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Commons Chamber

Volume 115: debated on Wednesday 29 April 1987

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House Of Commons

Wednesday 29 April 1987

The House met at half-past Two o'clock

Prayers

[MR. SPEAKER in the Chair]

Private Business

Hastings Borough Council Bill

As amended, considered; to be read the Third time.

Oral Answers To Questions

Trade And Industry

Japan

1.

asked the Secretary of State for Trade and Industry what progress he has achieved in securing wider access for British exports to the Japanese market.

5.

asked the Secretary of State for Trade and Industry what is his latest estimate of the trade deficit with Japan; and if he will make a statement.

17.

asked the Secretary of State for Trade and Industry what progress he has achieved in securing wider access for British exports to the Japanese market.

The Secretary of State for Trade and Industry and President of the Board of Trade
(Mr. Paul Channon)

In the year ending February 1987 the United Kingdom visible trade deficit with Japan was £3·8 billion. Some progress has been made. I am glad to say that in 1986 United Kingdom visible exports to Japan increased by 18 per cent. to £1·26 billion.

Will the Secretary of State tell the House what progress has been made since he dispatched his Minister to Tokyo a few weeks ago with "a timetable in his pocket for the opening up of the Tokyo stock exchange"? First, was a timetable negotiated there, and, if so, what was it? If it was not negotiated, will the Secretary of State use the powers that he now has under the Financial Services Act?

The right hon. Gentleman has informed the House that the trade deficit with Japan was £3·8 billion, but in 1979 it was about £882 million. The position is worsening. Will the Secretary of State tell the House what action he will take to protect British industry?

The hon. Gentleman's question relates to two points. On the general trading front, the figures are inflated by the present strength of the yen. The House must understand that the figures are changing. As the yen appreciates, in cash terms the figures look larger at the beginning. In terms of volume, that will change as the value of the yen changes. It is mildly encouraging that British exports increased last year by more than those of any other Western European country.

As for my hon. and learned Friend's visit to Tokyo—and the hon. Gentleman's question relates entirely to financial services—he did indeed lay down a timetable for the opening up of the Tokyo stock exchange. There will be further financial talks at the end of the next month, and we have made it clear that we will use our reciprocity powers under the Financial Services Act if we have to. My hon. and learned Friend has already achieved a considerable moving forward of the Japanese Government's timetable for opening up the Tokyo stock exchange, and he is to be thoroughly commended for that.

Does the Secretary of State agree that there is now a real danger of a diversion of Japanese exports to the EEC following tariffs being imposed by the United States? Can he give some indication of the Government's attitude to the proposals of Commissioner De Clercq this week on behalf of the Commission, and of what measures he thinks we can take to ensure that our financial institutions have access into Japan and to deal with the anti-dumping problem? The Government have not yet made their position clear on that.

On the anti-dumping point, we are strongly in favour of effective action to stop so-called screwdriver operations, and we shall support effective steps to that end. On the question of the Financial Services Act, I do not think that I can add much to my reply to the hon. Member for Sheffield, Central (Mr. Caborn). The problem relates to the Tokyo stock exchange, and I have described that. As for trade diversion because of the American tariffs, there is a real risk of that. Commissioner De Clercq and the British Government have been working very closely together on the problem. We strongly support the Commission's proposals. If goods are diverted from the United States to the European Community, we shall take action, I hope within the next two or three weeks.

Will the Secretary of State accept that those of us who represent constituencies where electrical appliances are manufactured are bitterly disappointed at the lack of progress on trading with Japan? It has gone beyond being a normal diplomatic incident. May I suggest that the right hon. Gentleman asks the Foreign Secretary formally to call in the Japanese ambassador and express to him in the strongest possible terms that we have completely lost our patience?

Secondly, is there not a great deal to be said for taking a leaf out of the book of our French partners and treating Japanese goods in precisely the same way as the French Government have been doing for some time?

I have some sympathy with what the right hon. Gentleman said in the first part of his question. The Japanese ambassador is well aware of the Government's views, and he is also aware of the views of the House of Commons. I shall, I hope, be taking more effective steps than that. I am to see the Ministry of International Trade and Industry Minister, who is coming to London. I shall be having a meeting with him tomorrow, and on that occasion I shall convey to him what the right hon. Gentleman has said. There has been some exaggeration of the extent of what the French have done in the last few days. They have imposed duties on frozen Coquille St. Jacques and on a Japanese fish dish. Whether that will strike terror into the heart of the Japanese Government must be open to doubt.

Will my right hon. Friend make it absolutely clear that we are complaining about the unfairness of trade between Japan and this country? We want there to he full and fair trade, and we want it to be expanded. Will my right hon. Friend make it clear that that is the general view of the Government, and not that there should be an overall restriction of trade?

I agree absolutely with my hon. Friend. We want to open up the Japanese market to British goods, not to close the British market to Japanese goods. If we have to take action, either with our Community partners or, where we have to do so, on our own, that, though regrettable, may have to be done. I understand that the general aim in all parts of the House is to open up the Japanese market. I do not disguise from the House that that is extremely difficult, but some progress is being made.

Is my right hon. Friend aware that one of the few notes of caution in an otherwise very encouraging quarterly survey that was published yesterday by the CBI relates to the prospect of a world trade war? Therefore, will my right hon. Friend proceed with great caution when considering possible measures against Japan? What is proposed could be very counterproductive. What we need are specifically targeted measures.

I agree entirely with my hon. Friend. If he is referring to financial services, we have a whole range of powers. If we took action under the reciprocity powers, we would choose specifically targeted measures that we thought were very much in British interests, in order to make sure that the action that we were taking helped Britain.

As to the question of a world trade war, I could give many examples. We have a whole range of powers relating to financial services, of which the House is well aware, from the refusal of extra licences to the removal of institutions that are operating in this country. One could take any precise example between those two. If my hon. Friend cares to put down a question, I shall try to answer it. A world trade war would be a disaster for this country, which depends so much on exports. Incidentally, it would also be a disaster for the Japanese.

Will my right hon. Friend take every opportunity that he can to point out to the supporters of protectionism, whether in Japan, the United States or the EEC, that protectionist measures damage consumer interests everywhere by restricting competition, by raising prices and by reducing the volume of trade? Does he agree that in an interdependent and fragile world economy we cannot afford to concede protectionist measures to producer interests and producer lobbies who are agitating in their own interest?

In general, I agree with my hon. Friend. I emphasise what I said a few moments ago, that we want to open up the Japanese market to our goods, not to close our market to the Japanese. That is the aim that we are trying to pursue, with some success, but I do not disguise from the House that I should like it to be much more successful.

Is the Secretary of State aware that many of us are deeply cynical about why the Government started all this sabre rattling? We believe that it is probably designed more to impress the British electorate than the Japanese Government. If the Government are genuine in their desire to stop the grossly unfair trade impediments that have been placed in Japan on products from this country, why did they not act earlier to try to help the Scotch whisky industry and many other industries that have been unable to sell their products in Japan in previous years and that have had precious little support from the Government?

That is absolute nonsense, and I suspect that the hon. Gentleman knows it to be nonsense. No objective person would say that I have been sabre rattling this afternoon. That was a ridiculous remark. As to Scotch whisky, the hon. Gentleman knows perfectly well that the Community is taking action. The GATT panel is meeting this week, and we shall receive a report later in the summer. If there is no satisfaction from the Japanese Government, we shall retaliate.

When considering taking action to force open the Japanese market to British goods and services, would it not be wiser to try to hit the Japanese where it really hurts, in respect of manufactured goods, rather than take action against Japanese financial houses, which will have an adverse affect on the City? If my right hon. Friend is going to quote the GATT regulations, can he explain why it seems all right for the American Congress to take action against Japanese manufactured imports?

I am sure my hon. Friend is aware that when I was talking about financial services I was talking about trying to obtain reciprocity for our financial services in Japan, not of trying to use financial services powers for other matters. As for general trading matters, the Community as a whole must deal with them, and I think that that is well understood in the House. A great many activities are going on in the Community at present. There is the anti-dumping matter to which I referred. There is the prospect of a trade diversion because of the American actions. That matter is being actively pursued and action on it may take place shortly. There is also the action that we are taking in the Community to try to unbind the tariffs on a certain range of products as a result of Spanish and Portuguese accession to the Community.

Does the Secretary of State agree that the Japanese ambassador and the Japanese Prime Minister have been well aware of the Government's view for many years, yet the gap gets wider and wider? Will the right hon. Gentleman say something to them about the way in which Scotch whisky is taxed out of the Japanese market, and about the fact that each of the 2,000 cars that Jaguar sells to Japan is inspected individually? Is it not time to stop talking, to take action and to say to the Japanese that we will apply exactly the same measures to their goods coming here as they apply to our goods going into Japan? That will mean something, rather than having this meaningless talk that goes on time after time from the Dispatch Box.

The hon. Gentleman has chosen one or two rather poor examples. Jaguar is doing extremely well in the Japanese market. The hon. Gentleman has raised the question of cars, so he may be interested to know that Austin Rover is now the fastest growing exporter of cars to Japan and is beginning to do much better in that market. There is a long way to go. As to the question of Scotch whisky, the hon. Gentleman knows perfectly well that the Community has taken this matter to the GATT. The panel met yesterday and we will receive a report in a couple of months' time. We will either get satisfaction from the Japanese, or the Community will retaliate.

Apart from the GATT panel's deliberations on Scotch whisky, may I suggest to my right hon. Friend that it would also be encouraging to the Scotch whisky industry if, parallel with those deliberations, there was some direct representation by Her Majesty's Government to the Japanese Government about the need to end as quickly as possible their discriminatory tax regime against imports of that product?

Does the Secretary of State agree that, given the remarkable success of the Japanese industry in miniaturising every electronic product, it is not credible for the Japanese Government to claim that they cannot admit any more British members to the Tokyo stock exchange because they cannot find space for them on the floor? Therefore, was the Secretary of State not surprised to read, after his colleague met the Japanese Minister for Finance, that one of the officials present told the press that he was gratified to hear that reports to withdraw the licence of Japanese banks had been exaggerated and that he assumed that such a horrible thing would not happen? When will the Government steel themselves to give the same protection to British business and British industry as the Japanese Government give to Japanese industry and Japanese business, and to act to halt the mounting deficit in our trade with Japan, which has shot up fourfold under this Government?

I am very touched by the hon. Gentleman's deep concern for the British financial services industry and its desire to be part of the Tokyo stock exchange. I agree with him, and that is why it is so encouraging that, as a result of my hon. and learned Friend's visit, the timetable for entry into the Tokyo stock exchange has already been improved. When my hon. and learned Friend was there he set down a clear timetable and make it perfectly clear that, if it is not met, we shall retaliate. No doubt the House will keep us up to the mark.

As to the general trading front, I have already described the action that we are taking within the Community. There is a great deal of frustration, not only in this country, but in the rest of the European Community. We shall pursue this matter. It will not go as fast as all hon. Members would like, and there is no point pretending that it will, but some progress is being made.

Invisible Exports

2.

asked the Secretary of State for Trade and Industry if he will make a statement on the level of the United Kingdom's trade in invisible exports.

The net earnings of the United Kingdom from all forms of invisible transactions amounted to £7·2 billion last year. It is likely that earnings continued at broadly the same rate, £600 million a month, in the first quarter of 1987, and further growth is expected during the rest of this year.

I thank my hon. Friend for that reply. Is it not true that a large proportion of that sum is due to overseas investment earnings? If so, do not those huge figures give the lie to the allegation that North sea oil revenues are being squandered?

My hon. Friend is entirely right. The balance of earnings on overseas investments rose by well over £1 billion last year. The great advantage of overseas investment income is that it allows the United Kingdom to participate in world expansion trends and offers a useful hedge against foreign currency fluctuations.

Will my hon. Friend continue to hold urgent discussions with my right hon. and learned Friend the Paymaster General so that any barriers to trade, particularly in the important industry of tourism, are removed? Clearly, a number of companies are holding back from investing in this country because they note that the Labour party continues to attack tourism as jobs for ice cream salesmen and Mickey Mouse jobs. Will my hon. Friend confirm that there is nothing remotely true in that, and that tourism is the fastest growth industry in Britain?

I have constant consultations with my hon. and learned Friend the Paymaster General. Alas, my hon. Friend's point is all too true. The Labour party continually regards invisible earnings as some kind of immoral earnings, to which any kind of reference is somehow demeaning.

Car Sales

3.

asked the Secretary of State for Trade and Industry what proportion of new cars sold in the United Kingdom are imported; and how this compares with 1986.

Imports accounted for 49·4 per cent. of the United Kingdom car market in the first quarter of 1987, as against 56 per cent. for 1986 as a whole. This is a welcome change in trend and powerful evidence of the appeal of British products.

Those figures are welcome. I draw my hon. Friend's attention to the fact that Austin Rover has had its best export figures for seven years. As the buyers in Spain, Japan and the United States are demonstrating their confidence in British products, as shown by record sales to those countries, does my hon. Friend agree that the British people could ably demonstrate their concern about unemployment by ensuring that they seek wherever possible to buy British motor cars and other British products?

I entirely endorse my hon. Friend's remarks and his comments on the substantially improved export performance of the Rover Group. The Rover Group's share of the market in the first quarter of 1987 was 16·5 per cent. This shows welcome growth compared with the whole of 1986, when the share was substantially lower. There is plenty of room to demonstrate that, in terms of consumer choice, the Rover Group's products are beginning to meet demand.

For the purpose of the figures on imports, if a car is designed in Japan, built with Japanese components and has a Japanese badge on the front but is screwed together in this country, does the Minister regard it as a British car, or as a Japanese car?

As the hon. Gentleman knows very well, if the investment is made within this country and the vehicle is put together in a development or assisted area, there should be 60 per cent. of local sourcing for it to qualify as a European product.

Does my hon. Friend agree that one way to stem the tide of imports is to produce the sort of cars that the British public want? Is it not, therefore, good news that the Rover Group and Honda have agreed to proceed with the new R8 range of cars, using the best expertise from both countries to build a range of cars which we hope will establish a sound substantial market share within the European market within a short time? Is this not a good sign of job security at Longbridge in particular, which will have the task of building this good range of cars?

My hon. Friend is right and, as he knows, the developments with the Honda company continue to improve. This is the fourth occasion on which there has been a joint agreement to manufacture a motor car which has been jointly developed. From that point of view, the position of the Rover Group in relation to Honda is steadily improving, to the benefit of the workers in both companies.

Industrial Performance

4.

asked the Secretary of State for Trade and Industry when he last met officers of the Confederation of British Industry to discuss the performance of British industry.

I last met officers of the CBI at the meeting of the National Economic Development Council on 1 April. The performance of the economy, including industry, was among the matters discussed.

Is my right hon. Friend aware of the results of the latest CBI survey, which were announced yesterday, which show that manufacturing output in Britain is expected to rise by well over 3 per cent. this year—an excellent figure — and that companies are now more optimistic about future orders than they have been at any time in the last 10 years? Will my right hon. Friend point out to the officers of the CBI that those results testify to the success of Government policies and are good news not only for British industry but for Britain?

I entirely agree with my hon. Friend. I hardly need to point out to anyone—it is perfectly obvious to everyone in the country—that the success and prospects for British industry are better now than they have been for probably a generation. The survey from which my hon. Friend quoted is the most optimistic survey that the CBI has ever produced since it started to keep such records. I believe that manufacturing output will do extremely well this year, as will manufacturing exports, and the forecast for British industry is extremely good.

Is the Secretary of State aware that the CBI has been critical of the amount of investment that has taken place in research and development, which is one of the reasons why British industry has failed in many areas?

The CBI, if it is critical about research and development, is certainly not critical about anything else. We see the survey as a great success, and we know how successful British industry is. As for research and development, certainly no one can level that criticism at my budget, which has seen a total transformation. Most of the money that used to be spent on propping up loss-making nationalised industries is now being spent on research and development.

Does my right hon. Friend agree that, in an expanding economy, successful employers need to be able to attract labour from unsuccessful employers? Does he agree also that if the SDP proposals for statutory pay controls were introduced, this would stultify the economy and restrain growth?

Yes, I am sure that that is absolutely right. It will be interesting to have the proposals explained to us in greater detail. I suspect that they will prove equally unconvincing.

If the Secretary of State pays attention to results rather than to projected surveys, will he confirm that since 1979 manufacturing output is down by 4 per cent., that investment in manufacturing industry is down by 17 per cent., and that British industrial capacity has been reduced by 20 per cent.? Is that an advertisement for the success of Government policies over two terms?

Britain's manufacturing output has grown for six successive years. The volume of manufacturing output is 14 per cent. higher than it was in the depths of the recession. The growth of manufacturing output showed a sharp spurt in the second half of last year. Outside forecasters agree with the Government in predicting strong growth in manufacturing output in Britain throughout 1987. We expect it to expand 4 per cent. faster than the rest of the economy, and faster than in any year since 1973.

Regional Strategy

6.

asked the Secretary of State for Trade and Industry when he next intends to meet the officers of the Association of British Chambers of Commerce to discuss the impact of the Government's regional strategy.

My right hon. Friend has no current plans for a meeting with the association specifically to discuss the impact of the Government's regional strategy.

Surely the Minister, with his background, is aware that chambers of commerce in Yorkshire and Humberside are concerned about the wider implications of regional policy, including, for instance, assistance under the Industrial Development Act 1985. Is the Minister aware that the 1984 report showed that one quarter of all assistance went to the south-east? In the micro-electronics industry, for instance, only one project in Yorkshire and Humberside was supported, compared with 28 in the south-east. Surely the Minister has a responsibility to try to redress such an imbalance.

As the hon. Gentleman knows, the redrawing of the assisted area map has benefited the northern regions particularly. He will know that most assisted areas are now within that part of the country which he and I represent. He will also know that the performance of local industries and companies in Yorkshire and Humberside has shown a dramatic improvement. The regional report supplied by the Association of British Chambers of Commerce states:

"Yorkshire and Humberside: After a year of relatively poor results the figures for the final quarter of 1986 are comprehensively the best results seen for some time. The balance figures for domestic orders in manufacturing have more than trebled, and those for domestic deliveries are better still. Export performance too is significantly improved and employment levels and expectations are similarly encouraging."
That is the true position of industry in the region.

In considering the impact of regional policy, has my hon. Friend noticed that manufacturing productivity in Scotland is well above the United Kingdom average, that manufacturing exports per employee in Scotland are running at 30 per cent. above the United Kingdom level, and that the latest GDP and personal disposable income figures put Scotland in the top three of the 11 United Kingdom planning regions? Do not these excellent results shame those who constantly talk Scotland down?

I am delighted to hear such a robust defence from my hon. Friend of the performance of industry in Scotland. It is a powerful fact that improved competitiveness and productivity are countrywide. That is the surest way to improve sales, profits and employment.

Are the chambers of commerce in the north-west region more concerned than the Government about the decline of manufacturing industries, which has meant a loss of 30 per cent. of the jobs in that sector in a region that is heavily dependent on manufacturing jobs? How much longer can we continue to trade with such a massive deficit budget on manufacturing industry?

I understand the hon. Gentleman's concern about the pattern in the north-west and I concede that regions have different patterns of performance. However, the Association of British Chambers of Commerce report for the Greater Manchester area states:

"After a less worrying third quarter than in certain other regions the improvement in the fourth quarter is very pronounced, strongly positive for home and export orders".
I suggest that there is now an improving trend even in the north-west.

Is my hon. Friend aware of the quiet way in which the new post-1984 regional development grant and regional selective assistance programme is working? In the north-west and in my constituency of Lancashire, West, there have been 52 applications for such grant in the past year resulting in £3·2 million investment, which has encouraged industry to invest and has created 600 jobs in my constituency. Surely that is the way that regional development should continue, and I wish my hon. Friend every success and long may it continue.

I am grateful to my hon. Friend for making that point. He will be equally aware that, with the tailored system of regional support, the support is really reaching those particular areas and industries that need it.

Manufacturing Industry

7.

asked the Secretary of State for Trade and Industry what is his latest estimate of the level of import penetration in the manufacturing sector.

For the year 1986, imports of manufactured products are estimated to have accounted for 34½per cent. of United Kingdom home demand.

Does the Secretary of State agree that an import penetration level for the manufacturing sector of nearly one third suggests that we are not as competitive as the Government claim in manufacturing, a view surely confirmed by the record deficit on manufacturing forecast in the Budget?

In fact, the hon. Gentleman is somewhat mistaken. Over half that total is accounted for by the import of material, either semi-finished, intermediate or capital, necessary for British manufacturing industry, for jobs and production at home. With regard to the pessimistic forecast to which the hon. Gentleman drew attention, in the final quarter of last year exports were up 6·5 per cent. and imports were up only 3·5 per cent. For the period December 1986 to February 1987, exports were up 2 per cent. and imports were actually down 3 per cent.

Is there not rather a lot of British hypocrisy in the talk about retaliation against imports when the European industrial tariff is actually higher than the Japanese industrial tariff and when so much of the European public sector is closed to Japanese or American penetration? Is it not rather odd to be demanding access for Cable and Wireless to the Japanese market, when the Japanese are not allowed into our market?

I do not know how appropriate it would be for me to be tempted to return to the subject of Japanese-United Kingdom trade on a question that does not actually relate to that topic. However, it has always been my view that the obstruction to our exports to Japan and the need to open up that market—to which my right hon. Friend the Secretary of State drew attention earlier—arises not so much from tariffs, but from the various obstructive devices that the Japanese interpose between our manufacturers and fair and proper access to their domestic market.

Do the Government recognise the tremendous continuing damage in many parts of the country, certainly in the west midlands, resulting from the high level of import penetration? Has the Minister abandoned the views that he used to advocate as a Back Bencher when he sought adequate protection for the British manufacturing industry? Has he finished with those views?

I am quite ready to let hon. Members assess what they think my views are from what I say. The level of import penetration which the hon. Member deplores, is, as I have said frequently, not within the control of the Government; it is the consequence of a variety of individual and corporate choices that are made seeking value and quality for money.

Does my hon. Friend agree that the high import figure shows that plenty of opportunities exist for British manufacturers if they care to take them? Will he support this by holding more "Better made in Britain" exhibitions?

Yes, what my hon. Friend says is perfectly right. We support "Better made in Britain" exhibitions. We are giving a research grant to the "Think British" campaign, and public purchasing is over 95 per cent. British sourced.

Does the Minister understand that the full implication of one of his previous answers is that the Government seem to have no responsibility for our balance of trade in manufactured goods? Is he aware that it was only under this Government that in 1983, for the first time, we had a balance of trade deficit in manufactured goods? Given that the deficit was nearly £6 billion last year and will be £8 billion this year, have the Government the remotest idea how this dreadful imbalance can be corrected?

Considering that the right hon. and learned Gentleman had the answer less than two minutes ago, presumably he is choosing deliberately to misrepresent what I said. The Government have no responsibility for the large and widely diffused mass of individual and corporate choices which account for the present level of import penetration. I said no more than that. If the right hon. and learned Gentleman cares to tell us what the Labour party would do to direct choice, we shall be interested to hear it.

Steel Industry

8.

asked the Secretary of State for Trade and Industry if, when he next meets the chairman of the British Steel Corporation, he will raise the future of the five integrated plants; and if he will make a statement.

The strategy agreed in 1985, which was based on the continued operation of all five integrated works for at least three years, remains firmly in place. Decisions on a strategy thereafter must wait until a clearer picture has emerged of market developments, particulary within the EEC.

Will the Minister recognise that the Ravenscraig plan is fundamental to Scotland's long-term industrial future? Is he aware of the damage that recent speculation has done to confidence in the plant's long term future? Will he accept that the commitment to maintain steelmaking until August 1988 is no longer adequate? May we have a long-term commitment from the Government?

I understand the hon. Gentleman's concern. He will be aware that I, in company with my hon. Friend the Under-Secretary of State for Scotland, the Member for Galloway and Upper Nithsdale (Mr. Lang), who has responsibility for industry in Scotland, visited the Ravenscraig plant not long ago and had discussions with management and trade union representatives. I made it clear to them at that time that the five integrated sites policy will remain in place and cannot be altered until we have assessed the position nearer the date. The Ravenscraig plant today is working above the planned output in all areas, with some additional weekend work in the strip mill. This is a very good performance and a powerful indication that the proposals are working well at the British Steel Corporation.

As my hon. Friend knows, the British Steel Corporation is on target to make a profit approaching £200 million this year. Will he confirm that the future of the five integrated plants depends upon commercial success? If jobs in the industry, and the industry itself, are to be preserved, it is essential that the corporation remains commercially successful. Does he agree that any judgment on the future of those plants—my hon. Friend will know that the plant in my constituency is the most successful within the British Steel Corporation — must depend upon commercial success. profitability, viability, quality and reliability?

I have to endorse wholly what my hon. Friend said. The crucial factor that remains to be resolved, having agreed that the corporation is now performing with extreme success in virtually every activity, is that the market for steel products should be receptive and buoyant.

Does the Minister appreciate the need to build long-term stability and confidence in the industry and that that can best be done with assurance from the Government about the future ownership and control? Does he further appreciate that the present policies seem to be based on the premise that if steel is produced efficiently, at some future date the industry will be flogged off to the highest bidder?

The hon. Gentleman may have his own views about that, but the fact undoubtedly remains that the corporation should be in the private sector. That is where, ultimately, the Government intend to place it. The reason for that is simple — it will then be able to demonstrate beyond doubt, without any taxpayers' money being put at risk, that it can survive from profits, competition and productivity.

Does my hon. Friend agree that when the Conservative Government returned to power in 1979 British Steel was in a very sad way? It was overmanned, uncompetitive and could not win contracts against the rest of Europe, or indeed, the world. Today it is a very different story, is it not? We are now competitive. We can compete with anybody. Had it not been for the Government's help and advice, there may not have been a British Steel Corporation today.

My hon. Friend is right. It was the decisive way in which the Government tackled the problems associated with the manufacturing and marketing of steel products that enabled the corporation to restructure and to survive during the biggest steel crisis in Europe, which gave rise to the original strategy decisions in 1982 and to the decision in 1985, which is still in place.

The Minister has just confirmed his party's commitment to the privatisation of this sector of the steel industry, but will he also confirm that the previous chairman of BSC said that, regardless of productivity and profitability improvement, the privatisation of this sector could be achieved only if one of the five plants was closed?

The right hon. Gentleman will also know that over a considerable period there have been discussions with various BSC chairmen on the restructuring of the corporation. He will know that there were several discussions of that kind in 1982 and in 1985. The corporation is at the moment looking at plans for privatisation and the Government are taking advice from merchant banks. When all the advice is available, we shall take a view on how privatisation can best be achieved.

Since the top management of British Steel is notoriously anti-Ravenscraig and anti-Scottish, what guarantee will the Minister give that, in the event of privatisation, the first act of the newly privatised corporation will not be to close Ravenscraig steelworks and thus take away Scotland's indigenous steel industry?

The hon. Gentleman must take it from me that the five integrated site policy was agreed with the corporation in 1982 and 1985. There has been a consistent campaign by some Scottish representatives who seek to suggest that the corporation is not supportive of the five integrated site strategy. It is supportive of it, and it is that strategy that has brought the corporation to a highly enviable position within the EEC.

Industrial Performance

9.

asked the Secretary of State for Trade and Industry what are the latest figures for the annual turnover of British industry.

The Parliamentary Under-Secretary of State for Trade and Industry
(Mr. John Butcher)

The output index for manufacturing industry, excluding the energy and the service sector, was 104·6 in 1986, based on 1980 equal to 100. Since the trough of the recession in 1981, manufacturing output has grown impressively and is now over 15 per cent. higher. The turnover of manufacturing industry in 1985 was £225 billion in current prices.

Does my hon. Friend agree that those good figures, together with the CBI report that we have just received, is a tribute not only to the framework and background that the Government have provided for the industrial sector, but to management and work force within our industry, which have combined to bring Britain to the position where it can now compete right across the industrial sector with the best that the world can offer? Does that not give us enormous hope for the future in terms of the profitability of British industry and secure jobs for our work people?

My hon. Friend is absolutely right. I am sure that he will celebrate with me the fact Britain is now enjoying a top position in productivity and competitiveness—the best position that we have been in for two decades. As he is a west midlands Member, I am sure that he will also celebrate with me the fact that the manufacturing sector is now spearheading our industrial recovery and that the projected 4 per cent. growth in manufacturing will be the fastest rate of growth since 1973.

Instead of celebrating, will the Minister look at the CBI survey, in which he will find that only 15 per cent. of the companies in that survey regarded their fixed plant as adequate to the demands on them, and that 25 per cent. of companies were unable to meet demand because of a lack of fixed capacity? Is that not an inevitable consequence of the destruction that occurred in manufacturing industry during the early years of the Government's period of office, and does it not reflect on the lack of investment in fixed plant in recent years?

Alliance spokesmen should get involved in a different form of research. Industrialists tell me, day in and day out, that the worst possible outcome in business and industrial terms with regard to confidence, exchange rates and interest rates would be a hung Parliament. To that extent one can say that alliance spokesmen are arguing for uncertainty and the undermining of our economy.

Following the Budget and three cuts in interest rates since early March, are not all the jigsaw pieces now in place for the sustained growth of British industry? Should not any lingering political uncertainties have been satisfactorily dispelled by the middle of June?

If we can keep current trends going into the 1990s, talk of a British industrial renaissance would not be an exaggeration. We have a magnificent opportunity and I am sure that the electorate will not throw it away.

Insider Dealing

10.

asked the Secretary of State for Trade and Industry what action he has taken on information so far received from the inspectors he has appointed to inquire into insider dealing at the Department of Trade and Industry.

I have received no information from the inspectors which calls for action on my part. Any question of prosecution in this case would be a matter for the Director of Public Prosecutions, who is being kept informed of the progress of the inspection.

The Government are not convincing the public that everything is now in order — quite the contrary. Surely we need the high-profile techniques of the United States regulatory authorities, which send shivers down the spines of those who are brought in for questioning, and not polite phone calls from DTI inspectors? Criminologists have shown that arrest has the greatest impact on white-collar criminals, not the softly-softly approach of the Government and the DTI.

The powers of the Securities and Exchange Commission to investigate insider dealing are less than those that are available to our investigators, and it is noteworthy that during the passage of the Financial Services Act no Opposition Member suggested a single additional power to investigate insider dealing over and above those that are contained in the Act, which are being used.

Does my hon. and learned Friend agree that not only were the Government responsible for making insider deaing a criminal offence and enhancing the powers of investigation under successive legislation, but that, considering the volume of highly commercial confidential information that passes over the desks of officials in the Department of Trade and Industry, we are remarkably fortunate in this country in enjoying a high degree of integrity among officials, which has become evident over recent years?

I very much agree with my hon. Friend's observations, which I greatly welcome.

Did the Minister note last month's statement by Tesco that it is bringing forward its hid for Hillards because insider dealing had shoved up the price of the shares of Hillards by one quarter in the preceding month? How do the Government hope to stop these scandals in the City if they cannot bring to book the insider dealers in their own Department?

The hon. Gentleman should await the outcome of the inspection to which I earlier referred before he leaps to such unwarranted conclusions. If there is any information arising out of the other matter to which he referred that warrants consideration in the Department it will receive that consideration and any appropriate actions will be taken.

Company Takeovers (Concert Parties)

11.

asked the Secretary of State for Trade and Industry how many prosecutions have been undertaken since 1979 under part VI of the Companies Act for the organisation of a concert party.

In view of the conclusion of the Select Committee on Trade and Industry that there was almost certainly a concert party in operation at Westland, will the Minister reconsider the decision not to hold an inquiry? Is an inquiry not made even more necessary by the strange fact that while one member of the concert party — Dreyfus of Switzerland — admits that its agents were agents for Lazards, which was the financial adviser to Westland, Lazards do not admit this commercial connection?

My right hon. Friend the Secretary of State announced last year that he had decided not to appoint inspectors into this matter, and no new information has emerged to warrant changing that decision. The hon. Gentleman has completely misunderstood the nature of the information to which he has referred. All that that information amounts to is the fact that occasionally the Swiss bank concerned transacts business in London through Hill Samuel, the Midland bank or Lazard Brothers. This information was published in the Bankers Almanac and Year Book over a number of years, and it is of no relevance to the matters to which the hon. Gentleman has referred.

When does my hon. and learned Friend expect to receive the report of the inspectors who are examining the Guinness affair?

The inspectors examining Guinness plc are carrying out their investigations with considerable expedition and are making good progress. However, I cannot give a specific date as to when their report will be available.

Did the Government know about the relationship between Lazards and Dreyfus, and if so, why did the Secretary of State or his Ministers not inform the Select Committee on any of the three occasions when they gave evidence?

For the reason I gave a moment ago, if the hon. Gentleman had but listened, the information to which he has referred is of absolutely no relevance to this matter.

Overdrafts (Credit Charge Advertisements)

12.

asked the Secretary of State for Trade and Industry whether he will consult the chairmen of the clearing banks and the Bank of England concerning the advertising of credit charges on overdrafts.

The exemption of bank overdrafts from the full documentation requirement of the Consumer Credit Act serves the interests of both banks and their customers. However, my hon. Friend the Minister for Trade told the hon. and learned Gentleman on 10 April that it might be appropriate for banks to provide more information to consumers about credit charges on overdrafts, and my officials are consulting banks and the Office of Fair Trading on this matter.

I welcome some movement in the direction of sanity. However, do the Government not recognise that the combination of the banks' right to charge whatever interest they please on what they choose to call unauthorised overdrafts, and the banks having no duty whatever to tell people what interest will be charged on such overdrafts, is a scandalous rip-off.) It is not enough simply to say that the officials are having consultations with the banks. What steps, if any, do the Government propose to take to stop this practice?

My hon. Friend the Minister for Trade explained in full in the debate on 10 April the reason why further action of the kind that the hon. and learned Gentleman thinks appropriate would not be in the interest of either the banks or their customers. We are seeing what can be done to make more information available.

While I should not like to encourage the Government to interfere in any private arrangements over overdrafts, should not my hon. and learned Friend at least encourage all the credit card companies to publish the overdraft charges and the APR available so that at least my constituents and those of any other Member can shop around? There is no question of being ripped-off, but at least customers should be allowed to shop around.

Will the Minister confirm that the burden of debt facing millions of households is not only up on an astonishingly high level but is increasing at an extraordinary pace? Are the Government to continue their lack of concern about this serious matter?

I cannot see how this arises out of a question on charges on overdrafts. However, the debts to which the hon. Gentleman referred are backed by increasing assets.

May I put it to my hon. and learned Friend that there is a legitimate subject of concern in the questions raised today? Some of the average rates of interest charged both on overdrafts and on credit card deficit balances amount to usury, if not exploitation, given that there has been a further fall in base rate today to 9·5 per cent. and we may be looking forward to a further fall. This is not a matter for the Government to get involved in private arrangements, but I do think that they could send some signals to the private sector.

The only real point of concern is whether information is given to consumers to enable them to make properly informed decisions. The Consumer Credit Act 1974 ensures that that information is available. Overdrafts that have not been previously agreed are a special case and, for the reasons that were explained in the Adjournment debate to which I referred earlier, I am asking the banks to consider what further information can be made available to their customers.

Research And Development

13.

asked the Secretary of State for Trade and Industry if he will make a statement on the current extent of research and development funding by his Department.

In the current financial year my Department expects to spend £412 million on support for research and development, which is a threefold increase on the expenditure level of the Labour Government.

Irrespective of those figures, is the Minister aware that, since 1981, the number of people who work in research and development has fallen by more than 20 per cent.? Within the figure for research and development there has been an increase in military research and development and that suggests a serious decline in industrial research and development. If the Minister is aware of that, should he not take steps to obviate that balance by putting more money into industrial research and development? That would make sure that, when the oil production declines, we are in a position to become a competitive nation.

Yes, the hon. Gentleman is right to say that fewer people were employed in research and development in 1985 than in 1983. Between those two years it is also true to say that there was an increase in research and development in the civil sector of 16 per cent. I believe that the other part of the hon. Gentleman's question is more interesting, as it suggests that the Government, through their expenditure levels, can positively encourage industry to do the thing that only industry can decide to do—to commit the requisite levels of research and development funding to improve industry's commercial prospects.

While congratulating the Government and my right hon. Friend's Department on tripling the research and development expenditure since the time of the Labour Government, may I ask my right hon. Friend to recognise that the important point is to get the private sector to increase its contribution to research and development on a year-on-year basis? Furthermore, is there not a role for my right hon. Friend's Department to support applications for the introduction of new technologies to existing industrial and manufacturing processes?

Yes, indeed, and that is why we have an extensive, advanced manufacturing technology programme and why we introduced the LINK programme in December of last year. That is a £420 million programme which, over five years, is to be targeted at precisely the area raised by my hon. Friend. The Government and industry, in partnership on a 50–50 basis, will improve what I might call the exploitation factor—taking a research and development idea and pushing it forward into a marketable product.

Now that the Minister is the sole obstacle to agreement on the European framework programme, and in view of the projected cuts in DTI research and development expenditure over the next few years, the lack of any growth of research and development in industry since 1981, and a 10 per cent. fall in research and development in the electronics industry between 1983 and 1985, is the Minister aware that, under the Government's leadership, Britain has become the sluggard of Europe with regard to research and development?

If we are the sluggard of Europe, I do not know what Europe would have made of us in 1979, when the Labour Government went out of office. At that time there was an expenditure level precisely three times below our current expenditure level.

If I am single-handedly holding up the European research and development, I am doing so because of my belief in the correct quality of programmes. I do not see why we should be relentlessly driven down a particular path simply to appease and accommodate the types of programmes for which we believe there is no competitive future for the rest of Europe.

Airbus

14.

asked the Secretary of State for Trade and Industry if he is yet able to announce his decision on the launch-aid applications by British Aerospace plc in respect of the A330 and A340 Airbuses.

16.

asked the Secretary of State for Trade and Industry if he will make a statement on Government support for Airbus.

Discussions with British Aerospace about its combined application for launch aid in respect of the Airbus A330 and A340 projects are continuing. We aim to reach a decision as soon as possible and an announcement to the House will be made thereafter.

I thank my right hon. Friend for that reply. Can he say how long he expects discussions to continue before an announcement is made? Can he also confirm the Government's support in principle for extensions to the Airbus range and assistance with funding?

First, I wish to recognise the considerable role that my hon. Friend has played on behalf of his constituents, who have British Aerospace and Rolls-Royce interests. The House will appreciate that the first decision that had to be taken was whether the Government believed that this project was worthy of support. That decision has been taken and we are now discussing with British Aerospace the precise level and amount of that support in a constructive and harmonious atmosphere. I am confident that we shall be able to reach agreement in the quite near future.

I am glad that the Government have finally realised the importance of such a project. Does the Minister realise that delay means a loss of orders? The longer the delay, the more orders may be lost. Has he any idea what orders have been lost up to the present?

There is no question of orders being lost at present, because the aircraft concerned in the question have not yet been formally launched. That decision has not been finally taken by the Airbus consortium. What is in issue here is the level of support that will be necessary to maintain the involvement of British Aerospace in a consortium which the Government believe is very important to the health and wellbeing of the aerospace industry, not only in the United Kingdom, but in Europe.

Points Of Order

3.31 pm

On a point of order, Mr. Speaker. I wish to raise a point of order of which I have given you notice. When matters concerning Members and business interests have been raised with you in the past, you have suggested that representations should be made to the Committee of Selection. I ask you to consider whether such advice is any longer sound as only two members of the Committee of Selection do not hold outside business interests. Indeed, the Chairman of the Committee, the hon. Member for Shipley (Sir M. Fox) holds seven directorships, five consultancies, including a consultancy with Alcrafield Ltd.—

Order. All Members' interests are registered. I do not think it is necessary for the hon. Gentleman to read them out.

May I ask two specific questions? To whom can Members make representations urging that members of the Committee of Selection should be required not to hold outside business interests? Secondly, do you not agree, Mr. Speaker, that until such a requirement is introduced, suspicion that commercial interests exert influence in the House, including the selection of Members to Standing Committees, will remain? Will you also understand that concern will continue—[Interruption.]

Order. The point of order is to me. I want the hon. Gentleman to come to the point.

I wanted to make clear that I had given notice to the hon. Member concerned.

I have asked you two specific questions, Mr. Speaker. I wish to remind you and the House that this will remain of concern to hon. Members and to the public until we take effective action to ensure that private business interests do not exert influence in the House or on the selection of Members to Standing Committees. I ask you to reflect again—

Order. The hon. Gentleman gave me notice of his question. I am ready with an answer straightaway. He is surely not suggesting that Mr. Speaker should be responsible for nominating Members to Select Committees. If the hon. Gentleman has any complaint to make, the Select Committee on Members' Interests exists to deal with complaints of that kind. The hon. Gentleman should direct his complaints to that Committee, not to me.

Further to that point of order, Mr. Speaker. If this sort of matter is worthy of further consideration, which I gather you doubt—and I share your doubt — will you assure the House that consideration will also be given, for example, to trade union sponsorship of Labour Members of Parliament and the influence that that has on their voting behaviour?

Many hon. Members have a background of some kind or other in business or industry. Those interests are required to be registered. If hon. Members have complaints about individual Members, they should take them up with the Select Committee concerned.

On a point of order, Mr. Speaker.

On a different point of order, Mr. Speaker. You will recall that in recent times extradition orders have failed to be enacted because of bad drafting. I could not give you notice of my question, Mr. Speaker, but it has become common knowledge that the train robber, Ronald Biggs, who has 28 years still to serve of a sentence given in a British court—

Order. Amongst my many responsibilities I have no responsibility for train robbers. I do not think that I can help.

I think not. I have heard the hon. Gentleman's point of order, and I cannot help him further.

I will hear the hon. Gentleman's point of order, provided that it does not go back to what he said the other day.

Order. I heard the hon. Gentleman's point of order on the same subject the other day. I have nothing further to add to what I said then or now.

I want to raise the question of Privy Councillor terms and how they relate to our proceedings. As I understand it, Privy Councillors are not necessarily members of Government—indeed, they include Opposition Members. Yesterday, at a press conference, Mr. Bernard Ingham was able to give a briefing to journalists in Downing street, drawing on information that was given to the Prime Minister on Privy Councillor terms when she was Leader of the Opposition. The right hon. Lady was able to acquire that information because she had been selected as a member of the Opposition, not as a member of Government, for appointment as a Privy Councillor. Would you, Mr. Speaker, deprecate a practice whereby—

Order. I have heard enough. I do not have any responsibility for press officers in Downing street, either.

Statutory Instruments, &C

Order. With the permission of the House I shall put together the two motions relating to the statutory instruments.

Ordered,

That the draft Grants by Local Housing Authorities (Appropriate Percentage and Exchequer Contributions) Order 1987 be referred to a Standing Committee on Statutory Instruments, &c.
That the Black Country Development Corporation (Area and Constitution) Order 1987 he referred to a Standing Committee on Statutory Instruments, &c. — [Mr. Lightbown]

Directly Elected Neighbourhood Councils

3.39 pm

I beg to move,

That leave to given to bring in a Bill to give residents of British cities the right to establish directly elected neighbourhood councils and to make consequential provision for their constitution and resources.
The Bill will facilitate the process of parish review which was envisaged in the Local Government Act 1972. It will remove from city councils the sole responsibility of initiating the parish or neighbourhood review procedure. It will give residents the right to petition their district council to initiate the review and it will provide for a fixed timetable with which district councils must comply in initiating parish reviews under their present powers.

The legislation is designed to boost the urban parish movement. After the reorganisation of local government in 1974, urban areas in England were left without the degree of representation or participation that was adequate to secure effective and convenient local government. The Local Government Act 1972 established larger local authorities and remoter local government. Fortunately, the Act also provided the means to remedy the position—the parish review. But, sadly, the public, and even Members of Parliament, may not be familiar with this term or with the enabling part of the legislation.

The Local Government Act states that assessments of the establishment of new parishes are determined by the aptitude of such parishes to secure "effective and convenient" local government. Such assessments must be made initially by the district council, recommended by the Boundary Commission and sanctioned by the Secretary of State. However, it is clear from the legislation and Department of the Environment circulars that there is a firm intention that these reviews should be taken seriously.

The Department of the Environment circular of April 1983 reiterated to district councils that they had not been released from their obligations under the Act to conduct parish reviews. Despite all the benefits that accrue from the establishment of parish councils in urban areas, few have been established. In the north-west I can think of only two which have been established in this way—Prescot town council in the borough of Knowsley and Shaw arid Crompton town council in Oldham district council. Indeed, the Shaw town council was largely established as a result of the vigorous efforts of Saddleworth's Chris Davies who is also campaigning to establish one in Littleborough, and he should be congratulated on that. Hon. Members may know of others which have been established more recently, and some go under the name of "town council". Yet, there is disappointment and bafflement that the urban parish council movement has not developed adequately.

Unfortunately, much depends on the district council. At present there are several reasons why many district councils have failed to undertake these reviews. District councils are invariably reluctant to divest powers, and many do not agree with the view of our joint alliance commission on constitutional reform, which states:
"no decision should be taken at a higher level of government which can with equal or greater effectiveness be taken at a lower level."
Given that the legislation imposes on district councils a duty to review the position of parish councils from time to time, it is not surprising that those district councils which are hostile to decentralisation and devolution should have chosen to delay their reviews again and again. New legislation, such as this Bill, should lay down a specific time, and my Bill suggests every five years.

A further complication is that under present arrangements any district council recommending that a parish should be established will have to show that it, the district council, does not already provide effective and convenient local government. As Joan Perrin of the Association for Neighbourhood Councils points out, this is an "unlikely prescription for change. "The phrase, "effective and convenient" is open to some criticism as there is no uniform understanding of its meaning." Guidelines should be laid down.

The sole responsibility should also be removed from district councils. Local residents—and I suggest this in my Bill—should have the right to initiate the review by petitioning the district council. The Urban Parishes Bill 1978, a private Member's Bill introduced by the late Graham Page—and I am glad that his successor, the hon. Member for Crosby (Mr. Thornton), is one of the sponsors of my Bill today — proposed that 100 local government electors would suffice. I think that that number is about right.

These moves would give added impetus to the growth of urban parish councils. In a city like Liverpool—the Bill is specifically aimed at cities — good people have drifted away from the complex and often soul-destroying job of being a city councillor. Neighbourhood councils would be a nursery for rearing a new generation of local councillors. They would also ease the burden on city councillors. The case loads of most of our inner city councillors—I served as one for eight years—are so vast that the councillors spend most of their time solving problems and little time acting as true representatives of their community.

The neighbourhood council would not require a vast bureaucracy or infinite sums of money. As the Merseyside Association of Local Councils and groups like the Southern Neighbourhood Council in Liverpool have proved, small is not only beautiful; it is often better as well.

A century ago, Liverpool had a network of mini town halls. The old Wavertree town hall in my constituency still stands, although these days it is used as a restaurant. Without highly localised decision making, the sense of community and civic pride which once existed throughout that network of town halls has sadly become another dim and distant memory.

My right hon. and noble Friend, Lord Grimond, once said that
"if politics is about power and Liberalism is about people, then we are for power to people."
Therefore, it is not surprising that Liberals are wholeheartedly supporting the Bill, but I am glad to say that hon. Members from all other parties are backing it, too. They, like me, believe that neighbourhood councils should be able to spend the equivalent of a 2p rate, commensurate with the population of their area.

We also believe that by being able to develop the local community facilities, by ensuring proper use of existing amenities and by championing local causes which are important to people, such neighbourhood councils will help to recreate the bonding of the community and establish a new sense of neighbourliness. Surely the principles of the village are good for the city as well. More than anything else, it is the anonymity, the powerlessness, the lack of a clear identity and of cohesion which have threatened the vitality of city life. No one else will reverse those trends but city dwellers themselves, and they need the structure and the power to enable them to do it.

The parish is the truly local level of government in England, the only one with a statutory status. It was created by the Liberal Government in the Local Government Act 1984. As such, it is perfectly placed to be the bedrock of devolutionist plans. The recognition of the need for a national system of parish councils. neighbourhood councils, town councils, community councils — call them what one will — as the building blocks of government is our starting point for the reform of local democracy.

3.47 pm

If the problems referred to by the hon. Member for Liverpool, Mossley Hill (Mr. Alton) could be resolved by councils and committees and reports—which is the line that he takes—we would have no problems in Liverpool. The hon. Member talks about city areas. Between 1968 and 1973 Liverpool had the education priority areas study, in 1969–70 the sheltered neighbourhood action, between 1969 and 1973 the Brunswick neighbourhood scheme, between 1969 and 1975 the Vauxhall community development project, between 1972 and 1976 Her Majesty's Government carried out various studies, including the inner area study, and we had the Department of the Environment priority estates project survey in 1984. All those studies have shown what people knew already—or at least any honest person — that the fundamental problem was and is the need for an urgent injection of finance into deprived areas, not the setting up of bogus committees to deal with the problem. The Liberal party's solution is to set up councils and committees, which will be starved of finance, and by that particular device spread the responsibility away from their particular door to the deprived areas that have been mentioned already.

The Red Russian leader, Vladimir Hitch Lenin, said that an ounce of experience is worth a ton of theory. The theory expounded by the hon. Member for Mossley Hill may seem attractive. However, in my view it is blatant electioneering by the Liberal party. Set against the background of social deprivation in places such as Liverpool, it is an abrogation of the responsibility of any administration, and a failure by councillors to face up to their legislative duties as elected community representatives. That is the theory.

The experience has been referred to by the hon. Member for Mossley Hill. The Southern neighbourhood council, a typical example of what he is talking about, has been in existence for 10 years in Liverpool. But it has only glossed over the needs of the people of Liverpool at a time of deprivation.

That deprivation has been referred to in reports Europe-wide. The constituency of my hon. Friend the Member for Liverpool, Riverside (Mr. Parry) has been described as having the worst environmental and housing conditions in Western Europe, yet it is watched over by one of the neighbourhood councils that the hon. Member for Mossley Hill wants to implement. Blocks of flats in Caryl Gardens and King Gardens were listed on a demolition programme in 1979 in the area of the Southern neighbourhood council. In 1981–82, the Liberal administration cancelled those plans. It took a Labour administration in 1983, through the injection of finance and the urban regeneration programme, to deal with the environmental problem. Sad to relate, one of the first tasks undertaken by that council when it came to power through the decision of the Law Lords, when the 47 Liverpool councillors were removed, was to halt the project that would have dealt with the problems that the Southern neighbourhood council should have been dealing with.

The matter has been referred to in the House before. On 27 April 1983, the then Minister for Housing and Construction — the right hon. Member for Tonbridge and Mailing (Mr. Stanley), now Minister of State for the Armed Forces—said:
"I must point out to the hon. Gentleman and the Liberal Party in Liverpool that Liverpool city council has been a conspicuous underspender. The crucial need in Liverpool is for full utilisation of the resources that have been made available."
Not setting up bogus councils, as the hon. Member for Mossley Hill proposes.
"The Liverpool city council underspent in 1981–82 and it appears that it has produced an increased underspend in 1982–83. The local authority should make better use of its stock and full use of its resources."—[Official Report, 27 April 1983; Vol. 41, c. 848.]
When the hon. Member for Mossley Hill was Liverpool's housing chairman in 1978–79, the housing investment programme was underspent by £6 million. That would be a hell of a lot of money today. In 1980–81, the Liberals in Liverpool had a housing allocation of £47·2 million: they spent £40·2 million—an underspend of £7 million. In 1981–82, they had an allocation of £40·8 million and spent £35·4 million—an underspend of £5·4 million. The total resources made available in 1982–83 amounted to £106·3 million; the council spent only £74 million — and underspend of £32 million.

We talk about power to the people, but it is power to the people without the resources to deal with the problems with which the council is supposed to deal. There are 33 wards in the Liverpool area; ideally, we should like more. We in the Labour party campaign to involve people in the communities in what is going on in Liverpool. But we must understand that councillors are democratically elected to the local council. They are accountable for the allocation of finance and resources to the entire city as a community, with public watchdogs to ensure that it takes place.

The question that must be posed against the recommendation is whether the problem is organisational or structural, or whether it is exacerbated by past Liberal administrations in the city of Liverpool, financial deprivation by central Government and the underspend that has been referred to. We cannot take in isolation the pseudo-populist charade engaged in by the hon. Member for Mossley Hill.

In a debate in the House on 18 March, it was made clear that, apart from underspending money made available for the people of Liverpool and designated for housing areas, this caretaker authority had already cut £50 million from the needs of the people of Liverpool.

In that debate the hon. Gentleman asked the Government to allow the district auditor to conduct an efficiency audit survey and to highlight areas in which savings could he made. That means cuts in services and jobs. The community councils would be unable to help to try to resolve those problems. Traditionally, the Labour party and workers have achieved everything through struggle, but all that the Liberal party wants to do is to stand aside from its responsibilities to the people of Liverpool as a whole and to the electors nationally. It pretends that problems can be solved by setting up a few bogus committees and councils. The Labour administration in Liverpool stood up to the bully boys on the Conservative Benches, and our achievements will stand for all time.

For 10 years a Liberal-Tory community council glossed over the deep-seated problems that face my city. For a period of three and a half years, by injecting cash, which is the key to all the problems in our neighbourhoods, the Labour administration in Liverpool started to put right some of the abnormalities. The Liberal resolution cancelled all that we had done. If this bogus exercise is allowed to become a reality, valuable time will be wasted. Liverpool's problems can be resolved only by the injection of some of the wealth that has been created by the people of Liverpool. Decent housing must he provided, as of right, together with services and jobs. Only in that way shall we improve the conditions that have been created by the Tory Government and their bedfellows, the Liberal party.

I shall not divide the House on this issue, Mr. Speaker. However, I am highlighting the audacity of these people and the experience of neighbourhood councils in Liverpool, just to expose them for what they are.

The hon. Gentleman must follow his words with a shout of "No" when I put the Question.

Question put and agreed to.

Bill ordered to be brought in by Mr. Richard Wainwright, Mr. Archy Kirkwood, Mr.Malcolm Thornton, Mr. Dafydd Wigley, Mr. Terry Davis, Mr. James Wallace, Mr. John Cartwright, Mr. Cyril Smith, Mr. Michael Meadowcroft, Mr. Simon Hughes and Mr. David Alton.

Directly Elected Neighbourhood Councils

Mr. David Alton accordingly presented a Bill to give residents of British cities the right to establish directly elected neighbourhood councils and to make consequential provision for their constitution and resources: And the same was read the First time; and ordered to be read a Second time upon Friday 3 July 1987 and to be printed. [Bill 144.]

Orders Of The Day

Finance Bill

(Clauses Nos 11, 18, 20 To 23, 33, 45, 147 And 160 And Schedule No 4)

Considered in Committee.

[SIR PAUL DEAN in the Chair.]

Ordered,

That the order in which proceedings in Committee of the whole House on the Finance Bill are to be taken shall be Clause 20, Clause 23, Clause 21, Clause 22, Clause 11, Clause 147, Clause 160, Clause 18, Clause 33, Schedule 4 and Clause 45.—[Mr. Norman Lamont.]

Clause 20

Charge Of Income Tax For 1987–88

Question proposed, That the clause stand part of the Bill.

On a point of order, Mr. Deputy Speaker. It might be of assistance to you and to the Committee, and out of courtesy to the Chancellor of the Exchequer, if I say on behalf of my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) that he has been unavoidably detained. He had intended to be present to hear the Chancellor's remarks and to make his contribution to the debate. He will join the Committee as soon as he is able to do so. In the meantime, I hope that the Committee will accept his apology.

4 pm

I am sure that the Committee is grateful to the hon. Member for Dagenham (Mr. Gould) for that explanation.

It is wholly appropriate that we should start the Committee stage of this year's Finance Bill with a clause that goes to the heart of the difference between the parties. I might add that before the Budget I was urged by the Opposition not to cut income tax because the polls showed that nobody wanted lower taxes, and that after the Budget they accused me of indulging in a pre-election bribe. Their concept of an unpopular bribe certainly shows the total confusion of the Labour party, which manoeuvres like squid lost in their own ink.

If the proposal that is before the Committee today is unpopular, I can only say that the Government have consistently shown themselves prepared to take whatever measures are necessary in the interests of the British economy, however unpopular they may be at the time. If, on the other hand, it is popular, I can live with that.

By last year we had reduced the basic rate of income tax—which is the marginal rate of tax for 94 per cent. of all personal taxpayers and 90 per cent. of unincorporated businesses and the self-employed—from the 33 per cent. we inherited from Labour to 29 per cent. The question before the Committee today is whether it should be further reduced to 27 per cent. It would then be within two points of the objective set by my predecessor in 1979 of a basic rate of no more than 25p in the pound, an objective which, given the continuation of present policies, it should not take too long to achieve—income tax down from a third to a quarter.

We on this side of the Committee are in no doubt: the basic rate of tax should now come down to 27 per cent. The Labour party, the Liberal party and the SDP are equally adamant that income tax should not be reduced and are committed to voting against it. The difference could not be plainer, nor is it any accident, for the Conservative party is the only party committed to reducing the burden of taxation as and when it is prudent to do so—that is precisely what we have done—while the Opposition parties are in the business of increasing the burden of taxation, as every Labour Government there has ever been have clearly demonstrated.

It is true that when we first took office in 1979 we inherited a massive and unsustainable level of public borrowing which had to be brought under control if there was to be any prospect of bringing down inflation, to which we were committed. This initially involved, as we clearly explained at the time, an increase in the burden of taxation. But that phase was already over by the time we secured the overwhelming endorsement of the British people in the general election of 1983, and since then the path of taxation has been steadily downward.

The basic rate of tax this year will be 6p in the pound lower than the rate that we inherited from Labour, the lowest it has been since before the war. At the same time, personal allowances are now 22 per cent. higher in real terms than in 1978–79 and the married man's allowance is at its highest level since the war. As a result, 1·4 million people have been taken out of income tax altogether, and tax thresholds in the United Kingdom are now around the international average. The overall burden of income tax is now some £12 billion lower than it would have been if we had kept Labour's tax regime and adjusted it for inflation—something which the Labour Government were not able to do in a number of years during the time they were in office.

The benefits of these tax reductions have been felt at all levels of income. The percentage of earnings taken in income tax and national insurance contributions combined is lower at all levels than if we had kept the Labour regime and indexed it. And real take-home pay—which also, of course, takes account of the effect of changes in indirect taxation—is appreciably higher at all income levels. This is in stark contrast to Labour's record in office. Single people at all levels were worse off by 1978–79 than at the start of Labour's period in office. Under this Government their real take-home pay is up by a fifth or more.

Take the married man on average earnings. Those without children were also worse off in 1978–79 than in 1973–74. Those with children did better, it is true. I shall quote the precise figures, because it is important that the Committee fully appreciate those cases where the Labour Government actually presided over an increase in living standards. The married man on average earnings, with two children, saw his real take-home pay go up by all of a half of 1 per cent. under Labour. That was all that the Labour Government achieved. Under this Government, it is up by more than 21 per cent.

I should like to take just one more specific example, because it is of some topical interest and concerns a group whom the Opposition like to pretend have been victimised by this Government. After the pay award announced last week, a typical nurse will have seen her real take-home pay rise by no less than 42·4 per cent. since 1978–79. If she is married to a typical teacher, their combined take-home pay will also have risen by more than 40 per cent., whereas under Labour it rose by a mere 4 per cent.

The effect of this year's Budget alone is to increase the take-home pay of a married man on average earnings by almost £4 a week—quite apart from any further benefit that he may secure from the reduction in mortgage rates that comes into effect later this week.

The hon. Member for Dagenham (Mr. Gould) began with an apology for the absence from the debate of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who is still busying himself with his pudding. The hon Gentleman said nothing about the absence of any Labour Back Benchers. As this debate was trailed as their great opportunity to rant and rage against the cuts in income tax, does it not rather smack of bogus indignation that Labour cannot raise one Back-Bench Member to come to the debate?

My hon. Friend is absolutely right. The Committee can observe that there is not one Labour Back Bencher in his place, with the exception of one PPS. The British people know the truth of what I have been saying. They know perfectly well how much better off they are than they were under Labour. That is why they will not be taken in for one moment by the desperate black propaganda launched by the Labour party this week.

Talking of that, I have to thank the Leader of the Opposition for the letter that he sent me, which I received today. It was addressed very properly to Mr. N. Lawson, 11 Downing street, London SW1. It began "Dear Supporter" and went on to say that Labour was hard up and to ask for money. If the Labour party wants to save money, it can cease writing letters to Downing street for a start. I hope that the hon. Member for Dagenham will pay attention, because the letter went on to say:
"we will be fighting on our record. While others will try the usual tactic of smear and half-truth, of mud slinging and personality politics, we will go with our record and our plans."
When the hon. Gentleman addresses the Committee, we all expect that he will obey his leader's injunction and come forward with Labour's record and Labour's plans, and will not come forward with any of the smears and half truths that we heard yesterday. We had all that business of the secret manifesto in 1983. It was codswallop then and it is codswallop now. It was totally ignored then and it will be totally ignored now. The British people know that it is the Labour party, with its massive public expenditure to finance, that will increase the burden of taxation again if it is given the chance. They know that, to pay for Labour's £34 billion public spending programme—an extra £34 billion over and above the levels in the Government's White Paper — would require either a doubling of the basic rate of income tax or a more than trebling of the standard rate of VAT.

My right hon. Friend the Prime Minister made it clear as far back as 1984 that we have no intention of extending VAT to food. Beyond that, the incidence of taxation has to be determined in the light of the budgetary needs at the time, and no responsible Government could conceivably take any other position. What is abundantly clear is that it is the Labour party that is in the business of putting taxes up, and the Conservative party that is in business of bringing taxes down, and no amount of scaremongering can obscure that basic fact. As this year's Budget Red Book clearly shows—I refer the Committee to table 2.6—the prospects on the basis of present policies are of a steady further reduction in taxation in the years ahead.

The gulf between the parties on the issue of tax is, in part, a profound difference of political philosophy. We believe that what people earn and save belong to them, and that the state should take from them only what is necessary to discharge the functions that only the state can perform, leaving people free to make their own choices and to pursue their own destiny. The Opposition parties believe that all resources belong to the State, that all important decisions should be taken by the state, and that people should he "given"—that is the word they use—whatever pocket money is needed to keep them quiet.

The gulf between the parties on tax is also at the heart of the difference between the two sides of the Committee over the conduct of economic policy. The Opposition start from the proposition that the cure for any economic problem lies in state intervention, which inevitably implies ever-increasing state spending and ever-increasing taxation to pay for that spending.

The policy of the Government is clear, and distinct. As the dismal experience of the 1970s demonstrates beyond any reasonable doubt, the crucial role of fiscal and monetary policy must be to control and conquer inflation. Within that framework, improved economic performance depends on the success of individual enterprise. That requires the Government resolutely to pursue a whole range of policies designed to remove the impediments to enterprise—through deregulation, through privatisation and through reducing the burden of taxation. This prescription is now accepted throughout the world. All major countries have now embarked on policies of deregulation. Most have embarked on programmes of privatisation, openly acknowledging the lead given by the United Kingdom.

As for the burden of taxation, all the other members of the Group of Five have either cut their income tax rates or have announced plans to do so — so has Sweden, which has traditionally been a high tax country, and so have Australia and New Zealand. It is a pity that the hon. Member for Dagenham has not kept up with his compatriots, because the Labour Government in New Zealand are following the same economic policy as the British Government and are a great deal more enlightened than he is. Among the developing countries, India is reducing taxation. The last three of those countries have Socialist Governments. On this, as on so many issues, it is the Opposition parties that are out of step and out of touch. Everyone else knows that the only route to higher living standards and more jobs is through a more dynamic economy, and that the only route to a more dynamic economy is through lower tax rates. It is no accident that the two most successful economies in the Group of Five, and the two with the lowest levels of unemployment, the United States and Japan, are the two with the lowest burden of public spending and taxation.

Moreover, the dynamic effect of reductions in tax rates can often mean not lower but higher revenues, thus leading to the scope for still further reductions in taxation. For example, despite the reductions that we have made, inheritance tax is expected this year to yield almost 50 per cent. more in real terms than capital transfer tax did in 1978–79. The yield of capital gains tax is forecast to he 80 per cent. higher in real terms, and stamp duty is up by 140 per cent. As for income tax, the higher rates applying in 1987–88 are, of course, much lower than the absurd penal rates that Labour enforced, but they are expected to yield 90 per cent. more in real terms, and the top 5 per cent. of taxpayers now contribute 28 per cent. of income tax, compared to 24 per cent. in Labour's last year. The greatly increased yield of corporation tax, reflecting greatly increased company profitability, is clearly connected with the reform of corporate taxation which I introduced in 1984, which brought the rate of tax on company profits in this country to the lowest in the industrialised world.

4.15 pm

Is the right hon. Gentleman aware that a forthcoming article in Fiscal Studies will show that, contrary to his assertion that the 1984 changes in corporate taxation would be revenue neutral, those changes have turned out to produce £1 billion more in revenue than the previous regime would have done in these circumstances?

I shall, of course, look at that article and have it properly evaluated. The increase in the yield of corporation tax is a result of the enormous increase in profitability that has occurred, in part because of the dynamic effects of the change in the corporation tax regime.

There is, as I have said, a profound difference between the two sides of the Committee over economic policy, of which tax policy is an integral part. The policies that we have been pursuing have been abundantly vindicated by the results that they have brought. It is no accident that, this year, I have been able to reduce taxes by £2½ billion and to increase public spending on priority areas by £44¾billion, while reducing public borrowing below its previously planned level by some £3 billion. For the Opposition to claim that they would have used the money differently is totally irrelevant, because with their policies it would never have been there in the first place.

As a result of our policies, the economy today is sounder than it has been at any time since the war—a fact that is increasingly recognised throughout the world. Of course, there is always scope for further improvement—that has always been so and will always be so in every country.

My right hon. Friend was dealing with public spending and the economy's ability after five or six years of consecutive economic growth to afford increased public spending. Does he take account of the strong case, which many of us discover in our constituencies, for allowing pensioners to share in the fruits of this economic growth?

I am glad to say that pensioners have fully shared in the fruits of the economic growth. Over the period in which we have been in office, pensioners' incomes have risen faster than the average for other people. My hon. Friend should look at the figures. I shall be happy to write to him about this matter.

It is fair to say that, at the present time, the biggest problems lie in the rest of the world as the United States and Japan, in particular, struggle to adjust successfully to the massive but necessary change the has occurred over the past two years in the dollar/yen exchange rate. It is of the first importance to all of us that those two powerful nations pull back from the blind alley of a trade war and instead concentrate on measures to put their own houses in order, which in turn will underpin, as is highly desirable, the present world pattern of exchange rates.

Meanwhile, the British economy is indeed, as the headline of the leading article in today's Financial Times describes us, "an island of success". I described some of that success story in my Budget speech last month — how our growth this year will be the highest in the industrialised world, with inflation remaining low, and how by the end of this year we will have registered the longest period of steady growth, at close to 3 per cent. a year, that the British economy has known since the war. I described the massive strength of our external position, while at home unemployment is now firmly on a downward trend. All that was on the basis of deliberately cautious forecasts.

I shall not be publishing a further forecast until the autumn, in the usual way, but all the indicators that have been published since the Budget confirm that, if anything, we are doing even better than I suggested then. The PSBR for 1986–87 has come out lower than I forecast in the Budget. Inflation, too, is slightly lower than I implied in the Budget. The current account of the balance of payments is also performing better so far than I predicted. Output appears to be rising, if anything, rather faster.

This is fully reflected in the CBI's "Quarterly Industrial Trends Survey", published yesterday, which is of course confined to manufacturing industry, about which the Opposition always profess particular concern. All in all, that survey shows manufacturing industry's optimism to be at or near the highest level ever recorded, whether in respect of output, orders or exports. Of course, this was before the further cut in interest rates yesterday, which I am sure the whole Committee will welcome.

Those are the fruits of the policies that we have been consistently pursuing since we first took office.

When he rises to speak, the hon. Member for Dagenham will, I have no doubt, paint a different picture—one of doom and despair, depression and disaster. Certainly, I very much hope he does, because the more that right hon. and hon. Members opposite do so, the more nails they hammer into the coffin of Labour's credibility. All it does is to demonstrate in the clearest possible way that they are wholly out of touch with what is happening in the real world.

For the Opposition to criticise us for having increased taxation in 1979–81, when we were clearing up the mess that they left behind, is not merely an impertinence, it is Satan denouncing sin, coming from a party which is itself implicity committed to a massive further increase in the tax burden on ordinary people. The only 27 per cent. which the Labour Government ever knew was 27 per cent. inflation—and that is what we would see again if ever they were to regain office. No wonder they have committed themselves to reversing the 2p cut in income tax in the Budget. They are pleading guilty to this lesser offence to divert attention from the fact that to finance their overall spending plans would mean doubling the basic rate of income tax.

As for the Liberals and the SDP—it would be wrong to forget them altogether—they say that they will vote against the 2p reduction in income tax, but do not know whether, if they were ever to be in a position to influence events, they would reverse it or not. Their confusion on income tax parallels their confusion on every other aspect of economic policy, not to say more widely.

The whole world now recognises that our policies have created an economy that is stronger than at any time since the war. The policies of the Opposition would destroy that strength. An integral part of our policy has been the reduction in income tax, and clause 20 is a further step forward. So long as this Government is in office, it will not be the last. I would remind the House of the precise words used by my predecessor in 1979, which I have reaffirmed before and reaffirm today: our long-term objective is a basic rate of
"no more than 25 per cent."—[Official Report, 12 June 1979; Vol. 968, c. 261.]
We do not pursue policies to meet arbitrary targets, and then sit back. We pursue them because they are right, and because they work, and we shall continue to do so.

The contrast with the Opposition could not be greater. We believe in building on success; they believe in a return to the failures of the past. We believe in a free economy and a free society; they believe in state planning and state regulation. The vote at the end of the debate will be a vote of the first importance, for it will establish beyond doubt, once and for all, which party is the party of lower taxation, and which parties are the parties of higher taxation. I commend clause 20 to the Committee.

We oppose the clause because it is wrong. It is wrong economically and it is wrong socially. We oppose it first because, in our present economic condition, there are better things to do with £2·5 billion than to give it away in tax cuts. We oppose the clause because giving away tax cuts is likely to harm our economy. We oppose it because it forms part of an overall taxation strategy with which we profoundly disagree. We have to look at the clause against the background of the Government's tax record. The Chancellor, in his peroration, said that the debate will show which party is the party of low taxation. Therefore, we are entitled to look at the Government's claims in that respect.

The first point that should be made is that, of course, the overall effects of all the taxation changes made by the present Government have been regressive in their consequences. At the end of the day, they have benefited only those at the top of the income scale. Only those people have had real tax cuts in absolute and proportionate terms. Let us examine that claim. Again today, the Chancellor rehearsed an argument that we heard earlier from the Financial Secretary in his winding up speech on Second Reading last week. The Conservative claim has always been that it would reduce the tax burden for the country and for ordinary families. That is a fairly clear statement, a fairly clear claim and a clear objective. No one is in any doubt about what it means and what would be required if that claim were to be made.

We heard from the Chancellor and from the Financial Secretary a careful, complex attempt to deal with the awkward truth that, bearing in mind absolute rates of taxation and proportionate burdens of taxation, for the vast majority of people in this country—and indeed for the country as a whole—a greater proportion of income and of national wealth is now taken by taxation than was taken in 1979. Conservative Members try to deal with that awkward truth by talking about other matters, such as real take-home pay and real earnings—about anything other than the precise nature of their claim to have been a tax-cutting Government.

It is not we who wish to introduce the matter. It is not we who say that it is a matter of enormous importance. But since the Government insist that that is what their record shows, and since this is the test by which they themselves insist that that they should be judged, surely we are entitled to say that the facts simply do not bear that out. In case any hon. Members on the Government Benches are inclined to contest what I say, let me warn them, before they make such a rash claim, that they should recognise that the Financial Secretary, in addition to all the other things that he said in winding up the Second Reading debate, actually admitted:
"of course, a person on average earnings"—
that includes many on above-average earnings as well—
"is paying more pounds in tax—he is even paying a higher percentage in tax".—[Official Report, 22 April, 1987; Vol.114, c. 760.]
On my reckoning, that simple admission — that simple statement—means that no credence whatsoever can be placed on the claim that the Government have been a tax-cutting Government.

If the hon. Gentleman had been paying attention — he usually does, but on this occasion he clearly did not—he would have heard me deal with his point in my opening remarks. I clearly said that between 1979 and 1981, when we were clearing up the mess that we were left by the Labour Government, when we had to bring down a massive and totally unsustainable public sector borrowing requirement, we were obliged to increase the burden of taxation. Not only did I say that today, but we explained it clearly at the time, and the hon. Gentleman will find that in my Zurich speech of January 1981. That period had already come to an end by the time we went to the people in 1983 and had our mandate endorsed by the British people. Since then, the burden of taxation has gone steadily down. That demonstrates our credentials as a tax-cutting Government and a tax-cutting party. That is the direct answer to the hon. Gentleman's point.

That statement sounded remarkably like a lengthy and unconvincing excuse coupled with a confession. It was an explanation—an unconvincing one — of why what I said was right and why the Government's claims have been wrong. It simply gave us some rationale for the confession made earlier by the Financial Secretary. Of course, the Chancellor can explain until he is blue in the face why he put up taxes between 1979 and 1981 and why, for example, his predecessor doubled VAT from 8 per cent. to 15 per cent. Of course, the point might be taken that it was not an actual doubling. In April 1979, his predecessor said:

"We have absolutely no intention of doubling VAT."
That is a direct quotation. The raising of VAT from 8 per cent. to 15 per cent. was just 1 per cent. short of an actual lie. If the Chancellor of the Exchequer wants to take up that point, by all means let him. However, his lengthy intervention sounded like bluster designed to get away from the simple fact on which the Government are clearly very unwilling to be hooked — the Government keep drawing attention to this, not the Opposition—that they have raised the burden of taxation absolutely and proportionately for the great majority of families.

4.30 pm

How much more tax would a man on average earnings be paying if the tax rates and thresholds that we inherited from the previous Labour Government had been indexed? I believe that the answer is about £500.

The hon. Gentleman is requiring me to have the ability of a computer to answer a totally hypothetical question, which again is no more than a ploy designed to deflect attention from this simple point.

I am very willing to move on from this point. However, Conservative Members clearly wish me to remain with it. Therefore, I can do no more than reassert the concession made by the Financial Secretary and the point that was clearly made by the Chancellor in his intervention. In case anyone in the Committee wants to dispute the matter further, I will provide one more opportunity. The present Government, during their period in office, have raised the burden of taxation for the nation as a whole, for the average family and for most ordinary families absolutely and proportionately. That is a clear and accurate statement. It is on the record. It cannot be challenged. It rests on an assertion made by the Financial Secretary.

No, we must really move on. I suspect that the hon. Member for Carshalton and Wallington (Mr. Forman) is likely to do even more damage to his cause than has been done so far.

The hon. Gentleman is not prepared to give way to Conservative Back Benchers—and I regret that—but I am grateful that he has given way to me. As the hon. Gentleman is so interested in the burden of taxation, does he believe that the burden should be reduced or increased? Will he answer that, or does he think that the burden of taxation should remain exactly as it is?

As a preliminary remark, I notice that the Chancellor has again not taken the opportunity of disputing the simple truth that I have explained on several occasions. However, since he has asked this question, I must state that the Opposition have absolutely no responsibility for the current level of taxation. The Government's record is now under scrutiny. The Government have brought taxation to its present level. They are making false claims that I am obliged to knock down — [Interruption.] I will answer the Chancellor's question. Unlike Conservative Members, we have no inhibitions about answering questions.

The Government have mismanaged the economy. In addition to the other damage that they have done to the economy and in addition to the desperate need for investment in the economy, they have increased the burden of taxation. It is not the Opposition's responsbility to accept that level of taxation, but we must accept it because that is what we will inherit.

The Opposition are happy to state that if there is money available in the state of the economy that we inherit—and I have a long passage in my speech which I will come to in this respect if the Chancellor will be patient—that money should be used not to reduce income tax, but for investment. That is quite clear and we have no inhibitions about making that claim. We believe that money should be used for that purpose. The tax burden that the Government have established for the time being, which is higher than they inherited, should be maintained for the moment in the interests of the economy because of the weakness of the economy that we will inherit from the present Government.

No, I am sorry. I must press on.

While there is clearly great interest in the question of the tax burden, I would have thought that Conservative Members would realise by now that their claim—which doubtless they will blithely continue to make in the coming months and years — that this Government are a tax-cutting Government flies in the face of the facts. All I can do is to lay the facts before the Committee and invite the British people to make their judgment. If the Committee really wants me to reiterate the truth, I will. However, I believe that I would be in danger of trying the patience of the Committee if I were to do that.

I want to make it perfectly clear that the changes proposed in the clause do very little to remedy the picture that I have described. Even after the changes have taken place, as has been made clear in written answers provided by the Financial Secretary—and that is presumably why he had no option but to make his confession — the burden of taxation will be greater. We are not even talking about changes that will at last make good the Government's claim to be a tax-cutting Government.

Furthermore, the Government have characteristically chosen to use the available money to reduce taxes in such a way as to produce the usual regressive effect. If the Government had been really keen to use money to reduce taxation, or even income tax, they could have done so in a way that would have benefited those at the lower end of the income scale. However, the Government chose not to do that. They again chose cynically to give the major benefits to those who are already best off in our society. If they were interested in distributing income, they could have used the money to make good the real value of child benefit. However, they chose not to. Instead. they have again given tax benefits principally to the best off. The British people will not easily forgive that. They will recognise what is happening.

The hon. Gentleman should not be allowed to get away with that assertion. If he looks at clause 20, he will learn that there has been no increase in the higher rate bands, as opposed to last year.

However, over the total period, those at the top of the scale have obtained enormous benefits, and a flat rate cut will increase benefits for those at the top of the scale.

The Opposition are opposed to the Government's long-term plans to shift the balance from direct to indirect taxation. I do not imagine that the Chancellor, his Minsters or any of his Back-Bench colleagues would dispute the fact that the Chancellor and his Ministers have frequently said that their long-term intention is to bring about that shift from direct to indirect taxation. In his 1984 Budget speech, the Chancellor said that an extension in VAT was the counterpart to cuts in income tax. That was the Chancellor's stated objective in 1984. A former Tory Cabinet Minister, now an EEC Commissioner in Brussels, is preparing measures which would abolish zero rating for VAT altogether. We watch with interest to see the Government's response to that proposal.

Yesterday there was a new development. I have on at least four occasions challenged the Chancellor and the Chief Secretary — I may even have challenged the Financial Secretary — to rise at the Dispatch Box and deny that work has been carried out in the Treasury with regard to a major extension of VAT. On each of those occasions the Chancellor and his Ministers sat tightlipped. They did not move a muscle. They did not utter a sound. It was left to their right hon. Friend the chairman of the Conservative party to lift a little corner on the truth, not in the Chamber or in Committee, but in a television studio, and under some considerable pressure. He confirmed for the first time that indeed there had been a study. Of course, he did all that he could to minimise its importance. He said that the study had been carried out by some little academic study group and it really had nothing to do with the Government. He said that academics get on with such studies all the time, although he thought that there had been some small Treasury contribution to the funds to set up that study. For the first time we have had an admission that a study has been carried out.

I am delighted that the Chancellor is for the first time showing signs of rising on this point, but before he intervenes could I state that we need to know the terms of reference of that study. Who carried it out? Have conclusions been reached? What action is proposed to be taken on the conclusions? What part will the conclusions play in the Government's plans if they are re-elected for a third term? If the Chancellor would care to answer all or any of those questions, the Committee would be immensely gratified.

The hon. Gentleman is getting desperate, because there is nothing secret or hidden about the work to which my right hon. Friend referred. The Economic and Social Research Council, the Treasury and others have been jointly funding academic research on taxation since 1983. Applications for research proposals on indirect taxes were advertised in The Guardian in 1985. When the Labour party has to scrabble around to produce examples such as those to justify its ludicrous claims about the Government's intentions it shows just how threadbare it is. No work has been commissioned or undertaken inside or outside the Treasury on any proposal by Ministers to increase VAT or extend its coverage.

I notice how carefully the Chancellor chose his concluding remarks—that no work has been done on proposals by Ministers. I wonder whose proposals were considered in that case. He carefully avoided answering any of the questions that I posed to him. If the study was as publicly known as the Chancellor suggested, why, when the Chancellor was challenged on four embarrassing occasions to come clean, did he not utter a word? Why was it that the first time we heard of this was when a non-Treasury Minister, under considerable pressure, was forced to scrabble around for an answer?

If the Chancellor would care to intervene to give us any of the answers to the questions I posed—what were the terms of reference of that study group; what were its conclusions; and what action is proposed to be taken in the light of those conclusions—we could test his claims that this study is of no consequence and that it implies nothing for the Government's plan for a third term. I see that the Chancellor, characteristically, does not propose to answer those questions — the questions that really matter. He answered in carefully chosen words drafted for him in advance, but he cannot answer the real and crucial questions which would reveal the extent of the Government's intention to shift the burden from income tax to VAT.

It is perfectly clear from the Chancellor's silence that we are in the familiar situation where the British people are being offered income tax cuts before the general election and an increase in VAT after the general election. That is the truth of the matter and that is what will be taken from this debate by the British people.

Is it not interesting that when my right hon. Friend the Leader of the Opposition challenged the Prime Minister yesterday on whether she is actively opposed to any increase in the rate of VAT, or any extension in its scope, the Prime Minister refused to answer? If it is true that a re-elected Tory Government — it is not likely to happen, because the Tories are not likely to be re-elected — would increase VAT, as we say they would, would that not wash away the few shillings gained by people from the tax cuts, because the average family would pay far more as a result of increases in indirect taxation?

I am grateful to my hon. Friend. It is significant that the Chancellor has had 24 hours longer in which to prepare some sort of answer to the question on which the Prime Minister dropped an obvious dead bat yesterday. If the Prime Minister had been able to deny our assertions yesterday, she would have done so. The truth is that an extension of VAT, as we believe is proposed by the Government for a third term in office, would increase the average family budget by over £10 a week. The Government have that, prospect in store for ordinary families.

4.45 pm

The tax cuts would impact on the economy, because the use of this money to reduce income tax by 2p in the pound is likely to damage, rather than to help, the economy. The first point is that a cut in income tax is the most inflationary way of using this money to cut taxes, because it would suck in imports, make the balance of payments decline and therefore reduce the value of the pound, pushing up inflation. It would also impact directly on the balance of trade.

The Treasury forecasts a trade deficit in manufactured goods of £8 billion this year and an overall trade deficit of £2·5 billion. I hear a call "So what?" from the Government Back Benches. It reminds me that, when we pointed out the turnaround in our trade in manufactures of £13 billion since 1978, the Chancellor said, "That is neither here nor there". As I pointed out in that debate, the volume of production worth £13 billion is certainly not here, but it is there—it is in Frankfurt, Cologne and Tokyo. Those goods are being produced there, and the jobs needed to produce the goods are being created there. Our balance of trade deficit in manufactures is of the gravest significance for our economic future. Any measure, such as cuts in income tax, which will suck in further goods from abroad. close down British factories and throw further British workers on to the dole is likely to do grave damage to our economy.

Let us look at the argument about the beneficent effects of income tax cuts on incentive. We do not hear much of it today, but we used to hear a great deal of how income tax cuts would make everybody work harder and longer. It is difficult for the Chancellor or any other Minister to make that argument today, because a study commissioned by the Treasury, published recently, called "Taxation and family labour supply in Great Britain", concluded that even substantial changes would make virtually no difference whatsoever to the number of hours worked by most people. That study, commissioned by the Government, blows out of the water the reasoning which lies behind the case for improving incentives through cutting taxation.

The Treasury study dealt with the incentives for those in work; it did not deal with incentives in the taxation system for those out of work. Can the hon. Gentleman explain how somebody who is out of work in the north-east is more likely to take work if his income tax were to be increased and his take-home pay reduced, as it would be if the Opposition's vote tonight were successful?

The hon. Gentleman thinks he is making a separate point, but it is exactly the same point as was considered by the Brown report. It is simply a question of incentives to work additional or any hours to improve one's income above the current and presumed level. This reports bears out what common sense would have told Ministers a long time ago: if one reduces taxation, the likely effect on the ability or willingness of people to work is that they will work less and will earn the same income for less work. Many people, on purely common sense grounds, would choose to respond to that by not working as hard.

Furthermore, the Government have to explain why tax incentives are required to get those in work who are at the top end of the income scale to work hard, whereas the disciplines required to force unemployed people to work are cuts in benefits and cuts in pay. That is the difference. That is the affront to common sense that the Government have to explain. That is the socially divisive policy to which they have attached their name and attitudes.

The import of the point that the hon. Gentleman has just made seems to be that if the Labour party were to take office, which I doubt, it would seek to put up income tax and thereby get people to work harder. Is that the conclusion that he is drawing?

The argument that the hon. Gentleman postulates is not one to which we have ever paid any attention. It is the Government who maintain that the incentive effect of taxes is crucial and it is the Government's own study that shows that that claim is ill-founded. Again, the Government put up a target which is all too easily knocked down. But it is not our target. It is not an argument that Labour Members would wish to make.

The major objection to these tax cuts is that they pass up a real opportunity to use resources which have come in an uncovenanted way to the Chancellor. They have come, for example, because corporation tax, contrary to the Chancellor's assertions earlier, has proved to be a more buoyant revenue raiser than was foreseen when the 1984 tax changes were made. He has used that money not for the purpose of investing in the real needs of our economy, which is desperately crying out for that investment, but for purposes that will harm that economy.

The Government's model of the economy and the London Business School's computer model of the economy, neither of which is particularly confident or helpful to our case, show clearly that the Government's chosen course of tax cuts is four times less effective than if that money were invested in the same quantities in our economy to create employment and increase output. If we had used that £2·5 billion, the models of the economy—on which, again, we place little reliance, but which the Government have always maintained are important guides to economic policy — show a 4:1 ratio between the number of jobs created by investment in our economy and tax cuts.

That is the chance that the Chancellor has passed up. That is the extent to which he has turned his back on the unemployed. With £2·5 billion at his disposal—he had more, but he has chosen to use £2·5 billion for tax cuts—he could have invested in our infrastructure, in our skill training and directly in our industry. He could have done all those things, but he has allowed a situation to develop in which manufacturing investment languishes at 20 per cent. below its 1979 level.

The Chancellor asks about the CBI survey. Why does he not look at "Fabric of the Nation", the report produced by the CBI complaining that shortage of investment was ruining our industrial infrastructure? Why does he not look at the Manpower Services Commission, another Government-sponsored agency, which says that we are training eight times fewer engineers than the Japanese? Those are the things on which the money could have been spent. Those are the things on which a Labour Government would spend that money. The real charge against the Government is that, for cynical electoral reasons, they have passed up an opportunity which could have benefited the economy.

The case against tax cuts is so substantial that it is impossible to believe that they have been proposed by the Government for any better reason than that they make the cynical judgment that the floating voter is as avaricious, selfish, short-sighted and unconcerned for the general interest as the average Tory Back Bencher.

That judgment is as mistaken as it is cynical. It is a judgment that is not shared by the British people. Indeed, it is not even shared by the British Institute of Management, which, in February, said that managers preferred some specific increases in Government spending to a cut in taxation. Only a quarter sought tax cuts before some increase in public expenditure. The increases in public expenditure on infrastructure that were announced in the public expenditure White Paper—who was saying that they had not got it?—were not enough, according to the British Institute of Management. It said that managers strongly support direct measures to tackle persistent high unemployment.

That is the option that was available to the Government. That is an option recognised not just by the Labour party but by many people in society, the British Institute of Management and many other institutions. All the opinion polls tell us that the British people reject the cynical bargain offered by the Government. They will reject that cynical deal. They know that tax cuts are not the way to obtain decent housing, and proper pensions, schools and housing. They know that that is not the way to get what only community provision can make available to them. For that reason, they will reject the Government's offer, as we shall do tonight.

It is always a pleasure to listen to the hon. Member for Dagenham (Mr. Gould). Most of us look upon him with generous feelings and some friendship. However, we feel some sympathy for him in advocating a policy on behalf of the Labour party with which he does not agree.

It is obvious that with the hon. Gentleman's intellect and experience of finance there is no way in which he can talk about the Government giving away £2·5 billion. On thresholds, he will agree with me that the Government have kept well in front of inflation and that the lower paid are better off than they would have been if we had followed the principles followed by the Labour Government on the starting rate of tax. I have no doubt that he will agree that the standard of living in Britain has increased tremendously since 1975, which was not the case before the Government took office.

The hon. Gentleman says that we have not decreased direct taxation, but he is not facing the facts. The standard rate was 33p in the pound and it is now—or will be—27p. The top rate was 98p and is now 60p. He talks about the 2p reduction being inflationary, but the logic of that is that we should go back to 33p. Apparently, if a reduction of 2p in the standard rate of taxation is inflationary, to avoid that we should go back to 33p. However, I remind him that when it was 33p we had inflation of about 27 per cent. Now we have inflation of about 4 per cent.

The hon. Gentleman talked about the reduction in the standard rate sucking in imports, but if he looks at the Labour Government's balance of payments record, for practically every year of that Government there was a deficit in our balance of payments. That position has been completely reversed by this Government.

I do not think that the hon. Gentleman believes all that his colleagues forecast. Just before the 1983 election the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said that inflation would be in double figures. Double figures means 10 per cent., but it has not been 10 per cent. since 1983, and it is 4 per cent. now. Another of his colleagues said that unemployment would rise to 24 per cent., but in fact it is 11 per cent. It was also said that the National Health Service would be dismantled within five years, but that has not happened. It was said that we would become a bankrupt nation and that output would go down, but since 1983 output has increased tremendously. It was said that pensioners would be much worse off after 1983 under another Conservative Government, but under this Government the pensioners have had an increase 4·5 times greater than under the previous Labour regime.

The VAT smear with regard to food, and so on, that is now going around has been answered by my right hon. Friends the Chancellor and the Prime Minister.

What the Labour party has not said, and what the hon. Member for Dagenham avoided, is the effect of its policies on VAT. I remind the hon. Gentleman that if the promises of his hon. Friends, and even the official policy of his party, were implemented, they would lead to a VAT rate of about 49 per cent.

The hon. Member for Dagenham did not deal with what the Labour party's plans for increased expenditure would mean for the standard rate of tax. It would mean a standard rate of tax of just over 50p in the pound as a starting point and VAT would be about 48 or 49 per cent. The Labour party should address itself to these points and explain to the electorate what it plans to do.

5 pm

The hon. Member for Dagenham said that the Chancellor underestimated the amount that he would receive from corporation tax. The reason for the Chancellor receiving more from corporation tax is the increased profitability of companies.

Perhaps the hon. Gentleman will allow me to finish and get my facts right before he attempts to distort them.

We must realise that, if the profitability of a company increases, by necessity the Chancellor's take is greater.

I do not dispute the point that the hon. Gentleman has made, but he fails to take the one that I made. Far from being revenue neutral, the changes that were announced in 1984 — accepting the level of profitability of the corporate sector today — have produced £1 billion more in corporation tax than would have been the case without those changes. That is nothing to do with profitability.

This worries me. The hon. Member for Dagenham is the Labour party spokesman on finance. If he believes that the neutrality of corporation tax is not dependent on the profitability of companies, he is whistling in the dark. Obviously, one can reduce taxes and receive a greater take if the income of a company increases.

I cannot understand the Opposition's claims of gloom and doom with regard to the Budget. The CBI, which mainly represents manufacturing industry, is extremely optimistic and bullish. There is no question but that the economy is in better shape than it has been for many years.

Let us look at the public sector borrowing requirement. I was surprised that last year's borrowing requirement was so low, and on that I congratulate my right hon. Friend the Chancellor. The Chancellor is not over-optimistic. He takes a very pragmatic approach to the outcome of the year's finances. The public sector borrowing requirement is very low at £4 billion. That achievement is not recognised by many people in this country. Output is going up.

The Labour party gives me the impression — I am sure that it gives the rest of the country the same impression—that it is the party of higher taxation. It always has been. The history of Labour Governments since the end of the war shows that they have always increased taxes. Conservative Administrations have reduced them.

The hon. Member for Dagenham—I welcome this—said that he was pressing my right hon. Friend the Chancellor on his plans for his third term. That is fairly defeatist talk on behalf of the Labour party. Apparently, it has realised that we shall have a third term and that, with the advent of polling day, my right hon. Friend v. ill still be Chancellor of the Exchequer.

I welcome clause 20 because I am convinced that it is right. As a starting rate 27p is still too high, and I welcome what my right hon. Friend the Chancellor said about the target being 25p. I noticed—I will not press him on this point—that he did not say what the higher rate would be. At some time I should like to tell him what I think the top rate should be.

Anybody — including the hon. Member for Dagenham—who says that this is an election or bribery Budget and that the reduction of 2p in the standard rate of tax has been made to gain votes should think again. I wonder what the Labour party would say if it went through every Budget since 1979. Direct taxation has been reduced in each successive Budget. There was no election in 1980, 1981, 1982—in 1983 there was—1984, 1985 and 1986, but there has been a continual steady reduction in the burden of taxation. The lower we can get direct taxation, the greater the incentive for people to work, which is what we want for a prosperous society. That is what we are becoming, because we are in a much more prosperous situation today than we have been for many years.

The hon. Member for Croydon, South (Sir W. Clark) referred to taxation and reductions in taxation, but in this clause we are only dealing with the reduction of income tax.

The hon. Member for Dagenham (Mr. Gould) was right to point out that if one is talking about all taxes—customs duties, employees' national insurance contributions, VAT and the whole range of taxes—the Government have increased the burden of taxation.

We are dealing with income tax, and whether it should be reduced by the 2p that the Chancellor is proposing. The Chancellor said that it was the policy of the Government, and the Conservative party's view, that income taxes should be reduced as and when prudent. I was pleased to hear him say that. However, unless we can deal with unemployment, the problems affecting the Health Service, education and training, housing and many others such as the lack of research and development in industry and the brain drain, it would not be prudent to reduce income tax. If we can start to deal with those problems in a substantial manner, we can see no reason for keeping income tax or any other taxes a penny higher than we must.

We would have preferred to see the Chancellor in his speech today and in his Budget speech and Ministers in their speeches pay much more attention not to the inflated, exaggerated claims about the performance of the economy at the present time but to some of the problems that face the country, some of which have been exacerbated by the policies of the Government after nine years. It is to those problems that we should be addressing our minds this evening because they are the long-term problems which, if not overcome, will undermine the long-term success of the economy and industry. They are the problems to which the people of this country want to see their Government addressing their attention and resources.

Let me deal first with what is undoubtedly, in most people's minds, the No. 1 problem facing the country—to which the Chancellor's Budget pays hardly any attention — unemployment. All the evidence we have from consistent findings in opinion polls, from our experience as Members of Parliament in our constituencies and throughout the history of the past three or four years shows that unemployment has been the anxiety about which the people have felt most strongly. However, the Government have paid little attention to it in speech after speech and policy after policy.

The reality is that, after all this time of Conservative rule, we still have in excess of 3 million people available for work. This figure includes those who are not on the register, because those on the register are simply those registered for benefit, and there are many more people who want to work. Those of us who represent areas of high unemployment — my county has the highest level of unemployment of any in Great Britain, except the Western Isles—believe that unemployment at over 20 per cent. is a scandal and should be a top priority for the Government.

Before the Budget, we put forward proposals on how we believe that the Government should be using their resources to get those people back to work and make it possible for them to seek fulfilment in work, with a better income. We showed how the economy would benefit by the increased wealth that would be created if that unused capacity, that unused resource of people, was in use.

We believe that, by embarking on a programme for expansion of some £4·9 billion, we can, over three years. get about 1 million people back to work. That will still leave an unacceptably high level of unemployed people. I wish that the House and its Committees would spend more time considering the problems that every party in the House knows will be there. We shall have at least 2 million people wanting work, no matter which party wins the general election and no matter what policies are introduced.

That is why we believe that the second priority for the Government, rather than cutting income tax, is to deal with that problem of unemployment, which means that a substantial number of people in Britain today are facing considerable hardships. Furthermore, the benefits for pensioners and those hardest hit by unemployment and the recession should be increased.

Thirdly, we believe that one must consider the long-term future of British industry and the British economy, and we believe that a number of measures are necessary to build for that future. Foremost among those I put education and training. When the Government came into office in 1979, they began to destroy the training system. They abolished the training boards and the apprentice opportunities that used to be available to thousands of young people when they left school.

After a time, as unemployment went through the roof and the Government began to get very worried about the electoral consequences of the level of unemployment and realised that they must do something for the unemployed young people, they introduced the youth training scheme and spatchcocked it together. We were delighted that the Government introduced that scheme. We pressed them to extend it to two years and we were delighted when they did so. We supported the Government when they introduced the youth training scheme, but the scheme still has a great deal further to go if it is to make a contribution to the skills and future of our young people in the way that it should.

5.15 pm

The first and most important thing that must happen to YTS, apart from putting extra resources into it and ensuring that people get the skilled training that they need for the rest of their lives, is to give it an accredited status so that it can be used to get further qualifications. It is no good doing a two-year youth training scheme if at the end of that time one has nothing of value to take either to an educational or training institution or to an employer, such as an O-level or a CSE.

I am pleased that Ministers have responded to my pleas and those of my colleagues for a move in that direction, and that the Manpower Services Commission is working on a programme to get accreditation for the youth training scheme so that it dovetails with the rest of our education and training system and gives young people a real opportunity. Putting resources into that is a top priority if we are to succeed against competing countries such as Japan, Taiwan, South Korea, Hong Kong, America, and Germany, all of which have education and training systems that make ours look sick.

There is a great thirst for education in places such as Hong Kong, where half the population is under 21. The small country of South Korea, with 15 million people, is producing four times as many graduates in information technology as both this country and West Germany combined. That is the challenge that faces our country, not the challenge of people in work getting a cut in income tax. We want more resources to go to education and training so that we can match the output of graduates and skilled people from our educational and training institutions with those of other countries such as Japan, America and Taiwan.

One sees in the education institutions of the world people from China, Hong Kong, Taiwan and other countries with an enormous thirst for education. We must encourage that thirst here and provide the resources for it.

As a priority, the Government must also pay attention to our manufacturing industries, to research and development and to ensuring that highly qualified people from educational institutions come into industry and make it a top priority. It has been palpably obvious to everybody since the Government came into office that they do not care a hoot about manufacturing industry. We have heard all this talk about the services industry and we heard it again today. The Tories say, "Don't worry about the deficit in manufactured goods. Don't worry about the billions of pounds and record level of manufactured deficit."

How does the hon. Gentleman explain the fact that action by Government is not always necessary? How does he explain the great recovery in our textile industry?

The textile industry is like other industries. It was hit in the face and knocked flat on its back by the Government's policies from 1979 to 1981–82. It is now getting back up on its knees again and Ministers say that that is a wonderful miracle. One industry after another has been in that position. They have been almost destroyed. Many have gone out of business, which is why we have lost 22 per cent. of our manufacturing industry.

All that has happened because of the policies that the Chancellor has demonstrated that he wants us all to forget about. He wants to forget about what the Conservative party did to this country between 1979 and 1982. That was the black period for manufacturing industry, as one company after another went bankrupt and the level of unemployment went up through the roof. It has stayed up there ever since. That was the period that the Government want to wipe out. They are like Stalin: they want to forget parts of their history; they want to forget that that period existed. Let me tell the Chancellor and his colleagues that we will not allow them to forget the 1979–82 period when they followed their monetarist policies.

Now we are witnessing a change. It has occurred in the past few months and was contained in the Chancellor's autumn statement. Public expenditure has been anathema to the Conservatives. The right hon. Member for Leeds, North-East (Sir K. Joseph) used to talk about public expenditure as if it were a swear word. Public expenditure was not something that was embarked upon by Conservative Governments true to the faith. Goodness me, look at the Chancellor's autumn statement and consider the press releases—some extremely expensive—issued by Government Departments. The statement and those press releases boast about public expenditure. When the Government first came into office we heard a great deal about them taking their hands off industry, not intervening in industry and having nothing to do with market forces. However, the Government are intervening in market forces all over the place. One almost needs the help of a management consultant to go through all the schemes that are available from the Department of Trade and Industry.

I welcome all those changes, but that was not what the Government had in mind in 1979. Then they said that we should abolish all such schemes. This week we had a new announcement about inner-city initiatives and partnerships with local authorities and the private sector. We have been asking for that for years, but it is only in recent times that the Government have been converted. Over the years, requests have been made for urban development corporations. How long have the Government been refusing proposals for a development agency in the north and the north-west? They have not closed down the Scottish Development Agency or the Highlands and Islands Development Board. Such intervention is line because they know that if they tried to abolish those bodies there would be an outcry and they would lose even more Scottish votes. My goodness, as ballot boxes loom large on the horizon, the Government have changed their attitude.

Does the hon. Gentleman agree that, in 1979, British manufacturing industry was so uncompetitive and overmanned that it was inevitable that, if we were to survive, all surplus labour had to be shed? Does the hon. Gentleman not agree that, in the autumn statement of last year, the Government said—successive Conservative Governments have said the same — that when the economy was strong enough, more resources would be put into public expenditure? My right hon. Friend has been able not only to increase public expenditure on education, roads and the rest of it, but, at the same time, to reduce taxation and reduce the borrowing requirement. Surely credit should be given for that.

I cannot stand the Conservative party propaganda that is presently pouring out from Tory Back Benchers. To suggest that 20 per cent. of the manufacturing capacity of Britain was completely lost simply because firms were inefficient is unbelievable.

The hon. Member for Croydon, South should look at the history and talk to some of the managers in the manufacturing industries. The Conservatives should accept that firms went bankrupt because of the exchange rate and interest rates—they were crippled by them and could not remain in business. During 1979–82, the exchange rate against the dollar was $2·40. We then went almost to parity with the dollar and now the rate is $1·60. How can businesses try to organise their planning, marketing, manufacturing or investment when there are such fluctuations in the exchange rate?

I believe that the Government should use their resources to benefit the Health Service. Recently, we have heard a number of boasts about how much the Government are spending on the Health Service. However, when the Government talk about the resources that are being spent on the Health Service, they never tell us about the demands that are placed on those resources. We believe that we must spend an extra 2 per cent. a year on the Health Service to sustain it at its present level.

We are all aware that we have an increasingly ageing population who need more care. Modern technology in the Health Service means that it is becoming more expensive to treat people. To sustain the hip replacements and other operations that are presently carried out, we must increase expenditure by 2 per cent. a year.

What is happening to the Health Service today? The Government are demanding productivity increases from the hospitals and are demanding that the health authorities pay for an element of the pay increases that the Government have agreed. They tell district health authorities that the Government will increase nurses' pay—they have said this for the past three years—and will increase Civil Service pay, but they will not give the money to pay for those increases.

I concede that the Government are giving almost all the money to meet the recently announced nurses' pay increase, but an element of that increase must be found by the Health Service from other resources. That is leading to a dire financial crisis for the North Tees health authority. A deputation from that authority will shortly meet the Minister because of that crisis. It cannot sustain the present level of health care unless the Government are prepared to make extra funds available.

The North Tees health authority has an excellent record of efficiency and productivity. There is one general hospital in Stockton — just outside my constituency —that serves the North Tees district, which covers my constituency. It has an excellent record. However, it cannot increase efficiency and productivity—that health authority has been cut to the bone. It is impossible for that authority to find the resources within its budget to meet the nurses' pay increase and the increase in civil service pay agreed by the Government. Therefore, cuts in clinical services must be made. It is a sick joke to my constituents to be told by the Chancellor that they should welcome a 2p cut in income tax. Such problems do not affect Stockton and North Tees alone; they affect district after district.

I agree that, as the Chancellor said, "as and when it is prudent" taxation should be cut. Against the background I have described, we believe that it is not prudent, nor is this the time, to make taxation cuts. If it is possible, we shall achieve our priorities without increasing taxation.

The Chancellor tried to goad me earlier about our position on tax cuts. We shall make our position absolutely clear before the general election, when our studies are complete. If we believe that we can achieve our priorities on unemployment, on the Health Service, on education and on industry without going back to the old rates of tax, we shall certainly do so. We shall publish more detail and more information, as we have done about all our Budget proposals for the last three years, than any other Opposition party, including the Conservative party when it was in opposition. We have given more details and more costings of our proposals than any other party has given.

Before the election, we shall publish full information for everybody, whether political parties or the public, to examine. We have published credible policies that could help get industry back on its feet, that could help to take care of those who have been hardest hit by the recession and above all that could start to get people back to work. Because the Government are not prepared to face up to those priorities, we shall vote against the clause.

5.30 pm

While we understand much of the theme put forward by the hon. Member for Stockton, South (Mr. Wrigglesworth), I think that he tends to exaggerate what can be achieved by public spending. He seemed to imply that the more the Government spend the better it is for industry, and that any money released through tax concessions is injurious to the country. I challenge this view. I do not think that Britain achieved its pre-eminence over 100 years ago by the extent of its public expenditure. It was done by the active ingenuity of industrialists and the work force over a long period of time.

The feeling of politicians in those days was that it was better to allow money to fructify in the hands of the people than to accumulate in the hands of the Government. All that the hon. Gentleman told us is at variance with that doctrine. The view of the Opposition parties is that only in the rarest circumstances are tax concessions of benefit. Psychologically, apart from any other reason, tax concessions have a splendid effect on the economy of any country.

It is not just the exact impact of tax concessions that one must study. One must examine their effect on the mood of a country. In that context, we are apt to underestimate the benefit of what the Chancellor has done. Undoubtedly, when the Government came into office there was a period of great difficulty. In the first two or three years they could not do what we like doing best. We prefer to introduce tax concessions rather than tax increases. I can well recall the days of Labour Governments from 1964 to 1970 and fom 1974 to 1979. In each Budget we looked for the new imposts and the additional burdens that were being placed on industry and on individuals. How different things are today. In my right hon. Friend's Budget, and in the last two or three Budgets, we have seen what tax reductions we can identify. Surely that is much more in keeping with our record in the past and our hopes for the future.

Clause 20 is much narrower than one might think from the speech of the hon. Member for Stockton, South. It is limited to one tax concession, namely, on income tax. I confess that I do not take the view that it is always best to make concessions in this way. Sometimes I would prefer other tax reliefs. For example, the tax thresholds might be raised, but that has been done in previous Budgets. If we combine the tax concessions of recent years, we see that the benefits have been widely spread. Not least to benefit have been companies, which have had tax reductions.

The hon. Member for Stockton, South referred to the difficulties of industry in his area. He implied that those difficulties all started with the Conservative Government of 1979. It was as though it was only then that we began to shed opportunities for people to be apprenticed in industry. The decline in apprenticeships spans a longer time. I agree with the hon. Gentleman that the training programme should be expanded and that we should consider critically the Government's contribution to training and research in industry.

In the short term, and perhaps in the moderately long term, it is desirable to increase the return of money to producers and earners. Of course we want them to have more, but I do not think that we should set the interests of earners against those who are not working. We should try to reduce the number of unemployed. Much has been done by my noble Friend the Secretary of State for Employment. I foresee a considerable increase in training in the coming months and years. This has to be a gradual process. It cannot be achieved immediately in the context of this tax concession.

I welcome the change in taxation. It is wrong always to describe it as a concession. It is valuable for all who are employed in industry and for industry itself. It will lead to an increase in earnings and lessen the pressure for wage and salary increases, which will he an additional benefit.

Above all, psychologically this tax change is a stimulating, attractive feature of the Administration. Coupled with the increase in production that has occurred successively for many years, it should lead us after a long period of trial to believe that the economy is on the upturn. We should not be foolishly optimistic, but, nevertheless, we can look to the future with a soberly increased confidence. I hope the hon. Gentleman will share that view.

We are debating tax cuts. We have heard many strange and dubious claims advanced by Conservative Members. The most dubious and most suspect is the claim that tax cuts have helped and will help those on average and below average incomes. It is that issue that I wish to address first.

First, that claim can be substantiated only by a highly selective presentation of statistics. We have heard such a travesty of statistics this afternoon in the claim that the Government have made tax cuts. When they are pressed, their definition changes — the ground rules change. Instead of talking about tax cuts, they say that they are talking about income tax cuts, neatly forgetting the wider tax implications of national insurance rates and VAT, which have both increased under this Government, despite the dishonest claim by the Prime Minister immediately before the 1979 general election that she would not increase VAT. As we all know, thereafter came that swingeing increase to 15 per cent.

Secondly, in terms of overall tax, particularly for the lower paid, it is simply not true that there has been a reduction. They have borne the brunt of the much higher rates of indirect taxation, such as VAT, as well as increased national insurance contributions. In addition to the selective use of the word "tax" to limit it to income tax, there has also been selective amnesia as a convenient way of forgetting that the Government inherited a reduced starting rate of taxation of 25 per cent. from the last Labour Government. Of course, that meant that the lower paid paid less income tax than now, even after eight years of Tory Government claims to be reducing the basic rate of taxation. That is a point readily forgotten by Conservative Members when they talk about the rate of income tax.

Thirdly, Conservative Members ignore the wider implications of their policies, particularly those relating to social security benefits, which are especially relevant to the low-paid and those on below average earnings. When such people consider their disposable income, they must consider not only their income tax and national insurance. They also need to know how much income is left after their entitlement, or withdrawal of entitlement, to various means-tested benefits.

The hon. Member for Darlington (Mr. Fallon) — I am sorry that he is not in his place—made a remark earlier in the debate that I wish to pick up. He put forward the proposition that lower income tax would be an incentive to the low-paid to work. I wish to examine the detailed implications of the Government's policies for the low-paid. Over the past eight years their position has worsened dramatically. I shall illustrate that with a typical example of a person in low-paid employment who is paying tax and national insurance and receiving housing benefit. That benefit is widely available in the form of rate rebate for home owners and, more generally, in the form of rent and rate rebate for tenants.

In that context, there has been a serious deterioration in the position of the low-paid. A tenant receiving a rent and rate rebate, and paying lax and national insurance in 1979, would have lost 62 per cent. of any increased income. That would have been his marginal rate of taxation after losing 33 per cent. tax, 6 per cent. national insurance, and 23 per cent. through the withdrawal of his means-tested benefit. The Chief Secretary will note that I am not quoting figures for a family on the lower, 25 per cent. rate of income tax. I am quoting figures for the basic rate of 33 per cent.

By 1987 the position has changed as follows. The income tax rate has declined from 33 to 27 per cent. National insurance has risen from 6 to 9 per cent. and the loss of means-tested housing benefit has moved from 23 to 46 per cent.—it has doubled during the period. So a family or single person in that position will lose, not 62p out of every extra pound earned, but 82p. That reveals the hypocrisy of the Government's claim to be helping the low-paid. The Government have seriously increased the loss of income to someone in low-paid work who obtains a pay rise. Such a person is now losing at the fantastic rate of 82p in the pound. What greater disincentive could there be for people to seek higher paid work? That is the legacy of the present Government, but it is not the full story.

5.45 pm

Worse is to come. The Government's social security proposals, to be introduced if, by mischance, they remain in office next April, will mean that the rate of withdrawal of means-tested benefits will increase more steeply. As from next April, a person receiving housing benefit and paying tax and national insurance will lose no less than 87p out of any extra money that he earns. We are talking about hundreds of thousands of people in low-paid work, to whom the Government's policies have meant, not cuts in taxation, but swingeing increases in the rate at which they lose the extra pay that they earn — hardly an incentive to encourage the low-paid to work; on the contrary, a steeper withdrawal of benefit.

What a contrast that presents to the treatment of the wealthiest 5 or 10 per cent. of the population, who have done very well indeed out of the selective tax cuts that the Government have made. For them, a rate of taxation of 87p in the £ would have been described, in the Chancellor's earlier felicitous phrase, as penal. The Government regard such taxation as wrong and as a disincentive to the richest people in the country to stay in Britain and work. Yet the Government who take that line with the richest are happy to apply that penal rate of taxation to the poorest people in employment — not the poorest in society, but the poorest in employment. That reveals the hypocrisy behind the Government's stance on tax cuts.

The Government's policy is grossly unfair, but it is not only its unfairness that leads us to oppose the proposed cut in the standard rate of income tax that is incorporated in the Bill. We do so, as other speakers have said, because of the waste of opportunity that it represents. It is a wasted chance to use the £2·5 billion that is involved to help to revive the country's economy. The Budget has failed lamentably to tackle Britain's key problems. It has failed, as other speakers have made clear, to remedy the continuing scandal of unemployment. Greater priority should have been given to measures to reduce unemployment dramatically. It is not enough to fiddle the figures in the hope that they will fall below 3 million some time later this year. We need concrete measures that are designed to get people back to work of the kind that the Labour party is advocating in its policy to put 1 million people back in employment in the next two years.

We have witnessed the neglect of the Health Service and the tragedy that has beset one of Britain's most important and best loved institutions in recent years as a result of Government policies. It has affected my constituency, too. The Health Service has been denuded of funds, the staff have become increasingly demoralised and hospitals have been threatened with closure. Three hospitals serve my constituency, one of which, the West London hospital, which has a fine reputation for dealing with maternity cases, has been under threat of closure for the past nine months. The threat has been postponed only by a temporary additional injection of finance to enable the decision to be postponed, because it would be electorally embarrassing to take it immediately before a general election.

Charing Cross hospital is short of 150 nurses because they cannot afford to find accommodation and live in central London. I spoke to them about the need for additional pay. I am pleased that the Government have agreed to implement the pay review body's recommendations immediately this year—would that they had done so in previous years when there was no election on the horizon, and would that they had agreed then to implement the recommendations promptly and in full from the date on which they should have applied. At least this year they have done so, but that is not by any means sufficient.

Last week a nurse in my constituency said to me, "I cannot afford to continue in the profession. One of my friends who also qualified recently has left the job and become a receptionist to a solicitor. Now she is paid more than twice as much as I am." In areas such as Fulham, where there are acute housing problems, it is hardly surprising that the Health Service is bleeding to death, because key staff are leaving and wards are being closed. That is happening in our key public services.

Housing, which we debated yesterday, is a further factor. Government policy makes financial nonsense. They have cut expenditure on housing and are not building the new houses that are needed. The DHSS is spending more money than would be necessary to build new houses on subsidising private landlords who are exploiting the housing shortage by offering squalid bed-and-breakfast accommodation at an extortionate cost to homeless families who should be housed. That is only one consequence of the Government's tragic failure to invest money in homes for the needy. The Government are pouring money down the drain on absurd and ineffective subsidies rather than investing it in homes that are needed. That is a further damning comment on the Government's failure.

The Government's record on pensioners is no better. Last year pensioners were given a 40p increase in their pension, which they rightly condemned universally as an insult. This year the Government have felt more generous and have offered an 80p increase. Most of my pensioners know that that is just as insulting and demeaning as last year's increase. The Government's priorities are wrong. They can afford policies that give large sums in tax concessions to the wealthy, yet they cannot afford to give an increase of more than 80p to pensioners. Our pensioners receive the lowest level of pension of any country in western Europe, except for Greece. What a damning comment on the legacy of the Government.

The Government's policies have failed across the board and investment is needed in many areas, but has not been forthcoming. In the Budget the Government have chosen to use their money in a way that fails to tackle our real problems and needs. For that reason, we reject the 2p cut in income tax. It is not the right decision or priority, it does not concentrate resources where they are most needed and it is not right for Britain. Therefore, we shall vote against it.

The hon. Member for Fulham (Mr. Raynsford) began his speech by saying that this was a debate on income tax. He then diverted to housing benefit—a subject on which I know he is an authority—the Health Service and pensioners. He was reluctant to talk about income tax.

The hon. Gentleman referred to the lower rate of income tax that existed before 1979. It was a rate of 25 per cent. which applied only to a small number of people in a fairly narrow income band. Perhaps he is reluctant to talk about income tax because, if the Committee approves this clause, as I hope it will, a rate of tax of only 27p in the pound will apply, not only to a narrow income band of people on well below average earnings, but to everyone who earns up to £17,900 a year, which is well over one and a half times national average earnings.

If the Government are re-elected, as I am sure they will be, no one can be in any doubt that it will not be long before we have a basic rate of income tax of 25 per cent. for everyone earning up to one and a half times and perhaps even twice national average earnings, as the Labour Government had, but only for a small group of people who were earning well below national average earnings. Therefore, perhaps it is not surprising that the hon. Gentleman did not wish to address income tax in great depth.

The hon. Gentleman also referred to national insurance contributions. I appreciate that he has not been in the House for long—indeed, for an even shorter period than me — so perhaps he does not recall that in 1985 the Chancellor of the Exchequer announced substantially reduced employee and employer national insurance contributions for people on below average wages. The starting rate of employee national insurance contributions, with which we are most concerned here, has been cut to 5 per cent. by the Government.

May I remind the hon. Gentleman that, when I compared the 1979 and present levels of income tax, I deliberately chose not to use as my example the 25p lower rate band? I simply made the point that that rate had applied and that Conservative Members were forgetful about it. For comparable reasons, I did not use the starting point for the lower rate of national insurance contributions because it, too, applies only at the bottom end of the income scale. For fairness, I chose the standard rate of income tax, not the lowest rate that applied in 1979 and the national insurance rate which applied to the overwhelming majority of people in paid employment—9 per cent.

I suspect that the electorate will also be forgetful when everyone earning up to one and a half times national average earnings is enjoying a rate of tax of 25 per cent. Not many people will recall that, under a Labour Government, a small group enjoyed that rate of income tax. People on average earnings, about whom the hon. Gentleman said he was concerned, have the prospect of paying less income tax now and in the future than they paid before 1979.

The hon. Member for Stockton, South (Mr. Wrigglesworth) also began by saying that the debate was about income tax cuts, but he spent about 25 minutes on all the usual SDP sob stories. We had a great deal about manufacturing industry, several minutes on the National Health Service and several minutes on education and training, but without any mention of the policies of the president of the SDP. Finally, he found time to mention income tax. He could not answer my right hon. Friend's question about the SDP's position on income tax cuts, presumably because there is still confusion within the SDP about whether income tax should be higher or lower. If the hon. Gentleman were present, I would offer him a further opportunity to clarify that.

The hon. Gentleman explained that his studies were not yet complete. No doubt he has left the Chamber to rush off and join his colleagues in their work on ascertaining whether it is prudent to be in favour of higher or lower income tax. Indeed, it is rather a touching picture. One can imagine them closeted in a room, perhaps in Cowley street, with towels around their heads, sweating it out and trying to work out their policy on this issue, possibly assisted by a few woolly-headed academic economists.

I hope that the leader of the SDP has not been aware that that work is not complete, because only about four weeks ago he was predicting that the general election would be on 7 May. Where would we be now if, halfway through the general election campaign, the SDP were stil