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Oral Answers To Questions

Volume 932: debated on Thursday 26 May 1977

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National Finance

Income Tax

1.

asked the Chancellor of the Exchequer how much income tax was lost as a result of the taxpayer leaving the United Kingdom in the latest year for which figures are available.

The amount of income tax known to be uncollected as a result of the taxpayer leaving the United Kingdom was £1·2 million in the year ended 31st October 1975.

I thank my hon. Friend for that answer. Will he confirm that the latest report of the Board of the Inland Revenue claims a £14 million income tax loss because people are now untraceable or have gone abroad? How can we distinguish the real loss? Is it not about time that we introduced a system of tax clearance certificates before people are allowed to leave the country?

The figure that my hon. Friend mentions includes persons who are untraceable. They may or may not have gone abroad. There is no way of knowing where they are. I have given the figure for taxpayers who are known to be leaving the country. There would be formidable problems in policing a tax clearance certificate system. There would be administrative delays at ports. My hon. Friend will know that one or two countries have tried tax clearance certificates and that they have not been very successful in practice.

4.

asked the Chancellor of the Exchequer whether his proposed income tax cut remains conditional upon an agreement with the trade unions for stage 3 of the prices and incomes policy; and whether he will make a statement.

18.

asked the Chancellor of the Exchequer when he expects to decide the basic rate of income tax for 1977–78.

19.

asked the Chancellor of the Exchequer when he now expects to announce a firm decision about the reduction in the basic rate of income tax from 35p to 33p in the £.

I refer the hon. Members to my Budget Statement.

Does the Chancellor recall his answer to me on 24th March, when he said that a longer-term fall in the rate of inflation required a satisfactory stage 3? Since "Operation Scuttle" of stage 3 is now well under way, may we assume that the longer-term fall will not take place?

The hon. Gentleman is making all kinds of assumptions which have no foundation whatever in reality. The continuing fall in the rate of inflation depends on a satisfactory arrangement for pay after the end of stage 2. That is the joint objective of the Labour Government and of the TUC, and it was endorsed again yesterday by Mr. Len Murray.

Would the Chancellor care to tell us whether there is any truth in Press suggestions, which appear to have emanated from the Treasury, that he is thinking of reducing the standard rate of tax to 32p?

I think of little else, but I am unlikely to do it in the immediate future.

Is it not fairly clear that the reduction from 35p to 33p will happen willy-nilly? Would it not be better to admit that now and so put taxpayers out of their uncertainty?

The hon. Gentleman is confused, or has allowed himself to be confused by his hon. Friend the Member for Braintree (Mr. Newton). The Government have undertaken to reduce the standard rate from 35p to 33p if they get a satisfactory wage agreement, but they have no intention of reducing it to 32p.

Does my right hon. Friend agree that the most effective way to help those in most difficulty, particularly low-paid workers with families, is to increase personal allowances rather than reduce the basic rate of income tax?

My hon. Friend will be glad to know that we increased personal allowances in the last Budget, and the effect is just being felt in the pay packet. The average family man will get an increase of nearly £1 a week, from this week, in take-home pay, with a rebate of £6.

Does the Chancellor recollect telling the House in his Budget Statement that it would be imprudent to reduce the rate of income tax unless and until a satisfactory pay agreement had been reached? Does he also recollect telling the House that he intended to make those tax changes on the Report stage of the Finance Bill, after such an agreement had been reached? Will he now answer the specific question posed by my hon. Friend the Member for Braintree (Mr. Newton): is the introduction of provisions to reduce income tax from 35p to 33p still conditional on the achievement of a satisfactory agreement on pay? If so, when does he expect to arrive at that agreement and in what form? The right hon. Gentleman laughs nervously.

Perhaps I can answer the right hon. and learned Gentleman's innocent question. That was not nervousness, but the robustness with which I always find myself filled when I am interrogated by the right hon. and learned Gentleman.

It is still the Governmen's policy to make the reduction to 33p dependent on a satisfactory wage agreement. I have said that on many occasions.

I cannot say when the agreement will be reached, but I hope that it will be reached in time to move a suitable amendment on Report on the Finance Bill. The form of the agreement depends on the negotiations that are now under way.

Does the Chancellor agree that opinion inside the TUC has changed considerably since the Budget Statement? Therefore, on that basis alone, is it not now necessary to reconsider the whole position? If it is my right hon. Friend's desire, as I am sure it is, to restore confidence in whatever bargaining takes place in the formulation of a wages arrangement, would it not be better to announce now that the tax concession will be made available and in that way eliminate the uncertainty that is bedevilling discussions among trade unions about what constitutes a satisfactory arrangement?

The uncertainty is bound to exist until agreement is finally reached. Yesterday, the General Secretary of the TUC said that it was the objective and expectation both of the Government and of the TUC that an agreement would be reached. That is the only way to end the uncertainty.

International Monetary Fund

2.

asked the Chancellor of the Exchequer if he will make a statement on the proposed increase in International Monetary Fund quotas.

The Interim Committee in April concluded that there should be an adequate increase in quotas, and urged the executive directors to pursue their work and prepare a report for the Board of Governors. The committee will consider this report in September at its next meeting. I hope that it will be possible for the executive directors to reach speedy agreement on recommendations which will further increase the ability of the fund to contribute towards tackling the problems of recovery from the recession.

Does my right hon. Friend agree that there are two important points of policy? First, does he accept that adequate quotas should be allotted to some of the major oil-producing countries whose petrodollars are still creating problems? Secondly, does he agree that quotas should recognise the difficulties of developing Third World countries, which could be helped by adequate arrangements in this respect?

My hon. Friend will know that quotas were redistributed the last time that they were increased. It is not currently proposed that they should be redistributed. It is proposed that there should be a substantial increase in the size of individual quotas.

As the IMF inspection team has been here this week, will the right hon. Gentleman reaffirm and reassure us that the IMF ceilings set in the December Letter of Intent remain at the heart of Government policy? Will he share his intentions with the House in respect of the Government's proposals for the next tranches of the IMF loan that was negotiated last December?

I am passionately anxious to answer those questions but as there is a specific Question later on the Order Paper relating to these issues, which I shall be reaching in a few minutes, I think that it would be discourteous if I gave the answer in reply to the hon. Gentleman.

8.

asked the Chancellor of the Exchequer if he was satisfied with the latest series of talks with inspectors of the International Monetary Fund on the United Kingdom's economic progress following the loan facility in the autumn of 1976.

A team of IMF officials is currently in the United Kingdom for the regular annual consultations. It has never been Government policy to comment on the detail of these discussions, but I can tell the hon. Member that we and they have taken satisfaction in the dramatic turnaround in our economic and financial positions since the end of last year.

Does the right hon. Gentleman mean that despite the current rate of inflation of nearly 18 per cent., if a satisfactory pay agreement with the TUC is concluded in July the inspectors will allow the Chancellor to reflate the economy in a July Budget?

The hon. Member is mixing up a number of considerations. I made it clear in my Budget speech that I was being deliberately cautious at that time because I was not certain how solidly our balance of payments improvement had been established. The last figures for the balance of payments were encouraging. If that is maintained, I shall be able to be less cautious later in the year.

The critical issue for the IMF is the size of the public sector borrowing requirement. The Government have made clear in another place that although decisions taken in the House on petrol duty and VAT and the Government's decision to pay a telephone rebate in November have increased the PSBVR somewhat, that has been roughly offset by the lower costs due to a faster fall in interest rates than we expected. Therefore, we still have a margin for further expansion if we wish to take advantage of it when the time comes.

In the light of assurances to the IMF on the exchange rate, can my right hon. Friend give the House an assurance that no more money from reserves will be spent? May we also have an assurance that interest rates will not be pushed up to prop up the pound to a level that means that our export prices are less competitive than at any time since 1967?

I do not know whether my hon. Friend made a slip of the tongue, because interest rates have come down dramatically from 15 per cent. in October to 8 per cent. last week. I do not think that is pushing up interest rates. I hope that interest rates will not go up again. I remind my hon. Friend that the endorsement that he gave to the false report in The Sunday Times is responsible for making the retail price index 1½ per cent. higher than it might have been. In the four days following that report there was a fall of 10 cents in the exchange rate. Since the December measures the pound has been stable. The matter has been thoroughly discussed in the House. I am glad to say that since the December measures the pound has been stable at a rate of 16 cents above the level it reached in that week. That is of great advantage to all men and women in this country and it is compatible with the continued competitiveness of British industry.

Does the Chancellor of the Exchequer agree with the Secretary of State for Social Services in his adumbration yesterday of raising pensions November to November?

Will my right hon. Friend seize this opportunity to explain to the IMF what nonsense it is that we must count any increase in child benefit as an item of public expenditure, given the ceiling that has been accepted in the Letter of Intent? In contrast, any increase in child tax allowance, which has exactly the same economic effect, is not so counted. Will he explain the principles of the child benefit scheme to the IMF and achieve freedom to increase child benefit?

There is room for argument whether the classification for various financial measures should be public expenditure or tax. That is open to discussion. The important ceiling for the IMF is that of the PSBR. That is not affected by the question whether child benefit changes are counted as tax or public expenditure.

Will the Chancellor now answer earlier questions about the Government's policy on the next tranches of the IMF loan negotiated last December? Will he categorically reaffirm that the IMF ceiling remains at the heart of Government policy.

I confirm that which the hon. Member asked in the second part of his question. Owing to the adoption of ceilings and the fact that we have kept well within them we have had a dramatic turn round in the value of sterling and interest rates. I wish to see that progress maintained. We certainly plan to take the next drawing available from the IMF, which will appear in the figures for this month or next month, but we shall decide later whether or not to draw on future entitlement.

Does the right hon. Gentleman recognise that it is unworthy of him to blame his hon. Friend below the Gangway for the collapse in the value of the £ sterling last year and accept that that was due to the absence of any effective monetary or public spending guidelines during that period? Does he also accept that the collapse of the pound was due to his own expansion of the money supply at a rate that approached 30 per cent. last summer and autumn? Will he accept responsibility?

I really recommend the right hon. and learned Gentleman to read the speech made by Mr. Paul Volcker, the President of the New York Federal Reserve Bank the other day, when he pointed out that variations of money supply from month to month or even over a period of months are not important. The important figure about last year is the year figure, where the increase in M3 was only 7½ per cent. If one were to believe some of the monetarist gurus—to whom the right hon. and learned Gentleman is now, I am glad to say, paying less attention—one would guarantee single-figure inflation next year, whatever we did about pay policy. But I agree with what I suspect is the right hon. and learned Gentleman's view—that anyone who believes that can believe anything.

Inflation

3.

asked the Chancellor of the Exchequer what is his latest estimate of the current rate of inflation.

11.

asked the Chancellor of the Exchequer what is the latest official figure for inflation based on a year-on-year calculation.

16.

asked the Chancellor of the Exchequer what is the latest annual rate of inflation in the United Kingdom and West Germany, respectively.

Over the 12 months to April the retail price index rose by 17·5 per cent. The most recent available figure for West Germany is for the 12 months to March, when the increase was 3·9 per cent.

Is the right hon. Gentleman aware of the large number of elderly people whose lifetime plans for retirement are still being ruined by inflation? Are the Government using inflation as a weapon to redistribute capital or income, or is it just that Socialism does not work?

I hope that the hon. Gentleman realises that there are important problems for elderly people and many others too. If those people consider the proposals that the hon. Gentleman's party has in mind they will note that virtually every component in the 17½ per cent. price increase would be much worse under anything that the Conservative Party is proposing.

What explanation does the right hon. Gentleman have for our rate of inflation still being four times worse than that of our West German competitors? Is the answer that whereas the West Germans have a social-market economy, we have the social contract?

No. The explanation is nothing like so facile as the hon. Gentleman suggests. As I have said frequently, the reason for our bad performance is not something that started three years ago. We have had a bad performance for many years, and that is the basic reason for our position, both in terms of inflation and in many other respects, being worse than that of other countries. However, we are beginning to get the matter right. I have no doubt that we shall soon have our rate of inflation down.

Does my right hon. Friend agree that there is a degree of insincerity in the submissions of Opposition Members—indeed, a massive degree? If they had their way and there was no control of prices, which is what they are always harping on, does my right hon. Friend accept that there would be a massive increase in inflation, which would hit old-age pensioners and the lower income groups more than anyone else? Does he agree that their attitude should be utterly condemned?

Will the Chief Secretary tell the House whether he and his right hon. Friend still believe that we shall get down to single-figure inflation on schedule, as was suggested in the Budget? Secondly, what steps is he taking to increase productivity within the nation, which will be the single biggest way to work ourselves out of this problem?

The answer to the first part of the question is "Yes, Sir." I entirely agree that the answer to our difficulties is to improve and increase our productivity. Indeed, we are working closely with both sides of industry to that end. The hon. Gentleman knows that it is for industry, not for the Government, to increase productivity—but the productivity of this Government, man for man and woman for woman, is also better than that of most of their predecessors.

Does my right hon. Friend agree that although some countries in Western Europe have more favourable rates of inflation than we have they have not had the disadvantage of the Conservative Government led by the right hon. Member for Sidcup (Mr. Heath), which increased the money supply by 24 per cent. in 1972 and by 26 per cent. in 1973?

My hon. Friend is absolutely right. We started with an appalling handicap by having to take over from our predecessors.

Has the right hon. Gentleman seen the authoritative reports in many newspapers that one of the Government's proposals for trying to slow down the rate of inflation is to freeze nationalised industry prices? Will he give us a firm assurance that there is no question of the Government's contemplating a proposal of that kind, considering the Chancellor's robust views on the matter?

The hon. Gentleman is trying hard to prove my hon. Friend the Member for Ealing, North (Mr. Molloy) absolutely right. It is remarkable coming from an hon. Member who supported legislation to do precisely what he is asking now. I see all kinds of reports in newspapers, some of which both he and I would not believe. I am not prepared to speculate on what may be in particular newspapers.

23.

asked the Chancellor of the Exchequer what is his latest estimate of the current rate of inflation.

I refer the hon. Member to the reply that I gave earlier today to the hon. Member for Gosport (Mr. Viggers) and Romford (Mr. Neubert) and my hon. Friend the Member for Bolsover (Mr. Skinner).

How can the Government be so sure that the 14 per cent. increase in pensions will be adequate to cover the increase in prices November to November when the three-monthly rate of inflation is 20·5 per cent. and the annual rate is 17·5 per cent?

The hon. Gentleman will know that what the Government have legally to do is increase pensions in line with inflation from November to November. Most of the November-to-November forecasts are about 13 per cent. The increase in pensions is 14·4 per cent. There is a positive margin over and above the 13 per cent. forecast, which will give pensioners a real increase in their pensions.

As the Chief Secretary told us earlier that the causes of Britain's unfavourable inflation experience at present have been operating over the last 70 or 80 years, will he explain why different periods in the last 70 to 80 years have been characterised by acute deflation, acute inflation or no inflation at all?

The right hon. Gentleman asks an interesting question. I am happy to deal with it. As a matter of fact, during the course of that period reasons for inflation would have varied from time to time in line with the right hon. Gentleman's own views on monetary policy.

In view of the Conservative Opposition's obsession with statistical extrapolation, will my right hon. Friend comment on the fact that if the tendencies of the last 18 months continue Britain's inflation rate in a couple of years will be lower than that of most of our Western European competitors?

My hon. Friend and the House will know how interested I am in all kinds of forecasts. I am not prepared to forecast what our rate of inflation will be by comparison with everyone else's in the world in 18 months' time. What I can say is that at present it seems that our rate of inflation will be considerably lower then than our present annual rate of inflation.

While the Minister is thinking of a better answer to the right hon. Member for Down, South (Mr. Powell) may we return to the pay deal aspect of inflation and the conditional tax reliefs that were touched upon earlier? The Chancellor giggles nervously when he is pressed on this matter, but does the Chief Secretary accept that it is very important that small businesses should know what the standard rate of income tax for 1977 will be? That is vital for their business decisions. Will the right hon. Gentleman tell us what the Chancellor apparently will not tell us, namely, when we are going to have a firm decision about this, whether it will be in the Finance Bill, and what are the conditions now upon which the decision will be taken to reduce the rate of income tax?

The hon. Gentleman has got it wrong. Small businesses pay their income tax in respect of profits for this year in either 1978 or 1979. They will know long before then.

Exports

5

asked the Chancellor of the Exchequer what was the level of invisible exports in the first quarter of 1977; and how that compares with the first quarter of 1976.

First quarter figures are not yet prepared. They will be available on 9th June. In the fourth quarter of last year invisible earnings amounted to £3,742 million. That compares with £2,913 million a year earlier.

Has any estimate been made by the Treasury of the effect on our invisibles if banking and insurance were nationalised, as is desired by certain sections of the Labour Party? At the very least, will the hon. Gentleman confirm that certain individuals abroad, reluctant to deal with the Government or Government agencies, would be almost certain to transfer their invisible exports elsewhere?

The answer to the first part of the question is "No, Sir". The House knows the Government's policy regarding banking and insurance nationalisation. I should point out to the hon. Gentleman that banking makes a very small contribution to our invisible earnings.

As tourism plays such a large part in our invisible earnings, is it not unsatisfactory that Britain should be the only country within the EEC where hotels do not qualify for capital allowances? Is the hon. Gentleman aware that new hotel investment, including a company with which I am connected, is being hampered and, therefore, jobs are not being created because of this anomaly? Will he look at the matter again?

I do not think that the tourist industry is being hampered. In fact, the hotel market in London and in other parts of the country is booming at the moment.

Tax Reliefs (Small Firms)

6.

asked the Chancellor of the Exchequer if he will list those tax reliefs which are of specific interest to small firms.

Yes, I shall arrange to have a list circulated in the Official Report.

Does the Minister recognise that, particularly in the case of small firms, it is important to take into account the incidence of local and national tax? In discussions on the review of local government finance, will the Minister bear in mind the effect upon city centre shopping centres and the employment that they provide compared with out-of-town shopping centres?

I presume that the hon. Member is directing that question to some of his right hon. and hon. Friends who have not yet made clear their position on Layfield. I understand that they have in mind the abolition of domestic rates. That would make the rating situation particularly disastrous for local firms.

When my right hon. Friend considers tax relief to small firms, will he take into account the small business man in my constituency who, as reported in the local newspaper last night, has been asked to pay a total of £61 in value added tax on £760 for work that he did for a Leeds firm but for which he has not been paid, because the firm has gone bankrupt? Is my hon. Friend aware that the spokesman for the Bradford VAT office says that the money must be paid on earnings that this man has not received. Is that not the height of stupidity?

If my hon. Friend will let me have details about the case I, or one of my hon. Friends, will be happy to look into it. We have discussed this problem in the Finance Bill Committee. My hon. Friend would find it instructive to spend a little time upstairs with us. If he had done so he would have learned that the Financial Secretary indicated that we are looking at this problem to see whether there is anything that we can do.

Will the Minister encourage small business expansion in rural areas particularly by the extra provision of starter capital? Would the Government be prepared to use a small proportion of the oil revenue for the growth of small firms?

If the hon. Member looks in the Official Report at the list that I have given he will find 11 items describing what we have been doing to help small firms generally. We have done a great deal for small firms, but the source of revenue with which to help them is a different matter. There is no doubt that we have done a considerable amount to help small firms and businesses since we took office.

The list is as follows:

Corporation Tax

1. Small companies' rate of corporation tax (42 per cent. as against the general rate of 52 per cent.)—Section 95 Finance Act 1972 and Section 27 Finance Act 1976.

2. Exemption or abatement of apportionment liability of close companies

Paragraphs 1(3), 9(3) and 10(3), Schedule 16 Finance Act 1972.

Capital Transfer Tax

3. Relief for business property

Schedule 10 Finance Act 1976.

4. Payment by instalments for transfers on death, and for lifetime transfers if the donee bears the tax

(On transfers totalling up to £250,000, the instalments, if paid on time are interest-free)—Paragraphs 13 to 16, Schedule 4 Finance Act 1975.

5. Relief for agricultural property

Schedule 8 Finance Act 1975.

Capital Gains Tax

6. "Rollover Relief" for persons carrying on a trade

Section 33 Finance Act 1965.

7. Retirement Relief for an individual aged 65 or over disposing of his business

Section 34 Finance Act 1965.

8. Payment by instalments for owners of certain businesses

Section 57 Finance (No. 2) Act 1975.

9. Retirement Annuity Relief

Section 226 et seq. Income and Corporation Taxes Act 1970.

10. Cider Duty

Exemption from excise duty on cider and perry in respect of those makers who produce not more than 1,500 gallons a year.

11. Value Added Tax

The current exemption limit for registration for VAT is £5,000 per annum. A Government amendment to the Finance Bill which was carried on 12th May increases the exemption limit for new registrations from £5,000 to £7,500 from 1st October 1977. Small businesses below the exemption limit may register voluntarily if they think that this will be beneficial to them.

Value Added Tax (Disabled Persons' Appliances)

7.

asked the Chancellor of the Exchequer if he has given further consideration to exempting maintenance of disabled persons' appliances from higher rate VAT.

Is the Minister aware that many disabled people are concerned about the situation? Is he further aware that they think that it is ludicrous that their appliances are zero rated but that the maintenance of them and spare parts for them are taxed at the luxury rate? Does he know that in medical circles there is anxiety that because of the luxury rate there could be tragedies involving disabled people in the near future? Will he take action to remove this obvious bureaucratic error?

I cannot accept the last part of the hon. Member's question. I accept that there is concern that the maintenance of these aids is rated at 12½ per cent. whereas their supply is zero rated. When the aids are supplied to people who are not chronically sick and disabled they are taxed at the higher rate. It is thought right, as a matter of principle, to have the same basic rate of VAT for the supply of goods and for their maintenance.

Does not that situation underline how foolish the Government were to introduce more than one positive rate of VAT? Is it not an overwhelming argument for returning to one rate?

The problem would not be solved by reducing the rate from 12½ per cent. to 10 per cent. The problem would still be the same if the rate were the same for maintenance and for supply.

Travel-To-Work Expenses

9.

asked the Chancellor of the Exchequer what representations he has received, since his Budget Statement, on the need to make essential travel-to-work expenses tax deductable.

My right hon. Friend has received representations on this subject from time to time and has continued to do so since the Budget.

What advice should I give to constituents who write to me and say that once they have travelled a certain distance to a low-paid job and paid tax on their earnings, it is just not worth their while to go out to work?

I have great sympathy with the hon. Gentleman's constituents. The cost of travel to work is a major problem, but I do not think that it can be dealt with through the tax system.

Is the Minister aware that some of my constituents travelling up from Brighton each day have to earn £750 a year to get to and from work? Does he understand that this is causing very real hardship, particularly for some of my constituents who are earning less than £3,500 a year?

I have accepted that this is a problem—not only for people in the South-East but also, of course, for people in some areas that are poorer than the South-East. It is a problem, but it cannot be dealt with through the tax system.

British Petroleum Limited

10.

asked the Chancellor of the Exchequer if he will make a statement on the disposal of part of the Government's holding in British Petroleum Ltd.

The Bank of England is proceeding with the arrangements for the sale of sufficient stock to reduce the public sector holding to 51 per cent.

Is it the Government's intention that part of this holding will be disposed of to United States investors using the mechanism of the North American securities market?

The method of disposal is still under discussion. At present I cannot say anything about precisely how it would be done.

Has BP's involvement in Sea-bed Mining been made with the approval of the Treasury? What are the calculations of the consequences of this in future for its profitability?

The answer to the first part of my hon. Friend's question is "No, Sir". The second part does not apply.

Why is it that although it was held in the past the disposal of these shares would cause a reduction in the PSBR, the purchase of shares in, for example, the British Aircraft Corporation and Hawker Siddeley Aviation will not cause an increase in the PSBR?

Actually, it is rather simple. When one acquires assets by giving gilts in return for them, that does not add to the PSBR. It causes additional problems in financing money supply, but does not—[Interruption.] That is an entirely different matter. Certainly, the sale of a proportion of BP shares would mean a reduction in the PSBR.

As the Government at present hold only 51 per cent. of BP legally, the rest of the shares being under dispute, how can the Government reduce that holding and still retain 51 per cent.?

Because, on the best advice that we have received, there is no merit in the Burmah claim.

Gross National Product

12. Mr.

asked the Chancellor of the Exchequer whether he is satisfied with the growth in gross national product.

Will my right hon. Friend confirm that the improving balance of payments figures and the PSBR forecast, to which reference has been made today, mean that we should be able to expand the economy rather faster later in the year?

A few moments ago my right hon. Friend said something like that, but it is a little early to decide. We need rather more facts about the way in which the economy is moving and about what kind of pay deal we shall have after 31st July before coming to any conclusion on that matter.

Is the Minister aware of the part that United Kingdom, and especially Scottish, agriculture could play in adding to the GNP and lowering the English balance of payments deficit? If so, will he withdraw Treasury objections to immediate and essential cash injections into the livestock sector of that industry?

As the hon. Gentleman will have noted, in the last three months there was not a balance of payments deficit. But everything that we are doing, in the English, Scottish, Welsh and Northern Irish economies, will be beneficial in due course, to both the balance of payments and the economy generally.

Will my right hon. Friend explain why it is that an increase in the growth of GNP now seems to have a much lower priority in the Government's aims than it had a few years ago?

It does not have a lower priority. However, there is no point in going for a massive increase in GNP which is not sustainable. That is the problem. I am as much in favour of rapid growth in the GNP as ever I was, but there is no point in having a short burst of increase and then having the economy brought to a grinding halt, as has happened in the past.

Vehicle Excise Duty

13.

asked the Chancellor of the Exchequer why internal combustion engines in all their various forms are required to be licensed in addition to paying duty on the fuel purchased to propel them.

Vehicle excise duty, which has its counterpart in many other countries, is a demand-light tax which makes a necessary contribution to the revenue. To abolish vehicle excise duty and replace the revenue by an increase in petrol duty would add 18½ per gallon to the price of petrol.

I thank the Minister for that reply. Is the criterion of a necessary contribution to the revenue the main reason? If so, is the Minister interested in similar suggestions that I might be able to put to him?

Contribution to the revenue is not unimportant, but I remind the hon. Gentleman that the existence of this tax has been debated, and that for industrial reasons it is felt that it is better to raise the revenue in this way than to put 18½ extra on the price of a gallon of petrol.

17.

asked the Chancellor of the Exchequer what is the annual yield to the Exchequer from road tax.

How much is lost through evasion and what are the Government doing about it?

I am sorry, but I do not have figures showing how much is lost through evasion, because, by the very nature of the thing, it is difficult to know. I have no doubt that a certain amount is lost through evasion and I can see that this is one possible weakness in the operation of the duty. Of course, there are other reasons why we have to maintain the duty.

Wages

14.

asked the Chancellor of the Exchequer what has been the change in the average weekly wage between March 1974 and the present time expressed in terms of current £ sterling.

Between March 1974 and April 1977 the index of basic rates of wages rose by 79·4 per cent. After adjusting for inflation, this represented a real increase of 2·1 per cent.

Is the Minister of State aware that the actual standard of living has fallen by 4 per cent. since the present Government came into office? Is he further aware that if we have another 25 years of Labour Government—God forbid!—we shall have no standard of living left at all?

I am perfectly aware that the standard of living has fallen over the last three years. I am also aware that one major reason for that was the policies of of the Government of which the hon. Gentleman was a member. The best guarantee that this trend will not continue is to keep the Opposition in opposition for the next 25 years.

How does that figure compare with the increase in pensions since March 1974, taking into account yesterday's increase?

Despite the fall in the standard of living of most people, we have been able to maintain the purchasing power of pensions. However, the Conservative Party wants to reduce public expenditure, and especially current spending, and such a reduction would have to fall on pensions and social security benefits.

Growth Prospects

15.

asked the Chancellor of the Exchequer what are the prospects for export-led growth in 1977.

Forecasts of the growth of exports were given in Tables 4 and 5 of the Financial Statement and Budget Report. The most recent trade returns show an encouraging growth in volume of our exports.

Is it not the case that the Treasury forecasts a continuing fall in our share of world trade in manufactures and a continuing rise in import penetration? Might this not have something to do with the fact that we are continuing to spend money from reserves to prop up the pound when our industrial costs are rising faster than those of anyone else?

My hon. Friend is quite right. There has been a fall over the years in our share of manufactures. But that has very little to do with the reserves or with the level of the pound; it is caused mainly by the lack of productivity by British industry and our failure to compete with our major competitors.

In the context of export values and the current level of the £ sterling, if the Bank of England ceased its intervention straight away what does the Minister think the value of the pound would be tomorrow?

The hon. Gentleman does not expect me to answer a hypothetical question of that kind. The main thing, and what is most important, is that the currency rate should be stable. It is stable at the moment and that is of great benefit to industrialists and the majority of people in this country.

Lifeboatmen

20.

asked the Chancellor of the Exchequer what tax is payable on earnings from part-time service in the Royal National Lifeboat Institution.

Lifeboatmen are liable to tax on these earnings at the appropriate rate.

Is the Minister satisfied that the tax system does not operate so as to make any lifeboatman worse off because of part-time wages as is the case to my knowledge with some members of the Ulster Defence Regiment?

Lifeboatmen pay tax on their part-time earnings. I recognise that they have strong feelings about it, but they are not treated any differently from other people who pay tax on part-time earnings.

Secretary Of State For The Home Department (Speech)

Q1.

asked the Prime Minister if the speech by the Secretary of State for the Home Department on 6th May 1977 in South Leeds on local government election results represents Government policy.

As the local election results reflected democracy at work, will the Prime Minister tell the House in what way democracy is furthered by adding Trotskyites to the Government party? Will he also tell us in what way the Lib-Lab pact to contain Socialism is still in existence?

Is the Prime Minister aware that the Home Secretary likened his reception by the police to demonstrations by the IRA and the National Front? Does the Prime Minister agree that the right hon. Gentleman's comparison is quite disgraceful, and will he confirm that it does not represent Government policy?

The demonstrations outside the hall, if they were correctly reported, were not a credit to the police service. I know enough about the police service to know that the majority of policemen would agree with my view, that they do not believe that is the best way to express their genuinely felt grievances.

Does my right hon. Friend agree that whatever the local government election results, local government reform introduced by the Conservative Government has proved to be a complete and utter disaster and that those county boroughs that were merged into counties are now getting far worse services and paying a lot more for them?

As I go around the country I find that local government reform is not generally regarded as a jewel in the crown of the last Conservative Administration. However, we have to reflect carefully before we decide to take any particular action to alter this at present or, indeed, in the immediate future, because local government must be given an opportunity to adjust itself. I am bound to say that the more I hear about it the less I feel that Parliament was well advised to accept the proposal that the Conservative Government then put forward.

I refer to the speech of the Home Secretary, which is the subject of the Question. Does the Prime Minister recall that towards the end of that speech the Home Secretary talked about the Government's economic programme and about the benefits that we should all share? Is the Prime Minister aware that since the last election the take-home pay of the average worker has fallen by £8 a week? Does he expect there to be any improvement in the current financial year?

Yes. The right hon. Lady knows the reasons for this. We have been attempting to live within our means after the profligate extravagance of the Conservative Government. With regard to the future, our assessment is that from now on, if we can maintain a reasonable approach on these matters the standard of life should certainly begin to improve. [HON. MEMBERS: "When?"] Well, at present—if I may take just four factors—exports are going up, pensions are going up, unemployment is going down, and interest rates are going down. That is not a bad start.

The Prime Minister has said something similar to what he said last Tuesday, and it was partly for that reason that I asked him. If he expects that the standard of living will indeed improve, what kind of increase in pay is he expecting, bearing in mind the current rate of inflation and the current rate of tax? If the standard of living is to improve, does that not postulate a very large increase in pay?

Not necessarily. As I am sure the right hon. Lady will agree if she reflects on it, it would also be determined to some extent by an increase in productivity. It is to that that the Government are constantly addressing their mind, through the industrial strategy and in other ways.

Commonwealth Heads Of Government Conference

Q2.

asked the Prime Minister how many Heads of Government will be attending the Commonwealth Prime Ministers' Conference.

I refer the hon. Member to the reply that I gave to the hon. Member for Tynemouth (Mr. Trotter) on 24th May.

In the light of President Kaunda's remarks about President Amin, has any decision yet been taken about President Amin's entry to this country? On the Commonwealth Prime Ministers' Conference, will the Prime Minister take a lead in pressing ahead with the report of the Expert Committee set up in Jamaica at the last conference, and will he try to get the Commonwealth to take a rather greater collective lead in world affairs?

I recognise the strong feelings in the House and the natural desire to know the Government's opinion on the first matter. I only ask that in all our interests I am not pressed to give an answer on this matter at this moment. We have to take the decision ourselves. I can assure the House that we shall take the appropriate decision and that we shall have to be held responsible by the House for it in due course.

As for the Commonwealth giving a lead in world affairs, I shall certainly do my best to encourage that when the conference meets. I know that this view is held by a number of Commonwealth Prime Ministers, and I know that we do and can exercise a considerable influence. I always thought that it was valuable that about two years ago we began meeting at the United Nations as a Commonwealth group in order that we could express our views accordingly.

There are other ways. For example, the Commonwealth can provide a very useful means of entry into the EEC on a number of matters, and the Commonwealth values the fact that we are in the EEC in order to help in this direction.

Have we not already come to a decision to spend £125 on Ugandan flags for the purposes of this conference? Does that commit us to anything?

Is the Prime Minister aware that the attendance of President Amin at this conference would be universally objectionable to public opinion in this country and almost certainly unanimously unacceptable to this House? Speaking for myself and my colleagues, however, I can say that we recognise that this is a delicate matter and the precise method of giving effect to it is best left in the Prime Minister's hands.

I am obliged to the right hon. Gentleman for what he said. I believe that that is the view of all those who do not wish to see the Commonwealth unnecessarily damaged by the present position. I hope that is what we all wish to see.

Prime Minister's Office (Policy Unit)

Q3.

asked the Prime Minister if he will appoint someone with experience of industrial reorganisation and mergers to his policy unit at No. 10.

Is my right hon. Friend aware that there is a welcome on the Labour side of the House for his commitment and that of my other right hon. Friends to involve the NEB, on a permanent and long-term basis, in the restructuring of the turbo-generator industry? Will he confirm that the hold-up up in the announcement of the decision to order Drax B has arisen because Sir Arnold Weinstock still refuses to cooperate in creating a national turbo-generator company and is insisting on GEC control of whatever emerges rather than agreeing to a company which preserves the interests of all those who work in it?

I can certainly say that we intend that the Drax B power station should be ordered. But I very much regret that a battle is being fought out on the Order Paper and by publicity firms on the question how that order should be disposed of. We are here dealing with the livelihoods of thousands of men and with the future of the industry as a whole. It will be for the Government to take the decision. I deprecate references to anybody in this matter when these difficult negotiations are going on. The Government do not have the power to force any restructuring of this industry. The restructuring can be done only by consent. If that consent is not forthcoming, there will be no restructuring. The Government will have to take their own decision and discuss with the CEGB how this order is to be placed. I hope that everybody concerned, including my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Thomas), will understand the implications of what I am saying.

Will the Prime Minister confirm the statement by his own colleague, the Under-Secretary of State for Energy, that if the order is placed it will be put out to competitive tender?

Not at the moment. I do not wish to give cards to any particular group in this matter. We are here dealing with a national interest. There are delicate commercial negotiations going on. I repeat what I said. I do not believe that it is in the best interests of the future of this industry that we should try to—[Interruption.] I ask the hon. Gentleman not to press this issue on the Floor of the House at present.

Will the Prime Minister reconsider part of his answer concerning Drax B? I speak as one who has only lately become involved in the battle on the Order Paper. May I ask my right hon. Friend, in fairness to both sides and to workers in the power industry and both companies—workers whose jobs are threatened—to see that if Drax B is ordered the order should be seen to be fair to both sides and should go out to open tender, and not be handed on a plate to one company and its workers?

I note what my hon. Friend says. I am trying to keep the position as it is. We are at the last stage of negotiations. Whether those negotiations will break down or go through I do not yet know, but I would prefer at this stage just to note what my hon. Friend says and not to give any further information.

There is a growing body of opinion that believes that further industrial concentration into larger and larger units, particularly the nationalised public sector units, is the root cause of many of our industrial problems. Will the Prime Minister seek to promote instead a policy of encouraging small firms and preventing industrial concentration in larger industries, which is exactly the reverse of what he has been doing hitherto?

That is a more generalised question. If I am asked whether I believe that a great many bigger firms can grow out of small firms, the answer is "Yes". We should do our best to encourage that. As for the matter to which this question is related, there is general agreement among the trade unions and the industry itself that rationalisation demands one technology for future power stations, especially if we are to be able to compete internationally. We need a level of production that cannot be sustained if the industry is divided. There is no general answer. We must take each case on its merits.

European Community

Q4.

asked the Prime Minister what study he is making of the effects of United Kingdom membership of the EEC.

The effects of EEC policies in different fields are kept under continuing review.

Does my right hon. Friend agree that the Common Market is now regarded as a disaster by the British people in general and by the vast majority of the Labour movement in particular? Does he not feel that it is now time for another referendum, with the Labour Government leading the campaign to come out?

I know that my hon. Friend is very concerned to uphold conference decisions on all these matters. I must remind him that at the special Labour Party conference that was called to consider the referendum, the decision was taken that the Government would accept the result of the referendum as binding. I am sure that my hon. Friend would not want me to go back on that.

Is the Prime Minister proud of the fact that as we reach the end of the period of British presidency of the Commission, the Tribune Group should be trying to lead us out of the EEC while others of his colleagues are preventing us from carrying out our obligations on direct elections?

I do not think that any of us should try to silence or stifle the legitimate criticisms of weakness in the EEC structure, some of which are exemplified by some of the hon. Gentleman's hon. Friends. But that does not alter the basic fact that our presidency has certainly been at least as successful as those of our predecessors—[An HON. MEMBER: "Oh, yes?"] Oh, yes! I have been there and seen. For the future, it is our job to play our full part in developing a new and wider Europe. That is what we said we would do when we had our special conference.

Does my hon. Friend agree that the only realistic view at the moment is to stay in the EEC and make it work much better? Can he confirm or deny authoritative reports that our inflation problem is not even primarily due to the EEC, and will he ensure that the Ministry of Agriculture is honest with the House and gives the figures that will bear that out?

Answers have been given in this House that show the influence of the common agricultural policy on price rises in this country. The CAP has had an impact on certain food prices but certainly not on the general level of inflation, which is due to many other causes. The Minister of Agriculture has played a most notable part in recent negotiations, in that for the first time the increase in rewards given to the agricultural community was less than the increase in their costs. This is the kind of restructuring that we must continue to work for.

Does the Prime Minister agree that the view that we take on the CAP is dictated largely by the view that we take on the balance between the world supply of and demand for food in future? In future, people will be very grateful for having paid a high price to be part of a self-sufficient food community if there is a drastic world food shortage in the 1980s and 1990s. What studies have the Government made of the world supply and demand for food in the 1980s and 1990s?

Studies that have been done have led to the conclusion that the hon. Member has just given—that there will be a growing world demand for food and a possible world shortage as standards improve. That is why, in the case of our own agriculture—although we have not succeeded as much as we would like—we have proceeded with expansion. [Interruption.] There will be expansion of agricultural production this year if we do not have another drought. On world food production—there are some surpluses in North America, and that country would like a greater access to the European market. We should try, temporarily, to adjust ourselves to that, but, at the same time, there is every reason why Europe should become as self-supporting as possible.

On a point of order, Mr. Speaker. The Prime Minister said that he did not want to be pressed about President Amin, Drax B, or direct elections. Is it possible to elicit from him, through you, any area of Government activity in which he would like to be pressed?