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National Finance

Volume 973: debated on Thursday 8 November 1979

The text on this page has been created from Hansard archive content, it may contain typographical errors.

Cash Limits

1.

TABLE 1
CENTRAL GOVERNMENT ASSIMILATED BLOCKS (4)

Class and Vote number (1)

Accounting Department

Description of expenditure

Percentage of wages and salaries in cash limit (3)

I1Ministry of DefencePay etc. of armed forces and civilians, stores, supplies and miscellaneous services75
I2Ministry of DefenceDefence procurement5
I4Department of the Environment (Property Services Agency)Defence accommodation services10
I5Ministry of DefenceDefence dockyard services55
II1*Foreign and Commonwealth OfficeOverseas representation: diplomatic and consular services65
II2Department of the Environment (Property Services Agency)Overseas representation: accommotion services0
II3Foreign and Commonwealth OfficeBritish Broadcasting Corporation external services55
II4Foreign and Commonwealth OfficeBritish Council35
II5Foreign and Commonwealth OfficeForeign and Commonwealth services0

for the total wage and salary component included under each public expenditure cash limit.

I will arrange for a table to be published in the Official Report.

Can my right hon. Friend confirm that the Government will at no stage put forward proposals to increase the cash limits to accommodate wage settlements in excess of the payroll assumptions set out in those limits?

If the right hon. gentleman is setting a cash limit including pay, will he count that as a pay norm?

No. The statement last week on the public spending White Paper indicated that the figure would refer to cost increases rather than to specific wage increases.

Is it not the case that in large areas of the public sector a cash limit on wages is, in effect, an incomes policy? If the Government are running a public sector incomes policy under the guise of cash limits, they should say so clearly.

Nothing about the Government's cash limits policy bears any comparison with the statutory control of wages undertaken by the previous Government.

Following is the table:

Class and Vote number (1)

Accounting Department

Description of expenditure

Percentage of wages and salaries in cash limit (3)

II8Cabinet OfficeSecret serviceN/A
II10Ministry of Overseas DevelopmentOverseas aid0
II11*Ministry of Overseas DevelopmentOverseas aid administration65
III5Ministry of Agriculture. Fisheries and FoodOther agricultural and food services0
III7*Intervention Board for Agricultural ProduceCentral administration30
III8Ministry of Agriculture. Fisheries and FoodSupport for the fishing industry0
III9Forestry CommissionForestry5
III10*Ministry of Agriculture. Fisheries and FoodDepartmental administration85
IV2Department of IndustryMiscellaneous support services0
IV4Department of TradePay, general administrative expenses, export promotion and trade, co-operation, tourism, regulation of trading practices and other support services50
IV7Department of IndustryScientific and technological assistance15
IV8Department of EnergyIndustrial support0
IV9Department of EnergyScientific and technological assisance, nuclear energy65
IV11*Export Credits Guarantee DepartmentCentral services90
IV13Department of Trade: Consumer AffairsPay, general administrative expenses and consumer protection35
IV14*Friendly Societies RegistryPay and general administrative expenses(2)
IV15*Office of Fair TradingPay and general administrative expenses80
IV16Department of EmploymentLabour market services0
IV18*Department of EmploymentAdvisory, Conciliation and Arbitration Service50
IV19Department of EmploymentManpower Services Commission25
IV22*Department of EmploymentDepartmental administration(2)
IV23*Department of IndustryCentral and miscellaneous services(2)
IV24*Department of EnergyAdministration and miscellaneous services(2)
IV25Department of EmploymentHealth and Safety Commission50
VI3Department of TransportRoads etc., England0
VI4Department of TransportTransport services0
VI6Department of TradeShipping and civil aviation services15
VII7*Department of TransportCentral and miscellaneous services(2)
VIII4Department of the EnvironmentCentral environmental services etc.10
VIII6Department of the EnvironmentRoyal palaces, royal parks, historic buildings and ancient monuments20
VIII7*Department of the EnvironmentCentral administration and environmental research70
IX1*Lord Chancellor's DepartmentAdministration of justice: England and Wales(2)
IX13*Treasury SolicitorPay and general administrative expenses90
X4Department of Education and ScienceUniversities etc.60
X6Department of Education and ScienceEducational Services0
X9Department of Education and ScienceLibraries, England40
X11*Department of Education and ScienceCentral administration services90
X12Department of Education and ScienceAgricultural Research Council45
X13Department of Education and ScienceMedical Research Council50
X14Department of Education and ScienceNatural Environment Research Council55
X15Department of Education and ScienceScience Research Council10

Class and Vote number (1)

Accounting Department

Description of expenditure

Percentage of wages and salaries in cash limit (3)

X16Department of Education and ScienceSocial Science Research Council15
X17Trustees of the British Museum (Natural History)British Museum (Natural History)90
X18Department of Education and ScienceOther science etc.0
X19Trustees of the British MuseumBritish Museum70
X20Department of Education and ScienceScience Museum65
X21Department of Education and ScienceVictoria and Albert Museum55
X22Trustees of the Imperial War MuseumImperial War Museum75
X23Trustees of the National GalleryNational Gallery30
X24Trustees of the National Maritime MuseumNational Maritime Museum70
X25Trustees of the National Portrait GalleryNational Portrait Gallery50
X26Trustees of the Tate GalleryTate Gallery50
X27Trustees of the Wallace CollectionWallace Collection90
X30Department of Education and ScienceArts Council and other grants5
XI1Department of Health and Social SecurityHealth and personal social services, England75
XII4*Department of Health and Social SecurityAdministration and miscellaneous services(2)
XIII3*Privy Council OfficePay and general administrative expenses90
XIII4*TreasuryPay and general administrative expenses80
XIII5*Customs and ExcisePay, general administrative expenses and capital expenditure90
XIII6*Board of Inland RevenuePay and general administrative expenses90
XIII7*Department of TransportDriver and vehicle licensing55
XIII9*Exchequer and Audit DepartmentPay and general administrative expenses(2)
XIII10*National Debt OfficePay and general administrative expenses(2)
XIII11*Public Works Loan CommissionPay and general administrative expenses(2)
XIII12*Department for National SavingsPay and general administrative expenses60
XIII15Civil Service DepartmentCentral management of the Civil Service70
XIII16*Public Record OfficePay and general administrative expenses(2)
XIII18*Office of Population Censuses and SurveysPay and general administrative expenses(2)
XIII20*Land RegistryPay and general administrative expenses75
XIII22*Charity CommissionPay and general administrative expenses90
XIII23*Ordnance SurveyPay, general administrative expenses and capital expenditure(2)
XIII24*Cabinet OfficePay and general administrative expenses90
XIII28*Parliamentary Commissioner and Health Service CommissionersPay and general administrative expenses90
XIII29*Public TrusteePay and general administrative expenses(2)
XIV1Department of the Environment (Property Services Agency)Office and general accommodation services5
XIV2*Department of the Environment (Property Services Agency)Administration and miscellaneous services60
XIV3Stationery OfficeStationery and printing35
XIV4Civil Service DepartmentComputers and telecommunications10
XIV5Central Office of InformationPublicity and departmental administration20

Class and Vote number (1)

Accounting Department

Description of expenditure

Percentage of wages and salaries in cash limit (3)

XIV8*Government Actuary's DepartmentPay and general administrative expenses(2)
XIV9Civil Service DepartmentCivil Service catering services(2)
XIV10*Paymaster General's OfficePay and general administrative expenses70
XV2Northern Ireland OfficeLaw, order and protective services15
XV3*Northern Ireland Court ServicesAdministration of justice: Northern Ireland80
XV4*Northern Ireland OfficeCentral and miscellaneous services55
XVII1Department of the EnvironmentRate support grant and supplementary grants to local authorities0
XVII10*Crown Estate OfficePay and administrative expenses90
XVII14Department of TransportTransport supplementary grants: England and Wales0

TABLE 2
CENTRAL GOVERNMENT UNASSIMILATED BLOCKS(4)

Accounting department

Cash block (1)

Description of expenditure

Percentage of wages and salaries in cash limit (3)

Home OfficeHO1*Pay and general administrative expenditure80
Home OfficeHO2Law, order and protective services0
SCOTLAND
Scottish OfficeSO1*Pay and general administrative expenses75
Scottish OfficeSO2Rate support grant for local authorities in Scotland0
Department of Agriculture and Fisheries for ScotlandDAFS1Agricultural services and fisheries support5
Scottish Courts AdministrationSCA1*Pay and general administrative expenses85
Scottish Development DepartmentSDD1Motorways, trunk roads and other environmental services5
Scottish Economic Planning DepartmentSEPD1Regional and industrial development5
SEPD2Manpower Services Commission0
Scottish Education DepartmentSED1Education, libraries and arts5
SED2Social work0
National Library of ScotlandSED3National Library of Scotland70
National Galleries of ScotlandSED4National Galleries of Scotland45
National Museum of Antiquities of ScotlandSED5National Museum of Antiquities Scotland60
Scottish Home and Health DepartmentSHHD1Health65
SHHD2*Law, order and protective services (central support and other services)55
Department of the Registers of ScotlandDRS1*Pay and general administrative expenses(2)
Registrar General's Office, ScotlandRGO(S)1*Pay and general administrative expenses(2)
Scottish Record OfficeSRO1*Pay and general administrative expenses(2)
Queen's and Lord Treasurer's RemembrancerQLTR1*Pay and general administrative expenses95

Accounting department

Cash block (1)

Description of expenditure

Percentage of wages and salaries in cash limit (3)

WALES
Welsh OfficeWO1*Pay and genera administrative expenses0
WO2Health and personal social services, roads, education, libraries, arts, other environmental services and agriculture55
WO3Regional and industrial development0
WO4Manpower Services Commission0

Notes:

(1) Central responsibility for expenditure control is exercised by the Treasury and the Civil Service Department, depending on the nature of the expenditure concerned. Blocks controlled by the Civil Service Department are indicated by an asterisk.
(2) In certain cash limits, indicated by this footnote, the total of wages and salaries expenditure exceeds the cash limit, which is based on expenditure net of receipts.
(3) Percentages are given rounded to the nearest 5 per cent.
(4) Tables 1 and 2 both relate to cash limits on central Government voted expenditure. The cash limits on the capital expenditure of local authorities and other bodies contain little pay. The limits on nationalised industries relate to their external financial requirement.

National Savings Certificates

2.

asked the Chancellor of the Exchequer if he will seek to change the present ineligibility of males between the ages of 60 and 65 years to hold retirement issue National Savings Certificates.

The terms and conditions of all National Savings media are regularly reviewed, and the age qualification and any other proposals received for this issue of certificates will be considered in due course.

I am grateful for that reply. Will my hon. Friend look at this proposal as a matter of urgency? Will he recognise that the proposal meets three criteria supported by the Government? These are, first, that we all want to encourage savings; secondly, that the proposal would not initially cost a penny; and, thirdly, that in an age of sex discrimination, it recognises that men have equal rights with women.

I shall be glad to look seriously at the proposal, as my hon. Friend suggests. However, I believe that when this instrument was introduced, the previous Administration felt that it might be simpler if post offices, where most of the certificates are brought, were to apply the same age limits as for old-age pensioners.

Will the hon. Gentleman accept that the simplest option is to move towards sex equality and allow men to retire at 60? Will he take note of the latest figures produced by his right hon. Friend the Secretary of State for Social Services? They show that the cost of reducing by one year the pensionable age for men would be only about £200 million.

I am glad to tell the hon. Gentleman that sex equality is not one of the Treasury's many responsibilities.

I declare an interest in this case. I am not particularly keen on legal sex equality, but I cannot see why I am not allowed to lend to the Government in the same way as my wife is.

My hon. Friend is welcome to lend to the Government, and there are many instruments available to enable him to do so. However, when this scheme was introduced by the previous Administration it was felt that it would be easier, in order to reduce misunderstandings about the qualifying age, to have the same age limits as those applying to the old-age pension. I shall be happy to look at the matter again.

Will the hon. Gentleman assure us that he will consider the matter seriously and urgently? With inflation rising rapidly towards 20 per cent., and clearly out of control, does he agree that his Government have an additional obligation to protect the savings of the elderly?

I do wish that the right hon. Gentleman, who has been a Treasury Minister in his time, would not take such pleasure in exaggerating the rate of inflation.

Currency (Purchasing Power)

3.

asked the Chancellor of the Exchequer by how much the purchasing power of the half pence coin has depreciated since February 1971; how much the penny is now worth in relation to the penny coin in February 1971; and if he will now demonetise the halfpenny and two-and-a-halfpenny coins.

The purchasing power of the ½p coin has fallen by two-thirds since 1971. It follows from this that the purchasing power of the 1p coin now is two-thirds that of the ½p in 1971. I have no plans to demonetise the ½p coin, which is still in strong demand. On the other hand, the old sixpence has effectively dropped out of use and the question of its demonetisation is now under review.

Will my hon. Friend accept that the ½p coin has been reduced to the role of a supermarket gimmick, which is an irritation both to the housewife and the shopkeeper? Has not the time come when we should face the fact that the housewife would be better served by a discount on a special offer at 49p, for example, rather than one at 49½p?

This is a matter of judgment, but there is a continued demand by the banks for this coin, which does not really support what my hon. Friend suggests. I understand that during this financial year the Mint expects to strike more than 200 million ½p coins in response to the demand from the banks.

Would not the housewives of the country be better served if the Government reversed their policies of increasing inflation so that the value of our money remained static?

The Government's policies are precisely directed to bringing down inflation.

Does my hon. Friend realise that to one hon. Member at least his answer is extremely disappointing? Will he confirm that the ½p coin is now worth little more than a farthing was in 1961 when it was abolished? That was 10 years before decimalisation. Will he also confirm that production costs of the coin now exceed its face value? If savings are to be made, why not in this area? Would not my hon. Friend wish to go down in history as the Minister who abolished the absurdity of a vulgar fraction in our currency and removed us from a league of countries with fractional coins, which includes Ghana, Nigeria, Sierra Leone and the Irish Republic?

My hon. Friend is wrong on at least two counts. The cost of striking the ½p coin is less than so there is still a profit in it. Secondly, the one cent coin that is still in currency in the United States is worth less than the ½p here. However, I am glad to hear my hon. Friend's assurance that I will go down in history.

Will the Minister arrange for some professionals to work out the purchasing power of half of the pound note that the Prime Minister spoke about during the election campaign. Will he make a statement to the House on this matter?

My right hon. Friend the Prime Minister was at that time making the real point that under the previous Administration the value of the pound had halved. In fact, it had gone down to less than half. This points to the mockery of right hon. and hon. Gentlemen on the Labour Benches attacking the Government. We are getting inflation down, although many difficulties are involved in tackling the problems that we inherited from the previous Government.

Is it not the case that the Government increased the cost of living by 4½ per cent. at a stroke in their last Budget and that the increase in the mortgage rate, which is now inevitable in January, as the Prime Minister has admitted, and the increases in fares, fuel charges, rents and rates guarantee that we shall have more than 20 per cent. inflation in the new year?

Financial Targets

4.

asked the Chancellor of the Exchequer what further consideration he has now been able to give to the establishment of medium-term borrowing and monetary targets; and with what results.

I am considering whether there would be advantage in formulating more precisely the Government's longer-term monetary objectives which I set out in my reply of 19 July to my hon. Friend.

Will my right hon. and learned Friend bear in mind that the publication of objectives showing a steady decline over the years ahead in monetary targets, and a commensurate decline in the public sector borrowing requirement, might well be a considerable reinforcement of the Government's central camgaign to beat inflation? Can he assure the House that it remains his intention that in the next financial year the PSBR will have a lower target in money terms than it had this year?

I am grateful to my hon. Friend for reminding me of arguments that are certainly valuable and important. The PSBR for next year will be announced at the appropriate time. I assure my hon. Friend that it will be consistent with the Government's policy of securing a reduction in the rate of growth of the money supply.

Is my right hon. and learned Friend satisfied with the present method of measuring and controlling the money supply? Is he yet in a position to express a view about suggestions that have been made for moving to a monetary-based system of control?

My hon. Friend will appreciate that all those who are concerned with the management and measurement of the money supply are constantly aware of the imperfections of the instruments of measurement and seek to improve them. One of the suggestions for improvement that is under consideration is the one to which he has referred.

Is it not the case that the PSBR next year is bound to be higher than this year unless there is a substantial increase in taxes in the next Budget? That being the case, is it not necessary, according to Conservative philosophy, for money supply targets to be higher next year than this so that there is no inconsistency between the Government's borrowing and monetary policies?

The right hon. Gentleman must wait and hear what is announced in due course. If his diagnosis is already to the effect that next year's PSBR will have to be substantially increased, I hope that I can look forward to his enthusiastic support in our plans for the reduction of public spending next year.

Does my right hon. and learned Friend agree that the publication of these targets is necessary to reassure the public that the first objective of the Government is to control inflation, particularly as recent figures show that the money supply, as widely defined, and including commercial bills, is growing at about 16 per cent. a year?

My hon. Friend draws attention to a significant argument in favour of what has been suggested. However, it is not the only argument to be taken into account. My hon. Friend can rest assured that the Government are determined to bring and keep the money supply under control. The latest figures suggest that it may take longer than we anticipated to bring down the massive rate of growth of the rate of money supply that we inherited from the previous Government.

Is the Chancellor of the Exchequer conscious of the fact that we are once again approaching the "Grand Old Duke of York" syndrome? In effect, the money markets are such that the money supply is increasing not by 16 per cent. but by 17 per cent., including accommodation credits, and that we are on the verge of round-tripping, which will further increase the money supply. Is the right hon. and learned Gentleman aware that by next week, if he intends to finance his PSBR this year, he will, in effect, have to raise the minimum lending rate? When will he do something about the gilt-edged market in order to bring some sense into the situation in which we are confronted with new crises every six months?

It is unwise to speculate on future changes in the rate of interest. That depends on a number of factors. The hon. Member knows that the figures for any one month are bound to be erratic. He will understand that by far and away the most important contribution that can be made to bring all these factors under control is an effective reduction in the size of the public sector as a proportion of gross domestic product.

Is the Chancellor aware that if, as a result of a consideration of medium monetary objectives, he were to adopt the practice of fixed advance public monetary targets he would be adding to the commitments in his party manifesto and creating an unsustainable burden for his office?

I always listen attentively to advice from the hon. Gentleman—but not too attentively.

International Monetary Fund (Substitution Account)

5.

asked the Chancellor of the Exchequer what is his policy towards the United States' proposal within the International Monetary Fund for a new substitution account or fund, and if he will make a statement.

If the practical problems involved in setting it up can be overcome, a substitution account of the kind proposed by the managing director of the IMF could in principle make a limited but useful contribution to the stabilisation of exchange rates. Detailed proposals have, however, yet to be formulated and considered.

Does that mean that Her Majesty's Government support this arrangement in principle? Does the Chancellor agree that we need an internationally acceptable currency reserve system that does not depend upon the vagaries of the economy of any one country?

As I told the conference of the IMF in Belgrade, provided that the practical problems involved in setting up a substitution account of this kind are solved it could, in principle, make a limited but useful contribution to the stabilisation of exchange rates.

The limit of the contribution depends entirely upon the size of the account. Does the Chancellor agree that if the Government were to press as many other Governments have done, for an account that starts at at least £10 billion SDR and rises rapidly to £50 billion, that would make quite a substantial contribution?

The answer to the question is that it depends upon the size of the account, although, as the right hon. Gentleman knows, there are many other factors to be considered.

Capital Gains Tax

6.

asked the Chancellor of the Exchequer what representations he has received to extend relief from capital gains tax to private houses owned by landlords of licensed premises and others who are required, as a condition of their employment, to reside at their place of work.

An employee required to live at his place of work who owns a house which he intends in due course to occupy is entitled to relief from capital gains tax if he sells that house. Landlords of licensed premises employed by breweries are covered by this rule. I have received one representation asking for it to be extended to self-employed landlords.

Does my right hon. Friend agree that it is unfair that someone who is debarred by the terms of his employment from ever occupying the house that he needs for his retirement should find himself subject, at some later stage, to capital gains tax? Will my right hon. Friend review the situation?

There are real problems of definition in respect of the self-employed, but I give an undertaking that the matter will be reviewed.

In the light of the continued reduction in the availability of private rented accommodation, particularly for single people, will my right hon. Friend consider exempting from capital gains tax those residential landlords who let part of their premises?

That is extending the issue somewhat, and any Chancellor will wish to protect his revenue base in the next Budget.

Exchange Controls

7.

asked the Chancellor of the Exchequer what estimate he has made of the net effect of industrial investment in Scotland as a result of his decision to abolish exchange controls.

25.

asked the Chancellor of the Exchequer what is his estimate of the effect of the abolition of exchange controls on investment in United Kingdom manufacturing industry.

The removal of controls is likely to benefit industrial investment at home. Overseas investment helps our exports and strengthens our international trading position. The effects cannot, however, be quantified.

If the Chancellor is so confident that the effect will be beneficial, and if the reverse turns out to be the case—with a consequent net outflow of capital investment—will he guarantee that the outflow of private capital investment will be replaced by public investment? If he will not give that guarantee, will he explain why?

I do not give that guarantee because the experience of recent years does not suggest that the answer to our problems lies in an expansion of public investment. Much public investment has been used to little avail in terms of real return. The answer to our problems lies in the creation of conditions that are hospitable for successful and effective private investment. The Government are doing that.

If the Chancellor is so confident about the effects on investment of the abolition of exchange controls, will he explain two things? First, will he explain the projection by his Department on 29 October—leaked in the Financial Times—that over the next four years production in metal using and vehicle producing industries will decline by over 20 per cent? Secondly, will be explain why, since his announcement of the abolition of exchange conrols the Financial Times index has gone down by over 60 points? Is he aware that it is suggested in most of the financial journals that companies fear that money that should be used on investment in this country will be diverted abroad?

The hon. Gentleman's diagnosis on the last matter is entirely at fault. I do not know about the forecast that he has quoted, but if he believes that any forecast that points to a decline in the production of motor vehicles, or anything else, in this country in the years ahead is attributable to an announcement about the relaxation of exchange controls made only a few days ago, he will believe anything.

The hon. Gentleman must surely understand that the reduction experienced in the production of motor vehicles in this country was due not to Government gestures of that sort but to the continuing inability of some sections of the motor industry to achieve sensible patterns of industrial relations to enable them to compete with imported vehicles.

Will my right hon. and learned Friend confirm that there has never been a shred of evidence that industrial investment in Scotland has been seriously inhibited by a shortage of finance? Does he agree that the problem has been a lack of profitable opportunities?

Is it not serious that the problem of exchange controls is not quantifiable? Does the Chancellor agree that that is hardly surprising, since British banks and their subsidiaries can now lend abroad without the Bank of England knowing? Is not this a serious state of affairs?

It is a serious state of affairs only to those who seek to govern the country by attempting to gain knowledge of everything that happens. That is not possible. The hon. Member would do well to remember that the catastrophic economic conditions experienced under the previous Government developed as a result of their policies and had nothing whatever to do with the existence, or otherwise, of exchange controls.

Will my right hon. and learned Friend comment on a statement made by Sir John Methven, updating Professor Reddaway's report, that, with few exceptions, investment overseas will always encourage British industry and is likely to increase production and jobs?

I agree with that. The analyses that have been made of the likely impact of investment overseas have shown that the main reasons for decisions to invest overseas were related to the creation and expansion of overseas markets. In most cases such investment has been seen to stimulate our exports.

Is it not true that a side effect of the abandonment of exchange controls by the Government is the difficulty in controlling the money supply and the resulting pressure of interest rates created by that abandonment? Does the right hon. and learned Gentleman agree that if MLR rises next week, as is likely, one of the reasons for that will be the abandonment of exchange controls?

The right hon. Gentleman should not speculate on interest rate movements. Surely he appreciates that there are many other factors, of far greater significance, affecting this matter. They include, for example, the sharp upward movement in interest rates in the United States.

Fiscal Policy

8.

asked the Chancellor of the Exchequer why he deems it necessary to equate national expenditure with national income.

Any attempt by the nation to spend above its income is likely to lead either to a worsening current balance of payments and higher overseas debts or to a lower exchange rate and faster inflation. Neither is a viable course in the long run.

Has not my hon. Friend merely identified the situation that pertained when the Government took office, namely, that the previous Government were spending more money than the nation was earning? Does he agree that most people dislike the taste of the medicine as it goes down but know perfectly well that what the Government are doing is the only means of reversing the economic course upon which the previous Government set the nation?

Does the Minister recall that under the previous Administration some of us below the Gangway advocated that the PSBR should be equated, in percentage terms, to the gross national product, taking into account inflation? We argued that the rise in PSBR should be calculated on that basis. Since PSBR will rise again this year, and thus fail to pacify Tories both in Parliament and in the country, may we have a categorical assurance that the Chancellor and his fellow Ministers will not use the argument about calculating PSBR as a percentage of the GNP?

The hon. Gentleman was a persistent critic of the previous Government. I know of his keen interest in the public sector borrowing requirement. As my right hon. and learned Friend the Chancellor of the Exchequer has said, we shall make an announcement about the PSBR for the forthcoming year at the appropriate time.

Economic Growth

9.

asked the Chancellor of the Exchequer whether he is satisfied with the progress of the economy.

I shall not be satisfied with the progress of the economy until our industrial performance has improved, the rate of inflation has been brought down and sustainable long-term growth has been resumed.

Does the Chancellor of the Exchequer agree that the economic outlook is grim? Inflation has risen by 6 per cent. since the general election, the Government forecast that there will be 300,000 more unemployed by the end of the next financial year, the interest rate is likely to rise and the CBI predicts an economic recession. Is it not time that the Government made up their mind, took their courage in both hands and put the country first, by changing their policies?

I admire the enthusiastic fortitude of the hon. Gentleman urging us to change our policies. He might have noted that the CBI, when commenting on the difficult economic circumstances that lie ahead, made it clear that it looks for no change in policy. It recognises that our policies are necessary to correct the economic decline caused by the previous Administration. It is remarkable that in all the flannel from the Opposition and the demands for the Government to change their policies we have no evidence that the Opposition have a constructive alternative to offer.

In order to reduce the percentage of gross national product taken up by the public sector, will my right hon. and learned Friend consider putting a ceiling on inflation-proof pensions in the public sector? Does he agree that they are likely to accelerate in the next decade?

My hon. Friend assumes that inflation will continue to accelerate in the next decade. I do not accept that. I recognise that attention should be given to the recommendations made by the Expenditure Committee on the way in which and the basis on which the cost of inflation-proof pensions should be paid for by those involved.

Since it is many months since the Chancellor's incentive Budget, does the right hon. and learned Gentleman yet detect any sign of national revival as a result of his incentive policies?

If the right hon. Gentleman were to travel round the country, as I do, he would find many firms, workers, employers and many who have returned to the country since the Budget—[HON. MEMBERS: "Who has returned?"]—who see a great deal more sense now in taking decisions to invest, expand and take risks than they did under the previous Government.

The CBI has indicated its satisfaction with the Government's policies. Is my right hon. and learned Friend satisfied with the response from industry in terms of investment, following his incentive Budget?

It is not appropriate for me to criticise, attack or pass judgment on the scale of response. My hon. Friend must realise that decisions to invest, on the future of businesses and on movements in the pattern of the economy take place over a long period. I am satisfied that there is a great deal more optimism about the future of the economy now than there was before the last election.

Does the Chancellor of the Exchequer agree that the CBI is not putting its money where its mouth is? Is the right hon. and learned Gentleman aware that the CBI's last survey of investment intentions showed a collapse in investment, following a collapse of confidence? If the right hon. and learned Gentleman will not listen to his friends in the CBI, will he examine the stock market and watch it giving the thumbs down to his policies?

The right hon. Gentleman is far too enthusiastic in passing judgment on the economy over which he presided until recently. He must recognise that the effective judgment of the CBI on our policies lies in its continued support for the total rightness of those policies in the absence of any alternative being proffered by the Opposition.

Gross National Product

10.

asked the Chancellor of the Exchequer what was the annual average of growth in the gross national product between 1974–5 and 1978–79.

Does not that miserable figure demonstrate clearly the enormity of the task to which my right hon. and hon. Friends have set their hands? Does my right hon. Friend understand that the evidence is overwhelming from all parts of the country that the wealth creators, large and small, are solidly behind the Government's present economic policies?

I am grateful for my hon. Friend's comments. I am sure that the figures demonstrate that last year's public spending White Paper predicated a rate of growth and a rate of increase in public spending that was in no way validated by the experience of the economy under the previous Labour Government.

Does the right hon. Gentleman agree that the outlook for the gross national product in the first two years of this Government's administration is about minus 1 per cent. or possibly minus 2 per cent.? Does he accept that the Government's inflationary policies are driving the country into a deeper and worse recession than is faced by any other country in Europe?

The White Paper published last week states that the immediate prospects for output are poor. That comment would not have been made without careful deliberation. Behind us is a record of facile and easy promises made by the Labour Government. If the country emerges reasonably unscathed from the economic recession, it will be because profitable activities are encouraged and not harassed.

Is my right hon. Friend aware that the previous Government virtually ruined the economy during their five years in office? In view of the need urgently to catch up with other countries, what rate of growth does my right hon. Friend wish to see once the current medicine has begun to work?

I have no particular views about the desirable rate of growth. That is something that industry will tell us, rather than us telling industry.

Will the right hon. Gentleman accept that not only is the immediate prospect of growth poor, but that there is no evidence that over the next four years the growth rate will, on average, be in excess of the 1·5 per cent. that he has mentioned? Will the right hon. Gentleman now reply to the serious question asked by my right hon. Friend the Member for Leeds, East (Mr. Healey) about investment intentions?

I do not want to speculate on the average rate of economic growth during the lifetime of this Parliament. However, I know that, on the whole, politically motivated investment has a poorer record than has business motivated investment.

Value Added Tax (Listed Buildings)

11.

asked the Chancellor of the Exchequer whether he will seek to exempt building works on listed buildings from value added tax?

Is that not a pity, since all changes to listed buildings must be in the form of repairs because no new construction is allowed and VAT bears heavily upon them? Many of those repairs are paid for out of public subscriptions, and more money has to be raised to cover VAT. Is my hon. Friend aware that much of the money is provided by Government grants? Would it not be better to exempt listed buildings from VAT and allow people to raise more money to protect our historic homes?

We are not out of sympathy with the need to help our national heritage, but this is not the right way to do it. If relief were to be given it would give rise to demands for comparable relief on other types of repair work. The tax at stake for zero rating all building repair and maintenance work is as much as £300 million in a full year.

Were not the problems involved made much worse by the increase of VAT to 15 per cent. in the last Budget? Does the Financial Secretary agree that that was a disastrous decision? Will be re-examine the VAT rate, reduce it, and so bring down the rate of inflation?

The right hon. Gentleman has a curiously simpliste view for one who purports to understand monetary policy and the causes of inflation. Does he really believe that the rate of VAT determines the rate of inflation? If so, how does he explain why, when his right hon. Friend reduced the rate of VAT from 10 to 8 per cent., in the following 12 months we suffered the highest rate of inflation—about 35 per cent.—that the country had ever had the misfortune to experience?

Expenditure

13.

asked the Chancellor of the Exchequer what is his latest estimate of the savings arising from cuts in public expenditure.

I refer the hon. Member to the White Paper on the Government's expenditure plans for 1980–81, Cmnd. 7746. published on 1 November.

Any savings in expenditure affect the poor and result in handouts to the wealthy—especially in switching expenditure from education to defence and from health to law and order. Will the Minister tell us the human misery effect in real terms that the cuts will have on the sick, the disabled, the elderly and schoolchildren?

As the premise was a travesty of the facts, I cannot answer the second part of the question.

When my right hon. Friend sees some benefits from the savings in public expenditure, will he consider the impact on families of the increased price of school meals and school transport, as there has been a transfer in money and wealth from families to other sections of the community? When the next Budget comes, will my right hon. Friend ask his right hon. and learned Friend to consider increasing child benefits?

My hon. Friend has asked a formidable question. However, I do not believe that he would suppose that I could seek to forecast my right hon. and learned Friend's Budget for next year.

Will the Chief Secretary clarify the unemployment effects of his public expenditure White Paper, to which he referred last week? He told us that the average number unemployed next year would be 1,650,000, excluding school leavers. Will he confirm, as his forecast shows, that if he includes school leavers the figure will be over 2 million by the end of next year?

The unemployment forecast to which the right hon. Gentleman refers was a working assumption. Any student of the exchanges between the right hon. Member for Leeds, East (Mr. Healey) and the hon. Member for Wolverhampton, North-East (Mrs. Short) will appreciate the distinction between those two terms. As far as there is an impact on levels of employment in the prospective year, it is to be derived not from the public spending White Paper, which predicates stabilised public spending, but from the recession which operates throughout the Western world.

Is my right hon. Friend aware that the most rapid increase in public expenditure revealed by the recent White Paper is in respect of interest rate charges? Has he noted that interest rates in the United States are now at a higher level than when General Lee threatened Washington during the American Civil War and that this is undoubtedly a symptom of an international interest rate war which has largely replaced the international tariff rate wars of previous eras? Is my right hon. and learned Friend the Chancellor contemplating an initiative with OECD countries to prevent any further advance down this road, which must lead to a world depression?

My right hon. and learned Friend is in constant contact with other Chancellors through the medium of OECD and other international institutions. I am sure that he takes my hon. Friend's point to heart.

Does the right hon. Gentleman not realise that just as alarming to the ordinary person is not merely the reduction in expenditure but the increase in charges in the White Paper, which will put up the cost of living considerably, the increases of VAT in the Budget, and the increases in nationalised industry prices still to come? What will be the increase in the retail price index following the White Paper? Does that include or exclude the increases in rates and rents that we now expect?

The increase in the retail price index next year, arising from the items specifically listed in the White Paper, will be approximately 1 per cent.

Avgas

14.

asked the Chancellor of the Exchequer if he has any plans to alter the duty on AVGAS.

The taxation of hydrocarbon oil is kept under review, but my right hon. and learned Friend has no present plans to alter the taxation of AVGAS relative to other hydrocarbon oil.

How does my hon. Friend account for his answer when the duty on AVTUR JET A1 gas is 3·5p per imperial gallon, while the duty on AVGAS is 36·77p per imperial gallon? How does he account for the unfairness between the two rates of duty and the comparatively high rate of duty on AVGAS?

My hon. Friend has made an interesting point. However, he must realise that there could be equalisation in the opposite direction. It would be possible to increase the duty on AVTUR.