asked the Chancellor of the Exchequer if he is satisfied with the present level of interest rates.

Yes, Sir. Interest rates are now consistent with the maintenance of proper control over the money supply in the interests of counter-inflation policy. The large fall overall in both short and long-term rates over the past year has helped industry and many others in the economy. The further continuation of the downward trend depends critically on wage settlements being in accordance with the Government's guidelines.

Does not my right hon. Friend agree that recent fears about money supply explosion are not grounded, in the light of the latest figures? Does he not agree also that industrial investment may well have been harmed by this increase? Does he intend that the rate should be maintained at its present level, or may it fall again?

I think it is true that all recent indicators suggest that some of the concern expressed about the monetary aggregates was greatly exaggerated. I thought that my hon. Friend was referring to the reversal of the 2 per cent. fall in point out that short rates are still under to the previous level. I should, however, interest rates which took place at a time when we had exceptionally heavy inflows of money. It is natural that, once those inflows cease, the short rate should revert half what they were a year ago, well below the level I inherited from the previous Government and below the level in early September. There is now evidence that private manufacturing investment increased during this period of fall in interest rates by about 13 per cent. in the first nine months of this year compared with last year.

Are not the building societies in some difficulty regarding interest trates, with funds continuing to flow in while minimum lending rate has risen by 2 per cent. in the past few weeks? Can the Chancellor of the Exchequer give them any general reassurance to assist them in their consideration of appropriate interest rates at their meeting tomorrow?

I have already made clear that I believe that the current level of interest rate is appropriate and is likely to remain appropriate for some time. A further fall in interest rates could take place if wage settlements were in accordance with the Government's guidelines.

The Chancellor speaks of the Government's guidelines, but what is the Government's pay policy? Is he aware that he told the House of Commons in July that we were to have flexibility this year and a return to free collective bargaining next year? We now find that we have the most rigid and doctrinaire insistence on 10 per cent. precisely for every single pay settlement this year, and we are warned about stage 4 next year. What has happened to justify that U-turn?

I doubt, Mr. Speaker, whether that intervention was in accordance with the advice which you offered the House. There are a large number of later Questions on counter-inflation policy, and it would be unfair to hon. Members who have put down those Questions to answer a supplementary question which is irrelevant on this occasion.

asked the Chancellor of the Exchequer if he will seek to legislate to make trade union payments to pickets, not employees of the employer whose premises are being picketed, subject to income tax.

No.

Is the right hon. Gentleman satisfied with a tax system whereby those who go to work are eventually taxed out of existence while those who try to prevent other people from going to work get off scot-free?

The hon. Gentleman is wrong on both counts.

Will my right hon. Friend tell me why Questions like this come from Opposition Members when they tell us that they are dedicated both to the reduction of personal taxation and to wooing the trade union movement?

My hon. Friend is right. It is interesting to note the views of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). It would be even more interesting to know whether those views are shared by right hon. Gentlemen on the Opposition Front Bench. If they are, it is a good job that the Opposition are not in command of industrial relations in this country.

Whatever the legal basis for the Chief Secretary's answer to the supplementary question of my hon. Friend the Member for Circencester and Tewkesbury (Mr. Ridley) does it possibly strike the right hon. Gentleman as unfair that, while the items of income to which my hon. Friend has drawn attention may or may not be subject to tax, other items, such as payments made to the Territorial Army perhaps for assistance in fighting fires, should be taxed?

As the hon. and learned Gentleman knows, there are many anomalies in our tax system, including the fact that very many highly paid people obtain benefits that are not taxed.

asked the Chancellor of the Exchequer whether he is satisfied with the level of industrial investment.

No, Sir. But I am encouraged by the recently published figures for investment in the third quarter, which show a significant improvement over the earlier part of the year.

Will my right hon. Friend confirm that for the first nine months of this year, if we exclude the British Steel Corporation, investment in manufacturing industry, was 13 per cent. up on the first nine months of last year, and that this is a fairly satisfactory figure?

My hon. Friend is right. Indeed, the figure is slightly higher than he quoted, although one is bound to note that investment levels of manufacturing industry are still low. We want to see them improving rapidly in the years ahead.

Will the Chief Secretary confirm that the little NEDCs play a vital rôle in the Government's industrial strategy? Further, will he comment on the effect upon foreign investment in general in this country of the successful conspiracy in which two little NEDCs joined to keep Hitachi out of Britain?

That is an entirely different question, but the little NEDCs are doing a first-class job.

Has my right hon. Friend seen an unpublished survey, prepared by the Manpower Services Commission, which indicates that over the next few years the top 90 companies in Britain expect their labour requirements to fall by one-third as a result of investment?

There is the problem, of course, that much new manufacturing investment does not create additional employment. On the other hand, my hon. Friend must recognise that without that new industrial investment existing employment would be difficult to maintain.

asked the Chancellor of the Exchequer whether he is satisfied that VAT repaid on appeal against assessment is returned to those who paid it.

VAT repaid after a successful appeal against an assessment is normally sent to the registered person.

Does the Minister feel himself to have any responsibility for seeing that the registered person passes on the benefit? In that connection, will he, perhaps, examine the question of the VAT repaid to British Rail in respect of student travel cards to see whether the money has been repaid to the people who originally paid it?

That is a matter for British Rail, which has the duty to pass on the VAT, which it did, and, of course, a refund became payable. I understand that British Rail is now prepared to refund the tax paid by individual students on production of a rail card on which the tax was paid.

Much difficulty and loss is being caused to small traders and businesses by the VAT regulations concerning bad debts. Will the Government end the situation whereby small traders are liable for sums of VAT which they will never be able to retrieve?

If the hon. Gentleman is referring to VAT on bad debts, he will be aware, I am sure, that we are examining this matter, and in due course the Government's final conclusions will be put before the House.

asked the Chancellor of the Exchequer why invalid electric chairs purchased for hospitals by charitable subscriptions are subject to 8 per cent. VAT while similar chairs provided by the National Health Service are zero rated.

Supplies to patients made through the National Health Service are not made in the course of business. Therefore, no VAT is chargeable to the patient and the question of zero-rating does not arise.

Is my right hon. Friend aware that the patrons of the "Priory Arms" public house in my constituency managed over a period of many months to scrape together £500 to buy an electrically-propelled chair for the local hospital? On this they had to pay £46 VAT. Can they have that VAT money back?

The example to which my hon. Friend refers deals with an item that is not as readily identifiable as some of those where we have been able to make concessions. The difficulty with VAT is that it was introduced as a broad-based tax. We have made some changes, and I am always prepared to look at the possibility of others, but there are certain difficulties of control which make further progress in this direction difficult.

Will the Financial Secretary look at this issue in the wider context and make a thorough review of the VAT issue? Will he, for example, look again at the question of a single rate to cover a range of anomalies about which he knows, such as in the boat-building industry?

The question of a single rate of VAT must wait for the Budget judgment in due course. As for a review of the working of the value added tax system itself, the hon. Gentleman will be aware that this is being examined by Customs and Excise. I hope that some of the comments that arise from that review will be made available during the Budget debates.

Will my constituent get the £46 VAT back? May I have a definite answer to that request?

We all admire my hon. Friend's persistence. He will be aware that the present regulations preclude that payment from being made. As I said before, we have introduced changes in the system of VAT introduced by the Conservatives. I do not think that it lies in their mouths, having introduced this very rigid tax, now to ask for changes which its working makes difficult to achieve.

On a point of order, Mr. Speaker. In view of the unsatisfactory nature of that reply, I shall seek to raise the matter on the Adjournment at the earliest opportunity.

To ask the Chancellor of the Exchequer what is the rate of VAT on lawn mowers.

Mr. Michael Brotherton.

On a point of order, Mr. Speaker. May I ask your guidance as to how this Question managed to appear on the Order Paper? If my hon. Friend so desired, he could have walked into the Library and found out the information for himself.

That is very good advice, and I shall look into it. Mr. Michael Brotherton. He is not here anyway.

asked the Chancellor of the Exchequer whether he will take steps to reduce the duty payable on British wines.

Our obligations under the Treaty of Rome require that any reduction in the duty on wine produced from grapes grown in the United Kingdom could only be made if the duty was reduced at the same time on imported wines. This raises questions of a budgetary nature.

Is the Minister aware that wines produced in Germany, Italy and Luxembourg for domestic consumption carry no duty at all? Will he make that kind of concession available to British wine-growers for wine produced in this country for consumption here?

The difficulty is, as I have said, that any advantage here would be largely to the benefit of imported wines. I note the recent comment of the English Vineyards Association that many growers sell all their wine within 12 months. I am delighted that that is so. I look forward to the industry's expansion, but any concession here is not possible at present.

Is the Financial Secretary aware that the excessively high level of taxation imposed upon the cider industry has led to a tremendous degree of deferred investment—about £3 million? Will he consult the industry to establish a level of taxation which will restore confidence, to enable employment to be started up again and the investment programme to go ahead?

I am aware that the cider industry had certain advantages through the absence of duty and that the imposition of the duty brought about certain changes of which it had to take account. I am delighted to consult the industry. I think that my relations with it are close. If there is any matter on which it wishes to make representations, I shall be happy to accommodate it.

asked the Chancellor of the Exchequer if he has any immediate plans to meet widows' organisations concerning their tax treatment.

I have no immediate plans to meet widows' organisations, but I am well aware of the problems facing widows, including those relating to tax, and I shall continue to bear these in mind.

Is the Minister aware of the deep resentment felt by working widows because they take home less pay in their ray packets than do married women doing similar jobs? Will he look at this matter again before the next Budget and either give small income relief or take the widows' pension out of the tax bracket altogether?

I am aware of the concern that has been expressed. Many widows fail to take account of the fact that the tax being deducted is deducted not only from their working wage but from their pension. Thus, a comparison between the tax paid by a widow and the tax paid by a colleague working in the same place does not take into account the tax being charged upon the pension itself, which is an important part of the tax being raised.

Over and above the injustice of the taxation system as it operates on widows' pensions, is the Financial Secretary aware that after the initial six months' period widows' pensions are treated as a maintenance benefit and that that disqualifies widows from maintenance allowances for training schemes such as TOPS? Does he not consider that to be an injustice which should be altered immediately?

I think that most of the matters that the hon. Lady has raised are matters for my right hon. Friend the Secretary of State for Social Services. The hon. Lady must be aware that the problem of widows and their pensions—this has been made clear in the representations that I have received—is widely felt also among divorced and separated people who, unfortunately, have been unable to make a success of marriage. Representations have been made forcibly to me, and a comparison has to be made between the circumstances of widows and those of other people who are equally entitled to our consideration.

asked the Chancellor of the Exchequer in how many months since the inception of the Government's counter-inflation policy in August 1975 the annual rate of inflation has been as little as half what it was 12 months previously.

Once, Sir.

Putting aside the doubtful accuracy of the Government's past claims to have halved inflation, does the Chancellor recognise that our annual rate of inflation is still double the rate in Japan and the United States and four times that of West Germany? When shall we get it down to the level of our major competitors?

I hope that inflation will be down to the level of our major competitors in about a year's time. The hon. Member will have noticed that all the indicators that are now accepted by observers inside and outside the House show that we shall be at 12 per cent. by the end of the year and in single figures around Easter. How much progress we make after that will depend on the level of pay settlements for the rest of the round.

asked the Chancellor of the Exchequer if he remains satisfied with the current rate of inflation; and if he will make a statement.

asked the Chancellor of the Exchequer whether he will make a statement on the progress to date of the Government's policy for controlling inflation during the current pay round.

asked the Chancellor of the Exchequer if he will estimate at what period of 1978 inflation will have reached single figure percentage.

Inflation is falling steadily, and is on course for single figures next spring. I shall not be satisfied until we get inflation down to the level of our international competitors and keep it there. This means that the level of earnings must be within the Government's guidelines.

Does my right hon. Friend appreciate that we all want to get inflation down, but will he also turn his attention away a little from the wages aspect and accept that there are many other factors that cause inflation and cause prices to rise, such as multinational pricing policies, Common Market levies and payments, some of which we have had to submit to quite recently, the question of Civil Service blunders that cost a tremendous amount of money, and another escalating property boom? Will he concentrate his gaze upon those items too?

I cannot concentrate my gaze on every aspect of policy to which my hon. Friend refers, but I am certainly very conscious of the contribution which they can make. I have never claimed, nor has any of my right hon. Friends, that pay is the only factor that determines prices. That, of course, is not the case. An irresponsible monetary policy, such as was followed by the previous Administration, can also have a major impact, although we have not followed an irresponsible monetary policy. Of course, international movements of prices, such as the dramatic increase in oil prices that took place in 1973, can also have a major effect. At the moment, however, world prices look like being stable for a time, short of some international catastrophe, our monetary policy is a responsible one and is recognised as such, and over the next 12 months the level of pay settlements is likely to be the major determinant of prices.

Regarding pay settlements, if the Government intend to continue with their secret and discretionary sanctions policy, is it not about time they came to the House to get some legal basis for it?

I think that the Government have not only a right but a duty, when they have been allowed by the House either to withhold or to grant certain types of discretionary aid, to take into account—as they were intended to do—the national interest. I do not think that it is in the national interest that the Government should use taxpayers' money to finance inflationary wage increases.

With at least the possibility of a rise in commodity prices in the early part of 1978 and the possibility that when the winter round of wage settlements is over it will come out at about 15 per cent. rather than 10 per cent., over how many months of 1978 does the Chancellor confidently expect that he will be able to boast a single-figure rate of inflation?

I have already said this afternoon that we expect inflation to reach single figures in the spring. How long it remains in single figures and how far it falls below the level it reaches in the spring will depend critically upon the level of pay settlements. The hon. Gentleman will, no doubt, have seen the forecast of the Henley Centre, for example, on this matter today. But of course, no Government can predict with any certainty the course of international prices over the period. It can be influenced not only by natural catastrophes but also by political ones.

Will my right hon. Friend explain what contribution is made in the battle against inflation by pushing up interest rates and encouraging the most massive flow of hot money that has ever occurred in the history of this country?

My hon. Friend is well aware that the period when we had these massive inflows was the period when interest rates were falling very fast indeed. Even after the movement back to the normal rate of 7 per cent. which took place in MLR after we changed our intervention policy, interest rates are now a great deal lower than they were in February 1973 and bank base rates have not been as low as they are now for over five years. I believe that this has made a major contribution to reducing the rate of inflation.

Does the Chancellor accept that, of course, we underline the importance, if unemployment is to be kept down, of moderation in pay settlements? But does he not also agree that it is becoming increasingly necessary to restore flexibility to pay bargaining in the labour market, and has not that prospect been damaged by the extent to which the average 10 per cent. increase in earnings of which he spoke last summer has been allowed to become a rigid 10 per cent. guideline for settlements? In other words, will he now answer the question originally put to him by my hon. Friend the Member for Blaby (Mr. Lawson)?

The Government made it clear in the summer—this is a mathematical point and not a point of policy—that we cannot guarantee to keep inflation rates under 10 per cent. through next year if the level of earnings increase nationwide is above 10 per cent. I do not think that anybody in the House need disagree about that. I certainly should have hoped that we would have had a greater variety of settlements than we have had. But, with respect to the right hon. and learned Gentleman, it is no good his asking for flexibility below 10 per cent. unless he is prepared to identify the bargaining groups which would make settlements well below that level.

asked the Chancellor of the Exchequer when he next intends 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.

When will the Chancellor discuss with the Governor the implications of last night's House of Commons vote which removed from the forthcoming Scottish Assembly and the Scottish people the need to comply with Treasury laid-down pay policy guidelines? Has the right hon. Gentleman thought about last night's vote?

I think about very little else, but I have not yet had the opportunity of discussing this matter with the Governor.

Does my right hon. Friend agree that the Bank of England plays a very important rôle in the determination of economic policy in this country, and does he agree also that it would be better if the rôle that it played and the advice it gave to the Government were more clearly available in public so that we could determine exactly what its views and its rôle are as against those of the Treasury and the Chancellor himself?

The Bank does, indeed, play an important rôle in many aspects of the economy, but my relationship with the Governor is such that I prefer to keep his advice on some matters private, just as I do the advice tendered to me by my own officials and by representatives of Customs and Excise and the Inland Revenue. I think that that is wholly consistent with the general tradition of government in this country. The Governor sometimes makes his views public, and I always read them with intense interest.

How do the Chancellor and the Governor reconcile the huge sales of sterling to foreigners in the first nine months of this year with the Chancellor's stated intention in January to reduce the reserve currency rôle of sterling?

The hon. Member knows as well as I do that these substantial sales took place at a time when we were giving priority to our obligation under the agreement that we reached with the IMF to maintain competitiveness without damaging other aspects of our undertakings to the IMF. But, as the hon. Member knows, when we changed our intervention policy in October these inflows ceased. On the other hand, our direct undertakings were primarily concerned with official sterling balances held in London, and those have not changed significantly over the year.

asked the Chancellor of the Exchequer what proposals he has tabled at the Council of Ministers with a view to promoting economic and monetary union within the European Community.

None, Sir. But, as my right hon. Friend the Prime Minister in- formed the House yesterday, the European Council on 5th and 6th December listened to proposals from the President of the Commission for a resumption of progress towards economic and monetary union. The European Council agreed to await the views of Finance Ministers before attempting to form a view.

Is the right hon. Gentleman aware that a common European exchange rate and a common European pattern of taxation would involve an intolerable degree of provocative harmonisation and would be unacceptable in the diminution it would imply in the authority of this House? Will he so inform that distinguished refugee from British politics who now serves as President of the Commission?

I think that the President of the Commission is well aware of my view, which I have stated on many occasions, that the type of economic and monetary union which involved the characteristics to which the hon. Gentleman has referred would require a degree of convergence in the economic performance and policies of the various countries which it is difficult to foresee at this time.

Can the Chancellor assure the House that, whatever Mr. Roy Jenkins may say about this, the Government will retain their sanity on this issue?

Yes, Sir, I am glad to be able to give that assurance. The Government intend to maintain their sanity on all issues.

Does the Chancellor accept that, if the Government do not accept their obligations under the Treaty of Rome to move step by step to the liberalisation of exchange control by 1st January 1978, one inevitable result will be that the £ sterling exchange rate will be forced up higher than would otherwise be the case, which would make our exports less competitive, reduce the incentive to invest at home and destroy the opportunity for creating more jobs? If the right hon. Gentleman does not accept that argument, will he say what steps the Government are taking to extend the derogation arrangements under Articles 108 and 109?

I must protest that hon. Members on the Tory Front Bench are continually asking lengthy supplementary questions referring to Questions already put down by their colleagues for answer later in the afternoon. It is an intolerable offence against the procedure of the House to seek to do so.

Is my right hon. Friend aware that one of the problems that the Opposition are up against is that, since the Leader of the Opposition made a speech in Rome about being the European Party. the Opposition are having to bend over backwards and are now even more pro-European than Mr. Roy Jenkins? Has my right hon. Friend anything to say on this?

All I can say to my hon. Friend is that the inconsistencies in the views and the behaviour of the Leader of the Opposition on matters of European policy almost match her inconsistencies on matters of pay policy, which were illustrated again by her speech yesterday.

Although the Chancellor cannot envisage circumstances in which it would be possible to have a convergence of European economic performance so as to lead to economic and monetary union, will he tell the House whether it is the policy of Her Majesty's Government to move towards economic and monetary union?

There is a certain convergence of the performance of the European countries at this time. For example, inflation rates are closer than they were a year ago and look like being closer still next year, and there are degrees of convergence in various other areas. But common exchange rates would imply a common policy in all the important aspects of the economy, and I do not foresee that in the near future.

As Opposition Members are always quoting special cases such as the police and the Army because the Opposition ride the law and order bandwagon, can my right hon. Friend tell us whether they have ever quoted special cases which should be placed below the norm?

I invited the right hon. and learned Gentleman to give me such a special case. I agree with my hon. Friend that the Conservatives' tendency is to ask for low wage settlements and then continually, for opportunistic reasons, to pick on groups which, they say, should have a specially high settlement, although they retreat very fast from that commitment when they find those groups—such as the police—acting responsibly and accepting a settlement within the guidelines.

rose—

There are three Questions being answered together. I shall call one more supplementary question.

For the benefit of the hon. Member for Bolsover (Mr. Skinner), will the Chancellor of the Exchequer explain how multinational companies increase the rate of inflation? If they do, how he can reconcile this with the fact that by his policies he is directly encouraging multinational companies to locate in this country?

My relations with my hon. Friend the Member for Bolsover (Mr. Skinner) are so intimate that I would prefer to discuss this matter with him privately after the meeting rather than in full public gaze.

asked the Chancellor of the Exchequer what would be the cost to public funds of making the top marginal rate of income tax 50 per cent. for earned income and 65 per cent. for investment income.

To make the top marginal rate of tax 50 per cent. whilst retaining the additional rates on investment income would cost about £480 million for 1977–78.

Does the Minister agree that if the top earned income rate were reduced to the amount I suggest it would enable a large number of small businesses trading as sole traders or partnerships to retain sufficient funds for expansion and the creation of new jobs? All of that could be done for less than the losses on one nationalised industry in one year.

I do not accept that. The hon. Gentleman is absolutely wrong. Any successful small business will not be paying tax at 83 per cent. It will pay hardly any tax at all because of the policies introduced by this Government since 1974. The hon. Gentleman knows very well that, with the 100 per cent. first-year investment allowance and the stock relief, most successful expanding small companies pay no tax at all.

Might it not be desirable to use whatever public funds are available to help the poor rather than the rich?

I agree with my hon. Friend, but one has to get this in proportion. What we would consider poor on this side of the House is not quite the same as Opposition Members would consider poor. They have in mind people with incomes in excess of £20,000 per year, the level at which the marginal rate of tax at 83 per cent. starts. I accept that there is a very high level of tax on those levels of income, but the matter must be kept in proportion.

Will the Chief Secretary take this opportunity of repudiating the proposal emanating from Transport House that mortgage interest relief should be limited to income tax at the basic rate?

I am not sure whether the hon. and learned Gentleman read correctly what was said. He will agree that it is worth considering having building society interest allowable under a system other than the present one, because of the administrative problems, apart from anything else. I am not ready to dismiss anything quite as quickly or glibly as is the hon. and learned Gentleman.

asked the Chancellor of the Exchequer when he expects to make a further statement on exchange controls.

When I have some further information to give to the House.

Will the Minister accept that some aspects of the existing exchange controls are actively damaging to the efficient management of our existing overseas investment, and that in the long run this cannot be in the interests of the country? Does he agree that it is now time to look at the 25 per cent. surrender rule, which really belongs to a completely different balance of payments and reserves situation?

There were some matters on which we were able to proceed along the lines suggested by the hon. Gentleman. My right hon. Friend the Chancellor of the Exchequer produced some relaxations in October. These matters are, of course, always open for constant review.

Is my right hon. Friend aware that already a far larger proportion of United Kingdom manufacturing capacity is located outside our own country than is, for example, the case with Japan or our major European competitors? Is he further aware, therefore, that what we need is a bigger industrial manufacturing base here at home in order to create the jobs and the net exports that the economy requires?

I must, of course, completely agree with my hon. Friend. It was the policy that was pursued over many decades which led to an extension of manufacturing capacity that was very largely in competition with our own and which, to a certain extent at any rate, was responsible for the failure to invest here in this country in some critical years before the war.

Does the Minister appreciate that the maintenance of a rigid exchange control framework does nothing in itself to increase investment in this country? On the contrary, maintaining the exchange rate of the pound at what may be an artificially high level damages the prospects of profitability, damages the prospects of investment and so helps to run the risk of destroying British jobs.

I am sorry that I cannot be as dogmatic as the right hon. and learned Gentleman. The whole question of exchange control has been of advantage in maintaining a high level of investment in this country compared with what it might otherwise have been. Of course, there is room now and again for examining some of the areas in which certain relaxations may be made. But the general proposition that we have gained in the past as a result of these measures cannot be denied.

asked the Chancellor of the Exchequer how many members of the Treasury staff of the rank of assistant secretary or above have had at least one year's experience in manufacturing industry; and what proportion this represents.

Seven members of the Treasury staff of the rank of assistant secretary or equivalent grade and above have had at least one year's experience in manufacturing industry. This represents 8 per cent. of the total.

Does the Minister recognise that that represents a substantial improvement over his last answer, when the reply was "Nil"? Does he now accept that the lack of industrial experience among Treasury advisers has been a contributory factor in the Government's failure to create conditons in which British industry can thrive?

One of the particular advantages we have in the Treasury is that of industrial expertise, which is increasing. It is the intention of the Government over the next three years to double the secondments of civil servants to industry and, if possible, achieve a level of 200 exchanges between Government and industry at any one time. This decision by the Government is to be welcomed and will go a long way to satisfy the hon. Gentleman in these important matters.

asked the Chancellor of the Exchequer what is his Department's current estimate of the public sector borrowing requirement for the current year; and how this compares with the estimate made when the White Paper public expenditure proposals for the current year were first published.

I would refer my hon. Friend to the Industry Act forecast, published on 26th October, of a PSBR in 1977–78 of £7½ billion, £1 billion less than the Budget estimate.

I am grateful for that answer, but, in view of the massive undershooting or undercutting of the spending estimates for last year by £2¼ billion, can my right hon. Friend assure me that the Government have the spending levels under control to the extent that they can tell the House what the spending levels, and, therefore, the borrowing requirement, are likely to be?

My hon. Friend will recognise that there is a serious problem. Total public expenditure is in the region of £60,000 million, so that to be able to be precise within a very small amount of money is very difficult. We have public expenditure under better control now than it has ever been, certainly since the war. I have no wish, and neither have my colleagues in the Government, to see excessive underspending of public expenditure. We hope that this year we shall get very much nearer to the target than we did last year. I do not want to see underspending of the kind my hon. Friend talks about.

Does the estimate of the borrowing requirement which the Chief Secretary just gave include the cost of increasing our reserves?

I am not quite sure what the right hon. Gentleman means by "the cost". Does he mean the interest rates? Perhaps he will explain a little further.

I mean the sterling that we have to pay in order to be balanced by the increase in our reserves.

To be honest, I do not normally find the right hon. Gentleman as confused as that, but I am not at all clear what that has to do with the PSBR. The PSBR includes all the figures that impact on the PSBR itself.

Does not my right hon. Friend agree that one of the reasons why we have underspent in this way has been the refusal by Tory-controlled local authorities, particularly in Lancashire, to use to the full the rate support grant? Will he consider putting pressure on local authorities to make sure that facilities for people in these areas are not damaged further by determination to hold down the rates at the expense of services?

I am aware that some local authorities are carrying out policies which my hon. Friend and I would not particularly like, but, overall, local authority current expenditure outturn is broadly in line with the estimate. The actual underspend in public expenditure, as was seen in 1976–77 and from the figures that we published for the first half of this year, was in some ways in areas that we should be pleased about—for example, the substantial improvement in many of the nationalised industries, whose financial requirements are now very much lower.

Can the Chief Secretary be a little clearer about this underspending? Is he aware that Treasury officials gave evidence to the Expenditure Committee that underspending this year was running at around 4 per cent. of cash limits, yet they gave evidence also that of the £2 billion undershooting of the public sector borrowing requirement £1¾ billion was due to higher taxation and only £250 million—very much less—was through underspending. How does he reconcile these two statements?

In fact, they were reconciled by my officials who gave evidence.

No.

With respect, they have been reconciled. My officials gave the facts very clearly to the Committee.

asked the Prime Minister if he will list his official engagements for 8th December 1977.

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.

How much time has the Prime Minister been able to spend today on engineering his Watergate-type cover-up of the fact that the Poles, apparently, have not been asked to put any money at all on the table for the purchase of the merchant ships? If the Prime Minister must buy votes, will he use the profits of Labour Party Properties Limited rather than taxpayers' money?

I congratulate the hon. Gentleman on reducing the level of the problem as he has done. I understand that Monday is a Supply Day, and, if the Opposition wish, no doubt this would be a suitable matter for discussion on that day. In the meantime, all I would say is that the criticisms about this order come from two main sources, the Conservative Party and foreign shipyards. As far as I can see, the attitude of the Opposition is that they would prefer these orders to go to foreign shipyards, with our men standing unemployed in our own yards, the steel industry not able to provide the steel and the engines not provided from this country. All this they would prefer. If that is so, let them say so.

Will my right hon. Friend try to seek a meeting today with the Secretary of State for Industry to discuss the reasons why Hitachi, the Japanese company, has withdrawn its intention to invest on Wearside and provide 500 to 600 jobs? Will he discuss with his right hon. Friend the implications that this will have for possible future Japanese investment in this country?

No, Sir, I would not propose to have such a meeting, because I understand that the Minister of State gave an explanation of that matter to the House yesterday. This is a decision by the company itself, following very strong representations from both sides of the British television industry.

Will the Prime Minister say precisely how much of British taxpayers' money is being spent on the Polish shipping deal?

The answer to that can be given if a Question is put down. It does not arise on this Question, which requests a list of my official engagements for today. If the Opposition want to know the answer, I suggest once again that the matter be debated on Monday. Let us then have all the facts.

One of the Prime Minister's official engagements is to answer Questions in this House, particularly Questions by the representatives of the British taxpayer. Some time ago the Prime Minister said that the deal was in the bag. Did he not know then how much it would cost? If he did, why is he so anxious to withhold the sum?

The simple answer is that I do not carry this complicated calculation in my head. But I repeat the offer. I hope that the Opposition will debate this on Monday, and they can then have all the figures that it is appropriate to produce. [Interruption.] Yes, appropriate, because this is a matter of commercial negotiation. If the Opposition were in a less irresponsible mood, they would recognise that. There is no reason why we should give a competitive advantage to foreign yards which are desperately anxious to snatch these orders.

Is the Prime Minister—

On a point of order, Mr. Speaker. Is it in order for the Leader of the Opposition to stand up time after time when other Members are waiting to ask questions?

It is a very old-established convention in the House that extra latitude is given to the Leader of the Opposition.

Is the Prime Minister saying that, on one of the main issues of the day, neither he nor his office took the trouble to ensure that he was properly briefed to answer Questions in the House? If he does not know the precise figure, will he at least give the proportion of the order which is being met by the taxpayer?

I understand from my right hon. Friend the Leader of the House that the Opposition have already given notice that they will want to debate this matter on Monday. All the appropriate figures will then be produced. In view of the attitude of the Opposition on this order and on the question of subsidies for the textile industry, the clothing industry and the steel industry, I must say that if I were a worker in any of those industries I would be growing very worried about the policy of the Conservative Party.

As we understand that one of the Prime Minister's engagements today is to read the transcript of last night's party political broadcast, I hope that, at the end of it, he will send a message of congratulation to Transport House upon a long overdue forthright attack upon the National Front, which was marred only by the fact that the BBC insisted that the programme was not entitled to refer to the past convictions of the men in the broadcast. [HON. MEMBERS: "Question."] Does my right hon. Friend recollect that the Rehabilitation of Offenders Act, which I put through the House, does not, in fact, prohibit the dissemination of such information if it is true and is published without malice?

In order to preserve the proprieties of Question Time, I must say that there is, of course, no ministerial responsibility for these matters. I should like to add that, as I told the Labour Party conference, there will be no carefully-weighed electoral considerations to be met by a suitably ambiguous phrase by the political parties in these matters. Our opposition to racialism must be total.

asked the Prime Minister if he is satisfied with co-ordination between the Home Department, the Department of Education and Science, the Department of Health and Social Security and the Ministry of Agriculture, Fisheries and Food in the development of alternatives to the use of live animals in experiments.

Yes.

Is the Prime Minister aware that many of us are deeply concerned about the number of experiments carried out for routine purposes? Will he encourage Government Departments to stop dragging their feet on the issue of alternatives?

Yes, Sir. I am aware of the deep concern that is felt. Indeed, I share it, having reviewed—as a result of some of the hon. Lady's activities—what is going on in this field. I hope that the number of experiments can be cut down, and I shall certainly use what influence I have to ensure that Government Departments do so.

May I urge my right hon. Friend among his other duties to give better attention to doing away with the very questionable LD50 test for which animals are used, particularly in view of the new and very proper legislation concerning health and safety at work? Will he encourage his right hon. Friends with responsibility for the various Departments to use their best efforts to find an acceptable alternative to these tests, which are open to growing scientific and medical questioning?

I understand that my right hon. Friend the Home Secretary has asked the advisory committee on the administration of the 1876 Act to study the LD50 test and to make recommendations. A report is expected in the course of the next year. When that report is made, we shall ensure that it is published so that conclusions can be drawn. It will then be for the Home Secretary to consider what action should be taken on this matter.

The public have been expressing greater concern year by year at the enormous growth in experiments. Will the Prime Minister give an undertaking that he is cognisant of the fact and that he will make every effort to ensure that the number of experiments is reduced rather than increased in the years ahead?

I would certainly like to see the introduction of substitutes to restrict the use of living animals in this way. The development of cell cultures in the matter of foot and mouth vaccine, for example, is an important advance. We must certainly bend all the efforts of Departments to seeing how much further we can go in this matter.

Is my right hon. Friend aware that there are very good scientific reasons for moving away from many of the animal experiments, since alternative techniques produce results which are scientifically more valid?

Yes, Sir, I am. I hope that I have indicated that it would certainly be our policy and desire to move to alternatives to animal experiment as quickly as possible, and our efforts must be directed in that way.

asked the Prime Minister if he will now make a statement on the result of his investigation of the allegations made against the Security Services by the right hon. Member for Huy-ton (Sir H. Wilson).

I issued a statement on 23rd August last.

Will the Prime Minister put that statement in the Official Report? Is he aware that I welcome his confidence in the Security Services but that there has been no denial from the right hon. Member for Huyton—I am sorry he is not in his place, although I drew his attention to this Question—that he made very serious allegations to journalists against the Security Services? Will the Prime Minister refer the matter to the Director of Public Prosecutions so that he may consider whether there is prima facie evidence of a breach of the Official Secrets Act?

I shall certainly include the statement in my reply in Hansard. It is quite short. My right hon. Friend associated himself with the statement that I made and, therefore, there is no reason to carry the matter any further. I think that the hon. Gentleman might consider the normal convention of this House that, when a statement on this kind of subject has been made and both sides of the House have expressed satisfaction with it, we ought to leave matters there.

On 28th July, in the House, the Prime Minister invited those who had information on these matters to submit the evidence to the Home Secretary. Did the right hon. Member for Huyton (Sir H. Wilson) do so, or did he explain to the Prime Minister his failure to do so?

I have nothing to add to the answer I have given.

Does not my right hon. Friend the Prime Minister think that, rather than answering so many questions from Conservative Members who are trying to find all the bad news in the world, he might be more usefully employed in finding time to comment on the good news that came out of the headquarters of the National Union of Mineworkers this morning?

Yes, Sir. The National Union of Mineworkers' decision was one for itself. I do not believe that the Security Services were particularly concerned in it.

In view of the unsatisfactory nature of those replies, I beg to give notice that I shall seek an early opportunity to raise the matter on the Adjournment.