asked the Chancellor of the Exchequer if he is satisfied with the progress of his economic measures.

I refer the hon. Member to my answer to him on 21 February.

When will the right hon. and learned Gentleman emerge from his cocoon of fear into the real world to see what effect his policies are having? Will he comment on three aspects of those policies?—[Interruption.]

Order. The hon. Member for Easington (Mr. Dormand) has indicated that his question will be very short.

First, it was said that reduced income tax would galvanise entrepreneurs but there is not even the beginning of any signs of that. Secondly, it is said that the high exchange rate which is playing havoc with our exports is based largely on high interest rates. Thirdly, it is said that oil revenues should be used directly for investment.

The welcome given to the hon. Gentleman's question was so raucous that I was unable to hear his third point. There is a later question on the Order Paper about the exchange rate. As to the impact of lower income tax, I can assure the hon. Gentleman that the prospects for enterprise, success and industrial growth and investment are immensely enhanced by the presence of a Government who had the courage to reduce top income tax rates, which the right hon. Member for Leeds, East (Mr. Healey) always wanted to do but never had the courage to do.

Will my right hon. and learned Friend tell the House what progress is being made in reducing the money supply as a result of high interest rates and whether it is private borrowing or Government borrowing that is being reduced?

My hon. Friend will appreciate that Government borrowing has been, is being, and will be substantially reduced as a result of the Government's own measures. He should also know that in the last four months sterling M3 has grown at an annual rate of 10 per cent. That represents a considerable slowing down in the rate of growth which we inherited. Other aggregates, both narrower and wider than sterling M3 are growing no faster than that and sterling M1 has fallen in the last four months. There are, therefore, encouraging signs of progress in re-establishing monetary control.

When the right hon. and learned Gentleman considers his Budget proposals will he concentrate on finding jobs for school leavers?

My Budget would indeed be narrow if I were to concentrate on that single objective. The creation of conditions in which employment can begin to grow again is one of the objectives behind my Budget proposals.

When my right hon. and learned Friend contemplates his economic measures and their progress does he ever reflect, even in the abstract, on our prospects if we were no longer to be a member of the EEC?

The range of my reflections is substantial. Whenever I see my hon. Friend rising to pose a question on occasions such as this I reflect on the topic to which he refers, but that reflection is not at the top of the priorities.

If inflation, always and everywhere, is a result of the excess supply of money, why are the Government continually blaming the high level of inflation on wage settlements? Is it not absolutely clear that the principal push to inflation in the last 12 months has been of the Government's own doing, following indirect tax increases and the other costs flowing from the Government's own decisions?

The hon. Gentleman should understand that the impact on inflation by the once-and-for-all change in the tax structure last June is of moderate importance and will fall out of the system next June or July. The hon. Gentleman should also understand that probably the most powerful underlying cause of rising inflation is the high monetary growth rate which we inherited. Certainly, a contributory factor in the short term is a level of pay settlements beyond that which the country can afford. Unless and until pay bargainers, both in the private and public sectors, understand the consequence of unreasonable pay settlements, there will be a high and rising level of unemployment.

asked the Chancellor of the Exchequer whether he will make a statement on the progress achieved to date in reducing the staff of the Development Land Tax Office.

I refer my hon. Friend to the answer that I gave on 11 March 1980.

Is my right hon. Friend aware that progress in reducing the notoriously overstaffed Development Land Tax Office under the present Government is most satisfactory, since the staff has been reduced from 174 to 147? Will he ensure that that desirable trend continues?

Yes. I can assure my hon. Friend that, provided that the market in development land continues roughly as forecast, we hope to reduce the number of staff to 110 by April 1981.

In spite of the progress made will the Chief Secretary confirm reports in the newspapers today that next year the Government will be employing more civil servants than they are employing this year? Does not that show the madness of the Government's economic policies? Is he aware that the Government are putting people in the manufacturing industries out of work and have to employ more people to pay them unemployment benefit?

That wide-ranging question arising from evidence to a Select Committee cannot conceivably arise out of a question about the Development Land Tax Office.

asked the Chancellor of the Exchequer what representations he has received about the forthcoming Budget.

asked the Chancellor of the Exchequer what representations he has received in connection with his forthcoming Budget.

I have received representations from a wide range of organisations and individuals.

In view of today's news that Barclays Bank made an annual profit of £529 million, which is 42 per cent up on the previous year, will the Chancellor introduce a windfall tax to give some benefit to the whole community from the excessive profits made by the big banks and oil companies? Would not that be more humane than turning the clock back to the 1930s by stopping earnings-related unemployment benefit and cutting the real value of other benefits to the unemployed, the disabled the sick and families with young children?

I cannot anticipate my Budget Statement in any respect, as the hon. Gentleman should know. The increase in bank profits substantially overstates the real growth by the time one has taken account of inflation, a phenomenon with which the hon. Gentleman is familiar. When other circumstances are going badly it is usual for bank profits to rise. It is important that they should be high to meet the demands that are made upon them.

Will my right hon. and learned Friend, when preparing his Budget, remember that people on low earnings suffer most from the high level of inflation as was proved under the last Government? Will he also remember that we must honour our election pledge to serve all the people?

I am grateful to my hon. Friend for his reminder of a pledge which we certainly mean to fulfil. I am pleased to know that we shall have his support in the Lobby throughout the difficult time ahead.

Futher to that extremely helpful supplementary question, can the right hon. and learned Gentleman assure the House that he will not cheat on the Government's election promise to help families and to increase the will to work? Will he assure the House that he will increase the child benefit in November by significantly more than £1 per week? Does he agree that anything less would be dishonest in relation to the undertakings which the right hon. and learned Gentleman gave when he tricked the British people into giving him a majority last May?

Even in that respect I cannot anticipate my Budget Statement. I assure the right hon. Gentleman that neither before nor after that Statement shall I need his advice or guidance on cheating.

Can my right hon. and learned Friend confirm that among the representations that he has received concerning his Budget is one from the Child Poverty Action Group? Will he take note of the views of hon. Members, particularly his hon. Friends, that we understand and expect that there will be a substantial increase in child benefit in his Budget?

I can confirm that I have received representations from the CPAG, as one would expect, and I have them in mind.

What does the Chancellor feel is the greatest success of his policy to date?

An increasing confidence in the firmness of the Government's monetary and fiscal policies and a mounting sense of shock among the electorate at the prospect of the Opposition coming to power.

asked Mr. Chancellor of the Exchequer what representations he has received about the effect of present interest rates.

My right hon. and learned Friend has received a number of representations in recent months on the effect of the current level of interest rates, in particular from business men and home owners.

Does the Financial Secretary think that the present high rates of interest are a consequence of the rate of inflation or a major contributor to it?

It is clear that the present high level of interest rates is in part a consequence of the level of inflation and in part a necessary instrument in bringing inflation down. Of course, the hon. Gentleman will be well aware that this is a world-wide phenomenon. Interest rates throughout the world have gone up just as much as they have in Britain since May. The United States rate is now 19 per cent.—higher than ours.

Given the Government's monetary policy, am I right in thinking that, if the general level of pay settlements next year is half the rate it is this year, it would be associated with a greatly reduced level of interest?

My hon. Friend is right. As inflation comes down interest rates will come down.

Given the Financial Secretary's confusion about whether high interest rates are a cause or a consequence of inflation, does he think that it is just possible that, like indexation, high interest rates are the institutionalisation of inflation?

The right hon. Gentleman is both confused and deaf. At no time did I say that interest rates were a cause of inflation.

To clarify the matter, does the Financial Secretary agree with the Governor of the Bank of England that we are unlikely to see a fall in interest rates for many months and that, until inflation falls, there is not likely to be a reduction in interest rates?

The Governor of the Bank of England was speaking before he had seen the contents of my right hon. and learned Friend's Budget.

asked the Chancellor of the Exchequer what estimate he has made of the effects of current interest rates on the profitability of the banking sector.

No precise estimate is possible. Current interest rates clearly contribute to high bank profits but the effects are likely to differ greatly in different parts of the banking sector.

Will the Financial Secretary say why a doubling of profits to a huge level by Shell and other oil companies is apparently regarded by the Government as justification for a windfall profits tax while a doubling of profits to a huge level by Lloyds and other banks is not? In what way are MLR-induced excess profits, brought about by the Government's economic policies, of any more merit than OPEC-induced profits?

The hon. Gentleman may expect oil prices to fall over the coming year, as interest rates are likely to fall, but I regard that as less likely. As to the taxation of bank profits, the Prime Minister has already said that we are putting our minds to that in the context of the Budget.

Will my hon. Friend move very slowly and cautiously before contemplating the imposition of an excess profits levy on the banks in the present circumstances, unless he is prepared to introduce the opposite measure at a time when banks profits are falling? Will he bear in mind the dangerous weapon that that policy would put into the hands of the Labour Party in the event of a future Labour Government?

I am glad to be able to reassure my hon. Friend that I always move cautiously in everything that I do, as does my right hon. and learned Friend the Chancellor of the Exchequer. My hon. Friend is right to make it clear to Opposition Members—who may not understand this—that there are technical complexities involved here.

Does the Financial Secretary agree that, had he and his fellow Treasury Ministers had their way and introduced monetary-based control at an earlier stage, bank profits would have been even higher than they are at present? Will he confirm that the green paper on monetary control, published today, represents an abandonment by Treasury Ministers of any serious intention to move to a monetary-based control system?

The green paper certainly evinces a somewhat sceptical attitude to the merits of monetary-based control, but, nevertheless, it is a discussion document. We intend to enter the discussions in good faith and see what emerges.

If interest rates have to rise again, will my hon. Friend consider holding discussions with the banks about the weakest and smallest borrowers—who often have to pay the highest borrowing rates—with a view to those people being giving an easement in borrowing rates?

I hope that it will not be necessary for interest rates to rise again. I am sure that my hon. Friend will understand that our top priority is the battle against inflation. If it is necessary—and I profoundly hope that it will not be—for interest rates to rise further in the battle against inflation, they will have to rise.

asked the Chancellor of the Exchequer when he expects his economic policies to result in an increase in manufacturing investment.

I expect manufacturing investment to increase in due course when the rate of inflation is reduced.

Does not the Chief Secretary agree—without anticipating his right hon. and learned Friend's Budget—that the tax cuts introduced in the last Budget have not released investment into manufacturing industry? Will he deny the rumours that the Chancellor of the Exchequer, in his Budget, will establish enterprise zones in areas such as Merseyside, which the people there do not want? Will he agree that the only way in which we can achieve investment in manufacturing industry in such areas is through public investment?

It is no part of my task this afternoon to comment upon my right hon. and learned Friend's Budget next week—

Why not?

Because I have a vested interest in personal survival.

The first thing that I shall try to do is correct the innate pessimism of the hon. Gentleman. Although it is perfectly true that both the CBI and the Treasury forecast a fall in manufacturing investment, it is less than that which has been experienced hitherto in this period of the cycle. The Government's policy will be vindicated, and well before the next general election.

Has my right hon. Friend noticed that the latest survey of investment intentions carried out by the CBI suggested that the greatest obstacle to investment intention was not the level of the exchange rate nor the level of interest rates, but the scale of industrial disturbance and strife? Is it not conceivable that those who respond to a CBI survey are a little more "clued-up" about the motivations for investment than is the hon. Member for Bootle (Mr. Roberts)?

That is undoubtedly true. Though it goes against myself, it is true to say that the CBI's forecast of the fall in manufacturing investment is lower than that projected by the Treasury.

The Chief Secretary said that the level of inflation has an effect on the level of manufacturing investment. What level of inflation does he consider to be acceptable? At what level of inflation would there be an increase in manufacturing investment?

It would be absurdly presumptions of me to try to answer that question. The rate of inflation will have fallen tangibly and demonstrably come the next election.

asked the Chancellor of the Exchequer if he is satisfied with the current levels of interest rates.

My hon. Friend has already asked this question once this afternoon. Once again, the answer is no; but until we have succeeded in bringing public spending and borrowing under control, interest rates at their present level are necessary to maintain firm control over monetary growth. Interest rates will come down as our policies reduce the rate of inflation.

While my hon. Friend often refers to United States interest rates, will he not reflect that, if we had a closer economic relationship with other European countries, where interest rates are much lower, we could emulate their example by reducing the value of the pound, dropping minimum lending rate as soon as possible by at least one point, and joining the European monetary system?

My hon. Friend should be aware that interest rates in Europe have risen by about the same amount—five to six points— since May, as they have risen in this country. The reason why interest rates vary from country to country is that inflation differs from country to country. There is no way in which, simply by joining more closely with other European countries, we could change that discrepancy overnight.

Does not the Financial Secretary agree that if he had not broken all his monetary rules and lent £1,500 million to the clearing banks over the past few months, interest rates now would be over 20 per cent., in line with the rate of inflation?

On the last part of the right hon. Gentleman's question, that is not our policy, nor do we need to do that. Sterling is strong because of confidence in the Government's economic policies.

Does my hon. Friend believe that interest rates are influenced most by the rate of inflation or by the level of the public sector borrowing requirement? Does he believe that it is possible to reduce interest rates without reducing the level of the public sector borrowing requirement?

My hon. Friend is absolutely right. Interest rates are affected both by the level of the PSBR and by the level of inflation. That is one of the reasons why we are determined to reduce the level of the PSBR.

Will the Minister explain how the current level of interest rates, which appears to be so helpful to the banks, does not appear to be so helpful to small businesses?

The higher inflation rate which would result if there were not a firm monetary policy, which regrettably involves high interest rates for the time being, would be far worse for small business-men than the present level of interest rates.

asked the Chancellor of the Exchequer what representations he has received from English language schools for foreign students concerning value added tax; and if he will make a statement.

A number of representations have been made by English language schools that their tuition services to overseas persons should be zero-rated for value added tax purposes.

Is my hon. Friend aware that these language schools bring a large amount of invisible exports into Britain—about £60 million a year—and that compared with foreign registered companies operating English language schools in this country, which are zero-rated, they are being discriminated against? Will he reconsider their position and try to make VAT more flexible to help invisible exports?

The need is not to make VAT more flexible but to ensure that foreign organisations are not improperly escaping tax. The main issue is where they are established. Information is currently being sought on the exact nature of these bodies' activities in the United Kingdom. If it is discovered that they are supplying their services from establishments in this country, they will be treated for VAT purposes in the same way as United Kingdom-based organisations.

Does my hon. Friend understand that we are talking about an export? We exempt our exports from VAT. Why should this service not be exempted?

It is not technically an export. It is a service that earns foreign exchange, as does the tourist industry. However, that does not mean that VAT is not levied on shops and other places that tourists frequent. My hon. Friend is suggesting a fundamental change in the value added tax system, which I do not think is warranted by this example.

asked the Chancellor of the Exchequer what is the policy of Her Majesty's Government on the exchange rate.

I refer the right hon. Member to the answer that I gave him on 27 November 1979.

Does the right hon. and learned Gentleman agree that the easiest way to reduce the exchange rate would be to get the Bank of England to sell sterling on the foreign exchanges? Does he agree that the Bank is not doing that because it fears that the money supply might increase? Are we not paying a high price for the Government's economic theory when account is taken of the agon- 1ies of British industry in meeting competition from cheap imports and finding export markets for its goods?

The right hon. Gentleman will recollect that when he was a distinguished member of the Treasury team in the previous Labour Government it was decided that it was folly to continue intervening in the way that he has described, since that was having the adverse effect on money supply that he rightly anticipates. If one intervenes in that way to affect the exchange rate, the money supply and the domestic rate of inflation will be adversely affected.

Is my right hon. and learned Friend aware that the effective exchange rate now stands 10 points higher than its level before the 1967 devaluation and 20 per cent. higher than in the mid-1970s? How quickly does he expect the productivity of British industry to improve to restore the competitive balance?

I am not prepared to comment on the precise figures to which my hon. Friend has referred. It is as well to remember that during periods when the exchange rate has been consciously depreciated in the pursuit of expanding export opportunities, that has not, as a policy, been crowned with conspicuous success. It is important, in the world in which we now live and in the conditions in which the British economy has to operate, with a petro-currency to hand, for those who bargain within British industry to recognise the importance of sensible pay bargaining as an important factor in maintaining the competitiveness of British industry.

Is not one of the reasons for the high exchange rate the growing revenues that will accrue from North Sea oil and gas? Is it not true that these growing revenues are causing a massacre of our manufacturing industry? Is it not about time that the Government set out a strategy for the next few years to ensure that our North Sea oil and gas revenues are used to build up and reconstruct our industries and not to destroy them?

It is obviously sensible to recognise the impact of growing North Sea revenues on the balance of the economy. At the same time, it is sensible not to be alarmist about them. It is worth remembering that in the past few months there has been a growth in manufacturing exports. It is also sensible not to try to pursue magic solutions. The most important thing for people throughout British industry to understand is that they can do more than any Government by the effectiveness of their working together to maintain and improve the competitiveness of British industry.

Is it not also true that the strength of the pound is a measure of the competence of the international community in the policies of my right hon. and learned Friend and his colleagues? Was not that exemplified by a remark of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who tabled the question, during the debate on the financial White Paper, when he cited as an example of something that would lead to a run on the pound the prospect of the return of a Labour Government?

I have no doubt but that the prospect of the return of a Labour Government would have a number of remarkable and catastrophic effects on the outlook for the economy. I understand the arguments that are advanced by Labour Members. However, I hope that they will take account of the fact that the Government's abolition of exchange controls is one factor that undoubtedly causes the rate to be lower in the long term than it would otherwise be. I hope that commentators on these matters will now welcome unreservedly the decision that we took.

May I refer the right hon. and learned Gentleman to the question tabled by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon)? What is the Government's view of the present exchange rate and its effect on industry? What policy are the Government adopting towards the exchange rate?

As I told the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) when he asked the question on a previous occasion, the exchange rate is determined primarily by market forces. The Government, through the Bank of England, intervene in the exchange markets to moderate excessive fluctuations in the rate and to preserve orderly market conditions. That is the conclusion at which the previous Government arrived, having tried to pursue different policies at different stages of their existence.

asked the Chancellor of the Exchequer what proposals he has for assisting in the provision of finance for small business.

The Government have made a major contribution towards helping the small firms sector by cutting income tax and undertaking to tackle capital taxes. The Government have been considering what further steps they can take to encourage investment in small firms. My hon. Friend would not expect me to reveal any details in advance of the Budget.

Will my right hon. Friend bear in mind, when he is giving further consideration to this matter, that small businesses in the service sector represent the greatest prospect for advance and increasing employment? Will he recognise that they do not have the same tax advantages that some manufacturing industries enjoy? Will my right hon. Friend ask his right hon. and hon. Friends in Government Departments, and those running nationalised industries, to pay their bills on normal credit terms to small businesses? They are notoriously bad payers.

I shall ensure that the second part of my hon. Friend's question is drawn to the attention of those primarily responsible. I very much agree with him that the small business sector of the economy, especially in the service sector, provides great hope for providing future employment throughout the country. My hon. Friend will know that the balance of taxation between industry and services is an issue that is subject to constant reconsideration. I am sure that it will be borne in mind when the Finance Bill is being considered in Committee and thereafter.

Does the right hon. Gentleman agree that one result of a totemistic fixation on restricting the growth of the money supply is an inevitable increase in bankruptcies, especially among small firms?

Any policy that seeks to reduce inflation will have as a consequence a period of extreme uncomfortable dislocation, one manifestation of which is bankruptcies. That will happen however we set about reducing inflation. I do not deny that. I do not repudiate that for one moment. I certainly do not rejoice in it. However, if we are genuine about fighting inflation and intend not to run way at the first uncomfortable moment, we must accept that there are uncomfortable consequences and live with them and through them.

Will my right hon Friend consider what he can do to lessen the impact of the borrowing rate on small firms, especially those in rural areas, which is preventing their expansion or their establishment, and is generally proving to be a handicap?

The question of the existing minimum lending rate for small businesses was raised earlier, and answered by my hon. Friend the Financial Secretary to the Treasury. I cannot go further than that.

As the right hon. Gentle-mar has considerable knowledge of business, will he indicate what rate of return a small business might expect on an investment that would cover soaring interest rates and an abnormal level of inflation?

No.

asked the Chancellor of the Exchequer what is the total annual cost to public funds of production by the Royal Mint of each category of notes and coins currently in circulation.

Information about the costs of producing individual denominations of coins is commercially confidential. However, the total cost to public funds of coins produced by the Royal Mint for circulation in the United Kingdom in 1978–79, was some £14·7 million. The manufacture of bank notes is undertaken by the Bank of England, and cost £16·5 million in 1978–79

Would my hon. Friend be good enough to examine the contents of his trouser pocket? Does he agree that, after years of inflation, our range of coins has become hopelessly out of date? Does he not further agree that the range should be adjusted to reflect present-day purchasing power? Will he take early action so that this will be seen as a result of the ravages of Socialism, and not as a result of his right hon. and learned Friend's policies?

I am aware of my hon. Friend's deep interest in this subject. All the coins in circulation are economic to produce. However, the question of the coinage is constantly under review.

Will the hon. Gentleman explain why the costs are confidential? Further, what does he mean by "commercially confidential"?

Information is commercially confidential because the Royal Mint is in the business of producing coins for many foreign Governments, as well as for the British Government. Many competitors are also in that business.

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

The year-on-year increase in the retail prices index up to February 1980 was 19·1 per cent. That figure overstates the underlying rate of inflation, since it includes the once-and-for-all impact of the shift from direct to indirect taxation in last year's Budget. A better guide to changes in taxpayers' costs is the tax and price index, which rose by 16·9 per cent. in the same 12 months.

Is the Chancellor of the Exchequer proud of his achievement of almost doubling inflation in less than a year? Has he any positive plan to control inflation during the next 12 months? If not. will he do us all a favour, and resign before next week's Budget?

Surely the hon. Gentleman understands the extent to which the rise in inflation is caused partly by the accelerating growth rate in the money supply which we inherited from the previous Labour Government. It is caused partly by the rise in energy costs that has taken place throughout the world. That is demonstrated by the fact that the average level of inflation in all OECD countries has risen by 4½ per cent. in the same 12 months. I assure the hon. Gentleman that he may have more confidence in the policies of this Government than in those of the preceding one.

Is it a cause of satisfaction or concern to my right hon. and learned Friend that the latest figure on the savings ratio shows that it has increased yet further to the unprecedentedly high level of over 20 per cent?

It is not a factor that in itself causes me either great concern or exhilaration.

Surely the Chancellor of the Exchequer is aware that the 6 per cent. increase that has taken place in the savings ratio since the June Budget is equivalent to a £12 billion fiscal deflation? If that does not concern him, it should. As he believes that Government increases in indirect tax, or increases in public sector charges have no effect on what he comically calls, "the underlying rate of inflation" are we to understand that we are to get another dose of the same in next week's Budget? Will there be a further increase in indirect taxation and further increases in public sector charges?

Even at the request of the right hon. Gentleman, I shall not anticipate next week's Budget Statement. There has been no change in the underlying savings ratio. Any temporary increase has been largely created by the increased savings that resulted from cuts in income tax, made in last year's Budget.

Does the right hon. and learned Gentleman recall that the Government published an increase of 4 per cent., from 13 per cent. to 17 per cent., for the third quarter, before increases in tax had taken effect? We now hear that there is to be a further increase, to 20 per cent. If the Chancellor of the Exchequer is not prepared to take the question seriously, will be consult his hon. Friend the Financial Secretary to the Treasury who argued that in such a situation we should allow the public sector borrowing requirement to rise, at least in money terms?

I do not know where the right hon. Gentleman gets his facts. In the first three quarters of last year, the savings ratio was 15·1 per cent.; about the same as that in the preceding year. It has now risen to about 16 per cent.

If the retail price index is supposed to be a measure of inflation, why does it contain items such as tomatoes? Such items are highly seasonal. They are particularly expensive at this time of year. Does my right hon. and learned Friend agree that many people choose substitutes and that the retail price index is, therefore, not an accurate reflection of ordinary household expenditure?

There are many components to the retail price index. Many of them can be escaped by a skilful buyer as they move from one level to another. I am glad that my hon. Friend is so adept at observing such factors and will refrain from eating tomatoes in the near future.

asked the Prime Minister if she list her official engagements for 20 March.

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

Has my right hon. Friend had time to read the disturbing reports of the evidence given by the Civil Service Department to the Treasury Select Committee? Does she realise that, despite Government efforts, the number of civil servants will rise by 3,000 in the next financial year? Does she not agree that that is totally unacceptable? Is there no way of controlling this bloated bureaucracy?

I am grateful to my hon. Friend. I saw those reports. They pointed out that, since the figures had been compiled, they had been overtaken by a cut of a further 2½ per cent. Assuming that the 2½ per cent. cut takes effect, the Civil Service will be below 700,000 by the end of 1981, for the first time since 1975. I agree that it is one of our highest priorities to keep the increased numbers of civil servants down to a figure that the nation can afford.

When will the Prime Minister get the message that many of her supporters want her to abandon her disastrous economic policies? Does she not accept that such policies are causing price increases, rising unemployment, and savage cuts in essential social services? Having suffered a humiliating 13 per cent. swing against her man in Southend, a series of rebellions by her Back Benchers, and a defeat by over 100 votes in the House of Lords, does she intend to hang on stubbornly until her militant Friend the Duke of Norfolk introduces a Private Member's Bill to abolish the House of Commons?

Most of our supporters want us to take those necessary but stern measures in order to get the country out of its economic difficulties. I am sure that the hon. Gentleman will not be surprise to know that I shall not be frightened off those policies by him or by anyone else.

When my right hon. Friend considers the imbalance in our contributions to the EEC will she bear in mind the simple expedient of imposing a surcharge on our oil supplies to our European partners until the account is once more in balance?

I do not think that that would necessarily get the account in balance again. I would much rather go about it in an orthodox way by genuinely trying to get an equitable settlement of the budget between ourselves and our European partners. That will be our objective at the March meeting.

Is the right hon. Lady aware that conflicting reports are emerging about the Government's policy on that budgetary issue? Perhaps she could answer three questions. First, is it still her intention—to use her own phrase —to get her money back, or is she prepared to settle for a compromise? Secondly, is she prepared or ready to withhold our VAT contribution? Thirdly, does she intend to continue to treat the budget as a separate item, or is she ready to reach a compromise package that would involve lamb, fish or energy? In particular, does she intend to maintain the price freeze on agricultural products that are in surplus? Those are questions to which the country wishes to know the answers.

The right hon. Gentleman asked me four questions. First, I adhere to the phrase which I used immediately after the Dublin meeting, that we are prepared to compromise, but that we have very little room for manoeuvre. Secondly, in the last resort we shall have to consider withholding our value added tax contribution. Let there be no doubt about that. Thirdly, on the budget and a number of other matters which we need to settle—fish, agricultural prices, sheepmeat, and so on—we shall continue to treat each item on its merits. We simply must do so. Fourthly, the right hon. Gentleman asked about a price freeze. It is our intention to stick to a price freeze on products which are at present in surplus.

I am—[Interruption.] I was proposing to say, and I shall still say, that I am obliged to the Prime Minister for clearing up a number of these issues. They are of importance, and a number of differing reports have emerged. However, on one issue, the right hon. Lady's reply was less than satisfactory. She will know that the House resolved unanimously twice—on 16 July and on 22 November—that Britain's contribution to the budget must be no greater than the receipts. Does she intend to adhere to that?

With respect to the right hon. Gentleman, I answered that in my reply to his first question by saying that I adhered strictly to the phrase which I used after Dublin. There has to be a compromise, but I have not very much room for manoeuvre. The right hon. Gentleman is familiar with these problems. I am sure that he would not wish me to go further than that.

I did not press the right hon. Lady on the details of these matters before her visit to Dublin, and certainly I have no wish to tie her hands behind her back now. But if she is still to command the support that the Opposition have offered her, it is important that we know where she is leading us. That is all I am asking her, and she has given the answers.

asked the Prime Minister if she will list her official engagements for Thursday 20 March.

I refer my hon. Friend to the reply which I gave earlier.

Has my right hon. Friend seen reports of the vote in the Agriculture Committee of the European Assembly yesterday to increase farm prices to the housewife by 3½p in the pound? Will she confirm that, no matter what the views of the European Assemly may be, it is no part of her policy to allow price increases such as this?

I saw the press reports that the Agriculture Committee of the European Assembly had approved price increases amounting to something like 7·9 per cent. Certainly I give my hon. Friend the assurance that he seeks. We have no intention of supporting any such figure—or anything like it.

Will the right hon. Lady ponder today on the fact that, if she carries out her proposals to cancel the orders for the Torness and Heysham power stations, she will wreck the British power plant industry and throw thousands of workers on the dole?

As I indicated in this House last week, the AGR programme is under review. One of the factors to be considered is the effect that any change would have on the nuclear power industry. So, of course, we shall take that into account in arriving at our decision.

In the light of the disastrous misjudgment of the Foreign Office over Rhodesia, and bearing in mind my right hon. Friend's oft-avowed friendship for the State of Israel, will she make it clear that it is no part of the policy of Her Majesty's Government to seek to undermine the Camp David agreements and the peace of the Middle East by seeking to install a Marxist terrorist Government on the West Bank?

With respect to my hon. Friend, the opening part of his supplementary question bore absolutely no relation to the latter part. I take great offence, if I may so—and I do say so —at his remarks about the Foreign Office and, therefore, about my policy on Rhodesia, and they ill become him.

The hon. Gentleman should watch his friendships!

asked the Prime Minister whether she has any plans to visit Eastwood.

I have at present no plans to do so.

May I assure my right hon. Friend that she will be very welcome if she decides to visit Eastwood? Is she aware that the Conservative-controlled Eastwood district council has held its rate increase to 1p, without cutting essential services? That is in marked contrast to the savage and irresponsible increases imposed on ratepayers by surrounding spendthrift Labour authorities.

I am grateful to my hon. Friend, and I congratulate the Eastwood district council on having regard to the capacity of its ratepayers to pay rate increases by keeping this year's increase down to 1p, in contradistinction to many Labour district councils in Scotland. Dumbarton, for example, has put up its district rate by 45 per cent. Glasgow has put up its rate by 30 per cent. Ratepayers in those areas must wish that they had Tory councils, too.

asked the Prime Minister if she will list her public engagements for 20 March.

I refer the hon. Member to the reply which I gave earlier today.

Has the Prime Minister seen the reports in today's papers that a doctor at St. Thomas' hospital believes that up to 1,000 kidney patients are dying every year for want of dialysis treatment? Will she say what action her Government propose to take to stop this appalling waste of life?

As the hon. Gentleman knows, the Royal Commission on the Health Service indicated that it would be quite possible to spend almost the whole of the national income on the Health Service if one had to respond to every demand. It is not for us to determine the priorities. However, as far as I know, the priorities for kidney machines are different from one area health authority to another. Everyone would like very much to spend more. But to do that, we must first as a nation earn more. As the hon. Gentleman knows, our policies are directed to that end.

Does my right hon. Friend recognise that many Government supporters welcome her contribution to increasing the number of reserve forces by encouraging employers to release more people for the Territorial Army and Volunteer Reserve? Will my right hon. Friend comment on a possible increase in bounties, which will go even further to encourage recruitment?

We have increased the bounties and, because we think extremely highly of the Territorial Army and the services that it performs, we are doing everything possible to encourage employers to release people for service in the Territorial Army. I hope that the campaign will be successful.

Will the right hon. Lady take an opportunity today to peruse the memorandum sent her recently by the Confederation of British Wool Textiles? When she replies to it, will she ensure that she makes a positive reply concerning unfair trading practices, instead of adding to the endless succession of negative replies from departmental Ministers about the matter?

I have seen that document. Of course we wish to get rid of unfair trading practices. As the hon. Gentleman knows, where we find them and where we find dumping, we shall pursue with our partners in Europe the possibility of taking action.

We must, of course, produce more before we can spend more on the social services, including the Health Service. Will not my right hon. Friend agree that the Health Service is suffering from over-administration? What can the Government do to cut down the huge bureaucracy in the Health Service, the size of which is to the detriment of various services to the public?

As my hon. Friend knows, we are introducing legislation to reduce the administration by one layer, but I cannot reinforce too strongly what he says. It is necessary to reduce bloated bureaucracy wherever it occurs, whether in central Government, local government or public agencies. We must vigorously pursue that policy.

Have the Prime Minister and her colleagues given thought today to the figures announced yesterday for income increases during the year? Does the right hon. Lady agree that inflation is now at a runaway level? Will she consider the message from the people of Southend, where the swing against the Government was greater than that in the first year of any Government since the First World War?

The figures announced yesterday were for increases in average earnings, which is different from the figures for settlements. As the right hon. Gentleman will be aware, the CBI published figures for settlements showing that 52 per cent. are at 15 per cent. or below, which gives a different picture from the 20 per cent. increase in average earnings.