Budget Resolutions and Economic Situation

§ Mr. Speaker

Before I call the Minister, I must inform the House that I already have a long list of right hon. and hon. Members who have indicated that they hope to catch my eye. It will be impossible for them all to be called, although they have a legitimate right to be called. I appeal to hon. Members not to come to the Chair, because, as my predecessor used to say, it would be "counter-productive". That is an extremely effective sanction.

§ The Secretary of State for Employment (Mr. James Prior)

I am indeed grateful to the Opposition for changing their speakers so that I have a chance of coming to the Dispatch Box this afternoon. For a little while I wondered why they had changed their speakers at the last moment and had decided that the right hon. Member for Chesterfield (Mr. Varley) should appear at the Dispatch Box rather than the right hon. Member for Salford, West (Mr. Orme). But having seen his performance on Thursday evening, when he was completely clobbered by my right hon. Friend, I am not in the least surprised that they do not want to risk him again this afternoon.

Therefore, this gives me a good opportunity—[Interruption.] The hon. Member for Fife, Central (Mr. Hamilton) is extremely active this afternoon. He is in very good voice. I hope that he will listen carefully to what I have to say, because it is just possible that he may learn something.

§ Mr. William Hamilton (Fife, Central)

Not from you.

§ Mr. Speaker

Order.

§ Mr. Prior

My right and learned Friend the Chancellor has introduced a very tough Budget at a critical and difficult time for our country. I do not know anyone who realistically expected anything other than a hard Budget this year. Despite the recession, many inflationary tendencies are still in our economy. The pressures of inflation are still present. The level of earnings is still rising considerably faster than the level of prices. There is no doubt that inflationary pressures are still around. Both the level of public spending and money supply testify to this.

Nor have I seen any informed comment that does not accept that a hard Budget was necessary. Those who ask for a give away—some Labour Members have certainly done so in their speeches—and something to boost consumer demand at a time of deep world recession, are really asking us once more to get on the old treadmill of pricing ourselves out of goods and services, in exports and in import substitution, and to make all the same mistakes that we have made in the past.

We only have to look back to 1978–79 to see what happens when one seeks to do that. In 1978–79 the PSBR was doubled. A lot more money was pushed, into the economy. The result was that we encouraged a flood of imports, and at that time we had practically no effect on the level of unemployment. Despite all that extra cash that was put into the economy, unemployment fell by 150,000 from its peak. I do not think that anyone, except perhaps a few Labour Members, really believes that that is an answer to our problems. To go down that road again would be to enact the recurrent cancer in the British economy since the war, thus steadily debilitating our capacity to compete even in the boom years. That would be fatal against a background of the worst world recession for half a century.

Even if the Government were willing to resort to the dangerous expedient of substantial devaluation to try to ease the impact that such reflation would have on our trade it could not work, because oil and energy resources have put a stop to all that.

So it was bound to be a pretty tough Budget, and tough Budgets are never popular. It was sadly inevitable, too, that a tough Budget at a time of severe recession would be particularly unpopular because everyone—industry, trade unionists, taxpayers and those dependent on State benefits—feels the pinch more at such a time and understandably looks to the Government for help.

Having said that, and recognising the disappointment, it does not mean that the vast majority of people in our country expected or wanted a reflationary Budget. They did not. They know that necessary changes in our economic and competitive position are taking place and that many hard decisions about the uncompetitive state of much of British industry, which has been building up for years, are now being made.

I would not necessarily talk about a new realism, although that is what a number of people are calling it. I would say that there are many signs that an old realism is beginning to return. Changes in working practices that have been wanted for years, and that five years ago would have been thought to be totally impossible, are now taking place on the shop floor. There has been a noticeable moderation in pay settlements. Since the early autumn the average pay settlement in private industry has been less than 10 per cent., and in many cases settlements have been much lower than that. Many workers have taken no 21 increase in pay at all. In addition, strikes are at a low level. That speaks volumes for the sense and stability of working people.

In many areas, our unit costs are at last beginning to move in the same direction as those of our main competitors. If we were to relax now—this is the point that I want to get across to Labour Members—and to say that enough is enough and that we have taken our medicine can relax now again, our competitors would run away from us. [Interruption.] If Labour Members do not believe this, they do not have to.

There are signs at the moment that the recession is beginning to bottom out. [Interruption.] Oh, yes. There are a number of signs from various parts of the country, from the North-West and from the West Midlands and the latest CBI statements—[Interruption.] Do Labour Members not want to see a bottoming out? Do they not accept the evidence that is presented to them? I am very surprised at the attitude they are taking this afternoon.

I turn to the measures in the Budget which are designed to help industry.

§ Mr. Peter Shore (Stepney and Poplar)

The right hon. Gentleman was just about to cheer us up by giving us the evidence about bottoming out from the recession. Surely he would not want to leave that subject without giving us at least some evidence.

§ Mr. Prior

The right hon. Gentleman has not listened to what I have just said. I said that the evidence from the latest CBI statements and from the North-West and the West Midlands has indicated that the recession is beginning to bottom out. I should have thought that there was other evidence from the longer-term economic indicators in support of that view. Perhaps the right hon. Gentleman has not read it. I am glad to be able to tell him that this afternoon.

It is significant that nearly all the speeches that have been made by my hon. Friends in the course of the three-day debate have been devoted to the need to help industry in any way that we can. It is right that we should give our top priority to industry and to helping industry in every way.

§ Mr. Ron Leighton (Newham, North-East)

If the recession is bottoming out, as the Secretary of State suggests, can he guarantee that when we get next year's Budget the unemployment figures will be significantly lower?

§ Mr. Prior

No, I cannot guarantee that. If the hon. Gentleman had a vestige of economic knowledge he would know that there are two factors involved here. First, when the economy recovers, there is bound to be an enormous increase in productivity in this country. Secondly, well after the recession has finished, when we start to climb back into greater production, the numbers of unemployed will continue to rise. I cannot, therefore, give the hon. Gentleman the indications that he would like, any more than he expects to have them. But we shall give top priority to industry. In the clamour of the Budget debate we should not forget what has already been done.

A number of measures have already been taken to help industry in this Budget and in past weeks. I shall list them, so that hon. Members will begin to realise that we are giving to industry whatever help we are able to give at a very difficult time for the economy.

22 The minimum lending rate has fallen by 4 per cent. since November. Our interest rates are falling at a time when the interest rates of nearly every other country are rising. Taken over a period of three months, our interest rates are now lower than those of America, Germany, France and a good many other countries. Since the interest rate is perhaps one of the most important factors in getting production going, and getting the economy going again, we should take credit from the fact that we have been able to reduce the interest rates by 4 per cent. in the space of the past four months.

Another factor of importance, which to a certain extent—but only a certain extent—is tied to this, is the exchange rate. It is now about 5 per cent. lower that it was at its peak at the end of January. To that extent as well, both those factors are operating now in the right direction and are of help to British industry. Indeed, the CBI estimates that each reduction of 1 per cent. in interest rates is equivalent to £350 million, so on that score, since November, some £1,400 million has been taken off the cost of industry.

The new stock relief scheme, mentioned by the Chancellor of the Exchequer, will put £180 million into industry this year and £450 million next year.

The industrial building allowance has gone up from 50 per cent. to 75 per cent. There are also the improvements and the relaxations that have been made in the development land tax. Those measures will be of value to the construction industry and to manufacturing industry over the next year.

§ Mr. Eric S. Heffer (Liverpool, Walton)

Will the right hon. Gentleman tell us exactly how many jobs those measures are likely to create in the construction industry? Is not that a miserable approach to the construction industry, which needs something much more decisive than that?

§ Mr. Prior

I cannot give an estimate of the number of jobs. I am not certain that any measures can ever be designed with that end in view, but I am quite certain that over the next few months these measures will be of help to a number of industrialists who will be seeking to make up their minds whether to build new factories. That is the way in which these things happen. But I certainly could not put a finger on the number of extra jobs that the measures will create.

I now turn to energy prices. As a result of the working party that was set up by the NEDC and that reported at the last meeting of the NEDC, the Chancellor of the Exchequer and the Secretary of State for Energy have been able to announce that the external financing limits of the gas and electricity industries will be allowed to expand, so that in the gas industry £73 million, and in the electricity industry £43 million, will be available to offer reductions to those who are bulk users on a large scale of those two commodities. That will enable them to be considerably more competitive in relation to Germany and other countries.

There is in addition—I have not heard this mentioned once during any speech in the course of the debate—the very valuable £50 million of additional capital which is being made available to those who will convert their boilers from other forms of energy to coal over the next two years. I should have thought that that would have a warm welcome on the Labour Benches. It does not seem to have had one this afternoon.

§ Mr. Stanley Newens (Harlow)

Before the right hon. Gentleman leaves the question of energy prices, will he agree that the 20p on petrol will more than cancel out the trivial benefits to which he has just referred, and that industrialists from one end of the country to the other are up in arms about the effects of the Budget on their businesses? Does he agree with them?

§ Mr. Prior

The hon. Gentleman has picked out one aspect of the Budget and compared it with another, such as the increase in petrol prices. However, the Budget must be taken as a whole and the measures—[Interruption.] Opposition Members are trying very hard, but they are not doing much good.

The enterprise package for small businesses including the loan guarantee, the raising of the VAT threshold, the changes in tax reform and the new tax relief are only some of the 50 new measures that we have introduced during the past two years in order to help small firms. In addition, we have set up enterprise zones. From experience of their constituencies, hon. Members will know that there is enormous demand for small factory units all over the country and particularly in development and special development areas. Many of the new jobs that this country desperately needs will have to come from that area. Our measures to help small businesses will be of enormous aid in helping to create more jobs.

For the moment, I shall leave aside the details of the Budget. Too little credit has been given in our debates to our recognition of the need to cushion some industries from the effects of the recession. The difficult changes that accompany it are extremely difficult for a number of companies to cope with, particularly some nationalised companies. Changes should have been made over the past 20 years, but they have not been carried out. I shall give two examples of the way in which we have helped to bring about change. If we had not done so there would have been extremely serious unemployment problems. First, I refer to the money and assistance that we have given to British Leyland, the British Steel Corporation and to companies such as Rolls-Royce. Undoubtedly such assistance has had a major effect on the levels of employment in those industries. In the West Midlands, the small private firms that are involved with British Leyland welcome the assistance that we are giving that firm.

This morning I was delighted to read in the newspapers—I believe that it is also on the tape—that in the first 10 days of this month the Mini Metro has become the best selling car in Britain—[Interruption.] The Opposition now seek to take the credit for what has happened at British Leyland. Opposition Members would take the credit for anything. If they want to take the credit for what has happened at British Leyland I hope that they will also take the credit for the mess that they got it into originally. From the beginning, the right hon. Member for Bristol, South-East (Mr. Benn) had a lot to do with the mess that British Leyland got into.

The Mini Metro makes the point that if we can produce the right car of the right quality at the right time, the British people will buy it. In 1975 we produced 1,268,000 and we imported 34 per cent. of our total market. In 1980 we produced 924,000 and imported 57 per cent. of our total market. If we produced the right cars it would have a major effect on the activity not only of the car industry but of the component and steel industries. At Llanwern, South Wales, steel productivity is running at record levels, 24 which are equivalent to the best in Europe, if not the best in the world. We can achieve such success if we make the cars that require the steel. The whole of British industry can be helped by the sort of measures that we have taken.

§ Mr. Gordon Wilson (Dundee, East)

Does the right hon. Gentleman realise that the Government are allowing Linwood to go to the wall? Despite the right hon. Gentleman's comments about the "successes" of British industry, there is nothing in the Budget or in the Government's policy that will improve employment prospects in Scotland.

§ Mr. Prior

I do not wish to be so controversial as to get into an argument with the hon. Gentleman on the subject of Linwood. If productivity had increased over the past few years, and if the right goods had been produced at the right time, the Linwoods of this country would never have been closed. On Saturday the newspapers announced that Rolls-Royce had secured and retained the order from Eastern Airways. That is an example of what can be done with a good work force, good management and aggressive salesmanship.

For too long, management, the unions and the workers have sat back and thought that everyone else would earn them a living. If we were to get out of our problems simply by reflating the economy with a lot of extra consumer demand we would be driven straight back to all the problems that we had before. We shall continue to increase help to industry and to individuals wherever and whenever we can.

I turn to three special employment measures that we have introduced. This coming year they will cost over £1 billion. I refer to the temporary short-time working compensation scheme, the youth opportunities programme, and the community enterprise programme. Those three measures, together with the job release scheme, will cost over £1 billion. They are already helping 926,000 people to retain their jobs. That is a measure of what we are doing to help industry and to help people in a very difficult position.

I turn to the increased expenditure for this year. On special employment measures, £900 million is involved. For British Leyland and Rolls-Royce the sum of £800 million is involved. Above the amount allocated in last year's White Paper on public expenditure, £1,500 million goes to the nationalised industries. That figure is approximately the same as the amount being raised through extra taxation. Therefore, we have a perfectly justifiable case for saying that the extra money that must be raised via difficult and painful taxation will at least help employment and will help to sustain employment changes and investment in a number of vital industries.

Not enough money has gone into investment in both the public and private sectors. It is not a matter of one sector being good and the other bad, but of the rate of return on that investment. For years the Oppositon were prepared to put money into industries regardless of the rate of return on investment. The steel industry is a classic example of wasted money. The Labour Government refused to allow the 1973 White Paper to go ahead. They introduced the Beswick plan, which delayed the steps that should have been taken to put that industry on a firm basis. They allowed vast sums to be invested when the market was falling. As a result, we still have to prop up British Steel. That is a classic example of wasting a large part of investment.

25 In the past few years, too much has been spent on consumption. We have been spending and consuming that which we have not earned. At the same time, we have—to some extent—been consuming other people's goods. Those in work and their dependants have been largely shielded from the effects of the recession. In the three years from 1977 to 1980 real incomes for individuals have risen by 17 per cent. after tax. At the same time disposable income of companies has fallen by 25 per cent. Our continuing prosperity as consumers has been bought at the expense of unemployed and of a lack of investment. In other words, those in jobs are enjoying prosperity at the expense of the jobs and investment for tomorrow. One of the main thrusts in the Budget strategy is to bring about a change in that position.

There is no recognition of this by the Opposition. All that they have done is to take the TUC's £6,000 million boost which they announced in their strategy presumably—[Interruption.] They have not even done their homework. They never do their homework. The CBI asked for an increase of £1,500 million for each of four years. [Interruption.] I must tell the hon. Member for Fife, Central that that is different from the £6,000 million in one year, which is what the TUC has asked for.

The Opposition have asked for £6,000 million more now. [HON. MEMBERS: "Hear, hear".] If we add this year's PSBR of £ 13½ billion, that makes £19½ billion. The Opposition would have no increases in taxes and they would have indexed the Rooker-Wise amendment, so we can say without any shadow of doubt that had the Opposition's policies been followed the public sector borrowing requirement this year would have been well over £20 billion.

The Leader of the Opposition, to use his words, does not give a fig for the Chancellor's PSBR. It appears that no one gives a fig for him or for the Opposition, because amidst all the reactions to the Budget there has hardly been any mention of a Labour Party alternative. Tough Budgets usually shift attention to the Opposition, but not this Opposition. Virtually all the commentators have dismissed the Opposition's case as being totally disastrous. Put bluntly, in a nutshell the Opposition's case is spend, borrow, print and, when that does not work, bring in a prices and incomes policy to keep the lid on. It is hardly surprising that anyone pays any attention to them.

We know that many of the remedies and well-tried answers of the past 30 years are not on offer today. [AN HON. MEMBER: "Not from your lot"] Nor from any country in the world that believes in high employment, prosperity and an increasing standard of life. Other countries with a much greater record of success than we have are also running into trouble. A popular and easy choice was never open to us. The country understands that, even if Opposition Members do not.

We also understand what we are demanding from the whole country. We are in no doubt that today's sacrifices must be seen to be fully worth while in years to come. All this makes it crucial that, as the pick-up in the economy comes, every one of us responds in the right way. That applies to the unions, to management and to the Government. We have to turn our minds to how best to foster that response to ensure that our chance does not slip by, as has so often happened in the past 20 years. It is because I believe that the Chancellor had to introduce this 26 tough Budget and that the policies of the Opposition would be disastrous for this country that I ask my right hon. and hon. Friends to support the Budget and the Chancellor.

§ Mr. Eric G, Varley (Chesterfield)

For 32 minutes the House has listened to the Secretary of State for Employment, in a bit of a political knockabout, saying what he does not really think about the Budget. He must have searched the Budget Statement desperately for a passage or two that he could support.

The right hon. Gentleman was asked how the stimulus to the construction industry would help. He would not tell my hon. Friend the Member for Liverpool, Walton (Mr. Heffer), but I can tell my hon. Friend that the stimulus in the Chancellor's Budget Statement is £25 million, and that that expenditure, which is not likely to arise before 1984–85, will not help the construction industry.

The right hon. Gentleman mentioned the coal boiler conversion scheme. That is welcome in itself, but £50 million over the next two years will not stimulate employment either.

One would not think that the right hon. Gentleman was the same right hon. Gentleman who, apparently, as part of a large faction of right hon. and hon. Gentlemen, has been leaking opposition to the very basis of this Budget to any journalists that he could get his hands on. Of course, not many journalists are easily available these days. Most of them have been corralled in the press room at No. 10 Downing Street in more or less continuous session, being told on behalf of the Prime Minister how gutless her Cabinet colleagues are. Meanwhile, back in the House, there has been scarcely a speech in support of the Budget from any of the Conservative Back Benchers who have taken part in the debate so far.

The debate in the House has been accompanied by an unprecedented debate in the country about the Budget. The verdict of almost every section of opinion has been overwhelmingly and vehemently against the Chancellor's proposals. The anger of the TUC has been accompanied by the despair of the Confederation of British Industry.

After the talks last Friday at No. 10, the Prime Minister's indefatigable press office described her discussions with representations of the CBI as "friendly and businesslike." But when the president of the CBI, Sir Raymond Pennock, was questioned on the subject, he said that he would rather describe the budget as "businesslike." Sir Raymond's comment on the Budget was: This was not the 'business' Budget which had been widely trailed. It is something that we neither hoped for nor expected. It will penalise business and will increase prices, bankruptcies and unemployment. Even the City has shown disapproval, as evidenced by the heavy fall in the Financial Times index.

While all these hostile and bitter reactions have been fully justified by the dimensions of the Chancellor's failure, the scale of the disaster that the right hon. and learned Gentleman and the Prime Minister have inflicted on the country can best be gauged if we set that catastrophe against the vainglorious objectives that the Government set themselves on coming to office.

I do not know how many copies of the Queen's Speech in 1979 survive in No. 10 Downing Street or in the Treasury, or whether the Prime Minister has ordered that all copies be shredded. That would be appropriate, because the Government's policies as proclaimed in it are certainly in shreds.

27 I providentially retained a copy of that Queen's Speech, and it is instructive now to read what is laid down about economic policy. It said: My Government will give priority in economic policy to controlling inflation through the pursuit of firm monetary and fiscal policies. By reducing the burden of direct taxation and restricting the claims of the public sector on the nation's resources they will start to restore incentives, encourage efficiency and create a climate in which commerce and industry can flourish. In this way they will lay a secure basis for investment, productivity and increased employment in all parts of the United Kingdom. After two years, not a word of that Queen's Speech has been fulfilled. The objective to which all else has been subordinated is the control of inflation, yet today inflation is about 3 per cent. higher than the rate that the Government inherited. That is before the addition to the inflation rate of the 2 per cent. by this Budget. It is before the rent rises, the fuel increases and the rate rises that are still to come.

What a price the nation has had to pay for the Government's obsessive subordination of every other aspect of our economic life to the mystical objective of controlling the money supply—an objective which has totally evaded the Government. By this Budget, they have had to admit the complete failure of their attempts to control public spending and borrowing. The cost to the nation of these policies would have been appalling even if the policies had succeeded, but the policies have manifestly failed, and this Budget is a confession of their failure.

§ Sir Frederick Burden (Gillingham)

Does the right hon. Gentleman agree that the approaches to the International Monetary Fund by the previous Government, the help they received from that fund and their request to be bailed out, showed their lack of control of the economy?

§ Mr. Varley

I shall not avoid that question, because I am coming to the comparison between that period and the last two years. If the hon. Gentleman is patient, he will be able to make the contrast between that period and the period of the present Conservative Government.

The nation has had to pay an appalling price: the extraordinary fact that prices have been deliberately pushed up by a Government whose aim, according to them, was to control and reduce inflation; the initial folly of the VAT increase, from 8 per cent. to 15 per cent.; the regular increases in prescription charges, which have multiplied their cost fivefold, from 20p when Labour left office to £1 for each item.

Now there is the remarkable case of the increase in petrol prices. The House will recall the fury that greeted the proposal by my right hon. Friend the Member for Leeds, East (Mr. Healey) to increase the tax on petrol in 1977. The Prime Minister, then the Leader of the Opposition, responded immediately from this Dispatch Box. She said: I think that we were all shaken … by the extent to which he has loaded extra taxes on the motorist, which will undoubtedly react very heavily on the number of people in the rural areas who have to use their cars."—[Official Report, 29 March 1977; Vol. 929, c. 292.] The Prime Minister was shaken by that proposed increase of 5½p on a gallon, yet her proposal today is not 5½p but 20p. When Labour left office the price of a gallon 28 of four-star petrol was 84p. As a result of this Budget, it has risen to an average price of £1.55—an increase of 71p over the last 23 months.

The wider effect of the economy on the Government's deliberate deflation has been to push the country into the worst slump for at least half a century. Since Labour left office, industrial investment has fallen by 8 per cent., productivity in manufacturing industry has fallen by 4 per cent., and manufacturing production has fallen by 14 per cent. Firms dealing in bankruptcies, liquidations and company failures have become Britain's only growth industry.

What a sorry mess we have reached. In the first two months of this year alone, nearly 3,000 companies were wound up. The record is just as grim for the companies that have managed to stagger on somehow and survive in business. These are not the lame duck companies or the difficult companies about which our abrasive Prime Minister is so scathing. Some of the greatest names in British industry are reeling under the lash of her policies. One of the greatest hopes for the future, International Computers Ltd., is now in desperate straits. How that company must wish that it still had the protection of being partly owned by the National Enterprise Board.

Other major companies are in trouble. In the second half of last year, Fisons went into deficit. In the last financial year, Lucas Industries suffered pre-tax losses. The profits of Tube Investments have slumped massively. Imperial Chemical Industries has just gone into loss, and has endured its worst trading year since the 1930s.

These are the sombre achievements of a Government who promised, in that first Queen's Speech, to create a climate in which commerce and industry can flourish". But the impact on employment has been the harshest of all. ICI had 6,000 job losses last year, and its chairman, Sir Maurice Hodgson, expects a similar number this year. Lucas has suffered thousands of redundancies. Tube Investments had 5,000 redundancies last year and has already announced another 3,000 for this year. All over the country workers who are in work at all often have work for only part of the week. At the end of 1978, Labour's last full year, the number of workers in manufacturing industry stood off for the whole or part of the week—that is, those on short-time working—was 38,100. At the end of 1980, it was well over 500,000. By the end of January 1978 the number of workers covered by the temporary short-time working compensation scheme was 8,956. At the end of January this year it was 680,000, and the Secretary of State has just told us that it is about 900,000 now. Even on my figures, the increase has been 7,600 per cent. under that scheme alone.

The number of redundancies last year was half a million. The fall in employment in manufacturing industry last year was 750,000. All over the country the present Government's policies have taken their toll in a grim roll-call of unemployment, which is more than 1 million up on the level two years ago. Areas that were once prosperous now live under the shadow of unemployment.

We all remember how Saatchi and Saatchi had to round up the Hendon Young Conservatives to impersonate a dole queue in that notorious poster. We were told last weekend that the Tory Party has decided that times are so hard that it cannot afford so much work by Saatchi and Saatchi. I should be surprised if Tory Central Office was put off by the condemnation of Saatchi and Saatchi's methods by the Advertising Standards Authority. But if Saatchi and 29 Saatchi has another poster in mind, it can send its cameramen anywhere in the South-East. It can even send them to Conservative Central Office, where last week 40 redundancies were declared, and a spokesman for Conservative Central Office said that this was due to inflation and the economic recession. Unemployment in the South-East, in the last two years, has risen from 303,000 to 527,000. In East Anglia, represented by the Secretary of State for Employment, unemployment has risen from 5 per cent. to 8.4 per cent. In the East Midlands it has almost doubled. It is up heavily in the South-West. It has nearly doubled in Yorkshire and Humberside.

In the West Midlands, unemployment is up 117 per cent. That is the humiliation that the present Government have heaped upon a region which could once proudly call itself the heartland of British manufacturing industry. In the West Midlands today one worker in every nine is looking for a job.

In other parts of the country, the unemployment rate is even worse. In the North-West, one in eight is unemployed. One in eight is unemployed in Scotland as well. If one walks down any street in Wales, every seventh person one meets is likely to be out of work. It is the same in the Northern region. In Northern Ireland unemployment affects one worker in every six. It is the same sorry story from Dover to Londonderry.

I think that it was Disraeli who depicted the Tory Party as the party of two nations. The present Tory Prime Minister has succeeded in creating one nation—a nation sorrowfully united by the affliction of mass unemployment.

Unemployment is now biting deep. Twenty-one per cent. of all enemployed men have been out of work for more than a year; 40 per cent. of all unemployed men and 36 per cent. of all unemployed women have been out of work for more than six months.

But if one feature of this horrifying unemployment is more shameful than any other, it is the unemployment among young people. Under this Government, unemployment among school leavers has increased by 230 per cent. If there is one thing for which this Prime Minister will never be forgiven, it is the blighting of so many young lives. During the right hon. Lady's premiership, she has inflicted great damage on the country, but none is so unacceptable as the waste of a generation.

No one has described more starkly the difference between employment in Labour's last year and employment during the past 12 months than the Financial Secretary to the Treasury, who made a series of pledges on television yesterday about income tax reductions during the remainder of this Parliament. I can assure the House that the Opposition will file away the transcript of what the right hon. Gentleman said for ready reference in the next year's Budget debate and the Budget debate after that, if we get one.

In the Red Book for 1979, the Financial Statement and Budget Report, published and signed by the Financial Secretary, the right hon. Gentleman said about Labour's last year in office: Unemployment fell slowly but steadily during the course of 1978. In December, United Kingdom unemployment (excluding school leavers under 18) was about 100,000 below the peak level of September 1977. Unemployment increased in the early months of 1979, but the rise seems to have been due to a combination of severe winter weather and industrial disruptions. By May, unemployment had fallen back to a level about 10,000 30 lower than in December … In the 12 months to December 1978, United Kingdom employment increased by around 190,000, a rise of just over ¾ per cent. That is what happened during Labour's last year in office, which the House can contrast with the present Government's first 18 months, again usefully provided in the Red Book by the Financial Secretary. Last week, he said: Between June 1979 and December 1980 employment in Great Britain is estimated to have fallen by over 1 million. … Unemployment rose thrugh 1980, with a monthly rate of increase of over 100,000 in the final quarter … Notified vacancies fell to around 100,000 in early 1981, significantly below the levels recorded during the last recession, … while the number of operatives on short-time working had increased over the same period from 30,000 to about half-million. But unemployment will get much worse yet. That is made clear in the public expenditure White Paper published last week, which tells us that the Government's unemployment assumptions for the next three years are 2,700,000 for 1981–82 and 2,900,000 for each of the two following years.

Worst of all, it has all been for nothing. In that first bombastic Budget two years ago, the Chancellor of the Exchequer boasted that his reductions in the burden of income tax were as substantial as they were unprecedented. Very little, if anything, remains from the income tax handout at that time.

§ Mr. John Evans (Newton)

Nothing.

§ Mr. Varley

In fact, we are now told that the income tax burden is greater today than it was when the Government came to power. How ironic is the promise in the last Conservative manifesto to help the low paid by raising tax thresholds. On Thursday, the Secretary of State for Social Services was forced to admit that this Budget actually widened the poverty gap. He did not believe that it deepened the gap, but he said that it widened it. That is a direct result of the Government's dishonourable abandonment of the Rooker-Wise-Lawson amendment.

§ Mr. Denis Healey (Leeds, East)

Where is the Financial Secretary?

§ Mr. Varley

The right hon. Gentleman has probably gone to Zurich, as he did a few weeks ago, to tell people there that taxation will go up even further.

Two years ago, the Minister of State, Treasury, boasted to the House that it would have been impossible for the amendment to succeed without Conservative votes in the Standing Committee "— [Official Report, 27 June 1979; Vol. 969, c. 576.] That provision has now been ditched. Even by the shoddy standards of this Administration, it is still impossible to understand how the Financial Secretary can honourably remain a member of this Government.

Far from falling under this Government, the tax burden as a whole has actually risen. As a proportion of the gross domestic product, taxation was about 40 per cent. when Labour left office. With this Budget, it will be not 40 per cent. but 48 per cent.

In these days of complete failure, the Prime Minister has taken to standing with her hand on her hip delivering little moralistic lectures to the nation. The latest boring instalment came last Wednesday when she made The Guardian Young Businessman Award to Mr. John Gardiner, a first-class businessman and a gentleman who last achieved national prominence 15 months ago when he 31 took part in the mass resignation of the National Enterprise Board because he could not stand the policies of the Secretary of State for Industry.

Last Wednesday, the Prime Minister really got carried away. She stamped her foot and had a public tantrum. In the most disagreeable way, which was later transmitted for our edification from our television screens, she told the nation: I think one of the most immoral things you can do is to pose as the moral politician demanding more for health, more for education, more for industry, more for housing, more for everything and then when you see the bill say 'No. No. I didn't mean you to pay tax to pay for it.'

§ Hon. Members

Hear, hear.

§ Mr. Varley

I suspected that I would get a cheer for repeating that comment of the Prime Minister's, and I have not been let down.

What are the facts? The right hon. Lady says that we have to pay more tax so that we can spend more on health. But we are paying 20 per cent. more in tax to get a 2 per cent. increase in health expenditure. The right hon. Lady says that we need to pay more tax so that more can be spent on education. But taxation is going up while expenditure on education is down by £650 million since Labour left office. The right hon. Lady says that more taxation is necessary so that more can be spent on industry. But spending on the support schemes of the Department of Industry is down 30 per cent. from what it was in Labour's final year.

§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Will the right hon. Gentleman give way?

§ Mr. Varley

I have not finished. I may give way to the hon. Gentleman in a moment, but there is more to come, and I think that I know the point that he wishes to make.

The Prime Minister says that we need to pay more tax so that we can spend more on housing, but she has cut housing expenditure since Labour left office by £1,600 million. What dishonesty and deception that is.

§ Mr. Beaumont-Dark

Will the right hon. Gentleman also tell the House where £7 billion has gone instead of on the National Health Service and instead of on education? Of that sum, £2½ billion has gone on Clegg awards to the Civil Service and £5 billion has gone to the British Steel Corporation, British Leyland and everything else that the Labour Party is supposed to stand for.

§ Mr. Varley

In a moment or two I shall tell the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) where the great proportion of this money has gone. The Secretary of State for Employment knows where it has gone.

We are paying billions of pounds more in taxation, but the nation is being taxed to finance unemployment. The increase in unemployment since this Government came to office is costing the nation £6 billion a year, and that is in cash terms; it is impossible to measure the indignity, the misery and the human degradation.

How much better it would be if that £6 billion was being used on education, housing and industrial support, in creating jobs and providing hope for those now in despair. It is because this Government are squandering financial 32 resources and at the same time destroying the nation's human resources that the Opposition will vote against this Budget tonight.

§ Mr. Norman St. John-Stevas (Chelmsford)

I am grateful for the opportunity to speak. This is the first opportunity that I have had to speak in the House since I ceased to be its Leader two months ago, I hope that in those circumstances the House will allow me to preface my reflections on the Budget with some brief personal remarks.

Leaving high office is a notoriously traumatic experience. It has often led people to bitterness, a severing of old loyalties, to losing any sense of proportion and, what is perhaps the same thing, any sense of humour. I am happy to say that I have been preserved from all such undesirable side effects.

I was grateful for the opportunity I have had to serve this Government and, even more, to serve this House. With the single exception of your position, Mr. Speaker—which by universal consent you fill with a distinction that will number you among the great Speakers—there is no higher honour that a Member can have than to be Leader of the House. The essence of the position lies in the title. One is Leader of the whole House, not of any part of it. I congratulate my successor, my right hon. Friend the Member for Cambridgeshire (Mr. Pym), on continuing in that tradition.

Government office has its compensations, but it also has its drawbacks. Ministers are not free to express individual views in public. [Interruption.] That is the constitutional rule which I myself have always obeyed. For that reason, among others, I declined the post of Minister of State in the Department of Education and Science that the Prime Minister offered me. At a time of major political turmoil, when men and women are abandoning the allegiances of a lifetime for reasons of honour and conviction, I wished to be free to make a contribution from the Back Benches. It will be an individual contribution, but I hope that it will always be within the parameters of respect for a Government of whom I was recently part and within the historic traditions of a party that has survived so long precisely because it has concerned itself with social issues and is based—I need not remind my right hon. and hon. Friends in the centenary year of Disraeli's death—on the concept of one nation.

I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on two aspects of the Budget. First, on the basis of its own terms, it is an exercise in intellectual consistency and rigour. Secondly, I congratulate my right hon. and learned Friend on his courage. However, I must enter a caveat at once. I was astonished and indeed horrified to see included what is, in effect, a retrospective levy on bank profits. That was a point made earlier in our debate by my hon. Friend the Member for Winchester (Mr. Browne). That tax is wholly inconsistent with the main thrust of the Government's economic policy which is to legitimise once again the notion of profit. It consitutes a sacrifice of principle to expediency.

Of course, there will be no popular rallying to bankers. I have no doubt that the extra cash is useful. However, it is a sowing of dragon's teeth that will bear a later harvest. My right hon. and learned Friend has led the way. Others, less well intentioned, will undoubtedly follow.

33 The Chancellor's courage is self-evident. He has stood up to a barrage of criticism from outside the House and, indeed, within it. The one section of the Budget that has commanded unqualified support in all parts of the House is that on small businesses. That is right. As the experience of the United States economy shows, more jobs are provided by the expansion of small businesses than from any other single source.

The loan guarantee scheme and the provisions for business start-ups in this Budget, taken with the concessions on corporation tax and the tax relief for small workshops in the previous Budget, add up to a charter for small businesses. I hope that the skill that went to make up this package will be matched by the enthusiasm, vigour and imagination with which the contents of the package will be made known throughout the country.

I turn to the wider issues involving industry in general. It is at that point some doubt begins. I do not quarrel with the Excise duties that have been raised, painful though they undoubtedly are. I believe that there is a clear economic case for the increase in tax on drink and tobacco, and even on petrol. However, I fully understand the anxieties of many of my hon. Friends. After all, we are in politics and not economics. There are limits to the burdens that any party can place upon its natural supporters. The Tory Party is still rooted in the land and the countryside. It is on the constituency that a disproportionate share of the burden will fall.

My doubts centre on the use to which the increased revenue will be put and the way in which the balance has been tilted away from industry and towards a reduction in the projected public sector borrowing requirement. Is not there a danger that £10.5 billion will constitute a totem when in fact it is not more than a forecast and subject to all the errors and variations of forecasts? I accept that there must be a broad consistency between fiscal and monetary policy, but there cannot be an exact relationship between them. If there were we should not have been able to have the very welcome reduction in interest rates that took place in November.

If one looks back to the forecasts for PSBR of £8.5 billion in the last Budget one sees how impossible it is to treat this part of economics as an exact science. I fear that there will be a repetition of history—that industry will not be sufficiently stimulated, that unemployment will increase, and that the deficit will rise because benefit payments will have to be paid and there will be lost revenues. I fear that there will be not a virtuous but a vicious circle.

I certainly welcome the measures to help British industry. The reduction in interest rates will be a major help, but I fear that the reduction will not decrease the value of the pound for long. I welcome the measures for stock relief and those to help the large-scale users of gas and electricity. I know from experience of factories such as the English Electric Valve Co. in my constituency, what a heavy burden is placed upon companies by energy charges. Yet I feel that the measures do not go far enough.

I wish that two proposals had been included in the industrial package that would have made it as important as the package advanced for small businesses. I should have welcomed a reduction in the national insurance surcharge, which really amounts to a poll tax. The CBI has pressed for a 2 per cent. reduction. Surely, it might have been within the tolerances and margins of error of the calculations on PSBR to make such a concession? 34 Secondly, despite the technical, contractual issues that are involved in reducing the tax on heavy fuel oil, I had hoped that something would be done in that regard.

There is another major danger to which I draw the Chancellor's attention, namely, the lack of demand in the economy. I do not want to get involved in a semantic argument about what is inflationary and what is disinflationary. If I did so, I know that it would have an alarming effect on my right hon. Friend the Financial Secretary to the Treasury. Like Bagehot's Englishman on the Continent, he is ready to blow up when the word "deflation" is mentioned in connection with this Budget. However, whatever the Chief Secretary argues about final demand—in fact, that has largely been nullified in the past by price increases—I ask my right hon. and learned Friend the Chancellor to consider whether there will be enough demand in the economy during the coming year.

Let me put the argument in a more homely manner. British industry has to sell to someone, but to whom? There are only three sources of demand. The first is the consumer, but with the increase in indirect taxation of about £2½ billion and the increase in national insurance contributions of £1 billion, there will be no increase in demand from that source.

The second source of demand is exports. Exports have held up remarkably well, but the Chancellor's own forecast, in table 11 of the Red Book, shows a reduction of 5½ per cent. in exports in 1981. That is what is forecast, and the reduction will continue into 1982 at a reduced rate. So there is not much chance of an export-led revival there.

The third source of expansion of demand is from capital investment in the public sector. Capital investment there has fallen with appalling regularity over seven years. As The Times pointed out in a leader the day after the Budget, In 1974 one-fifth of public expenditure was on capital last year it was down to one-tenth". Successive Governments have taken an easy way out by cutting capital rather than current expenditure. Part of the story can be read, again in table 11 of the Red Book. In 1980 there was a 16 per cent. reduction in capital spending in the capital sector, followed by a 23 per cent. reduction in 1981, and a 7½ per cent. reduction is forecast for the first half of 1982.

Those figures are significant, because they show the scope for a programme of limited capital reflation that exists. I am not arguing for a general reflation on the lines suggested by the CBI and the TUC. I am asking the Chancellor to consider a programme to be initiated later in the year, to put some more demand, through capital investment, into the economy. I hope that my right hon. and learned Friend will be able to give us some encouragement in this respect. That demand has run like a burden or a leitmotif through many of the speeches from this subject the House in this debate. There was the speech made by my right hon. Friend the Member for Taunton (Mr. du Cann), who advocated the use of private capital. He made the point, speaking with all the authority of his position as Chairman of the Select Committee on the Treasury and Civil Service.

I hope that the Chancellor will bring forward schemes—or at least not close the door on schemes—involving an increased expenditure of private and public capital. There is a wide range of choices, including electrification of the railways, improvement of the water system, measures for the conservation of energy, and one or two special capital projects. The Channel 35 tunnel has been mentioned. Perhaps I may suggest another—the new British Library, which will be of immense importance for our future in the development of information techology and the sale of factory systems. Given the spare capacity in much of British industry and in the construction industry, none of those projects would be inflationary.

A factory in my constituency has put into operation the Chancellor's principles. As a result, the work force has been reduced and there is a much higher degree of efficiency, but today that factory has a 25 per cent. spare capacity, which could be taken up without any inflationary effects. I appeal to the Chancellor to give the country some hope on these issues when he speaks tonight.

I want to bring one final matter to the Chancellor's attention. Many of us are uneasy about the wisdom of seeming to base a whole economic strategy on a single set of monetary aggregates of dubious reliability. Of course, control of the money supply is one of the weapons at a Government's disposal to promote a prosperous economy. It is one, but there are others, such as the promotion of investment and the moderation of wage claims.

Inflation is a moral as well as an economic evil. I have said that many times. It undermines confidence in our financal institutions and, ultimately, our political institutions. But unemployment is a moral evil, too. The loss of a job involves personal humiliation, a loss of dignity, and a feeling of diminishment as a human being. It leads to strains and tensions in the family; it can cause want which leads on to other social evils, such as vandalism, delinquency and crime. One cannot dispose of the problem by the simple statement that if we conquer inflation we shall solve our employment problems. If we conquer inflation it will be easier to deal with unemployment, but much more will have to be done in that regard.

It is not acceptable morally, nor is it even sensible economically, to speak as though we could pursue one economic aim to the exclusion of all human and social values. Man is a moral being first and an economic being second. Of all parties, I believe that the Tory Party should be the first to recognise that. I believe that we do recognise it, but we do not always speak as though we do. Not the least of the responsibilities that rest upon our economic Ministers is that of demonstrating that we have the means to reduce unemployment and also of fashioning a discourse to demonstrate that truth both to this House and to the country.

§ Mr. J. Enoch Powell (Down, South)

A king of Sparta who had been deposed was mocked by a member of the public who asked him what it was like to be a private citizen after having been a king, to which the answer was "Well, at any rate, I have tried both, which is more than you have". That is something that the right hon. Member for Chelmsford (Mr. St. John-Stevas) and I have in common. I congratulate him on the early use that he has made of the freedom which attaches to a private status.

I associate myself with one criticism that the right hon. Gentleman made. That was his reference to the tax upon bank profits. I agree that that is a precedent of very doubtful and ugly consequence; but there seemed to be implicit in the rest of his speech the fallacy of assuming 36 that, because a magnitude is difficult to define and difficult to predict, therefore that magnitude is unimportant. It is quite possible for something of immense, indeed critical, importance to be of such a nature that its size cannot always be accurately foreseen. However, much of what I would say in response to the latter part of the right hon. Gentleman's speech I can comprehend in bringing the attention of the House back to what I think was in some ways the most important speech in these four days of debate. That was the speech of the right hon. Member for Stepney and Poplar (Mr. Shore) at the beginning of the second day.

The right hon. Gentleman, unlike many others and unlike the right hon. Member for Chesterfield (Mr. Varley) this afternoon, did not shirk posing, even in brutal form, the antithesis and alternative which is before the House in this debate and which, therefore, is before the country. It came to a sharp point in the passage where he referred to the address of the right hon. Lady the Prime Minister in St. Lawrence Jewry. This is what he posed to her; "There are alternatives: one is inflation, the other is unemployment. You," said he, "and the Government have chosen unemployment rather than inflation."

I believe that the right hon. Gentleman was perfectly correct, at any rate in the short term, in saying that there is here a true antithesis and alternative. There are not many assertions in this field which one would dare to make and say that they were unlikely to be controverted; but this one I would venture, that if we could contrive a rapid and severe increase in inflation over the next 12 or 24 months, we would see an equally rapid and massive recovery in the level of employment.

I do not see how it can be denied that in the short term the escalation of output prices in advance of input prices stimulates employment. That was the alternative that the right hon. Gentleman, with great candour—a candour that has been little matched—was advancing; and no one could complain that in his speech he failed to offer a prescription which corresponded with his diagnosis, and with the opposite position that he took to the right hon. Lady the Prime Minister in the choice of Heracles.

The right hon. Gentleman said that the Government should not be reducing purchasing power by £5,000 million through the Chancellor of the Exchequer's taxation proposals. Incidentally, I would take issue with the notion that if public expenditure includes a certain sum we are taking that sum out of the rest of the economy any more in raising it in taxation than we would be in devaluing all existing currency to that extent by inflation or in taking it out of savings which would otherwise be directed into other channels. However, there at any rate, is one of the propositions of the Opposition and their official spokesman: they reject the £5,000 million increase in taxation.

That is not the Opposition's only proposition, assuming—as I hope I may—that I am correct in regarding the right hon. Gentleman's proposals as not so much alternative as cumulative. I should therefore remind the House of his proposals on the other side of the account, though I do not think my quotation is comprehensive: The electrification of the railways….a project…well worth pursuing…clear need for an enhanced housing programme, for hospital and prison building…for new investment in our ageing water and sewerage systems. A number of road programmes should undoubtedly be brought forward. 37 That is by no means a comprehensive extract from the right hon. Gentleman's speech. This part he did not cost, and I am therefore dependent to some extent upon his agreement or disagreement when I venture upon some tentative figures. It seemed to me that a fair assessment of what might be implied in such proposals as those would be something between £5,000 million and £10,000 million. I hope that I have not overdone it. If I have, no doubt the right hon. Gentleman will intervene to put me right.

There was also a third feature in his speech. He was quite clear about his view of the effect of the exchange rate of the pound. It has acted as a tax on our exports and a subsidy to our imports, the last thing which a trading nation such as ours wants or can afford."—[Official Report, 11 March 1981, Vol. 1000, c. 912–16.] Part of the Opposition's policy, then, is to bring down by Government action the present exchange level of the pound.

§ Mr. Michael English (Nottingham, West)

Not the green pound.

§ Mr. Powell

No, not the green pound. I shall let that pass.

The right hon. Gentleman understands as well as any of us the method by which a Government reduce the exchange rate of their currency. They do so by purchasing other currencies and selling their own. It is therefore an exceedingly expensive business, as countries such as West Germany and Switzerland have from time to time discovered. Here again the right hon. Gentleman did not cost this part of his proposals; but I want to be modest, and I therefore put the figure at some £4,000 million or £5,000 million. After all, one must make massive purchases of foreign currency to succeed in such an exercise.

The right hon. Gentleman therefore quite consistently said that this was the way to produce inflation: to increase the deficit, by operating on both sides of the equation, by between £15,000 million and £20,000 million.

§ Mr. Peter Shore (Stepney and Poplar)

indicated dissent.

§ Mr. Powell

That is too high, is it? [HON. MEMBERS: "Answer."] I am not getting from the right hon. Member for Stepney and Poplar all the assistance for which I would have hoped, and so I must continue as best I can. Well, I will take the lower of those figures—it is the lowest I could possibly manage—some £15,000 million additional to that monster that the right hon. Gentleman has talked about, the public sector borrowing requirement.

I have no doubt the right hon. Gentleman is correct in saying that that would go far towards achieving his object of a howling increase in inflation over the next 12 or 24 months. That is his object, and he would intend—he says that he would intend, and I am sure he believes that he would intend—to go that way about it.

I must admit that in the latter parts of the right hon. Gentleman's speech—I regret this very much—there were some slight signs of hesitation or uncertainty. There was even a tendency once or twice to try to have it both ways, to say "We can have massive inflation while not needing to have any inflation at all." There was one passage, which will be familiar to those of us who have lived through some earlier Parliaments, in which the right hon. Gentleman strayed into referring to cementing with"— 38 both sides of industry— an agreement on a counter-inflation policy."—[Official Report, 11 March 1981; Vol. 1000, c. 918.] This is our old friend "solemn and binding", Solomon Binding. This time he is immortalised in cement, but it is Solomon Binding all right.

We understand very well what is the thinking behind this: the Government pump massive quantities of additional money into the economy, but, marvellous to relate, these do not result in an increase of wages or prices because there is "solemn and binding agreement with both sides of industry". I shall not rely on the fact that it has never turned out that way. I shall rely on a more serious difficulty.

§ Mr. Heffer

When the right hon. Gentleman says that it has never worked out that way, is he ignoring the experience of the United States under Roosevelt? Is he not also ignoring the fact that during the first period of the Weimar Republic inflation was brought under control, but there was then massive unemployment which led ultimately to the rise of Hitlerism and Fascism? Will he answer that point?

§ Mr. Powell

I have great respect for the attention with which the hon. Gentleman has devoted himself to the study of these matters for many years; but when he cites against our experience in Britain the actual or alleged experience of other countries I become doubtful. I remember a period, at the inception of this era of prices and incomes policy 20 or 25 years ago, when there were islands of the Hesperides overseas where they had done it and got away with it. For instance, Holland knew how to do it, so why could not we? Sweden could do it, so why could not we? In the end it turned out that they had not done it and they could not do it; and in the end the traveller's tales brought from distant lands bore no comfort to us in our own experience.

However, I rely not upon our uniformly unsuccessful experience with our old friend Solomon Binding, but upon something that goes more directly to the case of the right hon. Member for Stepney and Poplar. I shall grant him, as an hypothesis, that by "cementing" such an agreement, he actually does prevent inflation. Let us suppose that he succeeds and that there is no inflation. The right hon. Gentleman's policy has then failed; he has destroyed the very injection into the economy by which he intended to summon up full employment out of the depths of recession. If he could succeed in preventing inflation, he would succeed in neutralising the very antidote that he criticised the Government for rejecting.

The right hon. Gentleman had another hesitation, another sideline, which has been mentioned more than once in different parts of the debate. He said that of course we could borrow another £15,000 million and not cause inflation, because the stuff was lying about all over the place unused. We would not be robbing others or removing it from other applications: for that £15,000 million would not otherwise be invested, here, there, or anywhere, because it represented merely idle balances—it was lying inert.

The right hon. Gentleman need not worry. That would give him exactly the same effect as if he had printed the £15,000 million. What difference is there between obtaining the money from bank vaults where, hypothetically, it lies inert and then casting it on to the market, injecting it into the economy, and simply ordering the stuff 39 from the Government printers? In either case the result is exactly what the hon. Gentleman wants—he need not worry—the recipe for achieving his cure, his antidote, his specific, namely, roaring inflation during the next 12 or 24 months.

I have not simply paid tribute to the candour of the right hon. Gentleman's speech. I have also stated my belief that the results for which he hopes would indeed follow from the course of action that he sketched out. "But tarry, there is something else"—there is "the coming on of time". What happens afterwards? We have some experience of that, because we have been here before, although not, of course, on the scale contemplated by the right hon. Gentleman. When I listened to his speech I could imagine Lord Barber looking down from some balcony with eyes of soft humility and wonder, love and awe upon his pupil and follower who had so far exceeded not simply the achievements but the imaginations of his predecessor. We know what happens. It is not something due only to an obliquity or peculiarity of the British. It is something that lies within the nature of inflation, namely, that sooner or later—and the faster the sooner—we have to stop and, when we have stopped, we recoil. Then we reap, inevitably and invariably, but now upon an increased scale, the very miseries, the very evils, the very dislocation, that the right hon. Gentleman purports to cure by his specific.

I am not accusing the right hon. Gentleman himself of intentional cruelty towards, or deception of, the British people. But any Government who followed, or any House of Commons which supported, his prescription and proposal would indeed be cruelly betraying, by simply deferring in order to reap in more intense measure the evils from which they suffer, the people who sent them to this House.

§ Mr. Christopher Brocklebank-Fowler (Norfolk, North-West)

During the course of my maiden speech in March 1971 I reminded the House of the motto of my eighteenth century predecessor, Sir Robert Walpole, which was "Say what you think." I remarked that, although that practice is unfashionable in some contemporary political circles, it is the first duty of any Member who represents a constituency in Norfolk. Once again I intend to say what I think, in the knowledge that it is often unwise, and that today it will be especially painful.

During the 1979 general election, together with other Conservative candidates, I fought on the basis of the Conservative Party manifesto which promised, among other things, a substantial reduction in taxation, to control inflation, to ensure that genuine jobs were created in an expanding economy, that help to firms in difficulties would be temporary and tapered, and to ensure that our agriculture and food industries remained profitable and competitive. In addition to those general promises I promised my electorate, in a personal letter to fight in Parliament on issues that were important locally, and to work for electoral and parliamentary reform so that Government would become more responsive to people's needs.

What is the Government's record on keeping their promises? Taxation generally has increased during the 40 Government's tenure of office. This year, for the first time in 10 years, there is to be no increase in personal allowances. Although there is no change in the rate of personal taxation, the abolition of the Rooker-Wise amendment allowances represents an increase in direct taxation of about 15 per cent. In addition, by the Government's own admission, a further 10,000 people have entered the poverty trap. The Government's failure to achieve their targets for cuts in public expenditure holds out little hope for substantial tax cuts during the remainder of this Parliament.

After an initial and substantial rise in the rate of inflation, occasioned partly by the Government's inheritance from that lot on the Opposition Benches and the increase in oil prices but exacerbated by the Government's dogmatic opposition to any sort of incomes policy, even in the public sector, and the swingeing increase in VAT, there are now welcome signs of falling inflation. However, the social cost of the Government's tough deflationary policy is, in my opinion, unacceptable. According to recent EEC figures, Britain is high in the European unemployment league, with an increase over the past 12 months of about 64 per cent.

There have been substantial decreases in gross domestic product, industrial production, manufacturing production and capital investment in manufacturing. The Government have knocked the stuffing out of British industry, and, despite a number of useful measures in the Budget to help small businesses, they have created conditions which have caused a record level of bankruptcy and have put hundreds of thousands on to the dole queues.

The Government's economic forecasts assume that total unemployment will rise steadily to more than 3 million by 1982 and will stay at that level until 1984. In West Norfolk alone unemployment has risen from 2,981 to 5,276 since February 1980. In King's Lynn it has increased from 1,572 to 3,079, an increase in one year of over 90 per cent. Unemployment among school leavers in West Norfolk has increased from 139 to 297 during the past 12 months. When one considers the number engaged on youth opportunity programme schemes, many of whom may be only temporarily employed, the total increase is from 243 to a staggering 633.

I pay tribute to my right hon. Friend the Member for Lowestoft (Mr. Prior), the Secretary of State for Employment, for the battles that he has fought in Cabinet to secure more funds for employment creation schemes. However, it is clear that the prospect of secure employment for the majority of those now unemployed is remote unless there is a major change in the Government's policy. So much for the promises that jobs would be created in an expanding economy.

The Government promised that help for firms in difficulties would be temporary and tapered. The Government failed totally to grasp the point that if such a promise were to be made a reality it would be necessary to establish industrial targets and to have a strategy for partnership between Government and industry of a sort similar to that adopted by our most successful major competitors such as France and Japan. However, the Government's theoretical opposition to public support for industry has caused them, under the threat of even higher unemployment, to find more public money for this purpose than might have been neccessary had they approached the problem less dogmatically.

41 For example, I have no doubt that the Government's recent decision to bail out British Leyland yet again and to promise a further £1,000 million of public money could have been avoided. During my much criticised and totally misunderstood one year as a consultant with Datsun (UK) Limited, which ended in December 1980, I brought back from the vice-president of Nissan in Japan an offer in writing to discuss with the British Government a feasibility plan for a partnership between Nissan and the Government for a major rescue operation for British Leyland. That offer was conveyed to five members of the Cabinet. Had serious action been taken upon it there was the chance that a substantial Japanese investment and a transfer of high technology to British Leyland would have laid the foundation for a much larger British motor industry than now seems likely or possible.

Close partnerships between the Government and British industry, between the Government and British exporters and between the Government and sources of foreign technology and investment are essential if we are to find effective and, in terms of public sector finance, inexpensive solutions to the problem of enabling British industry to adjust more rapidly to international competition and to ensure that the manufacturing sector of our economy provides a greater proportion of our national wealth than at present.

Small amounts of public funds in support of research and development, for example, or by way of soft loans to private firms with good ideas and able management, can be far more effective than large disbursements of public funds in expensive industrial disaster relief.

The Government promised that our agricultural and food industries would remain profitable and competitive. I can only report, with sadness, that three major food processing companies in or near my constituency have recently closed, throwing hundreds of my constituents out of work. During the past 12 months farm incomes have decreased by about 24 per cent. Agriculture and food processing are the two major sources of employment in my constituency and these experiences are especially unacceptable to my constituents, not least because agricultural wages are far too low for such a skilled and productive work force.

I promised to fight in Parliament on issues that are important locally. In my constituency nothing that my right hon. and learned Friend the Chancellor has introduced in the Budget could be more damaging than his proposal to increase the price of petrol by 20p a gallon. Country people are greatly dependent on the motor car to get to work or to obtain access to the services that they need. Rural bus services have declined substantially and in many parts of my constituency they scarcely exist. Consequently, there is a car ownership level of 0.85 per cent. per household in rural areas and 81 per cent. of all journeys are made by car. In each instance the figure is 20 per cent. higher than in urban areas.

In constituencies such as mine the increased cost of daily travel to and from work in an average family car could add £1 a week to the family budget. Bearing in mind the substantially lower salaries in rural areas, the rapid diminution of local services, the increasing reliance on mobile shops and high local delivery charges, the cost of living for the majority of my constituents would be substantially increased if my right hon. and learned Friend's proposal were to he agreed by the House tonight.

42 I promised to work for electoral and parliamentary reform. Apart from the considerable achievement of my right hon. Friend the Member for Chelmsford (Mr. St. John-Stevas) in instituting our new system of Select Committees, there is no indication that the Government will consider long overdue reform of the House of Lords or a change to proportional representation, which would ensure a wider choice for the electorate and a fairer representation in the House of the electorate as a whole.

So much for the promises I made and for the record. As a constituent wrote to me last week "What the hell is this Government trying to do?" My work on the Select Committee that is dealing with foreign affairs—I refer especially to the study that we have been making of the Brandt Commission report—has led me inexorably to the conclusion that it is foolish to consider Britain's problems in isolation as if they are not affected by the problems of countries that are our sources of raw material and consumers of our manufactured goods and services. At a time of international recession, the Government have a particular responsibility to create employment opportunities at home without fuelling inflation.

In a lecture to the Economists Society earlier in February, my hon. Friend the Member for Horncastle (Mr. Tapsell) said that one cannot spend one's way out of deflation; one can only expand one's way out of inflation. How much I agree with him. It is a matter of great regret to me that the Government did not differentiate between public capital expenditure and public current expenditure in tackling inflation when they first came to office. In the current domestic slump, it would have been sensible to increase capital expenditure on infrastructure projects to provide employment for the currently unemployed and to raise tax revenue from them rather than allowing their enforced idleness to contribute substantially to public current expenditure. In addition, infrastructure projects such as the desperately needed east-west roads in my region or a constructive energy conservation policy for householders could have helped to improve our national efficiency.

The Government would also have been wise to pay more attention to the importance to Britain of our Third world trading partners. It is worth remembering that our balance of trade surplus with the Third world is almost as large as the total balance of payments surplus from all sources. How long will it be before the Government realise that a combination of aid to developing countries and improved access for the products of those countries to our markets can substantially improve export opportunities abroad and help to create additional employment at home?

The Government expenditure plan White Paper, in table 1.11 on page 25, says that overseas aid is to be further cut in the next three years by £7 million, £10 million and £10 million respectively. I suppose that that is just another unavoidable cut in "handouts". The Prime Minister would do well to learn that aid is a form of national investment. Disbursements last year of £997 million produced a £2,100 million trading surplus. That is not bad business.

Expenditure on diplomacy and aid is a more cost-effective way of protecting Britain's interest in some parts of the world than certain expenditure on arms, yet I note from the White Paper that total expenditure this year on overseas representation and aid amounts to only one-sixth of the defence budget.

43 The Government's part in postponing the summit to give consideration to the important issues raised by the Brandt Commission report is another indication of the insularity of their philosophy.

My confidence in the Government is further undermined by the reports of substantial disagreement in the Cabinet about the economic strategy. Yet, although no less a person than the present chairman of the Conservative Party resigned from office on a matter of principle about 20 years ago, it is a matter of great regret that members of the present Cabinet, who disagree profoundly, as I do, with the Government's policies are not showing a similar degree of courage.

In 1938, the Right Honourable Harold Macmillan, wrote in his book "The Middle Way": The theories of free capitalism or state socialism are remote from the immediate practical needs and possibilities of our time. The pressure of economic and political necessity is too great today for us to afford the leisure to conduct any longer the barren argument between them". In reviewing his re-issued book, in 1966, I wrote of his philosophy: It was born of a horror that mismanagement of the domestic economy could once again lead to massive unemployment and social disintegration". That is what we face today and yet the barren argument goes on in the House, and the sensible and consistent management of the economy is clearly still impossible as Governments change direction as often as Governments change, in a barrage of rhetoric and amateur posturing according to the prevailing party political fashion.

Red v Blue and Left v Right are like an eternal wrestling match which is fixed through the "usual channels", with no real winners except the promoters in the respective Whips' Offices. The country, industry and the public at large want and deserve a new deal.

For those reasons I cannot vote for the Government's economic programme or for this Budget. I shall not abstain because, in all the circumstances, it would be dishonourable. I shall vote against the Government tonight and I have written to the Prime Minister conveying my decision to resign the Conservative Party Whip.

A distinguished predecessor as Member for King's Lynn, Lord George Bentinck, in the mid-nineteenth century, after eight years of silence in the House and successful horse racing outside it, having supported Canning and then Peel, backed Disraeli in his long climb to become the great reforming Tory Prime Minister who aspired to one nation. I propose to follow his radical example in the pursuit of change and to seek to join the Council for Social Democracy in which I hope to help to form a new party and to develop a programme for stability, national unity and national renewal, which I judge to be vital if the country is to become truly one nation at home and is to play a leading part in international efforts to solve the problems of poverty, malnutrition and disease which afflict a wholly unacceptable proportion of mankind, on whose prosperity we depend so much for our future.

§ Mr. Joel Barnett (Heywood and Royton)

While I cannot agree with the political choice of the hon. Member for Norfolk, North-West (Mr. Brocklebank-Fowler), I congratulate him on a sincere and brave speech. I agree with him that the social cost of the Budget is unacceptable.

44 The right hon. Member for Chelmsford (Mr. St. JohnStevas) made an equally brave speech. He said that the Conservative Party had survived for a long time because of its social concern. If it follows the path of this Budget, it does not look likely to survive much longer.

The right hon. Member for Down, South (Mr. Powell) made a—[Interruption.]—delightfully amusing speech——

§ Mr. Speaker

Order. The House can now relax and listen to the right hon. Member for Heywood and Royton (Mr. Barnett). It is difficult to do so when a lot of chattering is going on.

§ Mr. Barnett

The speech of the right hon. Member for Down, South was delightfully amusing, but it was built on a false premise. I was surprised that it came from the right hon. Gentleman, with his experience in the Treasury, although that was a little time ago. His speech was built on a wholly false assumption. He should have known that with something like the PSBR, to assume that one plus one equals two is wholly false. That was the underlying, basic falsity of the premise on which he based that amusing speech.

However, whether or not one is a monetarist, there is a limit to how much one can or should seek to borrow. I make no bones about it. The Chancellor is entitled to ask his critics "What would you do? How much would you borrow?" I propose to try to answer that question. In the Labour Government we tried to limit borrowing as defined by the PSBR.

In his speech in the House last Wednesday, the Chief Secretary to the Treasury put forward a remarkable argument. He stated that because the borrowing requirement set last year for 1981–82 was £7½ billion and it is now £10½ billion, that was reflation. On that basis, if the target had been set at nil, we should no doubt now have a £10½ billion level of reflation. The argument is so astonishing that I can only assume that it was put in by the right hon. and learned Gentleman himself.

I hope that all hon. Members at least agree that, if sterling M3 is an inadeqate measure, so is the PSBR. For example, reducing the PSBR by £400 million by a windfall tax on banks—which I happen to agree with—and by £1,020 million by additional tax on North Sea oil does not have nearly the same economic effect as taking the amount out in income tax or through indirect taxes.

I hope, too, that the House recognises the substantial margin of error in forecasting the PSBR. In the Chancellor's estimate, the margin of error in 1980–81 will be £5 billion. I do not criticise the Chancellor for that. It is not unusual to be out by 2 to 2½ per cent. when dealing with income and expenditure flows of £200 billion. If companies in many industries had only that margin of error they would be highly delighted. At page 28 of the Red Book we are told that the average annual error in the PSBR since 1973 has been 2 per cent. of GDP. On that basis, in 1981–82 the margin of error will be £4½ billion. Given such uncertainties and the different economic consequences that go to make up the PSBR, we should recognise that it is absurd for the Chancellor to tie himself to a rigid PSBR. Fortunately, he did not. He simply made himself foolish in appearing to attempt to do so.

However, whatever the economic categories of what goes into the make-up of PSBR, it has to be financed. How much should it be? In the light of past errors, the honest 45 answer would be "I do not know", but I shall not answer the question in that way. If my proposals were accepted, it is possible—and I put it no higher than that—that the PSBR would be higher than the Chancellor has planned. However, as I said, it could be £4½ billion higher on his own estimate. It is also possible that, if we increase spending in the next year in certain ways, we may not only not increase the PSBR but reduce it. That illustrates the other fallacy of the argument of the right hon. Member for Down, South.

I shall not go into all the tax measures, many of which are grossly unfair. In the Sunday Express yesterday the Chancellor stated: but the increases I had to announce last Tuesday were inescapable and as fair as I could make them. That is blatantly untrue. There is a case for increasing income tax in the Budget, but the Chancellor should have retained the Rooker-Wise-Lawson increase in the threshold and increased the basic and higher rates of tax. There can be no dispute about it; that would have been more fair. The Chancellor owes the House an apology for what he wrote yesterday.

Without a basic degree of fairness in our tax and social system, no Government will ever be able to achieve the necessary steps to get the economy moving. The Chancellor stated that the Budget was producing a balance in favour of industry. He hit private consumers and individuals, but he has not balanced that with help for industry. The stock relief scheme and the removal of clawback was sensible, but it only recognised the obvious. Many companies would not have been able to pay the corporation tax, anyway.

I cannot comprehend how 100 Conservative Members could be so congratulatory in an early-day motion about the other two schemes. Last week on television a banker stated that the cost for borrowing under the loan guarantee scheme by small firms will be 6 or 7 per cent. above the base rate to allow for the premium for the guarantee. Under this great boon we are talking about an interest rate of 18 to 19 per cent. The banks will still have to provide 20 per cent. risk. I regret to say that, knowing our banks, they are likely to be as cautious as ever. I fear that the scheme will bring no more than marginal relief.

§ Mr. Richard Page (Hertfordshire, South-West)

Does not the right hon. Gentleman accept that loan guarantee schemes operate in practically every other industrialised country? The calculations are 3 per cent. above the base rate for the premium and not the mythical 6 per cent. with which he is trying to denigrate the scheme.

§ Mr. Barnett

A leading banker last week stated in public that the figure would be 6 to 7 per cent. above the base rate. We have not yet had a figure from the Chancellor. Perhaps he will give us one tonight. However, even if the interest rate is 15 per cent., the relief will be only marginal—although welcome, nevertheless.

Under the business start-up scheme there will be tax relief on up to £10,000 if the money is invested for five years in a minority stake in a new company. I do not know what sort of people Conservative Members think invest in small companies. They seem to imagine that people will say to themselves "I shall risk £10,000 for five years. It doesn't matter whether I lose it. I don't mind having no say in how the money will be used. I shall get tax relief on it. I may lose only £4,000 or £5,000." It has been said that Conservative Members do not know much about small 46 businesses. The early-day motion confirms that. The Chancellor says that the scheme is uni