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National Finance

Volume 979: debated on Thursday 21 February 1980

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Public Sector Borrowing Requirement


asked the Chancellor of the Exchequer what increase in the public sector borrowing requiremnt is directly attributable to the increase in unemployment since May 1979.

I regret that I am unable to give the hon. Member the estimates he requests, for reasons set out in the Minister of State's answer to him of 11 February.

Since the public sector borrowing requirement is central to the Government's economic policy, is it not time that the Government made a prediction of the effect of increased unemployment upon it? Can the Minister deny my prediction that if unemployment reaches the level of 2 million by the end of the year—which has been predicted elsewhere—that will result in an increase in the public sector borrowing requirement of at least £2 billion which is the amount of money that the right hon. Lady the Prime Minister is attempting to save in public expenditure cuts? Is that not crazy?

I cannot confirm the hon. Gentleman's prediction, not least because it has been the practice of successive Governments, irrespective of political colour, not to engage in forecasting levels of unemployment.

Will my right hon. Friend agree, however, that unemployment is likely to continue to increase, with its attendant effect on the PSBR, until the gigantic overseas job creation scheme, in which the British consumer participates, is corrected by Government intervention which would be fully in accord with the ancient traditions of our party?

I acknowledge that my hon. Friend is a long-standing supporter of import controls, but there must be a balanced judgment on the extent to which British industry today needs more protection, rather than more competition.

While I understand why the right hon. Gentleman is unwilling to verify or endorse the predictions published by his Department about the massive increase in unemployment which is now under way, surely he has made some estimate of the effect of an increase of 100,000 unemployed on the public sector borrowing requirement? Is it not a fact that the main reason why we now face three years of unparalleled austerity—or, as his right hon. and learned Friend the Chancellor of the Exchequer told the press this week, a steady fall in real living standards for at least three years—is that the Government's fiscal and monetary' policies ensure that the massive increase in oil revenues, which will amount to £4 billion this year, will entirely finance increases in unemployment caused by the Government's policies?

I am following well-ordered precedent in declining to forecast levels of unemployment.

As to the wider issues, the success of the United Kingdom economy will turn largely upon its becoming more competitive and being able compete realistically in world markets. That will involve pursuing policies which have a degree of monetary realism to enable the supply side of the economy in its turn to be a great deal more effective than it has been over the past decade.

Widows (Taxation)


asked the Chancellor of the Exchequer what progress his Department has made to alleviate the position regarding widows' pensions and taxable income, when the widow takes up employment and is taxed on the gross income of pension and wages.

I have the tax position of widows under review, and I met representatives of the National Association of Widows on 13 February. I have noted the point made by my hon. Friend.

I am grateful to the Minister for that reply. I should like my hon. Friend to remember that the Budget is close, and that we are hopeful that when my right hon. and learned Friend the Chancellor makes his Budget Statement he will take into consideration that fact that those widows are heavily penalised. Action must be taken as part of the grossing operation to give them relief. The husbands paid for the pensions before they died, and their widows are entitled to receive them.

I have no doubt that my right hon. and learned Friend will take full account of the points made by my hon. Friend, but I cannot anticipate his Budget.

Does the Minister prefer the woman concerned to go out to work or to apply for supplementary benefit?

I do not believe that it is for me to express a preference between those two options. However, I do feel that the tax system is loaded in a way that would indicate a particular course of action to a lady in that unfortunate position.

Will the Minister consider taking the widow's allowance out of the tax system for the first six months after her husband dies? Will the hon. and learned Gentleman accept that it is the only short-term benefit that is at present subject to tax? Does he agree that the cost of making it non-taxable would be small and would be much appreciated by widows?

There is an anomaly. As the hon. Gentleman will realise, it can be cured in one of two ways.

Is my hon. and learned Friend aware that his predecessor at the Treasury received deputations from the National Association of Widows with great courtesy, year after year, and did nothing? Will he endeavour to improve on that?

I hope that I have matched the courtesy of my predecessors. We shall certainly take note of the point made by my hon. Friend.

Retired Persons (Taxation)


asked the Chancellor of the Exchequer if he will meet representatives of pensioners' organisations to discuss the taxation position of the retired.

We have no immediate plans to do so; but we keep the taxation position of the retired under regular review.

In view of the economic difficulties facing those on fixed and low incomes, many of whom are of retirement age, will my hon. and learned Friend use every influence that he has with the Chancellor to persuade him to abolish the earnings rule in the forthcoming Budget, instead of merely phasing it out over the lifetime of this Parliament?

We are conscious of the commitment in our manifesto. My hon. Friend will appreciate that at this stage I can go no further than that.

In view of the difficulties faced by pensioners and others, will Treasury Ministers make it absolutely clear that they have no intention in the Budget of breaking the link between prices and personal tax allowances? Those same right hon. and hon. Gentlemen, when in Opposition, encouraged and assisted in that law being passed.

The right hon. Gentleman's contributions to debate on that amendment will be recalled, not least by his hon. Friends. I cannot anticipate my right hon. and learned Friend's Budget.

Economic Situation


asked the Chancellor of the Exchequer if he is satisfied with current developments in the economy.

It will take time for our policies to check the long-run decline of the economy which we inherited.

How much more evidence does the right hon. and learned Gentleman require to convince him that excessive monetarism is not good for the economy? Will he accept that it is absolutely clear that that is the main cause of our economic problems, not least de-industrialisation, which is proceeding apace in the Northern region? If the right hon. and learned Gentleman will not listen to us, will he at least listen to a few of his more intelligent hon. Friends who share our concern?

It is important for the House to appreciate that there is no question of excessive monetarism. If interest rates are higher than is tolerable for the revival of industrial prosperity or other conditions, that is a consequence of public sector borrowing and spending being too high. The hon. Gentleman is entirely wrong to attribute de-industrialisation to excessive monetarism or to any policies of this Government. He should recollect, for example, that between 1973 and 1979 manufacturing output fell by 5 per cent. That was long before excessive monetarists, as he chooses to put it, came near the Treasury.

Will my right hon. and learned Friend accept that I endorse the general aims of the Government's economic policy and most of the monetarist means of attaining it? However, is the Chancellor of the Exchequer totally satisfied that those policies are being applied with sufficient flexibility and sense of timing in order not unduly to undermine the social objectives of our Administration?

I am entirely satisfied in that respect. Indeed, the anxiety that people must have experienced is that the country had to wait until a change of Government before returning to the prospect of monetary discipline. It is only when our policies in that regard have been followed and made effective that we can set about pursuing the social objectives on which my hon. Friend and I so firmly agree.

If the right hon. and learned Gentleman is satisfied with the progress made by the economy under his Chancellorship, why did he not warn the electorate nine months ago that the country was in for 20 per cent. inflation and 20 per cent. increase in wage costs? Further, will he accept that last week we should have seen a 20 per cent. increase in interest rates had the Government not broken all their principles by lending £500 million to private banks to prevent the market from driving interest rates up?

The right hon. Gentleman knows as well as anyone in the House that the conditions that we inherited from him lead us—

I understand the right hon. Gentleman becoming so angry in the light of his own record. He must be reminded of the fact that we warned the British electorate at the last election that the country was facing an economic crisis more serious than any that we had faced since the end of the war and that it would take a number of years to begin restoring the health of the economy, which the right hon. Gentleman handed over to us.

Does my right hon. and learned Friend agree that it is sheer hypocrisy for the right hon. Gentleman to citicise the Government's policies when, under his administration, unemployment doubled, taxation for the ordinary family doubled, prices doubled, the national debt doubled and the value of the pound was halved? [HON. GENTLEMEN: "Reading".] Does my right hon. and learned Friend agree that it is sheer hypocrisy?

Order. Before the Minister replies, let me say that the hon. Gentleman knows that it is quite un-parliamentary to accuse another hon. Member of hypocrisy. I am not asking the hon. Gentleman to give it another name. I just wish to point out that he used the word "hypocrisy".

May I reply on a personal basis, Mr. Speaker? What I thought that I said was that the arguments were sheer hypocrisy. I did not necessarily accuse an individual Member of hypocrisy.

It is a point of order that arises out of this matter, Mr. Speaker. The Shadow Chancellor distinctly called my right hon. and learned Friend a liar.

Order. If that is so, it is distinctly un-parliamentary and will be withdrawn.

Further to that point of order, Mr. Speaker. May I correct the hearing of the hon. Member for Staffordshire, South-West (Mr. Cormack). I was simply recalling to my hon. Friend the Member for Norwich South (Mr. Garrett) that when we predicted the 12 things that a Conservative Government would do if they were elected, we were accused of telling lies. In fact, they doubled the rate of value added tax—

Order. The right hon. Gentleman knows that he must resume his seat when I stand. If he did not accuse the right hon. and learned Gentleman of being a liar, that is an end of the matter. I merely wished him to withdraw it, if he had. It is as simple as that.

Further to that point of order, Mr. Speaker. I was making it clear that I was referring to the accusation hurled at the Labour Party during the last election when we told the truth about the Conservative Party. I should never accuse the right hon. and learned Gentleman of lying. I have too little respect for his understanding to believe that he can ever tell the truth.

Is the Chancellor aware that his exchange rate policy is directly responsible for the large amount of manufactured imports and the difficulties that our manufacturers have in exporting their goods? Is he further aware that the consequences for our industry are extremely serious? Will he instruct the Governor of the Bank of England to intervene properly and effectively to keep exchange rates at a reasonable level?

The right hon. Gentleman should know, because he may well recollect what was said by his right hon. Friend the Member for Llanelli (Mr. Davies) only last summer, that the exchange rate is clearly one of many areas in which Government cannot have control. He should also understand that the exchange rate is fundamentally determined by market forces. Any sustained attempt to influence it by a change of intervention policy would have adverse consequences on other aspects of economic policy.

Family Income Supplement


asked the Chancellor of the Exchequer why income tax is deducted from persons who receive family income supplement.

Recipients of family income supplement are liable to tax if their income is above the tax thresholds.

I consider that a very unsatisfactory reply. Is the Minister aware of how ludicrous it is that a man with three children, earning as little as £55 per week, pays £5·31 in tax and receives £5 in family income supplement? When will we stop this nonsense? I ask my hon. and learned Friend to urge his right hon. and learned Friend to do something about this in the Budget. The only way to solve this problem is to raise tax thresholds well clear of FIS levels and I urge that most strongly.

I hope that, on reflection, the House and my hon. Friend will recognise that my answer to his question was entirely factual. I note the point he made about thresholds. I am sure that the House will recall the dramatic increase in thresholds in both the first and second Finance Bills of last year.

Budget Strategy


asked the Chancellor of the Exchequer if he is satisfied with the way in which his Budget strategy is working.

The Budget measures were an important first step in tackling the difficult economic situation we inherited. The money supply had been allowed to grow rapidly, inflation was accelerating, and output was stagnant. It will take time to overcome these handicaps.

Is the Chancellor of the Exchequer aware that few of us have noticed the advent of the entrepreneurs who were to be unleashed by his alleged incentive Budget? Instead we have a declining growth rate—the lowest in the Western world—the highest inflation rate and the highest interest rate, I believe, since the battle of Waterloo.

Order. The hon. Gentleman was called to ask a question, not to give information.

May I end by saying that the chamber of commerce in my constituency has approached me saying that the high interest rates are killing off businesses?

I hope that in those circumstances I shall have the unqualified support of the hon. Gentleman for the Government's attempts to reduce public spending, and so public borrowing and interest rates.

Does my right hon. and learned Friend accept that one of the most important side effects of the Budget is the degree of understanding by British workers of the economic realities, as witnessed by the ballots at Longbridge yesterday and at the Welsh pitheads earlier today?

I am as encouraged as my hon. Friend by the extent to which the wisdom of the working people of this country is becoming increasingly apparent in the way in which they are overruling the wishes purported to be expressed by some of those who claim to speak on their behalf.

What is the Chancellor of the Exchequer's opinion of the report from the United States Council of Economic Advisers, an extremely distinguished body advising the President and Congress, that the British Government's policies are driving the British economy into a deeper recession than exists in any other country in Western Europe?

I am not particularly impressed by comments quoted out of context from other countries. I confess that it is more than one can do to keep abreast of the advice that is tendered in one's own country. I cannot regard that diagnosis or verdict as having any foundation in fact.

Does not my right hon. and learned Friend agree that it is a bit rich for the Opposition to launch into the sort of comments they are making this afternoon when, in 1975, they presided over rates of inflation far in excess of those we are experiencing today and blamed the situation wholly on the monetary policies of the previous Government? Is not the evidence that the same is true today and that what we are facing today are the pure consequences of the misbehaviour of the right hon. Member for Leeds, East (Mr. Healey)?

It would be unfair to blame the right hon. Member for Leeds, East for every aspect of our economic misfortunes. But, subject to that generous qualification, I agree entirely with my hon. Friend.

Did the Chancellor notice the article in The Observer on Sunday written by one of his colleagues which appeared to reflect the gradual awakening of his own party to the disastrous effects of his Budget? The Budget was described as A-level economics. I wonder how many marks the Chancellor of the Exchequer would award himself?

I notice that, as always, the former Chancellor of the Exchequer is unable to remember a quotation even four or five days old. If I may comment on the quotation, one of the facts that has struck me about the progress of our economy in recent years is that the larger the number of economists employed close to the machinery of government, the less conspicuous has been our economic success. I am content to rest our economic policies on the broad programme of common sense which secures the overwhelming support of most people.

Money Supply


asked the Chancellor of the Exchequer if he will take action, in the light of the January banking figures, to control the growth in the money supply.

It is important not to place too much emphasis on any one month's figures. The action that has already been taken to restrain monetary growth will have effect only over a period of time.

I am grateful to my right hon. Friend. While accepting that monetary policy is a medium-term policy, may I ask if he does not agree that the recent action of the Bank of England over the last make-up day interferes with the short-term efficiency of the money supply? Does he feel that a change to monetary-based control would be of assistance in using the monetary supply as a short-term method of control?

The recent action by the Bank of England in relation to the money supply made no fundamental change to the operation of the policy. It was an adjustment to a temporary shortage of liquidity. The long-term objectives and policy methods remain the same. As my hon. Friend knows, we shall shortly be publishing a consultative document on monetary policy dealing with monetary-based control and the possibility of some movements in that direction. If any such movements finally commend themselves to opinion, they will not be a fundamental change nor a substitute for the essentials of monetary policy.

But is it not right that money supply since October has been running at roughly twice the target level of 7½ per cent. which the Government set themselves for the year to next October? One reason for that is that the Bank of England has been intervening to try to keep the exchange rate from destroying British manufacturing industry, which is the inevitable result of the interest rates presently adopted by the Government. Can the right hon. and learned Gentleman answer the question that I think was being put by his hon. Friend? Would it not have been absolutely impossible if the Government had adopted monetary-based control, for the Bank of England to lend £500 million to the clearing banks to prevent interest rates from rising even further?

The point the right hon. Gentleman makes about monetary-based control is one of the factors that will he considered and canvassed in the consultative document when it is forthcoming and one of the factors that will have to be considered before we come to any conclusion about it. He should certainly not conclude that intervention by the Bank of England has been a significant factor in causing changes in the money supply in recent months.

In order to reduce public confusion about the Government's monetary aims, will the Chancellor of the Exchequer now publish long-term targets for the growth of money supply?

This again is an interesting point that the hon. Gentleman knows we have under consideration. There is no room for confusion whatever about the Government's monetary aims. It is our intention progressively to reduce the rate of growth of the money supply as the foundation of our policy for the conquest of inflation, but I am glad to know that I have hon. Gentleman's support.

While nobody would underrate the importance of the proper management of the money supply, is it not a disquieting aspect that we have had such difficulty in accurately controlling it? Has my right hon. and learned Friend noted the growing opinion in banking circles that much more speedy and effcetive results could be achieved by a directive to banks and other lending institutions to bring their lending within the guidelines laid down by the Government? Should we not also emulate the example of our industrial competitors overseas and take direct action to discourage the over-large inflow of foreign funds which is increasing our money supply and damagingly affecting the exchange rate of sterling internationally?

I know that my hon. Friend takes a close and informed interest in these matters, but it would be wrong to conclude that inflows from overseas have been a significant factor affecting monetary control recently. I know also the way in which the case can be argued for more direct controls than those operated at present. But experience has shown increasingly that each such control is all the more likely to be evaded by subsequent sophistication. There is no fundamental substitute for reassessing the discipline of price through interest rates which follows the reduction of public borrowing and public spending.

After nine months in office, does the Chancellor feel that his policies are succeeding?

I am confident that they are succeeding, yes. I am grateful to the right hon. Gentleman for giving me the opportunity to point out that we have another four and a quarter years in office. All sensible economic policies and attempts to restore economic discipline are bound to take a substantial period of time. The Government will wish to be judged, not by their record of 100 or even 400 days, but at the end of the remaining four and a quarter years.

Building And Construction Industry(Tax Exemption Certificates)


asked the Chancellor of the Exchequer if he will publish a consultative document of proposals, with a view to introducing amending legislation in respect of tax exemption certificates in the building and construction industry.

A consultative document on the construction industry tax deduction scheme was issued on 25 January and copies are available in the Library.

I thank my hon. and learned Friend for that answer, but does he not agree that there is great injustice to self-employed people who have recently worked abroad and who, when they wish to take up their occupation in the United Kingdom, are prevented from doing so because of their absence abroad and the inability of the Inland Revenue to grant an exemption certificate? Does he not agree that the solution to the problem is simple? Such persons should be able to make applications to the general commissioners who can decide the matter on the basis of evidence produced to them as to whether it is a genuine case or someone who is trying to abuse the system?

I recognise from the many cases that have been drawn to my attention the harshness of the 3-year rule. I doubt whether a simple solution can be found to the problem, although one or two are suggested in the consultative document. I take note of my hon. Friend's point about giving the appeal commissioners—the matter need not necessarily be restricted to the general commissioners—a more general discretion. Again, he will find that there are suggestions to that effect in the consultative document.

Bank Of England


asked the Chancellor of the Exchequer when next he will meet the Governor of the Bank of England.

When the Chancellor meets the governor of the Bank of England, will he inquire of him why he has taken so long to finalise the long-promised Green Paper on the control of the money supply? Will he able to finalise with the governor a date for the publication of that Green Paper?

The Green Paper is being prepared jointly between the Bank of England and the Treasury. We hope to be able to publish it shortly.

When the Chancellor meets the governor, will he, after that meeting, explain to the British people why the Government printed £500 million last week in order to give the banks extra money to lend, whereas they are not prepared to raise cash limits to save the jobs of steel workers and coal miners?

The Government allowed the Bank of England to adjust one aspect of monetary control last week. Monetary policy depends upon fiscal policy as well as upon interest rates. There is no need, especially at this point of proximity to the Budget, for one of those measures to carry the entire burden.

Does the Chancellor agree that there is a fundamental difference between a policy which seeks to control money supply by reducing the PSBR and one which seeks to finance that borrowing requirement by borrowing on behalf of the Government at high rates of interest? Is it not the first policy that we should be pursuing and not the dangerous second policy?

I agree entirely with my right hon. Friend. That is why we have applied our endeavours to achieve a reduction in the Government's borrowing requirement by a progressive reduction of that requirement and Government spending. That is at the heart of Government policy and I am grateful for my right hon. Friend's support.

Will the right hon. and learned Gentleman answer the question that was asked by my right hon. Friend the Member for Llanelli (Mr. Davies), namely, why have the Government printed £500 million to lend to the private banks in order to stop interest rates rising under market pressures which, if the monetary-based system that the Chancellor has endorsed is adopted, would, in any case, take place automatically?

The monetary-based system is not yet ripe for adoption. It will shortly be ripe for discussion and consideration. I look forward to hearing the views of the right hon. Member for Leeds, East (Mr. Healey) on it at that time. Meanwhile, I shall re-answer the question that I have already answered once. Monetary policy does not depend exclusively on interest rate policy but on fiscal policy as well. We shall shortly have an opportunity to reconsider that at the time of the Budget. There is no need, in the circumstances that the right hon. Gentleman refers to, to allow the entire burden of monetary policy to be carried on interest rates.

Further to the question of my right hon. Friend the Member for Worthing (Mr. Higgins), is my right hon. and learned Friend aware that the best news in months for some of us has been the reports carried widely in the press in recent days that the Treasury is determined to achieve a PSBR next year that will be substantially lower in money terms than the out-turn in the current financial year?

I am glad that my hon. Friend is so encouraged by his reading of the popular press. I hope that he looks forward with as much anticipation as I do to the Budget.

When the Chancellor meets the Governor of the Bank of England, will he discuss with him the right hon. and learned Gentleman's view that the foreign exchange rate cannot be controlled and must be left to market forces? Will he insist upon the common sense and industry view that the exchange rate must be brought down, otherwise the market forces that he appears to welcome will destroy our industry on the basis of the hoped-for value of North Sea oil?

The hon. Gentleman should understand that, on the occasions in the past when determined attempts have been made to lower the exchange rate, it has not been a conspicuously successful prescription for economic triumph. It is not possible for the exchange rate to be determined in a way that disregards market prices.

Stamp Duty


asked the Chancellor of the Exchequer when he intends to raise the exemption limit for stamp duty on house purchase.

I cannot anticipate my right hon. and learned Friend's Budget proposals.

I wish that the hon. and learned Gentleman would—especially on this issue. However, is the hon. and learned Gentleman aware that the stamp duty upper limit has not been increased for many years and is wildly out of date? It particularly affects those buying houses at a price of over £30,000. Will he consider the matter seriously and bring something forward in the budget?

We shall consider that matter seriously. The hon. Gentleman will remember the debates that were held under the previous Administration on that point.

Value Added Tax


asked the Chancellor of the Exchequer how much has been received from the value added tax charged on confectionery since the rate was raised to 15 per cent.

Because traders registered for VAT are not required to make returns of the particular goods and services on which tax has been charged, I regret that this information is not available. However, the amount of VAT charged by traders at the 15 per cent. rate on sales of confectionery up to the end of December 1979 is estimated to have been about £100 million.

In the wake of redundancies and lay-offs at firms like Barker and Dobson, I wonder if the Minister will tell the House whether he agrees that the amount of money collected in VAT is outweighed by the money that has to be paid out in short-term working schemes such as the temporary compensation scheme and unemployment benefits for many workers in sweet-making factories who are suffering as a result of the high level of VAT?

I am not certain whether I can make the precise calculation that the hon. Gentleman asks of me. I hope the House will recognise that VAT is not the most sensitive instrument for treating that sort of problem.

Since the increase in VAT to 15 per cent. in the Budget was so disastrous, and has caused at least 4 per cent. of the inflationary problems that we are suffering, will the Minister make clear that there will be no further increases in indirect taxation in this Budget with the further inflationary effects of that?

The right hon. Gentleman is too experienced in these matters seriously to expect me to anticipate my right hon. and learned Friend's Budget.

Enterprise Zones


asked the Chancellor of the Exchequer if he will establish enterprise zones in and around older cities and new towns.

I refer my hon. Friend to the answer given by my right hon. and learned Friend the Chancellor to a similar question from the hon. Member for Salford, East (Mr. Allaun) on 31 October 1979.

I thank my right hon. Friend for that reply, but does he not agree that, with regard to the unemployment difficulties that are faced by a number of new towns and older town areas, it would be helpful if such enter- prise zones could be set up to attract employment to those areas?

I am sure that my hon. Friend is right and the matter will receive the most sympathetic consideration.

Does not the Chief Secretary know that there have been thousands of redundancies on Merseyside since his Government came into office, all of which are directly attributable to the Government's economic policies? Would not the Government be more sensible to try to deal with those deep-seated problems rather than to establish enterprise zones which will benefit only spivs and speculators?

I could bear the charges about unemployment a little more easily if they did not come from those who supported a Government who saw an increase of 700,000 in the level of unemployment between 1974 and 1979.

On the second point, I hope that the hon. Gentleman could be sufficiently detached to welcome this initiative.

Does my right hon. Friend agree that if we are to revive the older towns as well as the new towns, we must bring back private enterprise and those who live on the urban fringes? What steps will he take to provide incentives for people to start new firms and businesses on some of the derelict land and in the vacant spaces in the older towns?

When the proposals for enterprise zones have been fully formulated they will be presented to the House. I cannot, in any sense, anticipate them. I assure my hon. Friend that the points that he has mentioned are well in mind.

Will the Minister tell the people of Newcastle upon Tyne who are facing redundancies in the shipbuilding industry, the power plant industry, and at Vickers Elswick in the defence industry what help they will receive?

I cannot indicate what will be the locations of the enterprise zones that are to be decided upon.

Exports (Exchange Rate Effects)


asked the Chancellor of the Exchequer what effects he estimates the present sterling exchange rates are having on the level of United Kingdom exports.

It is difficult to distinguish the effects of exchange rate changes from other influences on the United Kingdom's export performance. Others include the fact that United Kingdom wage costs have been rising more rapidly than those of our major competitors, and the recurrent exposure of our manufacturing industry to bouts of industrial disruption.

Is not the Chancellor aware that partly, at least, as a result of his exchange rate policy there has been a staggering decline in the competitiveness of British manufacturing industry following the May election? Far from his policy producing a virtuous circle it is producing a vicious circle of high unemployment, high inflation, and closures in manufacturing industry.

Is he denying that none of his policies has had, or can have, an effect on the exchange rate?

I am aware of the problems being faced by some parts of the British exporting industry. Those difficulties do not arise so much from the level of the exchange rate as from deep-rooted structural problems. There are no short cuts to improving our trading performance. As experience in Britain and in other countries has shown, depreciation provides no more than a short-term benefit to exporters and has a long-term cost in higher inflation.

Is my right hon. and learned Friend aware of the fallacious arguments put forward in favour of an artificially low rate of exchange? Does he not agree that it has a substantial advantage in terms of the cost of imported raw materials for many industries? Is it not the case, in many instances, that it is impossible and extremely expensive to try to influence centrally the rate of exchange?

I agree entirely with the last point made by my hon. Friend. Import costs have been rising substantially during the past 12 months. Input costs to British industry last year rose by 27 per cent., which was three times as much as in the preceding year. That was due largely to rising oil prices. Had the exchange rate been depreciating at the same time the position would have been worse.

Does not the Chancellor know—if he does not, he will discover it from the Secretary of State for Industry—that the overwhelming factor facing British industry in markets at home and abroad is that the exchange rates have risen together with an increase in wage costs? A major reason for that are the excessive interest rates in this country. The proof of that is what happened this week when the gap between American and British interest rates began to narrow and the sterling rate dropped 2½ cents in a day.

Of course relative interest rates are one of the factors that can influence relative levels of the exchange rate. The right hon. Gentleman's experience when he was at the Treasury should have taught him that there are deep-seated underlying causes of our industrial decline which his five years in office failed to remedy.

Of course there are many factors which for 100 years have been responsible for the relative decline in British industry. The point that I am putting to the right hon. and learned Gentleman, which is the point of the question, is that the excessive strengthening of sterling over the past 12 months is a major factor in accelerating the decline of British industry. It arises largely from the excessively strict monetary policy supported ineffectively by excessively high interest rates.

The right hon. Gentleman again understands the causes very clearly. In so far as interest rates in this country have an impact upon the exchange rate of the pound sterling, I hope that he will support us in our determined policies to reduce the size of public sector borrowing and public sector spending.

Does my right hon. and learned Friend agree that it is important for the well-being of the British people that our exchange rate should be kept in some sensible relationship with the international competitiveness of British industry?

Does he recall that when Germany and Japan were faced with similar problems as a result of an inflow of foreign funds they took direct action to discourage such inflows? Can consideration be given to similar action being taken by Britain?

I fully understand the concern of those in exporting industry to see the exchange rate at a level with which they can cope effectively. It is affected by a number of different factors, including the success of our monetary policy. That is why it is so important that we succeed in our fundamental objectives.

My hon. Friend will remember that the experience of other countries to which he has drawn attention, on inflow controls suggests that such measures have not often been effective in solving problems caused by a high exchange rate.

Prime Minister (Engagements)


asked the Prime Minister if she will list her official engagements for Thursday 21 February.

This morning I presided at a meeting of the Cabinet. In addition to my duties in this House, I shall be having further meetings with ministerial colleagues and others, including one with Mr. Vance.

Does the Prime Minister accept the principle that it should pay people to work? If so, will she call in her Education Ministers this afternoon and ask them why they have adhered to arrangements for school meals and transport which ensure that a family man on supplementary benefit would be several pounds a week worse off if he took a job? A man on family income supplement would be similarly worse off if he worked overtime.

The hon. Gentleman is referring to one of the problems that we have with the poverty trap. As the hon. Gentleman knows, one of the best ways to deal with that is to reduce the heavy rates of income tax.

Does my right hon. Friend think that it would be helpful if the Leader of the Opposition stated clearly where his Party stands on the picketing that took place at Hadfield's last week and at Sheerness yesterday? Does she agree that all that we have had from the right hon. Gentleman so far has been a deafening silence on a vital issue?

I trust that the Leader of the Opposition will condemn everything except that which is permitted by the law, namely, peaceful picketing.

In the course of a busy day will the Prime Minister take some time out to look at the A-level course in economics, as there are many on this side of the House, and indeed in the country, who, because of the disastrous economic policies being pursued by the Government, believe that the Government have not even reached A-level standard?

The hon. Gentleman knows that the important issues do not depend upon A-level economics. The important issue is to persuade people to live within their means, and to get rid of excessive spending and excessive borrowing.

May I ask my right hon. Friend the Prime Minister if her attention has been drawn to reports today that the EEC is once again contemplating sending subsidised butter to Russia? Will she confirm that she regards that as intolerable, and that she will inform Brussels accordingly?

I am very happy to confirm the remarks of my hon. Friend. It is disgraceful that subsidised butter sales are to be started once again to Russia. It is very offensive not only to politicians on both sides of the House, but to every housewife who would like to have a similar opportunity in this country. We shall certainly inform Brussels accordingly.

Is the Prime Minister aware that this morning a notice was published in the name of the Boundary Commission for England making revised recommendations for constituencies in Essex, even though since 31 December the number of members of the commission has been less than the statutory quorum?

Will the right hon. Lady take steps to have the notice withdrawn, and for the activities in the name of the commission to be suspended until the membership is properly constituted and there has been an opportunity for the members to meet and deliberate?

I understand that that report was completed last year and that the previous Boundary Commission gave instructions for it to be published. That is what has happened. The new Boundary Commission for Wales has not yet been appointed nor, indeed, has agreement been reached with the Opposition on who should be members of it. Agreement has been reached in respect of England, but the two are being held up until there is full agreement on both.


asked the Prime Minister whether she will list her official engagements for 21 February.

After a year that has seen more working days lost in strikes than any year since 1926, is my right hon. Friend prepared to pay tribute to the plain good sense of the British Leyland workers, who by their decision yesterday demonstrated their understanding that one cannot strike one's way to prosperity and that strikes lead to loss of jobs and low living standards?

I certainly pay tribute to that decision. I thought that it was a triumph for common sense.

Has the Prime Minister had time to consider the report published yesterday about the tragic death by battering of baby Carly Taylor in my constituency, as well as the statement by the director of social services that about 500 babies are at risk in Leicester alone, which means about 100,000 for the country as a whole? Can she give an assurance that in these times of increasing hardship and deprivation, those who care for the needy and the inedequate will have the resources that they require and will not be starved of them by Government cuts?

I hardly think that that terrible case can be attributed to that particular cause. I share the hon. and learned Gentleman's concern over each and every case of cruelty to children, particularly those that are as totally tragic as the one to which he referred. My right hon. Friend the Secretary of State for Social Services will, of course, be discussing it with the local authority social services.

Will my right hon. Friend take time today—[HON. MEMBERS: "Write a letter."]—to allay widespread fears about the future of the sub-post office net work by drawing attention to the reassuring statements made by her right hon. Friend the Secretary of State for Social Services on Tuesday?

I am grateful to my hon. Friend. I believe that the case was fully deployed in that debate. In fact, as my hon. Friend knows, we were trying to give an extra element of choice to those who wish to take their social security benefits in a different way. It is in keeping with our policy to have an element of choice, but it is not in keeping with that of the Opposition.

[HON. MEMBERS: "Write a letter.] I do not write stupid letters. Does the Prime Minister agree with the right hon. Member for Sidcup (Mr. Heath) that the get-tough attitude in international relations can only worsen those relations and can be dangerous for nations? Does she agree with that point of view?

During his time in Government, my right hon. Friend was the first to see that this country had proper defence forces to protect its security. I was a member of his Government and was proud to be so.


asked the Prime Minister if she will list her official engagements for 21 February.

Will my right hon. Friend have time today to arrange a meeting between the Leader of the Opposition and the workers from Sheerness and Longbridge so that he has the opportunity of learning about aspects of industrial and economic matters of which he has no knowledge at present?

The demonstrations at Sheerness showed very much that workers today are interested in the right to work and the right to go to work unhindered. They are to be congratulated as is their management. Congratulations should also go to the police for the excellent way in which they carried out their duties which are both to protect the right to work and also the right to picket peacefully.

As the right hon. Lady has suggested that she is concerned about children, as she did in her reply to my hon. and learned Friend the Member for Leicester, West (Mr. Janner), will she consider the appalling delay in the Government's response to the proposals of the Milk Marketing Board which will provide hundreds of millions of gallons of milk for our children at negligible cost to the United Kingdom Government, as the bulk of the moneys would be found by the Community? Can we not see children provided with milk, and money obtained from Europe, as the right hon. Lady is supposed to be concerned about these matters?

I think that the hon. Gentleman is referring to the sale of milk to children in schools. That is done through the local authorities.

Will my right hon. Friend today find time to send a letter to Sir Michael Edwardes congratulating him on the recent performance of Leyland Vehicles—that part of British Leyland which makes trucks, buses and tractors? Its export orders are at record levels and it is launching products on programme. Is she aware that Leyland Vehicles has now returned to a profitable situation?

I am aware that certain parts of British Leyland are working extremely well and profitably, and I hope that they will soon be joined by other parts. The news about production in January was excellent. For the first time, the volume car workers in British Leyland met their production targets. I hope, therefore, that they will be successful in selling more of them to the British people.

In her meeting with Mr. Vance this afternoon, will the Prime Minister report that there are some of us who have had in-depth meetings with the Indian High Commissioner and other Asians who are not apologists for the Soviet Union but who see Afghanistan in various tones of grey rather than black and white? They believe that that issue certainly does not constitute a reason for not going to the Olympics.

As the hon. Gentleman knows, I and many of my right hon. and hon. Friends, like many of his hon. Friends, fundamentally disagree with him. The Soviet Union marched into an independent country and is still there in very great armed force. I draw the hon. Gentleman's attention to the excellent suggestion made yesterday in the European political group on cooperation that in future Afghanistan should be a neutral country, rather like Austria, and, therefore, have her security guaranteed.

Further to the question put by my hon. Friend the Member for Harborough (Mr. Farr), will my right hon. Friend care to guess the opinion of the Kremlin now of the Common Market's capacity to act against aggression in the future?

I hope that the opinion of the Kremlin about NATO, which is really the defensive mechanism, is that it is a formidable Western alliance with formidable adherents particularly Great Britain.


asked the Prime Minister if she will list her official engagements for 21st February.

Will the Prime Minister today read the written answer published in Hansard on 6 February, which showed that our deficit in trade in manufactures with the EEC in 1979 was in excess of £4 billion, which is in addition to the cost of the CAP and the budget? In view of that, will she tell us the main economic advantages of British membership of the EEC?

With great respect, I think that the hon. Gentleman misses the point. We have the same opportunity of markets in Europe as Europe has here. I hope that in future we shall take more opportunity to export to those markets.

Will my right hon. Friend find time to distance the British Government from the proposed commission into the alleged crimes of the former Shah, as such a commission is the wrong response to blackmail, is unlikely to be fair and will gravely damage the future authority of the United Nations?

Many of us have great sympathy with what my hon. Friend has said. But we are anxious to support the United States in any moves which will manage to secure the release of the hostages.

Did the Prime Minister read the report in The Sunday Times of last Sunday to the effect that heart patients in King's College Hospital are likely to die within days because the hospital lacks a few million pounds? The Government are spending £5 million on a refit of the Royal Yacht "Britannia". Does the Prime Minister think that that is a civilised or humane sense of priorities.

As the hon. Gentleman knows, this Government have kept up expenditure on the National Health Service in real terms. We have even increased the cash limits to accommodate increased pay for nurses. The hon. Gentleman's criticism is thoroughly unwarranted.