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National Finance

Volume 938: debated on Thursday 10 November 1977

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£ Sterling


asked the Chancellor of the Exchequer if he will make a statement on his general policy with regard to the parity of the £ sterling, having regard to its effects on employment and export competitiveness.


asked the Chancellor of the Exchequer what is his current policy for the exchange rate of the £ sterling.


asked the Chancellor of the Exchequer if he will make a statement on the decision to allow the £ sterling to float upwards subsequent to his Budget Statement on 26th October 1977.

The Government's policy for the sterling exchange rate was set out in a Treasury Press statement on 31st October. As that statement explained, inflows were endangering adherence to the Government's domestic monetary targets. Intervention policy in the exchange markets has been adjusted accordingly. It is too early to predict the effect, if any, on employment and export competitiveness.

With regard to any future upward movement of sterling, will my right hon. Friend bear in mind that export competitiveness is dependent chiefly on quality and delivery and also that any intransigence on the part of the unions towards the Government's wages policy is likely to cause more unemployment than any other factor? Will he also undertake to continue his tight monetary policy, in contrast to the last Conservative Government, who treated the money supply like drunken sailors?

I can certainly give my hon. Friend the assurance he asked for at the end of his supplementary question. I see that the right hon. Member for Down, South (Mr. Powell) particularly appreciated the terms in which it was put.

On the earlier part of the question, competitiveness depends partly on price and partly on other factors, such as design, reliability and delivery. Price competitiveness is affected by many factors, of which increases in wages costs are one. Changes in the exchange rate may be another and the level of productivity a third.

In view of the position on North Sea oil and the expected balance of payments surplus in the future, does the Chancellor intend shortly to relax exchange control requirements on direct investment, particularly into the EEC, as we are required to do under the Treaty of Rome?

I am passionate in my desire to answer that supplementary question, but, unfortunately, parliamentary protocol forbids me to answer a question which is specifically down for answer later this afternoon.

If we really have the margin of price competitiveness suggested by the Government's willingness to see the exchange rate rise, how is that to be squared with warnings to workers that they are in danger of pricing themselves out of jobs?

As I pointed out earlier, price competitiveness depends on many things. One is the movement in the exchange rate. Another is the movement in relative unit wage costs. Policies designed to reduce the increase in relative unit wage costs are likely to be assisted by anything that brings down the rate of inflation and an appreciation in the sterling exchange rate would be one such factor.

As the Chancellor of the Exchequer was good enough to recognise my copyright on this subject, may I ask him whether he does not agree that it is important that, with movements of the sterling exchange rate, exporters should not be quick to adjust their sterling prices, since it is pricing in the selling market which is decisive?

That is often the case. The striking thing is the way in which some of our foreign competitors, when facing exchange rate movements, change their selling price accordingly. At the same time, it is important to recognise that a constant price with a falling exchange rate will increase the unit profit margin, and that can often encourage manufacturers to work harder on exporting than they otherwise would have done.

Does my right hon. Friend agree that at present there is considerable instability in international monetary markets? Does he further agree that it is necessary for the international community to take some steps to control the flow, often irrational, of speculative hot money?

I very much agree with my hon. Friend. One of the problems of maintaining a stable effective exchange rate in current circumstances has been to do with the wild movements of the parities of various currencies over the past few months.

I certainly agree that the atomic cloud of footloose funds that is liable to search for easy targets for speculation, either upwards or downwards, has had a destabilising effect on the international monetary scene. Anything that could be done to bring it under control would be of great value.

Does the Chancellor agree that more important than the sterling exchange rate at any given moment is the amount of our own relative earnings per unit of output by comparison with our overseas competitors? Will he give an undertaking to give as much emphasis to encouraging investment and productivity in Britain as he is giving to restraining wage increases?

A moment ago I made the point—I should have thought that the House heard it—that the hon. Member made in introducing this question.

On the question of the importance of taking measures that will encourage in- vestment, I must tell the hon. Gentleman that the Government have done a great deal to help. Let me give one example. The tax relief on stock appreciation means that any manufacturing company that reinvests its profits for productive purposes pays no corporation tax. I hope that the hon. Member deplores as much as I do the fact that British industry this year has failed to fulfil its stated investment intentions. I hope, too, that he shares my hope that British industry will do better next year than it has this in fulfilling the intentions for investing that it has announced.


asked the Chancellor of the Exchequer what estimate he has made of the effect of the recent rise in the value of the £ sterling on Great Britain's trade in manufactured goods.

Any estimate made at this stage would be highly speculative. Much will depend on the actual path of the exchange rate and on the response of domestic costs.

Does the Chief Secretary accept that the foundations of German industrial strength since the war were laid during a long period of undervaluation of the deutschmark in the fifties? The lesson holds good for Britain today. Whatever the reasons that have caused the pound to rise in the last two or three weeks, the improvement has made a substantial difference to the Government's industrial strategy. What action do the Government intend to take?

I do not accept the hon. Gentleman's point. It depends at which base one is looking for the change in exchange rate. If one looks back over the last two years, one sees that, relative to our competitors, there has been an improvement in our unit labour costs. It is misleading to take any one factor and say that that is why the Germans. the Japanese or anybody else has done better than we have. They have done better than this country has, under successive Governments—that is absolutety true—but I do not accept that any single factor is the reason for it.

Why is it that Treasury Ministers apparently find it impossible to comprehend the illogicality, in manufacturing terms, of allowing a free float of sterling while maintaining such strict exchange control? Why, for instance, is it better for the Government to invest in low-yielding United States Treasury bills than for private industry to invest in high-yielding export-linked manufacturing ventures overseas?

We should start on the assumption that the level of comprehension in the House is probably broadly equal on both sides, and one should not be so pompous about it. It seems to me, from listening to the speeches of hon. Gentlemen on exchange control, that they appear to be arguing that what we should allow is a dissipation of North Sea oil proceeds in order to ensure that investment takes place abroad rather than at home. I do not agree with such a policy

Is there not an important lesson to be learned by those who pontificate on this matter from the fact that the continuing rise in the value of the German deutschemark and the Japanese yen has throughout that period been associated with considerable strength in the export industries of both those countries?

The rise in the deutschemark has been due to the much better industrial performance in Germany than in many other countries, including ours. I concede that. I do not dispute it. I do not pretend to pontificate on that, although some do.



asked the Chancellor of the Exchequer what consideration has been given to proposals to relax controls on outward investment.

Exchange controls in general are kept under review, but this is not, in our judgment, the time for relaxing controls on investment overseas.

I welcome my right hon. Friend's assurance and congratulate him on the tremendous improvement in our financial situation compared with 12 months ago, but will he ensure that institutional and other funds are steered towards investment in manufacturing industry in Britain to make our industry more efficient, and not into the industries of our overseas industrial competitors? In particular, will he ensure that there is no further investment in South Africa by British industries?

My hon. Friend asked a number of separate questions. I give the assurance that the Government intend to discourage investment by British industry in South Africa. That view is shared by all members of the United Nations—[Interruption.]—of which we are a member, however much the hon. Member Yarmouth (Mr. Fell) may dislike it.

The answer to the other question is that we want to do everything possible to encourage British manufacturers, including those who are subsidiaries of multinational companies, to invest their profits in this country. The maintenance of exchange control on direct and portfolio investment at least prevents them from exporting British-earned capital to other countries. In reply to an earlier question I referred to the difficulties that business has found this year in maintaining the intention that it announced. I hope that it will do better next year.

Whilst it would obviously be wrong to dismantle the remaining exchange controls over-hastily in the near term, for lots of reasons, would it not be a good idea at least to consider the possibility, on portfolio investments, for example, of removing the surrender provision, say, early next year and then see the premium gradually dwindle away in accordance with our European obligations?

Is my right hon. Friend aware that his reassurances this afternoon were warmly welcomed on the Government Benches? Is he further aware that we share his disappointment at the investment performance of British industry this year, and that in view of our massive backlog of under-investment we shall give him every support in encouraging British industry to invest in Britain, so that we can increase our production and employment?

Is the Chancellor of the Exchequer aware that, contrary to what he said, many of us believe that this is the right time for a further relaxation of exchange controls? Many of us are well aware that he thought that to be the case, but that he was vetoed by the TUC when he tried to do it. Will he explain to his hon. Friends that the prevention of profitable investment overseas acts in no sense as a stimulus to unprofitable investment in the United Kingdom?

I am familiar with the hon. Gentleman's views, but I was interested to see that his hon. Friend the Member for Harrow, East (Mr. Dykes) took a different view.

Whisky (Revenue)


asked the Chancellor of the Exchequer what is his latest estimate of the revenue from Scotch whisky during the current tax year.

Based on the 1977 Budget estimate of duty receipts from spirits in the financial year 1977–78, the duty on Scotch whisky is expected to be about £440 million.

In view of the importance of this industry to the economy and to the 24,000 people employed in the industry in Scotland, will the Chancellor of the Exchequer and his Department look at the situation whereby home trade duty is collected at the point of dispatch rather than at the point of purchase by the customer, because this is causing great cash flow problems in the industry? Will he also pay attention to the campaign spearheaded by the Transport and General Workers' Union in Scotland, namely, that there should be no bulk exports of Scotch whisky?

As the hon. Lady will know, this matter has been considered on a number of occasions. I should point out that only about 12 per cent. of whisky produced is for home consumption, and these constraints do not affect exports of Scotch whisky. The hon. Lady will know also that the cost to the PSBR of relaxing or changing the credit provisions could be about £135 million in the first year. That includes duty on other spirits as well. One has to consider the other claims on the PSBR and whether that is the best way of dealing with the public sector borrowing requirement.

Is the Minister aware that people in the industry have made clear that they are having imposed upon them a crippling burden by having to pay the duty before they have been paid by the customer? Will he bear in mind that the industry also declares that if there were some amelioration of the imposition of this burden funds would be available for the expansion of the industry and for the creation of more employment in Scotland, which has a high unemployment record?

I appreciate what my hon. Friend has said. We are considering this matter, but, as I said previously, the competing claims on the PSBR have to be considered.



asked the Chancellor of the Exchequer if he is satisfied that his recent measures will effectively bring down the rate of inflation in 1978.

The measures that I announced on 26th October, coupled with those in the Budget, will encourage moderate settlements within the Government's guidelines. This is critical to the Government's intention of getting the inflation rate down to single figures in the first half of 1978 and keeping it there throughout the year.

Looking back, now that we have just passed the third anniversary of his 8·4 per cent. inflation prediction in 1974, does the right hon. Gentleman not sincerely regret that prediction and its misleading effect? Precisely when does he think that the 8·4 per cent. figure will be reached?

It was not a prediction that I made in 1974; it was a statement of a fact that the annual rate of price increases in the three months before I spoke was 8·4 per cent. It has been rather less in the past three months.

Does my right hon. Friend intend the 10 per cent. guideline to apply right across the public sector, and, if he does, why does it not apply to the Civil List? Is there one law for the ordinary person annd another for the more privileged people of our society? Particularly in view of a distinguished personage's comments about over-large staffs of nationalised industries, perhaps this is one sector where we could cut down on the staff.

On my hon. Friend's last point, I think that the famous remark about glass houses may well be apposite in this case. On the general point, my hon. Friend must be well aware that two-thirds of the increase in provision under the Civil List represents an increase within the pay policy for those men and women—many of them not very well paid—who work in the Royal establishments. The rest is largely accounted for by exceptional expenditure on the Jubilee, which has brought benefit directly to our balance of payments of several hundreds of millions of pounds.

Does the Chancellor accept that even more important than the point that he stressed in answer to my hon. Friend the Member for Harrow, East (Mr. Dykes) is the maintenance of strict control of the money supply? Does he understand that there is some concern —I do not want to overstate it on the strength of one month's figures—about the movement of M3 that seems to be taking place, and also about the rapid growth in Ml, which is sometimes a leading indicator? Will he also tell the House when he is likely to announce his monetary targets for next year, which are of even more importance, bearing in mind that he announced them last year at the time of his letter to the IMF in December 1976?

The spectacle of Satan advocating virtue is at least a little more agreeable than that of Satan rebuking sin. But, as the right hon. and learned Gentleman will know, the Government have been virtuous in dealing with the money supply ever since they inherited the consequences of his right hon. Friend's profligacy, and we have every intention of maintaining control. He is perfectly right that the money supply is liable to fluctuations from month to month—even from quarter to quarter—and this has been recognised as being not a matter of concern by both the Federal Reserve Bank of New York and the Bank of England. What is important is that over the longer run the monetary aggregates are maintained, and that is the Government's intention.

As for the levels for next year, we plan to announce them at the appropriate time.


asked the Chancellor of the Exchequer what is the current rate of inflation.


asked the Chancellor of the Exchequer what is the latest official figure for the rate of inflation; and if he will make a statement.

The Index of Retail Prices rose by 15·6 per cent. over the 12 months to September. This is the third successive month in which the rate of inflation has fallen. It is expected to fall further to 12 per cent. or 13 per cent. by the end of the year and should reach single figures in the first half of next year.

Will my right hon. Friend confirm that the very welcome increase in the old-age pension which is due next week was fixed in May on the basis that the inflation rate year-on-year in November would be 13 per cent.? As the inflation rate is slightly above that, will my right hon. Friend give permission to the Secretary of State for Social Services to accept a friendly Back Bench amendment to the Pensioners Payments Bill to make up the difference?

Any friendly gesture from anyone, particularly from my hon. Friend, will be received in the spirit in which it is made.

The level of the retail prices index in November will not he known until the middle of December, but it is already clear that it will be well below the 14·4 per cent. increase in the old-age pension which is now coming into effect.

In view of the reply given to my hon. Friend the Member for Chingford (Mr. Tebbit), will the Chancellor repudiate the absurd proposition of the Prime Minister that inflation since 1974 has not led to a decrease in the standard of living of a married man with two children?

Mortgage Interest Rates


asked the Chancellor of the Exchequer if he will meet the Chairman of the Building Societies Association to discuss the relationship between building societies' interest rates and interest rates generally.

The Government maintain regular contacts with the Building Societies Association.

Does my right hon. Friend know that, according to the building societies' estimates, their net financial intake this year will go up by 78 per cent. but their net monetary outgoings will go up only by about 8 per cent? Does he agree that this vast difference suggests that the disparity between minimum lending rate and the mortgage rate is far greater than is either usual or advisable? Will he take steps to advise the building societies to bring their rates down again?

That is a matter for the building societies. However, in reply to my hon. Friend, I would say that of course I am aware of the figures. These can change very rapidly. The important factor is the inflow of funds to the building societies. That is important both to the construction industry and to prospective purchasers of houses.

I accept that the Building Societies Association's policy on these matters may be somewhat cumbersome, but is it not abundantly clear that it is quite impossible for the building societies to react with sufficient speed to the many and varied changes of interest rates that have taken place over the past year? Will the Minister press for an annual review of the lending and borrowing rates of building societies, to the advantage of both the borrower and the investor?

I am rather surprised that the hon. Gentleman does not appreciate the fact that we now have a much lower minimum lending rate than we had when his party was last in government. To imagine that this can be reviewed just once a year is quite incredible.

Value Added Tax


asked the Chancellor of the Exchequer if he will consider zero- rating VAT on hand-controlled conversions of motor cars for invalid persons.

No, Sir. Such relict has been considered on a number of occasions but could not be justified in the context of a broadly-based tax.

Does my hon. Friend accept that that is a very disappointing reply? Is he aware that the number involved is very small indeed. Does he realise that they are usually people who have used their own money both to purchase the vehicle and to convert it, rather than accept the State-provided vehicle? Does my hon. Friend agree that to convert the vehicles would cost very little, because they are usually small? I have yet to see a hand-controlled version of a Rolls-Royce. Will my hon. Friend look at this matter again?

I accept entirely that my hon. Friend and many others will agree that this is a disappointing reply. Of course it is not a question of revenue, as he has indicated. In an expenditure tax such as VAT it is important that there should be as few exceptions as possible, because there are many competing claims with equally good cases. If such claims succeed the base of the expenditure tax is eroded.

Will the Government be allowed to do this under the Fifth Directive of the EEC?


asked the Chancellor of the Exchequer what plans he has to reduce the cost and inconvenience of operating value added tax.

In consultation with representative trade associations, Customs and Excise is currently carrying out a review of VAT procedures to see whether there is scope for simplification and for reducing the burden on traders.

Why do not the Government take a simple step back to sanity prior to the General Election and return to a single positive rate, as there was when this very successful tax was first launched?

There are many consequences of returning to a single rate, and the effect on the RPI is one factor; but all these matters are kept under review.

I wonder whether the Minister reads VAT News on a regular basis. Has he any idea of the physical volume of this combined publication and its mind-bending effect on small traders who are faced with this regular flow of words in their direction?

I cannot say that I read VAT News on a regular basis, but ever since the Tory Party introduced VAT in 1972 the Labour Party and the Labour Government have tried to mitigate some of the worst consequences.

Does the Minister accept that below a threshold of £20,000 it is not worth while the Government collecting the tax, and below a threshold of £50,000 it is not worth the country collecting the tax, taking both the costs to the employer and the Government combined? What does the Minister intend to do about this? Does he believe that he is constrained by the Conservative Government's threshold of £5,000 revalued, or is he prepared to break out of the Conservative net?

As the hon. Gentleman will know, from 1st October we have raised the threshold to £7,500, and consideration is being given to a simplification of the tax. But I am bound to say that so far very few traders—about one-fifth of all the traders who could deregister—have taken advantage of that raising of the threshold.

Arising out of the Minister's answer to my hon. Friend the Member for Bexleyheath (Mr. Townsend), will the Minister tell us whether the Customs investigatory powers also will be the subject of this review?

I am not aware that the investigatory powers are being considered. The review is considering the simplification of procedures to make it easier for traders to fulfil their obligations.


asked the Chancellor of the Exchequer if, in the light of the VAT tribunal decision on 3rd February 1977, he will state the position of companies wishing to reclaim VAT on petrol supplied for employees' cars since that date.

The tribunal decided that the VAT on petrol supplied by the appellant for the private motoring of employees could be reclaimed as "input "tax. However, tax is chargeable in many cases when the petrol is subsequently supplied by a company to its employees and from 1st January 1978 tax will be chargeable in all such cases.

In simple terms, is the Minister telling me that if an employer has supplied petrol to his employees for both business and personal use, any claim made now by that employer for the reimbursement of the VAT will be considered?

This is not a simple tax, unfortunately, and it is difficult to give an answer on it in simple terms. However, as a result of that case, although the input tax can be reclaimed, Customs and Excise takes the view that in many cases, where there is an obligation on the part of the employer, an output tax also is chargeable.

The hon. Gentleman looks surprised, but it follows from the logic of the tax. If an input tax is chargeable, an output tax must be levied as well. But the position is even more complicated than that, as I am sure the hon. Gentleman will appreciate.

Would it not be a good idea if the Government were to produce a simple guide on VAT and the restrictions that the Sixth Directive places upon the Government's freedom of action and distribute it to some of my friends, who keep asked for a £10,000 limit, which one cannot have under the Sixth Directive?

A simple guide on VAT is practically impossible. A simple guide on VAT and the Sixth Directive is even more nearly impossible.

Taxation (Inland Revenue Procedures)


asked the Chancellor of the Exchequer if he will review the standard procedures used by the Inland Revenue in its communications with the public regarding tax due for the current year.

Yes, Sir. My right hon. Friend's proposals to increase the personal allowances will require many adjustments to PAYE codes and to assessments already made for tax normally falling due on 1st January 1978. The consequential administrative arrangements are being settled.

Is the Chief Secretary aware of a growing tendency on the part of the Revenue very briskly to issue reminder notes couched in almost threatening language, which can be extremely frightening to people living alone, doing their own tax returns and not employing an accountant? Will he look again at the language used by the Inland Revenue in its reminder notices?

I should certainly be very concerned if the language used by the Inland Revenue upset people in the way that the hon. Gentleman suggests. If he has any particular examples I shall be glad to receive them.

Arising out of my hon. Friend's Question, will the Chief Secretary say whether the Foreign Secretary's recent speech to the Fabian Society represents Government policy and, if it does, what steps is he taking to simplify the tax system and relieve the burden on the Inland Revenue and on the taxpayer?

Questions of that kind about speeches by my colleagues in the Cabinet should be put to my right hon. Friend the Prime Minister. But I may say that I found the speech made by my right hon. Friend the Foreign Secretary, very interesting indeed.

Capital Movement


asked the Chancellor of the Exchequer what changes in regulations governing the movement of capital between the United Kingdom and other member States are due in January 1978 in accordance with the terms of the United Kingdom accession to the EEC.

Under the terms of the Treaty of Accession, certain capital movements connected with portfolio investment are due to be liberalised on 1st January 1978.

Can the Chancellor confirm that in the Government's view there are no balance of payments constraints on putting residents of the United Kingdom in the same position as residents of other member States of the EEC as regards movement of capital within the Community?

As the hon. Gentleman will know, we have been authorised to maintain our restrictions under Article 108 of the Community Treaty, and we are discussing with the Commission the extent to which we want to continue those derogations in the future. In these discussions we shall be guided, like all Governments in the Community, by the need to maintain a proper balance between our national interests and the ésprit communautaire.

Is not it rather extraordinary that when I asked the Chief Secretary on Monday to give an Oral Answer on what our obligations were to the EEC in this matter, he did not know and had to defer before giving a substantive reply? May I put it to the Chancellor that there is a very real danger at present that the exchange rate which is generated as a result of the effects of North Sea oil revenue results in an exchange rate which is, in fact, not one which will enable British export industries to continue to invest and remain profitable? Therefore, would not, a relaxation in accordance with our obligations to the EEC on these lines do something at least to rectify that dilemma?

I am assured by my right hon. Friend the Chief Secretary that the hon. Gentleman is mistaken in views he attributed, or did not attribute, to him. I confess that I would not blame any Minister for being unaware, without notice, of our precise obligations, given the fact that, although the Treaty of Rome is some 120 pages long, there are about 1,200 pages of exceptions to it which are being changed all the time.

On the second question raised by the hon. Gentleman, I know that this is a widely held view, but the fact is that freedom from exchange control in Germany, Japan and Switzerland has not prevented those countries from finding that inflows force their exchange rate up more than they might wish and impose strains on their money supply.

Is it, then, the Chancellor's view that there is normally a conflict between our national interests and the esprit communautaire?

Tempted as I am to explore the implications of my right hon. Friend's question, what I can say is that one naturally hopes that these two guiding lights will always be shining in the same direction. If there is at any time any potential conflect between them, we shall seek to focus the beams on the same point.

Will the Chancellor of the Exchequer explain to the House why he has allowed the TUC to exercise a veto on the relaxation of exchange controls governing the outflow of money from this country to other countries, including countries in the EEC?

I can only suppose that the hon. Gentleman believes what he has read in the newspapers. That particular report is entirely untrue.

Pay Settlements


asked the Chancellor of the Exchequer whether he will make a statement on his policy regarding firms found to be in breach of the Government's guidelines for wage settlements in the current pay round.

The Government will seek to ensure that such firms renegotiate their settlements to bring them within the guidelines.

How can the Chancellor defend the crude and disgraceful political log-rolling in which smallish firms like Mackie's get sanctions but the Ford Motor Company gets off scot-free and why the Chief Secretary refused on Tuesday to give me the names of the firms which have had sanctions imposed on them? What sort of cover-up is going on?

I must say that that sort of pompous outrage seemed a little factitious to me. The fact is that the hon. Member knows very well that Mackie's company, after repeated approaches from the Government, persisted in maintaining a settlement of 22 per cent. The Ford Company brought its settlement down to just under 12 per cent.

If the hon. Gentleman wants to say anything, perhaps he will rear himself to his feet, if he is able to do so. I think that the House must understand—I do not think that there is any disagreement on this, at least between the two Front Benches, and the right hon. and learned Member for Surrey, East (Sir G. Howe) has said that he wants to see the 10 per cent. guideline maintained —that the Government have accepted an obligation to ensure that the guidelines are maintained in the public sector and that we do not finance settlements in the public sector outside them. In the interests of avoiding discrimination against people in the public sector, it is essential that the Government should not finance settlements outside the guidelines in the private sector. That means that types of assistance which the Government are free to give or to withhold, according to their view of the national interest, should be withheld in cases where there is a breach of the guidelines.

Will my right hon. Friend bear in mind that any relaxation of the policy which he has just stated will be very unfair to those firms and trade unions which have conformed to the Government's pay policy?

Is the Chancellor aware that the Opposition do not accept the doctrine that the ends justify the means, particularly if those means are wholly arbitrary? Is he aware, too, that the. Prime Minister quite recently justified an incomes policy on the ground that it prevented the lions from getting the lions' share? Does he consider the workers of Mackie to be the lions, and. if so, in what category does he put the miners—the lambs?

I am fascinated by the doctrine asserted by the hon. Gentleman, particularly as he supported a Government who created a pre-election boom late in 1964 and sought to do the same in 1974, at the cost of grave damage to the nation's trade and to our chance of containing inflation.

Personal Allowances


asked the Chancellor of the Exchequer what further increase in the personal allowance for single persons and married couples, over and above the level announced in his recent statement, would be necessary to bring these allowances to the level operative in 1972–73, adjusted by the cost of living index since that date.

£320 and £195, respectively, on the basis of the change in the index of retail prices between September 1972 and September 1977.

These figures allow for the effects of earned income relief in 1972–73.

Will the Chief Secretary accept that, over the intervening years, there has been considerable suffering because of the lag behind of the level of taxation threshold, and that many people who could not afford to pay income tax have been drawn in? In view of that, will the right hon. Gentleman give an assurance that there will be an annual review of the level of income tax threshold and, if possible, an indexing of that to the cost of living index?

Perhaps the hon. Gentleman did not notice it, but during the passage of last year's Finance Bill we accepted an amendment that will result in such an inquiry.

Arising out of the Chief Secretary's answer, and so that the House can see the problem in its true perspective, will he do the same exercise in relation to the year 1973–74, and also in relation to the higher rate threshold?

Yes, if the hon. and learned Gentleman tables a Question to that effect.

Is my right hon. Friend aware that the level of family support has been declining systematically? Will he undertake to index child benefits?

My right hon. Friend is being rather less than fair to the Government which she supports. She will know that there will be a substantial increase in child benefits next April—a matter in respect of which she has done a great deal to help. I am personally happy to pay tribute to her for that work, and I hope that she will pay a tribute to the Government for what they have done.

Income Tax


asked the Chancellor of the Exchequer what was the total amount of income tax paid in the year 1973–74 and the estimate of the amount that will be paid in 1977–78, divided in each case by the number of households in the United Kingdom.

The figure for 1973–74 is £384. Assuming implementation of the proposals announced by the Chancellor on 26th October, the estimate for 1977–78, at 1973–74 prices, is £446

Does the Minister agree that those figures, making allowance for the fact that he has turned them into real terms, indicate that in money terms he has taken about £10 from every household and now gives just £1 back? Will the Minister further acknowledge that in, as we hope to see, the further reductions in taxation he should reject the advice of his hon. Friends that these should be done only through allowances, which will merely mean a further compression of net differentials?

No, Sir. I think that the hon. Gentleman is wrong in complaining that the figures are given in real terms. That is the only proper basis for comparison. He will also appreciate that his question was extremely inaccurately phrased because households as a unit do not pay tax. The answer, therefore, cannot take into account the benefits for families of family allowances and child benefit.

Is it not the case that, despite the changes made in the last Budget and the last mini-Budget, the total revenue this year is expected to he £300 million higher than last year?

That may very well be the case, but I cannot see what point the hon. Gentleman seeks to make. My right hon. Friend's proposals reduce the burden of direct taxation, as we said we would do.

Foreign Loans


asked the Chancellor of the Exchequer if he has any plans to accelerate repayment of foreign loans to the United Kingdom.

We have made a start on a modest programme of early repayment of nationalised industry foreign debt. The possibility of expanding this programme is kept under review.

Will the Minister say why, during the second quarter, the Government borrowed from the IMF standby when, in fact, the reserves were rising?

The hon. Gentleman will know, as my right hon. Friend has announced, that the next tranche is not to be taken because of our very strong reserve position. The standby remains in place until the end of next year.

Sterling Finance(Third Country Trade)


asked the, Chancellor of the Exchequer if he will now rescind the prohibition of the use of sterling finance for third country trade, introduced in November 1976; and if he will make a statement.

I do not think that the time has come to consider any restoration of this particular use of sterling in international trade.

There is a very good reason. United Kingdom merchants and banks are already doing very nicely as the matter stands.

Gross Domestic Product And Incomes


asked the Chancellor of the Exchequer if he is satisfied with the growth of gross domestic product and the trend of net disposable incomes since he became responsible for economic management.

No, sir. The rise in the price of oil and the world recession have substantially depressed our real national and personal disposable incomes. However, we have now established a basis for rising living standards.

Is it not clear that the whole of the Cabinet is united in its conviction that the standard of living of the ordinary man in the United Kingdom has fallen, and fallen substantially, since the last General Election?

The hon. Gentleman makes all kinds of statements. I shall have to think about the one he has just made, because if the hon. Gentleman cares to look at such items as the social wage, which has risen considerably—[Hon. Members: "Oh. "] Certainly it has. I am not sure whether Conservative Members would have preferred it to decline. The standard of living of large numbers of our people depends on the social wage.

Textile Industry


asked the Prime Minister if he is satisfied with the Government's progress in dealing with the problems of the textile industry.

I fully appreciate the concern about the future of the textile industry. The Government are providing a great deal of practical help to the textile industry by limiting low-cost imports, by providing financial assistance to encourage modernisation, and by payment of temporary employment subsidy. We shall continue to keep the position under close review.

Will my right hon. Friend accept that, thanks to the tough stance taken by the Government, continued in the EEC through the renegotiation of the Multi-Fibre Arrangement, textile workers in the North-West can look forward, for the first time since 1952, with some hope in the stability of the industry? However will my right hon. Friend turn his mind to the short-term crisis faced by the industry betwen the renegotiation and the implementation of the MFA? In particular, will he consult his colleagues about a continuation of the temporary employment subsidy beyond the present termination date, the development of a proper strategy for public purchasing, and the use of National Enterprise Board funds in the industry in the North-West?

I am grateful for what my hon. Friend has said about the long-term stand of the Government on textile imports. I agree that it offers some hope of stability, provided the European Economic Community maintains the stance that it has begun in its bilateral negotiations.

I take note of what my hon. Friend said about public purchasing. There is a standing instruction to Departments in respect of that. The temporary employment subsidy is of great value because more than 40,000 workers are now being supported in the textile industry. Their jobs are being protected by the TES, as well as the jobs of nearly 40,000 workers in the clothing industry. Certainly that subsidy could not be phased out without great damage to the industry. Whatever happens, therefore, that assistance will go on in some form or other.

Finally, I say to my hon. Friend that I hope that he will aquaint his constituents, indeed workers in both Lancashire and Yorkshire, with the Opposition view as expressed by the right hon. Member for Leeds, North-East (Sir K. Joseph) on Tuesday, namely, that rescues and subsidies do great harm. Everybody should know the Opposition view. It would mean that 80,000 jobs would go when they abolished the subsidy.

Does the Prime Minister agree that the best way for the textile industry to survive is for it to face fair competition? Supporting the point made by the hon. Member for Rossendale (Mr. Noble), is it not wrong that successive Governments, including the right hon. Gentleman's Government, have allowed the import penetration from Third World and other underdeveloped countries to undermine one of the most strategically important industries of this country? Will the right hon. Gentleman give an assurance to the House that his Government will maintain a robust attitude in renegotiation of the MFA?

Thanks in large part to my right hon. Friend the Secretary of State for Trade, the EEC has said that it will not renew the Multi-Fibre Arrangement in December unless the results of the negotiations are satisfactory. We shall certainly do our best to ensure that that is so. I think that the Community is being tougher in some respects, and this seems to be of value in the long term.

Although the hon. Gentleman mentioned the Third World, I want to draw a distinction between some of the developing countries in the Third World and others, which I shall not name for the moment, which are taking advantage of the situation.

Will my right hon. Friend note that people in the Yorkshire trade take careful note of statements from wherever they come? Will he make representations at a very high level to the United States Government requesting them to remove the unfair ad valorem tax on imported woollen cloth?

It would be preferable if that were put as a Question to my right hon. Friend, but the matter has been the subject of discussion with the United States. I have personally drawn attention to it, and I shall draw my right hon. Friend's attention to what my hon. Friend has said.

Tuc And Cbi


I am frequently in touch with representatives of the TUC and CBI, both at the NEDC and on other occasions. Further meetings will be arranged as necessary.

On the question of industrial action to breach the Government's pay policy, has the Prime Minister seen today's ORC poll with its significant figure of nearly 90 per cent. public support for the Government's policies? Does he agree that these people are now fighting the wrong battle and that what they should do now is to switch their attack from the Government's policy to the problems of productivity? In that way, everyone would benefit.

My attention was drawn to that poll, which is one of the most astonishing and remarkable that I have seen in many years, if it is accurate, namely, that the overwhelming proportion of the people of this country, as I have always believed, do not want to see anything more than moderate wage and earnings increases in the course of the current year. That reinforces the Government's stand. I have always said that, in the last resort, we must depend on public opinion to support us.

While I welcome that support and would do nothing to discount it, I think that it would be wrong if we were to create an atmosphere of tension with many groups—I shall name none of them —who have serious difficulties about the situation. They have genuine claims, and we should recognise that fact. Certainly the Government will do nothing to provoke or inflame public opinion against them. I ask them to recognise that it is in the general interest, which includes their interest, that there should be moderation during the next 12 months.

As at every opportunity the Prime Minister asks for support for what he calls the battle of Britain, will he now tell us what he thinks of the statement of the Leader of the House, when an official Opposition spokesman, in February 1974:

" A victory for the miners would be a victory for the nation."?
Does the Prime Minister now think, with hindsight, that that was in the national interest?

History will no doubt adjudicate on these matters. I am concerned to win this battle—and I am winning it for the hon. Gentleman as much as for anyone else.

Will it not damage the Government's campaign for a realistic approach to earnings over the next 12 months that there has been a dispute about the fall in the standard of living since 1974? Would it not be helpful if the Prime Minister were to publish in Hansard a comparative study not only of take-home pay but of the social wage, which is a vital factor in reinforcing the standard of living of every worker in the country?

The hon. Member for Chingford (Mr. Tebbit), in his usual diligent way, has asked me a Question about this today, which I shall be answering. I have had some correspondence with him, which I suppose he has received. He and I are probably agreed at least about the hypothesis from which we start. I have never denied that there has been a fall in the standard of life.[HON. MEMBERS: "Oh."] Perhaps hon. Members had better wait to see the correspondence I have had with the hon. Member for Chingford. What I have said, what I repeat and what I stand by, is that when one takes account of child benefits and family allowances, the tax and national insurance paid by the average family man are in real terms, the same this year as in 1974. That is what I have said and that is what I stand by.

Since public opinion is mustering behind the pay policy of the Government, as revealed by this opinion survey, will the Prime Minister, when he next meets the TUC and the CBI—that being what the Question is about—reinforce an appeal to them to stand by the policy as well?

The TUC, I think, by its recent statements and, indeed, by its statement yesterday about the 12-month rule, is making a significant contribution in this respect. I shall be happy to discuss this matter with the CBI. We are passing through choppy waters, and some water is slopping over the side. But that is no reason to be deterred or to say that we shall be defeated, because we shall not. I should welcome discussions with the TUC or, indeed, with anybody else on the matter to try to arrange maximum public support for what is a national battle.


asked the Prime Minister what consultations he has had recently with the TUC.

I refer my hon. Friend to the reply which I gave to the hon. Member for Hazel Grove (Mr. Arnold) on 8th November.

Does my right hon. Friend agree that the considerable financial progress that we have made during the past two years has been due to the cooperation that we have had from the trade union movement? In view of the present difficult situation, in which many groups of workers consider themselves to be special cases, will he seek an early meeting with the TUC to see whether it can co-operate with the Government to try to get us out of the difficult period through which we are passing?

Yes, of course. I am always ready to meet the TUC or any of the leaders of the trade union movement. But I should not want to put them in the position of being asked to do more than they can deliver. We must get all the help we can, but this is a battle that public opinion and the Government themselves have to fight, and I do not want to put trade union leaders in opposition to their own members on these matters. If I can get any support and help from them, and if conversations with them would lead to that, I shall certainly try to do that.

Does the Prime Minister recall campaigning for his hon. Friend the Member for Aberdare (Mr. Evans) in February 1974 and saying that Labour backed the miners all the way? Does he also remember saying at that meeting that to fight inflation by resisting such pay claims was utter drivel? When did he change his mind?

At the present time—I hope that one day the right hon. Lady will see this—the best way to back the miners is to reduce the rate of inflation, and the best way to reduce inflation is to prevent prices going up dramatically because of large wage increases in industries where wage costs bear a very heavy load. That is the position today, as it always has been.

The Prime Minister cannot transfer supplementary questions as he can transfer substantive Questions. Will he, therefore, answer the question?

Does the Prime Minister recognise that the whole country will be behind him in the statement he made in reply to an earlier supplementary question to the effect that the Government would do nothing to provoke the miners and others? Is he aware, however, that the Government have done something to provoke me, anyhow, and, I suspect, a lot of people in the country. Has he noted the rough language that some of the trade union leaders directly concerned in these negotiations have used with regard to the advances given to the public firm at the west end of the Mall? How can he justify giving them something that exceeds the Government's pay guidelines?

The position about the Civil List is that a large amount of it—at least two-thirds—is made up of wages and salaries, often of lowly-paid people. All those wages and salaries have been kept within the guidelines over the past two years. I am grateful for that, and it is right that it should be so. The rest of the expenditure is largely accounted for by the Silver Jubilee celebrations and other issues during this year, during which the population has expressed a view that is totally opposed to that of my hon. Friend.

In view of the interest of the Wales TUC and the Scottish TUC in the matter, will the Prime Minister say whether the Wales Bill, the Scotland Bill and the two timetable motions on those two Bills, soon to be debated, will be regarded by himself as an issue of confidence and, if any of them are lost, whether he will call a General Election?

That is an interesting question, but I do not propose to discuss it when I meet the TUC.