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Finance (No 2) Bill

Volume 984: debated on Thursday 8 May 1980

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

Order for Second Reading read.

Before I call the Minister I inform the House that I propose to apply the 10-minute rule at 7 o'clock tonight, if that is necessary. If it is not necessary, I may lift it.

4.19 pm

I beg to move, That the Bill be now read a Second time.

I commend this measure to the House.

This debate takes place under the shadow of yesterday's discussion of public expenditure and, in a sense, might be considered as part of a two-day general economic debate. At the outset, therefore, I should like to comment upon the very formidable speech made by my right hon. Friend the Member for Taunton (Mr. du Cann), because I think that it deserves the reflective consideration of the House.

I informed my right hon. Friend that I would be making this reference and I had a courteous note from him explaining that other parliamentary duties keep him from the Chamber. The fact that he is not here in no sense reflects upon him.

My right hon. Friend said:
" As to the remainder of our conclusions, the Committee recorded its several reservations. In aggregate the list is formidable. It is so formidable as to suggest that the whole strategy may be at risk unless there are variations in policy."
He elaborated on this when he said:
" This country's industrial decline is not being arrested or reversed; it is continuing. In all seriousness, I say to my right hon. and learned Friend that deflation must not be pushed too far, in case it does incalculable harm."—[Official Report, 7 May 1980; Vol. 984, c. 327.]
Those comments have, not unnaturally, been selected by the press for the representation of their savage attack upon the policies of this Administration. I do not believe that those words merit that description, for in respect of the Budget my right hon. Friend has also gone on record—not in Hansard, admittedly, but in a Conservative publication—as follows:
" The foundations for higher growth, fuller employment, and a return to rising living standards were laid down in the Chancellor's... second Budget."
He proceeded to argue:
" Realism, enterprise, care. Those are the ingredients of one of the best Budgets this country has had for many years."
All this, obviously, will enable us to put these matters into context. My own enthusiasms, inevitably, are always somewhat more muted, as is my nature, but I think it well that the House should know that these are the views of my right hon. Friend, and I hope that the press will give as much publicity to the remarks that I have quoted as they did to those that he made yesterday. [Interruption.] The right hon. Member for Leeds, East (Mr. Healey), who obviously has much experience in this desperate problem of getting publicity, since he appears on stage two days in succession, says that I shall be lucky if these words are read into the record at all. I agree, but we all travel hopefully and often are disappointed.

I should like to make one or two general comments about the economic circumstances outlined by this Bill, and then I will turn to the content. The Bill outlines the means whereby the Government will secure tax revenues of £62,000 million for the current year. Therefore, it is central to the Government's borrowing and spending commitments and it throws into sharp relief the significance of interest rates to the economy and?o the Government's economic strategy.

The Confederation of British Industry has recently complained about the damage caused by persistent high levels of interest rates. That anxiety is widespread. It is certainly shared by hon. Members on both sides of the House, and it featured in yesterday's debate. My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) indicates his agreement with my interpretation. I hope that it is agreement that can be forged and fashioned not only this afternoon but throughout the whole Committee stage of the Bill. No single factor dominates interest rates, but at the moment there are four points that I think can be identified and that are generally propitious.

First, there are signs that international interest rates, with the obvious exception of those in Germany, are falling. Secondly, domestic rates of inflation, although not yet at their peak, are expected to fall, to a Red Book calculation of 165 per cent., by the second half of the current year. I entirely understand the interest that has been shown by the right hon. Member for Llanelli (Mr. Davies), who has always argued that there is a relationship between levels of domestic interest and levels of inflation. Thirdly, the public sector borrowing requirement, estimated for the current year at £8,500 million, is likely to make a smaller demand upon the gross domestic product than did the borrowing requirement for the year just concluded. Fourthly, the money supply figures, as measured by sterling M3, are coming under better control. Since mid-June they have been striking an annual rate of increase of around 10 per cent., and the figure is even better if calculated since mid-October.

The right hon. Gentleman mentioned sterling M3. Does he agree that when there is a balance of payments deficit on the current account, as there is now and is likely to be for some time, sterling M3 is not a very good indicator of the growth of money supply in the economy; that in fact it is a bad indicator; that the best indicator is domestic credit expansion; and that on that basis the Government are not succeeding in controlling the money supply?

First, I agree that domestic credit expansion is an important measure, but I think one has to be very wary of politicians who, having accepted a measuring rod—and sterling M3 is widely accepted as a reasonable measuring rod for money supply figures—from month to month then begin to alter the basis on which they want the calculation to be accepted. I am sticking with sterling M3 in good times and bad. There are many calculations on the monetary figures, other than sterling M3, which would give rather better figures than sterling M3, but I know, for example, that my hon. Friend the Member for Knutsford (Mr. BruceGardyne) is anxious lest we be too euphoric about this, and I do not think that he would accuse me of being euphoric in the very tentative situation and background that I have just outlined.

There are some who, doubtless drawing upon their acquaintance with Browning, would fear that it was to be
" Never glad confident morning again! "
I do not think that things are that bad. I think that there are circumstances that are quite encouraging, and that a sober and qualified optimism can now exist that market conditions are being created for a fall in interest rates, but it would be wholly irresponsible for me to speculate upon timing, and I wish to read into the record and wholly identify myself with the remarks of the Chancellor yesterday, when he said:
" We shall not be sure of the position until it is clear that current interest rate levels are restraining the persisting excessive rate of growth of bank lending in recent months.
To reduce MLR prematurely would risk undermining our policy to bring down the rate of inflation."—[Official Report, 7 May 1980; Vol. 984, c. 303.]

I agree very much with all that my right hon. Friend has just said, but he worries me slightly when he refers to sticking with M3 through good times and bad. Surely the essence of our experience over many years has been that we should look at a whole range of figures, and that certainly at times when the current account is in deficit the DCE figures are not to be ignored?

I entirely agree. I am sorry that I had not adequately anticipated my hon. Friend's anxieties by, for example, quoting four factors rather than merely one. He is absolutely right, and I would not wish him or the House to think that I had an excessive concern with sterling M3.

Turning to the Bill itself, I first invite the House to consider clauses 1 to 5, which relate to excise duties. The proposals in the Bill represent a conscious determination to raise further revenue from indirect taxation. There has been only muted criticism of the decision to increase the duties on alcohol and tobacco. The Budget resolutions debate was remarkable on this point. The right hon. Member for Norwich, North (Mr. Ennals) said in respect of tobacco:
" The 5p extra on the price of a typical packet of 20 king-size cigarettes is inadequate."—[Official Report, 31 March 1980; Vol. 982, c. 73.]
I see my right hon. Friend the Member for Worthing (Mr. Higgins) sitting in his place. His words, if anything, were even more robust. He said
"My right hon. and learned Friend is concerned about the effects of increases in indirect taxation on the cost of living index. I regret that the Chancellor did not increase the tax on tobacco by more. We should seriously consider whether tobacco and cigarettes should be taken out of the cost of living index ".—[Official Report, 31 March 1980; Vol. 982, c. 68.]
It is an argument that echoes throughout the House.

Speaking from the Liberal Bench, the hon. Member for Truro (Mr. Penhaligon) said:
" The inclusion of alcohol and tobacco in the cost of living index is ridiculous, and both have come off lightly in the Budget."
He went on to say:
" That is insanity for any long-term economic policy, and it has happened because Governments are constantly terrified of the cost of living index."—[Official Report, 31 March 1980; Vol. 982, c. 95.]
Clearly this issue cannot be resolved either on Second Reading or in Committee on the Finance Bill, but it legitimately raises the whole issue of the problems of indirect taxation in the retail price index. Any Government that embarked upon a policy of rewriting the price index to take account of indirect tax changes would be engaging on an immensely hazardous task.

It is none the less true to observe that there are these feelings in the House. My right hon. Friend is a formidable member of the Select Committee on the Treasury and Civil Service. It is precisely on this kind of issue that the House would feel advantaged if it could have a study and comments. It is in no sense a party political issue. Several Labour Members also expressed anxiety on this point, and we would welcome further comment.

As to the provisions of the Bill, I am certain that the Government have been right to secure additional revenue from these sources.

May I modestly put to my right hon. Friend that on 16 May I have been allocated by Mr. Speaker an Adjournment debate on the subject of the effect of alcohol and tobacco prices on the RPI. I hope that he or one of his Treasury colleagues will be able to attend that debate to hear the suggestions that I am sure will come from both sides of the House about the way in which this matter might be looked into.

If I cannot attend the debate, I shall certainly read the Official Report of it.

The statement which my right hon. Friend the Chief Secretary has made, and that which my right hon. and learned Friend the Chancellor made earlier, on the broad question will be welcomed by both sides of the House. May I be more specific about the increase in taxation in the Bill? In real terms the duty on tobacco is being reduced. It has been a long standing tradition, indeed, a rule of the House, that Back Benchers cannot move for an increase in taxation. I am not asking my right hon. Friend to commit himself finally, but will he consider whether we might have an opportunity to vote on whether there should be a higher increase in this tax?

What my right hon. Friend says is absolutely fascinating, but, as I want to lead as comfortable a life as possible, I merely say that I will draw his comments to my right hon. and learned Friend's attention.

As the Chief Secretary is evidently taking questions at this stage of his speech, may I invite him to confirm that alterations in indirect taxation can affect only relative prices and cannot have an effect upon the total of money prices?

I should be delighted to read the evidence that the right hon. Gentleman might be giving to the Select Committee were it to study this problem and were it to seek his comments.

To interrupt this " Question Time " with a few remarks of my own, I suggest that the House might like to consider clause 11, which concerns value added tax and, particularly, the value added tax registration. This year there are no significant changes in the rates and coverage of VAT, but the threshold has been raised from £10,000 to £13,500 in respect of annual turnover.

My right hon. and learned Friend the Chancellor has been subject to a number of representations on this point, and the National Federation of Self Employed has argued for a limit of £50,000. Many hon. Members must have received representations of a broadly similar character, that there should be a substantial lift in the threshold of VAT. I shall make two observations on this, because they are pertinent and because this issue will not slide away as the years proceed.

First, we have a clear obligation under the European Community sixth directive in respect of VAT only to maintain the threshold value in real terms. That must be a factor in the Government's consideration.

Secondly—this may be an item which will manifest itself rather more in the future—many registered VAT traders complain of competition from those who are not registered. That problem would intensify substantially if we accepted the kind of advice that the National Federation of Self Employed has been tendering. VAT now provides a yield of about £12,500 million a year, but its narrow tax base makes it a relatively progressive form of indirect taxation.

Clause 17 relates to income tax. This year is a year of modest change. I reckon that without doubt the most important development is the abolition of the lower rate. Personal allowances have been increased by about 18 per cent., roughly in line with inflation during 1979. That move of lifting the threshold was necessary if we were to avoid a whole new conscript army of taxpayers at well below the average national wage.

The decision to use the lower rate as a means of financing the increase in thresholds is controversial to a degree. I see that I have the assent of the hon. Member for Colne Valley (Mr. Wainwright), which I would expect in the light of his speech on the Budget resolutions.

The Chief Secretary inadvertently may be giving the impression that I assent to the abolition of the reduced rate. I make it quite clear that I oppose it vigorously.

I am sure that my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) meant that I had represented the position of the hon. Member for Colne Valley as opposing the abolition of the reduced rate, and I am sorry if I embarrassed the hon. Member for Colne Valley.

There is a balance to be made—a social as well as an administrative balance—in a situation where, if the lower rate had not been abolished, the increase in the thresholds, given the existing limitations on resources, would have been only 10 per cent. rather than 18 per per cent.

The other factor is that the abolition of the lower rate could save as many as 1,300 staff. Increasingly, the House is anxious to find ways of savings in administration. I do not believe that such savings can be made without alterations in policy. The lower rate will receive the full burial honours of a debate on the Floor of the House. Hon. Members might have overlooked that it has already had a preliminary requiem in the Select Committee under the chairmanship of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). We do not yet know formally what was decided in that Committee, but by courtesy of the Financial Times we know a little. One tends to find out what is happening in the European Community, for instance, in the business columns of The Times or the Financial Times. The Chamber still exists and from time to time it functions; we hope to do our job and draw our pay. Therefore, I should like to put on record what went on upstairs according to Mr. Peter Riddell, who is the economics correspondent of the Financial Times.

If my hon. Friend will excuse me, I shall finish what I am saying. I am good natured about giving way, but I must be allowed to make my own speech. That might display a high degree of eccentricity, but that is how I feel.

Mr. Riddell said
" This is just the type of factual questioning of officials about the details of a Finance Bill before the more partisan legislative process "—
that is US—
" which has long been favoured by Parliamentary reformers. It may have been unexciting but no one, for example, can have gone away any longer believing in the desirability of retaining the reduced rate band of income tax."
I look forward to seeing whether the Select Committee managed to consolidate my prejudices as they have reinforced Mr. Peter Riddell.

Is my right hon. Friend seriously saying that the Treasury team has never used the press to give a forecast of what might be said in future announcements from the Front Bench? If he had received a briefing on events in the Select Committee, he would be aware that the evidence was given in public and that it is in printed form and available to the House.

My hon. Friend is being a shade sensitive. I assure him that Treasury teams spend all their time trying to be reported by the newspapers, or trying not to be reported. I am well aware that Select Committees try to make reports of their proceedings available to the House on the same basis as Hansard. However, they cannot quite match the traditional speed and formula of Hansard.

I am not objecting to the procedures of Select Committees. They are part of life. Anybody in an executive position who is disturbed or upset by Select Committees must learn that they are just part of life and that one must give and take.

I turn to the less contentious issue of small business measures. Clauses 27 and 36 deal with technical matters which, none the less, have a significance for the small business community. The situation was summed up well by the chairman of the Association of Independent Businesses taxation committee. Just after the Budget he said that it contained
" a large number of small provisions which will assist the independent businessman."

Clause 27 deals with relief for interest in respect of money borrowed for investment in a close company. Clause 36 deals with relief for losses on unquoted shares in trading companies. They are technical measures, but they are valuable and will be of real importance in the financing of small businesses. The advantages of such measures will become apparent only once inflation and domestic interest rates are abated.

The major interest in small business legislation has centred upon the capital gains tax and capital transfer tax provisions in part III, chapter HI, and part IV of the Bill. My hon. and learned Friend the Minister of State will deal with that in greater detail later. I shall confine myself to a modest point but one which is of significance and worth placing on the record.

The capital transfer tax threshold will be doubled to £50,000 in the Bill. That puts capital tax thresholds higher in real terms than at any time since the introduction of estate duty in 1894—one of the few Liberal bequests to our present economy. Since business relief has its own consequences, effectively the threshold will be £100,000.

I commend the reforms to the House with no sense of apology for the supposedly modest nature of their provision. I proceed not unaware that many interests outside the House are disappointed that a more wide-ranging and generous tax reform in respect of capital was not essayed in the Budget. Given the balance of decision that the Government had to take, not merely in the Budget but in public expenditure, it was probably a reasonable economic and social Budget.

Of course, the penalties on capital remain high. If we want a spread of power and ownership outside the present concentrations of corporate authority we must seek further taxation reforms. I leave the matter there. My hon. and learned Friend will refer to it again later. In no sense am I apologetic in outlining our proposals to the House.

I turn to the question of charities, which features in a number of clauses, namely, clauses 52, 53, 54, 79 and 98. Obviously any major reform of charities can be undertaken wisely only if the Chancellor and his fellow Ministers are conscious of the need to protect the revenue base. In commending our proposals, I assure the House that we are well aware that any measure in this direction has consequences for the revenue yield. To set that aside would be short-sighted.

Wherever we look in Britain today we see many examples of where one should accept and welcome a partnership or at least a co-existence between the State and private authorities. That might be said of social work, including health and education, and the promotion of the arts.

The changes will have beneficial consequences for private work in the areas that I have mentioned. The changes have been fashioned in the light of recommendations by the Goodman committee and the National Council of Social Service. The measures include doubling from £100,000 to £200,000 the present capital transfer tax exemption limit for transfers to charities made on or within a year of death. They provide for the total exemption from development land tax on disposals of land.

The measures provide—and this issue has probably caught the most public attention—for the reduction of the minimum period for charitable covenants to enable the payments to qualify for tax relief from " over six years " to " over three years ". Finally, there are provisions to enable payments made by individuals to secure relief at the higher rates, even though the charities can claim only at the standard rate.

The total cost of these measures is estimated at about £30 million in a full year. I think that they will be seen over a period to add up to quite a significant package in attempting to secure a more lively role for charities in the social life of this country.

Following discussions on last year's Finance Bill, a number of hon. Members expressed considerable concern about the definition of charities, and followed that by plaguing the Leader of the House for a debate on the Goodman report out of the context of the Finance Bill. Parliamentary time was not found for that, which was a pity.

I wish to ask the Chief Secretary two questions. First, will he have anything to say in Committee on the vexed question of the definition of charities? The matter is regarded as unsatisfactory on both sides of the House.

Secondly—and it is my only question on the right hon. Gentleman's speech—it will be within his recollection that during the passage of the National Heritage Act some open ends remained about the consequences of the Finance Bill on legislation passed after the coming into operation of the National Heritage Act. Have those open ends been cleared up?

Almost certainly the open ends will not have been cleared up to the satisfaction of the hon. Gentleman, if only for the reason which he described concerning the difficulties last year on having a discussion within the confines of the Finance Bill. I take entirely the anxieties felt about the definition of charities, and to some extent the role of the Charity Commissioners and the means whereby charities are registered and surveyed.

The hon. Gentleman will appreciate that that is essentially a matter which falls within the ambit of the Home Office. I shall undertake to ensure that my right hon. Friend the Leader of the House is made aware of the point that he has made. It would be quite misleading if I were to suggest that the Finance Bill would enable the sort of discussion that I know he would like.

I shall look at that point. I think that my hon. and learned Friend the Minister of State can deal with that more adequately than I can.

An amiable atmosphere has prevailed in the last few minutes—as we have moved away from the explosive issue of Select Committees—but I now find that I have to make a few rather controversial comments, although they may command the wholehearted consent of the House. The right hon. Member for Leeds, East has turned up for the second day in succession. One can only wonder what it is all about. It cannot be that he has any lack of confidence in a very formidable Shadow Treasury team, so we can dismiss that consideration. My hon. Friend the Financial Secretary last night suggested that it might be something to do with the leadership of the Labour Party, and I think that that is—

Yes, it is very boring. I could not believe that the right hon. Gentleman's presence was something to do with the leadership of the Labour Party. Clearly, it will be an issue that obtrudes relentlessly upon our discussions.

I wish to place on record that I very much hope that the right hon. Gentleman becomes leader of the Labour Party, on the basis that Mr. Harold Macmillan said that politicians, broadly speaking, were divided between bookies and bishops. In no sense could the right hon. Gentleman be described as episcopal. There is something rather brass-faced, a lack of offence and a lack of shame, which is nature's bookie. I see that role for the right hon. Gentleman.

As we come to conclude our deliberations on the Finance Bill, it is well to remember what odds the right hon. Gentleman has been shouting over past years, because the odds are a bit different at the moment. The book that was created in the past is there for all to see—for example, the March 1974 Budget, when income tax was increased from 30p to 33p, which seems an age away; the July 1974 measure, the fine tuning par excellence, of reducing VAT from 10 to 8 per cent. to secure the spurious statistic of an annualised 8·4 per cent. rate of inflation for the purposes of the autumn election, a point which my hon. Friend the Member for Horncastle (Mr. Tapsell) will remember. The April 1975 Budget increased income tax from 33p to 35p. The April 1976 Budget reduced the top rate of VAT to 12½ per cent. which one may think ran counter to the book, except that the right hon. Gentleman had raised it the previous year.

So we go through the record of our newfound bookie, who hopes to shout the odds for the Labour Party at the next election. We shall fight happily on his record, and also on our performance.

The hon. Member for Norwich, South (Mr. Garrett) has said " Tell us about your Finance Bill ". I tell him that we are putting to the House today a responsible Finance Bill which fulfils three objectives. First, it tries to raise revenues which are relative to spending to enable a manageable borrowing requirement. This is not a " cut tax and run " Budget. Secondly, it puts a modest but sensible further emphasis on indirect taxation. Thirdly, it contains reforms which should assist the financing of smaller businesses. As the months go by, I think that we shall look back upon these measures and be proud of the degree of realism and modesty that they contain.

I say to my hon. Friends, let us by voice and by vote secure Second Reading this afternoon.

4.58 pm

I enjoyed the speech of the Chief Secretary—as I always enjoy his speeches—especially the last-minute foray into rabble-rousing on his Back Benches, which was slightly ungainly and had a slight odour of oil. What we like most about the right hon. Gentleman is the gloomy fatalism that he always displays about his own ability, as an economic Minister, to influence anything that happens in the economy. We find that that has a certain melancholy charm.

I confess that my spirits were lifted at the beginning of the right hon. Gentleman's speech when he offered to talk about the remarks made yesterday by the right hon. Member for Taunton (Mr. du Cann), and to treat the debate as the second day of a general debate on the economy. My spirits fell when he confined his remarks on the economy to quoting a speech made outside the House by the right hon. Member for Taunton, which simply demonstrated—as we all recognised—the single-minded and longstanding devotion of the right hon. Member for Taunton to the leaders of his party. It had nothing whatever to do with the economy.

Beyond that, the right hon. Gentleman spent his speech dealing largely with points of detail in the Finance Bill, which, no doubt, will be further discussed in Committee. I prefer to follow the direction in which his hand pointed at the beginning of his speech, even though he did not choose to walk in that direction himself. The right hon. Gentleman will recall that, 12 months ago, he took office, together with his colleagues on the Front Bench, pledged to a clear break with the economic and social policies of all post-war Governments of all parties. The keystone of that policy—which I know the right hon. Gentleman had a part in laying—was to reduce inflation by controlling the money supply, and to improve Britain's economic performance by cutting taxes and setting the people free. I think that he would agree that that is a fair short summary.

A year has now passed. Inflation has doubled to 20 per cent. and is still rising. As the Prime Minister pointed out the other day, two-thirds of the increase is due to the Government's own actions—to the increase in VAT to 15 per cent., contrary to all the Government's election promises, to big increases in rents, rates, public service and sector charges, the devaluation of the green pound and record interest rates.

On a point of order, Mr. Deputy Speaker. I put it to you that we heard this speech yesterday, and that if the right hon. Gentleman wants to repeat himself he might as well read it into the record, as is done under the Congressional system.

That is not a point of order, and I am afraid that I was not here yesterday.

I am glad to say, Mr. Deputy Speaker, that your memory is rather better than that of the hon. Member for Knutsford (Mr. Bruce-Gardyne). I did not make this speech yesterday, as I think you agree.

I am afraid that the hon. Member for Knutsford is not complaining about the fact that I have said this before, but rather that the facts which I have recounted are rather inconvenient to him. I know that he does not like hearing them again, but I am afraid that he must.

We also have record interest rates—the Chief Secretary referred to this—which have been sustained longer than interest rates have ever been sustained in the past. That has been reflected in mortgage rates, not 15 per cent. as is often said, but, for most people, well over 16 per cent. That is only the most visible effect on inflation of the present level of interest rates.

As to our economic performance, productivity is falling, unemployment has risen by 200,000 since last September, after two years of continuous decline, and the balance of payments deficit is enormous and still rising. The only bright spot which the Prime Minister could find in the Government's economic record, when questioned about it last Thursday, was an increase in living standards over the last year. But no one knows better than the Chief Secretary that those who have enjoyed an increase in living standards owe it entirely to the most dramatic of all the Government's economic failures, namely, that earnings have risen faster than prices in the last 12 months because ordinary men and women acted according to the monetarist theory of rational expectations, not by looking at the figures of money supply but at the increase in prices which the Government had told them to expect as a result of their own decisions.

Nine months after the Chancellor's first Budget he is introducing a second one. According to the Chancellor, the first Budget organised a substantial reduction in the total tax burden, including the disastrous lurch from direct to indirect taxation, which is responsible for excessive wage increases in the last 12 months. At that time, the Chancellor claimed that the reduction in the overall tax burden would lead to a great improvement on the supply side of the economy. But this second Budget, and the Finance Bill which we are now discussing, mark the most spectacular U-turn in Government policy, because they deliberately cancel out all the tax benefits which the British people gained from the first Budget. This second Budget is increasing total Government revenue by £1,500 million, and everyone in the country is now much worse off after two Tory budgets, except a tiny minority of very wealthy people—[HON. MEMBERS: " Like you."]

As the Chief Secretary must admit, the economic effect of that is to cut gross domestic product this year by half per cent., at a time when it is already falling rapidly. Therefore, in their forecast, the Government have had to tell us that they expect gross domestic product to fall this year by 2½ per cent. We discovered from the Select Committee's investigations that manufacturing output will fall by 4 per cent. this year. The balance of payments deficit is likely to amount to £2½ billion, and as the right hon. Gentleman said, the retail price index will still be 16½ per cent. year on year at the end of this year—not by the second half, but by the end of this year.

I remind the House that all this has taken place in the first year in our history when North Sea oil and gas are giving us really substantial benefits. Thanks to last year's oil price increase. North Sea oil and gas will this year add 5 per cent. to our GDP. The benefit to our balance of payments will be £7,000 million, and, according to the Chancellor in the Budget debate, the Government will gain £4,000 million in revenue.

Moreover, the oil factor is improving our inflation rate by pushing up the value of the pound in a way which would certainly not have happened, given all other aspects of the Government's economic performance. I must congratulate the Chief Secretary and his colleagues on the stupendous achievement, in the face of overwhelming odds, of producing that sort of catastrophe when all the external factors should have led the Government to economic triumph.

Yesterday, the Chancellor said that it would take time for his policies to work. But we all want to know how long. The Chief Secretary did not attempt to answer that question. To help us in our discussion of the Finance Bill, all that we have had is a glimpse of the Government's thinking, because the prospects which I have just described from the Government's own forecast represent only the first year of a four-year financial plan. I well understand the stories in the newspapers that the Chief Secretary fought bitterly to prevent that plan being published, and how right he was! I suspect he fought against it because he does not believe in planning at all or in any sort of forecast, as he has so often told us. But there might have been another reason, which is that the prospects revealed by the plan show that there will be no significant improvement in our economy over the next four years.

The main weapon by which the Government propose to reduce the growth of money stock to 4 per cent. from 8 per cent. by 1983–84 is a reduction of the PSBR to 1 or 2 per cent. of GDP in that year, through cuts in public expenditure and, I remind Conservative Members, increases in taxation over the next four years. We debated the public expenditure part of those plans yesterday, and there were doubts on all sides about the realism of the White Paper. There were even graver doubts about whether the objectives set down in the White Paper could be achieved without what the right hon. Member for Taunton described as a wholly unacceptable rise in unemployment, shrinkage in our industrial base and an increase in prices.

In fact, as the right hon. Gentleman knows well, this so-called four-year plan is not a plan at all. It is a statement of the objective which the Government hope to achieve in four years' time. Between now and then, as with the public expenditure White Paper, we shall be presented with a lot of empty boxes. The year by year changes in money supply, expenditure and so on, are not intended to represent Government decisions or policies or even forecasts, but are just illustrative assumptions as to the path by which, under some circumstances, the objective in four years' time can, perhaps, be achieved. The key assumption is that growth, after falling this year by 2½ per cent., will rise on average by I per cent. per year in the following three years. But we learnt from the Select Committee's discussions that there will be a further fall in output next year, and that, for the objectives of the financial plan to be achieved, we shall have to get a 2 per cent. annual increase in output in the last two years of the plan.

I ask again, as no one answered this question yesterday—I hope that the Minister will do so tonight—from where will the increase come? The plan expects manufacturing output to fall continually by 6 per cent. over the four-year period. It expects public expenditure to fall continually by 4 per cent. over the period. It expects the output of North Sea oil to rise over the period by only 2 per cent. Therefore, from where will the growth come? It cannot come from services alone, such as bingo parlours or hair dressing salons. There was some suggestion earlier—I think in Committee—that it might come from a growth in world trade. But I am bound to say that the outlook for world trade over the next four years is very disturbing indeed and the Government are taking no initiative to improve the outlook.

When the Chancellor of the Exchequer went to the interim committee in Hamburg the other day, he allowed it to dodge every single important issue. As the right hon. and learned Member for Hexham (Mr. Rippon) pointed out yesterday, the Governments of the industrial world at the moment are engaged in competitive appreciation through an interest rate war. No attempt is being made to deal with that problem, although it is certain to plunge the world into a yet deeper recession. Currency instability is bound to grow unless something can be done to make the dollar stronger, as the world's only reserve currency, or to replace it by some other currency or mix of currencies. Nothing was done about that.

Private bankers all over the world are worrying about the failure of non-oil developing countries to finance their deficits. Nothing was done about that. The interim committee dodged even the creation of a substitution account which might offer some small alleviation of the problems of the dollar as the world's only reserve asset.

The only contribution, as far as I have been able to discover, made by the right hon. and learned Gentleman in Hamburg—I am relying entirely on a long report in The Times—was that he had the gall to lecture countries which are suffering from the oil price increase, rather than benefiting, not to follow his example in deflating their economies so as to reduce world growth.

The Select Committee was certainly right to believe that the Government's growth forecasts are a great deal too optimistic, but in that case every other aspect—[Interruption.] I wonder whether the hon. Member for Knutsford, who is very habituated to chattering away in a recumbent posture, would either shut up or stand up.

If the growth prospect over the next four years is as bad as the Select Committee made out—[Interruption.]—then every other aspect of the Government's programme is bound to be worse, too, and there will be no prospect—this will wipe the smile off those grinning Conservative faces—of a tax cut in election year. But unemployment—and I know that Conservative Members will smirk at this—is likely, according to the Select Committee, to rise to as high as 2½ million by 1983. We shall have much lower growth and much higher inflation.

The conclusion of this must be that in 1984, after four years of Conservative rule, the country will be producing less than when the present Government took office last year, and will be lucky if inflation is back to single figures, as it was for 18 months before the last general election. The fact is that the Government's own policies, as revealed in the Government's publication at Budget time, show no light at the end of the tunnel. The darkness simply deepens as the country moves further inside it. Meanwhile, there will be an appalling cost in industrial ruin and wasted lives.

I know that Conservative Members—they have betrayed this many times—have no interest whatever in the increase in unemployment. But let us look at the increase in bankruptcies. Last week, the High Court announced compulsory winding-up orders against 161 companies—the highest number of company failures ever recorded in Britain in a single day. They are not just small companies, although most of them are. The last-minute rescue of Stone-Piatt Industries shows that many large companies are also on the way to bankruptcy.

The Mechanical Engineering Federation has just announced that it expects a 15 per cent. fall in output this year and a fall in investment way above the fall of 6 to 10 per cent. predicted by the Government. It is the same in the textile and clothing industries. Let us look at the CBI's survey, published only last week. Exactly a year ago—just before the general election—optimists outnumbered pessimists by 6 per cent. Today the balance of opinion has swung towards pessimism by a margin of no less than 41 per cent.

So far, the financial sector has been little affected by this, but Sir Henry Benson, who advises the Bank of England on these matters, warned us a day or two ago that banking, insurance, investment and other financial services depend primarily on the strength of our manufacturing industry. He predicted that if things go on like this, the influence and power of the City of London in the world would steadily decline.

I am not at all surprised that in this situation the Chancellor of the Exchequer, as he demonstrated very clearly yesterday, is running scared. He made a speech last week at Milton Keynes to the dazed audience in the local chamber of commerce and talked of the Chief Secretary's recent speech—to which I shall refer in a moment—as a warning to " soft liners ". He said:
" I hope no one gets me wrong on that. By ' soft liners ' I don't mean anyone in the Government. I mean some of the pundits and pontificators. The fair-weather prophets. They too easily believe that there is some escape from the need for sustained fiscal and monetary discipline."
Those who are warning the Government now and asking for a change of course are not just Keynesian " wets ", who have been so frequently described and listed by the Prime Minister. They are the monetarists themselves, the London Business School, and an increasing number of monetarist economists in the City of London. I should not be at all surprised to see Greenwells issuing a blast against the Government's monetary policy in the coming weeks, because every serious monetarist economist believes that the Government are expecting far too much of monetary policy, are putting too much strain on it, and are adopting policies which are far too strict.

The real trouble is that the Prime Minister was persuaded by the right hon. and learned Gentleman himself, among others, to adopt these policies on a false prospectus. She was led to believe, as she said only the other day, that the fall in the growth of money supply would be followed by a fall in the rate of inflation in one and a half to two years. But the Chief Secretary put her right on that. He told us, quite rightly, in a pleasant Biffenism, if I may so call it, that there was
" no mechanistic and succinctly demonstrable link between a movement in the money supply and a subsequent change in inflation."
Of course, the right hon. Gentleman is right. There are long and variable lags—like the hon. Member for Knuts-ford. [Interruption.] But there may also—and the right hon. Gentleman would admit this—be no link whatever; in fact, nobody has ever proved a link to exist. [Interruption.] Conservative Members do seem to be rather upset, Mr. Deputy Speaker. I wonder whether we should ask them to go out and take a drink of bismuth or some other calming fluid.

The proof that I am right on this is the fact that in this four-year financial plan—the purpose of which is to get inflation down—figures are given for every variable except inflation. There are no figures given for the rate of inflation under this wonderful four-year plan. There are no figures given for the RPI in the three years following this year, because, of course, the Government have not the slightest idea whether their policies will work.

The Chief Secretary—I know that he studies these matters—knows perfectly well that there is no way of guessing in advance how far a reduction in the money supply will be followed by a reduction in output or a reduction in inflation. The one certain thing is that a Government who rely for economic management on money supply alone are bound to encounter a cost in output for any fall in inflation which is wholly disproportionate to the gain. The most extraordinary feature of the Government's present position is their argument that they are fixing targets for nothing except the money supply—and that in four years' time—because money supply is the only thing that is under control of the Government.

The right hon. Gentleman must already have learnt that it is as difficult to control the money supply—and the results are as uncertain in their effects—as it is to control demand or any other variable. But of the six major countries in the world which have had monetary targets over the last five or six years only Canada has kept within the target consistently. Yet the value of the Canadian dollar has fallen steadily, even against that of the American dollar.

Britain has a better record than the average. In two years out of three we hit the target. Germany has never hit the target and yet Germany has the lowest inflation. The difficulty of controlling the money supply is infinitely greater when one has the corset and when exchange controls have been abolished. If we include the avoidance of monetary control through acceptances and we also include avoidance—impossible to quantify now that we have abolished—through the abolition of the exchange control, the increase in money supply over the last 12 months must be at least 1 per cent. above the Government's range and 3 per cent. above the target of 9 per cent. set by the Financial Secretary to the Treasury. In the last six months the increase in money supply must have been at least 2 per cent. above the 7 per cent. target set by the Financial Secretary. It was pointed out by the hon. Member for Knutsford that if we take domestic credit expansion—which is a more relevant measure of money supply when there is a large balance of payments deficit—the situation is much worse.

If the Chancellor wishes to stick to his monetary targets he is quite right not to cut minimum lending rate because he is right to say that one swallow does not make a summer. The Chief Secretary to the Treasury is quite right to support the Chancellor. I put it to the Chief Secretary—I think he would agree with me—that it is quite impossible for this Government to achieve a monetary target as strict as they have set themselves—still more to reduce it—year by year without high interest rates and increases in taxation.

As the Chief Secretary knows, our interest rates are high in nominal terms but they are barely positive in real terms. In Denmark and Belgium real interest rates are 10 per cent. above the rate of inflation. In this country the 17 per cent. MLR is below the rate of inflation and most lending rates are about the same as the rate of inflation. That is why the Government's financial plans require not only the continuation of very high interest rates but, on top of the public expenditure cuts, a continuous increase in the burden of taxation.

A point which the Chancellor and the Chief Secretary hid from us in these debates—it is set out clearly in the Red Book—is that over the next four years they plan that the tax burden should increase from 36 per cent. of GDP to 38 per cent. Only half of that increase will come from oil revenues, according to the Government. I wish to ask some questions on that issue, because they will be relevant to our discussions of the Bill in Committee. Most external experts believe that the Government's estimates of oil revenues are far too low for the coming years. We start with £4 billion this year, according to the Chancellor. Most outside experts think that in a few years' time the revenues will be several billion pounds higher than the Government estimates.

Critical here are the assumptions that the Government make on three points, and I hope that we shall be given some guidance on these points during the later stages of the debate. What are the Government's assumptions about the real price of oil? I believe that the Government think that the price will not rise. They are unwise to believe that. I believe that the real price of oil is almost certain to rise over the coming years. Indeed, it will rise as a result of the economic sanctions against Iran which have been proposed by the European Community.

What is the Government's assumption about the exchange rate against the dollar? If the exchange rate rises against the dollar our revenues will, of course, tend to fall because the oil will be worth less in sterling terms. Is that the assumption on which the Government base their curiously low estimate of oil revenues? Or is it that the Government are, very sensibly, planning to restrict their depletion policy and take less oil out of the North Sea? I hope that that is the case.

The Government must tell us whether that is so, because the future of our economy over the next few years will depend to a significant degree on the amount of revenue which the Government get from North Sea oil and gas. For the Government to produce figures that are either dishonest or based on assumptions that are not disclosed is to deceive the House, in my view, and to run great risks with the future of our economy. The Government's plans imply high interest rates, continuing cuts in public expenditure and a continuing fall in manufacturing output. The purpose of all this agony is to reduce the public sector borrowing requirement in order to lower sterling M3.

Again, the Chief Secretary knows—and the Red Book says—that there is no direct or predictable relationship between the PSBR and the growth of money supply. Nobody said that more clearly than Professor Milton Friedman in the debate which the Chancellor and I had with him on television recently. There is no relation between the two at all. Falling interest rates—if the Government bring down PSBR with the purpose of getting interest rates down—are likely to mean more company borrowing. That will tend to increase the money supply. Falling interest rates are also likely to reduce the external value of the pound and so increase inflation.

I hope that we receive some comment on these points from Conservative Members, because it really is not good enough to present us with a few slogans picked out of 20- or 30-year-old text books as an excuse for crucifying the people of this country on half-baked dogma.

In this particular area of the PSBR. it is extremely difficult to resist the conclusion which was reached by Mr. Christopher Johnson, writing in the Lloyds Bank Economic Bulletin. He said:
" The £ M3 and PSBR targets in the strategy are barely compatible with each other, both difficult to achieve, and neither can guarantee a speedy reduction in the inflation rate if it is achieved."
I believe that that is plain and obvious truth. However, if the Government disagree I hope that some Minister will tell us why.

Certainly the financial markets agree with me and they agree with Mr. Christopher Johnson because, if they believed in the Government's long-term plan, long-term interest rates would have fallen far below their present level. But, of course, the markets do not believe in the strategy of the Government. They do not believe that that strategy will bring down the rate of inflation. Therefore, long-term interest rates continue to stay very high in relation to short-term interest rates. And if the markets do not believe in the Government's monetary policy—they follow it and understand it—how on earth can the Government expect anyone else to believe them and to adjust their economic behaviour according to this theory of rational expectation?

No one who has looked at the detail of the Government's policy—as the Select Committee has done and as I have described it—can fail to come to the conclusion that the Government are crucifying the British people in blind devotion to half-baked theories which they half understand.

I believe that the real answer to the problem lies in a speech made by the Financial Secretary the other day, in which he said that it would be much better to describe the Government's policy not as monetarist but as fiscalist. In fact, all this monetarist mumbo-jumbo is just so much froth on the beer. What the Government really believe in is old-fashioned deflation to teach the workers a lesson. We are back to the thirties with a vengeance. They really believe in the outmoded theory of the Phillips curve—that if one can reduce living standards and reduce activity, somehow or other people will cut their wage claims and inflation will come down. All the experience of the post-war period, not only in Britain but elsewhere, suggests that that is absolute nonsense.

Of course, going back to the thirties in economic theory is accompanied by the way in which the Government structure their tax cuts in this Bill. Any person in this country who is married with two children and with under £15,000 gross income is worse off as a result of the tax changes in this Budget. The interesting thing to me, I must confess, about a Budget produced by a Government who came to power offering to do something for the middle manager, is that the middle manager suffers very much more than most other groups. A man on £200 a week takes a 3 per cent. cut in his living standards as a result of the Budget. But the real picture as between rich and poor is shown by the fact that the 1½ per cent. of the population who earn over £20,000 a year get 10 per cent. of the tax cuts in this Budget, whereas the 7 per cent. of the population who earn under £2,000 a year get only 3½ per cent., and the low-paid suffer worst of all through the abolition of the reduced rate band—although, of course, all suffer, because by abolishing the reduced rate band the Government, in an underhand way, are cutting the indexation to which they were committed, by 7 per cent. to 11 per cent., from the 18 per cent. which they should have offered.

No one who has looked at this Budget can doubt that it marks just another tombstone on the way to disaster. The Finance Bill is part of a general Government strategy which has no chance of success. Even within its own terms, as I have demonstrated, it is bound to cause immense and needless suffering to the people of this country. For that reason we shall not only critcise it mercilessly in Committee; we shall vote against it tonight.

5.32 pm

The House has not, I think, been subjected to two economic speeches from the Shadow Chancellor on two consecutive days ever before. Perhaps all hon. Members have now come to the conclusion that one can have too much of a good thing.

We are debating the Second Reading of the Finance Bill. Quite clearly, on the allocation of duties on the Opposition Front Bench, when the Finance Bill came up the Shadow Chancellor must have turned to the right hon. Member for Llanelli (Mr. Davies) and said " Denzil, when it comes to the Finance Bill, you deal with the Bill and I will deal with the finance ", because in effect what the right hon. Gentleman has given us today is a further economic speech. There have been two major economic speeches in the last two days. In fact, they were interleaved with one from the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) last night. Therefore, we have had three major economic speeches from the Opposition Front Bench.

I listened to every word of all three speeches. I would have hoped that one would have had some glimmering of what the alternative economic strategy of the Labour Party and the Opposition was. That we have not had. We have had a sustained tirade against the Government's policy. Listening to those three speeches was rather like looking at the three volumes of a large Victorian three-decker novel. Each volume was thick, heavy and large, though handsomely bound, but in fact modern readers cannot penetrate it through the complexity of the plot and the turgidity of the prose.

The one bit of those three speeches that stuck in my gullet was a phrase used last night by the right hon. Member for Sparkbrook—who is not now in his place, although he was a moment ago—when he was attacking the Government for cuts in their housing programme. He said that Conservative Ministers will always cut council house building because
" They are attacking a housing sector in which they have never lived and in which they expect never to have any relations."—[Official Report, 7 May 1980; Vol. 984, c. 404.]
When those words fell from the right hon. Member's lips, I could not help wondering in which particular council house he would be laying his head to rest last night. That sort of comment is humbug.

The Shadow Chancellor's criticism of Government policy would carry greater weight in this House and the country if he were prepared to indicate what alternative he was offering the country. He owes it to this House, if not to his own party or the country, to delineate the alternative economic strategy of the Opposition Front Bench.

Do not worry. I shall take interruptions from the right hon. Gentleman in my own time. I hope that he does not think that he is addressing a meeting of the Shadow Cabinet.

In no element of the speeches that the right hon. Gentleman has made has he given any sort of Budget judgment himself. He has said that he would not cut public expenditure. That is one thing that is quite clear. But he has given us no judgment as to the level at which he would establish the PSBR. Would it be £10 billion, £12 billion or £15 billion? Whichever figure it is, how would he finance it?

I fear that the hon. Gentleman has not been attending our debates regularly. He should recall that in the Budget debate I said that we should have a PSBR this year of at least £11 billion. That was consistent with the views of the London Business School, from which the Government have taken their own chief economic adviser. If the hon. Gentleman wants more of my views on Labour Party strategy, I should be very glad to send him a series of lectures.

It is interesting to know that the right hon. Gentleman said that, because in the three speeches that we have heard in the last two days it has not been reiterated by himself or by his right hon. Friend.

If the right hon. Gentleman says that he advocates a PSBR of £11 billion, he owes it to the House to say how he would finance it. Clearly, from what he has said today, he would not finance it by higher taxation.

Perhaps the right hon. Gentleman will allow me to speak for a moment. He owes it to the House to say how he would finance it and what level of interest rates would be necessary to finance that level of PSBR. He also owes it to the House to say how he would actually determine the level of the PSBR.

Will the right hon. Gentleman allow me to continue for a moment? I shall give way to him eventually.

Quite apart from the level of the PSBR, the right hon. Gentleman also owes it to the House to say what his attitude on incomes policy is. He has criticised the policy—[Interruption.] Will the right hon. Gentleman please keep his peace for the moment?

The right hon. Gentleman in the last two days has criticised the Government for their attitude on public sector wages. He has said—I know this because I have heard of speeches from him in the country to this effect—that he favours a voluntary incomes policy. But is that the Opposition's policy? Is that supported by the hon. Member for Liverpool, Walton (Mr. Heffer) and Opposition Members below the Gangway? What is the Opposition's policy on this matter?

The right hon. Gentleman has criticised the Government's industrial policy. He has said that manufacturing industry in Britain is in great difficulty. But what is his industrial policy? Is he in favour of general import controls or selective import controls? He has made some speech somewhere, in some remote part of our island, saying something on import controls, I have no doubt, but why does he not come to the House and present an alternative industrial policy? [Interruption.] I shall give way shortly. Do not encourage the right hon. Gentleman.

If the right hon. Gentleman announces such a policy, how much support will he get from his own Back Benches? Will the hon. Member for Oldham, West (Mr. Meacher) support him if he says that he does not want import controls, which is what he said in the country?

The right hon. Gentleman has said that the corporate sector is under pressure. He said it yesterday and again today. After all, he knows a great deal about squeezes upon the corporate sector because he imposed one of the fiercest in his first Budget in 1974, and he made the corporate sector's position very much worse in his last Budget by the national insurance employers surcharge.

I am not being unfair to the right hon. Gentleman when I say that, if one distills what has been said in the last two days in his speeches, one finds two new ideas. One was in the conclusion of his speech yesterday, when he said that there was a need for an urgent study into the financing of the nationalised industries. I agree with that 100 per cent. However, a study of the financing of nationalised industries does not add up to an economic strategy. As I understood it, the right hon. Gentleman was arguing today for a lower level of interest rates, a view that will find echoes on both sides of the House. However, that again does not add up to an economic strategy.

The right hon. Gentleman has been silent on the big issues and voluble on the small ones. He cannot claim credibility inside or outside the House if he does not spell out Labour's alternative. If we are to be led to a Socialist Utopia, we should know before we go to paradise whether we are going via Leeds or Bristol.

The right hon. Gentleman made great play of the Select Committee's report. I am glad that he welcomed it. It has been a great contribution. I pay tribute to my right hon. Friend the Member for Taunton (Mr. du Cann), who has been an outstanding Chairman of the Select Committee. It is clear that the work that we have been doing has been of some significance as the Chief Secretary and the Chancellor have referred to it in their speeches. That indicates that at least they have read it.

I rather like the attitude to the report of my right hon. Friend the Chief Secretary, who says that we have to live with Select Committees. He has observed that they are adversary but good natured. I hope that that attitude will rub off on to his Treasury officials, among whom there is a tendency to sneer. As they will come back before the Committee in six months to explain how accurate their forecasts are, they should be a touch more careful about sneering.

I shall deal with the Government's economic policy as it affects business. The situation that faces industry now is grave. Britain was one of the first countries and economies to forecast a drop in its GDP. It is to the credit of the Treasury that when other countries in the Western world were still forecasting growth it forecast a drop. America is now forecasting a drop in GDP, and in general other countries of Western Europe are doing so. The prospects for world trade are exceedingly gloomy and depressing.

We were told in the Select Committee that manufacturing output will fall by 4½ per cent. this year. I hope that that will not happen, but if it does it will mean a higher level of bankruptcies and more unemployment. What can the Government do to ease the burden upon British industry? There are various areas where the Government should be considering action.

As regards interest rates, I listened carefully to what my right hon. and learned Friend the Chancellor said yesterday and to what my right hon. Friend the Chief Secretary said today. I am disappointed that the level of interest rates is not beginning to decrease. The Government's targets on money supply are being reached. I appreciate the argument that one swallow does not make a summer, but in April the growth of the money supply was one quarter of 1 per cent. In the past four months it has been under 1 per cent. That is a great achievement for the Government's policy and of great credit to the Government.

I emphasise to my right hon. and hon. Friends on the Front Bench that it is a matter of judgment and not of principle when interest rates can be eased. I hope that my right hon. and hon. Friends will take the earliest opportunity to begin to follow the American example of reducing interest rates. One of the consequences of maintaining too high a level of domestic interest rates is to encourage the inflow of money and thereby increase the money supply.

I turn to the effect of capital expenditure cuts upon British industry. As the Select Committee has said, the cuts proposed in the Budget are significant. However, as the Financial Secretary said last night, they are not of the same level as the expenditure cuts introduced by the right hon. Member for Leeds, East (Mr. Healey) in 1976–77.

It would be idle for us to pretend that the cuts are not heavy. They will have an effect upon the building and construction industries. I hope that when the Government feel that there is some scope for relaxing the severity of their policies they will consider public investment in capital projects as their first priority.

If my right hon. Friend the Prime Minister is successful in her renegotiation of Britain's contribution to the Common Market, that will result in money that is not involved in Budget strategy. It is, as it were, a reserve. That is what we are fighting to gain in the negotiation with Europe. If we are successful in gaining that reserve, I hope that an early demand upon it will be public investment in capital projects.

There is a significant cash squeeze on industry, as the banking figures showed only yesterday. From my own experience, it is likely to worsen this year. Many companies will find themselves in difficulties.

One of the burdens that industry has to bear is the direct responsibility of the right hon. Gentleman, and it is not concerned with inflationary wage demands. I refer to the national insurance employers' surcharge. It is a heavy burden upon industry. I hope that later in the year the Government will think of helping industry through its cash difficulties by putting right the wrong that was done by the Labour Government.

On the potential or possible future reduction of the employers' surcharge, does my hon. Friend agree that if the Chancellor in some future Budget statement were to reduce the surcharge there would not be a direct trade off between that and the PSBR?

The answer to my hon. Friend's question is " Yes and no ". Much depends on whether my right hon. and learned Friend wants to do that. He could do it by increasing the PSBR, or he could find some other way of making good the shortfall. I suspect that there would be a margin that would allow him to do that without necessarily increasing the PSBR. I believe that that would happen.

There are some who argue that the plight of industry is such that we should reduce corporation tax significantly. I am not in favour of that. However, I am in favour of a fundamental change in corporation tax. Companies in the manufacturing sector are paying about half the going rate of corporation tax, which is 52½ per cent. They are paying 20 per cent. or less because of stock relief and capital allowances. Companies in service industries are paying much nearer the actual level of corporation tax, namely, 45 per cent. or 50 per cent.

I am slowly coming to the view that it would be better over a period of years to eliminate the discrimination against service industry companies. The present corporation tax has a discrimination in favour of manufacturing industries, but it is the service industries that will find so many of the new jobs. We must consider carefully whether we want that tax discrimination to continue. We could have a much lower level of corporation tax—about 20 per cent. or 25 per cent.—if we phased out stock relief and reduced some of the capital allowances.

That is a radical suggestion. It would have a material effect on the cash flow of every British company and it could not be done quickly. It would have to be undertaken over a number of years. I am glad that the Chancellor and the Chief Secretary will be producing later this year a Green Paper upon corporation tax. Corporation tax gives encouragement to manufacturing industry, but it bears unduly heavily upon service industries.

The Government have been exceptionally brave this year in producing a medium-term financial secretary—that was a Freudian slip when we consider the personality concerned. I of course meant " strategy ". I think that the Government have been exceptionally brave and far-seeing. I share the reservations that were expressed by my right hon. and learned Friend the Chancellor yesterday and by my right hon. Friend the Secretary of State today about sticking out their necks so far for two, three or four years ahead.

I have learnt from my business experience. I worked first on a five-year budget, but I soon became tired of apologising to bankers and shareholders and explaining why the targets could not be met. I came down to three-year budgets, and the apologies were a little more careful but they still had to be made. It is realistic in the conduct of the economy to be precise and definite over only a short period in the immediate future. That is why the Select Committee concentrated many of its comments and questions on the immediate year.

We should not disguise from ourselves the success that the Government have already had in a short period in controlling the money supply and bringing it down to a reasonable rate of growth. I hope that that will provide the basis for a greater expansion in the years ahead.

5.50 pm

One problem of the Government's policies over the past few months stems from a basic conflict in their objectives. They aim to bring down inflation and reduce unemployment while trying to change the balance of economic behaviour from community to self-interest. The result is confusion and failure. Their policies of deliberate inequality and attacks on social expenditure have resulted in higher prices, increased VAT, mortgages, rents, bus and train fares and poorer services. The irony is that a Government pledged to fight rising prices have been busy raising them almost every month. Housewives in particular feel betrayed. I have come across the feeling of betrayal again and again on the part of the electorate that a party elected to fight inflation has increased it. The Government's policy of deflation by an obsessive and miopic concentration on monetary aggregates, with a total disregard of the real world, living standards, markets for producers and profits, has rapidly increased the number of bankruptcies and unemployment.

I am disturbed when I hear economic Ministers saying again and again that they can do nothing about rising unemployment and collapsing industries. They suggest that it is someone else's fault. They suggest that their policy is almost non-government. That is a smokescreen. The Government are actively and deliberately involved in creating the mess. VAT was doubled by the Chancellor. That was not an accident or beyond his control. He cannot wash his hands of that. In the coming months we shall have further massive price rises through deliberate acts of policy and not as a result of factors beyond the control of the Government.

The refusal of the Chancellor to spell out the consequences of spending cuts stems from fear and not uncertainty. For example, in recent weeks housing spending cuts have attracted a great deal of attention, and I suspect will attract even more in the next two or three years. In practice those cuts will mean a massive rise in council house rents. The Government plan to reduce housing expenditure on current prices by about £3,000 million over the next four years. If housing investment expenditure is reduced by one-quarter, with the remainder to be found by raising council house rents, those rents will rise by £9 a week within three years. That is a deliberate act of policy and not something over which the Government have no control. How can the Government ask wage earners and trade unionists to exercise restraint and take notice of monetary aggregates reducing by 1 per cent. per year over four years in their wage bargaining when for millions, rents, which are only one item of expenditure, will rise by £9 a week?

The expenditure White Paper this year is almost a Finance Bill. Concealed in it is a massive increase in indirect taxes and, consequently, the cost of living. Had that been a proposal in a Finance Bill, presented as an open increase in indirect taxes and consequently prices, it would have caused a near riot.

The hon. Member for St. Marylebone (Mr. Baker) said that the Government should concentrate upon their detailed estimates for only one year ahead. However, I believe that we should look at the measures in more detail and press Treasury Ministers on the consequences of the White Paper for bus and rail fares, council house rents and steel prices—all items that make up the cost of living. We should realise that the Finance Bill conceals only a small part of a shift in policy that will damage the average person on lower pay and help the more highly paid.

Among the revenues flowing into the Exchequer are taxes and other receipts from North Sea oil and gas, which my right hon. Friend the Member for Leeds, East (Mr. Healey) mentioned. For some reason the Government greatly underestimate those revenues. In terms of present prices the Government state that North Sea revenues will rise from around £1 billion a year for 1978–79, the last year of a Labour Government, to £6½ billion in 1983–84—in other words over £5 billion. That is a massive sum, equivalent to 5 per cent. on the standard rate of income tax. Outside estimates by respected and responsible private institutions put the 1984 figure at between £101/2 billion and £14 billion a year. A variety of assumptions can be made, but the assumptions on which those latter figures are estimated are reasonable. I follow my right hon. Friend by asking the Minister to give much more information about the basis of the Government's estimates. What are their estimates on the exchange rate and the real price of oil? What are their estimates with regard to deflation policy and the level of output of North Sea oil?

Governments always have reasons for not wanting to reveal assumptions behind their estimates. However, when estimates involve sums of that magnitude, which could have a substantial effect on the direction of economic policy, we should ask why the Government's estimates are £8 billion or £9 billion different from those of outside commentators.

As the hon. Member for Taunton (Mr. du Cann) said yesterday, it is not good enough to treat North Sea oil as the pools win of an impecunious unemployed man. We are still a great industrial nation and we are discussing the Government's economic policy for this nation. The revenues are substantial. They are the equivalent, by 1984, of between 10p and 15p on the standard rate of income tax. They are the equivalent, almost, of totally abolishing VAT, or of a 50 per cent. increase in all net investment in machinery, factories, schools and houses in this country. We are talking about truly substantial amounts.

There will be no single answer as to how best to use those revenues. Some views are already widespread. I suggest that they should be used as far as possible for investing in our future, rather than frittering away on tax cuts and spending on imports. That is a common view in this country. The revenues will not last for ever, so we must use them wisely so that we leave our economy and our environment stronger, not weaker.

In part, there is a need to invest in energy conservation and the development of alternative energy sources. There are whole areas in environment and housing where improvements are badly needed. For example, there are still more than one million houses in this country which are unfit or lacking in basic amenities. There are more than one million houses which require more than £1,500 spent on them. This usually occurs where an elderly owner-occupier cannot afford to maintain his house. Many houses are falling into disrepair quicker than we are repairing them. Many areas of our environment are blighted with dereliction—in towns and cities as well as old mining areas.

It is relatively easy to agree on the improvements that we want to see. Of course, our industries need investment, buildings and machinery. We need better production, management, marketing and design training. It is more difficult to agree on how to do that. It is very worrying that as a nation we seem paralysed by the potential benefits of North Sea oil and gas. Instead of a blessing, North Sea oil is proving a curse. Foreigners appear to know the importance of these revenues; hence the overvalued pound, which bears no relation to our manufacturing competiveness.

The Government are letting our resources slip away by default. First they are misleading the nation about the extent of these revenues. Their estimates are so wildly out of line with those of outside commentators that the Chancellor should explain why this is so and justify it to the nation. Secondly, the Government seem to take the view that there is nothing that they can do to make good use of these revenues anyway. On present form, we shall look back in a few years' time and ask what we did with the revenues. I expect that we shall say that we used them to reduce the public sector borrowing requirement, and the effect of that was to force the economy into deeper recession, bring about higher unemployment and maintain the exchange rate at a level where imports rose and exports fell. Then we shall say that an election approached so we gave some of the revenue away in income tax cuts. The effect of that was a consumer boom and a huge rise in imports. Can anyone in this country imagine the Japanese or the French Government saying that they did not know how to get Government, industry and financial institutions together to make good use of the resources?

The present Government's posture of non-intervention, non-planning and even of non-forecasting is irrelevant and misguided in the modern world. But, worse still, such a posture could mean the total waste of a unique opportunity in our history at a time when other industrial nations are envious of our North Sea oil resources. They find it impossible to believe that the Government simply do not know how to use these revenues. It appears that some form of dialogue on this issue may have begun between the TUC, the CBI and the Government at yesterday's National Economic Development Council. I welcome that development if it reveals a willingness by the Government to re-think their laissez-faire position on this issue.

I hope that in responding to the debate tonight, the Minister will not only spell out the reasons for the assumptions concerning these revenues, but will justify them and indicate a willingness to think again about capturing the public's imagination in order to see that these resources are used for improving our economy and environment. I hope that the Minister will show us how these resources can be used adequately to strengthen our economy for the better, instead of the worse.

6.5 pm

The argument of the lion. Member for Batley and Morley (Mr. Woolmer) was slightly illogical. He started by saying that prices are high, and I accept that. The Government are reaping the harvest sown by the previous Chancellor of the Exchequer when the money supply went out of control and when PSBR overspending was absolutely tragic for the future of the country.

The hon. Member went on to say that we could use North Sea oil and that the forecasts for oil revenues were wrong. He seemed to say that if we got the forecasts right everything would come right. Therefore, in the context of his argument it does not matter if we receive £4 billion or £10 billion. If we eat into the North Sea revenues now by heavily subsidising council rents, gas prices, and bus and rail fares, the only way that the Government can control those prices is to give an extra subsidy to the nationalised industries. That in itself would increase the borrowing requirement and would mean that when North Sea oil revenues came in we would have to repay money that we are using now. The illogicality of that argument is typical of the economic policies of the Labour Government.

The right hon. Member for Leeds, East (Mr. Healey) made an amusing speech, but some of us had heard it all before. As Chancellor, he presided over the Treasury for many years, but his only contribution to the economy was to double unemployment and prices, halve the value of the pound and double the national debt. For him to criticise this Government is simply not good enough. Sometimes in this House we hear such hypocritical speeches from people who really should not throw stones.

I was interested in the remarks of my hon. Friend the Member for St. Maryle-bone (Mr. Baker), who made a most thoughtful speech, about stock relief. The Government should give some thought to this matter. If stock relief were abolished it would enable the Chancellor, with that extra revenue, to reduce corporation tax by 10 points. In other words, the 50 per cent. level would be reduced to 40 per cent. and the lower rate of 40 per cent. would become 30 per cent. There may be something in this, because we must remember that the economy of this country is not only made up of manufacturing industry; it also includes the service industries.

I welcome this second Finance Bill. It looks as if we shall have only one Finance Bill a year in future. That is an improvement on the past. I am not so sure that I envy any hon. Member who serves on the Standing Committee on the Bill, which has 107 clauses and 18 schedules. I agree with the general strategy of the Government, but it is obvious from speeches on both sides of the House that, irrespective of party, most hon. Members believe that we still have a long way to go before we get the economy right.

Direct taxes have been reduced and there has been a switch from direct to indirect taxation. At present I do not think that there is much room for a general reduction in taxation. In this context I take up a point that my right hon. Friend the Chief Secretary made when he spoke for some time about the customs and excise duty on tobacco and alcohol. He claimed that when the price of cigarettes was increased by 5p a packet there was muted criticism. I can tell him why there was criticism—everyone expected it to go up by far more. I would have thought that the Government's strategy of switching from direct to indirect taxation should have been brought to bear on the price of cigarettes and drink. It would have meant more revenue for the Government in order to reduce either general taxation or the public sector borrowing requirement.

We get paranoiac about tobacco and alcohol in the sense that both figure in the retail price index. This is complete and utter nonsense. I smoke and I drink. Neither is a necessity of life. Less than half the population of the country smokes. If there could be all-party agreement to remove tobacco from the RPI, it would be a step in the right direction. It is ludicrous to place 5p on a packet of cigarettes, 2p on a pint of beer, 8p on a bottle of wine and 50p on a bottle of whisky. My right hon. and learned Friend the Chancellor could have gone further, but the RPI is all-important. I understand the Chancellor's dilemma when the RPI figures so much in wage bargaining.

I welcome the VAT exemption. I hope that some time my right hon. and learned Friend will look into the search powers of the Inland Revenue. I shall not elaborate on that issue now, but it is an area of our fiscal system, whether applying to VAT or income tax, that should be examined.

I agree with the strategy of the Government. I believe, unlike Opposition Members, that the public sector borrowing requirement should be ruthlessly cut. While the Government are borrowing over £1 million every hour of the day, they are competing for money available in the market. Interest rates will obviously remain at a high level. Everything possible should be done to reduce the public sector borrowing requirement.

While discussing the PSBR—or overspending as I prefer to call it—may I say that I hope that my right hon. and learned Friend and his team will look at a suggestion I made some time ago in a debate. I believe that there is a loophole in our control of public finance in that the spending Departments do not have a financial watchdog to look after their budget.

I am delighted with the Finance Bill's contents in relation to capital taxes. The capital transfer tax changes mean that two-thirds of those who would have been liable for tax are removed from that bracket. The reduction and the alterations in capital gains tax also mean that roughly half those who would have been liable to tax will no longer be liable.

I do not think that the time is right now for any general reduction in taxation, but these debates should provide an opportunity to set down markers for the next Budget and the one after that. The investment surcharge, which produces £250 million for the Revenue, is a definite disincentive to the accumulation of wealth. I am not referring to millionaires. It is a disincentive to those who save. We should get rid of it as soon as possible.

I recognise that my right hon. and learned Friend has increased the exemption limit on stamp duty. When house prices in London, in particular, are considered, I believe that the exemption limit needs to be examined again.

I am worried about the effect of capital transfer tax on smaller companies. Most of the very small companies, up to £100,000 in value, will be exempt from CTT. My concern relates to the slightly larger company—the unquoted company that employs 50, 60 or 70 people. That business is worth more than £100,000.

It is invariably from the family unquoted company that job creation springs. These are the companies of innovation and invention—the potential job creators. Their industrial record is invariably excellent. The family is engaged in the business. Everyone knows everyone else. There is no lack of commmunication. There are no strikes. I should have thought that for them CTT could be a killer.

If an owner dies and wants to leave the business to his son, there is a huge capital transfer tax liability. Although this can be paid in instalments, some parts of the business will have to be sold, someone from outside the family will have to be brought in, or the company has to go public. The capital transfer tax may fall to be paid at a time when it is not profitable to sell such a business. There is a danger that, in a forced sale, brought about by taxation, the ownership of the company could go to a foreigner.

I like the emphasis that my right hon. and learned Friend has started to place on charities. I believe that charities should be helped. For too long, ever since 1945, there has been a growing feeling that the State should do everything for everybody. There has been a rundown of organisations that used to help. Any action that will build up these organisations, possibly through fiscal measures, takes away from the State all the responsibilities of looking after those who want looking after. It is niggardly of the Revenue to tax the bounty that voluntary organisations such as special police, volunteer firemen and lifeboat men might receive during the year. I leave that thought with my right hon. and learned Friend, hoping that action will be taken.

I hope that the Minister who replies will utter some words of comfort—I accept that it cannot be done in this Budget—about the future of small businesses. I refer to medium-sized businesses, including close companies. There is a tremendous amount of locked-in money in close companies. Our tax laws mean that it is not worth while taking it out. If taken out, it is considered a distribution. I have written to my right hon. and learned Friend about the matter. It is ridiculous that money should be locked up in a company simply because, if taken out, it is known as a distribution and heavy tax has to be paid.

The taxation balance is coming right. There is still a long way to go. My right hon. and learned Friend, in his Budget speech, if I may paraphrase his remarks, said " We have done something about capital transfer tax and capital gains tax. This is an earnest of our intentions. There will be other Budgets." Now that a strategy has been started, the Treasury team should not lose heart but should keep going with the strategy. We have tried the rest. We have tried to buy ourselves prosperity. We have tried to buy ourselves out of this and that. It does not work. The economy will work only by maintaining the realism that is now becoming evident. We want good housekeeping nationally. That means living within our means. I hope that my right hon. and learned Friend will not be deflected from that course.

6.19 pm

It was a pleasure to hear from the hon. Member for Croydon, South (Sir W. Clark), who is a senior Conservative Back Bencher, a long-overdue chastisement of the appalling stamp duty and his comments on the mean and niggardly changes that the Government propose, at least in their first thoughts—I hope that they will have second thoughts—in the Bill.

The Government are pledged to support the get-up-and-go citizen and the enterprising people who are prepared to move from areas that have been deprived of regional grants—to alleviate the acute population shortage in the South-East. Such people are the objects of the Government's devotion and that fact, coupled with the Government's often-proclaimed support for the family, makes it grotesque that stamp duty should be maintained with so little change and with no regard to the cost of housing a family if one has to move several times in a working lifetime.

Hon. Members will recall that at the weekend in the dying days of March, immediately after the Budget, commentators expressed astonishment at the apparent acquiescence of the public in a Budget which, overall, increased the burden of taxation and broke many of the promises of the Tory manifesto at the general election.

Many reasons have been adduced for that apparent acquiescence. The first is that the Budget had been leaked so assiduously and precisely in the preceding weeks that there were no surprises, but a false sense of relief. It is sickening that those who are the first to insist on secrecy and denying the public freedom of information happily go round leaking like sieves when it is expedient to do so. However, I cannot believe that that was the main reason for the apparent acquiescence.

Another explanation, much favoured in the circles in which I move and in particular in my constituency, is that those who would have been inclined to protest at the breaking of Tory election promises on tax reductions paused for a moment and considered what the Budget would have been like if it had been introduced by the Labour segment of the Opposition. There may be something in that, but I do not believe that it was the whole reason.

A more compelling possibility is that one of the main increases in taxation received not a syllable of mention in the Budget speech, but was introduced silently and stealthily a few days after the Budget. I refer to the jacking up again, in this case to the tune of an addition of virtually ½ per cent. of gross pay, of the national insurance contribution. That is a silent tax to which the House devotes little attention, but it produces a yield much greater than that of corporation tax and about half that of income tax.

A correspondent in The Times today points out that in his first pay slip after the Budget he noted that he had paid £2–45 less income tax than in the previous month, but had paid £4–51 more in national insurance. Of course, his employer, who is probably hard pressed in these times of artificially induced recession, has to pay a similarly increased burden. That increase received no mention in the Budget. It was not until some days afterwards or, in the case of monthly paid employees, virtually a month later that people realised the truth.

But the main reason why the Budget did not cause blood to run in the streets, or even lead to widespread demonstrations, was undoubtedly the fact that to some people the extra burdens of taxation are trivial compared with the pay settlement fiesta which has been going on all year, to the prospective ruin of our economy. It has been not merely unrestrained by the Government, but positively encouraged by the Prime Minister. Every settlement that does not exceed 20 per cent. is greeted even if it is in an industry that is patently bankrupt or heavily subsidised by the taxpayer, with a shrill cry of triumph, as if it were a splendid endorsement of the Government's monetarist policies.

It is well known that the Government are hastening towards an emergency pay freeze, but in the meantime people are doing so well in certain sectors where they have industrial muscle that they are able to ride the Government's taxation burdens with a certain philosophical calm.

The odd thing about the Budget from the Liberal Party's point of view, which must be shared by many in other parties and in none, is the U-turn over incentives. Incentive was the magic word in Tory circles 18 months ago, but it was absent from the Budget. At a Conservative garden fete in the grounds of Alnwick castle last July the Chancellor of the Exchequer told his adoring audience:
" We have already done many of those positive things we promised in our election programme. The economy is beginning to respond. Since our first round of tax cuts people are finding it more and more worthwhile to work. And to work in Britain ".
One has to make allowances for such heady occasions, with a duchess's embrace and the tasteful pictures of the Leaderene tastefully displayed among the tasteful flowers. Such circumstances sometimes give rise, even, I suspect, occasionally with the Chief Secretary, to a certain extravagance of language in order to encourage people to have a go on the coconut shy and join in the fun of the fair. But it is disappointing when such splendid flourishes are followed by a Budget which offers no incentives to anyone.

The other feature is the Government's rank cowardice over excise duties. Just think, Mr. Speaker, what magificent reductions could have been made in the more grievous and harmful taxes if the Government had summoned up an ounce of courage to revalorise the duties on tobacco, alcohol and gambling. That was not done. Indeed, tobacco is now cheaper in real terms than it was a year ago. That is partly due to the Government's refusal to have an incomes policy, which puts them cringing at the mercy of the retail price index. They have no defence against rises in the index.

Another grevious fault in the Bill is the sabotage to our hitherto progressive tax structure that is caused by the abolition of the reduced rate band. By getting second-hand opinions of what went on in the Select Committee, the Chief Secretary has got it wrong. In my judgment, it was generally agreed at that hearing, and I was among those who agreed, that income tax on those on below average earnings is in such a shambles that the present reduced rate of 25 per cent.—compared with a basic rate that is not much higher at 30 per cent. and on such an absurdly narrow band as £750, and with income tax cutting into the incomes of the very low paid, including even some on family incomes supplement—is not particularly glorious.

However, there is no possible warrant for arguing from that unhappy state of affairs that everybody should hit the income tax at the full basic rate of 30 per cent. or whatever it will be in the future. The Chief Secretary is known to be an extremely civilised man. I cannot believe that he could possibly support the idea that an income tax system should first affect people at the full basic rate so that they move, as a result of one hour's extra work, from zero to 30 per cent. income tax. It is the mark of the beast to behave like that. Only the Australians in the whole of the rest of the world do so, which perhaps has a moral of its own.

The Liberal Party—I hope that the Labour segment of the Opposition will take the same view—intend to defend the reduced rate as part of the structure of a civilised income tax. However, to defend, it is necessary to attack. The reduced rate would make far more sense if it were 20 per cent. so as to contrast with the basic 30 per cent., and if it were on a much wider band of income. If the Government had shown any courage about the excise duties on gambling, tobacco and alcohol, they could have financed the reduced rate band in that way.

Another disappointing feature is that the Government have reneged so con-spiciously on their earlier promises of a drastic reform of capital taxation. Instead there are a series of dubious changes which, I am afraid, will take the sting out of virtually all our capital taxes intended to foster the redistribution of wealth.

The trouble is that members of the Government have so little experience of the real world outside, representing, as most of them do, constituencies well south of the Trent, and often in occupations in which they do not come up against the facts of life.

The facts of life are that estate duty and, more recently, the capital taxes introduced by the right hon. Member for Leeds, East (Mr. Healey) have their effect by making wealthy people part with their wealth much earlier than if, left to their own devices, they would ever have dreamt of doing. The value of estate duty and capital transfer tax has been to oblige somewhat mean, egocentric and grasping wealthy people to share out their businesses, to trust the younger generation, and to distribute wealth in middle life rather than incur penalties after death—and, indeed, in Yorkshire, the shame of paying heavy capital taxation.

When the sociology of the twentieth century is properly written it will be discovered that the main effect of the capital taxes has been the magnificent leverage of getting the blighters to part with their wealth. This has been destroyed by the aimless sabotage in this Finance Bill.

It is a great disappointment to Liberal Members of Parliament that no incentive has been introduced for wider share ownership amongst those who do not happen to work for companies that are quoted on the Stock Exchange. It will be agreed, I hope, that no party in the House has been keener for generations on employee share ownership than the Liberal Party. Because of our interest in that subject we are well aware, sometimes painfully aware, that at the end of every meeting held to advertise our schemes for employee ownership, invariably questioners in the hall, with every right on their side, say " It is all very well for these chaps in the mill, but I am a civil servant "—or a teacher or a professional man—" who cannot incorporate myself into a limited company. What concessions are you giving me to become one of the share owners? This is a powerful argument. It is important that tax concessions should be evenly spread as far as possible among all groups of the working population.

The French have dealt with this matter, so far, with brilliant success, in the Loi Monory, which allows every French household to deduct about £500 a year from its taxable income if it can show the revenue that it has invested that much in industrial shares—not in gilt-edged or the French equivalent of national savings certificates or any racket like that. That has has a dramatic effect. One of the French authors of that law has been over in this country submitting himself to severe questioning, to which he stood up extremely well. Yet the Government have apparently shown no interest in this. Certainly there is not even a whiff of it in the Finance Bill. In closing, I ask the Minister of State to tell the House when he winds up the debate, whether there are indeed even inquiries on foot in the Government as to the possibility of a British version of the Loi Monory, for implementation taken at any rate in due course.

It will be apparent from what I have said that, without any hesitation, my right hon. and hon. Friends will vote against the Bill in the Lobby tonight.

6.35 pm

It is unfair of the hon. Member for Colne Valley (Mr. Wainwright) to castigate my right hon. and hon. Friends on the subject of incentives. Considering the difficulties that (he Chancellor has been up against, he included a great number of incentives—not as many as we should like, but still a considerable number.

I agree wholeheartedly with the hon. Gentleman on the subject of the Loi Monory. We must consider this matter thoroughly. It has great possibilities for this country.

In my innocence, I thought that yesterday there would be a debate on the wide policy aspects and that today we should be talking about the Bill. Indeed, a number of Government supporters have discussed the Bill. However, the right hon. Member for Leeds, East (Mr. Healey) and others have not done so.

I propose this evening, in the short time available, to concentrate on those aspects of the Bill that deal with capital taxation, and in particular with the omission of any measures to reduce the impact of capital transfer tax on let agricultural land as opposed to land that is farmed by the owner. In doing so I reiterate what is in the Register and declare an interest as a farmer.

I am well aware of the difficulties that faced the Chancellor in framing his Budget this year. I am equally sure that the Government appreciate that many people in farming see the absence of any concessions on this point as a logjam that is preventing progress towards the revival of letting agricultural land in general. However, I wonder whether people outside agriculture really understand the gravely detrimental effects of the present tax position not only on the economic aspect of agriculture but on the social side as well.

Let me illustrate that very simply by taking the example of a farm of 250 acres, which is modest in size by anybody's assessment today. If the owner farms it himself, his heirs will lose 20 per cent. on the inevitable transfer that takes place. If he lets that same farm, 44 per cent. will disappear. As the farm size increases, so the difference becomes more marked. Incidentally, these figures take into account the difference in value between the market value of owner-occupied and let land.

From the point of view of capital taxes the industry is in a worse position now than it has ever been. In his report Lord Northfield acknowledged the importance of the let sector in agriculture. He said he hoped that if by the reliefs that he suggested and recommended—or by other means—the private landlord was enabled to continue, this would be greatly to the advantage of agriculture in general.

Also, of course, both the NFU and the CLA, representing the tenants and owners respectively of agricultural land, have urged the Chancellor to introduce suitable CTT relief for let land. I think that it is salutary in this connection to ask what is the ideal structure which any of us would like to see in the rural parts of our country today. I am sure that the answer must be that we should like to see the maximum number of holdings commensurate with viable agriculture in the area concerned: well-equipped farms, well financed, but under the present system quite the opposite is happening.

The owner looks at his vacant farm and decides not to let. The new entrant is debarred from starting in farming. Tenanted farms lose the investment that they need. This tax forces landowners to concentrate their management and investment resources upon land which they farm themselves and which will be best placed to survive the tax that will be charged upon the inevitable transfer. Only a low priority can be given to investment and improvement or even to repairs and maintenance of the let parts of their property.

The more the price of agricultural land rises, the more the tax bites, and equally, and conversely, the more the landlord-tenant system increases in importance, because this allows the equity to be shared between the tenant and the owner, for their mutual benefit.

What the agriculture industry is asking is not that owners of tenanted land should be placed in a specially privileged position, but only that they should be able to get the relief for which they would qualify in any case by fanning the land themselves or, alternatively, by investing in another business.

Agriculture is now an industry which is made up of small to medium-sized businesses—there are very few large-scale enterprises—and capital is its lifeblood. This tax is detrimental in many ways, but its effect on investment is the worst of all. This whole question of investment has been given considerable attention in the report of the Select Committee which we were discussing yesterday, particularly in paragraphs 12 and 29. It implies a considerably worsening position and should be read in agricultural terms also in the context of the Brandt report. A real study of the Brandt report shows that we shall need every ounce of food that we can produce, and this can be achieved only by greatly increased investment.

Everywhere in the world we see that a prosperous economy goes in hand with prosperous agriculture. I have yet to find a place in the world where there is prosperous agriculture in an impoverished economy. That just does not occur. A Government who profess and, I know, wish to help such businesses should ensure that the tax system permits these enterprises to obtain their capital in the most efficient way possible. We need the landlord-tenant system now more than ever before, we need it badly, and at the moment it is dying on its feet. Only the Government can revive it.

6.44 pm

I realise that it is a good deal easier to get into the debate tonight than it was last night. The fierceness of the competition, I imagine, was attributable to the fact that last night we were debating the public expenditure White Paper, and to an extent this Finance Bill is an even paler shade than the White Paper. This unimaginative set of proposals was adequately dealt with by my hon. Friend the Member for Batley and Morley (Mr. Woolmer) as far as the cuts in public expenditure are concerned. Those are the parts of the Budget about which we are not really going to hear where there will be the shift from public to private enterprise, on the assumption that if, somehow, we reduce public expenditure our productivity will increase. Certainly those of us who have major nationalised industries with great productive potential in our constituencies, as I have with the coal industry, see the denial of funds to those industries as a complete contradiction of the alleged aim of this Government to increase our gross national product.

I think that part of the lack of interest in the Bill is due to the excessive leaking that occurred prior to the Budget, when we had a plethora of forecasts about how much would be put on the price of a pint of beer or a gallon of petrol. At the end of the day, the proposals put forward by the Government were not as bad as many people had expected. Indeed, the Sun had the headline " The Chancellor's Feather Duster ".

I do not expect this Government, whose economic policies seem to be based on an understanding of economics with which it would be possible to achieve only a very poor pass in A-level economics, to be preoccupied with economic literacy. However, in view of much of what has been said this evening about how we should go about taxing spirits and tobacco, I feel that it would be desirable for the Chancellor to turn his mind to finding a means whereby we can tax things like spirits and tobacco on an ad valorem basis, in such a way that the tax would be responsive only to increases in price through inflation. Let us do away with this annual pantomime about the amount by which the Chancellor will raise the level of taxes on beer and cigarettes, because this, in my estimation, tends to diminish the significance of the Budget and has the effect of providing a smokescreen in the debate on the state of the economy, which should be the essence of such measures as the Finance Bill.

I think it is fair to say that to us the whole question of changing the RPI is as offensive and as irrelevant as the introduction last year of the tax and prices index. We have heard very little of the tax and prices index because, of course, we now see changes in income tax this year which will probably result in more tax being paid by the British taxpayer anyway. So the Government have chosen effectively to ignore their latest indicator and have gone back to defending the old faithful RPI.

I maintain that it should be possible to find some means of linking certain items of indirect taxation to some kind of index system. If we have a Rooker-Wise type amendment for the direct taxation system, we ought to have something similar for the indirect taxation system. I feel, however, that if we are to extend the indexation of tax thresholds we should do it across the board and seek to redress the situation which at present pertains whereby about 1·5 per cent. of taxpayers who are earning over £20,000 will receive 10 per cent. of the tax cuts whereas those who are earning £2,000 will receive only about 7·5 per cent. of the cuts.

We have not heard a great deal today about corporation tax. I feel that the Government missed a great opportunity by not putting into clause 18 some reference to a windfall profits tax on the clearing banks. As a means of expressing solidarity with mortgage and overdraft holders, and as some measure of comfort to show us that we were not forgotten in this Budget, the Chancellor had the opportunity of getting an increase in revenue and at the same time providing a modest increase in public expenditure, without even contravening his own monetary guidelines.

In recent months the results of some research have been published in the Journal Applied Economics. In discussing the sensitivity of the London clearing banks' profits to changes in bank rate between 1951 and 1970, Nurali Peera, of Salford university, showed that a 1 per cent. increase in bank rate contributed about £34 million to the profits of the banks, and between those years the excess profits amounted to about £2,166 million. It would be wrong for me to forecast exactly the banks' overall profits as a result of the increases in the bank rate in the past 12 months, but it is all too clear that these increased profits do not come from any increase in efficiency or improvement in services. Their contribution to the national welfare would be greatly enhanced if we could get our hands on a considerable proportion of these excess profits.

I come now to clause 53. I listened with interest to the argument that there should be co-existence between State and private provision in the running of charities. That is a hobby-horse of mine. There are two notable schools in my constituency, a public school called Dollar academy, and an impoverished local authority school, due for replacement, called St. Mungo's academy. Those two schools co-exist. If the suggested changes in taxation in respect of charities are made, the parents of the children who attend Dollar academy will benefit from reduced fees, while St. Mungo's academy will close down because of the inability of the Under-Secretary of State for Scotland, the hon. Member for Edinburgh, North (Mr. Fletcher) to make up his mind or to find £½million in 1981 and another £½ million in 1982 to provide for a new school. That £½ million is roughly the share that Dollar academy gets from its charitable endowments.

This is a minor constituency point to raise on the Second Reading of the Finance Bill, but I do so because the Bill will do nothing to improve the chances of the youngsters when they leave school to get employment. I suspect that boardrooms and barrack rooms will await the children of Dollar academy, but for the rest of the children there is a very bleak prospect.

As long as inflation is running, even by the Government's expectations, at about 16 per cent., as long as there is a £15,000 million increase in tax take with no appreciable improvement in public sector investment, and as long as we have a 17½ per cent. minimum lending rate, I see no possibility of our children having a chance of employment when they leave school, and their prospects of getting a reasonable rate of unemployment benefit are becoming more and more remote.

The Budget and the Finance Bill were stated by the Chief Secretary as having three basic aims: responsible revenue raising, emphasis on indirect taxation and the financing of small businesses. The way that we approach the higher profile areas of revenue raising by an annual jamboree, with either a vicious Chancellor taking money out of people's pockets by increasing the duty on beer, or a generous Chancellor allowing us to get drunk to forget our problems, is not a responsible way of raising taxes or of conducting an economic debate.

Emphasis has been laid on indirect taxation. Over the year, it is likely that direct taxation will rise, but it is equally likely that there will be no possibility of a reduction in income tax for the country as a whole, and all the alleged advantages of increased incentives through reduced taxation will be lost for yet another year. In vain have I looked for something concrete in the Bill that will help small businesses and offset the effect of the high rate of interest.

Those of us who yesterday tried to get in on the public expenditure debate can look to the Finance Bill with even less optimism than we can to the minimal provisions in the White Paper on public expenditure. There is no way in which the Government will fulfil their objectives through the Bill.

Mr. Speaker has asked me to advise the House that from 7 o'clock the 10-minute rule will apply.

On a point of order, Mr. Deputy Speaker. I think I am right in saying that there is an hour's extension for the debate, and given the length of time that the right hon. Member for Leeds, East (Mr. Healey) took, the logic of the 10-minute rule, in these circumstances, seems a little obscure. May I ask for your guidance?

The hon. Gentleman knows that I have only just taken the Chair. The last word that I had from Mr. Speaker was to the effect that I should announce to the House that he wanted the 10-minute rule to be applied from 7 o'clock. That is what I have done.

Further to that point of order, Mr. Deputy Speaker. Surely it will depend on the number of speakers waiting to be called. It is a very thin debate, and my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) will not be able to content himself with 10 minutes.

No doubt Mr. Speaker had all these matters in mind when he gave me this instruction. It is never possible to judge from a list exactly how the debate will go. Sometimes hon. Members on the list are not here, while hon. Members not on the list are here.

6.57 pm

We shall probably have to pursue that later, Mr. Deputy Speaker.

The hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) was dangerously eccentric in what he said. He devoted his remarks to the Finance Bill. That was certainly not in accord with most of what had gone before. He is in good company with my hon. Friend the Member for Buckingham (Mr. Benyon), but the Finance Bill seemed to be the last matter in the mind of the Shadow Chancellor, the right hon. Member for Leeds, East (Mr. Healey).

I have a fair amount of sympathy with what the hon. Member for Clackmannan and East Stirlingshire said about the indexation of indirect taxation and the windfall profits of the banks. Both matters need to be examined again and they are germane to discussions on the Finance Bill.

I hope that I shall not be considered dangerously back sliding if I devote some of my remarks to the public expenditure White Paper and the Select Committee report which we had before us last night. Before concluding my remarks I shall do my best to return, as did the hon. Member for Clackmannan and East Stirlingshire, to the Finance Bill.

The Leader of the Opposition was keen that the debate on the public expenditure White Paper should take place before the Second Reading of the Finance Bill. Having listened to the right hon. Member for Leeds, East, both yesterday and today, I cannot imagine why. I can only think that the Leader of the Opposition was aware that he at least would be spared the onerous task of sitting through those pronouncements. How wise he was. I do not often feel sorry for the right hon. Gentleman, but, having heard the contrast between his laboured repetitions and the typically charming, entertaining, witty and effective comments of my right hon. Friend the Chief Secretary, it is hard for me to withhold a feeling of sympathy for the right hon. Gentleman.

Yesterday and today we heard much from the dedicated forecasters. Some of them are like the weather buff who, in the absence of a meteorological forecast, would rather have an opinion from the gentleman who predicts the weather three months ahead by the state of his corns, than nothing. I share some of the agno-sticsism on the Treasury Bench about forecasting. I cannot help thinking that the Select Committee on the Treasury and Civil Service might occupy its time more usefully pursuing the suggestion made by the Chief Secretary, namely, that it might examine the relationship of the RPI and the balance between direct and indirect taxation.

My right hon. and learned Friend the Member for Hexham (Mr. Rippon) suggested yesterday that the Select Committee might investigate the financing of the nationalised industries. That is an important topic which the Committee could tackle. Unfortunately, I understand that such an investigation is not on its agenda.

Some aspects of the report are of great value. They have aroused some preoccupations, which many of us legitimately can share. They fall into three categories. First, they deal with the balance between the retrenchment in capital and spending over the past 12 months. Secondly, they deal with the turnround in the finance of nationalised industries predicted in the White Paper. Thirdly, they deal with public sector pay.

I was depressed to hear the Financial Secretary say last night that 60p out of every £1 that we had saved this year in the retrenchment programmes had been on the capital rather than on current account. I had hoped that we would manage to do better than that. We must try to ensure that we do not continuously achieve economies in service to the public while maintaining the intact armies of bureaucracy, or, in the case of local authorities, constantly expanding. There is much work to be done.

I come now to the turnround target in the finance of the nationalised industries. The Select Committee was sceptical about the possibility of its achievement. I have no doubt that the Government can do it, but I am a little preoccupied by some of the implications of the way in which it might be done.

It is fine to set targets for substantially higher prices in the nationalised industries, such as electricity, gas and telecommunications. However, the consequence is that those corporations will make substantial profits. What impact will that have on wage bargaining within those industries? It is suggested that we can resolve that by draining off some of the surplus profit by taxation. Taxation for what purpose? If the taxation is to finance a run of 25 per cent. salary increases in the rest of the public service, that is a poor bargain.

That leads me to the question of public service pay. I listened with care and mounting alarm to what my right hon. Friend the Member for Worthing (Mr. Higgins) said about the relationship between pay in the public sector and cash limits. I understood that we had made it clear that the worthy Professor Clegg was not to be accommodated in full. Having listened to my right hon. Friend the Member for Worthing, and to the reply by the Financial Secretary last night, I am not sure. I am certain that if we are to bring a sense of realism into pay in the public sector it is essential to ensure that cash limits play the dominant role. Naturally, I do not believe for a moment that they can play that dominant role so long as the worthy Professor Clegg is around.

Read through the Select Committee report how one may, it is demonstrable that Professor Clegg does not fit. We should have got rid of him long ago. We must do so soon. In that context, I was delighted to hear the Financial Secretary say the other night that the Pay Research Unit is still in existence. We must examine it at the same time as we consider the future of the worthy Professor Clegg.

The key theme of the Finance Bill, rightly, is the need to bring down the level of PSBR in money terms. There has been much argument on both sides of the Chamber about the significance of reducing PSBR. I should like to throw one item into the pool of knowledge—perhaps I should say the pool of ignorance in relation to my remarks. I commend to the House an interesting paper by John Forsyth, which suggests that we need a rather steeper programme of reducing the PSBR in money terms, for two purposes. It is needed partly to sustain a background for reductions in interest rates, but primarily to achieve a lower exchange rate without inflation. That stands much of the argument on its head. There is no time to go into it, but I commend Mr. Forsyth to hon. Members because his comments are designed to upturn a number of preconceived ideas.

My hon. Friend the Member for St. Marylebone (Mr. Baker) gently chided the Chancellor of the Exchequer for not bringing down the MLR. He said that it was a matter of judgment and not principle. There are grounds to welcome the marked and measured improvement in the monetary statistics. We recognise that they are coming back on the guide path set for them, and that is desirable.

On a point of order, Mr. Deputy Speaker. I am not complaining about the hon. Member, but are we or are we not operating under the 10-minute rule? I do not wish to cut short the hon. Gentleman but it would be helpful if we knew the rules.

I thought that I had made it clear that we were observing the 10-minute rule but that it did not apply until 7 o'clock.

I managed to get to my feet just before 7 o'clock, but I shall not delay the House for many more minutes.

At a time when we are running a substantial balance of payments deficit, we must pay close attention to the domestic credit expansion figures. As I said to my right hon. Friend during his opening remarks, I have always taken the view that we need to consider a whole amalgam of criteria for judging the movement of monetary policy. At a time when the deficit is substantial, the DCE figures are of great importance. Frankly, it does not make things better if there is excess credit from the Sheik of Abu Dhabi rather than from Mullins, the Government brokers. The result is the same—the credit is excess. For those reasons, I think that the time for a cut in the minimum lending rate is probably not yet entirely with us.

On a point of order, Mr. Deputy Speaker. We are getting into a muddle on this matter. I put it to you that I rose to my feet before 7 o'clock. I understood that under those circumstances the rule did not apply.

Mr. Speaker has made the matter clear. The rule applies at 10 minutes past 7 o'clock, even to anyone called before 7 o'clock.

I bow to your judgment, Mr. Deputy Speaker. However, I am bound to register the point that I find the operation of the 10-minute rule bizarre on an evening when we have a one-hour extension. I question, also, whether the rule has always been applied in the way that it has been applied this evening to those who speak before 7 o'clock. On that basis, I bow to your ruling.

All that I have done is to announce to the House what I was instructed to announce by Mr. Speaker at about three minutes to 7 o'clock.

7.12 pm

To have but 10 minutes in which to make a speech concentrates the mind wonderfully. I wish to ask one economic question before turning to the details of the Bill. Have the Government made any assessment of the cost of sanctions against Iran? That sort of " gesture politics " can be extremely costly, and so can the threat of sanctions. Some of us will be asking these questions at 4 o'clock, 5 o'clock and 8 o'clock in the cold dawn of Wednesday morning. I think that it is legitimate to ask, here and now, what assessment the Treasury has made about the cost of the sanctions.

Some hon. Members have tabled a new clause, along the lines of the Government proposals on amnesty in Southern Rhodesia, proposing amnesty for the firms which transgress sanctions on Iran. Some hon. Members feel that applying sanctions is like letting kids loose in the signal box at Crewe, and will create chaos in the economy.

During the Budget debate the Minister of State, who is to reply tonight said
" I turn to the contribution of the hon. Member for West Lothian (Mr. Dalyell). I apologise deeply to the hon. Gentleman for being absent from the Chamber when he spoke. However, flesh and blood cannot keep one anchored in the Chamber for a full six hours, even when a debate of such compelling interest is taking place. Had I known that he was to raise issues of such great interest, I should have forgone my refreshment."
I seem to have the effect, whenever I rise, that flesh and blood compels the Minister who is replying to the debate to be out of the Chamber. However, the hon. and learned Gentleman said
" The liabilities are not agreed as punctually as one would like. I remind the hon. Gentleman and the House that most of the liabilities will be carrying interest at the rate of 12 per cent., which is not deductible for tax purposes."
I tried to intervene, but the hon. and learned Gentleman said
" No. I do not have time. The hon. Gentleman must forgive me. I have eight minutes in which to deal with an important debate and try to state the Government's position. We shall be able to return to these matters on Second Reading. I hope that the hon. Gentleman will acquit me of discourtesy if I pass on."—[Official Report, 27 March 1980; Vol. 981, c. 1783–4.]
In view of the 10-minutes rule, may I read into my speech what I said in the Budget debate on 27 March 1980, Official Report, c. 1741–4, on the so-called black economy, and couple it with a direct question? Do Government Ministers accept the figures given by the Inland Revenue Staff Association and the other Civil Service unions? I refer Ministers to a parliamentary question when I asked the Chancellor of the Exchequer:
" if he will make a statement on his discussions with the Inland Revenue Staff Association on tax fraud relating to between £5,000,000,000 and £11,000,000,000 of untaxed funds from the black economy."
The Minister of State replied:
" My right hon. and learned Friend has not yet had any such discussions, but we have seen the recent statements made by the Civil Service unions on the black economy."
I then asked
" Do they accept the figures in the question?"—[Official Report, 24 April 1980; Vol. 983, c. 680.]
I am now asking the Minister whether the promise that he made during the Budget debate will be honoured.

I wish to use my time to turn to the problems of what are undoubtedly the Government's favourite charities at the present time, namely, the British Olympic Association and the Central Council of Physical Recreation. I refer to a letter of 8 January, which the Treasury will take as read.

In 1976 the BOA was called upon to pay £2,900 in corporation tax, and on elements of its appeal, which related to all the promotional aspects of merchandising, and £9,812 in respect of VAT reclaimed by the Government in respect of the cost of equipment and clothing provided for competitors at the Olympic Games in 1976 and the appeal expenses for the 1976 Olympics.

It was anticipated that under the existing taxation legislation the element of promotional income as distinct from donations would result in the BOA having to pay between £200,000 and £250,000 in corporation tax. With VAT now at 15 per cent., as against 8 per cent. in 1976, the amount that the BOA will have to pay in VAT will be about £20,000.

Regardless of Moscow—and we shall not argue that in 10 minutes—I wish to know whether, from a financial point of view, it is thought that sport is properly treated. The CCPR and the BOA take the view that a non-profit making distributing body, which has the public benefit purpose of developing and controlling a certain sport or recreational activity, should enjoy tax exemption. The bodies intended to benefit from such an exemption would be the governing bodies of sport and recreation, and the umbrella representative organisation of such bodies such as the CCPR and the BOA.

After taking counsel's advice, both organisations concluded that that objective would be best achieved by legislation that conferred tax exemption without charitable status. They suggest adopting the principle of section 362 of the Income and Corporation Taxes Act 1970, which confers exemption for scientific research associations. That considerably reduces the problem of definition, which would be inherent in any attempt to extend the existing heads of charity to include the encouragement of sport and recreation as an independent charitable object. Do the Government accept the thinking behind that view?

An amendment to the Finance Acts would be required. Subject to the advice of parliamentary counsel and following section 362 as a guideline, the CCPR and BOA suggested in a letter to Members of Parliament that the exempting section might read:
" (1) Where—
  • (a) an Association which has as its object the encouragement, development or control of any sport or other form of recreational activity (or which has as its object the representation of such Associations) is approved for the purposes of this section by the Minister with responsibility for Sport and Recreation, and
  • (b) the memorandum of association or other similar instrument regulating the functions of the Association precludes the direct or indirect payment or transfer to any of its members of any of its income or property by way of dividend, gift, division, bonus or otherwise howsoever by way of profit,
  • there shall, on a claim in that behalf to the Board, be allowed in the case of the association—
    (i) such exemption from tax as falls to be allowed under section 360 above in the case of a charity the whole income of which is applied to charitable purposes, and
    (ii) exemption from tax in respect of chargeable gains.
    (2) In section 248 of the Taxes Act 1970 " covenanted donation to charity " shall include a payment under a disposition or covenant made by a company in favour of an Association approved for the purposes of this section under subsection (1) above.
    (3) The condition specified in paragraph (b) of subsection (i) above shall not be deemed not to be complied with in the case of any Association by reason only that the memorandum or other similar instrument regulating its functions does not prevent the payment to its members of reasonable remuneration for goods, labour or power supplied, or for services rendered, of reasonable interest for money lent, or of reasonable rent for any premises.
    (4) In this section " recreational activity " means any activities in the fields of physical or cultural recreation conducive to the health of welfare to those participating in them."
    The reason some of us have asked the Leader of the House—on 10 occasions the right hon. Member for Worthing (Mr. Higgins) and I have asked—for a debate on the Goodman report on charities is that we think that many of the definition questions should not be inextricably bound up with the Finance Bill but should be matters decided on their own merits. Indeed, as the Chief Secretary said, it is true that many of these matters are the responsibility of the Home Office.

    It is all very well for the Chief Secretary to say that I should understand that we cannot discuss this on the Finance Bill. It is a heck of a pity that we have not discussed it out of context and out of Finance Bill season, because we ought to have done so. Nevertheless, the fact remains that we have not. The fact also remains that this is the only opportunity of airing serious grievances. I hope that in their general treatment of sport the Government will not be unduly biased by their current quarrel with the British Olympic Association on something—the Moscow Olympics—which is rather different from the Finance Bill itself.

    In this Finance Bill, taking into account the proposition which I read at great speed—which will be in print before we go into Committee—I hope that the Government will have a serious think about whether they can do something for sport, which has a very strong case. I hope that that case will be looked at. I shall sit down in the hope that something will be said in reply about my remarks about the black economy and the questions which I have put very legitimately, which ought to be answered on this occasion.

    7.21 pm

    I join the hon. Member for West Lothian (Mr. Dalyell) in the eccentric pursuit of actually trying to debate the Bill this evening. Very few hon. Members—one or two of my hon. Friends and almost none from the Labour Benches—have debated the Bill or any part of it.

    I want to restrict my comments to the provisions in clauses 68 and 97 relating to fiscal reliefs for enterprise zones. I do not want to talk about the concept of enterprise zones at large because to do so would mean my straying out of order, as many of the provisions relating to enterprise zones will be affected by other Bills and provisions that are to be brought before the House. I wish to commend the Government for their enterprise in bringing these zones into being and also for having the foresight to be so experimental.

    Enterprise zones are very important because they are experimental. They are experimental because, among other things, as the two clauses in the Bill show, they fiscally relieve burdens which would otherwise fall on firms setting up within enterprise zones. This is to be done through clause 68, whereby firms receive capital allowances on their new buildings, and through clause 97, under which a firm setting up in an enterprise zone will receive complete relief from development land tax.

    Both of those provisions are admirable, but I wonder whether they go far enough and whether they are experimental enough. Capital relief on buildings is a technique which has been long tried in development areas and special development areas in an attempt to lure firms to develop there. I doubt whether capital relief on new buildings will have much of an effect by itself, and I rather doubt the effect that it will have even in conjunction with the other provisions for enterprise zones.

    On the other hand, the blanket provisions relating to relief from DLT are much more important and wide reaching. But I wonder whether the Government have been experimental enough in putting forward these provisions in the Finance Bill. It strikes me that in the six different enterprise zones which we understand are to be set up different techniques might have been tried in different zones to see whether they had more or less effect. I should have liked my right hon. and hon. Friends on the Treasury Bench to be more rather than less experimental.

    In one or two of the enterprise zones, we could have perhaps declared a 10-year tax holiday to see whether that, with perhaps a fixed rate of tax for companies after that, would have had a greater effect. I am not saying that it necessarily would, but I am sure that my right hon. and hon. Friends on the Treasury Bench are also unsure about the exact result of the fiscal and other provisions for enterprise zones as proposed.

    I believe that a 10-year tax holiday in one or two enterprise zones to see whether more firms could be persuaded to go in would have been beneficial for three reasons. First, it would be an instantaneously and easily understandable provision. It is easy to comprehend. It is the sort of thing which I believe many entrepreneurs wish to hear. Secondly, a 10-year tax holiday, perhaps followed by a stable tax regime, would probably promise the kind of stability which I believe many business men and entrepreneurs want in drawing up their investment plans.

    Thirdly, I believe that through this device enterprise zones would not predominantly serve to attract capital-intensive manufacturing and other activities alone. I believe that that tendency has been one of the great defects of regional planning in the past, and I suspect that it may well be a defect in our present concept of enterprise zones. My hon. Friend the Member for St. Marylebone (Mr. Baker), in his brilliant and commanding speech, clearly pointed out the importance of attracting and promoting the interests of service as well as manufacturing industries in the economy in general. That is just as much the case with regard to enterprise zones.

    The concept of enterprise zones is a splendid one. But I do not believe that the provisions for fiscal relief go far enough or are experimental enough. Surely we need enterprise zones to be seen to be as successful as possible as soon as possible and perhaps to act as the grain of sand in a region in order to promote greater manufacturing activity as well as the service activity and the service industries which my hon. Friend the Member for St. Marylebone—who has now come into the Chamber—mentioned in his excellent speech.

    " Brilliant and commanding " was the term that I used earlier, to save my hon. Friend looking it up in Hansard tomorrow.

    If we go so far as to promote enterprise zones, might not my right hon. and hon. Friends also think of extending that concept, particularly in the northern part of the country? There, when the economy gets going, there will be a much greater lag in the rate of development behind the South as there always has been historically since the 1920s and 1930s; the rate and nature of growth will be so much slower. There may be some sense in trying to extend the concept of enterprise zones into the concept of an enterprise region with similar provisions in one area of the northern part of the country in particular. That is an idea which I commend to my right hon. and hon. Friends.

    7.28 pm

    We have all been assisted by the Select Committee's report, both in our debate yesterday and in our debate today. One of the difficulties about serving on a Select Committee is that when it meets at 4.30 pm, one cannot be present for the opening speeches in the House. I apologise to the Minister if I say anything critical of the Government's attitude in the Bill which he has already refuted, but earlier on I was dealing with matters in a Select Committee.

    I am a little surprised to discover that our speeches are being curtailed to 10 minutes this evening, in view of the presence of so few hon. Members in the Chamber. However, I shall try to confine my remarks to 10 minutes.

    I wish to make one point about a speech by an hon. Member who has now left, who complained about the work of Professor Clegg and his commission. It ought to be pointed out to Conservative Members that the upshot of those deliberations was to try to bring the pay of public service workers up to the level to which those in private industry had managed to push up their wages, despite the pay policies of successive Administrations. It cannot, therefore, be argued in the same breath that public service wages are a pacemaker for private sector wages. Equally, it cannot be argued that in all circumstances public sector workers are not earning by greater productivity, or by any other test, the increase in wages which they are claiming. It seems to me to be nonsense to argue against an incomes policy and at the same time to apply what is, in effect, a rough and ready incomes policy, through cash limits and by pressure on public sector wages, which is harmful only to those who are working in the public sector and not to those in the private sector. If the Government proceed—

    Order. I have some information which may be of assistance to the hon. Gentleman. I have communicated the position which appears to prevail in the House, and in the circumstances the 10-minute rule will not apply henceforth.

    This is the one and only time, Mr. Deputy Speaker, when any words of mine have had an immediate effect.

    On a point of order, Mr. Deputy Speaker. Does that mean that hon. Gentlemen called since 7 pm will now get a second bite at the cherry?

    Perhaps someone should have complained a little earlier.

    It seems to me that the Government's stance in protesting about an incomes policy and then applying one to the public sector workers will not continue for long without considerable protest from public sector workers, who are denied the kind of increases that are available in the private sector. I consider, therefore, that within a short time the Government will have come up with some kind of incomes policy. They cannot run away from it for the rest of their term of office.

    Despite the fact that we are now outside the restraint of the 10-minute rule, I shall try to restrict the rest of my remarks to the detailed provisions of the Bill. I have two major issues—major, at any rate, to me and to my constituents—that I wish to raise. The first is a constituency point which I raise regularly on these occasions and which, in times past, has caused a certain amount of merriment among colleagues in the House. But any hon. Member worthy of his salt ought to keep on plugging away until the Government recognise the injustice that is done.

    I refer, of course, to VAT on confectionery. When I have put the case previously, it has constantly been opposed by both Conservative and Labour Financial Secretaries, on the basis that confectionery is a notoriously bouyant industry and that mere changes in the tax on confectionery cause very little long-term damage to the industry. The experience of the last 12 months has been clearly against that argument, and I hope that the Financial Secretary will look at the effects on the confectionery industry of the substantial increase in VAT a year ago. It has had a damaging effect on an industry which, in every other way, has been exceptional in improving its performance in times when a good deal of British industry has been going downhill. It has also improved its export performance.

    Financial Secretaries usually trot out the standard objection—they do not believe it, but it is put into the brief by the officials—that it is in the best interests of the health of the nation that people should not eat chocolates and sweets. However, the tax on confectionery hits not only chocolate and sweets, but a lot of convenience foods, which are the most rapidly rising area of consumption within the food industry.

    If I had a little more time I could advance the argument in greater detail—I shall no doubt get an opportunity to do so at some stage, either in Committee or on report—but there is now a good deal of medical evidence that the nutritional benefit of convenience foods is at least as high as that of a good many of the staple foods on which there is no tax.

    When VAT was first introduced, the basic principle which was adhered to was that food would not be taxed. Unfortunately, it was breached by my own Chancellor of the Exchequer. We ought to revert to that principle now, on economic grounds, and on the general ground of principle that food should not be taxed in this country. In that way we ought to be able to fend off any future attempt by the EEC to harmonise VAT and increase the tax on food.

    My second point is of more general importance and relates to acute injustice to a minority group in this country. I refer to clause 24, which is concerned with tax allowance for overseas children. As far as I am aware, the Government have not yet spoken on this clause. I read carefully the speech of the Chancellor in the Budget debate. There was no reference to it there. I cannot recollect any reference to it in any other speech in the Budget debate, but I may have missed it. I also missed the opening speech in today's debate. However, I hope that the Financial Secretary—or whoever is to reply to the debate—will say something about this because the issue is one of very considerable importance to a number of people in this country, most of whom are immigrants, and most of whom are from the Sub-continent.

    The argument took place with the previous Labour Government about two or three years ago. They introduced a clause, which has been repeated in successive Finance Bills, which kept the allowance until an unspecified date. It has always been recognised that there would come a time when the allowance would cease, but that that time would be when those who had settled in this country had been allowed to bring their children here, or had come to a firm conclusion not to bring their children here.

    When everybody had child tax allowance, those who were living in this country, working here and earning money here, were given the same allowance, even if their children lived overseas. When the new child benefit was introduced, it was a clear principle of that scheme—although not necessarily one that had to be adopted—that child benefit would not apply to children who were overseas, because it would be too difficult to administer.

    It was recognised that an injustice would be caused to people who had recently come to settle in this country and had not yet brought their children over, but would in due course bring them here, because, just like their colleagues on the work bench, they would be earning money and they would be taxed on that money, and they would have children to maintain, albeit at a distance of several thousand miles. It was thought to be wrong that they should be robbed of child benefit for those children, and also that they should be robbed of the existing tax allowance, so this interim measure was introduced.

    I recognise that it is an interim measure, but the Government, as I understand from clause 24, intend to reduce it this year and to cut it off altogether next year. I note that the Financial Secretary shakes his head. I hope that I may have an assurance that that is not what the clause means, but that is what I understand it to mean. I believe that the Commission for Racial Equality also understands it in the same way. [Interruption.] It seems that the axe will fall not next year but in two years' time.

    If that is the position, it is still not possible to argue that the appropriate time has arrived, for this reason. There are in the queue, in India, Pakistan and Bangladesh, wives and families who have been waiting for a very long time to come here and who are delayed only by the slowness of the procedures that are applied in vetting their claims. At present there are about 24,000 people in that queue, and a good many of them are children.

    It is one thing to say to people " You cannot have any form of tax benefit or tax allowance if you do not bring your children into the country". It is quite a different thing to say " By the way, you will not be able to get them into the country when you want to because we shall hold things up by bureaucratic means ". That is what is happening now. We could clear that queue in 12 months if the Government were willing to take that number in during that period and if the Treasury were prepared to pay for the staff required to vet the applications in that 12 months. That could easily be done. I do not dispute that it might be the sensible thing to do, but since it will not be done by this Government, it is iniquitous that they are proposing to take away the tax allowance from people who cannot get into the country before the end of the tax year 1981–82.

    In those circumstances, I protest strongly, and I hope that the Government will reconsider this matter in Committee. If they intend to reduce the value of the allowance—I dispute that—they ought to keep the allowance open until the queue has ended in India, Pakistan and Bangladesh. The Government could achieve that within the next five years even at their present rate of processing applications. However, five years means three years more than they intend under that rule.

    I think that the Government, who have treated black people in this country so badly, are making the situation of those who do not yet have their children here a great deal worse. That iniquity should be ended during our consideration of the Bill.

    7.41 pm

    During my brief contribution I wish to speak about the effects of the Bill on the area which I believe controls our future prosperity and wealth. I am talking about smaller businesses and the self-employed.

    1 wish to talk about the way in which we need to increase the wealth of this country and not indulge in perpetual haggling about how to cut up the national cake and about who will get more or less of that cake. I am interested in the creation of wealth. If we bake a bigger cake, we can all have a bigger slice of it and a higher standard of living. It may be that when the pundits of the future look back, with the benefit of hindsight, and examine this Finance Bill they will discover in it the first real commitment by any Government to the smaller business sector of our economy.

    In the past the Conservative Party has been without a central theme. We have tended to react to results. That is called management by disaster. We have waited for a crisis and then tried to react to it instead of sitting down quietly and planning an environment that will determine the events and the results.

    I believe, that, thanks to my right hon. Friend the Prime Minister, we have now got back our philosophy and our belief and that that strengthens our commitment to the individual and to the smaller business. I welcome this Bill because it underlines that commitment.

    I have always been amazed that we have allowed our new businesses to depend upon the innovative and creative ability of individuals without the active protection and encouragement of the State. I do not wish to wax too lyrical on this point, but if we take the example of the farmer we note that he does not look out of his window and say " I hope that there is a crop growing in my fields that I will be able to market." He goes out and ploughs and plants his land in order to produce the crops he requires. Similarly a mother nurtures her young and protects them until they achieve adulthood and can take their place in the world.

    I am not impressed by the argument that smaller businesses are more competitive and more efficient and will, therefore, naturally survive. I know that the efficient ant of the smaller business, even if accidentally trodden on or squeezed out by the State rhinoceros, will end up in exactly the same position. There will be a squashed ant or a broken business.

    Surely we must take active steps to create the conditions in which new business may start and in which small businesses may expand. For that reason, I am pleased by the proposals to create an environment for entrepreneurial enterprise. I am pleased particularly that there is to be tax relief on money borrowed so that the borrowed money can be invested or lent to certain close companies under clause 27. I am pleased at the removal of the requirement that the borrower should have worked in the company.

    I hope that a roll-over provision can be considered similar to that which appertains for commercial premises. I should like to think that we could consider a provision whereby a shareholder in a publicly quoted company could roll over his investment into a non-quoted company without being liable for capital gains tax. I hope we can do that because smaller companies require the investment.

    I am most encouraged that in clause 36 there is a proposal to allow the offsetting of losses on subscribed shares in unquoted companies against income for income tax purposes. Additionally, there is the allowance of excess interest paid by close companies to directors or associates as a deduction for corporation tax.

    All these proposals go a fair way down the path to creating the environment for the entrepreneur or for the person with a little spare capital willing to take the plunge and back a small company rather than leave his capital in more conventional sterile investments.

    I succumb to the mood of the House in moving right away from this Finance Bill when I say that I hope that we can at a later stage take the steps to make it easier for people to move their investment in and out of close companies. By that I mean that I look for an amendment to the Companies Act 1948 to allow companies to purchase a percentage of their own shares. That would release people from a locked-in position and would enable them to invest with far more confidence and courage. They would know that if, for a variety of reasons, they needed to get their money out they would be able to do so.

    I confess that I was somewhat disappointed not to see in the Bill the slightest hint of a movement towards the setting up of a loan guarantee scheme for smaller businesses. Such a support scheme would be extremely valuable in start-up conditions and the development of smaller businesses. Such a scheme is operated in practically every industrial country that is in competition with us. We should look seriously at the development of that form of investment in relation to our smaller businesses. It just could be that the clearing banks are already working on their own scheme. If they are, and if they introduced such a scheme, it would obviate the need for Government action.

    Having gone part of the way down the path of providing the incentives to start and promote smaller businesses. I welcome the other half of the attack, namely, the encouragement to provide new premises. I particularly welcome the imagination behind the creation of the enterprise zones as a way of bringing life and activity to some of our decaying city centres.

    My hon. Friend the Member for Oxford (Mr. Patten) has already covered some of the principal points of this proposal. I know that the concept of enterprise zones does not satisfy the strait-jacket mentality of some Labour Members who believe that only by the injection of vast sums of public money can solutions be found. I must say to them that that mechanism has not been dramatically successful in rescuing a number of our traditional industries in the past.

    I am sure that vast sums of public money injected into our city centres will not save the day there, either. What is needed is the combined efforts of many individuals. We need many grains of sand—handfuls of sand—working inside the city centres without hampering restrictions in order to raise the level of economic activity. In that way we can bring back life to those decaying areas.

    I welcome the proposal to introduce the temporary 100 per cent. initial allowances on construction and improvement on small buildings of up to 2,500 sq. ft. In the past, we have tried to solve our problems by vast new advance factories and by large industrial projects. As we know from only too bitter experience, it requires a huge investment, it is high technology and it provides remarkable little employment at the end of the day.

    It is the smaller business which must be promoted. It must be promoted in our councils and our districts. It must be promoted a little like the use of a greenhouse, to allow the plants, saplings and seedlings to grow there and, after they have been started, to be planted in the outside world. I hope that local authorities and similar bodies throughout the country will take advantage of this allowance and actively promote its use.

    I should like to congratulate Hull city council on opening an innovation centre to help individuals who have new business ideas to bring them to fruition. That council has carried out the conversion of a warehouse in the city centre. The aim is to promote the formation of more smaller businesses and to create additional employment. The idea is that by assessing these smaller businesses and giving them a start they can be got on their way. Then, at a later date, it is expected that the embryo business will move out into a small advance or nursery factory.

    As I have said, one tends to keep moving away from the Bill, but I see the creation and the expansion of smaller businesses providing the one real employment prospect for the future, as our larger and more traditional industries continue to de-man.

    In this area of the promotion of premises, I should like to mention one small difficulty that faces farmers in particular. If they have some premises which they would like to use, or to see used, for industrial purposes—I know that they must overcome the question of planning permission for their use, but assuming that that question has been overcome—they face the loss of certain agricultural grants in having such change of use, and that in turn is acting as a restriction. Some action should be taken whereby farmers do not lose out if they allow the conversion of their buildings to industrial use.

    The smaller business sector already employs 6 million people. However, in relationship as a percentage to that of our industrial competitors, it is very small. Many times in the House the larger percentage of small businesses in Germany, some 40 per cent., has been cited, as have the activities of small businesses in Japan. However, I believe that this Bill, introduced by a Conservative Government, has taken the first major step down the path to giving active encouragement to smaller businesses to get going.

    This can be regarded only as one of many steps that will have to come to increase their present contribution of 25 per cent. to our gross national product, because that is the only way that I see this country increasing its wealth, and, therefore, baking a bigger cake to provide better social services for our people.

    7.53 pm

    I should like to think that we are all in the same state of mind—that there is complete surprise here this evening at the lack of attention to this debate. After all, it is on the Finance Bill. The lack of numbers on the Opposition Benches—

    —and the apathetic approach that has radiated throughout the debate from the Opposition Benches must be a judgment that the Budget—reactions from one's constituency confirm this—did not harm, and in many ways surprised and relieved, the voters. In many cases, the surprise and relief was carried forward, because there were many other concessions in the Bill for which the public had been waiting for some time.

    The only complaint that I have had from my constituency was from a pensioner who made the accusation that the Government would be paying the increased pensions two weeks late. Whether or not he has his sums right, I am sure that my hon. Friend the Minister will be able to say something about that this evening.

    I do not look forward to any further reduction in the standard rate of tax. However, my hobbyhorse is that I think that domestic rates should be phased out, and with them the penal water service charges. Any Chancellor who can tackle in a workmanlike way the phasing out of domestic rates and water service charges, even if that is done over a long period, will earn the gratitude of the voters.

    I accept the hon. Gentleman's point about the apparent offensive-ness of rating, but surely he must concede that, if we are to have local government expenditure, the money must be raised from some source, and that what he will have is not just the maintenance of the standard rate of income tax at 30 per cent. but an increase to cover the cost of that funding of local government expenditure.

    No, I am afraid that the Opposition have got it wrong again. What I was saying was that if, at a future date—which one hopes will be sooner rather than later—the Chancellor is able to balance his books sufficiently to think of his 25 per cent. standard rate of tax, obviously the economy will be booming and there will have been a great deal more wealth-creation and investment— towards which this Budget will help. In those circumstances I would not be alarmed if the Chancellor said " This year there will be no reduction in the standard rate of tax, but we can make our first impact on the phasing out of domestic rates."

    Domestic rates are a form of penal taxation which is completely unfair. They hit those who are old and who live on their own. Also, as regards water service charges, I have no need to reiterate to my hon. Friends, or to some Opposition Members, the hardship that these are creating in many households. Having explained my hobbyhorse, I shall return to the Bill.

    Two things about the Bill please me. The Conservative Party stands for a property-owning democracy. It is a party of wealth-creation. The Government have made two vital moves in the Budget. First, they have reduced the starting rate of stamp duty on conveyancing—perhaps only minimally, but, as with domestic rates, if the reduction on conveyancing fees on freeholds and leases can be made greater over the years, this will help towards a property-owning democracy.

    In clause 26 there is a ceiling on tax relief on loans to borrowers to buy property from mortgage companies or banks which is at present £25,000. I wonder whether the tax relief on these loans could not be increased. It has remained the same for over six years. To keep pace with inflation, it would have to be nearly doubled now. Anyone who has attempted to buy a freehold or leasehold house in the London area will know that it is not possible to obtain any such property for £25,000. I know that there is an underlying political reason, but if we are to be true to our principles it is one aspect, along with stamp duty, that will have to attract greater relief in future.

    Reference has been made to enterprise zones and the need to assist small businesses. My colleagues are completely for that approach, as I am. The only difficulty is that the proposed enterprise zones are far too large. The zones are not spread throughout the country. They will be sited in only six areas. They will be of such a size that they will take years and years to develop. The offset on the development land tax is all very well for the person who already owns the land, but what about those who are to move in?

    Certain provisions for the enterprise zones will be worthwhile. My only hesitation is that they may create a " them and us " division among small businesses. They may create conditions that amount to a form of unfair trading between the small businesses in the zones and the businesses that for various reasons do not wish to move into them.

    I appreciate the argument that my hon. Friend is advancing. I think that he will agree that there is a graduation of deprivation into the city centre. There is not a Berlin wall, where it is prosperous one side and chaos on the other. With respect to my hon. Friend, I think that he is a little too concerned about the difference in trading that will occur.

    I was not talking about land mass. I was thinking of two companies, one in a zone and working well and another perhaps 50 miles away making exactly the same article. There may be a need to look even deeper into the formula for enterprise zones to ensure that we do not create two societies in small business terms.

    I turn to the problem of losses on unquoted shares. Under clause 36, an individual will be allowed a deduction against income tax in place of capital gains where he realises a loss on unquoted shares in a trading company. That will be good for some shipping firms especially—namely, small, family, close companies. However, that applies to losses realised on or after 6 April. The shareholder has to be in good health and has to live after the holding of his shares. Obviously, no one lives for ever, and the shares will be passed on to a trustee. Would it not be possible to broaden the scope of the clause to include not only the shareholder himself, who is an individual, but a trustee of the individual's shares after his decease?

    Does the hon. Gentleman regard inheritance as an impediment to initiative?

    Inheritance, for which we are all grateful, is generally an added boost to a person who has initiative. I speak for many small businesses when I say that they would welcome an inheritance of a considerable size to help with their present business problems. Inheritance and initiative go together nicely. Inheritance without initiative is not a great deal of use. However, if a person has the two together, or even initiative on its own, he is in a most favourable position.

    My right hon. and learned Friend the Chancellor of the Exchequer has set out the Government's proposals on capital gains tax. Only those who are not in a small company will not have heard of Lord Cockfield's review. My right hon. and learned Friend has obviously read it. He said
    " I have had both proposals (indexation and tapering) re-examined but the conclusion to which I have come to is that both would result in an unwelcome increase in the cost of administration—for taxpayers as well as the Revenue—while reducing the yield of the tax to negligible proportions."
    My right hon. and learned Friend has been wise. He has made out a first-class case for doing away with all capital gains tax—namely, heavy administrative costs and very little revenue. Why not get rid of the concept completely? Like my domestic rate hobbyhorse, I believe that the abolition of capital gains will have to be phased over a long period. It is obvious from my right hon. and learned Friend's words that he is of that inclination.

    Capital transfer tax is penal. My hon. Friend the Member for Buckingham (Mr. Benyon), who is a farmer, has referred to the disastrous effect that it has on farmers in particular. It has a disastrous effect on most small businesses. My right hon. and learned Friend said:
    " As I have already indicated, there have been extensive consultations on capital taxation before the Budget. We propose to continue this process. There are in particular certain specialised areas such as settled property which require very detailed consideration."
    I am sure that that leaves the door wide open for a complete re-think on CTT and how it is affecting businesses, especially family businesses.

    I am sorry to sound as if I am complaining, and I reiterate that I think it is an excellent Budget. It will provide interesting work for those who are selected to consider it in Committee. It is obvious that we shall have to change certain provisions. These will not be vast changes.

    It will be obvious to any logical and commonsense member of the Committee that changes are necessary. For example, if someone does not pay his VAT on the due day, there is a £10 a day surcharge. That is a fine. I am sure that my right hon. and hon. Friends in the Treasury are not responsible for one provision in clause 14. I am sure that it has been slipped in without their knowledge. It provides that the penalty for overdue VAT after the enactment of the Bill will be ½ per cent a day.

    The House will know that VAT is collected every three months. There can so easily be delay. For example, an employer may lose the girl who does the VAT returns. He may suffer a great amount of staff unrest. He may even have labour problems. The business that he is operating may become disastrously slow in preparing accounts. It is a fact that bad businesses exist.

    If a person owes only £1,000 on VAT, it does not need any more than a child's mental agility to know that ½ per cent. per day over 90 days would be 45 per per cent. Forty five per cent. of £1,000 is £450. That would be the last straw that breaks the camel's back for the poor small business man if he got into difficulties. Admittedly the collector of taxes is responsible for putting most businesses into liquidation. However, if I were on the Committee, I should hate to think that I was responsible for adding support to a further penal sum.

    Half a per cent. of £1,000 is £5. We are suggesting that we remove a daily penalty of £10. The proposal in the Finance Bill is lower than the present rate.

    I have spotted an hon. Member who has not read the Bill. The Bill says £10 a day or ½ per cent., whichever is the higher. The minimum that the man will pay is £10 a day. I quoted £1,000 because it seemed an easy figure to base the calculation on, but the figure could be £5.000 or £10,000. At ½ per cent. over 90 days—three months—the penalty is £450 on an outstanding VAT bill of £1,000.

    I know that my right hon. and learned Friend will tell me that action will be taken only in cases of great abuse by real rascals, but once in a while the net will pick up more than rascals. I merely point out that in this almost faultless Bill there are one or two matters that should be dealt with in Committee. I hope that my right hon. and hon. Friends will note my unease. If I am fortunate enough to be on the Committee, I am sure that we shall be able to discuss the matter further.

    I may have created the wrong impression. It is a fantastic Finance Bill. My constituency is an urban conurbation. Had the Bill been unfair, unjust and caused public resentment, my postbag would have been filled with complaints. I have had very few. It is a Finance Bill with which even the Opposition can find little fault. The imagination and futuristic thinking has reached almost beyond the realms of the Chancellor in matters such as enterprise zones, and my right hon. and learned Friend, his colleagues and the Treasury officials should be congratulated.

    8.12 pm

    I congratulate the Treasury and the Government on much of the Bill. Bold steps have been taken, particularly with regard to de-indexing and the removal of earnings-related benefit. All hon. Members will accept that the Government are generally trying to control inflation. However, they are not concentrating sufficiently on measures to bring down inflation. We must concentrate more on incentives and getting the country working sensibly. That aspect of the Bill worries me.

    Nearly all members of the Cabinet have at some time professed that they intend to solve the " Why work? " problem. Genuine attempts have been made to solve the problem of the poverty trap and the treadmill society, with which I have bored the House on many occasions. However, I cannot understand the Government's overall plan. Indeed, I cannot detect one.

    Several measures have been proposed that will come into operation in 1981 or 1982 in regard to taxing short-term benefits. Taxing short-term benefits was never in my mind when I first talked of making State benefits and all income taxable. It does not make sense to deduct tax from benefits. If it is decided to give a man £20 in benefits and he needs that sum, it seems absurd to deduct tax. My point is that tax thresholds should always be higher than the minimum income that the Government decide is right for those not in work or sick.

    It is impossible to discuss the Bill sensibly without considering the wider proposals of the Social Security (No. 2) Bill and the Education Acts, which affect the total of spending power left in people's hands at the end of the day. There is no co-ordination between the Treasury and other Ministers who influence net weekly spending power—the money that people are left with after deduction of tax and national insurance and receipt of family income supplement and other benefits. A person may be paying £7 a week in tax and receiving £7.50 in family income supplement. That is a ridiculous situation and an awful waste of manpower, but is to be continued for a further 12 months.

    The main reasons for the poverty trap and the " Why work? " syndrome do not appear to be fully understood by the Treasury. The first and most important reason for the poverty trap is our low tax thresholds. It is ridiculous to have tax thresholds below supplementary benefit and very much below family income supplement.

    We then have a high initial standard rate of tax—the highest in the world. The first Budget did a little about that. I am bitterly disappointed that this Budget has done nothing. We shall never get out of these difficulties unless we cut income tax, particularly the initial rate, substantially.

    Then there is the question of free school meals, which must come into this discussion. We have created the situation whereby anyone who is not on family income supplement or supplementary benefit will pay the full price for school meals. We have created a special category of people who, because they receive benefits from the State, are eligible for free school meals. We have created an extra poverty trap a little higher up. We have the ludicrous situation that a man with a wife and two children, earning £45 a week, will have a spending power of £54 a week after tax and national insurance have been deducted and benefits received. Yet if he increases his income to £65 a week he will find that he has only £52 spending power.

    That unacceptable situation has come about for two reasons. One is the school meals situation, and the other is the family support. We have made a big mistake. We have decided to hold down the increase to those who work to 11 per cent. and to increase family support to those who do not work by at least 16½ per cent. and, in some cases, by as much as 42 per cent. The " Why work? " syndrome was aggravated in the previous Budget. Now it has been still further aggravated. The Treasury team must think seriously about the matter. We are doing a great deal to ensnare people in the poverty trap.

    I believe that the phrase " the poverty trap " is misused. It would be better to talk about the treadmill on which we find ourselves. I should like to give more figures. I am sorry to be critical of the Government, but I feel that I must make my views clear. When the Government came to office, the difference in net income for the average-sized family earning £45 a week or £85 a week was £15. In other words a family was better off by £15 if it increased its wage from £45 to £85. That meant a marginal tax rate of about 62 per cent. As a result of the last Budget, the gap was decreased to £8. The family was only £8 better off through earning another £40. Under this Budget, the gap will be reduced still further to £6. That not only discourages people from working and trying, but causes a big increase in unemployment.

    When the Conservatives are in office, unemployment is a delicate issue. A Socialist Government can get away with 1½ million unemployed. The previous Conservative Government got into great difficulties when the figure reached 1 million. We shall experience great difficulties again when the figure reaches 2 million. There has even been talk of 2½ million unemployed. I should like to know what has happened to the CPS inquiry into the matter of false unemployment figures. The Government are liable to be criticised unfairly because many people are not genuinely seeking work.

    It is high time that the unemployment figures were analysed again and a further study carried out to discover how many people are trapped into unemployment merely because of our totally chaotic, unco-ordinated taxation, welfare and employment systems. It is important that this problem of the " Why work? " syndrome should be tackled effectively. The tinkering contained in the Bill will do nothing to improve the situation. It will do a great deal to make it worse. I hope that the Government will be able to accept some far-reaching amendments to correct the mistakes in the Bill.

    8.25 pm

    I suspect that I am the only hon. Member tonight who regrets that he cannot hide the paucity of his thoughts behind the 10-minute limit on speeches. I intend to make more of an exclamation than a speech. Obviously I support the Finance Bill that gives effect to the Budget. I guess that the Treasury Bench agrees that the Bill is not a panacea but the beginning of a recognition that we cannot go on running a PSBR and borrowing and printing money at a rate faster than the nation can afford without experiencing inflation. One does not need to be a monetarist or a Keynesian to accept that.

    I still wonder, looking at the two sides of the equation—the public expenditure side and the taxation side—whether it has been fully accepted what a difficult struggle lies ahead if the Government are to carry out some of the long-term policies to which they are committed. Some have been mentioned already. Although it was not mentioned in the Budget, my right hon. and learned Friend the Chancellor of the Exchequer has stated on several occasions previously that there is a commitment substantially to reduce the level of direct taxation. There is a certain amount of argument about it, but I understand that the commitment still stands. The figure that is constantly talked about, although not in the Budget, is a 25p basic rate.

    My hon. Friend the Member for Southampton, Test (Mr. Hill) has mentioned the commitment to do something about domestic rates. If action is to be taken on rates, and if direct taxation is to be reduced without at the same time there being a rise in indirect taxation beyond acceptable levels, and if rates are not to be switched to some form of local VAT or local income tax, we are really talking about reducing taxation. My hon. Friend the Member for Norfolk, North (Mr. Howell) has raised the problem of the poverty trap and the disincentive to work, which is recognised by many of my hon. Friends and, I suspect, by many Opposition Members. That also involves the immensely costly problem of the tax thresholds.

    We have therefore three fundamental problems that would face any Government but which are particularly important for the present Government who are committed on all those fronts.

    The other side of the equation is public expenditure. We still have a great problem there. I am sure that it is accepted by the Treasury Bench, though I am not so sure that it is accepted by the Conservative Party in the country or by the country at large. My hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) reminded us in his truncated speech last night that 60 per cent. of the cuts in public spending are on the capital side rather than on the current side.

    All the evidence, including last month's manpower figures, shows that there is still an increase in the manpower recruitment of local government. The excuses of various local authorities are different. In Labour city areas the excuse is deprivation. Conservative rural areas, such as my own, argue that they are taking on all the people from deprived areas and therefore need more teachers, administrators and so on. Both types of authority have apparently foolproof excuses, and that pinpoints the Government's problem.

    One of the marvellous aspects of the Budget speech of my right hon. and learned Friend the Chancellor of the Exchequer was its realism. I am sure that there is no sense of euphoria in the Government and I am concerned that on one side of the equation are fairly firm commitments by the Government radically to reduce taxation, while on the other side I am sceptical and worried, as, no doubt, are Ministers, about various aspects of public spending, particularly local authority spending, which are, to some extent, outside the Government's control.

    I am therefore uneasy about some of the premises behind the Budget and some of the tax recommendations in the Bill. Above all, I am concerned that we shall live on the hope, which could be justified if the Government wished, of using revenues from North Sea oil to bridge the gap. The price of oil is likely to continue to rise as the world economy picks up, barring major accidents in the Middle East, though such accidents tend to have a perverse effect on the price of oil, and our revenue will be substantial.

    However, it would not be in the long-term interest of this country and everything that the Government are trying so wisely to do in fundamentally altering the structure of this country and the trend that it has been following if we relied in the short term on using North Sea oil revenues to plug the gap.

    Of course, I support the Government's strategy. The measures in the Bill on the regulator and taxes are right, but hidden beneath the tip of the iceberg are many unanswered questions and many commitments by the Conservative Party, particularly in relation to the reduction of taxation, which mean that the hard men in the Treasury and the Cabinet must be supported and must stick to their guns.

    The worst thing to do at this stage would be to fail to recognise that the Government are embarked on a hard, long-term strategy which is fraught with many more difficulties than is generally recognised. It would be wrong for us to be deflected from our present course or for us to raise too many expectations that the results can be swift. It is absolutely essential that we get across to the country what a difficult course we have set ourselves but how worth while will be the rewards if we keep to it.

    8.36 pm

    Thank you for calling me, Mr. Deputy Speaker, in this important debate. Perhaps it is sad that this evening there are not great armies of people in the House, but the country outside should recognise that many hon. Members made their statements either last night or luring the Budget debate. Not wishing to be repetitive, hon. Members would not wish to return to make similar state-menis.

    Behind any Finance Bill there must be clear objectives. I regard this Finance Bill and the Budget Statement that preceded it from a constituency point of view. My constituents, as well as the local authority staff who serve my area, the trade unions and local industry in West Cumbria, will all have looked at the Budget and will be examining the Finance Bill to see to what extent it may affect them. My constituency is in Cumbria, a region to which the provisions of the Finance Bill are of particular and great importance—especially those parts concerning unemployment, which is a major problem for us. At the moment we have record levels of unemployment. Indeed, in one town in my constituency the unemployment rate has increased by 50 per cent. since the general election of last year. The great majority of people place the blame firmly and squarely on the Government.

    When the Government's expenditure plans for 1980–84 were published I made a point of taking the document to my constituency and consulting local industry, trade unions, and indeed members and officers of the local authority on the implications of that document to find out what their response was. That publication reveals that it is the intention of the Government to reduce expenditure on industry, which means industrial support, from £2·969 billion to £1·760 billion over the next four years. An equivalent reduction is to take place in housing support from £5·2 billion to £2·7 billion. Of course, there will be a smaller but significant reduction in expenditure on roads and transport from £2·975 billion to £2·7 billion. All those reductions have an effect on the construction programme and on the level of industrial support in those constituencies in the regions which have special problems of unemployment.

    In addition to the problems that stem from those reductions in public expenditure, we have the statement of the Chief Secretary that it is his intention to reduce the level of output in the economy over the next four years by 6 per cent. All that is a recipe for increasing unemployment. That is the background against which my constituents are looking at this Finance Bill.

    We felt that the Budget, and the Finance Bill following it, would provide some substitute measures to take care of the problems resulting from this strange industrial stratagem being pursued by the Government. We find that, despite the high levels of interest rates in the economy, there is no relief against those high interest rates, no loan guarantee systems to help the small business sector, and no support for the principle—which I have advocated here on a number of occasions—of a regional development bank to lend to industry in the regions against a ceiling, on a basis of discounted interest rates dependent on the levels of unemployment. What we saw were measures which, in my view, have had absolutely no effect on small business and its development. I simply do not accept that we can solve problems by juggling round with capital transfer tax thresholds from £25,000 to £50,000, or lifetime and death transfers.

    Inheritance is a positive impediment to the whole principle of initiative. I have always believed that inheritance impeded enterprise, the will of the people to get up and go, and make an effort and build. Perhaps this is strange from the mouth of a Socialist, but that is important if we treat the point of inheritance as a cut-off point in our philosophy.

    I cannot see any benefit to be gained from increasing the £3,000 threshold for capital gains tax. What does that do for small businesses? How does that affect the production of goods, the resolve to go out and sell and market, the resolve to pursue good industrial relations to reduce industrial action, the resolve to go out and find export markets for our products? Silly things like these minimal and innocuous measures in the area of taxation have absolutely no effect at all.

    There was one interesting item in the Budget, and that was the principle of enterprise zones. I can say—and I think it is well known in the country, as it is in the trade union movement and in our party—that there is some division on the Labour Benches and in the Labour Party in the country as to what our response should be to the whole question of these enterprise zones. I think that these reservations stem from the way that these zones were pressed upon the country in the form of the Budget Statement, because if we look at the small wording in the background notes and documents provided following the Budget Statement we find that the enterprise zones may well have the effect of attracting commercial as against—and I draw a very clear distinction here—manufacturing industrial enterprise.

    From conversations I have had with a number of hon. Members, I think that the reservations on our Benches stem from the belief that these enterprise zones may well be turned into hives of speculative property activity. If we look at certain of these enterprise zones and where they are placed in the United Kingdom we see that there is a distinct possibility that they may in themselves and in their construction draw from other areas in the locality the kind of commercial activity which would inevitably take place within given urban communities, cities, or whatever it may be.

    What I am saying is that the enterprise zones should have dealt exclusively with the promotion of manufacturing industry. If they had done that, I would have been willing to support measures, perhaps even of a taxation nature, to help those enterprise zones develop in the areas of crucial unemployment. I say that as an hon. Member of this House who comes from a regionally-based constituency with problems of heavy unemployment. If I am to see the problems in my constituency resolved, I must look without fear, favour or prejudice at any new idea that may come before this House which might have the effect of providing employment of a manufacturing industrial nature in my constituency.

    So I think there is a positive argument for the enterprise zones, but it is a question of what they are by nature. I would have supported the principle of their being exclusively industrial and manufacturing. If they had been, I think the Government would have found it far easier to negotiate with local authorities on their placing; I think we would have found a far more mature debate developing in the country with trade unions as to their placing and what special incentives should be given in those particular areas.

    I think also that those enterprise zones could have enjoyed other forms of aid from the State and the local authorities in addition to the taxation measures, which I would have been willing to support in the event that the zones had been of an exclusively manufacturing industrial nature. Other forms of support could have been included—for instance, support for trade exhibitions. The National Exhibition Centre in Birmingham could include units to promote industrial activities in certain enterprise zones. Support for that sort of trade exhibition could come by way of Exchequer grant.

    I would also be willing to support other forms of subsidy, particularly in energy pricing. The services of the nationalised industries could be subsidised to a greater extent in the regions, or in areas where we are trying to promote employment. Gas, telephone, and electricity charges could be subsidised by way of grants from the State to attract people to areas where work is to be found.

    I look at the Finance Bill and the Budget Statement against that background. People in my constituency will not see anything for them in the Finance Bill and the Budget Statement, apart from a marginal reduction in income tax, in which the average family in my constituency will not be interested because all around them charges are rising and there is zooming inflation.

    The next time the Chancellor comes to the House with a Budget Statement followed by a Finance Bill he will do well to look back at what I have said about enterprise zones and our problems in the regions. I hope that he will then make a special effort to include in his Finance Bill real, not artificial, measures that will create work. I spend most of my time in Westminster pursuing that simple objective.

    8.48 pm

    The Government's financial strategy is both realistic and bold. It is realistic, first, because it accepts rather than shields us from the awful world economic situation that all the industrialised nations now experience and have to survive in. Secondly, it accepts the chronically bad health of our British economy and industry. It accepts that there must be huge and dynamic changes in attitudes and habits if we are to achieve success. It accepts the pain and dislocation that those changes will cause.

    The strategy accepts the need for a medium-term plan. For the first time in decades business men and entrepreneurs have been able to see a map, albeit a rough, unfilled map. The right hon. Member for Leeds, East (Mr. Healey) said that the map had a lot of holes in it. I agree. But it is better to have a relatively accurate map with holes rather than one filled with inaccuracies and false predictions. British business men will welcome this financial and economic map of the medium-term plan.

    The strategy is bold because it tries to make us face reality and the necessity to increase our self-reliance, not only as a nation but as individuals or companies. The strategy also accepts the pain of allowing us to wake up from the economic dream of past Governments, both Socialist and Conservative. The dream is of high living standards financed by Government subsidies. It is a dream about a lack of competitiveness in which we have relied upon a falling pound to insulate us from the facts.

    Of course, there are exceptions, but industry generally has failed to design products that meet market needs. Industry has designed the products that it wishes to produce, not those for which the market is looking. We have failed to remain a country of high-quality production. We have failed to keep to delivery dates. We have been unimaginative in offering after-sales service to customers throughout the world. Instead, we have relied on lower and lower prices by means of a falling pound. Governments enabled that to happen because they have aided the falling pound. In short, the dream of low productivity and lack of competitiveness has been financed by inflation.

    The Government's aim is economic recovery, net of North Sea oil. Their aim is to establish a manufacturing and technological recovery and to use North Sea oil as a valuable, god-sent, blood transfusion. The only way to achieve this recovery is for the Government to encourage a technological revolution. They must encourage a move away from old and dying industries and towards new industries—the high value added, technological industries. Today, Britain risks becoming an underdeveloped, industrial nation. But by experiencing a technological revolution it could become a developed, technological nation and thereby have a justified claim to a high standard of living.

    We must make a huge psychological change away from old concepts, attitudes and habits. We must stop thinking merely about jobs and think about profitable jobs. We must move away from thinking about production to thinking about selling. A satisfied production manager does not keep the country going, but satisfied customers do. We must move away from the concept of wages towards the concept of earnings.

    The right hon. Member for Leeds, East made much play in his two speeches, today and yesterday, of the extent of Government cuts in relation to other Western nations. I do not dispute his figures. However, I must ask the rhetorical question: why does he find it necessary, when all Western nations are suffering the same basic problem of stagflation, to compare us with the rest? If we are to take a lead, we can make few comparisons because Britain will be one of the first countries to turn around, to enter new ground. The whole industrialised world faces stagflation. Nobody knows the answers. The Government are making a courageous and correct stand to beat it.

    Opposition Members often portray the Government's economic policies as if they deliberately create, for their own sakes, rising costs of living, reduced services and increased unemployment. This is not true. No Government in their senses would adopt a policy that deliberately set out to create these things.

    Right hon. and hon. Members must accept that the Government do not face a problem of either inflation or recession alone. The truth is that we face them both together—as I have said, stagflation. Unlike many of our competitors, we face these problems with an economy that in many key areas is both outdated and oversubsidised.

    Inflation and recession are both great evils, pulling in opposite directions. They cannot possibly be hit together. A decision had to be made by the Government as to which of those two great evils was the worst. I believe they were correct in saying that, in a modern developed country which still enjoys not the best but a relatively good standard of social services, inflation was a greater evil than recession.

    The Government set out, first, to control and, secondly, to beat inflation, which was very painful, especially in a world climate of recession. Many past Governments, both Socialist and Conservative, have tried to beat inflation but with no real, lasting success. Some Governments flirted with monetarism, but none have had the courage to see it through. The Government have adopted a policy of monetarism, and I think that they can, and will, carry it through.

    The key policy of this form of monetarism is to cut Government spending. I believe that that is correct in the present circumstances but, as I said, very painful. Cutting Government spending means reducing Government subsidies and, therefore, the apparent cost of living will obviously rise. We must accept that, for the past two decades, we have been living well beyond our means. A cut in Government spending also means a cut in services, especially if Government and administrative bureaucracy is not cut in the early stages, which regrettably is still the case.

    Of course, such cuts in Government spending result in increased unemployment. Here we should face an important semantic question. People say that monetarism creates unemployment. I believe that that is a wrong use of the word " creates". In truth monetarism " exposes " latent unemployment. It does not set out to create unemployment. Its effects show where unprofitable employment exists, and thereby exposes latent unemployment.

    Now I wish to say a brief word about local government financing. I believe it is wrong for the Government to concentrate merely on local government spending. We should concentrate very much more on local government borrowing.

    Now may I refer to a remark made by my hon. Friend the Member for St. Marylebone (Mr. Baker)? He referred to the undesirability of high interest rates. I agree that high interest rates are dreadful. They are a penalty, unfortunately, and the sooner we reduce them the better. The Government do not allow high interest rates because they want them, but because they are a realistic market factor. I wish to reassure my hon. Friend that high interest rates are not all bad. They help to create a strong pound. A strong pound is important because it forces business men to concentrate on the product mix—designing the correct products, delivering them on time, building them to the required quality, and giving after sales service. We get away from the dreamland of a falling pound.

    Furthermore, high interest rates that are higher than the rate of inflation—which may soon happen—create a negative carry between the cost of money and the increase in the price of goods, and are anti-inflationary in that respect.

    In summary, I believe that the Government's financial policy is very tough and that it will remain so for quite some time, perhaps two years. However, I believe that it is necessary and long overdue. It is realistic and bold. However, many of my hon. Friends may disagree, even some of my right hon. Friends such as my right hon. Friend the Member for Taunton (Mr. du Cann). I agree with him that the Government's predictions with regard to unemployment may be too low. I think that it will be higher. I also agree that the Government's predictions with regard to manufacturing production are too low. But in order to restore economic sanity we must operate. Many people in the country may say that such an operation is too severe and that we risk killing the patient. But they must accept that the British patient is already dying economically.

    I am sorry, but I cannot give way, because I am already running over time. I believe that economically the British patient is already dying. It is, therefore, vital that the Government operate, and do so now with conviction, using North Sea oil as a God-sent blood transfusion.

    May I advise my right hon. and hon. Friends " For God's sake hold on ". Above all, please do not allow us, the British patient, to wake up in postoperative agony and pain to find that our Ministers opened us up, got so scared by what they saw that they just sewed us up again and left us with all our old ills. Please, please hold on.

    9.2 pm

    I shall only say a few words, because time is running out. I should like to refer to what the hon. Member for Winchester (Mr. Browne) said about the British patient dying economically. He is right, and the Government will be culpable of murder when he dies.

    The aim of the Bill underlines the Government's intention to endeavour to manage the economy by what they call monetary policy. I have had occasion to look at the remarks of someone who is certainly not a member of the Labour Party. I am referring to Ronald Butt, the political editor of the Financial Times, who says some interesting things about the Government's so-called monetary policy. He makes it clear that
    " means have not yet been found of measuring either the supply of money and credit or its velocity of circulation as effectively as they would like."
    Mr. Butt also shows that the very policies which the Government are adopting are self-defeating. He states:
    " What is more, the 17 per cent. MLR is in one sense self-defeating, since it actually increases public spending on servicing the national debt,"—
    and everyone knows how high that is and what a tremendous burden it is upon our economy—
    " as well as inhibiting industrial investment, reducing employment, causing business bankruptcies and hitting individuals with mortgages."
    That is what that economist has to say about the Government's so-called monetarist policy.

    As we know, the Government are raising about £73,000 million from the people. The majority of that burden is being put on the backs of the ordinary people. In fact, about £60,000 million is being extracted by the Government from the majority of the working people, through PAYE, indirect taxation, such as VAT, smoking taxation, drink taxation and taxes upon other goods and services which ordinary people require in order to live.

    I repeat that this taxation is being paid for mainly by the ordinary people of this country. It is not the taxation of the poor rich, but the taxation of the poor poor of this country. They are the ones who bear the burden of taxation. The more that that is said, the better it should be understood. They are faced with a massive burden of interest payments. About £10,200 million in interest payments has to be found by the people of this country. That is the result of the monetarist policies being pursued by the Government.

    The burden of taxation upon the rich has been reduced by the Government in the last Budget, and so the burden of the country's needs obviously has to fall somewhere. If the rich do not pay, the ordinary people must pay, and they are the people who are paying the costs of running this country and of meeting the nation's expenses.

    There is a need to thrust the burden on to the backs of those who are best able to pay, and those who are best able to pay are those who are taking the wealth out of this nation. They are the people upon whom a just tax known as a wealth tax should be placed. It should be based on the criterion of their ability to pay—and to pay their share. That is what the Government are not doing.

    I should like to end today, as I did on Friday, with a quotation from a well-known Tory—Churchill. He said
    " We know what to expect when the Tories return to power—a Party of great vested interests banded together in a formidable confederation; corruption at home, aggression to cover it abroad, the trickery of tariff jiggles, the tyranny of a well-fed Party machine; sentiment by the bucketful, patriotism and imperialism by the imperial pint; an open hand at the public exchequer, an open door at the public house; dear food for the million, cheap labour for the millionaire That is the policy which the Tory Party offer you."

    9.7 pm

    This is the second Finance Bill that the Government have introduced in this Session since taking office. A few days ago Ministers were celebrating what they like to call the anniversary of the Government's election. I should have thought that for most people in the country a wake would have been more appropriate. The Prime Minister is supposed to have said that she was proud of her Government's record. I suppose she would say that, but we would like to know what the Government have to be proud of in terms of their economic record.

    Between the time of the first Budget and this second Finance Bill, the Prime Minister and her Chancellor of the Exchequer and Treasury Ministers have presided over an alarming and rapid decline in the economic fortunes of this country. As we have heard in the debate, inflation, which was running at about 10 per cent. in the 12 months prior to the Government taking over, has doubled, and when the latest RPI figures are announced it is likely to be running at over 20 per cent.

    These are the Ministers who, in the past, have had the effrontery to make speeches on the need to restore sound money to the economy. Unemployment, which was falling at the time of the General Election has gone on an alarming upward trend. Even the Government, in the Red Book, based their calculations on an unemployment level of 1·8 million. Some forecasters say that it will go as high as 2½ million. I do not think that even the Chancellor or Treasury Ministers would deny that it is likely to reach 2 million before long.

    Economic growth has come to a shuddering stop, and the fall in output, especially in manufacturing industry, is likely to be the greatest fall since before the last war. Manufacturing output in 1983 is likely to be lower than it was last year. Interest rates are at a record level and business confidence is at a record low. Perhaps, against that background, the Minister of State will tell us what on earth the Government have to be proud of in relation to their economic policies.

    It was all going to be so different. The tax cuts announced in the last Finance Bill were supposed to rejuvenate the British economy and galvanise the mythical entrepreneurs of Tory folklore. Apparently the measures were to no avail, because the economy in 1983 will be in an even worse state than it is now.

    Perhaps the Treasury should set up one of those independent committees with two Treasury civil servants and, perhaps, two people from Lazards bank in New York to monitor the performance of these entrepreneurs and if performance did not match up to financial benefits perhaps the tax could be taken back from the entrepreneurs.

    Many of the provisions in the Bill reflect the deteriorating course of the economy during the Government's year in office. One could say that parts of the Bill could be described as an exercise in damage limitation. Unfortunately the damage has been so great and the limitation has been so little and so late.

    Clause 21 deals with tax allowances and fully indexes personal allowances to the rate of inflation. But, as the Chancellor said in his Budget speech, because the reduced rate band has been abolished, the actual increase in allowances is 11 per cent. and not the full rate of inflation. All kinds of justifications have been advanced for abolishing the reduced rate band. We are told that it helped young people and women in part-time employment only. They, it seems, do not merit any special help from the Government.

    We have been told that, by abolishing the reduced rate band, we can reduce the number of civil servants. Yet this Government are prepared to take on thousands of extra civil servants in order to hound those unfortunate people who live on social security benefits. The real reason why the Government have abolished the reduced rate band is that they could not afford to index tax allowances fully because of the higher rate of inflation. It would have been embarrassing for Treasury Ministers, having supported, condoned and connived at the Rooker-Wise amendment, to come to this House with the necessary order to break the link between prices and tax allowances.

    Therefore, thousands of taxpayers will now be paying tax at a higher marginal rate because of the cowardice of Treasury Ministers and the need for them not to lose face by having to come to the Dispatch Box and break that link.

    Had the Government, since coming into office, made the fight against inflation their main priority instead of constantly putting up prices, the inflation rate need not now be running at more than about 12 per cent. The Government could then have indexed the personal allowances fully to the retail price index and they could also have retained the reduced rate band.

    The Chief Secretary referred to those clauses which are meant to help small firms. We welcome any help for small firms and small industries, but we shall look at the details of the clauses and especially at the possibility that some of them might be used for tax avoidance. But in general we welcome the help the Government propose to give. However, one must say that these clauses will be wholly ineffective compared with the enormous damage which this Government have already done to small businesses. More and more small firms are being crippled by the Government's fiscal and economic policy and not only by high interest rates and high inflation.

    Cuts in public expenditure will bankrupt many small businesses. If we are to believe the public expenditure White Paper there are likely to be very few, if any, council houses built in Britain over the next three years. If that is the case how many small builders will be put out of work?

    The Chief Secretary to the Treasury waxed lyrical about the measures in the Bill but as a result of them many small firms will be bankrupt before those measures become law in August. Quite a few other small firms will never make the profits to enable them to take advantage of the benefits provided by the Bill.

    We shall wish to debate the provisions creating the enterprise zones in detail in Committee. Clause 68 and the Government's proposals for enterprise zones reflect their extraordinarily muddled thinking about the economy. The Government create a slump by cutting public expenditure by their excessive, over-tight monetary policies. They damage the prospects for investment by high interest rates, and then they set aside a few miserable acres—many of them derelict acres and many in areas which have been made derelict partly by the Government's own economic policies. Then they hope and believe that somehow jobs can be created in those areas, that factories can be built and that investment will take place, against a background of slump and depression. That shows how extraordinarily simple-minded the Government are in their economic policies.

    Ironically, the only section of the British economy which is benefiting directly from Government action is not covered at all in the Bill—not covered specifically, anyway. That is the banking section. The banks are just about the only sector that is actually making large profits—and this directly as a result of the Government's monetary policies.

    The Government could easily have included in the Bill a clause to impose an excess profits tax on the banks. If five Treasury Ministers—one of them sitting Buddha-like in the House of Lords thinking great thoughts—with the whole power of the Inland Revenue behind them, cannot think of a way of taxing the excess profits of the banks, Opposition Members must conclude that the real reason is not the complexity of doing that but the fear of offending the Governor of the Bank of England and the City of London. I for one do not believe that we shall ever see a clause in this Finance Bill, or in any Finance Bill from a Tory Government, imposing additional taxes on the banks, because in my experience Tory Governments do not put extra taxes on the profits of their friends and supporters.

    By not additionally taxing the banks the Government are going against their own monetary policies, because, having provided the banks with the extra profits, they are increasing the lending base of the banks, and the banks are able to lend more money. Therefore, if the Government want to reduce bank lending if this affects inflation, one way of doing it is by additionally taxing the banks.

    This Bill cannot be looked at in isolation from the Government's other policies, as I think the Chief Secretary said, because decisions about taxation in the Bill are governed by public spending and by the level of the PSBR. Therefore, decisions about those factors also affect the taxation provisions of the Bill. The Opposition say that this Bill and the other measures which go with it will not do anything to solve the three problems of the British economy. The three problems are a high level of inflation, high and increasing unemployment, and the growing and rapid disintegration which is taking place in our manufacturing industry and our manufacturing base.

    We are constantly told by Ministers that the defeat of inflation is the Government's main priority. If that is so, the Government have failed lamentably over their first year in office, because in that year inflation has doubled. But the truth is that over their first year in office, whenever the need to keep down prices has come into conflict with the prejudices, the dogmas and the ill-thought-out theories of the Conservative Party, the need to keep down prices has had to take second place. The Government came into power with a naive belief that our economic problems could be solved somehow by cutting income tax, but when it was shown that that was very difficult to do without raising indirect taxes, they put up prices. The RPI was put up by 4 per cent. in order to cut income tax. Therefore, the need to keep down prices was made one of secondary importance to the Government's wrong belief that somehow cutting taxes for the rich would solve the problems of the British economy.

    The same goes for public expenditure. The extraordinary White Paper which the Government produced last November said that public expenditure was at the heart of the problems of the British economy. That was a completely bald, unsubstantiated statement. No evidence was produced to support it. Treasury Ministers have tried to suggest that, somehow, high levels of public expenditure cause inflation. They have never proved that or produced any evidence for it. But the monetarists' view of a connection between public expenditure and inflation somehow fits in quite nicely with dogmas and prejudices of the Tory party regarding public expenditure.

    Friedmanite theories and Tory prejudice provided an excellent opportunity to try to cut public spending. However, when the Government came to try to do so, they found that it was not very easy. They took the easy way out. They increased prices. Likewise, they increased charges. We saw increases in school meal charges, prescription charges, council house rates and electricity and gas prices. All these charges were deliberately increased to reduce the level of public expenditure. The public expenditure plans for the next three years are even more dependent on increasing charges and prices, especially nationalised industry charges and local authority rates.

    If high levels of public expenditure cause inflation, how can inflation be reduced by cutting public expenditure and increasing prices? That is what the Government are trying to do. If the proposed increases are reflected, as they will be, in wage settlements, the outcome will be doubly worse. If, some time next winter, during the next wage round, the Government have to introduce a wage freeze, I hope that they will not try to make the trade union movement the scapegoat of that policy. The real reason for the introduction of a wage freeze will be the failure of the Government in their first year of office to use all the weapons at their disposal to keep down the rate of inflation.

    Clause 23 deals with indexation. First, it tidies the drafting of the Rooker-Wise amendment We do not object to that. Secondly, it seeks to extend the Rooker-Wise amendment to give the benefit of automatic indexation to the higer rate bands and investment income. We shall oppose that in Committee. As the clause deals with the retail price index and links allowances to the index, I hope that the Minister of State will give us some idea of what the Government think about the level of the retail price index towards the end of this year and next year.

    In the Red Book we have the forecast, or assumption—one has to be so careful these days about the words that one uses—of 16½ per cent. No one believes that any more. No one believes that at the end of the year inflation will be running at 16| per cent. It will almost certainly be slightly below 20 per cent. It was reported recently at the London Business School that there will be an inflation rate of 16½ per cent. at the end of 1981. If that is so after all the misery caused by the Government's policies, and if all that they can achieve by 1981 is a 16½ per cent. rate of inflation, the sooner they change their policies or get out of Government the better.

    I am sure that the Chief Secretary, being the honest Shropshire lad that he is, will say that he does not know what the rate of inflation will be in a year's time. He may say that he does not know whether the Government's policies will work, but he will not say that in those terms. He will use language that is not typical of him. He will say, for example, that there is no mechanistic link. He normally does not use that bureaucratic jargon. I do not blame him for saying that he does not know, because I do not know what the rate of inflation will be in a year's time either. It is possible to forecast for three months or for six months, but not any further. The Financial Secretary and the Chancellor, or the Government as a whole, have no idea what the rate of inflation will be in a year's time. What is more, they have no idea whether the Government's policies will reduce inflation.

    As I have said, I do not mind the Chief Secretary saying that he does not know, but it is not right for the Govern-to base their policies on closing factories and putting people out of work when there is no evidence and no knowledge of what will happen in a year's time. The Government have no idea of the consequences of the policy that they are pursuing.

    Speeches have been made about the benefits to small businesses of the provisions in the Bill. However, the avalanche of unemployment which the Government's policies have created will not be mitigated by the Bill. Indeed, as I said, the Government's assumption is that there will be 1·8 million unemployed before long. According to the Financial Secretary, if unemployment increases beyond 1·8 million—and I believe that the Treasury Select Committee feels that it might be 2 million or more—public expenditure may have to be cut further to pay for the extra social security benefits. The Treasury witness before that Select Committee said that national insurance payments would have to be increased to pay for those extra benefits. Whether public expenditure is cut further or national insurance payments are increased, there will be further deflation of the economy. We shall have unemployment and more deflation, followed by more unemployment and yet more deflation. Large sectors of industry will disappear as a result.

    It has become increasingly obvious, on a careful reading of Ministers' speeches, that the Government's main weapon against inflation is unemployment. They hope that fear of unemployment will force people to accept wage increases lower than the rate of inflation. The Chief Secretary said as much when he talked of three years of unparalled austerity. If the Government's policies are to work, we shall have three years of unparalleled austerity and unmitigated disaster.

    The Government like to portray themselves as not interfering with the free play of the market forces. Not for them the old-fashioned policy of demand management—of manipulating demand in the economy. Stripped of their spurious Friedmanite jargon and monetarist theories the Government are interfering in the economy by trying to reduce demand through unemployment, cutting unemployment benefits and, they hope, reducing wage increases and cutting public expenditure. That is no different from the old-fashioned policy of deflation and reducing demand in the economy. The Government believe that inflation is caused entirely by demand. That is where the problem begins.

    It is doubtful whether the Government's policies will work. I do not believe that they will substantially reduce inflation, and the Chief Secretary does not know. Even if the rate of inflation were substantially reduced, the price would be too great—the destruction of large sections of British industry and unemployment for too many people. Inflation and unemployment are twin evils. The Government should not use unemployment to try to defeat inflation.

    In Government we were lectured by. Opposition spokesmen about the need to improve the supply side of industry. We were told that incentives should be given to the skilled worker and middle manager. I accept that premise, but the reality of this Government's policies are different. Neither the skilled worker nor middle manager has benefited from their two Finance Bills and Budgets.

    A person earning £5,000 a year—and I assume that a skilled worker will earn about that—[HON. MEMBERS: " More."]—Perhaps, but that does not make a difference to the figures. As a result of the Government's policies, a person earning £5,000 a year will benefit by about 50p a week. A person earning £10,000 a year—a middle manager in an engineering firm—will benefit by only £1 a week, and that is before taking into account increases in mortgage interest rates, local rates and so on. The only people to benefit from the two Finance Bills are those earning in excess of £15,000 a year, and those who have benefited most earn in excess of £25,000. The incentives have not gone to manufacturing industry. Because of our salary structures, in the main those who have benefited are in the banking sector, the professions and the higher echelons of the Civil Service. Manufacturing industry has not benefited. The position is made worse by the present wage round. The highest earnings will have been earned by those not in the manufacturing sector. They are doubly penalised. They get fewer benefits from tax relief and fewer incentives in terms of higher wage increases.

    In one of his many speeches to women's institutes and chambers of commerce recently, the Chancellor was reported to have mentioned the battle of the Somme. I am sorry that the Chancellor is not here, but he will no doubt read my remarks in Hansard tomorrow. I can only say that this Government and Ministers should avoid using First World War analogies. If the Government continue with their economic policies, the Chancellor and this Government will soon do to the British economy what Field Marshall Haig did to the British Army. If they commit increasing sectors of British industry to the quagmire of antiquated economic policy, it will take a generation at least for the country and the economy to recover. Because of the economic carnage and the social consequences and the social deprivation that will follow, we shall be voting in the Lobby against the Bill tonight.

    On a point of order Mr. Speaker. I apologise to my hon. and learned Friend the Minister of State. I did not want to interrupt the right hon. Member for Llanelli (Mr. Davies). I felt, however, that I should raise with you as soon as you resumed the Chair a matter that I consider of some significance to the House as a whole.

    The House in its wisdom or, as I believe, in its folly, decided to initiate a rule of 10-minute speeches and gave you discretion to decide when the rule should apply. You announced at the beginning of this afternoon's discussions that you might be minded to invoke this rule at 7 pm. After you had left the Chair, at 6.50 pm, Mr. Deputy Speaker, on your instructions, informed the House that the 10-minute rule would apply. Subsequently, I understand, the 10-minute rule was revoked.

    I venture to suggest that if the 10-minute rule had been applied throughout, the summing up speeches would have begun at 8 pm, the vote would have been taken at 9 pm, and the usual channels might have been somewhat inconvenienced. Furthermore, the point that seems to me of greatest concern—

    Order. Perhaps the hon. Gentleman will give me a point of order on which to rule. He has not done so yet.

    I am sorry, Mr. Speaker, but if this is not a point of order, I do not know what is.[HON. MEMBERS: " Oh ".]

    Order. The hon. Gentleman is making that clear. He must give me a point of order relating to our Standing Orders on which to rule.

    I will, indeed, Mr. Speaker. The point of order that I wish to put to you is this: I understand that, under our Standing Orders, this evening's debate is open-ended; that the rule is automatically suspended. The point of order that I wish to put to you is that if the 10-minute rule—I accept entirely that the House in its wisdom gave you total discretion—is to apply when the rule on sittings is suspended, how many hon. Members are to be called to complete the debate? We can go on—

    Order. The hon. Gentleman has made his point quite clear. Those hon. Members who were in the House this afternoon heard me say that I proposed to exercise the 10-minute rule at 7 pm. I also said that, if necessary, we could cease to operate it. The message that came to me was that it was not necessary. I sent a message to the Deputy Speaker asking him to relax the rule. I can see no reason for the hon. Gentleman to feel indignant. It was in the interests of fairness and with no desire to hurt any hon. Member. I had no wish to hurt the hon. Gentleman in the application of the rule.

    Order. If the hon. Gentleman wishes to pursue that matter, perhaps he will do so tomorrow morning when I take points of order. I believe that the Minister should now be allowed to speak.

    9.35 pm

    When Labour Members were in government, the Second Reading debate on the Finance Bill tended to be treated by them as an occasion for a rather dry exposition of the provisions of the Bill. It was usually the melancholy task of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) to give a lucid, but rather sad, analysis of the fiscal provisions that he had to introduce.

    Sometimes we were lucky to have the charm and sparkling wit of the right hon. Member for Heywood and Royton (Mr. Barnett), but I rarely recall the right hon. Member for Leeds, East (Mr. Healey) making a personal intervention. Tonight we have had, for the second day running, a contribution by the right hon. Gentleman, though he was not in what Lord Lever used to describe as his normal ebullient form. In fact, his contribution was a rather funereal dirge, a sort of economic " Abide with me ". It cast a slight pall over the subsequent debate.

    I contrast the right hon. Gentleman's speech with the livelier, more sympathetic, wittier and more perceptive contribution of my right hon. Friend the Chief Secretary. It is not for me to speculate on why the right hon. Member for Leeds, East should have made two speeches in two days or on the impact that may have been made on the tiny Chinese minds of his hon. Friends below the Gangway who are so noticeably absent. That is a matter for him and them to discuss. Perhaps the right hon. Gentleman felt that he did not do full justice to his case in his 50-minute speech yesterday and that he needed another 40 minutes today—a sort of " Apologia Pro Vita Sua".

    As my hon. Friend the Member for St. Marylebone (Mr. Baker) pointed out in his perceptive speech, we were left singularly uninformed about what the policies of the Labour Party are or would be, if, against hope and expectation, it were returned to power. Although the contribution of the right hon. Member for Llanelli (Mr. Davies) was more graceful because it was more Celtic, even he left us in singular doubt. Neither right hon. Gentleman was in his most ebullient form as they contemplated the ruin of their past policies. Obviously they cannot come to grips with the problems with which they have left us.

    Perhaps the most significant questions put to me by the right hon. Member for Leeds, East concerned the forecasts about oil revenues. Of course, that must be a matter of considerable doubt. The right hon. Gentleman will appreciate that it is virtually impossible to forecast what the world price for oil is likely to be over the next three or four years. He will know the difficulties of forecasting the exchange rate and he may be aware of the difficult physical factors.

    The House will know that there has been a record of slippage in this area which would make it extremely rash for any Government, even one presided over by the right hon. Member for Leeds, East, with his robust optimism and cavalier disregard for the facts, to make forecasts. We have approached this problem with a little more humility and circumspection.—[Interruption.] I am indeed glad to have encouragement from the hon. Member for Gateshead, West (Mr. Horam). No doubt he will appreciate, when we are pressed in Committee, the difficulties experienced by the Government in this area.

    I am surprised at what the hon. and learned Gentleman said. The fact is that he made a forecast. I was not asking for another forecast from the Government. I asked what were the assumptions which led to the forecast on the exchange rate, the depletion rate and the increase in the real value of oil, if any. The Government made a forecast which was much lower than those made by most other people. All we want to know is on what assumption it was based.

    The right hon. Gentleman is factually wrong. We made no such forecast. We approached the problem, dare I say it, with circumspection and humility, obviously unlike himself.

    The right hon. Gentleman is cavalier with his facts. For instance, he came out with a startling proposition, which certainly is not borne out by the Red Book, that the increase in revenue this year would be £1,500 million. The increase in direct taxation will be of the order of £235 million, most of which is covered by the increase in petroleum revenue tax. Indeed, when I heard the right hon. Gentleman weep salt tears about the increase in direct taxation I thought for a moment that he had cast himself in a new role—that of the Howard Jarvis of High- gate.In fact, as we ploughed a little deeper into his speech we realised that he wished to be recorded, like Sir William Harcourt, for his addition to capital taxation. He might also reflect that Sir William Harcourt's estate was one of the first to be caught by estate duty after its introduction. I do not want to forecast a similar fate for the heirs of the right hon. Gentlemen.

    I turn with rather more pleasure to the more perceptive speech by my hon. Friend the Member for St. Marylebone. He, like my hon. Friend the Member for Croydon, South (Sir W. Clark), speculated whether the time had not come to phase out stock relief, reduce capital allowances and make way for a cut in corporation tax. My hon. Friends will know that stock relief is a very imperfect measure of relief in inflationary times. Indeed, we are addressing ourselves, with the help of the professional and accountancy bodies, to a possible reform of corporation tax, to take account of this, so that the reliefs will be more evenly and fairly spread.

    My hon. Friend the Member for Croydon, South also turned his attention to the question of small companies. He drew attention to the fact that too many assets and too much financial muscle are often locked up in small companies. He will be aware that we shall be producing, I hope, in Committee a range of provisions to deal with de-mergers. I do not pretend that it will necessarily be the last word in this delicate and complicated area. However I hope that it will go some distance. With his assistance over the life of this Parliament, I hope that we shall be able to produce something comprehensive, practical and constructive in this area.

    The hon. Member for Batley and Morley (Mr. Woolmer), who is a member of the Select Committee, again drew attention to what he regarded as the underestimate of the take of petroleum revenue tax. Dare I say to him and the other right hon. and hon. Gentlemen who grace that Committee that it seems we are assailed on two fronts. We are told that we have been a little over-optimistic on our growth rates but a little cautious on our petroleum revenue tax forecast. It may be, therefore, that the two cancel each other out. Perhaps we are aiming roughly at the right objectives.

    The hon. Member for Colne Valley (Mr. Wainwright) gave a pale imitation of the kind of speech that Mr. John Pardoe would have given on behalf of the Liberal Party. [HON. MEMBERS: " A re-tread."] It is not for me to describe the hon. Gentleman as a re-tread. All I am saying is that he is doing his best in rather difficult circumstances. We know that he has a rather curious raft of policies to put over. We know the addiction of the Liberal Party to a statutory prices and incomes policy. When all but he have fled from that burning ship, the hon. Gentleman will obviously go down at the salute. I do not think that he will be able to sell that proposition—I may be wrong, of course—to a future Lib-Lab pact, but we will await the formation of that delicate alliance in due course.

    The hon. Gentleman also touched on the lack of incentives, as he chose to describe it, in this Finance Bill, which leads me to suppose that he has not inherited John Pardoe's research assist-cuts either. If he cares to look through the Bill, he will see that there is a range of provisions dealing with share incentive schemes, of which I hope he will strongly approve. So I hope that he will give us his support during the Committee and Report stages.

    The hon. Gentleman launched out a little bit and invited us to consider the Loi Monory. I can tell him that we are indeed giving close consideration to that, but it is only one aspect of a much wider question as to how we can stimulate investment by ordinary people and involvement of our fellow countrymen on a much wider scale in the equity market. He will appreciate, as I am sure the whole House will, that this is only one small part of a much larger and very important question.

    Perhaps my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) will forgive me if, since he is not here, I do not deal at length with his contribution. Obviously he did not have time to develop his theme completely. I will, however, say to him and to the hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) that it would be attractive to put our excise duties on some ad valorem basis, perhaps to make them subject to VAT. But they will appreciate that there are considerable administrative difficulties. It would mean collecting tax at a whole range of retail points, which would make it infinitely more difficult to collect, and the transitional period would be painful indeed. However, we have noted the point and our minds are not entirely closed to that question, although it is certainly something that could not be approached in a hurry.

    I am deeply apologetic that I was not present to hear the contribution of the hon. Member for West Lothian (Mr. Dalyell), as I was not during the Budget debate. I can assure him, as I am sure he will accept, that there is no personal animus and that I have the highest regard for his contributions. I have, however, taken careful note of the two points he made, and he will recall that he raised them indirectly during the last Treasury Question Time.

    There is no objection to the hon. and learned Gentleman's avoiding me, but would he concentrate his mind on the question of tax avoidance and tell us whether he accepts the figures which I have now produced on two occasions?

    In fact, the figures were produced, I think, by the Inland Revenue Staff Federation, and they were based, I think, on the evidence given by the chairman of the Board of Inland Revenue to the Expenditure Committee two years ago. Perhaps the more up-to-date and realistic figure is that which has been produced by the Central Statistical Office, which has been published—about 3·5 per cent. of gross domestic product.

    As I said to the hon. Gentleman on a previous occasion, whether the figures be more or whether they be less, we are not complacent about this subject. But, to say crudely, as I think the Inland Revenue Staff Federation says, that another 1,000 or 2,000 officials added to the staff there would collect half a billion pounds in taxes grossly underestimates the problem. Indeed, I would remind the hon. Gentleman and the House that the Inland Revenue Department and the Customs and Excise numbered well over 100,000 people during the past Administration, and they were not noticeably more successful in collecting taxes.

    So far, the cuts that we have imposed have been not more than 7,000 and there have been no cuts in the specific Departments concerned with avoidance and evasion. The hon. Gentleman will appre- ciate that the problem is not at all comparable with that facing the Department of Health and Social Security, where until recently there had been a very small number of people specifically charged with avoidance. Practically every person in the two Revenue Departments is concerned with this matter, but it takes time; and of course we are always perfecting and sharpening techniques. In case Labour right hon. and hon. Gentlemen should think that we are lax in this respect, I can point to at least four provisions in this Finance Bill that are directed to the question of tax avoidance.

    The speech made by the right hon. Member for Llanelli was a muted hwyl, once again marred, like the speeches of his right hon. Friends, by being totally bereft of constructive thinking or any positive policies.

    I come to the more general questions that have been raised, particularly the question of the distributional effects. The whole fire of the Opposition was directed to the abolition of the lower rate band. I know that hon. and right hon. Gentlemen on the Opposition Benches have a deep emotional attachment to the lower rate band, although I recall that they were less dogmatic about its attractions in April 1978. The right hon. Member for Heywood and Royton said that it was a matter of fine balance whether on that occasion they should have gone for a lower rate band or for increasing the thresholds. We have thought it better on this occasion to raise the thresholds and to keep 1,300,000 people out of tax altogether rather than to perpetuate an expensive gimmick.

    The Government are abolishing the lower rate band. It is not a question of deciding whether the thresholds are increased or whether the bands are increased; it is a question of whether the lower rate band should be abolished.

    The right hon. Gentleman will appreciate that this gave us the additional room for manoeuvre which enabled us totally to revalorise the thresholds by 18 per cent. If the right hon. Gentleman and his hon. Friends feel that the lower rate band still has charms, let them disregard my views and those of my right hon. and hon. Friends and take account of the views given by Mr. John Kay to the Select Committee on the Treasury and Civil Service, as follows

    " We have found little substance in any of the arguments in favour of the reduced rate band. It does not help the low paid. It does not significantly increase incentives either for those in work or as between those in work and those out of work. Few of those who were in the reduced rate band were in the poverty trap and few of those who were in the poverty trap were in the reduced rate band."
    Against that compelling evidence we were bound to consider the abolition of the lower rate band. I hope that, on reflection, right hon. Gentlemen opposite, recognising that it was forced on them by a curious combination of the TUC and the Liberal Party, will feel able to jettison this commitment which they assumed rather improvidently in Government.

    I turn to the question of capital taxation which was raised by my hon. Friends the Members for Buckingham (Mr. Ben-yon), and Croydon, South. In all candour, I share their disappointment that it has not been possible for us to make greater progress in this area in this year. I remember vividly the debates we had on the introduction of capital transfer tax and the second Finance Bill of 1975. The right hon. Member for Heywood and Royton, too, will probably remember our keen encounters on that ill-thought-out fiscal measure, although it may be the tombstone of the right hon. Member for Leeds, East, if he wants to be commemorated for any particular contribution he made during his period at 11 Downing Street.

    I have no doubt of the damage which the capital tax structure which we inherited does to the economic structure of the country because of its weight and complexity, the number of taxes and the higgledy-piggledy way in which they interact. All these taxes are out of proportion to their yield.

    This year, with the containment of inflation as our primary objective, to have undertaken the far-reaching reforms which we have in mind and are necessary, would have unbalanced our fiscal measures.

    The right hon. Member for Llanelli has not applied himself to the Finance Bill. What we have done this year is not negligible, as some of my hon. Friends have reminded the House. We shall have time to explore our proposals in detail in Committee.

    There is a great deal to be done, particularly in considering the impact of capital transfer tax on agriculture, in the light of the conclusions of the Northfield committee. We are conscious of the decline in the acreage available for tenant farmers, which must be particularly discouraging to young men without capital who wish to take up farming. Much remains to be done, and much will be done over the lifetime of this Parliament. I am happy to give that assurance.

    I commend to the House the provisions designed to help charities and charitable giving. It is a little surprising that the Opposition, who seem to believe that they have a monopoly of compassion, made no mention of the provisions for charities. They are designed to make it easier for people to make donations to charity. They are designed to shorten the period that charitable covenants need to run. They were requested by the Council for Voluntary Services. They are designed to give full tax relief on payments under £3,000 made under deeds of covenant.

    The provisions reverse a measure introduced by Dr. Dalton, but that was an ill-conceived, mean measure introduced many years ago. We shall put it right. We believe that there will always be areas in our cultural and social life which cannot be covered by the State and which can be more effectively covered by charities and private generosity. I know that Opposition Members have an obsession about public schools, but if they benefit at all it will be only slightly.

    I turn to the question of enterprise zones, which was treated in a singularly sour and unsympathetic way by the right hon. Member for Llanelli. It was appraised more truly by my hon. Friend the Member for Oxford (Mr. Patten). Since the right hon. Gentleman seems to be so keen to discover what measures we propose to invigorate business and provide employment, I shall describe our intention. Our proposals are based on the radical proposition of less Government intervention, not more. That might be the way to stimulate development in economic blackspots.

    If the Opposition say that there is no demand for such measures, I have news for them. At least seven local authorities which are controlled by the Labour Party are showing an interest in them. They are Stoke-on-Trent, Islington, Hull, Don-caster, Corby, Hartlepool and Middlesbrough. If Opposition Members are lukewarm about the proposals, they should check in their constituencies to see whether they are speaking in the same tone as the people that they affect to represent.

    The hon. Member for Workington (Mr. Campbell-Savours) said that the measures might draw economic activity from the surrounding areas. That is an inevitable consequence of any regional policy. We believe that by concentrating help, by removing restrictions in narrow areas of urban dereliction, there is a possibility of a rebirth and revitalisation of industrial and commercial activity. We see no reason to distinguish between the two activities. The measures will provide the jobs that are needed so badly.

    Even after listening closely to their speeches, I cannot conceive why Opposition Members want to divide the House on the Bill. We had a debate last night on the public expenditure White Paper. I understand why they wanted to divide on that. I understand why they should want to stand out as representing the party which favours public expenditure and why they should want to put as much distance as possible between themselves and the public expenditure cuts which they were compelled by the IMF to introduce in 1976 and 1977. Why must they vote against the Bill? Is it purely because of the lower rate? We all know why that was introduced by the Labour Administration. Are they still deferring to the Liberal Party and the TUC on that?

    Surely one of the advantages of being in opposition is that the Opposition can shake free of ill-judged commitments. Are they voting against relief for charitable giving? Are they voting against relief for small businesses, against enterprise zones, the widows' bereavement allowance or against increased thresholds? Are they voting because they want to reverse the shift from direct to indirect taxation? Are they voting because they would like to see the basic rate of income tax increased?

    We have been left in doubt about the criticisms that the Opposition level against the Bill. We are left in doubt about then-alternatives. The Opposition have given us a muddle of prejudice to conceal their want of coherent, constructive policies.

    The House will have noticed tonight, and the world will notice tomorrow, that by any standards we can commend the Bill to the House as offering a blend of realism and imagination which is consistent with what we have done, and what

    Division No. 288]


    [10 pm

    Adley, RobertEden, Rt Hon Sir JohnLangford-Holt, Sir John
    Aitken, JonathanEdwards, Rt Hon N. (Pembroke)Latham, Michael
    Alexander, RichardEggar, TimothyLawrence, Ivan
    Alison, MichaelEmery, PeterLawson, Nigel
    Amery, Rt Hon JulianEyre, ReginaldLee, John
    Arnold, TomFaith, Mrs SheilaLennox-Boyd, Hon Mark
    Aspinwall. JackFarr, JohnLester, Jim (Beeston)
    Atkins, Rt Hon H. (Spelthorne)Fell, AnthonyLewis, Kenneth (Rutland)
    Atkins, Robert (Preston North)Fenner, Mrs PeggyLloyd, Ian (Havant & Waterloo)
    Atkinson, David (B'mouth, East)Finsberg, GeoffreyLloyd, Peter (Fareham)
    Baker, Kenneth (St. Marylebone)Fisher, Sir NigelLoveridge, John
    Baker, Nicholas (North Dorset)Fletcher, Alexander (Edinburgh N)Luce, Richard
    Banks, RobertFletcher-Cooke, CharlesLyell, Nicholas
    Beaumont-Dark, AnthonyFookes, Miss JanetMcCrindle, Robert
    Bell, Sir RonaldForman, NigelMacfarlane, Neil
    Bendall, VivianFowler, Rt Hon NormanMacGregor, John
    Benyon, Thomas (Abingdon)Fox, MarcusMacmillan, Rt Hon M. (Farnham)
    Benyon, W. (Buckingham)Fraser, Rt Hon H. (Stafford & St)McNair-Wilson, Michael (Newbury)
    Best, KeithGardiner, George (Reigate)McNair-Wilson, Patrick (New Forest)
    Bevan, David GilroyGardner, Edward (South Fylde)Madel, David
    Bitten, Rt Hon JohnGarel-Jones, TristanMajor, John
    Biggs-Davison, JohnGlyn, Dr AlanMarland, Paul
    Blackburn, JohnGoodhart, PhilipMarlow, Tony
    Body, RichardGoodhew, VictorMarshall, Michael (Arundel)
    Bonsor, Sir NicholasGoodlad, AlastairMarten, Neil (Banbury)
    Boscawen, Hon RobertGow, IanMates, Michael
    Bottomley, Peter (Woolwich West)Gower, Sir RaymondMather, Carol
    Bowden, AndrewGrant, Anthony (Harrow C)Maude, Rt Hon Angus
    Braine, Sir BernardGreenway, HarryMawby, Ray
    Bright, GrahamGrieve, PercyMawhinney, Dr Brian
    Brinton, TimGriffiths, Eldon (Bury St Edmunds)Maxwell-Hyslop, Robin
    Brittan, LeonGriffiths, Peter (Portsmouth N)Mayhew, Patrick
    Brooke, Hon PeterGrist, IanMellor, David
    Brotherton, MichaelGrylls, MichaelMeyer, Sir Anthony
    Brown, Michael (Brigg & Sc'thorpe)Gummer, John SelwynMiller, Hal (Bromsgrove & Redditch)
    Browne, John (Winchester)Hamilton, Hon Archie (Eps'm&Ew'll)Mills, lain (Meriden)
    Bruce-Gardyne, JohnHamilton, Michael (Salisbury)Mills, Peter (West Devon)
    Bryan, Sir PaulHampson, Dr KeithMiscampbell, Norman
    Buck, AntonyHannam, JohnMitchell, David (Basingstoke)
    Budgen, NickHaselhurst, AlanMoate, Roger
    Bulmer, EsmondHavers, Rt Hon Sir MichaelMontgomery, Fergus
    Burden, F. A.Hawkins, PaulMoore, John
    Butcher, JohnHawksley, WarrenMorgan, Geraint
    Butler, Hon AdamHayhoe, BarneyMorris, Michael (Northampton, Sth)
    Cadbury, JocelynHeddle, JohnMorrison, Hon Charles (Devizes)
    Carlisle, John (Luton West)Heseltine, Rt Hon MichaelMorrison, Hon Peter (City ol Chester)
    Carlisle, Kenneth (Lincoln)Hicks, RobertMudd, David
    Carlisle, Rt Hon Mark (Runcorn)Higgins, Rt Hon Terence L.Murphy, Christopher
    Chalker, Mrs. LyndaHill, JamesNeedham, Richard
    Channon, PaulHogg, Hon Douglas (Grantham)Nelson, Anthony
    Chapman, SydneyHolland, Philip (Carlton)Neubert, Michael
    Churchill, W. S.Hooson, TomNewton, Tony
    Clark, Hon Alan (Plymouth, Sutton)Hordern, PeterNormanton, Tom
    Clark, Sir William (Croydon South)Howell, Rt Hon David (Guildford)Onslow, Cranley
    Clarke, Kenneth (Rushcliffe)Howell, Ralph (North Norfolk)Oppenheim, Rt Hon Mrs Sally
    Cockeram, EricHunt, David (Wirral)Osborn, John
    Colvin, MichaelHunt, John (Ravensbourne)Page, John (Harrow, West)
    Cope, JohnHurd, Hon DouglasPage, Rt Hon Sir R. Graham
    Cormack, PatrickIrving, Charles (Cheltenham)Page, Richard (SW Hertfordshire)
    Costain, A. P.Jenkin, Rt Hon PatrickParkinson, Cecil
    Cranborne, ViscountJessel, TobyParris, Matthew
    Critchley, JulianJohnson Smith, GeoffreyPatten, Christopher (Bath)
    Crouch, DavidJopling, Rt Hon MichaelPatten, John (Oxford)
    Dean, Paul (North Somerset)Kaberry, Sir DonaldPattie, Geoffrey
    Dickens, GeoffreyKellett-Bowman, Mrs ElainePawsey, James
    Dorrell, StephenKimball, MarcusPercival, Sir Ian
    Dover, DenshoreKing, Rt Hon TomPink, R. Bonner
    du Cann, Rt Hon EdwardKitson, Sir TimothyPorter, George
    Dunn, Robert (Dartford)Knight, Mrs JillPrentice, Rt Hon Reg
    Durant, TonyKnox, DavidPrice, David (Eastleigh)
    Dykes, HughLamont, NormanPrior, Rt Hon James

    we have promised to do. I hope that on that basis the House will support it.

    Question put, That the Bill be now read a Second time:

    The House divided: Ayes 287, Noes 227.

    Proctor, K. HarveySpeed, KeithVaughan, Dr Gerard
    Pym, Rt Hon FrancisSpeller, TonyViggers, Peter
    Raison, TimothySpicer, Jim (West Dorset)Waddington, David
    Rathbone, TimSpicer, Michael (S Worcestershire)Wakeham, John
    Rees, Peter (Dover and Deal)Squire, RobinWaldegrave, Hon William
    Rees-Davies, W. R.Stainton, KeithWalker, Rt Hon Peter (Worcester)
    Renton, TimStanbrook, IvorWalker-Smith, Rt Hon Sir Derek
    Rhodes James, RobertStanley, JohnWall, Patrick
    Rhys Williams, Sir BrandonSteen, AnthonyWaller, Gary
    Ridsdale, JulianStevens, MartinWard, John
    Roberts, Michael (Cardiff NW)Stewart, Ian (Hitchin)Warren, Kenneth
    Roberts, Wyn (Conway)Stokes, JohnWatson, John
    Rost, PeterStradling Thomas, J.Wells, John (Maidstone)
    Sainsbury, Hon TimothyTapsell, PeterWells, Bowen (Hert'rd & Stev'nage)
    St. John-Stevas, Rt Hon NormanTaylor, Robert (Croydon NW)Wheeler, John
    Scott, NicholasTaylor, Teddy (Southend East)Whitelaw, Rt Hon William
    Shaw, Giles (Pudsey)Tebbit, NormanWhitney, Raymond
    Shaw, Michael (Scarborough)Temple-Morris, PeterWilkinson, John
    Shelton, William (Streatham)Thomas, Rt Hon Peter (Hendon S)Williams, Delwyn (Montgomery)
    Shepherd, Colin (Hereford)Thompson, DonaldWinterton, Nicholas
    Shepherd, Richard (Aldridge-Br'hills)Thorne, Neil (llford South)Wolfson, Mark
    Shersby, MichaelThornton, MalcolmYoung, Sir George (Acton)
    Silvester, FredTownsend, Cyril D. (Bexleyheath)
    Sims, RogerTrippler, DavidTELLERS FOR THE AYES:
    Skeet, T. H. H.Trotter, NevilleMr. Spencer Le Marchant and
    Smith, Dudley (War. and Leam'ton)van Straubenzee, W. R.Mr. Anthony Berry


    Abse, LeoDunwoody, Mrs GwynethKinnock, Neil
    Adams, AllenEadie, AlexLambie, David
    Allaun, FrankEastham, KenLamborn, Harry
    Alton, DavidEllis, Raymond (NE Derbyshire)Leadbitter, Ted
    Anderson, DonaldEllis, Tom (Wrexham)Leighton, Ronald
    Archer, Rt Hon PeterEnglish, MichaelLestor, Miss Joan (Eton & Slough)
    Ashley, Rt Hon JackEnnals, Rt Hon DavidLewis, Arthur (Newham North West)
    Ashton, JoeEvans, loan (Aberdare)Lewis, Ron (Carlisle)
    Atkinson, Norman (H'gey, Tott'ham)Ewing, HarryLitherland, Robert
    Bagier, Gordon A. T.Faulds, AndrewLofthouse, Geoffrey
    Barnett, Guy (Greenwich)Field, FrankLyon, Alexander (York)
    Barnett, Rt Hon Joel (Heywood)Fitch, AlanLyons, Edward (Bradford West)
    Belth, A. J.Fitt, GerardMcDonald, Dr Oonagh
    Benn, Rt Hon Anthony WedgwoodFlannery, MartinMcElhone, Frank
    Bennett, Andrew (Stockport N)Fletcher, L. R. (Ilkeston)McGuire, Michael (Ince)
    Bidwell, SydneyFletcher, Ted (Darlington)MacKenzie, Rt Hon Gregor
    Booth, Rt Hon AlbertFoot, Rt Hon MichaelMaclennan, Robert
    Bottomley, Rt Hon Arthur (M'brough)Ford, BenMcNally, Thomas
    Bradley, TomForrester, JohnMcWilliam, John
    Brown, Robert C. (Newcastle W)Foster, DerekMagee, Bryan
    Brown, Ronald W. (Hackney S)Fraser, John (Lambeth, Norwood)Marks, Kenneth
    Brown, Ron (Edinburgh, Leith)Freeson, Rt Hon ReginaldMarshall, Dr Edmund (Goole)
    Buchan, NormanFreud, ClementMarshall, Jim (Leicester South)
    Callaghan, Jim (Middleton & P)Garrett, John (Norwich S)Mason, Rt Hon Roy
    Campbell-Savours, DaleGarrett, W. E. (Wallsend)Meacher, Michael
    Canavan, DennisGeorge, BruceMellish, Rt Hon Robert
    Cant, R. B.Gilbert, Rt Hon Dr JohnMikardo, Ian
    Carter-Jones, LewisGinsburg, DavidMiller, Dr M. S. (East Kilbride)
    Cartwright, JohnGrant, George (Morpeth)Mitchell, Austin (Grimsby)
    Clark, Dr David (South Shields)Grant, John (Islington C)Mitchell, R. C. (Soton, Itchen)
    Cocks, Rt Hon Michael (Bristol S)Grimond, Rt Hon J.Morris, Rt Hon Alfred (Wythenshawe)
    Coleman, DonaldHamilton, W. W. (Central Fife)Morris, Rt Hon Charles (Openshaw)
    Concannon, Rt Hon J. D.Hardy, PeterMorris, Rt Hon John (Aberavon)
    Conlan, BernardHarrison, Rt Hon WalterMorton, George
    Cook, Robin F.Hart, Rt Hon Dame JudithMoyle, Rt Hon Roland
    Cowans. HarryHattersley, Rt Hon RoyNewens, Stanley
    Crowther, J. S.Haynes, FrankOakes, Rt Hon Gordon
    Cryer, BobHealey, Rt Hon DenisOgden, Eric
    Cunliffe, LawrenceHeffer, Eric S.O'Halloran, Michael
    Cunningham, George (Islington S)Home Robertson, JohnO'Neill, Martin
    Cunningham, Dr John (Whitehaven)Homewood, WilliamOrme, Rt Hon Stanley
    Dalyell, TarnHoram, JohnOwen, Rt Hon Dr David
    Davidson, ArthurHowells, GeraintPalmer, Arthur
    Davles, Rt Hon Denzil (Llanelli)Huckfield, LesPark, George
    Davies, Ifor (Gower)Hudson, Davies, Gwilym EdnyfedParker, John
    Davis, Clinton (Hackney Central)Hughes, Roy (Newport)Parry, Robert
    Davis, Terry (B'rm'ham, Stechford)Janner, Hon GrevillePavitt, Laurie
    Dean, Joseph (Leeds West)Jay, Rt Hon DouglasPendry, Tom
    Dixon, DonaldJohn, BrynmorPrescott, John
    Dobson, FrankJohnson, James (Hull West)Price, Christopher (Lewisham West)
    Dormand, JackJones, Rt Hon Alec (Rhondda)Race, Reg
    Douglas-Mann, BruceJones, Barry (East Flint)Radice, Giles
    Dubs, AlfredKaufman, Rt Hon GeraldRees, Rt Hon Merlyn (Leeds South)
    Duffy, A. E. P.Kerr, RussellRichardson, Jo
    Dunn, James A. (Liverpool, Kirkdale)Kilfedder, James A.Roberts, Albert (Normanton)
    Dunnett, JackKilroy-Silk, RobertRoberts, Allan (Bootle)

    Roberts, Ernest (Hackney North)Spearing, NigelWeetch, Ken
    Roberts, Gwilym (Cannock)Spriggs, LeslieWellbeloved, James
    Robertson, GeorgeStallard, A. W.Welsh, Michael
    Robinson, Geoffrey (Coventry NW)Steel, Rt Hon DavidWhite, Frank R. (Bury & Radcliffe)
    Rodgers, Rt Hon WilliamStewart, Rt Hon Donald (W Isles)Whitehead, Phillip
    Rooker, J. W.Stoddart, DavidWhitlock, William
    Roper, JohnStrang, GavinWilliams, Rt Hon Alan (Swansea W)
    Ross, Ernest (Dundee West)Straw, JackWilliams, Sir Thomas (Warrington)
    Ross, Stephen (Isle of Wight)Summerskill, Hon Dr ShirleyWilson, Gordon (Dundee East)
    Rowlands, TedTaylor, Mrs Ann (Bolton West)Wilson, Rt Hon Sir Harold (Huyton)
    Ryman, JohnThomas, Dafydd (Merioneth)Wilson, William (Coventry SE)
    Sever, JohnThomas, Jeffrey (Abertillery)Winnick, David
    Sheerman, BarryThomas, Dr Roger (Carmarthen)Woodall, Alec
    Sheldon, Rt Hon Robert (A'ton-u-L)Thorne, Stan (Preston South)Woolmer, Kenneth
    Shore, Rt Hon Peter (Step and Pop)Tilley, JohnWrigglesworth, Ian
    Silkin, Rt Hon John (Deptford)Tinn, JamesWright, Sheila
    Silkin, Rt Hon S. C. (Dulwich)Varley, Rt Hon Eric G.Young, David (Bolton East)
    Silverman, JuliusWainwright, Edwin (Dearne Valley)
    Smith, Rt Hon J. (North Lanarkshire)Wainwright, Richard (Colne Valley)TELLERS FOR THE NOES:
    Snape, PeterWalker, Rt Hon Harold (Doncaster)Mr. Ted Graham and
    Soley, CliveWatkins, DavidMr. James Hamilton

    Question accordingly agreed to.