asked the Chancellor of the Exchequer why he has no target level for the exchange rate.

I do not believe that the conditions exist in which a target level for sterling against one or more foreign currencies would be either practicable or helpful for policy. Account is taken of the exchange rate in interpreting monetary conditions.

Does the Chancellor agree that the effect of the Government's policies is to keep the exchange rate higher than it would normally be, thus damaging employment and exports?

The exchange rate is determined by the market and stands at about the same level as when the Government came to office. Improvement of the prospects for exports depends upon the improvement of British industry's competitiveness. I am glad that that is being achieved.

Is my right hon. and learned Friend aware how welcome is his reply, since the pound has been slipping on the foreign exchanges? Does he agree that it is much better to allow that process to continue than to have far too high interest rates, which raise the costs to industry?

I am grateful to my hon. Friend for his comment. It cannot be said too often that effective competitiveness is achieved not by devaluation, but by improvement in performance.

Did the Chancellor include an announcement of the effects on the exchange rate in the simulations that he gave to NEDC yesterday? Will he deposit the full print-out of those runs in the Library so that we may see all the fixes that he made? Will he ensure that an up-to-date version of the Treasury model is available for immediate public use so that we may see what he is up to?

The hon. Gentleman, with his passionate interest in these matters, need have no fear that anything remarkable is taking place. He knows that the Treasury model is updated from time to time, and arrangements are made regularly for those outsiders who know the structure of the model to be informed of such changes. I shall certainly consider his request to place in the Library the paper that was put before NEDC, but I cannot give any undertaking to go beyond that.

I am sure that the House will be glad that the Chancellor said that it would be unwise to have a target rate for sterling. Does the right hon. and learned Gentleman agree that the Government have what one might call an unannounced target rate or range? Is it not also the case that the rate at which sterling is being maintained against principal competitors is still far too high? Will the Chancellor seriously consider the wisdom of boosting British exports and reducing foreign imports by achieving a far more realistic level of sterling than has hitherto prevailed?

I have made it clear to the House on many occasions, most recently in my Budget Statement, that the Government have no target, undisclosed, secret or otherwise, for the exchange rate. Official intervention in foreign exchange markets is limited to smoothing and moderating excessive fluctuations to preserve an orderly market. I must repeat that it is not sensible to believe that export or import prospects for British traders can effectively be improved by devaluation. That is what experience tells us, and it was the experience of the Government of which the right hon. Member for Stepney and Poplar (Mr. Shore) was a member.

Will the Chancellor go a step further on this? It is a little difficult, and nomenclature may be confusing us all. The use of the word "target" implies something rigid. Does the Chancellor agree that in this year's Red Book the exchange rate is one of the three or four principal indicators that guide Government policy? That being so, does he agree that if it is maintained at a given rate it is at least a quasi-target, despite what he has said?

The right hon. Gentleman does not correctly understand the position. As I said in my original answer, account is taken of the exchange rate when interpreting monetary conditions, but it does not, in that or any other sense, constitute a target or a quasi-target.

asked the Chancellor of the Exchequer what is his forecast of the percentage of total Government expenditure that will go in meeting general Government debt interest in 1982–83; and how this percentage compares with the previous year.

Measured on a gross basis, general Government debt interest payments are forecast to equal about 11 per cent. of general Government expenditure, including debt interest in 1982–83, compared with 11½ per cent. in 1981–82.

I am grateful to my right hon. and learned Friend for that information. Recognising that public sector net debt interest has increased in the past 10 years from less than £450 million to more than £6,000 million and that the percentage increase in relation to public expenditure has trebled, will he assure the House that it is Government policy to decrease that percentage, as it is a very large amount and a millstone round the necks of the British people?

I think that my hon. Friend was referring to the net figures. He is right in saying that this a burden of great severity. General Government gross debt interest is larger than any single public expenditure programme except social security and runs at £14·4 billion, which is £260 per year for every man, woman and child in the country. It is certainly right that we should seek to reduce that burden by ensuring that we do not borrow too much and to lower interest rates if possible.

Will the chief Secretary tell the House—if he does, it will be the first time—what amount within the figure that he has just announced represents the annual instalment of the cost of repaying index-linked national savings and now index-linked gilts, and how it is arrived at for the purposes of an annual instalment of public expenditure?

If the hon. Gentleman will put down a question to that effect——

I have.

—I shall consider the answer.

In view of the statement by my right hon. Friend the Secretary of State for Defence yesterday that cost was not a factor in our response to the Falkland Islands situation, will my right hon. and learned Friend confirm that the Government's strategy on finance is not likely to be adversely affected in the foreseeable future?

I welcome the opportunity to confirm that. As I said in the debate on the Finance Bill, and also on the radio yesterday, I see no reason for the Government's economic strategy to be affected by the operations in relation to the Falkland Islands. I also said that what is going on in that regard must be allowed to continue on an operational basis without current consideration of costs, which cannot be made in any event. Above all, however, I went on to say that the cost of what is going on will be met in a way that is consistent with the Government's economic strategy.

Inevitably, there will be costs. Will the Chief Secretary tell us a little more plainly how those costs are to be met if he intends to continue to operate a rigid policy of public expenditure control?

Yes. As I said in the broadcast yesterday, how the cost is met will depend on its scale. If it proves not to be substantial, no problems will arise. If it proves to be substantial, it will have to be met in a non-inflationary way. [HON. MEMBERS: "How?"] That is what I said and I stand by it. It may be that revenues will be higher than anticipated, or the cost of other expenditure may be lower. Otherwise, one would have to look at other public expenditure programmes or taxation, and whatever combination is required to ensure that the consequence is not to damage our economic strategy will be taken.

asked the Chancellor of the Exchequer what is the estimated effect of the Budget proposals on the tax and price index; and how this compares with the similar effect of previous Budgets.

The Budget proposals will directly reduce the TPI by ½ per cent. compared with what could have been the case if all duties and tax allowances had simply been increased in line with inflation. Previous Budgets of this Government have not had such an effect, because of the need to take action to restrain Government borrowing.

Do those figures include the substantially increased national insurance contribution? Even if they do not, is it not the case that in the past year, apart from the Budget increases, the margin between the TPI and the retail price index has been more than 3 per cent.? At a time when the TPI has risen by about 14·4 per cent. compared with last year, is it not disgraceful meanness by the Government to offer our nurses about a 4 per cent. increase in pay?

The figure that I have given does not include national insurance contributions, as they were not part of the Budget proposals but were announced separately and earlier. With regard to the nurses, the fact that the Government have indicated a readiness to provide substantial extra sums over and above what had previously been provided shows that we recognise the special position of nurses and are prepared to put our money where our mouth is.

Does my right hon. and learned Friend agree that high inflation has done more than anything to affect living standards, especially for the most vulnerable members of our society? Therefore, does not the decline in inflation augur well for the improvement of living standards in the long term?

I entirely agree. I think that it augurs extremely well for the improvement of living standards in the long term. Those who have industrial muscle can always protect themselves against inflation. It is the Government's job to ensure that the more vulnerable people have similar protection.

For the record, will the Chief Secretary confirm that the increase in national insurance contributions will add a whole 1 per cent. to the TPI? Does he also accept that, as a result of the Government's increases in national insurance contributions, combined with their abolition of the reduced rate tax band, low-income taxpayers in Britain are now paying a marginal rate 7 per cent. higher than they paid under the Labour Government and higher than anywhere else in the Western world? As the TPI has been rising faster than the RPI since July 1980, will he admit that the Government have failed to translate their election pledges into action?

As the hon. Gentleman complains about the burden of taxation, I can no doubt look forward to his assistance in ensuring that the burden of public expenditure which must be financed by that taxation is kept under control.

Will my right hon. and learned Friend give further consideration to some form of automatic indexation of the specific duties on tobacco and alcohol which make up part of both the TPI and the RPI?

I am prepared to consider that, but my hon. Friend will be aware of the problems associated with it.

The Chief Secretary said that it was the job of the Government to protect the worst-off in society. Does he agree that, as the hon. Member for Edinburgh, Central (Mr. Cook) said, the worst-off have become even worse off as a result not just of the last Budget but of the Government's whole economic policy since its inception?

I do not accept that that follows from the last Budget. In terms of protecting the worst-off, what I have said is absolutely right. Many of the worst-off are people who cannot exercise industrial muscle to secure wage increases in line with inflation. The best action that the Government can take to protect such people is therefore to pursue a firm anti-inflation policy.

asked the Chancellor of the Exchequer whether there have been any further indications that the economy is now recovering from the recession.

asked the Chancellor of the Exchequer whether there have been further signs that indicate a recovery in the economy.

Recent additional signs that the economy is recovering include the further improvement in company profits in the final quarter of last year, the recent falls in inflation and interest rates and the much smaller rise in unemployment in recent months. March's CBI and Financial Times business surveys also point to improving business prospects.

If the United States economy goes into a real depression, will that affect the British economy?

There is undoubtedly a connection between the prosperity of the United States economy and that of every other economy throughout the world, including ours. That is all the more reason for our seeking to follow the right economic policies.

Is the Chancellor aware that the recently published report of the Select Committee on the Treasury and Civil Service forecasts a continuing rise in unemployment and questions the Government's growth targets? Does he agree that that is far more likely to be an accurate forecast than the Government's optimism? Will he explain now, or certainly before the House rises for Easter, what effects he believes the present crisis in the Falkland Islands will have on the economy? If there are to be any repercussions in the shape of public expenditure cuts, will he give an assurance that housing, education and social services will not be hurt further?

The hon. Gentleman asked about the prospect for the economy. I note that the forecasts made by the Treasury in respect of likely growth and likely inflation are supported by the overwhelming majority of outside independent forecasters.

My right hon. and learned Friend will be aware that any recovery of the economy after the present recession will be based firmly on low interest charges. Will he give the House his opinion of how interest rates will be moving, say in the next month?

It is not my practice to make forecasts or predictions of that kind, even for the sake of my hon. Friend, but the strategy embodied in the Budget Statement was designed to produce, as it did produce, lower interest rates and interest rates lower than they would have been otherwise.

Since consumer demand undoubtedly has been weakened further during the past year and as a result of the Budget, and since Government expenditure will be contributing nothing to any possible recovery, will the right hon. and learned Gentleman say from what elements in the world economy or in the domestic economy he expects additional demand to derive during the period ahead?

The right hon. Gentleman should understand that the forecast made by the Treasury at the time of the Budget Statement, supported by outside forecasters, itself represents an improvement on that made in December. The main components there identified for further growth are the growth that will come from continued success in reducing the rate of inflation and also the prospect of some improvement in the world economy. The further factor is the actual, solid improvement by British industry, which is taking place. The right hon. Gentleman might like, for example, to applaud the fact that engineering export orders last year were higher than at any time since figures were first published in 1955.

asked the Chancellor of the Exchequer what percentage of the total loans from all European Economic Community institutions came to the United Kingdom during the period of full British membership to the latest available date.

Between 1973 and the end of 1981 the United Kingdom borrowed about 24 per cent. of total Community loans, excluding those made to Italy and Ireland for balance of payments support.

Is it not clear that there is here a valuable facility for getting long-term loans at favourable rates and that the United Kingdom economy is taking full advantage of this facility?

I agree entirely with my hon. Friend. If my sums are correct, the United Kingdom economy has received from this source about £5,500 million over the last nine years. It has been of great value to the United Kingdom and continues to be so.

If those loans did not come from the EEC, would they not have to be raised somehow from external or internal sources elsewhere? If they are made at some preferential rates, is not the cash for that coming out of taxation? Does that not mean that the power to decide on these loans is taken from Britain and from the House, and handed with our taxes to someone in the EEC?

That is rather a carping response. Of course the amount of Community loans and the way in which they are allocated is under the control of the Council of Ministers in the European Community, in which my right hon. and learned Friend the Chancellor of the Exchequer represents the Government and Parliament of the United Kingdom.

As my hon. Friend obviously has studied these issues recently, can he say whether there was any special reason why the loans to the United Kingdom from the European Investment Bank of more than £400 million in 1980 were down to £143 million in 1981—the lowest figure in real terms for many years?

The reason is that, as a conscious act of policy, it was decided by the Government that there was not a good case for encouraging loans by the public sector involving an exchange risk guarantee and that it made more sense to have loans from the public sector within the United Kingdom economy.

asked the Chancellor of the Exchequer by what percentage the basic rate of income tax could be reduced if the top rate were raised to its 1979 level.

The re-imposition of an 83 per cent. top rate of income tax would finance a reduction of less than one quarter of 1p in the basic rate.

Will my right hon. and learned Friend reaffirm the Government's commitment to reductions in direct taxation? Does he agree that those statistics nail the cruel deception that we have so often from Opposition Members that almost everything that people want in any part of the spectrum can be financed by raising taxation to the level it was when the Government came to office?

I agree entirely with my hon. Friend, and I welcomed what he said at the conclusion of his question.

If there is any deception, is it not of the electorate, which was promised lower income tax and national insurance deductions? That was the word used by the Prime Minister in her speech in Birmingham on 19 April 1979. She said that deductions from people's wage packets would be cut at all levels. Instead, deductions have been increased at all levels, except for the very rich. The Government are practising the politics of greed.

Almost every proposition contained in what was put as a question lacks a foundation in fact.

No.

The reality is that this Government, unlike the Opposition, are committed to the reduction of the burden of direct taxation. However, that has not been possible to the extent that we would like during a time when personal living standards rose very sharply as a result of the pay explosion that we inherited from the last Government, and during a time when we have been sustaining sensible spending programmes, as I am sure the Opposition would wish us to do. I hope, as a result of the repeated demonstration of the Opposition's enthusiasm for reductions and for lower taxation, to have their profound commitment to containing the growth of public expenditure.

asked the Chancellor of the Exchequer what is the most recent calculation of the sums that the United Kingdom has contributed to the European Economic Community since the date of European Economic Community membership and of the sums received by the United Kingdom in grants and subsidies; and if he will express the totals as a ratio.

Between 1 January 1973 and 31 December 1981 the United Kingdom had paid £8,799 million to the European Community budget and received £5,314 million. The ratio of payments to receipts is 5:3.

Does the Minister realise that that shows that Britain has made a net contribution of well over £3,000 million, which works out at more than £1 million every single day? In view of this horrific drain on the United Kingdom economy, is there not an overwhelming case for seeking a permanent—not a temporary—solution to the budget structure that will ensure that we get a better deal for our country and our taxpayers?

Our objective in the negotiations that are now taking place, as my hon. Friend knows, is to arrive at a long-lasting solution. That is the Government's purpose, and I point out to my hon. Friend that my right hon. Friend has been a great deal more successful in achieving a better balance in the budget of the Community than our predecessors were as a result of their so-called renegotiations.

Is not the truth, to re-emphasise the point, that Britain has paid a ransom of £3,400 million net for the privilege of belonging to a club that has exacted from us in trade and other matters very heavy costs? Is it not also a fact that but for the transitional arrangements negotiated at the beginning of the accession arrangements—the seven-year transitional period—the figures that we would have been paying would be two or three times the current figure, which is already appallingly high? Is it not further a fact that unless the Government really resolve this question on a permanent basis and insist that we shall not go on making a disproportionate contribution, these figures, in a few years' time, will show an even more burdensome and adverse ratio?

I find that a curious supplementary question from a right hon. Member who, if my memory does not play me false, was a member of the Government who accepted the so-called renegotiated arrangements, negotiated by his right hon. Friends.

indicated dissent.

I know that the right hon. Gentleman campaigned against it but, despite that, he was not inhibited from continuing as a member of the Government who had failed to achieve anything of any tangible or lasting value as a result of those negotiations. This Government have already achieved a settlement for our first two years of office that has produced refunds of £1,600 million to date, and we intend to achieve a further satisfactory and lasting settlement now.

Is it not a fact, too, that the net real contribution in the last five years has been about one third or under one half of the figures promolgated in the original pre-entry White Paper, adjusted for prices?

My hon. Friend has a fair point. It does not alter the fact, as I am sure my hon. Friend will agree, that we need a permanent resolution of the present balance of the budget to resolve the allocation of resources more satisfactorily than they have been resolved to date.

Can the Minister tell me how I explain to the lower-paid workers in my constituency, who contribute between 40 and 50 per cent. of their incomes in taxation, why, over the years, they should have been giving a subsidy of £3,000 million from their taxes to the richest countries in the world?

The hon. Gentleman might try pointing out that all the evidence from the CBI, and all the other bodies that have examined this prospect, shows that if we had followed the policies that I believe are now advocated by the Labour Party—although they seem to fluctuate from time to time—which include withdrawal from the Community, many of those lower-paid workers in his constituency would be without jobs.

asked the Chancellor of the Exchequer what is the basis for his assumption stated in the Financial Statement and Budget Report 1982–83 that real output will grow by an average of 2½ per cent. a year in 1983–84 and 1984–85.

The basis for the assumption is the substantial moderation in the forecast rate of inflation to mid-1983, which is assumed to continue thereafter, together with the prospect of a gradual recovery in the world economy.

Is the Chancellor not aware now, even if he was unaware when he read the Budget Report in which these assumptions were published, that so far as reducing inflation is concerned, all the other four major forecasting units, on whose work he relied in an answer that he has just given, forecast a different trend of inflation—one that would start rising again in 1983–84? As to the right hon. and learned Gentleman's second basis for his assumption, a gradual recovery in world trade, does he not consider that that is very much under the shadow of the present trend of the economy in the United States, not to mention some other parts of the world?

It is true that in the past the more buoyant output that is in prospect has often been associated with a re-acceleration of inflation, but I am confident that further control of monetary growth, a responsible fiscal stance and continued moderation in pay settlements—which I know the hon. Gentleman regards as important—will enable progress against inflation to be sustained. Of course, as I said in answer to a previous question, the United States economy is one component that may affect the prospects of the world economy. On the other hand, to place on the favourable side of the balance there are the consequences that will follow from a fall in oil prices around the world.

Does the right hon. and learned Gentleman agree with the conclusion of the Select Committee on the Treasury and Civil Service that half of his forecast increase in GDP is attributable to a remarkably convenient drop in the statistical adjustments? Even if that happy windfall materialises, the Select Committee, as the Chancellor will accept, concluded that unemployment will remain constant at over 3 million over the forthcoming three years. The Select Committee had the grace to be disturbed by that. Is the Chancellor also disturbed by that likely outcome over the next three years?

As the hon. Member knows, in all these matters statistical adjustments have to be made on a pattern compatible with previous analyses. As I have already said, other forecasts, quite apart from that made by the Treasury, also support the conclusion that output is likely to grow along the path suggested in the Financial Statement and Budget Report.

Is not the real worry about these output assumptions over the next two years that they imply only a levelling-off of the present high level of unemployment around 3 million for the United Kingdom, school leavers excluded? That is during a period of recovery. Does not this mean that at the next downturn in the economy we shall move to unemployment higher than 3 million, which implies that we are in a treadmill of ever higher unemployment as a result of the Government's policies?

The hon. Gentleman has studied this matter too carefully to believe the appendage to his last sentence. The problem of sustaining growth in employment in this country has been with us for a long time under successive Governments. The answer must lie with the improvement in the actual performance of those who create wealth in the economy—those who manage British industry and those who represent the work force in pay bargaining. The prospects of improvement are likely to be fulfilled because we are already seeing substantial changes in their behaviour. Output and exports have been holding up much better than previous evidence might have suggested. It was common ground in the discussions of the National Economic Development Council yesterday that we need to go on securing those changes of behaviour if we are to secure the prospects for improved employment to which the hon. Member referred.

asked the Chancellor of the Exchequer if he will delay the introduction of the taxation of unemployment benefit until he has restored the 5 per cent. abatement of that benefit taken in lieu of taxation.

No, Sir.

Does the Minister agree that the proposal to abate unemployment benefit by 5 per cent. in lieu of tax was a particularly mean attack on those living on benefits, which could possibly be justified only as an interim measure? Is it not now essential that it is taken away once the benefit has come into taxation? Will the hon. Member remind the House what a married man with two children has to survive on when receiving unemployment benefit, and will he confirm that there are many hon. Members who will take their family out for a meal and spend on that one meal as much as a family man will receive in unemployment benefit in a week?

It was made quite clear by my right hon. and hon. Friends when the abatement took place that this would be reviewed at the point at which the benefits came into tax. That review has taken place, with the result of which I am sure the hon. Gentleman is aware. I remind him that, from the very start of the benefits system in 1948, successive Governments have accepted the principle that unemployment benefit logically belonged within the tax net.

The Minister cannot wriggle out of this one. The Secretary of State gave a clear and categoric undertaking that this 5 per cent. abatement was in lieu of taxation. I again return to the Government's practice of the politics of greed. Is the truth not that, as a result of this 5 per cent. cut, the introduction of taxation and the abolition of the earnings-related supplement, most families entering unemployment will be £20 a week worse off than they would have been had Labour's system remained? Will the Minister also confirm that in every Budget the Chancellor has gratuitously given further tax concessions to the rich, well above those needed to maintain their real standard of living, at a cost far higher than the cost of restoring this 5 per cent. abatement?

Had the hon. Gentleman listened carefully to the answers to earlier questions he would have gathered that the reductions in the confiscatory top marginal levels of taxation left by the last Government would make a derisory contribution to changing the fiscal balance. Let me make this absolutely clear, because the hon. Gentleman has made this allegation before. There was a firm commitment to restore abatement of the invalidity pension when that was brought into tax. As a token of our commitment to that, the abatement of the invalidity allowance was restored at the last benefit uprating. We did not give a similar commitment to restore the abatement of other benefits, including unemployment benefit. We undertook to consider it, and that we have done, as my hon. Friend the Minister for Social Security made absolutely clear.

Does my hon. Friend accept that restoring the abatement would cost 10 per cent. of the revenue that comes from taxing the benefits? Should the House look to the Treasury, the DHSS or elsewhere for the review that will take place on this abatement?

As my hon. Friend knows, the undertaking given by my hon. Friend the Minister for Social Security was that the matter would be kept under review. The House must recognise that there are conflicting claims at all times on the revenue. I find it difficult to understand the attitude of the Labour Party, which has constantly complained about the burden of the increased national insurance contributions on the employee. These are the sorts of benefits which that contribution goes to meet.

asked the Chancellor of the Exchequer if he will keep under review the possibility of further encouraging employee share ownership.

Yes, Sir, but my hon. Friend will be aware that we have already given substantial encouragement to employee share schemes.

Although I welcome the progress in profit-sharing schemes made under this Government, does not my hon. Friend recognise that in reality these schemes are confined to those who work for larger companies? Therefore, before the next Budget, will he seek ways to extend the advantages to all employees in the market sector so that, for example, small firms can start schemes and many more employees can feel that they have a stake in the success of their enterprise?

The Government entirely share my hon. Friend's enthusiasm for employee participation via share option schemes and are deeply grateful to my hon. Friend for the work that he has done on this subject. I have studied carefully the proposition that he put forward in his recent Adjournment debate, which, broadly speaking, called for an opportunity for employees in unquoted companies to participate in a share option scheme with the shares in a range of other companies. He will appreciate that that has a rather different purpose, in that it does not involve the employee directly in the fortunes of the business concerned, and it would create considerable problems between those who were entitled to benefit under such a scheme and those who were not.

asked the Chancellor of the Exchequer whether he will review the progress of the economy before the end of the current financial year with a view to making further reductions in the level of taxation.

I keep the progress of the economy constantly under review.

In view of the necessity to boost demand and so reduce unemployment, will my right hon. and learned Friend review the economy with a view to cutting taxes sooner rather than later?

The Budget, with the tax changes that it made, was designed to give encouragement to industry and employment consistent with the maintenance of a responsible fiscal framework. More tax cuts would have increased the PSBR and threatened confidence both at home and abroad.