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Commons Chamber

Volume 129: debated on Tuesday 15 March 1988

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House Of Commons

Tuesday 15 March 1988

The House met at half-past Two o'clock


[MR. SPEAKER in the Chair]

Oral Answers To Questions

Education And Science

Education Reform


To ask the Secretary of State for Education and Science what estimate he has made of the effect of the proposed national curriculum on the percentage of students who go on to university.

The national curriculum aims to improve the quality of education for all our pupils and we expect more to go on to college, polytechnic and university.

Does my right hon. Friend agree that as Britain is seventh in the league table of nations sending their students on to university, arid with approximately 15 per cent. of the student population going forward at the moment, compared with 44 per cent. in the United States, one of the main aims of the Education Reform Bill should be to get more students into university?

Yes. I have already set the ambitious target of increasing the number of students by 50,000 in the lifetime of this Parliament. Since we have been in office we have increased the number of students in higher education by more than 160,000. My hon. Friend is correct: the level has increased from one in eight to one in seven. Our aim is that by the end of the century one in five school leavers will go on to higher education.

Will my right hon. Friend confirm that a national curriculum is no use without proper tests? Will he also confirm that the emphasis will be on proper written tests and not on some form of airy-fairy assessment which may be far from consistent between one local education authority and another?

I shall be pleased to send my hon. Friend a copy of Professor Black's report, which recommends that there should be assessment and testing at the ages of 7, 11, 14 and 16. He specifically refers to pencil and paper tests and gives examples of those. My hon. Friend will be glad to know that Professor Black also recommends that the results of the tests should be published—not the names of the individual children—so that parents can assess the performance of schools.

Has the Secretary of State explained to the Prime Minister that her desire for crude pass-fail tests in the national curriculum would not only lower educational standards but would require a vast army of external examiners and invigilators, which would cost a great deal more than Professor Black's proposals? I assure the Secretary of State that so long as he fights hard against the Prime Minister and the other forces of darkness in this area, he has our full support.

I do not think that I want that sort of support. As the hon. Gentleman knows, debates on such matters are vigorous and robust, and now sometimes public. However, all decisions taken on such matters are collective decisions.

I am glad that in Committee the Labour party did not vote against any of the clauses on the national curriculum or on financial delegation, and it virtually approved open enrolment. The fact is that the hon. Gentleman did his duty, but basically he knows that we are right.

Funding Councils

To ask the Secretary of State for Education and Science if he will take steps to ensure that women are represented on (a) the Universities Funding Council and (b) the Polytechnics and Colleges Funding Council.

The desirability of securing a reasonable proportion of women members is certainly a factor that my right hon. Friend will be considering in making appointments to the higher education funding councils.

I am glad to hear that reply. At the moment the proportion of undergraduates who are women is encouragingly high, but does the Minister accept that the presence of women on the funding councils would help to secure a better representation of women undergraduates on the courses on which, up to now, they have been very much under-represented?

Members will be appointed for their individual contributions and not because they belong to any particular representative group. It is upon that basis that my right hon. Friend will be making his recommendations.

Will my hon. Friend ensure that colleges with a religious basis, such as St. Martin's in my constituency, are enabled, within the fund, to maintain their ethos and religious basis?

We are extremely concerned to ensure that voluntary colleges will have representation that will reflect their wishes and encapsulate what they want within those colleges.

As 44 per cent. of all students in full-time higher education now are women, surely it would be more representative if the Minister agreed that half the membership of the funding councils should be women, so that their interests are properly represented?

No, that would be quite improper. It is absolutely essential that the membership of the funding councils should comprise people who are best qualified to be representatives. If those people happen to be women—certainly my right hon. Friend will be anxious to ensure that there is proper representation of women on the funding councils—that will be most satisfactory from all our points of view.

Does my hon. Friend owe her position on the Front Bench to her ability, or to the fact that she is a woman? If the former, will she make sure that, when she appoints people to the funding councils, they also owe their positions to ability, irrespective of gender?

Heriot-Watt University


To ask the Secretary of State for Education and Science, pursuant to his statement on 29 February, Official Report, column 722, what representations he has received from Professor Des Smith FRS, head of the department of optical and laser physics at Heriot-Watt university, about the impact on that university of the new selective criteria for funding research.

The Parliamentary Under-Secretary of State for Education and Science
(Mr. Robert Jackson)

I discussed this matter with Professor Smith when I visited Heriot-Watt university last October, and he subsequently sent me the university's comments on the ABRC document, "A Strategy for the Science Base". Professor Smith and I exchanged further letters on the ABRC's proposals last month.

What is the future for the improving departments of a small university?

The hon. Gentleman is referring to the question of how the principle of selectivity and concentration on scientific research should be carried through into the universities. Professor Smith supports that principle. There is an argument about the means and whether it should be done by university, by department or by subject area. That, of course, is a matter upon which the Government have yet to make a decision.

What support is being given specifically to Professor Smith's work in optical computing? That work opens up new technology that simply does not fit in with the Government's scheme of things.

I shall have to come back to the hon. Gentleman about the specific question of opto-electronic technology. I have been to see Professor Smith's work, but I do not recall the exact figure of allocation. The allocation of funds to universities by research councils is a matter for the universities and the research councils.

Student Grants


To ask the Secretary of State for Education and Science when he now expects his review of higher education student funding to be completed; and if he will make a statement.


To ask the Secretary of State for Education and Science when he now expects to publish a consultation document on the matter of financial support to students in higher education.

The work of the student support review is expected to be completed by the middle of this year.

Does my right hon. Friend agree that one of the most important things about the review is that nothing is done to discourage the participation in higher education of students from lower-income families, and that nothing is done that would create a particular obstacle to graduates who wish to pursue careers in less well remunerated professions?

I agree with my hon. Friend. In the review that we are undertaking the point of access is very important. I made it clear earlier that we want to increase the possibility of access for many of our young people. Compared to other countries, we are not doing well enough in that regard. It is noticeable that for a long time in most of those countries which have had a system of loans working with grants such a system has not discouraged access.

Does my right hon. Friend have any evidence about the proportion of students who do not receive their full, assessed parental contribution?

This matter is of considerable concern to many students. A survey commissioned by my Department on undergraduate income and expenditure — to be published shortly—has shown that, in 1986–87, 40 per cent. of dependent students failed to receive the full assessed contribution due from their parents. That is an area where a loan system could help considerably.

Can the Secretary of State advise us whether the review took into account the implications of the poll tax for students?

The review is considering the whole range of expenditure by students and their sources of income. The survey upon which I have just commented covers the whole range of income and expenditure.

Does the Secretary of State recall that a few years ago the Tory Government decided to meddle with student grants and the net result was that literally thousands of students, many from middle-class families, came to Westminster to protest? They blocked Westminster bridge, without any provocation from people such as myself, and the net result was that the Tory Government had to back off. Is he aware that if he starts the process again, not only will those students come down to Westminster to lobby, but they will carry out the same exercise and we on the Opposition Benches will support them to the hilt?

I am glad to see the hon. Gentleman putting himself at the head of a middle-class march. The proposals upon which we are working in the review of student support will bear particularly upon the parental contribution, and one of the advantages of loans is that they may substantially reduce the contribution that parents have to make.

Whatever my right hon. Friend's decision, does he agree that higher education is a great privilege that brings great opportunities later in life?

I would agree with that. It is a considerable advantage to go to one of our universities, polytechnics or colleges. There is a growing recognition, supported by the practice in other countries, that students benefit considerably from higher education, so it is reasonable and fair to require them to make some contribution to it.

Is the Secretary of State aware that, coming on top of all the testing times that he has had with the Prime Minister, it is a crying shame that there should be more reports of Cabinet rows and defeats for him, this time on the issue of student loans? However, if he presses ahead with his scheme to replace grants with loans and to cut student grants, that is bound to deny educational opportunity and access to thousands of students from less well off homes, and it will be fought tooth and nail inside and outside the House. Now that he has been rolled over by his colleagues on ILEA and on student loans, will he tell the House when was the last time that he succeeded in Cabinet Committee?

The review is being conducted by my hon. Friend the Under-Secretary of State, the Member for Wantage (Mr. Jackson)—previously by my hon. Friend the Member for Buckingham (Mr. Walden) — and myself, and any decision will be collective. I can assure the hon. Gentleman that in other countries, where there is a combination of grants and loans, a higher proportion of young people go to universities, polytechnics and colleges. The review will be published in the summer, and I have a lively expectation that it will be possible to find time for the early implementation of such an important policy.

Pupil Costs


To ask the Secretary of State for Education and Science what increase has been made in real terms in the spending per pupil in primary schools in each year since 1979.

The Parliamentary Under-Secretary of State for Education and Science
(Mr. Bob Dunn)

Between 1979–80 and 1986–87 spending per pupil in primary schools in England increased, in real terms, by 26 per cent. I shall arrange for the full details to be published in the Official Report.

I thank my hon. Friend for that answer. Will he confirm not only that we are improving spending per pupil, but that pupil-teacher ratios in the same schools are also improving dramatically?

My hon. Friend is right. The Government's strong record is supported by other objective measures. Overall, pupil-teacher ratios in January 1987 were 17·3: 1 compared with 18·9: 1 in January 1979, and as a result average class sizes have been improving in primary and secondary schools.

Has not spending on primary schools taken place despite, rather than because of, Government spending? Do not the figures show that Government expenditure on primary schools has dropped one fifth, while local government expenditure, frequently in defiance of Government policy, has increased by 50 per cent.? Is it not cynical and disreputable of the Government to seek to claim the credit for expenditure which they have not made and which they frequently opposed?

The hon. Member ought to look at the facts. He ought to be aware that we have increased spending by £1·3 billion in the next financial year. If he looked at the facts he would realise that these changes have been brought about over nine years in succession.

Can my hon. Friend say how much is being spent in primary schools on books and equipment, and how that compares with previous years? Will he tell us what his forecast is for the next financial year?

My hon. Friend's question is quite appropriate. The Government's plans for increased spending of £1 billion in cash provides scope for local authorities to increase their spending per pupil on books and equipment by nearly 40 per cent. in cash compared with actual spending in 1985–86.

Order. May I ask hon. Members to listen to questions and answers arid not to carry on private conversations?

Does the Minister realise that, despite what he has said about an increase, which is totally insufficient, there are not enough books in the primary sector? Schools are using dog-eared books. When the members of the Select Committee went to the plushy, leafy areas in the south they found that parents could treble the capitation allowance by adding their own money to it. Rate-capped councils in downtown areas of east Sheffield could not possibly do that. Why does the Minister not admit the truth — that there is insufficient money to educate our children properly in the primary sector?

I thought that the hon. Gentleman was becoming moderate as time went on, but clearly that is not the case. He ought to know that how local authorities spend their money is for them to decide. They have to compare the priorities that they have to meet.

Is my hon. Friend able to give any indication of how administrative costs in education may have risen over the same period?

All authorities owe it to their ratepayers to offer the best value for the substantial investment in education. They need to review their policies from time to time, first, to remove surplus school places, secondly, to cut the cost of school meals, caretaking and cleaning and, finally, to keep a tight rein on the cost of administration and bureaucracy.

Following is the information:

Net Institutional Recurrent Expenditure Per Pupil


Primary Schools—England


Expenditure Per Pupil


Year on Year Increases




1 Net institutional recurrent expenditure covers the cost of salaries and wages, premises and certain supplies and services. It does not include the cost of school meals, central administration and inspection, debt charges or revenue contributions to capital outlay.

2 The cash prices for the earlier years have been repriced to 1986–87 prices using the gross domestic product (market prices) deflator.

Pen Tops (Safety)


To ask the Secretary of State for Education and Science what representations he has received concerning the implications for safety in schools of the current state of pen top safety.

In addition to the hon. and learned Gentleman's own representations, I have received, and replied to, a letter from my hon. Friend the Parliamentary Under-Secretary of State for Industry and Consumer Affairs on the subject. My Department has also answered correspondence from Mr. and Mrs. Walker, who are the hon. and learned Member's constituents, and whose son, Billy, tragically died last October after accidentally swallowing a pen top at his school.

Is the Minister aware that the Walker family, and thousands of people who have signed a petition calling on the Government to take action, consider that unless and until pen tops are banned from schools so that no more children unnecessarily die, as Billy did, and no more children are operated on in hospital, as so many are, there can be no hope for greater safety? What steps is the Minister proposing to take at least to encourage schools to take this basically simple safety measure?

I can tell the hon. and learned Member that my Department is preparing a letter giving advice to all local education authorities in the light of expert comments received on a draft consultative document. It is likely to recommend that any pens with detachable tops that are issued for use in our schools should have the tops removed before being issued to pupils, and that authorities may wish to give early consideration to changing either to pens with tops that cannot normally cause asphyxiation if swallowed or to one-piece pens that do not carry this safety risk. I undertake to keep the hon. and learned Gentleman informed of developments as they emerge.

Equal Opportunities


To ask the Secretary of State for Education and Science what recommendations his Department has made to local education authorities to promote equal opportunities in primary and secondary schools.

No specific recommendations have been issued to local authorities to promote equal opportunities in schools. Local authorities are bound by the provisions of the Sex Discrimination Act 1975, and the Government are firmly committed to equality of opportunity in education, as in other fields.

I am grateful to my hon. Friend for that reply. Is she concerned that equal opportunities policies are being abused by some Left-wing councils? Is she aware that a poll conducted last year among parents in Brent showed that parents felt that the council believed that its sex and race policies were more important than its teaching? Is she happy that the appalling abuses of the so-called race snoopers, so graphically shown on the BBC "Panorama" programme last year, have now been brought to an end?

Brent's development programme for race equality is currently the subject of an independent assessment by Sir David Lane. That assessment was commissioned by my right hon. Friend the Home Secretary to help him to determine whether the local authority should receive grant under section 11 of the Local Government Act 1986 towards the salary costs of the programme.

At the same time, HMI has been conducting an inspection of the work of the development programme for race equality in Brent schools. Reports from both Sir David Lane and HMI should be available after Easter. I hope that that answers my hon. Friend's query.

Order. I appeal to hon. Members sitting below the Gangway not to carry on conversations across the Chamber. It makes it very difficult to hear.

I am very disappointed at the Government's response. They are not making any commitments on what they will do to ensure that in future girls, and those from racial minorities, receive an equal chance in schools. What are the Government going to do to ensure that the national curriculum and testing arc operated in a way that will enable those groups to have a fair chance?

In the remit letters to the working groups on the subjects for the national curriculum we have asked for special attention to be paid to the importance of ensuring that girls are offered exactly the same opportunities and choices in subjects as boys, to make certain that the future work force—both girls and boys—receives suitable opportunities.

Does my hon. Friend accept that much more research is required? In some subjects, such as handicraft, metal and wood, girls do as well as boys, and they also apply themselves in other subjects such as home economics. However, although boys enjoy cooking and eating the food that they produce, they take no interest in diet and do not follow the subject to a suitable academic level

My hon. Friend is right. We still need to make some progress to ensure that there are equal opportunities for boys and girls in all subjects offered in schools. Equality is very important, particularly for girls. They should be encouraged to take up subjects such as engineering. We have taken particular care to examine the recommendations of organisations such as the Equal Opportunities Commission.

Does the Minister agree that equal access to the same curriculum must be supported by in-service equal opportunities training if the Government's declared objectives are to be met? Or are the Government ready to be hauled yet again before the European Court of Justice because of breaches of the Sex Discrimination Act 1975?

The hon. Lady knows that teaching institutions are required to follow the equal opportunities legislation, and also not to practise any kind of sex discrimination in their courses.

Higher Education


To ask the Secretary of State for Education and Science what plans he has for increasing the number of places available to students in higher education; and if he will make a statement.

The Government remain committed to the principle that places should be available for all who have the necessary intellectual competence, motivation and maturity to benefit from higher education and who wish to do so. We are confident that our expenditure plans provide for institutions to meet this demand.

Will my hon. Friend confirm that it is a major pillar of his Department's policy that higher education should be made widely available to every 18-year-old or other person who wishes to seek it? Will he also confirm that major progress is being made towards the commitment to increase the numbers in higher education by 50,000 by 1990?

My hon. Friend is absolutely right. Important progress is being made. I have some interesting figures on student numbers and participation rates under the present Government compared with what happened under their predecessors. Between 1975 and 1979, participation fell by 9·5 per cent. and numbers rose by only 4·3 per cent. Between 1979 and 1986 participation rose by 12·9 per cent. and numbers rose by 18·9 per cent. under this Government.

Will the Minister confirm that if the growing numbers of students from outside the United Kingdom want to take advantage of further education in the United Kingdom under the EEC directive, students in the United Kingdom will not be penalised and there will be enough places for them if they are qualified?

There is room within our system for people to come from other countries of the European Community and we benefit from reciprocal arrangements with those countries. At the moment the traffic is more or less equal.

Does my hon. Friend agree that there is considerable evidence that people entering higher education at a much later age than 18 frequently get more out of it than 18-year-olds? If he does, will he confirm that he will do everything in his power to make it easier for such people to achieve access to higher education, which is so important?

My hon. Friend has touched on an important theme. By the middle of the next decade there will be a reduction by a third in the number of 18-year-olds in our population and it will be necessary, as well as desirable — as my hon. Friend said — to increase participation by mature people and part-time students.

Will the Minister tell us what the Government are doing to attract mature students and make it easier for them to get into higher education, instead of leaking stories about student loans, which would clearly make it difficult for them? What will he do to develop access courses and provide proper grants for mature students so as to attract them and to fulfil his policy of making a larger proportion of the student population consist of mature students?

I have already described the enormous expansion of higher education under the Government. On the point that the hon. Gentleman makes about loans, it is interesting to make international comparisons. They are difficult to make—[Interruption]—but, comparing the United Kingdom with the Federal Republic of Germany, we see that the average value of a loan paid to a student is £2,000 a year, and roughly 15 per cent. of new entrants to universities are from manual working class backgrounds, whereas in Britain, which has no loans and the most generous grant provision in the world, only 6 per cent. come from manual working-class backgrounds—[Interruption.]

Order. I appeal to the House once again to listen to Question Time. These are important matters of great concern to hon. Members and to people outside.



To ask the Secretary of State for Education and Science what support he is giving to the Medical Research Council for research into AIDS-related dementia.

The Medical Research Council has two sources of Government funds for AIDS research. It receives earmarked funding, starting with £3·5 million in 1987–88 and rising to £8 million in 1989–90. It supports additional AIDS research from its general grant.

The Minister's answer means not a lot. Does he realise that advances in areas such as this would be less likely to be made were it not for pure research, which the Government are curtailing? Does he realise that this is the unglamorous end of the research market, which is less likely to receive funds from voluntary bodies? The Government must therefore do much more about it.

The hon. Lady is absolutely right about the importance of pure research as the basis for the good work that is being done by our scientists in this and other fields. As she will know, the matter was debated in the House last week, and I am sorry that she was not able to participate in that debate. If she reads it she will find the answer to her question contained in the speeches made by my right hon. Friend and myself.

Developing the point on basic pure research, will the Minister inquire into the three-year project grants of the Medical Research Council? Why is the number of such grants that are approved but not funded increasing over the years, despite the fact that the level for approval is also rising? Will the Minister inquire into that? As he realises, this is the seedcorn of basic scientific research and it is being hampered under this Government, so may we have an inquiry into this issue within the Medical Research Council?

I shall certainly write to the hon. Gentleman after having inquired, but the administration of its funds is a matter for the Medical Research Council. It cannot be a principle that all projects for which funding is requested will be funded. The council must make some judgment and exercise discrimination.

City Technology Colleges


To ask the Secretary of State for Education and Science how much it will cost to build the city technology college in Nottingham; how much of the cost will be met by the Government; and if he will make a statement.

The cash limit for capital expenditure on the Nottingham city technology college is £9·05 million. This covers the cost of land, fixed furniture, equipment and professional fees as well as the cost of building. My right hon. Friend has agreed, exceptionally, to underwrite up to 85 per cent. of this figure. He is confident that the Nottingham CTC trust will contribute more than its minimum share of the capital costs through additional sponsorship.

Is the hon. Lady aware that there are 565 schools in Nottinghamshire, which have a capital programme now of £2·7 million as a result of the cuts instituted by the Government, and that more than £9 million is to be spent on imposing a CTC on the city of Nottingham? Is that because the hon. Lady cannot do her arithmetic, or is it because she is putting one college above the educational needs of all the children of Nottinghamshire?

The advantages that the city technology college will bring to the city of Nottingham and its environs are immeasurable. It will produce a large number of opportunities for good education for children who apparently are not able to receive that education at present. I suggest to the hon. Gentleman that the expenditure is well justified.

Does my hon. Friend not agree that, with 20,000 unemployed in Nottingham, it will be a small price to pay for the children's future?

I certainly agree with my hon. Friend that the education that will be received in the CTC will greatly improve the opportunities for employment for all the young people who are fortunate enough to participate in the education there.

Does the Minister recall the DES document that launched the CTC initiative, which said that the promoters would meet all or a substantial part of capital costs? Why, then, in the case of Nottingham is there such a shift in policy? Why are the Government meeting 85 per cent. of capital costs?

Sadly, it is because the local authority refused point blank to be co-operative in the matter of a building. In those local authorities where there has been co-operation in the matter of a building for the technology college, it has been perfectly possible for the Secretary of State to adhere to the original proposals.

Education Reform


To ask the Secretary of State for Education and Science what representations he has received on the proposed national curriculum and the feasibility of implementing and maintaining it.

We have received over 10,000 responses to our proposals. A number of these raised questions about the implementation of the national curriculum. Our decisions on the phasing of its introduction will take account of all relevant factors.

Is my right hon. Friend aware that the proposed introduction of a national curriculum, particularly the inclusion of science as a core subject, is being widely welcomed? I acknowledge that we are producing more science graduates now than we have for many years, but is my right hon. Friend confident that there will be enough science teachers to ensure that science is properly taught as a core subject?

My hon. Friend is right. There are about 30,000 more students studying science in our polytechnics and universities than when we took office. But I am concernd about the shortage of science teachers, particularly in physics. We have a bursary scheme of an extra £1,250 a year for those who want to study physics teaching, and I am glad to say that there was a sharp increase in the number of students for that scheme last year—an increase of 40 per cent. We need several years like that.

Does the right hon. Gentleman recall that in Committee the Minister of State, his hon. Friend the Member for Mitcham and Morden (Mrs. Rumbold), undertook to provide for me the details of the teachers who would be required in each of the disciplines in order to implement the national curriculum? Will he tell me when I may expect to receive that information?

We have in hand a review of this and we shall have the figures later this year.

Is my right hon. Friend aware of the concern felt by some head teachers that in the preparation of pupils for scholarship at the university entrance the time taken by the core curriculum might leave too little time for some of the other specialist subjects?

I am concerned that the foundation core curriculum should not take up too much time and exclude such important subjects as a second foreign language, a second and third science, and religious education. That is why we are not being prescriptive and saying that the curriculum should take up a particular amount of time. We think, broadly, that it will take up about 70 per cent. That leaves a day and a half a week for the other subjects.

Is the Secretary of State aware that in foreign language teaching—and in craft design and technology—there is likely to be a shortfall of teachers? Does he propose to increase funding in those areas to make sure that we have not just teachers, but suitably trained teachers, to make sure that these very difficult subjects are taught adequately to our children?

Courses are also available for student teachers in craft and design technology. I am also concerned with the potential shortfall in foreign language teachers. Over the next two or three years we shall be using education support grants, together with our in-service training grants, to deal with some of these problems.


To ask the Secretary of State for Education and Science what representations he has received on the religious education provisions of the Education Reform Bill; and if he will make a statement.

My right hon. Friend and I have received many representations from hon. Members, Church leaders and others about religious education and the Education Reform Bill. The Bill reinforces the existing law on religious education, reflecting the Government's determination to sustain the position of religious education in the school curriculum.

I thank my hon. Friend for that answer. Will she confirm that the provisions of the Bill, as well as strengthening religious instruction in our schools, will make it easier for parents to protect the Church voluntary aided day schools in their aims, which are under attack from councils controlled by the Opposition?

My hon. Friend is quite right. The Education Reform Bill contains provisions substantially to strengthen the position of parents and will enable their voice to be heard when local authorities propose to take action against voluntary aided schools.

Does my hon. Friend agree that in the last resort, the effectiveness of religious education depends on the commitment of the teachers?

My hon. Friend is perfectly correct in saying that the effectiveness of religious education depends very much upon the effectiveness of the teachers. I can assure him that the place of religious education in the curriculum is very secure under the provisions of the Education Reform Bill, because it continues to be a compulsory subject for all children to study.

Assisted Places Scheme


To ask the Secretary of State for Education and Science what was the total number of assisted places in (a) 1980–81 and (b) 1987–88.

In the academic year 1981–82, when the assisted places scheme was first introduced, a total of 5,596 places were available in England and Wales for pupils entering the scheme at the various ages of entry. In 1987–88 there is a total of 34,005 places available for take-up in the scheme throughout the secondary age range.

Does my hon. Friend agree that those figures show just how much the Government have done for parental choice in allowing children to go to schools where they will be able to have the education that they need? Will he say how many children have been given the opportunity to go to schools where they can be given special opportunities to study ballet and music?

I welcome my hon. Friend's endorsement of the excellent scheme. Since September 1987 some 499 pupils have gained places under the aided pupils scheme. This scheme deals with music and ballet, in which my hon. Friend is interested.

How, when the Government are prepared to spend £4,000 per year on some children for some assisted places, can they regard the expenditure of 60 per cent. of that sum in ILEA schools to be overspending?

That comment is entirely worthy of the hon. Gentleman. It is because of the ideological hatred of the scheme that we are determined to make it work and see it extended over a period of time.

Student Grants


To ask the Secretary of State for Education and Science what adjustment will be made to the level of student grants, in view of the Government's poll tax proposals.

Students' liability to pay 20 per cent. of the community charge will be taken into account in reaching decisions on the future level of student support from public funds. Grant rates for the 1988–89 academic year have already been announced and the Government have no plans to make any adjustment to them.

Since students will be liable to pay at least 20 per cent. of the poll tax, which in some areas will amount to more than £100 a year, will the Minister give an absolute guarantee that students will be fully recompensed by an appropriate increase in their grant? Is he aware that, otherwise, many students will respond to the poll tax demand simply by telling the Government, "We can't pay, so we won't pay"? Who could blame them for refusing to stump up for a blatantly unjust tax which is an attack on the living standards of students and most other people in Britain?

The decision to extend an 80 per cent. relief to all students for their share of expenditure from which they benefit has already been made. The question whether there should be compensation for the 20 per cent. obligation is one that remains to be dealt with. Meanwhile, in Scotland, for one term, it will be necessary for students to pay their contribution to the community charge.

Education Reform


To ask the Secretary of State for Education and Science what representations he has received regarding the impact of the Education Reform Bill upon Catholic schools.

A substantial proportion of the correspondence which my right hon. Friend has received about the Education Reform Bill has mentioned the possible impact of the Bill upon Catholic schools.

Can my hon. Friend clarify the position on open enrolment in Catholic schools, about which some concern has been expressed?

I am happy to do just that. The Education Act 1980 relieved the governors of a voluntary aided school from the requirement to admit pupils whose parents wanted them to attend the school, if such admissions would run counter to agreed arrangements designed to safeguard the school's denominational character. The Education Reform Bill does not change that position.

Prime Minister



To ask the Prime Minister if she will list her official engagements for Tuesday 15 March 1988.

This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in the House I shall be having further meetings later today.

Is the Prime Minister aware that not many days hence, in the month of April, there will be many cuts in social security, including, in particular, housing benefit? Does she realise that there are millions of people across this nation, in my constituency, and in Finchley, too, who will lose because of her Government's policies? Does she realise that many of those people are elderly and that during their working lives they made a massive contribution to the success of this nation? They were even prepared to give their lives for this country. I have a heart, and it has feelings. Has the Prime Minister a heart of stone?

With regard to housing benefit, after the changes have been made, the money spent on housing benefit will still be considerably higher in real terms than was expenditure to help with rent and rates in 1979. May I also point out to the hon. Member and to the millions to whom he referred that expenditure on social security this year, because of the very successful running of the economy, will be as high as £46 billion?

Will my right hon. Friend join me in welcoming the new £4 million maternity unit at the Ealing hospital, to be opened on 24 March? Will she note that in the current year the caring Ealing Labour council increased the rates on Ealing hospital by £299,000, but that rate capping by this Government will reduce those rates by £175,000 next year? What effect on treatment does she think that the additional rate bill of £299,000 imposed by the Labour council would have had?

I join my hon. Friend in welcoming the development at Ealing hospital and in condemning the high-rating policy of the local authority, which has put up the rates on the hospital and placed great strains on its budget.

The Government's opposition to the execution of the Sharpeville Six is long-standing and well known. In further assertion of that opposition, will the Prime Minister make a direct personal appeal to the President of South Africa, asking him to grant an indefinite stay of execution for the Sharpeville Six, who are recognised by the trial and appeal courts not to have had any causal complicity in the death of the deputy mayor of Sharpeville?

As the right hon. Gentleman knows, Britain and other Western Governments have already urged the South African Government to exercise clemency in the particular circumstances of this case, to which he referred. In addition, my Office saw relatives of the Sharpeville Six this morning, as I know the right hon. Gentleman did. I have also spoken to Archbishop Tutu. Although it is not our normal practice to intervene in such cases, in the particular circumstances of this one, our ambassador in South Africa is speaking this afternoon to the South African Government to express my hope that President Botha will see fit, even at this late stage, to exercise the prerogative of mercy. I have made inquiries, and I understand that Chancellor Kohl will be making a similar appeal on behalf of the 12 Governments of the European Community, and I further understand that the United States Government will be making parallel representations in President Reagan's name.

May I thank the Prime Minister for that reply as a very positive step that she has taken in addition to the other actions that are afoot both at home and abroad. Could she possibly reflect further and consider the advantage of making a direct personal appeal to the President of South Africa? She need not give a final reply at this stage, although, plainly, time is tragically running out.

No. As I indicated to the right hon. Gentleman, our ambassador is speaking to the South African Government this afternoon to express my hope that President Botha will see fit to exercise the prerogative of mercy. That is the usual way to do it, and it is the way in which other pleas have been going in. Of course, they have to go to President Botha. I hope that the right hon. Gentleman will agree that everything possible has been done. I stress that it is because of the very unusual circumstances of this particular case, which he alluded to in his initial question.

Will my right hon. Friend comment on the report in The Times this morning that the Government are considering abolishing the county councils, or say whether the Government intend to consider such a proposition?

Naturally, I will comment. It was news to me, but reading the newspapers gets more like a voyage of discovery of things that are not so, every day.

If, indeed, the South African regime goes ahead with these appalling executions, will the Prime Minister be prepared to think again on the question of sanctions?

No. Sanctions would not help in any way. They would only make matters a great deal worse for those whom the hon. Member, and most other hon. Members in the House, are seeking to help.

Has my right hon.Friend had time to study the latest immigration figures, which I understand show that immigration to the United Kingdom last year was at the lowest level for decades, and is she aware that this will be warmly welcomed by the British people?

I have not studied those figures, but I knew that they were down. I believe that that is in the interests of everyone in the United Kingdom, not least those who have previously been immigrants to this country and who now have a permanent right of abode here.


To ask the Prime Minister if she will list her official engagements for Tuesday 15 March.

I refer the hon. Gentleman to the reply that I gave some moments ago.

Is the Prime Minister aware that the Government's social fund is so small that charities are being asked by the Department of Health and Social Security to prepare to give handouts to the poor and to pensioners on income support? Will the Prime Minister tell the House the level of income support for a pensioner over the age of 60; and could she live on that amount?

The social fund is of the order of £200 million. With regard to what the hon. Gentleman said, only where there are crisis loans will social fund officers by asked to consider any help that might be forthcoming from charities.


To ask the Prime Minister if she will list her official engagements for Tuesday 15 March.

Will my right hon. Friend find time to congratulate the Southern Vectis Bus Company on the Isle of Wight, which is the first of the privatised bus companies to purchase a municipal bus company from the Portsmouth city council? Does that not show that, like the Chancellor, the Isle of Wight is going along the route to a free enterprise culture, unlike the Opposition parties, who have either missed the bus or caught the wrong one?

I congratulate the Southern Vectis Company on its success in the private sector and I congratulate it on its enterprise. I understand that the matter of the Portsmouth purchase will be considered by my right hon. Friend.


To ask the Prime Minister if she will list her official engagements for Tuesday 15 March.

I refer the hon. Gentleman to the reply that I gave some moments ago.

Now that Mr. James Abra has been set free as part of Libya's general amnesty, thanks to individual Members here, will the Prime Minister respond in some way? Does she know, for example, that there are some 5,000 Britons working out there on all sorts of contracts and that many British companies do quite well? Does she also appreciate that Libyans are detained here and that they should be considered for parole? We know that the Prime Minister does not intervene in judicial matters, but, if that is not possible, why should not those individuals at least be given the right to serve out their sentences in their home country? Why should they not be given the right to go back to Libya to serve those sentences? [Interruption.] Even if the Prime Minister will not consider that —[Interruption.]—will she at least allow the parents of those prisoners the right to come to this country freely to visit them in prison? I say that remembering a certain individual who was lost in the desert.

In so far as I heard the hon. Gentleman's question, we welcome the release of Mr. Abra from prison as part of a general amnesty. The 5,000 British people who work in Libya do so at their own risk, knowing the circumstances in that country. Parole for prisoners here is dealt with as usual, and there are no exceptions to that rule. The possibility of serving sentences at home applies only to those countries that have signed the European convention. I do not think that that applies to Libya.


To ask the Prime Minister if she will list her official engagements for Tuesday 15 March.

Does my right hon. Friend welcome the decision of Nissan to build on its successful investment in the north-east and to locate its design centre in Britain? Does not that news and the announcement by Sanyo last week of 500 jobs in county Durham confirm the industrial revival of the northern region under the Government?

The north-east is doing much better. I know that my hon. Friend is a staunch champion of its future. We welcome Nissan's decision to put a design centre here. I am not quite certain where it is going, but, wherever it goes, its coming to this country will be due in large measure to the success of the Washington plant and the excellent relations between the management and the work force there.


To ask he Prime Minister if she will list her official engagements for Tuesday 15 March.

I refer the hon. Gentleman to the reply that I gave some moments ago.

Is the Prime Minister aware that Mansfield colliery in my constituency will be closed in the near future, losing over 1,000 jobs in my constituency, despite the fact that millions of tons of coal exist in that colliery, to be dug out in the near future? Is she further aware that the colliery worked throughout the miners' strike and was loyal to her opinion on that strike? Is she aware that the closure is due to the price of coal in Britain today and to her refusal to subsidise coal prices in Britain? When will she act to subsidise coal prices on the world market so that our coal mines can compete, or at least ban the import of cheap foreign coal?

First, I am aware that the Mansfield colliery is closing. I understand that there will be no compulsory redundancies. With regard to what the hon. Gentleman said about subsidies, I must tell him that the subsidies by the British taxpayer to the National Coal Board are very considerable. Investment has been enormous—of the order of £2 million a day—to ensure that the industry becomes competitive, because in a competitive future will lie its strength and the future of jobs for people in the coal industry.

Will my right hon. Friend take time to ponder that under the policies of her Government we have saved £8,000 million in overseas debt interests, compared with the equivalent figure in 1979, which figure happens to be the combined budget for Scotland and Wales put together, or one third of the Health Service funding? Would she care to ponder on whether a Labour Government would have closed down Scotland and Wales and one third of the Health Service, or borrowed £8,000 million and beggared the country as a whole?

My hon. and learned Friend puts his point absolutely superbly. Under the Government we have borrowed less and have far more overseas assets, and Scotland is benefiting in the process.

Ways And Means

Budget Statement

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

3.31 pm

I am reliably informed that my Budget speech last year was the shortest this century. My Budget speech this year is likely to have a different claim to a place in the history books — not, the House will be glad to learn, as the longest Budget speech this century, but as the last untelevised Budget speech.

As I once again present the first Budget of a new Parliament, the British economy is stronger than at any time since the war. As the British people recognised last June, this has not happened by chance. It has happened because, for almost nine years now, we have followed the right policies and stuck to them. I reaffirm those policies today. In particular, there will be no letting up in our determination to defeat inflation.

I shall begin, as usual, with the economic background to the Budget. I shall then deal with monetary policy, and with the public finances this year and next, and indeed for the remainder of this Parliament. Finally, I shall propose a number of measures designed to improve the performance of the economy still further, by changing the structure of taxation. For this will be a tax reform Budget.

As usual, the Financial Statement and Budget Report, together with a number of press releases filling out the details of my tax proposals, will be available from the Vote Office as soon as I have sat down.

The Economic Background

I start with the economic background.

The strength and durability of the economic upswing has now exceeded all post-war records. We are about to enter our eighth successive year of sustained growth, and the sixth in which this has been combined with low inflation. And, even without looking to 1988, the six years to 1987 have been the longest period of steady growth, at a rate averaging 3 per cent. a year, for half a century.

This performance compares favourably not only with our own past, but also with the economic performance of other countries. During the 1960s and the 1970s, Britain's growth rate was the lowest of all the major European economies. During the 1980s, our growth rate has been the highest of all the major European economies.

In 1987 as a whole, output grew by getting on for 4½ per cent., rather more than the rate of inflation which averaged 4·2 per cent. At the same time, unemployment fell faster than in any other year since the war, in every region of the country, and more than in any other major nation.

The plain fact is that the British economy has been transformed. Prudent financial policies have given business and industry the confidence to expand, while supply side reforms have progressively removed the barriers to enterprise.

Nowhere has this transformation been more marked than in manufacturing, where output rose last year by 54½ per cent. This outstanding performance was founded on a further big improvement in productivity. In the 1980s, output per head in manufacturing has gone up faster in Britain than in any other major industrial country, and we led the way once again last year. This is in stark contrast to the 1960s and 1970s, when in the growth of manufacturing productivity, as in so much else, we were bottom of the league.

The current account of the balance of payments is now estimated to have been in deficit last year by a little over £1½ billion, after seven successive years of surplus. This is well below the deficit I forecast at the time of last year's Budget, despite growth turning out stronger than forecast. The reason for the smaller deficit was the better than expected performance of visible trade, with exports of manufactures up by 84½ per cent. This continues the consistent trend of the 1980s, with British manufacturers maintaining their share of an expanding world trade—the crucial test of competitiveness—after decades during which Britain's share was steadily declining.

Looking ahead, I expect 1988 to be yet another year of healthy growth with low inflation; and there is every prospect that unemployment will continue to fall, although probably not as rapidly as last year.

The pace of non-oil growth is likely to ease from now on, returning to the underlying trend of the past few years. Output for 1988 as a whole is forecast to be 3 per cent. higher than in 1987, with the non-oil economy up by 3½ per cent. Business investment is forecast to grow particularly strongly, with a rise of 9 per cent.

As last year, inflation is forecast to end the year at 4 per cent. While this is still too high, it is a testimony to the soundness of our policies that the present strong and sustained upswing, unlike almost all its predecessors, has not led to any resurgence of inflation.

With growth in the United Kingdom economy likely to continue to outpace that of most other major countries, particularly in continental Europe, and with our oil surplus falling as North sea oil production declines, the current account of the balance of payments is forecast to remain in deficit this year, by some £4 billion, equivalent to less than 1 per cent. of GDP. Given the strength of the economy in general, and of our public finances in particular, not to mention our massive net overseas assets, I foresee no difficulty in financing a temporary current account deficit of this scale.

But the outlook both for exports and for jobs will depend critically on employers keeping their costs firmly under control. Unit labour costs in manufacturing scarcely rose at all in 1987. It is vital that employers do not let this slip, and keep a tight grip on all their costs, not least pay.

In my Budget speech last year, I warned that:

"Given the continuation of present policies in this country, the biggest risk to the excellent prospect I have outlined is that of a downturn in the world economy as a whole."—[Official Report, 17 March 1987; Vol. 112, c. 817.]

That remains the case. The dramatic collapse in the world's equity markets last October was not the second coming of 1929 or the harbinger of a 1930s-style world slump, as so many feared at the time—although it could have been a great deal nastier had the authorities in the major nations not responded in a prompt and appropriate way. It was essentially an overdue market correction which did little more than reverse the rapid rise in share prices

of the previous year. Certainly, business confidence does not seem to have been greatly affected, and growth in the seven major industrial countries as a whole this year is likely to be only slightly lower than last year.

But Black Monday was also a warning. The world's three largest economies—the United States, Japan and Germany — have made a number of the policy adjustments necessary to reduce the imbalances which have for so long afflicted them, and there is evidence that the measures they have taken are starting to bear fruit. But there is still a long way to go; and meanwhile there is the constant danger that the process of adjustment, and with it the world economy as a whole, could be gravely damaged either by further wild gyrations in the dollar exchange rate or by a lurch into protectionism.

Success in reducing these imbalances depends on countries putting the right fiscal and monetary policies in place, and keeping them there. But the necessary adjustments are much more likely to be achieved if the objective of greater exchange rate stability is given an explicit role in the process of international co-operation, as has been the case for well over two years now. I can assure the House that we shall continue to play our full part.

Monetary Policy

Meanwhile, the maintenance of sound money and prudent public finances will keep us in the best possible position to weather any storms we may face, either at home or abroad.

The medium-term financial strategy, now entering its ninth year, will continue to provide the framework for reducing the growth of money GDP, and hence inflation, over the medium term. These will be achieved by maintaining firm monetary discipline, buttressed by a prudent fiscal stance.

Achieving the gradual eradication of inflation requires a steady reduction in monetary growth in the medium term. While I shall continue to take account of broad money, or liquidity, as last year there will be no explicit target. For narrow money, M0, the target range for 1988–89 will be 1 to 5 per cent., as foreshadowed in last year's MTFS.

Short-term interest rates remain the essential instrument of monetary policy. Within a continuous and comprehensive assessment of monetary conditions, I will continue to set interest rates at the level necessary to ensure downward pressure on inflation.

Exchange rates play a central role in domestic monetary decisions as well as in international policy co-operation. I believe that most business men have welcomed the greater exchange rate stability over the past year. It is important that they also accept the financial discipline inherent in this policy.

Public Sector Finances

As I pointed out a moment ago, a sound monetary policy needs to be buttressed by a prudent fiscal stance.

At one time, it was regarded as the hallmark of good government to maintain a balanced budget; to ensure that, in time of peace, Government spending was fully financed by revenues from taxation, with no need for Government borrowing. Over the years, this simple and beneficent rule was increasingly disregarded, culminating in the catastrophe of 1975–76, when the last Labour Government

had a budget deficit, or public sector borrowing requirement, equivalent in today's terms to some £40 billion.

This profligacy not only brought economic disaster arid the national humiliation of a bail-out by the IMF; it also added massively to the burden of debt interest, not merely now but for a generation to come.

Thus, one of our main objectives, when we first took office in 1979, was to bring down Government borrowing. We steadily reduced the public sector borrowing requirement from the 5¼ per cent. of GDP we inherited to only three quarters of I per cent. in 1986–87. Today, I am able to tell the House that in 1987–88, the year now ending, we are set to secure something previously achieved only on one isolated occasion since the beginning of the 1950s: a balanced budget.

Indeed, we have gone even further. It looks as if the final outturn for 1987–88 will be a budget surplus of £3 billion. Instead of a PSBR, a PSDR: not a public sector borrowing requirement, but a public sector debt repayment. And, incidentally, even if there had been no privatisation proceeds at all, the resulting PSBR, at a half of 1 per cent. of GDP, would still have been the lowest in all but one year since the beginning of the 1950s.

Some two thirds of this substantial undershoot of the PSBR I set at the time of last year's Budget is the result of the increased tax revenues that have flowed from a buoyant economy; while the remaining third is due to lower than expected public expenditure, again the outcome of a buoyant economy: less in benefits for the unemployed, higher receipts from council house sales, and improved trading performance by the nationalised industries.

A balanced budget is a valuable discipline for the medium term. It represents security for the present and an investment for the future. Having achieved it, I intend to stick to it. In other words, henceforth a zero PSBR will be the norm. This provides a clear and simple rule, with a good historical pedigree.

In the very nature of things, there are bound to be fluctuations on either side from year to year. It is in this context that I have to set the precise fiscal stance for the year ahead, 1988–89.

I have already announced, in the Autumn Statement last November, a £2½ billion increase in public expenditure plans for 1988–89, with resources allocated to programmes up by over £4½ billion. This means that, over the coming year, we will be spending at least £1,100 million more on health than in the year now ending, at least £900 million more on education, and at least £500 million more on law and order.

These large increases in public expenditure programmes for the coming year will be financed partly from the saving in debt interest resulting from the reduction in Government borrowing. Debt interest payments now account for about three quarters of a percentage point less of GDP than they did only three years ago. This may riot sound very much, but it implies a saving of some £3 billion a year. And the balanced budget path I have set out in this year's MTFS will help to reduce debt interest payments still further.

We have thus secured an enviable virtuous circle in public finance: lower borrowing and lower tax rates create both the scope and the incentive for the private sector to expand. And the private sector then generates higher revenues which permit further reductions in borrowing or tax.

But even so, the increased public spending now planned for 1988–89 inevitably implies less scope for reducing taxation. Moreover, I have decided that for the year immediately ahead the path of prudence and caution is to budget for a further surplus of the same size as this year's expected outturn—that is to say, a further public sector debt repayment of some £3 billion.

What this means is that it will not be possible in this Budget to reduce the burden of taxation; that is to say, to reduce taxation as a share of GDP. However, the House may be pleased to know that, with a strong and healthy economy, a constant burden of taxation implies a reduction in tax rates.

Tax Reform

I indicated at the outset that this will be a radical, tax-reforming Budget.

Over the past few years there has been increasing recognition, throughout the industrialised world, of the importance of tax reform in improving economic performance. And for us in this country the lesson is underlined by the success of the reform of business taxation which I announced in my first Budget, at the start of the last Parliament.

But while tax reform is a simple matter for the armchair critic, it is very much more difficult in practice. It is difficult technically and difficult politically—since any tax system, however it arose, creates powerful vested interests in favour of the status quo.

Nor, indeed, is it right that change should be too violent. People have a right to expect a reasonable degree of stability in the framework within which they order their affairs. But change there has to be.

So the tax-reforming Chancellor must tread a careful path. That I have sought to do in this Budget. The proposals I shall he making today amount to a substantial and coherent package which will be of increasing benefit to the taxpayer and to the economy as a whole in the years to come.

I have been guided by four basic principles—first, the need to reduce tax rates where they are clearly too high; second, the need to reduce or abolish unwarranted tax breaks; third, the need to make life a little simpler for the taxpayer; and, fourth, the need to remove some manifest injustices from the system.

Independent Taxation And Tax Penalties On Marriage

My first reform concerns the taxation of marriage.

The present system for the taxation of married couples goes back 180 years. It taxes the income of a married woman as if it belonged to her husband. Quite simply, that is no longer acceptable.

This is a matter on which there has already been extensive consultation. The time has come to take action.

I therefore propose a major reform of personal taxation, with two objectives: first, to give married women the same privacy and independence in their tax affairs as everyone else; and, second, to bring to an end the ways in which the tax system can penalise marriage.

I have decided to introduce, at the earliest practicable date, April 1990, a completely new system of independent taxation. Under this new system, a husband and wife will

be taxed independently, on income of all kinds. All taxpayers, male or female, married or single, will be entitled to the same personal allowance, which will be available against all income, whether from earnings, pensions or savings.

In addition, there will be a married couple's allowance, equal to the difference under the present system between the married man's allowance and the single allowance. This new allowance will go in the first instance to the husband, so that his tax threshold will not fall. But if he does not have enough income to use it in full, he will be able to transfer any unused portion to his wife, to set against her income.

This ensures that the tax system will continue to recognise marriage, as it should do. At the same time, from 1990 married women will pay their own tax, on the basis of their own income, and have their own tax return, when one is necessary. There will, of course, be nothing to stop married women from asking their husbands to handle their tax affairs, or vice versa, as before; and many will no doubt do so. But what matters is that, for the first time ever, married women will have the right to complete independence and privacy so far as tax is concerned.

In the same way, a husband and wife will be taxed independently on any capital gains they may have, with an annual exemption each, instead of one between them as now. But transfers of capital between husband and wife will continue to be entirely free of any liability to tax.

As I have said, the new system will come into force in 1990. This is much sooner than would have been possible for most of the alternatives that have been canvassed. The necessary legislation will be contained in this year's Finance Bill. The cost of this historic reform, which for the first time ever gives a fair deal to married women, will be a little over £½ billion in 1990–91.

I mentioned a few moments ago the tax penalties on marriage. It is clearly wrong that some couples should find themselves paying more tax simply because they are married. I propose to put that right.

Independent taxation by itself will remove the most common penalty—the taxation of a married woman's income at her husband's marginal rate. But there are other tax penalties on marriage, and I propose to abolish them. These changes need not await the introduction of independent taxation.

Under the present system an unmarried couple can get twice as much mortgage interest relief as a married couple. This has attracted increasing—and justified—criticism. I propose to put a stop to it as from August this year. Thereafter, the £30,000 limit on mortgage interest relief will be related to the house or flat, irrespective of the number of borrowers. This was the solution put forward in the 1986 Green Paper on personal taxation, and it was widely welcomed. Existing mortgages will be unaffected.

Another anomaly is that an unmarried couple with children can each claim the additional personal allowance intended for single parents, and thus get more tax relief than a married couple in the same position. I propose to confine them to a single additional personal allowance, with effect from April 1989.

Thus this Budget will not only, for the first time ever, give married women a fair deal from the tax system. It will also eliminate, for all practical purposes, the other tax penalties which, under the present system, can arise on marriage.

Business Taxation

I turn now to business taxation. The major reform of business taxation, which I introduced in 1984 and which was completed in 1986, has given us one of the lowest corporation tax rates in the world. This has encouraged overseas companies to invest in Britain and, most important of all, has greatly improved the quality of investment by British firms. It is a crucial part of an environment in which company profitability has recovered to its highest level for some 20 years. It has succeeded in its objectives.

I do not, therefore, propose any further changes to the structure of corporation tax. And the main corporation tax rate for 1988–89 will be unchanged at 35 per cent. But I do have some changes to propose to specific aspects of business taxation.

British exporters have done extremely well in recent years, thanks to major improvements in efficiency and quality. But no exporter could honestly claim that his success hinges on the fact that the cost of entertaining overseas customers is tax deductible, whereas business entertainment generally is not. I therefore propose to simplify the system by making all business entertainment non-deductible for tax purposes, including for VAT.

In conjunction with my right hon. Friend the Secretary of State for Energy, I propose to restructure the tax regime for the new generation of southern basin and onshore fields so as to relate tax liability more closely to profitability. Accordingly, my right hon. Friend will shortly be bringing forward legislation to abolish royalties, from 1 July, for all such fields. At the same time, I propose to reduce the petroleum revenue tax oil allowance for these fields. This will mean the end of royalties for all future fields.

The Building Societies Act 1986 gives building societies the power to convert themselves into companies, if they so wish. At present, however, they would face a heavy, and unintended, tax charge if they did so. I propose to rectify this.

I have two changes to propose to the tax arrangements for Lloyd's. The first meets the only point that Lloyd's have raised on last year's legislation on reinsurance to close. The second will benefit both Lloyd's and the Inland Revenue by simplifying the administrative arrangements for taxing Lloyd's members.

I also propose to simplify the section 482 rules for companies that wish to migrate overseas, so as to bring these rules broadly into line with those of most of our major competitors. In future, companies will be resident in the United Kingdom if they are incorporated here. Subject to that, instead of having to ask for Treasury consent, companies will be free to migrate, provided only that they pay their tax first.

I now turn to a number of proposals to give further help to small businesses and new businesses, whose encouragement is a central theme of Government policy. Since 1979, the rate of new business formation, net of failures, has averaged 500 a week. This shows beyond any doubt the continuing vigour of this sector, which is such an important source of enterprise, of innovation, and of new jobs.

Many new businesses have been greatly assisted by the business expansion scheme, which has now been running for nearly five years. During that time, it has enabled new and expanding companies to raise equity finance

amounting to some £150 million a year. However, the rapid growth of the venture capital market since 1983 has meant that companies seeking relatively large amounts of equity investment can now raise these readily, while smaller companies looking for more modest amounts can still find it difficult to do so.

To improve the targeting of the BES, I therefore propose to introduce a limit of half a million pounds on the amount that any company can raise under the scheme in any one year. Investment should thus be better directed at the smaller and newer businesses, particularly those outside the south-east of England, which can still find it hard to raise equity finance in other ways. In the special circumstances of the ship chartering industry, however, the limit will be £5 million.

I have one further proposal affecting the business expansion scheme.

One of the key reasons for our economic transformation has been the reform of the supply side of the economy.

The tax relief that I introduced last year for profit-related pay will, in time, help to increase pay flexibility and to improve the working of the labour market. But if successful firms are to expand further, and create still more jobs, we also have to make it easier for people to move to where the new jobs are.

For years, the shortage of private rented accommodation has been an obstacle to labour mobility. The Government's proposals to deregulate new rents are already going through the House. Deregulation will, over time, substantially increase the supply of housing for rent. But this will not happen overnight, and there is a case for a special incentive to speed up the process in the early years.

I therefore propose to extend the business expansion scheme to include companies specialising in the letting of residential property on the new assured tenancy basis.

The BES is well suited to this task. Since full tax relief is given immediately, it should bring forward new investment straight away. And we will be building on success.

The limit for this type of investment will be £5 million a year for any one company. Since the relief is specifically designed to provide an extra stimulus in the early years of deregulation, it will run only for investments made before the end of 1993.

This change will powerfully reinforce the impact of decontrol in reviving the private rented sector of housing in Britain.

In last year's Budget I raised the ceiling for capital gains tax retirement relief from £100,000 of gain to £125,000. But I believe it is necessary to do more to help the small business man whose wealth is tied up in his business, and who is faced with the disincentive of a heavy capital gains tax bill when he sells up on retirement. I therefore propose to extend capital gains tax retirement relief so that, on top of the total exemption, half of any gain between £125,000 and £500,000 will also be completely free of tax.

While on the subject of capital gains tax, I propose to extend rollover relief to a group of assets whose common characteristic is that they barely existed when the present list of qualifying assets was drawn up. They are milk quotas, potato quotas, satellites and spacecraft. I know that this will be warmly welcomed in the farming and extra-terrestrial communities alike.

Lastly, on the small business front, I propose to increase the VAT threshold to £22,100, the maximum permitted under existing European Community law.

Throughout my time as Chancellor, I have been on the look-out for taxes to abolish. Abolition is clearly the simplest variety of reform. I have already abolished the national insurance surcharge, the investment income surcharge, development land tax and the tax on lifetime gifts.

At present, companies have to pay a capital duty of 1 per cent. whenever they raise new capital — whenever, for example, a new company is formed, or an existing company sells new shares to the public. This is undesirable on two counts. It is a burden on companies which need to secure external finance for expansion; and it discriminates against equity capital as compared with debt finance and bank borrowing.

Capital duty is a relatively recent impost which had to be introduced in 1973 in compliance with our obligations under European Community law. But the relevant Community directive has now been amended. Accordingly, I propose to abolish capital duty with effect from midnight tonight.

At the same time, I propose to get rid of the unit trust instrument duty, a similar though much less substantial tax, which is levied at the rate of ¼per cent. on all assets put into a unit trust. I know that the unit trust movement will welcome this minor relief, and I trust that the benefit will be fully passed on to investors.

The cost of abolishing these two taxes will be of the order of £100 million in 1988–89. Not counting minor imposts, the demise of capital duty brings the number of taxes that I have abolished up to five: an average of one a Budget.

Covenants And Maintenance

I now turn to an important area of personal taxation which is ripe for reform and simplification: the taxation of payments made under deeds of covenant and maintenance arrangements.

Covenants to charity will be wholly unaffected by the changes I am about to propose.

Other covenants, and maintenance arrangements, are essentially ways of transferring income from one individual to another, usually from one member of a family to another, whether it is a parent or grandparent covenanting to a child, or a husband paying maintenance to an ex-wife.

Most of the financial transfers that take place within families are rightly and properly outside the scope of the tax system altogether. I propose, as far as is practicable, to take covenants and maintenance out as well. This will greatly simplify an unnecessarily complex part of the tax system.

First, covenants. Charitable covenants apart, I propose to take all new covenants made by individuals on or after today out of the tax system altogether. In other words, people receiving payments under covenants will not be liable to tax on them, and those making the payments will not be able to claim tax relief on them. The tax treatment of existing covenants will continue unchanged.

The largest single group of people affected by this change will be students, together with their parents, many

of whom nowadays choose to make their contribution to the student maintenance grant by covenant. This has arisen as an unintended by-product of the reduction in 1970 of the legal age of majority from 21 to 18.

As I have already indicated, those who have already made such covenants will continue to benefit from tax relief. But for new students the parental contribution to the maintenance grant will be assessed on a new and more generous scale, to reflect the withdrawal of tax relief on new covenants. My right hon. Friends the Secretaries of State for Education and Science and for Scotland will be publishing the details tomorrow.

One desirable side effect of this reform is that future students will no longer be deterred from taking vacation jobs because their covenant income has already absorbed their personal allowance.

Student covenants apart, there will be no compensation for the loss of tax advantage arising from these proposals. But once rates of income tax are set at reasonable levels, this is precisely the sort of tax shelter it is right to dispense with.

Next, maintenance. Here, too, we tax the recipient, only to give tax relief to the payer. The present rules can be complex and confusing for people going through separation and divorce. The tax system ought to intrude as little as possible, though it is reasonable that there should be some recognition of the fact that an ex-husband is continuing to support his ex-wife, or indeed vice versa.

Accordingly, I propose that, for new maintenance arrangements, recipients will not be liable to any tax whatever on maintenance payments. Relief to the payer will be restricted to payments to a separated or divorced spouse, up to a limit equal to the difference between the married and single allowances.

For existing maintenance arrangements, the present rules will continue to apply in 1988–89, except that a separated or divorced spouse will be exempt from tax on receipts up to the difference between the married and single allowances. Full relief will continue for all those who are making payments under existing court orders or agreements. The same protection will also apply to those who have already applied for court orders, provided that they are made by 30 June. From April 1989 there will be special transitional rules to continue protection for existing arrangements.

While the transitional provisions are inevitably somewhat complex, the new system will be very much simpler than the old, for all concerned. It will reduce the tax relief that can be obtained by the better-off payers of large amounts of maintenance, but for most couples the ex-husband will continue to enjoy full tax relief while the ex-wife will not be taxed.

The reform of the tax treatment of maintenance that I am proposing today will also remove one of the lesser known tax penalties on marriage. At present, an unmarried couple can make large payments either between themselves or to their young children, and get tax relief that would not have been available had they been married. My proposed reform will put an end to that.

As I have said, this reform and simplification of the taxation of covenants and maintenance in no way affects covenants to charity. Indeed, I have a proposal to help charities further.

The payroll giving scheme has now been running for nearly a year. I am glad that so many employers have already set up schemes, and I hope as many employees as

possible will take advantage of them. In order to give further encouragement to charitable giving, and to assist the growth of the payroll giving scheme, I propose to double the annual limit on tax-allowable donations under the scheme to £240, or £20 a month.

Taxes On Spending

I now turn to the taxation of spending.

I have one change to propose today affecting the coverage of value added tax, which will remain at 15 per cent. Confectionery was brought in to VAT by the right hon. Member for Leeds, East (Mr. Healey) in 1974, and the legal definition of confectionery goes back further still to the days of purchase tax. The emergence of new products has rendered this definition, rather like the right hon. Gentleman himself, somewhat obsolete. In particular, recent legal decisions mean that some cereal bars are subject to VAT, while others are not. I propose to clarify the law so that all cereal bars are taxed.

I propose to raise the excise duties as a whole broadly in line with inflation, but to make some modest adjustments within the total. The duty on cigarettes and hand-rolling tobacco will be increased, by the equivalent, including VAT, of between threepence and fourpence for a packet of 20 cigarettes. This will take effect from midnight on Thursday. The duty on a packet of five small cigars will rise by twopence, but that on pipe tobacco will remain unchanged.

As to the alcohol duties, I propose increases which, including VAT, will put about a penny on the price of a pint of average-strength beer and cider, fourpence on a bottle of table wine, and sixpence on a bottle of sparkling or fortified wine. There will once again be no increase in the duty on spirits. These changes will take effect from 6 o'clock tonight.

The existing duty structure is inhibiting sales of drinks known as coolers, which are mixtures of an alcoholic drink and a soft drink. I propose to introduce new lower rates of duty for these products, so as to encourage the young, in particular, to change to drinks with a lower alcohol content. For the same reason, I propose from 1 October to abolish the minimum duty charge on beer, which will encourage the promotion of lower-strength beers.

I propose once again to leave the main rates of vehicle excise duty unchanged. To recover the revenue forgone, I propose increases in petrol and derv duty over and above the rate of inflation, which, including VAT, will raise the price of petrol by between fivepence and sixpence a gallon, and that of derv by a little under fivepence a gallon. These changes will take effect from 6 o'clock tonight.

In my Budget last year, I sought to promote the use of lead-free petrol, with all the environmental benefits it brings, by introducing a duty differential in its favour. As a result, the number of garages selling lead-free petrol has more than trebled. But consumption remains disappointingly low.

Accordingly, I propose to double the duty differential in its favour by exempting unleaded petrol altogether from the duty increase I have just announced for leaded petrol. This means that, despite the higher production costs, the pump price of unleaded petrol should in future be below that of ordinary two-star petrol. I very much hope the petrol companies will now reinforce this concession by vigorously promoting the use of lead-free petrol.

Taxes On Capital

I now turn to taxes on capital.

The emergence of the capital-owning democracy has been one of the most remarkable features of the 1980s. Encouraged by Government policy, more than 2½ million families have bought their homes, bringing the total to nearly two households in three. And our proposals for personal pensions, which come into effect in July, will give a new dimension to pension ownership.

But the most dramatic change has been in share ownership. In last year's Budget I announced the results of a joint Treasury/Stock Exchange survey of the number of shareholders in this country. This revealed that some 8½ million people—one adult in five—owned shares, about three times the number in 1979.

A similar survey has been carried out this year. Despite all the stories of people taking quick profits on privatisation shares, and despite the stock market collapse, the results show that the number of individual shareholders has risen further over the past 12 months, to very nearly 9 million. This illustrates in a quite remarkable fashion how wider share ownership is now taking root.

I have two proposals to encourage share ownership still further to announce today.

First, personal equity plans are off to a successful start. Over a quarter of a million people took out PEPs in 1987 and subscribed nearly £½billion between them. To give further encouragement to this form of investment, I propose to increase the annual limit from £2,400 to £3,000. The new higher limit will apply to all plans taken out this year.

Second, measures to encourage employee share ownership have featured in seven out of the last eight Budgets. As a result, the number of approved all-employee share schemes has risen from 30 in 1979 to over 1,400 today, involving well over 10,000 companies, and providing shares and options for well over 1½ million employees.

Following extensive consultation, including the publication of draft clauses, I now propose to relax the provisions of section 79 of the Finance Act 1972. This will make it easier for companies to provide shares to their employees outside the approved schemes without giving rise to an undue charge to tax. This will he of particular benefit to subsidiary companies and their employees.

In previous Budgets I have already substantially reformed the taxation of capital, with the replacement of capital transfer tax by inheritance tax. But I believe this process can and should be taken further. Last year I reduced the number of inheritance tax rates from seven to four. This year I propose to simplify the tax still further by levying it at a flat rate of 40 per cent.

At the same time, I propose to raise the threshold from £90,000 to £110,000. The increase in the threshold will reduce the number of estates liable to tax by a quarter, allowing many more people to inherit the family home free of tax. And the flat rate of 40 per cent. means that for the family business enjoying 50 per cent. business relief the effective rate of tax can never exceed 20 per cent.—one of the lowest inheritance tax rates in the industrialised world.

The cost of these changes will be £100 million in 1988–89.

Lastly, capital gains tax. Strictly speaking, this should not be a tax on the original capital at all. Nor is it, so far

as gains which have arisen since 1982 are concerned, thanks to the indexation provisions introduced by my predecessor in 1982 and extended in my 1985 Budget. But for gains that arose before 1982 the tax falls largely on purely paper profits resulting from the rampant inflation of the 1970s. In other words, it bites deeply, and capriciously, into the capital itself.

This has long been recognised as manifestly unjust. Indeed, from the time I first entered the House I have argued that capital gains tax should fall only on real gains and not on paper gains. I have therefore looked hard to see if the indexation provisions could be applied right back to the inception of the tax in 1965. Unfortunately, they cannot. The necessary information is in many cases no longer available.

Accordingly, I have decided to bring the base date for the tax forward from 1965 to 1982. That is to say, for all disposals on or after 6 April, that part of any capital gain which arose before April 1982 will be exempt from tax altogether for individuals and companies alike.

This Budget thus ends once and for all the injustice of taxing purely inflationary gains. This will benefit the economy by unlocking assets which have been virtually sterilised because of the penal tax that would have arisen on any sale. And it will help many small business men and farmers in particular.

At present, the first £6,600 a year of capital gain is tax free. The relatively high level of this threshold stems from the substantial increase my predecessor made in 1982 explicitly as rough and ready partial compensation for the continued taxation of pre-1982 paper gains. Now that I have taken pre-1982 gains out of tax altogether, I propose to reduce the capital gains tax threshold to £5,000. It should also be borne in mind that, with the introduction of independent taxation in 1990, a husband and wife will each have their own threshold for capital gains tax as well as for income tax.

Rebasing the tax so as to produce a fully indexed system makes it possible to bring the taxation of gains closer to that of income. In principle, there is little economic difference between income and capital gains, and many people effectively have the option of choosing to a significant extent which to receive. And in so far as there is a difference, it is by no means clear why one should be taxed more heavily than the other. Taxing them at different rates distorts investment decisions and inevitably creates a major tax avoidance industry.

Moreover, at present, with capital gains taxed at 30 per cent. for everybody, higher rate taxpayers face a lower—sometimes much lower—rate of tax on gains than on investment income, while basic rate taxpayers face a higher rate of tax on gains than on income. This contrast is hard to justify.

I therefore propose a fundamental reform. Subject to the new base date, capital gains will continue to be worked out as now, with the present exemptions and reliefs. But the indexed gain will be taxed at the income tax rate that would apply if it were the taxpayer's marginal slice of income. In other words, I propose in future to apply the same rate of tax to income and capital gains alike.

These changes will not take effect until 6 April.

Taxing capital gains at income tax rates makes for greater neutrality in the tax system. It is what we now do

for companies. And it is also the practice in the United States, with the big difference that there they have neither indexation relief nor a separate capital gains tax threshold.

The changes I have announced represent a thoroughgoing reform of capital gains tax which will benefit the economy and eradicate a major injustice. They will sharply reduce the damaging effects of the tax, while ensuring that capital gains remain properly taxed and the yield of income tax adequately protected. They are expected to cost a little over £200 million in 1989–90.

Income Tax

I now turn to income tax.

The way to a strong economy is to boost incentives and enterprise. And that means, among other things, keeping income tax as low as possible.

Income tax has now been reduced in each of the last six Budgets—the first time this has ever occurred. And the strength of the economy over that period speaks for itself.

However, reforming income tax is not simply a matter of cutting the rates. I also have to look at all the various allowances and reliefs to ensure that they are still justified. With this in mind, I have a number of proposals to announce.

First, forestry. I accept that the tax system should recognise the special characteristics of forestry, where there can be anything up to 100 years between the costs of planting and the income from selling the felled timber.

But the present system cannot be justified. It enables top rate taxpayers in particular to shelter other income from tax, by setting it against expenditure on forestry, while the proceeds from any eventual sale are almost tax free.

The time has come to bring it to an end. I propose to do so by the simple expedient of taking commercial woodlands out of the income tax system altogether. That is to say, as from today, and subject to transitional provisions, expenditure on commercial woodlands will no longer be allowed as a deduction for income tax and corporation tax. But, equally, receipts from the sale of trees or felled timber will no longer be liable to tax.

It is, perhaps, a measure of the absurdity of the present system that the total exemption of commercial woodlands from tax will, in time, actually increase tax revenues by over £10 million a year.

At the same time, in order to further the Government's objectives for the rural areas, I have agreed with my right hon. Friends who have responsibilities for forestry and for the environment that, in parallel, there should be increases in planting grants. Full details of the new grant scheme will be announced next week.

The net effect of these changes will be to end an unacceptable form of tax shelter; to simplify the tax system, abolishing the archaic schedule B in its entirety; and to enable the Government to secure its forestry objectives with proper regard for the environment, including a better balance between broad-leaved trees and conifers.

One of the legacies of the years of penal top tax rates is the complicated special relief for large redundancy payments. This is no longer justified. I propose to increase the exemption limit for these payments from £25,000 to £30,000, and to abolish the additional relief for larger amounts.

Next, benefits in kind—perhaps better known as perks. One of the biggest tax-induced distortions in the economy today is the growing tendency to provide remuneration in kind rather than in cash. It must be right to move towards a system of lower taxes all round and fewer tax breaks of this kind.

Far and away the most widespread benefit in kind is the company car, which is substantially undertaxed. Independent studies, based on figures supplied by the AA, suggest that an employee with a typical company car may be taxed on only about a quarter of its true value.

This discrepancy is too great to be allowed to continue. On the other hand, the scale of the undertaxation is so great that it cannot be put right in a single year. But in a Budget when I am able to reduce tax rates, there is a strong case for a substantial increase in the taxation of these benefits. I therefore propose to double the car scales for 1988–89. This increase replaces the 10 per cent. increase which I had already announced for 1988–89. The yield will be £260 million in 1988–89.

The scales for the taxation of car fuel adequately reflect the value of the benefit, and I propose to leave them unchanged for 1988–89.

However, the taxation of the benefit of free car parking threatens to become an administrative nightmare. I therefore propose to exempt this particular benefit from tax altogether.

Next, mortgage interest relief.

This Government are committed to the further spread of home ownership. Mortgage interest relief has an important role to play in achieving that aim.

However, in addition to the decision to apply the £30,000 limit to the house or flat, which I have already announced, and which will remove the most widely-resented tax penalty on marriage, I have a further reform to propose in this area.

This concerns the parallel tax relief for home improvement loans. Most of these loans are for fittings such as double glazing, and have played a significant part in the recent growth of consumer credit without in any way contributing to the expansion of home ownership. This may be partly due to the substantial scope for abuse, as loans ostensibly taken out for home improvements are used for other purposes, a matter which was the subject of a recent report from the Public Accounts Committee.

I propose, therefore, to end tax relief for all new home improvement loans taken out after 5 April. Existing home improvement loans will be unaffected. This is expected to yield £80 million in 1988–89.

Finally, I can turn to income tax itself. The statutory indexation formula means that I should increase all the principal income tax allowances and bands by the increase in the RPI over the year to last December, or 3·7 per cent. rounded up. I propose to do more than that—indeed twice as much.

Thus the single allowance will go up not by £90, as required by indexation, but by £180, to £2,605; and the married allowance will go up not by £150 but by £300, to £4,095. The additional personal allowance and the widow's bereavement allowance will accordingly rise by £120 to £1,490. Similarly, the single age allowance will rise by £220 to £3,180 and the married age allowance by £360 to £5,035. The higher allowances for taxpayers aged 80 and over, which I introduced in the last Budget, will correspondingly be increased by £240 and £360 to £3,310

and £5,205 respectively, and the new age allowance income limit will be £10,600. The upper limit of taxable income for the basic rate band will be increased to £19,300.

The increases I have just announced mean that the basic tax thresholds will be fully 25 per cent. higher, in real terms, than they were in 1978–79, Labour's last year. Indeed, the married man's tax threshold will he at its highest level in real terms for nearly half a century.

Given these substantial increases in the main allowances, I am taking the opportunity to simplify the system by abolishing three minor personal allowances which have been unchanged, in cash terms, for over 20 years: the housekeeper allowance, the dependent relative allowance, and the son's or daughter's services allowance.

In our general election manifesto last year, we committed ourselves to reducing the basic rate of income tax to 25 pence in the pound as soon as it was prudent to do so. This pledge followed a reduction of twopence in the pound to 27 pence in last year's Budget.

At the time, this was regarded with some scepticism, not to say cynicism, by the Opposition, who no doubt recalled that Labour Governments used to reduce tax only in front of an election, and at all other times increased it. Indeed, shortly before last year's Budget, the right hon. Gentleman the Deputy Leader of the Labour party, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), said:

"I must advise the Chancellor of something that he already knows: whichever party wins the general election, the tax cuts that he makes in this Budget will be reversed."—[Official Report, 20 January 1987; Vol. 108, c. 772.]

The time has come to put the right hon. Gentleman out of his misery. So far from reversing the 1987 Budget tax reductions, I propose to take this, the first opportunity since the general election, to fulfil our manifesto pledge. The basic rate of income tax for 1988–89 will be 25 pence in the pound.

The small companies' rate of corporation tax will similarily be reduced to 25 per cent. This means that the basic rate of income tax and the corporation tax rate for small companies will both be at their lowest level since the war.

This is an obscenity. The Chancellor cannot do this. [Interruption]

Order. I name Mr. Alex Salmond.

Motion made, and Question put,

That Mr. Alex Salmond be suspended from the service of the House.—[Mr. Wakeham.]

The House proceeded to a Division

On a point of order, Mr. Deputy Speaker. May I draw your attention to Standing Order No. 39, which gives the Chair the power to decide, in determining a Division, whether to ask hon. Members to rise in their places if they want a Division, and to do likewise if they do not? I think it is manifest this afternoon that this is a ridiculous spoiling tactic. I ask you to consider implementing this Standing Order in future, rather than allowing important proceedings of the House to be interrupted in order to gain notoriety for idiots.

I take account of what the hon. Member for Staffordshire, South (Mr. Cormack) says. I think that in the circumstances the House has proceeded correctly.

The House having divided: Ayes 354, Noes 19.

Division No. 215]

[4.43 pm


Adams, Allen (Paisley N)Clarke, Rt Hon K. (Rushcliffe)
Adley, RobertColvin, Michael
Aitken, JonathanCoombs, Anthony (Wyre F'rest)
Alexander, RichardCoombs, Simon (Swindon)
Alison, Rt Hon MichaelCormack, Patrick
Allen, GrahamCouchman, James
Amess, DavidCran, James
Amos, AlanCunningham, Dr John
Anderson, DonaldCurrie, Mrs Edwina
Arbuthnot, JamesDavies, Q. (Stamf'd & Spald'g)
Arnold, Jacques (Gravesham)Davis, David (Boothferry)
Arnold, Tom (Hazel Grove)Day, Stephen
Ashby, DavidDevlin, Tim
Ashdown, PaddyDewar, Donald
Aspinwall, JackDickens, Geoffrey
Atkins, RobertDobson, Frank
Baker, Rt Hon K. (Mole Valley)Doran, Frank
Baker, Nicholas (Dorset N)Dorrell, Stephen
Baldry, TonyDouglas-Hamilton, Lord James
Banks, Robert (Harrogate)Dover, Den
Barnes, Mrs Rosie (Greenwich)Dunn, Bob
Barron, KevinDurant, Tony
Batiste, SpencerDykes, Hugh
Beaumont-Dark, AnthonyEggar, Tim
Beggs, RoyEmery, Sir Peter
Beith, A. J.Evans, David (Welwyn Hatf'd)
Bell, StuartEvans, John (St Helens N)
Bellingham, HenryEvennett, David
Bendall, VivianFairbairn, Nicholas
Bennett, Nicholas (Pembroke)Fallon, Michael
Biffen, Rt Hon JohnFarr, Sir John
Biggs-Davison, Sir JohnFaulds, Andrew
Blackburn, Dr John G.Favell, Tony
Blair, TonyFearn, Ronald
Blaker, Rt Hon Sir PeterFenner, Dame Peggy
Bottomley, PeterField, Barry (Isle of Wight)
Bottomley, Mrs VirginiaField, Frank (Birkenhead)
Bowden, Gerald (Dulwich)Finsberg, Sir Geoffrey
Bowis, JohnForman, Nigel
Boyes, RolandForsyth, Michael (Stirling)
Braine, Rt Hon Sir BernardForsythe, Clifford (Antrim S)
Brandon-Bravo, MartinForth, Eric
Bray, Dr JeremyFoster, Derek
Brazier, JulianFoulkes, George
Bright, GrahamFowler, Rt Hon Norman
Brittan, Rt Hon LeonFox, Sir Marcus
Brooke, Rt Hon PeterFranks, Cecil
Brown, Gordon (D'mline E)Freeman, Roger
Brown, Michael (Brigg & Cl't's)French, Douglas
Brown, Nicholas (Newcastle E)Galbraith, Sam
Browne, John (Winchester)Gardiner, George
Bruce, Ian (Dorset South)Gill, Christopher
Buck, Sir AntonyGilmour, Rt Hon Sir Ian
Budgen, NicholasGlyn, Dr Alan
Burns, SimonGoodlad, Alastair
Burt, AlistairGoodson-Wickes, Dr Charles
Butcher, JohnGow, Ian
Butler, ChrisGower, Sir Raymond
Butterfill, JohnGrant, Sir Anthony (CambsSW)
Campbell, Menzies (Fife NE)Greenway, Harry (Ealing N)
Carlile, Alex (Mont'g)Griffiths, Peter (Portsmouth N)
Carlisle, Kenneth (Lincoln)Grist, Ian
Carrington, MatthewGround, Patrick
Cash, WilliamGrylls, Michael
Channon, Rt Hon PaulGummer, Rt Hon John Selwyn
Chapman, SydneyHamilton, Hon Archie (Epsom)
Chope, ChristopherHanley, Jeremy
Clark, Hon Alan (Plym'th S'n)Hannam, John
Clark, Dr David (S Shields)Hargreaves, A. (B'ham H'll Gr')
Clark, Dr Michael (Rochford)Hargreaves, Ken (Hyndburn)
Clark, Sir W. (Croydon S)Harris, David

Haselhurst, AlanMans, Keith
Hattersley, Rt Hon RoyMaples, John
Hawkins, ChristopherMarland, Paul
Hayes, JerryMarlow, Tony
Hayward, RobertMarshall, John (Hendon S)
Heath, Rt Hon EdwardMartin, David (Portsmouth S)
Heathcoat-Amory, DavidMaude, Hon Francis
Heddle, JohnMawhinney, Dr Brian
Henderson, DougMaxwell-Hyslop, Robin
Heseltine, Rt Hon MichaelMeacher, Michael
Hicks, Mrs Maureen (Wolv' NE)Meyer, Sir Anthony
Hicks, Robert (Cornwall SE)Miller, Hal
Higgins, Rt Hon Terence L.Mitchell, Andrew (Gedling)
Hill, JamesMitchell, David (Hants NW)
Hind, KennethMoate, Roger
Holland, StuartMonro, Sir Hector
Holt, RichardMontgomery, Sir Fergus
Hordern, Sir PeterMoonie, Dr Lewis
Howard, MichaelMorris, Rt Hon J. (Aberavon)
Howarth, Alan (Strat'd-on-A)Morrison, Hon Sir Charles
Howarth, George (Knowsley N)Moss, Malcolm
Howe, Rt Hon Sir GeoffreyMowlam, Marjorie
Howell, Rt Hon David (G'dford)Neale, Gerrard
Howell, Rt Hon D. (S'heath)Nelson, Anthony
Howell, Ralph (North Norfolk)Neubert, Michael
Howells, GeraintNewton, Rt Hon Tony
Hughes, Robert (Aberdeen N)Nicholls, Patrick
Hughes, Robert G. (Harrow W)Nicholson, David (Taunton)
Hunt, David (Wirral W)Nicholson, Emma (Devon West)
Hunt, John (Ravensbourne)O'Neill, Martin
Hunter, AndrewOnslow, Rt Hon Cranley
Ingram, AdamOppenheim, Phillip
Irvine, MichaelOwen, Rt Hon Dr David
Irving, CharlesPage, Richard
Jack, MichaelPaice, James
Jackson, RobertParkinson, Rt Hon Cecil
Janman, TimPatnick, Irvine
Jessel, TobyPatten, John (Oxford W)
John, BrynmorPawsey, James
Johnson Smith, Sir GeoffreyPeacock, Mrs Elizabeth
Jones, Robert B (Herts W)Porter, Barry (Wirral S)
Jopling, Rt Hon MichaelPorter, David (Waveney)
Kellett-Bowman, Dame ElainePortillo, Michael
Kennedy, CharlesPowell, William (Corby)
Key, RobertPrice, Sir David
Kilfedder, JamesRadice, Giles
King, Roger (B'ham N'thfield)Raffan, Keith
Kinnock, Rt Hon NeilRaison, Rt Hon Timothy
Kirkwood, ArchyRandall, Stuart
Knapman, RogerRathbone, Tim
Knight, Greg (Derby North)Redwood, John
Knowles, MichaelReid, Dr John
Knox, DavidRhodes James, Robert
Lamont, Rt Hon NormanRhys Williams, Sir Brandon
Lang, IanRiddick, Graham
Latham, MichaelRidley, Rt Hon Nicholas
Lawrence, IvanRidsdale, Sir Julian
Lawson, Rt Hon NigelRifkind, Rt Hon Malcolm
Lee, John (Pendle)Roberts, Allan (Bootle)
Leigh, Edward (Gainsbor'gh)Roberts, Wyn (Conwy)
Lennox-Boyd, Hon MarkRobertson, George
Lightbown, DavidRoe, Mrs Marion
Lilley, PeterRooker, Jeff
Livsey, RichardRossi, Sir Hugh
Lloyd, Sir Ian (Havant)Rowe, Andrew
Lloyd, Peter (Fareham)Rumbold, Mrs Angela
Lord, MichaelRyder, Richard
Luce, Rt Hon RichardSackville, Hon Tom
Lyell, Sir NicholasSainsbury, Hon Tim
Macdonald, Calum A.Shaw, David (Dover)
Macfarlane, Sir NeilShaw, Sir Giles (Pudsey)
McKay, Allen (Barnsley West)Shaw, Sir Michael (Scarb')
MacKay, Andrew (E Berkshire)Sheldon, Rt Hon Robert
Maclean, DavidShephard, Mrs G. (Norfolk SW)
Maclennan, RobertShepherd, Colin (Hereford)
McLoughlin, PatrickShersby, Michael
McNair-Wilson, M. (Newbury)Sims, Roger
Madel, DavidSkeet, Sir Trevor
Major, Rt Hon JohnSmith, Andrew (Oxford E)
Malins, HumfreySmith, Rt Hon J. (Monk'ds E)

Smith, Tim (Beaconsfield)Thurnham, Peter
Soames, Hon NicholasTownend, John (Bridlington)
Speller, TonyTredinnick, David
Spicer, Sir Jim (Dorset W)Trippier, David
Spicer, Michael (S Worcs)Viggers, Peter
Squire, RobinWaddington, Rt Hon David
Stanbrook, IvorWakeham, Rt Hon John
Steel, Rt Hon DavidWaldegrave, Hon William
Steen, AnthonyWalden, George
Stern, MichaelWalker, Bill (T'side North)
Stevens, LewisWallace, James
Stewart, Andy (Sherwood)Waller, Gary
Stewart, Ian (Hertfordshire N)Ward, John
Stokes, JohnWardle, Charles (Bexhill)
Straw, JackWatts, John
Sumberg, DavidWells, Bowen
Summerson, HugoWhitney, Ray
Tapsell, Sir PeterWiddecombe, Ann
Taylor, Mrs Ann (Dewsbury)Wilkinson, John
Taylor, Ian (Esher)Wilshire, David
Taylor, John M (Solihull)Winterton, Nicholas
Taylor, Teddy (S'end E)Wood, Timothy
Temple-Morris, PeterYeo, Tim
Thatcher, Rt Hon MargaretYoung, Sir George (Acton)
Thompson, D. (Calder Valley)
Thompson, Patrick (Norwich N)Tellers for the Ayes:
Thorne, NeilMr. Robert Boscawen and
Thornton, MalcolmMr. Tristan Garel-Jones.


Abbott, Ms DianeMahon, Mrs Alice
Canavan, DennisNellist, Dave
Clay, BobPrimarolo, Dawn
Corbyn, JeremySalmond, Alex
Cryer, BobSedgemore, Brian
Ewing, Mrs Margaret (Moray)Skinner, Dennis
Grant, Bernie (Tottenham)Thomas, Dr Dafydd Elis
Heffer, Eric S.
Jones, leuan (Ynys Môn)Tellers for the Noes:
Lambie, DavidMr. Andrew Welsh and
McGrady, EddieMr. Dafydd Wigley.
Madden, Max

Question accordingly agreed to.


That Mr. Alex Salmond be suspended from the service of the House.

then directed that the hon. Member withdraw from the House and he withdrew accordingly.

On a point of order, Mr. Deputy Speaker. Is it in order to point out that the cretinous performance that we have just witnessed owed everything to self-publicity and nothing to social concern, as testified by the attendance record of members of the Scottish National party in the Social Security Bill Committee—

To repeat, Mr. Deputy Speaker, the basic rate of income tax for 1988–89 will be 25 pence in the pound.

The small companies' rate of corporation tax will similarly be reduced to 25 per cent. This means that the basic rate of income tax and the corporation tax rate for small companies will both be at their lowest level since the war.

Life assurance premium relief remains in place for policies taken out before the 1984 Budget. It has traditionally been given at half the basic rate of income tax. I therefore propose to reduce it from 15 per cent. to 121 per cent. But, to give life offices time to adjust, this change will not take effect until 6 April 1989.

I also propose to reduce the additional rate which applies to the income of discretionary trusts and for certain other purposes from 18 per cent. to 10 per cent.

It is now nine years since my predecessor, in his first Budget in 1979, reduced the top rate of income lax from the absurd 83 per cent. that prevailed under Labour to 60 per cent. where it has remained ever since. At that time, this was broadly in line with the European average for the top rate of tax. It is now one of the highest. And not only do the majority of European countries now have a top rate of tax below 60 per cent. but in the English-speaking countries outside Europe—not only the United States and Canada, but in Labour Australia and New Zealand, too—the top rate is now below 50 per cent., sometimes well below.

The reason for the worldwide trend towards lower top rates of tax is clear. Excessive rates of income tax destroy enterprise, encourage avoidance, and drive talent to more hospitable shores overseas. As a result, so far from raising additional revenue, over time they actually raise less.

By contrast, a reduction in the top rates of income tax can over time result in a higher, not a lower, yield to the Exchequer. Despite the substantial reduction in the top rate of tax in 1979, and the subsequent abolition of the investment income surcharge in 1984, the top 5 per cent. of taxpayers today contribute a third as much again in real terms as they did in 1978–79, Labour's last year; while the remaining 95 per cent. of taxpayers pay about the same in real terms as they did in 1978–79.

After nine years at 60 per cent., I believe the time has come to make a further reduction in the top rate of income tax. At present there are no fewer than five higher rates of income tax; 40 per cent., 45 per cent., 50 per cent., 55 per cent. and 60 per cent. I propose to abolish all the higher rates of tax above 40 per cent.

This major reform will leave us with one of the simplest systems of income tax in the world, consisting—

Order. The hon. Gentleman knows that, if he persists, I shall have no option but to use the disciplinary power.

Order. There will be plenty of time and opportunity to debate these matters in the days ahead.


Grave disorder having arisen in the House, MR. DEPUTY SPEAKER, pursuant to Standing Order No. 45 (Power of Mr. Speaker to adjourn House or suspend sitting), suspended the sitting for 10 minutes.

Sitting suspended at 5.1 pm.

5.11 pm

This major reform will leave us with one of the simplest systems of income tax in the world, consisting of a basic rate of 25 per cent. and a single higher rate of 40 per cent. And, indeed, a system of personal taxation in which there is no rate anywhere in excess of 40 per cent.

I believe that 40 per cent. is an acceptable top rate of tax. But, bearing in mind that the basic rate of income tax is also the starting rate, 25 per cent. is still too high.

Since we first took office in 1979, we have reduced the basic rate of income tax from 33 per cent.—one third—to 25 per cent. —a quarter. Our aim should now be to get it down to a fifth—a rate of 20 pence in the pound —as soon as we prudently and sensibly can.

Meanwhile, I have today been able to reduce income tax at all levels, with increases in both the personal allowances and the basic rate limit, and reductions in both the basic and higher rates. The tax reduction for a married man on average earnings will be worth nearly £5 a week. The changes will take effect under PAYE on the first pay day after 14 June. They will cost £4¼ billion in 1988–89 over and above statutory indexation, of which three quarters represents the cost of increasing tax thresholds and reducing the basic rate.

The total cost of all the measures in this year's budget, again on an indexed basis, is a shade under £4 billion.


Mr. Deputy Speaker, in this Budget, I have reaffirmed the prudent polices which have brought us unprecedented economic strength. I have announced a radical reform of the taxation of marriage, which for the first time ever will give married women a fair deal from the tax system. I have eliminated the long-standing injustice of taxing inflationary gains, and abolished a fifth tax. I have radically reformed the structure of personal taxation, so that there is no rate anywhere in the system in excess of 40 per cent.

After an Autumn Statement which substantially increased public spending in priority areas, I have once again cut the basic rate of income tax, fulfilling our manifesto pledge of a basic rate of 25 pence in the pound and setting a new target of 20 pence in the pound.

And I have balanced the Budget.

I commend this Budget to the House.

Provisional Collection Of Taxes

Motion made, and Question put, pursuant to Standing Order No. 50 (Ways and Means motions),

That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—
  • (a) Beer (motion No. 2)
  • (b) Wine and made-wine (motion No. 3)
  • (c) Cider (motion No. 4)
  • (d) Tobacco Products (motion No. 5)
  • (e) Hydrocarbon oil (motion No. 6)
  • (f) Vehicles excise duty (motion No. 7)
  • (g) Vehicles excise duty (exceptional loads, etc) (motion No. 8).—[Mr. Lawson.]
  • The House divided: Ayes 287, Noes 4.

    Division No. 216]

    [5.15 pm


    Adley, RobertAlison, Rt Hon Michael
    Aitken, JonathanAmess, David
    Alexander, RichardAmos, Alan

    Arbuthnot, JamesFranks, Cecil
    Arnold, Jacques (Gravesham)Freeman, Roger
    Arnold, Tom (Hazel Grove)French, Douglas
    Ashby, DavidGardiner, George
    Aspinwall, JackGill, Christopher
    Atkins, RobertGilmour, Rt Hon Sir Ian
    Baker, Rt Hon K. (Mole Valley)Glyn, Dr Alan
    Baker, Nicholas (Dorset N)Goodhart, Sir Philip
    Banks, Robert (Harrogate)Goodlad, Alastair
    Batiste, SpencerGoodson-Wickes, Dr Charles
    Beaumont-Dark, AnthonyGow, Ian
    Bellingham, HenryGower, Sir Raymond
    Bendall, VivianGrant, Sir Anthony (CambsSW)
    Bennett, Nicholas (Pembroke)Greenway, Harry (Ealing N)
    Biffen, Rt Hon JohnGregory, Conal
    Biggs-Davison, Sir JohnGriffiths, Peter (Portsmouth N)
    Blackburn, Dr John G.Grist, Ian
    Blaker, Rt Hon Sir PeterGround, Patrick
    Bottomley, Mrs VirginiaGummer, Rt Hon John Selwyn
    Bowden, A (Brighton K'pto'n)Hamilton, Hon Archie (Epsom)
    Bowden, Gerald (Dulwich)Hamilton, Neil (Tatton)
    Bowis, JohnHanley, Jeremy
    Braine, Rt Hon Sir BernardHannam, John
    Brandon-Bravo, MartinHargreaves, A. (B'ham H'll Gr')
    Brazier, JulianHargreaves, Ken (Hyndburn)
    Bright, GrahamHarris, David
    Brittan, Rt Hon LeonHaselhurst, Alan
    Brooke, Rt Hon PeterHawkins, Christopher
    Brown, Michael (Brigg & Cl't's)Hayes, Jerry
    Browne, John (Winchester)Hayward, Robert
    Bruce, Ian (Dorset South)Heath, Rt Hon Edward
    Buck, Sir AntonyHeathcoat-Amory, David
    Budgen, NicholasHeddle, John
    Burns, SimonHeseltine, Rt Hon Michael
    Burt, AlistairHicks, Mrs Maureen (Wolv' NE)
    Butcher, JohnHicks, Robert (Cornwall SE)
    Butler, ChrisHiggins, Rt Hon Terence L.
    Butterfill, JohnHill, James
    Carlisle, Kenneth (Lincoln)Hind, Kenneth
    Carrington, MatthewHogg, Hon Douglas (Gr'th'm)
    Cash, WilliamHolt, Richard
    Channon, Rt Hon PaulHordern, Sir Peter
    Chapman, SydneyHoward, Michael
    Chope, ChristopherHowarth, Alan (Strat'd-on-A)
    Clark, Hon Alan (Plym'th S'n)Howe, Rt Hon Sir Geoffrey
    Clark, Dr Michael (Rochford)Howell, Rt Hon David (G'dford)
    Clark, Sir W. (Croydon S)Howell, Ralph (North Norfolk)
    Clarke, Rt Hon K. (Rushclifie)Hughes, Robert G. (Harrow W)
    Colvin, MichaelHunt, David (Wirral W)
    Coombs, Anthony (Wyre F'rest)Hunt, John (Ravensbourne)
    Coombs, Simon (Swindon)Hunter, Andrew
    Cormack, PatrickIrvine, Michael
    Couchman, JamesIrving, Charles
    Cran, JamesJack, Michael
    Currie, Mrs EdwinaJackson, Robert
    Davies, Q. (Stamf'd & Spald'g)Janman, Tim
    Davis, David (Boothferry)Jessel, Toby
    Day, StephenJohnson Smith, Sir Geoffrey
    Devlin, TimJones, Robert B (Herts W)
    Dorrell, StephenJopling, Rt Hon Michael
    Douglas-Hamilton, Lord JamesKellett-Bowman, Dame Elaine
    Dover, DenKey, Robert
    Dunn, BobKilfedder, James
    Durant, TonyKing, Roger (B'ham N'thfield)
    Dykes, HughKnapman, Roger
    Eggar, TimKnight, Greg (Derby North)
    Emery, Sir PeterKnowles, Michael
    Evans, David (Welwyn Hatf'd)Knox, David
    Evennett, DavidLang, Ian
    Fairbairn, NicholasLatham, Michael
    Farr, Sir JohnLawrence, Ivan
    Favell, TonyLawson, Rt Hon Nigel
    Fenner, Dame PeggyLee, John (Pendle)
    Field, Barry (Isle of Wight)Leigh, Edward (Gainsbor'gh)
    Finsberg, Sir GeoffreyLennox-Boyd, Hon Mark
    Forman, NigelLightbown, David
    Forsyth, Michael (Stirling)Lilley, Peter
    Forth, EricLloyd, Sir Ian (Havant)
    Fowler, Rt Hon NormanLloyd, Peter (Fareham)
    Fox, Sir MarcusLord, Michael

    Lyell, Sir NicholasPawsey, James
    Macfarlane, Sir NeilPeacock, Mrs Elizabeth
    MacKay, Andrew (E Berkshire)Porter, Barry (Wirral S)
    Maclean, DavidPorter, David (Waveney)
    McLoughlin, PatrickPortillo, Michael
    McNair-Wilson, M. (Newbury)Powell, William (Corby)
    McNair-Wilson, P. (New Forest)Price, Sir David
    Madel, DavidRaffan, Keith
    Major, Rt Hon JohnRaison, Rt Hon Timothy
    Malins, HumfreyRathbone, Tim
    Mans, KeithRedwood, John
    Maples, JohnRhodes James, Robert
    Marland, PaulRhys Williams, Sir Brandon
    Marlow, TonyRiddick, Graham
    Marshall, John (Hendon S)Ridley, Rt Hon Nicholas
    Martin, David (Portsmouth S)Ridsdale, Sir Julian
    Maude, Hon FrancisRifkind, Rt Hon Malcolm
    Mawhinney, Dr BrianRoe, Mrs Marion
    Maxwell-Hyslop, RobinRossi, Sir Hugh
    Miller, HalRowe, Andrew
    Mitchell, Andrew (Gedling)Rumbold, Mrs Angela
    Mitchell, David (Hants NW)Ryder, Richard
    Monro, Sir HectorSainsbury, Hon Tim
    Moore, Rt Hon JohnShaw, David (Dover)
    Morrison, Hon Sir CharlesShaw, Sir Giles (Pudsey)
    Moss, MalcolmShaw, Sir Michael (Scarb')
    Neale, GerrardShephard, Mrs G. (Norfolk SW)
    Nelson, AnthonyShepherd, Colin (Hereford)
    Neubert, MichaelShersby, Michael
    Newton, Rt Hon TonySims, Roger
    Nicholls, PatrickSkeet, Sir Trevor
    Nicholson, David (Taunton)Smith, Tim (Beaconsfield)
    Nicholson, Emma (Devon West)Soames, Hon Nicholas
    Onslow, Rt Hon CranleySpeller, Tony
    Oppenheim, PhillipSpicer, Sir Jim (Dorset W)
    Page, RichardSpicer, Michael (S Worcs)
    Paice, JamesSquire, Robin
    Parkinson, Rt Hon CecilStanbrook, Ivor
    Patnick, IrvineSteen, Anthony
    Patten, John (Oxford W)Stern, Michael
    Pattie, Rt Hon Sir GeoffreyStevens, Lewis

    Stewart, Andy (Sherwood)Waldegrave, Hon William
    Stewart, Ian (Hertfordshire N)Walden, George
    Stokes, JohnWalker, Bill (T'side North)
    Sumberg, DavidWalker, Rt Hon P. (W'cester)
    Summerson, HugoWaller, Gary
    Tapsell, Sir PeterWard, John
    Taylor, Ian (Esher)Wardle, Charles (Bexhill)
    Taylor, John M (Solihull)Watts, John
    Taylor, Teddy (S'end E)Wells, Bowen
    Temple-Morris, PeterWhitney, Ray
    Thatcher, Rt Hon MargaretWiddecombe, Ann
    Thompson, D. (Calder Valley)Wilkinson, John
    Thompson, Patrick (Norwich N)Wilshire, David
    Thorne, NeilWinterton, Nicholas
    Thornton, MalcolmWood, Timothy
    Thurnham, PeterYeo, Tim
    Townend, John (Bridlington)Young, Sir George (Acton)
    Townsend, Cyril D. (B'heath)
    Tredinnick, DavidTellers for the Ayes:
    Trippier, DavidMr. Robert Boscawen and
    Waddington, Rt Hon DavidMr. Tristan Garel-Jones.
    Wakeham, Rt Hon John


    Jones, Ieuan (Ynys Môn)
    McGrady, EddieTellers for the Noes:
    Nellist, DaveMr. Dafydd Wigley and
    Thomas, Dr Dafydd ElisMrs. Margaret Ewing.

    Question accordingly agreed to.

    I shall now call the Chancellor of the Exchequer to move the motion entitled "Amendment of the Law". It is on that motion that the Budget debate will take place today and on succeeding days. The remaining motions will not be put until the end of the Budget debate next week, and they will then be decided without debate.

    Budget Resolutions And Economic Situation

    Amendment Of The Law

    Motion made, and Question proposed,

    That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
  • (a) for zero-rating or exempting any supply;
  • (b) for refunding any amount of tax;
  • (c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
  • (d) for relief other than relief applying to goods of whatever description or services of whatever description. —[Mr. Lawson.]
  • [Relevant documents: European Community Document No. 9561/87, Annual Economic Report 1987–88 and the unnumbered document, Annual Economic Report 1987–88 (final version as adopted by the Council).]

    5.27 pm

    On a point of order, Mr. Deputy Speaker. After this afternoon's demonstrations, is it too much to hope that the House will at last take a grip of itself and, when people get themselves named in the way in which it happened this afternoon, we shall suspend them for six months without pay?

    The Budget that we have heard this afternoon, especially the latter part of it, generated anger and resentment against the immense injustice of the attitude taken by the Chancellor of the Exchequer in his view of the best off people in our society and the gift, in excess of £2 billion a year, awarded to them in tax concessions. We compare that with the fact that he offered nothing at all to the National Health Service. We compare his handout to the richest in Britain with his offer of a puny, marginal and negligible amount to those who constitute the average people of our society.

    In those circumstances, the anger generated is understandable. However, I believe that, faced with that situation, I, my comrades and my hon. Friends should take the view: do not get mad, get even. I assert again that in this House and everywhere else in this democracy argument is always superior to the form of action that we have seen this afternoon.

    When the Chancellor reached that monumental concession to the best off, I noticed that the cheering from the Conservative Benches was even louder than when he made the concession on the standard rate. That is the system of values that is facing us. Those Conservative Members are the people who back the idea of making awards in the form of tax concessions that are worth 48p per week to those whose income totals £100, including various benefits, who offer £3·98 per week to somebody on £200 per week, such as a married man with two children, but who give £82·96 per week to someone who earns £1,000 per week. That cannot be right. It cannot be right in terms of incentives, because over the past eight years we have seen additional tax reliefs for the best off, but we have not seen a consequent increase in investment in this country — [Interruption.] Manufacturing investment is still 14 per cent. lower today than it was in 1979, despite the concessions.

    I often wonder why Conservative Members feel that to get the rich to work harder they must give them more, but to make the poor work harder they will give them less. This afternoon we have seen a Budget upon which we shall have to rely on St. Matthew for apt, accurate and adequate comment, because literally, to a degree that has never been known before in this Chamber, "To them that hath shall be given even unto abundance, and from them that hath not, shall be taken away, even that which they have." That is what is happening. That is the only judgment that can adequately be offered on a Government who, in March, can offer immense tax relief to the richest, and in April will take away housing and social security benefits from those who are the poorest in our country.

    We are constantly and rightly reminded that Governments do not have any money of their own—they have only the people's money. Against that background, which must enjoy universal support as a proposition, it can be said with absolute certainty that an overwhelming majority of the British people wanted their money to be dedicated to the National Health Service. They wanted that because they realise that the National Health Service is grievously under-funded. They wanted it because they value that service above all other priorities, even above immediate personal gain. They wanted it because they know that tax cuts do not buy treatment, that tax cuts do not pay nurses, that tax cuts do not open hospital wards or operating theatres and that tax cuts do not shorten waiting lists — [Interruption.] I hear Conservative Members saying that tax cuts do pay the nurses. Well, those hon. Members will have to face the nurses in their constituencies and say why a staff nurse, at the top of the current pay scale, gets £3·40 per week out of today's tax concessions, but even that will he eaten away when charges are made on nurses working in hospital.

    There is no balance of justice in a Government who make such awards and at the same time deny the resources that are demanded by an overwhelming majority of people — people of all politics and of no politics, from every part of the country; people inside the Health Service, and those outside it; those who use the Health Service and those who do not. All those people have gathered together in a massive consensus, saying that today should have been National Health Service day.

    In disregarding the emphatic preference of the British public the Chancellor has shown that while some people give their lives to the National Health Service, and some people owe their lives to the National Health Service, he does not give tuppence for the National Health Service. In refusing to listen to the priorities of the people — including, to their credit, many in his own party — the Chancellor earns public disdain that will not be repaired even if the Government meet the nurses' and health workers' pay award in a couple of months' time. Even if that were to occur—we can only hope that it will—it would still leave an immense amount to do to try to bring the Health Service out of crisis.

    I make an appeal to the Chancellor even now. As a start, when he replies to the debate next Monday, he could seek to redeem himself to some extent by giving an undertaking that the deficits currently being carried by the health authorities will be financed so that they do not have to carry them over into the next year, thus ensuring that they begin the next financial year with disadvantage and undermining any award that is made to the nurses and health workers. The Chancellor could give that undertaking. If health authorities carry over those deficits, they start the year in disadvantage. The crisis of under-funding is then a disaster that is waiting to happen, as it most surely will without adequate funding before the end of this year.

    To govern is to choose. It is a tragedy that even though the Chancellor has the means, and even though there is the most urgent need, the Chancellor has deliberately chosen not to make today National Health Service day. Then again he has not chosen to make it national anything day —[Interruption.] Not for 15 million people — [HON. MEMBERS: "It is Budget day."] All right, but it is Budget day also for those 15 million people—more than one in four of the British people—who will not benefit from the Chancellor's income tax cuts, some of them because they are too poor to pay income tax, others whose pay is so low that the Chancellor may be giving them a few pence or even a pound or so with one hand, but after 11 April the Department of Health and Social Security will take it away with the other.

    This is not a "national anything" Budget, because there is nothing in this Budget to blunt the cutting edge of the changes that are to be made to the social security and housing benefit regulations next month. Some of the poorest people will lose up to 96p in any pound of gain that they make from tax concessions. We hear about the incentive effect of making tax cuts. Indeed, the Chancellor told us about it again today. He said, "There is a strong economy because of initiatives and enterprise and the incentives that come from tax cuts."

    How would the right hon. Gentleman feel if he earned £105 or £110 per week and the marginal rate of tax on his income was 96p on what is already a poverty income? What about standing on one's own feet? What about incentives? What about the spur to go to work? I know what will happen when people decide that they cannot afford that disadvantage and retreat from work because they are being fined for going to work. The Chancellor and his colleagues will come here next year and give us further lectures about "scroungers". We will hear the Secretary of State for Social Services talking about the "dependency culture". How dare the Government say such things when they are doing this to our people and our country.

    On top of that, a pensioner couple with modest savings automatically become disqualified from support from housing benefit as a consequence of having those savings. Where is the reward for thrift, or — to use the Chancellor's favourite word — "prudence", when such people are fined by the loss of their weekly help because they have taken care and have had the thrift to put a little bit aside to help them through their retirement?

    It is not only the poor and the low-paid that the Budget does not serve. It does almost nothing to help those who are trying to export from Britain, but it does give some real help to those who are trying to import into Britain. There is hardly anything in the Budget for jobs in Britain, but there is a fair bit in it for jobs abroad. There may be some prospect for short-term growth, dependent upon credit and consumption in such an approach—there just might be—but there is no prospect of dependable, sustainable growth. That is the problem. The Chancellor's priorities never extend to encouraging investment in productive capacity, in research and development, in the training for skills and in the development of those skills. What we have had today is the extension of the business extension scheme — [HON. MEMBERS: "Expansion scheme."] Well, we shall see how much it will expand business.

    That scheme offers an inducement to buy up houses and blocks of houses, and offers subsidies to the landlord at the same time as the Housing Bill, which is going through the House, will hammer tenants in both the private and public sectors. What an imbalance. It is not a business expansion scheme, but a Rachman expansion scheme. That is what will happen.

    There is nothing in the Budget to lay or build the foundations for sustainable economic growth and for future strength in the British economy. That is the major reason why, after eight oil-rich years, our exporters' share of world markets in manufactures is down by 20 per cent. and our producers' share of the domestic market is down by 30 per cent. If we were gaining in the way that the Chancellor has sought to suggest, those figures would be reversed. We would be gaining substantial shares in the world and domestic markets.

    In the eight oil-rich years, which have meant enormous bonuses to the Government and the Chancellor at a rate of at least £5 billion a year—sometimes twice or nearly three times that figure—they have never developed the economy, never sponsored production and never given us that extra competitive edge that would reverse the current position. That refusal to follow any systematic strategy to strengthen our industry is the major reason why our exports have gone up by 30 per cent.—yes, to record levels—while our imports, in the Tory years, have gone up by 50 per cent. This nation of modern makers and traders cannot sustain that continuing divergence between increasing imports and increasing exports at a much slower rate. Surely the Chancellor can see the rationale of that. Surely he must want to sustain our industry and to give our industrialists, the workers in the industries—the inventive people — a real fighting chance in the world market.

    That chance has not come so far. That is why we can measure our trade deficit in this oil-rich country as £9·6 billion. That sum is too big to be balanced by the combined sale of oil and services. The Government have had this marvellous, unsolicited bonus of oil and what a judgment of them it is that they should he carrying a balance of payments deficit of any size when they are oil-rich, energy-rich and do not have to depend on the importation of those essential commodities.

    The Chancellor has spoken about the gains in productivity and in competitiveness, and any improvements are obviously welcome. When we consider the international trade figures, the domestic market share and the balance in manufactured trade deficit, we may say that the Chancellor, in balancing his Budget, deserves the name "Lucky Lawson". However, in terms of balancing the trade of our country he must be known as "Loser Lawson"— that is the only name that fits.

    What about the Budget surplus? That surplus has come from three major sources. The first is oil revenues—the £6 billion a year about which the Government have spoken. The second is the upsurge in VAT receipts. VAT has been substantially levied on the massive increase in imports. They have been bought with credit and have therefore added immensely to the general problems faced by the Chancellor in dealing with the economy. Indeed, the extent to which credit and debt have increased for British households under this prudent Government, this non-borrowing Government, has meant that domestic debt has increased from £80 billion a year—less than a third in equivalent value to GNP—to £280 billion a year—two thirds in equivalent value to GNP.

    I am sure that the Prime Minister would say:
    "Neither a borrower, nor a lender be".
    That represents the old-fashioned Grantham prudence that the right hon. Lady learnt. Well, she does not recommend it to the rest of the economy, because the stimulus to growth about which the Chancellor has been proud to talk has been sponsored and substantially sustained, not by any virile developments in the economy or a new competitiveness, but as a result of a massive expansion of household debt in our country. A bill must be paid.

    The third area from which Budget surplus has come is the once-and-for-all sale of national assets at the rate of about £5 billion a year. On that basis, anyone who has a house could make a budget surplus. All that he has to do is sell his house and move into rented accommodation. For a few years he would have a budget surplus, but he would not have a house to go back to. He would have lots of money, but no security. That is how the Chancellor has money to spare. The sell-offs cannot be sustained, any more than the VAT revenues or the oil revenues can be sustained. They are all short-term bonuses bringing short-term benefits from someone who is now becoming a short-term Chancellor.

    Our country must succeed in the long-term, and that is why the priorities in this Budget should have been investment in production, investment in export and sales, in research and development, in health and social justice. Such an approach would have meant not only that the Government were making proper provision for our strength in the future, but that, in the present, they would be increasing competitiveness, combating the expansion of debt, using national resources in a way that does not significantly add to imports or inflation, generating employment—full-time, properly paid jobs, not schemes that offer half-time, quarter paid jobs that are part of the repair outfit employed by the Government. That approach would have represented real prudence and real profit to our country and our people. The Budget does not offer that. This Chancellor has again, put the wealth of the very few before the wealth of the nation, and always before the health of the people.

    On a point of order, Mr. Deputy Speaker. During the course of the Chancellor's speech—[nterruption.]

    During the course of his speech, the Chancellor, in a snide comment, referred to my right hon. Friend the Member for Leeds, East (Mr. Healey) as being "obsolete". That is in line with the comment made by the Prime Minister the other day that Labour has no guts. I will now point out to the House, to those few Members on the Conservative Benches, that my right hon. Friend had a distinguished war record and was a beach master at Anzio. Some of us who were in the forces during the second world war resent such statements.

    Order. The hon. Gentleman has made his point. I did hear the expression and, discourteous and offensive as it might have been, I do not think that it was unparliamentary.

    5.49 pm

    If hon. Members consider the last hour, some will conclude that the House has not covered itself with glory. I hope that in the next 10 minutes I shall be able to reduce the temperature a little and deal with some of the issues raised in the Budget.

    Order. Will those hon. Members who are leaving the Chamber do so quickly and quietly, please?

    I want first to congratulate my right hon. Friend the Chancellor on his fifth Budget speech. His previous four Budget speeches were well constructed, to the point, and commendably brief. Today, my right hon. Friend has maintained the high standards that he established on those occasions and produced an interesting and skilful Budget. Hon. Members should be grateful for that at least, even if they do not necessarily agree with the provisions in the Budget.

    My right hon. Friend has presented a complicated package this afternoon which requires and deserves deep study rather than too much instant reaction and comment. Let me warmly welcome some of the Budget's features.

    I warmly welcome the changes in what my right hon. Friend called the taxation of marriage. I am pleased that husbands and wives are to be taxed separately in future. I would only say that I suspect that not all married women will wish to take advantage of that when they come up against the problems of dealing with their own taxation.

    I also welcome the increase in the VAT threshold to £22,000. I do not complain too much about the increases in the duty on alcohol and, as a whisky drinker, I am pleased that there is to be no increase in that area. The Scottish nationalists can at least take some consolation from that.

    I welcome the changes in capital gains tax. There will certainly be much more equity in its operation in future. But I must confess that, probably like most hon. Members, I was surprised that it was possible to make such changes at such low cost to the Exchequer.

    I welcome, too, the change in the thresholds and the increase in income tax allowances. That was double the necessary rate on the basis of the Rooker-Wise-Lawson amendment in the late 1970s. It is noteworthy that personal allowances are now worth 25 per cent. more in real terms than in 1978–79.

    As a Member of Parliament representing a largely rural seat I was not quite so keen — and I know that my constituents will not be quite so keen—on the increase in petrol duty. However, we have been used to such increases from both Labour and Conservative Chancellors for some considerable time.

    The specific measures in any Budget are usually quickly forgotten, and, rightly or wrongly, I have no reason to believe that that will be any different on this occasion. But the consequences of the measures in this Budget, as in other Budgets, and of other decisions in the economic sphere will be with us for a long time.

    Of course, we are not complete masters of our own destiny. Our economy is influenced by international economics and decisions taken by other Governments. However, I have noticed that that tends to be exaggerated by Governments when things go wrong and under-estimated when things go right. Nevertheless, a balance must be maintained and we should be careful not to pretend that we have no control over what happens in Britain.

    My right hon. Friend has been faced today with much more difficult decisions in the Budget than most commentators have acknowledged. It is too simplistic to suggest that, because of the buoyancy of revenue, it was merely a matter of determining the size of the tax cuts. The current state of the balance of payments placed substantial constraints on his freedom of manoeuvre. At the same time, it was important to maintain and increase the level of domestic demand to ensure a continuation of the high rate of growth of the past few years and the consequent fall in unemployment. Therefore, my right hon. Friend was right to use some of the substantial surplus to maintain growth, and his Budget judgment, although generally cautious, was probably about right. However, I am not so sure about the make-up of his package.

    After having had a sizeable balance of payments surplus for some years, there has been a deterioration in the past two years. Although last Friday's revised figures showed that the situation in 1986–87 had not been as bad as had been assumed, the situation is far from satisfactory. The revised figures show that we had a small surplus of £46 million in 1986 but that that had deteriorated into a deficit of £1·68 billion in 1987.

    In the current year, as my right hon. Friend warned us this afternoon, there is likely to be a further deterioration in the balance of payments. It may be true that we can afford to run a deficit in the short term, but we cannot afford to do so indefinitely. In any event, it would be folly to dissipate the massive capital investments overseas that have been built up as a result of North sea oil over the last few years by consumer spending.

    Unfortunately, that may be one of the consequences of today's tax cuts. Although I am sure that the tax cuts will be popular with the recipients, they will generate more consumer expenditure. In recent years there has been a strong tendency for additional consumer expenditure to find its way into an increased demand for imports rather than merely for the product of our domestic industry.

    Therefore, my right hon. Friend's tax cuts involve a risk that some of the extra money released will find its way into imports. Since we are already in deficit on the balance of payments, and are heavily in deficit in trade in manufactured goods, it was unwise at this time to introduce tax cuts and so risk imposing further strains on an already weak balance of payments.

    In the particular circumstances that obtain at present, I would have preferred my right hon. Friend to dispense his largesse in the form of public expenditure projects where import potential would be low or non-existent. In that respect, the N H S obviously comes to mind. Unlike the Opposition, I do not complain that there has been a reduction in expenditure in the Health Service over the last few years. That is not true. We all know that the only cuts in the Health Service that have taken place in the past 20 years took place under a Labour Government. None the less, it is possible further to increase expenditure in the Health Service and I would have preferred to see that done today. Apart from anything else, an increase in public expenditure would have enabled us to maintain a buoyant domestic demand and so protect the balance of payments. To me, it would have seemed a safer choice in the current conditions.

    Having said that, I want to emphasise my support for my right hon. Friend's Budget judgment because of the importance of maintaining a high level of demand. Over the past 18 months the buoyancy of demand has enabled Britain to achieve a high growth rate, and, as a consequence of that, unemployment has fallen from 3·25 million to about 2·5 million—[Interruption.] I do not know whether the hon. Member for Glasgow, Cathcart (Mr. Maxtor) thinks that this is funny, but the 750,000 people who are no longer out of work, but who were 18 months ago, welcome that warmly. The Budget will maintain that buoyant demand.

    Of late I have detected an increasing complacency about unemployment, and there have been some rather silly suggestions in some quarters that our economy is becoming over-heated. As long as 2·5 million people are out of work that complacency is unwarranted and the idea that there is over-heating is nonsensical. Between 1945 and 1974 we had almost full employment. It is true that the level fluctuated a little, but throughout that period we managed to maintain employment at a high level. Twice, briefly, unemployment exceeded 1 million and twice, also briefly, it was as low as 1·1 per cent. of the working population. That was in 1955 and in 1965.

    When we look at what was possible during the 30 years after the war, we can see that we have a long way to go to get unemployment down from 2·5 million to a level that is acceptable to our people. To achieve this, an essential prerequisite is the continuation of a high rate of growth, and I believe that my right hon. Friend's Budget will achieve that. However, as I have explained, I would have preferred the public expenditure route to have been taken rather than the tax-cut route.

    Another prerequisite for reducing unemployment is that sterling should not be overvalued. We all remember the dreadful damage done to British manufacturing industry and employment in the early 1980s when sterling was overvalued. The recent increase in the value of sterling is deeply worrying, although I welcome what my right hon. Friend the Chancellor has said about that this afternoon. I hope that he will continue to do everything that he can to reduce the value of sterling to a more sensible level, and that he will do that by reducing interest rates and taking whatever other measures are necessary. I hope also that he will continue to pursue the highly successful policy of exchange rate stability that he has pursued for the last 12 months.

    Among other things, that means that Britain should join the exchange rate mechanism of the European monetary system, because that would give us much greater stability for more than 60 per cent. of our trade. This is long overdue. I hope that my right hon. Friend will not let ideological obsessions divert him from exchange rate stability and from British membership of the exchange rate mechanism of the EMS. This would be greatly in the interests of our economy and of the economy of Europe, and ultimately it would be greatly in the interests of the world economy.

    6.2 pm

    I am grateful to be called by you, Mr. Deputy Speaker, so early in this debate. In my five years in the House this is the most important Budget statement that I have heard. I came into the House in 1983 when the Chancellor made his first Budget speech. This is one of the most tempestuous Budget speeches that we have heard. The reason for saying that is clear, because the speech demonstrated the divide in philosophy between the Government and the Opposition. That was most precisely marked when we discussed the reduction in the top rate of income tax to 40 per cent. That showed the divide between the Opposition and the Government.

    If anything, this is the most capitalist Budget that we have seen in the House this century. The Economic Secretary to the Treasury nods his head in approval. It is an offensive Budget to all our people. It is wrong to believe that our people wish to have tax cuts at any price—cuts that will benefit their pocket to the detriment of people as a whole. It is also wrong to suppose that we can ignore the spontaneous clamour in the National Health Service about the cuts that have taken place there.

    The Chancellor gave a series of figures about the increases in public expenditure, and at Prime Minister's Question Time the Prime Minister also gave those figures. Those are the normal increases that we see in society year in, year out, and they are a reflection of inflation and pressure on the economy. They do not reflect real spending in the economy.

    Hon. Members should consider what the Government have been doing in the Health Service. In Middlesbrough a hospital was closed because the health authority had to save £1 million. It made that saving by closing the Carter Bequest hospital.

    It was wrong of the Government to give the nurses their pay increase before the last election and then to say to health authorities that they had to fund it out of savings. Obviously, it was right to give the nurses the benefit of an increase, but the way in which the Government funded it was wrong, and that has been the cause of the disruption and spontaneous protest in the Health Service. The Budget has not done anything to rectify the imbalance that is creeping into our economy. The public services are being starved of money, but a wide range of people will do well out of this Budget.

    The Chancellor said that by reducing the top rate of income tax to 40 per cent. those on top incomes will work harder. That simply repeats the shibboleth that we have heard for many decades that people will work harder if they are given such an incentive. In this leisure world it is more probable that people will use the extra money to improve the quality of their life and to enjoy the leisure facilities that are available to them. In any event, there is no evidence whatever that people in business, those with responsibility, will be prepared for financial gain to work harder than they work now. That is one of the great shibboleths of our time and it is certainly one of the shibboleths of the Government.

    People who are not so well off will gain nothing from the Budget. In 1979, I remember sharing a platform in Newcastle with Jack Jones, the leader of the Transport and General Workers Union. Mr. Jones told the audience that if the Conservatives were elected they would cut the benefit link between earnings and price rises, whichever was the higher. That was the basis upon which benefits were based. That was our philosophy, and we aimed to protect people who could not protect themselves by giving them the benefit of an increase either on the basis of increased earnings or increased prices. The Conservatives said that they would cut that link, and that was the first thing that the then Chancellor in the 1979 Conservative Government did. He based the increase in benefits not upon earnings but upon price increases. Inflation has come down and earnings have risen above inflation, and we have seen the gap between those who have and those who have not growing steadily. That is a direct consequence of Government policy and philosophy, and it is creating tensions and pressures in our society.

    The argument has often been advanced that there is a link between violence on our streets and unemployment and that it is between those who have hope and those who have not. The Budget will do less for those who do not believe that they have a place in our society than it will do for the better off. The essential philosophy of the Opposition is that we want to see an egalitarian society. The priorities that we have had since the 1970s are not the priorities of the Government. One of our priorities is to keep people in work.

    The Chancellor said that the Budget surplus was £3,000 million. It is perhaps no coincidence that we have 3 million unemployed, because it means that for every £1,000 of surplus there is a person unemployed. That is wrong. This is a financial Budget, not an industrial Budget. It will do nothing for our trade or industry and it will not lead to more investment in industry. We would like to see interest rates coming down. That would help industry, because the cost of borrowing would be lower and investment would go up. The Budget placed no emphasis on jobs or on the investment that we want to see in industry. It does nothing to encourage investment in manufacturing to offset the balance of payments crisis that is coming on our manufactured goods.

    That brings us back to Tory philosophy. Getting rid of the exchange rate in 1979 led to massive investment in the United States, and now in Europe, by British investors. In the last Parliament I asked what was the return on that investment, and a Conservative Back Bencher, Mr. Stefan Terlezki, who is no longer a Member, said that it was £5,000 million a year. That is a return to Victorian values. In the last century, that was how our economy worked. Our balance of payments deficit on manufactured goods was covered by the invisible earnings of the City of London.

    Why has that investment not taken place here? Why was it more fit and proper to invest in real estate in the United States, Germany, France and Belgium than to invest in our own industry? That philosophy has turned out to be not simply anti-worker, but anti-British. It has reduced our future status as a nation state.

    The Chancellor is storing up many troubles and difficulties for the years to come. As was said by my right hon. Friend the Member for Islwyn (Mr. Kinnock), our economy was based on the oil revenues, which went up again after Sheikh Yamani resigned in Saudi Arabia. The figures are clear: the public sector borrowing requirement has gone down as the oil revenues have gone up. Those revenues have simply been used to ensure that we, as a nation state, do not borrow money.

    As the nation, under the present Government, does not borrow the money, where does the money go? It does not crowd out any more the private sector; it goes straight from the Treasury to the City of London. Over the past few years, the alliance between the Treasury and the City has supervised the sale of national assets. When the Conservatives came to power, they wished to sell those assets on the basis of a doctrine: they did not believe in natonalisation.

    The concept of privatisation is legitimate. It was an ideological commitment that the Conservative party made at the time of the 1979 general election. But, as the public sector borrowing requirement came down, the City of London was able to take up more and more public assets. Now the Secretary of State for Energy is about to privatise the electricity industry for £28,000 million, and the money is there because the Government have ensured that it should be.

    As well as the sale of assets and North sea oil, there is the massive consumer boom referred to by my right hon. Friend the Leader of the Opposition. That boom is based on plastic money. Although interest rates are at 28 or 30 per cent., people are prepared to indulge in the consumer society as long as they can use plastic money and the payment is made later. They do not look at the 28 per cent. interest rate. That, too, will be a problem for the Government, but it is a house that they have builded over the past five years.

    Having sat through five Budget speeches, I feel that we, as a nation, have been set up for the launch of a capitalist society. The Government do not mind a man standing on his own two feet, as long as he stands on the backs of those poorer than himself. The moral lesson that they wish to teach is: "Stand on your own two feet, but stand on the back of someone poorer than yourself who has not got and will never have your advantages."

    The divisions in our society are getting deeper and deeper. This is a financial Budget, but it is also a political Budget, cynically aimed at those who are doing well in society in the hope that those who are poorer will not understand it, and that those who are doing well will be seduced into not caring for their fellow man. That is the wrong philosophy, and it will backfire. The day will come when there will be a backlash against the Government's principles — against the idea that money is all that counts, and that people do not count. When that backlash comes, there will be a significant turning of public opinion away from this Government.

    6.13 pm

    I am grateful for the opportunity to make an early contribution to the Budget debate, Mr. Deputy Speaker. I do so with some diffidence, however, because of the penalty faced by those fortunate enough to catch your eye so soon after the Chancellor has sat down. They deny themselves the opportunity to read a more careful analysis of the Budget in the press the following day, when those who are expert at analysing such a major and complex financial statement are able to present it in perspective. We, who may have missed subtle details, can then understand the full implications of the statement for various aspects of national life. Inevitably, my own contribution will not be aided by that expert opinion. It will be based merely on immediate reaction.

    It may not surprise some of my hon. Friends to hear that I find much with which to agree in what was said by my hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox). I shall not repeat his observations line by line, but I shall start, as he did, by congratulating my right hon. Friend the Chancellor. His speech was most impressive. This is a positive Budget, and, like my hon. Friend, I believe that my right hon. Friend's judgment is about right. I welcome the Budget's reforming aspects.

    If my right hon. Friend can be said to have risen to the occasion, the Leader of the Opposition and the Labour party certainly have not. I am surprised that the right hon. Gentleman was prepared to insist, both today and before the event, that this was meant to be a Budget for the National Health Service. Apart from misreading what the Budget is about, as opposed to the Autumn Statement on public expenditure—[Interruption.] If the hon. Member for Durham, North-West (Ms. Armstrong) wishes to gain a reputation in the House for making sedentary comments, so be it, but I am not prepared to give way.

    The Budget is not about making decisions on extra public expenditure. The public have been considerably misled by the Opposition campaign in that respect. I am wholly committed to the success of the National Health Service, and I believe that the Government's record is much better than Opposition Members allow. They conveniently forget their own record on the NHS. Of course it is wrong that people should be kept waiting for such an important state service, but it has always been true that the list of things that we want to do—in health, in education or in any other regard—remains long, and lengthens as our expectations increase. That is bound to continue. The test of the Budget is whether it will control the economy in such a way as to ensure that more resources are generated for the Government to sustain such services.

    I believe that the record of the present Government, and the present Chancellor, is very good. Certainly it is superior to anything done by previous Labour Chancellors.

    Not in the short time that remains. I am sure that the hon. Gentleman will understand.

    The right hon. Member for Islwyn (Mr. Kinnock) would have done better to listen to his hon. Friend the Member for Middlesbrough (Mr. Bell)—whose maiden speech I once had the pleasure of following—and to consider the Budget from the point of view of the success of British industry. That success is also tied up with the amount of resources to be generated for my right hon. Friend and his successors to fund services such as the NHS. The real test of the Budget is what it will do to sustain the economy, and industry within the economy.

    My right hon. Friend said that there was a need for industry to keep firm control of its costs, and I agree with that. However, he has an opportunity to help industry to control its costs. I applaud the effort to retain a stable currency. Many industrialists have told me that they are prepared to settle for an exchange rate with either the dollar or the deutschmark, which may not be ideal for their businesses, if they can at least reckon on its being stable and continuing for a year or more. It is the constant change that is disruptive and makes business planning so difficult. A Budget that can help ensure currency stability as far as is possible is to be welcomed, and I echo the comments made by my hon. Friend the Member for Staffordshire, Moorlands, who said that the Government should take the decision to join the exchange rate mechanism of the EMS. That would help the Government to manage the exchange rate for the benefit of our industry.

    I also hope the Budget will help to reduce interest rates, which is also crucial to industrial development in many sections of industry. Such a reduction is not the only thing that affects investment decisions, but in certain industries it has an effect, so it is important to reduce interest rates to achieve an overall improvement in our investment rate.

    It is also important that there should be enough resources for industry to engage in a faster rate of research and development. It is truly alarming that there is a widening gap between us and some of our competitor countries in Europe in this area. I do not need to be associated, as I am, with a number of industrial companies to be able to make that point in a purely generic way. It is vital to remedy Britain's backlog in research and development, and I had hoped that the Chancellor might have found an extra 1 or 2 per cent. to take off corporation tax. I know that the Chancellor is proud of his record on corporate tax, but any further margin that could have been found to encourage industry to invest more in research and development would have been welcome.

    The Leader of the Opposition is also wrong to make the NHS the criterion by which to measure the Budget as opposed to the need to move towards the creation of a single European market within the Community. I should not be averse to moves towards tax harmonisation, which will surely come upon us. I am probably a lone voice in the House in not being prepared to say that some of the rather difficult political decisions that will be involved in tax harmonisation for the British Government should be seen as obstacles to the creation of a single European market, which would benefit this country enormously. I am prepared to take as objective a view as possible of the Government's negotiations on that. If the Chancellor had wanted to chance his arm with one or two moves in that direction today, I would not have grumbled.

    On the other hand, the Chancellor has moved independently on petrol and cigarette duty. I welcome the further boost that he has given to "clean" cars through widening the differential between unleaded and leaded petrol—and he could have widened it still further. That would have been a further help. He remarked on the number of stations that now supply unleaded petrol, and it shows a gratifying rate of increase, but there are still not enough of them for customers to be able to rely on unleaded petrol being available at their local stations. I have counted only one in my constituency so far. So I welcome what my right hon. Friend did, but he could have gone further—perhaps at the expense of imposing a greater tax on cigarettes. If taxation can be used to emphasise the need to be environmentally sound, that is good.

    I particularly welcome the fact that my right hon. Friend has doubled the rate of increase in the tax threshold —doubled what it would have been if it had been kept at the rate of inflation. That must help many people in the country, especially prudent elderly people who have put money by. So, although some of them may suffer from changes in housing benefit, this may be a way of compensating them, because probably quite a large number of them are taxpayers.

    I am glad that the Chancellor emphasised improving thresholds as much as he did. In some ways, I am surprised that his reforms did not go further on mortgage tax relief. He would find that many of us are prepared to think the unthinkable and tackle some of the special exemptions to which he referred, so that a lower rate of personal tax could be achieved in due course. He will have to return to this issue if he is to achieve a standard rate of 20 per cent.

    Unlike the hon. Member for Middlesbrough, I did not find this an offensive Budget. It is designed to maintain economic growth in the country, which is the best guarantee of improving the living standards of its people. I hope that the Government's policies will be designed to improve the living standards of all our people, and I believe that the Budget will help to maintain that prospect this year and in the future.

    6.25 pm

    Having now heard five Budget speeches from this Chancellor, I would not mark them high for technical merit, but he has a well-crafted method of putting them over and gets high marks for artistic impression. His speech today was subject to disturbances, and, however much one understands the strong reaction to some of the Chancellor's proposals, it is a sad day for free speech in the House of Commons if unpalatable views have to give way to the tactics of the terraces. I hope that that was a passing aberration that will not become a more regular feature of our debates.

    The background to the Budget has been canvassed in the press over many weeks. The hon. Member for Staffordshire, Moorlands (Mr. Knox) said that he despised any comments to the effect that the economy was overheating. While I agree in a general sense, he would probably accept that, in the more prosperous parts of the country, there are bottlenecks, with localised overheating and inflationary pressures. The credit boom is evidence of that. At the same time we have an increasing balance of payments problem. Today, the Chancellor minimised that when he said that there would be a £4 billion current account deficit by the end of the year—but that was only about 1 per cent. of GNP. If he had been sitting on the Opposition Front Bench, he would have made rather more of that.

    I fear that the Budget's approach will not help these problems. The Chancellor had an opportunity to do something constructive with the revenues that he has, but he seems to have missed it. The bulk of them will go on tax cuts for the rich. I generally welcome the increase in thresholds that has been mentioned. It will take many people out of tax, but there is nothing in the Budget for those who are not in employment and whose income will possibly fall as a result of social security changes at the beginning of next month. They never even get to the present thresholds, let alone the higher ones. Even those who will benefit to some extent from the increase in tax thresholds may find themselves disadvantaged by the interaction of the tax system and employee's national insurance contributions which, for some, can produce high marginal rates of tax as they move into taxable wage levels.

    There is little time, and other hon. Members want to speak.

    I doubt whether the tax cuts that have been proposed will take the heat out of the economy in the parts of the country that appear to be overheated. As the hon. Member for Middlesbrough (Mr. Bell) said, there is no substantive body of evidence to show that if highly-paid people are taxed less they will produce more and their enterprise will be stimulated. I suspect that the vast majority of people who have been paying the high levels of tax are not in the sort of wage structure in which they are paid for doing overtime. It may be suggested that if people have more money they will use it to increase their leisure facilities and possibly buy more luxury consumer goods. So, although the Budget may well be a vehicle for growth, it may prove to be a vehicle for growth in some of the countries that export to us. It is more likely to add to our balance of payments problem than to solve it. The balance of payments problem could be exacerbated further if the value of the pound were allowed to go up and our exports became less competitive.

    With regard to our competitiveness, the Chancellor's comments were interesting. He said that the onus would always be on employers to keep down unit costs and wages in order to make their goods more competitive. That comes rather oddly from a Government who, when they started out in 1979 totally hooked on monetary policy, saw little role for cost-push inflation; it was all subject to the money supply. Wage rates, on their theoretical analysis, had little to do with it. There now seems to be some appreciation that labour costs are a factor, as indeed would be an increasing value of the pound.

    I agree with the hon. Members for Saffron Walden (Mr. Haselhurst) and for Staffordshire, Moorlands on the importance of a stable exchange rate. We on this Bench have for many years advocated membership of the exchange rate mechanism of the EMS. One suspects in one's heart of hearts that that is what the Chancellor would have loved to announce today, but it would appear that 10 Downing street is the one thing that stands be