asked the Chancellor of the Exchequer what is his latest estimate of North Sea oil revenues from corporation tax, petroleum revenue tax and royalties in 1980–81.

The figures—which were published in the Treasury economic progress report for July—are £450 million, £2,560 million and £1,090 million for corporation tax, petroleum revenue tax, and royalties respectively.

Is the Minister aware that many experts believe that the Treasury is seriously under-estimating the likely revenue from North Sea oil over the next two or three years? That is likely to result in a lower, or possibly negative, public sector borrowing requirement. Will the Minister make clear that, if that happens, he will review the public expenditure cuts with a view to reducing them?

The hon. Gentleman is making certain assumptions that we are not disposed to make at present. Naturally, we are concerned with the structure of petroleum revenue tax, but we feel that it is designed to secure a proper share of the profits of North Sea oil for the British people.

Will my hon. and learned Friend consider making a statement on the revenue implications of the Secretary of State for Energy's recent statement on depletion policy?

We are aware of the implications of that statement, but we do not think that it will make a substantial difference to the figures that I gave.

Will the Minister of State explain why the figures that are published in the brown book on the effects of North Sea oil revenue are all in 1978–79 prices and therefore understate by more than half the actual benefit that the Government are deriving from North Sea oil? Will he assure the House that the reason for that is that the Government are now throwing £ 4 billion worth of revenue down the drain in financing unemployment that they have created?

The Government are not throwing any money down the drain. Our costing of the draft manifesto of the Labour Party is that it would throw £20,000 billion down the drain in nationalisation.

Will the Minister answer a question that has been asked repeatedly in the House? Why are the Government understating by more than 60 per cent. in the brown book the actual value of oil to them?

I have given the figures for the current year. As the right hon. Gentleman will know, it was not the practice of either his Administration, nor is it of this Administration, to give forecasts for future years.

asked the Chancellor of the Exchequer if he is satisfied that his economic measures are working according to the Government's plans.

The first priority of the Government's economic policy is to reduce the rate of inflation. There are encouraging signs that our policies are beginning to do that.

I understand that following the downward slide that we inherited from the previous Government it will take a little time to get up the hill if we are to see the promised land, but does not my right hon. and learned Friend accept that, if industrial and commercial confidence is to return, it must be made clear to industry that we shall soon get out of our inflationary difficulties? Industry will invest when it has hope. Hope is important as a basis for the revival of British industry.

I am glad to bear in mind the points made by my hon. Friend and to remind him that the downturn in inflation that we saw this month is the first such downturn for two years. I expect to see a further substantial drop in the rate of inflation next month. The fact that it is now two years since the rate began to go up is indicative of the fact that all economic policies are bound to take time to work out.

Is it not the case that the fall in the rate of inflation this month is due entirely to world prices, a factor which is beyond the Government's control, that the fall next month will be due entirely to the fact that the Chancellor has learnt enough not to be as lunatic as he was last year in doubling the rate of value added tax, which then falls out of the index, and that the main effect of the Government's policies so far is to produce unemployment at the level of 1936 and to condemn a whole generation of youngsters to the scrapheap?

There is concern on both sides of the House about the need to secure a downward movement in unemployment. But, as the right hon. Gentleman told the House on many occasions, the conquest of inflation must precede the conquest of unemployment. When we came into office we inherited a rapidly growing rate of inflation, running at almost 14 per cent. Now, after two years of movement in the wrong direction, we have begun to move in the right direction. We are entitled to take credit for that.

In considering the Government's economic policy, does my right hon. and learned Friend accept that there is considerable cause for concern about the very high interest costs that future Governments, as well as the present Government, will have to bear on long-term Government gilt-edged stock? Does he accept that there is now a strong case at least for index linking long-term gilts?

I appreciate the point made by my hon. Friend about the concern felt about the burden of interest, which is one of the reasons why it is important to reduce the total size of Government borrowing along the lines that we have in mind. The point that he makes about the indexation of gilts has been put forward in many quarters and deserves consideration, but there are many complications on the other side of the account.

Is the Chancellor aware of the pressure that is being put upon workers to accept smaller wage increases, and that the message seems to be coming right across the nation? Does it also include managers, directors, and all the rest of the people who totally ignore that sort of recommendation and who get away with murder and have done so for many years?

The hon. Gentleman puts an emotional gloss on the realities. I am grateful to him for telling the House in such plain terms that the message is, as he put it, getting across to the nation in support of the case that there must be moderation in the acceptance of and bargaining for pay settlements at all levels. At every level and in every workplace, people, when determining their pay, must take account of the impact of that on the prospects of their own employment.

asked the Chancellor of the Exchequer what further measures he is taking to lower the minimum lending rate.

The Government's public spending, taxing and borrowing policies are designed to make it possible for monetary targets to be achieved with lower nominal interest rates in due course.

Does the Minister accept that, particularly in the inner areas—such as Ladywood—of big cities, one of the best opportunities available to the Government for stimulating employment and maximising profit is the stimulation of the small business sector? Does he further agree that the stimulus they are looking for includes an immediate reduction of the minimum lending requirement?

I accept that the level of interest rates has a very real bearing on the general climate of business optimism and that it is wholly desirable that the Government should have as an objective the achievement of lower interest rates, provided that they are consistent with the monetary aggregates.

Will my right hon. Friend please explain why the effect upon the money supply of taking off the corset should be disregarded, as is suggested in the Financial Times today?

I bear many burdens, but what appears in the Financial Times is not one of them.

In this connection, will Treasury Ministers at least consider reducing the return net of tax to foreign lenders, as other countries have done, with a view to reducing the inflows into this country which are helping to achieve a gross overvaluation of sterling?

That is a highly contentious suggestion and I do not think that I can give any answer to it this afternoon.

Is the right hon. Gentleman aware that for once we congratulate him on cutting the minimum lending rate last month, although the subsequent money supply figures showed that the money supply was running outside the Government's target? Is he aware that we shall also congratulate him if he cuts minimum lending rate again in September, in spite of the fact that the unwinding of the corset is likely—according to the Governor of the Bank of England on Monday—to add perhaps over 3 per cent. to the monetary range?

The congratulations of the right hon. Gentleman will always be assessed in the circumstances in which they are proffered.

Does my right hon. Friend agree that every Minister, without exception, in every spending Department could well have emblazoned on his wall the motto "Spending less means borrowing less; and borrowing less means lower interest rates for the benefit of the private sector"?

Yes.

asked the Chancellor of the Exchequer what specific powers remain to him to regulate exchange control.

The Treasury continues to have the powers in the Exchange Control Act 1947 as amended by the Finance Acts 1968 and 1977, and also those in section 2 of the Emergency Laws (Re-enactments and Repeals) Act 1964.

Given the mess of the Government's economic position, will the right hon. Gentleman tell us how long it would take to reintroduce the measures if it became necessary?

Most of the arguments are to the effect that the difficulties derive from a currency that is valued too highly. Therefore, the Government are not usually asked to reintroduce exchange control.

Does my right hon. Friend believe that there is any case for inward exchange controls?

On present evidence, no.

Whatever the Government do on the question of exchange controls, will the Chief Secretary and his right hon. Friends consider the position that is developing in Ellesmere Port, where 1,500 workers in Bowaters are faced with immediate redundancy because of the imports of paper from the United States of America? Will the right hon. Gentleman look at that in addition to looking at the question of exchange controls?

I realise that the hon. Gentleman has made a point about which he feels very strongly, and I shall see that it is brought to the attention of my right hon. Friend the Secretary of State for Trade.

asked the Chancellor of the Exchequer when he expects a substantial reduction in inflation.

I expect a substantial fall in the annual rate of increase of the retail price index next month.

Since the Government were directly responsible for inflation reaching nearly 22 per cent., they can hardly be congratulated now on the fact that there is a tiny reduction. Is the right hon. and learned Gentleman aware that the economic policies of the Government, which are leading to a return of mass unemployment, will leave behind a legacy of hatred and bitterness towards the Tory Party of the sort that was seen in the 1930s?

The hon. Gentleman must understand that no Government policy is designed to lead or is leading to mass unemployment. As his right hon. Friend the Member for Leeds, East (Mr. Healey) told the House on many occasions, we have found ourselves entering each recession with a higher level of unemployment than on the previous occasion because we have attempted to spend our way out of recession and because of recurrent bouts of inflation. It is only by applying ourselves to the conquest of inflation—the subject of the original question—that we shall be able to deal with unemployment.

Does my right hon. and learned Friend agree that one of the best ways to achieve a reduction in the rate of inflation is to reduce direct taxation, which would reduce the working man's expectation of pay increases? Would that not also lead to production, which is different from productivity, and perhaps change the economic climate of Britain within 24 months?

My hon. Friend has listed several of the solid reasons in favour of reducing direct taxation. He must remember that, desirable as that objective is, it should not be achieved at the expense of greater borrowing, which would itself involve higher interest rates and, therefore, greater inflation. The two objectives must be balanced against each other.

Does the right hon. and learned Gentleman accept the view that Mr. Frank Cassell of the Treasury put to the Select Committee last week—namely, that the rate of inflation could be over 26 per cent. if the Government had not permitted an increase in the value of the pound, which is now strangling British industry and producing excessive unemployment? By how much does he expect the rate of inflation to rise as a result of the fall in the value of the pound if he is successful in his other objective of reducing interest rates?

The right hon. Gentleman has attempted to condense a series of economic propositions into a short sentence. Our objective remains that of securing the reduction of inflation. We can resume discussion of the wider topics in next week's debate.

Does my right hon. and learned Friend understand the fear in manufacturing industry that is bearing the brunt of the Government's attack on inflation through high interest rates and that not enough has been done to control public expenditure and public borrowing? Will he comment on that?

I well understand the extent to which business, small and large, is concerned about the continuation of high interest rates. That is why our objective has been so firmly concentrated on the reduction of public borrowing and public spending. I am grateful to have my hon. Friend's support for that policy.

asked the Chancellor of the Exchequor when further talks will take place in the International Monetary Fund on the creation of a substitution account.

Possibly at the next meeting of the interim committee to be held in Washington on 28 September.

Is the Chancellor aware that reform of the international monetary system was one of the main recommendations of the Brandt commission? What proposals are the Government to put forward for making more acceptable as a reserve unit the special drawing rights?

I appreciate that that was one of the matters contained in the Brandt commission's report. It was discussed at the summit meeting at Venice. We shall be returning to the question of the substitution account and the wider issues at the meeting of the fund in September.

Does my right hon. and learned Friend accept that an alternative to the IMF substitution account in helping to recycle OPEC surpluses is the greater use of debt instruments, the repayment terms of which are related to the price of certain commodities so that the risk to the lender is related to commodities and not only currencies? Therefore, the risk to the borrowing country, which may be a less developed country with only one commodity as its product, is that much reduced.

That is one of the methods that could be studied to deal with the problem that my hon. Friend has in mind. It is right to acknowledge the scale of the difficulties that arise for the less developed countries as a result of the large increase in oil prices last year and the consequent redistribution of funds throughout the world.

Has the right hon. and learned Gentleman seen the recent suggestions made about commodity bonds and oil bonds, which follow on from the question of the hon. Member for North-wich (Mr. Goodlad)? Will he ensure that these suggestions, which are valuable and imaginative, are pursued seriously at the appropriate international level?

I shall ensure that the proposals are studied.

asked the Chancellor of the Exchequer if he will make a statement on his latest assessment of the effect of dismantling exchange controls.

Capital outflows since the dismantling of exchange controls seem to have been running at about £ 1 billion a quarter, for the greater part representing repayment of foreign currency debt by United Kingdom companies. Overseas purchases of sterling assets over the same period have more than offset these outflows.

To use the Chancellor's words and to telescope a series of economic propositions into a single sentence, is it not none the less true that it would be more comfortable to make moves towards a less strong pound if there were a fallback of some sort of exchange control machinery? Given the reply to my hon. Friend the Member for Liverpool, Scotland Exchange (Mr. Parry), do we take it that the 1964 and 1977 machinery is adequate to bring back exchange controls should outside events unwelcome to the Government make that practicable and necessary?

I should require notice of the latter part of the hon. Gentleman's question.

Why?

It will be asked in good faith and answered in good faith. The residual law is kept in being on account of European Community obligations. I do not believe that it is to the advantage of the economy to try to proceed towards a situation in which either the inflow or outflow of capital is more restricted. I believe that we should move to a regime that seeks greater liberalisation.

Does my right hon. Friend accept that those of us who bear the responsibility of trying to create employment and who are doing so take great pleasure in the fact that we have been set free from the shackles of exchange controls and enabled to create employment?

I take account of my hon. Friend's remark. Although this is a fairly esoteric subject, it sharply divides in the starkest philosophic terms the differences between the two sides of the House.

Is the Minister aware that the motor car manufacturing industry is in great difficulties? Is he also aware that at the same time almost all foreign car manufacturers are advertising their cars for sale on 5 per cent. loans, a rate that is a third of the going rate in Britain? Will he examine the terms of this financing to ascertain the extent of the manoeuvring and manipulation of exchange controls that is enabling foreign firms to sell their cars in Britain at the expense of British manufacturers and to manoeuvre interest rates so that they can advertise loans costing only 5 per cent?

I shall have that matter investigated. I am not immediately certain that there is any Government responsibility.

asked the Chancellor of the Exchequer what are the latest figures for the tax and price index.

The tax and price index rose by 17.4 per cent. over the 12 months up to June 1980.

In view of the fact that there have been over 9,000 price increases this year, that the Government have doubled the rate of inflation, that they have introduced a new index that gives a better impression than the RPI, and that it might be higher than the RPI in August because VAT is coming out of the RPI, will the hon. and learned Gentleman consider introducing a new index—a tax, prices and unemployment index?

I suspect that the two indexes are enough.

When will the rate of price inflation fall to the level at which it stood when the Government took office?

It would be a rash person who made such a prediction with utter confidence. As my right hon. and learned Friend has said, we hope that it will fall to 16½ per cent. by the autumn.

asked the Chancellor of the Exchequer what further discussions have taken place with European finance ministers concerning the total cost to the United Kingdom of European Economic Community membership.

The Finance Council last held an extended discussion of the overall economic effects of Community membership in October 1979. The subject is, moreover, highly relevant to the longer-term review provided for in the agreement of 30 May.

When my right hon. and learned Friend next meets the Finance Ministers in Europe, will he draw their attention to the fact that food and feed stuffs, imported last year under the common agricultural policy, at common agricultural prices, gave us a bill of some £627 million beyond and above the price that we would have to pay if we had bought the same goods on the world market? If we had bought our stuff on the world market, and not under the CAP, it would have made no difference to the world's supply and demand situation, and we could have made a saving of £627 million. This constitutes a real increase to the budget deficit. Will he bring this fact to the attention of the Finance Ministers and ensure that they take good account of that in any future financial calculations?

Without doubting the figures that my hon. Friend has quoted, I accept the extent to which the common agricultural policy and other aspects inflict significant non-budgetary losses on the commodities that he mentioned. We drew that to the attention of Community Finance Ministers during negotiations, which were directed in the first instance at the budgetary problem. We shall certainly draw that point to their attention during the next stage of our discussions on the structure of the budget.

What is the Treasury's current estimate of the total cost of Britain's membership of the EEC?

It is not possible to produce a total cost. It must be remembered that there are factors on both sides of the account. For example, there has been a substantial increase in our exports to Europe and those exports have increased at a faster rate than our exports to other overseas markets. I do not wish to mislead the House or the hon. Gentleman. When we reach the next stage of the negotiations on the structure of the budget—provided for in the agreement of 30 May—all those matters should be, and will be, taken into account.

Will my right hon. and learned Friend explain the principles that will apply to reforming the EEC budget?

The main principle is to ensure that it operates fairly for all member States and provides a stable roundation for the long-term financing of the Community.

When the Chancellor of the Exchequer deals with" all those matters", will he include the cost of the increased unemployment that has resulted from our membership of the EEC? Will he estimate the additional cost of unemployment pay to fishermen, both now and in the future?

I know that the hon. Gentleman if often prepared to attribute many misfortunes to our membership of the Community. However, it would be wrong to assume that our membership has had an adverse effect on employment in Britain. Our exports to the Community have been increasing at a faster rate than our exports to other parts of the world. That should be borne in mind.

In calculating the total cost-benefit balance of our membership of the EEC, will my right hon. and learned Friend bear in mind that Europe is this country's largest and fastest growing market, and that we have no interest in isolating ourselves from our most important customers?

I am grateful to my hon. Friend, as he has emphasised the point that I have been trying to make. I repeat that last year our exports to the Community increased by 30 per cent., while our exports to the rest of the world increased by only 8 per cent. It is important to remember the significance of our trading links with the Community.

Is it not true that our imports from the EEC have been growing at a more rapid rate, and that we have a deficit of between £2·5 billion and £3 billion? Does he not accept that the Venice charade allowed us to have some of our own money back, with the EEC's permission? Does not that mean that there has been a shift away from the United Kingdom Parliament, in relation to the right to raise taxes and to decide on expenditure? Is it not true that the EEC Commission will now decide how the money is to be spent?

As regards the significant point that the hon. Gentleman has raised, the deficit on visible trade increased in money terms, but in real terms there has been a small net reduction in our deficit with the Community. I am not sure how the hon. Gentleman has managed to confuse what took place in Venice with what took place within the Community. There is no connection between the two.

asked the Chancellor of the Exchequer if he is satisfied that no further action is required to combat tax evasion.

No, Sir. That would be too complacent. but the Board of Inland Revenue and the Board of Customs and Excise are constantly improving their techniques to combat tax evasion, and that is reflected in the results achieved.

If my hon. and learned Friend is as concerned as I am about the substantial loss of revenue that may result from tax evasion, and if he bears in mind the fact that small business men are already subjected to random VAT tests and that suspected social security scroungers may be visited by social security inspectors, should not the Treasury appoint inspectors to carry out random tests of those suspected of avoiding income tax? That would be in the interests of the taxpayer.

My hon. Friend will be aware that a new special office has been opened in Sheffield, and that the special office in London has been strengthened. In-depth checks are conducted on income tax returns.

In view of the growing and justified sense of unfairness at the failure to collect income tax effectively—despite uneven pressure on certain taxpayers—how much longer will Treasury Ministers claim that PAYE has an advantage because it does not require an income tax return each year from millions of taxpayers?

If the hon. Gentleman is suggesting that we should change to a system of self-assessment, he should bear in mind the considerable cost imposed on taxpayers in the United States of America.

Will my hon. and learned Friend speculate upon whether his Department is satisfied with the operation of section 32 of the Inland Revenue Regulation Act 1890? How does he ensure that evidence from informers is reliable? Is he satisfied with the operation of the Act?

Neither I nor any other Treasury Minister is concerned with the information given by informers. As the House will know, and as I have made clear in a written answer today, the conduct of individual cases is exclusively a matter for the Inland Revenue. As my hon. Friend will know, the amounts paid to informers are very small. Whether the evidence is valid and trustworthy is exclusively a matter for the Inland Revenue to decide in the first instance.

Are not the Government covering up for scroungers at the top, and for those who back the Tory Party? Does not that typify the fact that this Government are a class Government, who are unwilling to take any action against those who take away the wealth that rightly belongs to the Exchequer? Why do not the Government do something? Is not it a fact that the Government are willing to attack working class people and those on social security benefit but that they are not willing to deal with their own kind? The country will judge the Government in due course.

The hon. Gentleman has completely misunderstood the position. The Inland Revenue is charged with the duty of collecting tax and of initiating proceedings whenever it thinks it is justified. No Treasury Minister is to the slightest degree concerned with such operations.

asked the Chancellor of the Exchequer what estimate he makes of the gross cost to the Exchequer of unemployment in the United Kingdom in (a) 1979, and (b) 1980 in terms of national insurance contributions and direct and indirect tax forgone, and social security and other benefits paid out.

The cost of the payment of unemployment and supplementary benefits to unemployed persons in 1979–80 was £1,400 million. It is not possible to make a meaningful estimate of the additional information sought in relation to tax and social security benefits.

Is the Chief Secretary aware that his right hon. Friend the Minister of Agriculture, Fisheries and Food has made a meaningful estimate of those other costs? Is he not aware that he put that cost at £7,000 million, or three-quarters of the public sector borrowing requirement? Given that unemployment now costs three-quarters of the PSBR, and that the cost of maintaining people in work by means of sensible support schemes is less than the cost of throwing them out of work, is not the Chief Secretary aware that one can draw no other conclusion but that the Government are wilfully and unnecessarily forcing people out of work?

No text exists indicating the figure of £7,000 million. That figure has been attributed to my right hon. Friend the Minister of Agriculture by newspaper cuttings alone. It would not be appropriate for the House to proceed on the basis of newspaper cuttings. Our determination is to contest unemployment. To secure a victory over unemployment there is a prerequisite of a victory over inflation.

Given that the Government argue that the level of unemployment is not their fault but that of pay settlements, is the Chief Secretary prepared to predict that if pay settlements in the next round are about 10 per cent. or lower unemployment will not reach 2 million and, indeed will fall next year?

The long and hallowed tradition in the Treasury is that unemployment forecasts are never made. That tradition was followed religiously by the right hon. Member for Leeds, East (Mr. Healey). I intend to follow that tradition.

Am I right in assuming that the right hon. Gentleman occasionally meets the Minister of Agriculture, Fisheries and Food socially, if not in the Cabinet room? Would he care to ask the Minister to confirm the report that he gave an estimate of £7,000 million as the cost—if I might correct my hon. Friend the Member for Blackburn (Mr. Straw)—not of the current level of unemployment which is 1·9 million, but of 1½ million unemployed? Will the right hon. Gentleman have a word with the Minister and find out what he actually said and say whether he agrees with it?

Since I do not believe in trial by newspaper cutting I would not dream of doing that.

asked the Chancellor of the Exchequer what proposals are being considered within the EEC to require farmhouse cider of a strength above 8·5 per cent. to be treated for revenue purposes in the same way as table wine.

Proposals were put forward by the Commission last year which if accepted would result in cider of a strength above 6 per cent. being subjected to the same duty as table wine. The Commission has, however, made clear that it is prepared to agree to amending this limit to 8·5 per cent. This would represent little difference in practice from the present borderline of 8·7 per cent. between the cider duty and the made-wine duty.

Is my hon. and learned Friend aware that in Devonshire the proposal would result in scrumpy costing 75p a pint? Furthermore, is he aware that it would result in the industry being put flat on its back? Does he agree that this, like many matters related to the Community, is intended in due course to bring the tax level on wine down to that of cider rather than vice versa? May we have an assurance that we shall not see the 75p pint in our lifetime?

It is not for me to speculate on the effects of scrumpy on my hon. Friend's constituents. I reassure him and the House that the Government and the Commission are aware of the impact of increased duties on the cider industry, which is a small industry featuring particularly in the economies of my hon. Friend's county and Hereford.

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

asked the Chancellor of the Exchequer what is the current rate of inflation; and what it was in 1979 and 1978 at this time of year.

The retail prices index rose by 21 per cent in the 12 months up to June 1980. In the comparable periods up to June 1978 and June 1979, the index rose by 7·4 per cent and 11·4 per cent respectively.

Since we have one of the lowest wage economies in Western Europe, why does the Chancellor blame so-called high wages for the high rate of inflation which he has created? When he said in his television broadcast last week that we are paying ourselves too much for producing too little, was he referring to himself since he will soon be earning £30,000 a year for producing nothing but high inflation and record unemployment?

I wish the problems about which the hon. Gentleman is obviously anxious were capable of being solved by abuse of that kind. He must note that even from the figures that I have given the rate of inflation has been increasing for the last two years. The downturn this month is the first step in the right direction. The problem about our economy and the comparison between standards of living is that even in the last two years pay rose 10 times faster than productivity. That is the reason for the difference in our living standards and those in the rest of Western Europe.

Will the Chancellor of the Exchequer admit that his Government's policies more than doubled the rate of inflation that existed when the Labour Government left office? When will he admit that the Government's policies are an utter failure and that they are so doctrinaire as to be almost unbelievable? Does he accept that there is further unemployment in the pipeline and that the situation has run away with the Government, who have no idea how to handle this dreadful situation?

Far be it from me to enter a competition in doctrinairism with the hon. Gentleman.

The Chancellor would win.

I remind the House that the rate of inflation when we came to office—the rate at which prices had been rising in the last six months of the Labour Government—was substantial—14 per cent.—and rising.