services or on transfer payments such as pensions, must be kept within what the country can afford. However, for us the social wage is just as important as the weekly pay packet. It reflects the social priorities of the whole of our Labour movement. That is why we have decided on a major £50 million injection of funds for the National Health Service. I shall come back to that later in greater detail.
That is why we have announced a further big increase in pensions, taking them to a record real value. That is why we are boosting child benefit to £4 a week next April, with an advance instalment this November, when the rate goes up to £3. These are the main elements in the package which come within my own field of responsibility.
Taking all the benefits covered in this week's announcement, at least 15 million people will have their income increased by Government decision. Working families will receive a straight cash boost to the family budget from this November's increase in child benefit to £3 a week per child and a further rise next April to £4. Child benefit increased to £2·30 only last week, at a cost of £300 million a year. The new rates announced in the Budget will add an additional £165 million to this in this financial year and over £500 million in the next and later financial years. These are large sums of money. They will mean that for the large majority of families child support will reach record levels in real terms. These large sums of money will give the lie to any claim by Conservative Members that families have done worst under a Labour Government.
What do the figures mean to an individual family? From November a typical mother with two children will draw £6 a week from the Post Office compared with £4·60 now and £2·50 a couple of weeks ago. Next April she will draw £8 a week. About 250,000 one-parent families will do even better. The £1 premium for their first child doubles in November to £2, so a single parent with two children who now draws £5·60 a week child benefit will receive £8 in November and £10 next April.
The November increase in child benefit to £3 a week is a straight cash gain of 70p per child. There is no loss of tax allowance. There is no switch from the father's wallet to the mother's purse. For an average family with two children the extra 70p per child, together with the £80 increase in the married man's personal allowance and the 25 per cent. band of taxable income, will result in a gain of £3·22.
Before my right hon. Friend leaves the point of the supplement for one-parent families, on the doubling of which I congratulate him, will he look with some sympathy at the case of the one-parent family with one child depen- dent on supplementary benefit for whom the scale rate for the child will be less than the child benefit and for whom it would be a tragedy if the family were to lose the real advantage in child benefit?
I understand the point put by my hon. Friend and I shall look at it with some sympathy. The rise from £3 to £4 next April will mean a real net gain of 35p a week. That is the figure for basic rate taxpayers. When one adds in the 70p from November, the overall gain is £1·05. The gains will also be rather smaller for those on rent allowances, rent rebates or rate rebates because any increase in child benefit will be taken into account next April in assessing the family's income and the help that they can get from these housing benefits.
However, taking November and April together, all families will make a net gain, even after allowing for any reduction in housing benefits.
Will the right hon. Gentleman give me an estimate of the number of people who he thinks are caught in the poverty trap now and the number of people who will be freed from the poverty trap as a result of this Budget?
I cannot give a precise figure, but I am certain that it will be recognised by the House that the tax measures taken by my right hon. Friend, particularly the raising of a significant number of people, 340,000, out of taxation altogether, and the effect upon roughly another 4 million people who will come within the band will have a significant effect on the poverty trap. If we take that together with the increase in child benefits, its effect not only on the poverty trap but on the problem of whether people are better off at work or receiving benefit will be dramatic.
I shall not give way. I am certain that the hon. Gentleman will be able to catch Mr. Deputy Speaker's eye during the course of the debate. The child benefit has many advantages over the previous system, as hon. Members on all sides recognise. It gives a cash help to the first child in the family, unlike the old family allowance. It is fair to the poorest in work, who receive little or no help from child tax allowances. It is tax-free and it is paid direct to mothers. So, taken together with the Chancellor's tax proposals, there are now greatly increased incentives to work.
Many hon. Members are concerned with that small number of people who may be better off unemployed. This can occur if a man is on low wages and has several children, because the benefits that he receives for his children when he is out of work are greater than when he is in work. As a result of the Budget measures, 360,000 people who would otherwise have been paying tax will not now do so. The new lower rate of 25 per cent. on the first £750 of taxable income will greatly help in terms of incentive as well as in terms of the poverty trap.
I am listening carefully to what my right hon. Friend is saying and am thinking about it in relation to child benefit and rent and rate rebates. Frankly, I am amazed that it appears, from what he is saying, that the tenant, as opposed to the owner-occupier—the poor as opposed to the better off—will do worse. Will my right hon. Friend consider that?
That is not so. There will, of course, be an adjustment in means-tested benefits which will take into account the changes announced by the Chancellor and the changes in the levels of child benefit. I said yesterday that rent and rate rebates and housing allowances would be looked at by my right hon. Friend the Secretary of State for the Environment. The House will agree that we have taken major strides forward in child benefit, bearing in mind the £4 rate from next April.
We are determined that families with children, who have borne their share of the economic burdens of these past years, should have a full share in improved living standards. That is why we have decided to bring forward to the earliest possible moment a large part of the increase in child benefits. We have recognised the strength of the case made by our friends in the Labour movement—in the TUC, the Labour Party and on the Benches behind me.
Looked at in the round, the Budget is very much a Budget for the family.
There has been the improvement in child benefit, the cancellation of the rise in school meal prices, the return of free school milk for the 7-to-11 group and major tax concessions. Frank Field, director of the Child Poverty Action Group, normally a pretty sharp critic of the family support policies of successive Governments, hailed the measures as a "Budget for children". The Budget was, he said,
the biggest increase in child benefit so far and family men would respond this autumn in their wage negotiations.
I believe that they will. Mr. Field went on:
This signals the beginning of a proper child benefit scheme. Tax-free child benefits with the new reduced rate of income tax is the first big step in freeing families from the poverty trap.
There is another important group which will gain a great deal from the package—the pensioners. The ordinary family man has had to carry his share of the burden of economic recovery. I am glad to say that that is not true of the pensioners. We came into office pledged to raise the living standards of our pensioners and we have kept this pledge. We raised pensions by £10 for a single person and £16 for a married couple as soon as we took office. These pensions have gone up four times since then and at the last uprating, in November 1977, pensioners were about 16 per cent. better off in real terms than they had been under the previous Tory Government.
We have raised the real standard of living of pensioners in spite of a world recession and all the economic difficulties. We have protected the elderly—more than protected them—from the effects of inflation. The oil price rises and the recession forced real cuts in the living standard of working people, from which the pensioners have been exempted. I believe that working people have understood this and accepted it during these last two difficult years.
Now that living standards are rising again, it is right that the pensioners should share in that improvement. I believe that the majority of working people would agree. The single person's pension which stood at £7·75 a week when we took office in 1974 is now £17·50 and in November it will go up by £2. The married couple's pension will reach £31·20. Pensioners will be about 20 per cent. better off in real terms than they were at the last Tory uprating in 1973.
The hon. Member must not seek to delude himself, let alone those he represents. The increase in pensions amounts to 11½ per cent. at present rates and, with the rate of inflation declining to 7 per cent. by November on a year-by-year basis, it will mean that there will be a real increase of more than 4 per cent. in the living standards of pensioners.
There are other benefits for pensioners in the Budget. The earnings limit goes up from £40 a week to £45. The income tax age allowance is going up by rather more than personal tax allowances generally—£50 for a single person and £100 for a married couple. The age allowance income limit goes up to £4,000. There is a whole package of measures that will help the elderly.
If Tory Members can bear the embarrassment, I must mention their own graduated pension scheme which came into operation in 1961 and ran until 1975, when we wound it up. We always refer to it as the "Tory pension swindle". Throughout the whole of this period that is exactly what it was. When the facts are known, I do not believe that people will be able to doubt it. Working people contributed to the scheme for years without one iota of protection from inflation. If I have it wrong, Tory Members can challenge me.
The pension rights of people were whittled away during those years. After 14 years the average payment, on the graduated pension scheme, for pensioners today is a miserable 34p per head. That was the great success of the new pension scheme produced by the Tories. The contrast with our own inflation-proofed new pension scheme, which came into operation last week, is all too stark.
I am glad that right hon. and hon. Members on the Tory Benches have now seen the error of their ways and give full support to our new pension scheme. Under this new scheme, pensions earned even under the old graduated scheme will, from now on, be protected against inflation. Whether that will make an honest woman of that swindle I cannot say. We have done our best.
The right hon. Gentleman has been referring to the new pensions scheme from which a large number of people have contracted out. The number is larger than was earlier expected. What will be the level of the contributions next year, taking into account the higher rate of contracting out and these massive transfer payments to pensioners which will take place next autumn?
In the autumn I shall review the level of contributions which will come into operation in April and I shall make an announcement to the House. The hon. Gentleman is quite wrong. It looks as though the number of people who will be contracted out of the State scheme will be between 8 million and 9 million, which is what we had estimated. We forecast 9 million and I do not think that we shall be far wrong.
I will not repeat all the details I gave to the House yesterday concerning the various social security benefits. Suffice it to say that widows, invalidity pensioners and war pensioners will have increases comparable with those for retirement pensioners. Those on short-term benefits—for sickness and unemployment—will once again be protected against inflation. Supplementary benefit rates, long-term and normal, will rise in the usual way.
The whole package of increases, child benefit, pensions and the rest, will mean an increase in spending on benefits in this financial year of about £670 million and upwards of £1¾ billion in 1979–80. These increases in benefits are by no means the only social improvements which the Government have decided to bring about. The Chancellor also announced a number of other measures, including extra funds for a higher rate of capital spending on schools, more money for retraining of teachers, another £20 million for environmental improvements such as preserving the coastline, and higher spending on law and order and so on.
But the proposal which will have received the strongest and most widespread welcome is the injection of an extra £50 million in the National Health Service in this financial year. There has been a lot of wild talk recently about the NHS being in danger of collapse through lack of funds. The fact is that current spending in real terms has gone up every year under this Government. On the latest figures, the health services' share of gross domestic product is up to 5·8 per cent. compared with 4·7 per cent. in 1973.
But the Government are well aware of the strains on the Health Service. I am glad that there will be a debate on it on Thursday. At a time of economic difficulty we have not been able to raise spending as fast as we would like. The faster the growth rate, the faster we can bring the level of spending in the poorer parts of the country up to the levels in the better-off regions and the more room there is to shift resources into the priority tasks—improving the care of children, the elderly, the mentally ill and the mentally and physically handicapped, who have for so long been neglected.
But there are other problems, too. Modern new hospitals which were in course of planning and construction for many years are opening in such places as Nottingham, Sheffield, Rotherham, Liverpool, Oxford and Ealing, replacing older, out-dated facilities. These are coming on stream just at the time when funds are tight, and there is a danger that some might not be fully opened. Waiting lists and waiting times are far too long. There are not enough kidney machines to meet the need. Staffing levels and facilities, particularly in our mental illness and handicap hospitals, need improving.
In order to tackle these problems and speed up our progress in getting a fairer share of funds for the poorer areas and the Cinderella services, we are pumping an extra £50 million at 1977 survey prices into the service in 1978–79. England's share of this will be £41·3 million and I shall allocate this to regional health authorities in a way which ensures that the least-well-provided regions get the most help We shall for 1978–79 be able to provide a growth rate for the more deprived regions—the Northern, the North-West and Trent—of about 4 per cent. That is about 1 per cent more than expected. I shall be able to some extent to relieve the pressure on the Thames regions and Oxford, which have had very small growth rates. I am sure that the policy of reallocation is right, and I shall stick to it. As a result of these extra resources, planned growth in expenditure on hospital and community health services in 1978–79 has increased from 2·1 per cent to 3·2 per cent.—a 50 per cent. increase in our growth rate.
I am also determined to ensure that the extra money is put to good use in accordance with our priorities. I shall be issuing guidance to health authorities to help them in this task.
So where will the money go? In national terms I have decided that it should be spent broadly along the following lines in this financial year. About £3 million will be needed to ensure that new hopsitals are fully comissioned as soon as possible in the year. To help tackle waiting lists there will be about £2 million extra capital for day surgery facilities and operating theatres.
Over the country as a whole about 400 new kidney machines will be bought and brought into use at a cost of about £3¾ million. But I do not need to remind those who suffer from kidney disease that, as well as buying the machines, we have to train patients and relatives to use them, and this takes time.
In view of his most welcome assistance to kidney patients, can the right hon. Gentleman tell us whether he will be blocking the Bill which comes before the House tomorrow, which will extend the attendance allowance to those kidney patients who have to dialyse?
That is not a matter for me. I assure the hon. Gentleman that I shall not be blocking the Bill tomorrow. That is a question that he might well have put to the Leader of the House earlier today. I have a great deal of sympathy with the concern that he has in mind in bringing forward his legislation.
I apologise for coming back to this point, but would the right hon. Gentleman please make representations to his colleagues? A large number of very worried home dialysis kidney patients have heard that it is the Government's intention to prevent the Social Security (Kidney Patients) (No. 2) Bill from going through the House.
The hon. Lady will know that an appeal is being heard which covers precisely the issue with which that Bill deals. I think that we must wait to see what happens. It would be most unfortunate if she or any other hon. Member were to seek to exploit in a party political sense the concern which we all feel for kidney patients. I hope that none of them will do that. I sense that the House has welcomed the additional money which will be made available for home dialysis, which is what it will mean.
About a third of the extra money can be devoted to improving staffing levels and urgent maintenance work in mental and geriatric hospitals. Another £8 million or £9 million will be available in the acute sector for new equipment and urgent maintenance work. An extra £2 million will be allocated for projects financed jointly by health authorities and local councils. That will therefore help the personal social services.
The remainder of the additional money will be devoted to such things as capital projects in inner cities—for example, on-the-spot accommodation for health visitors, special care units for new-born babies, and health education.
When my right hon. Friend is talking about the extra money which will be made available, particularly for mental health, may I ask whether he has looked at the case of the severely handicapped child leaving the unit at 16 with no other suitable unit to go to? There is a severe gap there, which urgently needs filling. Is that a point that he is considering?
There is an increase at present in the number of special care units which deal with that sort of case. The whole principle at stake here is being considered by the Warnock committee. I am looking forward to the recommendations it makes to me and to my right hon. Friend the Secretary of State for Education and Science.
Over £40 million spent on the National Health Service in England in these ways will mean over 9,000 new jobs—socially useful jobs in which working people are providing a vital public service. More than half of the 9,000 jobs will be for nurses.
Of course, this extra money cannot solve all the problems of the National Health Service, but it will do a great deal to ease the many pressures. The uses to which this extra money will be put will clearly continue in future years. The Government will take this into account when we review public expenditure programmes during the course of this year. The additional £50 million is a tangible sign of the very real commitment of this Government to our National Health Service—one of the proudest creations of the Labour movement and greatly valued by all the people of Britain.
The welcome will do something to allay some of the problems of morale which exist in the National Health Service, where people have been concerned about the inadequacy of resources. Within the service this will be as warmly welcomed as it will in the country.
When the Budget proposals are looked at as a whole there is no doubt in my mind that they meet the economic needs of the people. They are well balanced between tax concessions and increases in social spending. They are, above all, fair to everyone—to the pensioner and the wage-earner; to the sick, the disabled and the unemployed; to mothers and their children. That combination of economic success with social justice is the hallmark of this Government in general as well as the Budget in particular. It is a combination which will commend the Budget to the people of Britain now, and which wilt help to ensure their support for a Labour Government when the time comes for a final judgment on our stewardship.
It is a great pleasure for me to be following the speech of the right hon. Gentleman the Secretary of State. I do not believe that we have been engaged in public debate in such close proximity since the bright June of 1970. Indeed, I seem to catch an echo of the public platform, rather than the debating chamber, in his speech today. It was uncharacteristically bombastic. [HON. MEMBERS: "Oh".] The Chief Secretary has had his say, and how satisfactory it was to him or his hon. Friends remains to be seen. I have noticed that he has the full-hearted support of Labour Members on the Benches behind him today. It does not happen to be a Conservative Budget that I am defending. I am here to judge and express my view, and a Conservative view, on what I hope will be the last Labour Budget for many a long year.
Of course, we know what the role of the Secretary of State is. It is to reassure his right hon. Friend the Member for Blackburn (Mrs. Castle)—I am sorry that she is not in her accustomed place—and Mr. Frank Field that the Labour Government still have a heart and that they wear it on their left sleeve. By contrast, the Chancellor of the Duchy of Lancaster will be here on Monday to persuade the business community that the Labour Government have a head. Of course, like Janus, they have two heads. One of them faces intermittently towards the business community, and the other permanently towards the Tribune group and the TUC.
I stand corrected. I am so glad that the profundity of the Minister's classical education is being put to such good purpose at present.
The Secretary of State told us that wages and salaries had been held back, but he also said yesterday an interesting and rather equivocal thing. He told us that earnings will be rising substantially ahead of prices. It was on that basis that the increase in benefits that has been announced has been calculated. I think that he ought to have been a little more explicit to the House. Perhaps his right hon. Friend will be able to fill in the gaps later in the debate. Exactly on what projections is the Secretary of State basing his calculations? On what rate of increase in earnings are the Government constructing their economic policy? Will there be a phase 4? If so, what kind of guidelines will be laid down? Only in that way shall we be able to judge the adequacy of the provision that has been made.
Again, the right hon. Gentleman, taking a leaf out of the Chief Secretary's book, in a series of short, staccato barks endeavoured to probe the Conservative Party's public expenditure plans. He seems to assume that with public expenditure running at the rate of between £40 billion and £50 billion a year there is no room for redistribution within that overall figure and that we must be frozen into the pattern that has been adopted by the present Government. He is making a totally false assumption.
Then again—I assume it is because he was not following our debates very closely between 1970 and 1974—the right hon. Gentleman referred to the "Tory pension swindle", totally overlooking the great measure introduced by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), which put a rather different complexion on the problem which the right hon. Gentleman sketched in such a superficial and partisan way. I shall not get drawn further into that. That is something we can debate from public platforms. It is not a serious matter for debate today. [HON. MEMBERS: "Oh."] I shall make my speech in my own way. If the Financial Secretary is equally ignorant of it, he should turn to the gentlemen in the Box and receive rather better briefing.
Does the hon. and learned Gentleman agree that one of the great weaknesses in the Bill that was introduced at that time was that it made no adequate provision for inflation-proofing pensions, and that the main thing that we have in our new pension scheme—which right hon. and hon. Members of the Opposition have now absolutely supported—is that it has absolutely foolproof protection for the pensioner in the future? That is its great merit. It is a merit that was not included in the scheme, which, quite rightly, we dropped when the Labour Government returned to office.
The right hon. Gentleman overlooks the fact that we did not envisage that a Labour Chancellor would preside supinely over an inflation rate of 25 per cent.
I come to the particular measures for which the right hon. Gentleman takes a certain modest credit. First, the Opposition welcome the child benefit increases. Indeed, my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) pledged the Conservative Party in 1977 to a thoroughgoing and fully-fledged child benefit scheme, so naturally we welcome the measures announced yesterday. Of course, we shall need to consider how far in conjunction with the tax measures there is now solid encouragement to work or to climb out of the poverty trap. I shall be coming to that matter when I devote a little attention to the personal allowances and the reduced rate band announced in the Chancellor's Budget measures.
Of course, but for the child benefit increases, as my right hon and learned Friend the Member for Surrey, East (Sir G. Howe) had occasion to point out yesterday, the tax relief to the average family with two children would be only 14p a week. This perhaps gives the measure of this Budget and its generosity. The right hon. Gentleman was disposed to talk about the "fruits of success". We shall be coming to measure that success shortly. But I would describe them as Dead Sea fruits.
I turn briefly to the pension increases. We welcome these. If I may venture one small criticism, it is that since the age allowance has not been increased in line with the retail price index, it will follow inevitably that more pensioners will be within the charge to tax. No doubt the right hon. Gentleman will wish to consider that with his right hon. and hon. Friends. I thought that yesterday he gave a rather evasive answer to my hon. Friend the Member for Wallasey (Mrs. Chalker) about the departmental review that apparently he is conducting on the earnings rule. I hope that he will be able to be a little more explicit about that in the fairly near future.
I come finally to the £50 million that has been allocated for the National Health Service. I noticed yesterday that the right hon. Gentleman, in a commendable burst of camaraderie—and it is nice to find such solidarity on the Treasury Bench—described his Treasury colleagues as generous in the extreme. May we assume from that that he did not ask for more than £50 million and that he was agreeably gratified by the amount that was awarded for the National Health Service?
No doubt the hon. Lady will have a chance to catch Mr. Deputy Speaker's eye in due course and make from a standing position such comments as she chooses on my performance. I am here to comment on her right hon. Friend's performance.
As regards the £50 million allocated for the NHS, I would say that it is too much or too little. It is too much if, as I suspect, the measures announced are no more than a cosmetic tinkering with the NHS.
We shall have a chance to explore this matter next Thursday in the debate to be mounted on the NHS. But I hope that the right hon. Gentleman will be in a position to deal with the rather trenchant criticisms mounted by the Public Accounts Committee. He might devote a little time to that next Thursday.
I am delighted to hear that at least one hon. Member can see some solid advantage for his own constituency. I would certainly not grudge that to him. Indeed, I hope very much that an orthopaedic ward in my own constituency will be finally brought into operation.
However, if, as I say, this is only cosmetic tinkering, the allocation is too much. If, on the other hand, the right hon. Gentleman is suggesting a serious and fundamental overhaul of the whole national health system, if he is really intending to try to raise morale, I suggest that the amount is far too small. But we shall have an opportunity to explore that next Thursday, so I hope that the right hon. Gentleman will contain himself.
Labour Members pay us a singular tribute. They seem to concede that we are the de facto Government of the country and that we have the same access to the accounts that they have.
One of the advantages of being in Opposition, which the hon. and learned Gentleman must have discovered and which I hope he will understand for many years to come, is that at least one can put forward a view. One can at least say that one thinks that the amount should be more or that it should be less, perhaps that it should be twice or three times as much. Surely the hon. and learned Gentleman will, on behalf of his right hon. Friends, give some idea whether they think it should be more or less.
This will no doubt be the theme of next Thursday's debate. The right hon. Gentleman must contain himself a little more. I am in no position to overhaul the Health Service from this Dispatch Box this afternoon. If the right hon. Gentleman would like to outline the areas that he thinks call for particular, close attention, perhaps we could have a meaningful debate. I have no doubt that my hon. Friends will be listening very carefully to what he says and that next Thursday they will make very good use of the opportunity being offered to them.
The idea that I can pick a figure out of the air, that I can say, for example, that £375 million is the figure for which we shall be arguing, is absurd. The right hon. Gentleman is showing a considerable degree of ignorance of the role of Opposition. It could be because he has been privileged to be in the House only in periods of Labour Government. He will no doubt have an opportunity very soon to adopt a slightly more critical and detached role, but I do not want to anticipate.
The right hon. Gentleman started to talk about the fruits of success, of light at the end of the tunnel, and he is right, because we must consider the Budget proposals as a whole and in their context. On Tuesday the Chancellor of the Exchequer was disposed to dispense with the historical preamble, but to form any meaningful judgment on his Budget proposals we must view them as the thirteenth Budget of a line, the last in four years. On any rational calculation this should be the Chancellor's last Budget. I emphasise "rational calculation", because on an irrational calculation, notwithstanding what the Prime Minister said at Question Time today, while the Prime Minister dithers over the timing of the next General Election it could well be that the Chancellor will try to slip in a fourteenth Budget.
We have reports of what the Chancellor said to the Parliamentary Labour Party. Having raised expectations earlier this year, expectations which he has so signally failed to satisfy, he hopes, I suppose, to retain our interest with further hints of more to come. I can only tell the Chancellor that the law of diminishing returns applies in this case, too.
I should like to take the House back for a moment to 1974, as the Chancellor did momentarily in his speech. In his Budget speech of 26th March of that year, he was engagingly and unusually modest. Perhaps at that stage he had not been exposed to bruising encounters with the hon. Member for Cornwall, North (Mr. Pardoe). If the Chancellor were to be switched to the Foreign Office, after his experiences with the hon. Gentleman he would no doubt be very well equipped to deal with Mr. Andrew Young. The right hon. Gentleman said then:
the Chancellor of the Exchequer has one critical responsibility which no one else can share: his Budget must provide the framework for effective action by the nation as a whole.
We are entitled to ask how effectively the British nation has performed within the framework set four years ago by the Chancellor. I believe that the best commentary on our performance as a nation over the past four years is provided in paragraph 49 of the expenditure White Paper. That is a highly misleading, highly political and partisan document, but still there are perhaps little nuggets of truth that can be extracted from it. Paragraph 49 says:
Between 1973 and 1977 there was no change in output in the United Kingdom; and real national disposable income fell by 2¼ per cent., reflecting the adverse movement of the terms of trade. Whereas public and personal consumption had been growing more or less in line over the previous decade, they diverged after 1973; personal consumption actually fell between 1973 and 1977, while public authorities' consumption rose at an average annual rate of 2½ per cent.
How can we summarise those four years? Production has not yet surpassed that in 1973. In fact, the past four years have been one long three-day week, except at the Revenue Department which Mr. Christopher tells us is still suffering from Budget fatigue. National disposable
income is less. Unemployment in February 1974 was 629,000. In February this year it was 1,509,000. Were there reasonably stable prices—8·4 per cent. inflation, after manipulating VAT, in September 1974?
I would remind the House of another engaging thing the Chancellor said in March 1974:
We in Britain have always taken pride in our ability to face reality when we are told the truth.
I wonder whether the Chancellor feels that he has told the truth to the British nation over the past four years.
The balance of payments current account is in surplus, but would it be in surplus without North Sea oil? I am reminded of what Lord Randolph Churchill said about Mr. Gladstone: "I do not mind Mr. Gladstone's having an ace up his sleeve. I resent his claim that the Almighty put it there." I do not mind Labour Ministers extolling the advantages of North Sea oil. I resent their implied claim that it would not be yielding advantages without them.
Perhaps the most revealing lapse of the Budget speech was when the Chancellor revealed that the next Government bond issue in New York would receive a triple A rating. I believe that one year ago—perhaps this will be confirmed in the winding-up speech—soundings were taken as to what a British Government bond issue would rate, and the Government were told that it would be a single A rating, putting us below Japan, Finland and Venezuela. Has British Government credit ever sunk so low? This is hardly a solid record of achievement. It is hardly a solid foundation on which to build.
In his peroration, the Chancellor said:
In one way or another my Budget calls on the majority of the British people to make some sacrifice for the survival of their way of life."—[Official Report, 26th March 1974; Vol. 871, c. 289–328.].
What have four years of sacrifice achieved—a dynamic economy, better public services, higher standards of living, reduced unemployment? What kind of elysium has the Chancellor led us to? I suppose that the Tribune group is lying down with the Manifesto group, and there is a small patch of grazing for the Liberal Party, but beyond that I do not believe
that any of us has benefited from four years of sacrifice.
Does the hon. and learned Gentleman agree with the chairman of the Scottish Council that there should be a separate oil account, to which the Government have said "No", or can he help to elucidate the Conservative position on what should be done with the revenues from North Sea oil and say whether there should be a separate oil account in the Budget?
If the hon. Gentleman is asking whether we should hypothecate North Sea oil to any particular purpose, I would reply "No". I do not think that that is a very practical conclusion. What we do with it is material for a full-scale debate.
I return to the matter of four years of sacrifice. The Labour Government believe in redemption through suffering. Whether the British people share those sentiments I doubt, but we have been told by the Chancellor, rather wistfully, that this Budget is not one of sacrifice. Let us judge it on the terms in which he presented it to the House. He described it as a recipe for commercial and industrial success. Let us judge it on that basis.
There were last night certain criticisms by the Financial Secretary and the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) that we were not presenting a Conservative Budget. Like his right hon. Friend the Chief Secretary, the Financial Secretary clearly believes that attack is the best form of defence. From the right hon. Member for Roxburgh, Selkirk and Peebles we learned one thing last night. I had always assumed that every Liberal Member was a member of the Liberal Shadow Cabinet. It turns out that, regrettably, the right hon. Member for Orkney and Shetland (Mr. Grimond) and the hon. Member for Rochdale (Mr. Smith) are not members of the Shadow Cabinet. Evidently, in spite of that, we must all produce our Budgets. As with the Red Queen, "Everyone shall compete and everyone shall win prizes."
There will be time enough to debate the first Conservative Budget of my right hon. and learned Friend the Member for Surrey, East. Today we are debating the Chancellor of the Exchequer's last Socialist Budget. I tell the Government Front Bench that my right hon. and learned Friend's first Conservative Budget will be carefully costed, it will be responsible, and it will be stimulating.
The hon. Lady is absolutely right. If this is an incentive Budget, it has fallen like lead on the British people. The hon. Lady will have her chance to hold the House with her fascinating discourse perhaps a little later on, and we shall no doubt listen to her with very great interest indeed. I remind the hon. Lady of what the Chancellor of the Exchequer said in 1974:
The social and, indeed, the human climate is as likely to influence the British people's efforts as anything which is done in the strictly economic field.
Let us test the Chancellor's Budget by that statement. There are tax cuts amounting to £2·5 billion, but will they be measured by a response in output, jobs, risks taken and enterprises founded?
I remind the House that there are no real tax cuts. The outturn shows that in fact tax will increase over 1977–78 by £2 billion. Labour tax cuts are like Labour public expenditure cuts: they are merely moderation in increases.
We recall that the Liberal Party voted for the public expenditure White Paper this year. That will perhaps disable it now from taking a critical stance over the Budget. Perhaps the spokesman for the Liberal Party today will demonstrate today how his dreamland Budget is to be implemented. We shall we waiting with very great interest indeed to discover how much support we can command in Committee from the Liberal ranks.
I turn to the individual proposals to ascertain what impact they will make on the British people. Let us see what kind of incentive Budget the Chancellor has produced. Let us look first at the reduced rate band. True enough, there will be some relief for all taxpayers paying tax at the basic rate. It will ease very slightly the transition from no tax to tax and insurance contributions at a rate of 40·5 per cent. But the narrowness of the band at £750 will take very few people out of tax.
It is a highly inefficient way of giving relief. Had relief been concentrated on the thresholds, it would have taken a much larger number of people out of tax, it would have relieved the poverty trap, and by keeping personal allowances clear of the short-term benefits it would have provided some additional incentive to work.
I remind the Treasury Front Bench that a widow or female pensioner under 65 will be paying tax if she has £1 a week of savings income over and above her pension. Is that an incentive proposal?
I confess to continuing puzzlement that there has been no reduction in the basic rate. Last year the Chancellor promised us a reduction from 35 per cent. to 33 per cent. That was his initial proposal. But, as always, he flinched before the gaze of his hon. Friends the Members for Coventry, South-West (Mrs. Wise) and Birmingham, Perry Barr (Mr. Rooker).
It is not as though the problem has not been recognised from the Treasury Bench. I remind the House of what the Chief Secretary has said:
I want to turn to the erosion of differentials.… I have said on numerous occasions that we recognise that the combination of the incomes policies of successive Governments, together with tax increases, has considerably eroded the differentials between the highest and the average paid, between the unskilled and the skilled, between those in work and those out of it. I have never hidden the fact that I recognise that there is a problem with which we must deal.
But year after year this problem defies solution by the Treasury Bench. Even the winning ways of the hon. Member for Cornwall, North, even the pressure from the Liberal ranks, has presumably failed to move the flinty heart of the Chancellor.
There was a revealing exchange yesterday between the right hon. Member for Roxburgh, Shelkirk and Peebles and his hon. Friend the Member for Rochdale. We understand that the point was left a little unclear. Possibly there will be some support in Committee for measures to reduce the basic rate.
But there was just a faint hint from the Chief Secretary that at some unspecified point of time in the future the whole basic rate is to be at the present reduced rate of 25 per cent. Will his right hon. Friend confirm, when he replies tonight, that that is a Labour objective—or is it just something that is trotted out whenever we have a debate about the levels of taxation?
I now turn to the higher rates. There has, of course, been a minuscule adjustment of the rate bands. The top rates remain the same, but in real terms we are nothing like back to the position in 1973–74. Again I remind the Chief Secretary that he said:
It would be comparatively cheap…to give substantial relief to those at the top end of the tax scale."—[Official Report, 3rd March 1977; Vol. 926, c. 666–9.]
But once again he has flinched, even with Liberal support, from facing the accusing eyes of his hon. Friends below the Gangway. Presumably he has been unable to drip into their tiny Chinese minds that if we are to have an increase in risk-taking, and if we are to have an increase in effort, something must be done about the highest rates of direct taxation in Western Europe.
I turn now to small businesses. We naturally welcome the measures which are proposed—such as they are. We welcome the VAT proposals, but they are only picking up amendments which we moved last year in Committee, and which again proved too daunting for the Treasury Bench on that occasion. But I suspect that the advantages to small businesses will be more than counterbalanced by the increase in the minimum lending rate. If the House wishes to find an instant commentary on the Chancellor's proposals, it is in the Chancellor's own proposal to raise the minimum lending rate by 1 per cent. This was the kind of confident response which he expected to the proposals he announced on Tuesday.
Beyond that, there is a little in capital transfer tax, but no substantial transformation. The Financial Secretary told us engagingly that he believed in continuity of measures. Therefore, I suppose that it would be too much to expect a fundamental overhaul of the tax that was introduced in 1975.
There is nothing substantial in regard to provision for capital gains tax. I suppose that again the Treasury Bench Ministers have been daunted by the reaction of their hon. Friends below the Gangway and by the administrative difficulties.
I believe that the most substantial announcement that the Government could make, and which would really give heart to the small business sector, would be that a weatlh tax is not to be introduced. I believe that the small business sector will test the sincerity of the Chancellor of the Duchy of Lancaster by the statement that he is prepared or not prepared to make on that subject on Monday.
Finally, I turn to the subject of share incentives. We welcome these modest measures. If the hon. Member for Cornwall, North—I am sorry that he is not in his seat—wishes to claim paternity for them, I shall not grudge him this small and modest measure of success. After so many bruising encounters with the Chancellor of the Exchequer, he is entitled to something.
Plainly the hon. Lady must add to her reading matter if she is to understand the workings of the Lib-Lab pact, and the encounters between the people who represent her party and the people who represent the Liberal Party.
There has, of course, been a long Conservative involvement with share option schemes and share incentive schemes. I remind the Treasury Bench that it was the Prime Minister who in 1967, when he was at 11 Downing Street, effectively legislated out of existence any possibility of share incentive schemes at that date. When a modest measure of reform was introduced in 1972–73, the Chancellor of the Exchequer, who was on that day leading for the Opposition, indicated that he would have nothing to do with share incentive schemes or share option schemes because they did nothing for the lowest paid and for those in the public sector. Evidently the powerful advocacy of the hon. Member for Cornwall, North has persuaded him to change his mind. We shall look closely at those particular measures in Committee. We welcome the principle and we shall see whether we can build on them and extend them.
What is the verdict to be on this Budget? In my opinion, it is too little, too late and too thinly spread. There is no triple A rating for this Budget. This is the Budget of a Chancellor who is a prisoner of the conditions and prejudices that he has done so much to create. Since this Budget will be his last, I shall describe it as a requiem for a Chancellor. When the right hon. Gentleman is laid to rest in Highgate Cemetery beside his boyhood hero, Karl Marx, perhaps we shall inscribe on his tomb "Here lies a man who over 10 years in the highest offices of State enfeebled the military and economic capacity of the British nation".
I congratulate the hon. and learned Member for Dover and Deal (Mr. Rees) very sincerely. It is a long time since we had a good laugh from any hon. Member speaking from the Conservative Front Bench. I wish him a long sojourn in that position.
Contrary to what the hon. and learned Gentleman said, this Budget has been generally well received. I am delighted that schoolchildren in Wolverhampton will not have to pay more for their school meals. I am particularly delighted that the junior children will again get school milk after "Mrs. Thatcher the Snatcher" took it away from them. If we have to thank the EEC a little, well, OK. I shall say "Thank you". I do not mind where the money comes from as long as we get it.
I would have given my right hon. Friend the Chancellor a big bouquet if he had been a little more generous to the arts and taken off VAT. I hope that if he is to produce another Budget later this year he will think about that. A small amount of money is involved, but it would do a great deal to relieve a very difficult position at present.
I would also give my right hon. Friend a big bouquet for putting increased taxation on high tar cigarettes. If he had gone all the way with the very good recommendations in the Expenditure Committee's report on preventive medicine and taxed all ranges of cigarettes—and if he had been very tough about the advertising of cigarettes, as the Expenditure Committee recommended—I do not know what I would have done with him. I would have been very grateful indeed.
As my right hon. Friend the Secretary of State for Social Services knows, I have been trying to enlist the support of him and the Prime Minister in order to put pressure on those who are in a position to give Royal warrants to tobacco manufacturers. This is a very serious situation. I understand that Her Majesty does not smoke, but she gives a Royal warrant to one or two tobacco firms. I understand that the Queen Mother now does not smoke, although she used to. But as recently as 1974 she gave the Royal warrant to Player's. This would be a very good example to the whole community with regard to a serious matter which puts enormous burdens on the NHS, particularly with regard to the incidence of coronary heart disease, bronchitic complaints, lung cancer and so on.
Tobacco consumption should be restricted by every possible means at our disposal. If I am able to catch the eye of the Chair next week, I hope to return to this theme in rather more detail. The whole area of preventive medicine is so important with regard to the problems which the NHS has to deal with in so many spheres that we could save a great deal of NHS expenditure by attempting to prevent disease. The possibilities are within our own hands.
Will the hon. Lady reconsider her remarks? She said that she was in favour of dealing with preventive medicine by all methods. Is she really saying that she would be in favour of banning some substances of which she disapproves so as to make it a criminal offence, for instance, for people to smoke, or is she limiting her observations and saying that there is a case for increasing taxation on certain substances?
I did not say what the hon. Gentleman thought I said. I do not think it is within the bounds of possibility to say that it should be a criminal offence to smoke. One hopes that opportunities for smoking will be reduced. I would be very happy to see smoking carriages removed from trains and buses.
And planes. I do not think that that would be a real hardship for smokers. I would certainly restrict all tobacco advertising except at the point of sale. There have been very good results in Norway, where tough anti-advertising legislation has been introduced. In fact, the amount of tobacco smoking has reduced in Norway since tough restrictions on advertising were introduced.
I do not know why we are so chary about doing these things when other countries have carried them out and found that they are really worth while. Sometimes we are too timid. My right hon. Friend ought to gain courage from the advice he has been given by the all-party Select Committee. I would emphasise the all-party nature of the recommendations which the Select Committee put forward. I hope that the hon. Member for Wolverhampton, South-West (Mr. Budgen) is now satisfied and understands exactly what my position is.
I welcome the help for pensioners. I am particularly glad that help is to be given—through increased NHS resources—for kidney patients through increased opportunities for dialysis. I would refer my right hon. Friend to the recommendations in this regard that have been put forward by the Lucas Aerospace shop stewards in their alternative plan. One of their proposals was precisely that they could well embark on the manufacture of kidney machines as well as solar heating appliances for conserving energy. It would be of enormous help if the go-ahead could be given to the Lucas firm to carry out this manufacture.
I am disappointed that we have not made all that much progress with regard to smoking. I remind the House that four fairly recent occupants of the Throne have died from smoking-related diseases. That is surely a sobering thought for everyone, particularly those most concerned with the whole question of the Royal warrant.
Edward VII suffered severe bronchitis from heavy smoking when he was in his early 40s. I understand that he smoked 12 large cigars a day and at least 20 cigarettes. The mind boggles at that amount of smoking. George V was also a heavy smoker. He had bronchitis, and I understand that when he was operated on for lung cancer he even insisted on smoking after the operation. Edward VIII was another heavy smoker. George VI smoked 40 or 50 cigarettes a day and suffered badly towards the end of his life through difficulties with his leg arteries and circulation. All this was related to smoking. We must take this on board and do something about it.
One must look at all the provisions in the Budget with regard to what they will do for unemployment. Our prime task is whatever we do must be to bring down the appalling level of unemployment. We must bring down the number of adult unemployed and, above all, provide job opportunities for the increasing number of school leavers who are at present in enormous difficulty because they are unable to find jobs. I am sorry to say that many of them leave school with very little to offer a potential employer in terms of attainment at school and encouragement at home. This is really a very serious problem.
The Government's target should be to cut the numbers of people who are unemployed by at least half by the year 1981, which is a modest enough target. At a time when the labour force is expanding, we shall require very sustained economic growth if the target is to be achieved over that period. It will mean growth of about 4½ per cent. per annum, and we are a long way from achieving that.
The Conservative Party always says that the reason for our poor industrial performance is that there are not sufficient incentives for industrialists and for people who might want to start small businesses. That is not really the reason at all. The problem is that we are a low-investment, low-productive and low-wage economy. We have been since before the war, and we have not overcome that problem. Unless we can do so, we shall not increase our production or productivity and we shall lag behind Japan and our other competitors and be in an increasingly serious position as the years go by.
We have to bear in mind that, when we compare our industrial performance with that of the Japanese, there is a great deal more horsepower behind every Japanese worker in every Japanese factory than there is here. Increased horsepower means increased productivity. It is as simple as that. So we need an enormous amount of capital investment in new equipment and machinery.
Looking at the problem of unemployment, it is clear that one of the crucial components facing us is the projected growth in the labour force. The Department of Employment Gazette last June published the latest projections indicating that the total labour force was expected to grow from 26,053,000 in 1977 to 26,734,000 in 1981 and to 27,781,000 in 1986, which is an increase of 681,000 between 1977 and 1981, and that there would be a further increase of 1,047,000 in the following five years. Part of the expected increase will be contributed to by the increasing number of school leavers who will be joining the labour force year after year, and there are also a number of married women who will be wanting to join the labour force.
What are we to do about this increase? It seems to me that the proposals that we have for cushioning the effect of unemployment on both adults and young people are not adequate. I know that we have a certain amount of money projected for the next four or five years. But, bearing in mind the numbers coming on to the labour market and the special difficulties of young people, particularly low attainers, there will be a need for very much more generosity on the part of the Government and much more concentration on the specific needs of young people in order to equip them for employment in the future.
One of the problems which face us, apart from cut-backs in the National Health Service expendture, is the cut-back in education expenditure. I regret very much that my right hon. Friend has not seen fit to put more resources into education. I should like to see much more put into the early end of education in order to rescue what remains of nursery education. It is a scandal that there has been so much decline in that provision over the last two years or so. But, especially in the context of unemployment, there is the problem of what we are to do to improve the educational achievement of young people. The most difficult are the young West Indians who leave school without backing from their parents, without ambition and without being motivated when they are at school to seek employment or training and to show any kind of resourcefulness. However, it is not only young West Indians who are badly motivated. It is generally young people whom we class as low attainers.
We need to have a new look at the way in which we teach certain subjects in school. We need especially to have a rapid new look at what we do in providing opportunities for girls in school. The fact that so few girls come forward for engineering and science subjects is a major scandal when we are supposed to have equal opportunities. But certainly we have to do a rapid reorganisation not only of teaching methods but of the kind of careers advice and enthusing which goes on in our schools, especially from the age of 13 onwards. In my view, it is not too soon to try to give this kind of incentive to young people at the age of 13. It is a sad reflection that we find that in education and in training for work experience so many young people are not encouraged to develop their potential to the maximum. This presents both short-term and long-term problems, which I hope that the Government will take on board.
In the proposals being made for retraining and further education courses, which fall very heavily on colleges of further education, a large number of young people are taking advantage of work experience schemes and so on and are enrolling at colleges of further education for courses of all kinds. That is splendid. There are difficulties, of course, with the different levels of support given for young people under the different schemes. But that is a matter which I hope we can look at in the future when we are considering the whole question of maintaining young people between the ages of 16 and 19, including those who remain at school and who ought to remain at school because they have the capacity to take O-levels and A-levels.
But the immediate problem is that young people are going into colleges of further education which are not able to cope with the large numbers presenting themselves. We have virtually slum conditions being created in many of our colleges. My Expenditure Committee, which is studying the problem of unemployment, has visited some of the colleges and we have been pretty shocked, especially by one college in North Wales where we saw an enormous number of students who were not being catered for properly. The provisions made for their meals, out-of-lecture times, recreation and social congress were non-existent, and this could have a damning effect on young people who go to college full of enthusiasm. There are very great responsibilities facing both the Government and local authorities in making proper provision for young people who are unemployed and for adults in the future.
I am glad that my right hon. Friend feels that he has provided about 9,000 additional jobs by the provision of resources for the NHS in the Budget. He is making his contribution towards solving the problem of unemployment. But certainly we have a great deal to do if we are to achieve our target and cut unemployment by half within the next year or two.
This morning the newspapers reported that the Chancellor, at a private meeting of the Parliamentary Labour Party yesterday, had said that he hoped to bring forward a gratifying Budget in July. Today the evening newspapers quoted the Prime Minister as saying that there would not be a gratifying Budget in July. I am sure that there will be some sort of Budget in July, because that is what always happens with this Government.
This Budget is the thirteenth that the Chancellor has produced. We should not blame him too much for getting it wrong as often as he has. It gives me no more satisfaction to see him getting it wrong than it would to watch an ageing boxer being knocked down in every round. It is very repetitive.
The Chancellor's difficulty is that he has such a small amount of room for manoeuvre and he has left himself a very small margin of error. This makes his task doubly hard because his task is extraordinarily difficult anyway, given the habits and propensities of the Treasury for many years to run our affairs on a neo-Keynesian demand management principle.
The Chancellor is responsible for managing public expenditure and taxation, but, as everyone who has sat through these Budgets knows, we have to listen to a great deal of talk about how the private sector and the overseas sector will react. Nobody would mind these forecasts too much, or object to the fact that it is almost impossible to forecast such things accurately and the essence of the whole thing turns out to be incorrect. But it does matter if the Chancellor depends for his money on the forecasts being correct, and that is what happens every time.
What is difficult and dangerous about this Budget is that there is so little margin for error. It is important to recognise that the results of this policy have had a great deal to do with the continuing poor performance of our economy since the war. It is noticeable that in every economic cycle the position of our economy deteriorates against the economies of almost every other country in the world.
I have seen the OECD figures recently showing 30 countries and their trade-weighted averages for the movement of their currencies since 1973. Only four countries have, in that period, had currencies that have done worse than ours—Italy, Brazil, Portugal and Greece. The score is one military coup, two revolutions and a kidnapped ex-President. That is not the sort of league of which we should be particularly proud to be a member.
The steel industry is in a very poor condition throughout the world, but nowhere is it worse than in Britain today. I believe that the same could be said of shipbuilding. Other hon. Members will know more about this than I do. It is even more worrying when one reads that the chairman of ICI says that productivity of that great firm is worse here than in many other chemical companies in other countries.
This Monday we had the report about British Leyland. As we gave that company £835 million—some of us more reluctantly than others—we were told that the company would generate a similar sum from its own resources. But we were told this sort of thing in the Ryder plan, and that was only three years ago. What real prospect is there of British Leyland generating that sort of money from its own resources? The figure in the NEB report showed that the output per man today of British Leyland was only 5·4 cars. It is hoped that that figure will increase to 6·4 by the end of 1978 and that it might even reach eight cars per man. But even if it does reach eight cars that will be 25 per cent. below the output of all European countries today, and less than half the output achieved now in the United States and Japan. We are right to be gloomy about the prospects of success for British Leyland.
What is the real cost of expenditure of that sort? Suppose that British Leyland does not generate £850 million. That means that every penny of revenue from North Sea oil over the next five years will go straight to British Leyland. There will be no need to produce a White Paper on North Sea oil revenue because the revenue will all go to British Leyland, if it has the same record as it has had in the past three years. That is what it will cost. No doubt if the Scottish National Party finds some favour in the referendum that the Scots will have there might be a different result, but on present prospects all that money will go straight to British Leyland and there will be nothing left for anyone else.
I do not know why the Chief Secretary in his woolly statement yesterday said that things were going well. Our prices are rising faster here than anywhere else, except perhaps Italy. The same is certainly true of the money supply. Those who believe, as I do, in monetarist policies feel that this is a better indication of how inflation will go in the next two years, and we believe that ours will be far above the rates of other countries.
I shall give one more example of our competitive position. A report in the Financial Times from a German agency shows how the mark has become so competitive against other currencies. The level of German exports to this country has improved and Germany's share of our market has grown to a larger extent than its share of the market in any other country in the world. Despite the fact that the mark has appreciated in value more against sterling than against the currency of any other country—
No, I would not. That is quite irrelevant. The point is that the German authorities have always had a very good control over their economy by using methods that are very different from those practised by this Government. The value of the mark has appreciated against sterling more than against any currency except the Italian lira. But consumer prices in Germany have risen by only 36 per cent. since 1969. Therefore, Germany's goods, because the Germans are so good on delivery and on other aspects, are still relatively competitive in our country. This is the reason for their success.
Even today prices in Germany are rising by only 3 per cent. and the money supply is due to rise by 8 per cent Our money supply has been rising by 18 per cent. in the last six months and the forecast is that it should rise by 12 per cent. Many of us think that this is very unlikely.
The hon. Member said that the inflation rate of Germany was 3 per cent. to 4 per cent. and that the money supply was rising by 8 per cent. As a confirmed monetarist, how can he explain that paradox?
The gap is made up by production and productivity. There is not an exact relationship, but that is always what the difference is. Nobody would deny that in comparison with whatever country one likes to examine money supply is growing much faster in this country than anywhere else, and so is the level of prices. What is more, this is happening at a period when our production is stagnant and our productivity practically non-existent. What will happen when there is any growth? The Chancellor of the Exchequer has forecast a period of growth of 3 per cent. for this year. What then will happen to prices and imports if that increase in growth occurs?
The explanation given for this sorry performance is that part of it is due to bad management. Another explanation is that it is due to restrictive practices by the trade unions. I believe that there is considerable truth in the latter, and some in the former as well. But I wonder whether there is another explanation, namely, that during the last four years, and I am afraid long before that, industry and business have never been left alone for a moment. I believe that this is a compelling reason for our poor industrial economic performance in the last few years. The fact is that, whenever industry fails in one direction or another, Governments always tend to intervene. When they find that the intervention does not work as quickly or as well as they would like, they intervene even further than they did before. That is always the reaction.
I do not recollect in any of Keynes' writings that he thought it was a good idea to erect a Department of Industry or a National Enterprise Board. It does not make sense in any Communist country either, when they control all the means of production and industry, that they should decide to switch resources from some parts of the economy that are doing well to parts that are doing badly. In no sense is it anything that can reasonably be defended. So we have gone on subsidising those parts of industry which are inefficient and taken resources from those parts which are efficient and which are often the small firms and small businesses.
The cost of all this can be seen in the Budget Statement this year. The cost of public expenditure now is £64·7 billion against the figure a year ago of £56·5 billion. I am talking not about "funny money" but about money which people must provide, which is up by 15 per cent. on what it was a year ago.
The Prime Minister at the Labour Party conference in Blackpool in 1976 said:
We used to think that you could spend your way out of recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that this option no longer exists.
But we see that that option does exist because taxes are being cut in the Budget and Government spending is being boosted. Money is being printed yet again. This time, the margin of error is smaller than it has ever been because we have enormous borrowing requirements amounting to £8,500 million and at the same time, as the Financial Statement says, the current account forecast could be £1 billion wrong in either direction. Against that position on current account, which is possibly wrong by that amount, with all that it implies for public expenditure and to other parts of the economy, the Contingency Fund has been raided immediately so that it is down to £200 million.
I thought that it was one of the more remarkable parts of the Budget debate for the right hon. Gentleman the Secretary of State for Social Services to claim today that these were great advances for both aspects of the Department and to have soaked the Contingency Fund to achieve it. It would have been a different matter if this had been raised from revenue, but to have extracted practically every penny from the Contingency Fund shows that the Government are scraping the barrel. They have got the Contingency Fund down to £200 million even before the financial year starts. So I am not greatly impressed when the Chancellor says that he is asking for no great sacrifices for this year.
The Chancellor has put everything he possibly can into the shop window. That includes the kitchen sink, and he knows it. I cannot recollect an occasion before in all the Budget speeches I have heard when a Chancellor has cut taxes in one breath and put up the cost of borrowing in the next.
I do not know what the British people are supposed to do. Are we being asked to spend money to get the growth, because that is inherent in most of the Budget speech, or are we supposed to save it? Perhaps we are supposed to do both. Perhaps the Minister in his reply will tell us what we are supposed to do. We are supposed to spend the money we are receiving by way of extra tax relief in respect of the £2,500 million, and somehow the Government have to get back from us the £8,500 million. The right hon. Gentleman is bound to get one of them right. If we spend enough, we may obtain the growth. If we save enough, we may get the revenue that the Government need. But they cannot have both. This is the Government's difficulty. So bad has been the management of our economy in the last few years the Government cannot get the exercise right now because the level of public expenditure is far too high.
I have noticed in recent economic reviews from the Treasury how much interest it now takes in monetary matters, and I think that is a very good sign, but I cannot believe that the Treasury is persuaded that these matters are important. The Treasury put in estimates dealing with monetary expansion from the view not of the convert but of one who has to put in such estimates because he has to persuade somebody it is something that that person wants to hear. In other words, the Treasury is not at all happy about the situation. It regards the people in the City and in the foreign exchanges as pirates.
The situation would not be so bad if the Government were not so dependent on savings and on institutional funds for the management of their own affairs. I wish to offer a word of advice. If they want to depend less on monetary matters—because they do not seem to have the applause of business men, and unfortunately do not seem to read Sir Douglas Wass's essays or speeches and do not seem to appreciate the economic model sufficiently if none of these things happens—the Government should get themselves less attached to and less dependent upon monetary policies. They should not need to borrow quite so much. One way of achieving that end is to have not such a large financial deficit. One way of not having so large a deficit is not to spend quite so much as they do.
The difficulty is that the Government are in a trap of their own construction. Not only have they a very small contingency allowance now, but there is no room for error of any sort. Already yesterday and today they will have seen the reaction of the markets and how people fear what the rate of inflation will be, because they feel that the Government will have to print money to get themselves out of difficulties or raise interest rates to an extraordinary extent. They will have to do one or the other.
I believe that either way the management of the economy is a most important element and has a most responsible part to play in the bad economic performance of this country. If the Government want to achieve a better record, they must become less dependent on the market, and that might suit their proclivities more.
I have said nothing in my speech about taxation. It is clear that the Government have just made a genuflection or two to the Liberal Party and to what they think might be popular with the electorate in reducing taxation. But they have done nothing at all, because they dare not do so against their trade union colleagues, about making a switch from direct to indirect taxation. The fact is that they do not believe in the private sector, they do not like free enterprise, they do not like cutting taxes, and for that reason they should go.
May I say at once that the long-anticipated Budget contains much that gives me great satisfaction. Its contents have rather caught the Opposition on the wrong foot. We have witnessed the Leader of the Opposition performing an ungainly version of the splits—with one foot resting on the proposition that the incentives which it offers are insufficient and the other foot resting on the notion that it is naught but an electioneering stratagem. Clearly, both objections cannot be sustained simultaneously.
The right hon. Lady is in considerable danger of doing herself and the electoral prospects of her party no good by her rather shrill and unconsidered protestations. It is odd that there should be wailing and whining from the Opposition Benches because too little has been done to provide incentive for industry when, only a day or two ago, the right hon. Member for Leeds, North-East (Sir K. Joseph) spoke so ferociously about the folly of subsidising industry at all.
We are sometimes inclined to overlook the enormity of the financial support that has been made available to the private sector of industry in recent years. In reply to a recent Question, I was told that since February 1974 about £1,062 million in grants and £126 million in concessionary rate loans had been made available under the Industry Act 1972. The Minister also pointed out that there are 100 per cent. tax allowances on investment in plant and machinery. This costs just over £2,500 million a year and, in addition, rates paid to local authorities are allowable against tax—which is not the case for domestic ratepayers.
We should consider whether the Opposition have any policy. They resent bitterly any intrusion into the affairs of industry, yet they are eager to accept the handouts that are available on such a lavish scale.
There we have the splendid contradiction. Half the Opposition say that not sufficient is being done while the rest resent anything being done. They have no coherent policy. The hon. Gentleman should concentrate on the failings in his party's philosophy rather than attack the Government's policy, which seems to be particularly effective at the moment.
The concessions to industry that I have referred to do not include the massive amounts that continue to be paid through the temporary employment subsidy.
The Government should be congratulated on their decision not to impose heavier taxation. That was not only correct but courageous, because there is no doubt that they have been under considerable pressure to increase those taxes. Those who advocate this formula as a method of securing revenue to finance further cuts in income tax are willing to inflict the additional burden of increased prices on pensioners who rely exclusively upon the State pension, widows who rely solely on their pension and one-parent families These groups do not receive enough to pay tax and they would therefore not benefit from a reduction in income tax.
The philosophy advocated by the hon. Member for Cornwall, North (Mr. Pardoe) is shabby, and I hope that my right hon. Friend the Chancellor of the Exchequer will resist the hon. Gentleman's blandishments, even if that precipitates a General Election. Some of us believe that our association with the Liberal Party is already embarrassing, and this may be an appropriate moment for the Government to detach themselves from the alliance. There is no doubt that the noisy, but politically nonsensical, Liberal group adds nothing of value to the cause of the Labour victory that will inevitably come at the next General Election.
I applaud the decision to introduce a new tax band for those at the lower end of the income scale. I would have preferred all relief to be concentrated at that level. Clearly, those in the upper income brackets will also have benefited as the section of their income at the lower end would have qualified for relief. At present, those who are already prosperous and well-heeled will be even better off compared with those who have to manage on small incomes. For instance, a married couple with an income of £2,000 a year—less than £40 a week—will be £69 a year better off, that is, less than £1·22 a week. The single person on £25,000 a year will have an extra £14 a week to jingle in his pocket.
I have never fallen for the theory that tax concessions for top earners have the galvanising effect that is suggested by hon. Members opposite. The notion that our top managers will launch into a frenzy of activity upon receiving an even greater sum of money than they do at present is a pathetic illusion. Surely if the idea is sound, we can only assume that these managers are now working at only half pace. If the argument is that extra wealth is a necessary incentive at the top end of the income scale, it would surely seem logical that the remedy should be even more potent at the lower end. Yet the thinking undergoes a curious change somewhere along the road, because the Opposition's recipe for those at the lower end is that wage restriction is good for the nation, for the worker, and even, apparently, for his soul.
Will the hon. Gentleman explain why he believes that it is in the interests of work people that British companies and nationalised industries should not be able to compete in the international market place for the best management that is available?
I am inclined to suspect that there is a great deal of talent among workers in the publicly owned sector and the private sector which is never given enough opportunity. I suspect that we recruit at entirely the wrong level. If there were better avenues of promotion within nationalised and private industries, we would be able to recruit management of top calibre. We fail to do this at present.
Will my hon. Friend tell the hon. Member for Kidderminster (Mr. Bulmer) that the Japanese do not bother to compete in the international market place? They develop their own management expertise, and do it extremely effectively.
My hon. Friend is correct.
The improvement in allowances for the aged and those with children is first class and I cannot praise the Chancellor sufficiently for his recognition of the genuine need in this area.
It is good to see free school milk re-introduced for children aged between seven and 11 and it is gratifying that the foolish notion of increasing the price of school meals has been abandoned.
Of course, the allocation for improvements to education and the National Health Service is not sufficient. A total of £50 million will not go far in correcting the ills of the National Health Service, yet the intended expenditure on 400 additional kidney machines gives a dramatic indication and a good illustration of the impact of public finance when it is sensibly and humanely channelled. As a direct result of this investment, hundreds of people who would otherwise have faced certain death will be alive and active, and that is a more effective and noble way of utilising our resources than by giving people with incomes of £25,000 a year another £14 a week to fritter away on trivialities.
We should applaud the additional expenditure on law and order. Concern on this matter is not a prerogative of hon. Members opposite. My hon. Friends and I have a particular detestation of vandalism and hooliganism, which are pathetic and pointless. If money can be spent on finding the cause and the cure, it will be well spent.
I welcome the Budget proposals and congratulate the Chancellor and his team on a package which will have wide appeal. I have expressed reservations about certain aspects of the parcel and I shall pursue these objections, but it would be churlish not to offer praise for what is good and worthy—and there is a great deal of that in the Chancellor's proposals.
The petty criticism that the Chancellor has introduced too many Budgets may be dismissed as paltry carping. There is nothing sacrosanct about the 12-month interval between Budgets. Surely it is common sense to adjust the economy in the light of prevailing circumstances. In their endeavour to oppose the financial measures that have been announced, Opposition Members have acted as though in a state of shock. There has been no cohesion in their assault. Their criticism has not been consistent. Indeed, it has often been contradictory. The old fallacy that among the ranks of the Conservative Party there is some special know-how about financial affairs has been thoroughly exposed.
Contributions to the debate by Opposition Members have revealed that their prime concern is to protect and enhance the position of those who are already prosperous. Their attitude demonstrates that it would be a calamity for the ordinary people if the Conservative Party were allowed again to bluff and manoeuvre its way into power.
I return to the topic which was introduced by the hon. Member for Wolverhampton, North-East (Mrs. Short)—namely, smoking. Before doing so I should declare an interest. I am employed by the Imperial Tobacco Company. The figures that I give have not been thrust upon me. I assure the hon. Lady and other hon. Members that they are the figures for which I asked.
We do not expect applause from any industry when the Chancellor increases a tax to which its products are subject. I do not recall ever having heard whisky distillers or brewers cheering at the increase of the alcohol duty. However, the position of tobacco is somewhat different because there has been a total rejection by the industry of what the Chancellor has done.
The relationship between the tobacco industry and Her Majesty's Government is based on an agreement which was reached about a year ago between the Secretary of State for Social Services and the industry. The right hon. Gentleman said at the time:
In view of the need, which the Government have recognised, for the industry to have
a clear programme within which it can work, the entirety of these arrangements … will stand for at least three years."—[Official Report, 8th March 1977; Vol 927, c. 465.]
That shows, first, that the right hon. Gentleman is much better at jargon than at English. I presume that by
the entirety of these arrangements
he means "all these arrangements". Secondly, those words seemed to indicate that on that date—8th March 1977—the right hon. Gentleman was supporting all the agreements that had been reached between his Department and the industry.
It is worth considering the things that are known as tar tables—I think that that is the usual description. The tables were not produced by Her Majesty's Government or even thought up by them. They were not thought up by the Action on Smoking and Health organisation or by the Health Education Council. They were the idea of one of the tobacco companies. I think that they were the idea of Imperial Tobacco as long ago as 1966. For 10 years the whole notion of tar tables was cold-shouldered by the Government.
What have the Imperial Tobacco Company and the other companies done? First, they have stuck to the agreement that was reached last year. Secondly, they have spent money and co-operated in every way with the Government. They have done so in producing alternatives to tobacco.
New Smoking Material, which is a brand name, is the product of the Imperial Tobacco Company. Other such products have been produced by other companies, but New Smoking Material is a suitable description of what I am talking about. It is produced with the approval and probably the good wishes of the Government. The cost of research, which has been about £7½ million, for NSM has been shared between Imperial Tobacco and ICI. The result was submitted to the Hunter committee for its approval or rejection if it so decided. Lastly, Imperial Tobacco built a large factory at Ardeer in Scotland, which is an area of high unemployment, with the idea of producing this alternative material.
When the product was launched, I think that the companies were entitled to believe that they had Her Majesty's Government's good will in what they were trying to do. However, the Health Edu- cation Council, using Government money, did all it could to persuade smokers not to switch from tobacco to New Smoking Material.
Does the hon. Gentleman accept—I know that he is a very honest man—that there is a direct and hard evidential link between smoking, carcinogenic diseases, bronchitis and related diseases? There is that link between smoking full stop and those diseases, and not between smoking light cigarettes or heavy cigaretes, which may merely involve numbers. The Health Education Council was right to make that point.
Yes, but if moving from light to heavy cigarettes is such a pointless operation, what the Chancellor is trying to do is pointless also. In turning from tobacco to substitutes it must be recognised that the substitutes do not contain any nicotine and that they are not as addictive in their effect. In the long term, the effect will be to reduce smoking. Following the building of a factory which cost about £15 million, the action of the Government, either directly or indirectly, has meant that the substitute programme has come to a virtual standstill.
When the new material came in, the Government decided that smokers would have to pay as much tax on it as they have to pay on tobacco. That was hardly the way in which to persuade them to change from an addictive tobacco to New Smoking Material. The hon. Member for Wolverhampton, North-East talked about tobacco, and she was right to draw the distinction.
On Tuesday the Chancellor had a great opportunity to help the switch from tobacco to NSM. The Financial Secretary to the Treasury gave us a talk yesterday on rolling tobacco and the problems involved in taxation. These are difficult matters, but it is a great pity that the Chancellor missed his opportunity. If he had lessened the tax to a small extent on the substitutes, at the time increasing it on high tar cigarettes, he would have given a considerable impetus to the switch which the Government claim they want.
It seems that on at least two occasions Her Majesty's Government have broken the terms of the agreement which was reached last year between them and the industry. Although I have no authority for saying so, I am sure that from my own personal knowledge I am right to say that the confidence of the industry in the integrity of Her Majesty's Government following these actions has sunk to such a low level that it will take a great deal of good will to bring it up to the level at which it should rest.
The generalised abuse which has been flung at the Liberal Party in the course of the debate, starting with the tetchy and dyspeptic opening that the House had to suffer, takes my mind 200 miles from the Chamber to the Colne Valley in West Yorkshire and Greater Manchester, where the Liberal Party has thrived for 30 years on constant generalised abuse. The election that we lost in 1970 was the only one that was quiet, when we were not subject to very much in the way of hostility. Therefore, the more we are attacked, the happier I am.
If my hon. Friend the Member for Cornwall. North (Mr. Pardoe) catches your eye on Monday, Mr. Speaker, he will refer once again, as my right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) did yesterday, to our bitter disappointment at the lack of incentive in the Budget. I shall leave that task to him.
The Liberals particularly welcome, amongst the various social service expenditures that the Secretary of State for Social Services rattled off today, those which, for the adult population, transfer simple cash straight into people's pockets for them to spend, lay out and deal with in accordance with their own judgment, in preference to lavish spending from Whitehall or even from town halls simply to augment the social wage, infrastructure or corporate facilities, or whatever the trendy phrase is at the moment for centralised paternalistic expenditure. The child benefit increases and the retirement pension increases are particularly to be welcomed in that respect.
Every year that goes by demonstrates, not just to us but to a great many people, that spending decisions overall are very much more wisely, frugally and carefully taken by individuals than by departments and corporate bodies. Of course, there is also the great satisfaction that, if mistakes are made in spending money, 20 million people do not all make the same mistake, so that we do not have the gigantic Concorde-types of extravagance which have made the public so cynical about State spending.
On that theme, I say at once how refreshing it was for everyone concerned about the future of democracy and involvement in our electoral system that the Chancellor in his statement drifted away from astronomical figures. Speaking of the National Health Service, he actually came down to earth with a reference to
over 400 extra kidney machines"—[Official Report, 11th April 1978; Vol. 947 c. 1197.]
Even Back Benchers know what that means and can visualise it in terms of human health, satisfaction and relief. The rest of his speech, like virtually the whole of the Secretary of State's speech today—it would be just the same if the Conservative segment of the Opposition were in Government—was in mere terms of cash to be spent.
In congratulating the Chancellor on that one splendid and enlightened sentence about kidney machines, I hope that Whitehall's desperate preoccupation with this terribly primitive business of cash limits, taking us back to the beads on the abacus and the counting of coppers in a basket, will not prevent work going forward urgently on cost-benefit statistics so that State finance can gradually come with some approximate closeness to the costing practice that business has been running virtually the whole of this century.
Perhaps some day in the future Chancellors of the Exchequer will talk to us in terms of units of satisfaction, achievement and performance rather than only of astronomical sums of money. When £50 million is announced for the NHS, a great part of public opinion must be dubious about how much will actually be value for money.
The other aspect that I particularly welcome is the reintroduction of a lower rate band. Even though it is regrettably narrow, it is a start on the path back to virtue. It is not all that long since we had a civilised income tax system and those who worked in it, in the Inland Revenue, were proud to operate it. This was when we had three lower rate bands before reaching the standard rate. But the Conservatives set the rot in motion by abolishing the third lower rate band in 1963. Then a Chancellor of the Exchequer who is no longer in the House and of whom attention to detail was not a prime characteristic abolished, in the most mistaken fashion, which the Liberals strenuously opposed, the second reduced rate in 1969 and committed the final crime in 1970.
So, to the ridicule of the whole of the rest of the civilised world, we have had a lunatic income tax system which takes the first £1 of a person's taxable income into tax at 34p, and, instead of there being a smooth progression like a well-driven car moving away from the traffic lights when they turn green, we have a clumsy and jolting tax system which has been a great disincentive to a very large number of otherwise willing workers.
Therefore, we welcome this first return to the virtue of the lower rate band, and we hope, although goodness knows how it is to be done under our present political system, to see the lower rate band expand gradually until it has taken over a greater part of the income tax network.
I come now to the very elaborate collection of some 14 measures in the interests of what are described as "small firms". The Liberals believe that the Chancellor of the Duchy of Lancaster, since he was given this task as a senior Cabinet Minister in September, has worked swiftly and decisively to begin to reverse the disastrous trend against small business which has operated probably for the last 20 years. But, of course, the small fruits so far indicate what a long and tedious process this is to be.
I should like briefly to outline the aims that we Liberals have for new and small businesses. We want to see a stable planning and fiscal environment in which new business in particular but also all small business can expect to have some shelter from a fiscal system that is almost entirely designed to deal with large business organisations.
During the 25 years that I was a partner in a very mixed accountancy practice in the North of England, I got fed to the teeth with explaining to clients from small and medium-size businesses, whose eyes became increasingly glazed as I droned on—[Laughter.]—I am glad to have such a response, because at least it shows that hon. Members have not actually succumbed to sleep yet—the effect on their small businesses of Inland Revenue and Finance Act provisions which were designed for the big boys.
When those clients were confronted with all the jargon which is meant, very properly, for expenditure running into millions of pounds on plant, research and development, depletion and so on, there arose a cynicism about and a lack of understanding of the whole tax process which has contributed to the growing disrespect for the law.
The Liberals believe that there must be positive discrimination in favour of new and small businesses and truly enterprising people. One very oblique gesture towards enterprising self-employed people has been contributed by the Chancellor. This is in his gross failure this year to do enough to relieve middle management of quite undeserved tax burdens. The message of his neglect of those in middle management this year is to stop working for an employer under PAYE, get out into the self-employment market and work for themselves, which unfortunately, of course, is not a piece of advice that all that many middle managers can take in this age of capital scarcity.
We plead particularly for the type of youngish person in management, design or shop floor supervision or in a cost department, who is not interested in elaborately building himself an income of perks under the hidden economy which the Government have done so much to encourage. We should recognise—I wish that the Treasury recognised—that it someone diverts his energies from production, design and good management and spends half his working day organising his perks and establishing an empire of provisions in kind, he can probably get for himself a comfortable and almost plush existence. But the best people in business do not intend to spend half their working lives organising themselves in the hidden economy. They want to get their money, without much fuss and bother in administration, in an open and straightforward way. These are the people who are clobbered.
The Chancellor will go down in history for many things, some of them very creditable. He is certainly a sticker at his post. But he will also go down as the patron saint of the under-the-counter economy. That is because, from the richest almost to the poorest of the able-bodied in our community, a second economy is operating under the counter in a thousand different ways to escape—and is succeeding in escaping—the attentions of the Civil Service. When that kind of thing happened on the Continent, we used to mock it as being wholly undesirable. But it has now taken root in this country. Part of the education of young people is to know how to get into the hidden economy and how to work this alternative system.
We want to help the truly enterprising. To borrow the language of the Prime Minister's predecessor in Downing Street, we want to encourage people who are more interested in making things than in making only money.
We want to get rid of the atmosphere of fear, gloom and pessimism which some people are able to generate about small businesses. Often without much justification, a great army of people who earn their money by promoting mergers, selling all kinds of devices for defeating the Revenue and suggesting new combinations in business prey upon the fears of small business men. That is because Government regulations give colour to the idea that fearful penalties await the small business man as soon as he begins to make worthwhile profits.
I repeat, in my experience a lot of this fear is "phoney". It is blown up to sustain this trade in devices for trying to defeat the Revenue and so on. But there is no doubt that it exists. All too often in the industrial area where I live and which I represent people say to me and to others "There is no chance now of building up a business in the way that Jack Jones or John Smith did 20 years ago." [HON. MEMBERS: "Not Jack Jones."] There is more than one Jack Jones in this country.
We want an atmosphere in which small business men will know that they have shelter and certain protection. Above all—here I am able to commend one or two of the Government's measures—they want to know that it is not only the business which remains small which is properly treated but that, where a small business man makes good and builds up a thoroughly successful concern to the nation's benefit, he will still—at any rate, while he is alive and for a generation to come—be able to reap a reasonable reward.
There is welcome evidence that this truth has dawned upon the Chancellor of the Duchy of Lancaster and, through him, on Treasury Ministers. Item 3 in their welcome catalogue of reliefs for small businesses is a substantial capital gains relief whereby, no matter how vast the business may have grown, if it is passed on from father to son or from uncle to nephew within the family, no capital gains tax is payable. I am assured by the Inland Revenue that that can go on from generation to generation—even unto the seventieth generation—without capital gains tax liability.
As to capital transfer tax, of which the merchants of gloom and pessimism are reminding me, there is, at any rate, a threshold which it will be our object to get increased substantially as soon as possible.
There remains a great deal to be done for small busineses. We believe that most of these reliefs are merely a start. For instance, there is the welcome provision that if a lender to a small business—a valuable function to perform—loses all or part of his money, in future, as from this week, he will be able to set it off against any other capital gains. We believe that this should be extended so that, with certain precautions for the Revenue, a lender can set it off against any part of his income as well as against capital.
We also believe that the stock relief puzzle for small businesses must also be solved, even if it has to be a Heath Robinson solution. It may be—I suspect that it is the case—that for large profits of trading concerns there is no logical or intellectually respectable solution to the problem of stock relief. I think that, in a truly welcome moment of panic in 1974, the Treasury produced this stock relief scheme on the back of an envelope and has not yet been able to come up with an adequate solution to make it permanent.
That may be the fact. Big business may have to tolerate this anomaly of stock relief for years to come. But I plead that for the small business there should be some definite end to the suspense about six years of accumulated stock relief. I know from my own experience that, when a proprietor tries to sell a business which has a great lump of suspended taxation in its balance sheet, it is extremely difficult for him to strike a proper bargain. I repeat, some kind of solution, even if intellectually it is a bit shabby, must be provided.
In addition to the point made by the hon. Gentleman about the man who wants to sell his business, will he take on board the position of a man who wants to borrow against his stock and cannot do so when there is a tax liability against the asset that he is offering to the bank?
Yes. But my experience is that the banks are getting a little more literate in understanding this element of deferred tax. Even so, I readily concede that this is another aspect of this unfortunate tangle which has come from the otherwise welcome tax relief on inflated stock.
I express the profound hope that the work which the Chancellor of the Duchy of Lancaster started last September, and which he is still vigorously pursuing, may be put on to as permanent a basis as anything can be in politics. The Liberal Party emphatically does not want to see a Government Department for small businesses. We know that it would in any case be a very weak Department compared with the giant overlord Departments, and it would also mean more bureaucracy. That is not our purpose. But we believe that a senior Cabinet Minister—preferably with no other major portfolio—should, as a matter of constitutional convention, also be the Minister for small and new businesses so that he could range over all the seven or eight Departments of State which have a responsibility here and carry some clout in the Cabinet as the present Chancellor of the Duchy of Lancaster does. We hope that, in whatever time is left for the present Government, they will address themselves to improving the constitution in that respect.
Mr. Deputy Speaker (Sir Myer Galpem):
Order. Monday's final debate on the Budget will be a very crowded one. Many hon. Members will be seeking to speak. Therefore, the Chair would very much like to accommodate all the hon. Members who are present in the Chamber today to take part in the debate before the winding-up speeches. I have counted the number of Members who are anxious to take part, and they can be accommodated. We shall have no disappointments. However, one cannot guarantee that if they are not able to speak tonight they will be able to do so on Monday. Therefore, I appeal most sincerely for brevity.
I shall try to be brief. I occasionally think when I sit in this Chamber that Conservative Members live in a very different world from that in which I live. I have listened with great attention to the speeches on the Budget, but there has been astonishingly little praise of what to me is important about it, namely, that it seeks to spread and succeeds in spreading its benefits across a wide variety of ordinary people.
The hon. Member for Colne Valley (Mr. Wainwright) has told us at considerable length of the problems of small businesses, some of which I realise are very real. He does not seem to realise that there are large sections of the population who are totally unable to write off their cars, their benefits or their perks against their business expenses. Firemen, ambulance men, nurses and those who work in the public utilities in general have undergone considerable sacrifices in the past few years and are unable to put forward the sort of tax fiddles for which the hon. Member for Colne Valley and some of his accountant friends—perhaps I should say some of his accountant acquaintances—charge a considerable amount of money when advising business men. What the hon. Member should say, and say very sincerely, is that this Budget is a positive step towards assisting those sections of the community which have been very badly hit in the past couple of years.
I welcome strongly the public expenditure in the Budget—
I agree with much of what the hon. Lady has started to say. May I remind her that the small business people whom I have been talking about may enjoy some of the benefits that she has mentioned but that they cannot draw unemployment benefit? The self-employed person cannot declare himself unemployed, and he has great difficulty in drawing sickness benefit for any length of time.
I realise that there are problems for people in small businesses. But the hon. Gentleman spoke as if this were the only section of the community which was facing problems. So far I have heard no commendation from him or from the Conservative Benches of the part played by the trade unions and ordinary trade unionists in maintaining a low rate of inflation. We have heard the monetarists' arguments from the Tory Benches this afternoon, but we have heard no support for the view that the Chancellor was absolutely right at long last to make an attempt to assist those who have most assisted the rest of the community.
For that reason, I warmly welcome not simply the provision of free school milk or the fact that at long last somebody has realised that school meal prices form a very large part of the average working-class budget and that large increases in prices would simply have meant that many children would have gone back to what are called the sandwich groups and would have been left without a decent midday meal. I am also very keen to see the amount of money made available in this Budget for education being spent wisely and widely.
In the North-West we have some frightening problems in education. We have too many old towns—towns that were flung up, if one is to be brutally honest, during the time of industrial expansion at the beginning of the nineteenth century in order to house workers so that they could contribute simply to the profit of large companies. We have lived with that industrial detritus for many years. It is obvious in the ancient school buildings, it is obvious in the tatty hospitals and it is exceedingly obvious in the utterly unacceptable level of general expenditure on public buildings. I want to see the sum of money available in the Budget spent in those areas.
I sometimes think that we deliberately set out to programme the child who is going into the State system for the lower echelons of society. We say, in effect, "You will go into large classes. When you have come out of your primary school, you will go into an old either secondary modern or, if you are lucky, grammar school with, again, old buildings." When Labour-controlled councils endeavour, with the assistance of a Labour Government, to bring in a comprehensive system, the amount of money allocated by the county councils for the support of education systems is frequently not enough and is never spent in the areas in which it is most needed. That is particularly true of the North-West, as my right hon. Friend the Financial Secretary is perfectly aware.
My constituency is suffering at present from a very real problem of trying to move to a comprehensive system of education. One of the frightening things is the set of priorities that the Cheshire County Council appears to be putting forward. We should like to see some of this money spent on new schools and on providing purpose-built comprehensives which would at least allow the children in our area some hope of achieving the skills without which they will not be able to acquire jobs, because the other important thing in the Budget is the amount of money that is specifically allocated for training and retraining and particularly for expanding the amount of assistance available to the young.
A Conservative Member said that we were in a league which consisted of countries such as Italy and Brazil and that the only thing we had not got were kidnappings and violence. He did not say that one reason why we have been able to maintain a degree of balance in our society is that it is no longer necessary for the person who is unemployed, with all the difficulties that that involves, to go entirely without any means of supporting his family. We believe in social security payments and in attempting to help the unemployed not merely to find another job but to live in the interim in a decent manner, to be able to take further training and to have assistance to seek new opportunities.
Many of the Conservative Members who have spoken this afternoon seem to be almost harking back to the days when that was not the case. They almost seemed to be regretting that we cannot now change our society back to the time when profit was all, when money going into industry was all and when the amount of money spent through public expenditure was regarded as of necessity being a very minimal part of our overall budget. Therefore, I genuinely and happily welcome those parts of the Budget that relate to public expenditure.
I hope next week to have the chance to speak in great detail about the problems of the National Health Service, which I do not believe will be solved by the injection of £50 million, but it is a real attempt to do something about the immediate and day-to-day problems. I welcome the fact that this sum has been allocated for improvements on behalf of patients. This matter is more important than anything else. Those who have studied either the existing American system of medicine or the Continental systems of insurance know that it is not possible for the average working person to be able to pay for adequate medical care. It is sometimes forgotten in this country exactly how we all benefit from that sort of expenditure.
If the hon. Member for Colne Valley, who was talking about the need for incentives to ordinary people to keep more money in their pockets, suddenly collapsed in the Chamber—heaven forbid that he should do so—he would need an ambulance man to get him to the hospital, a porter to carry him in, a nurse—all of these supplied by the National Health Service—to look after him until the houseman came, and he would need the services of a consultant. Unless he had a source of income way above that which he receives as a Member of Parliament, the cost in straight insurance to cover that sort of medical care would be greater than he could afford if he were living in some other country. That is occasionally forgotten by some hon. Members.
I believe that the Budget is an encouragement to the ordinary family. We have heard a great deal about the need for cuts in our general expenditure. Many one-parent families have known real poverty. Many people existing on social security payments will warmly welcome the extra sums of money, small though they may seem to us. What we have to do is to provide such people with hope for the future. My right hon. Friend has done that in his Budget. He has said that, at last, help will be given not only to the vocal pressure groups in the big business contingents, not only to those who have the power and the muscle to hold industry and the Government to ransom, but to those such as the pensioner, the sick and the small child, all of whom are desperately in need of our assistance. Occasionally their voice should be heard in this Chamber. I welcome this Budget and express the hope that we shall see many more of its kind.
In her opening remarks the hon. Member for Crewe (Mrs. Dunwoody) did not seem to have very much of a welcome for the measures of relief which the Chancellor announced for small businesses. One wonders which is the authentic voice on the Labour Benches, the hon. Lady's or that of the Chancellor of the Duchy of Lancaster.
I very much regret that when the Secretary of State for Social Services opened the debate he began with a very inaccurate and unfair remark about the graduated pension scheme introduced in 1961 by the then Conservative Government. The right hon. Gentleman had obviously forgotten the reprimand issued in this House some years ago by no less a person than Lord Houghton, who said that it was wholly misleading to describe that pension scheme as a swindle.
The right hon. Gentleman should have known better. He should have acknowledged that that pension scheme began the first steps towards the introduction of an earnings-related contribution, which was itself a vital first step towards ensuring that there was sufficient money available from contributions to provide for the growing number of pensioners and to make certain that there should be annual increases in pensions to cater for the level of inflation.
It would have been better if the right hon. Gentleman had acknowledged that point about the Conservative pension scheme and had gone on to acknowledge the substantial help that he received from the Conservative Opposition in drawing up an agreed pension scheme, namely, the scheme introduced earlier this month.
A great deal has been heard, and rightly so, about the poverty trap and the deadening effect of penal rates of taxation on middle and top management. I wish to draw attention to another trap, the savings trap. I believe it to be the most vicious and unfair of all traps because it involves people when they are most vulnerable. It traps those who are forced to retire early owing to redundancy. It traps retired people with modest savings and it also traps those on fixed incomes who have no chance of increasing their income. This trap involves widows, the self-employed and the owners of small businesses who cannot afford planned saving for retirement because they need all their resources to finance their businesses.
The last 13 Budgets have produced a growing number of shocked and bitter people who worked hard and saved hard and who now find themselves kicked in the teeth by the tax system. We used to be able to talk about the rewards of thrift, about the security derived from savings, about the family nest egg salted away for a rainy day or retirement. All too often after 13 Labour Budgets thrift and saving mean not reward but tax penalties. What sort of a society are we creating? What sort of message will be passed on to the next generation? In too many families now the lesson of experience is that it is a mug's game to save. It is far better to blow the lot and then to coast along on social security. What will become of family responsibility, of the moral fibre of Britain, if we allow this rake's progress to continue?
Let me give some examples to back up my statements. The first concerns those who are forced to retire early through redundancy. There are already many of them and, alas, there will be many more in the future. A constituent of mine provides a typical example. He was forced to retire at the age of 60 after 38 years of service. He has little, if any, hope of getting another job or of increasing his income.
As part of the settlement for my constituent's compulsory early retirement he received a lump sum payment from his pension scheme and a severance payment—a common practice these days. He invested those lump sum payments so as to receive an income for his wife and himself. The result is that he is clobbered by investment income surcharge. This man has lost his job and his earning capacity, yet he is now paying a higher rate of tax as a result of investing these payments. He is not eligible for the age allowance because he is under 65. Here is a saving, trap with a vengeance.
Two things are required to be done to deal with this situation. The first is that, instead of having an age allowance at 65, there should be a retirement allowance operating from the date of genuine retirement. Second, while we have an investment income surcharge, the higher threshold for that surcharge should also apply from the age of retirement and not from the age of 65. This would also apply to women who retire at the age of 60 but who do not get the age allowance until 65.
I realise that there would be administrative difficulties. No doubt any Treasury Minister who responds to this suggestion will draw attention to them. I put it to the Government that if we wish to see flexibility in the age of retirement—and I hope that we all wish to see that—something on these lines is required. A growing number of people are making pension arrangements which allow for some flexibility in the age of retirement, and rightly so. The tax system is hindering this.
My second example of the savings trap concerns people over the age of 65 who are affected by the investment income surcharge. My hon. Friend the Member for Norfolk, South (Mr. MacGregor) put up a powerful case in introducing a Ten-Minute Bill on 5th April aimed at the abolition of the surcharge. Apart from those in the public service, few people have an inflation-proof pension. A significant number of people have no pension at all, either because they have been working abroad or because they have been self-employed all their lives and have not been able to save for their retirement. In modern circumstances where is the justice in having one rate of tax for pensions as earned income and a higher rate for other income also used for retirement?
It would not be so bad if the thresholds for the investment income surcharge were higher, but they are absurdly low. They hit people struggling on very modest incomes. There are 160,000 people hit by the surcharge who have incomes of under £4,000. What justice can there be in clobbering them? I believe that the surcharge should be abolished, but as long as it is retained I appeal to the Government at least to restore the threshold to its value in 1973 and to index it thereafter—which would mean putting it up to over £4,000 instead of the £2,500 suggested in the Budget.
My third and last illustration concerns retired people with an income slightly above the supplementary benefit level. They suffer a savings trap with many heads. When their income rises, from pension or other sources, their tax rises too. I grant that these pensioners will receive some help from the reduced rate band, but many of them will still find that they are little better off because, as their income rises, so does their tax.
Many of these people just miss the benefit of rent and rate rebates. There is no concessionary electricity for them. When these people, struggling just marginally above the supplementary benefit level, compare their lot with that of those on supplementary benefit, it is no wonder that they kick themselves for having been prudent and responsible during their working lives.
I shall not detain the House with further examples, although there are many others. The conclusion is clear—that 13 Labour Budgets have caught a growing number of people in a vicious savings trap. This Budget gives them little relief and no hope for the future.
The Chancellor deserves congratulations on producing a responsible and relevant Budget. According to the Press, many people expected an electioneering Budget, but to his credit my right hon. Friend has refrained from the sort of give-away bonanza that not only injures the economy and well-being of the country but breeds cynicism among the electorate.
Although the Leader of the Opposition was not lost for words on Tuesday, those she uttered were plainly irrelevant. However, I realised that she was speaking off the cuff—although she had copious notes—so I listened attentively to the Shadow Chancellor in the hope of hearing how the Conservatives would deal with our problems, what solutions they had to offer, and what their priorities were. It was a vain hope. Instead of hearing Tory policy unfolded by a deep- thinking potential Chancellor, we heard the same old claptrap from the right hon. and learned Member for Surrey, East (Sir G. Howe), who, rather than seeking to rise to an important occasion, chose to sink to the level of a tenth-rate comedian.
The Tories have learned absolutely nothing in the past 25 years. Despite all the evidence to the contrary, they still believe that huge reductions in tax at the top of the income scale, coupled with swingeing cuts in social services for the rest, are the measures required to get the economy moving again. It has not worked in the past and it will not work in future.
It is no coincidence that recent history has shown that the Tory Party, on taking office, inherits a sound economy from Labour and that when it relinquishes office it leaves behind financial and economic chaos. The Labour Party, on the other hand, always inherits financial and economic chaos, which it transforms into economic and financial order. That happened in 1964, when we inherited an unbalanced Budget and a balance of payments deficit. In 1970, there was a balanced Budget—indeed, there was a net minus borrowing requirement—and a balance of payments surplus of £1,000 million per annum.
However, by February 1974, there were an unbalanced Budget, a borrowing requirement of £5,500 million, a money supply level increasing by 28 per cent. per annum and a balance of payments deficit in the region of £3,500 million. We then sought to put the economy right by reasonable measures. As in 1970, this Government have brought order out of chaos with a balance of payments surplus and a Budget deficit which is much reduced. It is left to Labour Governments to pursue sound financial and economic policies, and long indeed, for the sake of this country, may it continue.
However, I would warn the Chancellor against trying to obtain any sort of formalised stage 4 incomes policy. I well understand his desire to achieve some order in incomes, but he must understand that that will not be achieved by seeking to force the trade unions to accept a norm which they know will not be acceptable to their members.
The TUC and the trade union leaders are not economic illiterates or political nitwits. It does no good for the Government to give the impression that they believe that the unions and their members will go berserk unless constrained by a tight, Government-imposed policy. That simply will not happen. The TUC knows the score as well as the Chancellor and, given the opportunity, will find its own means of ensuring that wage claims are reasonable and that one section does not get inordinate gains at the expense of others.
But there are stresses and strains in industry, as the Chancellor knows. Differentials and relativities are important—as are low basic wages in some industries. In themselves they are a bad thing, but they have a secondary effect, in that they lead to high overtime working, which, in times of high unemployment, is particularly undesirable.
The Government should recognise that we have the most responsible trade unions in the world and some of the best trade union leaders, too. They should make it clear now, therefore, that there will be no attempt to interfere with the orderly return to normal collective bargaining by the imposition of any norm or other form of control. I believe that if they do this they will find a ready and responsible answer from the TUC and all its affiliates.
I turn to some of the measures contained in the Budget. I particularly welcome the 25 per cent. tax rate band. Indeed, I welcome it so much that I hope that in future years—perhaps even later this year—the Chancellor will build on this, perhaps to the extent that an even lower rate will become the rate at which people first enter the income tax net.
I also welcome the increase in personal tax allowances, but I hope that considerable thought will be given in future years to personal allowances, because in many respects they do not meet the needs of modern times. They do not meet modern needs particularly in respect of the anomaly whereby a married woman loses the personal tax allowance when she leaves work and ceases to have any income of her own.
Instead of that, I believe that she should be allowed to retain that allowance and use it against the total family income. That would be relevant and fair. It would be equitable not only as between the married woman working and the married woman at home, but as between men and women as well. I know that this cannot be done immediately, but I hope that it is a measure that the Chancellor will look at very closely indeed.
Welcome, too, is the announcement that school meal charges are not to be increased in the autumn and that free school milk for all primary school children is to be reintroduced. I am particularly glad that in these two areas the Chancellor has responded to the pressure on him from my hon. Friends and myself over the last few months.
But perhaps most of all I welcome the speeding up of the introduction of increased child benefits, because undoubtedly this will do more to relieve family poverty than anything else. Certainly in my investigations over the last few months it has come home to me very much that families with children, particularly families on an income of between £50 and £60, have done very badly indeed—so badly that they are worse off than some other disadvantaged people in our society, such as old-age pensioners. The sooner we can get the child benefit rate up to a minimum of £4·50, the better it will be. It is true that the Chancellor is not suggesting that we reach that rate next April, but between now and then I think that he can be assured that there will be further pressure on him to increase the rate to the £4·50 mark.
I now comment on the higher rates of tax. I listened to the Shadow Chancellor and to the right hon. Gentleman the leader of the Liberal Party speaking on this subject. Although I, too, have had complaints that the top rate of tax is too high, I must say that I am not over-sympathetic and I prefer to reserve my sympathy for those in our society who really deserve it.
It would be as well, however, to examine just how top rate taxpayers will fare this year. I have done a couple of small sums. I have taken the married man earning £50,000 a year in one of them. Of course, he, like everyone else, will no doubt get his 10 per cent. increase in wages. In net terms, after paying 83 per cent. tax, this will give him £850 a year. He will also get, in addition, in tax relief from the Budget, £750—making a total of £1,600. As it happens, his increase in earnings is just £31 per week—equal to the total income of a pensioner couple.
I do not think that people earning £50,000 will do too badly. I hope that we do not waste too much sympathy on these people, who will get an extra £31 a week, as compared with a married man earning £75 a week, who will get his 10 per cent. increase, no doubt less income tax, which equals £4·95, and tax relief of £1·82 a week added to that—making a total of £6·77.
Therefore, the chap on £50,000 a year will get about four and a half times the relief and about four and a half times the increase in his income that the fellow on the average wage will get. The Chancellor has not done too badly by top rate taxpayers, and I hope that any further reliefs will be concentrated on the bottom end, should any come this year.
I turn now to the question of unemployment, because this really is a serious issue not only in the large conurbations but in many other towns up and down the country. It is not only in the conurbations that redundancies occur. They also occur in my constituency. Only last week the Plessey company decided that it would make redundant some 240 people within its factories. We have these problems as well.
Although I appreciate that the Chancellor has put some stimulus into the economy, I am not at all sure that that stimulus will be sufficient to reduce unemployment to the extent that Labour Members, anyway, require. I believe that as well as tax reliefs, it is necessary to stimulate public expenditure. All of us have our own views how one could do that, and no doubt those will be put forward. However, I have one suggestion in particular that I have been pressing on the Chancellor and the Secretary of State for Social Services. It is a measure that would reduce unemployment quite substantially and quickly. That would be a reduction in the retirement age for men.
Not only would it be equitable to have a reduction in the retirement age for men, but it would be sensible because it would immediately take quite a large number of people off the unemployment register. It may not be known, although it is a fact, that of all the people who have been unemployed for over a year, 22 per cent. are in the 60 to 65 age range, so a reduction in the retirement age would immediately remove them from the register. I urge the Chancellor and the Cabinet to give much more serious consideration to this question than they have done hitherto.
According to a reply from the Secretary of State for Social Services, it would seem that if we reduced the retirement age to 64 there would be a potential reduction of 200,000 in the number of unemployed, and the cost would be as low as £65 million. That seems to me a very cheap way of reducing the number of unemployed. If people were given the opportunity to retire a year earlier, I believe that many would take it. It would also have the benefit of giving an incentive to private pension schemes to reduce the age at which their members became eligible for the private pension. Therefore, I hope that my right hon. Friend the Chancellor and the Cabinet as a whole will take this subject very seriously.
Like all my colleagues, I very much welcome this Budget. It has not done all the things that all of us would like to see done. No Budget can ever achieve that. But what it has shown is that the Government recognise the social priorities and that they have put those priorities on the line and set the scene for a good future, a future which will be good for the least well off in our society and, I think, a future which bodes very well for our economy generally.
May I say, as I follow the hon. Member for Swindon (Mr. Stoddart), that Budget debates can sound like a dialogue of the deaf, with one side talking about increasing the gross national product and the other side talking about how benefits can best be distributed? With unemployment at 1·3 million and with the Government having created 320,000 jobs or half-jobs of varying degrees of value, showing a true or effective unemployment rate of 1·6 million, how can the hon. Gentleman really feel that it is possible to concentrate on the spending of the national product? Is it not better for us to concentrate at this point upon the earning of the national product? Those who concentrate upon that have no less compassion than those on the Labour Benches. It is a matter of considering the fabrication of the golden eggs rather than the spending of them.
I hope that the hon. Gentleman does not have the impression that because those on the Labour Benches show compassion they do not have economic understanding as well. The fact is that we have every economic understanding, and we realise that productive industry, manufacturing industry, has declined over a very long period. But for the Government's intervention, many firms that are now on their feet would have collapsed and many more jobs would have been lost.
I am sure, Mr. Deputy Speaker, that you will wish me to continue this dialogue outside the Chamber, and I shall do so.
In presenting the Budget, the Chancellor faced up to an awesome series of problems. His room for manoeuvre was limited, but the problems were principally of his own making. In my view, the first remains inflation. The Chancellor started with a bench mark that he helped to set for himself with inflation at 8·4 per cent. Admittedly that was a three-month moving average, but it set the bench mark from which inflation started moving up.
Inflation is the most pernicious thing. It destroys savings, it eats away at the plans of retired people and it causes others to think that saving is not worth while. It is also a weapon of Socialism, because the State can protect itself against inflation whereas the individual cannot.
Indeed, the effect of inflation in incomes is to bring more and more people into taxation and more of those who are taxed into higher taxation bands. This effect, fiscal drag, means that the State is not only protected against inflation but benefits from it. However, the Chancellor discovered that a little inflation is like a little pregnancy—it tends to grow. The effect of very high inflation hit sterling and thus magnified the inflation and damaged the country's economic standing.
Inflation, therefore, has a crucial role. It is both the cause and effect of our economic difficulties. If it is not controlled, financial planning becomes obsolete. Financial planning in this Budget should have provided for increased investment and thus increased employment. The present level of nil growth in our industrial performance is deplorable. More people will come on to the employ- ment market, so increasing the level of employment.
What do the Government propose to do to rectify this and to provide incentives? In other words, what is the Budget strategy? The background is as shown on page 9 of the Red Book, that there was no growth in the gross domestic product in 1977. Secondly, we see from the Chancellor's proposals that taxes on income will increase from £20·6 billion to £23·6 billion. Thirdly, the total Government take will increase from £38·7 billion to £42·7 billion.
Those increases in Government take will exceed the rates of increase in prices and the rates of increase in wages. In other words, the growth of State take and State control of our finances moves yet another step inexorably forward. That is without taking into account two unusual items previously concealed. One is £600 million in company securities, which will mainly be aid to British Leyland, and the other is £550 million provided for contingency reserve. We gather that most of this is already spent. In summary, this is indeed a Socialist Budget. The champagne bubbles with which it was launched already look very flat.
Will the Budget strategy succeed? The Chancellor is walking a tightrope. I shall make only one point on this, but it is a remarkable point which I have not seen mentioned in previous debates. It is worth quoting from page 12 of the Red Book, where paragraph 3, which lists the assumptions on which the Budget strategy is based, says:
in the Budget—
assume that average pay increases in the year beginning in August 1978 are about half the average for the current pay round"—
in other words, about half the average earnings increase in the past year, which was about 10 per cent., we are told elsewhere in the Red Book.
If this 5 per cent. increase in earnings is to be achieved, how will it be achieved? Who is to make the sacrifices? Will the Armed Forces, the police, the firemen, the university teachers, the heads of nationalised industries and all those who are now frustrated and have pent-up pay demands be made to hold back still further, or will the miners, the dockers and the Ford workers stand still and see others who have pent-up wage demands overtake them and regain their differentials? I submit that neither will happen and that the wage increases will not be restricted to 5 per cent. This fundamental point of Budget strategy is therefore invalid.
But my fundamental objection to the Budget is much more broad seated. The Budget fails to take proper account of the effect of North Sea oil and gas. We are used to hearing all observers talk about the effect of oil and gas revenues. They are not revenues at all. Oil and gas are minerals. They are part of the mineral resources of the United Kingdom, and in extracting them and using them we are diminishing the capital assets of the United Kingdom. We are not spending revenue.
The Government have a bad record for confusing capital and income. The House will recall that to make up an income shortfall they sold £550 million of BP shares. That was done in order to make up their profit and loss account.
The oil and gas reserves will last about 30 years at the present rate of extraction, dependent upon price, technical matters and other factors. About 30 years is the right period. It took a million years to develop these capital reserves of the United Kingdom and they should be reserved for premium use only. It is wrong for the oil and gas to be extracted during 30 years and to be used indiscriminately and cheaply. We are the trustees of this precious reserve and we cannot tell our children "We used those reserves. They have all gone, and now you will have to fend for yourselves." That is unacceptable.
The benefit of the funds from North Sea oil and gas will be threefold. They will increase the gross national product, increase Government revenue and improve the balance of payments. But these improvements will be short term. What the Government's White Paper failed to say was that there would be a fourth effect: that we would use up the oil and gas during a short period.
We must replace our energy assets and treat the oil and gas funds as a depletion of capital fund. Therefore, we should first put much more emphasis upon conservation. It is unacceptable to have a comparatively modest programme in the Budget. I welcome it, but it is far too modest to be realistic.
Secondly, we must slow down the rate of depletion of our oil and gas reserves after 1982. We are committed through to 1982–83 as a result of assurances given to the House and the world in December 1974. Those assurances, of course, we must honour. Once those assurances have run out, we must reduce the rate of depletion. Thirdly, we should repay more of our overseas debt. Fourthly, we must allow a flow of sterling across the exchanges in order to diminish the appreciation of sterling and to allow investment to be built up overseas. I fully appreciate that overseas investment does not create jobs here. We must also reduce tax and increase incentives.
We should do all those things with the oil and gas funds, particularly during the earlier years of production when we are committed to high receipts of cash. But the Chancellor is doing it the other way and is throwing away the advantage. He is spreading the borrowings, which is exactly what he should not do. He refers in his Budget Statement to a hump of Government debt amounting to $20 billion and is making fresh borrowings to push forward some of this hump. I submit that he should deal with the hump during the period of larger production through to 1982–83 and not spread it.
One of the Chancellor's moves in spreading the hump of debt, as he calls it, is to take a further loan, through the United States bond market, of $350 million. Whether there is any connection between that and the remarkable increase of 1 per cent. in the minimum lending rate, I do not know. But the Chancellor actually boasted that he was proud that the United States bond market had granted the bond a triple-A rating. It takes the Chancellor of the Exchequer—who has finally been forced or coerced by the IMF to take sensible measures—to boast about a triple-A rating. After all, he is only saying that after four years he has finally been coerced by the IMF to getting Britain's credit rating back to a level comparable with that of Venezuela, Finland and the city of Oslo.
This month the Labour Government have introduced three changes of major importance in the social benefits and tax system of this country. The first is the national superannuation scheme, which Dick Crossman forecast 20 years ago and which has been described—quite rightly, I believe—as the second major advance in our social security system since the creation of the National Health Service. The second is the child benefit scheme, now coming to full fruition. It is an enormously important and valuable move forward in our system of family support. The third—as has been pointed out, it is not new, but it is nevertheless important—is the introduction of the reduced tax band on the first tranche of taxable income.
Those are three important structural changes, because they give us the opportunity in future years to make much more sensible adjustments, I believe, in pensions, family support, tax rates, and so forth, than have been possible with the existing system. I think it is a great tribute to the Government that, at a time of world recession, when there are great economic difficulties, it has been possible to bring to fruition these very important changes.
I turn to a point mentioned by the hon. Member for Gosport (Mr. Viggers) concerning the fundamental problem of our industrial economy. I thought that some of his points were quite fair. I am particularly concerned about industrial investment. The main characteristic of our economy, unfortunately, is that the percentage of our national wealth devoted to industrial investment is significantly lower than the percentage devoted by some of our major industrial competitors.
The House of Commons Library has kindly provided me with some figures for the five years 1972 to 1976. On those figures, industrial investment in this country has varied in that period from 15·6 per cent. to 17·4 per cent. of our gross national product. In France, the variation has been from 20·3 per cent. to 21·8 per cent. In Germany, the figures in recent years seem to be somewhat odd, but the variation is from nearly 17 per cent. to nearly 23 per cent. In Japan, the variation is from 21·7 per cent. in 1975—I am not quite clear why it was so low in that year—to 29 per cent. in 1973.
There are no doubt special explanations for the variations year by year, but the characteristic is that this country over the years—I believe that it goes much further back than the early 1970s—has not spent a sufficient amount of its national wealth on industrial investment. Until we get that right, we shall have continuing trouble, I believe, in managing our general economy.
In this context I was rather astonished by one part of my right hon. Friend's speech. We do not have an Official Report and therefore I shall have to quote from the official handout. He said:
A major purpose of this Budget is to adjust taxation so as to help and improve our industrial performance.
Fair enough. He went on to say:
I have therefore decided again to make no major changes this year in the rate of corporation tax or in the levels of investment incentives."—[Official Report, 11th April 1978; Vol. 947, c. 1200–01.]
I find that rather odd. It may well be—
I am grateful to my hon. Friend for giving way. I believe that the thinking behind the Chancellor's strategy is that the motivation for business men to invest in this country is now considered to be dependent upon the level of demand in the economy. The view that the Chancellor has taken—I think correctly—is that he needs to stimulate demand and that we need to keep this stimulation moving forward not just for one or two years but for at least three years. Unfortunately, as my hon. Friend has pointed out, business managers in this country are very reluctant to invest, but the investment strategy in the Budget is linked to tax cuts because the Chancellor wishes to increase demand or to boost investment.
The weakness of that argument was very well stated by the right hon. Member for Sidcup (Mr. Heath), when he made an absolutely scathing denunciation of private enterprise in this country. He pointed out that every possible incentive had been given to private enterprise to invest and that the investment did not come. I cannot recall the right hon. Gentleman's exact phrase, but it is certainly written into the archives of this place and economic comment generally.
Before my hon. Friend intervened, I was coming to the point that the Chancellor may defend himself on the ground that he has given various incentives to small business. The problem about that is that there is no guarantee whatever that small business men will not simply take the various concessions which have been offered and plough along cheerfully with the plans they have made anyway for 1978–79. There is no guarantee at all that the concessions on transfer tax and the various other things for small business will produce any extra investment.
I have no hostility to small business. I am connected with two major industrial towns, my home town of Birmingham and the city I represent, Sheffield, where people still talk about the "little mesters". The small business man has a contribution to make and makes an important contribution to our economy, but I am really doubtful about whether we shall achieve a sufficient level of industrial investment simply by patting people on the back and giving some incentives to small business men. There is no reason, as I have already said, why the small business man should not simply accept these nice concessions and make no alteration whatever to his plans.
I have a second reason for being doubtful, and it is more fundamental than the first. There is no doubt that in engineering, for example, small business is dependent on the major investment decisions and other decisions of the big businesses. The small businesses supply the nuts and bolts, the washers and gauges, and so on, but, however, much we may want them to help in getting the economy going, the fact is that if the big man does not move, as likely as not the small man will not be able to move either.
Although I am not hostile to what the Chancellor has tried to do in this respect, I doubt that that particular tactic or or technique will produce any significant expansion of industrial development, which is what we should like to see.
I agree with the hon, Member for Gosport that a major investment in alternative energy sources, in insulation, and in energy conservation could have given a boost to business, investment and jobs and could have been the first stage of the necessary calculation about our future energy requirements which we have to balance against the eventual depletion of oil and natural gas.
In this connection the Chancellor could have recognised the great importance of the international energy equation—after all, President Carter and our own Prime Minister have been talking about it—and done something about it, thereby stimulating investment and stimulating our own industrial efficiency. I am rather sorry that he has not devoted more public expenditure to energy matters. To be fair, he made a token move with regard to insulation grants, but I am sorry that he did not do more for the reasons that I have just given.
I also believe that he could have made more capital available to the public corporations. In shipbuilding, aerospace, steel, coal, electricity, nuclear power and all the rest we now have a vast range of manufacturing and technological expertise. This should be used and backed by public investment to improve our industrial capacity, industrial techniques and exports. I do not believe that the public corporations have yet taken advantage of international markets on a scale which they might do.
I am also concerned about unemployment. To some extent this is related to investment in new industry and in new industrial techniques. In the pattern of this Budget I cannot see a serious reduction in the level of unemployment. I pay tribute to what the Manpower Services Commission is doing and proposes to do. I think of the great scheme devised by Mr. Holland which will be carried through by the Manpower Services Commission. I believe that this scheme of training, job opportunities and so forth is enormously important. It is the most ambitious in Western Europe if not in the world. It has my wholehearted support.
What I am afraid of is that that scheme will simply hold unemployment at 1·8 million instead of bringing it down to a very much lower figure which I and every hon. Member would wish to see. I do not see measures in this Budget which will cut into this appalling unemployment problem, particularly the problem of unemployed youth, on a scale that I want to see.
I do not quite understand the mystique about PSBR, borrowing requirements and so on, but I am prepared to face the argument that somewhere along the line if one wants to spend large sums of public money probably one has to raise it unless one prints it, and there are certain dangers in that. I would have had no hesitation in maintaining the real price of alcohol and tobacco—not necessarily increasing it—by extra taxation. It is a complete nonsense to argue that the real cost of these two highly dangerous drugs—which cost this country probably thousands of millions of pounds in their demands on the health, social, prison and police services of this country—should not be maintained by additional taxation.
I would not attack the hon. Gentleman's basic premise of raising taxation on those two commodities. However, is he aware that the increase in duty on the whisky industry has lost the Government £28 million in the first nine months of this financial year and has caused severe unemployment in Scotland? At some stage there must be a cut-off point for these industries because of the employment aspects.
There may be a cut-off point at some stage, but we have a long way to go on whisky. I have no hesitation in suggesting that money could have been raised on these two particularly dangerous drugs and spent to promote useful industrial investment.
The question of petrol is rather more difficult. It is a bit absurd that in real terms the price of petrol at the moment is lower than it was before the oil crisis. That is a fantastic situation. I accept that my right hon. Friend is probably up against the idiotic and childish antics of the Liberal Party on this issue and that if we tried to push the price up again we would have the same idiocy from the Liberal Bench as we had last year. There may be a political constraint in that respect. However, I believe there would have been a case for some modest increase in pertol duty.
Finally, I want to mention overseas aid. It is now becoming common thinking in international gatherings—we have heard it said by our own Prime Minister, the President of the United States and other Heads of Government—that part of the solution to the economic difficulties of the Western world lies in an increased flow of resources to the Third world. There are various ways in which this can be achieved—for example, the promotion of trade and commodity agreements. It would be quite wrong to go into all the details in this kind of debate.
But I think that the Chancellor might have made a modest bow in the direction of this problem by making at least a small increase in our overseas aid commitment and some evidence that we were moving towards the international target of 0·7 per cent. aid. I should also have liked to see some evidence that he was restoring the rather damaging cut of £100 million which he made some time ago. I would have regarded that as justified and welcome.
I share the view of many of my hon. Friends that in many ways this is an extremely useful social Budget. I should have liked something more ambitious in an economic and expansionary sense. I believe that we need to go much further in tackling the fundamental problem of the modernisation of our industry and industrial investment. But, on the whole, I believe that my right hon. Friend has done a reasonable job, and I commend what he has attempted to achieve.
Before commenting on the very wise, commonsense points which the hon. Member for Sheffield, Heeley (Mr. Hooley) has made, I wish, in deference to your admonition, Mr. Deputy Speaker, to comment on only one of the Chancellor's detailed measures—his proposals to encourage profit sharing. These I warmly commend—as does the Conservative Party—but with one caveat.
It will be within the knowledge of the House that I have devoted much of my commercial life to the development—indeed, the pioneering—of ideas to facilitate a wider participation in industry by the broad mass of our people—for example, through unit trusts, equity-linked life assurance and profit-sharing schemes.
I must declare an interest as a director of a company which has such a scheme and as a chairman of a life assurance company. Out of that experience I wish to make one recommendation to the Chancellor and to the House. The personal circumstances, the needs and, indeed, the prejudices of individuals vary greatly, and so do the circumstances of different companies in differing industries with differing trading circumstances. It is unlikely in the extreme that any one scheme, or any one type of scheme, for share ownership, profit sharing and co-partnership in any form will be perfect in every case.
If the Chancellor, with the support of the Conservatives, really wishes to encourage profit sharing on a substantial scale and if he is sincere—alas, there are doubts about that—the quickest way to success would be for him to do two things which are complementary. He should make an analysis of the situation. He should then remove the disabilities, because many disabilities interfere with the development of this process. Some have come about accidentally and some are quite deliberate.
The Chancellor could do worse, as I am sure the Minister of State will acknowledge, than to study the memorandum submitted by the Wider Share Ownership Committee, of which I have the honour to be an officer, or to read some of the writings of Dr. Copeman. If he were to make an analysis and take away the handicaps and the disabilities, he would thereby promote a variety of schemes. The House will judge his sincerity and that of his party by the progress which is made with regard to these matters. The potential is enormous, as the savings figures currently show.
What a splendid speech that was of my hon. Friend the Member for Somerset, North (Mr. Dean) and what a devastating indictment he produced of the Government's policy towards savings. That is why there is some cynicism about the real intentions of the Chancellor of the Exchequer, and in that sense I put this challenge to him.
But the gains would not only be for the individual families who are helped to save through profit sharing. They could be much greater for the economy in promoting a greater understanding of industry, identity of interest and harmony within industry in general, and that is a great prize to attempt to secure.
To come to the general, I found the Budget disappointing—indeed, uninspiring—and for three reasons. The first is that complexity is inevitable in any modern society. This is the thirteenth Budget of the present Chancellor that we are discussing, and the House is now threatened with a fourteenth within a quarter. Like almost all the others, this Budget contains far too much detail. If the present Chancellor is anything, he is a tinkerer. Of course, one agrees with and may even commend some of his measures, but, overall, I believe that the nation is now impatient of the fussiness and pernicketiness which are the chief characteristics of our tax system. It is time for reform on a broad scale.
Parliament abuses the tax system. It is used not only for its real purpose, which is to gather revenue, but too much now for social purposes. In consequence it is often unclear, as the hon. Member for Colne Valley (Mr. Wainwright) pointed out. It is not always fair and, as Sir William Pile, chairman of the Board of Inland Revenue, pointed out in his evidence to the Public Accounts Committee only a few weeks ago, compared with other systems throughout the world it is vastly expensive.
Witness how the Inland Revenue staff has grown in recent years. In 1939 the Inland Revenue employed 25,000 people. By 1945, perhaps inevitably after the war, the figure had grown to 43,000. Between 1966 and 1970, a period of Labour Government, be it noted, it grew by a further 9,000. Between 1974 and this year of grace 1978, it grew by a further 16,000. So, in 1978, as Sir William Pile said again in evidence to the PAC a few weeks ago,
The figure for the number employed by the Revenue will be twice the figure for 1945—86,000.
I am sure it will not have escaped my right hon. Friend's notice that there are more tax gatherers employed in this country now than sailors. As the Prime Minister has had active experience in both those activities, this may be recognised as a fair reflection of Government policy.
In response to that second amusing intervention, I might say that I regard the first duty of any Government as being to attend properly to the security of our fellow citizens. Whether we look at the situation in terms of overseas defence or internal security, the chief indictment of this Government is that they are not doing that at present.
However, I have, and I dare say many other hon. Members will have, total sympathy with Mr. Christopher and his colleagues when they protest at being overworked and say that there are too many changes in taxation. I am sure that the House will endorse the plan which the chairman of the Board of Inland Revenue has described to computerise PAYE, but it is high time that we re-examined our tax system with a view to providing stability and a real simplification and with the intention of abolishing many forms of detailed tax.
My second complaint, which I also make with the utmost seriousness, is that the Chancellor's speech confirmed a trend to which I have the most profound objection, namely, that so many matters of economic management are decided outside Parliament rather than inside it.
It is an old principle, supposedly inviolate, that the granting of public money and the imposing of taxation is the function of Parliament and not of the Sovereign or the Government. After all, this rule was the bone of contention between Parliament and the King over many centuries, of which the last example was the Civil War. We Members of Parliament, the supposed guardians of democracy and the inheritors of our national traditions, have carelessly allowed the rule to lapse.
It is not necessary to take my word for that. There is a Penguin book entitled "The House of Commons at Work" written by one of our distinguished Clerks. With all his experience and that clarity of view which is the characteris-
tic of that service which serves this House so brilliantly, he said:
Control of expenditure in a direct sense hardly belongs to the House of Commons any more.
I also quote Professor Ramsay Muir. He put the matter rather more starkly:
The power of the purse is supposed to be the main source of authority of the House of Commons. It is wholly unreal. There is no parliamentary counrty in which Parliament has less power over finance than in Britain.
I give one example of what I have in mind. The Chancellor made a shorter speech than usual. Of course he cannot mention everything, and one does not expect him to do so, but one omission which the House should resent is that he spent no time in discussing the cash limits for the current year. A separate White Paper is published, accompanied by a Press handout. I quote a couple of sentences from the Press handout:
This is the third year of extensive control through cash limits … This year they will again apply to about two-thirds of Voted expenditure. Cash limits have made a useful contribution to improving financial control.
I ask the House to note that this is the third year of their operation. They have never been discussed in this House in the aggregate although, as the handout says, they cover two-thirds of voted expenditure. They have never been discussed, either, in the particular. Not one of the 122 separate limits in that White Paper has ever been debated in this House.
The system itself has never been approved by Parliament. It is true that it has been examined on behalf of the House by the Select Committee on Expenditure and by the Public Accounts Committee, but never have the Government found time for our reports to be debated on their own.
Ministers and the Civil Service decide in private such matters as what proportion of the gross national produce should be spent by the private sector and what proportion should be spent by the public sector. They decide in private the absolute figures to be spent on this service or that. Parliament is not consulted. Parliament is simply informed after the event. This is the modern scene in the United Kingdom in this Mother of Parliaments. With such contempt is democracy treated.
I turn to another matter referred to by my hon. Friend the Member for Gosport (Mr. Viggers). Of these figures of Government expenditure by far the largest constituent is pay. I am sure that the Minister of State will confirm that it represents 50 per cent. of the total bill. We have heard nothing from the Chancellor about his assumptions on which these figures, which are supposed to be inviolate and so important a form of control, are based. I thought it shocking, when the Prime Minister was answering Questions earlier today, that he refused even to answer a question on the subject. Is this House to be denied all discussion of and all power of decision over matters which are of the most fundamental importance to our fellow citizens?
Some of us are determined to improve the way in which Parliament considers our national finances. We shall try to introduce ways of restoring and enhancing proper parliamentary control of expenditure. We have made some progress. I welcome the assurances given in paragraph 5 of the White Paper that there will be consultations with the Expenditure Committee and the Public Accounts Committee on the development of this particular form of control. I hope that the two Committees can operate together. Indeed, in the Public Accounts Committee we have put forward proposals for doing just that.
My own position is that I would not have it said of me at any time that I, as a Member of Parliament, was unaware of or untrue to the great heritage won by our ancestors in regard to parliamentary sovereignty over the Executive.
My third complaint about the Budget is that the Chancellor made so little reference to the world economic scene. We are in a situation of deep and prolonged recession, and that situation is deteriorating. Nothing can obviate the need for us to be efficient in the United Kingdom, but it is urgent that international action should be taken to ameliorate the dangers of the present situation and to enable us to plan ahead constructively.
I would describe the characteristics of the present malaise as these. First, there is under-utilisation of capacity, not only in this country. Figures for the OECD countries show that within these countries there are 16 million people out of work. Secondly, there is continuing high inflation. We may not be as bad as some countries, but it is appalling to think that the value of our money at present rates will be halved in eight years. The third characteristic is the total failure of Governments to develop effective energy policies to deal with the oil price rises in 1973–74. Fourthly, there is over-reliance upon the United States dollar as the only effective international currency.
The fifth characteristic is the huge amounts of international mobile funds, not only the Eurodollar but the moneys generated by the oil-producing countries. I have nothing but contempt for the way in which large amounts of oil revenues are dissipated by those who earn them, in ways that we in the United Kingdom would regard as deplorable.
The sixth problem is the wide fluctuations in the exchange rates which inhibit confidence, make the investment prospects uncertain and prevent the growth of world trade. The seventh is the emergence of the super-low cost producers who compete with the traditional industrial countries. Their work has powerful effects in destroying whole industries such as textiles, steel, shipbuilding and electronics. Generally speaking I am an opponent of protectionism, but I believe that we must be ready to protect our industries against this form of competition where necessary.
All these factors are significant in themselves but in the aggregate they constitute a crisis of severe proportions—and it is a worsening crisis.
Whatever divides us in the House of Commons—and the issues that divide us are great—we have a common interest in the welfare and prosperity of our people and of mankind. During a recent visit by the British-American parliamentary group to the United States, I thought it right to support the Prime Minister's initiative in this regard. I congratulate him warmly. His initiative is all the more necessary when it is made in the United States because, alas, that country lacks an effective President at present. I think that the Prime Minister's five points—the encouragement of growth, the conservation of energy, currency stability, success in the current multilateral trade negotiations and the locomotive proposals—are absolutely right.
How right the hon. Member for Heeley was to say that there are other items to be added to the list. It is essential that the oil revenues be well used. We are lucky to have oil revenues to modernise our industry to the maximum extent. We must understand how necessary it is to do everything possible to try to find new markets in the world for our goods. That is why I was so much against our entering the EEC, much to the irritation and despair of some of my right hon. and hon. Friends. I thought I was right at the time and I still do.
I must emphasise that the bus stops here. Whatever the need for concerted and determined international action, nothing absolves us in the United Kingdom from the crucial need to have our own economic house in good order. I am critical of the Budget because it makes too little contribution to that aim. In that regard it is nothing but a lost opportunity.
Maybe the Chancellor is too stale and should be replaced by someone with fresh ideas and new vigour. I would have held that opinion even if the Chancellor announced twice the amount of reliefs to families, old people, farmers, small businesses and working people. I would be the opponent of any Chancellor, irrespective of party, who would not move towards the restoration of better parliamentary control of our finances. His record in this regard is deplorable.
I make no apology for concentrating on the Budget's proposals on small businesses. I welcome the good will shown to small businesses. I hope profoundly that that good will is more than election-deep. I welcome the growing area of consensus because the business community—large and small—needs greater stability to plan ahead and to arrange its finance ahead and take on long-term employment plans. The House is right to develop a consensus in this area because small businesses provide the greatest single opportunity for creating new jobs and reducing the appalling level of unemployment over the next few years.
I welcome particularly the work being done by the Chancellor of the Duchy of Lancaster. However, in this respect the Government are very much like a battered old Swiss weather clock that I have at home. It has two faces, one for fine weather, which looks remarkably like the smiling face of the Chancellor of the Duchy of Lancaster, and one for wet weather—a scowling face—which is rather like the Minister at the Department of Industry who has responsibility for small businesses. The Government have these two faces and when the weather changes a different face comes out. That is very worrying for small businesses.
The Chancellor of the Duchy of Lancaster held a Press conference yesterday in which he talked grandly about the things that he wants to do for small businesses. He has attended the CBI small firms council and has gone round the country seeking to restore confidence to the small business world. Small business would like very much to believe that that was the true picture.
Then we have the Tribunites—the people who will choose the real policies of the next Labour Government. This is where the question of stability and the ongoing consensus is important. If there should be a Labour Government after the next General Election, Tribunite policies will point to a wealth tax, to 98 per cent. of the investment income as a top tax rate, to a continuation of 83 per cent. of tax on earned incomes, to more intervention by the Government and to the condemnation of profits and of the whole capitalist system.
It is against that background that one cannot help understanding the worries and the concern of the business community, and more particularly the small business community, which asks "Is there stability, is there consensus, is there an agreed way ahead?" In other words, is it to take the words and aspirations of the Chancellor of the Duchy of Lancaster, or the words and the aspirations of the Tribune group?
The condemnation of this Budget is that, although the Chancellor of the Exchequer has recognised the need to change the climate, he has totally failed to take steps to bring about that change. I wish to spell out the changes that are needed to revitalise the small business sector. I wish also to examine the opportunities which the Chancellor of the Exchequer has failed to grasp and to ask hon. Members to consider whether collectively in Committee on the Finance Bill we can bring about the necessary changes.
I wish to spell out these four changes which I have arrived at following meetings throughout the country which the Small Business Bureau has held, involving thousands of members, ranging from those in the North of Scotland to those in the tip of Cornwall. Those members continually write to the bureau outlining the problems which are holding back the growth of their businesses. I make these suggestions purely in terms of the financial areas which I believe could and should have been put right in the Budget.
The first need is to restore incentive to the entrepreneur, and that means changes in direct taxation. Secondly, there is the need to enable the small firm to make and retain profits for growth and expansion. Thirdly, there is the need to bring back the private backer. I am delighted that the Chancellor of the Duchy of Lancaster recognised that need. I am only sorry that among the items contained in the Budget there is little to bring that to life. The fourth need is to remove the most damaging of all threats which is held over the small business sector, the threat of wealth tax.
Let me put forward some practical suggestions to deal with those four needs. Let me first take the subject of incentives. I was delighted to see that the Chancellor has given help to those who start up a business and later make losses. This puts the problem in a nutshell. The present Government are the greatest expert of any Government at any time in this country on businesses that make losses. They have more of them under their control and they have sustained more losses in the nationalised industries and in firms taken over by the National Enterprise Board than has happened, I suppose, any where else in the world.
But people do not start out in business with the purpose of making losses. I am delighted to see that they will be able to rake back tax which they have paid in the past in order to cover losses. But we must create a wholly different climate in which people see it as worth while to set out in business to make a profit. It is desperately unfortunate that they are missing that opportunity. Those who start in business should aim for success. They should aim for the stars. But what are the stars? We all know that the stars comprise a tax of 83 per cent. Who will set out to aim for that?
Until the rates of tax are changed in the Budget, we shall not see the climate that we need. We need to adopt the top rates that operate in Europe, rates of between 50 per cent. and 60 per cent. Only then shall we change the climate and make people want to set out to achieve the stars. But we shall not do that under the existing system.
Secondly, I turn to the need for small firms to retain profits for expansion. Let me divide firms into sole traders and partnerships and companies. Sole traders and partnerships require more money because of inflation and more money still if they are to expand. Yet all the retentions made by the sole trader and partnership have to bear tax at the rate of tax of the partners. That means a tax of up to 83 per cent.
Let us examine the practical effects of this situation. I was talking to a small business man last week and he showed me a cheque stub. He said "That was a cheque I had to make out to the Inland Revenue in respect of tax on the business. We made £20,000 profit and the tax amounted to £16,000."
I assure the hon. Gentleman that he was not a lawyer. I am trying to make some practical suggestions and I hope that the Minister will consider them. I believe that the Chancellor of the Exchequer should allow such businesses to accumulate funds for retention within the business for business growth and expansion at a lower rate of tax than the tax payable by the partners who are running the business.
I wish now to deal with the situation as it affects companies. There is a direct link between the tax and the funds available for expansion of the business. I welcome the changes in stock relief. But why are the Government being so laggardly? Why will it be six years before the relief comes through?
One of the most difficult things about small business and the tax concessions, such as stock relief, is that the sophisticated business can operate in such a way that it does not pay corporation tax at all. It is the less sophisticated business—generally the small business—that does not know how to operate in that way. I have heard of country accountants who even suggest to their clients that they should not claim stock relief even though they are eligible for it. Again, I can give examples if they are wanted.
I suggest that it would make a practical contribution to the position if the Chancellor of the Exchequer would give the option to have a lower rate of corporation tax that is based upon not drawing the first year investment allowances, not drawing stock relief or a whole range of other items. The small business that did not draw those items would have a composite lower rate of corporation tax and would know that that was the basis on which the system worked. There is an enormous number of unsophisticated small businesses which would take that option, and as a result more money would be left in those businesses to enable them to grow.
Let me turn to the definition of a small business. I particularly welcome the fact that the Chancellor of the Exchequer has increased the definition for corporation tax purposes from profits pre-tax of £40,000 to a figure of £50,000. But the logic of the position involves a far higher figure than that. The reason that the lower rate has been introduced is that such companies are not able to raise expansion capital on the Stock Exchange, they cannot talk on equal terms with the major financial institutions and they have to finance themselves out of ploughing money. The size of company which fits those criteria is much larger than those covered by the present concession. I suggest that the figure should be taken substantially higher.
It is proposed to give the Development Commission £20 million, part of which will be spent on the coast line, and I have no comment on that, but part of which will be spent on building factories for COSIRA and other small business users. The Government are spending public money to do what private enter- prise and private investors would be prepared to do if the Chancellor provided the same tax concessions for factory building as he does for the machinery and equipment to go in the factories.
In this area of the ability of businesses to retain the money that they need for expansion there is the acute problem of how they are to accumulate sufficient funds to replace equipment when the historic cost of the old equipment has been allowed to be written off. This is an important problem in terms of the ability of businesses to keep themselves modern and to be able to compete, in terms of modern equipment, with the enormously high cost of new equipment. A business man told me the other day that he was given a tax allowance for a vehicle that cost £17,500, but the replacement vehicle would cost £54,000 and his problem was where he could accumulate the funds to meet the difference between those costs. I suggest that there should be depreciation at replacement cost rather than at historic cost.
There are many things that I should like to say about VAT, but I do not wish to trespass on the time of the House any more than is necessary to cover the major issues where small businesses need more attention from the Chancellor.
I am at one with the Chancellor of the Duchy of Lancaster in saying that we need changes in the areas where private backers operate. The risks involved for small businesses starting up, particularly the technologically advanced businesses, are as great as the risk of backing horses and we cannot expect institutional funds and those acting as trustees for other people to invest in as risky an item as that. We need a change so that the private backer can be brought back to help various small business enterprises.
Public policy picks out, for example, the gilt-edged market as having tax preference for those who invest in it. There is no capital gains tax on gilts. Pensions and life assurance are picked out for preferential treatment. More attention should be given to whether there are ways of extending the same preferential treatment to those who invest in small businesses. The French Government are examining a scheme to allow private individuals who subscribe to new equity issues and invest in small businesses to have their income tax bill reduced by the amount of money they have invested. That is an interesting idea that the Government should consider.
The Government have gone a little way. They are to allow losses on loans to be offset against capital gains tax. But we must cater not just for those who make losses. We must restore incentives to those who are setting out to make profits. For the private backer taced with the prospect of getting £2 of every £100 of his dividend income there is no incentive to go into this area.
The other essential that the Government must seek to carry as a consensus in the House is an undertaking to withdraw the threat of a wealth tax. Without that undertaking we shall not see the change in climate which is necessary if people are to start and expand small businesses. Without that undertaking, people will see themselves as being fattened up for the slaughter—and who sets out to build anything in the knowledge that if he makes a success of it, it is a dead cert that he will be slaughtered?
I believe that a spoof is being practised on the House, the country and the business community by the Chancellor of the Duchy of Lancaster. The Daily Mail today reports that at his Press conference yesterday the right hon. Gentleman said that there would be no wealth tax. But, if we look further, we see that this is only his personal view and that, although this Government are not planning a wealth tax, the Cabinet is examining the prospect of having such a tax after the next General Election. The Chancellor of the Duchy of Lancaster says that he would be strongly opposed to a wealth tax on top of existing taxation, but the truth is that the threat is there and, despite the headlines, the Chancellor is committed to nothing more than a personal view and it is a cruel deception to try to persuade people otherwise.
Small business men are generally canny enough to know that a wealth tax is still a major part of the policy thinking of the Labour Party. Eire has abandoned proposals for a wealth tax because of the way it was damaging jobs and the growth of businesses. Our Government would be wise to give that undertaking as well. The touchstone of the sincerity of the Government's desire to see small businesses create more jobs is whether they will abandon for at least 10 years any possibility of introducing a wealth tax. If they do that and bring down the rates of tax from which we suffer, they will change the business climate and people will decide to set up in business. Small businesses will grow and create new jobs. But none of this will happen if we do not have a change in the business climate.
I bitterly regret that, although the Chancellor of the Exchequer has gone a welcome little way on the road to dealing with some of the technicalities affecting small businesses, the tragedy is that the Budget fails to grasp the opportunity to do something that would really change the business climate.
The real danger facing small businesses—as usual—is the danger of being swallowed up by huge businesses or being ruined by decisions of huge businesses, such as transferring important production abroad. One of the best contributions that could be made to the health of small businesses would be for large businesses to pay their bills to small businesses more rapidly.
I do not think that I need to spend much time on the speech of the hon. Member for Basingstoke (Mr. Mitchell), but the right hon. Member for Taunton (Mr. du Cann) made some interesting remarks about the need for more parliamentary control in financial matters. I certainly believe in more parliamentary control in financial matters, though I suspect that the right hon. Gentleman and I differ in how we would seek to exercise that control and the purposes for which we wish to have it. It is important that Back Benchers should effectively control the Executive, and, in relation to Finance Bills, I think that I have made some little contribution towards that principle.
However, it is not simply a matter of Parliament versus Government. There are real party divisions, and Labour Back Benchers see the sort of control and influence that we seek to exert on the Executive from a Labour point of view. No doubt the Opposition would wish to exert control from exactly the opposite point of view. There is no consensus on this matter.
I am exceedingly pleased that, in relation to the sections of the Budget that will appear in the Finance Bill, the Chancellor of the Exchequer has listened to the voices of the Labour movement. It is not necessary this year for Labour Back Benchers to feel that they must be in conflict with the Chancellor on the Finance Bill. Several important arguments have been won, notably the argument that the essential tax concessions that the Chancellor should make are those devoted to relieving the pressing needs of the low-paid and the average-paid. That demand the Chancellor has met.
Unlike last year's Budget, this is a Budget designed to help ordinary workers, especially low-paid workers. It delights me that those on incomes of £50 a week will do well out of the Budget. I think that the Chancellor has been wise. I think that he has been correct. It is clear that he has listened to the voice of the Labour movement. It is always pleasing as a Back Bencher to be able to congratulate one's Front Bench with sincerity.
The sort of thing that pleases me is that an elderly couple will now have a tax threshold of approximately £40 a week. That is an admirable advance: I am surprised that the Opposition have been too churlish to recognise that elderly people on incomes of £4,000 a year, which is considerably above the tax threshold, will be those who in cash terms do amongst the best out of the Budget. Elderly people with an income of £4,000 will be gaining £188. I am glad that that is so. There is merit in the argument that, if people have managed to set aside enough to have some comfort in their retirement years, their saving should be acknowledged. It pleases me that the elderly with incomes which are considerably above the rate of the basic pension will do well out of the Budget.
I shall not labour the points that have been made about the benefits accruing to families, although they are exceedingly important. The advance of child benefit is of great importance. However, it is ironical that it was far easier for Chancellors to increase child tax allowances than it is for Chancellors now to increase child benefit. In real effect, child tax allowances and child benefit are similar except that child benefit is or should be better than child tax allowances.
So it still worries me that the accounting conventions of the Treasury are such that increases in child benefit count as increases in public expenditure, whereas that constraint did not apply to increases in child tax allowances. I hope that we shall not be lulled into a sense of security, which might be false, because we have made an advance in child benefit in this Budget. Until it is fully accepted that increases in child benefit should be regarded in the same way as increases in child tax allowances used to be regarded, this important benefit will always be in danger of lagging behind. I welcome the advance but I feel the need to sound that word of warning.
A good deal of public expenditure is not spending by the Government but is private expenditure in the sense that it is about the transfer of income from certain individuals to other individuals who will then spend that income as they wish. That applies to child benefit and pension income. Those who seek to use the global figure of public expenditure as though it means that every decision about how that sum is spent is made in Whitehall are engaging in dishonest practice. Pensioners make their individual decisions about the spending of their pensions. It is counted as public expenditure, but in essence it is private expenditure. That should not be overlooked. In these matters there is a good deal of exceedingly dishonest argument.
The whole House should welcome the advance being made in the realm of pensions. The debate was opened by my right hon. Friend the Secretary of State for Social Services, and no doubt he is pleased at the increase being made in expenditure on health and in some other directions where decisions are made by public authorities, they being either the Government or local authorities. Labour Members must defend vigorously that sort of expenditure. It is just as much a part of our standard of living to have an adequate health service as it is to have enough money to buy food or pay the rent or mortgage. It is just as important for the standard of living of our population.
If we are honest as Members of Parliament, we must admit that our postbags reflect that every day. We all receive constant requests, suggestions and views from our constituents which imply strongly that people want more expenditure and not less on health, education and other such matters. We on the Labour Benches need to be bold in expressing that view.
Having said that there will be a good Finance Bill arising from the Budget, which my colleagues and I will wholeheartedly support, I briefly make reference to one feature which is disappointing—namely, the element of the Budget strategy relating to employment. It shows rather too much reliance by the Chancellor on the view that, if demand increases, job opportunities will automatically be created. Increased demand will not necessarily result in correct production and management decisions being made to meet that demand.
It is necessary that the Government should be prepared to respond positively to the plans that are being made by working people for the enlargement of production in useful ways. I am pleased that there has been some acknowledgment of that indirectly in the Budget. I say that because I think that the specific demand of workers in Lucas Aerospace to be able to make more kidney machines is being met. I hope that that is not accidental. I hope it is a timid beginning towards the sort of initiative which needs to be taken.
Enormous reservoirs of talent exist in our working people, and it is they who need the incentive and encouragement to develop their ideas. This is an area in which the Government need to develop in a more Socialist and more hopeful direction, but I trust that the advance in the Government's thinking which we see in the Budget will shortly be followed by greater initiatives on these other aspects that I have mentioned.
I am pleased to feel that I shall be able to commend the Finance Bill wholeheartedly and join Ministers in defending it against the despicable attacks which will undoubtedly come from all sections of the Opposition.
Like my right hon. Friend the Member for Taunton (Mr. du Cann), I wish to address myself to the subject of profit sharing. I associate myself with his wise remarks and advice to the Government to maintain flexibility of approach in so far as that is possible. But, like him, I am a little uncertain how far the Government are prepared to commit themselves to profit sharing in the long term. Last summer, when I asked the Chief Secretary what plans he had to encourage the extension of profit sharing in industry, he replied "None". When I asked "Why not?", he said that he was still thinking about it.
It is no secret that the Labour Party has opposed profit sharing in the past. It was within a month of returning to office that the Chancellor of the Exchequer put a stop to Conservative incentives to promote profit sharing. The Labour Party's Green Paper, "Capital and Equality", published in 1973, said:
The company-based profit sharing scheme works directly against the objectives of trade unions and Socialism.
The discredited Bullock committee majority report, with its intellectually dishonest terms of reference, ignored profit sharing completely.
Against this background, we are entitled to ask how genuine the Government's conversion is. Is it simply a cynical manoeuvre to keep the Liberals in harness? Or is there, on the contrary, some real recognition that they have to break new ground in terms of motivating people and involving them in their work, since their record over four years in office is one of record unemployment, and over those four years production has actually dropped so that perhaps they are prepared to think again?
But if the Government are prepared to think again, is the Labour Party prepared to do so? Nationalisation and State ownership are the antithesis of individual ownership which we hope that profit sharing will promote. The Secretary of State for Energy, who is sometimes thought to speak for the Labour Party when it is in Government, has told us that nationalisation is on the agenda again. The right hon. Gentleman said it not in the House but in the School of Oriental Studies in Malet Street. Perhaps that is an appropriate place to call for an extension of bureaucracy since, as some hon. Members may be aware, the Chinese word for the Almighty is "Heavenly Bureaucrat".
In the fairyland of Socialist mythology such a being may exist, but most of our countrymen see bureaucrats rather differently. They would rather have a stake in the enterprise in which they work. They do not favour the collective ownership of all production and exchange, the rule of the bureaucracy—and who can be surprised at that? Nationalisation has not revolutionised, and for the better, the lives of those who now work in State industry. Nor has State ownership become synonymous with first-class motivation and producivity.
The other form of co-operation favoured by the Secretary of State for Energy has hardly fared better. We hear very little of his three co-operative ventures. One has failed, one is struggling, and the other is rewarding its participators rather less well than the conventional forms of employment. But where co-operation does work is where workers have a stake in the business and there is a sensible business strategy.
That has been shown very clearly in the Mondragon experience in Spain, and I commend the Anglo-German paper on this which sets out clearly some issues that the House ought to take to heart.
Whatever those on the Left may say, I believe that there is no evidence to show that those at work are opposed to owning shares in any profitable business in which they work. Indeed, I believe that there is plenty of evidence to the contrary. The initiative for profit sharing in Germany came from the unions. In France, the very word "participation" means a share in the business, and twice as many employees own shares in France as do in this country. In the United States there are nearly 200,000 schemes, with some 20 per cent. of the working population enjoying the benefits of profit sharing.
Despite all the difficulties that have been placed in the way of profit sharing in this country, there are good and successful schemes, of which the best known is that of ICI. There are two points in it which we should bear in mind. The first is that it has been adapted over 20 years to the point where it is now based on value added and is in fact productivity sharing. That must commend itself to the Government. The other is that shop stewards accept the benefit to the company and to themselves of shares rather than cash, because they understand the need for retaining the cash in the business.
Profit sharing may not be a broad highway offering an easy passage out of all our industrial difficulties, but it is a bridge thrown across the chasm of conflict, and it is one that we should be foolish to ignore. I make the following claims for it. It is a potentially unifying force, particularly where employees become shareholders, because they are then, strictly speaking, members of the company. They are entitled to vote, to receive the annual report, and to attend meetings. It is no longer "us and them"; it is "we".
It is also a powerful educative force which good management has now thoroughly taken on board. Recently I spoke to the chairman of a company in the North of England who had particular industrial problems. He took all the shop stewards away for the day. He started by saying to them "Am I right in thinking that you feel that this would be a better business if you were not working for the shareholders?" They said "Yes". He said "Right. Let us see what the shareholders' funds are." He put the figure on the board. Let us, for the sake of argument, say that it was £10 million. They then had a constructive discussion on where that money could be raised and what they would have to pay for it by way of interest. After two hours, he said "This £1 million in interest that we have to pay seems a lot. Shall we see what we pay the shareholders?" The answer was half that.
If only those at work could understand more clearly than many of them do how a company is financed and could in due course receive a proper share of improved output, I believe that we would be on the way to solving our investment problems. The truth is that shareholders are an oppressed class in this country. I suggest that anyone who has held shares in ICI since 1962 will now find that the real worth of those shares is only 60 per cent. of what it was then.
I believe that profit sharing gives every indication of leading to improved performance. A recent survey in the United States which went back over 18 years of company experience demonstrated conclusively that companies which had schemes out-performed those which did not. A recent CBI questionnaire showed that 85 per cent. of those interviewed thought that their companies would be more productive if they were able to share in the profits.
I believe that profit sharing will also lead to improved industrial relations. It certainly softens conflict. That may make it unattractive to some trade union thinking, but the collective bargaining role is still central in these schemes. Many trade unionists understand this and are working for the development of schemes in individual companies.
Finally, profit sharing offers particular protection to individuals through the savings that they are able to make. For example, in the United States in a company such as Sears Roebuck the sum can be very large—tens of thousands of pounds.
Profit sharing can also offer protection to employees who work for a family business which has gone public where the former owners are gradually selling their shares. If a wealth tax comes in, they will have to sell a lot more. They may be tempted to sell the business as a whole. If so, they will sell it to the company which can pay the most. The company which can pay the most is where the synergy is highest. So the potential unemployment which could follow such a take-over would be greatest. If, when such a family sells shares, the employees are able to buy them, they have it in their hands to control the company for the forward period. That is extremely valuable. I hope that, in reply, the Minister will consider whether it would be sensible to give the owners of a business some kind of tax concession if they sell shares to employees. If they do not sell the business they are, in a sense, forfeiting the possibility of maximising the price of their shares.
I have tried to say in a few words why I believe that the Government's initiative on profit sharing should be encouraged. I believe that it can make a significant contribution both to improved industrial relations and to improved output. If the Chancellor's statement is a recognition by the Government that the individual should be encouraged to save and to take a stake in the enterprise in which he works, that is the best news in the Budget. If the Labour Party is now prepared to join with ourselves and the Liberals in developing this, their first tentative approach, that is good news for Britain.
In common with the vast majority of right hon. and hon. Members who have spoken today, I endorse the view put forward that the social implications of the Budget are most acceptable. It may well be, as I hope to indicate in later remarks, that there are reservations about some of these inasmuch as they do not go far enough. However, they are at least welcomed because they are a step in the right direction.
Like the hon. Member for Sheffield, Heeley (Mr. Hooley), I contend that the real yardstick of the Budget and of the Finance Bill will be their effect on unemployment. All of us, as constituency Members of Parliament, are deeply aware of the feeling of desperation that exists in many areas of the country as we see factories being closed down and little alternative employment coming to our areas.
Against that background I remind the House of the manifesto commitments of the Labour Government in 1974 in the Scottish context and also of the reaction of Scottish commentators to the statement made by the Chancellor of the Exchequer on Tuesday. In October 1974, the Labour Party campaigned on the basis that its first and overriding priority for Scotland was to create new and better jobs. There are now 191,000 people unemployed in Scotland. It was, therefore, small wonder that Mr. Jimmy Milne, general secretary of the STUC in Scotland, commented, following the Chancellor's statement, that he saw little evidence of positive measures to ease Scotland's massive unemployment levels. He went on to say:
The new tax adjustments impact on employment levels will be marginal.
Tax relief means nothing to those out of a job and with little hope of getting one.
We had hoped, against that background of unemployment, to see direct encouragement given to manufacturing industries in particular since our manufacturing base in Scotland has shrunk by 30 per cent. in the last five years. We would have particularly liked to see assistance given to the construction industry.
It seems ludicrous to me, representing a constituency in the West of Scotland, where there is severe and bad housing, that, with 160,000 houses in Scotland below minimum tolerable standards, no assistance was given to the construction industry which would have provided better housing for our people and many jobs. In Glasgow the unemployment level is nearly as high as that of Austria. The unemployment level in Paisley is nearly as high as in the whole of New Zealand. In Falkirk unemployment is nearly as great as in Malta.
I take issue with the hon. Member for Heeley on a point in connection with the whisky industry. I do not believe that many Members recognise the implications for the whisky industry of unemployment in Scotland. Most people think of it mainly as a dollar industry in terms of exports and employment coming only through the distilleries in the North and North-East of Scotland. In my constituency there are well over 2,000 jobs tied up with the whisky industry. With the whisky industry being looked on by Chancellor after Chancellor as a gift horse which can be squeezed further and further each year, we are having increasing unemployment levels.
As I pointed out in my intervention during the speceh of the hon. Member for Heeley, the Government, because of their imposition of extra excise duty—an increase last year of 10 per cent.—have lost about £28 million to the Exchequer.
I do not dismiss the problems of alcoholism. The whisky industry has been very generous with donations for investigating this problem. We appreciate the high level of working days lost through alcoholism, but, if we are to try to bring money into a central fund for investment in the economy to provide employment, why should the Government operate a policy which is costing directly £28 million in nine months? After all, that would be enough to help solve the problems of the British Steel Corporation.
In listening to other parts of the debate today, I was particularly taken aback by the contribution made by the hon. Member for Gosport (Mr. Viggers), which seemed fairly typical of the hypocrisy of the Conservative Party. In talking about the oil industry, he made great play of the fact that we should regard this as a capital asset and should see ourselves as trustees of this precious reserve and look carefully at the rate of depletion.
That comment was particularly interesting since the Conservative Party, when in Government, was perhaps even more guilty than the Labour Party in handing out North Sea licences to multinational companies without imposing proper safeguards upon them. The Conservative Party has opposed every measure to ensure that the wealth from oil would flow into the Government, to be distributed to the people. The Tory Party must drop this hypocritical attitude if it is to be taken seriously, although I believe that results elsewhere in the country today will show that the majority of people, at least in Scotland, do not regard the Tory Party seriously any longer.
As the debate was opened by the Secretary of State for Social Services, I should like to dwell briefly on the background of public expenditure and the social implications. In this House the SNP is well known to have a consistent record on public expenditure in that we have opposed all measures aimed at cutting it back. We recognise the implications of this for the future well-being of our society.
Reference was made to the need to invest money in our schools and to retrain teachers. I draw the attention of the Secretary of State to the remarks made by John Pollock, general secretary of the largest teachers' union in Scotland, who said that the £40 million injection into the schools was
a drop in the bucket'
in contrast with the cuts of recent years.
I would have been looking for more. We welcome every penny but £40 million spread throughout the United Kingdom is totally inadequate.
That is a view which I would endorse, particularly when we have the growth of
composite classes in schools and when the Government have operated a building policy of "roofs over heads" and when colleges such as the technical college in my constituency are operating at about 30 per cent. of efficiency because of lack of money.
There is also the Alexander Report concerning Scotland which has not been fully implemented and which is important for community education. The morale of those directly involved in education is at a particularly low level. University teachers have made it clear to the House how they feel about their salary anomaly, but I do not believe that it is recognised that there is a similar anomaly concerning further education teachers in Scotland. It may well be that we can solve those problems inasmuch as the House voted not to extend the pay policy to Scotland. We can, perhaps, eradicate this problem more quickly, given the opportunity.
In terms of social services, I refer the Secretary of State to the situation in Scotland, where 14·2 per cent. of Scots are living in poverty as compared with 12·9 per cent. in the rest of Great Britain. This figure is arrived at not only by taking the Government's supplementary benefit level as a gauge, but having upped it to 110 per cent. we still have much more extensive poverty. This was made clear in the Norris Report entitled "Poverty: The Facts in Scotland". I recommend it to the Secretary of State.
When the right hon. Gentleman yesterday announced his upratings, which are important, I asked him a question to which he did not reply. I hope that at some stage he will take the opportunity of dealing with it. I asked him about the £1¾ billion being injected into the social services. The right hon. Gentleman has still not said how much of this will be clawed back through other methods. I was referring particularly, as was the hon. Member for Welwyn and Hatfield (Mrs. Hayman), to the problem of single-parent families with one child, dependent on supplementary benefit, who find that anything they receive in terms of extra benefit is often taken away in other ways.
We are extremely disappointed that the Chancellor has not seen fit to abolish taxation on the basic rate of widows' pensions. In reply to a Question put my my hon. Friend the Member for Perth and East Perthshire (Mr. Crawford), it was said that this would cost nearly £15 million in Scotland. Although we welcome the updating of the State pension for retired people, we believe, as we have said previously, that this should go as high as £25 for a single person and £35 for a married couple. On an uprating in Scotland from the previous level, that would cost £110 million per annum. Those figures are endorsed by the Scottish Old Age Pensioners Association.
Like the hon. Member for Crewe (Mrs. Dunwoody), I feel that the £50 million to be spent on the National Health Service will go nowhere near meeting many of the problems. My hon. Friend the Member for Galloway (Mr. Thompson) will go into this matter in more detail next Thursday, Mr. Deputy Speaker, should he be fortunate enough to catch your eye. In view of the representations made to us by representatives of the dental services and of consultants, particularly in geriatric, psychiatric and psycho-geriatric specialties, we feel that £50 million will not solve these human problems.
We look forward to hearing what is said on Monday in the closing stages of this debate. We have yet to decide—we shall do so over the weekend—whether to support the Government on the various issues raised. We hope that one of my hon. Friends will catch your eye, Mr. Deputy Speaker, on Monday, when it will be made clear to the House exactly how the SNP feels on these issues.
The hon. Member for Dunbartonshire, East (Mrs. Bain) asked for more expenditure, particularly in Scotland, on education, housing and the alleviation of poverty. If her comparisons had been drawn not between Scotland and the rest of the United Kingdom but between Scotland and comparative English areas—such as Merseyside and the North-East—which are away from the major centres of activity, they would have been more meaningful.
After the 12 previous Budgets, the country clearly attaches less importance than it did to the annual Budget Statement. Nevertheless, perhaps expectations were pitched somewhat too high. That is the fault of the Government, because of the indications given at the turn of the year, which were toned down in February and March. Some of those expectations were unrealistic because of the economic and political constraints within which the Government now operate. Nevertheless, even within those restraints one would have liked a more forward-looking Budget.
Some points I wanted to make have already been touched on by my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley), but among the forward-looking areas I would have liked something along the lines of the near-crusade preached by President Carter to alert the American population to the energy problem. We have had one small movement in that direction in the proposals for insulation of private houses, yet a detailed inspection shows them to be very minor, with a limit of £50. One would have hoped for something more to alert this country to the real costs of energy—not only help with insulation but some clarification of the real cost of petrol.
More could have been done for the quality of life. There is to be additional expenditure on coast line preservation, but there could have been more on these lines.
As my hon. Friend the Member for Coventry, South-West (Mrs. Wise) eloquently said in her references to unemployment, there is less and less correlation between investment and the creation of jobs. With the lack of incentive to the construction industry or any clear picture of job creation, perhaps the Government have missed an opportunity in the Budget.
I have mentioned the economic and political uncertainties which are the background to the Budget and which may lead to some fine tuning in July or thereabouts. But, clearly, among these uncertainties are the assumptions that one must make about world trade. Although my right hon. Friend the Prime Minister has attempted to be bullish, particularly looking forward to the Bonn summit in July, most forecasters are fairly gloomy about the prospects over the immediate future. Whatever is decided in Bonn in July will work on a rather long time scale and is unlikely to have any real effect on the period covered by this Budget.
As regards the assumption about the level of wage increases, we are in a unique situation in that we have virtually successfully traversed the third year of pay policy, with about 95 per cent. of wage settlements over the current year being within the guidelines. Yet the assumption by the Government that the settlements over the year after July will be roughly half of the present settlements must be optimistic in the extreme, particularly when one knows what existing hostages to fortune the Government have already given in relation to the police, the firemen and other sectors.
One knows the various changes in trade union leadership and the reluctance of the trade unions to accept a further year of pay restraint, so the assumption about wages on which the Government are basing this Budget appears to be particularly optimistic, although one must pay tribute to the manner in which over the past three years the Government have educated public opinion to the interrelationship between pay increases and inflation.
The other uncertainty is the effect of the tax concessions on the import bill and balance of payments, even with the extra room for manoeuvre that the country now has as a result of the income from North Sea oil. But it may be that in the manner in which my right hon. Friend the Chancellor has spread his tax concessions he has sought to minimise the effect on the import bill.
This is a Socialist Budget in the best sense. It is realistic in that those areas which are traditionally thought of as areas of concern for the Opposition have been tackled where there is a well thought out and proven case. One thinks particularly of the tax concessions for the farming industry, and the boost to milk production by the school milk concession. With many of my friends, I fought a campaign against a certain unnamed lady in the early 1970s. I think that this is a very important concession to the farming community and something that will be widely welcomed within the Labour movement.
The concession on hotels is of enormous importance because of the contribution that tourism makes to our balance of payments. There has also been a recognition of the contribution made by the small business sector to the health of our overall economic life.
These are areas in which the Government have moved, very properly, in directions which have been charted in part by the Liberal Party and in part by the Conservative Opposition, but they are also areas of traditional concern for Labour Members. The Government have sought to put the major part of their Budget strategy into these areas. I think particularly of the fact that the tax concessions are concentrated, as my hon. Friend the Member for Coventry, South-West has said, on the lower earners, of the immense boost which the Budget has given to family incomes and to the alleviation of family poverty, and of the effect of the 25 per cent. tax band on the poverty trap. These measures will be very well supported by Labour Members.
I think also of the additional funds that are to be given to areas suffering from accelerated steel plant closures. These are major issues which the Government are recognising and for which they are providing funds.
I end on this theme, that the Government, though perhaps cautious—some people say over-cautious—in the sum of £2½ million that they have thought themselves able to dispense in the Budget, in my view have their priorities right in a way that will be very much welcomed on the Labour Benches.
I am grateful to my hon. Friend the Member for Horncastle (Mr. Tapsell) for giving me a couple of minutes to take part in the debate. As the Chief Secretary is present, I shall scrap what I was going to say and address a few words to him.
There is a great deal of agreement about the matter of small businesses. Many things could be done for them that would not cost much revenue. Before the Finance Bill is published, the Government would be well advised to consider some of those things.
For example, I think that the Government have missed the main point over deferred tax as regards small businesses. I refer to the problem of liquidations and the preferential state of taxation in a liquidation. With clawback coming in where there is low stock at times when a receiver goes in, this presents a problem for bankers. The provisions on this matter could easily be amended to give a greater degree of protection to bankers, which would help in that situation. That is a very important area.
There are quite a number of other matters that do not have a great deal of revenue implications but are nevertheless important from small businesses' point of view. Much greater flexibility in the way in which capital allowances can be claimed for small businesses would be very helpful.
The same can be said of retirement annuities for the self-employed. Allowance should be made for the variation in profits of small businesses. In the treatment of business assets which are used in a business but are owned outside a company, the same concessions should apply to assets in the business. There is scope there. For example, we should consider the possibility of small companies being able, with the right sort of safeguards, to repurchase shares that have been held by outside investors. This is another possibility of assistance being given to small companies without necessarily costing the Revenue a great deal.
I welcome what the Government have done for small businesses, but I tell the Chief Secretary that there are many other areas in which they could play a very practical part without a great deal of revenue cost. I should like to see them bring some of these minor but important provisions into the Finance Bill when the time comes.
This has been an extremely interesting debate. We have had particularly valuable contributions from my hon. Friend the Member for Somerset, North (Mr. Dean), speaking with his great authority on the poverty trap; my right hon. Friend the Member for Taunton (Mr. du Cann), who has given unequalled service to the House on the whole question of parliamentary control of expenditure and who spoke with great authority, as always; and my hon. Friend the Member for Basingstoke (Mr. Mitchell), who pioneered the whole national political interest in the problems of small businesses and who, the whole House will agree, deserves enormous credit for the degree of attention which that vital sector of our economy is now receiving.
Benjamin Franklin said that only two things in life were certain—death and taxes. If he had been speaking in 1978 instead of 1778, he might have added a third certainty—that with a General Election coming this Socialist Government, before dying, would reduce taxes.
The Chancellor of the Exchequer, after 13 Budgets in four years, now tells us what some of us had already suspected: that economics is an art and not a science. While even that sudden accretion of modesty in him is profoundly welcome, it has one disadvantage from his point of view. It seriously undermines and weakens the whole intellectual case upon which Socialism has hitherto claimed to be founded. For Socialism, after all, is based on the belief that an omniscient Government can scientifically engineer society and the economy towards a pre-determined and desirable direction and even destination.
By contrast with that historical philosophy of his party, the Chancellor of the Exchequer more realistically—and, it must be admitted, rather late in his political life—now likens the economic policies of Socialism to an artist throwing paint at a canvas. The trouble about this is that he is no Picasso. Since he has been at it for four years and has got through the entire colour range on 13 palettes, it is hardly surprising that the canvas is now in a most fearful mess.
One important aspect of the admittedly arcane economic art, I venture to suggest, should be an attempt to co-ordinate policies so that the main aspects of economic policy, monetary and fiscal, both tend in the same generally desired direction and reinforce one another. This the Budget most conspicuously fails to do. It is in its failure to do so that one identifies its central weakness, as I shall seek to show in a moment, because different aspects of the Budget are bound to pull against one another in a self-defeating and self-destructive fashion.
Indeed, this is the hallmark of the Chancellor's whole stewardship. Like the pudding once proffered to Winston Churchill, this Budget lacks a theme. The Financial Secretary may think that that is very amusing, but it will not be very amusing to the country. The failure to find the right theme may bring this country to disaster.
Consider the inherent contradictions of the Budget. The control of the money supply is to be tightened but the borrowing requirement is to be increased. Public expenditure is to be raised but taxation is to be lowered. Investment is to be encouraged but the cost of borrowing is to go up. Lower inflation is the declared goal but a weakening exchange rate is forehadowed. Unemployment is deplored but the reduced taxation is to be financed by increased borrowing to keep the stimulus to a minimum. Increased productivity is desperately needed, and even predicated, but the necessary fiscal incentives to achieve it are not provided. As the Poet Laureate is reputed to have said in a different context,
If that is art, give me St. Pancras Station.
The Chancellor, almost as though he were aware that he has no policy for industrial recovery in the real world, seems to fear that he may run out of alibis for our present discontent—alibis such as the previous Government, the oil sheikhs, foreign exchange dealers, German economic policy and, more sweepingly, the rest of the world. Those have been the favourite ones so far, to which on Wednesday the Chief Secretary—I thought rather ingeniously—added the additional one of the preoccupation with empire of the British Administrations of the 1860s and 1870s. Now even Gladstone and Disraeli have been added to the Socialist galére of villains responsible for our present economic plight.
The Chancellor, however, as if aware that these alibis are wearing increasingly thin and looking increasingly far-fetched, keeps laying immense public stress on the great financial recovery of this country which he claims to have seen over the past two years. But where now is the hard evidence of the enduring nature of this recovery about which the Chancellor was waxing so euphoric last autumn? The truth is that for a few weeks only we had favourable financial indicators which belied our real economic weakness as a country. Where in the real world is the financial compensation for the trebled unemployment, the halved value of our money, the stagnant production or the massively increased burden of taxation which have been the practical results for our people of four years of Socialist Government?
Despite North Sea oil and gas—without which we would now be running an enormous deficit on our balance of payments—and despite the long and humiliating tutelage to the IMF, our balance of payments is once again on a downward path, one which is widely expected to put this country back into deficit in 1979. That seems almost incredible, but it may apparently happen.
It is little wonder that overseas opinion appears not to share the Chancellor's euphoria about even our financial position, a public confidence on his part, incidentally, significantly belied by the "little jump"—as he put it in his television broadcast—in the minimum lending rate. This "little jump" to 7½ per cent. is widely expected by the markets to presage still further rises in short-term interest rates, with their inevitably unhappy consequences for overdrafts and, ultimately, for house mortgages. Perhaps when replying the Minister of State will tell us whether he expects short-term interest rates to rise still further as a first consequence of this Budget.
That rise in MLR, so unusually announced in the Budget Statement itself, will, I believe, come to be regarded as a genuine and significant distress signal by this Chancellor about his own Budget judgment. For, notwithstanding North Sea oil and the IMF, the recent history of the £ sterling has been profoundly disquieting, particularly in the two days since the Budget. From the start of this year until Budget day, the pound has fallen by over 12 per cent. against the Japanese yen. It has fallen by over 7 per cent. against the German deutschemark, and even the United States dollar—which has been through an unprecedented and alarming collapse of international confidence—has actually increased in value against the pound by nearly 4½ per cent. since the beginning of this year.
Goodness knows what will happen to sterling and to future employment prospects in this country under the Government's present policies if the dollar starts to recover at all strongly. Let us take an even more dramatic international viewpoint of the true nature of the Chancellor's vaunted financial recovery. Let us look back to the very nadir of our econo- mic fortunes in the autumn of 1976—shortly after the Chancellor had to turn back in panic from London Airport. Take, for instance the worst day, 28th October 1976, when the £ sterling reached its lowest ever level against the dollar.
How has the pound fared on international markets between then and Budget day? The deplorable fact is that, despite the letter of intent to the IMF and the massive standby credits from the IMF, the pound now stands no higher against the deutschemark today than it did at that exceptional period of national humiliation. Since then, it has also actually fallen a further 11 per cent. against a Japanese yen.
So whom does the Chancellor think he is convincing when he boasts about our great financial recovery? The foreign exchange markets tell us clearly what the rest of the world thinks about this Government's economic artistry, as has the market in British Government bonds in the two days since the Budget. The Chancellor would do well to remember, despite North Sea oil revenues, that our reserves still largely consist of foreign short-term deposits and bonds—very hot money indeed. No doubt this accounts for today's reassuring statement from the Prime Minister and his repudiation of his chattering Treasury Ministers.
What are the reasons for this renewed weakening of international confidence in the £ sterling, which, as usual, has apparently taken this Government completely by surprise? They are manifold, but basically it is because foreigners think that the British economy is fundamentally uncompetitive in the modern industrial world and likely to remain so until there are very radical changes of policy and towards attitudes to work in this country.
Within the context of matters explicitly covered by the Budget, foreign opinion is particularly critical of this Government's tax system and their public expenditure policy. I want to say a few words about each of these.
First, I take taxation. We all know, and even the Chancellor now recognises, that his tax policies have proved a disaster. That is why he is belatedly trying to reverse them. From the lowest end of the income scale, where the Chancellor has openly admitted that it has paid many people to be on the dole rather than at work, right through every level of earnings, this Government's excessive reliance on very high rates of direct taxation to pay for soaring public expenditure has proved an immense handicap to Britain in the international stakes. The whole world knows it. Even the Liberals know it. Taxation does not create wealth. More often it may dissipate it.
Our first national priority should be to rebuild our wealth-creating machinery. The changes announced in this Budget, welcome though they are as a small token of death-bed repentance, will in no sense change the general tax climate of the country. It is a climate which has become so burdensome, so hot and so enervating that the mad dogs are no longer accompanied by Englishmen when they go out in the midday sun. Englishmen, and, I am told, even Scots and Welsh in increasing numbers, have taken to the new and, the Chief Secretary will be relieved to know, post-imperial sport known as moonlighting. Their complaint about this is that they are plagued by ever-increasing numbers of squeaking bats from the belfry of the Inland Revenue—Britain's leading growth industry.
It is generally agreed that our income tax structure, bad at every level, has been and is at its very worst at the bottom and top ends. I spoke about the position of lower-paid workers in some detail in the taxation debate on 21st February, so tonight I want to say a few words instead about the top end of the tax scale.
The point can be best made by putting it into its historical perspective. In 1946, immediately after the greatest war in our history, we were triumphant but impoverished. Tax levels which had been shouldered as part of the war effort in a universal national mood of sacrifice suddenly seemed excessive and burdensome. But they were not lightened. Direct taxes in 1946 were indeed onerous by peacetime standards. The starting point for the top rate of income tax was then £15,000.
Thirty-two years have passed. Most personal tax allowances have been raised very substantially in that period, some by as much as sixfold. Inflation has increased over those 32 years by more than 700 per cent. Yet the highest tax rate band has only just been raised from £21,000 to £23,000.
The same relative considerations apply, of course, to the other eight higher bands. Had the higher rate tax bands kept pace with increases in personal tax allowances, let alone with inflation, since 1946—itself a year of marked austerity and excessively high taxes—the starting point for the top rate of tax would today be nearer £100,000 than £23,000.
Attention has so much centred on the almost unbelievably high top rate of income tax at 83 per cent. that the low starting levels of the nine higher rate bands have been somewhat overlooked. These two sets of figures, taken together, have proved catastrophic for Britain, as all our industrial competitors overseas clearly see. They are a measure of the injustice done to our best business men and to our best industrial managers—an injustice which has dangerously blunted the cutting edge of this country in a highly competitive world. The whole combined thrust of fiscal policy and inflation has been to penalise excellence and to punish success. Is it any wonder that distinguished Cambridge economists are talking about 5 million unemployed for a country that treats its best potential wealth creators in such a way?
One generation of our national leaders perished on the battlefields of the Somme. The present generation has been and is being crippled by the unending Passchendaele of devastatingly high direct taxation. Inflation and taxation may succeed where the barbed wire and machine guns failed. They may bring this country to its knees.
Yet high taxation is not the basic cause of the problem. It is one of the deadly effects of it. The core of the problem is the relationship of public expenditure to production and productivity.
During four years when production has not risen at all, the Chancellor and the Government have permitted a massive increase in public expenditure. Inevitably this has had to be financed by a much higher level of taxation at home and vast borrowing overseas. After the IMF took control of the main strategy of this country's economic affairs, it looked as if the lesson had been learned. Public expenditure fell and many economic indicators at once began to improve. But the old lags on the Treasury Bench apparently have learned nothing from their time on IMF parole. Like the most hardened recidivists, they have returned to the scene of their former crimes and are bent on repeating the nefarious deeds which got them into so much trouble in the first place.
The recent public expenditure White Paper committed this Socialist Government once again to increases in public expenditure which are almost certain to exceed the increase in GDP. This Budget has confirmed that folly.
As almost every financial commentator has pointed out, the Chancellor has boxed himself into a position where he can reduce tax only by increased borrowing. That is why the stock markets have fallen. They are alarmed, and overseas opinion is alarmed, by the size of the public sector borrowing requirement.
The position after the Budget remains as before but with disappointment added. The poverty trap still remains. There is still no meaningful incentive for middle management. Our ablest talent will continue to emigrate. Profit margins of industry are still woefully inadequate. Investment will still languish. Unemployment will still rise. Inflation will be higher next year than this. The pound will continue to drift down on the foreign exchange markets. The international competitiveness of our exports will diminish still further. Above all, we shall still be living in a country which has to endure the heaviest burden of direct taxation in the civilised world.
A recent survey of family expenditure showed that the average family in this country pays more in tax and national insurance than it spends on food. The tombstone of this Government is already in the hands of the undertaker, and that will make a fitting epitaph for inscription on it.
The hon. Member for Horncastle (Mr. Tapsell) has taken me by surprise. He could have used the time available to him and spoken for a further five minutes.
This debate has ranged widely. We have gone from Benjamin Franklin to the battlefields on the Somme to Winston Churchill's pudding. From that point of view it has been an interesting debate. Perhaps I can try to bring it back to reality after the contribution of the hon. Gentleman.
I shall deal first with the point about child tax allowances. We announced last year our proposal to continue the process of phasing out child tax allowances. The House will recognise in certain cases that the shift to child benefits means that child benefits, unlike tax allowances, are available only for dependants living in this country. This means that taxpayers who maintain children overseas do not generally get child benefit. We recognised this special situation last year and the Finance Act 1977 provided that, subject to certain conditions, parents in this position could claim child tax allowances for 1977–78 at the full 1976–77 rate. We announced last spring after careful consideration that this special relief would be for 1977–78 only, and that thereafter child tax allowances for this group would be on the same lines as for other taxpayers.
In recent months representations have been made about this matter and, after careful consideration and re-examination of all the factors, we now propose that the special relief provided for 1977–78 should continue for the time being. This will give us time to review the various suggestions and representations made to us in the last few months.
The hon. and learned Gentleman could have raised this matter in his opening remarks. He has now passed me the document containing this material. I understand that he is complaining about retrospection which he has underlined and he is obviously upset about the retrospective provisions. I shall examine the resolution and I shall ensure that by Monday, when the debate continues, he will have the full information on the retrospective effect of the resolution.
That was only one of the points. I was asking for general enlightenment. I am surprised that the Treasury Front Bench occupants do not understand their own resolution. I am asking for an explanation of the scope of Budget Resolution 23, and particularly why it is necessary to give it retrospective effect.
I told the hon. and learned Gentleman that, instead of giving him an answer now, which would not be omplete, I shall ensure that, by the time the debate resumes on Monday, he will have the information he requires.
In his opening speech, the hon. and learned Gentleman asked on what assumption the Chancellor had said that earnings are increasing faster than prices. I have news for the hon. and learned Gentleman: it was not an assumption. Much to the consternation of the Opposition, who are doing their best to talk up prices, as they are doing their best to talk up interest rates, the rate of inflation is falling. It is now down to 9 per cent. and it will fall by the middle of the summer, which is a very important time for the rate of inflation to fall, to 7 per cent.
In wage increases, of course, some people have received more than 10 per cent., so if one takes the range of 10 per cent. to 14 per cent., which is where we expect the present round of earnings increases to end, that means that most people are now getting more in wage increases than the rate of price increases. So it is not an assumption: to the Opposition's consternation, it is a fact.
Perhaps it is wishful thinking by the Opposition, but they are clearly doing their best to talk up prices. But perhaps I should now deal with some of the points made by the hon. and learned Member for Dover and Deal (Mr. Rees), who clearly is a little disappointed.
As a result of this Budget, a married man with two children and earning £50 a week, taking into account the increase in social security benefits for which he is paying and the child benefit and other benefits under the Budget, would need an 8 per cent. gross increase in his pay to enable him to get the benefit that he is getting from the Budget. If one considers that that person has obtained a 10 per cent. wage increase, one can see why, over the next six to nine months, the standard of living of those on low pay will increase considerably. That is surely something that Conservative Members should have welcomed instead of carping at the Budget as they have done.
The Minister has mentioned an increase in the next six to nine months. While he is dealing with incomes, will he please comment on paragraph 3 on page 12 of the Red Book? I am not trying to throw a complicated point at him. The paragraph, which deals with assumptions, says:
The forecasts assume that average pay increases in the year beginning in August 1978 are about half the average for the current pay round.
In other words, the Government appear to be predicating their strategy on a 5 per cent. increase in that year. Are we to believe that?
I was dealing not with assumptions or forecasts but with the present situation in relation to the present round and with the present rate of price increases. The hon. Gentleman is talking about forecasts; wage increases in the next round will depend on the arrangements we shall make with the trade union movement. The Opposition have not told us how they propose to ensure moderation in wage increases. All their policies—not only economic but social—would militate against the kind of arrangement with working people which this Government have been able to achieve over the last two years.
I turn now to questions about the money supply. I apologise for dealing with this arcane subject which obviously is not always fully appreciated and understood. I shall say something about the banking March money supply figures, the full details of which have been published this afternoon. I know that the hon. Member for Blaby (Mr. Lawson) is especially interested in these matters. As the hon. Gentleman will know, sterling M3 grew between mid-February and mid-March by about ½ per cent. I am sure that that is viewed with pleasure by Conservative Members. It is less than half the increase recorded in banking February, which in turn was only about half the increase of the previous month.
Another factor that has been exercising the minds of Conservative Members recently is M1, which grew by a corresponding amount in March. Surely the hon. Member for Blaby should be congratulating the Government on their achievement in keeping the money supply under control.
The right hon. Gentleman knows very well that it makes no sense at all to take one month in isolation. The shortest reasonable period to take is three months. Will he tell the House what, on a seasonally adjusted basis, has been the annual rate of increase in sterling M3 over the three month period to mid-March?
The hon. Gentleman now wants to take a three-month period to try to include January. As he knows very well, the money supply increase in January was greater as a result of tax payments. The fact remains that the money supply for the 12 banking months up to April will probably be between 13 per cent. and 14 per cent. That shows a proper sense of responsibility and control of the money supply on the part of the Government.
I shall tell them that in a moment.
Most hon. Members will recognise that part of the reason for the rate of growth this year probably lying between 13 per cent. and 14 per cent. has been the developments that took place in the foreign exchange markets, especially during the autumn. The developments led companies to want to hold more of their liquid funds in sterling denominated assets rather than in dollars. As companies need to have their money readily available without much risk of capital loss, much of the external inflow has stayed in bank deposits. That increased M3 as well as wider liquidity measures.
The increase in company sector bank deposits during last year seems likely to exceed £2 billion, or about 25 per cent. As interest rates on bank deposits have been much lower than during the immediately preceding years, a relatively larger proportion of them from both personal and company sectors has been in non-interest bearing current accounts. That explains why M1 has gone up more quickly than M3 in the past, although it is now coming back on trend.
The prospect now is for the growth of M1 to slow down. That will happen as people adjust gradually to the upward adjustment in short-term interest rates, the first step of which took place last November. Sterling M3 will be growing in accordance with the Chancellor's 8 per cent. to 12 per cent. target range in the coming year.
There will be a continuing substantial inflow into national savings as part of the Goverment's policy to finance public sector borrowing by non-monetary means, and building society deposits will grow more slowly now that the large competitive advantage that they held last year has for the most part disappeared.
Right hon. and hon. Members have expressed concern about the public sector borrowing requirement. It seems that they are reasonably satisfied with our monetary targets. A few months ago the call was for reducing the monetary target from 9 per cent. to 13 per cent. We have done so, and the monetary target for the coming year is 8 per cent. to 12 per cent. Opposition hon. Members now have to look for something else. It is always necessary for them to try to find something with which to create an unstable financial climate. They have now turned to the public sector borrowing requirement. They say that at £8·5 billion it is too high. I remind the Opposition that it is within the limit laid down by the IMF.
Is it not a fact that the new public sector borrowing requirement of £8·5 billion is £3,000 million higher than the outturn of the borrowing requirement for the financial year that has just concluded? It is that which is giving great concern to markets at home and overseas and which forced the Prime Minister to make his statement today.
The answer is "So what?" The point remains that the public sector borrowing requirement for the coming year is £8·5 billion, which is within the limit laid down by the IMF. The real question regarding the PSBR is whether it can be financed in a non-inflationary way. It does not follow, because at £8·5 billion it is £3 billion greater than last year, that it cannot be financed in an non-inflationary way.
The hon. Gentleman said "theoretically", and that is a very important word in the statement that he has just made. I will quote from the hon. Member for St. Ives (Mr. Nott) in 1973. I understand that he will be contributing to this debate. Indeed, I understand that in some circles he is billed as the next Conservative Shadow Chancellor. I do not know whether that is correct. He put very well the point I am trying to make. He said:
It is wrong to think that an increase in the public sector borrowing requirement necessarily means an increase in money supply…the size of the borrowing requirement, although large, need not lead to inflation as long as it is financed with the non-bank public".—[Official Report, 8th March 1973; Vol. 852, c. 721.]
So what point are hon. Members opposite making about the PSBR? Are they really saying that merely because we have a PSBR of £8·5 billion it will cause inflationary pressures? The point is that if it can be financed, as it is our view that it can be, within our monetary targets, it will not cause inflationary pressures.
The difference this year as compared with last year in relation to financing the PSBR—and this is why we have been able to reduce the monetary targets—is that, following our changed intervention policy last October, there is no reason to expect a substantial expansionary impact on M3 from external flows. This means that more of the available increase within the sterling M3 target can be derived from domestic bank lending to the public and the private sectors. In practice, we can reasonably expect public sector debt sales on roughly the same scale as we have seen in 1977–78 so that most public sector borrowing is financed outside the banking system At the same time, the slow-down in inflation and the income tax concessions together will reduce private individuals' need to borrow from the banks, and the Bank of England has reminded banks of the importance of their continuing to give preference to industrial borrowers needing to finance investment and exports. The total requirement for gilt sales to the non-bank private sector will probably this coming year be much the same as we have achieved in the last two years. We have achieved the kind of funding over the last two years which we require in this coming year within the public sector borrowing requirement target to ensure that it is financed on a non-inflationary basis.
Quite apart from the market, national saving also makes a substantial contribution to the funding of the PSBR. My right hon. Friend announced in his Budget Statement a new seventeenth issue of national savings certificates to replace the current fourteenth issue, which will begin to mature in mid-June. The new issue will offer a yield of 6·78 per cent. tax-free over its four-year life. The maximum holding for any one saver will be £2,000. We expect the somewhat higher limit on holdings, together with the competitive interest rate offered, to result in a substantial take-up of the new certificate.
There are other instruments of national savings available, for instance, certificates of tax deposits. We have therefore every confidence of meeting our money supply target. There are bound to be fluctuations from month to month—there always are. Accidents in the timing of Government receipts and payments can cause fluctuations in some future months—for example, in May, when tax rebates will probably come through and when, of course, Government income is lower for that reason.
My final point on monetary policy is that there has been an attempt, certainly among the Opposition recently, to try to equate the present position with what happened under Lord Barber in 1972–73. There are many reasons why the present situation is different. I think that the main reason is that this Government have decided to have proper targets for money supply. I remind the House of what Lord Barber said, when Chancellor of
the Exchequer. Presumably with the acquiescence and approval of many Opposition Members, when asked about monetary targets, he said:
Because one of the main qualities of monetary policy is its flexibility"—
this was Tory policy six years ago—
I do not propose to lay down numerical targets. The policy will be geared to the needs of the situation, and will change as those needs change."—[Official Report, 21st March 1972; Vol. 833, c. 1347.]
What happened? By not laying down monetary targets, as this Government have done, for each of two years we had an increase of 25 per cent. in the money supply. The Tory Government did not even bother to lay down monetary targets. The main difference between now and 1972 is that we have a Labour Government who have always pursued responsible financial policies, whereas we have a Tory Party which in Opposition talks about responsibility but in Government practises financial profligacy.
The hon. Member for Horsham and Crawley (Mr. Hordern) made an interesting speech. If one reads the debates in 1972 and 1973, one finds that he was the only Tory Member at that time who even bothered to mention monetary policy and the problems that were created. The only Opposition Member who was concerned about monetary policy at that time was the hon. Member for Horsham and Crawley. I am sorry that he is not present.
I should like to make one point on the hon. Gentleman's speech. He seemed to imply, as did the hon. Member for Horn-castle, that there was something wrong about cutting taxes in the Budget and having a borrowing requirement. The suggestion was that we could not cut taxes and at the same time have a borrowing requirement for the year in which taxes were cut.
I suppose that one must go back a long way to the proposition that we can cut taxes only when the Budget is balanced. That is what Opposition Members were implying. They were saying that we could not have a tax cut unless we balanced the Budget. The implication was quite clear. The last statesman in the Western world who tried to do that was President Hoover, in the United States, and the consequences at the time were disastrous.
I think that I had better ignore the comment made by the hon. Member for Blaby and carry on with my speech.
I should like to mention briefly some of the proposals on capital transfer tax, because the problems of small businesses have been raised and these proposals will help small businesses.
The main proposals are the £10,000 increase in the threshold and the improvements to business relief which were announced in October. As the Chancellor then said, they will cut the yield from capital transfer tax in 1978–79 by £65 million. It is estimated that this year the combined yield of capital transfer tax and estate duty will be £370 million.
The proposed improvements to business relief and the new rate scale will be particularly welcome to the owners of small businesses to whom death duties can pose special problems. As a result of these changes, the capital transfer tax bill on a lifetime transfer of business interest of controlling shareholding worth, say, £100,000 will go down from just over £7,000 to £2,375. On a transfer of business worth £100,000 the capital transfer tax payable will now, as a result of these new measures, be £2,375 on a lifetime transfer. I suggest that that is not a substantial amount to pay in capital transfer tax. On death transfer it will go down from over £15,000 to £4,750—again, a reasonably light charge in respect of death duties. If a husband and wife own a business jointly, that will represent a business worth £200,000.
There has been one change in the business relief proposals announced in October. It was originally intended that the increase in the 30 per cent. relief to 50 per cent. and the new 20 per cent. relief for minority holdings in unquoted companies should be subject to a cumulative limit of £500,000. As a further measure to help businesses, this limit is now being dropped, although many small businesses will not be considered small with a valuation of £500,000. Farmers will benefit from the changes to business reliefs. In most cases they will now get relief at 50 per cent. whatever the size and value of their farm.
Will the right hon. Gentleman consider advertising extensively these fairly complicated reliefs to small business men in parallel with the elaborate advertisements of the financial community who are trying to put the fear of God into small businesses to sell their schemes?
I am conscious of this point. When we introduced the capital transfer tax there were insurance salesmen touring mid-Wales trying to convince small hill farmers that they would have to pay substantial bills in capital transfer tax. The value of their farms were such that they would never pay any capital transfer tax. I take the point made by the hon. Gentleman that a lot of fear has been created partly by people who have a vested interest and a financial interest in creating that kind of fear.
Business relief is being extended for the first time to charges on the disposal of timber after an election to defer payment of tax on the death of a timber owner. The hon. Member for Blaby should not laugh. Timber is an important subject. It is important as a natural resource in this country. The hon. Member should be pleased that the Government are giving some more incentives to timber growing in this country instead of laughing in the way he is doing.
All the changes in business relief take effect from 27th October 1977.
The capital transfer tax rules for family arrangements represent a technical matter. The hon. and learned Member for Dover and Deal will understand it. I am not sure whether the hon. Member for Blaby will understand this point. The capital transfer tax rules for family arrangements have given rise to considerable practical difficulties both for those who are to advise executors and for those who have to administer the legislation. The Finance Bill will redefine these rules in a way which I hope will remove the difficulties in future and will make them easier for the hon. Member for Blaby to understand. I draw the House's attention to the Inland Revenue Press release issued on 11th April.
As my right hon. Friend the Chancellor said in his Budget Statement, the Bill will put a stop to capital transfer tax avoidance schemes involving the purchase of associated endowment and term life policies which exploit defects in the existing legislation.
According to The Times newspaper recently, a number of insurance companies have been marketing this scheme. One company alone is said to have taken £5 million in premium income. The Bill will also prevent the avoidance of capital transfer tax charges on settled property. These measures will take effect from Budget day. They will include provisions to counter abuse of the exemptions for distributions to the settlor for the sale of reversionary interests and to alter the treatment of protective trusts.
During these debates we have had a certain amount of carping criticism from the Opposition about the Budget, but the Conservative Party has not put forward or attempted to put forward any coherent policy of its own. It has no policy on wages except its now new-found adherence to monetary policy which will no doubt disappear when it gets into Government. It has not put forward any coherent policy on taxation or the economy.
However, we know what the Conservative Party will do. We have heard it all before. The Tory Party does not change its spots. It cannot. Once it gets into power it will forget about Milton Friedman, and about Dr. Hayek, or whoever is behind the American economic policy at the moment. It will embark upon a gigantic tax-cutting spree to benefit again mainly those at the top of the income range—exactly what it did in 1972–73. But on this occasion the consequences will be more disastrous than they were the last time.
Perhaps I could remind the House of what a newspaper said—I do not think that it was trying to criticise—about the 1972–73 episode of the 1972 Barber Budget, which created all the problems and all the inflationary pressures from which we have suffered since. I apologise to the House for bringing this up, but it is very important that the country should realise that the Tory Party has not changed any of its policies of 1972–73 and that if it got into power again it would do exactly the same. I should like to refer to what was said by the City editor of the Daily Express, who was
very enthusiastic about Lord Barber's Budget of 1972–73. Hon. Gentlemen opposite may laugh, but the Daily Express is an important paper for the Tory Party. The column was headed "Punters' Charter". The City editor went on to say:
'Heads I win—tails the taxman loses.'
That is the kind of Budget that the Tory Party likes to see and is the kind of Budget that it has been pressing upon us. He goes on to say:
That must be the jubilant motto this morning of the men who make share prices move—institutional fund managers and the rich, surtax-paying City punters. For both, happy days really are here again.
That was the rather short-term reaction of the City editor of the Daily Express. Perhaps we could not expect him to look any further ahead. At that time, in 1972–73, bliss was it in that dawn to be alive. The City editor continued:
For both, happy days really are here again. But it is the stock market speculator especially who has not only the reason but the incentive to cheer.
Those are the financial policies we had the last time the Tories were in Government.
We have heard nothing, during the four years that we have been in Government and the Tories have been in Opposition to show that the Tories have learnt from what they did at that time. They have no policy for wages to ensure that what happened the last time does not happen again. The philosophy is that they cut taxes substantially at the higher end of the scale. I know that Tory Members do not like to hear this, especially the hon. Member for Blaby. I accept that he was not a Member of the House at the time. If he had been, he would, like a sheep, have followed the rest through the Lobby.
This Budget attempts to do two things. It attempts, first of all—and perhaps this has got lost in our debates—to create a better progression in our tax system. We have a starting rate of 34 per cent. It is far too high a rate at which to enter tax. The profile of the progression of our tax system is extremely unfair and inhibiting. This position arises partly because of our PAYE system. With such a sophisticated system there has to be a fairly long basic rate. Otherwise, a PAYE and deduction system such as we have cannot be operated very easily. At least we have made a start on improving the progression of the tax system and, quite apart from how much money anyone will get out of this Budget, I should have thought that the Opposition would at least applaud that as an attempt to make a start on improving the progression.
It may be that we were wrong in 1969 to do away with the reduced rate band, although one must say, with hindsight, that the problem has got worse since, mainly as a result of inflation. With hindsight, it is clear that we should not have done away with those reduced rate bands in 1969.
The hon. and learned Member for Dover and Deal seemed to indicate that he would prefer an increase in thresholds. It is clear why the Tory Party prefers that. It will benefit mostly those at the top of the scale. The strength of our proposals is that the people at the bottom of the scale get more of a benefit in percentage terms and the percentage is reduced the higher up the scale a person goes. Quite apart from the monetary effects, it is important that we have now made a small step towards improving the progression of our tax system.
Second, the Budget creates the prospect of stable growth, in the private and public sectors. It provides a non-inflationary stimulus because we believe that we can finance borrowing without creating the kind of inflation which the Tory Party creates when it is in office. In the private sector, the Budget measures will put purchasing power into the hands of those who most need it, those who have suffered most in the past two years—the lower paid. They will receive a greater benefit than those on higher incomes. With the stimulus to public expenditure and the stimulus to private consumption contained in the Budget, I believe that we can get a reasonable growth rate to enable us to get out of our industrial difficulties and reduce unemployment.
The Government, in conjunction with the trade union movement, have put right the excesses of Tory Party policy up to 1974. We have got the inflation rate down below double figures. This Budget contributes to and consolidates that success. It will ensure that next time, when we consider with the trade union movement the wage assumptions for next year, we get inflation down even more, improve our international competitiveness and make a substantial contribution towards creating a lasting reduction in the rate of unemployment.