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Health Service review--could look at the needs of the service ; could look at the 130,000 people on the waiting lists for hip joint and other orthopaedic operations ; could look at the 70,000, mainly pensioners, on the waiting lists for cataract and other eye operations ; could look at the shortage of nurses and doctors and at the huge repair bills we face--and decide that the first priority for this Budget, the consideration above all others, should be the needs of those who are already wealthy enough to afford private medical insurance in the first place?

The death grant for pensioners has been abolished to save £18 million, housing benefit has been cut, eyesight test charges introduced, dental charges for pensioners introduced, the link with earnings not restored, but somehow £40 million is available to give private medical insurance tax relief to those who are already rich enough to afford such insurance. No wonder BUPA ran an advertising campaign last week. I understand that the Chancellor is well within his rights to complain to the Advertising Standards Authority, not because the photograph gives a false impression of him, but because the advertisement gives a false impression of who was the author of the Budget proposal. It is a proposal which the Chancellor did not originate, which he does not support, which he could barely mention when he made his Budget speech last Tuesday, and which he knows will cost a lot in 1990, and a lot more in the years to come. It is the policy not of the Second Lord of the Treasury but of the First Lord of the Treasury.

Last year the Chancellor was overruled by the Prime Minister on the question of the exchange rate. Later he was overruled on interest rates. This year he has been overruled on the most controversial item--the £40 million for private medical insurance. Perhaps next year, on the morning of Budget day--in the interests of accountability, if for no other reason--the press should be invited to a photo opportunity in which the Prime Minister will take her Chancellor for a short walk in St. James's park. This proposal is the ultimate in redistribution. It is not the rich supporting the poor, but now the poor compelled to support the rich. The more one buys the more subsidy one receives : "The richer you are, the more you can get. If you are rich, you will be treated, while others have to wait." In fact, this tax relief is a unique and indefensible device whereby the queue is compelled to subsidise the queue jumper.

We now know what the Prime Minister meant when she talked at the general election about private medical care. She wanted the doctor of her choice, the hospital of her choice, the time of her choice and the tax relief of her choice--not for our health care to be safe in her hands, but for her private health care to be save in ours. In a civilised society, the £40 milion going to those who do not need it should go to those who do. That is what the Labour party stands for and that is what the whole country supports.

The only role that the Government are now enthusiastic about for public spending is that it should be used not to extend the rights of the many but to shower privileges on the few--business expansion subsidies from public funds to create top-rate tax shelters for owners of private rented property, PEP subsidies from public funds to create tax

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shelters for those who already have considerable shares and BUPA-style subsidies from public funds to create tax shelters for owners of private medical policies.

Does the Prime Minister not realise that no matter how many private schools, private hospitals and private roads she creates, there will still be a need in the public sector for decent schools, proper hospitals and adequately-funded community services for the vast majority of the people?

After 10 years during which our growth rate has been half that of Japan, we have been manufacturing and producing less than Italy, our economy has invested less of our national income in ourselves than even Spain and Portugal, we are investing less of our national income in innovation than Taiwan and we are investing a smaller share of our national income in education and training than Korea. After 10 years, there is more and worse poverty throughout the country. Even in the past 12 months, housing benefit has been cut, child benefit frozen, new charges introduced, the poll tax imposed in Scotland and thousands of teenagers have been denied any help.

In 10 years, to make a few individuals richer, the Prime Minister and her Ministers have been prepared to make all our communities poor. It is not just our Health Service, our roads and our railways that are unsafe in their hands ; it is not just our environment, our water and even our food that is unsafe in their hands ; it is not just our children's education that is unsafe in their hands ; the whole government of this country is unsafe in their hands. A Budget that should have been preparing us for the challenges of the 1990s leaves us paying the price for the problems that the Chancellor created in the 1980s. We need a Budget for Britain--a Budget for fairness, efficiency and investment. For that, the people of this country will have to look to Labour.

9.31 pm

The Chancellor of the Exchequer (Mr. Nigel Lawson) : I should like to begin by congratulating my hon. Friend the Member for Richmond, Yorks (Mr. Hague) on an outstanding maiden speech. It was no surprise to those of us who were present when, at the age of 16, he made that remarkable and precocious speech in the economic debate at the Conservative party conference of 1977. As he generously pointed out, he follows a distinguished predecessor at Richmond. I am sure that his future career will be equally distinguished and we greatly look forward to hearing him again.

We do not greatly look forward to hearing again the sort of exhibition that we heard from the hon. Member for Dunfermline, East (Mr. Brown), who displayed a degree of economic illiteracy which even he has not plumbed before. He went on about the need for increased public expenditure from a surplus which, if his policies had been in operation, would never have existed in the first place. When asked, in the only intervention on his speech, by my hon. Friend the Member for Wokingham (Mr. Redwood) the clear and simple question of how much extra public expenditure he was advocating, he was wholly unable to answer. He confirmed by his speech that the Opposition have a complete policy vacuum. It was clear from the latter part of his remarks, as his side recognises, that he is living in a fantasy world entirely of his own.

We also had a speech from the leader of the Social and Liberal Democrats. I am glad that he is in his place. He told us--I took this down--that "People want to be

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brought together." It was, alas, a wasted plea, because the right hon. Member for Plymouth, Devonport (Dr. Owen) was not in the Chamber to hear it.

We also had a thoughtful contribution from my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery). My hon. Friend the Member for Croydon, South (Sir W. Clark), in a powerful speech, mentioned the further help that this Budget provides for charities and charitable giving. It is a striking fact that, over the past 10 years, giving to charity has more than doubled in real terms. That is not the hallmark of a selfish society.

My hon. Friend the Member for Croydon, South also asked about the relative growth of imports of capital and consumer goods. I can tell him that, in each of the past two years, imports of capital goods have risen considerably faster than imports of consumer goods. This is, of course, closely related to the huge investment boom that we have been enjoying, to which I will turn later.

My right hon. Friend the Member for Worthing (Mr. Higgins) also welcomed the Budget, as did many other of my hon. Friends, and he followed this up with a number of more or less technical questions about life the other side of the looking glass as it were, with a substantial public sector debt repayment in place of a substantial public sector borrowing requirement. I look forward to discussing these matters with the Select Committee which he chairs with such distinction.

It is a remarkable fact that, after four days of debate on a Budget containing so many measures that the Finance Bill is likely to be the longest ever, all that the Opposition have found to criticise is the provision of tax relief for medical insurance premiums for the elderly. That was all that they were able to go on and on and on about--and that was, of course, something that had already been announced by my right hon. Friend the Secretary of State for Health, a couple of months ago, in the context of the Government's plans for the National Health Service. It accounts in 1990-91 for some £40 million out of total remissions of £3,500 million in that year. I shall not tonight detain the House with a list of all the many other measures in the 1989 Budget, but I do propose to draw attention to some of them.

Foremost among them is the major reform and reduction of employees' national insurance contributions. This was supported by such unlikely bedfellows as the Institute of Directors and the TUC, and it will achieve two important objectives. First, it will either remove altogether or greatly reduce the present serious work disincentive of ultra-high marginal rates at particular points at the very lowest end of the earnings scale. Secondly, it will mean that, from October, some 15 million employees earning over £115 a week--which is well below half average earnings-- will be £3 a week better off. This is a substantial measure by any standards, as its cost shows--some £2 billion in a full year.

Then there is the abolition of the earnings rule for pensioners. This has been widely welcomed on all sides. It, too, is a reform which will remove not merely an injustice, but also a major work disincentive, at a time when, for demographic reasons, the demand for older workers to stay on beyond retirement age is likely to become steadily greater.

Then there is the major reshaping of the tax relief for pensions, designed in particular to place for the first time a limit, albeit a generous one, on the amount of tax relief any pension can attract, and at the same time to encourage

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still further the provision of personal pensions, which my right hon. Friend the Secretary of State for Employment spoke about in his speech at the opening of the debate today. The new pensions package will not only be more equitable, but it will also encourage both greater flexibility and greater personal responsibility in private provision for retirement.

All this has to be seen in the context of the important further package of measures to encourage wider share ownership. It is clear from the response already that the new and improved rules for personal equity plans, in particular, will ensure their future success and the steadily growing importance of PEPs as a home for the savings of the people.

Wider share ownership will, in time, reverse the steady drift to ever greater institutional ownership of British industry ; it enables the people of the country to secure a direct stake in the success of British business ; it provides the best form of worker participation ; and it sounds the death knell of Socialism.

But I would add just this. It is important that the growing public desire to own shares, and the further assistance provided in this Budget, are supported by the stock exchange as it moves to a paperless trading system. I call upon the stock exchange tonight to ensure that the needs of the small investor are fully met in the new system.

Meanwhile, these Budget changes--and there are many others too : reforming the taxation of life assurance, simplifying the taxation of close companies, and reducing the burden of corporation taxes for smaller firms-- add up to our eighth successive tax-cutting Budget. What a contrast with Labour, when Budget day was approached with dread and apprehension. The question that everyone was asking then was what tax was going to go up, would it be income tax or something else, and what new taxes would be introduced. Would it be capital transfer tax, the national insurance surcharge or what else? That was the question then.

Moreover, we have achieved our eighth successive tax-cutting Budget while securing a massive improvement in the public finances, with a surplus, or debt repayment, this year of no less than £14 billion and a further £14 billion repayment in prospect for the year ahead. As a share of GDP, debt interest in the coming year is set to be at its lowest since 1915.

So, unable to attack this year's Budget, the party opposite--we heard more about it tonight--has spent much of its time attacking last year's Budget. Well, I know the Opposition did not like it--they made that abundantly clear at the time--but they will have to grit their teeth and live with it because that Budget has happened and every one of the reforms and reductions it introduced remain on the statute book and will continue on the statute book. Nothing in it has been rescinded or reversed, nor will it be. As a result, the benefits of that Budget will continue to flow in the years that lie ahead.

Mr. Thomas Graham (Renfrew, West and Inverclyde) : The Chancellor will know that, this week, one of the Scottish newspapers spoke about how many people were getting into serious debt because of the Chancellor's policies and were going to bankruptcy court to be declared bankrupt. They are probably taking the advice of the Prime Minister : when the letter comes through the door

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they "bag it and bin it" as that is the only way they will win it. The Chancellor has introduced mad policies that have not helped the Scottish people.

Mr. Lawson : I clearly should not have given way.

I know there are some who seek to attribute to last year's Budget responsibility for the increase in inflation that subsequently emerged. That wholly misunderstands both the role of fiscal policy and the time lag between cause and effect in economic affairs. Let us just look at what the OECD, an international organisation frequently quoted by the Opposition, and which does assign a rather greater short-term importance to fiscal changes than I would do, has to say. After studying fiscal policy in all the major industrial nations comprising the G7, and making what it considers the proper cyclical adjustments, the OECD has concluded that the United Kingdom, in 1988, tightened its fiscal policy more than any other country, and has the tightest fiscal stance in the entire G7.

The Opposition really cannot have it both ways. They cannot say at one and the same time that last year's Budget, which produced a surplus of £14 billion, was reckless, and that this year's Budget, which is set to achieve an identical surplus, is too cautious. No. The plain fact is that the temporary re-emergence of rising inflation has nothing whatever to do with last year's Budget. It has a great deal more to do with the worldwide loosening of monetary policy in the wake of the stock market crash of October 1987. That perhaps is why the rise in inflation is a worldwide phenomenon, and it is worth noting in this context that commodity prices too have been rising, with metal prices twice what they were two years ago.

Meanwhile, the remedy, a sharp rise in interest rates to tighten monetary policy, has duly been applied. Yet despite the fact that the Opposition Front Bench dimly recognise the monetary nature of the inflationary threat- -at least, that, I take it, accounts for the constant references of the right hon. and learned Member for Monklands, East (Mr. Smith) to the credit boom--despite that dim recognition, all they have to offer on this front is a call for lower interest rates and indeed a lower exchange rate. How they imagine lower interest rates would deter borrowing beggars belief. The truth is that what they put forward is an inflationists' charter, for the simple reason that the Labour party is the party of inflation, just as it is the party of high taxation--it always has been and always will be. [Interruption.] They do not like this. Let them just look once again at their record when they were last in power. Theirs was an inflation rate which averaged more than 15 per cent. for the whole of their term of office, so I am certainly not going to take any lessons from them about inflation.

Ten years ago next week, this House debated a motion of no confidence in the then Labour Government, whose passage brought about the then Government's downfall. In that debate, in a desperate attempt to save himself, the then Prime Minister, the noble Lord Callaghan, pledged himself to do better in future in these terms : "There is a bold and ambitious target, to which we have set our hands, of working to get inflation below 5 per cent. in the next three years. That is the objective."--[ Official Report, 28 March 1979 ; Vol. 965, c. 477.]

During the whole of the time that I have been Chancellor, a period slightly longer than the full term of the last Labour Government, inflation has indeed

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averaged below 5 per cent.--Labour's "bold and ambitious target" which they never got within a million miles of achieving, nor would they have done, as the people of Britain well understood. Even now, when inflation has temporarily risen above that mark, its underlying level is well below the underlying level of inflation in the best month that Labour ever achieved.

Nor has our success been secured at the price of slower economic growth. Nothing could be further from the truth. During the whole of my period as Chancellor so far, economic growth in Britain has been well over half as much again as what it was under Labour, which, as I have already pointed out, was a roughly comparable period of years. Indeed, it is worth looking, for an overall picture, at the amount by which the rate of inflation exceeded the rate of growth over the two periods. Under Labour, the rate of inflation exceeded the rate of growth by 13 per cent. During my time as Chancellor, the difference has come down to 1 per cent. That is a measure of the difference. Admittedly, economic growth is now set to slow down for a year or two, but the lower growth now projected over the next couple of years--1989 and 1990--is still higher than the average rate of growth under Labour. Labour certainly had many crises to grapple with. In fact, there was hardly a moment when they did not have a crisis. But I have to admit that one problem it never had to worry about was rapid economic growth. Indeed, during the 1970s Britain was the slowest growing economy of all the main European nations. During the 1980s we have had the fastest growing economy of all the main European nations.

This transformation has seen unemployment fall by a million in less than two years since the last general election, and the number of people in work the highest in our history. There was a time when the Opposition professed to care about unemployment. It is quite clear from their lack of enthusiasm when unemployment comes down that they could not care a fig.

Of course the dramatic improvement in the performance of the British economy has been based on an equally dramatic improvement in productivity. In 1980, the Brookings Institute in Washington produced a gloomy report on the British economy, which concluded with these words :

"The studies in this volume indicate that Britain's malaise stems largely from its productivity problem, whose origins lie deep in the social system."

It was not the social system which was at fault, but the Socialist system. With the jettisoning of the culture of Socialism in favour of the enterprise culture, we have seen Britain leap from the bottom of the manufacturing productivity growth league in the 1970s to the top in the 1980s.

There has been a similar transformation in investment, about which Opposition Members prate so much. Nothing provides clearer evidence of the way in which the Labour party is completely out of touch with what is really happening in Britain today than its failure to comprehend the truth about investment. That was shown, once again, by the response made by the Leader of the Opposition to the Budget itself last Tuesday, when he said :

"After 10 years the proportion of total investment in GDP is lower than during any year under the last Labour Government."--[ Official Report, 14 March 1989 ; Vol. 149, c. 313.]

That is what he said. [ Hon. Members :-- "Hear, hear."] Opposition Members cheer. In fact, at almost 21 per

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cent., the truth is that the proportion of total investment in GDP is higher than during any year under the last Labour Government. Those are the facts.

Nor is that all. Business investment--public and private sector combined-- is now at its highest proportion of GDP ever--the highest ever. Whereas under Labour total investment grew scarcely at all, and well below the growth of consumption, over the past seven years investment in this country has grown more than twice as fast as consumption--something that only Japan among the major nations even so much as approaches. And not only is investment in Britain at an all-time record high and growing fast. Its quality has improved immeasurably, as evidenced by the dramatic improvement in the return on capital.

What about public sector investment, about which the hon. Member for Dunfermline, East waxed so lyrical, and with such hypocrisy? Take investment in the railways. Under Labour, a rise of only 8 per cent. in real terms. Under this Government, four times as much--up 32 per cent. Or major roads : under Labour, a cut of 41 per cent.--that is the truth ; under this Government, up by 30 per cent. Or water : under Labour, a cut of 25 per cent. ; under this Government, up by 50 per cent. Or hospitals : under Labour, a cut of 30 per cent.--a cut ; under this Government, up 31 per cent. in real terms. And of course private sector investment is at its highest level ever--not merely in absolute terms, but as a share of GDP. So much for Labour's humbug, hypocrisy and sheer ignorance about investment.

Mr. John Smith (Monklands, East) : I am grateful to the Chancellor for giving way at the point where he talks about humbug and hypocrisy. Why is it that poor old-age pensioners have to be put through invidious means tests as to income and capital for income support and housing benefit, while well-off people will be subjected to no test whatsoever and will be subsidised by the poor for private medical insurance? Why does the right hon. Gentleman defend that?

Mr. Lawson : Here we are again--this complete obsession with tax relief for private medical insurance, and no answer at all about investment, which is at the heart of our economic success. I urge Opposition Members, if they really wish to understand what is happening in Britain today, to listen to the informed voice of the CBI. I refer to their chief economic adviser Professor McWilliams, who recently gave a lecture under the auspices of the CBI entitled "The Renaissance of British Management". Needless to say, it was barely reported, but I warmly commend it to the House--not least to the party opposite, whose need for economic education is palpable. Let me quote a few extracts.

"United Kingdom growth in the 1980s can now be seen to have been faster"--

[Interruption.] Oh no, they do not like anything about the success of the British economy. The cannot stand the success of the British economy. I will start again :

"United Kingdom growth in the 1980s can now be seen to have been faster than in any other recent decade and the comparison with other countries now shows a fairly substantial outperformance by the United Kingdom in the latest decade, with the United Kingdom growing over a fifth faster than the average of the other economies."

He went on :

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"In the first half of the 1980s, the proportion of United Kingdom investment in plant and machinery devoted to computers rose from 10 per cent. to 20 per cent.--a rise on a much faster scale than anywhere else in the world."

He continued, after this thorough study :

"The United Kingdom has been an economic success and I believe that the success will continue."

Mr. John Smith : The Chancellor, as he well knows, is responsible for everything in his Budget, whether he likes it or not. Will he please tell us the public policy justification for the absence of a means test for private medical insurance for the rich, and tell us why the rest of us should pay the Prime Minister's bills?

Mr. Lawson : Is the-- [Hon. Members :-- "Answer."] Is the right hon. and learned Gentleman suggesting that tax relief should be subjected to a means test? Is he going to suggest that mortgage interest relief should be subjected to a means test? Is he? Is he? Answer that. Perhaps he can answer that.

Mr. Smith : I asked a perfectly simple question. We have been lectured about the targeting of benefit. Why is this benefit not targeted? All the poor are targeted. Why are the Conservative party's clients not targeted?

Mr. Lawson : Not only was the right hon. and learned Gentleman totally unable to answer my question, but he was also totally unable to distinguish between the remission of taxation and an increase in public expenditure. He was quite unable to understand the difference between them.

Let me return to the Budget. It has above all been a prudent and cautious Budget. [Interruption.] Perhaps, Mr. Speaker-- [Interruption.]

Mr. Speaker : Order. Mr. Chancellor of the Exchequer.

Mr. Lawson : They cannot take it, Mr. Speaker. That is the trouble-- they cannot take it.

It has above all been a prudent and cautious Budget--perhaps even more prudent and cautious than was strictly necessary, but economics is an inexact science at the best of times and that was clearly the right direction in which to err.

It certainly appears to have struck terror into the Opposition. This could not have been made clearer than in the intervention by the Leader of the Opposition right at the end of the speech by my right hon. Friend the Chief Secretary last Wednesday. The Leader of the Opposition, with desperation manifest in his voice, said this : "The right hon. Gentleman has referred several times to the great virtue of using the Budget surplus to repay the national debt. Can he confirm that that will continue to be an objective of the Government, should they have surpluses, and that it will continue until the next general election and not be impeded by any desire that the Government may have to make a tax cut before the next general election?"-- [ Official Report, 15 March 1989 ; Vol. 149, c. 435.]

Well, I have given the right hon. Gentleman's question the most careful consideration. It would not, of course, have occurred to me to think in terms of the next general election, but since the right hon. Gentleman has raised the matter, I have to inform him that I regret I cannot rule out the future use of the current surplus to reduce the burden of taxation. Indeed, it is the Government's policy to do just that.

In short, this Budget is a Budget which, in the firm support it gives to the defeat of inflation by monetary policy, provides a solid base for further economic success,

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including progress to a basic rate of income tax of 20p in the pound, in the years that lie ahead. Once again, I commend it to the House.

Question put :--

That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance ; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide--

(a) for zero-rating or exempting any supply ;

(b) for refunding any amount of tax, otherwise than in a case where the amount has been paid by reason of a mistake ;

(c) for varying the rate of that tax otherwise than in relation to all supplies and importations ; or

(d) for relief other than relief applying to goods of whatever description or services of whatever description.

The House divided : Ayes 341, Noes 222.

Division No. 122] [10 pm


Adley, Robert

Aitken, Jonathan

Alexander, Richard

Alison, Rt Hon Michael

Allason, Rupert

Amery, Rt Hon Julian

Amess, David

Amos, Alan

Arbuthnot, James

Arnold, Jacques (Gravesham)

Arnold, Tom (Hazel Grove)

Ashby, David

Aspinwall, Jack

Atkins, Robert

Atkinson, David

Baker, Rt Hon K. (Mole Valley)

Baker, Nicholas (Dorset N)

Baldry, Tony

Banks, Robert (Harrogate)

Batiste, Spencer

Beaumont-Dark, Anthony

Bellingham, Henry

Bendall, Vivian

Bennett, Nicholas (Pembroke)

Benyon, W.

Bevan, David Gilroy

Biffen, Rt Hon John

Blackburn, Dr John G.

Blaker, Rt Hon Sir Peter

Body, Sir Richard

Bonsor, Sir Nicholas

Boscawen, Hon Robert

Boswell, Tim

Bottomley, Peter

Bottomley, Mrs Virginia

Bowden, A (Brighton K'pto'n)

Bowden, Gerald (Dulwich)

Bowis, John

Boyson, Rt Hon Dr Sir Rhodes

Brandon-Bravo, Martin

Brazier, Julian

Bright, Graham

Brooke, Rt Hon Peter

Brown, Michael (Brigg & Cl't's)

Browne, John (Winchester)

Bruce, Ian (Dorset South)

Buchanan-Smith, Rt Hon Alick

Budgen, Nicholas

Burns, Simon

Burt, Alistair

Butcher, John

Butler, Chris

Butterfill, John

Carlisle, John, (Luton N)

Carlisle, Kenneth (Lincoln)

Carrington, Matthew

Carttiss, Michael

Cash, William

Channon, Rt Hon Paul

Chapman, Sydney

Chope, Christopher

Churchill, Mr

Clark, Dr Michael (Rochford)

Clark, Sir W. (Croydon S)

Clarke, Rt Hon K. (Rushcliffe)

Colvin, Michael

Conway, Derek

Coombs, Anthony (Wyre F'rest)

Coombs, Simon (Swindon)

Cope, Rt Hon John

Cormack, Patrick

Couchman, James

Cran, James

Critchley, Julian

Currie, Mrs Edwina

Curry, David

Davies, Q. (Stamf'd & Spald'g)

Davis, David (Boothferry)

Day, Stephen

Devlin, Tim

Dicks, Terry

Dorrell, Stephen

Douglas-Hamilton, Lord James

Dover, Den

Dunn, Bob

Dykes, Hugh

Eggar, Tim

Evans, David (Welwyn Hatf'd)

Fallon, Michael

Favell, Tony

Fenner, Dame Peggy

Field, Barry (Isle of Wight)

Fishburn, John Dudley

Fookes, Dame Janet

Forman, Nigel

Forsyth, Michael (Stirling)

Fowler, Rt Hon Norman

Fox, Sir Marcus

Franks, Cecil

Freeman, Roger

French, Douglas

Fry, Peter

Gale, Roger

Gardiner, George

Gill, Christopher

Gilmour, Rt Hon Sir Ian

Glyn, Dr Alan

Goodhart, Sir Philip

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