asked the Chancellor of the Exchequer if he will zero-rate ambulances and similar vehicles purchased by voluntary organisations for the transport of elderly and disabled people, in view of the large sums which now have to be raised by voluntary effort to pay the value added tax; and if he will make a statement.

I regret that I cannot anticipate the Budget Statement of my right hon. and learned Friend the Chancellor.

Will my hon. and learned Friend agree that it does not seem to make sense to all those engaged in voluntary organisations and charities that they should be asked by the Government to take on extra responsibilities during the recession when, at the same time, they face severe extra VAT burdens as a result of the increase in VAT? Will my hon. and learned Friend, in the approach to the Budget, bear in mind that ambulances are specialist vehicles and should not be subject to VAT?

I take the general point that my hon. Friend makes. I shall look forward to talking to him and to the delegation that I know he is to bring to see me to discuss these subjects. He will appreciate that there is already a wide range of reliefs for medical requirements. I need only instance invalid chairs, wheelchairs, iron lungs, white sticks, artificial limbs and kidney machines. It is important to preserve a wide base for VAT.

Is the Minister aware that, in my correspondence with the Treasury, I have always found it fairly sympathetic about ambulances but always pedantic and unsympathetic about other vehicles used as ambulances for disabled people. Will he look at the regulations again with a view to widening the criteria?

I am sorry that the right hon. Gentleman, whose deep interest in these matters is well known to the House, should have found the Treasury pedantic. He will appreciate that special reliefs and the frontiers of a tax like VAT pose definition problems of the kind that were so admirably exploited by the late Sir Gerald Nabarro. One therefore proceeds with caution in this area. I take note of what the right hon. Gentleman says. I shall look again at the problem.

Will my hon. and learned Friend take account of the fact that charities feel that they are working with one hand tied behind their backs owing to VAT when they are assisting the elderly, the disabled and other vulnerable groups? Will he at least give serious consideration to putting them on an equal footing with local authorities when they are providing services similar to those provided by local authorities?

I take note of what my hon. Friend says. His deep knowledge of these matters is well known to the House. He will recognise, however, that local authorities provide a much wider range of services than those he instances. If we were led into the field of educational charities, neither he nor I would probably carry the House. I take note of what he says, but I cannot anticipate what my right hon. and learned Friend may decide.

Is the Minister saying that one of the reasons why he is not able to give any indication of support for these voluntary organisations is that the Government are spending too much money keeping 2·5 million people out of work? Or is the reason that they have not any muscle?

I am sure that the hon. Gentleman who, behind his rough exterior, conceals a heart of, if not pure gold, at least pure coal, will recognise that in the last Finance Bill a bigger package of reliefs for charitable giving was devised by my right hon. and learned Friend than has ever previously been encountered by the House.

asked the Chancellor of the Exchequer what representations he has received from the National Association of Widows concerning the forthcoming Budget.

I met representatives of the National Association of Widows on 17 February. At that meeting the association said that it welcomed the new widow's bereavement allowance, which we introduced last year, and explained its views on other matters affecting the tax position of widows.

Does my hon. and learned Friend agree that working widows have a strong case for tax relief on part of their pension? Acknowledging that the Government have been good enough to waive tax on war widows' pensions, does my hon. and learned Friend agree that many of the difficulties faced by war widows are exactly the same as those faced by all widows, especially those who work?

I recognise that the point made by my hon. Friend on behalf of that group, for whom the whole House has sympathy, is felt with great force by it. In many cases working widows have a larger income—even though they assert, rightly, that they have considerable responsibilities—than many single women or working wives. I take note of the point that my hon. Friend makes, but once again I cannot anticipate my right hon. and learned Friend's Budget Statement.

asked the Chancellor of the Exchequer what is the cost to the Exchequer of 2,400,000 unemployed, taking into account the loss of revenue from direct and indirect taxation, national insurance contributions and supplementary and other benefits.

I refer the hon. Member to February's economic progress report article. That notes that each increase of 100,000 in the level of unemployment in the private sector costs the Exchequer some £340 million in terms of direct tax forgone and increased benefit payments. If unemployment occurs in the public sector, there could be savings rather than costs.

Is the Minister aware that his misguided efforts to cut public expenditure, because they increase unemployment, are self-defeating? Is he aware that the research done for me by the Library, using the Treasury model and the survey to which he has referred, shows that the current cost of the unemployment queues is about £8½ million? Does he agree that if he were to increase demand in the economy and take steps to see that at the same time that did not slacken imports, it would put the country back to work, increase wealth and cut the public sector borrowing requirement?

I am sure that the hon. Gentleman would not wish to ascribe to the Library the errors that he has made. The article made clear that it is utterly misleading to gross up the total and to arrive at the cost that way. Indeed, the reason is simply that the figure in question is that of a net addition to the total.

Does my right hon. and learned Friend agree that it would make a difference to the question of these resources being used to ease unemployment among young people if 16 to 18-year-olds were taken out of the collective bargaining system and instead paid a standard allowance for whatever they were doing?

It is true that 16 to 18-year-olds are often employed on the same collective bargaining conditions as the rest of the population. That often leads to firms being more reluctant to employ them.

Does the Minister agree that while there may be enormous variations between different individuals who are unemployed, other research—the results of which are available in the Library—shows that the cost to the Exchequer of unemployment for an adult male is £4,500 a year? Is he aware that that does not allow for the enormous administrative costs nor for the recent increases in benefit or national insurance contributions? In view of that, is not the problem now so enormous that Government policy should be changed and earlier retirement for men introduced?

On average, the cost to the Exchequer is £3,500 for every additional unemployed person coming from the private sector. I do not believe that earlier retirement would solve the problem in the way the hon. Gentleman suggests.

Has my right hon. and learned Friend estimated the cost to the Exchequer of each year's reduction in the age of early retirement, and the numbers of people presently unemployed who might gain employment if that were done? If he has not done that, will he do so and perhaps write to me?

I am always happy to enter into correspondence with my hon. Friend. However, I do not have the specific figure available. The cost of reducing the retirement age in the sense of making retirement pensions available at an earlier age would be very considerable. I know that my hon. Friend appreciates that.

After all the obfuscation and stonewalling of recent weeks and months on this interesting question of the cost of unemployment, is the Chief Secretary aware that we were glad to see the article in the economic progress report? Is that not patently an understatement of the true cost? Will the right hon. and learned Gentleman say why, for example, the cost to the Exchequer of the additional one-third who are unemployed for every 100,000 who are registered unemployed, is not added in terms of their failure to be able in future to contribute income tax payments? Is it not also true that indirect tax costs—certaintly those that are attributed to an inability to pay VAT and excise duties—could easily have been included in the figures? If the right hon. and learned Gentleman can produce figures for 100,000 unemployed, why cannot he give reasonable estimates for the total cost of the 2½ million unemployed?

Order. Long questions only cut out other speakers.

I shall give a short reply. The answer to the right hon. Gentleman would appear to be that when there is no estimate he complains, and when a serious article is published setting out the figures, he still complains.

asked the Chancellor of the Exchequer if, in his forthcoming Budget, he will have regard to the need to provide additional financial incentives to enterprise zones in the larger cities.

asked the Chancellor of the Exchequer if, in his forthcoming Budget, he will have regard to the need to provide additional financial incentives to enterprise zones in the larger cities.

My hon. Friends would not expect me to anticipate my right hon. and learned Friend the Chancellor's Budget Statement.

Does my right hon. and learned Friend agree that there is a danger that rate exemptions in those zones could be cancelled out by increases in business rents? In view of the importance of low overheads, particularly for small businesses, will he think carefully about that possibility?

If that were to happen it would have serious consequences. We shall look into that when the enterprise zones become active.

Is the Minister aware that in Liverpool already there is a natural enterprise zone in the shape of about 60 small firms which are clustered together in man-made caves in the south docks, where they are paying £5 a week rent? Is my right hon. and learned Friend further aware that that will all be destroyed by the urban development corporation's grandiose plans? Will he ensure that there will be special places in the enterprise zone for one-man firms and starter firms at low rents so that those firms will be transferred and others can be started without being driven out of business permanently?

I shall look into the point raised by my hon. Friend. In Liverpool, there has been a delay in the setting up of the enterprise zone, caused by the difficulty in reaching agreement with the Liverpool city council, which so far has not been able to agree to the sort of planning regime to which some of the other councils involved with enterprise zones have agreed.

Is the Minister aware that a prime industrial development site in the centre of Newcastle—Fenham barracks—has had many firm inquiries since the announcement about the enterprise zones? Those inquiries have now literally dried up, awaiting the introduction of the enterprise zone. Is it not a case of simply exporting unemployment from one area to another?

I do not think that that is so. During the build-up period for the enterprise zones, people will be waiting and anxious to participate, but the degree of interest in the enterprise zones is very considerable. It is most noticeable that local authorities of political complexions quite different from that of the Conservative Party have raced into the act of trying of get enterprise zones in their areas.

Will my right hon. and learned Friend and the Chancellor of the Exchequer, when giving consideration to enterprise zones, remember Scotland, and in particular the city of Dundee, where I am sure a scheme of this sort would be very welcome?

I shall take note of my hon. Friend's point.

asked the Chancellor of the Exchequer in what circumstances it is the practice of the Inland Revenue to treat the costs of transport of persons employed in North Sea oil rigs as allowable businesses expenses.

Where an employer meets the costs of transporting employees to their place of work, this is normally a deductible expense for tax purposes.

But where the person travelling to work pays the cost himself, and where such a person is working on an oil rig, perhaps requiring a journey of 700 or 800 miles—from, say, London to Aberdeen where he might have to spend the night, and then travel a further 200 miles to get to a North Sea oil rig the following day—does my hon. and learned Friend think that it is fair that such a person should be treated for tax purposes as though he were an ordinary commuter? Will my hon. and learned Friend have another look at this?

I recognise that it is difficult to assimilate the case of an oil rig worker to that of an ordinary commuter, and I undertake to look at the matter again. My hon. Friend will be aware of the general principle that if an employee is reimbursed the cost of travel to work, that is generally taxable in his hands. But I recognise that, perhaps, oil rig workers present special difficulties, although the House will also recognise that the Revenue on the whole does not tax oil rig workers on the cost of travelling from Aberdeen or other points on the mainland to the rig. That cost is normally provided by the employer.

Will the Minister give us some indication of the progress being made in relation to the report by the Public Accounts Committee on tax evasion by people employed on North Sea oil rigs?

Yes, we are aware of the problem. There is no very simple solution but we are pressing employers hard in this area to take account of their responsibility, particularly for PAYE.

asked the Chancellor of the Exchequer if he will consider taking immediate steps to reduce the high interest rates.

asked the Chancellor of the Exchequer if he will make a statement on the present level of interest rates.

asked the Chancellor of the Exchequer if he will now take steps to lower the level of minimum lending rate.

(Sir Geoffrey Howe): I well understand the widespread desire, particularly in industry, to see interest rates come down. Since last summer, minimum lending rate has been reduced by 3 per cent. The Government will keep the level if interest rates under review, against the background of other developments in the economy.

When the Chancellor of the Exchequer thinks about the interest rate, does he consider that the experiment for two years with monetarism has been worth while, in the light of the terrible cost in lost jobs, industrial decline and all the other horrors that we have seen in these two years? When he makes a sharp cut in interest rates in the next few days, will he also admit the total bankruptcy of the policies of the last two years?

I do not understand the reference by the hon. Member to the experiment in monetarism for the last two years, when monetary policy played a key part in the policies of the Labour Government and was constantly emphasised by the then Chancellor of the Exchequer.

In view of the heavy burden of interest repayments on industry, the crippling difficulties imposed upon home buyers, and the effects on the level of sterling, does not the Chancellor think that it is an absolute disgrace that he has stood by and done nothing while British industry has been increasingly destroyed and damaged, and more and more hardship forced upon the people of our country as a direct result of his policy?

The hon. Member recites a number of the many reasons why lower interest rates are desirable. There are other reasons to be set alongside them as to why interest rates have to be maintained at a responsible level. As I have already pointed out, the rate has been cut by 3 per cent, since last summer.

Will my right hon. and learned Friend confirm that MLR is now clearly in excess of the real, underlying rate of inflation, and that if he takes into account, as I am sure he will, all the underlying economic factors, they must point to an early and significant reduction?

It is true, as my hon. Friend points out, that measured against the substantial fall in inflation in recent months, interest rates have become more positive. That is one of the factors that we have to bear in mind in considering future changes in minimum lending rate. As inflation has fallen, we have cut minimum lending rate, as I pointed out, by 3 per cent, since last summer.

Minimum lending rate is still at 14 per cent. If the rate of inflation is running at somewhere below 10 per cent., that is a vast discrepancy. Surely the Chancellor understands that for every 1 per cent, on MLR, British industry has to pay £350 million a year extra in terms of interest payments. With results such as that declared by ICI today—when even that firm has been running at a loss in the last six months—surely it is time that he acted. Is not the real reason why the Chancellor is not acting now the fact that he is waiting until the Budget, so as to have something pleasant to say among all the disasters that he will be announcing?

I am grateful to the right hon. Gentleman for his tribute to the very substantial reduction in inflation. He puts the estimated inflation rate at substantially below the current year-on-year rate. As I have pointed out, that is one of the factors which have to be taken into account.

Will my right hon. and learned Friend recognise that the totally speculative and imaginative article in The Observer last Sunday was read with a lot of pleasure by many of us—particularly the expectation that interest rates are to be cut by 3 per cent.—and that the pleasure will be even greater if the rate can be brought down even sooner?

I would not wish to diminish the pleasure that my hon. Friend derives from reading The Observer or any other newspaper.

If the Chancellor accepts the case for a cut in interest rates, does he think that it is due to his economic success, or is it due to economic failure?

It has been clear from the outset that the reduction in the rate of inflation, along with the reduction in interest rates, is among the objectives that the Government are pursuing.

Does my right hon. and learned Friend accept that the move towards monetary based control will inevitably bring with it increased volatility in interest rates? Is he happy to lose control of interest rates?

That is one of the factors to be taken into account in considering the principle of moving to monetary based control, and the speed of such movement. It is undoubtedly the fact that interest rates which are more closely related to the market have something to be said for them.

asked the Chancellor of the Exchequer what is his latest estimate of the public sector borrowing requirement in the current financial year.

I ask my hon. Friend to await the Budget Statement of my right hon. and learned Friend the Chancellor.

After the Government's experience of wrestling with the PSBR over the last couple of years, is my right hon. and learned Friend now rather more sympathetic to the argument, first, that we should remove the capital investment programme of the nationalised industries from the PSBR calculation, and, secondly, that we should follow the Americans' example and take some account of the level of economic activity in determining the level of the Government's borrowing requirements?

On the second point, my right hon. and learned Friend has indicated that that is a relevant consideration. On the first point, I would not agree that it is realistic to remove nationalised industry investment from the public sector borrowing requirement, because the cost of the nationalised industries' investment is something that is borne by the public sector. If money has to be borrowed in order to do that, it is realistically reflected in the PSBR.

Should not the effect of nationalised industry borrowing have a different impact from that of private industry borrowing? Surely the total effect on the PSBR must be different in the two cases.

If the private sector borrows money, it has to finance it. If a nationalised industry has to borrow money, as it is within the public sector it is not in the least surprising that the borrowing should come from the public sector borrowing requirement.

Would my right hon. and learned Friend agree that the public sector borrowing requirement is intimately related to the rate of increase of monetary growth? In that connection, does he agree with the Financial Secretary, who said at page 11 of the report of his speech in Zurich that sterling M3 was and remains "the most useful guide" to the rate of monetary growth?

When the statement made by my right hon. Friend the Financial Secretary is read in the context of his speech as a whole it will stand up to any scrutiny.

Does the right hon. Gentleman realise that in the last public expenditure White Paper the amount of lending to nationalised industries was expected to reduce by £1,200 million in the present financial year, when we all know that it will increase, rather than reduce, by £1,200 million. Will he be more realistic in the next public expenditure White Paper, and understand that at a time of severe economic depression it makes good sense to lend more money to nationalised industries for investment purposes, because by so doing one can be a little more relaxed about the public expenditure limits?

I am sure that the right hon. Gentleman will find that the next public expenditure White Paper will be entirely realistic.

asked the Chancellor of the Exchequer what would be the cost to the Exchequer of every 1 per cent, increase in the personal allowances against income tax.

About £140 million in a full year at 1980–81 income levels.

Is the Minister aware of the widespread concern that exists about the reports that the Government may be considering increasing personal allowances by less than the inflation rate, and that that hits those who are on low incomes and who should be kept outside the tax net? To pull them inside the net is counterproductive and something that the Government should avoid.

I note what the hon. Gentleman says. He will appreciate that I cannot anticipate the Budget Statement. He will recall that the first Budget of this Administration put up personal allowances by double the rate of inflation that we inherited.

Will my hon. and learned Friend accept that in that first Budget it was not possible to increase child benefit; because child benefit had overtaken child tax allowances? What the hon. Gentleman says about tax allowances and the lower paid does not apply to the lower paid with children. It is far more effective to raise child benefit in real terms, even if it means shaving a bit off personal tax allowances.

I take note of what my hon. Friend says, but he will realise that child benefits are primarily a matter for my right hon. Friend the Secretary of State for Social Services.

Does the Minister recall the cry of despair of his right hon. and learned Friend last November that he was boxed in by election commitments? Has he forgotten that one of those commitments was that raising tax thresholds would take the low-paid out of the tax net? Will he, therefore, now have the decency to admit that if he now lowers the threshold by failing to index the levels, he will increase the tax on the low-paid most in order to pay for the handouts that have already been received by the extravagantly paid?

I am not aware of any handouts to the extravagantly paid that were not more than matched by decreases in the basic rate and increases in personal allowances in 1979.

asked the Chancellor of the Exchequer by how much the annual cost of servicing the national debt in 1980–81 has changed as a percentage of the cost in 1978–79.

There has been an increase of about 55 per cent, in money terms on the 1978–79 outturn of £6,458 million. In real terms, the increase is 12 per cent.

Does the Chief Secretary realise that that large and rapid increase in the burden of servicing the national debt puts a wholly unjustified burden on the economy, and that generations well into the next century will be paying the cost of this perverse policy on interest rates? What will he do to reverse it?

My right hon. and learned Friend answered questions about interest rates. On the subject of the national debt, it is of course our intention gradually to reduce the size of the borrowing requirement, and that will have the effect of containing the growth in the total national debt.

Does my right hon. and learned Friend recognise that the current cost of servicing the national debt could be significantly reduced if we continued the policy that we have already initiated of issuing Government debt instruments the capital value of which is index linked?

I appreciate that my hon. Friend has long supported that proposal.

While the Chief Secretary is being re-educated in the facts of economic life by his hon. Friend the Member for Bath (Mr. Patten) and others, will he bear in mind that scaremongering about the size of the public sector debt, part of the Conservative attack on the Welfare State, has not only made financing of the public sector more difficult, but bears little relationship to the facts, and that, as a percentage of gross domestic product, this year's public sector borrowing requirement will still be at 6 per cent, historically? I accept that that is not as high as in previous years. Will he bear in mind, too, that the real value of the national debt, far from increasing, has declined by one-third since 1966.

I do not entirely accept that suggestion. The cost of servicing the national debt has risen considerably. There is a burden, and I do not think that any useful purpose is served by seeking to denounce it.

Does not my right hon. and learned Friend agree that, up to 1974, the national debt had been in operation for about 300 years, and that the last Labour Government doubled it in five years?

It is right to say that between 1973–74 and 1978–79, the cost of servicing the national debt rose in real terms by 30·5 per cent.

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

I have received a large number of representations about the Budget from various individuals and organisations.

In view of the appalling unemployment figures that were announced on Tuesday, will the Chancellor take steps to reflate the economy to provide more jobs and to regenerate industry? In view of the fact that his Government's monetarist policies have turned vast areas of the country into de-industrialised deserts, does he now realise that in the past 21 months he has caused more destruction to British industry than Chancellor Hitler managed in the whole of the Second World War?

The intemperance of the hon. Gentleman's point is matched only by the intemperance of his example. His first question relates to the next question that I shall be answering. On the main point, unemployment has been affected more by pay increases, pay settlements and rising unit labour costs than by anything else.

If my right hon. and learned Friend is looking for further ways in which to make cuts, will he follow the example of the Reagan Government and look hard at overseas aid?

Clearly, I shall scrutinise the example and the experience of the Reagan Administration—both the proposals and their outcome.

As we read reports in the press almost every day of what the Budget is to contain, is there really any need to have a Budget speech?

I should not wish to deprive the right hon. Gentleman of the exhilarating experience of listening to that address.

Will my right hon. and learned Friend say whether he has received a lot of representations from smaller businesses? If so, do they include recommendations that interest rates should be reduced, that the Government should introduce an energy package, and that the value of the pound is very deleterious to the potential for our exports?

I have received a number of representations for, from and on behalf of small businesses. As I demonstrated in my Budget last year, we attach considerable importance to the part that can be played by small businesses. I am sure that the representations that I received have covered all that my hon. Friend said. Let me remind him, however, that the strength of the pound is one reason for the reduction in inflation.

asked the Chancellor of the Exchequer if he will now undertake a significant reflation of the economy.

No. To do so would undermine the substantial progress made in reducing inflation and achieve little or no lasting stimulus to output.

Does the right hon. and learned Gentleman believe that either the cut in interest rates, which he appears to be planning in the Budget, or the end of de-stocking, which is not yet in sight, can produce a significant fall in unemployment? If not, and if he refuses to reflate, what other measures consistent with the Government's economic strategy could ever produce sufficient demand to stop unemployment from rising to 3 million and, ultimately, to 4 million?

One of the most important reasons for expecting growth to resume and unemployment to fall in due course is the fall in inflation. If within a constant money supply inflation is falling, that in itself is likely to add substantially to activity in the economy. The second factor that makes a useful contribution is the continued maintenance of moderation in pay settlemants which has moved a long way in recent months. That will help to reduce the unit labour costs of British output and increase the chances of sales and therefore increase output and employment.

I recognise the danger of calling for a simplistic type of reflation, but will my right hon. and learned Friend consider in his Budget Statement the merits of drawing a distinction between capital and current spending and the relationship of the former to borrowing?

I am not sure that I wish to embark upon a debate on the difference between simplistic and non-simplistic reflation. I take the force of the point. Undoubtedly, an expansion in capital expenditure and investment is desirable. Most of our policies are directed to that.

Does the Chancellor of the Exchequer admit that the necessary moneys to be given to BSC are at least the beginnings of a U-turn and a partial reflation of the economy? Does he realise that so many people are unemployed that at least the whole of North Sea oil money has to be paid out in unemployment benefit since over £5,000 per year is necessary to keep one person unproductive? When will he reflate the economy to bring people back into work so that they can produce and so that we can compete in the world market?

The hon. Gentleman must understand that money given for the sustenance of nationalised industries, including the BSC, has to be raised either by taxation or by borrowing from the rest of the economy. It cannot, therefore, be regarded as a net gain. He must also understand that any attempt by reflation to generate growth and jobs is more likely to fail than succeed because that way lies higher borrowing, higher interest rates and higher unemployment.

Does my right hon. and learned Friend agree that it would be unwise to have significant reflation now? May we at least have the prospect of a bit more constructive intervention from the Government?

The whole of the Government's fiscal policy and almost all the measures introduced in last year's Budget are good examples of constructive intervention.

When about 90 per cent, of manufacturing industry is working well below capacity, does the Chancellor accept that the economy is deflated? If he accepts that, does he think that the Government have any part to play in stimulating the economy?

The Government's primary role remains the achievement of economic stability and the conquest of inflation. Earlier the right hon. Member was kind enough to pay tribute to our success in that direction. I am glad to have his support for that aspect of our policy.

asked the Chancellor of the Exchequer if he is satisfied that his Budget forecast is on target; and if he will make a statement.

I refer the hon. Member to my statement of 24 November. A further assessment of the expected outturns for 1980–81 will be included in my Budget Statement.

Does the right hon. and learned Gentleman concede that consumer prices have seriously overtaken the tax deductions which he purported to make in his last Budget Statement? Does he agree that all the talk about deflation bringing jobs has proved to be wrong since nearly 2½ million people are unemployed? In his next Budget, will he consider reflating to give the people the justice to which they are entitled?

The hon. Gentleman's question is directed to the accuracy of my Budget forecast. He complains about the level of consumer prices. He would do well to remember that the outturn for price inflation was 1 per cent, better than forecast in my Budget Statement.

Does the fact that ICI has cut its dividend by more tha half today mean that the Budget forecast is on target or not?

My hon. Friend is a robust defender of non-interventionist government. He will be the last person to expect me or any Chancellor of the Exchequer to make predictions about the outturn of particular company results. We are concerned when any company does less well than we hoped. Even in this case it is as well to remember an important factor affecting the balance of the economy—namely, that last year personal disposable income rose by 18 per cent, while the disposable income of industrial and commercial companies fell by nearly 20 per cent. Many of the difficulties faced by companies are the consequence of high pay settlements.

Before the right hon. and learned Gentleman continues to congratulate himself on the reduction in inflation does he recall the Treasury estimate that showed that three to five per centage points of the fall in inflation were due to increasing the exchange rate under the present Government? Will he remember that without that the inflation rate would be much higher? Will he also remember that the price paid for the high exchange rate is the £100 million reduction in the value of ICI and many other companies as a result of his policy?

Is the right hon. Gentleman suggesting that we should be encouraged to see the exchange rates falling indefinitely? He must appreciate that such a movement would itself raise the price of raw materials to companies and businesses of all kinds. There is no such thing as an evenly balanced economic benefit.

asked the Prime Minister what progress is being made in increasing incentives to work for heads of households.

I have been asked to reply.

Does my right hon. Friend agree that increasing child benefit will make a great deal of difference? I am grateful for his answer. Is it not odd that as a country collectively we go for pay claims when, if all are granted, conditions will be made worse for us all and there will be more inflation, more unemployment and greater hardship for people who look after children?

I entirely agree. Comparisons are made between different sectors of the economy facing different problems and one is entitled to say that some people will get more, some will get less and, I regret, some will get nothing at all.

In the light of the right hon. Gentleman's reply, how much longer will the Government tolerate a head of household being worse off earning £85 a week gross than one earning £40 a week gross?

These matters will be carefully considered by the House in the near future.

Does not the experience of most post-war industrial societies confirm that no incentive scheme long survives double-figure inflation? Will my right hon. Friend therefore suggest to his colleagues that reflation is the most dangerous and seductive word in the economics vocabulary? Does he agree that if reflation takes place, there will be little chance of effective incentive schemes ever again appearing in our economy?

I would not like to decide what is the most dangerous word used in contemporary politics. Certainly "reflation" is a dangerous word. But reflation appears to be the Opposition's policy.

asked the Prime Minister when last she met the Confederation of British Industry.

I have been asked to reply. My right hon. Friend last met the Confederation of British Industry at NEDC on 4 February.

Is the right hon. Gentleman aware that at that meeting the CBI called upon the Government to carry out mass sackings in local authorities? Is the right hon. Gentleman further aware that as a result of Government cuts Labour-controlled councils in London and the Midlands have been told to sack 110,000 workers or to impose rate increases which people cannot afford to pay? What does the right hon. Gentleman propose? Does he think it right that local authorities should sack 110,000 workers, or impose rate increases which will result in a reduction in ratepayers' standards of living?

Surely the CBI is saying—and it is a fair point—that industries in various parts of the country are having high rate increases inflicted upon them through the extravagance of many Labour-controlled authorities and that that inevitably leads to difficulties and a loss of jobs.

When the Prime Minister meets the American President, will she raise the question of the unfair level of imports of American knitted goods and texiles occasioned by cheap energy policies in the United States?

My right hon. Friend is aware of those points. She is now at the White House and will shortly be having discussions with the President. It would be wrong for me to comment. My right hon. Friend will report to the House on her return.

asked the Prime Minister if she will list her official engagements for 26 February.

I have been asked to reply.

Will the right hon. Gentleman consider the prevalence of cases of unscrupulous meat traders who have caused the introduction of unfit meat, horsemeat and even in some cases Kangaroo meat, for use in sausages, hamburgers and canned meat products? Does he think that the maximum fine of £100 on conviction by successful prosecution by environmental health officers is in any way adequate?

Answer.

I would not in any way wish to associate myself with the hon. Member's accusations. If they are true, he must substantiate them. As I do not associate myself with them, the rest of his question does not arise.

Can my right hon. Friend tell the House whether approval was sought for the takeover of The Observer? If not, why not?

The right hon. Gentleman has never heard of it.

I understand that Lonrho representatives met Department of Trade officials this morning. I am told that it was made clear at that meeting that the agreement to transfer The Observer is conditional on any necessary Government consents being obtained. On the information we now have, the Government believe that consent will be required. No application for consent to a transfer has yet been received in respect of either Lonrho's acquisition of The Observer or Atlantic Richfield's stake in George Outram. Any question of a reference to the Monopolies and Mergers Commission is therefore premature.

On the question of the purchase of The Observer, does not the right hon. Gentleman think that approaches should have been made to the Government at an earlier date?

Why?

Will the right hon. Gentleman promise to give a report to the House on the matter? Can I ask him a further question on what we regard as a matter of extreme urgency for this country and the world? Will the right hon. Gentleman send an urgent message to the Prime Minister, whether she is in the White House or not, expressing to her the rising concern in this country and elsewhere in Europe about the supply of arms to El Salvador?

On the first point about The Observer, when this matter has been further clarified and when an application is made, my right hon. Friend the Secretary of State will consider these matters and will report to the House.

Surely the right hon. Gentleman can undertake to convey to his right hon. Friend the feeling in the House that has been expressed and that most of us are concerned about freedom, even if some Conservative Members are not. Can the right hon. Gentleman tell us whether the British Government will be supporting the proposal of the West German Government for forms of intervention or mediation which might assist in alleviating this tragedy?

On the right hon. Gentleman's first point, of course I shall make certain that my right hon. Friend the Prime Minister appreciates the concern of the House and what the right hon. Gentleman has said. I would be departing from my sensible previous position if I risked a response to what he said subsequently.

Does my right hon. Friend agree that, whatever may be the shortcomings of the Government of El Salvador, the Cuban Government have been guilty of aggression in Angola and Ethiopia as well as in Nicaragua and now, on fairly good evidence, in El Salvador? Will he therefore, in any communication to my right hon. Friend the Prime Minister, explain that the balance of opinion in the House is in favour of supporting the Americans in this matter?

The points which my right hon. Friend has raised are well known. They are well known to the Prime Minister and they will of course be part of the discussions which she will have with the President.

asked the Prime Minister if she will list her public engagements for 26 February.

I have been asked to reply.

Is the Home Secretary aware of the increasing concern in this country about the activities of racists, Fascists, and Nazi organisations? Is he aware that they are provoking attacks on black and Asian people? Is he also aware that ordinary people are being put on "hit" lists by those organisations, with the result that they are receiving threatening and offensive letters and phone calls? Will he give the House his assurance that his present investigation into those racist organisations will be sufficiently authoritiative and wide-ranging so that in the near future he can come to the House with firm proposals for action?

I am aware of the concern expressed by the hon. Gentleman. I am aware of the troubles and of the evidence of these attacks, which all hon. Members would strongly condemn, no matter where those attacks came from. My investigations will be pursued vigorously and urgently. I add that everyone in the House would wish to condemn—

Everyone?

I hope that it would be everyone. If the hon. Gentleman will wait for what I shall say, he may find that it may not apply to him. I would not be surprised if it did not. However, what I shall say will apply to most other hon. Members. That is that we all condemn extremist actions, from wherever they come. They do not all come from one quarter.

While deputising for the Prime Minister, can my right hon. Friend find time to pay yet another visit to Southend, where an energetic Conservative council is saving its ratepayers £500,000 this year by implementing the first ever privately run municipal cleansing service, as a result of which the council has announced a reduction in its rates?

I well remember my last visit to Southend, which I do not suppose contributed to my hon. Friend's satisfactory election to the House. I hope that it did. If it did, I should like to congratulate him and his council on what they have done. It might be a lesson to some spendthrift Labour local authorities which like spending their ratepayers' money.

Will the right hon. Gentleman convey to his right hon. Friend the grave anxiety over the reported threatened closure of the port of Liverpool? As a deputy to the Prime Minister, will he, as an immediate act of urgency, call a conference of those concerned to see what can be done to alleviate that threat?

I have seen some of the reports. I accept that these are matters of grave concern. Exactly what is happening is a matter for my right hon. Friend the Secretary of State for Transport. I shall make sure that I discuss that with him and I shall report to him the proper anxieties of the hon Gentleman.

Is my right hon. Friend aware of the concern expressed by lovers of our summer game at the attitude of the Guyana Government over the possible selection of Robin Jackman to play for England? Will he accept that there is support on the Government Benches for the England selectors picking whoever they choose in the hope that we will win the Test match?

I am sure that there is widespread agreement in the House that the selectors should pick the best people for the tour. However, there may well be misunderstandings, which I hope current discussions on the spot will clear up. In the hope that the misunderstandings will be cleared up and the tour proceed in the best interests of the game of cricket, I believe that it would be wrong for me to comment.