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Commons Chamber

Volume 981: debated on Wednesday 26 March 1980

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House Of Commons

Wednesday 26 March 1980

The House met at half-past Two o'clock


[Mr. SPEAKER in the Chair]

Order. I remind the House that long supplementary questions are unfair to hon. Members with later questions on the Order Paper.

Oral Answers To Questions




asked the Secretary of State for the Environment if he will make a statement as to how his policies will affect employment in the building and construction industry in the North-East.

Employment in building and construction will depend on the industry's response to the various measures I am taking to facilitate development.

Does not the Secretary of State realise that unemployment in the building and construction industry already accounts for 17 per cent. of the unemployment in the North-East and that in a recent survey 43 per cent. of the workers wanted to leave the industry because of insecurity? Will he now bring in a crash programme of building and construction work in areas of high unemployment? Would he like to start with the 400 unmade roads in my constituency?

Unmade roads are a matter for my right hon. Friend the Minister of Transport. A crash programme of the kind that the hon. Gentleman envisages would lead to increases in public expenditure which would actu- ally exacerbate the very problems to which he has drawn the attention of the House.

Is my right hon. Friend aware of the detrimental effect that local authority direct labour organisations have had on the building industry in the North-East this year?

I am grateful to my hon. Friend for that question. I am aware of that, and that is why my right hon. Friend the Minister for Local Government and Environmental Services is responsible for taking through the House legislation to control and regulate the activities of direct labour organisations.

Lead Pollution


asked the Secretary of State for the Environment what action he proposes to take to reduce the level of lead pollution in the environment.

New regulations on the maximum lead content of food will come into force on 12 April; the maximum permitted level of lead in petrol will be reduced to 0·40 grams per litre on 1 January 1981; and the water industry, with Government encouragement, is pressing ahead with a programme to deal with problems of lead in water where they occur.

The Government will be considering the need for further action in the light of the report of the working party, chaired by Professor Lawther, which will be published on Friday.

May I thank the right hon. Gentleman for that interesting reply. Has he considered removing lead from petrol altogether, in line with action taken by at least two other countries? Is he aware of the growing concern among the parents of children living near motorways about the likely effects that the lead content of petrol will have on their children, both mentally and physically?

We are naturally aware of the concern and that is why we have supported the work of the working party which was set up by the previous Government. I think that the hon. Lady will agree that it is sensible to consider the important report which will be published on Friday. We shall then all be better informed and be able to comment on the type of question that she has asked.

Will my right hon. Friend bear in mind that there is a tremendous amount of concern about this matter, often coming from extemely well-informed people, especially with regard to the effects of lead pollution on children living near motorways? Will he constantly attempt to get across to the public what the Government are thinking, doing and feeling about this very important matter?

I hope that my hon. Friend will encourage as many people as possible to read the report of the working party, when it is published. It covers the aspects of lead in petrol and in the air, and other sources of lead in the environment which are also very important.

Will the Minister agree that the report of the Department of Transport working party last June, which is likely to be reinforced by the Lawther report to be published on Friday, suggests that the alternatives facing the country now are either to reduce the lead content to ·15 or to remove it altogether? Will the Government therefore consider publishing a green paper setting out the respective merits of those alternative courses so that Parliament and the country at large can have an intelligent and informed debate and reach a consensus on which of those two courses would be the most sensible?

Clearly we would be very interested to hear the responses of all interested parties to the report of Professor Lawther's working party. I take note of what the right hon. Gentleman says.

Association Of Metropolitan Authorities


asked the Secretary of State for the Environment when next he expects to meet the chairman of the Association of Metropolitan Authorities.

On 15 April, when I chair the next meeting of the consultative council on local government finance.

Is it true that Sir Godfrey Taylor has withdrawn his officers from the grants working group because he is totally opposed to the block grant system which the right hon. Gentleman is putting forward and that the other local authority associations are similarly totally opposed to it? How can he operate such a system in the face of complete opposition by all the local authority associations?

I understand that the Association of Metropolitan Authorities meets tomorrow to discuss its latest reply to the conversations that we have had with it over a period of time. The fact is that, especially on the recalculation of methods for needs assessment, there is a broad measure of agreement between myself and the local authority associations.

When the Secretary of State next meets the chairman of the AMA will he discuss with him the report in The Guardian yesterday which said that the entire urban aid programme may be wound up? Will he also tell the House what intentions he has for ensuring that the partnership committees, such as those meeting in Liverpool on Friday, will rethink their priorities so that schemes such as those of voluntary organisations might also be considered?

I do not think that I shall spend a lot of time on the first suggestion with the representatives of local government, as there is no foundation in this story and, therefore, it would not be worth discussing.

As to the question about support for the voluntary organisations, I realise that there is a part to be played by them. I am having to consider very carefully within my Department the balance between the various claims that are put forward. I am anxious that the urban programme should be used for specific areas where there is to be a one-off and conspicuous effect, rather than accumulating a range of ongoing commitments, which prejudices one's ability to make new initiatives in following years.

With regard to the meeting of the consultative council, will my right hon. Friend confirm that whilst the original proposals from the local authority associations were entirely unacceptable, he has not closed his mind to any future proposals that may come from the associations, and that, if such proposals were to come forward, they would be considered in depth by the Government?

I am most grateful to my hon. Friend for his question, because it enables me to repeat to the House what my right hon. Friend the Minister of State said in Standing Committee D yesterday. The Government's view is quite clear. It is that we should proceed with the principle of block grant. If the local authority associations wish to come forward with amendments to the face of the Local Government, Planning and Land (No. 2) Bill, which would enable their anxieties about specific areas of concern to be dealt with, of course we shall look at them. But the Government feel that it is important now to establish that the principle of block grant is a priority of the Government.

Will the Secretary of State answers the question asked by my hon. Friend the Member for Greenwich (Mr. Barnett) a moment ago? Has Sir Godfrey Taylor withdrawn officials of the AMA from one of the working groups set up by the right hon. Gentleman because Sir Godfrey and the AMA disagree with the policy that the Government are now espousing?

No, the AMA is considering to what extent it should involve itself in the details. The meetings at which a withdrawal would have to take place have not happened. What is happening is that the AMA is considering what it should do to co-operate on the details of the scheme with the Government. It is important to understand that the Government are well in a position to proceed without detailed consultation with local government. [HON. MEMBERS: "What?"] However, I believe, as I have said to local authority associations, that the detailed workings will be a great deal better if local authorities co-operate in the examination of these details.

Departmental Manpower


asked the Secretary of State for the Environment how many Civil Service posts have been left unfilled in his Department since May 1979; and what are the numbers, salary entitlements and grades of those left vacant.

This information could not be made available in the form requested without disproportionate effort. But between 1 May 1979 and 1 March this year the total number of staff employed in my Department fell by 3,505 or by 6·7 per cent. The number of vacancies in posts remaining on the Department's complement is constantly changing.

Does the Secretary of State recognise the very great damage that he is doing by his constant implication that those who work in the public services are somehow a drag on society? Does he recognise the personal tragedy to hundreds of boys and girls, young men and young women, in the Northern area who stayed at school, obtained extra qualifications, and who are now being forced to join the dole queue? Does not he understand that we cannot sack people and do without people in the public services without doing damage to the very services that the most vulnerable in the community require?

The right hon. Member will be fully aware that I have not sacked anyone. All that I have done is not to replace quite as many people as have, of their own free will, or in terms of voluntary retirement, left my Department. However, if the right hon. Member believes that the solution to the country's problems is to enhance the scale of the public sector, he will have to explain to those young school leavers the benefits of living with interest rates of the sort that have become all too familar recently.

Among his activities, will my right hon. Friend consider the joint manpower watch figures that he published only this week and the very disappointing figures of the reduction in manpower in local government, in both Conservative-controlled and other counties? What further steps can he or we take to encourage a better use of manpower at local level?

There is a question about this subject later on the Order Paper. I did not want to anticipate that. However, I believe that the publication of figures for almost every local authority—the very few exceptions being authorities which have not submitted their figures—enables the debate about the number of people employed in local government to be extended on a very significant and sophisticated scale. I shall want those figures to be increased in sophistication later in the year, when I shall request local authorities to publish their manpower figures broken down department by department.

I think that what has happened conspicuously as a result of the initiative on Monday of this week is that now local authorities which thought that they were doing well are able to see just how well they have been doing as compared with other authorities broadly similar to themselves.

How many of those unfilled posts are among the legal staff of the right hon. Gentleman's Department? Will he fill those posts to prevent him from making ultra vires decisions, as he appears to have done under the New Towns Act in regard to Stevenage and the disposal of new town assets?

I shall certainly find out how many are in the legal department, but I am sure that the right hon. Gentleman will realise at once that the quality of advice is nothing to do with the quantity of advice.

Is my right hon. Friend aware that he is to be congratulated on effecting this reduction in manpower? This is the answer to those who are saying that savings are being made only at the sharp end of services. However, is he also aware that many of us on the Conservative Benches hope that similar progress can be made in each year of the present Government?

I am most grateful to my hon. Friend. I think that that is right. There is another general conclusion, that if I had announced that there would be 3,500 fewer employees when I first took over the Department, it would have been described by Opposition Members in the horrendous terms with which we are familiar. The fact that there are now 3,500 fewer people would, I dare say, not have come to the attention of the House if I had not answered this question today.

Regional Water Authorities


asked the Secretary of State for the Environment whether he considers that the regional water authorities are sufficiently accountable to the ratepayer.

A majority of the members of each water authority are locally elected councillors who are responsible for representing the interests of the ratepayers.

I thank my right hon. Friend for that reply. However, in view of the Government's stated policy not only of reducing Government waste but simplifying bureaucracy, how does he justify the continuance and extension of separate billing of the water rate?

If I were quite frank with my hon. Friend, I think that, to quote a phrase used before, I could say that, without difficulty, I could confine my enthusiasm for direct billing within the bounds of decorum. But the fact is that this process had been carried out substantially through a large number of water authorities before we came to office. I do not think it is quite practicable to change this proposal. It is a fact that it will show savings for the water authorities, but I would not claim that there are net savings overall for the public purse.

Is the Minister aware that in Leeds direct billing has just been introduced and the ratepayers see an increase of over 100 per cent. in their water rate? This is causing genuine worry and anxiety. Will he consider, in particular, taking the water authorities back from direct billing? Secondly, will he consider extending rate relief for water rates? Thirdly, will he consider insisting that water authorities offer, publicly and straightforwardlly, a fortnightly or monthly system of payment, instead of frightening people, old people in particular, who simply cannot meet twice-yearly bills?

I should like to have details, if the hon. Gentleman would care to give them to me, of the particular percentage to which he has referred, because it is certainly very different from the average for the area. There must be very particular problems in that area. I understand the concern about the charges for the water industry. I have instituted, and I am now in the middle of, a series of meetings—I understand that such meetings have never been held before—between the Minister responsible and the chairman and chief executive of each water authority, to consider with them how the water authorities are being run, and to consider more effective ways in which they might operate in the future.

Is not the degree of local option in such vexed issues as the fluoridation of water supplies much less now than it used to be? Should not a greater degree of control be restored to the elected representatives of the people?

As my hon. and learned Friend will be aware, that is primarily a matter for my right hon. Friend the Secretary of State for Social Services. I shall be grateful if he directs his remarks and questions to my right hon. Friend.

Is the Minister aware that there were regular meetings between Ministers and the chairmen of water authorities throughout the lifetime of the previous Labour Government?

Action was taken. Is the Minister further aware that, as a result of those meetings, water authorities were asked to defer the implementation of direct charges? Will he confirm that it is not now possible to cancel them altogether and that they have to continue because they follow automatically from the Act of Parliament which the previous Conservative Government introduced, which has proved to be disastrous?

I think that the right hon. Gentleman's supplementary question must rank as one of the most confused questions asked during this Session. If he took such exception to the measure introduced by the previous Conservative Government he had plenty of opportunity to change it. I understand that the meetings that were held previously were held collectively with all the chairmen present. If one wants to get to the heart of the matter, it is necessary to deal with each authority separately and to talk about the separate problems of the in- dividual areas. I do not think that such meetings have ever been held before.

I will get it right. Is it not a fact that the previous Labour Government introduced a White Paper, in which were proposed the necessary changes, which was opposed by the then Conservative Opposition?

I do not know how many bites of the cherry the right hon. Gentleman proposes to take, but that is not correct either.

Offshore Pollution


asked the Secretary of State for the Environment if he will make a statement on the implementation of his agreement to use his Department as the co-ordinating body for the dissemination of information in the event of offshore oil pollution.

Information about oil pollution incidents at sea is part of the responsibility of the marine pollution control unit reporting to my right hon. Friend the Secretary of State for Trade. A contingency plan is being drawn up, however, for the coordination by the Department of the Environment of the local authorities' response to a very major incident threatening the coast and this will include co-ordination of information for local authorities.

May I thank my hon. Friend for his prompt response to our recent problems on the South Coast? However, does not his answer confirm that the Department of Trade and my hon. Friend's Department are responsible in part, with the Minister of Defence and the Minister of Agriculture, Fisheries and Food also being involved? Will my hon. Friend assure the House that he appreciates that these problems are aggravated by delay in dealing with them, that there is need for firm control and that somebody should be in overall charge especially in the early stages of the pollution problem?

I hoped that I had assured my hon. Friend that the Department of the Environment had a co-ordinating role. I understand his anxieties. The main problems are speed and communication. My Department and the Department of Trade are giving these matters careful consideration, bearing in mind the recent incident.

Will the Minister assure us that his Department and the Secretary of State for Scotland co-ordinate with the Department of Trade? With reference to the recent incident on the Forth, will he indicate whether the Ministry of Defence is also involved?

I can assure the hon. Gentleman that all Government Departments regard this as a matter of considerable urgency. Regular meetings take place and I have no criticism of the contact between Departments.

Is the Minister aware that this matter, which he says is of considerable urgency, has been going on for a considerable time and that local authorities are still not satisfied about co-ordination and speed? What are the means at his disposal for finding the oil slicks?

It is difficult to pinpoint the basis of the complaints. I can say that wherever there have been incidents the Departments concerned have dealt with them all successfully.

As oil pollution does not know where the Scottish-English border is, will my hon. Friend confirm that he has arrangements to ensure—together with his hon. Friends in the Ministry of Agriculture, Fisheries and Food and in the Scottish Office—that the fishery grounds will be carefully protected?

Yes, I can give my hon. Friend that assurance. In the past few days we have had a discussion of the sort that he has intimated. Such action is vital to deal with oil pollution disasters.

Is the hon. Gentleman aware that that is one of the most confused answers that we have had in this Pariament? After all that, where does the departmental buck stop?

I think that the House is deeply concerned about this issue, and the buck would quickly stop somewhere. I have the feeling that the Department of the Environment would be at the fore-front and that before the buck reached my right hon. Friend the Secretary of State it would stop with me.

Is my hon. Friend aware of the heavy cost to local ratepayers along the South Coast as a result of oil pollution on the beaches? What assurance can he give them that they will not be faced with more bills later in the year?

We have maintained the policies of previous Governments. We have always made it clear to local authorities that finance should not be any bar to dealing with these incidents. Over and above a certain figure my Department would help any local authority that was embarrassed.

Home Insulation Scheme


asked the Secretary of State for the Environment if he will ensure that a specific allocation of resources is made available through the Homes Insulation Act for the elderly and disabled in the coming year.


asked the Secretary of State for the Environment if he will ensure that a specific allocation of resources is made available through the Homes Insulation Act for the elderly and disabled in the coming year.

We have been giving very careful consideration how best to give extra help to elderly people on low incomes, whether they are disabled or not, under the Homes Insulation Act and an announcement may be expected very shortly.

I am grateful to my hon. Friend for that reply. Will he ensure that the elderly receive their full share? Will he consider ways in which voluntary organisations that help the elderly to do this work—most of them cannot carry it out themselves—might receive additional financial assistance, encouragement and support not only from his Department but from local authorities?

I am grateful to my hon. Friend. As he will be aware, we made important changes in the operation of the homes insulation scheme last November, when we made it possible for payments to be made directly to contractors without elderly people on low incomes having first to obtain receipts. We also extended the scheme to council tenants. We have asked local authorities to give additional help to pensioners. I shall bear in mind what my hon. Friend has said about voluntary organisations and try to ensure that they get all possible assistance and information about the scheme.

Does the Minister agree that old people's homes are often among the oldest of housing and most in need of insulation, and that old people often do not see the value of such insulation, or perhaps do not have the financial balance to allow them to take advantage of the grant? Will he ensure that old people are given 100 per cent. grants for insulation in the announcement that he has indicated is about to be made, and that there will be adequate publicity to ensure that they take them up?

In the autumn of 1979 we had additional publicity given to the scheme. That is much in our minds. As for additional help I must ask the hon. Gentleman to await the announcement.

Does my hon. Friend intend to improve the Act by reintroducing some of the amendments that were proposed by the previous Conservative Opposition, who opposed the measure introduced by the previous Labour Government?

It is because of the amendments that the previous Conservative Opposition introduced that we are able to make special provision under the scheme for the elderly. That will assist us to make changes following the announcements.

As there is abundant evidence that some local authorities use moneys allocated for the disabled and the aged for other purposes, will the hon. Gentleman recognise when he has completed his reconsideration that a specific grant is of crucial importance?

The announcement to which I have referred will represent specific allocation for the elderly and those on low incomes.

Domestic Rates


asked the Secretary of State for the Environment what is the average domestic rate increase in (a) inner London, (b) all London authorities, (c) metropolitan districts; (d) non-metropolitan districts in England; and (e) non-metropolitan districts in Wales.

The latest estimates for domestic rate increases next year are:—

per cent.
Inner London35
All London authorities30
Metropolitan districts29
Non-Metropolitan districts in England25
Non-Metropolitan districts in Wales31

Is my right hon. Friend aware that some 35,000 small businesses are considering leaving inner London? Is he further aware that one of the main reasons cited is the excessive increase in rate demands? Does he not agree that the predominantly Labour-controlled local authorities should consider bringing their rate increases more in line with their Conservative counterparts?

I saw those figures. I am not surprised that small businesses are concerned about the impact of rate increases in inner London. We are seeking to revive the economies of inner city areas. Councils are responsible for moderating their rate demands. The actions of those that do not make any such attempt will be counter-productive in any effort to make an inner city policy work. One conspicuous fact that shines out all too clearly from this year's rate increases is that the higher levels of rate increase have come from Labour-controlled authorities. The lower levels of increase have come from Conservative-controlled authorities. I hope that that point will be taken on board by electors at the district council elections.

Is the right hon. Gentleman aware that any attempt to penalise inner London, by means of the various methods concocted in the Bill, will be resisted? Is he further aware that those methods are completely unjustified, because the problems facing inner London are much more serious than those found in some other parts of the country?

The proposals in the Bill merely seek to determine whether certain authorities should get a larger amount of grant at the expense of other authorities, which may have been more prudent in their expenditure and which may receive less. If the hon. Gentleman wishes to discuss penalties, I should point out that there is no question about who has penalised the inhabitants of certain inner London boroughs. Certain councils—as the manpower watch figures will show—have imposed penalties by means of very high rate increases.

Is my right hon. Friend aware that the rate in Lambeth is rising by 50 per cent. this year, while that in Wandsworth is rising by 18 per cent? Is he further aware that Lambeth is increasing its staff, while Wandsworth has lowered its staff numbers? Will he reflect on the fact that Wandsworth's rate base is increasing, while that of Lambeth is dropping?

I am sure that my hon. Friend will agree that that is the inevitable consequence of what is happening. People cannot endure the rate increases that have been imposed in certain inner London boroughs. In the case he quoted, I think that rate increases of nearly 100 per cent. have taken place in the past two years. The adjoining Conservative-controlled borough of Wandsworth has made rate increases of, I think, 19 per cent. during the past two years.

Does not the Minister recall that elsewhere on Tuesdays and Thursdays he has said that he cannot publish the formula by which next year's rate support grant will be distributed, because the information on rates for next year is not yet available? Is it not true that he said that yesterday evening? How does that relate to the categoric information that he has given today on the same subject?

That must rank as the second most confused question today. The right hon. Gentleman has asked about next year's rate support grant settlement. That will be made next November and will accordingly be announced. Work is, therefore, only in the preparatory stages. The right hon. Gentleman is getting very muddled. In view of the encouragement that he has given to Labour-controlled authorities to increase their expenditure, the House will be interested to know whether the right hon. Gentleman regards the figures that I announced in my original answer as satisfactory or disappointing.

Is my right hon. Friend aware that in the statistics that he quoted—

I am not reading, I am referring to the question. Is my right hon. Friend aware that the borough of Macclesfield is included in the statistics that he quoted for the non-metropolitan district councils? Is he further aware that that borough increased its rate by ½p in the pound, having held the rate virtually steady for the past three years? Does not he accept that Macclesfield could do that because it sold its assets and reduced its staff by 4·5 per cent? Mr. Deputy Speaker, will my hon. Friend—[Interruption.]

Order. I am sure that until then the hon. Gentleman's speech will have gone down well in Macclesfield.

I am sorry, Mr. Speaker. I was living in the past, because you were not with us yesterday at Question Time. Will my right hon. Friend give an assurance that he will issue guidelines to all councils to ensure that they take up the example that has been given by certain well-managed and efficient Conservative-controlled district councils?

I am pleased with the efforts of the Macclesfield council and of many other Conservative-controlled councils that have frozen their rates for this year, or reduced them. We shall not issue guidelines. We regard that as a question for individual local authorities, their councillors and electorate to decide. We give responsibility to them. We hope to provide them with the information on which to make properly informed decisions.

Putting aside the ritual abuse beneath which the right hon. Gentleman always takes refuge when under pressure, does he have sufficient information about rate intentions to publish the formula upon which the transitional arrangements will be based? If he has that information, will he pubilsh it? If he does not, what is the force and strength of the original answer to the question?

That question is a lot more coherent than the previous one from the right hon. Gentleman. He has now got his dates right. The answer is "No". We do not yet have sufficient information. We have received about 80 per cent. of the returns. The figures read out were based on the latest estimates and those in turn are based on about 80 per cent. of the returns. We shall make the final adjustments in the rate support grant when we have the final figures in May or June. It is done every year at about that time. If the right hon. Gentleman had understood the previous system a little better he would have known that perfectly well.

Housing Mobility Scheme


asked the Secretary of State for the Environment how many households he expects will be rehoused each year under the new housing mobility scheme.

It is not possible to make an estimate at this stage. However, both the scheme within counties and that between counties, together with the various provisions of the Housing Bill to which I referred in Standing Committee F on 6 March should materially help to improve mobility.

Is my hon. Friend aware that the new scheme being set up under his auspices is widely regarded as a major step towards increasing social mobility? What response has he received from individual local authorities and business organisations?

As my hon. Friend is aware, the scheme was the subject of unanimous proposals by the local authority associations—the AMA, ADC and the LBA. We are working with them to set up a working group to develop the scheme within counties and that between counties.

Is the hon. Gentleman aware that under this Administration new housing has become so mobile that it has almost disappeared? Is he further aware that the number of housing starts this year is likely to be the lowest since the war? Does he not accept that that is nothing less than a recipe for increased misery and tension in society?

The hon. Gentleman will recognise that one of the most important contributions that we can make towards mobility is that of producing a substantial expansion of home ownership. This Government will achieve that.

Unused And Vacant Land


asked the Secretary of State for the Environment if he will list the local authorities which will be required to publish registers of unused or vacant land.

I am hoping soon to finalise consideration of this matter after informal consultation with certain authorities which I am now conducting. I shall then make an announcement.

Will my right hon. Friend set a time limit for the publication of a preliminary survey on waste and vacant land in each local authority area? Does he not agree that such a survey would give information to local people and allow them to apply pressure in order to bring land on to the market?

I do not think that there will be any need for that. It is totally within the powers of each local authority to do it now. However, I intend to publish areas which, if Parliament approves the Local Government, Planning and Land (No. 2) Bill, will have registers of public sector land so that we can, on an experimental basis, find out the potential for bringing that land forward for development and more productive use.

In the pursuit of open government, should not all local authorities be required to publish registers of vacant and underused land?

Perhaps the House will feel that it is right to go to that stage after we have had an experimental period of the sort to which I referred. However, I stress—and this is the heart of the matter—that it is totally within the power of local authorities to make such decisions and publish the registers now.

Local Authorities (Income And Expenditure)


asked the Secretary of State for the Environment if he will now confirm that it is now not his intention to seek statutory powers for the purpose of limiting in any way either the total non-capital expenditure of local authorities or the total amount they raise from local rating.

I do not know how that answer fits in with all the confusion, but my question is posed in two ways. Is the Minister saying "yes" to both parts of the question? Will he confirm clearly that it is not the Government's intention to introduce any statutory powers relating to wage bargaining and the number of people employed by local authorities?

I do not know how that question arose as a supplementary to the previous one, but the answer, once again, is "Yes".

Will my right hon. Friend help the hon. Member for Tottenham (Mr. Atkinson) by telling him how much money could be saved in public expenditure if Labour local authorities kept their rate increases in the forthcoming year down to the same level as those of Conservative-controlled authorities?

The total level of local authority expenditure is £22,000 million. I do not have the exact details of the figures available, but it is clear that by the much higher levels of average expenditure leading to rate increases this year, Labour authorities will substantially increase the burden on ratepayers in their areas.

Camden Council (Bloomsbury Housing)


asked the Secretary of State for the Environment if he will give the reasons for his refusal to allocate funds to Camden council, in addition to that council's housing investment programme allocation, to pay for the rehabilitation of blocks of flats in Bloomsbury which fell into disrepair when they were owned by his Department.

Camden council's housing investment programme allocation represents its assessed overall needs within the total public expenditure available.

I declare a personal interest. Will the Minister confirm that it will be the continuing policy of his Department, when it sells Property Services Agency property, to leave the responsibility for bringing rundown property up to scratch to those to whom it was sold?

It was expected that the properties would be demolished. The price that Camden council paid for them reflected their condition. If Camden council buys more houses than it can efficiently manage, more properties will remain rundown and empty, as they do in many other parts of inner London which are controlled by Labour authorities.

Refuse Disposal


asked the Secretary of State for the Environment if he has any plans to alter the existing statutory arrangements under which council authorities are both the authorities responsible for refuse disposal and the planning authority.

As part of the measures my right hon. Friend the Minister for Local Government and Environmental Services announced on 23 November, I shall seek powers to make county councils in England the planning authority for waste disposal planning applications. This will not affect the arrangements whereby local authorities acquire deemed planning permission for their own development.

Is the Minister aware that his answer is highly unsatisfactory? Will he not accept that it is a disgrace that waste disposal authorities have the right to give themselves planning permission for a waste disposal tip on anyone's doorstep, without the citizen concerned having a statutory right of appeal to anyone?

The hon. Member will be aware that the procedures by which local authorities acquire planning permission for their own developments are well established. Where this contravenes the structure plan, the Secretary of State can call it in for his decision. It would not be reasonable to expect local authorities to apply to another tier of government for permission of this kind.

What consideration has the Minister given to the possibility of applying to the EEC environmental fund for assistance with the rehabilitation of the older industrial areas?

I know of no application of that kind, but I shall certainly look at the position and write to my hon. Friend.

Local Government Staff


asked the Secretary of State for the Environment what is the latest estimate of local government staff numbers in England and Wales.

The latest figures, taken from the December 1979 return of the joint manpower watch, are 1,724,768 full-time employees and 936,536 part-time employees, making a total of 2,661,304 or 2,090,769 full-time equivalents.

Is my right hon. Friend aware that those figures demonstrate that over the past 12 months the only real growth area in some Labour-controlled councils has been in the increase in staff? Will he advise those local authorities how they might achieve savings, with consequent benefits to the ratepayers?

I am grateful to my hon. Friend for pointing out that there have been staff increases in too many authorities. I have no doubt that the publication of these figures will come as a profound shock to large numbers of authorities and their councillors of all political parties throughout the country. Because we have, for the first time, a basis of fact against which judgment can be made, I hope now that when local authorities next discuss running their authorities under tight control, they will be able to do so in comparison with other authorities similiar to themselves.

Will the Secretary of State agree that efficiency of local government would be better served without the dispute involving NALGO? Will he further agree that that association has acted responsibly, whereas the employers have acted totally irresponsibly? Will he talk to employers and press upon them the need to reach an early and amicable conclusion?

I am sure that that was an extremely good question. It had only one deficiency—I did not hear a word of it.

I shall repeat my question. Will the Secretary of State agree that efficiency in local Government would be improved if we did not have an industrial dispute involving local government officers? That dispute is not necessary. It has been caused by the irresponsible, reprehensible and dishonourable actions of local authority employers who have failed to honour a commitment on the joint pay study.

I would have thought that the hon. Member would have felt as I do—that the local authorities should be left to make these decisions for themselves, rather than have the Secretary of State do it for them.

Will my right hon. Friend agree that there are certain circumstances which should be qualified? For example, Buckinghamshire has a greatly increased child population. Consequently the local authority needs to employ more teachers.

I have no doubt that each local authority will want to qualify its own figures. But the mere fact that there is an increase in demand in one area does not mean that there could not be compensating economies in other areas.

Will the Secretary of State accept that by virtue of—[Interruption.]—I note, Mr. Speaker, that Parliament is being turned into "Comic Cuts" judging by the apparel of some hon. Members who have just come in. Will the Minister accept that, by virtue of the last question, many Conservative-controlled authorities have actually increased services? Will the right hon. Member now stop his ceaseless attack on local authority services, many of which are vital and many of which represent first-class value for money? Is he aware that there are many thousands of dedicated local Government employees who do their best to provide decent services?

Of course there are many thousands of local authority employees who do their best—and often succeed—to provide a first-class service. The question is whether it is necessary to employ all of them in the public sector. That is the matter to be decided by local authorities in the context of what the country can afford. The fact is that the country can no longer afford the present levels of staffing that we have in some authorities.

Housing Revenue Accounts (Rate Poundage)


asked the Secretary of State for the Environment if he will be issuing guidelines to local authorities regarding a maximum rate poundage that they can levy towards funding their housing revenue accounts.

Will not the Minister agree that, unless some aid or relief from rate poundage is given to the 50 per cent. of council house tenants who have to pay the full rent, the £2·10p increase means that these people will be the hardest hit section of the community as a result of the Government's public expenditure cuts?

That is not the only source for meeting the defict on the HRA. I believe that local authorities will want to look carefully at their overall administration and running costs in view of the figures on manpower that my right hon. Friend has published.

Why should every housing authority now not plan to reach a situation where the housing revenue account, given one year with another, is basically in balance?

As my hon. Friend will be aware, that is one of the reasons why we thought it right to abolish the no-profit rule in the legislation before Parliament.

Development Commission (Report)


asked the Secretary of State for the Environment when he expects to complete his consideration of the report of the review group in the Development Commission and its associated organisation, the Council for Small Industries in Rural Areas.

In view of the effective and meaningful contribution that the Development Commission and CoSIRA play in sustaining economic activity in rural areas, will my right hon. Friend give a guarantee that these two organisations will be maintained in principle and that their budget for the current financial year will not be less than last year?

I am well aware of the support for the work of the Development Commission and CoSIRA. While it is not yet possible to announce the outcome of full consideration of the detailed review, although it will be done shortly, I can confirm today that the basic role of the Development Commission and CoSIRA is recognised and the Government intend that their basic role should be continued.

Did the Minister notice the reply I received recently from his hon. Friend, which indicated that the Development Commission and CoSIRA are extremely effective in cost terms in the creation of jobs? Will he bear that point in mind in determining the size of the grant that he makes available, in view of rising unemployment, particularly in rural areas?

It is for the reasons that the hon. Gentleman has adduced that we propose that the basic role of the Development Commission and CoSIRA should continue. I am able to confirm that today. I hope that the hon. Gentleman will appreciate that public money is not the only source of help for the rural areas. We have encouraged the Development Commission and CoSIRA to attract private sector funds. I am pleased to say that they have been extremely successful in enlarging their resources without further call on the public taxpayer.

Has my right hon. Friend studied the extent to which the activities of the Development Commission have enabled county councils to get back their investment on money they have spent buying land for industrial development that has then come to fruition in partnership with the Development Commission?

There are a number of ways in which assets can be realised. We are anxious both for local authorities and for the Development Commission and CoSIRA, wherever possible, to recycle their assets by selling off successful developments to the private sector thereby ensuring that public money can be used as effectively as possible.

Will the right hon. Gentleman's Department continue to encourage the work of the Co-operative Development Agency in rural areas. Is he aware that it draws, not on public finance but private finance and on individuals in small co-operatives, as well as working with both organisations mentioned in the question?

That is not a matter for my Department. It comes within the responsibility of the Department of Industry.

Rate Increases


asked the Secretary of State for the Environment if he is now in a position to name the local authorities which have exceeded his guideline on rate increases and against which he intends to take punitive action.

It is still too early to say whether the transitional arrangements will be needed, and if so where the threshold should be set.

Is the Secretary of State aware that his indecision in this area is causing a great deal of unease particularly among Labour-controlled authorities? Will he inform the House and local authorities, as a matter of urgency, what action he proposes to take?

I would have thought that the action should be taken by the Labour authorities which must have taken the matter into account when they set their level of rate increases.

Will my right hon. Friend confirm that while Labour local councillors in Leicester and elsewhere might regard Government action to hold down the rates as punitive, that is not how ratepayers regard the issue?

I have made it clear that the Government expect local authorities to play their part in containing the levels of inflation and to keep their expenditure under total control. If one looks at the level of rate increases now coming through, one finds that among the list of the 10 lowest there are no Labour authorities and that among the 10 highest there are no Conservative authorities.

Will the right hon. Gentleman consider absolving from any clawback arrangement those local authorities that may be forced to impose a supplementary rate increase following the House of Lords decision on the Education (No. 2) Bill? These authorities are mandated to provide services for the electorate. That is what they are doing but the Government are penalising them.

There is a wide range of flexibility in the hands of local authorities over choosing where to seek economies. It is for them to decide.

Council House Sales


asked the Secretary of State for the Environment what recent discussions he has had with the outer London boroughs on questions arising from the policy of selling council homes to sitting tenants.

I have not had any recent general discussions with councillors of outer London boroughs on sales of council houses.

I thank my hon. Friend for that reply. Where there are unnecessary bureacratic delays, when a preliminary valuation has been agreed or when remedial works are being carried out to improve a property prior to purchase, will the Minister see whether his Department can assist to get through those unnecessary delays?

We have recently made an amendment to the general consent under which council tenants in the process of buying will not be penalised in terms of the increased valuation of their property if there are delays for administrative reasons or because of problems with improvements.

Will the Minister admit to the House that the sale of council houses is bound to reduce substantially the estimated 120,000 re-lets upon which the housing policy review was based in assessing the need for council houses? Will he admit that the assessed need for council houses, after allowing for re-lets, was over 100,000 and that his policy will produce 35,000? Will he acknowledge that he has been refusing to answer questions that I have tabled about the evidence and that his policy is based on uninformed—

Order. That question is almost as long as the hon. Gentleman's point of order yesterday.

As the hon. Member knows, the right to buy has been put to the electorate and to the House. Both have been found by a large majority to be in favour of it.

When the legislation enabling council house tenants to escape from the bondage of those local authorities that refuse to sell council houses becomes law, will my hon. Friend undertake a massive publicity campaign with advertisements so that every local authority and every tenant is aware of the enfranchisement that this Government will have effected?

I can assure my hon. Friend that we intend to make known to all council tenants that the right to buy has been provided by this Government.

Does the Minister realise that this policy, combined with the failure to build council houses has led to a situation in West London where people have no hope of transferring from a GLC tenancy to another tenancy in the near future?

I am glad to say that this is not the view of Conservative-controlled boroughs in London, all of which are selling at 50 per cent. discounts.

Rates Assessments


asked the Secretary of State for the Environment what action he intends to take with those local government authorities whose rates assessments are higher than the guideline limit he has fixed.

We shall decide whether to implement the transitional arrangements, and if so, what scale of penalties to apply, when final information on rating decisions is available.

Does the right hon. Gentleman realise that the stringent sanctions taken by the Government are hurting tremendously the poorest families and children? Will he make certain that many local authorities that are determined to maintain social and individual standards are not punished?

I can think of nothing that contributes so much to the burden of poorer people, to whom the hon. Gentleman refers, than the level of rates that Labour authorities are imposing on them.

Will my right hon Friend remember, in considering this problem, that one of the reasons why inner city authorities load the burden on to the rates is that so many of their ratepayers get rate rebates? Is he aware that the small businesses which are thereby attacked are disfranchised?

I am sure that those factors can play a part. The House will remember that another reason is that the Labour Party consistently encourages high levels of public expenditure, nationally and locally.

Is the right hon. Gentleman aware that those local authorities which have imposed moderate rate increases, as he has called them—such as Wandsworth council—have done so at the expense of an increasing number of badly housed people, at the expense of the elderly, the disabled and others in the community who need help? What action does he propose to take in regard to those authorities?

The hon. Gentleman will know from recent by-elections in his area that the local people do not agree with him.

Can my right hon. Friend say what advice he gave to the Cheshire county council on his recent visit to Cheshire, and to county hall in particular, about the fact that it has increased the rate ahead of the Government guidelines, thus offsetting the good management of the borough councils within Cheshire?

The advice that I gave on that occasion was private, and I think it appropriate that it should remain private. However, these matters are essentially for the local people to decide and not for this House.


I intend to be exceedingly brief. I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discusing a specific and important matter that should have urgent consideration, namely,

"the threat of famine in Kampuchea"
The Guardian today highlights the problem of food in that country, the prospects for the future in terms of rice supplies, the inevitable movements of population in search of food, and the spiral of malnutrition, famine, and demographic chaos that can and will emerge unless action is taken to mount a massive input of food coupled with guarantees by the major world Powers regarding distribution, so that those in most need are supplied first.

Under the Standing Order I cannot debate the issues; I can merely indicate the nature of this specific, important and urgent matter. I am aware that important matters for the consideration of the House are to follow, but, Mr. Speaker, your visit to Canterbury yesterday, if it means anything, means that as a Christian nation we should be concerned for the people of Kampuchea at this time. We should be prepared to give what we can in terms of aid to relieve the suffering that is likely to occur in the absence of that aid. Indeed, their problems are far greater than any that we may experience in the near future, no matter what the Chancellor's Budget contains.

During prayers, the Chaplain referred to Christian love and charity. I hope that the House will have some in regard to the request that I make to you.

The hon. Gentleman gave me notice before 12 o'clock noon today that he would seek leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discusing a specific and important matter that he believes should have urgent consideration, namely,

"the threat of famine in Kampuchea"
Anyone who listened to the hon. Gentleman would not fail to realise the importance of the subject. The hon. Gentleman knows that I do not decide whether that important subject is to be debated. I merely decide whether it shall be discussed tonight or tomorrow night as an emergency debate. As the hon. Gentleman knows, there are other avenues open to him.

The House has instructed me, in considering these applications, not to give my reasons. I listened carefully to what the hon. Gentleman said, but I must rule that his submission does not fall within the provisions of the Standing Order and, therefore, I cannot submit his application to the House.

Ballot For Notices Of Motions For Friday 18 April

Members successful in the ballot were:

  • Mr. Tony Speller
  • Dr. Keith Hampson
  • Mr. Christopher Price

Ways And Means

Budget Statement

Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that at the end of the Chancellor's speech, as in past years, copies of the Budget resolutions will not be handed around in the Chamber but will be available to hon. Members in the Vote Office.


3.36 pm

In my Budget Statement last June I said that the economic situation that we inherited was a difficult one. I stressed that it would take time to check, and then to reverse, Britain's long-run economic decline—time, and resolute commitment to the right strategy, for a period of years ahead. It is important for that strategy to reflect the right lessons of years of disappointing economic performance.

Even in the 1950s and early 1960s our economy was lagging behind those of our competitors. But it was a period of low inflation and rising growth rates. Seen in retrospect, that period was something of a golden age. That was not, of course, the feeling at the time. From the mid-1960s onwards we became impatient to throw the resources of Government into efforts to do better, quicker. In rapid succession, we had a national plan for faster growth, devaluation, incomes policies, recurrent bouts of intervention in industry—and much else.

The increased scale of Government borrowing from the mid-1970s, as compared with the 1950s and 1960s, is an example of the impatience to which I have referred. Governments became increasingly addicted to deficit spending. This was particularly true of the United Kingdom at the time of, and after the first world oil crisis. Memories of the monetary and inflationary implications of what the Government then did are still vivid.

Eventually, it began to be recognised, as indeed the Leader of the Opposition said in 1976, that we could no longer spend our way out of recession. But although that break-through of realism has begun, the change in attitude has not got far enough. Not everybody has yet accepted that public expenditure cannot go on growing while the economy stagnates.

Those years of often hectic Government action were equally notable for other things that did not receive the attention they deserved. As well as misjudging the importance of money supply and its proper control, we often paid no more than lip service to the role of private enterprise and to the importance of economic change as an agent of prosperity. Successive Governments acknowledged the need to reduce the power and privilege of organised labour. But in the event, its ability to damage the economy has increased.

The outcome is familiar to us all. Our underlying rate of growth has become steadily weaker. At the same time, we have come almost to tolerate inflation at rates that would have horrified an earlier generation.

The measures taken following the agreement with the International Monetary Fund in 1976 provided a brief respite.

The public sector borrowing requirement fell, monetary growth declined and pay settlements moderated. The inflation rate came down in 1977 and 1978. But the lesson was not well enough learnt. The money supply was again allowed to expand too fast, partly through excessive intervention in the foreign exchange markets. Fiscal policy was eased and the situation deteriorated again.

The Recent Past

During the 18 months to last June the underlying growth rate of sterling M3 was nearly 15 per cent. a year. That compares with the much more modest rate of about 8 per cent. in the year after the IMF measures. The incomes policy of the previous Government had collapsed. Earnings also grew by at least 15 per cent. a year. Not surprisingly it was consumer spending that gained most from this combination of monetary expansion, tax cuts and high pay settlements. In the year before the election the volume of consumer spending rose by more than 5 per cent. a year. That was much too good to last.

There was, indeed, a big price to pay for that short burst of apparent prosperity. Production failed to respond to the surge in demand and imports, especially of manufactures, rose sharply. The current balance of payments, in surplus after the IMF agreement and helped by North Sea oil, moved back into deficit and inflation moved sharply upward.

Last year we made an important start on tackling that inheritance. We set about reducing the rate of monetary growth. We achieved large reductions in dangerously oversize public spending plans. We reduced the share of Government spending and borrowing in the nation's output. And when, last November, the money target looked like being exceeded, we acted promptly and decisively.

We have removed many unnecessary controls and obstacles to enterprise and individual effort. We have removed controls on pay, prices, dividends and foreign exchange, which can now be used freely to acquire productive assets overseas to the benefit of our exports and invisible earnings alike. My first Budget switched the tax burden from earnings to spending and greatly reduced oppressive tax burdens on enterprise.

But during the year that has just ended we have had to contend with a further major increase in world oil prices and with a substantial rise in the price of other commodities. The strength of sterling has to some extent cushioned their impact on domestic inflation. Even so, the price of oil and other inputs to manufacturing industry has risen by 41 per cent. since the beginning of 1979.

The rise in the oil price has also had severe effects on the world prospect generally. The outlook in the coming year is for a significant slow-down in growth and a worsening of inflation everywhere. The year-on-year increase in consumer prices in OECD countries rose from about 10 per cent., on average, in mid-1979 to 14 per cent. by the beginning of 1980.

Every major country is demonstrating its determination to resist this inflation by adopting a firm monetary and fiscal policy. The inevitable immediate result is lower output and higher interest rates. Since early last summer rates have risen by six percentage points, on average, in the major industrial countries. This is much the same as in the United Kingdom over the same period. The increase has been even more marked where the dollar is concerned. Between May last year and the end of last week Eurodollar three-month rates rose by over 8 per cent. to 19 per cent.

The immediate prospect

That is part of the background against which to judge the poor short-term economic outlook for the United Kingdom. The Treasury projections published today suggest that output may fall in 1980 by up to 2½ per cent. This is more or less in line with outside forecasts.

It is important to understand the significance of this recession. There are some who argue, or at least seek to imply, that it is an entirely avoidable development, which need not be inflicted upon the British economy. Others seem almost happy to suggest that, so far from being avoidable, this recession is no more than a foretaste of much worse to come. Some uniquely critical pessimists contrive to convey both impressions at the same time.

The right view to take is that it is, in part, a consequence of the weakness in world demand, in part a consequence of our own inflation—still well in excess of the money supply target—

—and in part, perhaps most of all, a consequence of the long-run decline of our economy. These influences are not insuperable. We can most certainly get through the difficult year or two that lie immediately ahead. The important thing is not to allow the difficulties to prevent us setting our feet on the right long-run path.

The Medium-Term Strategy And The Monetary Target

This is one of the reasons—though by no means the only one—why I intend to consolidate the start that I made last year by publishing today the Government's financial and monetary strategy for the medium term. This strategy is contained in part II of the Financial Statement and Budget Report, better known, perhaps, as the Red Book.

This strategy is by no means to be confused with a national plan—Opposition Members may laugh—for it is concerned with only those things—very few of them—that the Government actually have within their power to control. The strategy sets out a path for public finance over the next few years. At its heart is a target for a steadily declining growth of the money supply. That is set alongside policies for Government spending and taxation, which will underpin that objective.

It will be clear from what I have already said that the Government continue to regard the fight against inflation as the first priority. It is an illusion to suppose that we have any real choice between defeating inflation and some other course. It is quite wrong to suppose that inflation is something with which only Treasury Ministers need be concerned. So long as it persists, economic stability and prosperity will continue to elude us. So long as it persists, social coherence will also elude us. Nothing, in the long run, could contribute more to the disintegration of society and the destruction of any sense of national unity than continuing inflation.

Inflation sets worker against worker, employer against employee, and sometimes even Government against their own employees. The violence of the picket lines and last winter's examples of hospital patients denied supplies, and of the dead denied burial, would have been unthinkable 20 years ago. They reflect the social disintegration caused by inflation. That is one of the reasons why the conquest of inflation is so important.

Monetary policy has an essential role to play in the defeat of inflation. Other countries recognise this very clearly. They recognise, too, that sustained monetary restraint is not an easy, automatic or painless solution. But they are convinced that it is essential. They are struggling to get back towards more balanced budgets, as we must. They recognise, as we must, that inflation cannot persist in the long run unless it is accommodated by an excessive expansion of money and credit. That is at the heart of what "monetarism" means in practice. It is a great pity that its practical, commonsense importance has been so confused by arid, theoretical dispute. Certainly the word "monetarism" should never have become a term of political abuse—least of all for use by those who have in the past claimed to make a virtue of practising it.

It is an illusion to suppose that there is any real alternative to the strategy that I have outlined. Some commentators seek to blame our present difficulties on the pursuit by Government of unnecessarily tough policies. That is totally to misunderstand the position. Britain's present difficulties are so deep-seated and serious as to make tough policies inescapable. Relaxed monetary and budgetary policies might bring higher output—even higher living standards—in the very short run, though even that is questionable, but in reality they would simply fuel fresh inflation. Such policies would inevitably undermine the confidence of financial markets, industry, and consumers. The action that would then be necessary to deal with the ensuing crisis would, equally certainly, destroy jobs and cut living standards still further.

Restraint of the growth of money and credit is, then, essential, and it needs to be maintained over a considerable period of time in order to defeat inflation. That underlines the importance of the medium-term financial strategy.

That strategy, as I have said, sets out a four-year path for monetary growth, public spending and tax policies. I shall deal first with the monetary targets. By 1983–84, the last year covered by our spending plans, the target rate of growth of money supply will be reduced to around 6 per cent.—just half the rate of growth over the past year.

The monetary target for 1980–81

In keeping with that medium-term monetary objective, the target range for the growth of sterling M3 in the period to mid-April 1981 will be 7 per cent. to 11 per cent. at an annual rate. The base for this will be the most recent published figures. The target will thus relate to the 14 months from mid-February this year.

I am glad to say that monetary growth has already begun to slow down. In the first four months after the Budget sterling M3 continued to grow at the excessive rate—over 14 per cent.—that we inherited. But in the succeeding four months it fell to an annual rate of 10 per cent. Moreover, in the earlier period sterling M3 growth had been below that of other measures of the money supply. Currently, however, all the other measures, M1, total M3 and the various indicators of wider liquidity, are growing less rapidly than sterling M3. The narrow measure, M1, actually fell over the last four months. So the turndown in the growth of sterling M3 probably understates the extent to which the measures in the last Budget and those that I took in November have already brought monetary growth under control.

This year's target will consolidate the substantial slowdown in the underlying rate of growth. At the same time the Governor and I have agreed— Interruption.]

I am referring not to any foreign or outlandish figure but to the Governor of the Bank of England. We have agreed that the supplementary special deposit scheme—generally known as the "corset"—should not be extended beyond mid-June, when the present guideline ends. One of the effects of the corset has been to encourage the development of credit channels just outside the banking system, such as the purchase of bank acceptances by the private sector. This process will be reversed to some extent when the corset ends. So sterling M3 will be swollen as earlier distortions unwind.

The increase in sterling M3 on this account will not, however, signal a change in underlying monetary conditions. The scale of this exceptional increase cannot be precisely measured or predicted, and we shall need to assess its effect both as it occurs and when the target is rolled forward in the autumn. If, as I hope, it can be accommodated within the target that I have just announced, that will point to a further slowing down of monetary growth.

By any standards this is a firm monetary policy. But it is an essential response to the inflation rate. As I have shown earlier, there is nothing unique to this country about what I have proposed. Other countries faced with similar problems have adopted similar remedies, as is shown by the determined measures introduced in the United States a fortnight ago.

Monetary control

It goes without saying that to accompany these policies we need to have efficient methods of monetary control. We already have the means to meet our medium-term objectives. The Green Paper on monetary base control, which I laid before the House last week, will provide a basis for public discussions of how to improve control over short periods. The Governor and I hope to hear a wide range of views before deciding whether any further changes should be made.

The recent pressure on companies has resulted in a strong demand for bank lending which has contributed to the upward pressure on both money supply and short-term interest rates. I am sure that banks and their customers would be well advised, in the difficult economic conditions foreseen, to be cautious about the scale of their lending and borrowing. When the growth of bank lending falls back, this will add to the downward pressure on interest rates from today's measures.

The Fiscal Stance

The Public Sector Borrowing Requirement

But it is not intended to achieve this reduction in monetary growth by excessive reliance on interest rates. The Government's financial strategy, therefore, plans a substantial reduction over the medium term in Government borrowing as a percentage of national income. The relationship between the Budget deficit and the growth of money supply is not a simple one. It is erratic from year to year. But there can be no doubt of its importance, or that Government borrowing has made a major contribution to the excessive growth of the money supply in recent years. The consequence of excessive borrowing has been high nominal interest rates and, in capital markets, the crowding out of business by the State. This has held back investment. From now on, however, given the shape of the Government's plans for public spending, the Budget deficit should be reduced progressively to between 1 per cent. and 2 per cent. of output. This would be a little below the average in the 1960s.

During a recession, of course, it is widely recognised that the Budget deficit is increased by low tax receipts and high Government spending. Some increase in the ratio of the PSBR to the national income may be consistent with the maintenance of a given monetary target and without itself requiring increases in interest rates, but in practice public sector borrowing has been too high during the last two years, as experience has shown. That lesson, and the continuing high inflation rate, make a big cut in the underlying deficit imperative this year.

In 1977–78, following the agreement with the International Monetary Fund, the public sector borrowing requirement as a percentage of output was 3¾ per cent. of notional income. In 1978–79, after the last Governments relaxation of policy it rose to 5½ per cent. In money terms the latest estimate is just over £9 billion.

Despite the expectation of recession, experience shows that it would be wrong to keep the actual PSBR at its current level as a percentage of national income. This could not be reconciled with the monetary target or with the counter-inflationary objectives of the medium-term strategy. We must not make the mistake of promising to correct the underlying weakness at some time in the future but failing to take the necessary steps today.

The monetary target that I have announced for the coming year will involve a substantial further slowdown in underlying monetary growth. If we are to meet that target without putting too much of the burden on interest rates, a public sector borrowing requirement of not more than 4 per cent. of national income in 1980–81 is appropriate. This would imply a money figure for the PSBR next year of not more than about £8½ billion.

Today's proposals will leave the total yield from taxation not much changed. Taking account of the effect of inflation over the past year and of the Government's public spending decisions, this represents a tightening of the budgetary stance. Indeed, in the absence of the substantial cuts in public spending since my last Budget, a very large increase in the burden of taxation would have been unavoidable.

Fiscal Policy in the Medium Term

The Government's spending plans are published today in the public expenditure White Paper. They are essential to the financial strategy. The path that we can now plan contrasts very sharply with past experience and intentions. We are not making panic cuts affecting the next year or two, leaving the long-term trend unaltered. We are not just reducing planned increases. The level of spending is actually planned to fall steadily throughout the next four years. Without these economies, a coherent policy to reduce inflation would be unattainable.

Over the next few years receipts of taxes and royalties from North Sea operations will make an increasing contribution to Government revenue. Even so, the growth of revenue over the medium term is broadly dependent upon the growth of national output. This is conditioned by the growth of productivity, the growth of the world economy, and the speed with which we reduce inflation. Since the first oil crisis in 1973 there has been a world-wide decline in rates of economic growth. The growth of output in the United Kingdom has been less than half its previous rate, in spite of the contribution of North Sea oil. The recent rise in oil prices makes it unwise to assume that world and United Kingdom output will expand faster over the next few years than in the past five.

The projections for tax revenue in the medium-term strategy, therefore, rest on the fairly cautious assumption that after the recession forecast for 1980 the economy will grow by an average of only 1 per cent. a year up to 1983–84. This will undoubtedly seem rather modest. The economy should be capable of growing faster than this. But we must learn from recent history. In the past, Governments have almost always based their spending plans on improbably high growth rates, which were well above those achieved. To plan spending on over-optimistic growth assumptions can involve actions that, in the event, prevent that forecast growth being achieved. We should take credit for improved growth performance only once we have firm evidence that it has taken root.

So in preparing projections of the future of the economy, we must adopt a cautious approach. The Government cannot dictate the rate of growth of output. It is only as inflation subsides that there will be secure foundations for sustainable growth. The 1 per cent. a year that we are assuming is the same rate as was achieved in the years 1973 to 1979. We cannot prudently assume that we shall do better over the next few years, though we have every reason to hope that we can. The sooner inflation comes down, the faster the rate of growth we can achieve within the monetary framework.

Overcoming Inflation

A firm monetary policy, as the past year has shown, contributes to a strong exchange rate. Furthermore, sterling now has some of the characteristics of a petrocurrency. A strong exchange rate plays an important part in diminishing inflationary pressures, but at the same time it obliges United Kingdom industry to restrain costs and improve its competitiveness. That requires a fundamental change in attitudes.

Over the past years we have sunk into an unquestioning "cost-plus" mentality, where the impression is given that whatever wage increases are agreed can simply be passed on to customers. But exporters have been learning that their prices must be related as closely to their competitors' prices as to their own costs. The same lesson has to be learnt in pay negotiations. Just as exporters must base their prices on what their customers will pay, so pay settlements must be based upon what companies can afford, while remaining competitive.

There is a need for much greater public awareness of the link between pay increases, price inflation and unemployment. This subject has already been discussed in the forum of the National Economic Development Council, and we shall be returning to it again at future meetings. The more pay settlements can be moderated, the lower the transitional costs of the fight against inflation in terms of bankruptcies, lost production and reduced employment.

It is still a widespread, if tacit, assumption in too many places that if wages and prices go up fast the exchange rate will fall before long and restore any loss of competitiveness. This rests, not unreasonably, on repeated experience. But the authorities are no longer in a position to engineer a major reduction in the exchange rate in order to bail out those who have sought and granted excessive pay claims. Even if we could do this, it would create more inflation before long.

It is not only in collective bargaining and selling overseas that we must move away from a blind attachment to cost plus and the idea of full protection against RPI movements. The problem goes far wider than that. There are many parts of our economic life where it is right to take some account of inflation, but a very damaging rigidity has grown up in how we do it. For example, until recently public spending programmes were controlled entirely in volume terms, without regard to changes in their costs. With cash limits an important step was taken away from an increasingly harmful practice. Again, it has been assumed that the real value of all social security benefits must always be maintained, whether production and incomes go up or down. This places the entire burden of adjustment on the working population. They, for their part, have responded by pressing for the income tax system to be fully indexed and by adding to their demands for higher wages. Inevitably, a substantial part of the burden of adjustment then falls on profits, and so on jobs.

So long as inflation persists there has to be some measure of price protection in relation to social benefits and taxation in a civilised society, but full protection for some is possible only at the expense of others. The proposals in this Budget recognise both the need to offset some of the effects of inflation and the fact that it is impossible to maintain the real value of all personal incomes when total national income is likely to fall.

If we are to master inflation the adjustments required of all of us are difficult but perfectly feasible. We should beware of the fashionable but misleading parallels with what happened in 1974 and 1975. They are merely a recipe for self-fulfilling pessimism.

After the oil price increases of 1973–74 our inflation went on rising for two years, reaching a peak year-on-year rate of 26 per cent. in the autumn of 1975. The oil price increases in the second half of 1979 have been just as large, but this time we have a good chance of seeing our inflation rate decline in the latter part of 1980. Monetary growth is now under better control. Unlike then, we have no backlog of inflation in the system, caused by earlier falls in sterling. There are encouraging signs of realism in private sector wage settlements. This is clear, for example, from information provided by the CBI data bank and from evidence of settlements linked to genuine productivity deals. The underlying rate of inflation over the last six months is well below the present year-on-year rate.

Projections of growth and tax revenue can only be illustrative and imprecise, but those published today show that for the first time the Government of the day have coherent policies for money, tax and spending over the medium term. There should be scope simultaneously to reduce Government borrowing and to lower taxes, including progress towards a 25 per cent. rate of income tax. Publication of this strategy will assist decision-makers throughout the economy to work with the grain of Government policy, understanding the limits that it imposes and the opportunities that it presents. This strategy is the best foundation for higher growth, fuller employment and a return to rising living standards.

Public Expenditure

At the heart of the medium-term strategy is the need to return to a sensible level of public spending and to see taxes and Government borrowing reduced. The spending plans that this Government inherited were too high, and were set to grow considerably faster than production. Most aspects of public spending are worth while if the nation can afford them, but too often we have endorsed plans for rising expenditure that we cannot afford. In the last 20 years the ratio of public expenditure to GDP has risen by a quarter.

It would be all too easy for that ratio to go on rising indefinitely unless we addressed ourselves to fundamentals. That is what we have done in what has been the most far-reaching review of medium-term expenditure plans since they began 20 years ago. This review is crucial to the strategy, crucial to success in reducing the public sector borrowing requirement, lowering interest rates, and bringing down inflation—and crucial if we are to find room for lightening the tax burden and so to provide scope and encouragement for enterprise and initiative.

The results are set out in the public expenditure White Paper published today. Publication of plans for expenditure at the same time as those for taxation has long been widely favoured. The happy coincidence of the two on this occasion is mainly due to the time needed to review inherited expenditure plans fully, but it has enabled me to present together the Government's strategy for expenditure, taxation and the money supply in a way not attempted by my predecessors. One other result of this coincidence is that I have an unusually large number of tax and expenditure proposals to announce in this speech. Details of these are contained in press notices that are being issued today, an index to which can be found in the Vote Office.

The plans in the White Paper show, for the first time ever, a progressive reduction in total expenditure throughout the lifetime of a Parliament. By 1982–83 they will be over 11½ per cent. below those inherited from the previous Government. This reduction works out at over £11 billion at today's prices. Expenditure in 1983–84 is planned to be about 4 per cent. lower, in real terms, than in 1979–80. The effect will be a marked shift in the burdens imposed by the Government and in the balance between the public and private sectors. Above all, we shall have set the volume of public spending on the right course. We shall be creating a climate much more favourable to economic growth.

In the coming year, 1980–81, the reduction from the amount that our predecessors planned to spend is over £5 billion at today's prices prices—roughly equivalent to the revenue raised by an extra 7p on the basic rate of income tax. Since the White Paper published in November, further net reductions of over £900 million have been decided for the coming year. The Government have thought it prudent, however, to set aside £325 million of this for the Contingency Reserve. It should not be necessary to spend all that. These decisions reduced planned spending in 1980–81 by at least £575 million at current prices. Special sales planned for 1980–81 remain at the £500 million mentioned in the November White Paper. That compares with the £1 billion target for 1979–80 announced in my Budget last June. In the event, a total very close to £1 billion has been raised in that way.

In today's circumstances, any Government would have to check the size and growth of public spending. This does not mean, and has not meant, that public expenditure should be cut indiscriminately. Our choices have been guided by the belief that the Government should provide efficiently and realistically those services that they alone are able and best fitted to provide. The role of the State can sensibly be reduced where it has taken over what private initiative can better achieve, and where it has been reducing incentives, increasing bureaucracy and distorting markets.

Only the State can provide adequately for the defence of its citizens against external and internal threats. The Armed Forces and police need to be strengthened and improved. Expenditure on defence, and law and order, therefore, is planned to grow—defence by 3 per cent. a year, in real terms, up to the end of the period, and law and order by 2½ per cent. a year. Spending on health will continue to grow exactly as planned by the last Government, at about 2 per cent. a year over the period. The cost of this increase will he partly offset by increases in charges, including in particular a £1 prescription charge, from next December. [ Interruption.] These charges will yield in total about £30 million in a full year. [ Interruption.]

Order. It is a long tradition of the House that the Chancellor's Statement is heard in silence.

One might have thought that no Labour Government had ever increased charges under the National Health Service. One might also be forgiven for thinking that the Labour Party overlooks the fact that the present wide range of exemptions from charges is and will be maintained, so that, for instance, the elderly, children under 16 and those on low incomes will be unaffected by the increases that I have announced.

But support from the taxpayer for private and nationalised industries is reduced. Provisions for housing is reduced. This reflects both the local authorities' own reduction in building programmes and what the nation can afford in public sector housing investment and subsidies. The reduction in the edution programme reflects a fair and sensible response to falling school rolls and a continuation of the economies to be made in 1980–81. Whilst the number of pupils is expected to fall by about 13 per cent. between 1979–80 and 1983–84, spending on schools is planned to fall by only about 6 per cent. So spending for each pupil will increase, in real terms. The aid programme is also reduced, but remains substantial. It will now be in line with what a country in our present circumstances can afford.

Social security presents particular problems. This programme has been responsible for three-quarters of the total increase in programmes since 1973–74. This Government, no less than their predecessors, are committed to maintaining a social security structure that protects the weakest and most vulnerable in our society. But social security is now one-quarter of total public expenditure and still growing. It cannot be exempt from measures to restrain its growth where these can reasonably be made. Notwithstanding the changes that the Government are making, spending on social security is still expected to increase by nearly 4 per cent. between 1979–80 and 1983–84. I shall return to this area in more detail in a few moments.

There are those who sometimes speak as if all our problems with public expenditure could be solved by reducing bureaucracy while leaving subsidies and services untouched. The process of securing economy cannot be as painless as that. It is easy to forget that the entire cost of the Civil Service represents only one-fifteenth of public expenditure.

Even so, that expenditure represents a substantial cost. At the beginning of this Administration the Civil Service was larger by 40,000 than when we left office. Between 1974 and 1979 local government manpower had increased by over 200,000. Total public service manpower had increased by nearly half a million. It is no criticism of public servants to say that this could not go on. If it were to continue, by 1983 over one-fifth of the labour force would be employed in the public service.

Action has already been taken. The last Government made financial provision for a Civil Service of 748,000 at the end of this month. By 1 April 1981–12 months hence—the Civil Service will be smaller than that by at least 50,000. I cannot yet predict what the size of the Civil Service will be by the end of the present Parliament, but we have made a good start. The Revenue departments, I am glad to say, have been playing their full part in this process of reduction. The numbers employed in the Revenue departments had grown from 87,000 in 1970 to 113,000 when we took office. At that rate, by the year 2000 there would be 175,000 tax collectors, which is more than there are soldiers in the Army.

That process of expansion is now being reversed. In 12 months' time the staff of the Revenue departments will be over 10,000 fewer than when we took office—a reduction of about 8½ per cent. The staff savings from my Budget last year amounted to about 1,400, and the tax measures that I am proposing this year will in themselves enable me to make eventual net savings of 1,700 staff in my departments.

My right hon. Friend the Secretary of State for the Environment and other Ministers have been taking steps that will help local authorities to reduce their manpower. There is now less detailed interference by central Government—fewer circulars and returns—and a large number of statutory controls are being removed. But, as my right hon. Friend the Secretary of State for the Environment pointed out on Monday, progress has been disappointingly slow. The planned reductions in expenditure imply a substantial reduction in local authority staff over the next four years. The local authorities must now give high priority to achieving just that.

The reductions that I have so far described are in the volume of public spending. We must also pay full regard to what it costs. Some of the reasons were eloquently explained to the House by the right hon. Member for Leeds, East (Mr. Healey) on 25 January last year, when he was still Chancellor.

On that occasion the right hon. Gentleman made an assumption that earnings in the 1978–79 pay round might increase by 15 per cent. He said that this assumption, which he described as pessimistic, would increase the cost of central Government and local authority services by £1 billion each in 1979–80 and raise the costs of the nationalised industries by nearly £1 billion.
"Faced with such increases"
—he said—
"… the Government would be compelled to seek reductions in the volume of public expenditure."—[Official Report, 25 January 1979; Vol. 961, c. 756.]
He emphasised that this would inevitably increase unemployment.

We now know that the right hon. Gentleman's assumption about the likely growth in earnings proved all too true. Moreover, his own Administration left behind some large postdated cheques. The Clegg awards are expected to cost something like £2 billion in 1980–81 and the full-year effect of other comparability awards in the Civil Service will add a further £1 billion to that.

Public services and employment cannot escape the effects of inflation. Cash limits are the crucial instrument for ensuring that the costs of public expenditure do not run out of control. For central Government expenditure most of the cash limits for 1980–81 are contained in the parliamentary Estimates, published today. As already announced, they are based on provision for current cost increases of 14 per cent. When the Estimates were being prepared this seemed an adequate allowance for inflation between 1979–80 and 1980–81.

The projection that I am publishing today suggests, in line with those of most outside forecasters, that inflation may be a point or two higher. To increase the provision in the cash limits to accommodate the higher forecast of cost increases would be wrong. That would simply be to condone and encourage inflation. The difference between the provision in the cash limits published today and full provision for the inflation now forecast would be about £700 million. There should be scope to absorb such higher costs through greater efficiency It will not be easy. But the unaceptable alternatives would be to cut services or increase taxes.

In an important respect the reductions announced today are not complete. This country carries a heavy burden of Government payments overseas: first, spending on defence, especially the British Army of the Rhine; second, our net contribution to the European Community; and, third, overseas aid. Relative to our GNP we spend more across the exchanges on defence than any of our NATO partners; we make far the largest net contribution to the EEC budget; and our aid programme—I hope hon. Members below the Gangway will support me on this—is larger than those of the United States, Japan or Germany. One result of the growth of these transfers has been to offset a large part of our substantial private sector earnings on invisible account of the balance of payments.

Of these transfers overseas the fastest growing and least justified has been our large net contribution to the Community budget. Although ranking seventh out of the Nine in GNP per head, we are now making the largest net contribution. The latest estimates by the European Commission again show that our net contribution is much larger than Germany's, whose GNP per head is twice that of the United Kingdom, and that most—if not all—of the other five countries with a higher GNP per head than ourselves are net beneficiaries of the budget. We also transfer substantial resources to our partners outside the budget through the artificially high prices imposed by the Community's agricultural policy.

The White Paper figures make no allowance for the reductions we are negotiating in the United Kingdom's net contribution to the budget of the European Community. Pending a satisfactory conclusion to those negotiations, they include the full estimated costs under present arrangements. If those arrangements are not changed, the likely costs will rise to more than £2 billion at today's prices by 1983–84. A successful outcome to the negotiations is therefore of the highest importance to our medium-term fiscal and monetary stategy and to the success of our attack on inflation. The Government's determination to redress the present unacceptable situation has, I feel certain, the support of the entire House.

Social Security

I have already stressed the scale and importance of the social security programme. In the coming year it will absorb a quarter of public spending and cost about £20 billion—which works out at no less than £1,000 a year for every household in the country. Its volume has grown by about 50 per cent. in the last 10 years, allowing both for inflation and the switch from family allowances and child tax allowances to child benefit. That rate of growth is more than three times the 15 per cent. increase in GDP over the same period. Some of this growth is accounted for by an increase in the number of beneficiaries, particularly the elderly. But much of it has come about not through any conscious decision but because the level and scope of benefits have been improved in anticipation of a growth in output which has not been achieved. It is a striking example of the nations capacity for spending money before it has been earned.

Any effort to curb the growth of public spending must, therefore, include this programme. One must recognise the differences between its various components. The programme covers a big range of benefits and beneficiaries. Any changes must reconcile the need, which we all recognise, to protect the most vulnerable members of society with the need to ensure that scarce resources are distributed in a way which does not unduly inhibit the creation of wealth. Standards of living and the benefits people are willing to finance must depend on a healthy, growing economy.

Any civilised society has a special obligation to those who have completed their working life. The standard rate of retirement pension will accordingly be increased next November by £6·15 to £43·45 for a married couple and by £3·85 to £27·15 for a single person. These increases fully reflect the Government's estimate of the rise in prices between the last uprating and the next. In addition, a £10 Christmas bonus will again be paid. Moreover, we propose substantial extra help for poorer consumers with their fuel costs next year. Much of this will go to the elderly. My right hon. Friend the Secretary of State for Social Services will be giving details tomorrow.

Again, any civilised society should provide a safety net below which a poor person's standard of living should not fall. We can all debate what is the proper level. Should it be a relative level or, as Beveridge had contemplated, an absolute level, which seeks to meet the basic needs of a person and his family? These are difficult questions. The answers are not made any easier by the fact that the supplementary benefit scheme covers so many varied circumstances, with more than 3 million beneficiaries at any one time, ranging from the old and infirm to healthy young people capable of work. But clearly no action we take should be at the expense of the really weak and needy. Accordingly we propose that supplementary benefit rates, too, will be increased next November in line with the projected level of prices. A large part of the additional help with fuel costs which I have just announced will also go to supplementary benefit recipients, particularly the old and those with young children.

Besides the old and the poor there are others with special needs. One-parent families face particular problems. We propose that the additional payment to them should go up from £2·50 to £3 per week—an increase of 50 per cent. since the government came into office. The disabled also face special difficulties. The mobility allowance will therefore go up by £2·50 per week to £14·50 per week next November—again an increase of nearly 50 per cent. since we came into office. The family income supplement scheme will be improved so as to extend help to a further range of low income families where the breadwinner is in work. These families will also benefit from the fuel help scheme.

This demonstrates our determination to look after the elderly and the needy. But there is another aspect of the social security programme. The Government and the vast majority of the British people want hard work and initiative to be properly rewarded and are vexed by disincentives to work. One of the biggest problems is the lack of balance between social security benefits and incomes in work.

As my predecessor so often reminded this House, the net extra reward to a low earner from going out to work can be so close to the benefits he can get when on social security as to extinguish his incentive to find or stick to a job. Indeed, there are people whose incomes out of work exceed what they could reasonably expect to get when in work. There is undoubtedly widespread and justified public concern about this disincentive. It is doubly demoralising: first, to those directly affected; and, second, to the large numbers around them, who quite reasonably see such provisions as unjust as well as harmful to the proper workings of the economy.

This is a complicated problem which cannot easily be resolved, but the Government are determined to tackle it. We intend to start with tax. Successive Administrations have always intended that short-term social security benefits should form part of a person's taxable income, in the same way as pensions and widow's benefits always have. The 1948 legislation said they should be taxable. It is only fair that a man who in the course of the year derives his income partly from work and partly from social security benefits should pay as much tax as a similar man who has earned the same total income. So far the administrative difficulties have always appeared insuperable. Now we are going to act.

First, we have the scheme, which my right hon. Friend the Secretary of State for Social Services announced before Christmas, whereby employers would have the responsibility for the payment of a minimum level of sick pay during the early weeks of sickness. This will bring the bulk of sickness payments into tax through PAYE. This scheme should be operating from April 1982. Secondly, we intend to bring benefits paid to the unemployed into tax at the same time. This will be done in such a way that in general the claimant will neither receive refunds nor suffer deductions of tax until he is back at work. We are also considering how best to bring into income tax at an early date the remaining short-term benefits, and invalidity benefit, which, primarily for administrative reasons, are at present untaxed.

But we do not have to wait until 1982 to do something about this problem. Subject to the approval of Parliament, these short-term benefits and invalidity benefit will, at the next uprating, be increased by 5 percentage points less than would fully reflect forecast price movements. In addition, the entitlement formula for earnings related supplement to these benefits will be altered from January 1981 so as to reduce the proportion of earnings reflected in benefit. None of these benefits comes within the tax net at present. What I am now proposing takes account of the general agreement by successive Governments that they should.

The ERS scheme itself has been diminishing in worth and effectiveness over recent years. Redundancy payments are now more generous, and the development of the employers' sick pay scheme means that ERS is much less needed than formerly. Of the unemployed, only about 10 per cent. to 15 per cent. are in receipt of ERS at any one time. All in all, the Government would find it difficult to justify its retention. We therefore propose that the State provision of short-term benefits should in future be on a flat-rate basis and that ERS should be withdrawn in 1982, with no fresh claims being taken from the beginning of that year.

The large increases in the social security programme over the years reflect in part the heavy cost of automatically indexing the value of benefits in an open-ended way. One aspect of this is the system of index-linked pensions in the public sector, which includes those payable to retired Ministers and Members of Parliament. Serious doubts have been raised as to whether adequate allowance is made for the value of present pension arrangements in settling public sector pay. The Government intend, therefore, to set up an independent inquiry into that question.

I come now to child benefit, where a judgement is needed how far the impact of inflation should be offset. I have already explained the general problem that has to be faced in relation to both benefits and taxation. The Government propose that this benefit should be raised in November from £4 to £4·75 per week for each child. For nearly all basic taxpayers, this increase of 18¾ per cent. in child benefit will ensure that they are better oil than they would have been if child tax allowances and family allowances had continued and had been uprated in line with prices—and people who pay no tax at all are substantially better off.

Child benefit is, of course, paid in respect of every child in the country, regardless of the parents' circumstances. The increase that I have just announced will add over £400 million to public spending in a full year. An extra 10p per child per week would cost nearly £60 million a year. I have no doubt that in all the circumstances, I have done everything that is reasonable to match the claims of those who are entitled to child benefit with those other recipients of social security.

Within the limited resources available, given the other pressures on the social security programme, these decisions represent the best balance between protecting the old, the poor and the needy, strengthening work incentives, and securing fairness as between the taxed and the untaxed. Full details of the changes will be announced tomorrow by my right hon. Friend the Secretary of State for Social Services.

Finally, I turn to an area where our social security system touches on industrial relations. More than 10 years ago one of my distinguished predecessors said:

"we need to facilitate the smooth working of the process of collective bargaining in industry and to help to prevent the occurrence of unnecessary and damaging disputes, of which we have seen all too much recently, and which are totally incompatible with our economic objectives."—[Official Report, 15 April 1969; Vol. 781, c 1006.]

That is what Mr. Roy Jenkins said in 1969, when he announced the then Government's intention to press ahead with their proposals, "In Place of Strife". Eleven years later, little indeed has changed, except for the worse.

I shall refer today to only one aspect of this self-inflicted industrial damage. The social security payments that a striker may claim on behalf of his family can be one of several factors that sometimes tilt the balance of industrial power against employers and responsible union leadership alike. These payments have helped to sustain some very damaging strikes. The sums involved can sometimes be substantial. During the present steel dispute, for example, such payments have so far amounted to over £8 million. That figure would be enough, for example, to pay the full-year cost of another 50p a week on the one-parent premium or an extra £1 a week on mobility allowance. Payments to strikers are widely and understandably resented and we have carefully considered how best to change present procedures.

Supplementary benefit for strikers' families will not be withdrawn altogether, but once Parliament has passed the necessary legislation we intend that assessments for benefits will assume the striker to have provided £12 per week himself, whether in strike pay or in some other way. Strikers' tax refunds will continue to be taken into account in assessing needs. Until now, part of the tax refund—equivalent to £4 per week—has been disregarded. In future regard will be had to the full refund. We propose, too, that when benefits paid to the unemployed are brought into tax, benefits paid to strikers' families shall be taxed similarly.

This is an overdue reform. The Government believe that it is entirely fair to assume that strikers have made some provision for their families' financial support, either through their union or by some other means. It can hardly be denied that unions need to accept fuller responsibility for supporting their members when on strike than some of them have done recently. This change will make an important contribution to restoring the balance that has so long been lacking in our industrial relations.

After the changes announced today, the social security budget will still be higher, in real terms, in each of the next four years than it was last year. These changes reflect new and responsible priorities, such as are inevitable in a period in which resources are scarce. Successive Governments share credit for the Welfare State, but social security cannot be regarded as exempt from re-examination and entitled always to take absolute priority over spending on defence, the police, hospitals or schools—or over the need for proper control of public spending as a whole. Once that fact is recognised, there can be no denying the case for modest economies in this programme.

The Tax Balance

The tax measures that I am about to announce are consistent with the medium-term strategy and the overall budgetary framework. They also take account of the changes in the balance of the economy that have come about over the last year. Many are made necessary only by the impact of inflation upon the tax system. One of the many reasons why we need to master inflation, it may be thought—though not perhaps the most important—is that it would enable Chancellors to make much shorter Budget speeches.

Three developments in particular have influenced me: high pay settlements, high oil prices, and the high exchange rate. Together, those developments have swung the balance strongly in favour of consumers and against companies, in particular against those companies facing competition from overseas, whether in home or overseas markets. Consumers have lost something as a result of the increase in oil prices. But the great majority have more than made up for this by big pay increases and the benefit they have received from income tax cuts, the high exchange rate and lower prices for imported manufactures. In 1979 average personal after-tax incomes increased by 20 per cent. while the profits of companies not engaged in North Sea operations fell by over 5 per cent. in money terms, and, of course, by much more in real terms.

In deciding the balance of my tax changes I see a stronger case for reducing the real burdens on companies and small businesses than on private individuals. Of course, not all companies have lost out. The oil companies are making large windfall profits. The banks are gaining from high interest rates. Some of these are in a position to contribute more by way of taxation. The financial position of most sections of business will be eased as interest rates come down. So far as tax changes are concerned, I shall concentrate the limited funds available to me on encouraging enterprise and on relieving specific pressures which are particularly damaging or unfair.

Company Taxation

Taxation of North Sea Oil

The Government's objective in taxing North Sea oil operations must be to strike a balance between the nation's claim to a share in the profits from this national resource and the right of those engaged in the risky business of oil exploration and development to a fair return on their efforts. Since my last Budget, world oil prices have increased dramatically. North Sea oil prices, which follow world prices, have risen by more than half, from about $20·70 to about $33·75 a barrel.

This substantial change has greatly favoured the oil companies. I therefore propose, for chargeable periods ending on 30 June next and subsequent periods, to increase the rate of petroleum revenue tax from 60 per cent. to 70 per cent. At the same time, I propose to rectify some anomalies in the PRT rules concerning transfers of North Sea interests between oil companies and the taxation of gas. These are changes that the industry has requested. I also propose to introduce special PRT provisions for fields that span the median line between the United Kingdom and the Norwegian continental shelves.

I have one further proposal on petroleum revenue tax. It relates to the collection of tax. The PRT structure gives companies very early relief for capital expenditure. This means that PRT is not collected until some considerable time after a field has come on stream. The increases in oil prices have greatly strengthened the industry's cash position. I am satisfied that PRT payments can in future be made somewhat earlier. The Petroleum Revenue Tax Act 1980 went some way in that direction. I now propose to go slightly further.

We shall require companies which are liable to PRT for the chargeable period to 30 June 1981 to make at the beginning of March 1981 an advance payment for that chargeable period at a rate of 15 per cent. based on 1980 liabilities. Advance payments for later chargeable periods will be made in the same way but not necessarily at the same rate. These advance payments will be offsettable against normal payments of PRT.

In total, the changes in oil company taxation are expected to bring in an extra £535 million, making a total of petroleum revenue tax, corporation tax and royalties for 1980–81 of rather over £4 billion. We are thus ensuring that the nation as a whole secures a proper share of North Sea profits this year.

North Sea oil adds to national income mainly through increased Government revenues and oil company profits. Though the sums of money are large, we must not exaggerate them. Even in the years of peak production later this decade, no more than 6 per cent. of GNP is expected to come from the North Sea—equivalent to perhaps two years of the kind of economic growth we achieved in the 1950s and 1960s. This makes it all the more important that we should use the oil wisely, with an eye to our long-term economic interests. In particular, we should take the opportunity offered by the growth of oil revenues to bring the level of public sector borrowing steadily down, and this is what our medium term strategy envisages.


In recent weeks there has been a good deal of comment about the profits declared by the clearing banks. Some represent a "windfall" to the banks, which arises from the combination of high interest rates and the fact that interest is not paid on current accounts. The windfall element is not a sign of enterprise or efficiency, as the banks themselves recognise. But it is equally irrational to attribute these profits to some wickedness on the part of the banks. They need the major part to strengthen their capital base, which would otherwise have been eroded by inflation.

There could, of course, be a case in principle for a special tax related to the windfall element in these profits, and I shall be considering that further. However, it has not yet been established that such a tax is either practical or entirely desirable in today's conditions.


Leasing, in which the banks have been heavily involved, has grown rapidly in the past few years. Underlying that growth has been the 100 per cent. capital allowance, which leasing companies can claim on assets bought for leasing. The present rules apply to equipment leased to United Kingdom industrial and commercial companies, which would qualify in their own right for these tax incentives if they were to purchase the equipment for themselves. I do not propose any changes in transactions of that kind. Leasing finance of that sort has become an important—in many cases an essential—source of finance for investment in manufacturing industry. However, under the present tax rules these 100 per cent. allowances apply to all leased equipment. Thus, leasing effectively extends the benefits of tax incentives to certain users—such as overseas companies, certain public bodies in the United Kingdom, and consumers—who would not qualify for tax incentives if they had purchased the equipment themselves.

I propose to end those anomalies. As from 1 June expenditure on leasing involving these users will normally qualify only for 25 per cent. tax allowances. There will be transitional provisions for leased television sets. Though the extra revenue in 1980–81 will be negligible, the saving in a full year will be over £200 million.

These provisions will replace, from 1 June, the stopgap provision for foreign leasing which I proposed on 23 October, when announcing the abolition of exchange control. They will also include measures to end the growing abuse of leasing by individuals for tax avoidance purposes. However the Motability scheme for leasing cars to disabled people will continue to benefit from the existing provisions.

Company liquidity

I have already referred to the difficult problems that many companies will be facing in the coming year, with great pressure on their liquidity. I have considered how far it would make sense for the Government to help them by major tax reductions. Such help could be provided only at the expense of much higher personal taxation or higher borrowing and thus higher interest rates. I believe that the greatest service which I can perform for business is to reduce the burden of financing the public sector and thus to get down interest rates. I have, therefore, given precedence to that objective.

Corporation tax and stock relief

However, there is, as I observed last June, a clear need to re-examine the corporate tax structure. I have already undertaken that there will be full consultation before changes are made. I understand that the accountancy profession will be publishing its new standard on current cost accounting later this month. We will, therefore, publish a Green Paper later this year, reporting the results of our general review of the present corporation tax provisions.

Meanwhile, I do not think that it would be right to change the rate of corporation tax or to make major changes in its structure. But I do propose one important concession to help companies which face a particular difficulty. A number of businesses in manufacturing, and certain areas of distribution, are concerned about the recovery charges which they will face as a result of reductions in stock levels likely to arise either because of the general pressure on liquidity, or in some cases as a result of the steel strike.

I propose, therefore, to allow a substantial part of the stock relief recovery charge consequent on a reduction of stocks to be deferred for one year. This change will be subject to certain conditions, dependent on the extent to which stocks are financed on trade credit. The new relief will be given for business accounts ending after 1979–80. The cost is estimated at £210 million in 1980–81 and a further £125 million in 1981–82. While further relief is justified in the cases to which I have referred, there is criticism that the present stock relief may confer an unjustifiable advantage in certain circumstances. This is a complex matter on which detailed consultation will be needed, but my intention is to legislate next year in respect of accounts on which tax will generally be payable on 1 January 1982. This will give enough time for consultation.


I propose another modest measure affecting business taxation. I intend to provide relief for redundancy payments in excess of the statutory minimum paid when a business stops trading.

Indirect Taxation

I turn now from companies to my other proposals for finding extra revenue. I begin with the indirect taxes. Last June I took an important step in implementing a change in the tax structure that everyone knew to be necessary. I carried out a substantial switch in the balance of taxation from direct to indirect taxes. I do not intend to go further in that direction this year. But I do intend to ensure that the real yield of indirect taxation is not eroded. Inflation can all too easily have that effect.


First, I shall deal with value added tax. Without the extra revenue from last June's Budget changes, it would have been quite impossible this year for any Government to avoid either much larger cuts in public spending or big increases in income tax. This is the first year in which the full yield of the 15 per cent. rate will be available. The yield will be some £12,450 million in 1980–81. I propose no change in the 15 per cent. standard rate of VAT. I am, however, making a number of technical changes to ease the administrative burdens borne by small businesses—about which I shall have more to say later.

There have been signs that some large companies may have been delaying their VAT payments to the Exchequer. This must be corrected at the earliest opportunity. Customs and Excise are already taking steps, with my approval and within the existing law, to reduce the attractions of delay. But more needs to be done. I shall, therefore, be asking the House to raise the maximum penalty for late payment. My proposal is that it should be expressed as a proportion of the tax at stake. In practice, that will raise the penalty for only the larger companies. For them the existing maximum penalty, of £100 plus £10 a day, is clearly inadequate.

I also propose to remedy an anomaly in the coverage of VAT. Lubricating and certain other oils are currently zero-rated, without any real justification. We shall be laying an order to charge them at the full rate from Thursday 1 May. That will yield an additional £12 million in 1980–81 and £17 million in a full year.

I want also to inform the House today of my decision on one of the options for staff savings in the Customs and Excise. Concern has been expressed by a number of my hon. Friends and by representative business organisations at the possibility that we might withdraw the facility of monthly returns for those VAT traders who are entitled to claim repayments. I have carefully considered representations about the effect on business cash flow, and I do not intend to pursue that option any further.

Excise Duties

This year most of the additional revenue I need from the indirect taxes must come from the excise duties. Because they are applied to a physical quantity, the real value of their yield declines in times of inflation. A number of them have not been increased since early 1977 and many have been declining in real value over a much longer period. Accordingly, taking the duties as a whole, I am proposing increases which will reflect the impact of the last year's inflation and keep the real yield roughly constant.

Alcoholic drinks and tobacco

I start with the duties on alcoholic drinks and tobacco, which were last increased three years ago. I propose from midnight tonight to increase the duties on drinks by amounts which, including VAT, represent about 2p on the price of a typical pint of draught beer, 8p on a bottle of table wine and 50p on a bottle of whisky. The tobacco duty will be raised with effect from midnight on Friday. Including VAT, the increase will represent 5p on the price of a typical packet of 20 king-size cigarettes. There will be consequential increases for most other alcoholic drinks and tobacco products, but rather less than the full amount on pipe tobacco. The increases on alcoholic drinks will yield £273 million in 1980–81 and £288 million in a full year. The tobacco increases will yield £180 million in 1980–81 and £195 million in a full year.

Betting and gaming

Next come betting and gaming. I do not propose any changes in the general betting duty or the pool betting duty. But the Government have been persuaded by some of the criticisms of the present duty on casinos made by the Royal Commission on Gambling. That duty depends heavily on rateable value. It is not an equitable tax, and the more profitable casinos are seriously undertaxed. From 1 October, therefore, the present duty will be replaced by one related more closely to the profitability of casinos, and designed to produce about two and a half times as much revenue in a full year. At about the same time, the duty on bingo will be increased from 5 per cent. to 7½ per cent. Provision will also be made in the Finance Bill for restructuring the duty on gaming machines. We intend to remove the duty on penny machines, and propose to increase the revenue from the very profitable jackpot machines usually found in clubs. These changes will yield £5 million in 1980–81 and £20 million in a full year.

Vehicle Excise Duty

I turn now to vehicle excise duty. Our predecessors announced their intention to abolish the duty on cars and other petrol-driven vehicles. They proposed to make good the revenue loss by increasing the tax on petrol. As the House will recollect, after carefully reviewing the arguments, we decided that that was not a sensible change to make. Even if the tax had gone, the need for a vehicle register would have remained. That is essential to the police and for vehicle control. Much of the form-filling would have continued unabated. We decided that it was much better to keep the vehicle excise duty, but to achieve staff savings by streamlining its administration, along the lines which my right hon. Friend the Minister of Transport has already proposed. As part of that, he is announcing today that from October, four-monthly licences will be replaced by six-monthly licences. From August a stamp-saving scheme will be introduced to help motorists to budget for payment of this tax.

If the duty is to remain, we should be wrong to allow inflation to go on eroding its real value. Because of doubts about its future, the rates of this duty have remained unchanged since 1977. I therefore make no apology for proposing increases in the duty on most vehicles of about 20 per cent., and on the heaviest lorries of about 30 per cent. this year. As a result, the annual duty on cars will increase by £10, to £60. The larger increase on the heaviest lorries will reflect the high road costs which they impose on the community. These changes will produce an estimated additional yield of £240 million a year, but will still leave the vehicle excise duty lower in real terms than after the last increase in 1977.

I have one further small change to announce in vehicle excise duty. Electric vehicles at present play only a small part in road transport. However, they are much cleaner and quieter than vehicles powered by internal combustion engines, and they could bring big future energy savings. Because we want to encourage their further development, I propose to abolish vehicle excise duty on them. The cost in 1980–81 will be less than £2 million.

Road fuel duties

In my Budget last June, I stated that there was a continuing case for measures that would help us to conserve oil. The price of petrol in the United Kingdom remains well below that in any other EEC country. If we are to ensure that our oil resources are not wasted, a duty increase is justified this year.

If we had decided, as the last Government had in mind, to replace VED progressively by higher petrol taxation I should have been obliged to consider increasing the price of petrol by at least 20p a gallon. That would have been necessary simply to replace the revenue formerly provided by VED. To match the VED increase I have announced would have taken the figure to 24p a gallon—and higher still if the present petrol duty were itself maintained in real terms.

Since we are retaining the VED, such large increases are not needed. Instead, I shall be increasing the duty on petrol, from 6 pm tonight, by the equivalent, including VAT, of 10p a gallon. For the past three years the rate of duty on derv has been higher than that on petrol. I have decided that we can no longer justify that differential, which has borne heavily on commercial and industrial users. Taking account of VAT, the increase in the duty on derv will be about 4p a gallon. That will mean that once again the duties on petrol and derv are the same. These increases will yield an additional £450 million from petrol, and £55 million from derv in 1980–81, and in a full year.

Rebated Oil

I also propose to raise the duty on heavy oil other than derv by about ½p a gallon from 6 pm tonight. This will yield an additional £50 million in 1980–81 and in a full year. I have decided not to increase the duty on burning oil and on domestic paraffin, which are the oils most commonly used in the home.


These VAT and excise duty changes will raise additional revenues of £1,260 million in 1980–81 and £1,305 million in a full year. They do not imply any real increase in indirect taxes as compared with 1979–80. The immediate impact effect on the RPI will be just over 1 per cent., but in the longer run these excise duty changes, by contributing to the reduction of the budget deficit, will help to ensure that inflation is brought down and stays down.

Fringe Benefits

As I have explained, I do not believe that I should be justified in allowing the real costs of motoring and road transport to fall simply as a result of inflation. But if it is right in principle for road users to face a constant fiscal burden, it would not be fair to disregard the increasing unreality of the income tax charge levied on those who are partly sheltered from rising costs because they have a company car available for private use. The scales of benefit charged to income tax have been allowed to fall well behind any reasonable measure of true values. The present figures barely cover the current cost of tax, insurance and maintenance. That is unfair to the great majority of individuals who have to bear the full cost of car ownership, not to mention those who cannot afford to run a car at all.

I propose, therefore, to increase by some 20 per cent. the scale figures that are used for measuring the benefit of a company car for tax purposes. This change will be effective from April 1981. At the same time, there will be one modest relief. The qualifying annual mileage for business use, above which a reduced rate of tax is charged, should be reduced from 25,000 to 18,000 miles a year. In the light of our widespread consultations last year, I believe that these changes will generally be recognised as fair.

I have also been considering whether I ought to take action to charge tax on the value of petrol provided by employers for private use by their employees. This would present severe administrative problems, both for employers and for the Inland Revenue. Even so, I shall feel bound to contemplate action next year, if the provision of free petrol continues to spread at anything like its present rate.

As the burden of income tax is reduced, I would hope to see a decline in the provision of benefits in kind. It is consistent with that view for me to impose a reasonable charge to income tax on benefits which remain.

In that spirit, I approach one area this year that has so far escaped the eye of my predecessors. I refer to the provision for employees of items such as suits of clothing and television sets. I propose to double, from 10 per cent. to 20 per cent., the proportion of the value of such objects taken as a measure of the annual taxable benefit. And I shall impose an effective charge where the items concerned are subsequently acquired by the employee for less than true value. I am also taking steps to increase from 9 per cent. to 15 per cent. the rate of interest used to measure the value of beneficial loans to employees, and to raise to £200 the limit below which the benefit of such loans is not charged to tax.

Fringe benefits are charged to tax only if the employee earns more than a certain amount, now £8,500. The case for abolishing that threshold has been pressed upon us. I have asked the Inland Revenue to consult employers and others about the administrative problems that might be involved in such a change.

Income Tax

I now turn to my main proposals for income tax. The cuts that I made last year were an important start on reducing the oppressive burden of direct taxation. At every income level, taxpayers now retain a significantly larger share of their incomes, which they are free to spend or save as they choose. I intend to do more in the future, but at a time when output is falling and we are making further heavy cuts in public expenditure I cannot afford to protect income taxpayers fully from the effects of inflation. This, then, must be a year of consolidation.

At first sight that would suggest increases in the personal allowances which fall some way short of the rise in prices during 1979, but this would have a number of undesirable effects. It would lower the starting point of income tax in real terms, compared with a year ago. It would increase the number of taxpayers. It would narrow the gap between tax thresholds and the main social security benefits, and it would impose particularly heavy burdens on those with the smallest incomes. All those effects would be most undesirable.

Given the limited scope available, I have considered how to avoid these consequences. I mean to do so by adopting an alternative approach. I propose to increase the main income tax allowances by 18 per cent. or so, which is in line with the rise in prices and in conformity with the indexation requirement of the 1977 Finance Act. This will bring substantial relief to all taxpayers. But in order to afford this I intend to remove the lower rate band of taxation, levied at 25 per cent. on the first £750 of taxable income. This combination will protect the position of the very poorest taxpayers whilst ensuring that basic rate taxpayers receive some, though not complete, protection from the rise in prices.

The single allowance will thus be increased by £210 to £1,375 and the married allowance by £330 to £2,145. The corresponding allowances for people over 65 will go up by £280 to £1,820, and by £440 to £2,895. The income limit for the age allowance will go up to £5,900. Also, the additional personal allowance available mainly to single parents will go up by £120 to £770. The revenue cost of these increases in 1980–81 will be some £1,800 million, offset by a saving of £750 million from ending the lower rate band. I cannot this year make any further reductions in the income tax rates, so the basic rate will remain at 30 per cent. and the higher rates will also remain unchanged.

The case for the lower rate band was never at all clear. The 25 per cent. rate was not the effective marginal rate for more than a small number of full-time adult workers. For those on lower incomes an increase in the personal allowances would always have been more valuable than the lower rate band, and the existence of this lower rate band added significantly to the complexity of the tax system. Its disappearance will simplify and shorten the PAYE tables and reduce the administrative burden on employers and on the Inland Revenue, where there will be a valuable staff saving of 1,300 persons.

I am in no doubt that it is right, in a year when difficult choices have to be made, to concentrate on raising the tax thresholds for everybody, as I have proposed, by about 18 per cent. I am also in no doubt that it is necessary to abate the tax reductions that follow from that change by the abolition of the lower rate band. Taken together, these changes are equivalent to an effective increase in tax reliefs of 11 per cent. for a married couple and rather less than that for single taxpayers. The 18¾ per cent. rise in child benefit implies a broadly comparable annual rate of increase—about 11 per cent.—over its April 1979 level.

Next, I come to higher-rate taxpayers. Given the substantial improvements last year it would not be appropriate to give major relief to higher-rate taxpayers this year. However, our progressive income tax system operates in such a way that those who pay tax at higher rates experience sharply increasing tax burdens in times of inflation. In the ordinary course it would be right to increase the higher-rate threshold and bands by the same proportion as the increase in personal allowances. That would imply 18 per cent. this year. But this year the improvements in personal allowances are partially offset by abolition of the lower rate band.

That change will have only limited significance for those on higher incomes, so I have decided not to raise the higher-rate thresholds fully in line with inflation, as I have done for the main personal allowances, but to put them up by only about 11 per cent. That is, as I have explained, broadly equivalent to the total net increase in tax reliefs that I have proposed for married couples paying tax at the basic rate.

In money terms the threshold for the higher rates will be raised to £11,250 and the threshold to the top rate of 60 per cent. to £27,750. There will be corresponding increases at the intervening points. So far from making the rich richer, these restricted improvements will result in an increase in the real burden of income tax for the higher rate taxpayer. The cost of increasing the higher-rate thresholds is £100 million in 1980–81 compared with a cost of £140 million if they had been fully indexed. I am also limiting this year's increase in the threshold to the investment income surcharge to 10 per cent., that is, to £5,500. However, with a view to consistent treatment in future years I shall include provisions in the Finance Bill that should ensure, with effect from next year, that the higher-rate thresholds and bands, together with the investment income surcharge threshold, are covered by indexing legislation in the same way as the main personal allowances.

For the typical married couple with two children the net effect of my Budget changes will be to increase their weekly income by £2·68 per week from November. For a single man with the same earnings the increase will be 49p per week.

The income tax changes that I propose will be given effect when new tax tables have been printed and distributed. They will be made together and will produce a net increase in take-home pay on the first pay day after 31 May.

Other income tax proposals

I am proposing two other small income tax changes that have long merited action.

I propose to exempt from tax and payments made to holders of certain gallantry awards, such as the Distinguished Conduct Medal and the Conspicuous Gallantry Medal. These will in future be treated in the same way as annuities payable to holders of the Victoria Cross and George Cross.

I want also to do something more for widows in the difficult time immediately following bereavement. I therefore propose to increase the present single allowance that widows receive for the tax year in which they are bereaved. The addition for that year will, at its maximum, bring the single allowance for widows up to the level of the married allowance.

Taxation of Husband and Wife

We have also been reviewing the treatment for tax purposes of husband and wife. This is a complex and important subject. I am grateful in particular to the Equal Opportunities Commission for the light which its publications have shed on this aspect of sex discrimination. In view of my relationship with the former deputy chairman of that body I hope that it is not improper for me to mention its work, but, as I have observed, it is easier to define the problems than to find the answers. Certainly, radical changes should not be made in haste. I propose, therefore, to issue later this year a Green Paper on this subject. I hope that it will stimulate further constructive debate. leading us ultimately to acceptable solutions.

Promoting Private Endeavour

Although, as I have just explained, this is not a year in which sweeping reductions of income tax are possible, that need not prevent our making sensible reforms in the tax system wherever the opportunity offers.

I have frequently drawn attention to the extent to which the tax system has woven itself deeply into the fabric of national life. Tax has been piled upon tax, often with little regard for their interaction. The accidental effects of this tax onslaught have often been as damaging as the direct consequences.

This Government came to office pledged to bring more simplicity and consistency to the tax system. We have already undertaken a series of major reviews. I should like here to thank both the Inland Revenue and the Customs and Excise for the heavy load of policy review work that they have carried out during the last nine months. This should all bear useful fruit in the years ahead. This year I have progress to report in three important areas where I believe that fiscal reform can encourage private endeavour—in connection with housing, the national heritage and voluntary organisations.


We wish to encourage the private provision of housing as well as wider home ownership. Home ownership adds to the quality of life. Private provision of housing means we can save public resources for other areas where a private sector alternative is not available.

My first proposal is designed in particular, to help first-time buyers. I have received representations from many quarters about the burden of stamp duty on house purchasers. Difficulty in acquiring a new home restricts the mobility of labour. Those at the lower end of the market—mainly, young couples—particularly deserve help. I do not think that these considerations justify us in making, this year, an increase in the mortgage interest relief ceiling, which I propose to maintain at £25,000. However, I think that it would be right to raise the starting point for stamp duty on transfers of property by £5,000 to £20,000. The limits for reduced rate bands will be similarly increased, by £5,000, so that the full 2 per cent rate will now be reached at £35,000. This will cost £75 million in 1980–81, and £85 million in a full year.

Too many homes are under-occupied, or even standing empty. This is often a direct, even if unintended, result of rent control: sometimes, it is a consequence of planning policies, which my right hon. Friend the Secretary of State for the Environment is improving. There are also fiscal obstacles to the economic use of the available stock of property. I intend to deal with one of these this year. I propose a new and additional relief from capital gains tax to help people who let part of their homes. At present, these house-owners, when they come to sell, can find themselves unexpectedly faced with a capital gains tax charge. This change will encourage letting, and contribute to the better use of the housing stock.

The national heritage

Next, the national heritage. The House has already passed a Bill to set up the National Heritage Fund. The Finance Bill will include a provision to treat it for tax purposes as if it were a charity. The fund will be set up with an initial amount of about £12 million at its disposal. The Government will in future make an annual contribution to the fund, including the amount needed for the continuation of the acceptance in lieu system. But we should also do more to make it possible, both today and in the future, for owners of historic houses to look after their properties on behalf of the nation as a whole. The last Government took a similar view and introduced provisions to assist owners to set up maintenance funds for the support of their houses. But that scheme proved to be so restrictive that it has scarcely been used.

I intend, therefore, to recast substantially the maintenance fund provisions. If we are going to adopt this method of encouraging the preservation of our heritage—I believe it is the right one—then it is only sensible to make it work. Our fresh proposals will apply to the maintenance of buildings, historically associated contents, gardens, and land of historic, scenic and scientific interest. The overriding condition will, of course, be that the public should have reasonable access. These measures are intended to cement a bargain between those who have to bear the cost of maintaining the national heritage, and the people as a whole.

Voluntary effort

The third way in which we aim to assist private action this year is by providing tangible Government support for the widespread and often unsung voluntary effort that goes on at every level of our national life.

It is important to do all we can to help charities and to stimulate private benefactors and helpers. A partnership between Government and voluntary effort can be the best way of meeting many pressing social needs, particularly when State spending has to be cut back. With this in mind, I have given careful consideration to the fiscal recommendations of the Goodman committee and of the National Council of Social Service.

I propose to double—to £200,000—the capital transfer tax exemption for bequests to charities; and to exempt wholly from development land tax all future disposals of land by charities. Income tax relief for payments to charities made under deeds of covenant, which has hitherto been limited to the basic rate of income tax, will be extended to the higher rates, subject to a ceiling of £3,000 a year. A minor stamp duty easement on deeds will be made. In response to representations, I am reducing the period for tax relief on deeds of covenant from seven years to four years. These measures, which will cost £30 million in a full year, are designed to provide the right conditions for substantial growth in the important partnership between voluntary service and the rest of the community.

Encouraging Personal Investment

I turn now to an area where the tax system can be used to involve the individual more closely in the workings of the economy. I refer to proposals which will encourage direct personal investment in the stocks and shares of British industry. In the last 20 years, the proportion of the equity of British companies, held in direct individual ownership, has been almost halved. This is a trend I should like to reverse.

It is generally agreed that share ownership and profit sharing can help in developing employees' understanding of, and commitment to, business and industry. I believe that share ownership can also spread a wider understanding of the role for risk-taking and initiative in the economic system.

I have two sets of proposals to make. First, I propose to make more generous the provisions which the last Government introduced two years ago to encourage profit-sharing. In passing, I would note that those provisions were based upon proposals originally put forward by my right hon. Friend the Secretary of State for Energy. They attracted all-party support. I propose to raised from £500 to £1,000 a year the value of shares allocated to any one employee which can qualify for tax relief; to reduce from five years to two the period after which employees can sell their shares; and to cut from 10 years to seven the period after which they can draw them out free of income tax.

Second, I propose to reintroduce legislation similar to that which Lord Barber introduced in 1973 enabling employees to be given options to buy shares in their companies without incurring liability to income tax. This scheme will have links, as in 1973, to a scheme for contractual savings. These measures will help to fulfil our promise to encourage employee share ownership and provide the incentive to save and build up capital.

There is one anomaly in the field of life insurance, which I propose to put right. The rate of life insurance relief used to be equivalent to half the basic rate of income tax. It has recently got out of line and I propose to restore the relationship by reducing it to 15 per cent. Because of the practical problems posed for the life insurance industry, the change will not take effect until 6 April next year. Steps will also be taken to deny life assurance premium relief to certain short-term bonds. This change will take effect from today.

Before I leave discussion of the capital markets I should add that I propose that traded options, which at present are anomalously treated as wasting assets for capital gains tax purposes, should in future be treated on the same basis as share warrants.

I hope that these measures will help to encourage the wider direct ownership of shares, by altering the relative attractions of investment through the institutions and through more direct means.

The Enterprise Package

I come now to a series of measures which are intended to increase the wealth-creating vitality of our economy. That means giving greater encouragement to the processes of economic change, and improving incentives to the enterprise sector. For the mainspring of economic vitality it is now widely agreed that we must look to private initiative, widely dispersed and properly rewarded. In truth, enterprise means jobs.

Capital Taxation

I start with capital taxation, which is widely regarded, and rightly so, as a severe discouragement to those seeking to build up a business and pass it on to the next generation. We have, as I promised last year, subjected capital taxation to a thorough review. Representations from a large number of bodies have confirmed that the damage done by these taxes in their present form is out of all proportion to their yield.

There is, of course, a place for capital taxation, including, in particular, a charge on death. But change is needed. What I can do this year must be constrained by our financial position. I am, therefore, proposing changes which will be of particular help to smaller businesses. This is an earnest of our determination to make further progress when economic conditions permit.

First, the march of inflation over the years has brought far too many estates into charge to the capital transfer tax. This is a particular burden on the small business, when it passes from one generation to another, whether on death or by lifetime transfer. I propose, therefore, that the threshold for the capital transfer tax should be increased to £50,000. This will exempt from the tax at least two-thirds of the estates which would otherwise have been liable; and up to 400 fewer staff will be needed than if we had left the threshold unchanged.

A reduction in the scale of rates above the new threshold, however much that is needed, is not possible at the moment: nor are other changes I should like to have made. I am, however, making one or two minor changes designed to reduce administration.

In the case of the capital gains tax, I am fully conscious of the impact inflation has had. It can rightly be argued that the tax often falls on what are no more than paper gains. Proposals for indexation or tapering as a means of meeting this problem have been put forward on many occasions in the past. I have had both proposals re-examined but the conclusion to which I have come is that both would result in an unwelcome increase in the cost of administration—for taxpayers as well as for the Revenue—while reducing the yield of the tax to negligible proportions.

I cannot, however, leave matters as they are. I propose, therefore, to replace the present £1,000 exemption—which is progressively withdrawn above £5,000—by a straightforward allowance of £3,000. This change, which will operate from 6 April, will remove from tax half the cases at present liable, and at a reasonable revenue cost, it will reduce staff requirements by 300. As a corollary of this new proposal, there will be an exemption for the first £1,500 of gains for trust and investment and unit trusts will now be exempted from the tax, although investors in such trust will remain liable if their own gains in the year exceed the new exemption limit.

Finally, I propose to remove the present double charge on gifts, which arises from the overlap between capital transfer tax and capital gains tax, by providing rollover relief for the latter. This has been a particular source of grievance and one on which representations have been received from a large number of people.

The cost of these changes in the capital transfer tax will be £60 million in the coming year, and twice as much in 1981–82. In the case of capital gains tax, there will be no cost this coming year and a cost of £25 million in 1981–82. These figures need to be judged against the already rising yield of the capital taxes as a result of inflation.

I realise that these necessarily limited changes will fall short of what many people had hoped for, but I must ask for patience in present circumstances. Meanwhile, the benefit the present changes give to the small business should not be underestimated. Because of the 50 per cent. relief—which will remain, as will the comparable relief for agriculture—a person transferring a business worth £100,000 will pay no capital transfer tax if there are no other assets. We would, of course, have liked to bring similar help to businesses of all sizes. My proposals do give some measure of relief to everybody, but this year most assistance goes to small businesses.

As I have already indicated, there have been extensive consultations on capital taxation before the Budget. We propose to continue that process. There are, in particular, certain specialised areas, such as settled property, which require very detailed consideration.

Development Land Tax

I now turn to another tax which can inhibit development—the development land tax. In my last Budget, I reduced the rate of this tax to 60 per cent. and increased the exempt slice to £50,000. I said then that there would be no further reduction in the rate and no early increase in the exempt slice. That remains the position. Representations have, however, been made to me from many quarters that the tax inhibits development because of uncertainty about the amount of tax chargeable which can normally be ascertained only once development starts. It is important to remove obstacles of that kind if we are to make the best use of our resources. I propose to deal with this point, and the necessary legislation will be added to the Finance Bill at an appropriate stage. There will also be a number of other detailed improvements. All these changes are designed to free the market and to encourage development.


Taxes are stifling independent enterprise in other ways as well. For many years, the fashion both in Government and in industry was to favour mergers and amalgamations. No doubt mergers have brought advantages in some cases, but it is now quite clear that the fashion for industrial elephantism was greatly exaggerated. I believe that there are cases where businesses are grouped together inefficiently under a single company umbrella. They could in practice be run more dynamically and effectively if they could be "demerged"—I apologise for that word, which has now become part of the jargon—and allowed to pursue their own separate ways under independent management. The present tax rules can in practice effectively discourage demergers of that kind, by charging the assets of the "demerged" company to advance corporation tax and income tax as distributions.

I propose to bring forward, during the passage of the Finance Bill, measures to ease the tax charge on distributions of that kind, subject to certain safeguards, and where they are concerned solely with the genuine splitting off of independent trades within the corporate sector. My colleagues and I would welcome any views which those outside Government might have on these proposals. It may be that further measures will turn out to be justified.

Specific Measures to encourage small businesses

I now turn to measures specifically designed to improve the tax environment in which the small business lives and works.

Any business, but particularly the new small business just starting up, needs somewhere to operate. An imaginative and helpful new venture in recent years has been the development of estates of small industrial workshops for separate letting to small businesses. I propose to bring in a small workshops scheme which will enable industrial buildings allowances at the rate of 100 per cent. to be claimed on the construction of small industrial buildings. The scheme will run for three years, and will simplify the present administrative arrangements. I shall also make provision for industrial buildings allowance to be given on the construction of industrial buildings rather than on their first lettings. In addition to my own proposals, my right hon. Friend the Secretary of State for the Environment intends to consult on relaxation of planning controls over changes of use as between light industry and warehousing for small units. My right hon. Friend the Secretary of State for Industry intends to make £5 million available to build 1,000 new nursery factory units in assisted areas in co-operation with the private sector.

New businesses, and particularly new small businesses, also need capital. Many people with capital to invest might be ready to back enterprising ventures if they knew that losses could be offset against taxed income, instead of only against capital gains. I propose that, through a new venture capital scheme, losses on equity investment in unquoted trading companies, incurred after 5 April 1980, may be set off against income.

Next, I propose to relax the conditions for tax relief for interest paid on money borrowed for investment in, or lending to, a close company. The present rules require an investor to have worked for the greater part of his time in the company's business. I propose to abolish that condition, and thus provide added incentive for outside investment in small firms.

Just as important as attracting new capital from the outside is the generation of new capital from the inside, in the form of profits which are retained in the business. The tax system has now contained for more than 50 years a series of provisions under which a close company may be required to justify the amount of profits which it wished to retain in the business, undistributed. Following last year's reduction in the rate of income tax, I now propose important changes, including the abolition of the apportionment of trading income both of close trading companies and of members of trading groups. These changes will cut out a thicket of complex tax provisions, which are time-consuming for the small trading business, and a real impediment to growth.

However, if small companies are to generate the funds to finance their expansion, they must first earn profits and then be left with sufficient of those profits after payment of tax. Better profits must come through improved efficiency and greater productivity. That is a matter for industry itself and not for Government. But Government can help by reducing the tax burden. I propose, therefore, to cut the small companies rate of corporation tax to 40 per cent.—that is no less than 12 points below the full rate of 52 per cent.—and at the same time to raise the qualifying limits to £70,000 for the full relief and £130,000 for the marginal relief.

My next proposal is designed to help the unincorporated small business. It is important that the self-employed should be able, with tax assistance, to make adequate provision for their retirement. I am, therefore, raising the limits on retirement annuity relief. The normal percentage of earnings qualifying for tax relief will rise from 15 per cent. to 17½ per cent., and the ceiling on the premiums qualifying for relief will also be abolished.

Other changes

I also propose some minor measures affecting business taxation. Following consultations with industry, I propose that the costs of raising business loan finance should be allowed for tax purposes. Relief will also be given for pre-trading expenses of a business, provided that these expenses would have been allowable if the business had been trading when they were incurred. Certain changes will also be made in the tax deduction scheme for the construction industry—the 714 scheme—which will lighten the administrative burden of the scheme and change certain features which at present operate harshly.

As the last element in my package to help small businesses, I am making certain changes in the arrangements for VAT, in order to ease the administrative burden. I propose that from midnight, the registration threshold for VAT should be increased from £10,000 to £13,500. The de-registration limit will also be increased from 1 June. At the same time, I shall be increasing from £50 to £250 the relief from payment of tax on stocks and assets when a person de-registers.

Despite the severe financial restrictions, we are thus giving help to smaller businesses at many, many points where the system bears too hard. Individually, relatively few of the measures could be described as of major importance, but taken together they represent a significant step forward in making this country one in which enterprise will be properly rewarded and thus flourish again. Together they will cost about £160 million in a full year.

Enterprise Zones

Finally, I come to an idea—I knew that it would be widely welcomed—which is intended to pioneer a new, and more adventurous, approach to the whole question of industrial and commercial renewal. There are some parts of our economy, most notably in the older urban areas, where more and more public authority involvement seems to have led to less and less fruitful activity. The planning process has all too often allowed, even caused, whole areas at the heart of some of our most populous cities to be laid to waste for years, even decades.

Even when plans are finally made the public purse is often unable to provide the funds, or the enterprise, to match the planners' aspirations. And when private initiative might have been ready to stir, it has generally been stifled by rules and regulations and by a tax system which pays no regard to these special problems.

Some hon. Members may recall that in a speech made on the Isle of Dogs a little less than two years ago I put forward a proposal for trying to bring new life back to these areas of urban dereliction. The idea was not politically partisan, for my thinking had taken place in parallel with that of the distinguished Fabian, Professor Peter Hall. Quite independently, we had concluded that there was much to be said for the establishment in these man-made wilderness of what I have called enterprise zones. I am, therefore, pleased to announce today action by the Government which will transform into reality the idea which I then put forward.

We are proposing to establish, in the first instance, about half a dozen enterprise zones, with the intention that each of them should be developed with as much freedom as possible for those who work there to make profits and to create jobs. Each will cover perhaps 500 acres. Within these zones two major tax incentives will be available—first, 100 per cent. capital allowances for both industrial and commercial buildings; and secondly, complete relief from development land tax.

But fiscal concessions are only part of what is needed. These zones will, therefore, enjoy the following additional benefits—100 per cent. derating of industrial and commercial property; a drastically simplified planning scheme; exemption from the scope of industrial training boards—with consequent exemption from industrial training levies; accelerated handling of applications for warehousing free of Customs duty; minimal requests from Government for statistical information and abolition of the remaining industrial development certificate procedures.

I hope and believe that an imaginative experiment along these lines may succeed where conventional policies have proved inadequate. No one can doubt the need for change from present arrangements. In far too many of our towns and cities today, and for far too many businesses particularly small and new ones, the gap between a productive idea and a foreseeable profit has widened into a chasm of red tape. That red tape all too often stands between a young school leaver and the prospect of a job.

Even before this proposal had any official status there was no lack of interest in the idea. The Government will consult local authorities and other interests before decisions on individual areas are made. Fuller details will be found in the policy document which is being issued this evening. There could not be a better time for making a fresh start of this kind.


In the decade that lies ahead Britain has the opportunity to follow a more hopeful path. We have ended the 1970s with a society that is becoming less tolerant because we live with an economy that has been growing no richer. The 1980s can be very different.

The disappointments of the last decade spring from illusions that have persisted too long; the illusion that we can pay ourselves what we have not earned; the illusion that Governments may go on borrowing when they dare not tax; and, most foolish of all, the illusion that we can somehow strike our way to higher living standards. The essential condition for success in the 1980s is that we should turn our back on those illusions and that we should have the courage over a period of year to carry through the realistic policies to which there is no alternative.

In this Budget I have tried to set those policies in a strategy for the medium term. Nothing will be easy in the years immediately ahead, but beyond that the strategy offers hope of real success. It is a strategy for the defeat of inflation by the re-establishment of monetary control. It is a strategy for the restoration of prosperity by the encouragement of enterprise.

Politics is not only the art of the possible; it is also the art of the necessary. The strategy outlined in this Budget is designed to do what is necessary and so lay foundations for the success which is well within the grasp of the British people.

Order. Under Standing Order No. 94 the first motion, entitled "Provisional Collection of Taxes" must be decided without debate. When the matter has been disposed of, I shall call the Chancellor of the Exchequer to move the motion entitled "Amendment of the Law". It is on that motion that the Budget debate will take place today and on succeeding days. The remaining motions will not be put until the end of the Budget debate next week and they will then be decided without debate.

Provisional Collection Of Taxes

Motion made, and Question,

That pursuant to section 5 of the Provisional Collection of Taxes Act 1968 provisional statutory effect shall be given to the following Motions—

  • (a) Spirits (Motion No. 2)
  • (b) (Motion No. 3)
  • (c) Wine (Motion No. 4)
  • (d) Made-wine (Motion No. 5)
  • (e) Cider (Motion No. 6)
  • (f) Tobacco products (Motion No. 7)
  • (g) Hydrocarbon Oil (Motion No. 11)
  • (h) Vehicle excise duty (Motion No. 12)
  • (i) Value added tax: liability to be registered (Motion No. 13).—[Sir G. Howe.]
  • put forthwith, pursuant to Standing Order No. 94 (Ways and Means Motions), and agreed to.

    Budget Resolutions And Economic Situation

    Amendment Of The Law

    Motion made, and Question proposed,

    That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of—
  • (a) any amendment with respect to value added tax so as to provide—
  • (i) for zero-rating or exempting any supply;
  • (ii) for refunding any amount of tax;
  • (iii) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
  • (iv) for any relief other than relief applying to goods of whatever description or services of whatever description; or
  • (b) any amendment relating to the surcharge imposed by the National Insurance Surcharge Act 1976 and applying to some only of the persons by or in respect of whom the surcharge is payable.—[Sir G. Howe.]
  • 5.37 pm

    The ordeal of addressing the House for two hours on a Budget speech is one which has not been shared by many and I would like to express to the right hon. and learned Gentleman our felicitations on the way in which he has delivered the Budget.

    It is a difficult matter to prepare, as I know. There were not too many flights of eloquence in the Chancellor's speech. However, at the beginning I thought I heard the Chancellor say that sterling M3 would be swollen by unwinding the corset but that it could be accommodated within the target. I am not sure that I can do justice to that flight of fancy but I am certain that my right hon. Friend the Member for Leeds, East (Mr. Healey) will be able to do so tomorrow.

    I am glad to note that there has been some feminine influence in the preparation of the Budget, exercised by the former deputy chairman of the Equal Opportunities Commission, even if that influence did not produce anything more than a Green Paper at this stage. I only wish that she might have had greater influence on some other parts of the Budget.

    The right hon. and learned Gentleman has now become a Chancellor in every sense of the word. Not only has he introduced two Budgets: he has carried a Finance Bill through. That fully qualifies him to join the club. However, I warn the Chancellor. When I was Chancellor of the Exchequer in 1964, a short letter appeared at the foot of the correspondence page in The Times. It said:
    "Dear Sir,
    Since the war there have been only two kinds of Chancellor of the Exchequer—those who left in disgrace and those who got out in time."
    When I was Chancellor, inflation was 4 per cent. per annum and wages increases were 7 per cent. per annum. We have just listened to the most depressing and pessimistic account of our position that I can remember for many years. Despite the growth in North Sea oil resources and revenues and the benefit and boom that they will bring, the Chancellor estimates a growth of only 1 per cent. per annum in our output from now until 1983–84. That includes North Sea oil.

    Let us be clear. The Chancellor is really budgeting for a fall in output each year from now until 1983–84 in the non-oil sector. Only the oil gives him a growth figure. If that is not a most depressing and pessimistic account, I do not know what is. It contrasts vividly with the enthusiasm with which he approached his task last year. He told us then that it was an opportunity Budget. He said that his tax reductions were only a first step and that the Budget marked a turning point. Yes, it did, but the turning point was in inflation which has doubled in a year. There was a deterioration in our balance of payments of an incredible character considering the North Sea oil revenues and balance of payments' savings. A dramatic unemployment increase is forecast. We can expect a continuing decline in output with the highest level of interest rates that we have experienced.

    The Chancellor of the Exchequer tells us that in the next three years he intends to preside over an economy which will combine stagnation, high unemployment, inflation and a deteriorating balance of payments. My right hon. Friend the Member for Leeds, East tells me that the figures which we have been given show a range for the inflation index for next year of between 14 per cent. and 19 per cent., with a halfway figure of 16½ per cent. That is the basis on which the Chancellor is going forward and on which he expects a response. He cannot expect to get one on that basis. The Chancellor has disillusioned the country with his pessimistic and dreary approach this afternoon.

    Every good Budget should have a theme. It is possible to sum up the theme of this Budget. The theme is three years of austerity and industrial decline on the basis of a stagnating economy combined with shifting the burden from the healthy to the sick and from the rich to the poor.

    This is certainly a consolidation Budget. It represents a consolidation of failure. It is necessary to consider not only the Government's economic policies but their attitude towards our community. Just a few actions can set the tone. Let us consider one or two of them. We are told that we should consider public expenditure on social benefits against the tax that is required to raise the revenue devoted to them. The new system of producing the public expenditure figures only after the Chancellor has sat down should be reconsidered. It is unfair that the House should have no opportunity to consider the real aspects. That applies to all hon. Members. I do not dispute that there might be a good case for debating the Budget and the public expenditure figures together. However, the House should have the opportunity at least 10 days or a fortnight before the Budget to see the documents. I ask the Government to reconsider this matter because it has caused great inconvenience this year.

    I shall not accuse the Government of anything but the new system hides the real consequences of some of the cuts in public expenditure. I should like to examine the documents with great care before I come to a conclusion. However, an inference can be drawn from what has taken place.

    Let us consider public expenditure and tax charges together. Last year the Chancellor reduced the top rate of tax to 60 per cent. to give the £30,000 a year man £4,000 a year more. This year he is reducing the benefit payment for the sick by a figure 5 per cent. below the increase in the rate of inflation. Is that really what the House wants? Is it really the philosophy of the modern Conservative Party? I do not believe that we have a Conservative Government any more. It is a classic nineteenth century Liberal Government. Some Conservative Members would like to turn the twentieth century Welfare State into a nineteenth century board of guardians.

    The Budget does nothing to help our exporters. There was hardly a word about the necessity of exporting or the consequences of it during the whole of the Budget speech. The Budget does nothing to assist our unemployed young people. It does nothing to reduce the highest interest rates that we have ever had. It decreases output but does nothing to help it.

    Last year the Chancellor made the fatal mistake of increasing VAT by about 4 per cent. just at the beginning of the union conferences. Once bitten, twice shy. He has not done that this year. He has increased the retail price index by a little over 1 per cent. If the Chancellor expects an inflation rate of between 14 per cent. and 19 per cent. in the next 12 months when the union conferences are beginning to discuss their claims for this year I can tell him from years of experience that the unions will rely upon that figure. How will the Chancellor break out? The Government repel the trade unions at every opportunity. They shut the front doors of No. 10 and the Treasury to the unions. The Chancellor should be seeking their co-operation from tomorrow to deal with the tragic situation. Otherwise, earnings will run far ahead of productivity and the position will be made even worse than it is today.

    The Chancellor should call the unions in. He should swallow his pride and see what can be done to help us avoid a repetition of the last 12 months. The Chancellor has hung the money targets and public sector borrowing requirement around his neck. In the next two or three years he will slowly tighten the noose. If he does not, someone else will tighten it for him.

    If the Chancellor feels that in the interests of his policy—a policy which we do not accept—he must make petty and mean charges, it would be far better to impose a further increase on the price of cigarettes, for example, than to charge the sick. I am sure that the country would accept that. The Chancellor reveals an improper sense of priorities in his mean and petty savings.

    The Chancellor was speaking for one hour fifty minutes before he said anything about unemployment. But he said nothing about the fact that, according to the latest publications, youth unemployment may double by this time next year. There is no recognition of this in the Budget. As I know already from the public expenditure figures, the Government have cut £100 million from the Manpower Services Commission for 1979–80, and £170 million for 1980–81. Twenty per cent. of all the unemployed are now long term. The Government are closing down youth training centres and skill-centres. Every hon. Member has received a memorandum today showing that the places available for training in London for unemployed young men and women are to be cut by one-third.

    Is this really the kind of Budget and are these really the kinds of proposals and priorities that the Government think are acceptable to the country? I tell the Government that they are not. We note the pathetic provision that the Chancellor is making for small workshops. I heard his hon. Friends cheer; I suppose that they had nothing else to cheer. But this provision is irrelevant in relation to the size of the problem that the Government's policy will create over the next 12 months. When I contrast it with his compassion and his detailed care for those who will have to pay capital gains tax or capital transfer tax I am bound to say that I resist and resent this kind of Budget put forward in this way.

    I now turn to the question of deeming. The Chancellor told us that he intends to ensure that £12 a week is disregarded in the payment of benefits to the family of a striker. I do not know whether many people know it, but strikers are already treated worse than unemployed people in terms of social security benefits. [Interruption.] Maybe it is the philosophy of Conservative Members that they should be, but my point is that strikers are already treated worse than unemployed people.

    When we look at the social security benefits paid to a striker's family, we find that the short-term benefits make no allowance for the man himself, but a deduction of about £15 a week is made. The striker is £15 a week worse off than the man who is unemployed. The Government now propose to make him a further £12 worse off than the unemployed man. This is the way in which the Government will create social tension out of all proportion—[Interruption.] I sometimes wonder whether the Government know what they are doing in these matters.

    With regard to the child benefit allowance, the Government have been as mean as it is possible to be in relation to their past promises and undertakings. The Chancellor told us that the allowance was to be raised to £4·75. He is of course, raising the personal allowances—although even there he is chiselling a bit away, as I shall show in a moment. But if the Chancellor were to raise the child benefit by the same amount as the increase in inflation, the figure would have to be somewhere between £5·10 and £5·20 a week.

    This is the party which said that it cared for the family. This is the Government who said that they were going over to a tax credit system. If words of mine will not persuade the Government or the Chancellor, let me quote what the present Secretary of State for Social Services said in 1977. He was explaining why the Conservatives were committed to doing this, without any ifs or buts. He said:
    "first, because that is the way to restore the position of families. Secondly, it is the best way to ease the poverty trap. Thirdly, it is the best way to help poorest families in work.…Fourthly, it is the best way to reduce the nonsense of people being much better off out of work. Fifthly, it is the best way of reducing the dependence of families on means-tested benefits."—[Official Report, 17 June 1977; Vol 933, c.794–95.]
    There is an overwhelming case—and every Conservative Member knows it—for the undertakings that have been given to raise the child benefit to £5.20.

    Although we have only just heard what the Chancellor said about personal allowances, I believe that I am right in saying that he has also chiselled in that respect. [Interruption.] Yes, he has. He has abolished the reduced rate that is paid on the first £750 at 25p in the pound, but he has not given full compensation for that by the increase in the personal allowances. If he had done so, the figures would have been rather higher than they are now. For example, he is raising the single person's allowance to £1,375. When the abolition takes place, the equivalent figure should be £1,405, not £1,375. For the married man, he is proposing to raise the personall allowance to £2,145, but he is making him worse off. He is abolishing the reduced rate of 25p and replacing it by the figure of £2,145, whereas, in order to start square, it ought to be £2,165. I note that there is no contradiction of this. The House will want to know—[Interruption.] Oh, the Chancellor said that he was chiselling, did he? I am much obliged.

    Another group of people who will suffer much more are those who do not pay tax, or who have not paid tax, at more than 25p in the pound. They will suffer in two ways. First they will suffer because they will now start paying tax at 30p in the pound instead of at 25p in the pound, and, secondly, because they are not getting the full compensation for their allowances. There can be no doubt that the Chancellor has chiselled these allowances. He has saved something here and there and has not given the full increase to which people were entitled in this regard.

    I now come to the sickness and unemployment benefit and to the taxing of the invalidity benefits. These are paid when people are at their lowest ebb. It is a disgrace for a Government to increase the invalidity benefits by 5 per cent. less than the increase in the retail price index. Conservative Members must be ashamed of their own Front Bench.

    Obviously, there are some points that we must welcome. The proposal that the Chancellor makes for increasing the single allowance for widows in the first year of widowhood is one in which we should all rejoice. I am sure that we are all glad about it. I also applaud very strongly the relief from taxation in the case of gallantry awards. There is also everything to be said for ensuring that the supplementary benefits reflect the full range of price increases. There is much to be said for increasing the petroleum revenue tax from 60 per cent. to 70 per cent. The provision concerning leasing ought to go, of course, and that is quite right. The proposal concerning stock relief is probably quite right, but we shall need to look at it more carefully.

    Although there are several things that we can welcome in the Budget, generally speaking, it is a Budget in regard to which there are broken undertakings—the child benefit allowance is the classic example of that. It is a Budget in regard to which the Government are running the economy deliberately for a fall of about 2½ per cent. this year—and with an increase in inflation. It is a Budget which assumes that the decline will go on. It is a Budget which does nothing at all to relieve for months to come the burden of high interest rates. It is a Budget which ensures that the monetary targets and the effect of them will be swamped by the loss of output that will flow from fixing those targets where they are.

    We need an approach to our problems that is entirely different from the approach set out in the Budget. My right hon. Friend the Member for Leeds, East will undoubtedly make a further examination of it tomorrow. It is the most hopeless Budget that we have had since the war, and in regard to the social groups it chooses for rewards and penalties it is the meanest Budget that we have had since 1931.

    6 pm

    The more I listen to Budget Statements, the more I become convinced that the future of this country lies not in the financial or fiscal proposals of the Chancellor, of whatever party, but in the structure of our industry and the state of our industrial relations. What Budgets can do in relation to those matters is limited.

    It was apparent from the speech of the Leader of the Opposition that, if there is an alternative to the Government's policy, it is a statutory incomes policy. I do not share the enthusiasm which exists in some parts of the House, and in the Liberal Party, for such a policy. However, I must tell the Labour Party that that is the alternative. If Labour Members feel that the Government's measures are bound to fail, there is no other possible choice except a statutory incomes policy.

    I was very glad that the Chancellor bad an idea. As far as it went, I thought that it was a good idea. The measures that he proposed to help small industries and to encourage wider share ownership were welcome. I hope that he will have another idea next year. However, I hope that he will carry this year's idea further.

    I think that the future lies mainly with small industries, not with the large public monopolies, but a great deal more must be done. We need more reform on the planning procedures. We should encourage workers not only to take shares in industry, but, through co-operatives, to run industries and to employ their own management.

    The Government must curse the day when the press in this country got hold of the word "monetarism". It has come to mean a sinister torture invented by Mr. Milton Friedman in Chicago. It means no more than the elementary fact that, if people have more money to spend and there is no more to spend it on, prices will go up. Mr. Friedman did not invent that important dictum. It would be true under Socialist, Conservative or Liberal Governments.

    It is certainly true that inflation will go on so long as an increasing part of this country's resources is expended on non-productive work. If that is part of their long-term thinking, I agree with what the Government are trying to do.

    It must also be said that endless rises m pay, salaries and allowances of all kinds without increased productivity are the cause of inflation and poverty. They are the main trouble from which the country suffers. I consider it unfortunate that the top people in charge of the nationalised industries, many of which are far from profitable, are to get increased salaries. It is very unfortunate timing. The general clamour for higher salaries and wages is suicidal.

    I want to deal particularly with North Sea oil and gas. The Chancellor mentioned this subject, but he did not tell us how it fits in with the Government's long term strategy. There is a danger that our important resources in the North Sea and the revenue from them will be wasted. It is estimated that the Government are at present getting £2 billion in taxation from oil and gas and that, by the middle of this decade, that figure will rise to about £18 billion or £20 billion. That is about half the yield of income tax and is by far the most striking feature of Britain's financial position.

    What is to be done with these resources? I fear that they will be frittered away. It has already been claimed that, by selling off assets, the Government will be able to reduce public borrowing. There is a danger here of confusing capital and income and of using capital assets to reduce the calls upon income. Then there is always the danger that the revenue will go into the Exchequer and be used for general purposes—possibly to assist in reducing taxation and to excuse the Government from undertaking the cuts in non-productive expenditure, to which they are committed and which I think are essential for the future of the economy.

    I hope that we shall be reassured that the oil revenue will not be used as a cover to excuse the Government from carrying out reductions in public expenditure on which I hope they will keep their mind focused. These excellent Blue Papers are produced, but they are not always put into practice as readily as promised lead one to hope. Of course, this revenue could be used to bribe the electorate by making reductions in taxation and using it for many other purposes.

    Three purposes should be considered. First, Mr. Brittan and Mr. Riley have suggested that a North Sea stock should be issued so that people would feel that they had gained some advantage from our huge resources in the North Sea. There are objections too, but also great advantages in, that idea. I believe that individuals will make better use of it than Governments. It will also give the public the idea that they are gaining from their own asset.

    The second purpose is to set it aside as a special fund at arm's length from the Government and use it for productive investment. I do not think that the British economy suffers purely from lack of investment. Much more serious is the failure to make good use of the investment that we have. We pour money down the drain of the nationalised industries in the name of investment and waste it. However, if we could be sure that the investment would be profitably used, we could do much more with it. I believe that we should reserve some of our North Sea revenues for that purpose.

    Thirdly, it could be used to reduce the cost of energy. The Government's proposal on this issue is the exact opposite: that energy should be made more expensive as a method of conservation. I object to that. I deplore the increase in the petrol tax. Those who live in the countryside, who already pay an enormous price for petrol, will resent this increase. I cannot see the point of increasing petrol tax at this point. There is a certain tendency—from which I hope the Government do not suffer—to look at prices which have not gone up since 1977, for instance, and therefore decide to put them up now. I see no reason for increasing taxes because they have not been increased for a long time.

    The least conservation conscious elements in our society are public authorities. Public buildings are over-heated. There is no sign that authorities are economising in the building of new public offices or schools. Schools are still being built which, even at present-day prices, will require £70,000 a year to heat and light.

    There is no reduction in the use of cars. Most private cars are either on expense accounts or are used by officials. Will Ministers and officials now have to pay tax on the cars which I understand they get free and untaxed? Fishermen in my constituency who travel to ports have to pay tax if they get any free transport either by sea or by road. I cannot see any difference between them and Ministers and Government officials who are not taxed.

    The most striking waste of energy is the flaring of gas. Enormous quantities of gas are flared off every day from platforms in the North Sea and the terminals on shore. No attempt is made to use that gas for generation of electricity. Hydro boards and gas boards in Scotland have made no serious effort to use it.

    In my constituency alone some 3 million cubic feet of gas is flared off daily. For the North Sea as a whole the figure is about 487 million cubic feet. People read in the press about the waste of gas, and find it strange to hear talk of economies. The Gas Board is proclaiming that rises in the cost of gas are "inevitable". They are not. There is no reason why we should follow world prices. The Gas Board makes a huge profit, as do to a lesser extent the hydro boards. It is exasperating, at least to my constituents, to read these advertisements of increased gas and electricity prices when such large quantities of gas are burnt in the air every day.

    I beg the Government to tell us more about their long-term policy for North Sea resources. I trust that those resources will not be frittered away or used as an excuse by the Treasury for not taking action in other ways. Efforts should be made to use products such as the flared-off gas.

    We should not be taken in by talk of an inevitable oil and energy shortage. The reserves in the North Sea are enormous, and there are probably new fields to be discovered. We have huge reserves of coal. We are in danger of being conned into the belief that there will be a total energy shortage. By the time that coal is exhausted, we shall surely be using solar energy. Although there may be problems in the medium term, I am less pessimistic about the long term.

    I hope that the Government will not lose sight of that important aspect of our economy over the next 10 years. I am not confident that they have yet thought out their future policy for North Sea oil and gas and for the large and ever-increasing revenues that will come from the North Sea.

    6.12 pm

    I am grateful for the fact that I have been called to speak at this early stage. As the first Conservative Back Bench speaker, I join the Leader of the Opposition in congratulating my right hon. and learned Friend the Chancellor of the Exchequer on the delivery and content of his Budget speech. It was a long speech, but not boring, as most Budget speeches have been over the 10 years that I have listened to them.

    My right hon. and learned Friend has been Chancellor of the Exchequer for 11 months. He introduced his first Budget shortly after he came to office. This is his second. He has had only two Budgets in 12 months. Had the right hon. Member for Leeds, East (Mr. Healey) been Chancellor of the Exchequer, we should have had at least half a dozen Budgets in the same period.

    Overall, the Budget is less bad than we were led to believe from press leaks in recent weeks. I welcome the increase in the retirement pension. We are well aware of the problems faced by the elderly who have to live on limited fixed incomes at a time of high inflation. I believe that all hon. Members are delighted that full allowance has been made in the retirement pension increases for inflation over the past 12 months.

    I also welcome the 18 per cent. increase in personal tax allowances. Last year's reductions in direct taxation will therefore not be lost through inflation.

    I also welcome the abolition of vehicle excise duty on the electric car, which will contribute to energy conservation. I hope that Treasury Ministers will consider incentives for those developing the electric car.

    The enterprise zone concept is attractice. It is no more than an experiment, but I hope that it will be successful and play a substantial part in regenerating our inner city areas.

    I regret the limited increase in child benefit. It is a good benefit that helps the poor and encourages hard work. I am sorry that my right hon. and learned Friend did not feel able to go further.

    I regret even more deeply the decision to end earnings-related unemployment benefit. It is a good benefit and particularly important at a time of rising unemployment. I appreciate that many people are covered in other ways. However, it is difficult for a person who becomes unemployed suddenly to cope with a considerable drop in income at the beginning of that period. It may be easier after some months. That benefit also helped to promote greater mobility of labour. It enabled people moving from one job to another to have a reasonable income during that period. We have a problem in our lack of mobility of labour, and earnings-related unemployment benefit has played a part in improving this situation.

    The general state of the British economy is worse today than 12 months ago. The annual rate of inflation is 18·4 per cent. as against 9·3 per cent. 12 months ago. The number out of work is 1,470,000, as against 1,455,000. The annual rate of economic growth is 1·7 per cent. as against 2·7 per cent. 12 months ago. Before the Labour Party claims that that is the fault of this Government, it is important to note that there is a time lag of 12 months or more between taking actions that affect the economy and those measures taking effect. The previous Government are responsible for our serious economic plight. It is the consequence of their actions, not the actions of this Government.

    But this Government have been in office for almost 12 months now, and increasingly over the next few months the various economic statistics will represent the consequences of this Government. It is no secret that I have grave reservations about monetarism and even graver reservations about the excessive reliance that the Government place on it. This is not to deny that monetary policies have a part to play in economic management, but for a number of reasons I do not believe that monetarism is a panacea for all our economic ills.

    First, it is difficult to quantify the exact increase in the money supply. Secondly, any measure of money supply inevitably excludes an increasing number of transactions which have economic significance but which do not involve the use of money. Thirdly, it is not possible to know in advance exactly what the velocity of circulation will be. Relatively small upward or downward movements can be significant.

    I make these points not because I believe that monetary policy is unimportant but because it has severe limitations. It is expecting too much of monetarism that on its own it will cure inflation and resolve our economic problems. We need to use every available economic tool to achieve such objectives, including fiscal and incomes policies. To place the reliance which the Government do on controlling inflation and the economy by controlling the money supply seems to me like putting all one's eggs in a basket which almost certainly has biggish holes and which one is not totally certain has a bottom.

    If there is to be an improvement in British economic management and in our economic performance it is important that the Government should use all the tools of economic management. Although my right hon. and learned Friend gave no indication of it earlier, I hope that as the Budget debate proceeds other Treasury Ministers will indicate that the Government intend to use the other economic tools of management that are available.

    I turn to a consideration of the exchange rate, which is related, to some extent, to what I have been saying. There is little doubt that the current level of the exchange rate is damaging our industrial base. It is sustained by high interest rates and oil revenue. In terms of manufacturing costs, it is at an unrealistically high level which makes it difficult to export British products and much too easy for foreign products to be competitive in the British domestic market.