asked the Chancellor of the Exchequer if he will extend the taxation of recipient declared benefits in kind to those earning less than £8,500 per annum.

No, Sir.

Is the Minister aware that his decision to tax the provision of season tickets hits not only low wage earners but those who use public transport, and is particularly unfair? Is it not time to adopt a more consistent attitude to benefits in kind?

This is a move towards consistency. A small number of people have the benefits of credit cards and season tickets, which are so close to cash that it is anomalous for them not to be chargeable in all cases, regardless of income. They are now to be so charged.

I realise how attractive it is to tax "perks", not least company cars, but will my right hon. Friend consider doing that only when we can make further progress in reducing the standard rate? Otherwise, some of my middle-class constituents will feel aggrieved.

I know my hon. Friend well, and I know the high esteem in which he is held by his constituents. I am sure that he will be able to persuade them not to feel aggrieved. He will also be aware that, contrary to many of the objective arguments that could be made and that were set out in the Inland Revenue's consultative document some time ago, the increase of 20 per cent. in the s cale charges which my right hon. and learned Friend introduced in the Budget—the same as the increase that was introduced in last year's Budget—is, in the circumstances, relatively modest and gradualist.

asked the Chancellor of the Exchequer what assessment he has made of the effects on unemployment of the Budget measures.

The Budget is an essential part of the strategy to combat inflation. This is vital to creating the conditions required for sustainable growth of output and employment.

Is the right hon. and learned Gentleman aware of the rumours that unemployment will reach 3,700,000 by 1983? Will he now state categorically that the Budget will add not even 500,000, never mind 1,200,000, to the present level of unemployment?

Such rumours have nothing to do with the Treasury.

Will my right hon. and learned Friend give an estimate of by how much he thinks final demand will increase during the next 12 months?

I refer my hon. Friend to the estimate given in the Financial Statement and Budget Report. Paragraph 16 gives the figures for gross domestic product and manufacturing output, which I think is the information that he seeks.

Surely the Chief Secretary knows the forward estimates for unemployment as a result of the Budget? The figures must be part of the general information available to the Treasury. What does he expect the increase in unemployent to be over the next year? Will he comment upon the statement reported in the press today that Treasury Ministers believe that Britain has a "natural rate" of unemployment of 5 per cent?

The second issue is referred to in a paper to the Treasury and Civil Service Select Committee which explains the matter fully. It is not the practice to publish unemployment predictions. If the right hon. Gentleman wants to know why, I refer him to an excellent explanation in a letter written by the right hon. Member for Leeds, East (Mr. Healey) to the hon. Member for Wolverhampton, North-East (Mrs. Short) on 11 July 1978.

Does the Chief Secretary agree as a general principle that the rise in unemployment, taking other factors into account, increases rather than decreases the need to stimulate the economy?

That proposition is expressed in too general a form for a general acceptance or rejection of it.

Since the Chancellor of the Exchequer took great credit for reducing the MLR, will the Chief Secretary say what the MLR was in 1979? Does he agree that unemployment has doubled since his party came to power?

Such questions range rather beyond the question on the Order Paper. There is reason to be pleased that the financial situation arising from the Budget measures made it possible to reduce MLR by 2 per cent.

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

asked the Chancellor of the Exchequer what reaction he has received to his recent Budget Statement.

I have received numerous and varied representations on many aspects of the Budget.

Is the Chancellor aware of the almost unanimous opposition and contempt throughout the country for his Budget? Is he aware that no KGB mole who became Chancellor of the Exchequer could have inflicted greater harm on British industry and its employees than the right hon. and learned Gentleman did in his Budget?

I suppose that I must admire the hon. Gentleman's ingenuity.—[Hon. Members "Why?"] There is not much else to admire. The hon. Gentleman certainly cannot claim to speak on behalf of the British people.

Does the Chancellor realise that his Budget has no friends outside the Cabinet and few friends even inside the Cabinet? Since the 20p increase in the price of a gallon of petrol will increase inflation and the cuts in public expenditure will increase unemployment, is not it about time, even at this late date, that the Chancellor considered ditching his disastrous policies which caused a record 1 million increase in the number of unemployed in the last 12 months?

The hon. Gentleman is wholly mistaken if he believes that the increase in unemployment in the last 12 months is attributable to the Government's policies. He might, for example, note that during the same period unemployment in the OECD countries rose by 3 million. It is a general feature. It does no good to proceed on the basis of such assertions. Many people have written to me and my right hon. Friends congratulating the Government on the Budget.

Name one.

They recognise that our policies are likely to bring inflation and unemployment under control.

Is my right hon. and learned Friend aware that independent studies show that there is little difference in the average number of gallons of petrol used by motorists in rural and urban areas? Does not that show that the Budget in no way discriminates against rural motorists?

My hon. Friend is right to draw attention to some studies which show precisely that. One must take account of the slightly higher mileages driven in rural areas and the slightly higher mileage per gallon. The tax measures are part of the fair distribution of the burden of indirect taxation in the Budget.

Is the Chancellor aware of the disappointment caused by yet another Budget which lumps together, in the borrowing requirement, borrowing to finance wealth-creating projects which are urgently needed and borrowing simply to finance consumption?

Only if the hon. Gentleman had not studied the White Paper carefully—I know that he has—could he come to that conclusion. The White Paper sets out clearly, for example, the nationalised industries' investment programmes. They provide for higher investment in the years immediately ahead than in the years just past.

If my right hon. and learned Friend is prepared to examine ways of raising taxation revenue alternative to the petrol tax, will be he take note of a written answer to me yesterday which states that the Government could raise £150 million in taxation by putting VAT on the standard rate of overseas package tour holidays? That would have the simultaneous advantage of helping a home industry. Will he give the suggestion serious consideration?

There are a number of other aspects to that proposal. Any suggestion by my hon. Friend deserves consideration. I make it clear, however, that we stand by the increases on petrol and derv as an essential part of our strategy for reducing the public sector borrowing requirement.

Will the Chancellor of the Exchequer confirm Monday's written answer that, following the Budget, it will take a mere 33p a week in graduated pension to carry a woman pensioner under the age of 65 over the tolerance limits? Will he confirm that he has thereby brought 500,000 pensioners into the tax net for the first time in history? Did he know that when he laid the Budget before the House? If he did, why did he not tell the House? If he did not know, what does he propose to do to relieve low income pension households from the tax burden which he has thrust upon them?

No woman of the age and type that the hon. Gentleman describes and who is receiving the basic pension will be drawn into the tax net because of the long-standing pattern of tolerance applied by the Inland Revenue. The numbers of people that the hon. Gentleman suggests might be drawn into the tax net who are in receipt of additional pensions or other income are nothing like as large as he suggests.

asked the Chancellor of the Exchequer what tax an employed married man, with two children, earning £5,000 per annum will pay after the implementation of his Budget proposals; and how this compares with the position in April 1979.

He will pay £856 income tax, which is £61 per year less than in 1979–80.

Is the Minister aware that the heavy burden of indirect taxation is causing the average working man to question severely whether it is worth being employed, even if he can find a job? Is the Minister aware that the average worker in my constituency believes that the Government's policy is one of equality of misery—misery because he cannot get a job and when he does have a job he is so highly taxed that he cannot spend his money pleasurably?

The hon. Gentleman is making assumptions which have no foundation. I accept that increasing taxation will put burdens on people. My right hon. and learned Friend the Chancellor explained exactly why that was necessary in the context of deciding as a nation to spend money to relieve the pressures of the recession on people such as the young unemployed—for example, by providing the youth opportunities programme. That and the need to finance such schemes is not as ill-understood as the hon. Gentleman pretends.

Does my right hon. and learned Friend accept that many people earning under £5,000 live in the Highlands of Scotland and have no option about public transport? Is he aware that, unlike urban dwellers, they are required to use private cars because they are the only means of moving about in the Highlands?

That is so, as it is in parts of rural Yorkshire. For people who have to rely on motor cars, of course, I accept that the increase in petrol tax is an extra burden. The question is not whether it is an extra burden but whether, in the context of what is necessary for the economy as a whole, it is a reasonable burden to ask people to bear. I suggest that it is.

asked the Chancellor of the Exchequer if he will make a statement on the future of the tax and price index.

The tax and price index has been published monthly by the CSO since August 1979 and there are no plans to change this procedure.

Will the Minister now come clean with the House and tell us the exact effect of the Budget proposals on the index? Since the Government took office, has there not been a massive increase in the taxation burden placed on low income families? Does he accept that this index is a more accurate reflection of the reduction in their standard of living than the retail price index? Does he agree with his right hon. Friend the Financial Secretary that if trade unions are to bargain on the basis of any index it would be more accurate for them and more forthright for the Government to accept that they should bargain on this index rather than the retail price index?

The hon. Gentleman talks about coming clean. Perhaps he will come clean about his failure to read the written answers which give the answer to his supplementary question. Neither the TPI nor the RPI is meant to be a yardstick for pay bargaining. In pay bargaining, it is necessary to consider what can be afforded by the concern with which the bargaining is taking place. That is the answer to the hon. Gentleman's supplementary question.

On 17 August 1979 the Financial Secretary said that neither the TPI nor the RPI should be used for wage bargaining. He said:

"if one wants a general guide to … the total costs facing taxpayers, look at the TPI, not the RPI. It is a much truer guide."

The hon. Gentleman springs to the defence of the TPI now. He might care to explain why, when the TPI was introduced on 17 August 1979, the response of the trade union movement was to denounce it massively as a way to con people. He cannot have it both ways.

asked the Chancellor of the Exchequer if he has any plans to move the United Kingdom on to a monetary base system of controlling the money supply.

The changes announced by my right hon. and learned Friend in his Budget statement are consistent with a gradual move towards monetary base control. Further decisions will be taken in the light of experience.

I am grateful for my right hon. Friend's detailed reply. If the Government are seeking to move Britain to a sound monetary base, why has private industry had to shoulder the major burden of the impact of Government policies to date to subsidise our inefficient industries, especially in the public sector, which are not founded upon a sound monetary base?

I concede that there is much force in what my hon. Friend says. He is clearly drawing the attention of the House, as is proper, to the massive pay increases in the public services as a result of the post-dated cheques signed by the Opposition when they were in Government, which we were obliged to honour. That meant a substantially increased burden in public expenditure. The Clegg settlements involved about £2·5 billion and there were other similar settlements. Inevitably that burden has been borne by the private sector. Fortunately that phase is over. The Clegg commission has been abolished.

Does the Financial Secretary expect his monetary policies to be as successful in the future as they have been in the past two years?

The monetary policies over the past two years have been successful in reducing the rate of inflation. I expect that success to continue.

Does my right hon. Friend agree that the skill of the financial institutions in creating credit has shown over the past two years that the method of managing monetary interest rates is ineffective, which therefore strengthens the case for considering urgently a move to a system of monetary base control?

I can assure my hon. Friend that we are considering this, as I said in my answer to the main question. It is an illusion to suppose that interest rates would cease to be a major instrument in the fashioning of monetary control if we were to move to monetary base control.

Is not it clear that the Government have failed to keep their monetary target and that they are now relying more on PSBR objectives? As the right hon. Gentleman forecast that the PSBR would be £8½ billion and it turned out to be £13½ billion, why does he think that he will be more successful by trading in the money supply totem pole for the PSBR one?

The right hon. Gentleman has never understood that it is not a matter of totem poles in either instance. Monetary control was accepted by the right hon. Member for Leeds, East (Mr. Healey), under whom the right hon. Gentleman served, as being of the first importance, as it is by every responsible finance Minister. The public sector borrowing requirement is not a totem pole. It measures precisely what the Government have to borrow. The Treasury team of which the right hon. Gentleman was a member was not particularly accurate in its forecasts of the PSBR on a number of occasions. That does not mean that it is a matter of no importance, as the right hon. Member for Stepney and Poplar (Mr. Shore) suggested a short while ago.

asked the Chancellor of the Exchequer what is his estimate of the revenue which will come from direct and indirect taxation, respectively, in the year 1981–82.

I estimate that about £46 billion will come from direct taxation and about £54 billion from indirect taxation.

Have those proportions changed over the past two years, and if so, in what way? I accept that the level of taxation must be a matter of judgment for my right hon. and learned Friend the Chancellor of the Exchequer—perhaps it would be prudent if I added "and the Cabinet"—shortly before future Budgets, but is it the policy of Her Majesty's Government that the proportions should change in future?

In spite of the increase in taxes such as petroleum revenue tax and North Sea corporation tax, which are direct taxes, the proportion of direct taxation in the total is 1·6 percentage points lower than in 1978–79. I shall be happy to supply the figures for each of the years for which my hon. Friend would like to have them. That reflects the Government's broad policy.

Will the Minister pursue the fiddlers of the black economy with the same energy, enthusiasm and resources that the Department of Health uses to pursue scroungers in the Welfare State?

Fiddlers should be pursued wherever they come from and in whatever aspect they show themselves.

Does the right hon. and learned Gentleman accept that £3·1 billion of the £3·6 billion increase in taxation stems from indirect taxation, which will hit those on lower incomes much harder than those on higher incomes? Does he accept that they will be hit particularly hard as many of them will be drawn into the tax net for the first time? Does he agree that the Budget hits the lowest paid particularly hard?

I do not think that I can accept the figures in that form or the conclusions drawn from them. The hon. Gentleman will know that an estimate of the impact of indirect taxes is being made by the Treasury for the Select Committee on the Treasury and Civil Service. It would be unwise to jump to the conclusions that the hon. Gentleman has arrived at before that estimate is available.

asked the Chancellor of the Exchequer what is the average cost of value added tax on the average funeral bill.

I regret that precise information is not available, but the hon. Gentleman will I am sure be aware that undertakers' accounts and associated fees are exempt from value added tax.

I thank the Minister for his reply. Does he realise that when the Conservative Government doubled the rate of VAT they added a considerable burden to those who have to meet funeral expenses? The death grant is only £30. When will the Minister review the grant and introduce the realistic sum of £167?

The hon. Gentleman will be aware that the death grant is a matter for my right hon. Friend the Secretary of State for Social Services.

Is the right hon. Gentleman aware that the supplementary question of my hon. Friend the Member for Manchester, Blackley (Mr. Eastham) related to value added tax? What portion of VAT could be lifted from the shoulders of those in the lower income groups, including pensioners?

I do not understand how the hon. Gentleman's supplementary question arises directly from the main question. As I said to the hon. Member for Manchester, Blackley (Mr. Eastham), there is already considerable relief in respect of undertakers' accounts and associated fees.

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

MLR has been reduced by 5 per cent. since last summer. I have nothing further to add to my Budget Statement.

Does the Chancellor of the Exchequer realise that, despite those reductions, the present levels of interest rates still constitute a major deterrent to investment and one of the causes of overvaluation of sterling, which is a serious, formidable obstacle to all exporters? Does he not realise that many experts consider that interest rates could have come down by another 2 per cent., and that until steps are taken to bring that about no recovery will be possible? When will he take action?

The hon. Member should acknowledge the significance of the substantial reduction that has already been achieved. He should beware of believing that there is a reliable and certain relationship between interest and exchange rates. Interest rates in this country have come down by five points in the last nine months. They are now below the average for the OECD, and below the figures for the United States and Germany.

The 2 per cent. reduction in the Budget was welcome, but will my right hon. and learned Friend confirm that he now links minimum lending rate with all prevailing economic factors, and not solely with the money supply? If that is so, further reductions should follow the deflationary Budget.

In my Budget speech I described at length the factors that should be taken into account in relation to interest rates. The Budget was designed to create a setting in which the interest rate reduction announced on that date could take place. I hope that all hon. Members will support the policy of ensuring that borrowing is kept to a reasonable size to ensure that further progress is made in that direction.

Despite the reduction in interest rates, is it not true that investment in manufacturing industry fell by 5 per cent. last year and that the latest forecasts are that it will fall by up to a further 15 per cent. this year? As unemployment has risen by 1 million in 12 months, and as manufacturing production has fallen by 15 per cent., is it not time that, instead of claiming credit for bringing prices down, the right hon. and learned Gentleman accepted the blame for the disastrous effect on industry of his policies?

I shall do no such thing. The hon. Gentleman knows that unless we achieve and sustain progress against inflation there will be no chance of achieving progress against unemployment. That was the clear lesson from the period of office of the Labour Government. The Budget is designed to sustain progress in that direction and to create the conditions in which investment and employment begin to grow.

Why has my right hon. and learned Friend missed the significance of the question asked by the hon. Member for Harlow (Mr. Newens)? Why does he not congratulate him on his conversion to capitalism?

The right hon. and learned Gentleman will have seen the latest company reports from Lucas, showing that it has lost about £23 million in the second half of this year. That follows a long tale of collapse, or near collapse, of many of the great British exporting firms. Does he agree that interest rates, and particularly the relationship between interest rates and the exchange rate, are crucial, as my hon. Friend the Member for Harlow (Mr. Newens) asserted? When will he take action to bring down the appallingly over-high exchange rate of the pound?

The experience of successive Governments is that it is unwise to conclude that there is any direct or simple link between interest and exchange rates. The important thing is that there is a good case, in its own right, for securing reductions in interest rates that are compatible with responsible monetary policies. The right hon. Gentleman should not fall into the common habit of assuming that all the difficulties facing companies are unique to this country or are consequences of the Government's policy. The right hon. Gentleman knows that companies in the motor industry throughout the world are making substantial losses because of what is happening to that industry throughout the world.

asked the Chancellor of the Exchequer what estimate he has made of the effect on industrial costs of increasing duties on petrol and derv by the equivalent, including value added tax, of 20p a gallon.

The increased duties will probably add about 0.2 per cent. to business costs. This includes the increased cost of running company cars, whether on business or private use.

In coming to that figure, has my right hon. Friend done any microeconomic studies—as opposed to macroeconomic studies—of individual companies? Is he satisfied that there is no knock-on effect of increased duties through the economy to the consumer?

I cannot say that studies have been made of the effect on every company. It is our opinion that, in both the medium and long term, other factors will determine the rate of inflation, the rate of price increases and the rate of increases in industrial costs. It is only the immediate impact effect of the duty changes that comes out at 0·2 per cent.

Does my right hon. Friend accept that many companies involved in freight, transport and haulage are deeply concerned about the dramatic rise in the price of derv? One large national company believes that it will add about £½ million to its fuel bill each year. A haulier in Lincolnshire believes that it will add £70,000 to his bill, and a firm in my constituency will have to lay off drivers for the first time in 25 years because, due to the recession, its customers are not able to meet the increased cost, which it must pass on to the consumer.

The increases in petrol and derv duties and in the vehicle excise duty represent an increased burden. That burden is felt particularly by the road haulage industry. To some extent, it will pass on that burden throughout the rest of industry. Therefore, the burden is not just on the road haulage industry. My hon. Friend must bear in mind—as I am sure he does—that that was an integral part of the Budget judgment. It was an integral and necessary means of achieving the borrowing requirement that my right hon. and learned Friend considered to be appropriate for the coming year and a borrowing requirement that enabled him to reduce interest rates, which was of great value to the whole of business, industry and commerce.

asked the Chancellor of the Exchequer what has been the rate of inflation in the most recent 12-month period for which figures are available; and what was the comparable figure for the 12-month period up to May 1980.

The retail prices index increased by 12·5 per cent. in the 12 months to February 1981, and by 21·9 per cent. in the 12 months to May 1980.

Does my right hon. and learned Friend agree that that considerable reduction in the rate of inflation, which in itself is welcome, is the consequence of adopting policies of deflation and has nothing to do with monetarism?

No.

As the Government claim that inflation is a key factor in unemployment and that the rate of inflation will come down drastically in the next couple of years, why does the Chancellor of the Exchequer's White Paper forecast unemployment at 2·7 million in 1982–83 and at 2·7 million in 1983–84?

Those figures are not forecasts, but assumptions, as the hon. Gentleman knows, from which certain other consequences are drawn. The hon. Gentleman is ignoring the past. We are talking in terms of the impact of inflation on unemployment. We are saying that, in the longer term, failure to tackle the problem of inflation is likely to increase rather than to reduce the level of unemployment. All the evidence and history of the past few years supports that. The historical factors that we have inherited, and the world recession factors, will not prevent unemployment from reaching higher levels in the short term.

To put the figures in clearer perspective, will my right hon. and learned Friend give the House the figures for the last six months, as those are probably more revealing? Does he agree that, as a measure of the Government's progress, those figures show us to be among the lower ranks in inflation throughout the European Community?

My hon. Friend is right. The underlying six-monthly rate of inflation, on an annual basis, is around 10 to 11 per cent. That is the most reliable information.

When will the Chief Secretary and his colleagues cease to make the fraudulent claim that the country's difficulties are connected with the world recession? Has he not read the Common Market Commission's statement, which showed that unemployment in this country rose by 66 per cent. last year, which was three times the rate of the EEC average, and that deflation in this country was twice as bad as in any other European country? As we are referring to the past, will the Chief Secretary confirm that the rate of inflation that he inherited in May 1979 was just over 10 per cent., which was well below the current level?

The underlying six-monthly rate in May 1979 was 12·2 per cent., and rising. It has never been suggested that the world recession operates in a uniform way or that it is the only factor influencing unemployment in this country, but it is absurd to suggest that our unemployment has nothing to do with the world recession. If our unemployment is higher than elsewhere, it is caused largely by the fact that in the past we have given ourselves pay increases that we have not earned, and as a result have priced ourselves out of jobs.

asked the Chancellor of the Exchequer if he is satisfied with the effects of his Budget announced on 10 March.

It will be some time before it will be possible to give a considered answer to my hon. Friend's question.

But is there actually any demand pull inflation in the economy at present, and, if so, where?

Inflation in the economy is due to a range of factors, including past higher money supply growth rates. It is being sustained by the substantial pay increases throughout the economy, following the collapse of the previous Government's pay policy.

Does the right hon. and learned Gentleman accept that unemployment will increase vastly as a result of his Budget? May we assume that he is attempting to balance the books? Does he think that he will be balancing the books if, ultimately, we produce nothing, sell nothing and everybody is out of work?

That is a curiously unperceptive comment for the hon. Gentleman. It is not true in any respect. From his experience he should know that we shall not begin to achieve growth in employment and in the economy until we have conquered inflation. The prospects are that inflation will continue to come down, which will in due course enable interest rates to come down and create the conditions for exactly the opposite of what the hon. Gentleman fears will take place.

Does my right hon. and learned Friend accept that one indicator of the effects of the Budget, and particularly of industrial confidence, is the Financial Times all-share index? What has happened to that index since the Budget?

It is one of many indicators of confidence in the consequences of the Budget. Other indicators point in the same direction. One of the most notable, which was commented on earlier this week, is the fact that private housing starts have risen from 6,600 in December to 10,300 in January. The president of the House Builders Federation observed that that offered an optimistic prospect for the year ahead.

Does not the right hon. and learned Gentleman's claim that the Budget is not contractionary imply his expectation of a substantial reduction in the exchange rate soon? So what does he intend to do about it?

It implies no such thing.

asked the Chancellor of the Exchequer if he will estimate the number of people who will be drawn into the income tax net during 1981–82, who were below the threshold for income tax during the current financial year, as a result of his proposal to suspend the automatic increase in personal tax allowances.

It is estimated that there will be about 500,000 more taxpayers in 1981–82 than there were in 1980–81, and that there will be 1¼ million more taxpayers in 1981–82 than there would have been had allowances been fully indexed.

Is it not grossly unfair that those who will have to bear the brunt of paying the extra direct taxation as a result of the Budget will be those with the lowest earnings? Does the right hon. and learned Gentleman accept that, taking a combination of all the factors in the Budget, the marginal tax rate for some could be as high as 104 per cent.? What about incentives, which are supposed to be behind the Government's policies?

I do not accept the hon. Gentleman's figure. Had allowances been fully indexed, it would have been necessary to increase the basic rate by 3p to recoup lost revenue, which would have meant that 24 million taxpayers would have had a 3 per cent. increase in their marginal rate, which in turn would have had an extremely harmful effect on incentives.

Does the right hon. and learned Gentleman recall that the tax cuts of two years ago were supposed to improve incentives? Since the Budget the burden for basic rate taxpayers is higher than it was under the previous Government. What effect will that have on incentives?

I did not say that the figure given by the hon. Member for Caernarvon (Mr. Wigley) was correct. As I said, by retaining the change in the basic rate that my right hon. and learned Friend introduced it has been possible to keep the benefit of a basic rate for 24 million taxpayers which encourages incentives.

Does not the right hon. and learned Gentleman feel ashamed that the Budget has had the result pointed out by the hon. Member for Caernarvon (Mr. Wigley), in view of the promises made by the Prime Minister and his right hon. and hon. Friends at the election to reduce income tax, and the promise of the Chancellor and the Financial Secretary prior to the election to index tax allowances?

I do not feel ashamed of the fact that, in spite of economic pressures, my right hon. and learned Friend has been able to retain in the Budget the reduction in the basic rate of income tax that he introduced. That demonstrates the priority that he gives to retaining incentives.

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

This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in this House, I shall be having further meetings later today. This evening I shall give a dinner for the Commonwealth Heads of Government and others who will be attending tomorrow's special meeting of the Privy Council.

What urgent action will the Prime Minister take to push new industries into areas of steel and textile closures, which are suffering from heavy unemployment? Is she taking an interest in the Nissan-Datsun project? Could it not he located in an area of heavy unemployment?

It would be wrong for us to attempt to influence the location of the Nissan project, assuming that it comes here after the feasibility study is completed. We hope that it will go to a development area, but there are rival claims and the decision must remain with Nissan.

Is my right hon. Friend aware that from today there are three parties of the Left, equally divided; one between the Solidarity and Tribune groups, one between the hon. Member for Rochdale (Mr. Smith) and the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel), and one with the right hon. Member for Stockton (Mr. Rodgers), who, in Northamptonshire last week, was in a stand-up fight with other members of the group, which cannot even agree at this stage? Does she agree that there is only one party of the centre with the leadership, unity, determination and policies to solve the very difficult problems that face the country?

There may be three parties, but they are all divisions of Socialism.

Will the right hon. Lady accept that, if she believes that the so-called Social Democratic Party has much to do with Socialism, she is the only one in the kingdom who does so? May I ask her a serious question? Will she explain what is meant by the "natural rate of unemployment" that Treasury spokesmen mentioned to a Select Committee? Is it not wrong to introduce the idea that there is a natural rate of unemployment of about 5 per cent.? Even though her Government have increased unemployment by 1 million, does she agree that there is no reason for accepting a permanent pool of unemployment at that level?

It is not a Treasury concept. It is an academic concept, invented some time ago. I have never agreed with it or thought it sound. The Treasury was asked to make assumptions, and it gave the figures that it was required to give, but that does not mean that the Treasury agrees with the concept.

In that case, will the right hon. Lady give instructions to the Treasury not to present this kind of nonsense to the country as it can give rise to very wide misconceptions? Will she issue those instructions today?

The request came from the Treasury and Civil Service Select Committee. Surely the right hon. Gentleman is not asking me to tell the Treasury to issue instructions to the Treasury and Civil Service Select Committee about what it may or may not ask.

Will the right hon. Lady now tell us who invented the phrase the "natural rate of unemployment"?

The phrase was invented by academics. I cannot tell the right hon. Gentleman which academic invented it, but if he goes back to the academic literature on economics for a change he will surely find it.

Has my right hon. Friend seen the article in The Times today, which reports that Civil Service union leaders are crowing that, as a result of their damaging action against the rest of the country, they have tripled State borrowing? Will she assure the House that if it is necessary to recoup that extra State borrowing it will be done at the expense of the Civil Service cash limit, and not at the expense of the rest of the people of this country?

If we cannot get in all the money that we require, it will, of course, put up State borrowing. In the short term, that could have quite damaging consequences for the rest of industry. I therefore hope that civil servants, who, like most of us in the House, rely on a prosperous industry, will think of that before they continue the strike. The more that civil servants demand over and above the 7 per cent., the less there will be for the capital investment that industry sorely needs.

Far be it from me to intrude on this private quarrel, but will the right hon. Lady ponder on the fact that the emergence of the Social Democratic Party has less to do with her theories of monetarism or the right hon. Gentleman's theories of Socialism than with the future of the country?

I recall hearing a comment on the radio this morning about the Social Democratic Party being a new centre party. I heard someone say that such a centre party would be a party with no roots, no principles, no philosophy and no values. That sounded about right, and it was Shirley Williams who said it.

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

I refer my hon. Friend to the reply which I gave some moments ago.

Will my right hon. Friend find time in her busy day to consider the cost of meeting in full the pay claim of our excellent Civil Service? Does she agree that, at £700 million, it is equivalant to 7p on a pint of beer or 20p on a packet of cigarettes, and is more than the people of this country should be asked to pay?

To meet the claim in full would cost about £700 million. I think that the figures given by my hon. Friend are about right. It would also put an intolerable increasing burden on the retail price index, and is really out of the question. As I have said before, I hope that civil servants will bear in mind that we rely on industry to finance us and that they will give some thought to those people, some of whom have no jobs, and many of whom have received far less than a 7 per cent. wage increase this year.

Is the Prime Minister aware that the tax burden as a percentage of gross national product was 40 per cent. when the Labour Government left office, that it rose last year to 44½ per cent., and that following the Budget it is officially forecast to rise to 47½ per cent. next year? How is that consistent with the chief pledge by which she got herself elected, namely, to cut taxes?

If public expenditure levels were where the hon. Gentleman wishes them to be, the tax burden would be even greater.

In view of the decision today to withdraw the Petroleum and Continental Shelf Bill, will my right hon. Friend confirm that when it is reintroduced it will contain a definite decision to sell the equity in the BNOC, rather than just power to do so?

It is not that the Bill has been withdrawn. We do not think that we could necessarily complete it during this parliamentary Session. We shall attempt to pass it as soon as we can. We think that the form in which the Bill is drafted is about right.

How does the Prime Minister expect freedom from strife in the country when the Government have broken a solemn promise made to the Civil Service?

I assume that the right hon. Gentleman is referring to the withdrawal for the time being of the pay agreement. Yes, it has been withdrawn. The Labour Government also withdrew it. We have already given civil servants pay increases that mean that this year they are paid 50 per cent. more than two years ago. On top of that, there is a 7 per cent. increase. I think that on any measure of judgment that is good treatment for our public servants.

How vehement a protest did the Prime Minister deliver to the Eire Prime Minister when she met him two days ago, following the statement by his Foreign Minister that the Anglo-Eire Study Group would lead to a united Ireland within five to 10 years? Will she suspend those talks until we have a debate in the House, when she can make a full and detailed statement on what was agreed between her and Mr. Haughey?

I made it perfectly clear that we disagreed totally with the relevant interview and were very distressed that it had occurred and that the former understanding that there should be no discussion of the constitutional status of Northern Ireland was the one on which we were proceeding, and shall continue to proceed, and which stands.

Will the Prime Minister turn her mind for a moment away from the fairy tales of Milton Friedman to the serious situation in El Salvador? Although Conservative Members seem to think that this is a joke, will she use her waning influence with President Reagan, who is twirling his atomic pistols in front of the world, and tell him that the last time that the Americans intervened in a small country, by the name of Vietnam, they got a bloody nose, and that the whole world hopes that they will not intervene in El Salvador but will leave the people of that country to determine their own fate, as they are eminently capable of doing if they are left to their own devices, against the brutal tyranny that exists there at the moment?

I do not think that the way in which the hon. Gentleman puts his comments is a classic example of how to win friends or influence anyone.

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

I refer my hon. Friend to the reply which I gave some moments ago.

Will my right hon. Friend put the full weight of her authority in office behind the hon. Member for Rochdale (Mr. Smith), who is reported to have said yesterday that he was sickened by the credibility given to the fourth party, and that the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) really ought to do something about it?

As the hon. Gentleman to whom my hon. Friend refers is not present—there is just a rather large gap on the Bench—I think that I shall not comment.

As the Treasury, presumably on behalf of the Government, has given evidence to a Select Committee of the House and said that 5 per cent. unemployment is regarded as normal, why has the Treasury, in preparing the public expenditure document—again, presumably on behalf of the Government—put in a figure of 2·7 million for unemployment, which is 10 per cent. in 1982–83 and 1983–84?

What the hon. Gentleman says is just not true. The Treasury was asked to give figures on certain assumptions on certain concepts. It neither agreed nor disagreed with those concepts, but it responded by trying to give the figures which, on those parameters, would be fed into the Treasury model.

Has my right hon. Friend's attention been drawn to the decision by certain petrol companies to increase pump prices by 2p and 4p? In view of the devastating effect that my right hon. and learned Friend's Budget had on rural areas, does she accept that this latest increase is to be deplored?

The Budget would have contained far fewer increases in indirect taxes had we agreed much lower public spending. That is a fundamental fact. Secondly, I understand why my hon. Friend does not wish there to any any further increase in petrol prices, but a considerable price war is going on between the petrol companies, and it seems that people will not have to pay the full increases.