HC Deb 13 April 1967 vol 744 cc1386-510

3.57 p.m.

The Chief Secretary to the Treasury (Mr. John Diamond)

The Budget has been criticised for not being reflationary at a time when the economy badly needs a shot in the arm. This criticism is, in my view, quite unfounded, and I propose to explain why.

There are two main expansionary forces already existing in the economy—exports and public investment. On the other hand, the fall in private investment, in industry and trade acts in the opposite direction; hence the present situation. But soon the expansionary forces will be gaining the upper hand and output will start to thrive. We expect exports and public investment to continue to grow. We also expect private house building to pick up. Indeed, there are signs that this is beginning to happen already. We expect stock building to recover with the re-expansion of output and the expected improvement in the liquid position of companies.

The rise in these various independent elements of demand will, in turn, generate a renewal of growth in incomes. The ending of the standstill and the implementation of wage settlements, deferred last July, will add to the growth of incomes and will promote a significant, though moderate, increase in consumer demand.

All this leads us to expect, as my right hon. Friend the Chancellor said on Tuesday, that total output will rise by getting on for 3 per cent. during the course of the year. An increase of this order, adding about £1,000 million to the total reserves at the country's disposal, is expected to arise from the existing expansionary forces. There is, therefore, no need for further action in this direction at the present time.

A number of independent and qualified observers outside have come to a similar conclusion. For instance, the National Institute for Economic and Social Research, the economists of the London and Cambridge Economic Service, and the Business Economist Group all expect a growth rate varying between 2 per cent. and 2½ per cent. So the decision to leave tax rates unchanged means that the expansionary effects of the increases in public sector spending to which I have referred will make themselves fully felt in the economy. There is no doubt, therefore, that the net impact of the Budget, seen as a whole, is expansionary. It is a Budget carefully designed to promote sound and sustainable growth in the year ahead and in the years beyond.

It was in February, 1965, that the Government announced that they intended to plan for an increase in public sector expenditure, excluding the investment of the nationalised industries, at an average rate of 4¼ per cent. per annum at constant prices. That rate was consistent with an overall rate of growth in our economy of about 3¾ per cent. per annum, because public expenditure includes those elements which are among the faster growing within the overall average.

But that rate of 4¼ per cent. referred not to each individual year but to the whole period ending in 1970. It was not expected that public expenditure would grow at an exactly even pace over the whole of that period. Indeed, it was known, and stated in the White Paper, that there would be a faster increase in the early years than in the later.

When we work out the figures on the basis of the estimates for the years following that announcement, it emerges that we are very much on target. The increase in total public expenditure at constant prices over the period from April, 1965, to April, 1968, is likely to work out at about 3¾ per cent. per annum. That means that public expenditure is rising at a rate which is consistent with an increase in our national product of about 3¼ per cent. per annum.

But we are only half way through our five-year programme and, as my right hon. Friend the Chancellor of the Exchequer has explained, we intend to bring our long-term expenditure into line with growth prospects up to 1970 as we now see them, and this will involve moderating public expenditure for 1968–69. In short, in spite of all the pressures for increased expenditure to which the Government are continually subjected, we have succeeded in keeping our public expenditure within planned limits in a thoroughly responsible way. In those circumstances, to complain about the excesses of Government expenditure is merely to repeat a parrot cry which I have heard from the benches opposite on and off ever since 1945.

After all, what are we talking about when we refer to public expenditure? In large measure, we are talking about the social services and defence, new schools and houses for our growing population, and better equipped hospitals. In defence we may be talking, for example, about saving countless lives in the Indonesian confrontation, which is now happily ended but which involved us in considerable public expenditure.

We are talking about public investment in our basic industries; nuclear power stations, North Sea gas, new telephone systems and new developments in steel. We are talking about giving effect to the wishes of millions of our citizens who know that over a large part of their affairs the needs of the individual are often best satisfied by the joint effort of the community.

There was an amusing incident yesterday during the interesting and authoritative speech of my distinguished predecessor the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) which illustrates that attitude. At one stage my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) intervened to ask if the right hon. Gentleman would give way. It does not appear in HANSARD, but I recollect that the right hon. Gentleman replied with his usual courtesy, "With pleasure". One could see him- licking his chops at the prospect of demolishing the intervention. My hon. Friend said: … perhaps the right hon. Gentleman will explain how the party to which hebelongs can call for more roads, more schools, and greater expenditure in many directions and, at the same time, argue for cuts in public expenditure. That was a reasonable, relevant and apposite question. The right hon. Gentleman, never to be defeated in an intervention, immediately replied: I shall be happy to explain that to the hon. Member, but at the moment I am dealing with the Chancellor's observations, and I do not propose to be diverted from them."—[OFFICIAL REPORT, 12th April, 1967; Vol. 744, c. 1244.] I listened to the right hon. Gentleman's speech—

Mr. John Boyd-Carpenter (Kingston-upon-Thames)

Read on.

Mr. Diamond

I have read every word. I shall read out as much as the right hon. Gentleman likes, but I nowhere found a passage where he answered that question.

Mr. Boyd-Carpenter

Will the right hon. Gentleman first read on, and then answer the question which I was putting at the time, and which was not answered yesterday: how he thinks that the Chancellor can cut back expenditure in 1968–69 after having allowed it to go on increasing, as the Chancellor admitted, on a very large scale in the current year? If the right hon. Gentleman will explain that, we shall be back to the point I was raising.

Mr. Diamond

It is very interesting that the right hon. Gentleman has once again answered a question put to him by asking another.

Mr. Boyd-Carpenter

Will the right hon. Gentleman answer it?

Mr. Diamond

I shall answer it with pleasure. That is why I am here. I am at the service of the Committee; I am the Chief Secretary and it is my privilege to answer these questions.

I am only pointing out at the moment, as it is relevant to my comments, that it is very unfortunate that people, particularly an ex-Chief Secretary, should lend themselves to making wholly uninformed, irresponsible comments about public expenditure and making vague suggestions about cutting down the total without ever indicating which constituent item is to be reduced. That is the point of my comment. Perhaps the right hon. Gentleman would like me to give way again.

Mr. Boyd-Carpenter

Certainly. If the right hon. Gentleman will look at that passage in my speech, to which his hon. Friend's intervention had no relevance, he will see that I was dealing with the statement of his right hon. Friend the Chancellor, one, that he would allow expenditure to rise very heavily this year and, two, that he would cut it back when private investment rose. If the right hon. Gentleman looks at the text of my speech, he will see that what he attributes to me as general comments an expenditure were not made by me. What I doubted with experience of the right hon. Gentleman's own office—and that is why I want his answer, was whether what the Chancellor said that he intended to do was physically possible. That and that alone was my point.

Mr. Diamond

I shall be glad to answer the right hon. Gentleman's question immediately. I have precisely repeated, for the sake of caution, the Chancellor's own words, and I shall repeat them again. [AN HON. MEMBER: "What about the figures?"] But I have exactly explained the figures. Let me repeat: we are only half way through our five-year programme and, as the Chancellor has explained, we intend to bring our long-term expenditure into line with growth prospects up to 1970 as we now see them, and this will involve moderating public expenditure for 1968–69—not for 1967–68. I immediately recognise, as everybody does, the right hon. Gentleman's point. He knows the difficulties as well as I do, and they are very considerable.

I only hope that we shall have the help of the House of Commons, and all hon. Members who continually press for increased expenditure, in moderating our long-term expenditure for 1968–69.

Sir Gerald Nabarro (Worcestershire, South)

Will the right hon. Gentleman give way?

Mr. Diamond

May I complete what I was about to say?

There are two aspects to this, first, that people make vague statements indicating a reduction in the total without having the courage to point to an individual item with which they are concerned. If the right hon. Gentleman was not saying that, I apologise for attributing it to him.

Mr. Boyd-Carpenter

I am obliged.

Mr. Diamond

The second aspect is that Members will always make a speech the first paragraph of which says that expenditure must be cut while the second asks that the Chancellor shall provide additional cash for something or other. That happens with great regularity. The latest example came in this debate, very soon after the Chancellor sat down, in the speech of the hon. Member for Croydon, North-East (Mr. Weatherill), which I heard with great interest. Having made my own assessment of his political attitudes, and knowing the political attitudes of his hon. Friend the Member for Croydon, North-East (Mr. Frederic Harris), I am not surprised that my hon. Friend the Member for Croydon, South (Mr. Winnick), in order to keep a steady course between those different points of the compass, must shoot out of both barrels at the same time.

This is what the hon. Member for Croydon, North-East said: My main condemnation of the Budget is that it contains no proposals for a cut in Government expenditure, which is the prime cause of high taxation and inflation". Less than 30 seconds before, the hon. Gentleman had said this—it is the previous paragraph but one— I hope that at some time during the year, if not in Committee on the Finance Bill, the Chancellor will find the money to establish the Small Business Development Bureau which I have previously advocated".—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 1093.] I am not paying particular attention to the hon. Gentleman and picking him out specially, but he makes the same kind of speech that we hear time and again, criticising the total of public expenditure, on the one hand, and asking for individual increases, on the other.

Sir G. Nabarro

Before the right hon. Gentleman leaves the subject of public expenditure, will he agree that the year 1966–67 witnessed the highest level of public expenditure that this country has ever known, and will he agree, also, that 1967–68 is to show an 8½ per cent. increase, at £660 million? If he proposes to moderate this public expenditure, or regulate it, towards the end of the quinquennium, in 1968–69 and 1969–70, that must involve a reduction in those years of 10 per cent. plus, in order to return to the average he forecasts.

Mr. Diamond

The hon. Gentleman is mixing up absolute amounts with rates of increase.

Sir G. Nabarro


Mr. Diamond

The rates of increase are those which I have given. The rate of increase has been at 3¾ per cent. The rate of increase was planned over the period at an average of 4¼ per cent. I have said already that it is not a straight line increase. There was, as it were, a hump in the curve of expenditure in the earlier years. The right answer to the hon. Gentleman, therefore, is that he need not have these anxieties. But I repeat that I shall be grateful for all the help which he will give me over the next few years in supporting the containment of public expenditure where it is not necessary and in avoiding requests for public expenditure for the things in which he may himself be interested.

We are discussing the broad principles of economic policy, but there are certain detailed proposals in the Financial Resolutions which are, perhaps, not self-explanatory, and I think that the Committee may wish me briefly to explain some of the more important. To remove an obstacle which may delay the completion of the winding-up of a company, it is proposed that companies should be allowed to pay at the old rate of Corporation Tax on profits arising during liquidation.

It is proposed, also, to close an existing loophole whereby close companies in liquidation can be used as vehicles for accumulating income free of Surtax. The Inland Revenue will be enabled to raise assessments in respect of income received after a company has gone into liquidation as well as before it.

There is a further proposal affecting the treatment of non-resident banks with branches in the United Kingdom. Nonresident persons carrying on banking and similar businesses here may hold certain Treasury securities the interest on which is tax-free in their hands. There is a provision in the existing law which was intended to provide for an equivalent disallowances of the interest paid by them, but this provision has proved inadequate. The Bill will remedy this.

There are certain other minor provisions, but they are technical, and all of a relieving nature, and I do not imagine that the Committe will wish me to delay the progress of the debate. I turn, therefore, to the more important matter of the Selective Employment Tax, which was opposed so vehemently by the Opposition last year. At that point of time, the Opposition preferred a straightforward payroll tax. This year, it seems, they are advocating a non-selective employment, tax, for this in essence is the proposal of the Leader of the Opposition in the article which he wrote in a Sunday newspaper.

The difference between the two sides, therefore, has, apparently, narrowed to the principle of selectivity. This is progress, but the difference—the difference of selectivity—is very important. The inevitable effect of the kind of proposal which the Opposition are now putting forward is an increase in prices all round. A general non-selective tax all round is bound to be passed on to the final buyer, in much the same way as a general rise in money wages. For this reason, it would handicap exports and attract imports, and, just because it would be passed on in prices, it would not give any general incentive to economise in the use of labour.

This is what happens when one has a non-selective employment tax. It is what happens, also, and is expected to happen, with a tax on commodities, such as the Purchase Tax. But it does not happen, and it has not happened overall, with the Selective Employment Tax. In fact, the whole complaint has been—in certain fields, I admit, and not in all—that it has been impossible to pass on to the consumer the whole of the tax or, in some cases, even a part of it. It was because they recognised that they would be unable to pass on the whole of the burden, that many employers in the service industries opposed this tax so vigorously.

According to the hon. Member for Basingstoke (Mr. David Mitchell), who, apparently, has conducted a sample inquiry of his own in his constituency, 52 per cent. of the traders questioned passed on the tax in part at least. So 48 per cent. did not. Some firms, according to the hon. Gentleman, could not raise their prices because—here I quote—"there was a competitor on the other side of the road".

I said at the time—this was greeted with amusement by some hon. Members opposite—that the Government understood and accepted the employers' somewhat vigorous reaction to this tax. Of course we did, for it showed that employers were reacting in the manner in which we were inviting them to react. They were looking at their labour costs rather than passing on the whole of the tax to the consumer in much the same way as with the Purchase Tax.

The obvious road to increased efficiency in labour-intensive industries is by economy in labour, and this was one of the important purposes of the tax. While we employ, as we do, far more people in wholesale and retail distribution than, for example, either France or Germany does, and while sales per employee in our distribution services are only one third as high here as they are in the United States, no one can deny that there is plenty of scope for greater efficiency.

Mr. Frank Hooley (Sheffield, Heeley)

Some employers not merely passed on the Selective Employment Tax, but added a little bit for themselves as well.

Mr. Diamond

That may well be, and in that case, if any example has come to the notice of my hon. Friend, he will, no doubt, have brought it to my attention or the attention of one of my colleagues so that it can be dealt with.

My hon. Friend is drawing attention to the same point as I have raised, and I wonder whether the figures are sufficiently understood. I shall not go into too many figures, but it may be of help if I give the Committee the figures to which I have just been referring. They come from O.E.C.D., and they relate to 1964. They are in respect of service employees in commerce, that is to say, not merely distribution but distribution, banking, insurance and the like. I shall give the figures for the three countries, the United Kingdom, France and Germany, where the population is broadly the same.

In the United Kingdom, the number of employees in the service industries as I have defined them is 3.6 million. In Germany, it is 2.8 million, and in France 2 million. A vast difference. In terms of output per employee, the figures are even more impressive. They are given in thousands of French francs. In the United Kingdom, the output per employee is 16½, in France 26½, and in Germany 26. It is an enormous difference.

In face of those figures, no one can say that there is not the greatest scope for further economy in the use of labour in the service industries, towards which this tax is ultimately directed.

Mr. Victor Goodhew (St. Albans)

If the right hon. Gentleman is suggesting that economy in the use of labour is essential in the service industries, surely he would agree that it is equally important in the production industries. Why do the Government give a premium or bonus for wastefulness there?

Mr. Diamond

We do not give a premium or bonus for wastefulness there. No doubt the hon. Gentleman attended our many and lengthy debates on the Selective Employment Tax when this matter was discussed almost ad nauseam. If he wishes to return to the topic, we are only too glad to do so.

Sir G. Nabarro

Answer the question.

Mr. Diamond

I am surprised that the hon. Gentleman gives support to his hon. Friend. I thought that he was of the view, as most businessmen who are factory employers are, that it is a contribution not to wastefulness, but to efficiency and the reduction of wastefulness in industry. It is a contribution to encouraging more labour, particularly skilled labour, to go into manufacturing. Indirectly, it is a contribution to our exports, in which manufacturing plays a substantial part.

Sir G. Nabarro rose

Mr. Diamond

I do not think that I should give way too many times.

Sir G. Nabarro

The right hon. Gentleman referred to me extensively. Manufacturers did not ask for the Selective Employment Tax premium. Manufacturers do not want the premium. It does not contribute a jot or tittle to manufacturing efficiency.

Mr. Diamond

All I can say about that is that the hon. Gentleman speaks for himself.

Sir G. Nabarro

No; I speak for the business community.

The Chancellor of the Exchequer (Mr. James Callaghan)

They can always send it back.

Mr. Diamond

There is nothing to stop any Member of Parliament, including the hon. Gentleman, sending tomorrow a cheque made payable to the Chief Secretary.

Mr. Callaghan

We will wait for it.

Mr. Goodhew

The right hon. Gentleman has not attempted to answer my question.

Mr. Diamond

I have referred to one justification for the Selective Employment Tax. I wish to refer to a second —the need to broaden the tax base. This is accepted as a principle, but when one comes to apply principles one meets with difficulties. The trouble is that there are people who do not at present shoulder a fair share of the burden and they much prefer that the base should remain narrow.

I should like to give one example which is very much in my mind. Recently, I received a delegation from the launderers. At this time of the year, Treasury Ministers are pressed to receive many delegations, all of which are anxious to explain that they would prefer to pay less tax rather than more tax. We are glad to see them. We cannot see all of them, but I was particularly pleased to see the launderers because, as I told them, I felt sorry about the economic difficulties through which they were passing, which depended mainly on the change in the pattern of domestic and home laundering. For years we have accepted as normal a situation in which home laundering has been heavily taxed in the form of Purchase Tax on washing machines. We tax the washing machine, which is labour saving, but not the laundry.

What is wrong is not the new system under which the services that they provide share in the burden of taxation, but the old system under which practically the whole burden was carried by manufactured products. However, I rejoice that my right hon. Friend has found it possible to meet their main request by reducing the tax on part-time employees. The relief on part-time employees and the relief on employees employed abroad have been widely welcomed. They have been welcomed by the Opposition on the ground that the Conservatives put forward these proposals last year. They have been welcomed by the Liberals on the ground that the Liberals put forward these proposals last year. I merely record that I welcome them as showing that in this respect there is considerable unanimity between all three parties that we should move towards ever greater selectivity.

We must also continue to be selective in our overseas investments.

Mr. Goodhew

Would the right hon. Gentleman allow me to intervene?

Mr. Diamond

I hope that the hon. Gentleman recognises—

The Temporary Chairman (Mr. Victor Yates)

Order. The right hon. Gentleman obviously is not giving way.

Mr. Diamond

We must be very selective in our overseas investments. Our purpose is certainly not to stop investment abroad, but to ensure that our scarce capital resources are used only in the most profitable way—and I use that term in its broadest sense.

Sir G. Nabarro

Hear, hear.

Mr. Edward Heath (Bexley)

If the right hon. Gentleman is leaving the question of the Selective Employment Tax, may I clear up one point? The right hon. Gentleman said that in my article in the Sunday Times I urged that the Government should go for a non-selective employment tax. I was casting my mind back in an effort to discover how he could have got that impression. I have read through the article. The right hon. Gentleman must have been thinking of some other contribution. I urged what I had urged for two years, which was that some of the social service charges at present paid by the Treasury or individuals should be moved over to industry. That would be only an extension of what already happens in industry. There was no proposal for a new poll tax.

Mr. Diamond

This is a tax on employment. It is eaxctly what the right hon. Gentleman is proposing. Instead of being a tax on the payroll, it is a tax on employment and increases wage costs.

Mr. Heath

The right hon. Gentleman was suggesting that it was a new tax. It is not. Industry already makes a contribution to the social service charges and the amount is adjusted from time to time. I linked it with a change in Corporation Tax and a change in the Selective Employment Tax.

Mr. Diamond

I do not think that I am being unfair to the right hon. Gentleman. His proposal is an extension of the tax on employment. He says that he drew a comparison between that and the Selective Employment Tax. We prefer the Selective Employment Tax, and I have gone to considerable trouble to show why. The difference between the two proposals is the selectivity. I have ex- plained that under the right hon. Gentleman's proposals the cost would go on the price. Under our proposals, it rarely does so in full and, to a large extent, does not do so at all. That is the result of the selectivity which I have explained.

We must continue to be very selective in our overseas investment.

Mr. Goodhew

If the right hon. Gentleman wants to be fair, he should give way.

Mr. Diamond

I have given way to the hon. Gentleman already.

Mr. Goodhew

The right hon. Gentleman did not answer my question.

Sir Douglas Glover (Ormskirk)

He is being selective.

Mr. Callaghan

And rightly so.

Mr. Diamond

We desire not to stop investment abroad, but merely to be selective in our proposals. That approach has been fully endorsed by recent re-examination. I said on an earlier occasion that investment abroad with a like yield compared with investment made at home was only one-quarter as valuable as investment made in this country.

The calculation is very simple. Tax deducted on the yield abroad goes to the foreign country and contributes to its social services and economic purposes. The tax which is paid by a British company on its profits contributes to the social services of the investor himself—schools for his children, his stay in hospital, and so on. The half, approximately, which is taxed in one case is for the benefit of the nation and in the other case is for the benefit of the foreign country. Therefore, for the investor it may be a like return. For the nation, we should calculate in one case on the pre-tax figure and in the other case on the post-tax figure.

Of the half which remains, 50 per cent. is remitted to this country and 50 per cent. is reinvested or ploughed back in profits. Therefore, what we get here from an investment made abroad in terms of immediate financial return, is one-quarter of the amount which would be obtained from an equivalent yield of an equivalent investment made in this country.

That must be taken into account in conjunction with a number of ancillary advantages which it was claimed last year made a difference to the picture. It was argued that there were various intangible benefits which had to be taken into account. One of them was held to be the advantage of the additional exports from this country to the newly established enterprises abroad. I doubted that proposition and gave as an example Germany, which had managed to increase its rate of exports at a far greater rate than we had and yet without anything like the measure of investment abroad which we undertook.

This aspect has now been fully examined, as the House knows, by Mr. Reddaway and his colleagues, who have concluded that, although some overseas investments produce a large export return, on average the additional export benefit is shown to be small, especially the continuing benefit. As against that, our country benefits from home investment in all sorts of ancillary ways—in additional employment, in the development of new ideas, new skills and know-how, and generally in the greater efficiency of our home industry.

Their Report draws attention, also, to the wide diversity of performance among overseas investments. It demonstrates the wisdom of selectivity in the administration of our controls, so that the most deserving cases receive the most favourable treatment. Selectivity is, of course, already a feature of our exchange control and of the voluntary programme for direct investment. Our arrangements are designed to favour those projects which provide a large export return.

The question which arises from the Reddaway Report is not whether the Government are justified in continuing their policies in this field, which have been confirmed up to the hilt, but whether our arrangements should be made even more selective. My right hon. Friend will be discussing these matters with the C.B.I., together with any suggestions which it may have consistent with the general framework of the balance of payments policy within which we must operate. I repeat that we do not seek to stop investment abroad. We merely say that in these times of stringency, only the best is good enough.

We do not propose in this respect to repeat the irresponsible conduct of our predecessors. It was their laxity which contributed substantially to the deficit of £800 million with which we are still having to cope. They ran us into debt faster than ever before. That debt has now been consolidated and is broadly represented by the sum of approximately £300 million due for repayment this year and a further £500 million due for repayment in 1970.

During these four years, therefore, we must earn an overall surplus of at least £800 million merely to deal with these two debts alone. Inevitably, this grey monument to Tory incompetence casts a shadow over our affairs as far ahead as 1970. This is the normal cycle which is familiar to consultants dealing with the reorganisation of a hopelessly mismanaged business—three years to restore profitability and a further three years to repay for the follies of the previous Administration. The world is realising that a Labour Britain pays, and the Budget does everything necessary at present to enable us to do that.

4.34 p.m.

Sir Keith Joseph (Leeds, North-East)

I must express one personal word of thanks to the right hon. Gentleman the Chancellor of the Exchequer. I am a member of the Executive of the National Council for the Single Woman and her Dependants, on whose behalf I should like to express gratitude for the modest and, we hope, only the first slice of help which he has given to these very deserving women, at least to those who pay tax and have tax against which to set an allowance.

The Chief Secretary did not add to the knowledge of a single hon. Member on either side of the Committee, although he took 35 minutes to speak. It is my job to build on the debate which has taken place since the vigorous speech by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) yesterday. That speech was answered by a very lame and naive lecture by the First Secretary. I am sorry that the right hon. Gentleman is not here and I am also sorry that the hon. Member for Manchester (Cheetham) (Mr. Harold Lever) is not here. If there has to be a Socialist Government, I for one am glad that it contains the hon. Member for Cheetham. The charm which we used to see from the back benches peeped through when he wound up for the Government last night, but only when he deserted that arid Treasury brief.

There were notable speeches yesterday and I want to refer, in particular, to those of my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), my hon. Friend the Member for Barkston Ash (Mr. Alison) and my hon. Friend the Member for Guildford (Mr. David Howell). But the honours of the day seem to have gone without doubt to the hon. Member for Edmonton (Mr. Albu). I am sorry that he is not here. He made a far better analysis of the country's problems than the First Secretary did. Normally, one credits and debits Ministers with the help of their Departments in preparing their speeches. I hope that the First Secretary's speech was his own home production, for if it represented the level of understanding of the Treasury of how business operates, then the country is in a sore plight. I do not believe that it did.

I want to address myself at once to a major uncertainty in the Chancellor's statement which in other ways was a model of clarity. The right hon. Gentleman spoke about growth, about growth in itself and about growth of production potential. Both figures happen to be 3 per cent. I believe that some of the papers have misinterpreted what the Chancellor said and have understood him to mean that this year, 1967, we are to get a 3 per cent. growth in this country. I am strengthened in the belief that that was not what he really meant by the comments of the hon. Member for Edomonton who, after all, was only recently a member of the Government.

Answering an intervention by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), the hon. Member for Edmonton said that, while he did not think that production this year. 1967, would be as little as ½ per cent., he thought that it would be only just above that. We need clarity in this matter and I am sure that the whole country does. The Chancellor may have been perfectly right and justified in saying that a 3 per cent. growth in itself would make available to the country, at constant prices, £1,000 million of extra resources. I am not attempting to dispute that, but the figures which he gave were related to a comparison between the gross national product at year end 1966 and the gross national product at year end 1967, and that does not mean that there will be £1,000 million extra resources during 1967.

I understand that the Financial Secretary is to wind up the debate for the Government and I put him on warning that my hon. Friend the Member for Wanstead and Woodford, who will be winding up for the Opposition, and I hope that he will deal with this matter with the greatest clarity. To put the question quite clearly: what we want to know is what is the percentage increase, if any, expected in aggregate resources available to the country, at constant prices, during the year 1967 as compared with the year 1966. If I am wrong, I shall gladly withdraw the allegation, but we want to know who is right—the hon. Member for Edmonton, or the interpretation put on the Chancellor's speech by some of the newspapers.

I now turn to the general comments which we on this side of the Committee wish to make about the Budget. It is our view that the Government are showing yet again that they do not understand the processes of national economic growth and decline. The Chancellor himself never referred to competition as such, except in relation to the reserves, and he scarcely referred to incentives. The right hon. Gentleman the First Secretary never referred to competition at all.

We believe that this competition, coupled with incentives, in a proper framework of law is the nearest that this country, or any other country has to a panacea. It is not a panacea, nothing is, but it is the nearest combination of weapons—and I emphasise within the proper framework of law—to a panacea as a method of growth. Here, we have the two leading economic spokesmen of the Government, and the First Secretary never referred to competition at all. The Chancellor referred to it only in relation to overseas reserves.

The scope for improved use of resources is vast, and in a curious way that is the strength of our country. We have the slack to pull in if we can release the energies of people. My hon. Friend the Member for Guildford, was absolutely right when he said 3 per cent. is nothing like the measure of the extra energies that could be released if only we can tap the real resources of management and labour. The nearest that we can come to doing this is by harnessing the self-interest of all in industry, in a context of competition, in an economy offering incentives.

It is true that the Chancellor by accepting the Paish thesis, the thesis that the economy should not be run flat out all the time, has shown that the Government are intending to leave some scope for competition—that emerges from his speech.

But the Government—and the First Secretary actually boasted of this yesterday—are proposing to reintroduce cartels. It is only a minor point, but is a real curiosity, that we should have to wait for a Labour Government to reintroduce cartels in the way that the First Secretary boasted yesterday, in order to carry one stage further the autarchic Little Englander policy, that this Government only too often follows.

What we need is a better measure of what I can only call the bite of the economy on management, that is the processes of management—

Mr. Joel Barnett (Heywood and Royton)

I understood the First Secretary to be talking about the I.R.C., and the encouragement of mergers. Is it now the policy of the Opposition to be against this sort of thing?

Sir K. Joseph

That is a separate question.

What I was referring to was the First Secretary's repetition of the announcement made by the President of the Board of Trade, some months ago, that the Government intend to modify the Restrictive Practices Act, first, to bring in information agreements, with which change we have no possible quarrel, but, secondly, to authorise firms to get together to erect import-substitute production facilities, in compliance with the recommendations of a "Little Neddy". This is only a way of reintroducing cartels. We shall want to discuss any such proposal with great care. There may be merits to be discussed, but this is a curious production of a Labour Government.

We need somehow to strengthen the pressure on managements to pursue efficiency constantly. The best way to achieve this is by competition. If we adopt a policy of competition only, then we drive businessmen into what are defensive postures. The right combination is one of competition and incentives. The First Secretary made great play with the no doubt admirable managerial conduct of Kershaw's, in Leeds. I am sure that this is admirable, but if the First Secretary wants to generalise this behaviour, then the best way he can do it is by harnessing the intelligent self-interest of all concerned, within a proper framework of law, by a policy of competition and incentives.

It is here that I want to turn to the notable speech of my right hon. Friend the Member for Kingston-upon-Thames, who emphasised the great discouragement upon the creators of wealth by the present vicious level of personal taxation. I very much agree with what my hon. Friend the Member for Louth (Sir C. Osborne) said on the same subject. The difference made to this country by the efforts of a few entrepeneurs and top managers is recognised by the Government. What the Government do not seem to recognise is that, by present levels of taxation, they discourage some people who might be entrepreneurs and top managers, from giving their best efforts.

It is not just that it robs the individuals, though that is relevant, it is that this behaviour by the Government robs the community of wealth which, in a competitive economy, in a framework of law, wealth creators make, not only for themselves but for the whole community. If I am rebuked by the Chief Secretary for suggesting the spending of money without saying where it could come from, we on this side of the Committee believe that there should be a small and very important cut in personal taxation, if necessary paid for by a small increase in indirect taxation. This would have a notable effect upon the enterprise of the country.

In normal years, a Socialist Government might find the cutting of surtax a political difficulty. But this year, because of the balance of the most urgent problems facing the Government, I do not see why this presents any political difficulty. Equal to the need to increase incentives for the wealth-creators, is the need to reduce poverty for the poorest people. I am not one who has recently come to this subject. I have been speaking on it and writing of it for almost as long as the academics have shown evidence of family poverty. I cannot believe after, the efforts of the academics and, in particular of the Family Poverty Action Group, that the Government remain unconvinced of the need for action here.

It is true that the First Secretary made a clumsy sort of attack on any change in the present welfare arrangements. He suggested that what we on this side of the Committee wanted was in some way to relieve the rich in order to burden the poor. The First Secretary knows perfectly well that the Government do not want to increase taxation if they can help it. He knows very well that this side of the House is suggesting that we can do more useful work if we switch some public money from low priority methods of use to higher priority methods of use. The highest priority that we recognise is the need to bring help to the low wage-earner with a large number of children.

I am not saying that money alone can cure the problem, but money is indispensable. There have to be increasing numbers of social workers and all sorts of social changes. But more money is absolutely indispensable. The conundrum for the House of Commons and the country seems to be that the Government, under terrific pressure from their own supporters as well, have not taken action in this Budget.

The Guardian this morning, in what I hope is a misleading account, suggests that yesterday, at a private meeting the Chancellor mocked some of his own supporters for their innocent unawareness of the pressure that there would be upon the Government to produce large social payments before the next election. If the report in The Guardian is true, it reveals a very cynical position indeed. Here are people who, on all sides it is agreed, are in urgent need; who may be breeding, for lack of money, a delinquent generation, and who are, by this account, being deprived of help purely in order to increase the bonus that the Chancellor is storing up before the next election.

I do not believe that it is true. I believe that there is another, less cynical and less reprehensible explanation. I believe that the Government have decided to help these people. They may still be undecided whether to help them by direct means-tested payments to those in need, or whether to help them by a major recon- struction of personal allowances in order to help 3 per cent. of the children, which I think would be a great mistake. As they do not want to raise taxes in this Budget, they cannot find the money now without getting it by raising other welfare charges.

As they would not be willing to do this just before the Greater London Council elections, so the needs of the poor wage-earner with several children are being deferred until a welfare package can be produced, probably one day before the Summer Recess, which would be paid for by raising by an extra 6d. the cost of school meals. That is my opinion about the way in which the Government will meet this need. I hope that, one way or another, the need is met, and met urgently, because if the Government do not meet it they are gravely to blame before the House and the country.

There is another pair of hardships to which we wish to draw attention. On 20th July, the Prime Minister boasted in his statement that, in introducing deflation, the Government would protect the development areas. Indeed, up until now, except for the South-West, unemployment in the development areas has increased less than in the country as a whole. I am referring here to full-time adult unemployment.

But, as the First Secretary of State acknowledged yesterday in reply to my right hon. Friend the Member for Enfield, West, there is a lag in the effect of deflation on those areas of the country were heavy industry tends to predominate, because deflation hits consumer trades, which are predominantly in the South and the Midlands, first, while Scotland, Merseyside, the North-East, Wales and Ulster get the impact substantially later.

My point in returning to the argument made by my right hon. Friend and accepted by the Government yesterday is only to dot the "i's" by saying that, unless something hapens, the development areas will get the full impact of deflation, judging from previous experience, in the year beginning July, 1968, and at that time the Prime Minister's boast will have a very hollow and mocking sound to it.

The other point to which we wish to draw attention is the impact of deflation on the people who are over middle age. It is easy to draw attention to this. The hon. Member for Salford, West (Mr. Orme) drew attention to it yesterday. It is not so easy to make suggestions to the Government on how to help. But I ask that the Government should pay particular heed to any retraining or re-employment methods which can be brought to bear to help those over 45 or 50 who have been hit by deflation.

The real problem of the Government is how to get private investment rising and again there is depressing news today in that the machine tool industry has a declining order book both for home demand as well as for exports. We all agree that grants alone will not do the trick. The hon. Member for Edmonton put it succinctly yesterday when he said that investment will only follow the opportunity of profit. The problem of the Chancellor of the Exchequer is how to get this rise in private investment without a consumer boom which would, of course, drag in imports as a consequence. Here, I believe, as in so much else, that competition and incentives, by raising supply to match increased demand, would help substantially.

But the Government have, to a large extent, made this rod for their own back. The backlog of wage claims facing the country is to a large extent due to Government policy. The First Secretary of State has said that he expects wage rates at the end of this year to be 6 per cent. higher than at the end of last year. He did not comment on earnings and it may be that rising unemployment and falling overtime will make the effect on earnings substantially less than the effect on wage rates. We can only hope that the Government will give a lead in stiffening the back of employers against making concessions and then trying to pass them on to the public.

The essence of this is that employers should know that the market is such that they cannot pass on concessions to the public in higher prices. The whole art, it seems to me, of an incomes policy is to make it against the interest of the employer to consede increases that cannot be absorbed in costs. The Government must behave in the same way in their own sector but the examples of the railways this last week has not been encouraging.

The Chancellor has acknowledged that the country needs more private investment. He has also acknowledged, and the Chief Secretary referred to it at length, that public investment is rising rapidly this year, and he is rightly frightened of "bunching"—that is to say, of a coincidence in time of a rise in consumer spending, a rise in public spending and a rise in private investment. He is absolutely right to concentrate if he can on avoiding this.

But, as my right hon. Friend the Member for Kingston-upon-Thames, with his great experience, said, it is not enough for the Chancellor to express the intention to rein back public investment to make way for private investment when private investment starts to rise. One cannot intervene effectively at the last moment in public investment without doing disproportionate damage and we on this side would have expected the Chancellor to have given some evidence already of cutting back public investment if he really expects private investment to rise.

In a very good speech yesterday, my hon. Friend the Member for Barkston Ash (Mr. Alison) drew attention to the lack this year of a White Paper enabling one to compare Government investment intentions from year to year. But, comparing the material which has been published, I believe that the Government have in fact cut public investment plans already by over £32 million since mid-February. I am comparing the White Paper on the Budget with the Written Answer which the Chancellor gave on 16th February.

It is the right trend for the Chancellor to begin to make way for a surge in private investment by beginning to cut public investment now. But he will have a hard job. The National Institute for Economic and Social Research, on page 8 of its February issue, said that, after making an allowance in the present investment plans for a reduced Electricity Council programme, it still seems probable that public investment will go on rising at around 8 per cent. per year.

We hope that the Financial Secretary will give a clear indication of the timing of the proposed investment changes that the Government must have in mind. After all, a considerable amount of starts in the public investment sector have already been authorised for next year, particularly in education. The Government should tell us what proportion of 1968–69's public investment programme has already been authorised with starting dates or with starting seasons. Then we will see on what relatively narrow base the Chancellor has to operate if he is to rein back public investment in order to make way for private investment.

I have picked out some of the highlights that remained after the most effective demolition job of my right hon. and hon. Friends yesterday on this Budget and on Government strategy. I want to sum up by expressing our view of the very unhealthy position into which the Government have manœuvred themselves. Their scope for increasing the efficiency of the country by an incentives policy is still shackled by the remnants of their Socialist ideology. Their lack of grip on public expenditure is at odds with the nation's needs.

In particular, the Government want and need more private investment but they lack the grasp and the guts to rein back public expenditure as they know they should. So we have the spectacle of a market disciplined private sector dwindling while the loosely controlled public sector grows. The last condemnation of the Government is that they have not the nerve straightforwardly to tackle the prime needs that the Budget should have met—the release of energy by incentives and the reduction of poverty by changes in social arrangements. This is a very disappointing Budget indeed.

5.0 p.m.

Mr. James Hamilton (Bothwell)

I welcome this opportunity, as one from across the Border, to say how, in my opinion, the Budget will affect the people of Scotland. A great deal has been said about the balance of payments deficit and my right hon. Friend the Chancellor related in his Budget speech that he fully expects to have a surplus by the end of the year.

Be that as it may—and we all accept that as a fact—we must pay testimony to the trade union movement, because although, in July of last year, the Government introduced measures which were completely unpalatable to most of us, and particularly to the workers, who expected so much from their own Government, the trade union movement, to its credit, has never had an official stoppage of work against the prices and incomes policy of the Government.

Only yesterday, as I sat here throughout the proceedings, I heard an hon. Member make vitriolic statements concerning the former Minister of Technology, who is now the leader of the Transport and General Workers' Union, whom the hon. Member likened to a Fascist. Obviously, the General Secretary of the Transport and General Workers' Union will be capable of replying to that when he reads the hon. Member's speech in HANSARD.

The Government must, however, be warned that at its conference in March this year, the trade union movement, having tolerated the existing situation for so long, arrived at the decision that it wanted to accept and introduce a voluntary system. I was present at that conference. The leader of the Transport and General Workers' Union and the members of the general council were responsible for the preparation and submission of the document which was presented to the trade unionists.

Therefore, while there is talk about rogue elephants, I submit that if the Government do not take cognisance of the expression of opinion of the trade unions, they could quite easily find themselves in a very difficult situation when they attempt, as it were, to walk from Part IV into Part II of the Prices and Incomes Act. In no circumstances can I, as a responsible trade union leader, support the Government if they are prepared to introduce these measures.

We have read in the Press that representatives of the C.B.I. and T.U.C. officials have met the Government at different times. According to the Press, the C.B.I. was told that in many circumstances it would be permissible to increase salaries. In point of fact, a horse and cart could be driven through the statements that were made to them. An impassioned plea was also made to them to curb their dividends. What do we say to the workers? We tell them in no uncertain fashion that under this system the Government are not prepared to allow them to increase their wages.

It is rather strange to hear the Opposition talking about the lower-paid workers and about the poverty which prevails, particularly among people with large families, bearing in mind the record of the party opposite during their 13 years in office. It is a fact—even the Scriptures tell us this—that no matter what legislation is introduced by any Government the poor will always be with us. This is not a party political issue. It is something which concerns each and every one of us. I am quite sure that my very close colleague in the next constituency to mine—

Sir G. Nabarro

Who is that?

Mr. Hamilton

My right hon. Friend the Minister of Social Security. She is very clear in her mind and I am optimistic that the Government will endeavour to do something to resolve this pernicious problem.

Sir G. Nabarro

Pie in the sky.

Mr. Hamilton

I do not think that it is pie in the sky. I believe that the Government can, and will, do something, because they have more or less said so in their manifesto. I am prepared to believe that at the end of the day they will measure up to their responsibilities.

We have also heard quite a lot about unemployment. We have heard about the tolerable 2 per cent. That is all right for those who are not among the unemployed. I am sure that many of the unemployed are unemployable. If the figures were broken down, it would be discovered that the 90,000 unemployed in Scotland could quite easily be reduced by about 30,000 and the real unemployment figure would be in the region of 60,000.

Notwithstanding that, in Scotland, and particularly in Lanarkshire, where we have the computer and electronics industries, for example, although there are lucrative jobs in those industries we cannot get the craftsmen to fill those jobs—and this at a time when men and women cannot find work. Consequently, firms are now taking advantage of the training programme which has been introduced by the Government, because those of us who are in industry realise that unless we get the skilled craftsmen, the ancillary grades obviously cannot follow behind them.

Mr. J. Bruce-Gardyne (South Angus)

I agree entirely that the unemployment figure has to include a number who are unemployable. Would not the hon. Member agree, however, that we must bear in mind that net emigration is now running at about 50,000 a year and that this represents an additional loss of jobs which should be added to the basic employment figure?

Mr. Hamilton

That is perfectly true. Only last Friday I was with the industrial training board officials in Glasgow. In the same building, on the floor above the industrial training board offices, there is the immigration office for Canada, to which many people apply daily. This, however, is not something new. To all intents and purposes, it is something which has been with us since the Industrial Revolution.

Much as we are sending some of our best people to the Commonwealth and to America, in many respects they derive the advantage of what is happening in those different countries and when they come back we gain in technical know-how and skill. Such gains are reciprocal and in many respects are helpful to our industry.

The Government have issued their Green Paper which, to all intents and purposes, will be an added incentive to employers to come to the development areas. Many hon. Gentlemen have stated that the manufacturing industries are not in need of the extra £1 or £2 per worker which will be paid to them, but the Government's intention is to try to induce industrialists to come to the development areas. This is to their credit.

Before we left office in 1951, I am told that there was a point of view expressed from this side of the House that we should have advance factories and industrial estates constructed in development areas. The present Government are now endeavouring to measure up to all that they said when they were in opposition. I can speak only with authority about my own constituency, which is an industrial area where advance factories are being built. In my constituency, three have been built already, and they have been taken up immediately by industrialists. A further one is being built, and my information from the Board of Trade is that it will be taken up when it is fully constructed.

I want now to refer to the Selective Employment Tax. Last year, when the tax was introduced, we had an added burden in Scotland, because it came at the time of the quinquennial review of valuation arising from the Valuation and Rating (Scotland) Act, 1956. That meant that in some instances the valuation of shops was increased by as much as 500 per cent. It is also true that most factories had an increase in valuation. We realise that they have a 50 per cent. relief from rates but, notwithstanding that, in Scotland they are still paying more in rates than similar premises in England. That is totally unacceptable.

The Selective Employment Tax was introduced to direct people from the distributive trades to manufacturing industries, but we discover that lads and lassies leaving school have no intention of going into the distributive trades and, as a consequence, the tax is not operated in the fashion intended by the Government.

I am pleased that my right hon. Friend the Chancellor has decided to modify the situation in relation to part-time workers. However, I would ask him to go a step further and consider disabled workers, of whom there are many throughout the country. Unless there is some modification, the Selective Employment Tax will not play any important part in the economy.

I have referred to the poorer families. I notice that trade unionists took a decision yesterday to ask for the introduction of a minimum wage. This would be most acceptable to hon. Members and to the people. Once we get a minimum wage, we can say that there is a distinct possibility that the poverty which concerns us all may be eradicated to a degree, and that, in essence, will solve one of our major problems.

During his speech, my right hon. Friend the Chancellor made a number of nautical references. A number of hon. Gentlemen opposite and some of my hon. Friends did likewise. I want to finish on this note, by referring to Sir Francis Chichester. When he was making towards the Cape, some of us who were watching his progress with interest thought that he would never "make it", but Sir Francis had no doubt that he would "make it". The Chancellor obviously feels that he can make it on behalf of the Government. I only hope that he is correct. However, I ask him to pay particular attention to many of the points which have been raised in the course of the debate. If he does not, at the end of the day the Government may find themselves in very serious difficulties.

5.16 p.m.

Mr. A. G. F. Hall-Davis (Lonsdale)

I wish to deal with the prospect now facing the development areas, and not only the designated development areas but the older industrial districts of the country. I want to discuss the proposals outlined in the Green Paper for helping these development areas by means of a regional employment premium. The Government have invited comment on these proposals. I feel that they will be surprised by some of the comments which they receive, and I hope that they will consider them on their merits.

There can be no doubt that the development areas need help. My right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) has pointed out that the impact of deflation comes upon them at a late stage in the cycle. I want to draw attention to another reason why I think that they require careful consideration. The prolonged squeeze and the stagnation of production accompanying it show little sign of any substantial change. They have come at a time when there has been a considerable regrouping of industry into larger industrial units, and that is sharply aggravating the problems of this type of area. It is inflicting a different and deeper wound on them than they have suffered in similar depressions since 1945.

What is happening now is that when demand is slack for a lengthy period and when prospects for early re-expansion look dim, as they do today, if the structure of a large industrial group permits, which in the present state of our industrial development it does in many cases, the firm does not resort to short-time working or make temporary reductions in the payroll. What it does is totally and permanently to shut down the least modern and efficient unit or units in the group. Very often, these units lie either in development areas or in older industrial areas which are already confronted by grave problems, and total closures leave a permanent gap in the local economy.

One saw what I may give as a substantive illustration of it in Lancashire only last week, where, within a period of 72 hours, in north and east Lancashire we had the announcement of the closure of four separate works in separate districts owned by three different major industrial groups in entirely different industries. This is what the Chancellor's policy is meaning for the older industrial areas. This is the prospect for the next 12 or 18 months, and many are not even enjoying the assistance afforded by de-development area status.

I am sure that what I have to say will be echoed in the comments which the Government will receive on the Green Paper. Before major additional assistance is given to the development areas, a review must be made of the areas and districts designated, otherwise there will be some areas whose plight and problems will rapidly become worse than those of the development areas.

Perhaps I might make one or two brief constituency allusions. Part of my constituency is in the development area, and part is outside, and yet, ironically, the part outside has a higher unemployment figure and is faced at the moment with major redundancies.

I would like to deal with the specific proposals, and to ask whether the regional employment premiums will be the best way of helping these areas. I do not think that they will. This is not because the proposed injection of help in money terms will be too little. It will be very substantial indeed, but I draw the attention of the Financial Secretary to two figures in connection with the employment premium which I found so remarkable that I began to think I was incapable of doing elementary arithmetic.

The two figures are based on a premium of £2. It is estimated that the cost will be £100 million a year, and the Chancellor told us in his Budget statement that the Government were hoping to provide 100,000 extra jobs. Yet £100 million is almost exactly the sum required to pay the entire wages of 100,000 people, the number of jobs which the Government are hoping to create. Surely when it costs as much to prime the pump as the pump is likely to deliver it must make suspect the whole economic basis of the proposals? We could hardly have a cruder or more expensive method of providing employment, particularly when the effect will be almost entirely short-term, and confer only the minimum long-term benefit in terms of increasing the strength of the economies of these areas.

That brings me to the kernel of my criticism of the selective employment premium proposals. I have a great awareness of the needs of these districts and I would not wish by anything I say in this House to diminish their chances of getting additional assistance, but I believe that these proposals will disguise the problems of the development areas and not remedy them. The need is to revitalise many of these development and older industrial areas. It is their industrial base which needs modernising, but, in addition, it is their social environment which needs renewing. They need a rebirth, and not a prolonging of old age.

The danger is that the regional employment premiums will postpone a solution of the problems of these areas, rather than advance them, and two problems will not be touched at all, first, the need for improved communications, which has already been referred to in this debate, and, secondly, the need to create a new environment.

With regard to communications, and again as an illustration, because I think that this is a valid example of the peculiar economics of the proposals, may I refer to the Furness Development Area in north Lancashire, part of which lies in my constituency. Employment here, in an area with a total population of about 100,000, is predominantly in manufacturing industry, and if we pitch the subvention figure, or the premium figure, at the top figure of £2 a week it amounts to about £2½ million a year.

At that rate, just over one year's premium, about 14 months' premium, would cover the cost of providing a Furness link road which would bring the whole of the development area eight miles nearer the motorway system than it is at the present time, and fufil one of the Lancashire County Councils major priorities in road development. I realise that while it was under construction it would impose some strain on the general national economy, but once it was completed, in a comparatively short period there would be no more residual pressure on the economy than there will be under the selective employment premium proposals, and I am sure that when these proposals are examined many such contrary and conflicting things will emerge.

My fear is that if the premium is given indiscriminately, as is proposed, to highly profitable, marginally profitable and unprofitable manufacturing industries it will preserve rump industries which are unable to generate a renewal of environment and a new social richness. It may not be popular to say this, but this is my experience having lived in many of these areas. What is more, it will give a premium to many concerns which have neither the wish to expand, nor the managerial or financial capacity to do so.

One of the problems of some types of regional structural unemployment is that there is not the ability to absorb and bring the unemployed into work. I do not accept that in many cases, particularly among the smaller firms, the premium will be passed on in lower prices. I believe that it will neither lead to lower prices, nor to expanded employment. By propping up concerns and plant with no viable future, we will only be putting off the evil hour, perhaps just when opportunities for attracting replacement industries are at their best, and we would be keeping people locked in employment in dying undertakings instead of using our resources to secure their transfer into newer growth industries.

I think that we should be asking how best we can encourage in development areas the provision of jobs in growth industries which will provide assured employment in the long term, and increase the pace of industrial renewal, rather than prolong the existing unsatisfactory pattern. Surely the right way is lo link encouragement to profitability? Under the previous Administration, free depreciation was linked to profits. I know that this is why it was not very popular with many hon. Gentlemen opposite, and that this is why the Government changed to a system of investment grants, but I would like to point out that while investment grants are not linked to profits, they are dependent on the installation of new plant, and they are therefore tilted towards industries with a future, or at least towards modernisation and a real physical strengthening of the local economy. Their disadvantage from the development area point of view, or the Government's attitude to development areas, is that they favour capital intensive industries. I suspect that this is why the Government feel that they have reached the limit on investment grants which they can hold out to the development areas.

If the Government are determined to proceed on the lines set out in the Green Paper—and I fear that the discussion will be more cursory than we would wish, and that a basic decision may have been taken, at any rate on the type of approach—it would be of more benefit to these areas if, together with the higher investment grants now ruling, there was introduced a regional employment tax allowance instead of a regional employment premium. With Corporation Tax at 40 per cent., the equivalent of £2 per week premium would be £260 employment tax allowance, but the least profitable ventures would be unable to utilise it fully. I am sure that an examination of statistics would show that many manufacturing concerns do not yield a profit of £260 per employee. These are the works least likely to expand, and except in the short term, the least likely to export. But it would be possible, when these premiums were not taken up, to set an even higher figure for the allowance, giving even greater benefits to the more profitable undertakings.

In my view, the profitable undertakings are the ones more likely to expand, export, survive and permanently enrich the life of development areas to which we want to attract larger firms which can supply an injection of new vigour. Such allowances would be related to the provision of employment, unlike investment grants, and they could still be used, by anybody capable of elementary mathematics, to reduce prices.

They would assist large firms who are likely to be inter-regional exporters, which is important, because many smaller manufacturing firms in these regions are not inter-regional exporters; they are akin to service industries, doing jobs for local industries and residents which happen to be of a manufacturing nature, such as the manufacture of foodstuffs, or jobbing engineering. The bigger firms are likely to be inter-regional exporters and therefore to ease the pressure on the economy.

I do not want to see the question of aid to the development areas and the older industrial areas become confused and involved with the question of export subsidies for British industry. I do not want something to be discussed as ostensibly the best way of helping development areas when it is really because it is the most easily excusable method of giving an export subsidy to British industry. What development areas need are new investment, new life, new vigour, and a richer and more exciting social environment. For me, the proposed employment premiums place too little emphasis on what is new and what will remain viable.

5.32 p.m.

Mr. David Marquand (Ashfield)

I hope that the hon. Member for Morecambe and Lonsdale (Mr. Hall-Davis) will forgive me if I do not comment on the details of his argument. I shall refer briefly to some problems of the development areas, but I want to concentrate on the broader strategic issues of economic policy.

I was disappointed by the speech of the right hon. Member for Leeds, North-East (Sir K. Joseph). There was a certain sterility and barrenness in what he had to say about our fundamental problems. He began by stressing the need for competition, and said that the nearest thing we could ever get to a panacea was competition within the framework of law. We all accept the need for competition in the private sector. We all accept the need for the disciplines of a free market, and we all accept the necessity of the profit motive in a mixed economy. But if these things had worked by themselves we would not now be in the mess that we are. The party opposite was in power for 13 years, operating the economy according to the doctrines enunciated by the right hon. Member for Leeds, North-East, and it is because of that that we are faced with our present problems.

I accept the need for competition, but I say that it should not be just within a framework of law; law is negative. We need in addition more positive stimuli for the private sector. This is one of the major differences between the parties.

I was also a little distressed by what the right hon. Gentleman said about the problem of poverty. I was deeply distressed by the omission of any proposals in the Budget statement to deal with the problem of child poverty. I agree that the right hon. Gentleman has had a very good record in this matter but I do not accept that the party opposite has a right to make party capital out of this issue.

The right hon. Gentleman referred to the work of the Social Administration School at the London School of Economics, which uncovered the problem of child poverty. One of the most remarkable products of the School was the book, "The Poor and the Poorest". The central message that emerged from the book was that poverty in this country—defined as people having to live beneath subsistence levels—had almost doubled during part of the time that the party opposite was in power, so it does not lie in the mouths of right hon. and hon. Members opposite to use this argument for party political purposes.

I congratulate the Chancellor on his courage in bringing forward this Budget, but I disagree fundamentally with the philosophy behind it, and I think that the goals to which it will lead are dangerous goals. But there is something to be said for the candour with which the right hon. Gentleman made his Budget speech and the starkness of choice that he presented. What he did was to turn his back on the fundamental assumption which lay beneath the Labour Party's programme in the 1964 and 1966 elections—the fundamental assumption which lay beneath the creation of the Department of Economic Affairs, the formulation of the prices and incomes policy, and the drawing up of the National Plan.

That fundamental assumption was that it would be possible and desirable to run the economy at capacity, and that if balance of payments difficulties appeared—which they probably would if we tried to run the economy at capacity at the present rate of exchange—we would correct balance of payments difficulties by other than deflationary methods which would bring growth to a halt.

That was the tacit assumption underlying the programme of this party for two years. It was also the tacit assumption underlying the policies of the right hon. Member for Barnet (Mr. Maudling) when he was Chancellor. This is not a purely party issue; it is a cross-bench issue. That assumption has been repudiated in the statement of the Chancellor this week, and I believe that in repudiating it he has landed himself in a number of contradictions.

First, the policies which he put forward for regional development suffer from a fundamental contradiction. I welcome the so-called Green Paper. It is necessary that a Member speaking from a prosperous region should proclaim loudly that regional development is not a matter of charity from the prosperous parts of Britain to the less prosperous. I believe that we are all diminished and impoverished by the waste of human resources and capital implied by the 9 per cent, unemployment figure which my hon. Friend the Member for Rhondda, West (Mr. Alec Jones), so eloquently described yesterday.

Although I welcome the Green Paper 1 believe that my hon. Friend the Member for Merioneth (Mr. William Edwards) underlined a fundamental contradiction in the Government's regional policy. What he said amounted to this—that we will not get industry moving to Merioneth while spare capacity exists in the Midlands, and that the only time we will get industry moving to Merioneth is when the Midlands are working at full stretch. In other words, if we try to run the economy with a margin of spare capacity nationally we shall be running the regions with an even greater margin of spare capacity.

I also believe that there is a fundamental contradiction in the attitude of my right hon. Friend towards the incomes policy and social welfare. We have been told by the. First Secretary that it is not possible to redress the distribution of the national income in favour of the lower-paid workers through the wages structure. This, it was said, would involve too great an upheaval and, instead, it was necessary to use the machinery of taxation and social benefits paid by the Exchequer.

That may be true but, if it is, this Budget was a golden opportunity to do something concrete, and to do it now, to relieve poverty where it is at the moment most acute; namely, in large families living below the levels said to be satis- factory by the Supplementary Benefits Commission. In failing to make such an announcement, my right hon. Friend has dealt a very savage blow at the incomes policy which he himself says is still an essential part of the Government's strategy.

But I believe that the most fundamental contradiction in the Budget statement lies in its whole philosophy about growth and the balance of payments. The heart of that statement lies, I think, in column 983 of the OFFICIAL REPORT, where my right hon. Friend said, in effect, two things: first, that capacity is likely to grow at a rate of 3 per cent., and, secondly, that the economy will be allowed to grow at 3 per cent. also. In other words, according to my right hon. Friend, we shall perpetuate the present margin of unused capacity right to the end of this period. Putting it another way round, the Chancellor of the Exchequer said we must earn a surplus on balance of payments large enough to pay off our foreign debt. This surplus, he said, can only be gained if we continue to run the economy with a margin of unemployment of the present size. Therefore, we cannot expand faster than capacity expands.

I believe that this view has two major weaknesses. In the first place, the target of 3 per cent. rests, in any case, on very insecure assumptions. There are, I think, two main assumptions underlying the Government's expectation that they can get a balance of payments surplus large enough to allow a 3 per cent, growth rate. One is that we have a really effective incomes policy, and the other is that world trade remains buoyant.

The first of these assumptions is quite patently now false. I was, and still am, a very firm believer in a very tough incomes policy with a statutory element in it. I would have been prepared to go to the limit in favour of such a policy. But that policy no longer exists—it has been abandoned. I hear one of my hon. Friends say "Good", but it means that one of the crucial assumptions underlying the 3 per cent, growth target has also been abandoned.

World trade may remain buoyant—I hope that it does and that the markets will continue to exist—but we have to accept that it may well not. Germany is now involved in similar difficulties to our own and has employed the same kind of deflationary policies that we have ourselves employed. France may well be in balance of payments difficulties at the end of the year. Indeed, one of the objects of our exercise is to put the present creditor nations into balance of payments difficulties—we cannot all have a balance of payments surplus at the same time. What happens when the French get into balance of payments difficulties? Will not they also deflate and run down their economy? In other words, we cannot be certain that our markets are there.

Most important of all, I totally disagree with the idea that we ought to maintain the present margin of unused capacity indefinitely and permanently. In the first place, it means—and I think that hon. Members on this side should realise this—that we accept, not temporarily but for the future, a seasonally adjusted rate of unemployment at the present level. That means that in a cold January we may have 750,000 unemployed. Are we prepared to accept that? I believe that we cannot accept it, and I do not believe that we should.

In the second place—and this is, perhaps, the really fundamental critique—if we maintain the present level of unused capacity, what incentive is there for the private sector to undertake the investment necessary to modernise British industry, to improve productivity and to use capital and manpower more efficiently? This is the heart of the problem. In a mixed economy, the profit motive must be the petrol that drives the engine. Any economically literate person on either side would agree to that. If we run the economy with this degree of spare capacity there is no real incentive to carry out the structural reforms with out which we can never get out of the vicious circle.

What is the alternative? I admit that it is not enough simply to criticise my hon. and right hon. Friends. The aim is clear. We ought to aim at running the economy at nearly full capacity without landing ourselves in balance of payments crises of the kind that have pulled us up short in the past. There are a number of ways in which this can be done. One important way is drastically to reduce Government overseas expenditure. The Government have announced steps in this direction. I am one of those who think that they have not gone nearly far enough or nearly fast enough. But defence cuts are only a fairly marginal part of the answer. What we really have to do is to shift the ratio of exports to imports in favour of exports, not just at a time when the economy is being deflated—that is easy to do—but permanently, when the economy is running at full stretch.

How can we do that? There are two possible ways. We can do it by physically stopping imports—by controls, quotas and so forth. I think that it would have been right to have done that last July in the crisis situation that then existed, if the machinery had been available. I do not think that it would be right to rely on import controls as a permanent feature of the landscape—not for a country that depends as much as we do on world trade.

The only other way, therefore, is to make exports more profitable, and I believe that there are two possible avenues open here. The first is to change the structure of indirect taxation; to go over to a system like the French value-added tax which would allow some sort of export rebate. It would have been desirable to have heard from the Chancellor of the Exchequer some clear statement on the pros and cons of this system. At the very least, if we are to have Green Papers let us have a Green Paper on the value-added tax—

Sir G. Nabarro

I am sorry to interrupt the hon. Gentleman's most interesting speech, because we on this side are as passionately devoted as he is to the promotion of the export trade, but why should the Chancellor of the Exchequer say anything about the pros and cons of various methods of taxation? Richardson, under a Tory Government, investigated the lot, and the Richardson findings were published. Richardson came down against a change, and every successive Administration have endorsed his view.

Mr. Marquand

There is one interesting new fact that has appeared since then, and this is it. I think—I hope, I pray—that there is a very good chance that by the end of the decade we shall be members of the European Economic Community. There is also a very good chance, to put it no higher than that, that by 1970 the Community itself will have gone over to that system. So, if we join, we may have to adopt the system, anyway. I can see no real argument against examining it at this point.

The other way of making exports more profitable is that of changing the exchange rate in the way suggested by my hon. Friend the Member for Edmonton (Mr. Albu) and my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) yesterday. I do not think it possible for a back bencher without access to official figures, not in a position to know what are the elasticities of demand for British exports, to be able to pronounce definitively on these matters. But one or two facts seem clear. In the first place, it seems clear that the pace of our cuts in overseas Government expenditure has been too slow and halting. Secondly, ii seems clear, emphasising that this is on the basis of the information I now possess with no access to official figures, that the argument in favour of a change in the exchange rate is irrefutable. Maybe it can be refuted, but it has not been refuted so far.

It is also clear that the objections both to a change in the exchange rate and to really effective cuts in foreign expenditure are not economic; they are political. Since October, 1964, this Government have conducted economic policy within a strait-jacket. The strait-jacket has been their belief in the necessity to preserve sterling as a world currency, their belief in the necessity to maintain the Anglo-American alliance and not to annoy the Americans by creating pressure against the dollar, their belief in the necessity of maintaining a British presence in the Far East. Within these constraints the Chancellor of the Exchequer, the Foreign Secretary when he was First Secretary of State and Secretary of State for Economic Affairs, and the present First Secretary of State have struggled, but have struggled without avail. I believe it is time to escape from these limits by changing the political parameters within which our economic policy has been forced to operate so far.

Mr. John Smith (Cities of London and Westminster)

If the Chancellor of the Exchequer is doing so well in repaying American borrowing, is not this a poor time to choose to devalue?

Mr. Marquand

I do not want to take up the time of the Committee any longer as I have spoken for far too long already. I did not say that we should necessarily devalue at this moment. I say that the arguments advanced by my hon. Friend the Member for Edmonton yesterday cannot be refuted on the basis of the findings which have so far been produced.

5.52 p.m.

Mr. Charles Fletcher-Cooke (Darwen)

After that devastating attack on the Chancellor's Budget speech, an attack all the more effective because it was delivered in such moderate language and with such charm, I hardly dare say what I intended to say, that I think the Chancellor's judgment was rather a good one. I have some criticism of the details of it, but since I do not believe that devaluation would solve any of our problems, either in the short or in the long run, 1 therefore take a different view of the basis of our economy from that of many hon. Members opposite who have spoken yesterday and today.

It was very noticeable yesterday how many hon. Members opposite, finding that all these painful measures are either getting too painful or are not working, are searching desperately for some other golden key to unlock that door which they have twice promised the electors they would show them. There is no such golden key and I am convinced that devaluation would not provide it. That is why I thought the Chancellor had the courage of being dull, and the courage of being candid and the courage of being consistent and I think it time that someone on these benches said so.

One thing in his general overall assessment I did not care for, one trace in the new thinking which we came to dread so much in previous years, has still remained. That is this theory that he is obliged to give forecasts and judgments about the rate of growth. It may be said that he was tempted into this by the Leader of the Opposition and my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), who have been prodding him and prodding the Prime Minister for some months to try to get them to fall into a trap. The day before yesterday the Chancellor fell into it with both feet.

He said that the growth is now to be 3 per cent. What is the purpose of giving that figure? All previous figures have been denied by subsequent events. Surely there is no merit to anyone in sticking his neck out in this way. Surely the growth we need is the greatest growth we can get consistent with balance of payments stability and with stability of prices and employment. If it is more than 3 per cent. so much the better, but for some reason there is now a legend and a theology that businessmen require, in order to make their decisions about investment and decisions about whether they shall cut back or progress, a figure.

This is a view of businessmen which I do not believe is correct. I do not believe anyone has ever met a businessman who, when deciding whether to put in a piece of new machinery or to build a new plant or to close one down, has ever said, "How does this fit in with the overall growth figure of the national growth of 3 per cent. or 4 per cent.?" What is the point of making this forecast, except the satisfaction of the innumerable economists, both amateur and professional, who have found a happy haven in the Department of Economic Affairs?

It does not help, but to my mind it injures, the Chancellor's reputation because it cannot be 3 per cent. It is not given to man to propose these things or to dispose of them with that degree of accuracy. Already in his speech today the Chief Secretary was mentioning 2 per cent., 2½ per cent., 3 per cent. and 3½ per cent., which sound fractional, but in the sort of figures which we are dealing with they represent enormous differences. I cannot understand why, when the Chancellor had pitched the general tenor of his speech so agreeably low and stable, he should have fallen into this trap which I think he will rue very soon.

It is very difficult this year to avoid the temptation of flitting from the extreme general such as the rate of growth to the extreme particular, that is to say, the small details of taxation changes which the Chancellor has proposed. I should like to take up the theme he mentioned that this year he wants to listen to suggestions and wishes to take the year to make up his mind about a great new tax reform Budget of next year. "New thinking" again, and this fills my heart with dread. Last year the Chancellor posed as the great tax reformer. Whenever people do that, one may be quite sure that they are increasing the general burden of tax- ation and not reducing it. They are introducing new taxes and not abolishing old taxes because that is what tax reform has come to mean in this Government. Indeed, in most Governments we find almost every so-called tax reform is a reform at the expense of the subject and for the benefit of the Treasury.

I suggest two or three ways in which that balance can be remedied in this great debate which the Chancellor wishes to have between now and the next Budget. I refer in particular to a tax that is very rarely referred to, which is an old tax, which is an onerous tax, an inconvenient tax, and which ought to be abolished. That is the Stamp Duty. This tax was invented in the reign of William and Mary. It was invented before the days of the Inland Revenue or any such efficient means of tax collection. It was invented as an ingenious device because in a sense it collects itself. No document can be produced in court if it does not bear the necessary stamp. For that reason, it is a very easy form of tax for a primitive society. That is about all that can be said for it. It is levied on some transactions, but not on all transactions, only on those which require a document to carry them out.

Today the techniques of taxation are such that one taxes, if one must, by means of such things as a Capital Gains Tax or a betterment levy. One does not tax a document. The cash flow is taxed at whatever point is chosen. At the same time, to carry on with the primitive taxing of the document is, in many cases, double taxation, is wholly anomalous, and ought to be harmonised and cleared up with modern taxation techniques.

There are numerous transactions which are not affected, because there are no documents; or, if there are documents, there are often very few. I will give the Committee a few examples. In a settlement involving cash or other chattels which are transferable by delivery, it is possible to settle originally the sum of 10s. and then transfer the cash or other chattels merely by delivery, thus avoiding almost all the Stamp Duty.

A great deal of time is wasted in this stamping apparatus which does not afflict other comparable nations. Bonus issues of shares, for example, are often employed where they should not be. On a transfer of shares, particularly of a private company, virtually all the transfer duty can usually be avoided by converting the existing ordinary shares into preference shares, title to which new ordinary shares then passes on renounceable letters of allotment. A very small proportion of the consideration is attributable to the preference shares and the great bulk of it to the ordinary shares, and therefore the Stamp Duty saved is very considerable.

The receipt on a debenture document can often be so worded that it does not attract full Stamp Duty, because great care is taken to avoid its operation as a reconveyance.

There are many other such examples. On a low level a great deal of time is wasted by the messengers queueing up at the Stamp Duty Office to pay a considerable amount of duty on transactions which often have to be done quickly or which should be done quickly.

At a higher level there was, and I think still is, a great waste to the country by certain new issues being made abroad rather than here. In the case of internationally quoted shares, Stamp Duty on quoted securities means that there is a much less free market. I well remember my hon. Friend the Member for St. Ives (Mr. Nott)—I do not know whether he is here today—telling me that when he was more actively employed in a certain famous merchant bank he had to go to Luxembourg frequently to make an issue of an internationally quoted share in order to avoid the sort of stamping arrangements I have mentioned.

The Financial Secretary to the Treasury (Mr. Niall MacDermot

My right hon. Friend has put that right in the Budget.

Mr. Fletcher-Cooke

I am not sure that the Chancellor has wholly put it right. I know that he has said that certain bearer shares, whether originating in the United Kingdom or elsewhere, are no longer to bear Stamp Duty. I think that it will be found that, speaking generally, a great deal of valuable investments are lost to this country by the amount of money and the inconvenience involved in the Stamp Duty and its administration.

I do not want to pitch this too high, but in this great desire for the reform of the tax system, which I wholly support, I hope that the Chancellor will see whether it is possible in modern circumstances to abolish anomalies such as the Stamp Duty. There was a time, and I think there still is, when there was great difficulty in the giving of insurance policies for short periods, and Stamp Duty was attracted by the amount insured irrespective of the time period. Therefore, an enormous duty was paid on an insurance policy covering quite a short time. That may have been put right to some extent but not altogether.

There is still the anomaly that Stamp Duty on leases goes up in stages according to the length of term of the lease, so in order to avoid paying a high rate of Stamp Duty a lease is sometimes granted for a short term with a reversionary lease at the end of the term. This is absurd.

The Chancellor spoke of the ingenuity which is falsely employed by professional people and which might be better diverted to more productive work, but he must surely realise that the blame for this must not lie with professional people. It lies with the system, with the set-up, which gives such inducements to people to employ time and intellect which would could be better spent. When there is talk of tax avoiders, it should be remembered that half the nigger in the woodpile is the incidence of the tax itself.

Therefore, without necessarily reducing the total amount of revenue which he thinks he must raise, the Chancellor could help us all by abolishing anomalous taxes—there are many others—of this sort. If necessary he could compensate himself by an increased rate in other ways, but he should abolish the inducement to avoid the tax in the ways I have mentioned. He would thus release quite a substantial number of well-trained and important civil servants, who are occupied in the administration of this duty, for other purposes—whether of tax or otherwise.

I therefore suggest that the Chancellor should not merely invent taxes, as he has done in the past. He should go through all the old taxes and see if it would not be worthwhile risking a loss of revenue, because there is a certain amount of revenue involved, in order to streamline the administration. If he did that, I think that he would find a much greater degree of co-operation from the taxpayer than he is likely to get otherwise.

There have been serious, and I think very worrying, rumours that the level of taxation is such that the co-operation upon which our taxation system depends is in danger of breaking down; that, whereas in the past the great majority of people have no doubt grumbled but have nevertheless felt it their duty to co-operate with the Revenue, that peculiarly British quality is in danger of disappearing. Psychologically it might well be restored somewhat if the taxpayer could see some hope in the future that tax reform does not mean just new taxes but means the abolition of old taxes and old anomalies.

In the days of the Conservative Government I remember preaching much the same lesson on a subject which has already been raised in the debates on this Budget, namely, the iniquity of husband and wife being assessed together—not only the iniquity of it from the moral point of view, but also the folly of it from the economic point of view in modern conditions. Year after year nothing whatever is done about that. It is never even defended verbally. It is too good a source of income from a narrow Treasury point of view.

I believe that, if reforms like that could be carried out, reforms which are shown to be both economically and ethically correct, people would not mind counterbalancing increases in taxation in other directions. Until such old, foolish and barbarous taxes as the Stamp Duty, which injure our profit-making capacity, are abolished, or at any rate are examined with a critical eye, and not merely by those whose job it is to administer them, but by outsiders as well, we shall not get the sort of tax system which I am sure the Chancellor wants and which the country must have if we are to continue with the high degree of taxation which it appears that we are liable to face for many years to come.

6.10 p.m.

Mr. R. B. Cant (Stoke-on-Trent, Central)

I am very grateful for this opportunity to contribute to the debate, because I want not only to congratulate my right hon. Friend the Chancellor of the Exchequer but also to support him. Those seem to be two rather different things.

This has been a courageous Budget, if one likes to use that sort of language. In the main, it was sensible because, looking at the strategy of the Budget, to use the terminology of my hon. Friend the Member for Ashfield (Mr. Marquand), one sees that he resisted many people who tried to persuade him—again to borrow my hon. Friend's language—to play about with the sort of parameters, whether economic or political, in which he must conduct his policy.

In suggesting solutions to our economic problems yesterday, my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) indulged in so many suggested important policy changes that I almost had to remind myself again of Keynes's saying that it is the short run that matters because in the long run we are all dead. The Chancellor must legislate for this year plus and not think of what he can do in terms of a decade.

I should like to see overseas expenditure reduced, but all the trouble that we have had indicates that we should support the Chancellor and my right hon. Friend the Secretary of State for Defence in what they are doing, because the present rate of progress is about at a maximum.

Mr. Robert Sheldon (Ashton-under-Lyne)

The current level of Government expenditure overseas is £472 million. Does my hon. Friend expect that it will be less than £450 million in the following year?

Mr. Cant

Whether or not I have that expectation, I have the hope.

My hon. Friend suggested such policy principles as import controls, which would seem to be a solution to many of our problems. But they are incompatible with another of our objectives—entering the Common Market. International monetary reform is something which we hope and expect will come, but it certainly will not be this year.

My hon. Friend also raised the important policy question of devaluation, which I consider to be not only politically impossible but economically undesirable. I wish that some of my hon. Friends would rethink that problem. I believe that if they look at the current issue of the Bankers' Magazine and read the discussion between the economists Scott and Ball, they will agree that they had better have another think if they believe that devaluation is infinitely superior to deflation. The arguments for and against devaluation are much more sophisticated than I have heard from either side of the House while I have been a Member.

My right hon. Friend will go down in history as one of the greatest Chancellors of this century so far, because he is not only a major tax reformer but is slowly but surely, if some of my hon. Friends will give him time, beginning to take into account in his policy considerations some of the greater issues, the new parameters and dimensions that they urge on him.

I am glad that my right hon. Friend has resisted the beckonings of the econometricians who work out in beautiful tables the potential economic growth of the nation, and I have some sympathy with the hon. and learned Member for Darwen (Mr. Fletcher-Cooke) on that. I read an article recently which suggested that if one takes the point of maximum growth in 1961, the point of maximum output in the fourth quarter of 1964, joins them and extrapolates the line into the future, one will see how much of our production we have lost and are losing. That is for the backroom boys, and I would encourage a merging of the Treasury and the D.E.A. so that those who do those sorts of exercise could be put into a backroom to do them for five years and see how they work out.

I think that the Chancellor is about right. It is all right questioning the 2½ per cent. to 3 per cent. growth which is his assumption for this year, but if we want corroboration of that figure let us go to the source of all economic inspiration for many hon. Members opposite—Profesor Paish. In his article in the Financial Times recently, in parallel with an article by Professor Blackaby, he said that 3 per cent. is available. He said that half would go on public consumption, we should have to make adjustments for the balance of payments and increases in stocks, and we could throw in a little because of the decline in investment. That would leave us 3 per cent. That was said not by the Chancellor but by the arch-priest of reaction. There would be 3 per cent. for consumer expenditure, which would be taken up in an inevitable increase in wages, incomes policy or not. Therefore the Chancellor was just about right in producing that sort of Budget.

Mr. Bruce-Gardyne

Would the hon. Gentleman agree that the economist whom he describes as the high-priest of Tory theory is the mentor of his right hon. Friend the Chancellor?

Mr. Cant

If I may, I shall come to that in a moment. I must be brief.

Given the uncertainties of the economic situation, the Chancellor has been just about right in his economic management and the strategy or tactics of the Budget. I welcome the Budget because I think that in it the principle is accepted that economic management is now much more a continuous process. No doubt my right hon. Friend still likes the atmosphere of Budget day and to stand in front of the Treasury Box and speak for 1½ hours. But in practice he clearly accepted that he must make adjustments throughout the year.

I think that my right hon. Friend has also accepted that the Budget can make only a limited contribution to economic management. He has probably been reading some articles and books. Dow on the management of the economy, a massive work of research, suggests that in attempting to make fiscal changes we have probably been too clever by half and have increased the instability of the economy rather than diminished it.

I welcome the Budget because I accept, even though I am on this side of the House, that it is absolutely critical that we get the balance of payments right. There is no alternative to that. I shall come back to the point in a moment.

I accept what my right hon. Friend is doing because it means that entry into the Common Market will be easier not only in balance of payments terms but in terms of changes in taxation in the future. I accept it because implicit in it, I believe, is that we shall repay our debts to the International Monetary Fund on time and we shall not take the advice of those who say that, in the second year, we should stretch it out a bit, leave it over, spin it out, and so on.

Finally, I regard this as a good Budget because it does what so many hon. Members opposite have so often urged: it gives the Inland Revenue a period of time for consolidation. It makes no major changes in taxation, in fact, hardly any changes at all.

If I may, in parenthesis, revert to the speech of the hon. Member for Louth (Sir C. Osborne) yesterday, I do not accept the point which is made about taxation and incentives. I do not know whether the Financial Secretary will say something about this tonight, but I regard the point as greatly overdone. The three surveys that I know of which tried to establish a relation between taxation and incentive all prove that there is very little in it. It is said that increases in taxation diminish incentive, and so on, and that all this results in the brain drain across the Atlantic. But, surely, the people who go across the Atlantic are attracted by three times the gross income and not half the level of taxation. At least, if I were thinking about it, I should go across on those terms.

I feel as deeply on the subject of social reform as others who have spoken, but I come back to the point I made earlier about economic management being a continuous process. I believe that the Chancellor has this matter very much in mind, and I give him credit for it, but I say, further, that if he has delayed doing what so many people have pressed him to do because he is having a fundamental reassessment of the pattern of taxes and subsidies right across the board, I would welcome it.

Unemployment is a far more critical factor. As one who joined the Labour Party in the 1930s because I saw so much unemployment on the North-East Coast, I find unemployment the most difficult factor of all to accept. I do not think that we can use the phrase "an acceptable level of unemployment".

Sir G. Nabarro

A tolerable level.

Mr. Cant

A tolerable level—I do not think that we can use even that phrase. We may have to accept unemployment. I recognise that, but I think that we should talk, rather, of a grim inevitable level of unemployment. That might be consistent with our approach.

Sir G. Nabarro

The hon. Gentleman will remember that yesterday I tried to extract from the First Secretary of State a statement of what was a tolerable level of unemployment, in the same way as we tried to extract from the late Hugh Gaitskell what was a tolerable level of unemployment. Hugh Gaitskell was honest. He said 3 per cent., straight out. With today's level of working population, that means 750,000 unemployed. What does the hon. Gentleman regard as a tolerable level of unemployment? Is he as honest as Hugh Gaitskell?

Mr. Cant

I am always happy to see the hon. Gentleman the Member for Worcestershire, South (Sir G. Nabarro) coming into the Chamber, as he occasionally does during debates. He does not stay long, but he comes in occasionally to ask a question. I may not be an honest man, but, if the hon. Gentleman will bear with me for a moment, I shall, in my remaining few minutes, say what I think about the situation.

What has been lacking hitherto has been a general approach to the whole problem in practical terms. Ministers have said at the Dispatch Box that we must have economic growth without balance of payments deficits. I shall be a bit heretical now.

Sir G. Nabarro

What about answering me?

Mr. Cant

I shall answer the hon. Gentleman in a moment. In considering the Chancellor's motivation in his attitude to unemployment and growth, I sincerely hope that he has not swallowed hook, line and sinker the Paish doctrine of a given level of unemployment as being necessary to achieve a certain rate of growth and balance of payments viability. Everyone says that he has, of course. I hope that that is not true.

In considering the question of unemployment, what we have to accept is that neither this country nor any other country will have a rate of growth which will be represented on a graph by a smooth upward line. We must recognise that our economic growth will be somewhat jerky. People will say that I have embraced the philosophy of stop-go. But I would put it in this way. I believe not in a smooth rate of growth but in the ratchet theory of economic growth. We are wise to accept that we should go ahead for, say, two or three years, when our levels of unemployment will be relatively low, and we should accept, also, the premise that we may have to put on the brakes, and, in the year when we put on the brakes, our unemployment will rise.

We see this in the history of all economies. Take Japan, Germany, France or Italy—none has had a regular growth of economic growth. In the post-war years, the United States has had the longest period of sustained economic growth of any country. What is the lesson to be learned there? The United States has had a long period of sustained economic growth because it has drawn on its gold reserves and because it has persuaded other countries, particularly the countries of Europe, to hold dollar balances on an unprecedented scale.

The Chancellor should accept that the state of affairs is as I have outlined it, and, if he does that, he must build up his balances, building them up to a level which will finance his balance of payments deficit in year 2 or year 3. This, I believe, he will do, and this is why I regard his Budget as right.

Next, the question of regional policy. In my view, the problem of the regions is solved much more easily if the general level of economic activity in the country is running at a high level than if we merely try by selective means to improve the situation in the regions.

Finally, we should not be afraid of a consumer-led boom. We have been talking a lot about export-led booms. I should like to say a good deal about exports because I disagree violently with my hon. Friend the Member for Ashton-under-Lyne. I consider that our exporters are doing a magnificent job. If they can do better, so much the better. But to hope that this country will be led to prosperity by an increase in exports is to cry for the moon. We should not have an investment-led boom, either. So let us have a consumer-led boom.

Sir G. Nabarro

What rot.

Mr. Cant

Look again at the lesson of history. It may be true that this is rot and rubbish—

Sir G. Nabarro


Mr. Cant

—but this is what I believe. On the day after the Budget, The Times said that the Chancellor should reflect that while a good strategist can win wars, a bad tactician can lose them. I believe sincerely that my right hon. Friend the Chancellor is not only a good strategist, but has been a good tactician as well.

6.30 p.m.

Mr. Richard Wainwright (Colne Valley)

Since these four days are supposed to constitute a debate, it is pleasant to find oneself in the unique position of following a Labour Member who has offered a partial defence of his right hon. Friend's Budget. As to his point about consistent economic growth being a counsel of perfection and not being achieved elsewhere, I for one would not object to a touch of the brakes now and again if there was underlying growth of a vigorous character and if between the touches of the brakes we could count on really vigorous growth and not simply allegedly record figures of production and export the record of which derives merely from the process of inflation.

I would like to follow various hon. Members from both the other sides who have taken up the Government's invitation to discusss the Green Paper proposals for employment premiums for the development areas. First, as to the allegedly new device of widespread and enlightened consultation. I hope that in the process of consultation, which is all very fine in itself, the Government will not persist in over-exaggerating the representative character of the advice which they get from outside the House of Commons.

The Government are in the habit of going on television or coming down to the House and saying, "We have consulted industry. We have also obtained the views of the workers". It might be desirable, but it is certainly not possible, in this country, to consult industry or to obtain the views of the workers. All that the Government can do is to consult the long, the short and the tall, the north, the south, the east and the west, and the butchers separately from the bakers and the candlestick makers. They delude themselves if they think that they can obtain unified advice from industry or from the workers. There is no substitute in the way of consultation for a thorough debate in the House of Commons with the Whips of both the other parties off. That is how we on this bench would like to see the Green Paper discussed.

As to its content, much better Liberal experts than I are taking up the Government's challenge and will offer advice in due course. I throw out only one observation. It seems to me that since the development areas together comprise a far larger area of the country than the non-development areas, the chances are that under the proposed scheme most of the value of the premiums will go, not to the really deprived areas, but to already industrialised districts such as the central industrial belt of Scotland and the heavily industrialised North-East, which indeed need help but which do not comprise the really urgent need.

If the employment premium proposal is a skilful exercise in gamesmanship to get round the difficult provisions of G.A.T.T., let the Government say so. If they are exercising the very skill of the avoider which they condemn so much in tax matters, which the Chief Secretary has gone out of his way to condemn, let them admit it and let the nation know that it is the only way to get round G.A.T.T. in a satisfactory fashion.

Since we have the advantage for the moment of the welcome presence of the Chief Secretary, I turn briefly to the Selective Employment Tax. Liberals, not alone, bitterly regret that this absurd, one-legged monster is limping into another financial year. We are glad, for what it is worth, that, as the Chief Secretary acknowledged this afternoon, the Budget follows an Amendment in respect of relief for employees working abroad which was moved from this bench by my hon. Friend the Member for Orpington (Mr. Lubbock) in the course of the Finance Bill debates last summer, and that there is also some, but not enough, relief in respect of part-timers, whose case was similarly urged.

The Chief Secretary went on, however, in his bland fashion to say that all this simply proved that all three parties were now united in the pursuance of selectivity. That was a meaningless statement with less significance than if the Chief Secretary had said that all three parties believed in happiness or that they all wanted to have breakfast. There is no merit in selectivity as such. The whole of our case in the long debates last summer and our campaign in the country since has been by way of protest against bogus selectivity on an invalid basis.

The fact that the Chief Secretary has at last come round to selectivity as between employees working in this country and employees working abroad is no justification for his brazen persistence in pretending that one can validly select between people in industries which render a service to production and, on the other hand, industries which are themselves manufacturing. We continue to reject entirely his attempt to be selective on that basis.

I turn to a more general aspect of the Budget. As one or two hon. Members have had the magnanimity to do from the Conservative benches, I also acquit the Chancellor of any sinister intentions. Indeed, in some respects he is a shining light compared with Conservative ex-Chancellors. He has admirably resisted the temptation to tax at a higher rate companies which by their nature are not represented in the House of Commons and which have no votes at elections. This constrasts in a welcome way with the sly but regular additions to the Profits Tax which were a feature of Conservative Budgets. In a year which has some significant elections, the Chancellor has shown a fairly robust attitude towards the electorate, on which one must certainly commend him even though we do not at the moment know the results which it will have.

The trouble about the Chancellor's Budget in the round, however, is that it is a negative one. It is a Budget produced by minus people for minus people. What we want is a Budget produced with a plus mentality. As it happens, the Chancellor has been faithful to an entirely negative principle, which he repeated word for word during his Budget speech, which was enunciated by the prince of negativists 36 years ago.

During his Budget speech, the Chancellor this year said: I have no intention of killing the goose that lays the golden eggs."—[OFFICIAL REPORT, 11th April, 19657; Vol. 744. c. 989.] Thirty-six years ago—I remember it because it happens to be the first politician's phrase that ever stuck in my memory—that exact phrase, with a different accent, was uttered by Philip Snowden. One is bound to be touched by the faithfulness of Socialist Chancellors to one another; but although this may be touching in its faithfulness, its negative doctrine is disastrous to the growth of the private sector of the economy.

By all means fence in the goose of private enterprise so long as it is done generously. By all means warn the goose off certain fields where the electorate has decided that private enterprise is not appropriate. But within the fence with which private enterprise is surrounded, we must let the goose feed its head off and give it every possible encouragement which the Government can provide.

I should like to take as a text the very text which the First Secretary took yesterday. In a rather remarkable manner, in the course of a 51-minute speech he singled out one manufacturing firm and only one, the Kershaw Division of Rank Precision Industries in Harehills Lane, Leeds. Perhaps he did not have time in his long speech to dwell on the general circumstances of this firm, but I should like briefly to do so.

The firm which the First Secretary singled out for special praise as an example of economic triumph and meeting the present needs of the country was built up to a state of high prosperity and productivity in the classic manner of the family business. Through various circumstances, including, I believe, death duties, it is now part of the Rank Organisation, but it reached a very large size and a very high reputation as a manufacturer of optical equipment as the family business of A. Kershaw & Sons, Ltd. The late Mr. Kershaw, whom I remember, was a classic example of the risk-taking, adventurous, diligent, prudent and thrifty individual who in those days, in spite of difficulties, was able to build up a very large and successful business.

Mr. Kershaw was not summoned before Mr. Aubrey Jones to try to explain in text-book terms how he priced his goods, or to justify how he was building up his remarkable business. The Kershaw business—and I am glad to say that this continues today, or at any rate, did continue until 20th July—has always paid good wage rates and is well known in Leeds as a pace setter in wages in that form of engineering.

The Kershaw business, above all, was not built on the idea that all at Kershaw's should be very grateful that they were contributing towards the concept of a national dividend. The Kershaw people took a pride in building up a business for their own benefit and for the benefit of those who put up the capital. Although that might nowadays seem to some tastes to be a somewhat primitive procedure, nobody has produced a better alternative. I should be the first to listen to any more refined version for economic growth, but until I hear one, I shall believe that there is no substitute for encouraging genuine private enterprise.

I should like to make one further comment about this concept of the national dividend and what is so often treated as the theory of united national effort, the theme of the First Secretary's very long speech yesterday. Having spoken of the qualities of industry and diligence, and receptivity to new ideas, the First Secretary concluded with this peroration: If we can exercise these qualities, the prize of material growth, with all that it means, both in comfort and in national dignity and honour, is before us, and is capable of being achieved."—[OFFICIAL REPORT, 12th April, 1967; Vol. 744, c. 1239.] The First Secretary's fallacy—and it ran through the Budget statement as well—is that millions of our fellow citizens in industry have for years been showing just those characteristics, have been showing the qualities on which the First Secretary dwelt at such length by way of exhortation. Yet, instead of comfort and national dignity and honour, those very people have been subjected to months of freeze and squeeze. We shall not achieve the underlying rate of growth which our competitiors have unless we are prepared to say that those who show the productivity and the rare qualities of good management shall enjoy most of the reward.

We on this bench also regret that the Budget is distressingly negative because of the sad posture in which the Chancellor had to come before the House this year, with his reputation as a tax reformer sadly tarnished. As was well known—and the Budget confirmed it—over the last 15 months the Chancellor has got himself into the position of being entirely stretched out on the rock-face with not half an inch of give left in his muscles. As we all expected, there is no scope left for tax reform this year. All the Chancellor was able to say was the distressingly negative remark: … I am keeping a weather eye open for any changes that might become necessary …"—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 1002.] Accepting with great regret the unfortunate posture into which the Chancellor and other Treasury Ministers have got themselves through the present tax tangle and the adverse reaction of so many taxpayers, we on this bench had at least hoped that the Chancellor would have held out hopes of major tax reforms during the next year or two. No such hope was held out, beyond the assurance that a weather eye was being kept open.

As far as I know, the Customs and Excise are not overloaded with tax collecting duties, and, even though the Inland Revenue might not have been able to take on anything fresh, I would have thought that the Customs and Excise could have been landed with a certain amount of adventure. But even if we have to accept the standstill position this year, we would have liked to have heard that the Chancellor had noted with admiration, if not envy, the success of the value-added tax in France and the fact that all France's colleagues in the European Economic Community have recently agreed to adopt, broadly speaking, the French version of the value-added tax and to throw away their own various systems of turnover taxation.

Regardless of the outcome of the present flirtation with the Common Market countries, we believe that Britain should profit by France's example of the success of that tax. I do not have time to go into detail. Suffice it to say that a tax which bears particularly heavily on payroll would have the inestimable advantage of forcing employers, particularly the indifferent employers of whom there are many, into paying a larger and more due share of the social costs of the labour which they employ.

I for one am astonished that in this country an employer, at any rate outside London or Birmingham, can put an advertisement in his local paper and get in response the services of a youth or girl from one of our expensive modern schools, can set that youngster on at a modest rate of pay without any obligation to refund the community any real share, if he is not a profitable employer, of the enormous social cost of bringing that young person up to the age of 16.

One of the great advantages of France's well-proved value-added tax is that it puts an obligation fairly and squarely on every employer, whether profit-making or not, to refund a great part of the social costs of the labour employed. This would do far more than any measure which we now have, to sort out the efficient employer from the indifferent employer and to speed up the process of automation and the replacement of manual labour with suitable mechanical means.

Many other features are missing from the Budget, to the regret of Liberals. We hope that it will be possible when the Finance Bill is debated to draw attention to others. In conclusion, I must say that we bitterly regret that this year we have had a clamp-down Budget which not merely depresses the enterprising people in the community for the" present year, but, alas, contains no signal of cheer for future years.

6.49 p.m.

Mr. Joel Barnett (Heywood and Royton)

I listened with very great interest to the Liberal philosophy of how to deal with our economic problems and, after doing so, I came to the conclusion that it is based on the Kershaw family. I could not honestly find anything else in the speech of the hon. Gentleman the Member for Colne Valley (Mr. Richard Wainwright), which gave any indication of how the Liberal Party would deal with the economic problems that face the nation, other than the sort of solutions that we had earlier this afternoon from the right hon. Gentleman the Member for Leeds, North-East (Sir K. Joseph). His answer, like that of the Liberal Party, was that we carry on as before. As he did in the past, so he will fail in the future.

We were offered competition and incentives within the framework of law. This was a very interesting phrase used by the right hon. Gentleman. He used it a number of times and it could mean any-think or nothing, depending upon what sort of law one has in mind. I do not know what sort of law the Opposition have in mind, because the right hon. Gentleman did not tell us. He did not tell us anything at all about how he would deal with the very serious problems facing us.

I want to deal with the long and short term judgments on which the Chancellor has based his Budget. But first, I would like to comment on the S.E.T. I would welcome the small amount of relief given to part-time employees, although it will still be expensive to employ two part-time employees rather than one full-time employee and, as we saw from a recent report, there has been some movement of full-time employees from manufacturing industry into service industries—surely the reverse of what we have in mind.

While not wishing to appear ungrateful on this point and while appreciating and understanding that the Chancellor did not want to bring in any new tax system this year, indeed I myself would not want him to bring in any new tax system this year, I still believe that it could have been possible to do something about S.E.T. without bringing in a new system. We could have done something through the existing P.A.Y.E. system. For example, simply by adding one column to the present tax deduction card and collecting the tax through it, we could then have had the payments without the difficulties of the repayments. The employer of the neutral category simply would not have to deduct tax.

Then instead of having a poll tax, regardless of the amount of earnings of an employee, it should be on a percentage basis, a percentage payroll payment. This would not only be more equitable but it would not be a static tax, like the present one. The amount of income to the Revenue from it would grow with the growth of incomes. Under this system it would be very much simpler to exclude the part time, the disabled, the sick and anyone else whom it was wished to exclude. One could start by excluding the first £5 of income and effectively, in this way, exclude many part-timers and only charge a very small amount to those earning a little more than that.

The percentage would need to be particularly low, because I would suggest that we should abolish the premium to manufacturers—the wholly across-the-board premium. In this way, one could make the percentage comparatively small. I was not able to get the precise per- centage in a Question that I put to the Chancellor recently, but it was quite clear that the percentage would be small. It would then be possible to help given industries and areas much more selectively that the method suggested in the Green Paper. There are clearly parts of development areas which one would wish to help more specifically than the whole of the area, for economic reasons. In this way we would have a much more efficiently administered form of payroll tax than the S.E.T., without involving a new system.

I should now like to comment on the short and longer term Budget judgment. These judgments, of course, impinge on each other. The Chancellor's judgment is likely to be as good as any other economic forecaster, and almost certainly, on the advice that he has available, he is likely to be as right as any of us. Equally, he is as likely to be as wrong as any of us. This brings me to this point. In accepting the choice that he has taken in the short term, one is entitled to ask: what is the degree of risk if he is wrong? It is from this point of view that I wish to analyse it.

The Chancellor has made it pretty clear that what he is aiming at is a steady 3 per cent. rate of growth, rather than going for more, and reverting to the old situation which beset the balance of payments, and getting us back into a series of violent fluctuations in the economy. I would prefer a steady rate of growth of 3 per cent. to those fluctuations. At least one could plan what to do with a steady level of growth; it would be much better than the violent fluctuations we have had over the past 10 to 20 years or more.

But the choice is nothing like so simple. If the Chancellor is wrong in the judgment that he has made in this Budget, and I hope that he is not, there could be very serious consequences indeed. If he is wrong, there could be a level of unemployment next winter of 600,000 to 700,000. This is the degree of risk that he is taking. Like most other hon. Members, he could not look dispassionately at ½ per cent. or 1 per cent. increase in unemployment and think of it as a simple figure. I have dealt in figures all my life, but these particular figures mean so much human misery, that neither I nor the Chancellor, nor anyone else, could look dispassionately at them and say that they would accept them for economic or any other reasons.

I do not believe that the Chancellor would accept this, and this is why this particular choice is a bad one. If he is wrong, and gets into that situation, then he would not want to allow it to continue, and he would take measures, late and in haste, and not for the economic reasons or economic judgment upon which he has formulated his Budget. This would be the worst possible way in which to deal with the problem. We would then revert to the old, violent fluctuations.

The other choice is not one of major consumer reflation. I accept the Chancellor's analysis, as one must, that there is a considerable amount of public reflation in the Budget this year. In my view there is not room for consumer reflation now, but we could do something, if only marginal, about private investment, rather than sit back and tamely accept a 10 per cent. fall in private investment this year, with all its longer term consequences.

I believe that the Chancellor could and should have made a dramatic and practical gesture of faith in this direction. He could have brought forward the payment of the investment cash grants to six months from the date of purchase. Not only would this make the investment incentives more meaningful. It would go to just the right firms at the moment when they are not prepared to borrow, for we see that the banks have not been able to lend up to the 105 per cent. mark allowed to them.

It would be a once-for-all cost because, by bringing it forward, it would come into this one year only—a year when it is particularly needed. The cost is not too easy to ascertain but in the Financial Statement we see that the cost of investment grants for 1967–68 will be £155 million.

My right hon. Friend the President of the Board of Trade, in a recent Answer, said that it would cost £60 million to bring the grants forward three months. Since that date, he has brought them forward three months and we still have £155 million in 1967–68, according to the Financial Statement. I would be interested to know precisely what this would cost in 1967–68, assuming a level of investment at the 1966 figures. At the present level of investment, it looks as if we shall be 10 per cent. below that. If we did what I suggest, I expect that there would be some short-term risk and this is where the short-term risk impinges on the long-term. But I would prefer this form of risk to the one that the Chancellor has accepted.

What worries me is that the Chancellor's choice indicates clearly that he has sacrificed everything in keeping the £ sacrosanct. I am afraid that I am not prepared to whoop for joy at having saved the £ if, in the process, we have an intolerable and sustained high level of unemployment and a growth rate which prevents us from carrying out our social policies.

I know that it is not a simple choice of swapping the £ for growth and permanent full employment but it is true that the level of growth is dictated by the balance of payments and no one would dispute that. It is not the productive potential of the country which is deciding the level of growth we have or are planning. But clearly, if we could do something about the balance of payments, we could expect to achieve a somewhat higher rate of growth than is at present planned. Indeed, we could hope for a lower level of unemployment than we would otherwise have.

That is not to say that we could then go on to a free and totally unrestrained growth. But it would give us, if we could do something about the balance of payments, a breathing space to get ourselves away from this constant obsession about the balance of payments problem and allow time for the other measures we have been taking to begin to have some effect—the Green Paper dealing with getting the level of unemployment down in the development areas, the Industrial Reorganisation Corporation to help with mergers, the cash grants to help new investment and the work of the Ministry of Technology and the National Economic Development Council and the "Little Neddies".

The Chancellor has taken some very useful steps on the balance of payments problem in preventing the capital outflow. The Reddaway Report, whatever other interpretations might be put on it by the Opposition, has made it clear that where the investment is needed is in this country if we are to do something about the balance of payments now, and the return from some capital investment abroad, which, of course, is valuable, as was shown clearly by the Report, will not bring us very much back now when we need the capital here at home.

My right hon. Friend is to be congratulated on restraining capital outflow. Equally, he is to be congratulated on what he has done about the German offset costs in getting them to within £10 million of our total foreign exchange costs, according to the figures in his Budget statement. I hope that he will not think me churlish if I say that I await the figures with interest. It is perhaps my accountancy training coupled with cynicism after two and a half years in this House.

Mr. Bruce-Gardyne

Does not the hon. Gentleman recall that the Chancellor said only a month ago that the total cost was to be covered one way or another and that this was no empty bluff? Would not the hon. Gentleman agree that it was empty bluff?

Mr. Barnett

I was dealing with a serious economic argument and not trying to score debating points. I was congratulating my right hon. Friend on getting to within £10 million of meeting the total costs in Germany. That is to be welcomed and one would have hoped that the hon. Gentleman would welcome it too.

There is much more that we can do. I do not want again to develop the case, made frequently on this side of the House, about the high foreign exchange costs of defence expenditure abroad. But it is none the less urgent for all that. As the question of the balance of payments is so vital to our economic strategy, I ask my right hon. Friend to look again at the question of the borrowings from the I.M.F. and the Swiss banks. I was delighted to hear him say that he was making an earlier repayment of the first instalment of £320 million now due at the end of the year and that £65 million has already been repaid. But I would have thought that now is a good time when, with some justification, we could hope for our request to be granted, if we asked for a funding of the balance due in 1970, perhaps over a further five years. Incidentally, I had always understood that the figure was £560 million, although the Chancellor referred specifically to a figure of £500 million. I do not know whether £60 million has also been repaid here.

The saving here, together with savings in other Government expenditure, should enable us, on my calculations, even without a consideration of the exchange rate, to increase our rate of growth from 3 per cent. to at least 4 per cent. That, of course, would still be well below the rate of our industrial competitors. But it would be a great improvement on the present prospects and, if we could free ourselves from the restraining shackles of the balance of payments, the prospects would be even greater. That is why I put growth before any priority for the £. I refuse to believe that the people of Britain cannot produce at least as fast as people in Europe and any other country in the world.

7.9 p.m.

Mr. John Biffen (Oswestry)

The hon. Member for Heywood and Royton (Mr. Barnett) undoubtedly is very disappointed with the Budget and in this he shares the views, I suspect, of many of his hon. Friends. I hope that it will not make matters worse, at least for the Chancellor, if I say that I rather agree with the view advanced by my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke), who said that it was time that someone spoke up for the Chancellor, but in case this should lead to difficulties I add that mine is a qualified speaking up because I want to comment on two points—the general level of demand on which the Chancellor seeks to operate; and the balance between private and public investment.

The question which has been put—and it was put in very specific terms by the hon. Member for Liverpool, Walton (Mr. Heffer)—was whether the Chancellor of the Exchequer had become the convert or captive of Professor Paish. Although the hon. Member for Ashfield (Mr. Marquand) said that the right hon. Gentleman had spoken with great candour, the Chancellor has not been entirely candid as to whether his Budget proceeds on the premises which have frequently been argued by Professor Paish and which are well known to many hon. Members. I should have thought that the answer was that he has accepted Professor Paish for this year; but what of the future? What happens as we get nearer to the next General Election is a very different question indeed.

Mr. Bruce-Gardyne

The right hon. Gentleman will not be there then.

Mr. Biffen

My hon. Friend says that the Chancellor will not be in office then. I should have thought that there were precedents for that policy, but I must not be prodded along that by-way.

Where are the growth men of yesteryear? We have had no words from the Home Secretary, for example—that well-known economist, that great apostle of expansion without tears. His silence has been deafening in recent months during the great economic debate. Is he waiting to move in with a new philosophy between now and the next General Election? These are precisely the points which have exercised my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) and which, I must confess, have occasionally exercised me.

Why do I have some doubts about the complete conversion of the Chancellor of the Exchequer to the views of Professor Paish? I think that they arise on the point so pertinently made yesterday by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) and repeated today by my right hon Friend the Member for Leeds, North-East (Sir K. Joseph), namely, the ability of the Chancellor of the Exchequer to hold back public expenditure next year in order to take account of the expected rise in private manufacturing investment.

Unless we have some tangible evidence about what the Government are thinking along these lines—not necessarily hard figures, but some general line which gives an indication of the major areas of public expenditure which they think will decelerate in order to permit this expected recovery in private manufacturing investment—we must remain sceptical. It is easy enough for the Chief Secretary to say, "We never get any suggestions from the Opposition about sectors where public expenditure might be cut". At Question Time today I cast modest doubt on the desirability of proceeding with raising the school leaving age by 1970–71 as proposed. But the answer is that, notwithstanding the lower rate of expansion in the economy fore- seen by the Chancellor of the Exchequer compared with the National Plan, that item of public expenditure proceeds.

I have chosen something at the margin of expenditure on education—at least I think that it is at the margin—which might take lower priority. I am prepared to put my head on the chopping block and to be held up to ridicule as being someone who is prepared to deprive people educationally—because that is how it will be represented. But if the challenge is made, I am prepared to answer it. Having given my answer, I am entitled to put the challenge to the Chief Secretary, and I hope, therefore, that we shall have a rather more forthcoming answer to this question.

I suspect that if we are moving outside public social expenditure and considering expenditure in the nationalised industries, a great deal of the Government's argument depends on an assumption that power generation costs will be significantly lower as a result of the switch in emphasis to gas rather than electricity. Not only the Committee but a great many commentators outside would be interested to have in some detail the Government's calculations of what they hope they may save in prospective public sector investment in power generation as a result of a switch from electricity to gas as a result of the North Sea discoveries.

The second point to which I should like to refer is the balance between public and private sector expenditure, because, although there might be some modest consensus between the Treasury bench and those of us who, if not entirely supporters of Professor Paish, are not unimpressed by his arguments, we have now passed the point of consensus and can get back to the more free and easy atmosphere of downright controversy.

The Chancellor of the Exchequer made a number of references to the mixed economy. He said: As I interpret the country's attitude to these matters, it is that the great majority of our fellow citizens accept the need for a mixed economy with Government enterprise and private enterprise working side by side."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 988.] I should not dispute that there is a widespread acceptance of a mixed economy, but I think that the words fall from one's lips almost platitudinously and should be redefined occasionally. Although I accept that for the moment there is a range of industries which are State monopolies—and I see little likelihood of that situation being altered without a major political change—the argument that there is a legitimate area which is now broadly accepted by both sides of the Committee for the Government increasingly intervening in the private sector is one which I wish to challenge.

I am encouraged in challenging it by two speeches from the Government benches yesterday—one by the present incumbent of the Department of Economic Affairs and the other by the past junior incumbent of the Department of Economic Affairs. I have always viewed with great scepticism the argument that businessmen were so unaware of the virtues of investment that they had to be subsidised by between £100 and £200 million a year in order to carry it out. It did not worry me very much whether the subsidy was through the old system of the investment allowances or through the investment grants. I prefer lower company taxation, and I argued thus on the Third Reading of the investment grants Bill last year. Had it not been for the actitivities of the Patronage Secretary, I should have liked to make a stirring speech on this topic in last year's Finance Bill to explain why I was abstaining. That martyrdom was foreclosed to me by the zealous activities of the Government Chief Whip.

Yesterday the First Secretary of State was at great pains to tell us about a company called Richard Kershaw of Leeds. [Interruption.] I think that a little Kershaw is going a long way. But what I was delighted to know what that this company's remarkable success in improving its sales and, I trust, its profitability had not come about as a result of any great investment. My hon. Friend the Member for Louth (Sir C. Osborne) intervened to ask whether the company had put in a lot of new plant and machinery. The Chief Secretary said, no, it was Quality and Reliability Year or it had something to do with quality and reliability consultants. The company's success was the result of the application of managerial skill and not of the application of capital. In the instance which the right hon. Gentleman was anxious that we should know about no additional capital had been invested.

The second and more important point was made by the hon. Member for Edmonton (Mr. Albu) who said: As regards incentives to investment in industry … there is little evidence that they have much effect compared with the level of profitable demand."—[OFFICIAL REPORT, 12th April, 1967; Vol. 744, c. 1251.] I accept and have argued that for some time and, because of that, I should like to see the end of these subsidies to investment and for the money to be used to reduce the rate of taxation on distributed profits. That is my particular nostrum, and if I argue for reduced taxation, a least I show how it can come about.

When we talk of the mixed economy, let us remind ourselves that there is a strong case for arguing that, in the great broad areas of public expenditure on welfare, one should never accept that the public sector in welfare provision inevitably and inexorably marches forward to a public monopoly. It seems to me that that is all too likely to happen in the area of health and educational provision.

If one takes four major areas of welfare expenditure—housing, particularly rented housing, retirement pensions, health insurance and education—more and more the dispute will develop between the parties and possibly in the Committee, in the sense that the Finance Bill lends itself to that particular controversy, because there are those of us who see an expansion of the private sector as the only method which makes available a public provision that can reasonably and properly identify those in need. It is the expansion of the private sector in welfare which probably will give us the opportunity to reduce taxation.

It is that analysis which leads to a radical Tory alternative to present policies and to the cautious collectivism which has overtaken the Treasury bench.

7.23 p.m.

Dr. David Owen (Plymouth, Sutton)

I hope that the Committee will show to me its traditional tolerance, because I confess that, as a natural scientist, when I first came to the House, I considered that economics was a pure science. I had great respect for it, but I felt that it was a subject on which probably I should never speak. Having been in the House for a little time, I have become convinced that economic management is a pure natural science, and the management of the economy is a biological phenomenon susceptible to all the influences, the confidence and the temperament that, as a doctor, I have tended to associate with women and manic depressives. When I listen to all these economic views, I feel that there has been far too great a tendency to talk in terms of absolutes, statistics and positive values, and that not enough consideration has been given to economic factors as a whole.

I am critical of certain aspects of this Budget, but I am in total agreement with the most important one, and that is the general strategy for the present. The Chancellor was right to resist the temptation to reflate. Tribute has been paid to him, and I think too that he was courageous not to reflate at this stage. I hope that he does not allow himself to be led into a superficial reflation at any time if it is likely to mean that we return again to the savage deflation which we experienced on 20th July.

I should like briefly to mention some of the factors of the present situation which are important. Some people are saying that we are right back in the 1962 situation. In many ways it is similar, though it could be very much worse. Certainly the debt is greater, and the room for manoeuvre is limited. I accepted the measures of 20th July because they were necessary. What I should like to ask the Chancellor more about is his long-term strategy because, like many hon. Members on this side of the Committee, I am very unhappy about accepting the Paish argument of a permanent high level of unemployment. That is totally unacceptable to me.

The case for growth can still be argued. It has received a number of setbacks, and we probably learned a great deal from our experience between 1964 and 20th July. At present, there are a number of factors which are different and which need time to take effect.

We are much criticised from the benches opposite for putting a great deal of emphasis on public expenditure and attempting to reflate through public expenditure. I come from one of the regions which have been hard hit in the past. If this country is to have steady reflation, the infrastructure of the regions in particular must be put right. That takes times, and it needs to be done now. The Government's decision to keep a high level of public expenditure gives us the possibility of growth in the years ahead. As such, I welcome it and consider that it is far sighted.

Like many other hon. Members, I am deeply worried about the fall-off in private investment. I accept that we live in a mixed economy and that the profit motive is important. That has to be stated from these benches as often as possible. However, there are great problems in increasing that investment at the moment, and one of the greatest problems is confidence.

One decision which could do more for investment in the private sector than any other is a firm, unequivocal decision from the Government to seek entry into the European Economic Community. I hope that the Government take the initiative and make it a clear declaration which is not hedged round in any way. That will prove a valuable stimulus to private investment, because people will invest in the private sector if they see the possibility of profits and a larger market should be a challenge.

The Government have taken a great number of measures which are fundamental in the long-term. It is easy to talk disparagingly of retraining and mobility of labour, and much play is made with its difficulties. But that again is fundamental if, in the years ahead, we are to be able to achieve a steady growth rate. The work of the "Little Neddies" will bear fruit, and again is a factor which was not present in 1962 and which can have a considerable influence on the economy.

I hope that we will pay great attention to those factors, but never falling into the temptation of thinking that any one of them, taken in isolation, is itself sufficient. It is the whole and not an isolated part which is important.

Another factor which is different is that the Government are committed to cutting back on overseas expenditure, particularly on defence. They are also committed to a greater selectivity in overseas investment. Those are two important changes of policy which were not operating on previous occasions.

Many people will argue that it should be done at a greater rate. I would only say that Malta has shown how difficult it is to make such economies. However, it is another important factor in the management of the economy, and a relatively new one. It is possible that much can be achieved by it, and certainly it is a step in the right direction.

The other policies which I suggest are different are that in 1962 the party opposite was just waking up to the need for realistic regional policies, but we have now had regional development policies operating for some considerable time, and I believe that the Government have put great emphasis on these. I very much welcome the Green Paper on regional employment premiums. I consider that during my time in the House this is the best document to emerge from this Government. It is well written, it contains a cogent argument, and it is for discussion. We can have our discussions and iron out some of the difficulties before this proposal is implemented, and I welcome this.

I suggest that the Government should adopt this procedure for their proposals for a value added tax and give the country a year if necessary to discuss all the difficulties and obstacles which might emerge.

I have touched on some of the positive things. I think that there will be a later occasion to talk in detail about the regional employment premium. I realise that this will not help in my constituency and in the south-west region as much as I might wish, but I think that it is the right type of regional policy to adopt because I think that regional policies have a great deal to contribute to the growth of the country's economy and to utilising the spare capacity which has lain idle for far too many years, and it is in manufacturing industry that such a policy is most important. The present regional policy, with its system of grants, has been inducing into the regions capital intensive industries which, of themselves, are not large employers of labour. This innovation should attract the kind of industries which employ a high proportion of labour, and I welcome this.

There is another part of the Government's policy which is new and different from that which operated during similar deflationay periods through which we have passed. This is the Government's real attempt to try to implement a prices and incomes policy. I am a firm supporter of such a policy. I think that the sanctity of collective bargaining has been held as a religion for far too long in this country. Although one can exaggerate—and I think that there has been far too much exaggeration about the long term advantages of a prices and incomes policy—I think that it gives a cutting edge to the economy, and adds to our competitiveness in exports.

I realise the real difficulties with which the Government are faced. They have strained the loyalties of some of their most ardent supporters. There is within the trade union movement a realisation that a prices and incomes policy must be invoked, but—and this is where I have one of my strongest criticisms against them—the Government are in grave danger of betraying their own supporters, because the basis of the prices and incomes policy is that it must contain an element of social justice, an element which is prepared to put the emphasis on redressing the imbalance in incomes which has arisen in this country over generations, and, in particular, puts the emphasis on helping lower paid workers.

I believe that the Chancellor has ignored an opportunity. There must be very few hon. Members who do not believe that child poverty is an urgent social problem. Apart from the humanitarian aspect of the matter, a policy of increased family allowances could give a positive stimulus to the prices and incomes policy. It is only by increasing family allowances that the Government can get round the real problem of isolating the lower paid worker. The wage structure of the country does not lend itself to this being done. The Government could give an increase without having to worry about the old argument of differentials. The lower paid worker could be given an increase without its escalating into a general wage increase and inflation.

The Government should help the lower-paid worker by putting the family allowance system back where it really belongs, as a positive aspect of their incomes policy. This is how Beveridge envisaged it. It was not part of the social security system. It was part of the incomes policy, and I regret that this duty was not taken on by the Treasury when the system was first introduced.

I am not going to argue the case about what we should do. I did this during an Adjournment debate, and many other hon. Members have argued the issue. There is an urgent social problem which the Government should tackle, and tackle urgently. Secondly, there is a responsibility to people who have believed in a prices and incomes policy to redress the balance. I know that increasing family allowances will not solve the problems of the lower-paid workers, but they will marginally help in solving them. The achievement of a minimum income is something which most of us want, and about which most of us dream, but it will take many years to achieve, and I therefore urge the Government to consider most seriously the point to which I have been addressing myself.

I would like now to talk about a matter which has been mentioned quite frequently during this debate, and that is the exchange rate. During the last six to eight months many of us have felt extremely inhibited in discussing this question publicly. Today, with the £ at the level it is, I think that no one need risk being called irresponsible if he discusses it, and I think that it should be discussed. The idea that the exchange rate is an unmentionable subject about which no one should talk is wrong.

I think everyone accepts that the arguments for and against altering the exchange rate are sophisticated. I agree that it is not an easy problem. It is difficult to discover whether there is a fundamental disequilibrium in our present situation. With exports rising there are good grounds for believing that we may be able to lead with our exports, and to reflate through them.

There is, however, another side to the problem, and that is imports. What is worrying many of us is that if we stop deflating the economy, will not imports rise? It is because of the advantage of using a marginal devaluation, or floating the exchange rate is stimulating exports and cutting back imports that the question must be discussed now. No one seriously thought that we should devalue on 20th July, at a time of great weakness. The time to consider it is when there is spare capacity, and that is one way in which we can reflate the economy sensibly.

There is a great danger that by retaining deflation as a means of stopping imports we will so depress the economy, and so depress investment, that we will not achieve what most of us on this side of the House consider to be a reasonable growth rate, and we will have to live with this rather high level of unemployment. Most of us accept that this level has to be lived with for a few more months, and most of us realistically assess the prospects of the unemployment rate and realise that the chances of it falling greatly during next winter are somewhat remote, but it is the winter of 1969 about which we are worried, and we do not accept that this high level should stay with us permanently.

I am glad that we have been able to discuss this issue of the exchange rate. It was the right hon. Member for Barnet (Mr. Maudling) who in an extremely sensible speech last year talked about floating the exchange rate. There is also the question whether we should float between fixed limits.

I know that many people feel that this is unconventional, but it is a great step forward that the economy has reached the state where we can discuss this question and deal with the problems that it raises. If we can continue to increase our exports there is clearly no need for devaluation. I hope that we can achieve this. Some Government measures offer a reasonable prospect of our being able to do so. I hope that the Government feel that this subject can be freely discussed and no longer be regarded as the unmentionable with which we have lived for so long.

The Chancellor has been very brave in this Budget. He has been criticised by hon. Members on this side of the Committee mainly for one omission—the omission of any reference to child poverty. The Government came into power at a time of great crisis in 1964 and honoured their pledges to old-age pensioners by raising pensions despite the very difficult financial circumstances. They are now in danger of losing their momentum. There is a style to politics and an élan. We want to see the Government doing something because they believe that it is right. We do not want to spend all our time looking over our shoulders at public opinion polls. I do not believe that family allowances are as unpopular a social benefit as many people make out. Some people complain about them, but they must be put into operation by a Socialist Government. Action should be taken now, in the short-term, to help those in the greatest need.

I have always believed in selectivity in social services, but I want to be assured that the extra aid will go where it is most needed. This can be done only by restructuring the tax system and paying family allowances as they are without adopting a totally new means test. We realise that that cannot be done until 1968. What many of us feel is that the changes in if this reconstruction is to take place in 1968 work on the tax coding must be started by the autumn of this year. On this issue I suggest that the Government have a duty to act. If they do so they will win the respect and admiration of the majority of hon. Members on this side of the Committee.

7.43 p.m.

Mr. Geoffrey Hirst (Shipley)

We all enjoyed the speech of the hon. Member for Plymouth, Sutton (Dr. David Owen) and his natural scientific approach to our highly unscientific economic affairs. I am pleased to see the Joint Under-Secretary of State for Economic Affairs—the hon. Member for Manchester, Cheetham (Mr. Harold Lever) on the Front Bench. He and I have taken part in many episodes and speech-makings on financial affairs. He is looking very happy as poacher turned gamekeeper, but after the brilliant speeches that we have so often enjoyed hearing him make I felt that the Ministerial atmosphere last night was a little dead.

For one moment I thought that I should be placed in the unhappy position of trying to defend the Chancellor—so many speeches opposite have I heard attacking him all round the clock. But that has changed. The last few minutes have saved me. I have been relieved of the necessity for this false courtesy, and can now say that I regard this as a pathetic Budget in every way. It is barren of incentives; it is barren of investment encouragement; it is barren of economic policy, and equally barren of ideas.

I must take up one point referred to by the hon. Member for Sutton. One of the fallacies of some hon. Members opposite is to think that we can act in complete isolation and get an everlasting advantage in our employment situation by a devaluation of the £. Those Members do not seem to be conscious of the present trickiness of the world situation. We should no more get away with it than a fly. Last time this action was taken, by Sir Stafford Cripps, the situation was quite different. There was a strong U.S.A. reserve currency. It is nothing like as strong today. Most countries devalued only to half the extent that we did, leaving only the hard currencies of the time sitting pretty—as they have done ever since.

Devaluation is an easy palliative to get oneself out of temporary economic difficulties, but this course should be adopted only if one is hard up against it and one hears the knock, knock, knock of the policeman at the door, coming to take one to prison.

It is dangerous and it is foolish to imagine that we can opt out of our self-made difficulties by devaluing, thereby quickly sending up the prices of our imports, upon which we depend more than any other manufacturing country. Those of us who lived through the crisis of 1947 remember that the cost of living roared upwards at a rate which even this Government have not been able to emulate.

One sentence in the Chancellor's speech stuck in my throat like hell. He said that public expenditure, notably public investment, will still rise rapidly this year. … It is quite justifiable that during a period when private investment is declining public investment should be allowed to advance quite rapidly."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 990.] Goodness gracious me! Who was responsible for private investment declining? The responsibility lies solely on the Government Bench. They forced private investment down and down. The more they are faced with their self-imposed rise in Government and public expenditure, the more they force it down. That is the answer to the myth about the growth rate. It is completely preemptive, and every hon. Member opposite knows it.

It is scandalous that a Chancellor should say that expenditure in the public sector must go up because he has sent the private sector—which is the spirit of our nation and the whole basis of our exports—into decline by his own actions. The Chancellor was good enough to refer to the fears of industry. The C.B.I. has published articles expressing the fears of industry. Its working party did a lot of work on the subject and produced a very carefully thought out document.

I am glad that the Chancellor and several other Ministers have read it. One of its references is to profits. It is good to know that the Chancellor at least recognises that a good return on capital employed is essential for industry to encourage investment in plant and machinery. But he rather dodges the issue. It seems that he does not realise that much more than that is required if confidence is to be gained. Industry depends on far more than plough-back. The measure of its success is its capacity to pay dividends. Only in that way can it go into the market and gain additional capital. Even after two or three years of the present Government there should be a few hon. Members opposite who know that. Profits are desirable for the purpose of creating confidence, but they should also include a distribution to shareholders, and until hon. Members opposite, who have not yet raised themselves to the "O" level of business economics, get that well into their heads we will not get a worth while reflation.

A second matter that is important in the context of the present Administration is our system of taxation. I should have thought that a so-called stagnation year would have proved a very good opportunity to get down to a real codification of the Income Tax law. The system in the United States is much simpler. When I was there, I found that after 20 minutes' tuition I could completely and easily fill in one of their income tax forms—and I have only average intelligence; I do not claim more. It was quite a complicated essay, but I did it in that time. When I was given a more complex return to work out I made three mistakes, but I still filled in the form in about a quarter of an hour. It was not very difficult, but one could not do that in this blinking country. It is about time we got rid of a lot of these ridiculous anomalies in our taxation system. Many of them have crept in through the ridiculous idea that unless everyone can have something no-one must have it.

Nothing is offered to meet the desire for incentives. Even if we cannot do elaborate things this year, there is no reason why this Budget should not have contained some element of incentive. Surtax should not be just looked at—it should be abolished. In its place, admittedly, there should be some graduated income tax system. Again, we are one of the few countries to make a difference between what we call unearned and earned income. Unearned income comes from invested savings, it is just as respectable as any other form of income, and it is just as essential for making the economy tick. It is about time the whole system was wiped out and a graduated tax substituted in which, in order to take care of the additional revenue, it would be only reasonable some should be paid at a higher scale. It should not, however, be at the present level which rules out incentive and the desire to get ahead.

It all adds up to lack of confidence. The Government may believe sincerely in what they call a mixed economy but their idea of the mixture is a maximum of Government control and a minimum of private enterprise. Hon. Members opposite should think of things like that rather than speak of devaluation. They should realise that we aught to give more scope for enterprise such as was mentioned by the hon. Member for Colne Valley (Mr. Richard Wainwright) in connection with Kershaw's. I know that firm as well as the hon. Gentleman does—I was President of the Leeds Chamber of Commerce for years. That was a private enterprise firm. The family built the business up from very little to a first-class concern, and now we have the First Secretary giving it his blessing. The firm's record is brilliant, but it was not achieved by the policies of the Labour Party. It just could not have done it. The same applies to any family business in the future.

I naturally accept the fact that industry has acknowledged the need for a standstill in prices and incomes in the Government-provoked conditions of last July, but this kind of policy becomes more and more damaging the longer it continues. Here I must make it quite clear that in this matter I support neither the Government nor the official Opposition, as they well know. Whatever the political advantages of this policy are they are not very obvious to me after listening to speeches from hon. Members opposite, and its economic effects are quite perverse.

We cannot have what the Government call an incomes policy and, at the same time, have growth. It is a myth. We cannot have a voluntary incomes policy, and I am against a statutory policy, though I acknowledge that it all depends how far one is prepared to go in the direction taken by the Soviet Union. Aneurin Bevan said to me years ago, "What sickens me about my party is that it will run a half-baked Socialism, and that cannot work". He was quite right. There is a possibility that one could run a complete Socialist policy. I think that the Government would rather like to take over control of wage negotiations and wage fixing, and I believe that my right hon. and hon. Friends—as they certainly still are—are playing with fire, and have done all down the line in the last two Parliaments, by giving the impression that they are in their heart of hearts with the Government's thinking on this aspect.

We have heard a lot about 3 per cent. growth, but in the context of the Budget that, too, is a myth. What is so dangerous about it is that it is not a myth in the mind of the Chancellor of the Exchequer. I think that the Government will not get it, that they are entirely wrong in their calculations of the economy even if they got whatever sum they imagine they will get it will be pre-empted in the economy by the rise in Government expenditure, investment in the nationalised industries, and so on. Hon. Members opposite should not fool themselves—the Government like to interfere in all this.

There are other problems and dangers. One is the appalling rise in Government and public sector expenditure generally. It is appalling to think that this expenditure and National Debt interest together approach 50 per cent. of our gross national product—or about 45 per cent. if we exclude National Debt interest. That is an indication of the degree of Government participation and control.

It is well worth examining this mounting expenditure which, at current prices, has nearly doubled since 1960—from £8,500 million to £15,500 million. That is recently an average increase of about 9 per cent. per annum or, if one allows for inflation—though why we go on talking about it I do not know—it is about 5 per cent.

The Chancellor of the Exchequer made some noises about looking at Government expenditure, but I agree with my right hon. and hon. Friends that we cannot look at Government expenditure in this context. We must look at policies, and recognise that policies go far beyond 1967–68 and beyond 1969. Hon. Members opposite have to face up to the fact that if they are looking at Government expenditure in any context that makes economic sense there must be a vast rephasing of the whole layout of Government expenditure and public sector investment.

Another danger lies in the increase in personnel and cost of the Civil Service. When we were in power there were 418,000 civil servants, costing £412 million, and there are now 458,000 costing £537 million. We therefore have 40,000 more people at an increased cost of £125 million. The ever-increasing costs resulting through industrially and commercially employed personnel having to cope with the demands and the interference by the Government in industry and commerce and the ever-increasing Civil Service is an equally potent danger. Far too many people are employed today in organisations such as those in which I take an interest, for instance, the C.B.I., to protect industry from the encroachments of the Government.

It is not so simple even as that. First there is the factor of cost to industry and commerce which will cause these organisations to put up their subscription rates, but then there is the unavoidable inclination of these specialists to try to work with the Government. The ultimate effect is a further erosion of our time—which is terribly important in industry and commerce—and our liberty. I do not attack the personnel concerned. They are of the highest calibre and are very hard-working, but I do attack the system. There is a danger of this everlasting growth in the Civil Service and interference with industry which is having an effect on the cost of protective measures to deal with it. This can be a very grave evil.

Sometimes industry and commerce are insufficiently aware of this. Many times I have mentioned it in the bodies concerned and I have appealed to industry and commerce to be more aware and to be on their guard for otherwise puppets they will very quickly become. Nothing shattered me more than the former Secretary of State for Economic Affairs' Declaration of Intent and then, of course, National Plan. The worst of it is that some hon. Members opposite believed it. I am at least on record as saying, 48 hours after it was introduced, that it was unmitigated nonsense.

I find nothing to say to the advantage of the Government in any field of economic policy. I am sorry about that because usually I try to help the Financial Secretary, but this time I can find nothing to say in that respect. There is not even anything for the poor man and his pint of beer. As the Committee knows, I am connected with the brewing industry. I have worked out a sum. If we take away all the trade done through the clubs and calculate only the business done in the pubs in wine, spirits and beer, we find that the charge for tax is £7,000 per pub. This is a scandal which ought to be dealt with. I should have liked to see the 10 per cent. surcharge taken off.

One of the things which needs attention is Corporation Tax. I think we are all agreed that small companies should be given the same relief under the tax as they were under the former Profits Tax. For close companies, as experience shows, and as we showed fully last year, there is a strong case for an increase in the amounts allowed for directors' fees. The present rates are out of all realism compared with those of our competitors. On Capital Gains Tax surely the Government have now learned that there would be a tremendous advantage in an exemption for net gains not exceeding £400 or £500.

The maximum income qualification in Income Tax for age relief is too low. Those concerned are living on past savings to the best of their ability and they need £200 or £300 more as a qualification. The small incomes exemption limit for single people of £390 and for married people of £625 is too low. Then there is the question of professional charges. With the complexity of the appalling Capital Gains Tax it would be fair if professional charges for completing tax forms could be allowed at some fixed sum. It is hard to say how much that should be, but £20 or £40 would be legitimate as the Government have made things so complicated that no one can fill in his own returns. It is necessary to get professional advice because the Government have made it that way and people should have some advantage in that regard.

I welcome the social security reliefs of the Budget. They are very modest but they will help a few hundred thousand. I am glad that the S.E.T. part-time workers' case has been met, but why on earth has not the case of disabled persons been met? There might be some difficulty about that, but I hope that we shall hear more on that subject. These people are an important section of the community and to help them would not cost very much.

For the rest the Budget is unmitigated boredom. It eclipsed—if indeed anything could eclipse—the boredom of the speech of the First Secretary of State and Secretary of State for Economic Affairs. The only consolation we have is that he is not yet Chancellor of the Exchequer.

Instead of policy and action to challenge the nation to better effort, to raise individual efficiency and encourage industrial capacity to lead the way to greater growth, we have the so-called "Steady as she goes". What a phrase! It is with the brakes on, like an aeroplane which cannot move from the runway because the brakes are jammed on. All the emphasis is on keeping things down, keeping prices down, wages down, efforts down, private individuals down and morale down. I do not quarrel with hon. Members opposite when they say that it may be called the bankers' Budget and "Pay for the overdraft, or else", but I have never known a business prosper when the management were frightened of their bankers. It is not a Budget of statesmen but rather a Budget of a Government who should have opted for abdication rather than prostrate themselves before an engineered weakness and their calculated abject folly.

8.8 p.m.

Mr. Donald Dewar (Aberdeen, South)

I suppose that to some extent the treatment meted out to the Budget recently is all too typical. It was preceded by a flood of irresponsibly optimistic advice and followed by ritual condemnations. I should have thought that from the benches opposite the Budget ought to have had in a negative way a sort of welcome because I remember that hon. Members opposite were looking forward almost with lugubrious pleasure to a tough Measure freely predicted because of the increase in public spending.

I am at least grateful to my right hon. Friend the Chancellor of the Exchequer and congratulate him, as many of my colleagues have done, on not having sacrificed what he rightly described as the painful but very real progress we have made in the last year or so. The only thing which must worry hon. Members on these benches is that if reflation comes too late we shall be faced with unemployment next winter which will make my right hon. Friend's predictions look conservative. I use the word "conservative" advisedly because in Scotland we always associate Conservatism with unemployment, having only to go back as far as 1963, to find a year in which the Conservative Government excelled themselves in my part of the world in the creation of misery.

The point basically is this. We must worry about reflation, because, when it comes, it may have to be so massive and there may have to be such a big injection of demand in the Home market that we shall be in danger of going right back to square one and shall have to relive the horrible crisis from which we are only now, we hope, beginning to emerge.

It was because of this rather vague and perhaps unformulated fear of mine that I listened with particular sympathy to the excellent speech made yesterday by my hon. Friend the Member for Edmonton (Mr. Albu). We must consider whether if, to avoid being dumped into the trough of deflation, we must limp along with an economy which is working only in a sort of semi-inflated state, well below its capacity, with a slow growth rate and tolerating some ill-defined but almost certainly unpleasant level of unemployment, must not we start looking around for other solutions and other answers? I, like my hon. Friend the Member for Ashfield (Mr. Marquand), am a strong supporter of the prices and incomes policy, but I accept that it is a rather flimsy structure to rely on solely in the present situation.

First, if we are realistic, we must accept that it will work only in a period of comparatively high unemployment or else would require what I think is a politically unrealistic measure of legislative direction. We shall not be able to work any kind of voluntary incomes policy if we are working in conditions of full employment.

Even at this level, if we assume that in the long run the incomes policy could be an answer, when we are considering the possible unemployment consequences next winter and the winter after that we cannot regard this as a means of removing the threat of an unstomachably high rate in the regions or in the country as a whole.

I very vividly remember—all of us on this side had the same experience—campaigning in the General Elections of 1964 and 1966 on a platform of expansion, the expansion which would pay for the re-engineering of the social services in which everyone on these benches advocates and believes. I talked about that. I really believed in it. I am very unwilling to abandon it and to accept that we must live, if I may borrow a simile which has been used several times from these benches already, in a continuing economic straitjacket.

If we are to succeed in our objectives and succeed in reorientating society in the way that the Labour Party wants, we must maintain some momentum in the economy. To maintain momentum in the economy, we must find a way whereby we can absorb as we expand and reflate, the almost inevitable stockpiling of imports. We must put ourselves in such a position where we have at last secured temporary immunity from fluctuations in the exchange rate. We must not of necessity tailor every one of our economic policies with a view solely to eradicating some balance of payments deficit.

Considering these problems—I have expressed them generally—as various people have considered them during the course of the debate on the Budget, then increasingly the possibility of a floating exchange rate becomes attractive as 4 means of cutting our costs, possibly, as a means of giving a stimulus to exports. The concept also becomes attractive in view of the possibility of our entering the Common Market. There certainly we have an enormous opportunity in the economic field, but it is still an opportunity on which we have to capitalise. We must also remember that it will eventually throw an added strain on to our balance of payments, if only because we shall have to find about £200 million a year in order to make our contribution to the agricultural support arrangements.

I do not suggest that a floating exchange rate is an answer to all our problems. I am not competent to make such an arrogant suggestion. However, as we look round and see every economic bolthole being closed and see how the Chancellor's projections work out in terms of our aspirations, we must begin to wonder whether such a concept can be ignored as a possibility, because it would provide us with a chance and with the necessary breathing space. It would give us the opportunity of trying to work for the real economic expansion which is surely the necessary foundation of all that we hope for.

I have not been impressed in the least with the publicly expressed objections, nor in many cases with the objectors, to such a concept. Too many of them are not disinterested. I agree entirely with my hon. Friend the Member for Plymouth, Sutton (Dr. David Owen) that we must bring this into the open. We cannot afford to go on ignoring this possibility merely because, in some sort of way, it is a dangerous subject to discuss. We must not take up the attitude of the prim Victorian maiden lady and look upon a floating exchange rate or devaluation as a kind of economic equivalent of sex—something to be thought about secretly, but not to be discussed, let alone enjoyed.

One of the most interesting facets of this Budget debate is that the things that I am saying and the opinions which I am expressing, which once would have been thought heretical, unorthodox, peculiar, or just plain mad, can no longer be so regarded. Whilst I have been sitting on these benches, I have counted no fewer than seven of my hon. Friends who have advocated this point of view, at least as a matter for serious discussion. I hope that at least this very significant fact will be noted in the places where these things have ultimately to be decided.

Having made that point, I want to pass on to say a few words about the Green Paper, which, possibly understandably, in view of the lack of controversial positive recommendations in the Budget, has been a dominating and continuing theme in the debate. To anyone who comes from a development area, as I do, and who represents a development district, the Budget was, by definition, almost bound to be an anti-climax, no matter how imaginative it was, because its thunder had been well and truly stolen by the issue of this Green Paper, with its imaginative and extremely impressive recommendations for the injection of capital into the development districts.

I would only say in passing that it would be wrong not to pay tribute to the importance of the concession we have got on the employment of part-time labour. In my particular area, where the industrial activity rate is low, it is extremely important that we should maintain the volume of part-time labour. I also know that the earnings which are brought in in this way are a particularly important supplement to many family incomes in Aberdeen and similar districts.

I am also aware that this is something which the firms—the service firms on which hon. Members opposite, perhaps rightly, avidly concentrate—wanted to see done in the Budget. I wrote to almost every firm which had complained to me about the introduction of the Selective Employment Tax. I asked these firms for their comments, now that the tax had been in operation for some months. Boiling down their answers and taking out the hard facts they gave me, almost every one said that the thing which had really hit them was that it was more expensive to employ part-time labour and that, if they could get a sizeable concession, it would do an enormous amount to ease their particular difficulties.

I should have welcomed more warmly, of course, the complete abolition of the Selective Employment Tax as applying to labour employed for less than 21 hours, but a reduction by 50 per cent. is still a sizeable and very helpful move.

The point basically is that the Government in the new regional employment premium proposals are suggesting that we should inject into the development districts about £100 million and that into Scotland we should inject, it is estimated, about £40 million—and this into an area of Great Britain which has about 10 per cent. or 11 per cent. of the total population. I can only guess that this kind of proposal will be a very severe blow indeed to many hon. Members opposite and people in other places who have argued and proclaimed, in the face of all the evidence, the Labour Government's supposed indifference to the economic fate of Scotland and the development districts. This proposal by the Government will give the lie to the persecution mania which has become a dominant theme of the insincere, ersatz nationalism which has become the order of the day among Scottish Conservatives.

I wholeheartedly in principle welcome the fact that this proposal has been made. I welcome it for itself and for the way in which it has been introduced. At last we are getting away from the old ceremonial unveiling of a fait accompli on Budget day. We are getting away from the kind of arrangements which preempted any possibility of achieving any kind of consensus of opinion or staging any kind of constructive discussion.

The Government are inviting that kind of discussion. They are inviting suggestions. I would hope that people of all political opinions and from every walk of life, in my area and in others, will join in this process. Every one of us should warmly accept the principle. I was glad that the right hon. Member for Enfield, West (Mr. Iain Macleod) did this when he opened for the Opposition yesterday. His was a very cautious welcome; at least he said that the Government's heart was in the right place and that their objectives were sound. Let everyone agree with that.

Moving on, having accepted the principle of this kind of boost for the regions, let me get down to the application and to the details. To some extent I have considerable reservations here, and I differ from quite a few of my hon. Friends. In the past two days I have heard quite a lot about the need for further selectivity within the regions. It seems to me that if one tries to say that this firm is good and that firm is bad, by some as yet undisclosed criteria, one is asking for a refinement of the Selective Employment Tax machinery which, if it is possible, which I doubt, will be a very long-term refinement, and will postpone the start of the injection of the needed capital indefinitely.

I have not finally made up my mind about this, but there is a strong case for saying that we want not more selectivity within the regions but less. Juggle with the figures as one wishes, but if one assumes that the Chancellor or the First Secretary is giving 30s. a head to the manufacturing industries, perhaps it would be worth while reducing it to £1 and using the other 10s. to do something to relieve the burden on the service industries. Judging from the figures in Scottish White Papers for 1964, one finds that this fits in nicely, because we have about 700,000 people in the manufacturing industry, or one-third of the emploved population. Another third are probably employed in agriculture, fishing, Government employment and other exempt categories, and we are left with a nice balancing third in the service industries—contributors who are getting nothing back.

It is only fair that I should declare an interest in one sense, in that I represent a constituency which is, I suppose, an archetypal example of the sort of district that the Conservatives talk about, when arguing against S.E.T. where there is high emigration. Although unemployment is comparatively low at present, it masks the nasty and brutal emigration south to the rest of Scotland and ultimately to England and abroad. It is an area with a low manufacturing content, so the kind of variations about which I have talked would suit my local book.

But that is not the only reason why they should be considered. There is a strong justification and argument for them. I remind the House and my right hon. and hon. Friends in the Government that the White Paper on the Scottish Economy, 1965–1970, makes a concise and eloquent plea in paragraph 8 for dealing with the imbalance in the Scottish regions, which it stresses is every bit as serious as that within Britain as a whole.

That does not mean that I underestimate the importance of manufacturing industry in the north-east of Scotland. It is absolutely vital, if we are to make the region prosperous and get the growth we must have, to have a backbone of manufacturing industry. I also accept the basic argument in the Green Paper that service industries depend on a local market. If one subsidises the service industries in Aberdeen one will not stimulate them to expand at the expense of service industries in Manchester. Let us consider laundries, which seem to be the fashionable example of a service industry. The laundries in Aberdeen wash dungarees for people in Aberdeen, dungarees which have become dirty in Aberdeen factories. They are not sent up by train from Manchester, even if the washing costs would be less. Therefore, I accept the basic doctrine of the Green Paper, but it can be overstressed.

There are many administrative centres in the private sector which might be relocated under the Government's overspill policy to other parts of the country through the Location of Offices Bureau. Glasgow is very grateful that the Post Office Savings Bank came there. It might be possible to get other private offices, such as insurance company headquarters, to move into development districts if there were a real financial differential between development districts and other parts of the country. It might be argued that if one tried to spread too thinly this handsome offer, which is supposed to boost the regions, one would, to borrow a phrase used by the right hon. Member for Enfield, West yesterday, try to help everybody and end up helping nobody. But I do not think that that is true. Unlike my hon. Friend the Member for Plymouth, Sutton I am not over-impressed with the argument in the Green Paper, at least in detail. In some ways it is thin and not very well documented.

I hope that the House will bear with me if I read some short quotations to support my case. For example, in paragraph 26 we are told—and I gather that this is the real nub of the matter, the justification for the whole scheme— … it would he essential that the premium payments should go primarily into reducing costs and prices rather than into extra wage increases. I agree that we want to reduce costs. That is the whole point of the manœuvre. But I do not see that it is any less worthy to say that we want to reduce service costs as well, because they are an important component of manufacturing costs and the whole costs of a region which will ultimately determine whether a firm goes there or to another part of the country. I hope the committee will realise that service costs are just as vital in this way.

Similarly, I was worried by the remark in paragraph 48 that: The payments of refunds to service establishments, unlike the premium payments to manufacturers, would not add significantly to real output …". I do not know what is meant by "real output", but it has a funny, old-fashioned ring to me. It is an anachronistic, false distinction. An efficient service industry, such as transport, adds as much to the viability of the total economy of a district as the most black-handed manufacturing industry that can be specified. There is a danger that to some extent within the development districts there is a tendency to look upon manufacturing and service industries too much in terms of black and white.

My last point on this matter again concerns paragraph 48 of the Green Paper, where there is one very short, sharp and snappy sentence: It would be difficult to accept that there should be a narrower tax base in the Development Areas. I do not know why it should be difficult to accept that. I suppose that it was once difficult to accept that the Government should build advance factories, and that it was once difficult to accept that they should give 45 per cent. in a straight cash grant for all machinery that was installed. The Government made a great breakthrough there, and, to be fair, the Conservative Government also made a great breakthrough in the concept that the overall economic health of this country depended on the economic health of every area. I do not see, unsupported by evidence—and it is largely unsupported by evidence in the Green Paper—why we should continue to find it difficult to accept that concept. By all means tell me why it is a bad concept and why it would not work or why it would be disadvantageous, but let us not just stand back and say that it is difficult to accept and leave it at that.

If we are to have a real examination and proper look at the implications and tremendous opportunities afforded by the Government's proposals, we must get down to a great deal of hard thinking, and be supplied with much more ammunition. For example, for the past two or three days I have tried, or, rather, friends of mine have been trying, to discover exactly how many people there were in each of the development districts, employed in manufacturing industries and how many in service industries. I cannot think of more important and basic facts that are needed in this kind of investigation and thinking through. But if one looks at the Ministry of Labour's statistics one sees figures for the south-western region, but that includes Bristol; for Scotland, but it includes Edinburgh, Reith, and Portobello. Similarly, in the Northern region, there are no proper statistics to hand, but we are expected to try to make a reasonable contribution to the planning and assessment of the important implications of the scheme.

I do not know the time scale, but I do not want it to be too long, and I hope that the Government will make an effort to give us the statistics so that we are not all fighting in the dark. Although I am tending to think that there should be a proper spread in the development districts, I have no sympathy with the suggestions made by hon. Members opposite that in some way the Selective Employment Tax mechanism used in this way amounts to victimisation of the service industries. That is just not true. I would certainly welcome it warmly even if the scheme went through in its present form. It would be selective help, it would have a restricted target, but it would still lead on to what would be real progress.

We should look at the scheme as one which will benefit the whole of Scotland, and let us not forget that, if it benefits the whole, it will surely benefit the North-East. This is inevitable, because the North-East is not a fortified enclave round which we have put up barriers against the general economic and industrial climate of the rest of Scotland.

When I listen to Conservative politicians in my part of the world talking of matters of this kind, I am astonished at their frenetic attitude and their utter refusal to accept the overall implications. Taking the Selective Employment Tax retained in Scotland as a proportion of the total wages bill, we see that it comes out at something like the national average. When that sort of point is taken into account, the stupid opposition of Scottish Conservatives can I suspect only reflect the great weakness of their party and the fact that they have practically written off the central belt of Scotland in electoral terms. I would certainly not sniff at the Government's proposal even as it stands.

I shall not rehearse the already well-known argument for regional development. I prefer to think that there is no longer any need to do so. I like to think that both sides of the Committee are agreed that something must be done, that something further must be done to combat the problems of migration and drift, of high employment and all the other factors which I have heard bandied about in the House so often in the short time that I have been here.

The Government have inherited a certain number of weapons from their Conservative predecessors, to whom must therefore go some credit. This Government have used those weapons with vim and vigour. They have used them flexibly and intelligently, and they are making a really effective break-through in terms of regional development. Now, they are looking for a further weapon. They expect to find it in this proposed scheme, and I hope that all politicians and all people of good will will rally round to help them to forge the most effective weapon possible.

I do not accept the gloomy prognostication of the right hon. Member for Enfield, West when he says that there are no signs of improvement in the regional economies. I suppose that longtime émigrés, however distinguished, finally lose touch with the economic climate of the place from which they came. If the right hon. Gentleman will talk to the Scottish Council for Development and Industry—not exactly a Labour lobby or part of the Labour Party—or to industrialists in Scotland, he will not find deep depression reflected in those quarters.

We are to have a new weapon. The Scottish Council of the C.B.I. rather modestly and a little ungraciously, perhaps, said that it was pleased with the general concept and that it would, in committee, get down to some hard thinking about how it might be advantageously varied. Fair enough. I welcome that approach, and I hope that it will be reflected on the benches opposite as surely as it is reflected in the employers organisation.

One hon. Member opposite, who comes from my part of the country, speaking in the first day's debate on the Budget, said that it was a bad Budget because it offered jam tomorrow for the regions and nothing today. In fact, the Chancellor talking in the Budget about the "real structural difficulties" and about "the radical solutions" which are needed, saying bluntly and definitely that "We are not prepared to accept defeat". What remains is to make up our minds about what the best plan will be, and then he stressed we might have legislation later this year. This is not jam tomorrow or at some indefinite date.

The Government's proposal offers concrete help now. We cannot afford to drag our feet. Everyone must cooperate in ensuring that the maximum advantage is taken of what is, when all is said and done, an extremely handsome and valuable offer.

8.32 p.m.

Mr. John Smith (Cities of London and Westminster)

At this stage in the Budget's progress through Parliament, I only want to make one single general point, but I want to make it several times. The Chancellor has been criticised by some for producing a dull Budget, and by others, who think that the importance of the annual Budget has been overdone, for producing a Budget at all. The consensus so far has been, "If you have nothing to say, why say it in April?".

Indeed, the idea is quite out of date that our fiscal arrangements must be altered, if the Chancellor is to escape the criticism of saying nothing, that they must be altered every April and only in April, that for the remainder of the year they should remain clamped in position, and that the Government have somehow failed if they do not. Regulators of one sort or another have come to stay and the Chancellor of the Exchequer for accepting this.

But that makes the Chancellor's other duty in the Budget statement—to account for the past and to estimate for the future—more important than ever. If this it to be the prime function of Budget statements, we must have better figures, particularly figures for the future—not figures of growth, which are certainly unreliable, but figures of expenditure. Most enterprises make forward estimates of expenditure. State boards certainly do, and the Chancellor of the Exchequer clearly does. Indeed, he said in his speech: We have.. launched an exercise to bring our long-term expenditure programmes into line with growth prospects … Later, he said: … my approach to the level of public expenditure is not confined to the medium term."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 990–1.] May we see these figures, too? There is, of course, the February White Paper, but it is not sufficient that we should see the figures in total. We must have enough details to be able to decide what future Government expenditure is irrevocably committed and what can be cut and at what price it can be cut, because some expenditures are much more expensive to cut than others.

Having these figures is made all the more important by the Chancellor's cavalier attitude to the capital investment of private industry, which is vital to our recovery. He recognises that this has declined, but he says nothing about how or which public expenditure will be reined back so that private investment may recover. He acknowledges that "public expenditure cannot be quickly changed". But private investment can and does change quickly. Indeed, the speed with which it can react should be welcome to the Chancellor as yet another regulator. But unless it is made plain by better figures just how public expenditure will make room for private investment, neither industry nor foreign holders of sterling can recover confidence: and lack of confidence keeps our economy stuck where it is.

The Chancellor recognises the importance of savings—although, in my view, the increases in the limits of savings certificate and Premium Bond holdings will hardly staunch the net outflow of national savings—but a much greater stimulus to savings would be a rebirth of confidence in private industry.

The lack of figures for the future makes it impossible to discuss properly the Government's policy for the development areas. It is clear that these areas must be helped for many good reasons as well as for the bad one that the Government's housing and related policies make it almost impossible for people to move to jobs elsewhere. But it is not clear how best for the areas and for the country as a whole they should be helped. If we are to keep over half the island and a large part of our economy going by artificial respiration, as we must until they recover, we must be clearer about what the cost, if any—perhaps there is not a cost; it may be that there is a net gain—to the country will be, lest we price ourselves out of world markets.

The Chancellor said: It is a possible way of improving our economic performance …"—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 986] He did not sound very sure about it, although the Green Paper, which I think is a most admirable document—it is admirable that it exists at all; it is extremely well written, intelligible and unstuffy—goes further than that, but it is by no means certain on the figures supplied so far. The only general agreement seems to be that, whatever the merits of the Selective Employment Tax, the distinction which it draws between service industries and manufacturing industry is quite illogical and should be adjusted, or, better, abolished. The Government are pretty woolly about this. On the one hand, as a manufacturer I am constantly being exhorted to modernise myself and to get on and be thoroughly technological, and, on the other hand, I am being offered a premium through the Selective Employment Tax which I get only if I become less technological and employ more people.

How will the proposals about the regions affect the ability of industry as a whole to export? For example, we cannot discuss this subject properly until we know, or have some guidance about, what the effect will be of locating industry where it has poor access to markets. Development areas face away from Europe, which is one of the reasons why they are development areas. How much will firms not in development areas be hampered in their ability to export by this development area policy, for example, by the system of industrial development certificates? What is the cost to the economy of the system of industrial development certificates.

On the other side of the argument there is another very important point which I have not yet seen dealt with. How much are the non-development areas already subsidised? The losses on certain rail services, for example, and the small differences between house rents in development areas and areas which are not development areas are clearly a subsidy to the South-East. Surely the Government must make some guesses at these figures and give them to us before we do what we have so often done before, namely distort our economy with layer upon layer of what may be the wrong sort of subsidies which soon become forgotten and hidden and embedded in the economy and therefore difficult to remove.

Unless we have better estimates, there seems to be a risk that we shall help the development areas in a way which, while it may make the economy easier to manage—and I grant that the present proposals will undoubtedly make the economy easier for the Chancellor to manage—may damage our prospects abroad and particularly in Europe. Before we settle how we are to tackle this task without doing that, we must have much more information.

On the subject of Europe all the Chancellor said was: At this moment no one can foresee whether we shall be marching with the Community or not"—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 992.] If we cannot march with it now, at least we can start to march in step, both in regard to our development area policies and in the fields of taxation and agriculture. How can our words about Europe be taken seriously if in agriculture we actually move away from it and in taxation we do not take the first elementary steps?

When the Chancellor comes, as he must, to recast taxation with this in mind, will he please simplify it? It is not an impossible task. For example, anomalies could be removed, as was splendidly set out by my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke), with his customary lucidity, when talking about Stamp Duty. But it could also be achieved by making a shift, in the European manner, from direct to indirect taxation.

High direct taxation has to be complicated. It has to be difficult to avoid and it has to be reasonably fair—but not nowadays, apparently, "unduly fair", to use the words the Prime Minister coined earlier this week; whereas low direct taxation gives less incentive to avoidance, and a few anomalies in it are tolerable; and therefore it can be simpler.

Will the Chancellor please, in his next Budget, whether it be next April or sooner—and no blame to him if it is sooner—begin to simplify and recast taxation to make our European gestures a bit more plausible? And will he also supply us with better forecasts of expenditure from which we can judge what is or is not possible, and on which the vital confidence of industry can be more firmly based?

8.45 p.m.

Mr. Edwin Brooks (Bebington)

When listening to the hon. Gentleman the Member for Shipley (Mr. Hirst) speaking an hour ago, and delivering himself of his usual forceful and idiosyncratic views upon the economic situation, I could not help feeling that the Front Bench opposite would be as relieved to hear that he had dissociated himself from its point of view as both Front Benches would congratulate themselves that he was showing anger at them. I am reminded of Keir Hardie's view that the main danger of a Labour Government would be to have the praise of the Conservative Party.

One of the difficulties in this debate is that we are, and have been for some days, finding it difficult to follow the Budget argument in terms of well-established party traditions. This is inevitably due to the technical character of so much of the debate. But it is also due to the deep feeling of uneasiness which has undoubtedly spread throughout large sections of the country about an economic problem which appears to have been insoluble to successive Governments and which, with all due respect, so far this Government do not appear to have found easily soluble.

The Budget ritual was likened by Aneurin Bevan to the annual procession of peasants, going up and down the mountainside in some sort of transhumance activity. This spring, as every spring, we are entitled to expect that when the snow has vanished, we can move upwards on to the new pastures, where the grass is green and at least look longingly towards the commanding heights.

I am bound to say that this spring, as we move up through snows which have not so far effectively melted, the commanding heights appear a little more distant and remote than perhaps they did in the full flush of 1st April, 1966. A good deal of synthetic anger is directed at this Budget, because it is quite apparent that, given the circumstances in which the Chancellor was doing his sums, there was very little alternative to the sort of solution which he has produced.

Of course, many of us are deeply disappointed that, so far, nothing has been done to cope with the deep-seated and extremely serious problem of poverty, and perhaps increasing poverty, among large sections of the community, particularly those with large families. On the other hand, I would have thought it inescapable that, with so much uncertainty about the future prospects for entering the European Economic Community, we should at this stage be cautious in introducing any major changes, for example, in relation to family allowances.

It is quite certain that if we were to enter the Community, and I speak as one who very passionately hopes that we shall find it possible to enter this wider Europe, it is inevitable that changes will follow, changes which could be seriously regressive, not only in the implications of new forms of taxation, but in the implications inherent in the Community's agricultural policy and its impact upon food prices.

I should have thought it obvious that one must reserve at this stage any countervailing financial policies such as might help the lower-paid section of the community until we are a good deal clearer about knowing whether it would be possible to enter the Community on satisfactory terms. A good deal of the debate has focused upon this problem of unemployment, and to what extent we have fallen into an assumption that we should have something of the order of 1½ per cent. and 2 per cent. unemployed, more or less permanently. This is an argument which is bound to raise deep-seated and passionate emotions. Many of us can remember the days when large numbers of people were out of work for many years.

I wonder whether or not we are to some extent looking at the problem of the 1960s in terms of the problems of the early 1930s. There is, perhaps, a much more deep-seated problem, more of a sociological problem than a strictly ecomonic problem. In some parts of our country, we are perhaps already beginning to see the emergence of what it is sometimes possible to call the "unemployable" and when we bear in mind that it is sometimes claimed—and I have no reason to doubt it—that possibly as many as 1 per cent. of the population are suffering from mental disorder in more or less serious forms, such as schizophrenia, which clearly seriously disrupts a person's working life, it is understandable that certain sectors of the population will find it difficult to cope with the problems of the modern industrial society.

These are the sort of problems we see emerging in the sump areas of our cities and they will not be solved merely by straightforward fiscal measures. If we wanted to solve unemployment we could easily pay people to dig holes and fill them up again. This is, after all, an old cliché in solving unemployment problems.

When I was in Eastern Europe some years ago I stayed in a hostel where, to gain access to one's room, one had to pass an office where three elderly ladies sat for many hours. Their sole function as far as I could establish was to hand a key to the person going in and take it off him when he went out. It seemed to me that this was a tremendously wasteful means of employing labour and I asked about it.

I was told that there was no scope for productive employment for people like this. In a sense, it was put to me that it was just as sensible to have them sitting all day in an office doing perhaps even a small job than sitting at home drawing unemployment benefit. One can solve unemployment if one gives people trite and futile jobs to do.

This is not just a theoretical problem. We are moving increasingly into the sort of situation that the United States has experienced over the last few years—that of so-called technological unemployment. Large numbers of our population will undoubtedly in years to come find themselves displaced from many functions of the economy as a result of more economic operations with equivalent and perhaps superior machines.

Perhaps we should not be so obsessed with the problem of unemployment as obsessed with the problem of why people are at work at all. Is it necessary for them to work the sort of long hours that we seem still to regard as necessary? Indeed, the length of the working day, despite the so-called scientific revolution affecting industry, has not appreciably lessened in my lifetime. It would seem more sensible that we should talk in terms of more leisure and more opportunities for people to live full and rich lives.

I appreciate that this may be wandering from the point at issue—the Budget, the Selective Employment Tax and whether or not we are helping widows to go to work on motor-bikes and so on. But it is precisely this sort of long-term strategic problem that we need to examine at a time like this, when we have little to talk about in terms of miscellaneous financial provision.

We have, during the debate, concentrated upon the problem of growth. For many years, we seem to have regarded the whole objective of life simply as being more production. But the Government came into office not simply in order to create more economic wealth. Certainly, much of the wealth produced in our society today has very little value to the ordinary men and women. There is the other side of the coin to this concern for growth—the need to create equality of opportunity. It is still true that 7 per cent. of the richest people own 84 per cent. of private wealth. It is still true that 88 per cent. of our population own less than £3,000 and an average holding of only £107. The top 5 per cent. owned roughly the same in 1960 as in 1936 to 1938. The richest 10 per cent. of the population receive 99 per cent. of all property income. In a survey on 15th January, 1966, the Economist said, … the rich do not only have more money; they also make it multiply faster. This was said 2,000 years ago—"To them which hath shall be given". In fact, 1 per cent. own 81 per cent. of privately-owned company shares. Only 4 per cent. of the adult population hold any shares in commercial or industrial companies. One can legitimately quote from the article in the Economist commenting on the composition of large fortunes: … there is undoubtedly a permanent built-in tendency to inequality here. It is not just that the wealthy are financially more sophisticated; they are also genuinely better placed to take risks and need to keep a smaller proportion of their money as a liquid reserve. The awkward fact is that any tendency towards a more even distribution of wealth in Britain is being counteracted all the time by these differences in its composition". It might be argued that some of the measures which have been taken in recent years, for example the taking into public ownership of large undertakings, has been a means of removing some deep-seated and built-in inequalities, but even if one takes into public ownership, for example, the railways at relatively generous terms of compensation, one will not, at any rate in the short term, alter this general pattern. In referring to the way in which, inevitably, those with wealth are in a position to multiply it much more rapidly than those who have a far less advantageous start in life, one has to remember that much of the statistical data on which we sometimes tend to assume all too glibly that there has been a levelling process are themselves suspect.

For example, there are fringe benefits as a percentage of salaries. I quote from the Economist of 27th August last year. For those with salaries of £1,000 a year, fringe benefits amount to 11 per cent. For those with salaries of £3,500, they amount to 19 per cent. They rise to 31 per cent. when we get into the salary range of £7,000 upwards.

Many of us all too glibly assume that if we simply put a freeze on dividends at the same time as we put a freeze on wages, that is in some way an equitable solution. But freezes on dividends are different in kind from freezes on wages. Wages once foregone can never be recouped. Dividends, at least in principle, may well be ploughed back and can subsequently accrue to the people who own the wealth in that company.

In 1938 gross profits as a ratio to all employment incomes were 1 to 4.5. In 1965 they were 1 to 4.2. Some levelling! As we have seen in our discussions in recent years on the problems of the regions, private enterprise has shown itself incapable of solving the regional imbalance in our economy. Many of the investment grants and depreciation allowances, and most of the grants on materials, plants and machinery in effect have been a form of public subsidy to private enterprise which is sometimes not recognised for what it is—a proof of the inability of private enterprise in our type of complicated society to cope with the problems which that society throws up. The position which we face at the moment is one in which we concern ourselves essentially with the technicalities of deep-seated and acute problems such as the balance of payments and whether—and on this I have a completely open mind—we should at this stage think in terms of devaluation or a floating exchange rate.

In the closing seconds of the time available to me I simply pose the question—why was this Government elected in 1966? Surely it was elected because people throughout Britain thought that it was necessary to harness the scientific revolution which we all see taking place around us in the interest of the British people. The tragedy is that if economics were once regarded as a dismal science, it remains not only a dismal science but in a sense even unscientific. If economists are to tell us about economics what nuclear physicists are able to tell us about their responsibilities, we need much more technical expertise and we need to see how cautious we should be in assuming that what any particular economist tells us is necessarily true.

The incomes policy is vital for the stability of our monetary system and the future well-being of our economy. It will work only if it is seen to be just and sensible. So far, those two conditions have not been adequately met, and I hope that, in the critical months to come, we shall improve the situation enormously.

9.0 p.m.

Mr. Patrick Jenkin (Wanstead and Woodford)

A few moments ago, my hon. Friend the Member for Cities of London and Westminster (Mr. John Smith) coined the phrase that if the Chancellor had nothing to say, why did he have to say it in April? There has been some suggestion that we ought not to waste four days on so empty a Budget, and in some speeches that has been linked with a proposition of a different nature, which is that the Budget ought not to occupy so central a position in the nation's life. I agree with the latter proposition, and so do most right hon. and hon. Members, but certainly I do not accept the former.

As the hon. Member for Manchester, Cheetham (Mr. Harold Lever)—or, as we must learn to call him, Joint Under-Secretary of State for Economic Affairs—put it, the Chancellor cannot set an automatic pilot and expect the economy to go on for a whole year. It does not work like that. At the same time, I am sure that it is right, at some stage in the year—and this is the traditional period—to set aside time for a thorough-going inquest into the whole of the Government's stewardship, and this is every bit as important when the changes which the Chancellor may have made are minimal as when they are major. The only difference is that, in the former circumstance, inevitably the criticism is bound to be directed more at the underlying assumptions of the Budget judgment than at the actual changes which the Chancellor may have made. It is with the underlying assumptions that I begin.

Ever since the National Plan was publicly executed last July, the House and the country have been waiting for a revised statement of the Government's projection of economic growth between now and 1970. On Tuesday, we got it from the Chancellor, when he said: In the Government's view the growth is likely to be about 3 per cent, per annum."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 983.] It is right that the point should he made quite firmly that, in the four years 1967–70, that means that the actual growth which the Government are hoping to achieve is lower than the growth rate that was achieved in the four years up to the end of the last Conservative Government. The hon. Member for Aberdeen, South (Mr. Dewar), who is not in his place, recalled with some degree of nostalgia that he had fought elections above all on the proposition that a Labour Government would get faster growth. We all remember the welter of league tables which were thrown across the Floor of the House and on the hustings, and the statistical invective which the Prime Minister indulged in during all those months and years. What has come out of it is that we are now promised slower growth than was achieved by the Conservative Government.

Turning to the immediate future and the year ahead, it does not seem to be recognised, or was not until my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) referred to it today, that in 1967 the Chancellor has taken an even gloomier view of the economy. I read this morning in The Times that he faced some very angry criticism in a private meeting of the Labour Party upstairs, and the hon. Member for Penistone (Mr. Mendelson) and others complained that the Chancellor and the Government had set their sights too low with a 3 per cent. rise in total output forecast for this year. I am happy to correct the hon. Member for Penistone and his hon. Friends, because that is not what the Chancellor said.

I will quote again the passage to which my right hon. Friend referred this afternoon, when the Chancellor said: However, I have been asked to hazard a judgment, and I will do so, and it is that total output will rise by close to 3 per cent. between the end of 1966 and the end of 1967."—[OFFICIAL REPORT. 11th April, 1967; Vol. 744, c. 993.] This is a very different concept. It does not seem to me to be a very subtle difference, but it is a real one which one would have thought people would have noticed. When one is talking of growth and using the concept of the gross domestic product, G.D.P., one usually means that G.D.P. in year 2, expressed as a percentage increase over the G.D.P. in year 1, is the growth that one has achieved, the total output in the year compared with the previous year.

When the Chancellor projected a 3 per cent. growth annually up to 1970, that was presumably the concept that he had in mind, that the output for each year would be 3 per cent. better than the year before. But when referring to 1967, that is not what he said. He implied, and this is the phrase that one ought to latch on to, that the level of activity at the end of 1967 would be 3 per cent. higher than the level of activity at the end of 1966. When one remembers that the level of activity declined in the latter part of 1966, that the growth curve for the year was, if I may so describe it, a shallow hump if one evens up the monthly peaks and troughs, it means that there will be a slight rise between the end of last year and the end of the current year. This will be the equivalent of an increase in output in 1967 over 1966 not of 3 per cent., or indeed anything like it, but about one-half of 1 per cent.

This is the forecast, and it is closely aligned to all the main economic forecasts. The National Institute, the London and Cambridge Bulletin, and the London Businesss School who all forecast a total rise for the year as a whole, expressed as an increase on the previous year, of about one-third, or just over that, of 1 per cent. This is the true figure of growth which we are to get in the current year. This is the figure against which the Chancellor's judgment, expenditure in the public sector, the prospect for the revenue, industrial investment, and unemployment must be set—a total growth of about one-half of 1 per cent. in the G.D.P. this year.

I should like to consider Government expenditure first, and I am prepared to accept for this purpose the Chancellor's figures which he gave on Tuesday, when he said that he expected public current expenditure—excluding for some reason the purchase of United States aircraft—to be 2½ per cent. up, and public investment to be 8½ per cent. up at constant prices. This is a phrase to which we are becoming accustomed with this Government's economics. They do their spending at constant prices, and hope to pay for it out of revenue at current prices.

If one looks at Table 11 on page 23 of the Financial Statement, and works out what the public investment will be at current prices, one sees that it is not 8½ per cent., but about 9½ per cent. These are the figures to be set against the resources available to meet them, namely, an increase of one-half of 1 per cent. on last year. These are formidable totals.

But much more serious than the immediate impact, particularly in respect of Government expenditure, is the impact over the longer period, and one after another my right hon. and hon. Friends have tried to elicit from the Govern- ment some indication of how this is going to look in the future, and what the Chancellor meant by the somewhat cryptic phrases which he used.

After noting the decline in private enterprise, the right hon. Gentleman said: Private investment will recover—indeed, we have taken many steps to induce such a recovery. This means that public expenditure, which cannot be quickly changed, must be reined back in good time. Taken in the context of the Chancellor's often-repeated complaint about the size of the public programme which he inherited from his predecessors, he is living in a curious Alice in Wonderland world, which seems to colour the Government's whole approach to the matter. They complain about excessive public expenditure which apparently was bad yesterday, will be bad tomorrow, but is never bad to-day.

The Chancellor also said that they launched an exercise to bring our long-term expenditure programmes into line with growth prospects up to 1970 as we now see them and to reconsider priorities between the different long-term programmes."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 990.] This is absolutely crucial. In February, 1966, the Government published a White Paper, "Public Expenditure: Planning and Control"—Cmnd. 2915—and on page 26, in Table 3, they gave estimates at constant prices up to 1967–70. We now need to know what the revised estimates will be.

In the Government's financial Statement last year Table 12 corresponds exactly with Table 4 in the White Paper, which did not set up the position up to 1970 but gave the figures for the reconciliation between supply expenditure and total public expenditure. This year that table is missing, and we are offered another table, which appears to have been put in for an entirely different purpose. We can only ask whether that table was missed out because the results would have been embarrassing or because the conclusions as to growth up to 1970 are simply not known by the Chancellor. Would this have shown—and I believe that it would—that Government expenditure for 1967–68 has already nearly reached the level which, in Cmnd. 2915, was predicted for 1969–70?

I therefore return to the question: what does the Chancellor mean by "reining back" public expenditure? What will he reduce, and how will it be done? We have not been told a word. Many of my hon. and right hon. Friends have pressed the First Secretary and the Chief Secretary to explain, but always the question has been dodged. It deserves an answer. The country should know. The Government must come clean, because without an answer the whole Budget strategy is meaningless and, at worst, could hold very dangerous implications.

I want to consider the prospective revenue which the Chancellor expects. Again, in the context of the total rise in output next year, about ½ of 1 per cent. I find it difficult to accept the estimates. The estimate for Income Tax in those circumstances is up by over £550 million, which is a 17 per cent. rise on last year. For Corporation Tax the estimate is up by £225 million—a 22 per cent. rise on last year.

I query how the Chancellor thinks that he will get these amounts. Is he expecting a massive inflation—a great rise in personal incomes—which will give rise to this increase in yield? There may be special factors—indeed, in respect of Corporation Tax there obviously are. The ending of investment allowances must make a considerable difference to the amount of Corporation Tax for this year, as against last year. It may be that the figure for Income Tax owes something to the fact that the bunching of dividends two years ago meant that there was a lower Schedule F yield last year. But even with those exceptions these are astonishingly high rises. I hope that the Financial Secretary can explain these figures.

Yesterday my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) drew attention to the fact that the current surplus this year, at £1,185 million, was the biggest-ever Budget surplus on current account. This, of course, does reduce the borrowing requirement.

We know that the Government are already in some difficulties this year over their financing requirements because of the need to issue this enormous sum of £550 million, or whatever it is, of steel compensation. One must ask: are the Government engaged in a kind of window-dressing operation in an effort to try to conceal the real difficulties they now face? I hope that the Financial Secretary will be able to clear this up, and remove any doubts that this is so.

I turn to another aspect, which I would describe without fear of challenge as the cornerstone of the nation's solvency—the level of industrial investment. Many hon. Members have referred to this yesterday and today. I was astonished when the sagging level of industrial investment was dismissed by the Chancellor of the Exchequer with an almost airy indifference. In his Budget Statement he said: The extent of the fall in investment by the rest of the private sector—manufacturing and distribution for the most part—is, fortunately, not likely to be as severe as the exaggerated forecasts which were put about last autumn, but it will be enough. It may be about a 10 per cent. drop …"—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 993.] That is all he said about it, yet this is, perhaps, the aspect which gives the gravest cause for concern.

The National Plan, with an average annual growth rate forecast of 3.8 per cent. required an annual increase in manufacturing investment of 7 per cent. Our level of 3 per cent., to which we now appear to be going, must require an investment increase of not less than 5 per cent. or 6 per cent. Yet the Chancellor of the Exchequer is apparently accepting with equanimity a drop of 10 per cent. this year. One must point out that there are other much more pessimistic forecasts of what it will be.

Every pre-Budget commentator has singled out the need to do something about the prospective drop in manufacturing investment as holding the key to the future. We have the National Institute saying: … a way needs to be found of changing from the present position, in which public expenditure is rising very rapidly and private investment is falling, to a position in which public expenditure is rising more slowly, and private manufacturing investment is rising. The London and Cambridge Bulletin had this to say: … the level of private investment in manufacturing will he going down when it ought to be going up. It added later: … the growth and changing composition of manufacturing investment is a crucial determinant of the overall efficiency of the economy. Yet the fact is that the combined effect of the Government's policies has sapped confidence and this investment is declining alarmingly.

The Government are to blame for this. Do they really believe that the change to Corporation Tax has had no effect on the level of manufacturing investment? One company chairman after another has reported to his shareholders in his annual statement that the effect of falling margins coupled with the need to maintain dividends has meant that less is retained for investment. That mythical company which seems to regard dividends as a tiresome residual which can be dispensed with can only be described as a figment of Professor Kaldor's fertile imagination. This, combined with a 30 per cent. Capital Gains Tax, the highest in the world, an increase in Income Tax, the 10 per cent. Surtax surcharge, the penal provisions for close companies, has undermined the will to invest on the part of manufacturing industry, and the will to take risks.

The Government suffer from a profound delusion. They want the nation to prosper, but they do their damnedest to see that no one makes anything out of it. Yesterday, the First Secretary returned to the now well-worn theme of the amount of skill, effort and time spent in tax avoidance, and called for less craftiness. When will right hon. Gentlemen take on board, if I may be permitted to use another nautical metaphor, the fact that the tax avoidance industry is a direct product of penal rates of taxation. With a top rate of Surtax of 19s. 3d. in the £ and a top rate of Estate Duty of 80 per cent., of course efforts will be turned to try to protect people from those rates. No one knows this better than the Chief Secretary himself, who may be described as an avoidance device personified.

If a man can put spending money into his pocket more rapidly by spending a day with his accountants on tax avoidance than by spending a day with his customers in the market place, it is with his accountants that he will spend the day. He cannot be blamed for that.

In this context may I read a letter from Mr. Grierson, the managing director of the Industrial Reorganisation Corporation, written in his personal Capacity to the times of 1at April. He said: I believe it relevant to state that by far the biggest obstacle to the dynamic development of industry lies in the absurdly disincentive effect of present taxation levels on earned income. These are strong words from an authoritative source which the Government would do well to heed.

I wish to say a word or two about the Green Book and the Reddaway Report. On the Green Book and regional development generally I, and I believe all my hon. Friends, accept the case made very clearly and cogently in the first 17 paragraphs of the book of the need to even out the disparity between the development areas and the rest of the country. I agree that if this could be done the economy could be run at a higher level of activity than would otherwise be possible in face of the difficulties of over-full employment and other problems.

The Government have three main weapons to achieve this. The positive incentives used to be tax allowances and are now grants, coupled with loans and so on. The negative controls are the I.D.C. procedure and more recently the office development permits; and third, public expenditure on the infrastructure.

I found myself in close agreement with the hon. Member for Edmonton (Mr. Albu) in his very cogent speech yesterday that on the whole it is the second, the negative controls, which have probably been most effective in recent years. The trouble with the incentives is that no one really believes that they have that degree of permanence on which industry can base its planning. Over and over again one hears industrialists say when they consider where to do their next investment that the grants are not more than a marginal consideration. This is so even at 45 per cent. The reason is that very few investments are once-for-all. Every industrialist believes that he will go in for further investment and spending in the location he chooses and he does not know that he can take these grants into consideration in the long-term future. No Government can guarantee continuity and history does not suggest that continuity is likely. Therefore, he looks for other factors, communications, proximity of markets and suppliers, congenial surroundings and other considerations.

In this context we must look at the new premium vis-á-vis the grant. It is directly related to employment whereas the grant tends to favour the capital intensive industries. On the other hand, the grant is a bird in the hand. Once one has done the investment one gets the grant whereas the premium is at best on an annual basis, and it is a year or two before the return is garnered in. Even since the Green Book was published I have heard industrialists say that this can be a factor of not more than marginal consideration. Though it is unlikely to stimulate new investment in the regions, it could have the effect of transferring demand to development areas provided this resulted in reduced prices and was not swallowed up in higher costs whether in wages or otherwise.

But my hon. Friend the Member for Cities of London and Westminster made the point very clearly when he asked if it is ever right to pay a firm to employ more labour in the circumstances we are in now. As my hon. Friend the Member for Morecambe and Lonsdale (Mr. Hall-Davis) said, are we not likely to delay the redeployment, in the proper use of that word, from the declining industries which are at the moment making great demands on skilled labour in the development areas by making it difficult for firms to recruit skilled labour? Would not the premium have this effect?

When there is added the disadvantage mentioned by a number of hon. Members opposite—yesterday the hon. Member for Merioneth (Mr. William Edwards), today the hon. Member for Aberdeen, South—that, allied purely to manufacturing, it will not help the areas where the manufacturing element may be only 7 per cent., as in Merioneth, or 10 per cent., as in the Highlands of Scotland, these are very grave disadvantages. I believe, therefore, that this is probably not the right way. The arguments will have to be carefully weighed.

I wonder whether, if this money is available, it is not better spent on the infrastructure of improving the environment and in that way evening out the disparity that exists between the regions—on roads, on airports, on better housing, on renewing city centres, on recovering derelict land, on schools, on hospitals, certainly on more training facilities. These are likely to give better value for money in the way of regenerating the development areas.

Finally, I turn to the Reddaway Report on Overseas Investment. This is as yet only an interim report, but I am sure that the whole House will agree that it contains an enormous amount of valuable information and gives much material on which to base very much more informed arguments than those which were developed on either side of the House two years ago.

The main provisional conclusions which emerge are these. If the Financial Secretary feels that I have stated them wrongly he can correct me. Cutting back overseas investment can be justified as a short-term expedient in acute balance of payments difficulties. In the short term, the outflow is much greater than the inflow and, therefore, this can be justified. In the longer term, overseas investment is an essential element in national growth and eventually is self-financing and builds up assets which are bound to be of the utmost value to the nation.

The Government have, in most respects, proceeded in diametrically the wrong direction. They have made a series of permanent tax changes which make overseas investment substantially less attractive than it was before and then—we do not necessarily criticise the Government for this, but merely point it out—have given a whole lot of temporary reliefs which postpone the effect for a number of years. This seems to go in direct contradiction to what the Reddaway Report suggested was right. The Government have it precisely the wrong way round. There is a case for short-term physical controls, but none for long-term tax disincentives.

This is entirely characteristic of the Government's whole approach—act first, think later. Two and a half years of acting first and thinking later have now driven the Chancellor of the Exchequer into the position where he is terrified to act at all. His ship of State has been at full steam ahead, and then it went full steam astern. Now it has virtually stopped. The only command that he can offer to the crew. "Steady as she goes". Once again he has misjudged the situation.

If I may end still on a nautical theme, clearly we shall have to wait until my right hon. the Member for Enfield, West takes the helm from the Chancellor before we can hear the welcome command, "Splice the mainbrace".

9.28 p.m.

The Financial Secretary to the Treasury (Mr. Niall MacDermot)

I am sorely tempted to follow the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) in his comments on the Reddaway Report. All I would say is that if as a result of this Report anybody has to swallow his words spoken two years ago, it is not anyone on this side.

The main Opposition criticism by those who criticise my right hon. Friend's Budget—it is not by any means everyone—has been that it is timid and overcautious. It is clear that there is not a great deal of steam behind the criticism.

The right hon. Member for Enfield, West (Mr. lain Macleod) suggested only that instead my right hon. Friend should have taken some very moderate reflationary action. Members of the Opposition Front Bench had committed themselves to this judgment in pre-Budget articles, based, no doubt, primarily on an assessment of the various outside bodies as to their likely future growth rate. The right hon. Gentleman, on Sunday, 3rd March, talking to the Conservative Party Central Council, when asked whether my right hon. Friend would introduce a tough Budget, said: Not perishing likely, not on April 11th, two days before the Greater London Council election. This ain't gonna be a tough Budget. It's going to be a juggler's Budget in which you have got to watch very carefully indeed as the plates whirl into the air". I do not know whether the right hon. Gentleman still thinks that the plates have been whirling in the air.

Before the Budget, my right hon. Friend was invited in many quarters to give his assessment of future prospects, and he has done so. It is on his judgment that total output will rise by close to 3 per cent. between the end of 1966 and the end of 1967 that the difference, such as it is, between the two sides of the Committee arises. I make clear, in answer to the question put to me by the right hon. Member for Leeds, North-East (Sir K. Joseph), that this figure refers to the change between the end of 1966 and the end of 1967. In other words, we are speaking of the rate of growth during the present year; and that, after all, is what matters. The £1,000 million is the amount at which the national income will be running by the end of 1967 in excess of the rate at the end of 1966. This increase will build up during the year.

Mr. Patrick Jenkin

Therefore, when the Chancellor of the Exchequer said on a sound broadcast, I expect to see real resources increasing over the next 12 months by about £1,000 million", he was mis-stating the position?

Mr. MacDermot

Not at all. He was stating exactly what I have just said.

If my right hon. Friend is correct in that, I think that there are few who would suggest that further reflationary action is required now. Consequently, criticism has been directed rather from the Budget statement to the figure given by my right hon. Friend with a request for yet further information. The truth is, as the economics editor of the Financial Times recognised, that the Chancellor of the Exchequer has been more forthcoming with information than any Chancellor we have had in the last decade. I am sure that my right hon. Friend will continue and be anxious to publish all that he properly can. But hon. Members must recognise that the Government do not have the same freedom as outside bodies in publishing details of estimates on which forecasts are based.

Let me give an obvious example. One factor is the percentage by which incomes are likely to rise in the coming year. If the Government were to publish such a figure, it would immediately be assumed to be a new norm. It would become a floor for all wage negotiations. The mere publication of the figure would falsify at once what otherwise was an accurate figure.

Sir K. Joseph

Then would the hon. and learned Gentleman tell us the answer to the question which we have put: by what percentage the G.N.P. for 1967 will rise at constant prices?

Mr. MacDermot

I proposed to deal with that later, but I will deal with it now. The right hon. Gentleman asks what proportion of our public investment programmes has been authorised for 1968–69.

Sir K. Joseph

No. In the Government's view, by what percentage will the G.N.P. in 1967 exceed the G.N.P. for 1966 at constant prices?

Mr. MacDermot

I am not able to give a figure for that. I have given the explanation, for which the right hon. Gentleman asked, for the estimate given by my right hon. Friend the Chancellor.

The other question which the right hon. Gentleman asked me specifically in his opening was this: what proportion of our public investment programmes has been authorised for 1968–69, and what margin remains uncommitted?—without disrupting our normal programmes—I take it that that is the assumption underlying the question. The size of the margin varies from programme to programme as the degree of forward programming varies according to what is possible and what is desirable, but in most fields it falls in a range from about 10 per cent. to about 30 per cent. The extent to which these margins are taken up will vary in particular cases. In some cases, as with the nationalised industries, investment is closely linked with national growth. But, at least, there is scope for some phasing within the total public investment programme to accommodate the changing needs in the economy referred to by the Chancellor, the hoped for expansion in private sector investment, and so on.

The point has been made that criticisms of the Chancellor for lack of courage in his Budget are misconceived. Indeed, the hon. and learned Member for Darwen (Mr. Fletcher-Cooke) congratulated the Chancellor, as he put it, on having the courage to be dull, candid and consistent. Nothing would have been easier for my right hon. Friend than to court popularity by a mildly reflationary Budget Any Chancellor who comes to the unpalatable judgment that no major action is called for lays himself open to the charge that he is unimaginative and has no new thinking. There may not be new thinking, but the Chancellor has not fallen into the old temptations.

In putting forward alternative proposals, hon. Members opposite have not done any revolutionary thinking. The right hon. Gentleman the Member for Enfield, West invited us to refer to his article in the Financial Times. This I duly did. The right hon. Gentleman said that, in his view, there were two chief aims: first, to reduce direct taxation, second, to help poverty in the large families. He was understandably imprecise about how he would do the latter, and I do not blame him for that. It is an exceedingly difficult and complex matter, and, as my right hon. Friend the Chancellor said, it is being studied closely by the Government to see what can be done, and how.

The right hon. Gentleman's main proposal, therefore, is to reduce direct taxation by taking 6d. off the standard rate and 3d. off the reduced rates of Income Tax, at a cost of about £200 million, and by cutting Surtax this year by £50 million not only by wiping out the 10 per cent. surcharge announced last year but by making a further reduction of 10 per cent. in Surtax.

The benefit of these changes would go wholly to individuals, as companies do not now pay Income Tax, and by far the bulk of the benefit would go to the better-off classes. The 3 million or so people whose marginal rate of tax is at the lower rate would benefit by 25s. a head, and the 6½ million on the second reduced rate of tax would benefit by £3 15s. a head. The great bulk of the reduction of £136 million would go in the reduction of the standard rate, and standard rate payers would benefit also by the reduction in the reduced rates.

The right hon. Gentleman put these reductions in what he called the context of increased incentives and efficiency, without making clear how they would contribute to this end. But we all know that it is a well-founded assumption on the benches opposite that a reduction in taxes will somehow increase efficiency. In addition, he proposed reductions in the Selective, Employment Tax and in the taxation of close companies which would bring the cost of his proposals to between £360 million to £380 million a year.

My interest in the right hon. Gentleman's proposals quickened when I came to see how he proposed to finance them. He said that he would be unimpressed if his figures were challenged in detail. But his figures contain an error so large that it can hardly fail to impress even the right hon. Gentleman himself. He has double counted the regulator to make it yield an extra £150 million. One knows that double counting is a popular practice these days. I do not know what the right hon. Gentleman's proposals were for making a refund, but the effect is that unless he would be prepared to increase his tax elsewhere the whole of his reduction of 6d. in the standard rate would fly out of the window, and the economy would be left without his stimulating incentive. Alter natively, if he retains it without increasing taxes we shall again be landed with a boom stimulated by consumer demand of the kind which was prescribed by his right hon. Friend the Member for Barnet (Mr. Maudling) with such disastrous consequences.

The right hon. Gentleman referred in his article to the Irishman who on being asked the way to Piccadilly said, "If I was going there I would not be starting from here." Speaking as an Irishman, I have every sympathy with the sentiment, but I was a little taken aback by what appeared to me to be the brass of the right hon. Gentleman in referring to that matter, because if any people did not want to be at the starting point at which they found themselves, it was this Government in October, 1964.

For the rest, the right hon. Gentleman claims that he would cut public expenditure by £130 million. His right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), with his experience as a former Chief Secretary, made a telling speech yesterday pointing out the difficulty of cutting public expenditure programmes. The more tangible of the right hon. Gentleman's proposals, such as the abolition of prescription charges, raising the price of school meals, imposing agricultural levies and reducing agricultural subsidies, are all proposals to increase consumer prices on items the cost of which falls most heavily on the poor in order to finance concessions to those benefiting from company profits and high personal incomes.

If the right hon. Gentleman would like a verdict, for what it is worth, on his Budget, I should say that it is confused, irresponsible, inflationary and, understandably, reactionary.

The right hon. Gentleman did not invite us to study the Budget of his right hon. Friend the Leader of the Opposition, which was published in the Sunday Times. It was cast on similar lines, but was rather more vague and consequently avoided the error of double counting. Both the Leader of the Opposition and the right hon Member for Enfield, West said that they would declare the intention of abolishing S.E.T., which, in itself, would mean another large loss of revenue. But the Leader of the Opposition made clear that they would place more social service contributions on firms. As my right hon. Friend the Chief Secretary pointed out, those two things are the same—they mean an increase in the stamp and the employer's contribution to it—except for the selective character of S.E.T.

Both right hon. Gentlemen invited us to study further the proposal for a value-added tax, with an eye to our prospective entry into the Common Market. As has been said, that is being done within the Government. I made some comments on the value-added tax in a debate on taxation on 27th January, and I do not wish to repeat them. But I would make the point, which I think was mentioned by my hon. Friend the Member for Ashfield (Mr. Marquand), that it is not to be assumed that the case has been made out—it certainly was not made out to the satisfaction of the Richardson Committee—that the introduction of the value-added tax would give us any gain from the point of view of export incentives.

I saw in today's Financial Times that the Germans have proposed to introduce that tax in place of their existing turnover tax, explaining that this will make the lot of many of their exporters easier and militate against imports. That is, of course, contrasting it with the cascade system which they have at the moment. It is true that for them a value-added tax will have the advantage that exports will be able to be precisely relieved in all cases of the amount of the tax in the cost, and equally that there can be an exact countervailing tax on imported goods. We already enjoy these advantages with our Purchase Tax system. We get both these benefits already, and so in that respect we are already in the position which Germany and other European countries are hoping to reach as a result of changing over to the value-added tax.

Mr. Eric Lubbock (Orpington)

There is a big difference between Purchase Tax and the value-added tax, in that Purchase Tax applies to a far more limited range of goods and services and the variations in the rates of tax are much wider than is the case with v.a.t.

Mr. MacDermot

I said that I did not want to repeat what I said in that earlier debate when I covered that point and when I analysed what would be the other goods and services which would have to be taxed if we altered the system. The list includes many things which have been widely held in this country as being items which should not be subject to indirect taxation, such as food and fuel.

I detect in the speeches and writings of hon. Members opposite the thought and the hope that the value added tax and our entry into the E.E.C. would provide a convenient way of shifting more of the burden of taxation from direct taxes and into prices by increasing taxes on goods and services. There are some widespread illusions about the comparisons between taxation in this country and that in the European Economic Community countries. In particular, it is said that in total we have a much higher level of taxation than they do and, secondly, that we pay a higher proportion of taxes by direct taxation, whereas they pay more by indirect. In that debate of 27th February I gave figures to show why that was not so and I that if one included, as one should, the social security contributions within direct taxation, they paid a higher proportion of taxation through direct taxes than we did. It is only by excluding social security contributions that we can be said to have a higher rate of direct taxation.

The Opposition's proposals to provide an incentive for industry by reducing direct taxation is therefore another famous confidence trick. What they propose to do is to reduce the withholding tax on distributed dividends and to replace it by higher social security contributions on employers and a higher rate of Corporation Tax. Another Opposition illusion is that the total burden of company taxation, including both the withholding tax on dividends and the Corporation Tax, is much higher here than in the E.E.C. countries. My hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) dealt with this last night, and I will not deal with it again.

Mr. Iain Macleod (Enfield, West)

On this side of the House we are delighted that so far the Financial Secretary has spent two-thirds of his time discussing my Budget—this is a very sensible order of priorities—rather than that of the Chancellor of the Exchequer. Of course they are framed on different assumptions, but that does not necessarily mean that my set of assumptions is wrong. On the particular point of double counting, the hon. and learned Gentleman is wrong. If he looks carefully at the assumptions of prospective tax revenue which I made and if in particular he compares them with the speech of my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) in his Budget which consolidated his Regulator in 1962, he will find that I followed precedent exactly.

Mr. MacDermot

We can argue this out later, but I do not accept the right hon. Gentleman's argument.

I turn now to the betting tax. The right hon. Member for Enfield, West has claimed credit for his foresight in warning the Chancellor that he was running a risk in waiting for the autumn for the operation of S.E.T. to mop up excess demand last year. I do not know whether he says that he foresaw the run on the £ in the summer and the shipping strike which was responsible for giving rise to it. In any event, he has been rather more modest about the very emphatic and specific condemnation which he made last year of my right hon. Friend's proposals about the betting tax. His fear then was that the form of the tax would drive betting underground and he thought that we were making a mistake in imposing the tax on stakes rather than on physical assets.

It is early days yet. The tax has not yet been tested against the higher level of betting in the flat racing season, and I do not know whether the right hon. Gentleman still adheres to the gloomy view that he took last year. So far there has been very little evidence of evasion, and the tax has got off to a very good start. There have been some misleading comparisons about the estimate of the yield for the coming year and that for last year because people have ignored the fact that the figure given last year by my right hon. Friend, of £17 million, was only for the new duties and did not include the existing yield on greyhound racing. The proper comparison is between £35 million and £21 million, and the whole of the increase is attributable to the success of the general betting duty.

The right hon. Gentleman asked me for the explanation of the estimated increased yield of Income Tax and Corporation Tax in the coming year. On Income Tax it is really due to two factors. Firstly, the P.A.Y.E. increase, as a result of the wage increases that have taken place, in spite of the standstill, in the last six months and secondly, the Schedue 12 yield, which will lose the limitations it had last year. This is because it was only a part-year and secondly because of the one-year surplus provisions. Thirdly, there is the absence this time of the forestalling which took place last year.

On Corporation Tax, the starting point is that we know that profits have been down, but that factor has been swamped by two considerations. The first is that the capital allowances are down more, as the right hon. Gentleman anticipated, as a result of the abolition of investment allowances, and secondly, we are dealing with a full year, not a part-year. Therefore, there are some arrears of Corporation Tax to come forward from the previous year, which was not the case in the first year of operation.

May I comment upon the criticisms levelled by my hon. Friend the Member for Ashfield at my right hon. Friend's Budget. I thought, with respect, that his description of my right hon. Friend's proposals as implying an acceptance through to 1970 of the present margin of unused capacity was a travesty of what my right hon. Friend said, and ignored the fact that he said that the present level of unemployment, in particular in the regions, would be wholly unacceptable. It is for this reason that the Green Paper proposals have been put forward. My right hon. Friend made clear at column 986 the point about his estimates when he said: I ought to add that in the medium-term assessment of the internal and external outlook, to which I have referred, no credit was taken for the benefit which might come from the implementation of these proposals."—[OFFICIAL REPORT. 11th April, 1967; Vol. 744, c. 986.] The question is not one of maintaining this or any other level of unemployment, but of how to prevent the overheating of the economy in the prosperous areas, while at the same time being able to reduce unemployment in the remaining areas, particularly in the developing areas to what would be a tolerable level. It is to that problem that these proposals are directed.

We have had some extremely interesting speeches commenting upon them, and there is only one matter that I want to touch upon now, and it is to correct the impression which was first voiced in a speech by the hon. Gentleman the Member for Enfield, West, and taken up by other hon. Members. It was the way in which the right hon. Gentleman posed the question that, if £100 million could he found, was that the right way of using it? That is not the right approach. It is not a question of our having £100 million of uncommitted resources at our disposal, to spend as we please. What we are concerned with is the problem of the development areas. The proposal for a regional employment premium to manufacturing industry in those areas has been put forward, first of all because there are strong arguments for believing that it would be more effective than any alternative proposal for reducing the existing disparity between unemployment in the development areas and the rest of Britain.

If we decide to go ahead with it, we have to consider ways of freeing resources for payment of the premium either by way of taxation or by reduction in other expenditure. But, for the reasons explained in the Memorandum, there is a strong case for thinking that financial arrangements of this kind would not in the event be necessary and the proposal for regional employment premiums does not stand or fall by this point. But obviously it is an important additional argument in its favour.

But there are two conditions that would have to be satisfied in order to justify the argument. The first is that there would be no extra strain on scarce resources, and the argument is that this condition would be met because of reserves of manpower in the development areas—that of course exists—and because of the easing of pressure which would result in the labour market in other parts of the country. The second condition is that there would be no effect on the balance of payments, and here again, so long as the premium is confined to manufacturing industry, which exports a far higher proportion of its output than the service industries, there are grounds for arguing that the proposal satisfies this condition also.

I do not want to elaborate the argument further that special taxation would not be required to finance the scheme. What I am anxious to do is to dispel any notion that we have, as it were, a reserve of £100 million to play about with irrespective of the character of the expenditure and also to make it clear that the sum of £100 million at this stage is a purely ilustrative figure.

A number of my hon. Friends, in particular, have criticised our proposals, saying that more should have been done by way of redistribution. I draw their attention to the changes in the forms of personal income shown in Table 2 of the White Paper on National Income. Total personal incomes increased between 1965 and 1966 by over £1,600 million, or 5½ per cent. Within that total, National Insurance benefits and similar payments increased by £234 million, or 8½ per cent., while wages and salaries, despite the standstill in the second half of the year, went up by £1,140 million, or 6 per cent.

The incomes of self-employed persons remained virtually unchanged, while receipts from rent, dividends and interest increased by less than £100 million, or 2½ per cent. These figures show the way in which, as a result of Government policy, the benefits of increases in personal incomes are being channelled to those in need and to the wage and salary earners rather than to the rentiers.

I have about two minutes left. When I was at school a schoolmaster was wise enough to tell me that, having finished an essay, one could improve it greatly by omitting the first paragraph. I am sure that the same thought applies to speeches, but to the last paragraph instead of the first. There is little time for me to make a moving peroration. I prefer to let the facts speak for themselves.

The fact is—and we all know it—that in spite of the attempt to cast gloom over the debate, the Chancellor of the Exchequer has a solid and encouraging prospect to offer which is based on a record of achievement. There has been a dramatic improvement in our balance of payments. The gold and currency reserves which stood at £1,164 million at the end of March have risen in each of the last three months, despite substantial debt repayments.

I know that the right hon. Member for Enfield, West is sincere in expressing satisfaction at this achievement, as other right hon. and hon. Members have been. The Government's view is that we can continue on this course and earn sufficient surplus to meet our obligations by 1970 while achieving a 3 per cent. growth rate at home.

There is one thing I entirely agree with the right hon. Gentleman about—that confidence is the real key to investment in the private sector. Business men may not have their eyes fixed on estimates of percentage of annual future growth, but I think that business men, like others, are becoming more sophisticated and that their confidence will be stimulated not by another temporary boom resulting from premature reflation but by making expansion as we are doing at a steady and sustainable pace.

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress; to sit again Tomorrow.