asked the Chancellor of the Exchequer if he is satisfied with the working of the Capital Allowances Act 1968.

The capital allowance system is examined in the corporation tax Green Paper, which was published last January. We look forward to a wide-ranging public discussion of the issues involved.

Does my hon. Friend agree that industrial building allowances were designed, within the context of stimulate employment right across the industrial he further agree that the extremely welcome measures contained in the Budget Statement translated, at least in theory, the benefit of industrial building allowances not only to manufacturing but to the service sector? In the light of the representations that he may have already received, does he accept that these welcome improvements are only cosmetic? Would he consider—

Order. Yesterday I received complaints that we moved slowly. I blamed the length of supplementary questions. The hon. Member for Lichfield and Tamworth (Mr. Heddle) has asked two questions. The Minister is entitled to answer one.

As my hon. Friend says, the industrial building allowance was designed to foster investment tight across the industrial front. It does that, but we do not wish to extend it into the commercial sector. However, in the Finance Bill my hon. Friend will find a new clause, to which there are two Government amendments, extending the industrial building allowance to the greatest possible extent with regard to warehousing and repair, short of purely retail activity.

With regard to the working of some parts of the Capital Allowances Act, how long do Treasury Ministers intend to continue interfering with and intervening in market judgments in business by giving incentives to use expensive imported machinery lo do work that could often be done more cost effectively by people who are now unemployed?

I am surprised that the hon. Gentleman complains about aids to investment. I remember that he initiated a debate on behalf of the Liberal Party asking that more should be done to help industrial investment. Is he suggesting that capital allowances should be withdrawn?

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

asked the Chancellor of the Exchequer which economic indicators point to a recovery in the economy.

During the second half of last year activity began to recover and profits, excluding the North Sea, rose by one-quarter. Productivity in manufacturing increased by 10 per cent. during last year. The rise in unemployment has slowed markedly and vacancies have increased. The latest CBI survey shows improved business optimism and the expectation of increased orders and output in the coming months.

Most people believe that the level of unemployment is the main economic problem facing the country. Are there any signs that unemployment will start to fall and, if so, when?

The trend in the rise of unemployment that I have described points in the direction that my hon. Friend would rightly wish to see.

How much weight does the Minister give to the distinctly more pessimistic views that have recently been expressed by such diverse sources as the International Monetary Fund, Professor Budd of the London Business School and the chairman of ICI?

I am not sure which of those views the hon. Gentleman has in mind. The facts that I have given speak for themselves. Perhaps the hon. Gentleman will pay attention to the CBI's recent survey, which paints an extremely optimistic picture for future orders and output. That is a picture that I would prefer to paint.

Does my right hon. and learned Friend agree that this is proof positive that the Government's economic strategy is working, as any economic indicator that one takes shows that the future holds confidence for an increase in prosperity? Would it not be a good idea if the Opposition ceased to speak in terms of gloom and doom when they receive good news?

My hon. Friend is absolutely right. His view is wholly endorsed internationally by the recent communiqué issued by the Group of Ten, which says that

"a strengthening of fiscal discipline in both the near and medium-term could foster economic recovery by relieving pressure on interest rates. They urged continuing monetary restraint to consolidate and extend gains on inflation".

Does the right hon. and learned Gentleman recognise that economic recovery is not happening in Scotland? Is he aware that the Scottish CBI and the Scottish TUC, as well as many industrialists in my constituency and throughout the country, recognise that many liquidations are now taking place and mass redundancies are coming forward? Will the Government now come clean and tell us for a change that they are in no circumstances out of the wood?

I entirely understand the difficulties in Scotland and I have no wish to suggest that the recovery that is taking place will be rapid or dramatic. I have never suggested that. Recovery is, of course, uneven and jerky in both time and place, but the general trend that will be seen in coming months cannot be challenged.

Is my right hon. and learned Friend aware of press reports this morning that the Treasury is rigging its forecasting mechanism? Is he aware that that report has been put around particularly by the TUC because its forecast was so patently wrong? Does he agree that the Chancellor's forecasts are based not on fixed or rigged mechanisms but on facts that may not be everybody's cup of tea?

I am grateful to my hon. Friend. I saw the reports. It is wholly without foundation to suggest that the Treasury is rigging matters in that way. The present path of the main economic variables is broadly consistent with the Treasury forecast both last autumn and in the Financial Statement. That is the most telling argument against the absurd and unfounded suggestion of rigging.

Returning to the main question, would it not be better to treat the House in a more serious way? Is the Chief Secretary aware that the chairman of ICI said only 10 days ago that he could see no signs of industrial recovery? Has anyone actually read the CBI's end-of-April economic report?

The right hon. Gentleman accuses me of lack of seriousness. It is not a sign of levity to disagree with propositions from the Opposition Front Bench. Of course the right hon. Gentleman can quote the people and the forecasts that he has. Even the chairman of ICI is not immune from disagreement. But the facts and figures that I have given show exactly what is happening in the economy. We are not making extravagant claims. The forecast is modest and it is being fulfilled. There is international consensus that the way in which we are proceeding is the right way out of a world-wide recession, and we are moving out of it while other countries continue to experience considerable difficulties.

asked the Chancellor of the Exchequer whether he will make a statement on progress in reducing the rate of inflation.

The rate of inflation continues to fall, and it should soon be in single figures.

Is my hon. Friend aware that that excellent news will be warmly welcomed by Conservative Members if not by the House as a whole? Will he confirm that if further progress is to be achieved substantial and careful watch must be kept on public sector and, indeed, private sector pay settlements?

My hon. Friend is absolutely right. Part of this extremely welcome downward trend in price rises flows from the moderation in wage settlements in recent months.

How can the Government justify pay increases above the rate of inflation for those already on top salaries and at the same time insist that lower-paid workers should accept rises much lower than the current rate of inflation?

If the hon. Gentleman reads the whole of the Top Salaries Review Board report he will discover very cogent reasons in support of its recommendations. He will also know that the Government have not awarded the full amounts recommended but have abated them by between one-quarter and one-third.

Does my hon. Friend agree that the Government took office at a time of rising inflation and have taken steps to survive the world recession and to deal with inflation? Does he agree that both in prospects and in performance this country is now doing much better than most of our industrial competitors and that the prospects for this country are now better than they have been for many years?

My hon. Friend is absolutely right. The Government inherited a repressed but rising rate of inflation. The rate of inflation is now declining and the prospects are looking good. The latest figures for the wholesale price index are at a record low—they have not been so low since March 1979—and the whole forward view is extremely good.

The House will note the satisfaction expressed by the Minister at his success reducing inflation to what it was when the came to office three years ago. Does he agree that the direct cost in higher unemployment and record low output has been the cause of this so-called success? Will he undertake as a first priority to return unemployment and production levels as well as inflation to what they were three years ago?

The right hon. Gentleman persists in misunderstanding the realities of our circumstances. The Government inherited a rising trend of inflation. Inflation is now declining. Already the average level of inflation is lower than it was under our predecessors and all the indications are that this will be the first Government since the war to have achieved a lower rate of inflation than their predecessors. That is a very worthwhile achievement.

asked the Chancellor of the Exchequer by how much total public expenditure has risen in cash terms in the last three years; and how much the retail price index has risen during the same period.

In cash terms the estimated outturn for the planning total for 1981–82, as published in the FSBR, is £105·2 billion. This represents an increase of 59·6 per cent. on the corresponding figure for 1978–79. Later indications suggest that the outturn for 1981–82 may be a little lower. During the same period the retail price index has risen by 50·2 per cent.

Will my right hon. and learned Friend confirm in plain language that public expenditure has risen in real terms under this Government? To take a more detailed example to counter the mythology perpetrated by the Opposition, will he confirm that in health and personal social services real expenditure has increased by no less than 6 per cent.?

There is endless controversy about what "real terms" means, but in the broadest sense of the term my hon. Friend is right. He is certainly absolutely right about the position with regard to health expenditure.

As the Chancellor has said that Government expenditure on the Falklands task force will in no way upset the Government's economic policy, would a similar increase in spending on, say, housing have upset the Government's policy?

The answer is that it depends how much.

Although total public expenditure has risen in real terms under the Government, does the Minister agree that capital expenditure has declined in real terms? In view of the more encouraging trends in public sector borrowing and the substantial amount of slack that still exists in the economy, is it not reasonable now to undertake a marginal increase in capital expenditure to try to drip-feed the economy rather faster out of recession?

Drip-feeding the economy rather faster is the way in which I believe that we shall emerge from recession. I share my hon. Friend's concern about capital expenditure. He will, of course, agree with me that the priority that we give to the social services and the amount that we spend on public sector pay are constraints that limit the extent of capital expenditure that we should otherwise wish.

Although it may be argued that total public expenditure has increased during the past three years, is it not important to ask whether expenditure has been spent? On the matter of pay, which the Chief Secretary mentioned in his last answer, is it not worth noting that the Government's priorities in spending public money on pay relate more to lining the pockets of top civil servants and the judges than to helping people such as nurses and other Health Service workers, who are subject to a 6·4 per cent limit? That is the important factor, not the figure of total public expenditure. Who is benefiting?

The answer is that the people of this country, on whose behalf the hon. Gentleman generates such synthetic anger, would be a great deal better off if he and his friends had not encouraged the massive increases that were awarded by Professor Clegg. Without those, we should have been on the road to recovery earlier.

asked the Chancellor of the Exchequer what is his latest assessment of the net contribution that the United Kingdom will make to the European Economic Community in 1982 in the light of the recent European Economic Community discussions on the contributions issue.

The United Kingdom's net budget contribution for 1982 will depend on the outcome of the discussions mentioned by my hon. Friend. I cannot predict what this will be. However, the Council is in any case committed under the agreement of 30 May 1980 to adopt an arrangement granting the United Kingdom refunds in respect of the 1982 budget along the same lines as were agreed for 1980 and 1981.

Will my hon. Friend assure us that he will not agree to a one-year temporary rebate settlement as part of a shabby deal in an effort to ensure the continuance of the embargo on trade with Argentina? As the CAP is the root of the budget imbalance, will he assure us that the Treasury at least will resist the plans to have the highest ever food price rise in the EEC farm prices at a time when inflation is falling?

The Government will continue to believe that an early agreement on a long-term solution of the problem is infinitely to be preferred as an outcome, both for ourselves and for the Community. In answer to my hon. Friend's other question, he will know that my right hon. Friend the Minister of Agriculture, Fisheries and Food still insists, not only that there is a connection between the budget problem and the agriculture price problem, but that the agricultural solution is not necessarily the right one for us.

The Minister will be aware that the crucial quest of the British budget contribution to the EEC and the agriculture price decision come together this weekend, and that both decisions are overshadowed—or at least in the shadow of—a decision to be made by the EEC on the renewal of sanctions against Argentina. I ask him to make sure that his right hon. Friends who will be attending the Council fully understand that any backing down by the British Government on either the budget contribution or on the outrageous agriculture prices that have been proposed will not be forgiven by the House of Commons or by the British people. More important, the other countries of the EEC will not be forgiven by the House or the people if they insist on driving home bargains or arrangements that are clearly disadvantageous to this country.

I confirm my right hon. Friend's resolve in this matter. As the right hon. Gentleman knows, neither of the two problems to which he referred has yet been solved. We still believe that we cannot agree to the price-fixing proposals when we do not know what the final impact will be on our budgetary position. We must await the next round of negotiations. However, I shall certainly pass on to my right hon. Friend what the right hon. Gentleman said.

Is it not absurd how the anti-marketeers keep rabbiting on about the excessive budget contribution, since the net aggregate figure for 1981 was only about £60 million, and the figure for this year is likely, at the most, to be only about £500 million to £600 million, which is one-quarter of the aggregate figure estimated in the original White Paper for the first five years of our membership of the Community?

The final outcome for 1981 is not yet entirely firm, although we think that it might be a small positive contribution, rather than a small negative contribution. I remind my hon. Friend that we cannot be certain that the conditions that brought about that happy result in world market prices will necessarily appertain in future years.

asked the Chancellor of the Exchequer at what stage in each financial year he has available to him outturn figures for the public sector borrowing requirement in the previous year.

As a result of faster reporting by public corporations and local authorities, we now receive provisional figures for the total PSBR within three weeks of the end of the financial year which are sufficiently firm to justify publication.

In view of the enormous margin of error in the PSBR, was it not absurd of the Chancellor to force so many cuts in public spending last year when, in pursuit of his target, he is nearly £2,000 million off beam?

I do not agree. Of course there is a problem of getting the figure right when one is talking about a total calculation of £150 billion. I do not believe that we, any more than other countries, can ignore the importance of the level of public borrowing, however difficult it is to predict it with absolute accuracy.

I return to what was said by the hon. Member for Loughborough (Mr. Dorrell) on an earlier question, namely, that what industry needs now is an injection of extra demand. That could come from an increase in capital expenditure by the Government. Now that we have better figures for the PSBR, why do the Government continue their over-rigid attitude to financial matters? Does that not show again how little they understand the real needs of industry?

The revised figure that we announced was good news, not bad news. The fact that interest rates in this country are falling at a time when they remain level overseas is in no small way related to the level of borrowing. The reduction in interest rates is one of the most important ways to help industry in its revival. Therefore I am not at all sure that a change of course that would make it more difficult for interest rates to fall would be beneficial to recovery.

Did the Bank of England fund on the basis of the original estimates for the PSBR and set interest rates accordingly?

That question cannot be answered from the Dispatch Box, because questions of timing, as well as the simple point that my right hon. Friend mentioned, are involved.

Why, in monitoring public expenditure, did not the Chief Secretary disclose the large margin of error in 1981–82 until after the Budget?

The right hon. Gentleman will know from his experience that monitoring is not such as always to disclose the figures. I am as concerned as he is about why so large a change came about in such a short time. I am looking into the matter, and share his conncern about it.

asked the Chancellor of the Exchequer whether he will introduce new financial incentives to banks and building societies to invest in urban renewal.

No new financial incentives are planned, but the measures that we have already introduced should make private sector investment in inner cities more attractive.

I thank my hon. Friend for that reply. What contributions have enterprise zones made in this area?

Enterprise zones are in their early days. The package of incentives that is on offer is achieving the intended results, and the response of the private sector has been encouraging. Many new firms are setting up in the zones, existing firms are expanding, and vacant land is being brought back into sensible use.

Is not the position far more serious and unsatisfactory than the Minister suggests? Is it not clear that the pinnacle of achievement by the Government in urban renewal appears to be the proposed establishment of a glorified garden centre in Merseyside? What about other areas where unemployment is well over 20 per cent. and response to Government policy is grossly inadequate?

My right hon. Friend the Secretary of State for the Environment has been bringing forward imaginative proposals for the inner cities. If we spend money in reclaiming land there is a multiplier effect, in that £10 million spent from public funds will lead to private sector investment of £70 million to £100 million, which is very useful.

asked the Chancellor of the Exchequer what response he has had to his Green Paper on corporation tax.

The consultation period runs to the end of September, but so far five written representations have been received and the Green Paper has been discussed at a number of conferences.

What are my hon. Friend's expectations about legislation following the Green Paper consultation period?

It will take a long time to complete consultations, to digest them and then to formulate a view. It is important that we should proceed to change only if a consensus emerges that the suggested change is the right one and there is a general acceptance of moving in one direction or another. Under those conditions, I cannot predict the date of legislation.

Does the Financial Secretary admit that the effect of his policies during the past two years may shift even further the burden of taxation from the corporate sector to the personal sector? Does he not recognise that it is most unsatisfactory that some of the more profitable industrial companies should pay no corporation tax while low-paid households and the unemployed are brought into tax for the first time? How can we expect a consensus to emerge on how to deal with the matter if the Treasury does not say which of the half dozen options in the Green Paper it prefers?

I am surprised that a consensus has not emerged in the Labour Party on whether it wishes to help industry. I have listened to question after question from Labour Members asking for more aid to industry, and now the hon. Gentleman wishes me to tax industry more. The Labour Party must make up its mind.

asked the Chancellor of the Exchequer whether he will bring forward proposals for streamlining the collection of value added tax.

I have no proposals to announce now but I am prepared to examine any suggestions for improving the collection of value added tax. Customs and Excise continually reviews its internal procedures and the Economic Secretary encourages it to do so.

Will my hon. Friend examine the proposals of my hon. Friend the Member for Surrey, North-West (Mr. Grylls), which suggest that more than 80 per cent. of all VAT is accounted for by a tiny percentage of those registered for VAT? If so, does that not give great scope for saving, both in civil servants and working hours, in many businesses?

We have examined all the proposals that have been put forward so far and found that none of them would cause staff savings but would cause complications for business or industry. If my hon. Friend the Member for Surrey, North-West (Mr. Grylls) who I believe is mounting a new study into the question, can come up with more ideas we shall be only too glad to adopt them if they meet the criteria that we both share.

Does the Minister recognise that strong objections exist, especially among small business men, to the bureaucratic character of the methods of calculation of VAT? Does he agree that there is an urgent need for action to take some of the work off the backs of people who are trying to do a job?

The hon. Gentleman will know that the whole question of the collection and enforcement of VAT is being studied by the Lord Keith of Kinkel committee, and we should await its report before deciding any action.

asked the Chancellor of the Exchequer what further representations he has received on the taxation of unemployment benefit.

We continue to receive a number of letters on this topic, expressing a variety of different views.

Is it not a disgrace that the Government intend to press on with the taxation of unemployment benefit when in the previous Budget they gave £260 million back to the better-off and privileged in society in the form of capital gains tax and capital transfer tax concessions? Does that not reinforce the view of many people that the Government wish to promote a divided nation—a two-nation society?

It is right that we should press ahead with the proposals to tax unemployment benefit.

"But I think that everyone who has ever been concerned with these problems has agreed with it."—[Official Report, Standing Committee D; 23 June 1977, c. 1182.]

Does my hon. Friend accept that the major issue is whether £650 million coming into the Exchequer in taxation should be balanced by returning the £60 million that has been taken in the abatement? Can he tell us whether the Government would prefer the House to drop the taxation proposals, at a cost of £650 million, or whether the Government will restore the £60 million, which is obviously of more benefit to the national exchequer?

As my hon. Friend knows, we debated the matter at some length on 26 April. I have nothing to add to what I said then, which made it clear that the abatement will not be a permanent reduction. It wild be made good at the right time.

Is not the main point that the Government introduced an abatement on the promise that it would be restored when the taxation of unemployment benefit was introduced? They have ratted on that promise. It is all very well postponing the matter to some future date, but the time to have restored the abatement was w hen taxation of unemployment benefit was introduced.

I repudiate the suggestion that a promise has been ratted upon. Anyone who examines the record will know that that is not true.

asked the Chancellor of the Exchequer what proportion of the income of a typical family on average earnings was paid in taxes of all kinds in 1978–79 and in the current fiscal year, respectively.

On the assumptions made in reply to the hon. Member for Blackburn (Mr. Straw) on 19 March, the figures for a married couple with two children are 41·5 and 45·2 per cent. respectively. As pointed out in the notes to the tables previously given, those totals should not be taken to represent a total liability to tax consequent upon a given earnings level, since the payments of indirect taxes and rates are only estimates based on typical expenditure patterns at that level.

Despite that answer, is it not the case that all independent inquiries on this matter have shown that almost every family on average or below average earnings is paying a substantially higher proportion of its income in tax now than at the last general election? That is a gross betrayal of the election pledge that tax would be reduced for all people at all income levels. Does not today's statement about top salaries demonstrate that the Government are determined to cosset the rich and clobber the poor?

The hon. Gentleman knows full well that what he just said about less well-off families and those receiving benefits is not true. It is certainly not true of pensioners, who do not pay national insurance contributions. The House will have heard my right hon. and learned Friend say that public expenditure has risen in real terms. The consequence of a rise in public expenditure in real terms is a rise in taxation in real terms.

Since the amount of taxation paid by the average family would be substantially reduced if we reduced significantly our contribution to the European budget, and since the war that we are fighting in the South Atlantic is being fought on behalf of all Europeans, will my hon. Friend, as part of the package that we are negotiating with our European partners, insist that we get a contribution towards our task force from Europe? After all, surely everyone would agree that one British sailor under present circumstances is worth 10 French peasants?

My hon. Friend must not make the negotiations even more difficult than they already are.

The Minister should not mislead the House. Is not the truth that while the burden of taxation for those on average earnings has increased, it has increased even more for those at the poorest levels? In real terms, at today's prices, the income tax bill of a family on half average earnings has increased by £6 a week from £9 to £15. Will the Minister confirm what his deputy secretary, Mr. Peter Middleton, told the Treasury and Civil Service Committee yesterday, which is that the poverty trap is getting worse every year and that, according to the Treasury, action on the poverty trap is a low priority?

The hon. Gentleman is not right on his first point. The figures for those on 75 per cent. of average earnings are 39·15 and 43·4 per cent. As to his latter point, it is not normal to quote civil servants in the House, but may I make it clear that the reason for the worsening of the poverty trap has been the Government's determination to maintain the real value of the retirement pension and many other benefits.

asked the Chancellor of the Exchequer whether he will now reintroduce exchange control in the light of the latest figures of overseas investment by United Kingdom financial institutions.

No, Sir.

Is the Minister aware that last year pension fund institutions invested £2·3 billion overseas in shares and that last year, for the first time, financial institutions, apart from the banks, bought fewer United Kingdom than foreign ordinary shares? Is he aware that that portfolio investment is in addition to the huge sums of money flowing to investment overseas, which should be invested in this country for jobs? Is not all of that an indication of the degree of confidence that the Government's friends have in the prospect of recovery under the Government?

The difference in the figures is not as great as the hon. Gentleman suggests. Portfolio investment overseas was £2·3 billion last year. It was £2·2 billion the year before. Investment in British equities has been at about the same level over that period.

Will my hon. Friend confirm that had exchange control been imposed the value of sterling would have been considerably higher over the past two years than it has been?

After 40 years of control, the relaxation of control must have had the effect of keeping the exchange rate lower at a period when it was generally agreed in all parts of the House that it was advantageous to British industry that it be lower.

Will the Minister explain that a net capital outflow is the inevitable concomitant of a surplus on current account?

I should have thought that that was a statement of the obvious.

Will the Minister confirm that, in addition to those portfolio figures, last year direct investment abroad increased by 50 per cent., while investment at home fell? Do not those figures suggest that even the hon. Gentleman's backers in the City have not been convinced by the promises of economic recovery just around the corner, which is offered to the rest of the nation?

The vital factor for the British economy, which is shown to have been helped by the figures that were given earlier of the downward trend in inflation, is that we want our industry to be more competitive and to provide the goods and services of the right quality, at the right price and at the right time. In those circumstances more investment will be attracted to home industry.

asked the Chancellor of the Exchequer to what extent expenditure on the Falkland Islands action is a factor in his latest assessment of the prospects for single figure inflation as an annual rate.

At the time of the Budget we forecast a year-on-year rate of inflation of 9 per cent. by the fourth quarter of 1982. The subsequent Falkland Islands operation has given no grounds for modifying that forecast.

Will my right hon. and learned Friend give the House a renewed assurance that whatever the cost of resecuring and defending our sovereign territory in the Falkland Islands, it will not deflect the Government from their economic strategy? Will my right hon. and learned Friend confirm that with the prospect of single figure inflation so close, it remains the Government's overriding objective to reduce the level of inflation to that of our international competitors?

I am happy to give the House that confirmation. I assure my hon. Friend and the House that cost is not a limiting factor of the operation, but the cost of that operation will be financed in a way that is consistent with our economic strategy. It is only because of the basic financial strength of the country as a result of the policies that we have carried out that it is possible to mount such an operation without there being an adverse effect on the value of the pound or interest rates.

Will the Chief Secretary give an assurance to the House that the Government will not use the Falkland Islands as an excuse for any difficult economic indicators that arise over the next few months?

The hon. Gentleman must not judge the Government by his own standards.

asked the Chancellor of the Exchequer what has been the change in the purchasing power of the £ sterling since 1969.

The purchasing power of the £ sterling in March 1982 was 22 per cent. of its value in 1969.

Does my hon. Friend agree that those who advocate that the Government should somehow act more slowly in dealing with inflation overlook the terrible fact that a mere 13 years ago £1 bought goods which today cost £5? Do they not also overlook the dreadful effect that that inflation has had on investment in our industry?

The figures that I gave are a dramatic illustration of the searing effects of inflation upon the economy. If we look back over those years, we see that the rate of the erosion of the £ sterling was greatest during the Socialist years.

asked the Prime Minister what are her official engagements for 13 May.

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

Notwithstanding the grave situation in the South Atlantic, will the right hon. Lady concede that throughout the 1980s Britain's major problem will be unemployment? Will the right hon. Lady instruct the Chancellor of the Exchequer to make available immediately a £1 billion boost for industrial regeneration and job creation?

I accept that at home tackling both inflation and unemployment will remain one of the major problems of the decade. It will also be a major problem in Europe and probably in other countries as well. I do not believe that making available an extra £1 billion, which would have to come from the taxpayer, would have the effect that the hon. Gentleman desires.

Will my right hon. Friend give a categoric assurance that the objectives with which the task force left for the South Atlantic are exactly the same today as when it left?

Yes, Sir. I have seen various reports in the press. May I make it perfectly clear that we are working for a peaceful solution, not a peaceful sell-out?

Will the Prime Minister look again at the discrepancy that is developing between the pay offered to judges and senior civil servants and that offered to nurses? Is she aware that in spite of what she said yesterday, taking into account indexed pensions, the gap is too big and will undermine any public confidence in the right hon. Lady's calls for wage restraint?

I understand that a number of questions on that subject were asked of my right hon. and hon. Friends on the Treasury Bench today. The right hon. Gentleman will know that those who are in charge of top management in the Civil Service and the Armed Forces and those who are judges have not had full increases for a number of years. Indeed, no Top Salaries Review Body award has been implemented in full and on time since 1974. My right hon. and hon. Friends and I took the view that this country must be able to secure the best judges and the best generals and admirals. We must ensure that they are properly paid and that our top civil servants, including the foremost managerial level, which is that of Under-Secretary, are reasonably well paid. If the right hon. Gentleman looks at the comparisons with 1980 he will find that in the TSRB groups the new rates, including the new offer, are 8 per cent. over the 1980 recommended levels, while the rates for the nurses on the same rules are 12·8 per cent. over 1980.

Looking to the Falklands, will my right hon. Friend take this opportunity to reassert that, for the British Government, there are two absolute sticking points? The first is that there must be cast-iron assurances that the Argentines will withdraw all their military and civil personnel, pending which the task force will remain on station. The second is that the aggressor shall not benefit from his aggression, so that there can be no commitment, expressed or implied, either now or for the future, regarding Argentine's claims to sovereignty over British territory.

In answer to my right hon. Friend's two points, as I understood them, all Argentine military and civil personnel must be withdrawn from the Falkland Islands on a special time schedule, and that must be verified. Under the arrangements that have continually been discussed—the proposals changed a little—our task force would not be withdrawn until the Argentines had withdrawn. With regard to sovereignty, we must insist absolutely that the Argentines do not enter into any settlement at the outset on the understanding that they have sovereignty at the end. We must have an undertaking from them that sovereignty is not committed, but is negotiable.

I thank the Prime Minister for using her influence to ensure that we shall have a debate on these matters today. Perhaps a full debate is a better way of exploring the present position than questions and answers now. I put to the right hon. Lady that in view of the importance of the matter—I am sure that she will confirm to some of her right hon. and hon. Friends that the Government said that they were prepared to accept the Peruvian terms—she will surely be ready to agree to the proposal that I made earlier this week, that if there is a settlement, and we all hope that there will be, the terms will have to put to the House. That is obviously right.

On a point of order, Mr. Speaker. I apologise for interrupting, but is not that tedious—

Order. We had better continue with questions.

In some ways it is easier if one answers precisely detailed questions, which are of tremendous importance, during the course of a debate. One tries to answer the right hon. Gentleman's questions and those of other hon. Members. With regard to the Peruvian terms, the terms proposed by this country through Mr. Haig have not been fully published. The right hon. Gentleman should not take those that have been published in Lima as necessarily an accurate account of those that were put forward by this country through Mr. Haig. A description of our terms was given by the Foreign Secretary in the House last week. That description is, of course, the accurate one.

They should be.

No, they should not be—never. That would be too easy a ploy on the part of the Argentines. If there is not a settlement the Government inherently have the power to act, and we are answerable to the House for our actions.

I understand about answerability to the House, but the Secretary of State for Defence made a statement on Sunday in which he elaborated on another option open to the Government—a continued blockade, which, he said, was perfectly possible. I say that the House as a whole should have the chance of passing judgment on that position. We want the House as a whole to dictate the situation, not 60 or 70 of the right hon. Lady's backwoodsmen off the leash.

We really cannot have a full debate on military options with the House making a decision. Nothing would be more helpful to the enemy or more damaging to our boys.

asked the Prime Minister if she will list her official engagements for Thursday 13 May.

I refer the hon. and learned Gentleman to the reply that I gave some moments ago.

Among the things that we should not forgo is the right to freedom of expression. If the Prime Minister really believes—[HON. MEMBERS: "Reading"' Yes, I am reading.

Order. I thought that by now every hon. Member knew that hon. Members never admit to reading a question.

I was reading the Prime Minister's ringing declaration on the BBC to the effect that—

Order. The hon. and learned Gentleman must remember it.

I do not seem to be doing very well. The Prime Minister was at pains to point out on the BBC that we are a democracy. If she really believes that, will she call off the dangerous vendetta against the BBC, because one of the tenets of democracy, law and liberty is the right of people to express their views publicly, even if they happen to disagree with those in authority.

The BBC does not lack freedom of expression, I do not lack freedom of expression, the House does not lack freedom of expression and the people do not lack freedom of expression. I believe in all four.

asked the Prime Minister if she will list her official engagements for 13 May.

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

Reverting to the point made by the Leader of the Opposition, will my right hon. Friend accept that most people in the country, and most of her right hon. and hon. Friends, expect the Government to behave like a Government and not as though they are running a debating society? We expect them to make decisions and to come before the House and defend any decisions that they take.

My hon. Friend is right. The Government have an inherent power to act and they must use that power and report to the House.

In view of the requests made to us by the Governments of Sweden and France about one of the prisoners taken by us on South Georgia, does the Prime Minister understand that the time is overdue for a formal statement to be made by the British Government about their view of the applicability of the laws of war to the present conflict? I regret to say that it looks, on the face of it, as if both parties have breached at least one of the conditions in the laws of war that we have signed.

I think that the hon. Gentleman was referring to Commander Astiz, who was the commander of the Argentine garrison in Grytviken. Since we retook South Georgia both the French and Swedish Governments have requested an opportunity to question him in relation to crimes against nationals of those countries that allegedly took place in Argentina. For the moment, Commander Astiz has been held on Ascension Island. We shall, of course, comply with the Geneva convention.

He is one of the right hon. Lady's pals.

Will my right hon. remind the Leader of the Opposition, and those who think as he does, of the 30 million lives that were lost in the last World War in Europe alone because the democracies refused to accept, recognise and resist the aggressive intentions of one dictatorship? Will my right hon. Friend ensure that such a thing does not happen again?

I accept that the effects of Argentine aggression would go far beyond the effect on the Falklands if it were allowed to continue without us stopping it, reversing it and ensuring that the Argentine forces withdraw from the islands. That is generally realised throughout the House.

Is it the Government's objective to return to the status quo in the Falkland Islands?

I hope so.

Our objective would be to allow the people of the Falkland Islands their own wishes, to hive their own way of life under the Government of their choice.

Paramountcy?

That is known as self-determination and it is in the United Nations charter.