I am most grateful for that explanation, as I am sure is the House. When my right hon. Friend the Chancellor of the Exchequer introduced his Budget he said that it was a continuation of our strategy since 1979. Last Thursday my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) accused my right hon. Friend of thinking that history started only in 1981. It did not; it started in 1979. At the risk of boring the House, may I say that the Government's record between 1979 and the general election last year was not all bad. They turned the economy round.
The Opposition seem to believe that when we took over everything in the garden was lovely, but hon. Members on both sides of the House know that in 1979 prices and unemployment were increasing and production was decreasing. Not only did we have huge overseas debts, but we had Clegg. For the Opposition to criticise this Budget, which is an imaginative one, bearing in mind their record between 1974 and 1979 and the mess in which they left the country in 1979, is not only arrogant but frivolous.
Although it may not be understood by Opposition Members, the people understand that the Budget helps those on lower incomes, and helps investment and business. The speech of the right hon. Member for Bethnal Green and Stepney (Mr. Shore) was as thin as was that of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). The Leader of the Opposition took 24 minutes to say nothing, but the House is used to that. It is absurd for the Opposition to think that one Budget can solve all our problems. In 1979 no one, including the financial pundits, realised the depth of the world recession. That was a great mistake in the West.
The fact that my right hon. Friend the Chancellor has increased the starting rate of tax by about 12·5 per cent. while inflation is still about 5·1 per cent. should be willingly accepted by all hon. Members, especially Opposition Members. They should rejoice in the fact, but, as far as we can see, the only thing that seems to please the Opposition is bad news. If anything good happens, they are not really interested.
I wish to kill the growing accusation that the Government are responsible for unemployment. Let us be fair about this—[Interruption.] It is all very well for Opposition Members to smile, but they should remember that the Labour Government were responsible for the rapid running down of many of our industries. Why was the dock industry run down? Why have there been strikes in the steel industry? The present miners' strike will undoubtedly hit the coal industry and create more unemployment.
Hon. Members have compared manufacturing industries with service industries. Of course, manufacturing industry has declined. As a result of competition from Taiwan, Hong Kong and Malaysia, shipbuilding and steel have declined. Their prices have not been sufficiently competitive. As my right hon. Friend the Secretary of State for Trade and Industry said today, steel output per man has increased tremendously during the past few years, but there is still a long way to go. Having said that, there is no reason to believe that the phasing-out of capital allowances for manufacturing means that the Government have given up on manufacturing industry. We cannot give up our manufacturing base, but we should be foolish to ignore the service industries. Manufacturing industries are mainly capital-intensive, whereas service industries are labour-intensive, and these days we must foster labour-intensive industries.
All hon. Members will welcome the 80,000 increase in employment as a step in the right direction, but no one claims that we have solved the problem. To listen to some speeches, one would believe that the Government were not worried about unemployment. We are spending £2 billion this year of taxpayers' money in retraining schemes to help the unemployed.
My right hon. Friend the Chancellor knows that many hon. Members regret the withdrawal of tax relief on life assurance premiums. In many cases, that is the one form of small saving undertaken by the ordinary person. After all, Conservative philosophy is to encourage people to stand on their own two feet. What better way of doing so than to have a small life assurance policy so that, in the event of her husband's death, the widow receives something?—[Interruption.] It is all very well the hon. Member for Birmingham, Perry Barr (Mr. Rooker) laughing. That may be funny to him, but it is not funny to someone who has, or wishes to take out, a life assurance policy.
I see the import of the thrust of my right hon. Friend's Budget, but I feel that he could have given much longer notice of the withdrawal of life assurance premium relief. After all, we have given a year's notice about the composite rates in banks so that people can readjust. This is another area where such notice could have been given, and I hope that my right hon. Friend's mind is not closed to it.
I am, however, delighted that this does not affect pensions, endowments and so on which help business, and I caution my right hon. Friend about doing anything about the tax treatment of occupational pensioners. If anything is done to jeopardise the occupational pension industry, more and more people on retirement may possibly be a drain on the taxpayer by going on supplementary benefit.
Everyone welcomes the moves on investment income surcharge. Opposition Members may think that this helps the rich, but more than half those who pay the surcharge are retired. They have saved the money during their working lives. It has been saved out of net income. Why, therefore, should they be further penalised? It is true that my right hon. Friend has forgone revenue of £360 million in a full year, but that must be balanced against the £1,990 million that has been allocated to the thresholds. That is a pretty fair balance.
I add my tribute to the work of our late friend, Maurice Macmillan, on share option schemes. Had he been here, I am sure that he would have welcomed the change that has at long last been announced. There has been some alleviation of development land tax. That is such a small revenue earner and time waster that my right hon. Friend could easily have abolished it. He will recollect that another of our colleagues, Sir Hugh Fraser, has, alas, also died. He and I were trying to persuade the Chancellor to cancel the DLT, which is merely an irritant. It should have been incorporated in capital gains tax like any other asset.
Everyone welcomes the reduction in stamp duty, but we still remain at a disadvantage compared with the Bourse and New York. The 1 per cent. reduction is a step in the right direction, but it should not be thought that we have overcome the serious competition that faces us.
I understand what my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) said about people working overseas. We must be careful not to make our tax regime so penal that such people would rather work in other parts of the Common Market. In future, I should like the Chancellor to look at increased allowances in the service industries, particularly for hotels and the leisure industry. These labour-intensive industries should be encouraged.
The abolition of national insurance surcharge is a welcome relief, and I am sure that all hon. Members will be delighted that we have got rid of it. I make a party point—Labour put it on and the Tories took it off. That always seems to be the way. Since the war, Labour have always put things on and the Tories have taken them off. I put it another way—Labour always borrows overseas and the Tories always pay it back.
I do not share the fear of my right hon. Friend the Member for Old Bexley and Sidcup about corporation tax. For too long business has not known from one year to the next what its commitment would be. The Chancellor has done business a service by saying, "We will progressively reduce corporation tax." Business men will now be able to plan ahead. Many of us have always said that year-to-year changes in the Budget have been undesirable, and I am glad that we shall now have some continuity.
One worry for business—my right hon. Friend referred to this in his Budget statement—is unitary tax. We should pay more attention to that. As the House knows, certain states in the USA are imposing it. I appreciate the constitutional difficulty between the Federal Government and the state Government, but on the other hand a unitary tax benefits no one. We do not want to start a tax war. When my right hon. Friend signs the fourth protocol to the double taxation convention, I hope that he will insert article 9.4, which abolishes unitary tax.
Under the double taxation convention, dividends are paid by British firms to United States citizens. Last year that amounted to £213 million. In addition, if petroleum revenue tax is paid in this country by an American company the American company can offset it against its American tax. Last year, that amounted to £1,163,000. Given those two negotiating points, we could easily get the United States Government to do something about unitary tax. I hope my right hon. Friend will accept my advance warning that we shall be tabling a new clause on unitary tax during our discussions on the Finance Bill.
I do not object to the taxation of gilt dealings by building societies, but there appears to be an element of retrospection. The building societies have been purchasing these gilts for some time in the knowledge that they were always tax exempt. Alas, the Revenue has decided otherwise, as it is perfectly entitled to do. However, my right hon. Friend should rethink this and acquisition building society gilt-edge only after 23 February.
We all welcome the reduction in interest rates since the Budget—1 per cent. in bank interest rates and 1 per cent. in building society rates.
I have one other word of warning for my right hon. Friend. Given the huge increase in cigarette taxation, we must be careful lest we come up against the law of diminishing returns.
As my right hon. Friend the Member for Old Bexley and Sidcup pointed out, the advance payment of VAT—30 days after goods are landed, rather than nine or 10 weeks afterwards—is to be welcomed because it will put our domestic manufacturers, particularly in the footwear industry, on all fours with their Italian and other counterparts. We must, however, remember that it is a one-off event; next year there will not be this £1,200 million windfall.
Next year we shall have a composite rate applying to the banks. I understand that there are about 5 million deposit accounts with the banks. It is difficult to evaluate, but the composite rate will, presumably, be 25 per cent., the same as applies to building societies. I could not understand the thinking of my right hon. Friend the Member for Old Bexley and Sidcup in saying that that will have an effect on the payment of wages by cheque. The person receiving wages by cheque is paying tax at 30 per cent. anyway, at least on some of his income. At present, he must return whatever bank deposit interest he receives and then pay 30 per cent. on it. He will now pay only 25 per cent. and will not necessarily have to return it. From that point of view, the wage earner receiving a cheque should not have any difficulty.
Next year there may be another windfall from the composite rate. At present, the tax from bank deposit interest is drawn at the end of the fiscal year. If that is the composite rate—depending on what the Treasury agrees with the banks, and it is my guess that the banks will have to pay it quarterly or half-yearly to the Exchequer—there may be £400 million to £500 million paid in advance tax next year. That will still leave £600 million to £700 million required to make up for the £1·2 billion from VAT on imports. Clearly that can come only from extra growth.
In his Budget statement—it also appears in the Red Book—the Chancellor has forecast what growth will be, and all the indicators show that he is probably not being over-optimistic. I do not believe that he is painting too rosy a picture of future growth. In addition, we must control public expenditure, and I have read carefully the figures in the Red Book relating to public expenditure.
Reference has been made to the huge deficit in the United States economy. I have just returned from Washington. The United States economy has a deficit of $200 billion, although there is a move to reduce it progressively to about $50 billion. I met Paul Volcker, chairman of the Federal Reserve Bank. We discussed how the British Government funded their borrowing requirements and I asked him how he funded his. I asked him whether he had any index-linked bonds, to which he replied, "Not on your life". I hope that the Chancellor will not continue with index-linked gilts because that is only building up a debt for our successors.
I could not understand the argument of the right hon. Member for Down, South when he said that public borrowing did not affect our children. Money borrowed by the Government today, thereby increasing the national debt, must affect our successors. After all, we as taxpayers are paying £15 billion a year for the interest on the debt. If we exaggerate the position and say that we will double the national debt, our children will then be paying £30 billion a year for that purpose.