asked the Chancellor of the Exchequer if he will set up, or reconstitute, a land fund, to be devoted to buying outstanding works of art, or buildings, for the nation and ensure that such a fund should have an independent board of trustees for its administration; and if he will make a statement.

In view of the arrangements that already exist through the National Land Fund and other sources for the purchase of outstanding works of art and other property for the benefit of the nation, I do not consider that the establishment of a further fund is necessary. And even if such a fund were set up and controlled by a body of trustees, the basic problem would still remain of finding the money from within the resources available to the Government.

Whatever is the history of the National Land Fund, is it not abundantly clear, because of the muddle over Mentmore, that a strong case exists for setting up a separate fund to deal with the ravages caused by the capital transfer tax? Does the Financial Secretary agree that such a fund would be able to purchase works of art and land for the nation? Will he now reconsider this whole question, because of the severe loss to the nation that will otherwise occur?

It is a question not of the money being available but the use of the money. The hon. Member will find that some of his hon. Friends would agree with the way in which the Mentmore case was handled.

Is it not the case that our historic inheritance is second only to that of Italy and that inflation threatens it as never before? What work is being done in the Treasury to deal with the problems of maintaining our heritage until the end of the century? Will the Financial Secretary make its findings available to the House? Does he agree that the time has come for a Royal Commission to go into the whole matter?

The hon. Member talks about our artistic inheritance. I agree that it is a valuable part of that which we possess in this country. The hon. Member will be aware of the relief given under capital transfer tax and capital gains tax, and of the new clause that is being considered which gives relief to maintenance funds for historic houses. That will be widely welcomed.

asked the Chancellor of the Exchequer whether he will now bring forward proposals to require every official body to institute an audit committee of non-executive offices, equivalent to the director level of a limited company, to supervise the preparation of the annual reports of official bodies and whom auditors, Members of Parliament and the general public may approach directly for information concerning the operation, accounting and reporting of official bodies.

No, Sir. It is difficult to see what further information in addition to what is already available would be provided by this kind of audit committee.

Is the Chief Secretary aware that I am astonished by his reactionary attitude? If there is to be any form of industrial democracy is it not essential that the public and those employed by these official bodies be given full information? Will the Chief Secretary consider this very seriously?

I am not sure why the right hon. Member is astonished that I take a reactionary attitude. Many of my hon. Friends take that as read, but they are as wrong as the hon. Member. I agree with him in the sense that of course we should have the maximum information. However, I do not believe that audit committees would help us in providing the kind of information that both he and I would like to see.

Does my right hon. Friend agree that considerable concern has been engendered in recent years about the auditing of the accounts of private companies? Will the Government consider setting up a public audit board, along the lines that I suggested in a Ten-Minute Bill some weeks ago, with power to audit the affairs of private companies?

As my hon. Friend and the House will know, in a previous existence I had some experience of this matter. There have been one or two cases of auditors in public companies that have given cause for concern but in the main I have no hesitation in saying that the professional firms of auditors do a first-class job in auditing public and private accounts.

asked the Chancellor of the Exchequer how much revenue has been derived from import levies on common wheat in the 12 months prior to the last convenient date.

For statistical and tariff purposes common wheat includes meslin, a mixture of wheat and rye, and figures are not available for common wheat separately. The net revenue derived from import levies on common wheat and meslin in the 12 months ending April 1977 was nearly £13 million.

Is the right hon. Gentleman aware that that is an enormous figure, which is really a tax upon food and represents no less than 39 per cent. on the price of imported wheat? How can he justify this to any constituent of his? Is he aware that the United States Department of Agriculture is now considering a policy of setting aside acres, as it is called, and thereby prohibiting American farmers, who can grow wheat more cheaply than anyone else, from growing that wheat, because of the system of levies and the way in which they are shutting out wheat from this country?

The hon. Gentleman will know the obligations that we entered into. These levies are a consequence of our obligations. I understand the point that the hon. Gentleman has raised, and that he believes that food will be rather harder to obtain on the world market in future, perhaps, than it has been in the past—

Why set aside acres?

—and that this may not be the best way to conduct our operations in future.

asked the Chancellor of the Exchequer what he regards as the five most important causes of inflation over the last two years; and if he will indicate the estimated percentage of inflation which each has caused.

It is impossible to give precise figures. But I estimate that two-fifths might be attributable to higher labour costs; one-fifth to higher world prices; and one-fifth to depreciation. Of the remaining fifth, about half is due to increased taxes and the rest to an assortment of minor factors, none of which predominates.

Is the Minister aware that the figures that he has just given show a remarkable increase in the labour element of inflation during the last year compared with the answer he gave to this question 12 months ago? Which of these items does he expect to go down, and by how much, if inflation is to go into single figures by the end of the year, as promised?

One thing I can say today when the hon. Gentleman asks which of these elements I expect to go down is that if there were a Government of which he and his party were members —[HON. MEMBERS: "Answer."]—I think that I should tell the House this —any one of these items that caused this rate of inflation would be considerably worse.

Is my right hon. Friend seriously suggesting that a massive increase in profits, particularly by major food retailers, during the last 12 months has not had its impact on inflation?

Actually, I am saying that. I know that my hon. Friend may find it hard to believe, but in fact, over the last two years profits have had a negative effect on prices generally, so I am afraid that, as pleasant as it might be to find one simple answer to our problems of inflation, by way of excessive profits, that is not the case.

Does the Chief Secretary recognise that when the temperature rises it is registered by the rise in a column of mercury, but the rise in temperature is not caused by the rise in the column of mercury?

I am not sure whether that is a philosophical argument or a practical one, but either way, if the right hon. Gentleman were to have his way and deal with this problem wholly through money supply I fear that there might be other consequences that would be equally damaging to our society.

Although my right hon. Friend finds no difference of profits in terms of prices in generality, will he have a special look at the pharmaceutical industry, in view of the bumper profits made by Beecham, most of which are paid for by the taxpayer?

I am always happy to look at all kinds of things. I shall certainly be looking at pharmaceutical profits and prices. As much as I seem to be responsible for many things, that is not one of my direct responsibilities, but I shall see that it is brought to the attention of my appropriate colleague.

Will the right hon. Gentleman tell us about the Treasury's official inflation target now? Is it still single figures by the second quarter of next year, by the second half of next year, or not next year at all?

I am not sure whether the hon. Gentleman should have been smiling then. He seemed to be taking some pleasure from the thought that we might not achieve single-figure inflation. I hope that that is not his view. It is still our view that, given the right sort of policies, which we are pursuing, we can have single-figure inflation in the middle of next year.

On a point of order, Mr. Speaker. In view of the unsatisfactory non-answer to that Question, I beg to give notice that I shall seek an early opportunity to raise the matter on the Adjournment.

asked the Chancellor of the Exchequer what is the current rate of inflation.

asked the Chancellor of the Exchequer what is the latest annual rate of inflation.

asked the Chancellor of the Exchequer whether he remains satisfied with progress towards reducing the rate of inflation.

Over the 12 months to May, the retail price index rose by 17·1 per cent. By the fourth quarter of this year I expect the annual rate of inflation to be reduced to 12·13 per cent. But I shall not be satisfied until we have brought inflation down to the levels of our main international competitors.

Will the Government now take urgent measures to introduce a selective price freeze and reject any demands from the Liberals and others for a statutory incomes policy? Do not the decisions taken this week by the National Union of Mineworkers and the Transport and General Workers' Union show clearly that their members are fed up with having to make all the sacrifices, while exorbitant price increases are imposed by profiteers whom the Chancellor of the Exchequer once wanted to squeeze until the pips speak?

As my right hon. Friend made clear a moment ago, we are opposed to the idea of a statutory incomes policy. I agree with my hon. Friend that price increases were of great concern to those voting in the two recent trade union conferences. But there is also the question of real living standards, and it is interesting that even with rates of inflation rather higher than the present one there was not the same feeling as there is today. The main reason for that is that the cut has had to be in real living standards. That should not continue from now on. For the rest of this year that should remain stable, and from there on we should see increases in real living standards and falls in the rate of price inflation.

As the Chancellor of Exchequer has reaffimed his support for public expenditure limits this afternoon as part of his counter-inflation policy, why are there persistent reports of stopping the school meals increase, of freezing nationalised industry prices, and of re-introducing food subsidies? Do the Government intend to do any of those things?

I really cannot comment on all the persistent reports in the Press about the matters that the hon. Gentleman has raised, and many others. I can only repeat that we shall stick to our public expenditure limits.

Is my right hon. Friend aware that the decision to maintain cash limits in the public sector, against the background of the figures that he gave, is very worrying indeed, and is either a directive by the Government to subsidise the remainder of the economy through low wages or a formula for industrial warfare in the public sector in the coming year? Will my right hon. Friend reconsider the decision?

There is no question of the Government seeking industrial warfare in the public sector, or indeed in any other sector. I ask my hon. Friend to understand that the maintenance of cash limits is not worrying in the sense that he would have us believe. I believe that the maintenance of cash limits has done much for confidence in the financial system of this country, and therefore also for interest rates and the maintenance of jobs. That is why we intend to stick by it.

Will the Chief Secretary please answer the question that the Chancellor of the Exchequer did not answer about the sterling exchange rate? Will he tell the House whether it is the policy of the Government to hold down the rate? If it is the Government's policy, how long do they intend to persist in it?

The hon. Gentleman cannot have been listening. I think that my right hon. Friend the Chancellor of the Exchequer answered the question perfectly, and I could not add anything to it.

Will the Minister acknowledge that one of the main reasons for the current rate of inflation continuing is that we import far too many manufactured goods and raw materials and far too much food, which our producers could supply, when we should have a positive policy of import substitution? Does he agree that that would not only help the balance of payments and the rate of inflation but would provide more jobs for the many thousands who are out of work?

I agree with the hon. Gentleman in the sense that the answer to the problem is to improve our output and our productivity, and increase the amount of goods that we produce in substitution for imports. That is our policy.

asked the Chancellor of the Exchequer whether he will list his official engagements for 7th July.

I have several meetings with my ministerial colleagues during the course of the day. In the afternoon I am answering parliamentary Questions.

When my right hon. Friend has a breathing space between answering Questions and meeting his colleagues, will he express to the trade union movement the appreciation of the House for its help in the reduction of inflation by two years of loyal adherence to pay restraint, and will he also indicate to the House what he considers to be the prospects for a future agreement, in view of the conferences of the miners and the transport workers?

I never miss an opportunity of expressing the Government's gratitude to the trade union movement for the contribution, to which my hon. and learned Friend rightly points, that it has made to the conquest of inflation in the last two years. On the question of the prospects for the coming year, there are a number of Questions later on the Order Paper, which I shall be answering in the next few minutes.

Will the right hon. Gentleman find an opportunity today to tell the House and the country what level of pay increases during the next year is consistent with an inflation rate of less than 10 per cent. during the coming 12 months?

I have already made that clear in answers to earlier Questions.

Can the right hon. Gentleman explain how altering inflation from 8 ·4 per cent. to over 17 per cent. can be called a reduction, in any language?

If the hon. Gentleman is asking a serious question, let me say that he will be well aware that the rate of inflation was halved between the beginning of the first year of phase policy and the beginning of the second year.

asked the Chancellor of the Exchequer whether he will introduce measures to encourage the extension of profit sharing in industry.

My right hon. Friend has no plans to do so at present.

Why?

We are still thinking about it.

asked the Chancellor of the Exchequer what further representations he has received about the treatment of widows' pensions.

I have received a number of representations about the tax treatment of widows' pensions from hon. Members, widows' organisations and others.

Is the Minister aware of the hardship that is caused by the tax treatment of working widows? Does he consider the present treatment to be fair or equitable? What will he do about it?

The hon. Gentleman will know that these matters have been debated at considerable length in Finance Bill Committees and that reports of the proceedings are available in the Vote Office. These matters are gone into with very great care. A number of amendments have been moved. We have improved the widows' pension very considerably over the past three years. The hon. Gentleman might find some gratification in knowing that.

Does my right hon. Friend agree that an excellent way of dealing with this problem would be to raise the tax threshold, which would help not only widows but many other people on low incomes?

I understand the point that my hon. Friend raises. Obviously one is always anxious to increase tax thresholds wherever possible, but that would have the consequence, as my hon. Friend will know, of helping everyone all the way up the income scale and giving most assistance to those on the higher incomes.

Has the right hon. Gentleman received any protest from rate-paying widows in Hampshire about the case of Mr. Johnson, who resigned at the age of 42 on a pension of £8,000 a year, drew a gratuity of £20,000, was then re-employed at £8,000 a year by the land authority of Wales and has, I understand, a right to a further pension? As the right hon. Gentleman represents the Department that is ultimately responsible for public finance, will he comment on that case?

I am not sure what that has to do with the Question, but I look forward with great interest to receiving details of the case.

asked the Chancellor of the Exchequer what he intends to be the standard rate of income tax for 1977–78.

asked the Chancellor of the Exchequer when he next proposes to meet members of the TUC and CBI in order to discuss the Government's incomes policy.

asked the Chancellor of the Exchequer if he will make a statement on his negotiations with the TUC on phase 3.

asked the Chancellor of the Exchequer if he will make a further statement on the progress of his negotiations with the TUC on the phase 3 incomes policy.

asked the Chancellor of the Exchequer whether he will now make a statement on his discussions with the TUC regarding a possible stage 3 of incomes policy.

asked the Chancellor of the Exchequer if he will make a statement on the latest position regarding incomes policy for the coming year.

asked the Chancellor of the Exchequer if he will make a statement on the progress of his negotiations with the TUC on the phase 3 incomes policy.

Our discussions on the pay arrangements for the period after 31st July are continuing. As soon as I am in a position to do so, I shall make a statement to the House. This will include an announcement about the basic rate of income tax for the current year.

With respect, Mr. Speaker, my Question was not about the pay arrangement. Does not the Chancellor think that it is disgraceful that three months after the start of the financial year he has not yet informed the country of the rate of income tax that he thinks we shall all be paying during the current financial year? Irrespective of the failure of his stage 3 negotiations, will he now tell the House what he believes the rate of income tax should be, because the House might decide otherwise, as it has on the personal allowances? What does he believe the rate of income tax should be?

If disgrace is attached to not informing the country yet of the rate of income tax this year, the hon. Gentleman shares it. He has done his best in the Finance Bill Committee to change the intentions of the Government on a number of matters, and has succeeded in one or two instances, so I hope that we shall not have any more prattling from him about the morality of this problem.

As there is now evidence that phase 3 of the incomes policy is free collective bargaining, by whatever other name, will the right hon. Gentleman give an undertaking to the House that the Government will fully implement their proposed public expenditure economies and, furthermore, will desist from interfering in the pricing policies of the nationalised industries?

The hon. Gentleman is aware that the Government have committed themselves to specific targets for public expenditure, for money aggregates, and for domestic credit expansion. They will stick to those targets, a factor not without importance in relation to any possible pay increases in the coming year. The hon. Gentleman is also aware that we inherited a deficit of £1,500 million in the nationalised industry accounts because of price subsidies forced upon them by the last Government. We have completely wiped out that deficit. I hope that he will pay this Government some credit, since he shared in the responsibility for the activities of the last Government.

Now that the big unions have put the seal of failure on the Government's economic policy, as Lord Ryder did last week by voting with his seat—with his feet—a Freudian slip, that —will the Chancellor nevertheless deny the scurrilous rumour on the tape this morning that the Government may be thinking of introducing an economic policy without the permission of the TUC and actually seeking to govern in the national interest rather than in a sectional interest?

I think that the House would be much happier if the hon. Gentleman spent even more time than he does on his seat.

Is not the whole concept of meaningful stage 3 now complete nonsense? If so, does the Chancellor still intend to go ahead with cutting income tax and reflating the economy?

I do not think that the possibility of a meaningful agreement with the TUC on pay policy after the expiry of the present round is by any means to be ignored. I shall be discussing this problem next week with the members of the economic committee of the TUC, and I shall tell the House of my intentions on income tax when those discussions are concluded.

Does the right hon. Gentleman recall that only last month he was warning the Nottinghamshire miners against going back to the kind of wage explosion that we had two years ago, and what he called the "collective insanity" of that time? As he was himself in charge of the economy two years ago, was that not a quite remarkable political confession? Is not the main difference between then and now that whereas in 1975 the Labour Party had just incited the miners and others to go for the jackpot in wage claims, that free-for-all has caught up with the Labour Government and so they are now espous- ing the kind of moderation and restraint that they consistently dismissed and derided during the period of the Conservative Government?

The complexity and confusion of the hon. Gentleman's supplementary question is exceeded only by its feebleness. I stand by every word that I said in Nottingham to the miners about pay. It was repeated by Mr. Daly and Mr. Gormley at the NUM conference two days ago. I was shocked to find that when a decision was taken by another union to go back to unfettered free collective bargaining a day later it was immediately quoted and welcomed by the official spokesman of the Opposition Front Bench.

As my right hon. Friend has said that the trade union movement has made a great contribution to bringing about changes in our economy, and as the economic indicators show a great improvement, will my right hon. Friend. in his consultations, ensure that the trade unions begin to reap the benefit of the contributions that they have made in recent years?

I think that the trade unions are well aware of the benefits that they have gained over the last two years. That is why a majority of the members of the movement, whose unions have already declared their position on the policy for the next round, wish for an orderly return to free collective bargaining. It is well understood by most of the union membership that to go back to a free-for-all or a wage explosion would be more disastrous to the members of the trade union movement than to any other part of the population.

As hon. Members will have to make decisions about how they vote on the Report stage of the Finance Bill, and in view of the developing economic situation, will my right hon. Friend consider issuing either a White Paper or a full statement of his view of the economic situation in plenty of time for us to consider it before Report?

I propose to make a statement to the House about the matters germane to the Report stage of the Bill as soon as discussions with the trade union movement are completed, and in good time for a debate in this House. The Government plan to produce a White Paper on their counter-inflation policy in the coming year, also in time for it to be debated during the course of the Report stage of the Finance Bill.

In view of the right hon. Gentleman's clear indication that the proposed cuts in income tax are still conditional on the achievement of a satisfactory agreement on pay, can he give at this stage some indication of what he now regards as a satisfactory agreement? In particular, can he give an assurance that he will not be tempted to buy an agreement that amounts to no more than a piece of paper by making dangerous concessions towards premature reflation? Will he now answer specifically the question put by my hon. Friend the Member for Oswestry (Mr. Biffen) and assure us that he will not go back on the public expenditure cuts previously announced or re-embark on subsidising nationalised industries' prices, but will stick to his letter to the IMF?

I have already answered the last of the right hon. and learned Gentleman's questions. I do not know whether he was here at the time or whether he was listening. I said that the Government intend to stick to the ceilings that they had set for money supply, domestic credit expansion, the public sector borrowing requirement, and public expenditure during the coming year. On the question of the relationship between tax cuts and pay policy, I quote again what I said in my Budget Statement on 29th March. I said that I could not commit myself to a decision on the second group of tax concessions

"until a satisfactory agreement on a. new pay policy has been reached…."—[Official Report, 29th March 1977; Vol. 929, c. 283.]

Does my right hon. Friend agree that the theme common to the conferences of the transport and engineering workers and miners has consistently been the threat of rising prices? If the whole argument about the future is about the restoration of confidence and credibility, should he not now arrange some discussions with the Secretary of State for Prices and Consumer Protection, taking a leaf from his book in arguing for price controls as the only reasonable way to make progress in wage negotiations, so that trade unionists can freely bargain their wages against price ceilings readily agreed by the Government?

No, Sir. I am in constant contact with my right hon. Friend the Secretary of State for Prices and Consumer Protection, and we never disagree about anything, as my hon. Friend the Member for Tottenham (Mr. Atkinson) will be glad to hear. I am aware that there is very great concern and that a great deal of suffering has been caused to many sections of the population by the rate of price inflation over the past 12 months. The House will also be aware that a major cause of price inflation was the depreciation of sterling, which resulted from excessive levels of inflation in the previous year and which at least one of my hon. Friends wishes to go a very great deal further. I do not think that he has much support in the trade union movement for that.

Has the Chancellor of the Exchequer read this week the Fabian pamphlet, written by Nicholas Bosanquet, which says that a return to free collective bargaining would be unthinkable for the present wage bargaining system? Does the Chancellor regard that view as the authentic voice of British social democracy, and does he agree with it?

I know, like and admire Mr. Nicholas Bosanquet, but I do not think that he has any more claim than hundreds of my other friends, including many of my hon. Friends, to be the authentic voice of British social democracy.

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

I maintain close contact with the Governor of the Bank of England, meeting him on a regular basis and also as and when circumstances require.

Does the Chancellor of the Exchequer recall that the last published statement of the Bank of England was that with an expected rate of money expansion of 9 per cent. to 13 per cent. this year, the rise in wage costs will have to be significantly below this in order to allow for real growth? Will that be the Chancellor's view when he next meets the Governor of the Bank of England? Is it the Chancellor's intention that the Government's target of not more than 10 per cent wage costs, as stated by the Chief Secretary, will at least be applied by the Government in the sector over which it has responsibility and control, namely, the public sector?

I read the article in the Bank of England "Bulletin" with admiration at the time, but I think that the hon. Gentleman is confusing a number of separate factors—an increase in earnings, an increase in wage settlements and an increase in wage costs, which is an increase in earnings from which the increase in productivity over the period has been deducted.

If my right hon. Friend should have discussions with the Governor of the Bank of England, will he avoid any commitment of any kind to legislation on the question of wage control? Is he aware that many of us believe that it is perfectly understandable that the Transport and General Workers' Union and other unions should have voted in the way they have, because of the lowering of standards of the workers over this last period? Will he therefore take these things into consideration as another view of democratic Socialism in this country?

The Government have made it clear on very many occasions that they are totally opposed to statutory control over wages involving penal sanctions against working people. They have, of course, also supported wage policy over the last two years by various types of legislation acting through prices.

As the Chancellor of the Exchequer has just told the House that the exchange rate of sterling has been one of the causes of the rate of inflation, will he tell the Governor of the Bank of England to desist from holding down the sterling rate by borrowing and by increasing reserves?

I frequently discuss this and other matters with Mr. Governor, but I think he finds that sterling is subject to pressures from both sides, rather as I am pressed on the matter of sterling values by some of my hon. Friends and by the right hon. Member for Down, South (Mr. Powell). But I think that the current policy that the Bank is following in relation to the value of the pound sterling is a very sensible one, and this view has been endorsed by the International Monetary Fund, among others.

On the question of wages control, although Conservative Members are delighted at the recent setbacks to the Government's income policy, is it not a fact that the good sense and moderation of trade unionists on the shop floor can still prevail during negotiations, despite recent votes? When my right hon. Friend says that trade unionists are aware of the benefits of phases 1 and 2, I am not sure that he is right. Have not the Government responsibility for telling all trade unionists of the benefits that have come to them from the policy of the past two years?

I think that all who have the interests of Britain at heart share this responsibility, not only the Government. My hon. Friend will be aware that I have accepted and carried out this responsibility on very many occasions over the past three years.

Will the Chancellor of the Exchequer give a clear assurance that the cash limits in the public sector, which allow an increase in wages of only 5 per cent., will be strictly maintained?

Yes.

On a point of order, Mr. Speaker. On Question No. 11, the Chancellor of the Exchequer announced that there would be no statutory incomes policy, and the hon. Member for Cornwall, North (Mr. Pardoe), from a sedentary position, invited the right hon. Gentleman to "Get stuffed". Is that parliamentary language, Mr. Speaker?

Order. I am very pleased to say that I did not hear it.

asked the Chancellor of the Exchequer what is his current estimate of the out-turn on the balance of payments current account for the year 1977.

The Financial Statement and Budget Report this year forecast that the current account would show a deficit of half a billion pounds in 1977. This forecast now appears likely to be too pessimistic.

Is my right hon. Friend aware that I welcome his statement that the forecast is too pessimistic? Does he agree that it is important to take advantage of the betterment of the balance of payments position to reduce interest rates still further and to push more money into industrial investment through the National Enterprise Board?

I am grateful for what my hon. Friend says about the improved position of the balance of payments. I note his comments on interest rates. He will be aware of the considerable fall in interest rates that has taken place over the past few months. Let us hope that that will lead to the sort of investment that I think he foresees.

Will my right hon. Friend say how much of the improvement will be accounted for by an increase in our share of world trade and manufactures?

These matters are always hard to predict. There is no question but that there has been an improvement not only in our exports but in the terms of trade and in our invisible earnings. All these factors have contributed to the considerable improvement in the overall position of the balance of payments to which my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) referred.

Will the right hon. Gentleman confirm that during the past year there has been a great improvement in our trading position with the rest of the EEC?

Certainly there has been an improvement in our exports to the EEC in comparison with last year's figures. This is an encouraging trend that we welcome and hope will continue.

asked the Chancellor of the Exchequer whether he will review the present income limits for remission of arrears of tax which have arisen through official error.

Changes in the income limits which govern the practice set out in the White Paper of July 1971, Cmnd. 4729, were announced on 30th March 1977 during this year's Budget debates. The new higher limits, which operated from the date of the announcement, replaced those which were fixed at the time of the previous revision in 1974.

Is the right hon. Gentleman aware that those increases will be welcome not only to my constituents but to many hon. Members who have to write to the Inland Revenue in connection with official errors? Will he please do everything possible to ensure that the level of official errors by the Inland Revenue is reduced?

I am glad to note the welcome that has been given by the hon. Gentleman for the revision, which takes into account the changes in values and the importance of the matters that he has raised. We are doing all that we can to reduce the level of official errors.

asked the Chancellor of the Exchequer what progress has been made in resolving the problem arising from the demand that the United Kingdom contribution to the EEC budget be substantially increased; and whether he will give an assurance that this will continue to be resisted.

Her Majesty's Government have made quite clear to the Governments of the other member States of the Community that they cannot agree to increases in United Kingdom contributions to the Community budget in 1978 and 1979 as a result of introduction of the European unit of account. I hope that this position will soon be accepted by them.

Does my right hon. Friend agree that virtually the whole House will support his robust reaction to this proposal? When does he expect the matter to be resolved?

There is a Budget Council meeting on 20th July that I shall be attending. If the matter is not settled before then, I hope to be able to persuade the other Ministers to accept the view that we take, which is also the view of the Commission.

Will my right hon. Friend confirm that the Government will generally be supporting increased expenditure on the Regional Fund and the Social Fund?

The review of the regional fund is still in progress. I cannot comment on its outcome.

asked the Chancellor of the Exchequer what effect the final abolition of tariffs between the countries of the EEC on 1st June will have on the numbers of customs officials in Dover and Folkestone.

As a result of the abolition from 1st July of tariffs on infra-Community trade for all goods except horticultural products, it is estimated that 40 fewer Customs staff will be required on this work in the port of Dover and seven fewer in the port of Folkestone.

asked the Secretary of State for the Home Department if, in view of the high level of unemployment in Great Britain among workers who have nowhere else to go, he will propose a scheme to encourage the voluntary repatriation of immigrant workers on the lines of that adopted in France.

No, Sir.

Is the hon. Gentleman aware that there are thousands of native-born Britons who are unemployed in this country whereas thousands of immigrant workers from abroad, whose homes, families and loyalties lie elsewhere in the world, are filling the jobs of our people? Will he put the interests of Britons first?

First, I totally reject the idea that it is immigrants who cause or aggravate unemployment. Secondly, there is a fundamental difference when those who come here regard Britain as their settled home. I reject totally the idea of divided loyalties among our minority communities.

asked the Prime Minister if the public statement by the Secretary of State for Industry at the Union of Post Office Engineers' Conference on 19th June 1977 concerning the economy represents Government policy.

Yes.

Is the Prime Minister aware that his right hon. Friend was reported as saying that the Labour Government do not intend to hand over to the Tories the hard-won fruits of their policy? Does the right hon. Gentleman think that one of the fruits that his right hon. Friend had in mind was the current unemployment figure of 1,450,000? In the light of recent trade union decisions, is there any prospect of avoiding an increase in that figure?

I always thought that my right hon. Friend was a man of good sense. The quotation has undoubtedly confirmed that view. As I have said on many occasions, unemployment is the one serious blot in the progress that the Government are making. In view of the fact that world trade is not increasing as fast as we had all planned and hoped for when we met as a group of international countries, I do not look for —[Interruption.] I shall shout a little louder. I do not look for as much support from that as I would have hoped. Therefore, it is even more imperative to overcome inflation so that we can start domestic expansion in due course.

Does my right hon. Friend agree that without the social contract we could not have got through the past two years? Does he further agree that if free collective bargaining leads to a wages explosion it will undo all the sacrifices that trade unionists have made over the past two years and abort any economic recovery?

There is no doubt that the social contract contributed a great deal to maintaining good industrial relations at a time when the British people were suffering an overall cut in their standard of life. It enabled us to preserve some social cohesion in those circumstances. I am not surprised—I do not think anybody else is—by the great tensions that have arisen as a result of the policy. What is important is that we should have moderate wage settlements during the next 12 months. I entirely agree with my hon. Friend that if there is an explosion it is clear, as I have frequently said, that a great deal of the hopes that we have for reducing inflation will be destroyed.

Is the Prime Minister aware that many of us think that there is rather more than one blot upon his economic record and that the fact is that the result of his whole incomes policy has now led, inevitably, we believe, to a low-output, low-wage, high-prices and high-tax economy? Does he not recognise that unless he changes that strategy this country will fall progressively further behind in its standard of living compared with those of our industrial competitors?

What I think is true, as I have spelt out to the right hon. Lady on many occasions, is that unless we have an increase in productivity, and unless both management and unions work together to achieve that, the standard of life of this country will progressively fall behind. There is no difference between us on that. What I do not understand from the right hon. Lady—I still do not understand it after having read the speech that she made last Monday—is what alternative policies she has for producing the magic recipe that has so far escaped the country during the past 30 years.

Perhaps the Prime Minister will one day say to the people of Britain what I believe the people of Ashford and Stechford are wanting him to say, namely, that they believe that they can spend their money better than he can and that he should leave them with a bigger proportion of their own earnings in their own pockets. Is the right hon. Gentleman aware that until he has some sort of incentive policy we shall get what we have had under his prime minister-ship and that of his predecessor, namely, a flat reduction with no prospects of an increase?

No, I do not interpret the attitude of the British people in that way at all. The real truth is that the British people want both lower taxes and higher services. They want both more money in their pockets and no waiting lists at the hospitals when there is an operation pending.

They want an election.

The fact that people want all these things is a problem for all democratic Governments. Hence. I come back to what I have always said; we have got to get higher productivity out of manufacturing industry. That is our first requirement and our first essential. On whatever side of the House the Leader of the Opposition may sometimes find herself sitting, she will have to come back to this problem and try to solve it.

asked the Prime Minister when he next expects to meet the TUC.

I refer my hon. and gallant Friend to the reply which I gave to my hon. Friend the Member for Hemel Hempstead (Mr. Corbett) on 3rd February.

Due to the hilarity of the House I did not quite hear what my right hon. Friend said. But in anticipation of what he might have said in reply to my Question, may I ask my right hon. Friend whether he agrees that the decision of my union, the Transport and General Workers' Union, yesterday puts the Labour movement in a new phase? Will my right hon. Friend, as well as the Chancellor of the Exchequer, be seeing the trade union leaders to discuss the situation? Does he agree that the trade union movement is far from being a wild, woolly or greedy movement but that it is seriously worried about the prices explosion and about the necessity of preserving its standard of living? My right hon. Friend has a lot going for him, but our movement's unity will be preserved on the basis of its Socialist understanding—

Order. The hon. Gentleman is taking the Question Time of other hon. Members. Mr. Bidwell, to finish.

I would suggest to my right hon. Friend that not least of what is going for him is the incapacity of the Leader of the Opposition. I have hitherto raised a question with my right hon. Friend—

Order. The Prime Minister.

I agree that the decisions that have been taken, which affect the future of any agreement between the trade unions and the Labour Party, mean that we are entering a new phase. The Government will assume their responsibilities in this regard, but responsibilities in co-operation with the trade union movement. We should not assume that because these decisions have been taken there is no prospect of co-operation or collaboration between us.

Does the Prime Minister agree with what Jack Jones said last night, namely, that the 12-month gap between pay rises under phase 2 was a promise made by the trade union movement to this Government? If so, does the right hon. Gentleman expect it to be kept?

Yes. The 12-month gap was one of the early parts of the negotiations that have been going on. I am certain that the TUC will want to maintain that 12-month interval if it is at all possible. [Interruption.] The TUC is the servant of its members, in the end. This only goes to show the ambivalence of the Opposition, who are never quite sure whether the trade union leaders have too much power or too little. At some time they had better make up their mind.

When my right hon. Friend meets the trade union leaders will he make it clear to them how absolutely opposed the Leader of the Opposition and many of her hon. Friends are to any form of price control? Some Conservatives are advocating a massive wage explosion and encouraging the trade unions to get involved in it. If that brings about any form of danger for the progress that this country is now making, they will then blame the trade union movement for it.

I am sure that the Conservative Party would like to ride to power on the back of every dissatisfied element in the country. What I have noticed is the extraordinary and unholy alliance between the Morning Star and the right hon. Member for Leeds, North-East (Sir K. Joseph), who seems to be joining this Communist band-wagon, about which his leader complains so much.

Why should the Prime Minister assume or expect the co-operation of the trade union movement, since he is aware that when the alleged social contract was cobbled together there was an implied remark that when wages were frozen prices would also be frozen? The wages part of that was carried out, but prices were allowed to escalate.

No undertaking of that sort was ever given. What was said was that there would be selective control of prices and food subsidies, and that took place. But the trade union movement is anxious that there should be good sense and sobriety in this matter. I am not speaking of everyone in the trade union movement, but as a whole it is concerned about this because it is as deeply concerned as anyone about the consequences of a return to 1973–74, when there were wage claims and settlements of 30 per cent, and prices went up by about the same amount. The trade union movement can see the consequences of that as well as the next man.

asked the Prime Minister if he will list his public engagements for 7th July.

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

When reading the speeches of trade union leaders, did the Prime Minister notice the very interesting one by Mr. Joe Gormley, in which he said that if the Labour movement was ever afraid of a General Election he did not know what it was in the political business for? Is the Prime Minister afraid of a General Election now? If so, what is he in the political business for?

On the whole, I am in the political business in order to ensure that the Labour movement gets a full opportunity of carrying out its principles and its programme. It is a five-year programme, and that is what I hope to do.

Can my right hon. Friend get someone to read the speeches of the Leader of the Opposition in order to discover whether the official Opposition believe in a voluntary incomes policy, a statutory incomes policy, or no incomes policy at all?

It is the view of the right hon. Member for Leeds, North-East (Sir K. Joseph) that there should be absolutely no incomes policy, but some of his hon. Friends seem to hold the view that there should be a statutory policy. We do not hold either view. [Interruption.] I am not discriminating. We hold neither view. The experience of the Opposition and our history since 1945 show that a statutory policy will not command consent and that it will only bring the law into disrepute. One can proceed in this country only on the basis of persuasion and acquiescence with regard to the policies that are put forward. It is a very great exercise in carrying people with us.

When the Prime Minister is going through his diary of engagements, will he refer back to his diary for January of this year and look again at his New Year's message to the Labour movement, in which he said that the social contract between the Goverenment and the trade union movement was intact and sound? Is that still his view?

No, Sir. It is not. I do not think that it is intact.

The Prime Minister has told us several times what the Cabinet rejects in terms of pay policy. Can he say whether the Cabinet this morning expressed determination to stand by its own view of the guidelines of phase 3, with or without trade union agreement? Can my right hon. Friend also say that the Government will stick to those limits rigidly in the public sector and stand by any private employer who tries to stick to the same limits in the private sector?

I do not know whether my right hon. Friend was here when the Chancellor of the Exchequer was replying to Questions.

Yes.

My right hon. Friend dealt with these matters perfectly adequately, and there is no need for me to add to what he said—[Interruption.] However, as the Opposition obviously like to hear me repeating what has been said already, I shall repeat it. My right hon. Friend the Chancellor of the Exchequer will be meeting trade union leaders next week. In the light of that, the Cabinet will bring forward to this House a paper which will set out our views on the way in which incomes should be dealt with during the next 12 months, and I hope that it will be debated in the House before we rise for the Summer Recess.

Mr. Fairbairn.

rose—[Interruption]—

Order. Popularity is one thing, but whom I call is another.

When the Prime Minister addressed the nation in his philosophical and avuncular way at the weekend and told us that all his policies— [Hon. Members: "Reading"]—and told us that all his policies—[Hon. Members: "Reading"]—would help to loosen the steel band from the chests of the British people—[Hon. Members: "Reading "]—

Order. Right hon. and hon. Members are only provoking the hon. and learned Member for Kinross and West Perthshire (Mr. Fairbairn). Will the hon. and learned Gentleman be kind enough to come to his supplementary question?

As an unprovocative person, I am obliged to you, Mr. Speaker, for your protection. The right hon. Gentleman said that his policies would help to loosen the steel band from the chests of the British people. Are we entitled to assume that that means that he intends to cut the Lib-Lab pact?

I am not at all sure that the denouement was worthy of the build-up, but I realise that the hon. and learned Gentleman was in some difficulty. If he refers to my speech, assuming that he is allowed to later, he will see that my point was that it was the fact that the balance of payments will be moving into surplus over a period, thanks largely to North Sea oil, which would loosen one of the constraints. I went on to say—and I think that this cannot be challenged—that, with that constraint loosened, which has held us back for many years, if we can get on top of some of the other serious difficulties—for example, a reasonable control of incomes rises, an expansion of the economy, prices and the rest of it—this country will have an opportunity that it has not had for 30 years. I hope that we in the Labour movement will be able to take advantage of it.