Orders of the Day — Finance Bill

– in the House of Commons at 12:00 am on 27th June 1979.

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Order for Second Reading read.

4.17 p.m.

Photo of Mr John Biffen Mr John Biffen , Oswestry

I beg to move, That the Bill be now read a Second time.

It is customary to use the latitude of a Second Reading debate to comment upon the economic situation which has proceeded in the light of the Budget. This year, however, we are likely to be able to have such a wide-ranging debate on clause 4—the clause which embodies the regulator powers—which will be debated on the Floor of the House. Therefore, it may be appropriate if I shorten my remarks to cover three general points on the economy at large before turning to the contents of the Bill.

I should first like to comment upon the raising of the minimum lending rate to 14 per cent. However much one may have agonised about that disagreeable decision, it is quite clear from the banking fiures that were published two days after the Budget that it was an unfortunate and unavoidable necessity.

Secondly, I draw the attention of the House to a question for written answer, which in our present state of Hansard services may have been overlooked. The cash limits have now been published as a White Paper in typescript, and this information was disclosed in a written answer. The cash limits are in line with the policies outlined by my right hon. and learned Friend the Chancellor and myself, and should yield savings of around £ 1,000 million. I say once again that it is an objective which is formidable, and its achievement cannot be painless.

The third matter to which I turn is the domestic reaction to the Budget. Perhaps inevitably there has been sharp but genuine political divide over the scale of public spending and the means used to finance it. None the less I welcome the commitment of the Leader of the Opposition that it was the political and not the industrial wing of the Labour move-men which should seek to frustrate and challenge the economic and political objectives of the Treasury Bench. I am happy to read into the record what the Leader of the Opposition said on 17 June to his supporters at a Felixstowe meeting.

The right hon. Gentleman said: In Parliament, the Conservatives must expect fierce opposition"— I have no doubt that that is what we shall receive over the coming weeks, and it is part of our essential democratic tradition. "But," the Leader of the Opposition went on, I make it clear that we shall not support industrial action taken by bodies outside of Parliament for purely political objectives. It is Parliament and our democratic institutions that must be the focus of debate and decision.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

I am not disagreeing with that statement, but will the right hon. Gentleman explain that as a result of his Government's actions there may be serious cutbacks of local authority workers and so on? If the workers in those areas feel so strongly about it that they decide, in order to protect jobs to take industrial action which they consider to be an economic matter, will they acting politically or economically? What interpretation would he—or even my right hon. Friend the Leader of the Opposition—put upon that? Is not it quite clear that the economic activities of this Government are bound to lead to serious confrontation in the future between trade unions and the Government because of the cutbacks which are likely to take place?

Photo of Mr John Biffen Mr John Biffen , Oswestry

I should judge industrial disputes on a case-by-case basis. Just as when there were cutbacks in the public sector in 1976 as a result of the terms of the IMF letter, there is obvious resentment on the part of those in the public sector who see the public sector being squeezed. But at the end of the day the size and scale of the public sector is a political decision which has to be taken in this House and nowhere else.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

That is no answer to those who wish to protect their positions.

Photo of Mr John Biffen Mr John Biffen , Oswestry

The ability of the hon. Member for Liverpool, Walton (Mr. Heffer), from a sedentary position, to state the obvious is almost without limit.

I turn to the Bil litself. It contains major tax reforms, but as a Bill it is mercifully modest in length. Because of the circumstances in which it was introduced, it was necessary to keep its contents to a minimum. As presented, the Bill contains 24 clauses. This means that it is one of the shortest in recent years. Apart from those specially curtailed Bills which have immediately preceded elections, it is the shortest spring Bill since the war.

Photo of Mr John Biffen Mr John Biffen , Oswestry

Whether it is the worst is a matter which will be judged over the months and years ahead. I suggest to the hon. Member for Ormskirk (Mr. Kilroy-Silk) that it will be better to conduct these arguments on the basis of calm examination than by an exchange of slogans which would not even grace a factory gate meeting.

I turn to the fact that the Bill will be taken on the Floor of the House. As I am sure the right hon. Member for Leeds, East (Mr. Healey) will recognise, this is something of a novelty. This must be the first time for many years that we have reverted to what once was a traditional practice in this House. I still retain some sympathy for the old-style approach to Finance Bills which had them taken wholly on the Floor of the House. Although I do not entertain for a moment the thought that we shall ever return to that arrangement, this year we have the advantage of the Bill being considered in its Committee stage by the entire House.

The main public interests in this Bill are contained in two clauses, one referring to income tax and one to value added tax. But at the outset I mention briefly other general but important tax matters which are contained in the Budget.

First, we regard the package of proposals for the petroleum revenue tax which we have introduced in part III as fair and fully justified in the light of the recent and continuing increase in the price of oil, although I am not entirely sure that they were wholly justified when they were initially announced last August. But we thought it right to introduce at the same time two petroleum revenue tax concessions relating to expenditure relief to which I know the industry attaches importance.

The proposed removal of the British National Oil Corporation's exemption from petroleum revenue tax will have surprised no one, especially as the corporation was in any case already liable for corporation tax. My hon. and learned Friend the Minister of State will deal with this matter at greater length when he comes to wind up the debate.

The other general item to which I refer is car leasing. The proposed restrictions on the tax allowances available for business cars which are leased had been widely expected as the present rules are clearly anomalous, especially for luxury cars. It is clear from its comments that the leasing industry understands and accepts the need for these changes, which are elaborated in clause 14.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

May I ask the Minister of State to reflect on whether the relationship between petrol prices and diesel prices is really satisfactory? It is a rather different relationship from that in some other countries. We seem to be putting a premium on that source of energy which wastes most.

Photo of Mr John Biffen Mr John Biffen , Oswestry

I am grateful to the hon. Member for West Lothian (Mr. Dalyell). He will appreciate that my remarks on the petroleum revenue tax cover a totally different clause in the Bill. I think that he has in mind clause 2. I make no answer on behalf of my hon. and learned Friend. He will deal with the hon. Gentleman's question when he winds up the debate. However, I am sure that the hon. Member for West Lothian will agree that one of the advantages of having the Committee stage on the Floor of the House is that matters such as this can be ventilated properly when the relevant clause is before the Committee.

I turn to the two items which have excited the most popular political comment. Clause I establishes a substantially transformed value added tax. There are two major features of the United Kingdom value added tax. The first is that it has one positive rate of 15 per cent. The other is that it will continue to have a widespread range of zero ratings in respect of food, fuel, housing, public transport and children's clothes and footwear. Because of the wide extent of zero ratings, it means that our value added tax on total purchases will average out at about 8 per cent. That United Kingdom figure compares with our Community partners', on the latest available figures, of rather less than 15 per cent. in France, rather less than 9½ per cent. in Germany and about 7¾ per cent. in Italy, with the other small Community economies having rates rather closer to that of France than to the lower end.

The value added tax which we are proposing, therefore, still remains one which is at the lower end of the Community scale if it is considered in respect of total purchases. That is because of the two principles that I have embodied.

The value added tax increase has led to much argument about the impact upon the retail price index and about the real value of the retail price index as a measure of inflation. I do not wish to rehearse those debates again or indeed anticipate them. They will feature in Committee. At times, however, I feel like echoing William Jennings Bryan and asserting that British economic policy should not be crucified on the cross of the retail price index. I put the dilemma to the myopic RPI spotters concerning indirect tax. What was the alternative?

Some commentators have suggested that my right hon. and learned Friend the Chancellor should have increased taxes on drink and tobacco. Apart from the fact that most of these taxes are less buoyant sources of revenue than VAT, increases here would have had a considerable impact on the retail price index. For example, a 10 per cent. revalorisation of the duties on drink and tobacco, raising a little less than £300 million in a full year, and about £200 million in 1979–80, would have increased the retail price index by about 0·5 per cent. A 20 per cent. revalorisation, raising about £575 million in a full year, would have increased the retail price index by about 1 per cent. If, for example, a 20 per cent. revalorisation had been combined with a 12½ per cent. rate of VAT, my right hon. Friend would have raised revenue of only about £3,250 million in a full year. That is nearly £1,000 million less than from a rate of VAT of 15 per cent. and would still put up the retail price index by well over 3 per cent., which is only a touch less than will be obtained from 15 per cent. VAT. Given the broad range of judgments that my right hon. and learned Friend was able to make on indirect tax, his decision was correct.

Clause 5 concerns income tax. It provides for substantially increased allowances, substantial reductions in top rates and a cut in the basic rate. Inevitably there has been much speculation on the relative merits of direct and indirect taxation.

I was interested in the views of the right hon. Member for Down, South (Mr. Powell) during the Budget debate. I acknowledge my debt to the right hon. Gentleman for my knowledge of and education in economices and much else in the political world, but his comments on my right hon. and learned Friend and his Budget were somewhat less than charitable. I must at least try to put an alternative view. I wrote to the right hon. Gentleman explaining that I intended to refer to his speech. He cannot be here this afternoon because he has to attend an important meeting in his constituency, and he explained that the hon. Member for Antrim, South (Mr. Molyneaux) will be on that Bench.

I do not wish to engage in more than a gentle reproof of the right hon. Member for Down, South, because I am somewhat of an apprentice in providing reproof to him. I was much inspired by the Morecambe budget that the right hon. Gentleman delivered to a seaside audience, coincidental with the Conservative Party conference of 1968. It is about all that is remembered of that Conference. The right hon. Gentleman was to some extent contemplating the attractiveness of one set of tax cuts against another. In fairness to him, let me say that these cuts were provided for by an imaginative policy of public spending reductions. He said: though there are several indirect taxes … which I heartily detest, I confess to preferring a good, solid attack upon direct taxation. I believe in 'letting the dog see the rabbit,' and there's no better way than letting him see a good, large chunk of his income. Encouraged by that observation, I have two further points in defence of clause 5. First, I welcome private wealth and the increase and aggregation of private wealth as a counterpoise to the immense power of the centralised western industrial State. Secondly, that private wealth should be capable of its earning within one generation.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The right hon. Gentleman says that private wealth should be capable of its earning in one generation. Does he favour stringent estate and death duties to ensure that some of it is not passed on to the next generation?

Photo of Mr John Biffen Mr John Biffen , Oswestry

That does not follow. Private wealth should be capable of being aggregated in one generation. That is better than a fossilised society where wealth can be transferred from one generation to another, but where the incidence of direct taxation renders impossible the creation of new sources of private wealth.

Photo of Mr John Biffen Mr John Biffen , Oswestry

I shall not give way, I have indicated "No". There is a natural clash between those who want extended State power with its inevitable increase in taxation and others who resist such a proposition.

Photo of Mr John Biffen Mr John Biffen , Oswestry

The right hon. Member for Heywood and Royton (Mr. Barnett) wrote in The Guardian the other day that—

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

Who created the wealth brother? It is working people; it is not you.

Photo of Mr John Biffen Mr John Biffen , Oswestry

The right hon. Member for Heywood and Royton wrote that the Labour Party had an unwillingness to examine almost any public expenditure cut. That article was even-handed in the curses that it delivered on the heads of both major parties. None the less, it represents a challenge for the British economy that there is one major political party—

Photo of Mr John Biffen Mr John Biffen , Oswestry

The atmosphere is becoming that of a late-night Committee. We owe it to the procedures of the House to maintain a Second Reading atmosphere.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

The right hon. Gentleman is lecturing.

Photo of Mr John Biffen Mr John Biffen , Oswestry

The hon. Member for Walton has often made the error of lecturing unmercifully. I have never sought to be a lecturer and few hon Members on the Conservative Benches have. The hon. Gentleman is the last hon. Member to whom I begrudge time. We shall have an oportunity to exchange philosophical differences of opinion on wealth creation and retention, probably even ranging to the short title of the Bill.

None the less, we have the difficulty that there are powerful elements in the country opposed to any cut in public spending. The consequence is that we have levels of taxation that are grotesquely out of joint.

There are three human factors that I pray in aid in supporting a tax on spending rather than earning. First, the type of tax on spending that we have chosen is value added tax. That clearly demonstrates that the Budget is not merely a blueprint of what are often the continental European tax structures. An option that the hon. Member for Colne Valley (Mr. Wainwright) must have considered is taxing the national insurance contribution. The Government have wisely chosen to avoid that and preferred value added tax. To that extent it is a British Budget, if one likes, albeit that my right hon. and learned Friend has made certain moves towards a more continental-scale value added tax.

Secondly, I believe that a tax switch is justifiable, although in no sense quantifiable, on the whole question of the element of moonlighting. Nobody knows the extent to which revenue is forgone by the successful execution of moonlighting, but certainly tax as you spend is much more likely to catch the moonlighting classes than tax as you earn. A number of attempts have been made to give some assessment of this problem, perhaps most recently by John Dale in The Observer last Sunday. Some have thought that the "black economy" might even be as high as 7½ per cent. of the gross domestic product. I do not believe that it is possible for us to make any evaluation, but that it exists on a substantial scale is undeniable. One goes beyond that only at one's statistical peril.

The third element I pray in aid is one referred to by the right hon. Member for Down, South—that a substantial reduction in direct taxation would, as he said, let the dog see the rabbit. It is often said that Budgets and Finance Bills have to be judged over months rather than weeks. I think that I would agree with that statement, and not even the Committee stage of this Bill, will unlock the answers to the problems to which the Budget is addressed. But I think that this Bill and the Budget it sustains attempt to redress two balances—first, the balance between spending, taxing and Government borrowing, and, secondly, the balance between the kinds of taxes necessary to finance Government spending.

This is a fundamental and reforming Budget, which is supported by this Bill, and it carries acknowledged risk. But it is inspired by a concept of social justice and the demands of economic realism, and I commend the Bill to the House; for without political and economic risk there can be no reward, and the House has the chance to play its part this evening.

4.42 p.m.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

I think that we shall enjoy debating these matters with the Chief Secretary to the Treasury because no one I have ever met so personifies the truth of the old saying that one can present the most extreme and bizarre propositions in a style of total reason, moderation and good humour. Some of the things he said almost defy belief, and I shall deal with them later.

I agree with what the right hon. Gentleman said at the beginning of his speech—that we shall have an opportunity next week, in the traditional debate on the regulator clause, to debate the economic situation as a whole, and that will be a good moment because it will follow the increase in oil prices on which the OPEC countries are now deliberating and the response of that increase in prices by the meeting of heads of Government in Tokyo. Nevertheless, the House will not be surprised if I spend some time now discussing again, in the light of what we have learned in the last fortnight, the impact of the Budget and the Bill on the economy as a whole.

In my first reaction to the Budget a fortnight ago, I made three fundamental criticisms of it. The first was that it would produce a massive increase in price inflation at a time when inflation was already rising; secondly, that it would produce a massive fall in economic growth at a time when growth is already falling all over the world and is set to fall even faster following the actions of the OPEC countries; thirdly, that it would therefore produce a massive increase in unemployment and bankruptcies after two years in which both have been slowly but steadily falling.

I can repeat all those criticisms with even greater force today. Indeed, they are now being made with growing fury by the British people at large. The polls tell us that it is the most unpopular Budget for 27 years. The Prime Minister has had the shortest honeymoon on record.

The fury at the Budget is strongest amongst those who were tricked into voting Conservative at the last general election by firm and explicit assurances by people who are now in government that they would not do the things which in fact they have done. The country was assured that a Conservative Government would not double the rate of value added tax, that they would not break the link between pensions and earnings, that they would not sell off Winston Churchill's legacy to the British people in the form of a majority holding in BP, and that they would not raise prescription charges. Indeed, that last pledge was given particular prominence by the Conservative candidate for Reading, South, who not only said We are not considering any increase in health service charges". but added In fact we might reduce the charges on glasses. That candidate is now the Minister for Health, and I presume that the new Secretary of State for Trade will be reporting him to the Office of Fair Trading in consequence.

The core of the criticism that we and the country are making of the Budget rests on the massive increase in price inflation which is being produced mainly, but by no means entirely, by the increase in indirect taxes, in VAT and in petrol duty. These tax increases, as the Bank of England Quarterly Bulletin pointed out last week, will increase the retail price index by about 4 per cent. at a stroke. It could be more, because there are many signs already that some shopkeepers, traders and garages are increasing their prices by far more than is justified by the increases in taxes and duties, and, of course, they are free to do so with total impunity now that the Price Commission is sitting in the condemned cell waiting for the gallows.

In the debates on the Bill, we will be raising many aspects of the increase in VAT—its effects, for example, on the disabled. I am glad that the Secretary of State for Social Services told us yesterday that its effect on Motability at least will be removed so far as the put chase of cars for Motability is concerned. But its effect on all the disabled who buy their own cars and have to spend their own mobility allowance will be as severe as ever.

Then there is the effect, for example, on the national heritage, which the Leader of the House has told us that he was appointed to protect. We already read that the increase in VAT from 8 per cent. to 15 per cent. is certain to lead to a flood of British works of art abroad because VAT is not paid on sales abroad.

But the most important single effect will be on services. The thing that really staggered me in the Chief Secretary's speech was his argument that the Budget will discourage the "black economy"—moonlighting. In fact, it is a moonlighter's charter. Hundreds of thousands of people who have jobs done for them in their house or garden will make some arrangement with the person who does the job not to pay the VAT.

The right hon. Gentleman does not live in the real world. He could not have made such a statement if he had taken the trouble to find out that the black economy, as far as anybody can discover—and I agree that it is difficult to know its precise size—is far greater in countries where the VAT rate is higher than it is in this country, and where the shift that he recommends from direct to indirect taxation has already taken place. In fact, the increase in VAT to 15 per cent. will—as the right hon. Gentleman must know if he knows anything about the real world—give an enormous boost to the black economy throughout the country

One question we shall be discussing during the debates on the Bill is why there is no increase in the threshold for registration for VAT. We have heard much in recent years from the Conservative Party about its concern for small businesses, yet it is raising the inflation rate to 18 per cent. this year and leaving the threshold for VAT registration at £5,000, where it was first fixed many years ago.

I hope that somebody from the Conservative Party—I know that there are some distinguished members of the business community on the Conservative Benches—will explain why the Confederation of British Industry has uttered not a peep now that the rate of VAT has gone up, not to 12½ per cent., about which it was worried, but to 15 per cent. It told me and the Chancellor in recent weeks that it would be disastrous to raise VAT above 10 per cent., that it would be severely disruptive to British industry.

The Chancellor took pride in our earlier debate in pointing out that VAT did not cover some items of particular importance to poorer families—food, public sector housing, the lighting and heating of homes, and public sector fares. But he took great care of this omission in VAT, because other aspects of his Budget bore very hard indeed on each of the items that is not subject to VAT.

For a start, the right hon. and learned Gentleman cancelled the increase in child benefit which was planned for November. That means that all those with children will have less money to pay the additional cost that he is imposing on them than they would have had if the election had gone a different way. He told us quite clearly that VAT did not fall on fresh food. But the Conservative Government's agricultural policy does. We tasted the first bitter fruits of that policy on Friday, when the Minister of Agriculture, Fisheries and Food ran away in Luxembourg at the first whiff of grapeshot. According to one newspaper, even the Prime Minister and the Foreign and Commonwealth Secretary were totally unprepared for his spineless capitulation. Let me read the account of what happened. One report said: Mrs. Thatcher was at a loss (as was Lord Carrington at his press conference)"—

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , Knutsford

Is it in order, Mr. Deputy Speaker, for the right hon. Gentleman to discuss the common agricultural policy on the Second Reading of the Finance Bill?

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

That is not a point of order. The right hon. Gentleman must make his own speech.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

The hon. Gentleman has been away from the House for far too long. I shall continue with the quotation. Perhaps I should start it again. The report said: Mrs. Thatcher was at a loss (as was Lord Carrington at his press conference) and she had to spend half-an-hour on the telephone with Mr. Walker before settling down to the evening's ration of foie gras. The President of the European Commission described the right hon. Gentleman's behaviour as disastrous. Even The Daily Telegraph was compelled to admit that the Commission's loudly-expressed dismay was entirely justifiable". The Minister of Agriculture, Fisheries and Food described it as the best deal ever, but not one person, not one organisation, with any knowledge of the subject agreed with him.

We were told in the press only yesterday that the Minister's estimates were widely challenged by officials in Whitehall as well as in the Community and by members of the food trade. The only mitigation of what the head of the Consumer Council described as an "expensive disaster" is a subsidy on butter, but, according to those who will have to set the price of butter, we shall be very lucky if it is half the 6p that the right hon. Gentleman claimed, and we shall be back to the present price in a couple of months at most.

Of course, the devaluation of the green pound to which the right hon. Gentleman agreed is only the first step, like the Chancellor's Budget, on a long road. It is the first step to complete parity of the green pound.

So much for food. Now let us look at another aspect of VAT. It does not affect housing in the public sector, but the Chancellor is taking care of that. Councillor Taylor, the Conservative head of the Association of Metropolitan Authorities, has said that the Budget will leave the local authorities short of £ 540 million this year. The Chancellor and the Chief Secretary hope that the local authorities will meet that deficit by putting workers on the streets. Some no doubt will, but many will dip into their balances, and to the extent that they do there will be no public expenditure cut at all. However, many will go for massive supplementary rate increases in the autumn.

Here is another irony. The Prime Minister promised us some years ago that she would abolish the rating system if she came to power. Not only is she keeping it, but she is increasing its burden. Worse still, she is refusing to distribute the burden more fairly. The Secretary of State for the Environment told us last week to tear up the rating revaluation forms. Therefore, the poorer areas will continue to subsidise the City of London, the city of Westminster and Mayfair through the rates.

Let us consider rents. The Chancellor took pride in the fact that VAT did not touch public sector housing. But what will happen to rents next April? We shall see a massive increase to meet the financial problem created for local authorities by the Chancellor, even if he does not then decide on the massive cut in the housing subsidy to which he pledged himself before the general election.

Private housing will suffer quite as badly. People with mortgages already lose the tax relief on mortgage interest because of the cut in the basic rate. We are told that they now face the probability of an increase in interest to 13 per cent. in July, which will by itself cancel out at a stroke all the benefits that the Chancellor claimed would come from the Budget.

A family on £ 100 a week—the average family that the Chancellor took the other day—with a £10,000 mortgage, which is rather below the average for new mortgages, will lose 75p a week through the reduction in the basic rate and £1·70 a week through the increase in the mortgage rate to 13 per cent. That means a loss of £2·45 a week for the average young family as a result of the increase in the minimum lending rate, which the Chief Secretary was trying to defend a few minutes ago.

The Chancellor told us that VAT did not affect the lighting and heating of houses, but other aspects of his Budget do. He is taking care of that as well. Coal has just suffered its second price increase in the past six months, leading to a total increase of 15 per cent. We are told that there will be another increase in the price of electricity in September. That will mean a 16 per cent. increase in the price in four months.

The Chancellor told us that VAT did not affect fares, but other aspects of his Budget do. The financial squeeze on local authorities will compel many of them to raise the fares on the bus services that they operate. All the costs of road transport will go up as a result both of the VAT on vehicles and the increase in the price of petrol in the Budget.

I was very glad to hear on the 1 o'clock news that the chairman of British Rail had promised to try to hold off an increase in rail fares until January. But the way in which he spoke made it quite clear that we were in for a whopping increase in rail fares next January, 12 months after the last one.

Therefore, the 4 per cent. increase in the retail price index generated by the increase in taxes in the Budget is only part of the price inflation that the Budget is causing. I have never seen such an example of—I cannot call it "cowardice", because that would be unparliamentary—discretion as the Chancellor displayed in his Budget Statement, when he sat down without telling us the effect of his Budget on inflation in the coming year. I had to dig the 16 per cent. out of the Red Book which the Financial Secretary had so kindly prepared for us. Then one day later we dragged out in questions of the Secretary of State for Social Services that we should have 17½ per cent. inflation in November. We have still not been told when it will stop.

It is no good pretending, like the Chancellor, that this is all the fault of the Labour Government. I quote the Bank of England Quarterly Bulletin last week. It says: Apart from the effects of the Budget, the prospect for the rest of the year seems to be that prices will rise little if anything faster than in earlier months. That is the truth of the matter.

The massive increase in prices generated by the Budget will hit people long before the right hon. and learned Gentleman gives them a bit of the money towards paying for those price increases through cuts in income tax. The cuts in income tax will be back-dated to April. But pensioners will never catch up. They will have been paying the higher prices generated by the Budget for five months before they start to receiver their higher pensions. There is no back pay for them.

The Chancellor told us that these increases in price inflation will be once and for all. I only wish that was true. If he believes that, he will believe anything. All experience of all Governments, my own included, suggests that workers will try to make up for price increases by wage increases at least as high as the price increases. That is not always possible. But even when it is impossible to achieve it is still liable to happen and workers will make the attempt unless the Government reaches agreement with both sides of industry on a policy for pay that takes account of all the economic, social and political realities.

I was grateful to the Chief Secretary to the Treasury for supporting my right hon. Friend the Leader of the Opposition who has argued strongly that, while the trade unions had every right to use their bargaining power to protect their members' interests, jobs and living standards, they had no right to take industrial action with the objective of overthrowing the Government. I wholly agree. I would go further. I said many times as Chancellor and will go on repeating in opposition that it is futile to expect to recover price increases by increases in wages above increases in productivity. All increases in earnings, which are not met by increases in productivity, are paid for in inflation and unemployment. That is true however much prices may rise, either as a result of the actions of the oil-producing countries or as a result of actions by the Government. It is just as true under a Conservative Government as it was under a Labour Government.

The general secretary of the TUC told the Prime Minister yesterday that general elections do not change the laws of arithmetic. Unfortunately, they do not change deeply-rooted social, political and economic habits either. This is the root cause of the folly which the Government have committed in this Budget. The Chancellor has clearly been relying on strict monetary policy to prevent excessive wage increases. I believe that the Chief Secretary supports him in this belief.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , Knutsford

So did the right hon. Gentleman.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

Oh, no; the hon. Gentleman should never believe that. I refuse to have a dialogue with the horizontal hon. Gentleman. If he assumes the vertical position, since he made that silly intervention earlier, I shall still not give way to him.

The right hon. Member for Sidcup (Mr. Heath) has said on many occasions, when he was Prime Minister and since, that an employer faced with a damaging strike is always liable to prefer to pay up and hope to recover his costs through higher prices—this will be easier with the Price Commission gone—and accept the risk of bankruptcy later rather than the certainty of bankruptcy tomorrow. This is what really happens, all over the world.

I do not deny that the Government have adopted a strict monetary policy. The monetary policy deserves some consideration. In my first reaction to the Budget, I pointed out that, although it pretended to be a stricter target range than the target range I set, it was about the same. Seven per cent. to 11 per cent. over the next 10 months, given some overshoot in the last two months, means 8 per cent. to 12 per cent. a year. But it is much stricter than that. The Financial Secretary to the Treasury—I am depressed not to see him bouncing up and down on the Treasury Bench—has committed himself not to a target range but to a target of 9 per cent. absolutely firmly. He repeated that in the recent debate. What the country has not realised is that the target figure of 9 per cent. for the growth of sterling M3 is one thing when inflation is running at 10 per cent. or 12 per cent., but a very different matter when the Government have raised the rate of inflation to 18 per cent. or 20 per cent.

A Government who have raised the rate of price inflation to 18 per cent. or 20 per cent. are imposing a draconically severe monetary policy if they are aiming at monetary growth of only 9 per cent. The last time it happened, during the first two years of the Administration of the right hon. Member for Sidcup, the guru of City monetarism, from whom there is no appeal, Mr. Gordon Pepper, of Greenwell and Company, described it as a vicious monetary squeeze. That is right.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , Knutsford

That was 1969–70, not 1971–72.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

It was against a very much lower inflation rate. It was 1970–71. The hon. Gentleman should read the article. I appeal to you, Mr. Deputy Speaker, to protect me from the horizontal interventions of the hon. Gentleman.

If hon. Members will not accept what Mr. Gordon Pepper says, they should read his young disciple, Mr. Tim Congdon of Messel and Company, who is increasingly quoted as the final authority on these matters. He wrote recently: Can inflation really run at rates of 17½ per cent., 16 per cent., or 13½ per cent. when the money supply is growing half as quickly and the pound seems, for some reason, to be irresistibly attractive to foreigners? The answer must be possibly, but not for long and, even then, only by bankrupting British industry. This is a fact which the right hon. Gentleman the Chief Secretary knows as well as I. He studies these matters carefully.

I do not deny, as I made clear in presenting the caretaker Budget before the election and in describing the situation as I saw it during the debate on the Queen's Speech, that some reduction in the level of demand was inevitable in this Budget to compensate for the extra demand created by excessive pay increases in the current round. That is why I set a PSBR of £8½ billion. But a PSBR of £8½ billion and an M3 target of 9 per cent. are heavily deflationary when inflation has been raised by the Government's own decisions to 18 per cent.

If the Prime Minister, the Chancellor and the Chief Secretary stick to this new fixed 9 per cent. target for money supply growth, interest rates are more likely to rise from their present level than to fall, as The Daily Telegraph City columns pointed out yesterday. That is why the forecasts in the Red Book are so appallingly pessimistic.

Photo of Mr Robert Cant Mr Robert Cant , Stoke-on-Trent Central

Is there not another slightly bogus element in the calculations of the Chancellor of the Exchequer? He alleges that he has got the public sector borrowing requirement below the level at which my right hon. Friend would have had it. But this depends, in effect, on the sale of public sector assets which will lead to demands on public sector financial institution funds which will have the effect of raising interest rates?

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

My hon. Friend is, as always, or nearly always, right. There is no limit to the "bogusity" of the Chancellor's arithmetic, as I pointed out in my speech on the Budget a fortnight ago. The right hon. and learned Gentleman is claiming a cut of £1,000 million by the sale of public sector assets without knowing what they are, when he will sell them or what they will fetch.

Two months ago, before the election, I said that the sale of public assets is essentially a way of financing the PSBR and not a way of reducing it. That is generally accepted. The Chief Secretary to the Treasury knows that as well as I do. That is why he is eyeing me with a rhadamanthine, basilisk-like stare instead of rising to his feet and disputing the truth of what I say.

It is a great mistake to publish official forecasts twice a year when the margin of error is so wide. The Government Front Bench seems to be coming round to accepting that. But whose fault is it? Right hon. Members on the Government Front Bench forced me, with the assistance of some of my hon. Friends, to publish these forecasts when I was Chancellor. But they are not worth much more than the paper on which they are written.

On the other hand, one knows enough about economic relationships, where we are and where we might be, to have some idea whether growth will rise or fall and whether inflation will rise or fall. The general message in the Red Book is undeniable. There will be a fall in gross domestic product and a particularly heavy fall in manufacturing output. The result must be to reverse the decline in unemployment which we managed to keep going for two years and was repeated yesterday. It is impossible to estimate the size of unemployment. I am glad that the Government Front Bench Members now agree with me. They disputed it hotly when I appeared in front of some of them in Committee before the election.

The basic point is that, because the Budget is bound to lead to high inflation, low growth, rising unemployment and a rising number of bankruptcies, the City of London and the financial markets have given it the thumbs down. The thumbs down for the Budget has been given not only by the bright young men who write circulars for the broking houses such as Wood Mackenzie, Messel, Phillips & Drew and so on, but in the most clear and decisive way by those people who have money to invest. They are sitting on their hands.

The Financial Times index fell from 544 on 3 May to 475 yesterday. More significant and somewhat surprising, I suspect, even to the Chief Secretary's advisers in the Treasury, is that gilts are not selling either in spite of the mammoth interest rates. They are not selling at home, they are not selling abroad. The reason is clear. It is because no one who has money to risk believes in the central strategy of the Budget. The central strategy is to create incentives for better economic performance by cuts in income tax, financed by one-for-all increases in indirect tax. That principle is not credible. I shall explain why.

For most people the income tax cuts will be more than wiped out by price increases. The Chief Secretary appeared to suggest that there was no way of dealing with the problem without an increase in prices generated either by 15 per cent. VAT or an increase in direct taxes which would be even more damaging to the RPI. But half at least of the Chancellor's problem is of his own creation.

There was no argument in economic or political logic for taking 3p off the standard rate of income tax this year at a cost of £ 1,400 million. There was no case for spending £ 600 million this year in relief to the better-off. The Chancellor has saddled himself with the need to find an extra £ 2,000 million. Once he had saddled himself with that commitment there was no means of achieving that objective without damaging increases in price inflation. Even if one passes beyond the average man and those with below average earnings and considers managers, one can see that the rationale of the Government's policy is incredible.

An interesting poll was published yesterday by the Financial Times. It was carried out last February among 700 middle managers earning about £10,000 a year when they were on management courses at Ashridge. It will be familiar to many Conservative Members since it used to be a Conservative Party study centre.

At that time, when management was supposed to be writhing in impotent frustration under high taxes and low wages, only 16 per cent. said that the level of their remuneration had reduced their will to work. A total of 25 per cent. said that it had increased their will to work. This is the finding of most of the studies into the relationship between tax and incentives.

The only real winners from the Budget are those right at the top—not middle managers, but top managers or people who are not managing at all. The winners are those whose income is to be doubled to £400 a week. Will Mr. Maurice Hodgson or Mr. Mike Pocock work much harder because they are receiving this much more money? Of course they will not, because they could not. They are both immensely able executives who do not spare themselves, nor would they, in performing their duties at ICI and Shell, whatever their remuneration.

However, many other business men might react differently since at the same time the Chancellor is giving them £100,000 a year to buy property abroad and is allowing them £200,000 on top of that to settle abroad.

The final answer to the argument is not what is happening to pop stars on whom the Chancellor so oddly spent so much time in his Budget speech. I have tried to do a careful, day-by-day calculation of the number of pop stars who are leaving and returning. I gather that we are gaining the Bee Gees—for what that is worth—and losing Engelbert Humperdinck.

The gaffe was blown by the Chief Secretary. He had a discussion with my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) on television the day after the Budget. My right hon. Friend said: If you take the top rates the senior executives are going to, possibly, play more golf rather than work harder. The moderator said: Can I pick you … pick you up on that with John Biffen? The Chief Secretary replied: Yes, I'm sorry to disappoint Joel Barnett but I do rather agree with him. Of course there is no evidence that people will work harder; that executives will be dragged off the golf course back into the office. That is what the Chief Secretary told us in his characteristic excess of frankness which has made him famous on both sides of the House. He went on: and politicians will be very foolish to assume there's going to be a totally different pattern of behaviour in the future than in the past". The Chief Secretary went on to make a statement which may have been honest but it was not true. He said: And in fairness to the Chancellor he never has made that assumption. In fairness to the Chancellor, that was the whole burden of his speech when he presented the Budget. If the Government themselves really do not believe that these income tax cuts will improve incentives, why on earth have they inflicted this agony on the British people?

That question will be the background to our approach to the Bill. That is why we oppose the increases in VAT and petrol duty. It is why we shall oppose the cuts in the higher rates of income tax and why we shall oppose the imposition of extra burdens on families by the withdrawal of child tax allowances when the Government are refusing to increase child benefits in the autumn as the previous Government undertook to do.

I hope that we shall succeed in persuading the House to accept our views. But if we fail in the debates on the Finance Bill this summer I know that we shall succeed later because we have seen it all before. It is no good Ministers pretending otherwise.

The House will be glad to know that I have come to my last quotation, a fascinating one that is a real Lulu, if I may use the expression without casting any aspersions on the leading trade union member of the Conservative Party. This is from the memoirs of Mr. Nigel Broackes of Trafalgar House, quoted in The Observer on Sunday. It relates to a conference that he attended at Chequers with the right hon. Member for Sidcup during his Selsdon Park period. I should like to quote the whole thing, but instead I shall read just the basic point. Mr. Broackes says: More than once, I pressed my point that at least there should be contingency plans in case the 'lame duck' policy failed, and finally Mr. Heath stated sharply that contingency plans were subversive and sapped people's determination, at which Sir William"— Sir William Armstrong, whom God protect— nodded sagely … The Prime Minister"— Mr Broackes continues— seemed to treat his colleagues somewhat brusquely; he was polite to his guests, but the message was unmistakable: he, by his Herculean endeavours, was giving Britain a dose of medicine that was long overdue; and we, the business men who ought to support him, were letting him down by our failure to invest. Can the parallel be closer than is revealed in that quotation? The only difference between the situation in 1971 and the situation today is that the economic environment for such an experiment is far less favourable at home and abroad than it was then. The Government know this, the Chief Secretary knows it and so does the Chancellor. That is why they have refused to accept the advice of their monetarist friends and publish PSBR and monetary targets for next year, the year after and the year after that. They know that they will have to carry out a U-turn.

Someone said that when history repeats itself what first occurs as tragedy reappears as farce the second time around. I fear that in this case it will be the other way. I fear that compared with what the present Prime Minister has in store for us our experience under the right hon. Member for Sidcup was a farce. That is why I shall ask the House tonight to vote against the Bill.

5.23 p.m.

Photo of Mr Geoffrey Dodsworth Mr Geoffrey Dodsworth , South West Hertfordshire

Over the last few years I have had the pleasure of hearing the right hon. Member for Leeds, East (Mr. Healey) address himself to the nation's problems and introduce 14 Budgets. I think that his role in his present position suits him more agreeably. His role as entertainer is one that we shall continue to enjoy for some considerable time. He reflected upon the observations of those in business and in the City, perhaps a little acidly. But there has been a commentary from outside the City and from outside the United Kingdom, a commentary by the world at large. There has been a noticeable increase in the exchange rate of the pound under a Conservative Government. We know that these matters are subject to a wide range of influences and factors, but there has been a very clear outside judgment and an international expression of confidence that is both remarkable and noteworthy.

We know that the stock market provides an indicator which discounts at various times the reactions of people rather than necessary economic judgments. One has to take a whole range of commentary and opinion from a range of institutions, rather than restrict one's reading to the Financial Times index, which, interesting and important though it may be, does not necessarily provide a portent of what lies ahead.

The right hon. Member for Leeds, East paid particular attention to the opinion polls. If we had paid a little less attention to opinion polls in the past and had paid more attention to the needs of the nation, we might have progressed further. On the question of value added tax, it ill behoves a former Labour Chancellor to talk about the real world and about our role as an international trading nation. We are in great difficulty, and the Government are to be congratulated on their bold attempt to try to remove us from the slough of despond in which we have been for some time. I therefore welcome with great satisfaction the introduction of the Bill which I am happy to support.

I regard the Bill as but a first stage, and the remarks of the right hon. Member for Leeds, East should be taken in that context. Many of us prefer to regard it as a step along the way, enacting the first of many substantial and progressive Budgets which will be designed to restore confidence in our nation and, as the right hon. Member said, to increase productivity. That must be the real aim. We need to restore the levels of take-home pay. After all, these direct tax cuts only restore the position to what it was in 1973–74 and they can therefore be only a forerunner of future reductions. But the increased levels of take-home pay must be based on increased productivity. That productivity, in its turn, must be based on improved business initiatives. It is our job to provide the opportunity for those to take place.

I applaud the actions that are being taken in the Bill, but there are many other factors that are beyond the control of any United Kingdom Government and that will affect our future progress. Those factors may be within our spheres of influence, but they are not necessarily within our control. Limitations on the development of our industry are likely to be imposed by the OPEC meetings which began yesterday. That is the reality of our situation, and it may be that, while North Sea oil will provide a bulwark against such difficulties, it will also provide a disincentive to what we are trying to create.

There will be an increase in the price of oil, but we do not know how severe that will be. The oil minister of Saudi Arabia has been a voice of moderation, and he has been most helpful, but we face a further increase nevertheless There has been a shift in supplies from the industrialised to the developing nations, and while we can applaud that in personal and human terms, we must reflect upon its effect upon our nation and upon its industrial activity. Our position is stronger than that of many other countries, but we risk a dangerous complacency which may mean that we will become financially very strong because of the development of our natural resources, but at the same time remain industrially weak.

We have to deal not only with difficulties with the price of oil but with supply as well. If when we are trying to develop our industrial activity energy supplies are reduced, the process will be slowed down regardless of the financial and monetary actions that we take. It may be that the oil price increases are not as substantial as those imposed in 1973, but we should not forget that they are in addition to the 1973 increases and are coupled with reduced supplies. The jostling that is now being witnessed on the world scene reflects the concern felt by Governments throughout the world at the prospect of an energy induced recession, with inflation arising from increased fuel costs.

The whole world—not just the United Kingdom—is concerned and we are aware that in Europe and at the meetings in Tokyo we shall be addressing ourselves to these matters. However, many of us sense some flexing of muscles and vocal chords in various parts of the world and threatening noises which are matters of deep concern.

These matter must be settled in a rational and reasonable way. They reflect strongly on all the subjects being considered by the House and particularly on the rate of our economic activity.

For those reasons, I welcome the possibility of a further nuclear power station being built. That would be a welcome recognition of the economic need to develop alternative energy sources. At the same time, in considering the financial proposals before the House we should reflect on what incentives can be provided for energy conservation programmes which must be a priority if we are to develop our economic activity and our productive efforts. The Bill is only a platform on which we can base our economic recovery.

I wish to refer to two matters in the Bill. The first concerns stock relief which was introduced in 1974 as a mitigation of the cash flow difficulties that many companies were facing due to inflation. I am sure that the Government recall that it was made clear at that time that the relief was to be temporary.

The relief could have been withdrawn in subsequent years and that would have required a repayment of taxes. The relief would have been clawed back if stocks fell. Where companies had trading losses or low profits they were less likely to consider claiming the relief and, in many cases, did not do so. It is doubtful whether the taxpayers could have foreseen the continuing degree of inflation and the consequent need to conserve funds to finance stocks. Many of the reliefs were not claimed.

It was announced in April 1978 that the contingent clawback law was to be removed in stages but the time limit for claiming the relief was not extended where relief had not been claimed for earlier years. There does not seem to be a proposal in the Finance Bill to cope with that anomaly. I hope that we can address ourselves to that matter in Committee.

I understand that there can be administrative difficulties in extending the time limit, but it seems that the new proposals will mean that there will have to be a review of all past claims and an extension of the time limit should not therefore lead to an undue increase in the amount of work involved.

I was intending to speak about capital transfer tax, but I shall leave that to the Committee stage and move on to the negotiations taking place over the double taxation treaty with the United States.

I am aware that there have been a number of representations on that subject. Clause 16 of the Bill refers to the convention concerned, and I am sure that many of my hon. Friends are well informed about this matter. I appreciate that the treaty has to be approved by the affirmative resolution procedure in the House, but it has been in the pipeline for a considerable time and it appears that the Government take the view that although the treaty is unfair, nothing can be done about it.

I sympathise with the Government's difficulties. There is a need to get agreement on these matters and an exchange of detail on many points, but we are likely to have a form of unilateral action on this matter.

The key to the objections to the arrangement is that the unitary method of tax adopted by certain state legislatures in the United States means that subsidiary companies in those states are taxed on a world wide basis, without regard to the profits earned by those subsidiaries and ignoring the fact that profits earned in other countries have already been taxed by those countries. I understand that it is estimated that that arrangement could cost this country up to £250 million. It is a matter of substance, to which we have to pay careful attention.

I reflect that some years ago representations were made about proposals before the House relating to companies operating in the United Kingdom that had world wide interests. We responded in a proper way and I hope that we can persuade the United States to follow a similar course. It is in the interests of our international status as a trading nation that the Government should try to protect the interests of our companies trading throughout the world.

I hope that the House will give overwhelming support to the Second Reading of the Bill. It is a step, if only a step, in the right direction.

5.35 p.m.

Photo of Mr Ernest Roberts Mr Ernest Roberts , Hackney North and Stoke Newington

The hon. Member for Hertfordshire, South-West (Mr. Dodsworth) and the Chief Secretary put forward forthrightly and clearly a point of view on behalf of the people whom they represent. I hope to do the same in my first speech to the House.

I start, however, by referring to David Weitzman who represented my constituency for 34 years. During that time, he made hundreds of speeches, many of them on a Friday. He tells me that as a result of that he was known as "Man Friday". It is on the record that David Weitzman was spoken of highly by many Prime Ministers. He paid particular attention to industrial and compensation cases on behalf of those he represented. The fact that he was a QC helped considerably in those matters.

My right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris) will remember that he was assisted by David Weitzman in pushing through the Chronically Sick and Disabled Persons Act 1970. I am sure that we all wish David Weitzman a happy and healthy retirement.

My constituency suffers badly as a result of the anarchic, jungle-like character of the society in which we live—a society which the Conservatives call a free society. One of their forefathers, Disraeli, referred to the divided society of two nations, the nation of the "haves" and the nation of the "have nots".

The Finance Bill does nothing to lessen the differences between the "haves" and the "have nots". In fact, it fastens the shackles of poverty and deprivation more firmly on the legs of my constituents.

The new VAT rate of 15 per cent., which has been given much attention because of its serious implications, will further depress living standards and raise inflation, as the Government admit, to 17 ½ per cent. and, it is thought, even higher by the end of the year. That will cause further problems for the working people whom I represent.

Unemployment, which is bad enough already, is projected by the Treasury to rise to 2 million—though it would be seen, if the true figures were included in the official statistics, to be close to that now. The 30 per cent. base rate of income tax will be of no help to the numerous low-paid workers in my constituency.

Furthermore, the increase for old-age pensioners in November will be insufficient against the rise in VAT to 15 per cent., the 60 per cent. petrol tax and the rising prices which will result from the policies embodied in the Bill.

This Tory Finance Bill will produce a further deplorable shift in wealth and power in the interest of the "haves". To quote those well known words— For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath. The Finance Bill will reduce direct taxation by some £4,540 million, helping those who least need to be helped, but it will increase, through indirect tax levies of some £4,700 million the burden on the backs of consumers.

The terminological inexactitudes—hon. Members have heard that expression before—and statistical fantasies of the Chancellor are no answer to the real experiences of working people under the burden of indirect taxation and what it will mean to them in lowered living standards.

My constituency exemplifies working-class poverty, with 5,000 one-parent families, 1,000 children in care, 11,000 homeless, the largest percentage of low-paid workers in London, the highest infant mortality rate in Britain at 20·7 per 1,000, above average unemployment and a lack of investment by free enterprise capital.

But that poverty is even more glaring when set against the fact that we are adjacent to the constituency of City of London and Westminister, South, with its joint stock banks, the Stock Exchange—already referred to by the hon. Member for Hertfordshire, South-West and the Chief Secretary—Lloyd's, the commodity markets, and, of course, the Royal Exchange, over whose portico are inscribed the words: The earth is the Lord's, and the fulness thereof. I am sure that there are many noble Members in the other House who would say "Amen" to that.

When the Tory victory in the general election was announced, we heard that share values went up by some £2,000 million. I immediately thought, as many workers did: If people in the Stock Exchange can produce wealth so easily, so massively and so quickly, why do we not build more stock exchanges?

This is a rich country, a country with skilled workers, scientists and technicians, with coal, oil and gas and with its agriculture—a veritable jewel set in a silver sea—the second biggest investor abroad, second only to the United States of America, and with a GNP running at this moment at about £150,000 million.

The national cake is big, but still it is only the crumbs from the rich man's table which fall into the pockets of our working people. This Finance Bill defends that state of affairs. The question is not just the size of the cake but who owns the bakery. That is the problem which has to be solved before economic justice can be met in this country.

Since coming into the House, I have heard the Prime Minister and the Chancellor say repeatedly that they want to put more in the taxpayer's pocket. Quite so—but which taxpayer? I shall give the facts of life as they affect the so-called average family on £100 a week. In passing, I remind hon. Members that they will have read in the press yesterday and today that consideration is being given to the very modest demand for a base rate of £80 a week now being made by the engineers, of whom I have been one. That modest demand is being denied to them, yet we talk of the average family on £100 a week.

The average family on £100 a week will get 4 per cent. more as a result of the tax cuts, so it is said, but they will certainly pay more because of the new rate of VAT. Moreover, every item in that family's shopping list contains a hidden element of tax. I have been looking into the figures and I wish to use the Department of Employment's family expenditure survey as a basis for calculation.

The Government's proposed tax changes, including the 30 per cent. standard rate and all the elements of indirect taxation, will take from the so-called average £100-a-week man 45 per cent. of his wages, leaving him about £5·50 a week worse off. Even after account is taken of the £4 standard rate tax reduction, he will be worse off by £1·50 a week. On the other hand, the high-income family paying the new maximum rate of tax at 60 per cent., and no longer paying the investment income surcharge of 15 per cent., will end up with an extra 40 per cent. in their pocket. This shows once more who will gain most from the Tory Government's Budget and their so-called free economy.

The Tory theories of the free economy and of monetarism are quite well described by a Professor Mises. He talks of a person going to the market, and with every £1 he wants to spend casting his vote for what he wants to be produced. That, Professor Mises says, is democracy, forgetting that the worker goes to the market with tens of votes while the rich man goes to that same market with hundreds of thousands of votes. What economic democracy is there in that?

For 20 years I have been a national trade union officer in engineering. I have sat across the negotiating table, as my engineering trade union colleagues have been doing during the past few months fighting for their £80 basic rate. I have faced the hard-headed businessmen on the other side keeping a hold on what the workers have earned for them and refusing to make concessions.

Now, across this carpeted divide, we see what to me represents the executive of big business. Over this new negotiating table, the Floor of the House, my aim is the same as it was in the past—to fight for a just share of the wealth of this nation on behalf of those who created it. This Tory Finance Bill does nothing to bring about that end.

5.49 p.m.

Photo of Mr John Watson Mr John Watson , Skipton

I am extremely grateful for this first opportunity to address the House. I congratulate the hon. Member for Hackney, North and Stoke Newington (Mr. Roberts) on his lucid, thoughtful and considered speech. I should like to have been able to describe it as a moderate speech, but in the circumstances that is an adjective which the hon. Gentleman himself would perhaps be reluctant to accept.

One of the more entertaining aspects of the House for me over the past two months has been the spectacle of a number of my hon. Friends making their maiden speeches and struggling with considerable ingenuity in May and June to find something nice to say about their political predecessors whom they had been criticising without mercy throughout April. Happily, in my case, that problem does not arise. My predecessor, Mr. Burnaby Drayson, was not only a member of the same party as myself but a man whom it is easy to praise and to whom gratitude is easily and appropriately given.

Over the period that Mr. Burnaby Drayson represented Skipton he built up a fund of knowledge about the constituency and a record of diligent attention to constituency inquiries that I am proud to follow. It is also worth while remembering that he was one of the tiny handful of newly elected Conservative Members of Parliament in 1945 who won their seats from opposition parties. He won Skipton from something called the Common Wealth Party. I am not exactly sure what the Common Wealth Party was, but considering its policies it seems that the hon. Member for Hackney, North and Stoke Newington is a paragon of moderation in comparison. How such a party ever came to represent the rolling acres of Skipton I shall never know.

Over the past two months, it has been interesting also to hear how other new Members have described their constituencies. Many, especially my hon. Friends, have described their constituencies as beautiful. In circumstances where such a description would have strained credulity, or at least cast doubt on the aesthetic judgment of the new Members concerned, constituencies have been described not as beautiful but as full of character.

I can happily apply both descriptions to Skipton. Geographically it is almost the largest constituency in Britain, covering no fewer than four separate counties—North Yorkshire, West Yorkshire, Lancashire and Cumbria. The northern part of the constituency takes in the greater part of the Yorkshire Dales national park. In the south are several hard, gritty, industrial small towns, where the sentiments of work, thrift and family life are almost as powerful now as ever before.

One significant feature of the constituency is that the two major sources of employment—namely, agriculture and textiles—are both employing fewer people now than 25 years ago. Agriculture has become more efficient and the textile industry, in the teeth of foreign competition, has seen its mills taken over, curtailed in size and in some instances closed altogether. The largest employer, Rolls-Royce, is also now employing fewer people.

In other parts of the country these trends have caused unemployment to become a very serious problem. In Skipton that has not happened. As we consider the Bill, it is constructive to ask ourselves why that should be so.

In the Skipton constituency new jobs have been created to fill the need for employment. By and large, they have not been created by large national companies deciding, for strategic reasons, to invest in the area. It is understandable why such investment decisions have not been taken. Skipton is not a natural distribution centre for Britain. It is geographically isolated. It cannot promise great investment allowances, tooling grants and all the other cash incentives used to bribe employment to other constituencies. The constituency is short of a number of skills, notably engineering. Therefore, it has been decided not to set up new factories away from the South-East of England.

Yet new employment has been created, and created effectively, by local people setting up local industries. Silent Night is a prime example. That company was started by one man after the war, and now employs no fewer than 2,600 people. That is significant. Skipton is not unique. Its problems of remoteness and shortage of skills are shared by many hundreds of other constituencies. If we are to maintain stability of employment over the next five years, it is vital that local investment by local people, in companies that might at first seem small, should be given every possible encouragement.

Opposition Members are fond of talking about the Budget and asking "Is it really any incentive at all? Is 3p off income tax any incentive to work harder?" Yes, that is an incentive, especially if it makes overtime more attractive. However, that is not the question that should be asked. The purpose of giving incentives in any Budget or Finance Bill is not only to encourage individuals to work harder, and thereby contribute more to the nation, but to give further encouragement to those who may wish to invest. The Budget is therefore one that we should welcome.

In recent years the profitability of British industry has been hovering around 3 per cent. Yet both inflation and average interest rates have been above 10 per cent. In those circumstances, is it any wonder that the percentage of our national resources that have been channelled into consumption has been increasing, while the percentage of our national resources that has been channelled into reinvestment has declined?

What the Finance Bill does now, and in 25 years will prove to have done, is restore the incentive for individuals to put capital at risk upon the balance of their own judgment. Of course, the chances of failure are as great as ever, but I believe that the possibility of keeping some of the returns of success have at least increased. Thereby we have generated something that we shall be grateful for in years to come.

My right hon. and learned Friend the Chancellor of the Exchequer is fully aware that the incentive to invest cannot be fully effective so long as interest rates remain so high. With minimum lending rate at 14 per cent., our non-oil balance of payments deficit can only deteriorate from its present disastrous level. Our domestic companies will find it difficult not only to get a share of the export market but to maintain an adequate share of the domestic market.

It is no less distressing, and certainly no less significant, that of the money now being borrowed from banks by industry, even with MLR at 14 per cent., most is being channelled not into reinvestment but simply into the funding of replacement stock. I am pleased that the Governor of the Bank of England, in his speech last week to the Leasing Association, implied quite strongly that MLR will be reduced as soon as our fiscal policy begins to take effect.

I refererd earlier to trends in employment over the past 25 years. In closing, I hope I may be permitted to mention briefly my hopes for our economic strategy over the next 25 years. Earlier we heard the quotation that Budgets are normally judged in weeks, but that they should be judged in months. I believe that the Budget will be judged in months, although I should prefer it to be judged in years.

I hope that over the next 25 years reinvestment by British industry in the means of production will enable us to satisfy our domestic market almost entirely, and to generate a higher share of world trade. We are an overpopulated nation and we need to trade to survive. I hope that we can encourage self-sufficiency throughout Britain, especially in energy, in readiness for the day when North Sea oil is no longer available.

Finally, I hope that we can steadily restore the balance of investment and consumption in Britain in favour of investment, and marginally away from consumption. In so doing, I hope that we shall not continue to promise, on both sides of the House, greater and greater levels of material prosperity. I see real danger in squandering our resources upon a brief, though popular, boost in our standard of living, leaving the true cost to be paid by those whose lives have not yet started.

5.59 p.m.

Photo of Mr Terry Davis Mr Terry Davis , Birmingham Stechford

I have pleasure in following my hon. Friend the Member for Hackney, North and Stoke Newington (Mr. Roberts) and the hon. Member for Skipton (Mr. Watson), because it gives me an opportunity to congratulate them on their maiden speeches. My hon. Friend the Member for Hackney, North and Stoke Newington always speaks with great sincerity and feeling. He brings tremendous experience to the House, both in the trade union movement and in wage negotiations. We look forward to hearing from him again.

The hon. Member for Skipton is, like his constituency, full of character, and I enjoyed his speech. We have something in common. I, too, am a lawyer who went into industry. There the similarity must end. I disagree with many of his views on the Budget, and certainly those on the so-called incentives contained in it. However I am sure that Members on both sides of the House look forward to hearing again from the hon. Gentleman.

As this is the first debate in which I have spoken since my return to the House, I should like to refer to my predecessors, Roy Jenkins and Andrew MacKay, and my constituency of Birmingham, Stechford. Roy Jenkins served Stechford for 27 years, and he brought great distinction to his constituency. He is remembered in Parliament and in his constituency for his many outstanding qualities, but I remember him especially for his great personal kindness. Although I disagreed strongly with him about Britain's entry into the Common Market, he was very kind to me on more than one occasion, and I am proud to represent the constituency that he served for so long.

Andrew MacKay represented Stechford for a much shorter period. However, he also set a very high standard in his constituency work. He fought hard to keep his seat, and he achieved the highest vote of any Conservative candidate in Stechford.

My constituents have many problems about which I hope to speak in future debates, least the most important characteristic of Stechford is its dependence on manufacturing industry. Of course, many of my constituents work in the Health Service, in education, for British Rail and in road transport, but most of my constituents earn their living in industry. We have factories whose products range from consumer durables such as gas cookers to items of capital equipment such as buses and rolling stock for railways. Like most of the West Midlands, my constituency is particularly dependent on engineering and the motor industry. British Leyland has two factories in Stechford. Many of my constituents travel to work in other British Leyland factories in Birmingham, Coventry, Solihull and elsewhere. Many others work for the major suppliers of the motor industry such as Lucas and Dunlop, or for the hundreds of smaller suppliers who also depend on the motor industry.

For most of the past five years, I have myself worked for British Leyland, and I have met many people in the engineering and motor industries who believe that they are not paid enough for their work. But tax cuts are not the way to achieve justice for those who work in industry because the real problem is that their gross wages are often too low. In recent months a great deal of public attention has been drawn to the problem of low-paid people who work in the Health Service and local government. It is true that they are often low paid, but it is a great mistake to think that the only people who are low paid are those who work in the public service. Many people working in industry are also paid low wages.

Whether they work in the public service or private industry, the low paid receive no help from the Finance Bill because it has nothing to do with justice or fairness. It is concerned neither with equality nor with equity. Its whole argument is based on the simple proposition that, if people pay lower taxes, they will work harder, or longer hours, or more effectively to earn higher wages or salaries. That is what the Chancellor means when he talks about reducing income tax in order to provide incentives. However, all my experience in industry tells me that the Treasury Ministers are making a mistake.

As I have already said, I have met many people in industry, including self-employed business men, who thought that they deserved more money. I have never yet met one who admitted that he was not already working hard, long hours and as effectively as possible. Show me a manager who says that he is underpaid, and I will show you one who says that he is overworked. If that is what people think, it is silly to believe that people will work harder, or longer, or more effectively, as a result of lower income tax.

However, the Chancellor is not really interested in providing incentives for the low paid, the skilled worker, the foreman or the manager in industry. The basis of the Finance Bill is a belief that, if income tax is reduced, there are dozens, hundreds or thousands of would-be entrepreneurs who will take risks, invest, start new businesses, and thus become the motor for economic growth. But the Chancellor is inconsistent, even within the limits of his own analysis. It is not only that he is inconsistent in cutting income tax and increasing VAT. He is also inconsistent in his basic strategy. Even if the Chancellor is right in his belief that lower income tax will provide an incentive for all those budding entrepreneurs, surely he recognises that an entrepreneur not only looks at the rewards of success but also assesses the chances of success. The Chancellor has admitted that the effect of his Budget will be to depress the economy and thus reduce the chances of success for any new enterprise. At the same time that he has increased the rewards, he has reduced the chances of success and thus made is less likely that anyone will try. As so often, what he gives with one hand he takes away with the other.

This is a bad Budget and a bad Finance Bill. It is bad for people with low wages, for those on fixed incomes, for old-age pensioners, for the poor and for the sick. Ironically the Budget is also bad for the entrepreneurs into whose hands the Government have put our economic fate, and therefore it will fail to achieve even its own limited objectives.

6.7 p.m.

Photo of Mr Martin Stevens Mr Martin Stevens , Hammersmith Fulham

You have called a parade of virgins to speak this afternoon, Mr. Deputy Speaker. However, the hon. Member for Birmingham. Stechford (Mr. Davis) is only half a virgin. Therefore, I must only half congratulate him. I do so with great enthusiasm and conviction, especially as I know something about the motor car industry of which he spoke. I am not being unduly controversial when I say that the taxation policy of the previous Administration, in many cases, eliminated the practical difference, at the end of the week, between the rewards of the skilled people in that industry compared with those of the unskilled. It caused a drift away of the skilled worker from motor car companies. Even more serious, there was a perceptible drop in the number of school leavers who felt that it was worth while to acquire a skill. The erosion of differentials at all levels of employment under the previous Administration was a dangerous and self-destructive trend.

Other speakers referred to the beauty and the character of their constituencies. I include my hon. Friend the Member for Skipton (Mr. Watson) and, in a recent debate, my hon. Friend the Member for Bath (Mr. Patten).

In Fulham there is very little in the way of Royal crescents or Georgian colonnades. Such pump rooms as we have are supplied not by Nash but by the Thames water authority, and for rather more humdrum purposes.

In Fulham there is a remarkably fierce local patriotism. That may be the consequence of our geography. There are not many constituencies that are relatively small and surrounded by clear frontiers. Mine is bounded to the South and West by the River Thames, to the East by the railway line that runs from Chelsea Reach up to Shepherd's Bush and, in the North, two major roads, Talgarth Road and the Hammersmith Road. In that enclave there is a high proportion of families who have lived there for many years. How many would believe that of the 96 members of the North End Road street traders' association, nearly 70 are the sons and grandsons of people who had barrows in that famous market in the past?

If we have no Palladian terraces—if such an architectural term exists—we have a great number of Victorian terraces. They are sturdy and respectable, like the people who live in them, and, as I would like to think, their newly elected Member of Parliament. Well, not perhaps entirely respectable—them, not me—because hon. Members may not be aware that if they consult their Oxford dictionary they will see that Fulham has two meanings. There is a verb "to fulham", which means to cheat. As a noun, a "fulham" is a loaded dice.

One is reminded for the four settlements which grew up in medieval times in that great manor, the second oldest in our country, the manor of Fulham, bestowed by the King of the West Saxons on his nephew, Bishop Odo, in the seventh century. Of those four settlements—Parsons Green, Walham Green, South End and North End—Walham Green at least was a place where the highest standards of morality were not invariably practised. I hope that the editors of the Fulham Chronicle and the West London Observer do not hear what I have said.

If I may go on for a few more minutes, Mr. Deputy Speaker, about this virile constituency, I should like to direct the attention of the House to the Fulham football club. I am the chairman of the supporters' committee of that distinguished organisation. The club reflects high standards of sportsmanship, as do its distinguished supporters. The police tell me that of all the members of the Football League, the Fulham club is the one least given to vandalism and riots.

Passing up Fulham Reach to the Riverside Studios, we have a community theatre—more than a theatre, a community complex—which has reached, in a very short space of time, a remarkably high level of professionalism. With actors working at the minimum Equity rate and staff working at the maximum starvation rate, they have introduced into the borough a very important cultural contribution. Hon. Members would not be wasting an afternoon if they went from Craven Cottage to the Riverside Studios to give their families a memorable treat.

Whenever there are occasions for national rejoicing, our street parties in Fulham and our great carnival—the most recent of which was seen by 150,000 people—enliven the scene and bring, particularly to the children, a sense of identity and memories which I know will last them all their lives. I am happy to say that the loyalty and the patriotism, the flags and the bunting, show as vigorously on Labour houses as they do on Conservative houses.

One of the features I have found, in the eight years in which I have been there as a candidate, is the tradition of working together over and above political differences. My predecessor, Michael Stewart, was, of course, himself a fine reflection of this tradition. He was much loved in the 34 years that he served the people of Fulham. He was a devoted constituency worker. He was a great patriot and he had a quality which I suspect that I lack. He had the courage at all times to say to people's faces what he knew they did not want to hear. In a politician that is a quality perhaps not always as evident as we would like it to be. I shall certainly study to emulate him in that respect. Everybody in Fulham shares my delight that he is to remain a parliamentarian, although in another place, where Lady Stewart has gone before him, and that there is a new world for them both to conquer.

Fulham has always had to repel boarders eager to steal its name, and I was glad to be able to play a modest role in persuading the local London borough to add the name of Fulham to the name of Hammersmith. Perhaps it would not be out of place if I asked my right hon. Friend the Secretary of State for Social Services if he would have a look at such institutions as the South Hammersmith health district. Every time the people of Fulham see that name on the sides of vehicles, or on the top of bits of writing paper, one can hear them growl with rage. The district officials are willing to change. Why cannot we give them a nudge to do so?

Why should we call parts of Fulham "West Kensington"? Lady Burne-Jones wrote in her diary 100 years ago that with the coming of the railways they had all been told that they must forget the respectable old name of Fulham and call it West Kensington. It is like calling Pimlico "Lower Belgravia". I greatly hope that we shall become a little less genteel and a little more patriotic.

A day or two ago, my other half, the hon. Member for Hammersmith, North (Mr. Soley)—I must not call him my better half or my wages will be in the window—gave us a frightening list of the borough's statistics. It has the highest rate of suicides in the country, the second highest rate of unemployment in Greater London, the highest level of retired people in Greater London, and the highest number of single-parent families in the country. These statistics all emphasise the problems which every inner urban constituency shares.

Returning to the motion before the House, I want to end with two or three proposals, and I hope that the appropriate Ministers will bear them in mind. I think that, if adopted, they would very greatly relieve some of the pressures from which my constituents suffer. Not all of them are strictly relevant to the Finance Bill, but I have noticed that a genial tolerance is extended on this one occasion in one's political life as to the areas that one is permitted to cover. I shall promise to be more single-minded and single-spoken in future.

The Housing (Homeless Persons) Act 1977 bears terribly heavily on areas of acute housing shortage. Between 50 per cent. and 75 per cent. of all the publicly-owned accommodation in the borough is allocated to people under the Act. People who have been on the waiting list locally, or waiting for transfers, sit there and watch accommodation being allocated to people who in many cases have never set foot in the borough before. I should like to suggest that the Act be amended to exclude the relatively few areas in our country where there is this acute level of housing shortage—say, fewer than 1,025 houses for every 1,000 families. It is perfectly fair to accept the principle of duty to house, but surely not the principle of the duty to house in an area where there is already too little housing for the local population. One result of this would be that the ratepayers would be saved £1 million a year, which is no small consideration at this moment.

I hope, too, that my right hon. Friend the Secretary of State for the Environment will look favourably on a continuation of Sports Council grants. I am well aware that we all in principle praise the idea of cuts and then insist that in our own interests particular payments should be increased. But this is an area where further massive expenditure could be saved if young people particularly were given opportunities to be good citizens in their teens and in their late school years. If we lose that opportunity now, we may find that we have a much heavier bill to pay later.

A final point, which I hope is not controversial, is one which was referred to in passing by my right hon. Friend the Secretary of State for Social Services the other day and deals with the payment of pensions. Pensioners, of whom I have said we have a high proportion in Fulham, feel much more bitterly than may be realised by right hon. and hon. Members about the fact that they are expected to wait six months before they receive their increase. The same is true of many other recipients of special pensions and allowances. They point out that if someone goes on strike and there is a settlement, that person gets the money immediately and it is very often backdated, but for the pensioner there is this unaccountable delay.

The last Conservative Administration cut the delay from eight months to six months. That was a step in the right direction. I have asked many people about this and it appears that this is a purely bureaucratic problem. We know, because the Secretary of State has told us, that this year there is nothing much he can do about it. But if, in future years, with the backing and support of my right hon. and learned Friend the Chancellor of the Exchequer, this period could be substantially reduced, the House would be doing something which, while not of enormous significance to the community as a whole, would be of very great importance to a large section of the population.

When one comes to the House one is very conscious of the day-to-day needs and desires—some of them, perhaps, parochial and self-regarding—of the people by whom one was sent here. The longer we stay, perhaps the less conscious we are of the bread and butter issues which fill the mind of so many ordinary people. I hope that I shall never forget their needs and I am sure that right hon. and hon. Members will not do so either.

6.22 p.m.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

I am happy to try to reflect the warm approval of which the House will have received the maiden speech of the hon. Member for Fulham (Mr. Stevens). It is quite clear, from the descriptions with which he interested all of us, that not only his individual constituents but also the ancient and distinguished community of Fulham as a community has a doughty champion in the House. No doubt the hon. Gentleman's substantial experience of public life has enabled him to develop a style of addressing the House which many of us will find agreeable when we have to sit through the long and sometimes tedious debates.

I hope that it is not controversial to say that a great many individual taxpayers, and certainly most businesses—that is, the providers of employment—have, as one of their highest priorities, a stable planning environment in which they can develop not, as is the unfortunate necessity of this House, a mere annual budget, but a longer-term, customary five or seven-year budget with reasonable hope that the whole thing will not be totally jolted out of place by sudden changes in Government action. On that basis, Liberals have urged for years that each Budget and each Finance Bill should make some contribution to reducing the discontinuity of tax arrangements which afflicted this country so badly for some 25 years after the war and which I am afraid is still with us.

Therefore, at the outset I must say that Liberals are disappointed that the Finance Bill, for all its meritorious brevity and simplicity, does nothing to increase the amount of continuity between one year's tax laws and the next. I hope that in the winding up speech we will be given at least some indication for the future that the Government are still committed as they were in Opposition, to a large increase in the indexation of our tax arrangements and that the absence of any increased indexation this year is only due to the rather unusual circumstances of the introduction of the Bill. I am sure that it will be a bitter disappointment not just to one party in the House by any means, but to the business community outside which is trying to improve Britain's industrial performance, if there is not some pledge that in the coming years we shall see the proper indexation of the appropriate aspects of our tax system.

This year, even allowing for the need for haste, we might have seen the leading excise duties properly indexed. Instead of that, we have a most unfortunate situation with excise duties this year. Petrol, far from being indexed, has been subjected to a substantial and arbitrary increase with no regard for the fact that a large increase in petrol tax falls unfairly on those who live and work in areas which have poor public transport and who have long journeys to work, compared with those who live in compact areas well served by public transport. Petrol has been singled out for arbitrary treatment rather than indexation, whereas drink and tobacco, which in my view have cried out for increased and valorised tax for years, have been, to my astonishment, left alone altogether. Perhaps we may conjure out of the Minister of State tonight some explanation for that extraordinary state of affairs, especially when one considers the appalling cost to the National Health Service and other welfare services through the use of tobacco.

It is also disappointing that alongside the big increases in indirect taxation there are some nasty gaps in the welfare provision which, in the Liberal view, should always go along with otherwise very satisfactory increases in indirect taxation. The party that is now in power—I rejoiced to see the commitment at the time—is committed, and was committed in its election manifesto in April, to the introduction of a tax credit scheme. We need not enter into any detailed quarrel now on the merits of a Conservative tax credit scheme as opposed to my own party's scheme. Suffice it to say that we were delighted to see the commitment, particularly the following sentence in the Conservative Party manifesto: Child benefits are a step in the right direction. In those circumstances, it seems quite deplorable to me and my colleagues that child benefit will not be increased this autumn, particularly as the Conservative Party's manifesto acknowledged that increases in child benefits are a very useful step towards the introduction of a tax credit scheme. They fit in with the concept of a tax credit scheme, rather than having family allowances on one hand and the old, now defunct, income tax child allowances on the other. Why the Government have omitted that increase, at a time when the cost of bringing up children is escalating appallingly, remains to be explained. In our view it has not been explained so far.

A lot has been said about incentive today, and I do not want to add to it at great length. I still believe in financial incentives, though it is obviously rash to generalise. What I cannot understand is a Budget, now implemented by a Finance Bill, which gives great incentives, in theory, to highly selective parts of the population but which, at the same time, depresses the whole economic environment in which those incentives could have been of some use.

If a man wishes to fill his barns with wholesome grain, it is first necessary that he should have a harvest and, secondly, that he should give incentive to reapers to fetch it in. This Government are not creating a harvest. They are on the way to creating a Sahara, and it is the height of folly to give people incentives to grow beans in the Sahara desert. That is the net effect of the total Budget.

Therefore, my right hon. and hon. Friends and I are not prepared simply to snatch at these incentives, which would be valuable in a properly organised economy which recognised the supreme obligation of any Government to employ to the greatest possible extent the material and human resources of the nation. That has always been the Liberal belief. It was the Liberal belief in the years of unemployment before the war, when we had to export our liberal ideas to the United States because they did not get a proper hearing in this country, and it is our belief now. Because the Government are not only failing, but also seem to rejoice in their failure, to set in motion a proper policy of full employment of the nation's resources and its people, we regard this Finance Bill as an unfortunate step and will vote against it in the Lobbies tonight.

6.31 p.m.

Photo of Mr Kenneth Carlisle Mr Kenneth Carlisle , Lincoln

I am grateful for this opportunity to make my first speech in this House. Having listened to all the maiden speeches during my few weeks in the House so far, I have learned almost as much about the geography of this country as I have about how we govern ourselves. I am especially grateful to be called during this debate on the Finance Bill, which gives effect to the Budget, for few people can doubt the importance of this Bill. It is generally recognised that this Budget has established a platform which will influence all aspects of this Government's programme. Moreover, no one has called it a weak Budget. Perhaps it has been most often described as bold.

In recent years, my constituency of Lincoln has been characterised by a political scene which has sometimes been bold and often exuberant. The House knows well of the controversy within the Labour Party in Lincoln. As a newcomer, I have yet to learn whether those divisions are reflected on the Labour Benches.

No one can deny either the boldness of my predecessor, Margaret Jackson. She had firm beliefs, and stood out clearly for them. Her integrity made her unwilling to bend her views just for the sake of popularity. Moreover, her ability brought her rapid promotion, and her reputation as a Minister is one of both clarity and decisiveness. Although I cannot aspire to her political views, I should like at least to try to match her lack of pomposity and her integrity.

It is also a pleasure to see many of my hon. Friends who once fought Lincoln, not least my hon. and learned Friend the Member for Solihull (Mr. Grieve)—who is still warmly remembered in Lincoln—and who, because of his name, fought under the banner "Grieve for Lincoln".

Naturally, I am proud to represent Lincoln. As hon. Members know, it has one of the oldest histories of any British city. The Romans quartered a legion in the city. A church which the Venerable Bede wrote about has just been unearthed. Edward III presided over a Parliament in the cathedral, and this cathedral, which is one of the glories of English achitecture, dominates the countryside.

But the lifeblood of the city is now its industry, particularly engineering. It was in the last century that Lincoln became an important industrial centre. Lincoln has flourished down the centuries, just because this country produced both enterprising men and the wealth to nurture the city.

I am afraid that a lack of national productivity now shows itself on the face of the city. For too long we have had to wait for our bypass. Heavy lorries now shudder past the cathedral and down the high street which, believe it or not, is still impeded by two level crossings. Of course, the situation will be much worse when the Humber bridge is opened. In addition, our unemployment is higher than both the national and regional levels.

Perhaps the central problem in our society is how we should organise ourselves to produce the wealth that we must have if we are to secure the quality of life that we want and create the jobs that we need. All of us have plans for spending that money, or for cutting taxes, but so far we have all been defeated in our attempts to create that wealth. It is no good Opposition Members saying that we must spend this and that on benefits ad infinitum, unless we can create the wealth to afford them.

We have tried the Socialist way. Since the war, the Government have increasingly entered every aspect of our lives. Yet the more the State has dominated, the worse we have done. Our national experience over the last few years speaks for itself. This Finance Bill at least recognises the limitations of the State, and has started the task of returning power and choice to the individual.

If one accepts that we must stop our national decline, the Finance Bill is right in that it emulates tax policies followed by our most successful allies. The great merit of this Bill is that it starts to make it worth while to work hard. It provides incentives, The work force in Lincoln, including many skilled people, have long complained that it is simply not worth while working hard. Overtime has been taxed away. This Bill will at least start to change that. Moreover, it is the smaller business on the newer industrial estates which will provide the bulk of our new jobs. Such businesses will find encouragement in the Budget too.

I am sure that few hon. Members will deny the importance of incentives, but as we all recognise, there are many forms of incentives. For many people, financial incentives are one of the strongest forms. But I also believe that the man in industry, who often works at a less than absorbing job, needs the incentive of involvement in his business. It is natural for a worker to be swamped by, and alienated from, the huge concern for which he works.

I am, therefore, sorry not to see in the Bill any recognition of profit sharing in any of its forms. I believe that active fiscal encouragement of such schemes would help the British worker to recognise the need for profit and to feel involved in his business. We should strive to encourage a sense of partnership between management and the work force in our industries, and profit sharing schemes could help in this regard.

I know that time has been short in preparing the Bill, but I ask the Chancellor next year not only to continue with his tax cutting but also to encourage the incentive of involvement. Nevertheless, I welcome the philosophy that imbues this Bill. If it is given time to work, I believe that Lincoln people and British people can look forward to both a wider choice of jobs and a better quality of life.

6.39 p.m.

Photo of Mr Dick Douglas Mr Dick Douglas , Dunfermline

I congratulate the hon. Member for Lincoln (Mr. Carlisle) on his maiden speech. He will forgive me if I do not follow him in terms of philosophical zeal. I am reminded by the hon. Member for Fulham (Mr. Stevens) that like my hon. Friend the Member for Birmingham, Stechford (Mr. Davis) I am a half virgin. The Opposition Chief Whip has called us "retreads". The imagination boggles to think of what a half-virgin with a retread looks like, and I apologise for burdening the House in that capacity.

Before moving on to the main burden of my speech, I shall refer to the previous Member for Dunfermline, Adam Hunter, who is now happily retired and living in what he describes as the centre of Socialism in Fife, Kelty. I am sure that the House wishes him a happy and prosperous retirement with his charming wife. He was a very good Member for Dunfermline, a very good constituency Member and a very loyal and devoted Member to the Labour Party in the House. I hope to emulate him in his zeal, attachment and service to the constituency.

The constituency has many advantages at the moment, some of them directly related to the Bill. I should like to press the Chief Secretary to persuade his colleague, the Secretary of State for Scotland, to hurry up in making up his mind about the planning application for Moss Morran and Braefoot Bay. Some aspects of the Bill, in part III relating to the petroleum revenue tax, are vitally related to a decision which affects the Brent field complex. It is difficult to make a decision and one has to take into consideration all the problems of safety. In fairness to the companies and local communities, I received a letter today from the local authtority—one of those small communities, though not the one which has hit the headlines. A small community of about 50 houses bordering my constituency—the Grey Park housing estate—is getting very anxious about its fate when and if this decision is made.

The Finance Bill embraces the Government's so-called strategy. Of course I disagree with it. I do not condemn the Government's strategy on the grounds of shifting the balance of taxation. I do not even condemn it for trying to get to grips with public expenditure. I condemn the Bill because its philosophy is wrong. I accept that the Conservative Party operates on the basis of hope of gain or fear of pain. I do not accept that view, and other hon. Members today have not accepted it either.

One cannot rewrite the parable of the Good Samaritan and suggest that he crossed the road only on the basis of getting 3p off his income tax. It is a poor philosophy to say that people do things only because of monetary incentive. The Opposition reject that, and I think in their more sober and effective moments, Government supporters will reject it as well.

I also reject the strategy on the basis of timing. I doubt whether a Bill of this magnitude and nature could have had worse timing in terms of the international scene. The issues that confront us internationally defy solution by any one nation. I doubt whether the Prime Minister with her magic wand, and even a series of magic wands, in Tokyo, will make these problems vanish. When we on this side face the issues as well, we must come to terms with "no growth" society. Many of us were inspired in politics by the writings of Tony Crosland, the former Member for Grimsby. His views on the future of Socialism were based on a growth philosophy. That philosophy has to be adjusted. It would be foolish of us to ignore the fact that the engine of growth in the 1950s and 1960s was the availability of cheap oil supplies.

Perhaps one of the most foolish White Papers ever put before the House was the 1967 White Paper on fuel policy. The basis of it was that cheap crude oil would solve the nuclear problem. Only yesterday the Prime Minister pointed out the virtues of the free market. However, there is no single price of a barrel of oil. One cannot say what the market will pay because the market is not free. There was discussion yesterday about the spot market. The answers vary because the market is largely managed. There is no such thing as real competition in the oil market. It is an oligopolistic oil market, and has been from John D. Rockefeller to Sheikh Yamani. The nature of the product makes it so. It is how we manage that market that affects our thinking in relation to part III of the Bill and the petroleum revenue tax.

Before dealing with the clauses in detail—I understand from the Chief Seccretary's remarks that the Minister of State will outline the Government's thinking in detail—I turn briefly to the background of this important Act. The Public Accounts Committee, of which I was honoured to be a member, reported on the issue in 1973. That committee made recommendations about the taxation of oil companies, against a price of approximately $1·50 per barrel of oil, and spent a considerable time looking at the advantages to the United Kingdom's economy and industry of the finds in the North Sea.

The IMEG report at about the same time suggested that we might obtain 70 per cent. of the market of offshore equipment and services by the late 1970s. I apologise for going beyond the strict ground of the Treasury and dealing with ground more appropriate to the Department of Energy. I have indicated to the Minister responsible that I should be raising the matter today.

An examination of the period shows that there has been an improvement due to the work of the Offshore Supplies office and the agreement for full and fair bidding between the Department of Energy and the United Kingdom offshore operators' association.

The most recent figures that I have show that we have 62 per cent. of a £1·3 billion market. In some areas, however, our performance is pathetic. In drilling, we can obtain only a quarter of the market. Over the past five years the overseas content of drilling has been £339 million. The heart of the industry is in drilling. The American companies which dominate the market do so on the basis of exclusivity in the Gulf of Mexico. Their growth has occurred over 15 to 20 years. It is bad enough to consider that in relation to current spending terms, but there are 20 drilling rigs operating on the United Kingdom sector of the North Sea, and not one has been built in the United Kingdom. Not one foreign-built rig is operating in the Gulf of Mexico.

Another area of concern relates to the new generation of emergency support and maintenance vessels which are being built in response to the five-sector approach for emergencies in the North Sea. These vessels are complicated and costly. Of the semi-submersible types—I declare an interest through my association with Scott Lithgow (Offshore)—five are either being built or are in operation. Only one is being constructed in the United Kingdom. These vessels are in the news because of the order going to Finland. We must concentrate in this House and elsewhere not only upon why we in the United Kingdom were dearer, but why the Finns were so much cheaper. The Chief Secretary should consider the financial and industrial implications.

I should like to know whether any of the Ministers or civil servants concerned in that decision visited the Pori yard Rauma Repola. I visited that yard and would give my eye teeth for it. It is splendid. It is a pristine new yard, built in 1969. I challenge hon. and right hon. Members opposite after visiting that yard to tell me how the overheads could be cheaper than those of any British shipyard. If in the United Kingdom we had built the ship for nothing—with no charges for overheads or labour—we could not have competed on price. The other elements of cost would appear to be competitive and specified by the companies owning or operating the vessel.

Those considerations are serious because, on current prices, North Sea oil will soon be $20 a barrel. I bow to the figures that the Minister of State may supply later, but the revenue should be about £10 billion by the mid-1980s.

I am concerned, particularly as a Scottish Member, that we may dissipate the oil revenue by cuts in income tax and consumer booms and will have no resources left to revitalise our economy. The Minister indicated that the change in PRT rate could not have been justified in April. Will it therefore be suggested that we index-link the PRT rate to the change in the barrel price of oil administered under OPEC or in terms of the North Sea barrel?

Changes in PRT, uplift allowances and the oil allowance reflect on the production profile in the North Sea post-1985 and the expected revenue. Under the older tax regime, a burden might have been placed on the development of the so-called marginal fields—the 50 million to 100 million barrel fields. Will the Minister of State indicate the Government's strategy on these marginal fields or the deeper fields? What is the programme for licences in the areas west of Shetland and around Rockall and Hutton? Will the deep drilling programme be continued?

Specifically, what is the Government's attitude to Energy Commission paper No. 17, which outlines the United Kingdom offshore operators' view on the profile for self-sufficiency? The previous Government's response was a bit inadequate, but I went along with about 80 per cent. of that paper. Evaluating the reserves in terms of licensing policy is important. Before reaching a decision the House must know the effectiveness of the tax and other proposals in part III of the Bill.

What of the role of the British National Oil Corporation? We support the BNOC on five grounds. It gives assistance in the evaluation of reserves, depletion policy, estimating capital and current expenditure to produce the oil, evaluating profitability and the disposal of the oil. BNOC may be under attack, but I challenge the Government to demonstrate how they can get information on these five aspects without a public corporation to do the job.

The oil companies do not like BNOC because it has a seat at the table on the operating committees. It is essential to have that seat in order to market oil and supply this nation's needs. I hope that on this side of the House we shall resist any concessions on BNOC in the interests of the nation as a whole.

Our oil policy is closely related to the future of the nation. I have a slight feeling of deja vu participating in the debate. There was an Adjournment debate in December 1973 when the Under-Secretary of State for Energy echoed The Economist of that week and said, "What energy crisis?" We all know the nature of the energy crisis before us. The OPEC countries know the price of a barrel of oil in or out of the ground. We should be foolish to dissipate these invaluable, irreplaceable resources in spending sprees. That is why I urge the Government to present a White Paper on how they see the North Sea reserves and revenues being used. It is important to have an early debate on these issues so that the nation is aware of their magnitude and complexity.

6.57 p.m.

Photo of Mr Keith Wickenden Mr Keith Wickenden , Dorking

I too am grateful for the opportunity to make my maiden speech and follow a long line of maidens this afternoon. I am tempted to observe that the spectacle is like nothing so much as speech day at Roe-dean. I hope that I shall follow the high standard that has been set.

I intended to observe the traditions of the House in praising my predecessors, speaking of my constituency and remaining non-controversial. You may imagine my concern, Mr. Deputy Speaker, when I heard my hon. Friend the Member for Fulham (Mr. Stevens) making remarks of dire provocation on the merits of Fulham football club. He either knew or should have known that I am a director of Brighton and Hove Albion football club which, as we all know, defeated Fulham twice last season on its way to promotion to the first division. I have recovered my composure sufficiently to forgive him.

I am fortunate in representing in Dorking a constituency that has been blessed with two distinguished hon. Members since it was established in 1947. The first was Sir Gordon Touche, who became Deputy Speaker of this House and served the House long and well. He was followed by my immediate predecessor Sir George Sinclair, who was greatly respected and held in great affection in the constituency and this House and also had a long and distinguished career in the Colonial Service. That enabled him to speak with great authority on matters affecting the continent of Africa and, because at the end of his Colonial Service career he was deputy governor of Cyprus, he was able to bring a depth of knowledge to this House from which all hon. Members will have benefited.

Much stress has been laid by many hon. Members on the beauties of their constituencies. Some have been honest enough to say that the beauty is in the character rather than in visual aspects. I am fortunate enough to represent a constituency which can genuinely claim to be one of the outstandingly beautiful constituencies in the South-East of England. It is one of the larger constituencies in the South-East—approximately 500 square miles—and there are times when it is difficult to appreciate that one is within 25 miles of the City of London when one stands in the Dorking constituency and is not able to see anything other than rolling farmland. But because the constituency is outstandingly beautiful, because it is a home countries constituency, does not mean that it is free from problems, albeit of a different type from those which beset constituencies in urban areas.

Many of my constituents commute daily to London, and anyone who has suffered the agony of three or three and a half hours a day commuting to London, as I have for 10 years, in dirty, overcrowded and often unreliable trains, will know that it is not an operation to be undertaken lightly.

Of course, those unfortunate commuters have to pay for the privilege of doing so at a very high rate out of taxed income. I hope that my right hon. and learned Friend the Chancellor of the Exchequer will be able to look at this matter in years to come. Regular commuters to London from outlying areas spend between £600 and £1,000 a year out of net income for the privilege of getting to work, and they spend up to 800 to 1,000 hours a year in doing so. I suggest that that state of affairs would not be tolerated by others in other parts of the country.

As I am of a fairly cautious turn of mind, I took the opportunity to read the maiden speech of my predecessor, Sir George Sinclair, on 16 December 1964. The House can imagine my surprise on seeing that he expressed his pleasure at the fact that the very much needed M25 relief road was expected to reach the constituency of Dorking very shortly, because, 15 years later, that relief road is still eight miles short of the boundaries of the Dorking constituencies, and those villages which have been designated as being of outstanding natural beauty, such as Gomshall, Shere and Abinger Hammer, are still suffiering from the pounding of heavy traffic on a road which should have been bypassed at least 15 years ago.

We have another major problem in Dorking. Although the airport of Gatwick is not in the constituency itself, from the prevailing runway aircraft are over the constituency within a few seconds of take-off, and my constituents are not only concerned that there should be a rapid decision on the site of the third London airport before Gatwick becomes an area similar to that of Heathrow, which I think no one would wish to repeat; they are deeply concerned about the operations of what the British Airports Authority calls the up-market link between Heathrow and Gatwick.

It was announced last week that this operation had lost £400,000 of the taxpayers' money and I suspect had put something like that into the coffers of the Post Office through the telephoned complaints from my constituents to Gatwick. At a time when fuel is in great shortage, that link should be looked at very carefully when its licence comes up for renewal at the end of the year.

I want to spend a little time examining the needs, and in particular the financial and other hopes which may arise from the Budget, of those who are afflicted with mental infirmity of one sort or another. Before I do so, I should declare two interests. First, I am a trustee of the Mental Health Foundation, a body designated mainly for research into mental health, and I am also privileged to be the father of a child who is mentally handicapped. I say that not to ask for any cheap sympathy but perhaps to demonstrate that I understand a little of the problems which beset others who are less fortunately placed than I am.

It is easy to believe that all problems can be solved financially. The problems of the mentally ill and the mentally handicapped go much deeper than that. Theirs is primarily a problem of non-acceptance in the society in which we live and, furthermore, a non-understanding of the problems which beset them.

Many of the financial requirements could be lessened if only we could bring ourselves to provide more schooling for mentally handicapped children below the age of 5. Too often, when they get to the age of 5 it is too late. Their brains have developed as far as it is possible to develop without further help. Yet it has been proved on many occasions in recent years that if only those minds could be activated at earlier stages they could perhaps develop further and be less of a drain on society's resources later on.

The problems are equally acute at the other end of the school age, because too often we turn out into a harsh world children who physically are 16 years of age but are mentally perhaps little more than half that, and there is nothing for them except an institution of the old sort or perhaps to be a great drain on the family life in which they find themselves. It is almost impossible to over-estimate the effect of a mentally-handicapped child or person on a family, particularly if the parents in the family are very young. Yet it is a problem which, whilst we put it to one side and do not look at enough, many of us should understand.

We should understand it because it is a fact that one in five families in this country are directly affected by problems of mental health. Perhaps, as an accountant, I find these figures easy to work out, and I can put them into perspective. They mean that 130 Members of this House are directly affected by problems of mental health. It is a fact that one in nine of the population can expect during his lifetime to receive hospital psychiatric treatment. Again—and I wish not to cast a slur on any hon. Member but merely to put the figures into perspective—during their lifetime 70 Members of this House will receive hospital psychiatric treatment.

It is a sobering thought, yet it is a problem that we put to one side too often. We hear over and over again, and the House devotes great attention to it, and the media never stop talking about it, about the problem of lost working days through industrial disputes. It is right to pay attention to that fact. But we lose six times as many days through mental illness as we do through industrial disputes, and if only we spent just a little more time looking at the problems, trying perhaps to spend the sums that are required for research, the rewards could be limitless, not only in terms of the sums saved to the Exchequer but also in terms of sheer relief of human misery and human unhappiness.

I have deliberately spoken, and have deliberately so waited until today to speak, on a subject which I know to be non-controversial and which I think will find great support and sympathy throughout the House. I suspect that, as the days and months go on, I shall perhaps be less than non-controversial, but I hope that on this occasion my views on mental health and, indeed, on all forms of handicap, will find a sympathetic ear. As we strengthen the economy, which I believe, given a five-year period, this Budget will do, we shall find ourselves able to devote more of our resources in those areas.

7.10 p.m.

Photo of Miss Joan Lestor Miss Joan Lestor , Eton and Slough

I congratulate the hon. Member for Dorking (Mr. Wickenden) on his speech. I found his references to mental illness and mental handicap particularly moving. The hon. Gentleman will be welcomed here, even though those of us on the Opposition Benches will no doubt disagree with other views that he may hold. He is certainly welcome for the contribution that he will clearly make to debate on the subject of mental handicap, which is not dealt with often enough by hon. Members.

I also congratulate my hon. Friend the Member for Dunfermline (Mr. Douglas) on what I think he described as his second run as a virgin, and on his usual vigour in highlighting the dangers of the oil and energy problem. I know that my hon. Friend will make a big contribution to debate on that issue.

Part of the Conservatives' case in the Budget and during the general election campaign was that the Labour Government's industrial and economic policies had failed the nation. Presumably they won the election partly on that case.

I have today looked at various areas of industry which are threatened with a return to the private sector—or promised such a return, depending on one's point of view—having been taken by the Government into the public sector. I have looked particularly at the performance of Ferranti. Under a headline that spoke of Ferranti's return to virility we learnt that, having had Government money put into it through the National Enterprise Board because of its losses, it had a turnover of £125 million in 1976, and its profits jumped by 33 per cent. to £.6·1 million. It was one of the lame ducks of industry that the Government, through the NEB, helped to return to virility. What concerns me about the threats or promises to return such industries to the private sector is that the lame duck which has now become the goose that lays the golden eggs will be used to lay those eggs for private industry, not for the benefit of the public at large.

I was interested in what the Shadow Chancellor, my right hon. Friend the Member for Leeds, East (Mr. Healey), said about value added tax and the black economy. As he has made the point that services provided in the black economy will clearly escalate and VAT will be avoided, I shall not labour it. Instead, I shall refer to what has come to be the defence by Conservative Members of the increase in VAT, which is that children's clothing, footwear and similar items are exempt. We have been told that the increases in VAT will not hit families with children very much, because of the exemption.

What Conservative Members and the Chancellor of the Exchequer seem to overlook is that the increases in VAT on clothing will affect parents because of the size cut-off point. On average, the size is that of a child of 13 or 14. Any parent knows that many of the children in our schools today, even some in middle and primary schools, cannot be fitted out in clothes and shoes of a child's size. It is about time shoe manufacturers realised the damage they are doing to children's feet, particularly girls. It is impossible to buy a shoe that can be regarded as sensible and beneficial to the development of the foot for a child who takes more than about size 3 or 4.

Because of their size, large numbers of children cannot wear clothing that is classified as children's clothing. They have grown up under a Labour Government, with all the benefits, and are naturally bigger and better developed than their predecessors.

Many women must buy women's and men's clothing for their children. If there is to be an increase in VAT, I urge the Chancellor to consider greatly raising the limit for children's clothing. That is the only way to protect families with children.

It must also be remembered that, because the child benefit is not now to be increased, the income tax allowance about which we have heard so much will be swallowed up immediately a family buys an item of children's clothing for a child over the age of 10 or 12. We are told that the income tax reduction for the average family is 75p–80p. That will be wiped out almost immediately by the purchase of children's clothing or a variety of other items. The Government must take this matter seriously.

The Government have admitted that the Budget proposals outlined in the Bill will lead to a sharp increase in prices because of VAT and other measures, pushing the year on year inflation rate up to about 17 per cent. by Christmas—more than twice the rate of 1978. Moreover, on all the available evidence, and again on the Government's own admission, that higher rate of inflation will be with us throughout 1980. Therefore, we can see that the Government are repeating the policy adopted by the last Conservative Government, raising prices at a stroke and in the process alienating virtually the whole trade union movement. That important point was raised by my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) at the beginning of the debate.

The Government have made it clear that by raising the minimum lending rate to 14 per cent. they aim to curb the money supply. Additionally, they have explicitly said that the overall result of that, their other measures and the proposed cuts in Government expenditure will be to raise the level of unemployment. That matter has not been given enough attention in the Budget debate. We read on page 8 of the Financial Statement and Budget Report: The prospect is for economic activity to decline slightly over the next year or so. A slight decline in economic activity can mean several thousand jobs.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

Although he did not say it in the House, the Financial Secretary complacently admitted on television, without any apology, that the Budget measures would give rise to what he called a significant increase in unemployment. When the figure of 2 million at the end of this year was put to him, he was not prepared to deny it.

Photo of Miss Joan Lestor Miss Joan Lestor , Eton and Slough

I am grateful to my hon. Friend for that information. Clearly, he has time to watch television. I have not, and so I shall stick to the point made in the Financial Statement. I know that it has been said that there will be a significant rise in unemployment.

What has not been explained, and what I find inexplicable, is how a Budget that claims to be an opportunity Budget, an incentive Budget that will fire the people to harder work and greater productivity, is, in the Government's own words to lead us to economic decline, as surely as it will lead us to anything else.

Given these Government aims and the results of Government activity, the trade union movement has rightly indicated its concern for the welfare of its members and the protection of its members' jobs. That is its right. It is what one would expect. The movement has pointed out that the grave outlook for inflation will lead to higher wage claims simplly to maintain, let alone improve the living standards of working people. Either the Government have not taken this prospect into account or they have not been given sufficient consideration to the implications of what is likely to happen. If there is to be a wage freeze and resulting confrontation from the trade union movement, the Goverenment will have only themselves to blame. Almost every action in the Budget has sown the seeds and set the ground for undermining people's standards of living.

By the Government's own admission, a systematic undermining of the real standard of living of working people is proceeding hand in hand witth big cuts in taxation and wage increases for the top income groups. If this is the philosophy, the Government are laying the foundations for an era of decline. They are not rejuvenating anything. They are not laying the basis for industrial expansion. It is decline, not expansion. It is conflict, rather than co-operation. It is enough to make St. Francis of Assisi turn in his grave.

7.22 p.m.

Photo of Mr Eric Cockeram Mr Eric Cockeram , Ludlow

Like other hon. Members who have spoken in this debate, I am reintroducing myself, in this case representing Ludlow, one of the three largest constituencies in England. The constituency covers 640 square miles of beautiful country, containing many hills. Looking at the history of this House, one finds that what constitutes the present Ludlow constituency sent, until 100 or so years ago, quite a number of Members of Parliament to this House. Towns like Bishop's Castle, Bridgnorth and Much Wenlock were all represented here. Now we have towns and villages, with a most picturesque environment and picturesque names, like Middleton Scriven, Cleobury Mortimer, Church Stretton and others. I count myself fortunate to represent such a beautiful part of England.

The employment in this constituency is chiefly in small firms. There are one or two exceptions, such as Decca and Star Aluminium, which are in the forefront of technology in their own industries. On the whole, however, employment is provided by family firms, mostly with a slant towards agriculture and rural industries. It is worth contemplating what kind of Budget my right hon. and learned Friend the Chancellor of the Exchequer would have been able to introduce a fortnight ago if all the industry of this country had had the productivity record and the performance of British agriculture over the past 20 or 30 years.

Photo of Mr Eric Cockeram Mr Eric Cockeram , Ludlow

It is an industry that has received much less subsidy than many others. The hon. Gentleman should know. He comes from Merseyside. No part of the country has had more subsidies.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

The hon. Gentleman is not making a maiden speech. He was in the House in a previous incarnation representing a Merseyside seat. I am sorry that he has lost touch with that constituency so quickly. If he looks at the figures produced by his own Ministers in the last week, he will see that Merseyside received per capita from public authorities and private industry less in terms of investment, than did the North, Wales or Scotland, despite the fact that those areas have lower rates of unemployment than Merseyside.

Photo of Mr Eric Cockeram Mr Eric Cockeram , Ludlow

The hon. Gentleman must be looking at a different set of figures. He has not taken into account the emphasis put on the rate support grant made to the conurbations by the last Labour Government and the disadvantage, in consequence, that the county constituencies have suffered. Agriculture is Britain's basic industry. It has a record second to none. I hope that, as a result of the measures introduced in my right hon. and learned Friend's Budget, more industries will show a productivity improvement similar to that of agriculture.

My constituency has a low population and a strong local loyalty, emphasised and brought out through three local newspapers. Until recently, the constituency was represented by my friend the then Mr. Jasper More, now, happily, Sir Jasper More. This honour, bestowed on him recently, has given great pleasure in this House and in the constituency. He was an expert on the procedure of this House and a frequent speaker on rural affairs, particularly forestry, of which he had great knowledge. He was popular here and in the constituency, and looked after his constituents assiduously. If I may be permitted a personal note, he has also been kind and helpful to me.

I welcome the shift that the Bill introduces from direct taxation to indirect taxation. It has long been needed, not to conform with the pattern elsewhere but because the pattern in this country was disproportionately heavy on the one. It has, however, introduced a number of problems of a transitional nature. I draw attention to one in particular, namely, the non-profit organisations, such as country festivals which are taking place now. I have in mind the Ludlow festival, which runs for only a fortnight but is taking place now. All the costings and prices of the tickets were calculated and about half the tickets sold prior to the Budget. As a consequence of the change in VAT, that non-profit-making organisation will face severe financial problems in paying the higher rate which it could not have foreseen at the time the prices were fixed. I hope that some thought may be given to that matter.

My right hon. and learned Friend said that he would give thought to capital taxes in his Budget next year. It is important that family firms and farms are able to survive. It is through the smaller firms that the opportunities for increased employment will come. They will not occur in the large nationalised industries, many of them heavily subsidised, which are shedding labour. The smaller firms will be taking up the labour that the larger firms are shedding. If penal capital taxes mean that family firms and farms have to be broken up on the death of a member of the family, that is not in the interests of employment. We should never forget that.

I also express the hope that in an ensuing Finance Bill there will be some relief of taxation for forestry. This is a long-term industry where investment is necessary at an early stage. The yield comes much later. If we are to have problems in 10 to 20 years' time, when the oil we are so happily enjoying from the North Sea is drying up, forestry is an industry that could at that time help our balance of payments enormously by saving imports. The right financial climate should be created now to encourage investment. By the year 2000, we can then enjoy the benefits.

I was disappointed that my right hon. and learned Friend did not introduce in his Budget any change in the mortgage interest relief for houses. The cost of houses is rising so much that the maximum mortgage on which tax relief will be granted—the figure of £25,000 fixed in 1974 and deemed by the Socialist Chancellor at that time to be appropriate—is clearly inappropriate now. I hope that it will not be long before that figure is revised

At the same time, I hope that my right hon. and learned Friend will address his mind to the problem of building societies. The figure of £25,000 for special mortgages—the number above that figure is limited—has stood for a long time. It is time that there was some revision.

I welcome the Bill. It puts a new emphasis on industry, hard work, investment and risk taking. There has been too little interest and encouragement for those aspects of our life and the country has paid the price. It is time for a new look and a new start. This Bill could be that turning point.

7.31 p.m.

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

I congratulate the hon. Member for Ludlow (Mr. Cockeram) on his re-entry to the House. That is sufficient congratulation, but I also congratulate him on his speech and look forward to his future contributions. I knew his predecessor well since for many years we co-operated to try to introduce a law of privacy. I respected him and I am sure that the hon. Member was right in his praise of the former Member.

Before coming to the main thrust of my speech, I wish to refer to some markers for our discussions in Committee. I hope that the Financial Secretary will weigh them before next week.

First, I hope that since there is a net balance in favour of VAT, the Financial Secretary will consider relieving confectionery and chocolate from that tax. It has been a longstanding grievance in the trade and to my constituents. I hope that I shall be able to argue that case at greater length if an amendment that I shall table is selected.

Secondly, I hope that the Government will consider afresh the petrol tax, in the light of projected increases from OPEC. It is clear that, although we must maintain a degree of restraint in the use of energy, and in particular of petrol and oil, in the next few years, the assessment made at the time of the Budget judgment must be revised. Perhaps the projected increases will not be necessary simply because of the need for restraint. I have no doubt that the Financial Secretary will justify the increases as a means of raising money to pay for direct tax cuts.

My main argument relates to the philosophy of the Budget. When I was PPS to Roy Jenkins in his time at the Treasury he had a quaint habit of saying at the end of the Budget debate that no one had questioned the Budget judgment. He said that year after year. I often wondered what was the point of that. Hon. Members frequently criticise changes in the Budget. This year I realise what Roy Jenkins meant. Everybody except Government Members has criticised the Budget judgment. The real issue is that the Budget is totally out of line with the country's needs.

The Chief Secretary said today that he may consider whether we should change the short title of the Bill. This should not be called the Finance Bill. It should be the "Gross Re-adjustment of Income and Wealth in this Country Bill". The Bill has little to do with our economy. It has little to do with the possibility of encouraging growth in the economy. Indeed, the Red Book says that. It states that there will be a fall of 0·5 per cent. in growth in the next 12 months. It states that nobody can foretell what will happen as a result of the changed atmosphere when the radical changes predicted in the Budget take place.

The outlook today seems more gloomy than it did when the Budget was presented. Manpower, the employment agency, in a judgment based upon assessment of the estimates of a number of its customers in the last two or three weeks, says that there has been a downturn in the prospects for employment for the next few weeks. It came to that conclusion as a result of the opinions of the directors of private companies. Those opinions are based on the expectation that a cut in public expenditure will decrease business in the private sector.

I wish that in their ideological obsession against public expenditure Government Members would recognise that public expenditure plays a major part in setting the standard of living of the average person. It also plays a major part in encouraging growth in the economy.

It is untrue to say that all public expenditure, simpliciter, is a diversion from the needs of the economy to grow within the private sector. The two are so inter-linked that it is difficult to allege that there is no feedback from public expenditure to the private sector. This is more important to the standard of living than the private pay packet.

Conservatives will not recognise that the social wage is a significant factor in the living standards of the average worker. If they disagreed with that before, surely now they must agree since the commentators have estimated that the overall effect of the Budget is that anyone with an income of less than £10,000 a year will lose and that only those earning more than £10,000 a year will gain.

Average earnings are now about £4,500 a year. More than half of the working population will lose by the Budget. Less than half of the working population earn more than the average wage. To cut public expenditure in favour of giving tax reliefs is a disadvantage to the majority of people.

The Government argue the opposite, they say that they had the electoral victory, that they have the mandate and that therefore they have proved the case. But that is not so. The Chief Secretary says that we shall argue the case in the next months and years and that in the end the experience of those months and years will decide who is right. I have no doubt who is right. I have no doubt that the initial reaction to the Budget will be confirmed by the experience of the next five years.

If Conservative Members think that they can go on cutting direct taxation and that ultimately the next victory will be theirs, they will have a rude awakening. It is not simply that they may face increasing wage claims, it is not simply that they may face increasing industrial dislocation, but gradually they will prove our case. They will prove that the average worker has more to gain by high taxation and high public expenditure.

Conservatives should recognise that they are taking out in a full year more money from the average person's income than we did. The overall effect of the Budget in a full year will be to bring in £500 million more in tax. It will be in the form of indirect rather than direct taxation, but it will come to the Treasury just the same. The idea that the Government are leaving more money in the average man's pocket is nonsense. The difference will be in the pockets from which the money comes.

It is most rare that I can find anything with which I agree in the speeches of the right hon. Member for Down, South (Mr. Powell), but he made a forceful point last week and he was right. This Budget has not taken the State off the backs of the people as the Government so frequently claim. It has merely taken the money out of one pocket and put it into another. But the money has been taken from, not put into, the pockets of the great majority of people and it will go into the pockets of a much smaller number of people who are at the top end of the tax bracket.

That initially was hailed by the elite, whom the distinguished writers of The Times, when it used to be in the position of giving editorials, claimed were the intelligentisia, who are now heralding this new Tory revolution. Of course they are, because they are the people who are on the high tax rates. I see Robin Day puffing his cigar on television and smirking at Labour MPs who are making the case for public expenditure. But he does not need to worry about public expenditure with his income. Most of the people who make the comments do not have to.

But history will not be written by the people who earn £40,000 a year. They may write the Sunday newspaper articles, but the history will be written by ordinary people, and it is the ordinary people who will suffer by the regime which the Conservatives have introduced. The Conservatives justify it, or at least they did—my right hon. Friend the Member for Leeds, East (Mr. Headley) was right to indicate that there has been some sign of change, at least in the Chief Secretary—on the basis that we need this variation in the way in which tax is collected because it will release new energies in the economy.

I do not discount the psychological effect of emotional fervour generated by spiritual renewal. In common with Mr. Speaker and the hon. Member for Caine Valley (Mr. Wainwright)—he has left the Chamber having made his speech—I have at times stood in pulpits and trade sermons in order to encourage a different way of life among the people I was addressing. We hoped that our words would encourage a higher ideal and a different standard of conduct. To some extent, that is what Treasury Ministers are doing. They appear on television or radio discussing the economic prospects. When the hard facts of an increase in the RPI, the certainty of increasing wage claims, and the certainty of a downturn in growth and public expenditure, are put to them they say, when asked how they can possibly hope that it will do anything to improve the situation, that there will be a different atmosphere and a different environment.

The truth is that this is nothing more than spiritual cant. It might actually succeed—I give the Financial Secretary that much. But all the odds are against it. I remember the great Dr Sangster who was a great Methodist preacher of a bygone age. Year after year at the Methodist conference he used to look forward to the coming year as the year when we would change souls and have a fresh Christian renewal. Each time as he said it I used to think back to the time he had said it before, and I used to consider how much progress we had made. We had not made any. If the hon. Member for Blaby (Mr. Lawson) believes that a tax cut of £1·30 for a man who is on slightly above average earnings but has no children will generate new enthusiasm in him, the hon. Member must be living in another world.

The television programme "Panorama" went back to the brush factory visited by the right hon. Lady who is now the Prime Minister during the election campaign. It asked the managing director as they were driving along in his Jaguar XJ6 "How do you feel about the Budget? Will it make you work harder?" He replied "Of course not—I am already working as hard as I can". The Budget will not make any difference to the way that most people work. They are already working as hard as they can. If Conservative Members believe that people in factories will work harder when on balance they are losing out, they are indeed living in a different world.

The Government can justify on economic grounds the policy upon which they are now embarked only if in some way it will create greater savings and therefore greater investment. My right hon. Friend the Member for Leeds, East pointed out the fallacies, as indicated by the Heath experience, of the earlier proposition. But the experience of the last 20 years shows the fallacy of this latter argument. The figures show that the percentage of the gross national product which goes into manufacturing investment in any one year has remained constant at 4 to 5 per cent. It is true that the figure increases in absolute terms in times of growth, and falls in absolute terms in times of recession. It has never varied in percentage terms as a result of a decrease in the rates of direct taxation. Equally, it has never varied as a result of a special boost given by tax rebate or by direct allowances in manufacturing investment.

The factor that affects the minds of the average board members of the average company is that they can foresee a long period of growth in which they will secure a reasonable return. They will invest for that, but they will invest for nothing else. They will not invest because they have a bit of a tax cut in direct taxation. They will not use any money that might become available because of that from savings unless they can show that they will get an increase in the return due to a long settled period of growth. The Financial Secretary cannot engineer such a period.

We live in a world which dominates our prospects for growth. Those prospects are dominated by factors outside our ken. Even if it were possible to engineer such a period, we could not in the next five years guarantee an increase above the 4 per cent. or 5 per cent. level of GNP as a result of management decision alone. Yet it is perfectly clear that if we are to make a disproportionate improvement in our growth rate to balance our relative decline over the last 10 to 20 years we must get more investment than other countries are getting, and certainly a great deal more than has been achieved in this country in the past.

That will be achieved only by direct State involvement through public expenditure. Yet, according to the Red Book, the prospect for the next year under this Goverenment is a 4½ per cent. cut in investment in the public sector, and even a ½ per cent. cut in the private sector. If the projected squeeze on public expenditure is continued, the likelihood is that there will be a massive decline in public sector investment and in the sort of investment that is engineered by the National Enterprise Board.

In economic terms the Budget does not make sense. It makes sense only in terms of party ideological warfare. For the Conservatives to accuse us of ideological furore when they act in ideological spite is the laugh which ought to soothe some of our hurts when we get the full effects of the Budget in future years.

7.51 p.m.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell , Hemel Hempstead

Thank you for calling me to make my maiden speech in this important debate, Mr. Deputy Speaker. I also thank the people of Hemel Hempstead for enabling me to be here.

As the Member for Hemel Hempstead, I have a double privilege that is comparatively rare because I was brought up in my constituency. It was my daydream that I might one day enter the House as the Member for Hemel Hempstead. While I am fortunate that my dream should have been realised, most daydreams have other aspects of reality.

The aspect of reality in my case is that in the days of that dream the constituency was a safe Conservative seat. You will remember, Mr. Deputy Speaker, Lady Davidson, who represented the constituency for so long and who was followed by James Allason.

The vagaries of boundary changes resulted in the seat being won in 1974 by Robin Corbett, whom hon. Members will remember and to whom I am glad to pay tribute. He was an active and energetic constituency Member who was known to be tireless in the cause of animal welfare. He was a formidable opponent, no less so because, as a journalist, he had an ability to communicate what he was doing which became a byword—one might almost say a byline.

Hemel Hempstead is a success story and I do not apologise for saying so. It is a new town which, through the efforts of both parties since the war has achieved, in substantial measure, the sort of society that we have been seeking to achieve in this country.

I am proud to be able to say that it contains 46,000 people living in council houses—some of the most charming in England. It has the great advantage of being set, as are so many great cities, on hills and its layout is appreciated by everyone who lives there. We have a discreet, but large, industrial estate which contains at least a dozen household names and scores of small and thriving businesses, the problems of which are, in large measure, those that come from success.

In a generation, Hemel Hempstead has shaken off many of the new town blues which were a problem some time ago. It has a thriving cultural life with its own effective amateur orchestra, amateur operatic and dramatic societies and a new choral group.

The constituency is a delightful blend of town and country. It includes not only the new town, but the ancient town of Berkhamsted, which hon. Members will know as a great commuter centre and charming market town. It, too, has thriving small businesses on its industrial estate and hon. Members can this very week see those businesses displaying themselves in the first Berkhamsted industries fair. Twenty small businesses are showing what enterprise can do in a place where one might not have expected it. In adddition, Tring maintains—I smile as I say this—a sturdy independence which is a byword in the Dacorum district council and will, I hope, long remain so.

We have one serious flaw—the lack of a new hospital. I think that we are the only new town, at least in the south of England which does not have a new hospital. If hon. Members smile because they have heard my predecessor raise this problem, I do not apologise because until we get the right decision—matters are in process at the moment—I fear that I shall have to detain the House and seek to catch your eye, Mr. Deputy Speaker, to raise the subject many times.

I shall return to that matter, but I should like first to make a few points about the Budget and its strategy. I hope that it will not be thought unduly controversial if I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on the Budget and say that I wholly support its strategy. That it has a strategy is to be welcomed. Times may be difficult and the outcome uncertain, but at least there is a definite strategy for the way ahead.

I also hope that it is not controversial for me to say that when financial matters were discussed in the election campaign in parts of the new town that might have been regarded as Labour areas, the essential ingredients of the strategy were frequently urged on me by those who may previously have been Labour supporters. They welcome the tax cuts and the shift from direct to indirect taxation. They also welcome the fact that there will be a clear difference between what an ordinary person can expect to take home in his pay packet and what others, however unfortunate, may be able to obtain on the dole.

I wish to make three points about public expenditure. We know that it must be restrained. It was restrained by necessity before the election. At times when public expenditure has to be held back it is worth remembering that there are other resources besides State moneys on which one can seek to draw.

There are, for example, the energies of the individual. The Chancellor can go a long way if, by a little catalyst money, he encourages the release of those energies. For example, I think that all hon. Members wish to see an increase in nursery education, but that is not the only way of helping young children. If we encourage play groups, not only shall we use fewer resources and help the young child to a great degree, but we shall involve the mother and thereby not only give her a social outlet, but teach her to educate her own child. Since 75 per cent. of our education comes from our parents, teaching mothers to educate their children is well worth while.

Catalyst moneys can also be used in the rehabilitation of old properties. The large number of older and unoccupied properties in London was mentioned during Question Time today. I lived in Lambeth for 10 years and have first-hand knowledge of the problem. Many of those properties can be refurbished and rehabilitated by the energies of their owners, given the encouragement of grants and the great help that will come from the shorthold tenure Bill, which welcome.

Much catalyst money comes from district and county councils. We in Hertfordshire have suffered substantially from the transfer of large elements of the rate support grant from our country to other areas. We tried hard at the exhortation of the right hon. Member for Leeds, East (Mr. Healey), when he was Chancellor of the Exchequer to restrain our expenditure. We hope to do the same under the new Chancellor.

However, authorities such as the Hertfordshire county council, that have set a good example, are put off when they have made substantial cuts by seeing the rate support grant transferred, all too often to areas—the names of some London boroughs need no repeating—that have not attempted to make the same efforts or to call into useful activity the energies to which I have referred.

Before returning again to the question of our hospital, I wish to offer a welcome to one other aspect of the Budget which will not, I think, be controversial. I refer to the bold moves by the Chancellor in raising the old-age pension, catching up on any shortfalls in ambitions over recent years, making up for 1976 and 1978, and in tackling something which, I notice, was mentioned in my predecessor's maiden speech—that is, cutting back the taxes on what is so often misnamed "unearned" income. It is quite wrong that income generated by what somebody can reasonably save in a lifetime should be penalised by extra heavy taxation. I am sure that people of all persuasions will be glad to see that the phasing out of that penalty is part of the Budget strategy.

I return now to our hospital problem in Hemel Hempstead. We have been waiting for a new hospital for 30 years. Three times we have almost come to the brink and then been led away from it by one crisis or another. Now, the question of what is to happen is to come before the regional health authority within days or weeks. It will certainly arrive before the Secretary of State, and I suspect that the matter will be discussed in the presence of the Chancellor of the Exchequer himself.

We know that money is tight, but the strategy is long-term, and it must be remembered that the decision about a hospital for any town—my concern is for Hemel Hempstead—will affect people not only in the short term but for the remainder of the century, and possibly for two or three generations.

The strategy of our Budget is to build up wealth, to create more. My plea is that this long-term decision, although taken at a time of financial stringency, should not be taken against the depressing and quite false assumption—I am sure that it is not an assumption by this Government—that our long-term strategy will fail. I believe that our strategy will succeed, and I hope that, when the decision on our hospital is taken, it will be taken in the light of the finances likely to be available on the assumption that it does succeed.

You have borne with me very patiently, Mr. Deputy Speaker, on the occasion of my maiden speech, and I thank the House for its kindnesses in greeting new Members.

8.2 p.m.

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

During the debate we have heard several maiden speeches from the Government Benches. On our side, however, apart from a notable maiden speech from my hon. Friend the Member for Hackney, North and Stoke Newington (Mr. Roberts), all that we have been able to manage has been two retreads, if I may adopt the expression used by my hon. Friend the Member for Dunfermline (Mr. Douglas).

I particularly enjoyed the speech of the hon. Member for Hemel Hempstead (Mr. Lyell). It was especially pleasing to hear the generous tribute which he paid to his predecessor, Robin Corbett, who was certainly a very active Member of Parliament. I am sure that the House was interested to hear of the affluence and success associated with the new town of Hemel Hempstead, which the hon. Gentleman now has the privilege to represent, and I hope that he succeeds during this Parliament in obtaining his new hospital.

I wish now to take up the point so forcefully raised by my hon. Friend the Member for Eton and Slough (Miss Lestor) regarding the value added tax concessions on children's clothing. As she said, on the surface it seems a worthwhile concession in the interest of parents who have quite a task in bringing up youngsters today. But one recalls that some years ago, in the days of the miniskirt, grown-up girls could buy a skirt intended for a schoolgirl, wear it and be in the height of fashion. Of course, there was a certain element of abuse of the tax regulations there, but I wish to draw attention to the very different problem which troubles people today.

The anomaly now is very much on the other side and operating against parents. I can illustrate that by a direct example. The wife of a councillor in my constituency pointed out to me that her 10-year-old son was wearing size 7 shoes, and his trousers, too, were men's trousers cut off at the ankles, incidentally. The fact is that, after 30 years of the Welfare State, children now are physically much more developed than were their pre-war counterparts.

In my view, the regulations should now be re-examined and refined, and the benefit of any doubt should go to the parents. I hope that the Minister will take note of what was said on this question by my hon. Friend for Eton and Slough, which I strongly endorse. Perhaps something along the lines I have suggested can be done in Committee.

Next, I must comment on the caning of the motorist under this Bill—the 7p extra on excise duty on petrol and value added tax up to 15 per cent. There is a heavy burden imposed on people using the motor car to travel to work. Moreover, the additional tax on motoring generally will have an inflationary effect. The rise in value added tax will certainly have its effect, quite apart from the duty on petrol.

The reaction to the Finance Bill is the same as the reaction to the Budget. It is seen as intended to help the better off. It was natural that there should be euphoria in certain quarters about these proposals. They are plainly in line with the wishes of the chairman of Guest, Keen and Nettlefolds, who earlier this year called for a Government who would enable British industry to regain its entrepreneurial spirit and so create the wealth on which we all depend. Those are, of course, admirable sentiments. Sir Barrrie Heath was convinced that a "Thatcher Government" would bring about that desirable state, and his company contributed generously to Conservative Party funds. But it seems to me that the euphoria is quickly vanishing. There is a realisation now that things will not turn out quite in the way originally envisaged. Very soon, it seems, the gold carriage is in danger of turning into a pumpkin.

Our economy is operating in the context of a world wide recession, especially with the difficulties over oil, and the recession shows little sign of abating in the near future. It seems to me that the proposals in the Finance Bill will not exactly set Britain back on the road to economic recovery. To my mind, they present the prospect of little more than a Treasury-induced slump.

For example, the 2 per cent. increase in the minimum lending rate is hardly an incentive to invest. Likewise, the rise in the mortgage interest rate which will inevitably follow will eat quickly into any tax concessions for lower paid workers. Inflation, as my right hon. Friend the former Chancellor pointed out today, is roaring away once again, and the doubling of value added tax is without doubt a major contributory factor.

Yet all this is happening after the strenuous efforts of the Labour Government over such a long period to try to curb inflation, to bring it down once again and to keep it in single figures. All those efforts have been swept away, so to speak, at a stroke. A further consequence is that unemployment will substantially increase before the end of the year. I want to be fair, and I concede that the unemployment figures were far too high under the previous Labour Government.

The Government have led us to expect that there will be massive public expenditure cuts. These will take place at a time of already high unemployment and the likely rundown of some of our older industries in the immediate years ahead, a time when we shall need welfare services more than they have ever been needed before.

In that context we may well ask "What is the position of the trade unions?". Now that they are excluded from the higher echelons of decision making, presumably they will revert to their traditional function of looking after the wages and conditions of their members. As a result, wage claims could escalate substantially. It is anybody's guess what these developments could mean in terms of industrial conflict and class conflict. It is altogether a sad story.

Towards the end of the Second World War, after Britain had been brought to its knees following six years of effort, Sir Winston Churchill is claimed to have said that the future was full of despondency and gloom. That is as I see the present position. Labour Members may well ask themselves "Why are we in opposition?". The previous Government should have had the courage to face the Treasury and to listen to the Labour movement far more than they did. It was the 5 per cent. pay norm that caused the industrial troubles of last winter. The Prime Minister and the Chancellor of the Exchequer of the Labour Government insisted on that norm when industry and the City were planning for increases of about 14 per cent. The error of judgment on the part of the Prime Minister and the Chancellor contributed heavily to Labour's defeat.

Imports are flooding in at a time when manufacturing industry is in deep decline. The previous Government should have had the courage to stand up to the Treasury, the Common Market and the multinationals and introduce import controls. If they had done so, they would have received the backing of the British people. It is only that measure, together with massive investment in manufacturing industry, that will arrest Britain's economic decline. If the previous Government had taken the advice of the Labour movement and acted along the lines suggested, the result on 3 May might have been very different. Certainly we would have been saved from, and would have avoided, the disastrous proposals contained in the Bill.

8.13 p.m.

Photo of Mr Iain Mills Mr Iain Mills , Meriden

I thank you, Mr. Deputy Speaker, for calling me to make my first contribution in the House.

After having heard so many excellent maiden speeches, one speculates on how they should be described. What collective term should be employed? If, by tradition, maiden speeches are non-controversial, one imagines that the term should be a "rapture" of maiden speeches. However, having heard that retread of great fame, the hon. Member for Dunfermline (Mr. Douglas), it seems that the occasional "ravish" of maiden speeches is appropriate. I hope that I shall be forgiven if I am capable of the occasional minor revolution.

One of the advantages of representing one of the largest constituencies in England is the great joy of diversity. My 100,000-plus electorate is served by no fewer than six county, city and borough councils, distributed over a geographically diverse area with the centre being the centre of England. It is so central that the area is covered by no fewer than 11 local newspapers.

Despite its size, or perhaps because of it. Meriden has been most fortunate in the Members of Parliament who have represented its electors over the past decade. It has had Members with such reputations as Messrs. Matthews, Speed and Tomlinson. I am left with the extremely difficult task of following their hard work and, in the case of the latter two, their quick accession to ministerial jobs.

Meriden is a constituency which, because of its size and diversity, needs hard work. It forms a peaceful and green corridor between the great industrial cities of Coventry and Birmingham. However, as the traditional industries of those two great cities have declined, the people of Meriden have seen factories close, jobs decline and very few new employers coming to offer more jobs.

Despite their very diversity in geography, the villages and towns of North Warwickshire and the industrial suburbs of Coventry and Birmingham have in common a desire for an economic system that encourages self-sustaining new businesses and industries. As they are Midlanders they are self-reliant and have individual characters. They wish to see created new concerns that are real, stable and growing organisations capable of providing jobs for many years to come. They therefore wish to see individuals who risk hard work and effort to be fairly rewarded and individuals who risk capital and talent in starting new firms to be allowed to profit fairly. They wish to see their wishes and needs met by new ideas, new determination and new initiative from all the partners in industrial growth. That will need a magic blend of individual encouragement, fair reward and positive, democratic trade unionism.

If we can find the key to unlock the trapped and frustrated talents of the Midlands, the true innovative talent and ingenuity of the Midlanders will result in their desperately needed growth. That will be used to try to find a way of reducing the high unemployment levels of Coventry and Birmingham.

The West Midlands has traditionally been a manufacturing centre with a reputation for hard work and entrepreneurial flair. I am sure that the right policies can again unlock those talents. In Coventry and Birmingham the number of jobs in manufacturing industry has fallen substantially. The only area of job growth has been in the public sector—for example, the National Health Service and local authorities. Saddest of all perhaps is the increasing number of young West Midlanders who are looking for jobs. That has aggravated youth unemployment. The decline of manufacturing industry has greatly reduced opportunities in training and apprenticeship schemes.

The region and the constituency desperately needs action that will result in new self-sustaining businesses. The Bill should greatly aid the creation of a climate in which entrepreneurs are encouraged to risk their finances and efforts in establishing new businesses and encouraging the growth of existing businesses. However, that will not be enough. We should consider further and more comprehensive measures to encourage the region to expand—for example, by reviewing our policies on regional aid, reducing the bureaucratic restrictions of IDCs and looking to the EEC for substantial aid.

The share of EEC aid directed to the West Midlands has so far been abysmal. It is tragic that that is so because the Midlands have traditionally been the birthplace of so many great British inventions and industries. Not least are the motor and motor components industries. It is vital for the Government that we now encourage the conception, birth and adolescence of future innovations so as to provide a technological and competitive base for future manufacturing industries. Finding the means to do that will not be easy, as the experience of recent years and the failure of the white heat of technology have shown.

Innovation cannot be created alone by Government and private investment in research and development. In innovation there is an elusive quality in the creation of change. The answers must also lie in a unique blend of perseverance, talent, enthusiasm, skill and determination that is required from those individuals who create, manage and implement technical changes. That is why they must be rewarded. That is why the fruits of their efforts must be left with them. As a result of the Finance Bill more of their hard-earned money will be retained by them. That is why we should welcome the Bill as taking the first steps towards the retention of earnings and giving greater freedom to spend.

In my large constituency it is not only finance that creates problems. In large and diverse constituencies there are inevitably the large and diverse problems of groups of people who are less fortunate than the rest of society. Especially in the large council estates of Chelmsley Wood and Kingshurst, groups of pensioners, disabled, widows and single-parent families are held to ransom by their low standard of living, taxation and the rising tide of vandalism, hooliganism and violence. Trapped by their economic dependence on the State and the local council, they face lives with a level of disruption and lawlesseness that must not be tolerated in modern society. To protect them we should strengthen magistrates' powers to give more meaningful deterrents and penalties and make deterrence really count. We must ensure that they have freedom of choice by awarding them pensions that keep up with the prices in the shops, because for some the six months gap can be disastrous.

The shift of population from cities and towns towards the smaller country towns and villages has resulted in the old-fashioned towns such as Atherstone and Coleshill having their problems, too. They have now become commuter centres for Birmingham and Coventry. That means that the present cost and restrictions on petrol, plus the costs in public transport services over the past few years, have resulted in their lives and standard and way of living being threatened. We should therefore consider encouraging private enterprising and self-supporting small bus services to help provide, for those unable to own cars, the level of transport and mobility that the rest of society enjoys.

Village life must be preserved. That means the continuance of village schools and fairer rate demands. In the long term that approach will help to increase the trend and shift away from the public sector towards private resources. That has been started by the Government and encouraged by means of the Finance Bill.

Although there are many problems in a large constituency, there are new hopes. With a considerable swing at the last election, it is clear that there is now a turning point in the relationship of the Government and trade unionism. There have been fundamental changes in trade union membership in recent times that show considerable opportunity for the Government who reward effort, reduce taxes and give greater freedom of choice and spending. Trade union membership has now changed to include many millions of people who traditionally have not seen collectivism as a necessary part of their employment. However, having joined trade unions, they may become the key to a change that will lead to more democratic practices and responsible attitudes towards change and growth.

For future industrial success, for the sake of jobs, lives and happiness in the large constituencies of England, we need to design an economic blueprint that recognises the motivation of individuals at all levels and in all types of jobs. Therefore, this must be a blueprint for growth through innovation, individual incentive and rewards for risk. The Finance Bill takes the first step of many towards a new design for growth, reward and new opportunities.

8.25 p.m.

Photo of Michael Meacher Michael Meacher , Oldham West

I congratulate the hon. Member for Meriden (Mr. Mills) on his maiden speech, which I thought was fair-minded, confident and eloquent. I am pleased that he referred to his predecessor, John Tomlinson, who was certainly a determined and effective lobbyist for his own area. Although staying within the conventional bounds of non-controversiality, nevertheless the hon. Gentleman managed to make some substantive political points. Convention forbids me from replying to them directly. Certainly he showed great concern for innovation, the rewards of talent, freedom of choice and the galvanising of entrepreneurs—which makes me think that he will prove to be an effective disciple of his right hon. Friend the Secretary of State for Industry. I am sure that we may look forward to many valuable contributions from the hon. Gentleman in industrial debates.

I also congratulate the hon. Member for Hemel Hempstead (Mr. Lyell) on his maiden speech. I do so because he said that he had been brought up in that constituency. So was I. I was intrigued to know that the people of Berkhamsted, from where I came, welcomed the tax cuts. Given the maldistribution of the tax cuts, they must now be a great deal wealthier than when I was there. I noted that the hon. Gentleman intended to campaign for a new hospital. I wish him well in that. There is an old hospital in Hemel Hempstead, where I was born and nearly deceased a few days after my birth. I have strong reasons for supporting him in his campaign. I wish him well.

If there is one theme that the Government have chosen in presenting the Bill, it is the emphasis on incentives, opportunity and the creation of the appropriate economic environment. There is a political question which arises from that. In his opening speech the Chief Secretary to the Treasury referred to it, somewhat to my surprise. He gave the Bill the epithet "social justice". There is, therefore, the political question of whether the benefits that the Bill confers and the penalties that it imposes are distributed between the various groups and classes of the population in an equitable manner. It is an important political question. The Budget is intended to regenerate people. Whether it regenerates them in a generous or sour way depends on the manner in which the benefits and sacrifies are seen to be distributed.

The Chancellor, at the end of his Budget speech, claimed that everyone would benefit from it. He said that the married couple on average earnings would gain about £4 a week in take-home pay from the income tax changes but would have to pay about £2·75 a week extra from increases in VAT and petrol duty—in other words, they would get an increase of something over £1 a week.

The Chancellor's calculations seem to me to be defective in two very important respects. The first is that he included the effects of the statutory indexation of personal allowances, which had already been implemented in my right hon. Friend's caretaker Finance Act in April. What is new in the Bill is the increase in the allowances—which I admit is a sizeable one—over and above what had already been provided for. It seems to me to be perfectly clear that this is all that should properly be taken into account here. The second is that the Chancellor's figures omit several important items which are altered in the Budget. Two of these—the raising of the investment income surcharge threshold on the gain side, and the likely increase in mortgage payments on the debit side—as well as others need to be included in the assessment.

When these two points are properly taken into account, the effect is that the low-paid family makes not a gain, as the Chancellor said, of about 75p a week, but actually make a loss of slightly less than £1 a week. The family on average earnings loses rather more—say, £1·50 a week. The technical or lower executive employee on double average earnings loses about £3·50 a week. It is only at the middle management level, or the higher professional level, where people are earning about four times the national average, that a gain—and a fairly substantial one—is registered. The manager on £20,000 a year gains roughly a fat £25 a week extra from the Budget changes. For the director on £50,000 a year, the Budget is a fantastic bonanza. He will pick up another £135 a week. That is one and a half times the national average earnings as an increase in his existing pay.

The second main conclusion to be drawn is that the overwhelmingly predominant thrust of the Budget changes is concentrated on the changes in the higher income tax rates and thresholds. By definition, these disproportionately benefit the well-off and the rich. That gain is multiplied by the fact that so many of these persons have in the past, in senior management positions, received huge gross increases in pay in order to provide an appreciable increase in take-home pay net of the high tax rates. They have now gained in both ways—a very substantial tax hand-out in the Bill, and much more inflated gross salaries to which to apply it than would have been the case in the absence of higher tax rates.

On the other side of the coin, the poor will suffer as a result of the effects of the Budget, and rather more than the Government have so far seen fit to admit. First, there is the point that the lowest paid, beneath the tax threshold, will have to pay the double VAT charges without any of the benefit of the tax cuts with which to do so. Next, there are several further increases in charges which cannot be quantified but which will hit the poor hard. I refer to higher prescription charges, higher bus and rail fares, and higher rents. After all, expenditure on public sector housing is being cut by £300 million in England alone, and this is bound to push up rents.

The Chancellor made clear that he was introducing an opportunity Budget. That was his final flourish. Closer analysis of his own figures indicates that the opportunities in the Budget are likely to be a great deal more elusive than appears at first sight for everyone but the highest paid 5 per cent. of the population.

But, given that this is the broad pattern of the tax largesse from the Bill, whatever the exact figures are—and there can certainly be argument about that—the overriding political question is surely this: how can the Government seriously expect the trade unions, over the next winter, to accept strict cash limits in the public sector and restraint in the private sector when the Government now admit that inflation will be 17½ per cent. at the end of the year and probably 20 per cent. in the new year—about twice the level at which it was left by the last Government—and when top directors are being given an extra incentive that is a staggering 100 times higher than that to those who are on average pay or low pay?

I do not understand why they should need an extra incentive 100 times that of the real wealth creators on the shop floor. Thirdly, when a whole stream of highly paid persons—judges, civil servants, senior police officers, Army officers, doctors and dentists—have just been given huge pay awards of 25 per cent. to 35 per cent., how can the Government seriously expect restraint after a Budget with that kind of incomes policy?

No doubt the Government's case is, that things have to get worse before they can get better. The Government will no doubt claim that the purpose of the incentives is to create economic expansion and that, if they can bring about higher growth as a result of this environment, the average paid worker will gain. I suppose it is the trickle-down theory.

What expansion will take place when investment is certain to be chocked off by a credit squeeze with MLR at 14 per cent.? Even if the Budget does encourage increased investment to take place, is it not more likely that it will take place abroad, following at least the beginning of what in the Budget looks like the effective dismantling of exchange controls? The abolition of the super criterion rule will certainly encourage more direct manufacturing investment overseas at a time when it is desperately needed in this country. Once again, one is forced to conclude that a Tory Government have given place to the City's financial priorities, because, of course, the City wanted them, far more than to those of domestic manufacturing industry.

Not even the Government seriously expect expansion, as some of my hon. Friends have said. The Treasury's forecast in the Red Book is a 2½ per cent. reduction in manufacturing production over the next year. On the other hand, according to the Financial Statement, imports are expected to rise by 1 per cent., which I suspect may well turn out to be a substantial underestimate.

Where will all the tax handouts go if they are not used, to coin the Chancellor's rather delightful phrase, to pay the increased back bills, unless they go into higher savings? The tax handouts are bound to find their way mainly into buying increased imports. Both periods of rapid expansion of the British economy in the last decade, in 1973 and 1978, were accompanied by a very sharp increase in import penetration. Therefore, the real beneficiaries were foreign industry in the EEC, particularly West Germany, and Japan, rather than British industry. If expansion takes place as a result of this Budget, though I doubt it, the same is all too likely to happen again.

There is a dilemma at the root of this Budget. Either it will bring about expansion which, after all, is its ostensible aim, in which case there is nothing to stop a further huge sucking-in of imports, leading to the long-term decline of British industry; or—which I suspect—it will not bring about expansion, in which case, enormous tax handouts have been given to the higher paid and the rich with no apparent economic gain to the nation as a whole. Either way, the ordinary British worker will lose.

This Budget is a gamble, as Government spokesmen have said. It is a gamble which the Government have deliberately taken. They must now face up to the consequences. If those consequences mean a winter of discontent, as many of us suspect and fear, which puts the last one in the shade, the Government will have no one to blame but themselves.

8.41 p.m.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

The hon. Member for Oldham, West (Mr. Meacher) made a valiant attempt to disprove the Chancellor's figures. I used to do so as well when I was in opposition. I take on board many of the points that the hon. Gentleman made. He put them persuasively and, as always, in measured and moderate tones.

But I am left with the thought at the back of my mind that in the last general election the Labour Party also went to the country on the basis of seeking tax cuts. How would Labour Members have financed such tax cuts were they also to keep the public sector borrowing requirement within bounds? They may have gone for a rather higher PSBR than the Chancellor's Budget strategy supposes. It is probable that they would have gone for lesser direct tax cuts than the Chancellor, and perhaps would not have been so generous in up rating thresholds. But broadly speaking, there would not have been a great deal of option for them to act much differently were they to follow up their pledge of reducing the direct level of taxation.

The two assumptions made by the hon. Member for Oldham, West in trying to prove that an average family will be worse off are partially hypothetic and partially spurious. It is fair to take into account the full amount of the statutory indexation of the allowances. In addition, any prospective rise in mortgage rates, while hypothetical although likely, is of uncertain duration. I do not know how that will affect families the lower one goes down the income scale. One can presumably assume that the lower one goes down the income scale, the fewer will be the number of families that have mortgages.

Broadly speaking, this is a good Budget. I welcome many of the provisions in the Bill. None of us should be surprised that it is not a fine tuning Budget, the sixteenth in the line of the last four or five years. In recent years, we have had so many Budgets at such frequent intervals that we have got used to a line of thinking. It is not surprising that many members of the public and, I suspect, some Conservative Members have some fears and misgivings. Anyone who is honest about the future will be concerned about the effects of any strategy.

All I know with conviction is that we simply cannot go on the way we have done during the last four or five years. The building up of debt, and the steady increase in the burden of direct taxation on families, has meant an intolerable burden on the average family about whom the hon. Member for Oldham, West cares so much. Therefore, I welcome the fact that we are moving in a different direction.

But I hope that I will be allowed to explore with some thought just what the consequences will be, bearing in mind the past strategies of successive Governments. I well remember that in 1970 the then Conservative Government were elected on a mandate which included reducing taxes. They did so. I well remember the Prime Minister, within months, going around the City and industry and using political invective to encourage people to invest. He told them, "We have given you an opportunity. We are a Government who are trying to promote economic growth. We are making credit available on a new scale and we are reducing the burden of tax." However, industry did not invest and the money went into property among other things. Of course, towards the end of that period of government there were international problems which also affected the response.

With hindsight, it is fair to say that for a number of reasons that strategy did not work. This time the major tax cuts which once again we have been elected to introduce reduce the burden of tax from a high level. In fact, it barely goes back to the level reached before the election of the last Conservative Government. But we must ask again why it will be different this time. We have reduced the burden of tax. Why should industry take the opportunity to invest this time?

In the first year I suspect that there will not be tremendous visible expansion in bigger figures in the Financial Times and the other papers which monitor the industrial indices, but I hope that it will occur over a period of a Parliament, if not of two Parliaments.

This time the circumstances are different for a number of reasons. First, we have the godsend of North Sea oil, which we did not have at the beginning of this decade. The benefit which that provides to our balance of payments must create a much more stable economic background for institutions, individuals and companies to take investment decisions.

Secondly, I hope that the present Government will stick to their stated aim and policy of trying to provide stability, that, once they have made tax or legislative decisions, they will not go for a wholesale period of change, shaking things up every year, and that, over five years, which is the statutory maximum for a Parliament, industry will have the certainty of an economic environment in which to make investment decisions.

No Government can guarantee that, of course. I have no doubt that the last Government would like to have guaranteed it at the beginning of their term. But major changes were required along the way.

Photo of Dr Jeremy Bray Dr Jeremy Bray , Motherwell and Wishaw

How could an industrialist possibly afford to invest who had just had his regional development grant payments postponed by three months and who found that he had to finance the cash shortfall on an overdraft at 17 per cent?

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

I do not deny that the effects of the Budget, which proposes some major changes, will be differential and that some people will be more able to make investment decisions than others. The major impact of this Budget, perhaps as a starter for a number which will pursue the same policy, should be that of transferring resources back to the private sector—into people's pockets. Inevitably they will have more control and more opportunity to make decisions about how to invest the money.

It has to be recognised that there may be social and regional problems and structural problems in certain industries. We know, for example, the tremendous problems of the shipbuilding industry which any Government have to face. I do not deny that there will be short-term difficulties for such companies which have to face, in addition, a high cost of borrowing should they finance a cash-flow difficulty with an overdraft.

However, broadly speaking, the strategy of reducing the take of the public sector and handing back more opportunity and responsibility in decision-making to individuals is compelling. I hope that it will work this time. It has a much greater chance of working this time than it did at the beginning of the decade, partly for political reasons, in that the Government are pledged to a period of stability, but also because of the godsend of North Sea oil.

Since the subject of industry has been raised, may I follow my compliments to the hon. Member for Oldham, West with congratulations to my hon. Friend the Member for Mcriden (Mr. Mills) on a splendid maiden speech? I hope that he will be a frequent contributor to debates on economic and industrial matters with the range and importance of his comments on technological development which will be a very important subject over this Government's period in office.

Having made those general remarks about the strategy, I turn to an aspect which I tried to raise consistently during the sittings of the Standing Committee on last year's Finance Bill. I hope that my comments on the subject will have support on both sides of the House.

Our laws are far too complex. It is not just that I cannot immediately understand them all, but if laws are created and fiscal liabilities imposed, people must be made aware of their liabilities. Our tax laws are incredibily complicated for a variety of reasons, some of which are well intentioned. To take an example, I challenge any hon. Member, short of the Front Bench spokesmen, to explain in detail the provisions of capital gains tax on chattels. It is extraordinarily complex but affects a wide range of private possessions. In an attempt to be equitable and fair in taxing people for what they own or dispose of, we have provided a mish-mash, a complexity, a paraphernalia of requirements. People do not know their liability.

I hope that during the passage of the Bill we shall have the opportunity to attempt to simplify our tax laws. We have often tried to be equitable to various groups by grading at a certain level the points at which people begin to pay tax, or even tailing it off at the other end. There is virtue in simplicity although at times it may promote greater inequity. We should resist the temptation to seek allowances as opposed to simply cutting overall taxation. The trap has been the relatively high tax burden on individuals and companies, and it makes the Government susceptible to special pleading, offering increased allowances to the elderly, the disabled or the young.

The overall burden should be lower, with less proliferation of allowances for one good cause or another. I am a Conservative and believe strongly in concentrating resources on those most in need. That implies allowances for certain special categories. I hope that the Minister has recognised the validity of the points that I made in Standing Committee, and in his position of influence will take on board the fact that I and other hon. Members wish to see the law simplified. People must be aware of their liability and be able to assess it in simple terms. If they are, they will to a greater degree respect the burden and computations of their taxation.

Finally, I broadly welcome the increase in PRT, which was foreshadowed by the previous Government. There have been other improvements in the tax lability on oil companies, notably the degree of uplift in capital allowances. Given the international scarcity of oil, we must ensure that we maintain support and encouragement to the oil companies in the North Sea and that the next round of licences is adequately applied for.

At present there are broadly three taxes on oil—petroleum revenue tax, which it is proposed will go tip to 60 per cent.; corporation tax of 52 per cent., which falls on all companies; and the royalties tax of about 12½ per cent. On Treasury estimates those taxes should be worth about £4½ billion in the 1980s. So far North Sea oil production has been worth rather more than £2 billion, yet the total take has been less than £420 million, which is something under 25 per cent.

Therefore, it is justifiable that, having given this support to the setting-up and the capital investment in North Sea oil, the Government should now be saying that the taxpayer and the British people are entitled to rather more of the take of a national resource. I therefore support the Government's decision.

There are, however, one or two aspects upon which I ask for the Minister's comments, either now or in Committee. There was some discussion about the extent to which the profits of different blocks of oilfields would be offset against each other where there was a loss in another field. I understand that the PRT is different from corporation tax in this respect, in that liability cannot be offset against a loss on a losing oil well in the same way that corporation tax liability can be offset against a loss in, for example, another subsidiary within a holding company.

Secondly, I ask for reassurance that the Government are satisfied that the new tax regime on oil companies will not unduly prevent smaller companies from being able to apply for licences and explore the North Sea. Already we have had an estimate that, for example, a 65 million-ton field shows that a company would take some £810 million and get a return of 19 per cent. The return following an increase of the PRT rate to 60 per cent. would reduce the company's take to £720 million, a return of 17 per cent. under the new rules. That is for a company exploring and exploiting a fairly large field.

On the other hand, in a field which shows only a 30 million-ton production, the company takes only £420 million, or 38 per cent. So the reduction here, following a further increase in the rate of PRT to 60 per cent., will be a reduction of £300 million in profitability—a rate of return of 31 per cent. The relative difference is quite substantial, and I ask for the Minister's assurance that these proposals, in the assessment of the Government, will not unduly inhibit smaller companies from applying for licences, exploring for North Sea oil and exploiting these resources.

Two points have been raised with me by a number of constituents. First, I ask for a comment on the extent to which the Government will, at some future stage, be able to increase the threshold at which VAT is payable. Many people feel that the failure to raise the level of turnover which is the threshold for VAT liability means, given the rate of inflation evident in the last year, that the VAT threshold in real terms has been lowered for many small businesses.

Secondly, many old-age pensioners have written to me or come to see me about the pension increases announced in the Budget. They say "Why are they not paid until November?" I know that there are administrative reasons why it is sometimes not possible to introduce these payments immediately. I also respect the fact that the Budget usually takes place only once a year and affects the payment of many benefits introduced at various stages during the year. But my right hon. Friends should be aware of the strong feelings of many elderly people that, when these increases are announced, they do not get them for months. They feel they have been sold short because, in the meantime, prices go up and they see many other groups who are not only awarded pay increases but have them backdated.

Some more adequate or satisfactory explanation of the question why the pensioners have to wait would be welcome. It would be additionally welcome if the Government could hold out some hope that in future these payments will be made more quickly.

With those comments, I remind my right hon. Friends that, despite some misgivings about the extent to which industry will respond to the Budget, I am very much in favour of the provisions of the Bill. I hope in particular that the increase in VAT, swingeing though it has been, will provide in a full year the additional revenue to finance further cuts in taxation next year, and that the policy that has been embarked upon by my right hon. and learned Friend the Chancellor will be pursued. I hope that we shall have no U-turns half way through this Parliament, and that industry will have not only the prospect but the reality of major profits and more net real resources in its own pocket to make its own investment decisions.

For those reasons I very much support the Bill.

9 p.m.

Photo of Mr David Ginsburg Mr David Ginsburg , Dewsbury

I hope that the Government will heed the last words of the hon. Member for Chichester (Mr. Nelson), in which he spoke about accelerating the payment of the pension increase. I was in considerable agreement with what he said about retirement pensions, but I did not agree with, and I hope that the Minister will not heed, the hon. Gentleman's earlier comment that we have had enough of fine tuning of the economy and that what we need is a lurch—I suppose a lurch to the Right. The hon. Gentleman warned his right hon. Friends about U-turns and so on.

The hon. Gentleman was very contradictory. At one stage he argued that a Labour Government would have been doing very much the same as the present Government are doing. Then suddenly he went in a completely contrary direction.

I mention all that because economic policy is a continuum and is not necessarily suited to violent lurches. One of the besetting sins of the British economy is that violent changes have been made with the changes of Government and the economy has not settled down on the right lines.

The Budget and the accompanying Bill have been rightly criticised on the Labour Benches for their unfairness and their divisive character. I need not add much on that subject, because my hon. Friend the Member for Oldham, West (Mr. Meacher) went into considerable detail on the divisive character of the Budget. But it is also necessary to emphasise the Budget's monumental irrelevance. The parrot cry "I have a mandate", which is like someone at the racecourse saying "I have a horse", is not likely to survive very long against the inexorable pressure of events.

My basic criticism of the Budget and the Bill is that they manage to be—and it is a remarkable combination—both inflationary and the cause of unemployment. Additionally—and this is a major criticism—apart from what is proposed for the taxation of fuel oils, there is considerable neglect of the taxation aspects of energy policy.

The contribution that the Budget and the Bill will make to inflation is surely clear to the House by now. A 2 per cent. increase in minimum lending rate, the VAT rises, the working through of public expenditure cuts on to the rates, with massive increases which will follow next year, and on to rents, are bound directly to push up the cost of living and increase wage pressures. All that will be done when commodity prices, not only oil prices, are still rising. That point has not received the emphasis that it deserves. We have only to look at the figures in the Financial Times for the present level of commodity prices against that for last month or the year before to realise that the inflationary pressures that this country will face in the years ahead will be very serious.

It is very much in the interests of the British economy to have a strong pound in order to keep down prices. For the Government, at this moment, to dismantle foreign exchange control and thereby eventually weaken the pound is a dangerous course of action.

The public expenditure cuts and the VAT increases will operate to choke off demand at a time when we have not yet fully mastered rising unemployment, despite the action of my right hon. Friend the Member for Leeds, East (Mr. Healey) when he was Chancellor. Youth employment must be causing most hon. Members considerable concern while unemployment among teachers and the problems that this will cause are also worrying. On all these problems, the Budget and the Finance Bill have precious little to offer.

One of my principal anxieties is the energy question. The Finance Bill provided an opportunity to influence economic activities and influence personal and corporate activities towards energy saving. The opportunity was missed. It is clear that the Government had other priorities in mind.

The key feature of the Finance Bill, as Ministers and Conservative Members have explained, is to raise the rate of VAT and so finance cuts in income tax, particularly at the higher end. The Chancellor has argued that his philosophy is to try to let people spend more of their own money. Stated in that term, this could be a respectable position to adopt, provided that inequity is avoided. That is crucial.

Inequity was not avoided in the VAT measures taken by the Government. Just as the merit of income tax is its progressive character, which means that it is carried by the broadest and strongest backs, so, too, it would not have been difficult to have adapted VAT to modern conditions and put it in a progressive form. If the Government had wanted to reduce the take from income tax, many people in this House and in the country would have found acceptable a multi-tier VAT, as exists in certain continental countries.

Luxuries could, and should, be much more heavily taxed. As long as VAT, as a tax, is dominated by administrative considerations and claims of simplicity, it is bound, as administered by the present Government, to be a regressive and inequitable tax. With a multi-tier VAT, takings from the tax would increase substantially. We could have financed legitimately a larger income tax cut.

My observations on VAT also concern the issue of energy saving. The increases which the Chancellor has proposed on VAT have nearly doubled the tax on most items. This has been emphasised by my hon. Friends. One of my right hon. Friends in the previous Government introduced a much higher rate of VAT on energy-using products.

In the Bill VAT on energy-using products rises by a mere 2½ per cent. The Bill almost encourages the purchase of energy-using products in this inflationary period. Heavy textiles or insulating materials suffer a major tax impost, but the tax on the equipment that uses so much valuable and scarce electricity increases only minimally.

I turn to the question of income tax. My hon. Friends have argued that the benefits are limited to the high earners. Many skilled workers who, it is agreed, voted Conservative in the election, must feel rather disappointed with the 3p. in the pound reduction in income tax. That 3p reduction will be swallowed up by inflation.

The Chancellor boasted that he is taking 1,300,000 people out of taxation. Such boasts have been made by previous Chancellors over many years. With inflation running as it is those people will soon be back in the tax system.

If the Government are sincere about incentives to work, their objective must be to push far more people out of the income tax range and to take more serious steps to eliminate the poverty trap.

The priority, in the Government's own terms, was to take more people out of tax. But the Government chose other priorities because of their doctrinaire wish to reduce the top ranges of income tax.

This is a slim Finance Bill. The central needs of the country are still productivity and investment. There is virtually nothing about productivity and investment in the Bill. There are no additional incentives for investment or for energy saving by companies. This is certainly not the courageous new look that we were promised when the Government took office. I have no doubt that events will overtake them.

9.14 p.m.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

I congratulate you, Mr. Deputy Speaker, on occupying the Chair. It is pleasant to see a constituent of mine in that elevated and august place. I hope to see you there on many occasions.

The hon. Members for Hemel Hempstead (Mr. Lyell) and for Meriden (Mr. Mills) have made their maiden speeches. They both made gracious references to their predecessors, my good friends Robin Corbett and John Tomlinson. I put on record my appreciation of the way that the maiden speakers spoke of the energetic way in which their predecessors represented their constituents in the House.

This Bill is probably the most vindictive and spiteful Finance Bill that has been brought before the House. It certainly parallels that introduced in a similar fashion early in 1970. It follows a vindictive and spiteful Budget that will damage the economy, jeopardise jobs and act in a discriminatory and callous way towards some of the most vulnerable, deprived and disadvantaged members of our community.

I cannot understand how any Conservative Member can attempt to defend the Budget on the grounds that it will open up a whole new era of opportunity, endeavour and enterprise, and cap all that by pretending that it is somehow socially just. That defies my imagination, and many Conservatives are too intelligent to mean and believe the words that are tripping from their lips.

It is extraordinary, when the Labour Government were chided for not having been more successful in bringing down the level of inflation, that the Chancellor should calmly, at a stroke, increase VAT and therefore prices in a massive and unjust way. That increase means that a married man earning £100 a week and with two children will now be £2·75 a week worse off. The increase in duty on petrol means increases in the price of bread, milk, electricity, postal services and a host of other commodities and services which have gone up in the few short weeks since the Government came to office.

It is nonsense for Treasury Ministers constantly to attempt to argue that this is all right, that the low-income families will get by relatively unscathed since food, clothing and transport are exempted from VAT. Do they not appreciate that the increased VAT on a whole variety of manufacturing services, and petrol will work its way through to food, clothing and transport? If the Chancellor increases the duty on diesel fuel it is nonsense for him to claim that there will be no increase in fares or transport costs. Those increases will apply equally in the next few months to food and clothing.

But the Chancellor has been ready to inflict other twists in the inflationary spiral. He has recklessly abolished the Price Commission and is forcing up rates. There will be an outcry from his own Back Benches next year when those increases land on the doorsteps of constituents as a result of a cut in the rate support grant. The cost of manufactured goods will increase as a result of the reduced financial aid to industry. Gas, coal and electricity will cost more because of the cut in financial assistance to the nationalised industries. The doubling of prescription charges is already with us and an increase in mortgages is promised as a result of the Chancellor's decision to increase the minimum lending rate.

All this must be added to the higher cost of food stemming from the Government's decision to make a weak unabrasive capitulation to the EEC Commissioners with a devaluation of the green pound now and a further devaluation promised within the next six months.

There cannot have been a Government or a Chancellor who in such a short time has increased prices so dramatically over the whole range of goods and services affecting every person in the country, but, most important, affecting most adversely the lowest paid who can least afford to bear the burden.

A few weeks ago, when they were still in opposition, every Conservative Member was bitterly complaining about the inflation rate at 10 per cent. Now they complacently accept their own Chancellor's assessment that it will be 17½ per cent. by November and probably 20 per cent. by the end of the year. Not one Conservative Member has mentioned either of those figures tonight. Not one of them has complained about the way in which inflation will affect his constituents. We have not heard today any of their cries from the heart or the bleating about the pensioners, the low paid, the disabled and the unemployed, but we heard it from them when inflation was a 8·6 per cent. and they were in opposition.

Where is their sincerity now? Is there not one Conservative Member who is not clothed in the thick skin of hypocrisy? Is there not one with the courage now to make the same kind of complaints about his Government as the Conservatives were making about mine just a few weeks ago?

Photo of Mr Keith Wickenden Mr Keith Wickenden , Dorking

Will the hon. Gentleman tell the House what the rate of inflation was between 1974 and 1979?

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

The rate of inflation that the Government inherited was less than 10 per cent. The rate of inflation that they are promising is 17½ per cent. in November and 20 per cent. in December. Conservative Members have not complained. Not one has the guts, the courage, the sincerity or the integrity to complain about the actions of their Government.

Worse than that is the effect that the Budget will have on jobs. Not content with the fact that increased prices, through increased VAT and other measures, will push up unemployment, the Chief Secretary to the Treasury—perhaps the most honest man in the Government—has admitted on television that unemployment will increase "significantly". He is not prepared to deny that by the end of this year unemployment may reach 2 million or more. I see that the right hon. Gentleman makes no move to deny it now.

Conservative Members complained in the past five years, as did my hon. Friends and I, about every minor rise in unemployment. But they are not complaining now. [Interruption.] I thought that the fact that the hon. Member for Lancaster (Mrs. Kellett-Bowman) had been elected to the European Parliament would mean that we would hear fewer of her hoots in the House. She has been in the Chamber for only a few seconds, but already she is hooting away.

To give the hon. Lady credit, she complained a great deal about unemployment in the North-West, the area that she and I represent, but is she complaining about the effects that the Budget will have on our constituents? She knows that it will dramatically increase unemployment in the North-West.

The hon. Lady is quiet. She is not hooting or interrupting. She has nothing to say. The Conservatives are all the same.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

We have flushed out another one.

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

When someone is suffering from a serious disease, it is sometimes necessary to take drastic action. The country was suffering and drastic action was necessary to bring it back from the state of slow decline and decay which was accelerating under the previous Government.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

It is so easy for the hon. Lady to sound pious and full of common sense. She is not one of the unemployed. She has the safety and security of two paid jobs.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

All right, but it is easy for the hon. Lady to say that we must take drastic action and strong measures. But it is my constituents, not the hon Lady, who will be on the dole queue. Her Government, not content with the increase in prices and VAT, which will increase unemployment, intend deliberately to throw 150,000 civil servants on the dole, to increase unemployment by cutting the budget of the Manpower Services Commission and to cut public expenditure, which will have a dramatic impact on employment in local authorities and public services.

Conservative Members ought to realise that cuts in public expenditure have an impact on private enterprise. The cuts will have a calamitous effect on private enterprise, particularly the construction industry. When we stop building hospitals, schools and houses, construction firms go bankrupt and construction workers become unemployed. They live off and need the resources that come from the money spent on public enterprises.

What is it all being done for? Why are we increasing prices so dramatically and unfairly, and why are we to have huge and acknowledged increases in unemployment? The answer, as the Chancellor has said, is that it is being done to finance massive tax handouts to the Tories' rich friends, to the already wealthy. The tax cuts mean that a married man with two children has to earn £10,000 a year or more in order to benefit. Unhappily, not many of my constituents earn as much as that, and the tax cuts will in no way help the many thousands who are unemployed, pensioners, sick or low paid.

In fact, the only people to benefit from the tax cuts are the Norman Castles of this world. Mr. Norman Castle, the chairman of S. and W. Berisford, gets a tax handout—believe it or not—of £1,155 per week from this Government. By comparison, the chairman of ICI, who gets only £400 a week, is almost a pauper. Such people and tax handouts are the priorities of this Government, while at the same time a low-paid worker—my hon. Friends and I know many of them—on £60 a week is actually 50p worse off after everything has been taken into account.

Can anyone justify a Budget of that kind? It is a source of utter amazement that Government spokesmen can talk about this Budget as being socially just when it gives the rich, the already powerful and the wealthy massive extra tax handouts and at the same time discriminates in a callous and uncaring way against the low-paid and vulnerable members of society.

Photo of Mr Bob Cryer Mr Bob Cryer , Keighley

My hon. Friend is making a point about the Government's tax cuts and their constant claim that they are unleashing great new sources of energy and entrepreneurial initiative. Perhaps he will comment on the fact that they do not exactly seem to have inspired Conservative Back Benchers, since the 1922 Committee has just formally rejected the salary offer which the Government made to them, because it is not considered sufficient.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

I always rely on my hon. Friend's inside information, and I am sure that that is correct.

The Government are discriminating against the low paid, against the sick, against pensioners and against the unemployed. They have made every one of those groups a sacrificial lamb to be slaughtered to finance tax cuts for the rich and privileged and for those few miserable tax exiles who happen to be employees of EMI—and we know who has an interest in that.

The Government have been shoddy to pensioners, shoddy on child benefits and shoddy in their attitude towards one-parent families. Their class bias is clearly demonstrated by just three examples—the fact that they doubled prescription charges at the same time as giving relief on capital transfer tax, the fact that they have put up the cost of housing and rents while allowing the rich to buy £100,000 houses abroad, and the fact that they are ending dividend control and price control at the same time as removing the link between pensions and earnings, while promising or strongly hinting at the prospect of a wage freeze later this year. All this clearly shows which side the Government are on and whose prejudices they cater for.

The Budget and the Finance Bill show, as my right hon. Friend the Shadow Chancellor said today, that right hon. and hon. Members on the Government Benches do not live in the real world. They have no sense of reality. They have no conception of the way in which ordinary men and women have to live their lives and earn their income. They have no knowledge or comprehension of the kind of problems which such people face day in and day out in making ends meet. If they had, we should not have had the Budget or this Finance Bill before us tonight.

But those ordinary decent people will eventually take revenge. Whether, unhappily, in the winter months ahead of us or at the next election, they will take revenge on this Government for what they are doing.

9.30 p.m.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

We have had in the debate, as we had in the debate on the Budget Statement, a number of maiden speeches. It is my pleasure to reiterate the congratulations that other hon. Members have given to the maiden speakers.

My hon. Friend the Member for Hackney, North and Stoke Newington (Mr. Roberts) spoke, and from the Government Benches the hon. Members for Skipton (Mr. Watson), Fulham (Mr. Stevens), Lincoln (Mr. Carlisle), Dorking (Mr. Wickenden), Meriden (Mr Mills) and for Hemel Hempstead (Mr. Lyell). They spoke with great confidence and lucidity and I am sure we shall hear more from them during the course of our debates over the next few years.

It is a pleasure to welcome the return to the House of my hon. Friends the Members for Birmingham, Stechford (Mr. Davis) and Dunfermline (Mr. Douglas) and the hon. Member for Ludlow (Mr. Cockeram). They made constructive contributions as they have done in the past, and as no doubt they will do in future.

The debate on Second Reading, and the subsequent debates that we shall have for a long time in Committee, provide us with an opportunity to examine in greater detail the Budget Statement. In that Statement we heard from the Chancellor of the Exchequer fine phrases and optimistic claims. Are the claims and statements reflected in what one could describe as the "cold reality" of the Finance Bill?

Unfortunately, between that Statement and the publication of the Bill, economic prospects deteriorated. An inflation forecast of 16 per cent. became 17·5 per cent. the next day. There is little doubt that by the turn of the year inflation will run at 20 per cent. There have been reports, which have not been denied, of a Treasury forecast that unemployment will rise to the horrific figure of 2 million. The rise in interest rates in the Budget, which were thought by the optimists on the Tory Back Benches, and also in the City, to be only temporary, clearly will not be as temporary as the first thought.

The Chief Secretary made a strange statement. I am not quoting his exact words, but he said that the increase in MLR was to take account of the growth that has taken place in the money supply. Why do Chief Secretaries make statements of that sort? There was no great call at that stage to make that statement. I wonder whether he was telling the City brokers, those who deal in the gilt-edged market, that the Government were not intending to increase interest rates any further. The Government must be rather worried. They have not sold much in the way of gilts since the Budget. The financial columns show the gilt-edged market to be pretty morbid and stagnant.

There must be some danger that MLR will have to be increased again if the Government are to keep within the present limit of money supply and bring it back to the target rate of 9 per cent. Next month the building societies may announce an increase in the mortgage interest rate. It has been estimated that it will rise to 13 per cent.—I know not. Clearly the economic reality has turned out very differently from that foreshadowed by the rhetoric of the Chancellor in his Budget Statement.

The taxation reality, as evidenced by the Bill, produces and creates a bleak prospect for most people over the next year or so. I remind the House of the Chancellor's rhetoric. He said of the Budget it will enlarge opportunities."—[Official Report, 12 June 1979; Vol. 968, c. 263.] He also stressed the need to improve the supply side of industry.

The Chief Secretary was more philosophical in his description of the Budget and the Bill. On one occasion he argued that tax cuts were consonant with greater freedom. Today he mentioned social justice. Perhaps he does not entirely support the view of the "growth concept" that comes from the Chancellor and the Chancellor's justification. Despite that, the Government claim that it is an opportunity Budget, a freedom Budget and a social justice Budget.

Even in his Budget Statement, the Chancellor found it difficult to reconcile the splendid sentiments and words with the figures. He desperately wanted to show that the person earning £100 per week would be better off. He subjected the figures—in modern parlance—to a bout of heavy massage. The figures were stretched to their limit to justify the assumption that the man earning £100 a week would be better off. The Chancellor said that that man would benefit from the tax cuts by £4 per week. However, the Chancellor could arrive at the figure of £4 only by reducing the financial year to 10 months. We saw from the Bill, the statements and the tables, that a man earning £100 a week would be about £3·30 better off as a result of the income tax cuts.

Even more doubtful or shaky were the Chancellor's figures for VAT and petrol tax. We were told that the net loss, as a result of VAT and petrol tax, would be about £2·75. I have been trying to extract from the Treasury how it arrived at the £2·75 figure. I hesitate to criticise Ministers or officials. However, I have been waiting with bated breath for an answer. So far I have not received one. It is not clear how the figure of £2·75 was arrived at. If the Chancellor assumed the same pattern of spending, my guess is that the effects of the VAT increases were greater than the £2·75 mentioned by the Chancellor.

I asked for a breakdown of petrol tax and VAT. So far no answer has been forthcoming. We may well receive an answer from the Minister of State tonight. The Treasury has had enough time in which to provide answers to those questions. None have been forthcoming.

As to the effect of the increases in VAT and petrol tax on motoring costs, the Automobile Association calculates that for the average family car the extra cost is likely to be about £2 a week. We need to know—no doubt we shall be told in Committee—how the figure of only £2·75 was arrived at in view of the doubtful assumptions that seem to have been made.

The Budget is aimed at enlarging the opportunities of the British people and improving what is now described as the supply side of the economy. The opportunities of one group of people will clearly not be enlarged. I refer to the many thousands of people—the Inland Revenue does not know how many—who pay no income tax. The low paid will not benefit from the Budget. They will suffer as a result of the increases in VAT, petrol tax and other price increases. For them words like "opportunity", "freedom" and "social justice", which we heard from the Chief Secretary, will have a hollow ring.

We may look at the position of the person further up the income scale earning £3,000 a year, or about £60 a week. He will pay £2 a week less in income tax. On the Chancellor's figure of £2·75, which the Opposition do not accept, the person involved will be worse off as a result of the Budget. There is not much room for enlarged opportunities there.

I refer next to the person earning £4,000 a year, or about £80 a week. He will receive £2·17 in income tax rebate. However, he pays out £2·75. Probably about 50 per cent. of all men working in this country earn up to £4,000 a year.

About 70 per cent. of all employees receive nothing from the Budget. For them there is neither opportunity nor incentive. They have little to do with the supply side of the economy. If improving the supply side of the economy is justification for the Budget, why are at least 50 per cent. of adult male employees completely excluded from any opportunities resulting from the Budget and the Finance Bill?

We come next to the Chancellor's own example of a person earning £100 a week, who receives £3·30 income tax rebate and pays £2·75 in VAT and petrol tax, on the Chancellor's figures. That is a gain of about 55p a week. However, that sum has long gone. About 50p of it went before the Minister of Agriculture, Fisheries and Food ever went to the famous meeting of Agriculture Ministers in Luxembourg. We do not know how much else has gone since he came back, because the Ministry of Agriculture's figures seem to be as shaky as the Treasury's figures. We still have not been able to work out exactly what damage the right hon. Gentleman did.

For probably up to 80 per cent. of male employees in industry in this country the Budget offers no opportunity whatever, no incentives, no chance to enhance their freedom, and no social justice, to use the Chief Secretary's term.

In considering the effects of the Budget and the Bill I have been very favourable to the Chancellor in my interpretation, because I have taken no account of all the other consequences of the Budget. I have taken no account of the higher rents, the higher rates, the fuel costs, the massive increase in the cost of running a small car, and the effect on the mortgage interest rate, which will probably wipe out any benefit from income tax cuts for the man earning £5,000 a year and more. The majority of the wage earners in British industry get nothing at all from the Budget. The net effect of the Bill and the direct consequences of the Budget are that the Bill provides little or no incentive to anyone earning much under £10,000 a year. A person earning £10,000 a year benefits by about £6 a week from the income tax cuts. I suggest that, with all the consequential increases in the Budget, plus the VAT and the petrol tax, there is very little left from that £6 a week to benefit anyone earning up to £10,000 a year. It is a classic Tory Finance Bill which helps the surtax payers. It is an old surtax payers' Budget, except that today we talk about the higher rate of income tax. That is what the Bill is about.

What has happened to the skilled worker, so beloved of the Tory Party when it was in Opposition—the skilled worker in that machine tool factory in Birmingham who was to improve the country's productivity? I have not met many of them earning £8,000, £9,000 or £10,000 a year. What of the middle manager in manufacturing industry? There are many managers in this country, managing small and medium-sized factories, especially in the provinces, who are not earning £10,000 a year, and they will not get any benefit out of the Bill. If the object of the Budget and the object of the Bill is to improve the supply side of the economy, the skilled worker and the middle manager are surely in a better position to do that than most other people in our economy, yet they will get little or no benefit from the provisions of the Budget and the provisions of the Bill.

I venture to say, without being disparaging, that many of those earning more than £10,000 a year—they may be doing very worthwhile jobs—have little to do with the supply side of the economy. Indeed, one could guess that 30 per cent. or even more of those earning above £10,000 a year, whatever jobs they do, have very little effect upon those areas of the British economy where the problems are greatest, and have very little contribution to make to the supply side of the economy.

I quote the Chancellor again. This is what he said towards the end of his speech: The Budget is designed to give the British people a greater opportunity … to win a higher standard of living".—[Official Report, 12 June 1979; Vol. 968, c. 263.] That sentence was very sloppily drafted for the Chancellor, if it was drafted for him by Treasury officials, because it is not borne out by the facts. The sentence should read "The Budget is designed to give a small minority of the British people a higher standard of living." The word "win" is also misplaced. Those benefiting from the Bill do not have to win anything. The money is given to them on a plate. They have got their higher standard of living. The man earning £15,000, £20,000 or £30,000 a year does not have to win anything. He has got it. The Chancellor has given it to him gratuitously.

The Chancellor said that it was not a give-away Budget. That was true. It was not a give-away Budget. But, as they say in the police courts, that is not the whole truth. It is not a give-away Budget for most people, but for a few it is a give-away Budget, and a massive give-away Budget, as evidenced by the Bill.

The inequity of the Budget is compounded because the Bill contains no provision to deal with the substantial benefits in kind, the substantial perks, which are given to employees and others. Government Members should listen to this, because it is important. Even the CBI has said that these perks are distorting the wage structure and the tax system. Nothing in the Bill seeks to tax those benefits in kind.

I entirely appreciate that it would have been expecting too much, in the short time available, to bring in massive legislation to deal with this problem. But there are areas with which the Chancellor could have dealt. For instance, he could have said that the cuts in the higher rates would apply to cash incomes only. It would be perfectly possible to say "If you are receiving cash incomes, I will give you the benefit of the higher rate cuts, but if you are receiving benefits in kind you shall not receive them".

At one time the justification for benefits in kind was our high tax system. I remember the debates night after night, and the arguments from Conservative Members when it was said that, because of our high tax rates, we had to provide executives with benefits in kind. Now that the higher rates have been brought down, the man earning more than £10,000 a year who will receive substantial benefit should get that substantial benefit on his cash income only and not on the perquisites and benefits in kind that he receives.

The Chancellor knows that the scale rates, for instance, for the taxation on motor cars provided for employees, are hopelessly out of line with the true worth and value of that car to the employee. If he does not know that the Inland Revenue will probably tell him; it has, probably told him already. The Chancellor, the Chief Secretary and the Minister of State also know that many employees are provided with free petrol to run those cars on which no taxation whatsoever is paid. It is completely free of tax—

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The hon. Member for Dorking should not say "Nonsense" but should ask the Minister of State, because the Inland Revenue told him that that petrol is completely tax-free. Indeed, it is very often provided tax-free by employers.

Photo of Mr Keith Wickenden Mr Keith Wickenden , Dorking

I was in practice as a chartered accountant for 15 years and the private use of petrol, as indeed any other benefit in kind, was regularly, properly and legally taxed by the Inland Revenue.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I always defer to chartered accountants, especially when they have been in practice for 15 years. However, I do not want to trade arguments with the hon. Gentleman. I suggest that he has a word with his hon. and learned Friend the Financial Secretary.

The position is that petrol is provided—there is a massive loophole here; I am surprised that the hon. Member for Dorking has not heard about it—so the cars and the petrol to run them are very often provided with very little taxation payment.

A foreigner walking the streets of London would find it very difficult to believe the Chancellor's assertion that we are a country in economic decline. I suggest that the foreigner would see more expensive cars in London within five minutes than he would see in Paris, Frankfurt or New York, cities in countries where the economy is much stronger. The foreigner would not know, of course, that 90 per cent. of those cars were not paid for by the people who drive them, or that the petrol in them was not provided by the people who drive them. When the Minister of State winds up, I hope that we shall get some statement from him about the Government's present view on benefits in kind, now that tax on the incomes of higher rate taxpayers has been substantially reduced.

I turn briefly to the questions on VAT which have been touched on in the debate. There will be many areas which we shall be able to explore in Committee. I am glad to see that the Ways and Means resolution has been drafted in a way that enables us to debate areas, such as the problems of the disabled, charities, children's clothing when it does not fall within the VAT exemption, theatres and the arts. We can debate all those problems in Committee, and no doubt they will be long debates.

There is nothing new or radical in the Bill, despite the claims of the Chancellor. The Chancellor described his measures as a new beginning. I am afraid that they are a very old beginning. We must all know, in our hearts, how it will end. I have been reading some previous Budget Statements by Tory Chancellors and it will not surprise some of my right hon. and hon. Friends that they bear remarkable similarities.

If this were not a serious parliamentary occasion, I would be tempted to run a kind of "spot the Tory Chancellor" competition. But perhaps I can give the House a few quotations. The first goes as follows: I believe that my proposals with regard to Surtax will have a dynamic effect upon the initiative and effort of individuals, including those engaged in exporting".—[Official Report, 17 April 1961; Vol. 638, c. 822–23.] That was your distinguished predecessor, Mr. Speaker, Mr. Selwyn Lloyd, speaking in 1961. The trouble was that the exporters took the money and did not do the work and the importers took the money and worked very hard. Within three years we had the worst balance of payments deficit at that time in the history of this country.

The next quotation reads as follows: This Budget" heralds "a new approach .. based on the belief that lower taxation .. will … help to create a new spirit … of personal endeavour and achievement".—[Official Report, 30 March 1971; Vol. 814, c. 1398.] There are no prizes for guessing who said that. That was Mr. Anthony Barber, almost 10 years later, in 1971. We saw what happened to personal endeavour. There was very little. Everyone in the City rushed to make money as fast as he could and practically brought down the whole financial and economic mechanism of this country.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The hon. Gentleman should not shout "Rubbish". He knows what happened. To shout "Rubbish" just shows that he has not understood the problems of those times.

Now we have the third new beginning. Its fate will no doubt be the same as the previous new beginnings that we have had from Tory Chancellors.

The Labour Opposition oppose this Bill because it is based on what I would call the Brahmin attitude towards society. It is a belief that, provided one stuffs the pockets of a small caste of Brahmins with plenty of money, somehow, they will go out and rejuvenuate the British economy. We oppose the Bill because in its taxation effects it is contemptible and contemptuous of the contribution which the majority of the British people can make. It ignores them completely and gives them no incentive or chance to exercise their opportunities and to enlarge in the way that the Chancellor wishes. We oppose the Bill because it is unfair and unjust to those least able to look after themselves. I have no doubt that when the final verdict is given, the British people will reject the philosophy behind the Bill.

9.43 p.m.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

This has been an interesting debate, but in many ways, certainly taking the tone of the speech of the right hon. Member for Llanelli (Mr. Davies), it has been a continuation of our Budget debate. This may be no bad thing, because it will help us to refine the questions which need our consideration and which will no doubt be considered in greater detail during the Committee stage of the Bill. It may also give the Opposition a chance to reflect on the fiscal and economic strategy of the past Government. I do not expect Opposition Members to admit publicly the defects of that strategy, but it may enable them at last to come to terms with the mood and aspirations of the electorate which were so strikingly expressed on 3 May.

I also hope that the new Members on the Opposition Front Bench—I congratulate the hon. Members for Gateshead, West (Mr. Horam) and Norwich, South (Mr. Garrett)—will bring fresh minds to bear on these problems. Perhaps they will be able to detach themselves a little from the slightly outdated rhetoric of the right hon. Member for Llanelli. It may be that they will have clearer, fresher minds, and perhaps we shall be able to find a little bit of common ground. I recognise that it is the business of an Opposition to oppose, but it may help our debates if we can at an early stage establish some common ground.

The right hon. Member for Leeds, East (Mr. Healey), who I regret is not in his place, has, in the course of a distinguished career, moved a long way. Whether it would be right to say that he sits now at the court of Professor Friedman, I do not know, but he demonstrated today that he is a fairly robust monetarist and, in the course of his argument, he demonstrated apparently that the monetary targets which my right hon. and learned Friend set and those which he set in slightly different circumstances earlier this year were the same. I hope that he manages to carry his right hon. and hon. Friends in his intellectual odyssey.

I admire the right hon. Gentleman's stamina and his zest for battle, and I express my sympathy to him that the exigencies of the struggle for power in the Labour Party have kept him in the hard and unrewarding economic and fiscal field when no doubt he would have preferred to move untrammelled into such lusher pastures as foreign affairs—[Interruption.] I am flattered and reassured that the right hon. Gentleman, for whom I have great personal admiration, should come into the Chamber at this moment. I never know how to respond to him when he is in his skittish and flirtatious mood—[Interruption.] The right hon. Gentleman will recall that the tiny Chinese minds were not concentrated on this side of the House. They were concentrated on the Benches below the Gangway on his own side. Judging from the speech of the hon. Member for Ormskirk (Mr. Kilroy-Silk), they are still solidly concentrated there.

The kindest comment that I can make about the speech of the hon. Member for Ormskirk is that I do not believe that it will accelerate his arrival at No. 10 Downing Street. If he is really moved to make that kind of speech, he had better take lessons from his hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), whom I congratulate unreservedly on his promotion. Dare I say that I hope that he will not lose his cutting edge on the Opposition Front Bench, because he was far better able to make that kind of speech from the Back Benches than his hon. Friend the Member for Ormskirk.

I return to the right hon. Member for Leeds, East—[HON. MEMBERS: "What about the Finance Bill?"] There is time enough for the Bill. I have been on my feet for only three minutes. We shall have plenty of time next week and the week after to explore the minutiae, and I hope that I shall be offering the House a few observations on it. Responding to the right hon. Gentleman's overtures, I am glad that we shall have the continuing benefit of his great experience in our debates. Butskellism may be dead, but who knows the kind of intellectual rapport we shall be able to establish with the right hon. Member for Leeds, East? [An HON. MEMBER: "What about the weather? "] The right hon. Member for Llanelli, who was moved to unparalleled heights of Celtic oratory, which I am sure we all appreciated, attributed most things to this Government but not yet the weather. Perhaps that will come on the fourth or fifth day of the Committee stage.

The right hon. Member for Leeds, East advanced some curious arguments. He suggested that there was some correlation between the size of the black economy and high rates of VAT. If that were so we would have expected the black economy to diminish when he reduced the standard rate of VAT to 8 per cent. The evidence given by the chairman of the Inland Revenue to the Expenditure Committee did not bear out that kind of proposition. I suggest that the right hon. Gentleman is treading on rather dangerous ground, although no doubt it is ground that we shall have to explore. My right hon. Friend the Chief Secretary explored it to a degree earlier today.

The right hon. Member for Leeds, East is starting to perpetuate a myth about child benefit. He said that the increases which he proposed in November were cancelled. I remind the House of what the right hon. Gentleman said on 3 April 1979, when he foreshadowed the possibility of an increase in child benefit but declined to be drawn into saying by how much. He said that that was still a matter for consideration. As I had occasion to observe in one of the debates on the Budget speech, he and his right hon. Friend the Member for Norwich, North (Mr. Ennals) did not seem to have been at the same Cabinet meeting when that problem was discussed. Perhaps we should disencumber the Labour mythology of that canard at an early stage.

The right hon. Gentleman also appears to be claiming that Winston Churchill is to be enshrined in the Labour pantheon. His right hon. Friend the Member for Ebbw Vale (Mr. Foot) also claims that the great events of 1940 and Winston Churchill's arrival at No. 10 are due entirely to the efforts of the Labour Party, and Winston Churchill's acquisition of the BP shares is apparently being attributed to it. The right hon. Gentleman conveniently forgets that his own measures initiated the sale of the BP shares four or five years ago.

The VAT threshold for small businesses was touched on by my hon. Friend the Member for Chichester (Mr. Nelson). I finally remind the right hon. Gentleman that that was raised twice in his Administration with the support and encouragement of the Conservative Benches. It has gone up to £10,000. He obviously did not know that and thought that it remained at £5,000. There were certain difficulties in raising it further. He may recall that there was a limit set by the EEC of £11,600, and that after the two increases that we piloted through only one-fifth of registered traders took the opportunity of deregistering. It is not an area that immediately promises something for the small business man.

The hon. Member for West Lothian (Mr. Dalyell) asked about the differential between petrol and derv. That differential of 5p has been perpetuated. To have eliminated it would have involved an even heavier duty on petrol or lightening the duty on derv. I doubt whether, against a background need for fuel conservation, that would have commended itself to the House. We can perhaps return to the subject in Committee when we debate the hydrocarbon oil increases.

There were many interesting speeches in the debate and in the time available I can touch on them only briefly. My hon. Friend the Member for Hertfordshire, South-West (Mr. Dodsworth) raised the matter of late claims for stock relief. There are certain difficulties. To be fair, the right hon. Member for Leeds, East emphasised that the measures for stock relief were likely to be permanent. The cost of permitting people now to take advantage of those claims would be £150 million.

The hon. Member for Colne Valley (Mr. Wainwright), representing the Liberal Party, floated the idea of total indexation. He is aware that the Conservative Party, assisted by the hon. Member for Perry Barr and Mrs. Audrey Wise

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

The hon. Member for Perry Barr is a generous person and will recognise that it would have been impossible for the amendment to succeed without Conservative votes in the Standing Committee.

Personal allowances have been indexed. The hon. Gentleman will also recognise that the reliefs proposed in the Budget by my right hon. and learned Friend to a degree reflect the impact of inflation. Regrettably they do not go the whole way. We should like to go further and I hope that during this Parliament we shall. Formal indexation would create technical difficulties, and perhaps we can deal with that in Committee.

The hon. Member for Dunfermline (Mr. Douglas) raised the question of indexation of the petroleum revenue tax. There are practical difficulties. Petroleum prices are especially volatile and to a degree depend on exchange rates. The oil industry and whichever Government are in power would prefer a greater degree of certainty than indexation could provide.

We had seven particularly distinguished maiden speeches—from the hon. Member for Hackney, North and Stoke Newington (Mr. Roberts), my hon. Friends the Members for Skipton (Mr. Watson), Fulham (Mr. Stevens), Lincoln (Mr. Carlisle), Dorking (Mr. Wickenden), Hemel Hempstead (Mr. Lyell) and Meriden (Mr. Mills). All of them spoke with great distinction. We admired the way in which they commended the charms of their constituencies. We were utterly persuaded that they have left particularly charming backgrounds to come to the perhaps less salubrious atmosphere of Westminster. We admired the grace with which they commended their predecessors. It would be invidious of me to single out points at this stage, although I noticed particularly the phraseology of my hon. Friend the Member for Fulham. We will all recall the meaning of "to fulham" or "a fulham", but whether we shall be able to apply it in our debates remains to be seen.

I am sure that we will all also remember the particularly sensitive contribution of my hon. Friend the Member for Dorking, who touched on the problems of handicapped children and their families. I hope that he will not think it patronising of me if I welcome back my hon. Friend the Member for Ludlow (Mr. Cockeram) and say how glad I was to notice that he is continuing the interest which his predecessor, Sir Jasper More, showed in forestry and its fiscal problems. We look forward to his contributions to our debates on that subject.

The right hon. Member for Llanelli made a speech of startling emotion for him. He is usually so modest, so candid and so restrained. He obviously felt that he ought to make up for the restraint he showed in our debates on the Budget. It is always the last remedy of a Labour Treasury spokesman to come to the question of perks when he is bereft of other more substantial arguments to attack a Conservative Budget. I remind the House that the Government of which he was a distinguished member attempted not once but twice to improve the legislation in that area which was initially introduced by Mr. Hugh Dalton in the post-war Labour Government. If two past Labour Governments got it wrong on two separate occasions, it is not for the right hon. Gentleman to complain now, but we will look at this matter. The right hon. Gentleman will recall that there is a specific provision in the Bill to deal with motor car leasing.

The right hon. Gentleman made a number of interesting quotations from previous Conservative Chancellors of the Exchequer. I am always amused to bandy quotations with him. I will in due course deal with some of the things that he, the right hon. Member for Leeds, East and the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), the former Financial Secretary to the Treasury, said on the topics which concern us tonight. But, in view of the time available, I would prefer now to deal with the more solid and important issues contained in the Bill.

The first is the question of the petroleum revenue tax, the proposals for which are contained in clauses 17 to 21. As the House heard from my right hon. and learned Friend in his Budget Statement, we propose in essence to adopt the proposals announced by the Labour Government in August last year. I must say in all candour to the House that in this area it is exceptionally difficult to strike the right balance, but it is crucial to do so.

It is, of course, important that we should secure a fair share for the country of the revenues of North Sea oil. On the other hand, we have to give the oil companies a stable fiscal framework against which they will have the assurance to develop the North Sea, and particularly the marginal fields, and to offer them a fair return for the risks they must carry and the expertise they must bring to this operation.

When the Labour Government announced their package in August last, we had some reservations about it, as we suspected that, as we looked at it more closely, we would find that it would discourage future developments in the North Sea. However, it is trite to observe that circumstances have changed since then, and dramatically so. Last August, the term price of North Sea oil was about $14. It is now not far short of $21 a barrel, an increase of about 50 per cent. Spot prices are even higher. But what really matters is the real oil price—that is to say, the sterling price expressed in constant terms. Even on that basis, the real price is not only much higher than it was when the August package was announced but it is also higher than when PRT was introduced. We have therefore thought it right to adopt the August 1978 package.

Some hon. Members may say that the package should be taken apart, strengthened and rewrapped. To them I reply only that the present position is highly volatile. Certainly no one can forecast with certainty what the position may be even in 12 months' time. I need hardly emphasise that OPEC's representatives are currently meeting in Geneva. No doubt the right hon. Gentleman will want to return to that matter in Committee.

The consequences to this country of the adoption of that package will be as follows. Petroleum revenue tax take for 1979 would have been £620 million on the old basis and on the new basis it will be £730 million, an increase of £110 million. Total Government revenues from the North Sea—I give this information to the hon. Member for Dunfermline, who is interested in this matter—from petroleum revenue tax, corporation tax and royalties, over the period to 1985 from the date when North Sea oil came on stream, will be increased roughly from £16½ billion to £18·3 billion, an increase of £1·8 billion.

The effect of the package—again I give this to the hon. Gentleman, who asked for the figures—is to increase the total Government take as a percentage of total undiscounted profits for the average field, which I appreciate is a hypothetical concept, from 70 per cent. to about 75 per cent., as a broad average. Only the most captious critic would suggest on the basis of those predictions that the Government will not be receiving a fair share of the profits of the North Sea. It may be that there are still some ayatollahs concealed on the Opposition Benches who will make a contrary suggestion, but we shall have to flush them out in our debates in Committee.

More important than anything, I believe, is to offer the oil companies the assurance that the framework for the tax will remain relatively stable. This point was touched on by Mr. Edmund Dell when he introduced the tax. It was a theme taken up later by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin). I repeat with emphasis what he said: We appreciate that there is need for considerable stability in the tax regime as it applies to a long-term industry such as offshore oil and gas and exploration and development. Therefore, I hope that, having once got the structure of the tax roughly right, the Government will not seek to use the tax as a short-term regulator or anything of that sort.Nevertheless, it would be quite unrealistic to imagine that the tax will not require amendment."—[Official Report, Standing Committee D, 6 February 1975; c. 727.] I believe that what we propose in the Bill will be found to be in full conformity with the assurances given then.

As my right hon. and learned Friend the Chancellor mentioned, there are two concessions to the oil industry—on the question of coincidence and field expenditure by fellow licensees. We can more profitably explore the details of these in Committee.

We propose that the British National Oil Corporation should be subject to petroleum revenue tax, as we understood from the Opposition that the corporation was conceived to be a British oil company operating in the North Sea.

Photo of Mr Dick Douglas Mr Dick Douglas , Dunfermline

Will the hon. and learned Gentleman give an undertaking that the Government will spell out to the House the implications of those large revenues for British industry? I ask specifically because the Labour Government produced a White Paper examining the use of revenues. As the revenues will now be much larger than they were when we were in government, will the Minister give that undertaking?

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

If the hon. Gentleman pauses to reflect, he will realise that that is a question in reply to which no Minister could possibly give a categorical assurance. To expect me in a debate on the Second Reading of the Finance Bill to spell out in detail how this Government propose over a period of five years to allocate oil revenues to industry is beyond the bounds of credibility.

We believe that if the corporation was conceived to be in fair competition with the other oil companies in the North Sea it should be taxed on precisely the same basis. It will make no substantial difference to the corporation's position or to the Government because the PRT revenues that the Government receive will simply pass directly to the Exchequer instead of being received as receipts on the public expenditure side of the account.

I want to repeat the assurance that my right hon. Friend the Secretary of State for Energy gave in answer to a question from my hon. Friend the Member for Bedford (Mr. Skeet), who shows a keen interest in these matters that, to emphasise the importance of production from smaller fields and the concern which has been expressed about the position of so-called marginal fields, he proposes to review, in consultation with the oil industry, the way in which these marginal fields can best be defined and to assess the impact upon them of the Government's offshore policy.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I have given way to the hon. Gentleman. I have dealt as faithfully as I can with the specific points that he raised. There will be ample opportunity for him to come back to these points—

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. It is clear that the Minister is not giving way. It is in everyone's interest that the Minister should be allowed to continue.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I am grateful, Mr. Speaker, for your protection.

Interest has been expressed by my hon. Friend the Member for Hertfordshire, South-West on the United Kingdom—United States double taxation convention. This convention has had a long and chequered history. It was originally signed by the Government of the United Kingdom and that of the United States in December 1975. It was debated in this House in January 1977. On that occasion, many points were raised, but that which generated the most interest was not the one that has subsequently been taken up.

One article of the convention attracted a little attention, namely, article 9(4), which limited the right of states of the United States to impose the unitary tax system on United Kingdom companies there. My hon. Friend the Member for Horsham and Crawley (Mr. Hordern), who intervened with characteristic urbanity on that occasion, perceptively observed that we cannot consider that article as firmly entrenched in the convention. I dare say that some Opposition Members are not interested in the double taxation convention but certain representations have been made; interest has been expressed.

When this matter came to be examined by the Foreign Relations Committee of the Senate, a reservation about this article was entered. This led to further negotiations. The federal authorities have however, emphasised, and have bound themselves by a subsequent protocol, to the effect that they will not seek to impose a unitary system on United Kingdom companies operating in the USA. This is a sensitive area. The federal authorities do not seem able to go further where states' rights are concerned.

A third protocol has been signed, and considered and approved by the Foreign Relations Committee of the Senate. It comes up for approval by the Senate itself later this summer. There can be no question of the United Kingdom approving the convention and the three protocols until the Senate has first accepted them, in view of the past history of this case.

The House is being asked in this Bill merely to enact an enabling provision, which would enable the Government in due course, should this seem advantageous, to propose an affirmative order emsequent protocols in our domestic law, subject always to a full and searching debate in the House. The need for this provision derives from the considerable delay that has elapsed between the signing of the order and the date on which it can be embodied in our domestic legislation. I hope, therefore, that it is not necessary for us, at this stage, or even in our debates on the Committee stage, to go into the case for or against the convention itself and the protocols.

I am sensitive to the anxieties of companies that operate in states currently applying the unitary system—California and Oregon—and the points that have been made by hon. Members before and during the debate. We shall consider closely the future of this convention and amending protocols in the light of debates in the Senate. [HON. MEMBERS: "Get on with it."] I appreciate that Opposition Members are not taking the close interest in this matter of some companies. Should the Senate ratify the convention and protocols an order will be embodied in our domestic legislation later in the year which the House will have a full opportunity to debate. [HON. MEMBERS: "Division."] I am always sensitive to the wishes of the House, and I shall pass rapidly over other important matters which we can discuss in detail in Committee.

The Opposition have, with characteristic disregard for facts, and even of their own past utterances, attacked the Budget in emotive terms. The right hon. Member for Leeds, East certainly forgot everything that he said to the IMF about the need to reduce the level of direct taxation. He will recall that in his letter of 15 December 1976 he told them that he believed that the present levels of direct taxation have proved discouraging to effort and efficiency, and if they were to continue unchanged they could threaten the improvement in our economic performance which is the central object of the government strategy. He might at least have the grace to recognise that we are picking up that element in his strategy which he did not have the nerve and resolution to press further.

The right hon. Member also failed to tell us what he would have introduced in a similar Finance Bill had he been standing at the Dispatch Box. The secret has been let out by Mr. Peter

Jenkins in The Guardian—not a newspaper which is noted for its Tory prejudices. In his article on 20 June he said: At the Treasury they keep officially mum about what was in the Healey Budget that was. But he would have faced the same problem of public expenditure running away from economic growth and he would have had to cut it.

So much for the hon. Member for Ormskirk. The article continued: it is now an open secret that he would have increased VAT to 12½ per cent. and raised excise duty to yield around a billion. That would have added at least 3 per cent. to the cost of living and taken it by the end of the year, on his own estimation, to 15 or 16 per cent.

What would the right hon. Gentleman have offered the country in return? I hate to say this in front of the right hon. Member for Cardiff, South-East (Mr. Callaghan) but mosaic allusions are slightly out of fashion. All that the right hon. Gentleman could have offered the country are Dead Sea fruits.

I shall not conceal that the Finance Bill has been fitted together in just over six weeks against considerable constraints. Strident voices outside the House have claimed that it is provocative. We have heard those voices before. Other siren voices, perhaps more sophisticated, are always prepared to argue that the time is not now. But the time is now and it is long overdue.

This Bill embodies the first substantial effort in five years to reduce the burden of direct taxation on the British nation and to bring us more into line with our European competitors. Much more remains to be done and will be done in the lifetime of this Parliament. I commend the Bill to the House as a first substantial step.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 319, Noes 251.

Division No. 30]AYES[10.24 p.m.
Adley, RobertBaker, Nicholas (North Dorset)Body, Richard
Aitken, JonathanBeaumont-Dark, AnthonyBonsor, Sir Nicholas
Alexander, RichardBell, RonaldBoscawen, Hon Robert
Amery, Rt Hon JulianBendall, VivianBottomley, Peter (Woolwich West)
Ancram, MichaelBenyon, Thomas (Abingdon)Bowden, Andrew
Arnold, TomBenyon, W. (Buckingham)Boyson, Dr Rhodes
Aspinwall, JackBest, KeithBraine, Sir Bernard
Atkins, Rt Hon H. (Spelthorne)Biffen, Rt Hon JohnBright, Graham
Atkins, Robert (Preston North)Biggs-Davison, JohnBrinton, Timothy
Atkinson, David (B'mouth, East)Blackburn, JohnBrittan, Leon
Baker, Kenneth (St. Marylebone)Blaker, PeterBrocklebank-Fowler, Christopher
Brooke, Hon PeterGummer, John SelwynMoore, John
Brotherton, MichaelHamilton, Hon Archie (Eps'm&Ew'll)Morgan, Geraint
Brown, Michael (Brigg & Sc'thorpe)Hamilton, Michael (Salisbury)Morris, Michael (Northampton, Sth)
Browne, John (Winchester)Hampson, Dr KeithMorrison, Hon Charles (Devizes)
Bruce-Gardyne, JohnHannam, JohnMorrison, Hon Peter (City of Chester)
Bryan, Sir PaulHaselhurst, AlanMudd, David
Buchanan-Smith, Hon AlickHastings, StephenMurphy, Christopher
Buck, AntonyHavers, Rt Hon Sir MichaelMyles, David
Budgen, NickHawkins, PaulNeale, Gerard
Bulmer, EsmondHawksley, WarrenNeedham, Richard
Burden, F. A.Hayhoe, BarneyNelson, Anthony
Butcher, JohnHeath, Rt Hon EdwardNeubert, Michael
Butler, Hon AdamHeddle, JohnNewton, Tony
Cadbury, JocelynHenderson, BarryNormanton, Tom
Carlisle, John (Luton West)Heseltine, Rt Hon MichaelNott, Rt Hon John
Carlisle, Kenneth (Lincoln)Hicks, RobertOnslow, Cranley
Carlisle, Rt Hon Mark (Runcorn)Higgins, Terence L.Oppenheim, Rt Hon Mrs Sally
Chalker, Mrs. LyndaHill, JamesOsborn, John
Channon, PaulHogg, Hon Douglas (Grantham)Page, Rt Hon R. Graham (Crosby)
Chapman, SydneyHolland, Philip (Carlton)Parkinson, Cecil
Churchill, W. S.Hooson, TomParris, Matthew
Clark, Hon Alan (Plymouth, Sutton)Hordern, PeterPatten, Christopher (Bath)
Clark, William (Croydon South)Howell, Rt Hon David (Guildford)Patten, John (Oxford)
Clarke, Kenneth (Rushcliffe)Howell, Ralph (North Norfolk)Pattie, Geoffrey
Clegg, WalterHunt, David (Wirral)Pawsey, James
Cockeram, EricHunt, John (Ravensbourne)Percival, Sir Ian
Colvin, MichaelHurd, Hon DouglasPeyton, Rt Hon John
Cope, JohnIrving, Charles (Cheltenham)Pink, R. Bonner
Cormack, PatrickJenkin, Rt Hon PatrickPollock, Alexander
Corrie, JohnJohnson Smith, GeoffreyPorter, George
Costain, A. P.Jopling, Rt Hon MichaelPrice, David (Eastleigh)
Cranborne, ViscountJoseph, Rt Hon Sir KeithPrior, Rt Hon James
Critchley, JulianKaberry, Sir DonaldProctor, K. Harvey
Crouch, DavidKellett-Bowman, Mrs ElainePym, Rt Hon Francis
Dean, Paul (North Somerset)Kimball, MarcusRaison, Timothy
Dickens, GeoffreyKing, Rt Hon TomRathbone, Tim
Dodsworth, GeoffreyKitson, Sir TimothyRees, Peter (Dover and Deal)
Dorrell, StephenKnight, Mrs JillRees-Davies, W. R.
Douglas-Hamilton, Lord JamesKnox, DavidRenton, Tim
Dover, DenshoreLamont, NormanRhodes James, Robert
du Cann, Rt Hon EdwardLang, IanRhys Williams, Sir Brandon
Dunn, Robert (Dartford)Langford-Holt, Sir JohnRidley, Hon Nicholas
Durant, TonyLatham, MichaelRidsdale, Julian
Dykes, HughLawrence IvanRifkind, Malcolm
Eden, Rt Hon Sir JohnLawson, NigelRippon, Rt Hon Geoffrey
Edwards, Rt Hon N. (Pembroke)Lee, JohnRoberts, Michael (Cardiff NW)
Eggar, TimothyLennox-Boyd, Hon MarkRoberts, Wyn (Conway)
Elliott, Sir WilliamLester, Jim (Beeston)Rossi, Hugh
Emery, PeterLewis, Kenneth (Rutland)Rost, Peter
Eyre, ReginaldLloyd, Ian (Havant & Waterloo)Royle, Sir Anthony
Fairbairn, NicholasLloyd, Peter (Fareham)Sainsbury, Hon Timothy
Fairgrieve, RussellLoveridge, JohnSt. John-Stevas, Rt Hon Norman
Faith, Mrs SheilaLuce, Richard
Farr, JohnLyell, NicholasScott, Nicholas
Fell, AnthonyMcAdden, Sir StephenShaw, Giles (Pudsey)
Fenner, Mrs PeggyMcCrindle, RobertShaw, Michael (Scarborough)
Finsberg, GeoffreyMacfarlane, NeilShelton, William (Streatham)
Fisher, Sir NigelMacGregor, JohnShepherd, Colin (Hereford)
Fletcher, Alexander (Edinburgh N)Mackay, John (Argyll)Shepherd, Richard (Aldridge-Br'hills)
Fletcher-Cooke, CharlesMcNair-Wilson, Michael (Newbury)Shersby, Michael
Fookes, Miss JanetMcNair-Wilson, Patrick (New Forest)Silvester, Fred
Forman, NigelMcQuarrie, AlbertSims, Roger
Fowler, Rt Hon NormanMadel, DavidSkeet, T. H. H.
Fox, MarcusMajor, JohnSmith, Dudley (War. and Leam'ton)
Fraser, Rt Hon H. (Stafford & St)Marland, PaulSpeed, Keith
Fraser, Peter (South Angus)Marlow, TonySpeller, Tony
Fry, PeterMarshall, Michael (Arundel)Spence, John
Galbraith, Hon T. G. D.Marten, Neil (Banbury)Spicer, Jim (West Dorset)
Gardiner, George (Reigate)Mates, MichaelSpicer, Michael (S Worcestershire)
Gardner, Edward (South Fylde)Mather, CarolSproat, Ian
Garel-Jones, TristanMaude, Rt Hon AngusSquire, Robin
Gilmour, Rt Hon Sir IanMawby, RayStanbrook Ivor
Glyn, Dr AlanMawhinney, Dr BrianStanley, John
Goodhart, PhilipMaxwell-Hyslop, RobinSteen, Anthony
Goodhew, VictorMayhew, PatrickStevens, Martin
Goodlad, AlastairMellor, DavidStewart, Ian (Hitchin)
Gorst, JohnMeyer, Sir AnthonyStewart, John (East Renfrewshire)
Gow, IanMiller, Hal (Bromsgrove & Redditch)Stokes, John
Gower, Sir RaymondMills, Iain (Meriden)Stradling Thomas, J.
Gray, HamishMills, Peter (West Devon)Tapsell Peter
Greenway, HarryMiscampbell, NormanTaylor, Robert (Croydon NW)
Griffiths, Eldon (Bury St Edmunds)Mitchell, David (Basingstoke)Tebbit, Norman
Griffiths, Peter (Portsmouth N)Moate, RogerTemple-Morris, Peter
Grist, IanMonro, HectorThomas, Rt Hon Peter (Hendon S)
Grylls, MichaelMontgomery, FergusThompson, Donald
Thorne, Neil (Ilford South)
Thornton, GeorgeWall, PatrickWiggin, Jerry
Townend, John (Bridlington)Waller, GaryWilkinson, John
Townsend, Cyril D. (Bexleyheath)Walters DennisWilliams, Delwyn (Montgomery)
Trippier, DavidWard, JohnWinterton, Nicholas
Trotter, NevilleWarren, KennethWolfson, Mark
van Straubenzee, W. R.Watson, JohnYoung, Sir George (Acton)
Viggers, PeterWells, John (Maidstone)Younger, Rt Hon George
Waddington, DavidWells, P. Bowen (Hert'rd&Stev'nage)
Wakeham, JohnWheeler, JohnTELLERS FOR THE AYES:
Waldegrave, Hon WilliamWhitelaw, Rt Hon WilliamMr. Spencer Le Marchant and
Walker, Rt Hon Peter (Worcester)Whitney, RaymondMr. Anthony Berry
Walker-Smith, Rt Hon Sir DerekWickenden, Keith
NOES
Abse, LeoEllis, Tom (Wrexham)McGuire, Michael (Ince)
Adams, AllenEnglish, MichaelMcKay, Allen (Penistone)
Allaun, FrankEvans, Ioan (Aberdare)McKelvey, William
Alton, DavidEvans, John (Newton)MacKenzie, Rt Hon Gregor
Anderson, DonaldEwing, HarryMaclennan, Robert
Archer, Rt Hon PeterField, FrankMcMillan, Tom (Glasgow, Central)
Armstrong, ErnestFlannery, MartinMcNally, Thomas
Ashton, JoeFletcher, Ted (Darlington)McNamara, Kevin
Atkinson, Norman (H'gay, Tott'ham)Foot, Rt Hon MichaelMcWilliam, John
Barnett, Guy (Greenwich)Ford, BenMagee, Bryan
Barnett, Rt Hon Joel (Heywood)Forrester, JohnMarks, Kenneth
Beith, A. J.Foster, DerekMarshall, Dr Edmund (Goole)
Benn, Rt Hon Anthony WedgwoodFoulkes, GeorgeMarshall, Jim (Leicester South)
Bennett, Andrew (Stockport N)Fraser, John (Lambeth, Norwood)Martin, Michael (Gl'gow, Springb'rn)
Bidwell, SydneyFreeson, Rt Hon ReginaldMason, Rt Hon Roy
Booth, Rt Hon AlbertGarrett, John (Norwich S)Maxton, John
Boothroyd, Miss BettyGarrett, W. E. (Wallsend)Maynard, Miss Joan
Bottomley, Rt Hon Arthur (M'brough)George, BruceMeacher, Michael
Bradley, TomGilbert, Rt Hon Dr JohnMellish, Rt Hon Robert
Bray, Dr JeremyGinsburg, DavidMikardo, Ian
Brown, Hugh D. (Provan)Golding, JohnMilan, Rt Hon Bruce
Brown, Robert C. (Newcastle W)Gourlay, HarryMiller, Dr M. S. (East Kilbride)
Brown, Ronald W. (Hackney S)Grant, George (Morpeth)Mitchell, Austin (Grimsby)
Brown, Ron (Edinburgh, Leith)Grant, John (Islington C)Mitchell, R. C. (Soton, Itchen)
Buchan, NormanGrimond, Rt Hon J.Morris, Rt Hon Charles (Openshaw)
Callaghan, Rt Hon J. (Cardiff SE)Hamilton, James (Bothwell)Morris, Rt Hon John (Aberavon)
Callaghan, Jim (Middleton & P.)Hamilton, W. W. (Central Fife)Morton, George
Campbell, IanHarrison, Rt Hon WalterMoyle, Rt Hon Ronald
Campbell-Savours, DaleHattersley, Rt Hon RoyMulley, Rt Hon Frederick
Canavan, DennisHaynes, DavidNewens, Stanley
Cant, R. B.Healey, Rt Hon DenisOakes, Gordon
Carmichael, NeilHeffer, Eric S.Ogden, Eric
Carter-Jones, LewisHogg, Norman (E Dunbartonshire)O'Halloran, Michael
Cartwright, JohnHolland, Stuart (L'beth, Vauxhall)O'Neill, Martin
Clark, Dr David (South Shields)Home Robertson, JohnOrme, Rt Hon Stanley
Cocks, Rt Hon Michael (Bristol S)Homewood, WilliamOwen, Rt Hon Dr David
Cohen, StanleyHooley, FrankPalmer, Arthur
Coleman, DonaldHoram, JohnPark, George
Concannon, Rt Hon J. D.Howell, Rt Hon Denis (B'ham, Sm H)Parker, John
Cowans, HarryHuckfield, LesParry, Robert
Cox, Tom (Wandsworth, Tooting)Hughes, Mark (Durham)Pendry, Tom
Crowther, J. S.
Cryer, BobHughes, Robert (Aberdeen North)Penhaligon, David
Cunliffe, LawrenceHughes, Roy (Newport)Powell, Raymond (Ogmore)
Cunningham, George (Islington S)Janner, Hon GrevillePrescott, John
Cunningham, Dr John (Whitehaven)Jay, Rt Hon DouglasPrice, Christopher (Lewisham West)
Dalyell, TamJohn, BrynmorRace, Reg
Davidson, ArthurJohnson, James (Hull West)Radice, Giles
Davies, Rt Hon Denzil (Llaneill)Johnson, Walter (Derby South)Rees, Rt Hon Merlyn (Leeds South)
Davies, E. Hudson (Caerphilly)Jones, Alec (Rhondda)Richardson, Miss Jo
Davies, Ifor (Gower)Jones, Barry (East Flint)Roberts, Albert (Normanton)
Davis, Clinton (Hackney Central)Jones, Dan (Burnley)Roberts, Allan (Bootle)
Davis, Terry (B'rm'ham, Stechford)Kaufman, Rt Hon GeraldRoberts, Ernest (Hackney North)
Deakins, EricKerr, RussellRoberts, Gwilym (Cannock)
Dempsey, JamesKilroy-Silk, RobertRobertson, George
Dewar, DonaldKinnock, NeilRobinson, Peter (Belfast East)
Dixon, DonaldLambie, DavidRodgers, Rt Hon William
Dobson, FrankLamborn, HarryRooker, J. W.
Dormand, J. D.Lamond, JamesRoss, Ernest (Dundee West)
Douglas, DickLeadbitter, TedRoss, Stephen (Isle of Wight)
Douglas-Mann, BruceLeighton, RonaldRowlands, Ted
Dubs, AlfredLestor, Miss Joan (Eton & Slough)Ryman, John
Duffy, A. E. P.Lewis, Ron (Carlisle)Sandelson, Neville
Dunn, James A. (Liverpool, Kirkdale)Lofthouse, GeoffreySever, John
Dunnett, JackLyon, Alexander (York)Sheerman, Barry
Dunwoody, Mrs GwynethLyons, Edward (Bradford West)Sheldon, Rt Hon Robert (A'ton-u-L)
Eadie, AlexMabon, Rt Hon Dr J. DicksonShore, Rt Hon Peter (Step and Pop)
Eastham, KenMcCartney, HughShort, Mrs Renée
Edwards, Robert (Wolv SE)McDonald, Dr OonaghSilkin, Rt Hon John (Deptford)
Ellis, Raymond (NE Derbyshire)McElhone, FrankSilkin, Rt Hon S. C. (Dulwich)
Silverman, JuliusThomas, Mike (Newcastle East)Whitlock, William
Skinner, DennisThomas, Dr Roger (Carmarthen)Willey, Rt Hon Frederick
Smith, Rt Hon J. (North Lanarkshire)Thorne, Stan (Preston South)Williams, Rt Hon Alan (Swansea W)
Soley, CliveTilley, JohnWilliams, Sir Thomas (Warrington)
Spearing, NigelTorney, TomWilson, Gordon (Dundee East)
Spriggs, LeslieVarley, Rt Hon Eric G.Wilson, William (Coventry SE)
Stallard, A. W.Wainwright, Edwin (Dearne Valley)Winnick, David
Steel, Rt Hon DavidWainwright, Richard (Colne Valley)Woodall, Alec
Stewart, Rt Hon Donald (W Isles)Walker, Harold (Doncaster)Woolmer, Kenneth
Stoddart, DavidWatkins, DavidWrigglesworth, Ian
Stott, RogerWeetch, KenWright, Miss Sheila
Strang, GavinWellbeloved, JamesYoung, David (Bolton East)
Straw, JackWelsh, Michael
Summerskill, Hon Dr ShirleyWhite, Frank R. (Bury & Radcliffe)TELLERS FOR THF NOES:
Taylor, Mrs Ann (Bolton West)White, James (Glasgow, Pollok)Mr. Ted Graham and
Thomas, Jeffrey (Abertillery)Whitehead, PhillipMr. James Tinn.
Question accordingly agreed to.
Bill read a Second time and committed to a Committee of the whole House.
Committee tomorrow.