§ Amendment made: No. 35, in page 452, line 46, at end insert—
| '(3) Assigned matters: minor corrections | ||
| Chapter | Short title | Extent of repeal |
| 1979 c. 2. | The Customs and Excise Management Act 1979. | In section 118A, subsection (7). |
| 1983 c. 55. | The Value Added Tax Act 1983. | In Schedule 7, in paragraph 7, sub-paragraph (6).' |
§ —[Mr. Portillo.]
§ Order for Third Reading read.
5.33 pm§ The Chief Secretary to the Treasury (Mr. Michael Portillo)I beg to move, That the Bill be now read the Third time.
Life is full of surprises. Here we are, shortly after 5.30 in the afternoon, turning to the Third Reading of a Bill which has proceeded under a guillotine. I make the point not to create any tension or upset between the occupants of the Front Benches but merely to remark that a Bill which has proceeded under a timetable motion has been given sufficient time for hon. Members to consider the important matters that have been placed before them.
I think that many hon. Members on both sides of the House have found the timetabling of the Bill to their convenience. I think also that that goes for many people outside the House. It has been a matter of convenience for them. It has been much clearer to outside interests that have a legitimate point of view to put to the House when the matters in which they were interested would come before the Standing Committee for consideration. As a consequence, they have been able to make their recommendations in a timely way.
I say nothing about what future proposals might be for the handling of these matters. It is worth putting on record, however, that the timetabling of the Bill has not led to any shortage of debate or shortage of opportunity to make representations. I think that in general the process has proceeded smoothly.
§ Ms Angela Eagle (Wallasey)As this was my first Finance Bill, I am in a slightly odd position because I do not know what a Finance Bill without a guillotine is like. 922 Is the Chief Secretary saying that the Conservative party will be happy to have future Labour Governments' Finance Bills guillotined at the beginning of the parliamentary process so that they, too, can be speedily dispatched?
§ Mr. PortilloNo. I have restricted myself to making comments about the past and not about the future. It is important to get the past straight. I wanted to do that. I think that the only way that things might be done differently, were this process ever to take place again, would be that the Opposition would want to attend the Business Committee, at which the phasing of this Bill was first discussed.
The guillotining of the Bill was only one of several novelties this year. We found ourselves debating a Finance Bill at a time of year to which we were not accustomed. We debated the Bill at the beginning of the year. We found ourselves also taking time out of the Committee to run to various television and radio studios to debate some of the tax measures that were to come into force at the beginning of April. The paradox was that most of the tax measures that we found ourselves debating in various studios were not measures contained in the Bill. Instead, they were measures that were introduced by the previous Budget of my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont).
§ Mr. BeithBefore the Chief Secretary gets fully into this especially interesting part of the past, I hope that he will not fail to notice that among the novelties of the Bill were two new taxes, neither of which had been the subject of any prior consultation—one on airports and one on insurance. Another novelty was that the Bill was printed in two volumes, being of greater length than any previous Finance Bill.
§ Mr. PortilloYes, the Bill was of greater length than its predecessors. As the right hon. Gentleman says, it was the first time that the Bill was printed in two volumes. For that reason, I thank all members of the Standing Committee for their diligence in paying attention to the Bill. It was for the reason of length that the guillotine motion provided for rather more hours of debate than those which were expended on the previous Finance Bill, which was not subject to a timetable motion.
§ Mr. John Townend (Bridlington)Does my right hon. Friend agree that having Finance Bills as large as the one that is before us is not satisfactory? Will the Government consider in future separating the main Budget proposals and having a relatively shorter Bill, and having a technical Bill dealing with anti-avoidance measures, which the Inland Revenue introduces every year? Would not that be a much more satisfactory approach?
§ Mr. PortilloThat very question had been raised only shortly before my hon. Friend entered the Chamber, during consideration of one of the amendments. My hon. Friend the Financial Secretary explained that it was not the Government's wish to operate in that way.
Bearing in mind what has happened during consideration of the Bill, I think that my hon. Friend the Member for Bridlington (Mr. Townend) will find that the matters considered technical were not matters on which the Committee found itself wishing to spend a long time. Taking all matters together—the technical and the more political—did not inhibit the smooth discussion of the Bill. I would be in some difficulty to find instances in which not 923 separating out technical and political matters caused difficulties for the Committee. In practice, I do not think that the Committee found itself in those difficulties.
My right hon. Friend the Member for Kingston upon Thames brought in an extremely brave Budget at the beginning of 1993. It was one which took seriously the problem of the public sector borrowing requirement and demonstrated beyond doubt that the Government would ensure that that borrowing requirement was tackled. My right hon. Friend was proceeding at a time when it was not at all evident that the recovery was under way. He therefore had to be cautious about introducing taxes in the early part of 1993. What he established was a wedge of increasing revenue for the years ahead, and it is some of that wedge that came into play in April 1994.
The effect of my right hon. Friend's Budget in March 1993 was to convince the markets that the Government were entirely in earnest about tackling the public sector borrowing requirement. As a consequence, through 1993, even though we were borrowing at a rate of about £1,000 million a week, we saw short-term interest rates fall, and we saw long-term interest rates also fall. The impact of that on the recovery is important. If the opposite had happened —if interest rates had been rising—the recovery would have been put in jeopardy.
What the Government did was to ensure, even at a time when it was unwise to introduce the tax increases, that the markets were reassured that we would take action. They set out the precise course and the exact taxes that would be increased. In the process, they took a number of political risks. But taking those political risks was worth while, because it showed the markets that we meant business.
In the March 1993 Budget, my right hon. Friend also had to take some decisions on indirect taxes which would have an impact on the retail prices index. That required considerable courage at that time. It is interesting to reflect now on how much lower inflation is today than we were predicting one year ago. Inflation has stayed very low. The retail prices index, excluding mortgage interest payments, is at the lowest level since 1967, and the headline rate has been below the European Community average since August 1991.
Today, we see that the underlying inflationary pressures are very weak: factory gate inflation is at the lowest level since 1973 and businesses are keeping their costs under control. The recent underlying earnings growth is the lowest that it has been in 25 years.
§ Mr. Ian Taylor (Esher)Is not the point about taxation that, if the two Chancellors of the Exchequer had not wisely raised taxation in 1993, the debate now would be about how much taxation we would be forced to raise this year? In other words, we cannot avoid the problem. Indeed, if the taxation rates had not been increased in 1993, we would not have had interest rates down to the present level, because the markets simply would not have accepted that the Government were serious about borrowing, and there would therefore be other pressures in the interest rate market.
§ Mr. PortilloMy hon. Friend is absolutely right. When the Government make wise decisions, the difficulty is to prove the existence of the dog that did not bark. There was no funding crisis in 1993. lnterest rates were not rising; they were falling, despite the pressures that the Government were imposing on the market through their 924 level of borrowing. I simply remind my hon. Friend that the Government have taken action to solve the public sector borrowing requirement problem not only by increasing taxes but, more importantly, by decreasing public spending.
§ Ms EagleI thank the Chief Secretary for giving way again; he is very courteous. I listened to what he said about the political courage demonstrated by his Government in raising the massive tax revenues in 1993. Surely the economic situation that the Government would face was obvious before the 1992 election. Would it not have been much more courageous therefore for the Government to take these difficult decisions before the general election rather than after it?
§ Mr. PortilloWhat was evident in the early part of 1992 was that there was a substantial public sector borrowing requirement, but it was not evident that it would be anything like the £50 billion which was subsequently predicted. In the early part of 1992, we believed that the recovery would begin strongly and proceed apace.
It was not only the Government who had those views; they were shared by independent forecasters and by the Labour party. If they were not shared by the Labour party, it is inexplicable that the Labour party was planning massive increases in public spending. If it knew all the time what no one else knew—that the public sector borrowing requirement would be larger—how on earth could it have been responsibly proposing that public spending should be massively increased?
I should like to know from the hon. Member for Wallasey (Ms Eagle) or the Opposition spokesman whether the reason was that the Labour party was all-knowing. Was it that it had knowledge that no one else had, and yet it persisted with its irresponsible plans to raise public spending, or was it that it shared the views of all the experts and the Government, which was that the recovery would shortly begin and that it would be strong, and that the public sector borrowing requirement would not reach anything like the heights that it has subsequently reached?
§ Dame Elaine Kellett-Bowman (Lancaster)Is not my right hon. Friend being unduly modest in his sunshine list, because he did not add the excellent unemployment figures which were released today? Those figures show that unemployment is down 0.2 per cent. nationally and—we usually lead the way—down.3 per cent. in Lancaster. My right hon. Friend also did not give the superb figures, to which he referred obliquely, for the public sector borrowing requirement. Such figures were unheard of one year ago; he could not possibly have forecast them.
§ Mr. PortilloMy hon. Friend is absolutely right. It may not seem like it, but I am still on paragraph one, and I intend to reach some of those points in a moment.
It is worth dwelling on the importance of our success with inflation. It is worth reminding people that keeping inflation down is a vital objective for the Government. We are firmly committed to a monetary policy that will maintain downward pressure on inflation. We will not let up on our achievements so far, and we will ensure that we meet our targets in the future.
§ Mr. Thomas Graham (Renfrew, West and Inverclyde)Is the Minister telling the House that the massive increase in domestic fuel bills will keep inflation down? Is he aware that low-paid workers and the 925 unemployed are suffering dramatically because of the huge indirect taxes that the Government have imposed? How in God's name can he hold his head up and say that the Government are helping ordinary men and women?
§ Mr. PortilloSince privatisation of the electricity and gas industries, prices have fallen either in real terms or, in some instances, in cash terms. The hon. Gentleman will remember that, in the Budget, my right hon. and learned Friend the Chancellor announced a package of assistance not only for those on low incomes but for all pensioners, whatever their incomes might be. What has made old people suffer is not the fact that taxes have been increased but the fact that Labour sought to scare them about the scale of the increases. We are talking about increases of about £1 a week. The Government have provided compensation which, in large measure, pays for those extra increases. What Labour have done is to spread an idea that the increases will be vastly greater than they are.
I warn the hon. Member for Renfrew, West and Inverclyde (Mr. Graham) that that will rebound on the Labour party, because, when people discover that they have been misled by the Labour party's black propaganda, they will be angry. To scare old people in the way that the Labour party has done is unforgivable, and they will turn on the party that has perpetrated it.
§ Mr. Clive Betts (Sheffield, Attercliffe)Can the Chief Secretary respond to a constituent of mine who wrote to me the other day saying that, first, the 70p that he would receive in additional pension would not compensate him for his increased fuel bills and, secondly, because he had a small occupational pension and therefore paid income tax, he would be taxed on that 70p as well? Have the Government taken into account the increase in income tax that they will receive from this process when calculating the compensation that will be paid to people in that situation?
§ Mr. PortilloI presume that the hon. Gentleman realises that, if the public sector borrowing requirement is reduced and more revenue is raised, someone must pay for that. The Government have never shied away from saying that taxpayers will have to pay. However, they have ensured that people on low incomes are compensated to help them to meet their extra fuel bills. We have gone much further than that by compensating all pensioners, whatever their incomes may be, to help them with their extra fuel bills.
The hon. Member for Sheffield, Attercliffe (Mr. Betts) is saying that pensioners who are not only not living on income support but who also have an extra income on which they pay tax should also be compensated for the tax that they must pay on the increase. That is not reasonable from the hon. Gentleman's point of view. If he reflects on it, he will see that it is not a sensible proposition. The economy is growing. There now have been seven quarters of growth, and gross domestic product rose by 0.7 per cent. in the last quarter of 1993. It rose by 2.5 per cent. on a year earlier. Many other encouraging figures tell us that the recovery is spreading from one sector to another.
Manufacturing output is up, and exports to countries outside the EC have risen by 11 per cent. Retail sales are at a record level—a level which has never been achieved before—and new car registrations are up significantly. 926 That is important, because it shows that consumers are gradually having the confidence to make longer-term spending commitments, and that can be seen also in the rise in consumer credit.
As my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) said a moment ago, unemployment has fallen by 30,000 in March. It has fallen by 250,000 since the end of 1992, and vacancies are still at a high level. The unemployment rate is below the EC average.
I mention that because the hon. Member for Peckham (Ms Harman) and the hon. Member for Dunfermline, East (Mr. Brown) are keen on saying that they want to solve the problem of unemployment, and that, if they solve that problem, they will solve the problem of the public sector borrowing requirement. Yet the magic socialist formula which they would employ to drive down unemployment and to bring about recovery is not available to the socialist Governments around Europe.
I remind the House that our rate of unemployment is below the EC average and that the Spanish rate of unemployment—when last I looked—was 22 per cent. If there were some magic socialist formula to bring down unemployment and to bring about recovery—rather than to bring about recovery and to bring down unemployment—would it not be likely that the Spanish socialist Government would be using it? If the Labour party has some secret, why is it so mean as not to share it with the socialist Governments in Europe so that they can put it into practice?
§ Mr. HoonThe Chief Secretary's case appears to be that there is a massive upturn in consumer confidence in the United Kingdom, and that the Government are taking advantage of that. If that is the Government's position, why did the Chancellor tell the Governor of the Bank of England in January that he was much less sure that the pace of growth had picked up significantly in recent months? In March, the Chancellor told the Governor that anecdotal evidence did not suggest that activity was growing strongly.
§ Mr. PortilloThe hon. Gentleman has completely misrepresented what I said. I said that new car registrations showed some sign of an increase in confidence among consumers who were willing to commit themselves to long-term decisions. I did not say that there had been a massive resurgence in consumer confidence. We know from surveys that confidence is relatively delicate.
We know that people making business decisions have felt the return of confidence, and that most people in business think that the recovery has now reached their sector. In time, the confidence which is felt by the people who are making decisions in business will ripple out to employees and to consumers, and that will be felt throughout the economy. However, there is absolutely no point in pretending that the recovery has been faster or has progressed further than it has. I am making no such pretence. I do say that all the signs are very good.
We have had another example of the Opposition wishing to talk the recovery down. We know perfectly well that the recovery is on track, but we have never made grandiose claims about its size or pace. This is not a technicolor utopia. We are concerned about having a recovery which is sustainable, and which is compatible with low inflation. 927 The people who really matter—business men and investors—have confidence in the Government's economic policies, and this Bill is at the very heart of those policies. The themes of the Government's approach are the fixity of our purpose, the clarity of our economic policy and the transparency of the decisions which we make. We want sustainable non-inflationary growth to make the people of this country better off. Growth is not an end in itself—it is worth having only if it enables living standards to rise, and that means keeping inflation well under control.
If inflation returned, it would bring all the old evils with it. There would be an arbitrary redistribution of income within our society, a distortion of investment decisions and all the pain that is inevitably involved in having to cure inflation again by adjusting interest rates and by the recessionary forces which then come about.
Non-inflationary sustainable growth is our aim, and that must be based upon sound public finances. If we do not have sound public finances, we will pile up levels of borrowing, the interest on which must be paid by future generations. It is no part of the Conservative Government's policy to pass a burden of debt down to our children. That debt repayment burden which is now being faced by so many countries diverts resources from productive investment and threatens recovery by undermining confidence.
The Conservative principle of sound public finance is embodied in the Budget and in the Bill. We have projected to reduce the PSBR to zero by the end of the decade.
We also place emphasis on making our economy perform better and making reforms to the supply side of the economy. Free markets allocate the resources best to where they should be used, and where they can produce the best result. Interventionist policies, on the other hand, are a sure recipe for economic sclerosis. The Government are proud to be taking further measures to improve the way in which the economy works.
We are privatising British Coal and British Rail. We are making sure that incentives operate well within the economy by the changes and reforms which we are making to invalidity benefit with the introduction of a new benefit called incapacity benefit. We will also introduce in due course a job seeker's allowance to make sure that there are clear incentives for people to work when they are able so to do.
We have a clear destination in terms of where we wish to lead public finances, and we have set ourselves a series of milestones along the way. We have announced clear public inflation targets, and we are willing to be judged on the basis of those. We have set out firm public spending ceilings. It is our aim to make sure that the rate at which the new control total for public spending rises is kept below the trend growth rate in the economy. We took £10 billion off of our earlier public spending plans by the decisions made in the Budget, and the new control total of public spending is set to grow by an average of 0.25 per cent. in real terms per year for each of the years between now and 1996–97.
We are open in discussing our economic policy, and we have set it out clearly. The Chancellor has taken further steps to make sure that his monetary policy is transparent. We have now published—as has been mentioned in the House—the minutes of the monthly monetary meeting. We have established an independent panel of forecasters to display a range of views about future inflation and economic conditions.
928 We have already set about publishing the monthly monetary report, and we have made the Bank of England independent to the point that it is able to decide the timing of interest rate changes. We have made clear to the world the indicators which we will take into account before we make decisions on monetary policy. In making the changes, the Chancellor has tried to make it absolutely clear to everyone that our interest rate decisions are to be taken for the only good reasons there are—that is, economic reasons—and not for political reasons. He will take decisions about interest rates based on features of the British economy, and not of any other economy.
The Government's economic policy has a clear pattern. It is based on fixity of purpose, clarity and transparency. We have established in the economic field a rhythm of good decision-making which has led to a resurgence of confidence. The Bill is vital to that process. It protects non-inflationary growth by helping to sustain sound public finances in a way which does the minimum of harm to incentives and to the operation of the markets. That is essential if the Government are to meet the Budget objective of lowering the PSBR by £6 billion in the current year, 1994–95, in comparison with the projection that we made before the Budget. We will do that without affecting marginal income tax rates and without raising the rate of taxation on business.
I remind the House that the Bill is not just a catalogue of tax increases; it carries forward the process of building a tax system that fosters wealth creation. The new enterprise investment scheme—which encourages "business angels" to put their management skills as well as their money into the new small companies that are the basis of future economic development—won considerable praise from all parties in the Standing Committee.
We have introduced some new taxes, to which the right hon. Member for Berwick-upon-Tweed (Mr. Beith) referred: the insurance premium tax and the air passenger duty. We have introduced them, however, in areas that—in comparison with practice in other countries—have arguably been under-taxed in the past. We are therefore ensuring that the tax burden is spread as widely as possible. Let me also remind the House that we have introduced rules allowing and promoting self-assessment in regard to tax.
The measures in the Bill are fair: the extra burden of tax that it has been necessary to raise has been spread evenly across the pattern of income distribution. That has been backed up by one independent survey after another. We are confident, therefore, that these measures will not damage the progress of recovery.
We have been careful to phase the tax increases to ensure that. Some of the impact of extra taxes was felt some time ago: excise duties were increased around Christmas. Other tax changes were introduced this month, and the two new taxes that I just mentioned will not come into force until the autumn. As I have said, we have spread the impact. My guess is that press expectations about the tax changes currently coming into effect greatly overplayed the impact that those changes will actually have on people's spending patterns, wage packets and salary slips. The recent impact on consumer confidence has been based not on actual experience of what tax rises are likely to bring, but on press reports and media speculation.
§ Mr. BeithThe Chief Secretary has just made a very significant point. He suggests that the largest collection of 929 tax rises to occur in modern times has been spread in such a way that its impact on individuals will be much less than they have been led to fear, and that any disincentive effect on their willingness to work harder will therefore be very slight. Is he not opening the way to more tax rises generally, on the ground that they are never as bad as they are expected to be?
§ Mr. PortilloThe right hon. Gentleman knows perfectly well that Conservative Members believe in reducing taxes when that is prudent. Conservative Members do not attempt to advance any general argument in favour of raising taxes. But, when driven by fiscal prudence to introduce higher taxes in order to reduce public borrowing, our party takes care to ensure that the impact on incentives is minimal, and that phasing is sensible, so that the minimum damage is done to the process of recovery.
The Bill confirms the policies that I have described. It adds to the credibility of those policies, and will therefore increase confidence. Today, we have seen new figures showing that in 1993–94 the public sector borrowing requirement—at about £46 billion—was some £4 billion lower than the level that we predicted. That, clearly, is in itself good news, but I am the first to add that the PSBR is still the highest that we have ever had, in cash terms.
In the single month of March, the Government had to borrow £l1 billion, the largest amount that has ever been borrowed in any single month. Total borrowing for the year still amounts to £900 for every man, woman and child in the country. That does not lead me to alter our earlier forecast for the PSBR in the current year—about £38 billion. It is right to celebrate good news when it comes, but I do not believe that the figures suggest that any change in Government policy would be appropriate.
The most significant factor in the achievement of that lower figure is not higher than expected tax receipts, but greater discipline in central Government spending and increased debt repayment by local authorities. Those factors cannot necessarily be repeated, and I therefore have no reason to believe that Government policy is in any way inappropriate at present. I believe that our current stance, and our determination to lower public sector borrowing on the course that we have set, should remain unchanged.
§ Mr. John TownendI agree that the undershoot of £4 billion in the PSBR is very good news, but is not my right hon. Friend rather worried about the size of the increase in March—£11 billion, as he has just told us? That is by far the highest increase in any month. Is not one of the problems the fact that, in national government—I found the same in local government—in the last month of the financial year each Department tries to spend every penny that it has so that it is fully spent up to its budget? If we could control that, could we not lower the PSBR by even more?
§ Mr. PortilloAs my hon. Friend knows, the PSBR is the difference between two large amounts—receipts on the one hand, and spending on the other. The pattern is fairly well established, February and March generally being the largest months in terms of the PSBR.
My hon. Friend has a point: there is an element of "spending up" at the end of the year. I deprecate that, and intend to bring the greatest possible pressure to bear on it. 930 My hon. Friend will, however, appreciate that other factors are involved. There is nothing unusual about seeing a dip in the earlier part of the financial year, and the largest amounts towards the end.
If the policies that I have described make the Government's economic strategy perfectly clear—along with the fact that we are now seeing the benefits of recovery and of sustained low inflation—let me ask the House to consider what alternative has been presented by the Opposition. How have they measured up to the test of clarity and decisiveness that I have set this afternoon?
It may be news to the House that the hon. Member for Peckham is responsible, on behalf of the Opposition, for the control of public spending pledges. How has she done in that regard? As far as I am aware, there is not a single instance of the hon. Lady's overruling any of her hon. Friends in connection with any of their promises, pledges and proposed schemes, whatever the expense involved.
Sound public finances are what we demand from the hon. Lady; what we have had is the sound of public flannelling. The hon. Lady aspires to be the guardian of the nation's coffers, but the amendments that she tabled demonstrate that she is as committed as any other member of the Labour party to higher public spending and borrowing.
That is especially notable, given that the hon. Lady was not a great contributor to our debates in the Standing Committee. [Interruption.] I showed a strong sense of delegation, but, even by the high standards that I set, the hon. Lady managed to delegate a considerable amount of the work to others. None the less, she was associated with amendments all of which would have increased public spending and borrowing. For example, her amendment to what was clause 28, on air passenger duty, would have raised the PSBR by £115 million this year and by £330 million next year.
It might be thought that, if the hon. Lady did that in one amendment, she must have balanced it in another. Then, however, she tabled new clauses 1 and 2. Did those clauses offset her proposals for air passenger duty? No: they were designed to postpone the introduction of VAT on fuel and power, and would have raised public sector borrowing by £1 billion.
As the hon. Lady is honest and straightforward, one would have assumed that she would find some other way in our debates to balance her proposed increases in the PSBR. But she tabled amendments to clause 72 to increase tax allowances and restrict the married couple's allowance to 25 per cent. rather than reduce it to 20 per cent. Those amendments would have increased the PSBR by £2 billion this year and by £3 billion next year. She tabled amendments on capital gains tax which would have jeopardised a full £3 billion of revenue from that tax.
Throughout proceedings on the Bill, the Opposition's approach to public finances has been to find ways to reduce the Government's revenue and increase the PSBR.
§ Mr. Calum Macdonald (Western Isles)If the Chief Secretary is the strict guardian of public finances, will he explain why the Government are this year abolishing sporting rates in Scotland? That measure will exclusively benefit large estates, but it will cost the Exchequer £2 million. In this climate of financial straitjackets, how is it that Scottish landowners can receive a handout of £2 million?
§ Mr. PortilloNo doubt the hon. Gentleman will want to pursue that matter with my right hon. Friend the Secretary of State for Scotland.
If what I have outlined is the Opposition's approach to public finance, what about their sense of purpose? One would think that Labour had at least clear policies that it would consistently follow in our debates. Writing in the Labour party's London Forum document as recently as September 1993, the hon. Member for Peckham said:
Mortgage interest tax relief should be phased out for existing borrowers.We assumed that during the progress of the Bill Labour would table an amendment to put flesh on the bones of that proposal. But the hon. Lady's proposed amendment to clause 74 would have kept mortgage interest relief higher than the Government now intend, and that would have cost £1 billion this year and £2 billion next year. Labour is guilty not only of hopeless incompetence but of hopeless inconsistency.
§ Ms HarmanNot only do hon. Members and people outside not believe what the Chief Secretary and his Treasury team say about their plans, but they believe that they cannot be trusted to tell the truth about what we have said. The quotes that the right hon. Gentleman attributed to me are certainly not mine. Whatever document he is talking about it was certainly never published. It is a scurrilous attempt to divert attention from the Government's betrayal of election promises.
§ Mr. PortilloIf the hon. Lady has not heard of the Labour party's London Forum with which her name is associated and which produced the document from which I have quoted, the degree of disorganisation in the Labour party is even greater than I have been led to believe.
§ Mr. Michael Stern (Bristol, West)My right hon. Friend has listed the amendments that were tabled in Committee by the hon. Lady and her colleagues and the cost of them. Will he look at what it would have cost the Exchequer if the Government clauses to save money and against which the Opposition voted had been lost? Perhaps my right hon. Friend could write to members of the Committee about that.
§ Mr. PortilloThat will be a most interesting piece of research, and I shall be happy to contribute to it. My hon. Friend is right to add to the examples of—
§ Dame Elaine Kellett-BowmanProfligacy.
§ Mr. PortilloI thank my hon. Friend—of which Labour was guilty in Committee.
The contrast between the two parties could not be more substantial. We have set out the path by which the public sector borrowing requirement will be steadily reduced towards balance. It will be close to zero in 1998–99. By 1997–98, the public sector current account deficit will have been eliminated. Throughout the period ahead, public spending as a proportion of our national income will be reduced. The net public sector debt to GDP ratio will peak in 1996–97 and reduce thereafter.
The reference values that are set out in the Maastricht treaty requiring that the general Government financial deficit to GDP ratio should be lower than 3 per cent. will be met by 1996–97, and the reference value on debt itselfx2014;the proportion of general Government debt to GDP— should be lower than 60 per cent. That reference value will never be breached at any time in the coming year.
932 Our objectives for the economy, for spending and for borrowing are clearly set out. In Committee, Labour said nothing about what its policy would be. There have been nothing but infantile attempts to drive up the PSBR, and Labour has said nothing about the way in which it would guide the economy. There has been nothing but irresponsibility by contrast with the Government's transparent purpose of bringing our economy forward during a time of recovery and sustained low inflation.
§ Ms HarmanThe Bill is a milestone. In years to come it will be seen as marking a defining moment in the course of British politics. It is the moment when the truth about taxes has finally caught up with the Conservative party—the truth that the Conservatives have broken their promises; that their party is not the party of low tax but the party of unfair tax; and that their failure to cut taxes is because of their failure on the economy. People now know that on taxes and the economy they can never again trust the Tories.
The Bill also marks failure and betrayal. On the Chief Secretary's own admission, the Conservative Government who before the election offered a successful economy have failed—and the price of that failure is to be paid through the tax increases in the Bill.
§ Mr. John TownendThe hon. Lady is fulsome in her attacks on the Government for increasing taxation. Does not she agree that if the Government had not increased taxation in the Budget the alternative would have been to cut public spending? But every time the Government try to do that Labour criticises them and offers more and more proposals for increasing public spending. Is not the whole of the hon. Lady's policy hypocrisy?
§ Ms HarmanIt is hard to keep up with the hon. Gentleman. He stood and cheered when the Chancellor sat down after his Budget speech, but a month later he complained about it. Do we understand from his intervention that he is now back in favour of the tax increases? If he is, the Chief Secretary will be glad to have him as an ally once again.
There have been two Budgets since the Tories won the last general election—two Budgets of failure and betrayal. As the economy struggles into recovery—and we hope that it will recover—confidence in the Government slumps. The Chancellor, who replaced the one who was sacked for lack of credibility, now has himself no credibility. Why should anyone believe anything that the Chancellor says? First, the Tories promised to cut taxes. But they put them up, and the Chancellor said that they never actually promised to cut them. Of course they did.
In the Chancellor's personal election address, he told his constituents:
Only the Conservatives believe in keeping taxation down.The Chief Secretary to the Treasury told his constituents in Enfield in his election address:The Conservatives want to cut your taxes.How is that for fixity of purpose, Mr. Deputy Speaker?We have had something new. We have had the Conservatives' objectives, not met; their intentions, not achieved; their aims, unfulfilled; and now we have something new on the political agenda—it is never delivery on their promises. Now we are offered a fixity of purpose. 933 The Chief Secretary to the Treasury demonstrated fixity of purpose when he told constituents at Enfield, when asking for their vote:The Conservatives want to cut your taxes".The Financial Secretary to the Treasury, in his election address, told his constituents, no doubt showing the same fixity of purpose:We promise to hold taxes low".However, the truth has caught up with the Tories on their claim to be the party of low tax. The Conservative party is no such thing. The burden of direct and indirect taxes on a family on average income in 1978–79 was 32.2 per cent. This year, the total tax burden on that family will be 35 per cent. of their income.
§ Mr. Ian TaylorThe hon. Lady rehearsed by quoting from those election addresses in Committee. Given that the public sector borrowing requirement was nearly £50 billion, what would the hon. Lady have done? [Interruption.] Would she have left taxation as it was, or would she have cut public expenditure or increased borrowing? We need to know an answer to that if she is seriously involved in the debate.
§ Ms HarmanThe people in the country and the hon. Gentleman's electors need to know why the Conservatives failed to tell the truth before the last election; why they promised to cut taxes and put them up; why they promised to be the party of sound public finances and achieved record public borrowing.
The Chief Secretary only—
§ Ms HarmanI will press on for a few moments.
The Chief Secretary to the Treasury spoke at some length about the effect of the tax increases on the markets. He mentioned the tax increases on business and spoke about them at some length. He mentioned the tax increases and the effect on the incentives for the highest paid people. Yet he hardly spent any time speaking about the big issue of concern throughout the country—the effect of the tax increases on ordinary taxpayers—except to say that £10 a week in extra taxes, £500 a year extra taxes, from a Government that promised to cut taxes, is insignificant.
§ Mr. Tristan Garel-Jones (Watford)The hon. Lady spoke of this Finance Bill, and of this Budget being a defining moment. Can she recall a single Finance Bill or Budget in the past decade when the Opposition's strength of feeling about that Budget has been so great that they were unable to keep the debate going in the time allotted to it?
§ Mr. Garel-Jonesindicated dissent.
§ Ms HarmanYes; because the issue of concern for many people up and down the country, who feel a real sense of betrayal, is how they will find the extra money they will have to pay in taxes to a Government who were specifically elected on a pledge to cut taxes.
934 Although the Chancellor of the Exchequer and the Chief Secretary might try to sweep the truth under the carpet, the truth has caught up with the Tories in the newspaper headlines. Let me quote some of them:
Tories admit: you paid less tax under Labour".That is from The Independent on Sunday.Tax burden on families to hit record levels, Treasury warns ministers".That is from the Sunday Times.We tax more than Labour, Tories admit".That is from the Sunday Telegraph. From The Sun we hear:The Chancellor can't deny the Tories are taking a greater slice of your income than Labour did".The truth has caught up with the Tories, and people see it not only in their newspaper headlines, but in their pay packets. They see it not only in the newspaper headlines, but in their gas and electricity bills, and in their mortgage payments.
§ Mr. George Walden (Buckingham)The hon. Lady has been the object of brutal—I should have thought rather hurtful—attacks by my hon. Friends about Labour spending pledges, so I should like to come to her defence by giving her an opportunity to endorse the wise, honest and frank reflections of her hon. Friend the shadow Secretary of State for Social Security, the hon. Member for Glasgow, Garscadden (Mr. Dewar), about the future affordability of the old-age pension. I am giving her a chance to endorse his sober and sensible reflections on that subject, and show herself to be realistic about future levels of public spending in this country.
§ Ms HarmanI endorse the comments of my hon. Friend the shadow Secretary of State for Social Security. He is anxious that we should have an open, honest and straightforward debate, which has at its heart the interests of pensioners now and in the future. That was at the core of his concerns.
The truth is catching up with the Chancellor, as nervous Tory Back Benchers mutter against him behind their hands in the Tea Room. Those who hailed him—[Interruption.]—as a hero in November and waved their Order Papers when he sat down at the end of his Budget speech—where are they now? Those who hailed the Chancellor as the next leader—where are they now? The Tory Back Benchers certainly do not support the Chancellor now. The welcome party for the Budget in November has become a wake for the Finance Bill in April.
The hon. Member for Bridlington (Mr. Townend), who intervened earlier, the Chair of the Tory Back-Bench Finance Committee, is one of the hon. Members who stood and waved Order Papers after the Chancellor's Budget. We know that, because he told us. In the Budget debate, he told the House proudly:
I was one of those hon. Members who cheered at the Budget… I congratulate the Chancellor and the Chief Secretary on their efforts".He looked, misty-eyed, to the future and said:I think that the Budget will go down as the most important of this Parliament".—[Official Report, 7 December 1993; Vol. 234, c. 171 & 176.]I agree with him. How right he was, but for rather different reasons than he expected.Soon the congratulations turned to complaints.
§ Mr. John Townendrose—
§ Ms HarmanBy 23 January 1994, the hon. Member for Bridlington, who is rising to intervene, was complaining loudly and publicly. Gone were the congratulations. Instead he was saying:
If we lose our claim to be the party of low taxation we lose a critical asset".The Chancellor who was hailed as a hero is now blamed for failure. I notice that the Chief Secretary praised the previous Chancellor fulsomely; however, he did not praise the current Chancellor—no doubt because he wants to be the next one himself. Although the Tories have lost for ever their claim to be the party of low tax, they remain true to their instinct for unfair tax. No doubt the Chief Secretary is hoping to take advantage of the lack of credibility that the Chancellor now has. As The Sunday Times delicately put it, the Chancellor's reputation isin the gutter along with the Prime Minister's popularity".Although the Tories have completely abandoned their fixity of purpose for low tax, they remain true to their instinct for unfair tax.
§ Mr. TownendThis is an important Budget. It is a Budget that would not have appeared under a Labour Government; a Budget that sets out a strategy to reduce the public sector borrowing requirement to zero. I stand by what I said: if the Conservative party in the long term becomes a party of high taxation, we are finished—but we will not become the party of high taxation. It is our policy to reduce taxation. I forecast that, by the next election, taxes will be down again.
§ Ms HarmanThe hon. Gentleman has failed to ask himself who increased the public sector borrowing requirement in the first place. The Chief Secretary to the Treasury was wrong to say that this Budget and the Government's taxation policies are fair, because the Tories are unfair when it comes to tax. When they gave out tax cuts in the 1980s, they gave most to the richest.
Now that it comes to panicking and taking them back, they take most from middle and low-income families. The top 1 per cent. of earners, with incomes of more than £120,000, had 30 per cent. of the tax cuts, but are paying only 4 per cent. of the tax rises. Only those on £64,000 a year or more are paying less tax than they would have been in 1979. Everyone else is paying more.
The growing burden of taxes on spending hits hardest those who can least afford it. This year, a family on average earnings will pay £1,140 in VAT—nearly 6 per cent. of its income. That is nearly twice as much VAT as it paid under the last Labour Government, and the Chancellor has said that his instinct is to extend VAT still further.
While the Government clobber those on middle and low incomes, they fail to close the tax loopholes that allow the super-rich to get away without paying their fair share of tax. Some £110 million in tax-free executive share options has gone to the directors of privatised electricity and water companies alone. That is just one of the many tax loopholes which the Government have failed to close in the Bill.
§ Mr. David Willetts (Havant)If the hon. Lady is so keen on closing tax loopholes, why did she vote against the clause that dealt with the abuse whereby people were paid in gold bars? Why did the Labour party oppose ending that abuse?
§ Ms HarmanThe hon. Gentleman could not know about our objections to that clause, because the guillotine 936 prevented debate. Our objection was that the Bill did not go far enough in closing that tax loophole, and we tabled a new clause that went further than the one which the Government finally and reluctantly presented.
The Tories' priorities were clearly demonstrated in Committee. There was not an empty seat on the Tory side when we discussed the rights of accountants, whereas glazed eyes and cynical disinterest greeted the points raised about how tax affects ordinary people. Tories argued heatedly among themselves when we debated the effect on top rate taxpayers of changes in capital gains tax, but they showed indifference when we debated how the lowest earners will suffer from tax rises.
The Tory members of the Finance Bill Committee well represented their party's true interests. They spoke animatedly and at length when they had financial vested interests as directors or consultants to commercial organisations, but were silent as their Government put up taxes and made a mockery of their election addresses.
We did not, however, have silence from the hon. Member for Dover (Mr. Shaw), who, unfortunately, is not here today. The Chair of the Committee had to rebuke him three times for shouting. He was protesting that it was out of order for me to remind the Committee that he had promised to cut the taxes of his Dover constituents.
The truth has finally caught up with the Tories. People are dismayed at the extra taxes they must pay, and angry because the Government are throwing good money after bad. It is not as if the tax increases will fund a transformation of the national health service, the modernisation of our railway system or investment in education. People know that, while the Tories are raising taxes, they are cutting public investment. Since 1979, investment in schools, hospitals and transport has been cut by more than a quarter as a percentage of gross domestic product. Those tax increases are to pay not for investment in the future but for the Tory mistakes of the past.
What the Government have not lacked in the past is public money: £118 billion in North sea oil receipts have been wasted; and £55 billion in privatisation receipts have been squandered to pay for the dole queue. Unemployment now costs every family in the country the equivalent of £20 a week. Every unemployed person costs £9,000 a year in benefits and lost taxes. Since 1979, unemployment has cost the nation £280 billion, and the Government are now taking money out of people's pay packets and taxing pensioners' fuel bills to pay for their borrowing to finance the dole queue.
The Chief Secretary to the Treasury admits that the Conservatives are not the party of low taxes, but says that, first and foremost, they are the party of sound public finance. But they are not, any more than they are the party of low tax. As the Chief Secretary was forced to admit, today's figures show that this year's borrowing has topped £45 billion, which is the highest PSBR in UK history. It is more than was ever borrowed by the last Labour Government. Last year, central Government borrowing amounted to 7.5 per cent. of GDP, compared with only 5 per cent., which was the highest level of borrowing as a percentage of GDP under the last Labour Government.
Moreover, for the first time since records began, the Government have broken the golden rule on Government borrowing—
§ Mr. PortilloThe hon. Lady's figures do not compare like with like.
§ Ms HarmanI am comparing like with like. I am not comparing investment in the nationalised industries but looking at central Government borrowing, excluding local council borrowing. That 7.5 per cent. of GDP that the Government are borrowing is entirely accounted for by what they are spending. But they are not investing. For the first time since records began, they have broken the golden rule on Government borrowing, which is not to borrow more than they publicly invest. More than half the PSBR now finances current expenditure. How can that be "fixity of purpose" from "the party of sound public finance"?
The Government have failed on public finances, because they have failed on the economy. People can see with their own eyes what is happening in the economy. I admire the brass neck of the Chief Secretary, who, in one and the same speech, says, "We are entitled to put taxes up and breach our election promises, because we got it entirely wrong about the economy in 1992 and thought that a recovery was coming, but it was not. But, actually, a recovery is coming now." Why should anyone believe anything that the Government say about the economy? People believe what they see with their own eyes.
§ Mr. David Nicholson (Taunton)The hon. Lady draws attention to the cost of unemployment. I hope that she accepts that Conservative Members want to reduce the cost of unemployment and the unemployment figures. Why does she not refer to the drop of 250,000 in the unemployment figures in the past 15 or 16 months? Why does she not answer the point made by my right hon. Friend the Chief Secretary that, in all the countries of Europe currently or previously under socialist Governments—Spain is currently under a socialist Government, and France had a socialist Government until recently—unemployment is higher? What magic solution does the British Labour party have which those countries have ignored?
§ Ms HarmanWe remember only too well the Government saying that unemployment was a price worth paying. It is simply no good the hon. Gentleman saying that it is worse everywhere else, because people know from their experience that the British economy is falling behind. Comparable figures on growth, employment, manufacturing output, exports and skill levels—all important economic indicators of the underlying strength of the economy—show that the Tories have allowed this country to fall behind.
Since 1979, our growth rate has been lower than that of the US, Japan, Canada, France, Germany and Italy. Those are the countries to which we should compare ourselves, whereas the Chief Secretary compares us only with Spain. While, since 1979, employment has grown in those countries, it has shrunk here. Since 1979, we have had the lowest rate of export growth of any major industrialised country. We have the lowest levels of skills of any major industrialised country.
The Conservative party said that it stood for low taxes, and put taxes up. The Conservative party said that it stood for economic confidence, and devastated our economy. The Conservative party said that it stood for sound public finance, and hit record public borrowing. The Finance Bill has shown the Conservative party to be not the party of low taxes, not the party of economic confidence, not the party 938 of sound public finances—just the party in office but not in power; a party for which the question of competitiveness means competing leadership candidates.
After this Finance Bill, no one will trust the current Chancellor again. He did not tell the truth at the election. He made promises that he could not keep and then denied that he had made those promises. He did not tell the truth about tax increases and would not tell the truth about living standards. He is still not telling the truth about the economy, but the truth has caught up with him, no matter how he has tried to evade it.
People do not want to hear any more fairy tales from the Government—they want to know the truth. They can trust Labour—[Laughter.] The Labour party has told them the truth about the economy and taxes, and they know that. They can trust Labour to take action to ensure growth, to tax fairly and to invest wisely. People know that, through the Conservative Budgets, they are paying the price of past Tory failures. They know that, for the future, they can look to Labour.
§ Mr. Christopher Gill (Ludlow)I thank you for calling me so early in the debate, Madam Deputy Speaker. Traditionally, I have stood up on Third Reading of the Finance Bill to draw to the attention of Ministers one of the greatest absurdities of our tax system—the means by which we apparently raise far more money than we need.
I shall explain what I mean by quoting from the Red Book and the published analysis of public expenditure. This year I can do so only on the basis of the figures for last year. I have, on several previous occasions, made a similar sort of speech, but the Treasury has now shot my fox and no longer publishes appendix D to the analysis of expenditure from which I gleaned much of my information.
I can talk only about 1992–93, when thé outturn of the six inland revenue taxes—income tax, corporation tax, petroleum revenue tax, capital gains tax, inheritance tax and stamp duty—amounted to £76.1 billion. For the same year, according to the public expenditure analysis, Cmnd 2219, published in January 1993, the 47 reliefs and allowances against the same six inland revenue taxes totalled £75.8 billion. The net to the Exchequer was almost the same as the allowances that had been made against those six taxes.
I draw two conclusions from that. The tax system is still being used for the purposes of social engineering. If that were not the case, the standard rate of income tax, instead of being 25p or 20p in the pound, would be half that figure. Having made a similar speech on four successive occasions and never having been challenged on that point, I think that I am entitled to believe that I am right.
§ Mr. Portilloindicated assent.
§ Mr. GillI thank my right hon. Friend.
As we have more time this year than is customary to discuss Third Reading of the Finance Bill, I should first like to say to the right hon. and hon. Members who served on the Finance Bill Committee that the thanks of the House are due to them for all the hard work, effort, time and concentration that they have put into bringing to the House the 453 pages of the current Bill.
I also want to congratulate my right hon. Friend the Chief Secretary to the Treasury on his positive, robust and 939 lucid exposition of Government economic policy. I also welcome today's news on the public sector borrowing requirement, which my right hon. Friend said was £4 billion better than originally forecast for the 12 months just ended.
To Opposition Members, I say that the economic indicators for the British economy are good. Interest rates are at their lowest since 1972. The inflation rate in the year 1993 was the lowest for 30 years. Exchange rates are competitive, and have therefore stimulated greater export volumes. Unemployment is trending downwards. The housing market is improving, and there are welcome signs of increasing optimism and activity in the manufacturing sector.
I shall concentrate my remarks on the wealth-creating sector of our economy, and the interface which that has with the Treasury. I also have one or two words of advice for the Conservative party. I wish to talk about the role of Government in the context of today's debate on the Finance Bill.
In that context, the role of Government is threefold. First, the Government must resolutely set their face against adding overhead costs to businesses. Secondly, they must work hard at removing the obstacles to wealth creation that have become enshrined in legislation. Thirdly, they must create the conditions in which business can prosper. In order for business to prosper, we need a fiscal policy that stimulates investment and business activity, and gibes an incentive to people who invest and work in business.
§ Mr. BeithIn view of the hon. Gentleman's first point, is he satisfied with what the Government have done on statutory sick pay? Many people in business feel that an unreasonable burden has now been placed on them.
§ Mr. GillI shall turn to that point immediately, and shall not keep the right hon. Gentleman in suspense one moment longer. That was exactly what I was about to talk about—the importance of controlling costs on businesses.
We want to minimise the cost burden on businesses, which is why we set our face against the social charter and rejected it. But later tonight, as the right hon. Gentleman knows, the draft Maternity Allowance and Statutory Maternity Pay Regulations come before the House. Their effect will be to reduce the rate of reimbursement for administering and paying statutory and maternity pay benefits from 104.5 per cent. to 92 per cent. By any reckoning, that adds costs to businesses.
It is necessary to contain the bureaucratic burden on businesses. Without a shadow of a doubt, the Government are committed to deregulation. They are soon to bring a deregulation Bill to the House for Report and Third Reading. Consequent on that, a Committee on deregulation will be established in the House. The public expectation is that there will then be a bonfire of controls. But the Finance Bill before us is 453 pages long. It looks as though we are in the business of telling people to do as we say, not as we do.
I was interested to read a snippet in this morning's edition of The Daily Telegraph:
Senior Treasury officials are struggling to restore morale after a confidential staff survey uncovered widespread discontent over the way the organisation is run. Staff complained of … too much bureaucracy.My right hon. Friend the Chief Secretary may feel caught 940 in a pincer movement between myself and his officials, who all say that it is vital that we reduce the burdens of bureaucracy.I invite my hon. Friend to consider just one lesson from the private sector. Any successful business man will know that, to sell a product successfully, one first has to establish a brand image. Opposition Members may say otherwise, but that is the fact of the matter, and you cannot take it away from us. [Interruption.] I am talking to you now.
§ Madam Deputy Speaker (Dame Janet Fookes)Order. I remind the hon. Gentleman that he should be talking to me.
§ Mr. GillYou are absolutely right, Madam Deputy Speaker. I would certainly take greater delight in doing that than in addressing my remarks to Opposition Members.
The Conservative party has a very strong brand image. It has the brand image—
§ Mr. GrahamWill the hon. Gentleman give way?
§ Mr. GillThe hon. Gentleman must wait for the punch line before I give way.
We have a brand image as the party of low taxation. No doubt the hon. Gentleman will challenge me on that point, yet my hon. Friend the Member for Bridlington (Mr. Townend) spelled it out to the House: that we are absolutely determined to get taxes down. I share his confidence that we will do so before the next general election.
§ Mr. GrahamDoes the hon. Gentleman realise that, in Scotland, an opinion poll in a respectable newspaper, the Herald, stated quite clearly that Tory party support was at a mind-boggling 13 per cent.? Is that the brand image that they are creating for the people of Scotland and the rest of Britain?
§ Mr. GillI am about to make two comments that address that very point.
I am not confining my remarks to the sheer fiscal policy embodied in the Finance Bill: I am trying to draw attention to one important factor which affects the electoral prospects of the Conservative party—the need to be consistent.
§ Mr. GillI shall finish my point first. I should not have given way to the hon. Gentleman until I had done so, as I shall now have to start from scratch.
The lesson from the private sector is that, for a company to be successful in selling its products, it first has to establish its brand image. I have explained that the Conservative party has a jolly good brand image. Secondly, it must advertise. It is difficult for us politicians, regardless of which side we are on, to avoid advertising. Many Members of Parliament are on television, in the newspapers or on the radio practically every day. I do not indulge in that, as I am a bit of a shrinking violet.
Thirdly, it is essential to have a consistent product. I am not saying anything about the quality of the product, but simply that it has to be consistent.
§ Mr. GillI shall give way in a moment, as I have already told the hon. Lady. 941 One of our difficulties in the Conservative party at the moment is that, on the one hand, we have been promising to deliver deregulation and lower taxes, and on the other hand there have been certain inconsistencies. We have to put right that aspect of our sales strategy. We have the brand image and the advertising; let us concentrate on consistency.
§ Ms EagleI thank the hon. Gentleman for giving way. I am listening with interest to what he is saying, particularly about consistency. At the last general election, in his literature to his local electorate, he said that the Conservatives would reduce personal taxation, yet today we are discussing a Budget which increases levels of personal taxation and indirect taxation to the greatest extent since the second world war. How is that consistent, and will he apologise to his constituents for the record of the Government?
§ Mr. GillSurely the hon. Lady does not need reminding that, in 1979, when the Conservative Government came to power, the top rate of personal taxation was potentially 98p in the pound. The only reason why it was no higher was that, if they had taken another tuppence from those people, there would have been absolutely no point in their working at all.
The Conservative party have proved in government, without any shadow of a doubt—[Interruption.] The hon. Lady can continue interjecting from a seated position for as long as she likes, but she cannot deny that we have brought the standard rate of tax down from 33 per cent. to 25 per cent., with a commitment to reduce it to 20 per cent. We have brought the top rate of tax down from potentially 98 per cent. to 40 per cent., and everyone in the country knows it.
The hon. Lady knows full well that the Conservative party were re-elected two years ago because the Opposition were offering the opposite. We can flog this horse for much longer, but I shall still cross the finishing line before the Opposition.
The Conservative party is criticised for the level of unemployment and for inadequate levels of investment. We know that there is a balance of payments deficit, and reference has already been made to the public sector borrowing requirement.
There is only one way out; we have to trade ourselves out of trouble. That means that we have to recognise—not that we do not already—that trade, commerce and industry are the engine of our economy. We have to recognise the need to keep that engine fuelled and lubricated, and the good sense of allowing business to reinvest the biggest possible share of the profits it generates. That leads to the virtuous circle of ploughed-back profits leading to greater investment, greater competitiveness, reduced unemployment and an improved balance of payments.
I accept that it is not the way that the Opposition parties would go; their policy has always been to tax and tax again. Our policy is to bring taxes down. On that basis, there is no need to pick winners. There is no need for Ministers or Departments to indulge in the fantasy that politicians can pick winners; the winners pick themselves if they are allowed to plough back the profits they generate.
The dynamic of unquoted companies is refuelled by ploughing back the profits. That is because the 942 entrepreneur, who is invariably ambitious for the continued success of his business, recognises that its growth and development is best served by constantly improving the quality and value of its assets. There is no justification for taxing that seedcorn, which would otherwise be used to grow the business faster, bearing in mind the positive financial benefit to the whole economy of successful businesses making substantial contributions, as they do, to our national coffers by way of national non-domestic rates, pay-as-you-earn, national insurance and social security savings—quite apart from the value of wages and pensions to all those employed in those enterprises.
Conservative Governments since 1979 have demonstrated that lower personal tax rates stimulate higher tax revenues. By the same token, even lower corporate tax rates would stimulate higher levels of business investment and increased competitiveness, to the long-term benefit of employment prospects and import substitution.
Finally, if the engine of our economy stalls, suddenly none of us will be going anywhere. How very much more sensible it is to ensure that the engine is kept not just ticking over, but running at peak revs to generate greater business activity, a more competitive industry and a market for the only product which 55 million people living in these islands have to sell—which is our labour.
§ 7 pm
§ Mr. BeithThis is an enormous two-volume Finance Bill. We should remember that the Government have had two bites of the cherry because there have been two Finance Bills in the past 12 months, which amounts to five Bills in three years. Presumably the Bill will come in three volumes next time; the growth in the scale of legislation goes on and on.
That raises questions about how we handle finance legislation and this year there has been a change in the way in which it has been handled. For the first time in recent years, a guillotine has been imposed on the Bill. I think that the timetable has worked reasonably successfully. It would have been better if we had been able to make adjustments to the allocation of the time for debate on the clauses as we discovered what was needed. But, broadly speaking, I believe that it has worked reasonably successfully. It has certainly not presented any severe problems and need not have led to a failure to debate important sections of the Bill.
The weakness in scrutiny of the Bill does not result from the timetable; it results from the highly complex and technical character of a large part of the Bill's content. This material does not lend itself to the sort of discussion that we usually have in the Standing Committee. It would be better handled by a Select Committee procedure in which one could question the people who actually know what the Bill is about.
We have a familiar ritual in Finance Bill Committee of hon. Members pressing Ministers about points which neither the Member nor the Minister understands fully. Each is dependent on the notes which are being passed from either civil servants or outside advisers. It is not a sensible way of discussing the most complex parts of the Bill. That is why I support the view that we should have a taxes management Bill which deals with the more complex matters and that that Bill should be handled, at least in part, by Select Committee procedure. 943 This Finance Bill does not contain only a lot of technical material. It contains tax increases—to which I will refer in a moment—and two new taxes. Neither of the taxes was the subject of consultation. There were no Green Papers about the feasibility of an airport tax and there were no Green Papers about the way in which an insurance tax might be introduced. It was therefore difficult to digest and consider successfully the new taxes while debating the Bill.
The very mechanism by which both taxes will be collected has been changed fundamentally between the Committee and Report stages. In the case of the insurance tax, the rate at which the tax is collected has changed, too. I welcome the fact that such adjustments were made, but they illustrate that this is not a very satisfactory way to deal with completely new taxes.
Neither of these taxes is market-sensitive. People are not able—it would not be a problem if they were—to rush out and take out insurance policies on a grand scale in order to defeat the effects of the Bill. It would have been possible to put out the proposals for consultation before they became taxes. I would have argued, as I did during debate on the Bill, that it was not a good idea to tax insurance and that the airport tax would have damaging consequences for sections of the community.
§ Mr. Ian TaylorI share the right hon. Gentleman's view that greater consultation with the insurance industry might have served a purpose. Nevertheless, I would like to correct a small point that the hon. Gentleman made. Pressure from the Association of British Insurers and from Committee members ensured that, by the time we considered the clause in Committee, the Government had already clarified many of the matters to which the right hon. Gentleman referred. The clarification came before discussion in the Committee.
§ Mr. BeithThat is a fair point. A great deal of effort was made with considerable speed to secure changes. The hon. Gentleman and others were involved in bringing about the changes and I think that we can all claim some credit for having secured improvements in the Bill in Committee. But it does not seem to be a sensible way to introduce new taxes.
The Bill also marks the end of the Lawson reforms. A significant part of the Bill removes the indexation loss provision. It had been hailed by the former Chancellor as not only logical, but a matter of justice, that losses be treated as though inflation had not occurred. Losses were treated symmetrically with gains.
The reform was widely welcomed at the time, but it transpired that the then Chancellor, Lord Lawson, had not appreciated the incredible scale of future losses to Revenue which could result. Those losses amounted to some £3 billion—a much larger figure than anybody outside Government seems prepared to acknowledge. Indeed, so sacred has the £3 billion figure become that it was used in debate today by the Chief Secretary, who accused the Labour party of carving a further £3 billion hole in public finances by criticising the removal of the indexation loss provision.
I do not accept that figure. If such a huge hole can be driven in public finances, the problem should be addressed by more specific measures, not by the total removal of the reform. If, as the Government make out, the major threat of lost revenue comes not from individuals but from 944 companies creating and using shelf companies and subsidiary companies to offload capital gains and thereby evade tax, the problem should be addressed specifically instead of overturning what was generally thought to be an important and valuable reform.
§ Mr. SternI am very interested in the points that the right hon. Gentleman is making, but I wonder whether he will accept that in the past specific anti-avoidance measures have not necessarily proved effective. For example, I draw his attention to Labour's development land tax, which contained numerous anti-avoidance measures, all of which had the effect of simply bending the market rather than stopping the avoidance of tax.
§ Mr. BeithThat is a fair point, but I do not think that it needs to apply to the logical way of dealing with gains and losses. I am always suspicious of arrangements which allow the Government to benefit from inflation—in which it is to the Government's advantage to see a fairly high rate of inflation. Too many things in our system have encouraged Governments to tolerate and stimulate inflation in the past.
§ Mr. GillBefore the right hon. Gentleman moves from the subject of capital gains, I invite him to consider that, potentially, capital gains might this year be worth about £3.3 billion to the Exchequer, but, by the time all the reliefs and allowances are subtracted, capital gains will net £1 billion. That is a quite serious situation. What does the right hon. Gentleman think about the cost to the nation of the accountants, solicitors, consultants and tax experts who have been employed in the process of reducing potential capital gains of £3.3 billion to a net £1 billion? Would not all those brains have been better employed in the productive sector of the economy to boost Britain's productivity and create better and more competitive products to sell on world markets?
§ Mr. BeithThe hon. Gentleman undoubtedly has my sympathy on that point. But I fear that the same accountants and tax advisers will now be engaged in finding new ways of dealing with this law. What could be more helpful to them than to produce a Finance Bill of these dimensions?
It is impossible for taxpayers to know what to do about their tax positions when they are confronted with complex provisions. I fear that the Government's choice of such complex legislation has added to the huge industry which the hon. Gentleman understandably believes might be more profitably and productively directed elsewhere in the economy. I wish that we could achieve the objective that he sets out.
I turn to what I believe to be the main point of the Bill. The Bill is supposed to deal with the mess which the Government have created. It is supposed to deal with the public sector borrowing requirement which has resulted from the recession being so deep and prolonged. Together with the earlier Finance Bill, the legislation involves the biggest tax increase in modern times. It provides a calendar of tax increases which will carry us through this tax year and into the next.
For example, there is an 8 per cent. and 17.5 per cent. value added tax on fuel. The Government should say now that they will not go to 17.5 per cent. VAT. They will not even help by providing measures which will ease people's problems in confronting fuel bills. 945 I have an Energy Conservation Bill which is due to be considered on Friday. Having said initially that they were in favour of the principle of the Bill, the Government have tabled more than 200 amendments in an attempt to block one of the measures which would help people to cut their VAT bills by using less fuel. The hon. Member for Esher (Mr. Taylor) is one of the culprits in this ludicrous attempt to block a very sensible measure.
The calendar of tax increases continues with the extra 1 p on national insurance contributions. That is a particularly unfair way of extracting extra taxation because it starts at a lower level of income than income tax and stops at a low level. It imposes no additional taxation on those with higher levels of income and, as a result, it is borne most heavily by those with lower income levels. It is not a fair way of dealing with the Government's financial problems.
The Bill also includes the freezing of personal allowances and the reduction in mortgage interest tax relief and the married couple's allowance. Of course, I have argued for a phasing out of mortgage interest tax relief and have usually been bitterly attacked by the Conservatives for doing so. However, they are now doing the job for us and doing it more drastically than I had proposed because their plans will attack existing mortgage holders and are not being phased in for new mortgage holders.
The insurance tax will bear heavily on people who need to insure, especially because of the impact of crime in the cities. The increasing cost of premiums will mean an especially unwelcome addition to their bills at a time when we should be encouraging people to be insured against risk.
The airport tax will inflict particular hardship in the highlands and islands, where air journeys are often matters of urgency and not the luxury that they are in other parts of the country—they are the only way of getting somewhere quickly. The burden will be unfairly and unevenly distributed.
Where are these taxes going? They are not being used for investment or being spent on education. The Conservatives have not become converts to the view that high taxation is needed to improve public services; their view is that taxes are needed to pay for the mess that they have made. Under the Conservatives, taxes are high, but not because of the provision of better public services—they are high because of the mismanagement of the economy and of the prolonged and deep recession.
§ Mr. FormanI cannot let the right hon. Gentleman's last remark pass without making an observation. He asked where the taxes were going and said that they were not being used for education. Spending per pupil is the right measure to use. I believe that education spending is now at the record level of about £30 billion across the United Kingdom, so he cannot sustain his argument.
§ Mr. BeithThe increase in expenditure arose from commitments made immediately before the election, not from the policy now being pursued by the Government. It is perhaps worth pointing out that state and local authority-run schools are having their budgets squeezed so that the Government's favoured projects—grantmaintained, opted-out schools—get extra assistance. Anyone who works in a school can provide ample evidence 946 that schools are attempting to do a difficult and demanding job without sufficient resources. That is why we believe that it is essential to secure improvements in education spending. We told people during the election campaign that, if necessary, we would increase taxes in order to secure those improvements.
§ Mr. Clive Betts (Sheffield, Attercliffe)Has not the Liberal party's policy altered slightly? Instead of arguing for 1p on tax for education, the latest suggestion is 1 p off income tax. That is very different.
§ Mr. BeithThe hon. Gentleman is correct. The Conservatives have increased taxes by the equivalent of 7p in the meantime and we have to bear that in mind. If we could possibly secure the additional spending without a further increase in taxation, we would of course do so because I fear that the overall effect of the new taxes will be to put recovery at risk. The Government have increased taxes by much more than we contemplated and, as the Chancellor admitted in his meetings with the Governor of the Bank of England, there is a risk that the increases will stall recovery. I certainly hope that we do not have to retain taxes at this level but that we can make use of some of the taxation to increase expenditure on education.
The Conservative party has become a high tax party for reasons of mismanagement, whereas the Labour party, curiously, appears to want to be seen as the low tax party. It is actively saying that taxes will be lower under Labour. The hon. Member for Blackburn (Mr. Straw) is trying to prove that point with the council tax figures and, at various points in our recent debates, it has seemed that that is what members of Labour's Front Bench wanted to argue.
The Chief Secretary was bitterly criticising Labour Front Benchers for their expensive amendments to the Bill, but I examined the amendments that we discussed yesterday. After a great deal of debate about how much Labour wanted to increase spending an[...] investment in infrastructure, I found that Labour was seeking to afford relief of £100 a year to a company that built a railway. That is a derisory figure. Labour had tabled the amendment in question because it wanted to debate an issue without committing itself to a great deal of expenditure.
The Labour party is entitled to take whatever view it likes, but I believe that many voters who have traditionally voted Labour will tend to think that, if the party is not about getting better public services and, in some cases, having to pay a bit more tax for them, it is not about very much at all. It is very hard to imagine how one is to get people committed to a political cause in opposition to the traditional Conservative view if they are not offered the prospect of better public services and if it is not accepted that it may cost more in taxes to get those improved services. The Labour party may prove to be right, but I beg to differ.
§ Mr. Nicholas BrownIn fairness to the right hon. Gentleman's case, he should point out that, at the previous election, we offered modest tax increases funded by those most able to pay. We also offered modest improvements in public services, so we have not strayed quite as far from our agenda as the right hon. Gentleman suggests.
§ Mr. BeithI endorse what the hon. Gentleman says. Modest improvements were offered, and some increases, which were not terribly well targeted, were also mentioned. As a result of that experience, the Labour party has now 947 decided that it dare not do the same again; it has decided that one must tell people that taxes will be cut, whatever one anticipates will really happen. The Government have proved that it can be done, but I hope that it cannot be done on a regular basis, that the Conservatives will not get away with it again and that the Labour party, were it to attempt so foolish a course, would not get away with it. One has to be honest with people and tell them that better public services may mean higher taxes.
§ Mr. BrownI am not sure that I need to be advised by —of all parties—the Liberal party to be honest with people. The great crime that the Labour party committed was to be honest about its tax policies before the general election. The Conservatives told lies about our tax policies and, as we now discover, also told lies about their own. It is a painful issue for me and my party and we do not need to be reminded of it by the right hon. Gentleman. The fact that we are not keeping a running tax and spending total in opposition to the Government's ever-changing tax and spending policies does not mean that we shall not put our case clearly and precisely before the electorate at the next general election, exactly as we did last time.
§ Mr. BeithLet us wait and see. There is an interesting argument about how parties position themselves before elections. We certainly intend to go into the next election as we did into the previous one, telling people the truth if we believe that taxes might have to be increased. However, we do not know what the level of taxes will be when the next election campaign starts. We do not know whether the Conservatives will succeed in knocking 1p or 2p off income tax at the last minute, having taken a huge amount in taxation out of people's pockets in the meantime.
The Chief Secretary made much of inflation being low and retail prices holding, but he must recognise that it is in part a consequence of the slowness of recovery. Retailers are holding prices because they have to—they will not stay in business if they increase prices. The phenomenon of the continual sale has been evident in our high streets for a considerable time. In fact, there have been two phenomena in our high streets: the first is the continual sale and the second is the empty shop.
Very few of us represent constituencies in which high streets are not well supplied with empty shops or with shops on short leases to charities and in which the remaining retail premises are having to live by sales. While that is good news for the consumer, it poses the hidden risk that inflation will increase sharply if we ever reach the stage where retailers can start to recoup some profits. Smaller retailers in particular cannot go on indefinitely as they are: they are struggling to stay in business and make a living.
Inflation is a problem that will return and interest rate policy has to take account of that. I counsel those who think that a further 0.5 per cent. cut in interest rates at any moment will get the recovery moving to bear in mind the fact that there is a danger further down the line and that the efficacy of further interest rate reductions can easily be exaggerated. I am not saying that we could not achieve another small change at some point in the coming months, but we have to be careful, and we should not get over-excited about its effects.
Of course, any reduction would be offset by the effect on pensioners and those living on limited capital whose spending power has already been severely cut. Many of 948 them were dependent on the rather high rates of interest that prevailed when they decided to move into a sheltered housing scheme, for example, and assumed a level of income that has not been maintained.
The Chancellor thinks that the Bill has put right public finances once and for all. Nobody believes that. The Treasury Select Committee poured cold water on that somewhat grandiose suggestion. But the Bill has changed once and for all the idea that the Conservatives can be relied on to hold down taxes or to keep their promises. When they promised to cut taxes, they knew that there would be a huge borrowing requirement, estimated at £30 billion, so they cannot have been serious even when they made the promise.
This is the longest Finance Bill ever. For taxpayers, its length is like that of the supermarket till receipt; the longer the piece of paper the bigger the bottom line, and the greater the cost to them. And what are taxpayers getting in return? They are getting years of neglect of the education system, of the transport system, of manufacturing industry and of the energy efficiency of our housing stock. When the Government are eventually bundled out of office they will leave an economy sadly ill-equipped for the future.
§ Mr. FormanAs I listened to the Opposition speeches, I was reminded, slightly irreverently, of the parallels between what goes on in the House and what goes on at the opera. One parallel is the fact that it is never over until the fat lady sings.
§ Mr. Derek Enright (Hemsworth)She is in the other place.
§ Mr. FormanWe look forward to hearing the less than fat lady, indeed the slim and svelte lady, the hon. Member for Peckham (Ms Harman), singing to the House and to the country fully and frankly about the various commitments of the Labour party—commitments that have already, by implication, mounted up to spend more, to tax more and to borrow more.
The second feature that debates in the House have in common with opera is the fact that one frequently has to suspend one's disbelief. I certainly had to suspend mine somewhat when I listened to the hon. Member for Peckham and I am glad to have the opportunity to say a few pithy words about her speech.
The hon. Lady seemed to clothe Labour in the garb of a party of low taxation. She spent much time berating us for having put taxes up in the previous two Budgets. Yet let us examine the record of the most recent Labour Government—one has to go back a long way to find a Labour Government, but I must tell younger Members that there was one between 1964 and 1970 and another between 1974 and 1979. Older Members of the House—not you, of course, Madam Deputy Speaker—will recall that the burden of taxation was higher when both those Governments left office than it was when they came in.
The hon. Member for Peckham also seemed to say that, if the Labour party came into office it would be the party of low borrowing. She made a specious comparison concerning the public sector borrowing requirement, which the Chief Secretary to the Treasury challenged from a sedentary position. She took a definition of the PSBR that 949 was wholly unknown to the Treasury when there was a Labour Government and considered central Government borrowing alone.
That definition of such matters may be used on the continent, but it happens not to be the definition traditionally used in this country. The hon. Lady contrasted it with the equivalent figure for central Government borrowing under the present Government—at least she was comparing like with like—and cast our position in what from her point of view was a favourably unfavourable light.
However, the Treasury works on the assumption that all public borrowing, whether it is done by local authorities —hence all the debate about capital receipts—by the remaining nationalised industries, or sometimes even by what are called quangos, counts towards the total of public borrowing. That is because in a sense a public guarantee stands behind all that borrowing. If the hon. Lady had drawn that comparison, her figures would have come out differently.
§ Mr. Ian TaylorDoes my hon. Friend conclude, as I do, that the hon. Member for Peckham wished to exclude local government debt because the bulk of it is incurred by Labour authorities that have never lived up to their responsibilities and tried to reduce the debt problem?
§ Mr. FormanMy hon. Friend is right. Much local authority debt is attributable to the spending policies of Labour-controlled authorities.
§ Mr. BettsIs the hon. Gentleman aware that, under the current rules on local authority borrowing, local authorities can borrow only for investment, not for current expenditure, and that all that borrowing has to be approved by central Government, who must therefore share the responsibility? Is he aware that, when the Prime Minister was Chief Secretary to the Treasury, he produced a report on behalf of the Government advocating that certain elements of local authority expenditure, directly connected with their raising of taxation, should not count as part of the PSBR? Such a case is arguable, even by Conservative Members.
§ Mr. FormanI take that point, but the hon. Gentleman will appreciate that my argument was about the historical record. I was talking retrospectively rather than prospectively.
The hon. Member for Peckham also sought to cast her party as the party of low and responsible spending. That same refrain has recently been taken up in the context of the local elections by the hon. Member for Blackburn (Mr. Straw). However, I could not help noticing in the newspapers recently that the shadow health spokesman, the hon. Member for Sheffield, Brightside (Mr. Blunkett) had made one vivid commitment—that the Labour party's aim would be to increase tax-financed spending on the health service to 7 per cent. of GNP. That is a nonsensical indicator. The great thing about spending on health is not only that it should increase but that it should be cost-effective, and that we should get the maximum possible patient care for whatever money the nation can afford at the time.
Finally, and rather incredibly—this goes back to my theme of the suspension of disbelief—the Labour party has 950 made a stab at presenting itself as the party of low inflation and responsible management of the economy, were it ever to be in government. Yet again, I could not help noticing a recent commitment to a statutory minimum wage of £4 an hour, which I have not heard officially denied by the hon. Member for Dunfermline, East (Mr. Brown).
§ Mr. Nicholas BrownLet me officially deny it now.
§ Mr. FormanThat shows how helpful Back-Bench speeches can be. They can elicit a little more clarity on the evolution of Labour policies.
The Labour party claims to be the responsible party of low inflation. However, I cannot help noticing that, over the past two years or so, for the duration of this Parliament and slightly longer, every time that it has been prudent and possible for the Chancellor of the Exchequer of the day, on the advice of the Governor of the Bank of England, to cut interest rates—after all, they have fallen substantially, from 15 per cent. to 5.25 per cent.—the Labour party's response, either from the Leader of the Opposition or from the shadow Treasury spokesman, has been, "Not enough; it should have been a point more." As a policy that could be presented credibly to the markets as a policy of low inflation, that beggars belief.
On all those counts—taxation, borrowing, spending and the safeguarding of the nation's finances in terms of controlling inflation—one has to suspend one's disbelief when one listens to Labour party spokesmen, so the experience has a great deal in common with a night at the opera.
To make my second broad point, I again speak as the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. Hon. Members who read the briefing material that the institute supplied to the Standing Committee will know that its main argument this year, on behalf of most people in the profession, did not concern matters of detail. I confess that the institute was somewhat exercised about what was then clause 241, which the Government wisely, and with all-party approval, withdrew. However, the institute's main point concerned the interminable and unacceptable length of the Bill, its opacity and the fact that it is inherently too complicated.
That argument comes from the practitioners, who have earlier been described as cashing in on the benefits of complexity and opacity in financial legislation. If even they make that point, one must admit that it is an altruistic and sensible statement, which the Government should heed.
§ Mr. SternMy hon. Friend should not be blinded by the strength of his support for the institute that briefs him. As a practising chartered accountant, I assure him that it is possible to have it both ways.
§ Mr. FormanI have no doubt that clever professionals tend to have things both ways. I refer not only to the accountancy profession but to other walks of life; I have no doubt that the same is true of lawyers and doctors. I stand duly corrected by my hon. Friend the Member for Bristol, North-West (Mr. Stern); perhaps I should call him my hon. and learned Friend on such matters.
I have a serious point about fiscal policy in the medium to longer term. It is a point that I made on Second Reading in broad terms and I do not apologise for going back to it because I believe that it bears repetition. In the medium to longer term, by which I mean in the next Parliament, when we shall still be on the Government Benches and the 951 Opposition will still be over there, we shall need further to broaden the tax base. That is a very important point. At the same time—this is the concomitant point—we shall need to lower our rates of tax, especially in terms of income tax and VAT. Those are the two sectors in which I should like to see lower rates of tax.
In case Opposition Members think that they must suspend disbelief when they hear me say that, explain briefly how those lower rates of tax could be achieved. On income tax, hon. Members will know that the cost of tax allowances, or tax expenditures, is colossal. The Government are to be commended for making a small range of attacks on those tax expenditures in this and previous Budgets. That trend should be continued.
What hon. Members may not know so well is that, were a future Chancellor or, indeed, the present Chancellor, who I hope will do this in a future Budget, to take the bold decision dramatically to extend the base of VAT so that it covered all forms of consumer expenditure—a point that I have argued on the record on previous occasions—it would be perfectly possible, as I shall show when I give hon. Members the figures, to move to a standard rate of VAT of 15 per cent., instead of 17.5 per cent. as it will be from April next year. At the same time, it would be perfectly possible to introduce a starting rate of VAT on the real essentials of 8 per cent., which would be analogous to the multi-rate structures that our partners in the European Union have.
It would be possible to make such a change in such a way by broadening the base and by cutting the rates so that some of the items now covered at 17.5 per cent. would be covered at 8 per cent., which would constitute a cut in the rate of VAT. Other items that are now zero-rated or exempt would come in at 8 per cent. The standard rate would come down from 17.5 to 15 per cent. The net effect of that package, when run through the Treasury model, as she is called, would be a net gain to the Exchequer in the current tax year of between £5 billion and £10 billion. That would be very useful revenue for my right hon. and learned Friend the Chancellor in his efforts further to close the public sector borrowing requirement.
§ Ms EagleWill the hon. Gentleman remind the House why the rate of VAT went up from 15 to 17.5 per cent in the first place? If he does not care to do that, I remind the House that the reason was the gross waste of public money that the poll tax and all the disasters that accompanied it represented in terms of losses to the Exchequer.
§ Mr. FormanThe hon. Member for Wallasey (Ms Eagle) is being very kind; she is intruding into private Tory grief on this point. I do not wish to rake over the coals, to mix my metaphors. She, I and the House know that the reason for the increase was that the party got into a bit of a mess over what was called the poll tax. It was wise, timely and necessary for the then Chancellor, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), to switch the burden to VAT. However, that is not to say that one cannot take a different view of those matters as the years go by.
We have a better alternative in the shape of the council tax, which is an improvement on the poll tax in many respects. What is more, as we manage the nation's finances prudently in future, as we have done in the past, it should be possible to make the rather bold reforming changes to the tax structure that I have just sketched out.
952 I shall put on record two or three reasons why the changes that I have just recommended for the medium to longer term are necessary and make sense. Those reasons are based on realism rather than on pie in the sky. The first reason, to which other hon. Members have alluded earlier today, is that in the world of global capital movements and instantaneous financial transactions, there is increasing competition, as the hon. Member for Ashfield (Mr. Hoon) said, between national tax authorities.
That is one of the realities of the modern world which has a secular tendency to drive down rates of taxation, especially marginal rates—it may even drive down average rates of taxation as well. That is a healthy development because it means that people have to seek better and better value for whatever public expenditure they can afford to finance through taxation. The more that it can be honestly financed that way rather than on the back of public borrowing, the better.
The first reason, therefore, why it is necessary to make the strategic reform that I recommend is that, with the growing competition between national tax authorities, especially the competition affecting taxes on income and capital, it will be strategically necessary for the present Chancellor and future Chancellors to find a variety of ways in which to make our taxation regime, especially on those two items, as attractive as possible internationally.
More and more of those forms of tax will essentially be voluntary taxation. In other words, in the world of mobile investment, mobile corporate decisions and mobile high net worth individuals, people will be able to decide to situate here rather than there on the basis of the tax regime that applies.
My second reason is topical because something that the Trades Union Congress said about changes in the labour market was reported in the press today. What we see now and shall continue to see—incidentally, a similar point was made in yesterday's debate on child care. by Opposition Members—is a gradual erosion of the income tax base because of the relative decline of full-time paid employment. Opposition Members know that better than most people do. There has been a relative growth of part-time and casual employment, and of self-employment.
The figures are interesting. As the hon. Member for Edinburgh, Leith (Mr. Chisholm) did yesterday, I shall pull some figures out of my pocket. Our population is 56 million people. Some 31 million of those 56 million people are not in work for very good reasons; they may be pensioners or below the age of employment. Some 3 million are registered as unemployed—these are round figures—and 1 million people would like a job if they could get one, but have more or less given up the hunt.
Those figures leave 25 million people in work, of whom 3 million are self-employed. Some 6 million are in part-time work, which leaves 16 million people, out of my total of 56 million people, who are in full-time work as employees and who contribute to the Revenue in the classic way that has been the case since 1944 and the days of Sir Paul Chambers. They contribute through PAYE—pay as you earn—with the employers doing the bulk of the tax collection work on behalf of the Revenue.
Those figures mean that fewer than one third of the total population are being required largely to support the rest of the population, whose needs are varying, through the auspices of tax and national insurance. That suggests to me a greater need to consider my third reason for making the change to which I have referred—the move towards the 953 kind of expenditure tax system recommended some time ago by Professor Mead. That system takes account of the erosion of the income tax base and is much better tailored to capturing revenue when, increasingly, potential revenue is escaping the tax authorities because of the black economy, the tendency for people to consume and the need generally to maximise the tax take from a shrinking tax base.
§ Mr. SternI cannot let my hon. Friend get away with what he said a couple of minutes ago. It is neither fair nor proper to suggest that the 6 million self-employed people do not provide a significant proportion of the tax and national insurance that the country needs. That was what my hon. Friend, no doubt inadvertently, implied.
§ Mr. FormanI did not intend to make that point. I am grateful to my hon. Friend for clarifying the matter. I was saying that the bulk of taxation, especially on income, as my hon. Friend knows better that I do, comes from people who pay income tax, and national insurance of course, at the standard rate. About 95 per cent. of all taxpayers, as my hon. Friend knows, pay only at the standard rate and not at the higher rate, whatever it may be. Therefore, those arrangements, which have grown up since the days of Sir Paul Chambers in 1944, are still the bedrock of the buoyancy of our revenue generated on the income side.
My third argument in favour of moving gradually—the Government have already begun—towards an expenditure tax model for the tax system is that it has an in-built bias in favour of investment and savings as opposed to consumption. Many hon. Members, including, I suspect, some Opposition Members, think that we need more of an investment bias in our economy over the next phase of the recovery. Indeed, there are many signs from the current degree of re-stocking that that investment bias is now taking place and we are glad about it.
In a nutshell, whatever fun we may be able to have at the expense of the Labour party—I am sure that we may have some sport—and whatever may be the shortcomings from a technical point of view of the enormously long and complicated Finance Bill, nonetheless, in the Budget, which is after all the reason for the Finance Bill, the Chancellor took the right and responsible decision to give priority to closing the public sector deficit. That will happen not in one year but over several years. He did it at the right time and in the right way and I pay tribute to the Finance Bill.
§ Mr. EnrightDuring the speech of the Chief Secretary to the Treasury, I was reminded of nobody so much as the Emperor Caligula—not because of his coiffure or his attire, although those indeed rival the appearance of the emperor—
§ Mr. EnrightI was not reminded of Caligula because, as my hon. Friend has just said, the Chief Secretary made his horse a consul, although he has a considerable number of asses working for him in the Treasury. Indeed, when the right hon. Gentleman took on the hon. Member for Lancaster (Dame Elaine Kellett-Bowman) as his special adviser, he instantly doubled the IQ of the Treasury.
954 Where the Chief Secretary reminded me most of the Emperor Caligula was in his fiscal policy, because it was the Emperor Caligula's aim to go forth, to tax and increase taxes and spend them not on the good of the people, but on the good of himself and his friends. That is precisely what has happened. In excusing himself, the Emperor Caligula regularly gave specious reasons why he had to impose the taxes for the grandeur of Rome, and also regularly pointed out how much better he had been than the excellent Emperor Tiberius, which was not at all true.
If one considers the claims of the Government, we discover that they are quite false. We may always take a three-month period or a six-month period or a one-year period and extrapolate from them something which is reasonable, but let us consider a ten-year period and find out how the United Kingdom compares with the leading industrial countries.
The average UK unemployment over 10 years is the highest in comparison. Its growth rate is the lowest. In terms of inflation, only Italy is higher than the United Kingdom. In terms of high interest rates, again only Italy exceeds the United Kingdom. In terms of exports, the UK is the lowest.
There are two areas on which the Government have especially concentrated, and one has been inflation. Therefore, one would expect that Italy had done even worse than the United Kingdom over those ten years, but that is not the case. Italy's employment record, its growth record, its export record and its expenditure record are all better than the United Kingdom's, and Italy is scarcely a model of good government. Yet Italy outstrips us over 10 years, which says something about the depths into which we have fallen.
The hon. Member for Ludlow (Mr. Gill) talked about a brand image. A brand image is what one presents to customers. To objective customers, the Government look cheap and tawdry. They are an imitation of that which they would be like to be: an imitation of honesty, an imitation of looking to the long-term future, and a complete failure in so doing.
The little discussion among accountants on the Conservative Benches was interesting, because one of the great bugbears of British manufacturing industry has been that accountants have taken control of boards, and, simply for short-term financial reasons, have destroyed great swathes of manufacturing industry. They have served the country ill in their commanding position. Accountants are essentially the handmaidens, they are the servants and, too often, they have become the bosses. That fact was mirrored in the speech of the otherwise humane Member for Carshalton and Wallington (Mr. Forman).
§ Ms EagleDoes my hon. Friend agree that the startling fact that one quarter of all the accountants in the European Union come from the United Kingdom bears out some of the points that he is making about the deadening effect they have on our manufacturing industry and our ability to compete in the modern world?
§ Mr. EnrightI am grateful to my hon. Friend for making that point. I must confess that it is not something that I had dwelt on in those terms. However, it is true that service industries can be creative and constructive, but too many of our accountants are precisely the opposite.
§ Mr. FormanWill the hon. Gentleman give way?
§ Mr. EnrightOf course I shall give way to the hon. Gentleman.
§ Mr. FormanI rise to intervene in the hon. Gentleman's speech simply because of my known connection with the accountancy profession, to which I do not think that he can attribute the relative decline of our manufacturing industry over a long period. Indeed, the decline in employment in manufacturing goes back to 1964. There are many other reasons for the decline, which are to do with the state of industrial relations and with the growth of competitiveness in other countries. He travesties the position to pretend that it is attributable to the accountancy profession.
§ Mr. EnrightI hear what the hon. Gentleman says, and I would not wish to say that all accountants are in the same boat. Nevertheless, it is true that certain attitudes of management in British industry have been responsible for its decline.
One only has to work on the continent—one sees it starkly in Africa—to see that the quality, not of all British industry management, but of too much of it, is very poor. That problem has not been addressed by the Government: by the Department of Employment or by the Department of Trade and Industry. It is a matter of serious concern, which should be addressed. We need a whole variety of training, but training in management at all levels is crucial. We do not do it well, as they do on the continent, and it is most certainly not done as well as in the United States and in Japan.
I shall not only consider the cash, the pennies, the awesome sums that are produced, but consider a little the humanity which should be behind our fiscal and financial policy.
Conservative Members regularly say that the whole question of a minimum wage will drag us down as a country. I find that an extraordinary statement. I have believed since my early youth, because I was taught it, that there is such a thing as a just wage, and that it is right in society to fight for a just wage. If a minimum wage is not a just wage, I do not know what is.
It is quite wrong to say that industry cannot manage a minimum wage. Why not? Industry elsewhere does. Industry in Germany does. Every single company that has come into the country manages to produce what would be the equivalent of a just wage.
§ Mr. FormanDid not the hon. Gentleman hear the hon. Member for Newcastle upon Tyne, East (Mr. Brown), speaking from the Opposition Front Bench, respond to my observations by saying that what he is saying is not Labour policy?
§ Mr. EnrightOn the contrary, I listened carefully to what my hon. Friend said. might have jumped on him if he had said something deadly wrong in moral terms. In fact, he did not do so. He said that we, the Labour party, refused to quantify a minimum wage.
§ Mr. FormanNo.
§ Mr. EnrightMy hon. Friend said that it was not £4. That is extremely important.
It is about time that the Secretary of State for the Environment and the Under-Secretary of State for Employment, the hon. Member for Maidstone (Miss Widdecombe), who have recently joined the Church of 956 which I am a member, stopped choosing a la carte. The teaching of a minimum wage and of consultation of trade unions or appropriate bodies has been the morality, not the policy, of the Catholic Church, going back to Pope Leo XIII and "Rerum Novarum". It was reaffirmed by "Quadragesimo Anno".
I see that the hon. Member for Harrow, West (Mr. Hughes), the Government Whip, is shaking his head. Pope Pius XII, who can scarcely be accused of any leftist, let alone communist, tendencies, attended the foundation of the European Coal and Steel Communities treaties and made a speech in which he said specifically that trade unions were an important part of the consultation process, and that the future development of industry depended on consultation with workers' representatives. That is extremely important.
Pope Pius X11 said that the treaty was not solely about economics, and not simply about the trade of certain commodities, but about bringing justice towards ordinary people, health and safety at work and treating human beings with the dignity they deserve. It is about time we reminded ourselves of those basic moral values. Hon. Members may put them aside if they wish—I most certainly will not do so—but I shall not have them sneered at by Conservative Members.
German industry, a good deal of American industry and Japanese industry are able to observe moral edicts of the sort that I have described and still be profitable. Surely it is common sense that any company that wishes to be successful should take on board its work force, should have it going enthusiastically along with the company, should be consulting it about the future, and should be consulting it about deficiencies.
§ Mr. Ian TaylorI am intrigued by the use of papal infallibility to bolster a Labour party policy. In hard terms, however, the reality is that, if we are to have a minimum wage, the state must bear in mind the fact that, ultimately, it may have to subsidise a higher level of unemployment, because entry into work is often barred because companies cannot afford that minimum wage. The alternative is to subsidise companies to take on someone and to pay him the minimum wage. Is that not precisely what France is now experiencing, with all the troubles it faces with high youth unemployment because of a minimum wage?
§ Mr. EnrightThe hon. Gentleman is normally much more intelligent and perceptive than that. First, it is not the policy of the Pope and infallibility. The Labour party came a long time after that. I ask him to cast his mind back—assuming that he was taught religion properly—to the Acts of the Apostles. They held all their goods in common and gave to each according to each as had need. That is a fair principle. I think that it was taken up by Karl Marx, or someone like that. If the hon. Gentleman considers the description of the early Christian community, he will find similar words in his New Testament.
I suggest that the second part of the hon. Gentleman's intervention was even further out of line—his suggestion that a minimum wage would make unemployment much worse. For 15 years, the Government have set their face against a minimum wage. They have asked us to accept that they are wonderful in their deregulating exercises. In fact, they have quadrupled unemployment. I need no lessons in reducing unemployment from Conservative Members. Their approach is an absurdity. 957 There is more than one absurdity. A Minister from the Department of Employment talked in European Community Standing Committee B about child labour. That dreadful dragon of a Commission was proposing that we contain the number of hours that children work. He complained about that. He seemed to be saying that children should be allowed to work all hours. In one way or another, he seemed to suggest that they should be open all hours.
The next day the Secretary of State for Education was telling us about the problems of truancy, and how we can solve them. I can say without any doubt that a large proportion of truancy or unauthorised absence from school arises because children are doing milk rounds or paper rounds. They are the same students who often go to school and fall asleep. They do not absorb the basic elements. We must keep a balance, instead of resisting every proposed change.
The Government, by their fiscal and financial policies, are shoving us into a real poverty trap. They cannot complain about the breakdown of the family if their policies are almost deliberately designed to destroy the family.
The hon. Member for Carshalton and Wallington said that, if value added tax was 15 per cent. throughout and we then sliced off income tax, the result would be much fairer, more reasonable and simpler. It is clear that he is not aware of what has happened to families in my constituency.
The pits having been deliberately put out of business by the Government, most of my constituents rely on low-wage jobs. Some of them are paid £80 a week. I have in mind especially an industrial estate. I went to the factories within it to ascertain what they paid for a standard 40-hour week. I found that they were paying £80, £100, £105 or £115. The wages were hovering at those levels.
How do people pay the taxes that are so heinously demanded by the Government if they are on those low wages and bringing up a family of four? No one can do that. The result is destructive. The consequences lead to crime and the cause of crime. It is true that not all kids commit crime, but it does not surprise me that many of them get into criminal situations.
We need an education for skills and ideals. It should not be one that is utilitarian and materialistic. We need education that teaches people to think beyond the 5p, 10p or £2,000 that they claw unto themselves without thinking about the morality of doing so.
We need also an integration of various policies. There appeared today before the Select Committee on European Legislation a note written by the Minister for Energy, a well-known intellectual. He wrote that the European policy on energy is not acceptable to the United Kingdom. What is that policy? The rest of Europe is saying that there is a requirement to integrate social and energy policies. That is clearly true, but that did not happen with the closure of the pits.
We shall be left, because of the short-sighted way in which the Treasury team conduct our country's policy, reliant upon external sources for our energy by the turn of the century. At the turn of the century, when every expert from the United States, Japan, Africa or wherever points out that the main source of energy will once again be coal, the pits have been shut down. Misery has been created, and 958 the public sector borrowing requirement has been created by the Government. People will go cap in hand to get their money from employment exchanges which no longer have the ability to employ.
The Government are absolutely encapsulated by what Ian Byatt said last night. Ian Byatt, who is supposed to protect the customers of water, was asked: "To whom are you responsible?" He did not say the customers; he did not even say the companies; he said the City. That is the sort of morality that is preached by the Government. I was shocked by the reply. It is the reason why, if the Government had any sensitivity, they would sack him at once, and all the people he has appointed.
The country has the skills, the people, the resources, and the resourcefulness to solve its problems. What it needs is leadership. The Government offer none.
§ 8 pm
§ Mr. SternI shall not attempt to follow the hon. Member for Hemsworth (Mr. Enright) in the wide-ranging nature of his speech, except perhaps to say that in view of the fact that he was bandying Christian doctrine across the Floor of the House—I can take a fairly detached view as I come from a somewhat older religion than Christianity —his remarks about accountants were peculiarly un-Christian.
§ Mr. EnrightOf course, I withdraw, in that like all Christians, I should love sinners more than anyone else.
§ Mr. SternNaturally, I accept that apology.
In some fairly brief remarks, because I know that some of my colleagues also wish to speak, I shall concentrate on one aspect of the Finance Bill which has been the most important to me, namely, the technical changes that have been introduced.
This has been a far-reaching Bill in terms of changing the structure of a number of areas of taxation which go back right to the dawn of income tax and which the Government have rightly and extremely bravely taken on and changed. I am referring both to the preceding year basis of assessment for income tax which has been around as long as anyone can remember and which the Government now propose to bring to an end, and the method of assessment, which will bring us into line with many more successful systems of assessment and collection of tax.
I congratulate my hon. Friend the Financial Secretary on introducing the reforms, despite a barrage of criticism both as to the manner of the reforms and their form. I shall deal briefly with both of those aspects.
The Finance Bill, of which we are now seeing the final stage, has been criticised—and in many respects rightly —for its length. It is the longest Bill that we have seen recently. I only hope that it is not a prelude to a longer Bill next year. As was pointed out in Committee, one of the reasons why it was such a long Bill was that it attempted to rewrite large sections of taxation legislation, rather than simply amend it. In doing so, it incurred a large amount of criticism from professions such as solicitors and accountants not for the fact that it attempts to make changes but for the manner in which those changes are made.
Those criticisms are largely unfair because it seems that, if a root-and-branch reform of a whole system of taxation is being attempted, it is much more helpful to set out the 959 new law in different terminology and in a completely unified set of precepts than to attempt to pander to those who are used to one set of terminology and language and who wish to see the reform appear to be part of the previous system, rather than something totally new.
I noticed that my hon. Friend was criticised by someone for whom I normally have a great deal of admiration—the president of the Institute of Taxation. He criticised my hon. Friend for the changes in language and the length of the new measures that have been introduced. I should point out to my hon. Friend that the president of the Institute of Taxation is a well known and highly respected solicitor. It is not perhaps surprising that a member of the legal profession should object to changes in terminology which cause changes in the patterns of thinking in that profession.
As someone who was trained more in the use of mathematics than wording, I agree with the principles perhaps first set out by Professor Whitehead in "Principia Mathematica". He pointed out that all words are merely an expression of a different aspect of number. Therefore I find it much less difficult than the president of the Institute of Taxation to accept the new concepts and the new terminology introduced in the Bill in terms of setting out a working system for the impact of income tax on most people for most of the rest of their lives.
§ Mrs. Anne Campbell (Cambridge)I am grateful to the hon. Gentleman for giving way because I am listening carefully to what he is saying. Does he agree that it is not so much the wording of the legislation that is being objected to as the complexity of the additional taxes being introduced in the system? The previous Chancellor, to give him credit, tried to streamline the system and make it simpler for those who had to administer it. The real problem is that a number of new taxes have been added without any attempt to simplify or streamline the system. That shows that the present Chancellor does not have a grasp of what he is saying.
§ Mr. SternI am grateful to the hon. Lady, but she has misunderstood my point. Of course, she is entitled to make her point in her own way on those parts of the Bill that I was not discussing if she succeeds in catching your eye, Mr. Deputy Speaker. The part of the Bill that I was discussing related to the changes being introduced in terms of self assessment and the current year basis of assessment, to which the hon. Lady's comments do not apply. We are not talking about—this is the point that I was making—the complexity of language; we are talking about an entirely new concept being introduced in new terms. That is what I was congratulating my hon. Friend on, and the provisions in the Bill will be much longer lasting as a result.
Having examined the new system of law, I shall turn to an area which my hon. Friend and I discussed in Committee with regard to the change to the current year basis of assessment of income tax. As I pointed out, and my hon. Friend agreed in Committee, the changes introduced in the Bill were incomplete in one respect in that it was necessary to give an early indication of the new anti-avoidance provisions to complete the new pattern of current year assessment.
In Committee, my hon. Friend gave an undertaking that as new businesses are already subject to the new system of assessment introduced in the Bill, it was necessary to give at least an early indication of the new anti-avoidance provisions. I hesitate to remind my hon. Friend that he gave 960 an undertaking to issue a consultative document before the end of the fiscal year; he missed, but not by much. I am grateful to him for at least making the attempt.
I am a little worried about the consultative document that my hon. Friend has published. The anti-avoidance provisions which have now been published as a consultation document rely rightly on a number of triggers to come into effect. However, they seem to repeat an error, which my hon. Friend admitted in the debate on what was then clause 240 of the Finance Bill—to confuse evasion and avoidance.
I shall briefly remind the House that evasion is illegal and is to be stamped on at every opportunity, but avoidance is perfectly legitimate and has been praised by judges on many occasions. It has always been accepted that it should never be a target for penalty by the Inland Revenue, yet in the anti-avoidance provisions which my hon. Friend has now published, it seems that he is proposing to depart from that principle.
One of the triggers which is proposed in the anti-avoidance provisions is the shifting of profits into the year in which only half are effectively assessable. It is proposed under the anti-avoidance provision that the remedy available to the Inland Revenue will effectively be to tax those shifted profits at an effective rate of a maximum of 60 per cent. The profits will be taxed fully in the year in which the Inland Revenue says they should have been, and by 50 per cent. also in the year in which they appear.
This to me is a wholly inappropriate and unsupportable aspect of tax to prevent avoidance. It is a tax determined after the event, and often as a result of disagreement, and is purely to prevent something that is perfectly legal in the first place.
All the other anti-avoidance provisions which my hon. Friend is proposing merely restore the status quo. They restore taxation to what it would have been if the attempt to avoid tax had not taken place. I ask my hon. Friend sincerely to look again at the one area of anti-avoidance which I have highlighted because what is proposed in the document which has been published is a wholly unacceptable penalty for a perfectly legitimate action.
It will take some time for the new proposals to bed down. I have no doubt that, as in so many other areas of major tax reform, there will be changes to be made in future Finance Bills. It would be foolish to accept that that will not happen. I conclude my brief comments as I started, by congratulating the Government and, in particular, my hon. Friend the Financial Secretary, not just on attempting a major reform which has been long overdue, but on carrying it through in this Bill and, so far, apparently carrying it through with great success.
§ Mr. HoonI will not follow the comments of the hon. Member for Bristol, North-West (Mr. Stern); suffice it to say that I think George Bernard Shaw said:
All professions are conspiracies against the laity.I know that that applies to accountants, but I am sure it does not apply to lawyers.In the course of many interviews which the Chancellor gave in the immediate aftermath of his Budget, he emphasised that he did not want to be one of those Chancellors whose Budgets are rapturously received at the time, only to prove—as the details were examined more carefully—to be a Chancellor whom history would recall 961 got it wrong. He did not say so specifically, but perhaps he was thinking of Lord Lawson's giveaway Budget which helped the Conservatives to win a general election, but for which, arguably, the country has been paying ever since.
It already appears that the Budget embodied in the Bill —when it is examined in detail by the electorate—is proving to be as damaging to the interests of the country as Lord Lawson's Budget. Despite the Chancellor's warnings to himself, he seems to have proved to be a Chancellor of short-term popularity only.
At the time of the Budget, he appeared to be at the height of his popularity, certainly with Government Back Benchers, in what we could describe as the "Who will succeed the Prime Minister?" handicap stakes. Tory Back Benchers waved their Order Papers like successful punters celebrating a visit to the winners' enclosure. Unfortunately, we cannot re-run history, but it is difficult to see that such a rapturous reception would be given to the Budget today if that speech were to be delivered again.
Indeed, most political commentators appear to date the decline in the prospects of the Chancellor succeeding the Prime Minister from the date of the Budget speech—a speech which, of course, led to the biggest series of tax rises in our history. If the support which we have heard from Government Members is reflected in the country, why have the prospects of promotion for the Chancellor of Exchequer been seriously diminished? After all, the electorate which will choose the next leader of the Conservative party is on the Government Benches. If they are so enthusiastic about the Chancellor's Budget, why have they appeared to withdraw their support from the person who is responsible for it?
I shall be grateful if whoever succeeds me in the debate addresses that argument, because there appears to have been a serious loss of confidence in the Chancellor's prospects among the parliamentary Conservative party. Conservative Members will decide whether the Chancellor succeeds the Prime Minister, and they must do so presumably on his record as Chancellor. They appear to support the Budget, but they do not appear to be enthusiastic any longer about the Chancellor becoming the Prime Minister.
Could it be that, up down the country, their constituents are giving them a barrage of criticism about the effect of this Budget on their financial circumstances? Could that be influencing the minds of Conservative Members when they think about who they would like to succeed the Prime Minister?
The Third Reading debate gives us the opportunity of considering whether the fears of my constituents—and, I know, those of other hon. Members across the country—are justified. The House has been able to examine in detail in the period since the Budget speech whether the Chancellor's warning to himself was justified. We have had opportunities since the Budget speech, in Committee and now at Third Reading of determining the precise effect of the Budget. What is our verdict and how has the Budget already affected the country's economy?
I suggest that we begin by looking at the Bank of England's quarterly survey which was published at the beginning of the year. The survey noted that the main force then driving the recovery was consumer spending. It follows that that is dependent upon consumer confidence. 962 The Government's claims for a recovery at that stage were set out in the figures for January which showed that retail sales were up by 0.6 per cent. over December, and indeed were 3.5 per cent. higher than in January 1993.
All the indicators now show, as people have begun to appreciate the impact of the Budget on their personal finances, that consumers are significantly less confident and that the consumer-driven recovery is stalling, if it has not already stalled. We have some up-to-date evidence of the attitude of consumers towards the present state of the economy.
A Gallup survey of consumer confidence which was conducted on behalf of the European Commission in the first two weeks of April was published this week. The poll showed that consumer confidence has fallen close to the second lowest level recorded in the 14 years since the poll was established. The results show that only 15 per cent. of those polled said that they expected their household finances to improve during the next year, with 45 per cent. predicting that they would be worse off. That is a negative balance of some 30 per cent.—similar to the 31 per cent. negative balance in March 1990, just as the economy went into recession. That was the second lowest figure ever recorded by that polling organisation.
Gloom about household finances seems to reflect also gloom about the country's general economic prospects. In the same poll, 43 per cent. of those surveyed were pessimistic about the country's economic prospects, compared with 21 per cent. who were optimistic. That is negative balance of 22 percentage points.
In the context of a Third Reading debate about the impact of the Budget, it is interesting to compare the position in the last two weeks of April—when 22 per cent. of opinion was negative—with that in January, immediately after the Budget and perhaps before its impact had settled in. Then, the number of optimists equalled the number of pessimists. There has clearly been a significant collapse of consumer confidence since the Budget, and that survey suggests, along with other evidence, that the tax increases contained in the Bill are to blame.
Consumer confidence was actually rising in the last quarter of 1993, before the publication of the Chancellor's Budget proposals. As the details of those proposals have sunk in, however, and people have begun to appreciate the consequences for their personal finances, there has been a rapid and significant decline in that confidence.
This week also saw the publication of a CBI survey showing that retail sales growth exactly reflects the loss of consumer confidence. It is likely that in March, for the second month running, sales were broadly level—or only slightly up after a decline in February. The CBI survey has precisely tracked the level of confidence tracked by Gallup in relation to individual consumers.
If Conservative Members are not satisfied with either the evidence of their own constituents or that of the surveys that I have mentioned, particularly the Gallup survey, perhaps we should examine what is arguably the most authoritarian view—I am sorry; I meant authoritative. [Laughter.] When hon. Members hear who is involved, they will realise that that may have been a Freudian slip.
The most authoritative view of the state of the economy resulted from a survey of one: the occupant of No. 11 Downing street. We now know what the Chancellor of the Exchequer really thinks about the state of the economy, as a result of the welcome publication of the minutes of his monthly meetings with the governor of the Bank of 963 England. Those minutes reveal a private view of what is happening in the British economy that is significantly at variance with the Chancellor's public pronouncements.
In January, when the Chancellor was publicly proclaiming the benefits of economic recovery and growth arising from his Budget, he was privately telling the governor of the Bank that
He himself was much less sure that the pace of growth had picked up significantly in recent months".He went on to admit thatIn addition, the Budget measures were likely to cause activity to slow".To be fair to the Chancellor, he has remained consistent: in the March meeting, he indicated that anecdotal evidence did not suggest that activity was growing strongly. However, that too is at variance with what Treasury Ministers have said about the state of the economy during our debates. They have suggested that the recovery is well established, and that the Budget certainly did not contribute to any slowing of activity or anything approaching a stalling of the economy.The overall message given in private by the Chancellor to the governor of the Bank of England suggests that, in reality, he is not very confident about growth and recovery. Indeed, the general theme of the minutes for January, February and March is the necessity to stimulate recovery by lowering interest rates. The essence of his debate with the governor is this: the Chancellor is not very optimistic about the state of the economy and feels that it is necessary to reduce interest rates, while the governor is concerned about the impact of such a reduction on inflation.
§ Mr. WillettsIt is a great pity that, when the Government make a significant move towards greater openness in the discussion of economic policy, all that we hear is a selective quotation from minutes in an attempt to make implausible party political points. The main message from those discussions is clear. Let me quote from the minutes of the March meeting:
there were no signs of a pause in growth.That was the clear consensus of the Bank of England and the Treasury. It is a shame that the hon. Gentleman, having welcomed the publication of the minutes, should then try to misinterpret them.
§ Mr. HoonI am sorry about that. Inevitably, all quotations from a long document will be selective—the hon. Gentleman would rightly protest if I tried to read out the minutes in full—but I do not accept that I have represented the discussions unfairly. In essence, the Chancellor expressed the view that recovery was not well established and was not developing, and that interest rates should therefore be cut; the governor of the Bank of England replied that, although that might be so, lowering interest rates at that stage would incur the risk of higher inflation. I consider that a fair summary of the debate that took place.
§ Mr. DorrellThe hon. Gentleman has referred to the "essence" of the minutes. Surely the essence of the minutes of any meeting is contained in the conclusions, on which both my right hon. and learned Friend the Chancellor and the governor of the Bank of England agreed. The various minutes set out those conclusions, which represent the combined judgments of the two people involved. If the hon. Gentleman wants to arrive at the "essence" of the meeting, let him refer to the conclusions, which were agreed and acted on.
§ Mr. HoonThey were acted on to the extent that there was a modest change in interest rates during the period concerned, and there is currently considerable speculation about the possibility of further changes. That precisely tracks the developments in the course of those meetings that I have tried to set out. How we interpret the minutes is a question of judgment; I certainly do not feel that I have misled the House in any way in my representation of what took place.
The evidence that I have cited—the conclusions of the Gallup and CBI surveys and, indeed, the private view of the Chancellor of the Exchequer—suggests that the tax rises announced in the Budget will pose significant problems for any further growth in the economy this year. They are clearly to blame for the collapse of consumer confidence, and that in turn will lead to a slowdown in the recovery. That is why I began by quoting from the Bank of England's quarterly survey, which suggested that the Government's strategy was based on an improvement in consumer confidence.
Such an improvement appeared to be under way in the earlier part of the year, and there were some statistics to support that; now, however, those statistics seem to have disappeared, and consumer confidence—the real test of the Government's strategy—has collapsed. As the figures confirm, that is a direct consequence of the way in which the Government have raised taxes at a critical point in the health of our economy.
§ Mr. Ian TaylorThis has been a wide-ranging debate.
If I heard him correctly, the hon. Member for Hemsworth (Mr. Enright) called in aid the emperor Caligula and various popes, all of whom occupied Rome —although, I suspect, for slightly different purposes. I began to feel a little worried when he threw all the apostles at me in response to my intervention: he and I often share certain christian democrat instincts—small "c", small "d" —about the way in which policy in the European Community should go.
§ Mr. Enrightrose—
§ Mr. TaylorIf I have in any way traduced the hon. Gentleman's biblical leanings, I shall of course give way to him.
§ Mr. EnrightMay I just point out that the popes inhabited the Vatican, not Rome? There is a considerable distinction.
The hon. Gentleman mentioned christian democrats. Is he prepared to say whether he supports the European People's party manifesto for the European elections, which takes a slightly different view?
§ Mr. TaylorThe hon. Gentleman is never cheap, so I will not be distracted. Let me say, however, that I certainly support the European People's party, with which we are in alliance in the approaching elections—elections that will, I hope, leave a centre-right majority in the European Parliament.
§ Mrs. Anne CampbellWill the hon. Gentleman give way?
§ Mr. TaylorWill the hon. Lady's intervention be on the Bill or on the pope?
§ Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)Order. I will answer that question. It will be on the Finance Bill: I do not intend to allow debate on anything else.
§ Mr. TaylorI shall stick to the straight and narrow of the Bill. As you were not able to be present in Committee, Mr. Deputy Speaker, I shall tell you that proceedings there were as enjoyable as the past few minutes on Third Reading have been, thanks to the guillotine which enables us to have a proper debate rather than trying to take up time.
As many hon. Members have said, the Bill is a weighty document—too weighty. It has too many clauses and schedules and we should try to make it more digestible in future. However, it contains many interesting clauses, some of which were rather too interesting for the stomachs of some of my hon. Friends in Committee.
I pay tribute to my hon. Friend the Financial Secretary, who rushed us through all the lengthy procedures with great sensitivity. I am pleased that the cogent arguments put by me and by others led to changes in Committee and on Report. I think especially of the changes to capital gains tax on indexation of losses. We expressed strong opinions against the blanket removal of indexation of losses, and I am delighted that, belatedly and in the new tax year, the Government have had second thoughts on that.
There were other difficulties which I shall not mention, but I underline the insurance premium tax because on that the Government clearly listened to the industry, following a hesitant start. We had to move quickly. The industry made representations, and I declare the interest that I declared in Committee, that I advise Commercial Union but do not speak for it. The exercise of a good Committee working with a sensitive Financial Secretary who endeavours to heed outside pressures and Committee pressures has led to a better Bill.
How could I possibly not draw the House's attention to schedule 12, which is all my own work, thanks to the Financial Secretary's encouragement? It includes further measures to encourage employee share ownership, for which I have campaigned for some time. I am delighted that, since the debate in Committee after which my amendments were accepted and broadly embodied in schedule 12, many people in the industry have issued press releases stating that this is a breakthrough and that they look forward to more statutory employee share ownership trusts.
These are distinctive measures and should be taken in the overall context of the Budget judgment which started in November. My principal point is that I am perfectly content that the fiscal judgment in November was right. I do not resile from praising my right hon. and learned Friend the Chancellor for his Budget judgment, which stands up very well. I am not at all put off by the remarks of the hon. Member for Ashfield (Mr. Hoon), who attempted to find devilment in the minutes of the meetings between the Chancellor and the Governor of the Bank of England. As my hon. Friend the Member for Havant (Mr. Willetts) said, as soon as there is open government people try to abuse it.
As I said in an intervention, November's Budget judgment and the judgment in March last year by the former Chancellor have both made sure that we anticipated problems that would otherwise have emerged. If we had not increased taxation in 1993, we would now be talking about what taxes would need to be raised this year, and that 966 would have been a burden still to be faced. However, by failing to tackle the PSBR, we would have ensured that interest rates would have remained higher than they are. That issue is important when dealing with the market, and it could have had a much more negative effect on consumer confidence than the hon. Member for Ashfield alluded to.
§ Mr. BettsAs a result of that reasoning, would not the hon. Gentleman agree that, if the Government had been bold and honest enough to increase taxes in 1992 rather than in 1993, the whole process would have begun much earlier? I remind him that at that time the Government forecast was for a £30 billion PSBR deficit.
§ Mr. TaylorThe hon. Gentleman may recall that, in the Buget debate in 1992, I advocated tax increases but through a broadening of the tax base. The 1992 Budget judgment was made on the basis of what we then knew was reasonable. Any Government have to try to adjust to the circumstances of the time. A responsible Government faced with a PSBR deficit forecast of £50 billion have a number of options. In reply to my intervention, the hon. Member for Peckham (Ms Harman) refused to make any judgment about how she would have tackled the problem.
When faced with a PSBR deficit of £50 billion, one can either increase taxation, reduce expenditure or borrow more, or have a combination of all three. One has to make a judgment and then stand by it. I have said that in November the Chancellor got the judgment right. All the indicators show that the rise in private consumption that has been going on for the past three years is continuing and will continue in 1994.
The slight difference, if there was any, between the Governor of the Bank of England and the Chancellor of the Exchequer was whether there were still inflationary pressures in the economy and not the extent to which taxation might damage consumption. There is inevitably some damage to consumption when new taxes, are introduced. The Labour party has always been much more enthusiastic about introducing new taxes, and it should know about the damage to consumer confidence better than we do.
In the light of the continuation of consumption, one must judge at what point inflationary pressures could grow and at what point there would be a too-rapid take up of capacity leading to a possible increase in the trade deficit. Such judgments call for important calculations, and fiscal policy is a way of restraining or at least controlling growth in consumption. Monetary policy—that is to say, interest rates—is another of the calculations.
The judgment is about right, and I would have been greatly concerned if I had seen a much faster reduction in interest rates, bearing in mind that they have come down from 15 to 5.25 per cent. There is now tolerance, given the wider economic situation, for a further small cut in interest rates with the agreement of the Bank of England and the Chancellor. A large cut, which is sometimes advocated by Opposition Members, would be a dangerous injection of monetary laxity and could then lead to interest rates rising much more rapidly than we would wish. Stability is all.
One of the problems in the British economy has always been the volatility caused by over-reactive politicians. Volatility, and not just the level of inflation, has been our biggest bedevilment, so that investors require a higher yield to protect their investments against the prospect of volatile inflation. Short-term interest rates have fallen and 967 long-term rates fell at the time of the Budget precisely because it was plain from the figures in the Red Book that borrowing was being tackled. Long-term yields fell and the yield curve was shallower.
More recently there have been one or two nervous phases about the long-term yields. That supports my contention that we can never ignore the prospect of inflation returning. We can never be complacent about inflation: it is a constant battle. Opposition Members should bear in mind that taxation rises this year, the restraint on expenditure and the reduction in the PSBR formed the basis for sustained economic growth with low inflation. That is what Britain has wanted for many years but could not achieve.
I strongly believe that, if it is achieved, at the next general election we shall receive great credit for having taken the measures now, and the hon. Member for Peckham will have to start to change her tune. Almost her entire speech this afternoon fought the most recent general election again. It was not about what we should do now, about what will happen in the future. It was about this or that Minister or this or that Back Bencher saying in their election address in 1992 that the Conservative party believed in low taxation.
We do believe in low taxation, but that does not mean that at any given moment we reduce taxation if it is not prudent so to do. We face up honestly to the electorate if we have to make a different Budget judgment. That is precisely what we have done. We do not expect to be popular for it, but it must be confronted.
As the hon. Member for Dagenham (Mr. Gould), who will soon no longer be with us, clearly stated, for any given moment Labour will have a higher taxing policy than that of the Conservatives simply because the Labour party will always spend more money. There is no way of getting round that. The debate at the most recent general election centred on that. It was not about whether we said that taxation would increase. Labour would have increased taxation to accommodate the greater expenditure it proposed at that time.
For any given greater level of Labour expenditure, Labour's taxation will be greater than that which we would have applied, because we would not spend that extra money. The Labour party must face the electorate with the consequences of its decision, and we must face the electorate with the consequences of ours.
§ Mrs. Anne CampbellDoes the hon. Gentleman accept that the debate has moved on? It is not about higher taxes but about unfair taxes. Does he agree that in the past 14 years there has been a redistribution using the taxation system, so that those people who are on lower incomes are far more heavily taxed now than they were in 1979 under a Labour Government?
§ Mr. TaylorBecause average incomes have increased, it is true that it takes a lower multiple of average earnings to reach the top level of taxation than it did under the last Labour Government. I realise that. However, top rate taxpayers now contribute a greater percentage of total taxation than they did under the most recent Labour Government. Yet our top tax rate of 40 per cent. compares with 98 per cent under the last Labour Government—and unearned income tax at 15 per cent. and their top rate of tax 968 of 83 per cent. Now, in spite of the fact that we have reduced the top rate of tax, more tax is contributed by the top rate taxpayers.
One has to take human reality into account. If one socks people with a 98 per cent. marginal rate of tax, they will not declare their income for taxation purposes. The biggest growth industry under the last Labour Government was accountancy—so reviled this afternoon by one or two Labour Members. The accountancy profession had its boom period because evasion as well as avoidance was a necessity for people who were otherwise being taxed at marginal rates of 98 per cent. The public still remember that; the hon. Member for Cambridge (Mrs. Campbell) should be very careful when she speaks about top rate taxpayers.
Some interesting figures were quoted in one of the weekend newspapers. If someone on average earnings had a £50,000 variable rate mortgage that was taken out in 1988, that person's post-tax, post-mortgage income would have fallen by 27 per cent. in real terms by mid-1990. However, from mid-1990 to the end of last year, the post-tax, post-mortgage income of that same person, with that same mortgage, would have increased by 78 per cent. That is a startling change, and indicates the gearing effect on the economy, and consequently on consumption, of interest rate movements.
It is bad news for obvious reasons, but, once again, proves my point, in terms of the extent of volatility since 1988. It would have been better to have a much more gradual transition, but it cannot be denied that, since mid-1990, a person with such a mortgage has done extremely well, far outweighing the impact of the tax changes that were made in the last Budget. That has an important effect on consumer confidence, and it is important to take that into account when one considers total consumption and the effect on the economy.
The other side of the fiscal balance to taxation is public expenditure. The Government were very courageous in the settlement that was reached for a new control total, and I suspect that they will have to continue to be careful to stay in the Red Book guidance on new control totals in the next few years. There is always pressure to spend more, and I know that the EDX Committee—the Cabinet Committee on public expenditure—has already started to consider the control total, and the way in which it is reached, for the next Budget.
There will always be a tendency for Government Departments to want to spend more. The reason for that is that any Minister worth his or her salt always thinks in terms of inputs. Sadly, the debate has not changed sufficiently to outputs so that the quality of the services provided by Government, which should be the better criterion, is not often used. It usually comes down to the fact that we have spent more money and therefore the service must be better. The language of how one qualifies or quantifies the quality of the service provided by Government must change.
I nevertheless believe that, if we can stay within the control totals, that will be a better balance for public expenditure as a proportion of gross domestic product than there has been for some time, safeguarding the key expenditures, not only social services, but health and education. I believe that that will be recognised by the electorate by the time of the next general election. However, there is no easy way out. 969 Opposition Members should be careful, because the normal tendency of the Labour party close to an election is to start making promises about the ways in which life will be better under Labour because they will spend a few extra billion pounds. At the moment, the right hon. and learned Member for Monklands, East (Mr. Smith) is telling everyone to keep quiet, but at some point there will be no way of avoiding that problem.
I am not sure what the Labour party has to offer its supporters other than more expenditure and more money spent on the producers of public services. We shall watch with great interest what promises are made and the way in which they vary from the Red Book, because I emphasise that if one gets a variance from the Red Book one must say whether one will pay for it in more borrowing, which means ultimately higher interest rates, or more taxation, which would undermine Labour's entire attack on us.
I have to say to the Labour party that one of the reasons why I am happiest about what the Chancellor did in November was that debt servicing was almost the fastest growing area of public expenditure. Debt servicing accounts for about 7 per cent. of gross Government expenditure. It had to be brought under control, and one understands why the Chancellor took those measures.
Others want to speak and I will finish with a point about employment. One of our difficulties in this country, in spite of the welcome figures today, is that there will not be real employment growth—in other words, a reduction in unemployment—until the economy expands at a rate faster than about 2 per cent. If my judgment is right that the fiscal balance now will not cause too great a cut in consumer expenditure—it will simply ensure that it grows at a more stable level—we must find other ways to reinforce economic growth such as on the capital account for infrastructure projects, involving private finance initiatives on which the Treasury is extremely keen.
To get the economic growth going, we need to consider supply side measures, skill training and so on. It takes time, but it is essential. All those things are necessary to get our economy growing on a stable, non-inflationary basis at a level that will have a significant effect on job creation and employment. Taking the community as a whole, there are many wasted resources through unemployment.
The target for the Government, having got the Budget judgment right last November, is to ensure that they create the type of low-inflation, high-growth economy that will enable us, at the next general election, to face the electorate with a very good prospectus, which I have no doubt they will warmly endorse.
§ Mr. MacdonaldIt is easy to understand why the hon. Member for Esher (Mr. Taylor) complained about our dwelling on the last election. Despite the fact that it was their fourth election victory in a row, Conservative Members are so embarrassed and ashamed that they blatantly lied to the electorate at that election that, rather than glorying in the result, they object whenever we bring up the memory. Despite their desire to wipe the slate clean and make people forget the promises that they made to the electorate at the last election, the public will not forget.
970 They will register their verdict in the forthcoming local and European elections and their final verdict at the next general election.
My hon. Friend the Member for Hemsworth (Mr. Enright) pointed out how poorly the British economy had done during the 1980s compared with the Italian economy on a range of indicators. One that struck me was the fact that the growth of the Italian economy outstripped that of the British economy. The Italian economy is now larger than the British economy for the first time in 200 or 300 years. That was just one of the dismal milestones which the Government passed during the 1980s.
One of the most dismal milestones of all was the fact that, for the first time since the Elizabethan era, the United Kingdom had a manufacturing trade deficit. That milestone was passed in 1983 and, every year since, our manufacturing position has grown steadily worse.
The hon. Member for Esher touched on the importance of trade and trying to get the balance of payments correct in the future. The balance of payments has not been dealt with in this debate, but was a spectre in previous Finance Bill debates. Three or four years ago, people were predicting a balance of payments deficit approaching the scale of the current public sector borrowing deficit. The recession averted that, but as the economy will inevitably begin to pick up in the next two or three years, I fear that the balance of payments spectre will come back to haunt us, blowing off course all the fine predictions made in the Red Book and by the Chief Secretary at the beginning of Third Reading.
Only one aspect of the Chief Secretary's speech was admirable—its fluency and the skill with which he used language to disguise the seriousness of the economic disasters that have befallen us during the 1980s and into the 1990s. Whenever an event forces a change of policy on the Government, the consequences suddenly become the noblest of virtues. Disasters become triumphs and setbacks become great leaps forward.
That was most noticeable in what the Chief Secretary said about taxation. Previously, the Conservatives were the party of low taxation. Now, it is a virtue that they are increasing taxation and the Chief Secretary takes pride in the fact that the Budget will increase taxes by their greatest level in peacetime history.
In the midst of all those changes of course and twists and turns, it is important to maintain a perspective and not allow the public to forget what has happened in the past four or five years. I wish to do that on just two of the issues raised in the debate so far: public spending and taxation. Public spending featured heavily in the Chief Secretary's speech. Instead of the traditional goal of low taxes, his aim in the next three or four years is to rein back public spending and keep the lid on the spending binge on which the Tories embarked a year or two before the last election.
It is important to put the current spending position into a historical perspective. In the late 19th century, public spending as a proportion of GNP was a little less than 10 per cent. Most of that public spending was incurred as a result of the empire paying off debts from previous empirical wars—the Boer and the Crimea—so it was current expenditure rather than investment in capital projects for the future. With the coming into power of the radical Liberal Governments of the early 20th century, particularly with Lloyd George's people's Budget, there was a marked increase in Government spending, which rose to about 5 per cent. of national wealth. 971 After the first world war, with the further establishment of basic programmes of social protection and the strains imposed on them by the recession of the 1920s followed by the great depression, public spending as a share of national wealth rose to some 25 per cent. It was maintained at that level because of wartime spending until the election of a Labour Government in 1945.
The Labour Government of 1945 embarked on a major programme of public expenditure, particularly on the welfare state and national health service, which increased the Government's share of national wealth by some 10 percentage points and brought it up to 35 per cent. The Conservative Governments of the 1950s inherited that level of public expenditure and never rolled it back.
Throughout the 1950s and early 1960s, spending stayed at a more or less steady plateau of about 35 per cent. of GNP. With the elections of the Labour Governments of the late 1960s and the mid to late 1970s, public expenditure increased further again, by about 5 per cent. on each occasion.
§ Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury)While the hon. Gentleman has been making his long historical analysis of GDP as a percentage of our total wealth, I have looked up the figure in the Red Book. Will the hon. Gentleman explain to the House why public expenditure as a proportion of total GDP reached the staggering figure of 49.25 per cent. in 1975?
§ Mr. MacdonaldIf the hon. Gentleman looks at the Red Book at page 23—I think that is the page to which he referred—he will find that the statistics that I am giving are absolutely right. Between 1974 and 1979, public spending as a proportion of GNP averaged about 45 per cent.—at its highest it was 49 per cent. In the early 1980s—at its highest under Lady Thatcher—it was 47.5 per cent. The difference is not that great, which is the point that I am endeavouring to make.
When the hon. Gentleman intervened, I had not reached the mid to late 1970s. I was about to say that, from the plateau of 35 per cent. in the 1950s, under the first Wilson Government in the late 1960s, public spending increased by about 5 percentage points to a new plateau of about 40 per cent. The later Labour Government increased it to a subsequent platform of about 45 per cent.—sometimes higher, sometimes lower. It sometimes went up to as high as 49 per cent. and was sometimes as low as 44 per cent., as when the last Labour Government left office.
§ Mr. DorrellThe hon. Gentleman keeps referring to a figure of about 45 per cent. I shall help him to be a bit more accurate. The average for the five years of the last Labour Government was 46.5 per cent. of national income. The peak in this cycle is shown in the same table as 45 per cent. of national income. That is the difference between the parties.
§ Mr. MacdonaldI am glad that the Financial Secretary has put that on record. That was exactly the point that I was endeavouring to make. We have had 15 years of radical Conservative government and the Financial Secretary tells me that the difference in the figures is about 1.5 per cent.
§ Mr. DorrellI was comparing the average over the cycle of the last Labour Government—46.5 per cent.—and the peak in this cycle, under this Government, of 45 per cent. The plans in the Red Book show how we intend that figure to fall to 41 per cent.—roughly the same as the 40 per cent. figure of the late 1980s.
§ Mr. MacdonaldThe Financial Secretary cannot rely on plans; he must rely on the record. The record shows that the peak under the last Labour Government was 49.25 per cent., and the peak under this Government has been 47.5 per cent. The Labour Government exited with a figure of 44 per cent. Under this Government—committed to 15 years of radical cost-cutting under Lady Thatcher and the current Chief Secretary—the figure is 45 per cent., which is 1 per cent. higher than when the Labour Government left office.
The point that I was trying to make—I think that the Financial Secretary has helped to make it—was that of the simple and obvious failure of all Conservative Governments to roll back the share of state spending as a proportion of national wealth to any serious degree. I know that the Red Book speculates on rolling the figure back to 41 per cent., but the Conservatives have had 15 years of attempts to roll back the share of state spending, which is now higher than when the last Labour Government left office.
When one compares the impact of successive Conservative Governments with the impact of Labour Governments, one sees that in the late 1960s there was an increase of about 5 percentage points and in the late 1970s there was an increase of about 5 percentage points. In 1945 there was an increase of about 10 percentage points. Compared with those considerable impacts on the share of public spending in national wealth, 15 years of Conservative Government have had a negligible impact, as page 23 of the Red Book clearly shows.
I make this journey into the past to try to put into perspective what I regard as empty rhetoric—the high-taxation, high-spending claims of opposing parties. The reality is that Britain, in line with most western European Governments, is probably stuck with a share of public spending as a proportion of national wealth of around 45 per cent. in the medium to long term. Nothing that the Conservative Governments of the past 15 years have done has altered that by any appreciable margin and it is hard to credit that anything they do in future will have any impact.
§ Mr. DorrellThe hon. Gentleman is advancing an interesting argument. I certainly do not accept his proposition that under the present Government public expenditure will remain at 45 per cent. of national income, but if that is his assertion and view of what would happen under a Labour Government, perhaps he will tell us how a Labour Government would finance the extra 4 per cent. of national income that he wants to see accounted for by public expenditure. He would not want it to be borrowed indefinitely, so he owes the House an explanation of how the revenue gap of 4 per cent. of national income that he has opened up would be filled.
§ Mr. MacdonaldI did not say that I wished to see an extra additional 4 per cent.—
§ Mr. DorrellYes, you did.
§ Mr. MacdonaldI simply pointed out that the highest figure under the last Labour Government was 49 per cent. and that the highest figure under the Conservative Government is 47.5 per cent.—the difference is very marginal and cannot really sustain the rhetoric that we have heard. I have not said at any time that I wished to see public expenditure increased to 49 per cent. 973 I was arguing in favour of fixing global levels of public expenditure and that trying to measure the success or failure of a Government by whether they increase or reduce the figure by 3 or 4 per cent. is fatuous and beside the point. That is not what we should be looking at when considering public spending.
Unfortunately, that is the obsession of the Chief Secretary. The whole test of whether his strategy will succeed over the next four or five years is apparently whether it will roll back the share of public expenditure in national wealth.
At the start of the Finance Bill, the Chief Secretary referred to the United States, where the ratio is around 35 per cent.—the Chief Secretary used the figure of 38 per cent. That is certainly significantly lower than the European average and lower than it is in Britain. He implied that that was his long-term target.
Of course, the right hon. Gentleman neglected to point out that the key difference between the United States and the countries of western Europe is that health care in the countries of western Europe is largely socialised. That accounts for much of the difference between the United States and Europe. He will also be aware that the current United States Administration has presented a fairly comprehensive package of health care reforms to Congress and the congressional budget office has judged that the impact of that package would be to increase federal expenditure in the United States by some six or seven points.
Therefore, the Chief Secretary's case that the United States is somehow a model that we should be emulating and that we should be slashing our expenditure back to American levels fails to take into account what is happening now in the United States, and the difference in health care treatment.
§ Mr. WillettsMay I commiserate with hon. Member and assure him we were looking forward to hearing his remarks and drawing on his experience in the Finance Bill Committee, but these lengthy historical, statistical digressions on public expenditure ratios seem to be detaining him and the House.
§ Mr. MacdonaldThe hon. Gentleman seems to object to the point I am making because he does not like to admit that 15 years of Conservative Governments, by their own objectives and aspirations of cutting spending and taxation as a proportion of national income, have been a complete and utter failure. That is what both tables on page 23 of the Red Book clearly show and that is what Conservative Members are trying to get away from.
The Conservative claim that it is the party of low taxation is disproved by the figures on page 23 of the Red Book, and a number of my hon. Friends have illustrated that fact during their speeches this evening. I made the point by way of intervention that, although the Chief Secretary is increasing taxes across a range of areas, it is not as though there are no tax cuts on offer this year.
The Local Government etc. (Scotland) Bill introduces the abolition of sporting rates. The measure will cost the Exchequer some £2 million and the benefits of that tax cut, in a year when everyone else faces increased taxes, will go exclusively to the proprietors of large estates north of the 974 border. People such as the Duke of Buccleuch, the Countess of Sutherland and the Earl of Thurso will share the £2 million between them.
That hypocrisy illustrates that the real argument between the two sides of the Chamber is not about global increases in the total amount of taxation or total expenditure; rather, it about striking a balance within taxation and expenditure. It is a question of how taxes are raised—whether they are raised fairly from the people who are most capable of bearing the burden of taxation. It is a question of whether money is spent on items which produce growth in the economy in the long term, such as housing and public infrastructure, or whether it is spent on items such as employment benefits which pay for people to be idle.
That is the real difference between the two sides of the House. It is not a question of global totals; it is a question of fair taxation and sensible spending. That is the message that we will be taking to the upcoming European elections and to the next general election.
§ Mr. WillettsWe are now coming to the conclusion of many months of deliberation on the Finance Bill, in which we have heard two types of contributions from the Labour Benches. First, we heard nit-picking comment on the detail of particular clauses. In one memorable sitting, a member of the Labour Front-Bench team managed to spot several printing errors in the Bill—that led the Financial Secretary to congratulate him on his skill in proofreading. When Labour Members were not proofreading, they engaged in wide-ranging ritual denunciations of any and all tax increases, but we sadly missed anything in between. There was no meaty and substantial engagement on the real questions of tax policy. We were not offered any enlightenment as to what a Labour Government's approach to taxation would be.
§ Mr. Nicholas BrownThe hon. Gentleman raises an interesting topic. We get opportunities to discuss the Labour party's approach to taxation, but not while we are scrutinising the Finance Bill in Committee.
§ Mr. WillettsThe scrutiny of the Bill in Committee was either pernickety or ritual denunciations, but we did not have the substantial debate on some of the major aspects of tax policy for which the clauses provided ample opportunity.
Despite the Labour party's failure to set out its views on tax policy during the many hours spent in Committee, the broad outlines of the difference between the two parties is clear if one reflects on the way in which a party in government responds to the inevitable effects of a recession on the public finances. The real test of a Government's ability to steer the economy comes not when we are enjoying the benefits of the good times, when the economy is recovering and when one is in the benign phase of an economic cycle but when we are in the difficult times and recession drives public finances into deficit.
There is a clear contrast between the approach taken by the Labour Governments in 1974, 1975 and 1976 and that taken by the Conservative Governments in 1980 and 1981. Everything that we have heard in the debate on the response to this recession and its impact on public finances shows that the difference in the response to the two previous recessions still obtains. 975 In 1974 and 1975, the then Labour Government tried to borrow their way out of the recession and out of the enormous deficit that occurred as a result of a fall in tax revenues and large increases in public expenditure. Their attempt to avoid the difficult decision to increase taxes to bring down the public sector borrowing requirement led, of course, to the notorious intervention by the International Monetary Fund when the City and the international financial markets ran out of tolerance for the Labour party, and a high level of borrowing was required. We ended up with cuts in public expenditure programmes—6 per cent. real reductions in one year—and those cuts were more draconian than any that we had experienced in the post-war period.
The alternative, which was the approach taken by the Conservative Government in 1980–81, was to do the painful but necessary thing and raise taxes to reduce the PSBR so that we did not run out of road and were not still trying to borrow when we had lost the patience of the markets. That was the right decision to take in the recession of 1980–81, and the sustained economic recovery of the 1980s proved just how right it had been—we had the longest peacetime economic recovery that we have ever enjoyed.
It is perfectly clear that, faced with the consequences for public finances of the recent recession which proved to be longer and deeper than forecast, the Government are repeating the step that it was necessary to take in 1981—they are raising taxes. Just as then, despite all the catcalls and jeering at the time, that step laid the basis for a sustained strong economic recovery. We can be confident that getting the public finances in order now will similarly lay the basis for an economic recovery in the 1990s.
The trouble is that the Labour party has made no serious attempt to engage in any debate about those issues. Perhaps I can inform my hon. Friends who are here but who were not members of the Committee that Labour Members instead regularly read to us extracts from the manifestos on which Conservative members of the Committee had fought the election.
There were times during the longueurs of the Committee when I found my mind wandering to the poor Labour researcher who had possibly been tempted into working for a member of the Labour Front-Bench team by the prospect of being able to think about economic or tax policies but who was instead lumbered with the task of reading Conservative Members' election manifestos. Perhaps through you, Mr. Deputy Speaker, and Hansard I might speak to this unknown researcher and commiserate with him or her for the appalling level of job satisfaction offered by Labour Front Benchers. I hope that, next time, he or she will be allowed to research some of the meaty questions relating to tax policy that did not detain those on Labour's Front Bench this time.
§ Mr. Ian TaylorI must correct the impression given by my hon. Friend. Any offer to work for the Labour party can be enhanced only by including in it the opportunity to read Tory election manifestos rather than being forced to read Labour party documents.
§ Mr. WillettsThat is a very good point. One is led to wonder whether the job of dealing with such dangerous, subversive literature had to be divided among several Labour researchers in case prolonged exposure to it led to 976 defections to the Conservative party. Who knows what special measures had to be taken to handle that dangerous propaganda?
In the remaining minutes of my speech I shall reflect a little more on the sort of economic recovery to which we can look forward because of the tax measures in the Bill and in the previous Budget in 1993. I am unashamedly optimistic about the prospects both for inflation and for real economic growth. All the evidence suggests that the Government are enjoying considerable success in holding inflation down not just within the 1 to 4 per cent. target range, but down towards the lower end of that range.
The figure for the growth in M4, for example, which is in the middle of its target range, suggests that some of the anxieties which have been apparent in the City over the past few weeks about the future course of inflation do not appear to be well founded. In fact, the problem appears to be that there are still macho managers in British industry who want to plan very high rates of return on their investments because they are making pessimistic assumptions about the future course of inflation, which seem unlikely to be borne out by events.
When firms and senior managers proudly say, "We are looking for a rate of return of 17.5 per cent. on our investment," when the British economy can look forward in the medium term to an inflation rate in the 1 to 4 per cent. range, that is no longer a sensible way of running a business. It shows that the opposite of money illusion—inflation anxiety—is still persistent although, given the Government's monetary and fiscal stance, it is not justified.
The crucial indicator that ties together prospects for inflation and for the real economy is, of course, spare capacity. The hot topic nowadays is: what is the spare capacity of the British economy? If we can get a feel for the spare capacity that is still stretching out before us, we shall be able to get a feel for how rapidly we can expect the British economy to grow without suffering the old problems of high inflation.
All the evidence suggests that we have substantial spare capacity. That is not a matter of taking a snapshot picture and measuring the size of under-used plant and industrial capacity at a particular moment. It is a matter of looking at indicators such as skilled labour. One of the most impressive pieces of evidence is that throughout the recession employers kept investing in training their employees, and now that recovery is under way, there has been no significant increase in the number of firms reporting difficulties in finding skilled labour.
The old problem of skilled labour shortages emerging in the early stage of an economic recovery appears less serious this time than in the past, which lays to rest some of the scares put about by the Opposition about training and the quality of the British work force.
§ Mr. Alan Duncan (Rutland and Melton)While my hon. Friend is talking about spare capacity, does he accept that one of the major triumphs of economic management over the past two years, which the Budget specifically addresses, has been the rise in fixed-term lending over five, 10, 15 and even 20 years? Does my hon. Friend accept that that significant change in lending arrangements will allow businesses and individuals to plan for the long term without being subject to the strange amplitude of interest rate costs?
§ Mr. WillettsI agree with my hon. Friend. One of the curious features of the British system for financing industry, which I know the Financial Secretary to the Treasury is currently reviewing, is the fact that we have equity investment and short-time variable-rate bank lending, but that we have failed to secure something in between—fixed-term, fixed-interest corporate debt.
The reason for that is obvious. When an economy suffers from high and variable rates of inflation, people resort to equity finance, or variable interest rate finance, because they cannot obtain the classic form of debt finance that my hon. Friend described. It should be one of the many advantages that we secure as a result of this economic recovery, with the prospect of sound public finances and continuing low inflation, that the corporate bond market at last revives. That will lay the basis for an increase in business investment.
We have heard a lot today from Labour Members about what will happen to consumption as a result of the tax increases under the Bill and under the 1993 Budget. It is perfectly clear that if there is a significant increase in taxation, there could be some impact on consumption. However, the question is also what will happen to investment. If, over the coming year, business investment improves dramatically, with business gaining confidence as it sees a sustained economic recovery opening up in front of it, and improving prospects in the American economy and, let us hope, in the continental economies, Britain will continue to enjoy an economic recovery.
That recovery will be based on improvements in business investment, improvements in exports to growing economies around the world and less dependence on increases in domestic consumption than there inevitably was in the early stages. As the Bill lays the basis for an economic recovery that will be well balanced and sustained, I am confident that the House will give it a Third Reading tonight.
§ Mr. Nicholas BrownNot for the first time, I have the opportunity to follow the hon. Member for Havant (Mr. Willetts) in debate; it is always a pleasure.
The Conservative manifesto sets the parameters for this debate. The Conservative party promised the British electorate lower taxes and a prudent approach to borrowing. It said that that did not mean that public spending must fall—quite the reverse. That is the context in which this year's Bill should be judged. Taxes have risen. The Government's approach to borrowing could hardly be described as prudent, certainly not by the hon. Member for Havant. The Chief Secretary has set the tightest public spending parameters in recent history, and is boasting about it.
The House will be interested to learn that the first Bill to be called a Finance Bill became law in 1894, so this year is the centenary of Finance Bills. [HoN. MEMBERS: "Oh."] It obviously comes as a grave disappointment to the House that the Government have not organised celebrations for this centenary; they seem to have overlooked the anniversary.
No street parties are being organised to celebrate the tax increases, and there is no Victorian re-enactment of the Government's prudent approach to public borrowing. There is no reconstruction of late 19th-century workhouses to underpin the Government's approach to public 978 expenditure. I have to disappoint my hon. Friends by telling them that there is not even a letter from Larry Whitty inviting the Labour party to join in. We all understand why, in spite of the undoubted talent of Sir Tim Bell, the Government have chosen, no doubt in shame and embarrassment, to overlook the Finance Bill centenary celebrations.
In fairness to the Government, I point out that they have celebrated in one way. They have produced a bumper edition, running to two volumes—the longest Finance Bill ever. It has been criticised for its length, for its incoherence, for its opaque drafting and for its complexity. We as a House have been criticised, not unjustly, for the way in which we have dealt with its contents. I do not accept the broad approval given by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) to the way in which we handled the Bill. I point out that his own record of truancy in Committee was exceeded only by that of the Chief Secretary.
§ Mr. PortilloWill the hon. Gentleman give way?
§ Mr. BrownOf course I shall give way. I shall make more jokes at the right hon. Gentleman's expense later.
§ Mr. PortilloI may not have spoken much in Committee, but I was a determined attender.
§ Mr. BrownI accept that, when the right hon. Gentleman was in this country, he attended our proceedings. However, he was not fully engaged in the debates. I recall him going through his briefcase and signing coloured photographs of himself with the words, "To Michael, in frank admiration—Michael", with a little kiss at the bottom.
I accept that the Chief Secretary's absence from our proceedings was wholly due to the fact that he was visiting South America. Of course, it is not unknown for politicians with extreme right-wing views to ensure that they keep their connections with South America in case they need an escape route. I make no criticism of the Chief Secretary for that. Indeed, I wish him well if he ever feels the need to flee the country.
The Labour party accepts, and always has accepted, the case for informally timetabling the taxes management part of the Bill, and for taking the main tax changes on the Floor of the House. Labour Members also accept that there is a good case—on that matter, we make common cause with the right hon. Member for Berwick-upon-Tweed—for a less adversarial Select Committee type of proceeding on taxes management issues. What happened in practice, Mr. Lofthouse, is that the Government imposed a guillotine on the whole of the proceedings, day by day, in the most heavy-handed manner.
§ Dame Elaine Kellett-BowmanYou should address Mr. Deputy Speaker.
§ Mr. BrownI always seem to provoke the hon. Member for Lancaster (Dame Elaine Kellett-Bowman) in such exchanges. It is not intentional.
§ Dame Elaine Kellett-BowmanI was only saying that the hon. Gentleman was forgetting that he was addressing the Chair.
§ Mr. BrownYou, Mr. Lofthouse, let it go, but, of course the hon. Lady is quite correct. I should address you, Mr.Lofthouse, as Mr. Deputy Speaker. I am grateful to the 979 hon. Lady for correcting me on that matter. It is probably the only matter in any such debate on which she has managed to correct me. Nevertheless, let me proceed with my criticism of the way in which we were required to deal with some of the matters.
The Government manipulated the guillotine, which found, Mr. Deputy Speaker, that we had ample time to discuss the consequences of the European Commission's third directive on life insurance. Indeed, we had a surfeit of time to discuss that not especially controversial matter. However, when we came to controversial clauses—the Financial Secretary referred earlier to what was then clause 241, which he eventually, quite rightly, withdrew—we came up against the guillotine and found that the time for Labour and Conservative Members to speak was dramatically restricted. That is a stupid way in which to conduct our affairs. If such matters are to be timetabled in future, there should be much fuller discussion of how the timetabling should be managed in practice.
§ Mr. BrownI shall give way to the hon. Gentleman later, but I would first like to get through some of my comments.
The Government ordered the debate so that we had to agree to clauses which enacted schedules before we were able to discuss the contents of the schedules themselves. They abused the guillotine by encouraging their own Back Benchers to filibuster, thus avoiding the burden which should rightly be borne by Ministers, of explaining clauses to the Committee.
The Government sulked when we kept them back to vote on those clauses, and drew inferences from the fact that we voted against those clauses that should not have been drawn. They steadfastly refused to let us discuss VAT on domestic fuel, when we all knew that the electorate would have liked us to discuss it and have another vote on it.
They tabled last-minute amendments in the name of Conservative Back Benchers and accepted them, thus smuggling them into the Bill. It was supposed to be the first Finance Bill under the new unified Budget process. In fact, the Government have ensured that there is even less consideration of the wider context, including public expenditure, than usual. The House has not discussed departmental spending plans since May 1991. It was some unified Budget.
We complained about those points during the passage of the Bill. Conservative Members complained about procedural issues as well, and outside bodies that like to make representations to us complained that it was unsatisfactory. Some of those reservations were shared by Conservative Members—[Interruption.]—and I shall give way to one that I think shared some of them.
§ Mr. SternDoes the hon. Gentleman agree, as a fellow veteran of many Finance Bills, that, for the first time, the effect of the procedure which he is deprecating and in which the Labour party refused as a matter of principle to take part, was to produce an even debate from both sides of the Committee, which we have never had before?
§ Mr. BrownI am in favour of an even debate from both sides of the Committee, but that was not what we were treated to in our proceedings. I have said that we would like to agree workable timetable arrangements. I would have 980 liked to refuse to attend the Business Committee on principle, but I was not given my notice until just before it was due to meet. I did not even have the opportunity to refuse on principle to attend.
Many Conservative Members share the Opposition's disquiet about the way in which the arrangements worked in practice. They blamed the Opposition Whips Office, and someone they referred to rather darkly as Don. We, the Opposition, take that to be a reference to Don Portillo, who we feel is largely responsible for imposing what used to be called Spanish practices on the way in which we proceeded. In Committee, Labour Members would try to make progress only to be told, manana, or the day after manana.
The Chief Secretary took a relaxed view. If my hon. Friends feel despondent about the way in which we proceeded in Committee, I should say that it has not all been in vain. When we began our proceedings in Committee, the Finance Bill, if someone wished to purchase the two volumes rather than get them free from the Vote Office, cost £27.30. Its value has now risen to £29.45. I am sure that that is the result of the value that Labour party scrutiny has added to the document. Given the passage of time, however, the increased price may be the result of inflation. The Committee sat for so long that, if I become any older, it may be that I shall not qualify for medical treatment in a Tory trust hospital.
All Chancellors of the Exchequer, like shadow Financial Secretaries, enjoy their little jokes. Last year, the then Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont), made special mention of the tax increase on small cigars, the subtext being "as smoked by you know who". This year, "you know who" got his own back by increasing tax on cigarettes and cheap champagne.
The Chancellor was less successful in justifying the impact of this year's Finance Bill on his fellow citizens. In a desperate effort to explain, he grabbed the first analogy that came into his head, just as we have often seen him do during Treasury questions. Predictably enough, it was about beer prices. Equally predictably, it has not really helped to explain the impact of the Government's tax rises. Three pints a week; a week is thus a very short time in politics.
The Opposition had our worst fears confirmed when we learned that the Chancellor drinks in the sort of places where beer costs £4.20 a pint. How much in character it is for the Conservative party to say to the electorate before the election, "We will get the drinks in," only to say after the election, "Oh, we borrowed the money for the last round. It's your round now." That leaves the bemused British taxpayer to get in a £6 billion round—the most expensive round of drinks in British history.
I want to be fair to the Government and, as the Financial Secretary would be the first to acknowledge, helpful as well. That being so, I offer the House an alternative—and, I think, a better—analogy to help explain this year's Finance Bill. I think that the Bill and its background should be restaged as a modern reworking of Macbeth.
The irresolute and over-ambitious Macbeth, steeped in wrongdoing, could be played by the Prime Minister, having achieved high office not by murder but by toothache. Baroness Thatcher would have to be Duncan, but the Chief Secretary could stand in for her—I know that he has always wanted to. The right hon. Gentleman could play Lady Macbeth. The Chancellor and the President of 981 the Board of Trade would quarrel over which of them should play Malcolm. My view is that eventually the role will be played by a more genuine Scotsman.
The scene where Macbeth hears voices reproaching him for the past would provide an easy way of explaining the background to the Finance Bill. The voices would cry out things such as, "We have no plans to increase VAT"; "There will be no VAT increase"; "Government has no higher duty than to protect the value of the currency"; "I will stand by Norman Lamont, David Mellor, Michael Mates and Tim Yeo"; "We shall maintain mortgage tax relief"; "Government should not gobble up all the proceeds of growth"; "Britain is at the heart of Europe and is a strong and respected partner"; "Those who create prosperity should enjoy it through lower taxes". "Membership of the ERM is now central to our counter-inflation discipline". Finally, to round off that metaphysical scene, there should be an old woman's voice cackling derisively from another place, "We must stand by John, we must stand by John." I offer that as a much more convincing metaphor for what has been going on.
There is another useful scene in this modern production which would be helpful to Tory Members—the scene where Macbeth stares at his empty chair and then sees the spectre of his former comrade in arms, cruelly and bloodily despatched at his own instigation, staring reproachfully back at him. Who could we find to play Banquo?—the right hon. Member for Kingston upon Thames (Mr. Lamont)!
This is the first Finance Bill since 1987 that we have had to do without the right hon. Gentleman. We miss him. The Chief Secretary pointed to Norman's tax rises, seeking to distance himself from them and, indeed, present himself as a sort of successor regime, while keeping the resources. His argument seems to go as follows: the Conservatives put taxes up; the Labour party told the electorate about it; the electorate will never forgive the Labour party. That is not the sort of logic that one expects from a future leader of the Tory party.
My time is running out, so all the other jokes must be saved for next year's Finance Bill. However, I cannot conclude my contribution to the debate without referring again to the tests which the Chief Secretary set us. Having said that he set the tests himself, he then said that we have not passed them. I shall present him with a test that he set himself earlier. At election time, he told his constituents:
Conservatives want to cut your taxes … higher tax and national insurance would hit those who work harder and do overtime.If he still believes that, I invite him to do the only thing he can—join us in the Lobby tonight and vote against the Third Reading of the Bill.
§ Mr. DorrellI congratulate the hon. Member for Newcastle upon Tyne, East (Mr. Brown), as ever, on the quality of his jokes. I assure him that there will be ample opportunity in future Finance Bills in this Parliament and, indeed, in future Parliaments for him to deliver his jokes from that Dispatch Box and to entertain the House with his speeches, as he has grown accustomed to do with considerable aplomb.
It cannot happen often that debate on the Third Reading of a Finance Bill provides the opportunity for an agreement 982 to emerge between the hon. Member for Peckham (Ms Harman) and my hon. Friend the Member for Bridlington (Mr. Townend). However, in the debate today, the two of them agreed on something important: that the Bill would represent the defining moment and the turning point in the progress of this Parliament. I agree with both of them. The debate will prove to be a turning point in this Parliament because the Bill lays the foundations for secure and sustained recovery that will continue for several years to come—well beyond the date of the next general election. That is the basis on which the Government will be re-elected.
That is not the only basis on which the Bill will prove to have been the defining moment of this Parliament. Not only does the Bill contain the clear basis of sustained recovery and the Government's plans for delivering that, but, during the passage of the Bill, the Labour party lost any credibility as a serious contributor to economic debate in Britain. The Bill serves to strengthen the Government's position and set the foundations for economic recovery. It has served to shoot to bits the economic credibility of the Labour party.
I shall deal first with the question of sustained recovery. My hon. Friend the Member for Havant (Mr. Willetts) and my right hon. Friend the Chief Secretary rightly laid considerable stress on the secure course of recovery that is provided for in the Bill. It is provided for because my right hon. and learned Friend the Chancellor of the Exchequer set out to deliver in his Budget a plan
to sort out once and for all the public finances of Britain".The Budget delivered by my right hon. and learned Friend on 30 November showed clearly how he intended to deliver that objective. It showed first how he intended to deliver proper control of public expenditure.As the House knows, my right hon. and learned Friend was using a system established by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) in his days as Chancellor in the early months of this Parliament. That system will establish securely proper control of the share of national income which is taken by public expenditure.
As used in the last round, the system delivered reductions in public expenditure plans of £10 billion and allowed my right hon. Friend the Chief Secretary to publish plans which, during the next three years, will deliver an average growth in the the total of public expenditure of 0.25 per cent. There will be less than I per cent. growth in public expenditure during the full three years of that plan. That was the first key element of re-establishing proper control of public finances.
The second key element, which we all know is not enormously popular but which is indispensable, is the revenue-raising measures that were included in the 30 November Budget, following on from the Budget of my right hon. Friend the Member for Kingston upon Thames last March. [HON. MEMBERS: "Tax-raising measures."] They were tax-raising, or revenue-raising, measures.
The reason for that is clear and is straightforward. When public expenditure plans have been made, we must then address the question of how to finance them.
The Government believe unequivocally that it is better to tax than to borrow, and that is one of the differences between this party and the Labour party. Where we set out public expenditure plans, we also set out plans for 983 financing that public expenditure on a secure and sustainable basis. That was the second element in my right hon. and learned Friend's Budget plan.
The third element is that on which my right hon. and learned Friend is able to count because he has controlled public expenditure and because he has set in place secure and realistic tax plans. That element is the growth which will continue right through the rest of this Parliament and beyond. My hon. Friend the Member for Ludlow (Mr. Gill) was right to stress the opportunities for this country to trade its way to improved living standards and improved prosperity. It is because the Budget sets out the disciplines which underwrite that trading success that we are able to look forward to that in the years ahead.
§ Ms EagleThe Financial Secretary said that the Conservative party prefers to tax rather than to borrow. Will he explain how we have ended up with the largest public sector borrowing requirement in history and the greatest tax increases since 1945?
§ Mr. DorrellThe hon. Lady's statistics are wrong. The PSBR borrowing total for last year which was published today is, by a significant margin, a smaller share of national income than was incurred through the 1970s. The key difference between what happened then under the Labour party and what will clearly happen under the Government is that, as the economy recovers, so borrowing will be brought down and be eliminated by the end of the decade. That is the difference between the plans of the two parties.
The hon. Member for the Western Isles (Mr. Macdonald) was right. It is not just a question of how much one taxes—it is a question of how one taxes. The hon. Gentleman used the word "fair", but he did not explain to the House how it is fair to tax at 83 per cent. the incomes of those who hold important entrepreneurial posts in Britain. How can one build a successful economic recovery where key decision-makers in Britain keep 17p of every pound they earn? The Government have changed that and we are unapologetic for having changed it. As a result, not merely that individual, but the whole community benefits as a result of a more vibrant, growing economy.
§ Mr. MacdonaldAt a time when every single ordinary person in the country is having to pay extra taxes, how is it fair and right that landed aristocrats should be receiving and sharing out £2 million worth of tax cuts? Does not that expose the hypocrisy of the Government's position?
§ Mr. DorrellThe hon. Gentleman thinks that he is on to a good point with that £2 million, but I am talking about a tax system which underwrites economic success.
I would like to know from the Opposition how it is fair to have a tax system which taxes the marginal income of savers at 98 per cent. The Opposition claim to be interested in investment and saving. How can one encourage savings and investment in the British economy when the return from savings is taxed at 98 per cent? It is because Labour has a narrow, myopic view of what fairness represents that it entirely failed to deliver a vibrant economy during its years in office.
§ Mr. Nicholas BrownThe answer to the Financial Secretary's question is that we do not believe in anything of the sort either.
§ Mr. DorrellThen it is slightly odd that the Labour party maintained as much during its years in power.
984 The Government have made clear the importance that they attach to low marginal tax rates and their commitment to such rates. We believe that that is the way in which to deliver a successful market-oriented economy.
I have said that the Bill marked not only the moment when the Government set out their plans, but the moment when the Labour party lost its credibility. In fact, many Opposition Members know that to be true. My hon. Friend the Member for Esher (Mr. Taylor) quoted the hon. Member for Dagenham (Mr. Gould). This is a sad moment for me: the hon. Member for Dagenham was my tutor at Oxford, and I have always enjoyed quoting his comments, but I fear that this may be one of the last occasions on which I am able to do so.
It is an important point, however. As my hon. Friend the Member for Esher recalled, the hon. Member for Dagenham said:
I think the Labour Party ought to accept … that we will always be likely to have a higher tax burden than our opponents because we believe in public spending.That is why Opposition Members are uneasy about the debate that has been going on over the past few months: they are aware that it is dishonest, and that they are involved in an argument that means that they cannot deliver to the British people.Not only the hon. Member for Dagenham knows the truth of the matter; the hon. Member for Hartlepool (Mr. Mandelson)—who was here a few moments ago, but has now disappeared, perhaps wisely—knows it as well. He is making himself unpopular with his colleagues. He was recently quoted in Tribune as saying:
As we all know, the question which matters is 'what will Labour do instead?'That question—the Mandelson question—is one that we have asked throughout the debates on the Bill, but we have received no answer whatever.I must not be unfair; we have been given the occasional hint. Last August, the hon. Member for Dunfermline, East (Mr. Brown) was heard to talk wistfully about the attractions of low tax: Labour, he said, might not wish to tax for the pure hell of it. I am not sure why the hon. Gentleman felt that he could speculate; perhaps he thought that he could talk about such matters safely while the hon. Members for Sheffield, Brightside (Mr. Blunkett) and for Oldham, West (Mr. Meacher) were on holiday abroad.
The hon. Member for Peckham had a rather more serious go in September, to which my right hon. Friend the Chief Secretary referred. Earlier in the debate, she sought to dismiss it, but I now have a copy of the document on which my right hon. Friend commented. It is a report by the London Policy Forum, which was set up by the regional executive of the Greater London Labour party. I shall not weary the House with the long list of names comprising that group, but the working party chair of the economy group was none other than the hon. Member for Peckham.
The report states:
Mortgage interest tax relief should be phased out for existing"—
§ Mr. DorrellIt is no good saying no; I have the words in front of me.
Mortgage interest tax relief should be phased out for existing borrowers. In its place, new borrowers would receive a Mortgage Benefit calculated according to their means.
§ Mr. DorrellThe hon. Lady may say "Rubbish", but it is on page 37 of the document published by a committee of which she was a member.
§ Mr. DorrellBefore the hon. Lady intervenes, let me tell her that she cannot simply dismiss this as something that is unimportant in the affairs of the Labour party. However, I am happy to give way.
§ Ms HarmanThe document from which the hon. Gentleman is quoting is from an unpublished draft by a working group of which I was not a member and whose proposals were thrown out. The public and the House can believe nothing of what the Government say about their own proposals, let alone what they say about ours. The Minister has engaged in downright and deliberate misrepresentation and he should withdraw what he has said.
§ Mr. DorrellI have no intention of withdrawing. I shall quote from the covering letter to the document from Mr. Terry Ashton, who is the general secretary of the Labour party in Greater London. He is not, one would have thought, an unimportant figure in the Labour party. He said:
The London Policy Forum is being used as a model for regional policy forums in other parts of the country. With its detailed analysis of the problems and challenges facing London, and its many innovative ideas,"—including presumably this one—I am sure that this document will be of major benefit to Labour's campaign to win over voters in the capital.I am certain that it is of major benefit to somebody, but I doubt that it is of major benefit to Mr. Terry Ashton or his friends.Throughout our debates on the Bill the Opposition have tried to present themselves as being against tax increases, but everybody knows that is an implausible argument. People know that tax and spending form the same issue. They do not take seriously a party that seeks to argue against tax increases while at the same time the hon. Member for Brightside says that we should increase expenditure on the health service by £6 billion; the hon. Member for Oldham, West criticises us for not spending 0.7 per cent. of national income on overseas aid; and the hon. Member for Blackburn (Mr. Straw) wants to abolish controls on the spending of capital receipts by local authorities. Why does he want to do that? Presumably it is so that local authorities can spend more.
We have not yet seen fully worked through the proposals by the hon. Member for Kingston upon Hull, East (Mr. Prescott) on minimum wages. Is the rate to be £3.40 or £4.05? When they decide we will tell them how much it will cost, but I am certain that if they want to spend that amount on minimum wages they will have to show the British people how it will be paid for in tax. The British people understand very well that no one can promise to spend without demonstrating how the money will be raised.
§ Mr. Nicholas BrownWill the Minister give way?
§ Mr. DorrellNo, because I have just three minutes left. The hon. Member for Peckham, who is supposed to be responsible for stopping such bids, yesterday spoke at the Dispatch Box against tax increases and in the same debate she called for increased spending on child care. The 986 Opposition think that they can get around it by tabling amendments that would benefit a company to the tune of only £3 or £10, but that sort of shadow boxing fools nobody.
We all know that, as the hon. Member for Dagenham said, Labour wants to spend more money. We also know that, when it does, it goes to the electorate to raise it in tax. Over the past three months a surreal argument has been going on in Britain. Labour appears to believe that the electorate will suspend disbelief and allow it to peddle these two mutually inconsistent lines without spotting the fact that they are inconsistent. But that will not happen because people know that bills have to be paid and that they are higher under Labour.
They have good reason to know that because the difference between Labour councils and Tory councils is clear to every taxpayer in the land. Labour has sought to obscure and obfuscate the fact that the council tax is £131 higher under Labour than it is under the Conservatives. Labour has not even been able to convince Mr. Peter Kellner on its arguments.
How dare the Opposition talk of excessive tax? It is a dishonest and fraudulent argument that they have not been able to sustain. The people of Britain know from bitter experience that Labour spends more and that the bills of Labour Governments and Labour councils cannot be avoided.
The difference between the parties is neatly encapsulated in a single figure. Under Labour, successful entrepreneurs pay tax at 83 per cent. Under the Tories, the take-home pay of the man on average earnings has increased by £83 a week. It is the same number in two very different contexts. Labour taxes people at 83 per cent.; we have raised people's living standards by £83 a week. Eighty-three is the number; 83 is the litmus test. Under Labour it is tax and under the Conservatives it is living standards.
That is why we should give the Bill a Third Reading.
§ Question put:—
§ The House divided: Ayes 305, Noes 260.
990| Division No. 216] | [10 pm |
| AYES | |
| Ainsworth, Peter (East Surrey) | Booth, Hartley |
| Alexander, Richard | Boswell, Tim |
| Alison, Rt Hon Michael (Selby) | Bottomley, Peter (Eltham) |
| Allason, Rupert (Torbay) | Bottomley, Rt Hon Virginia |
| Amess, David | Bowden, Andrew |
| Ancram, Michael | Bowis, John |
| Arbuthnot, James | Boyson, Rt Hon Sir Rhodes |
| Arnold, Jacques (Gravesham) | Brandreth, Gyles |
| Arnold, Sir Thomas (Hazel Grv) | Brazier, Julian |
| Ashby, David | Bright, Graham |
| Atkins, Robert | Brooke, Rt Hon Peter |
| Atkinson, David (Bour'mouth E) | Brown, M. (Brigg & Cl'thorpes) |
| Atkinson, Peter (Hexham) | Browning, Mrs. Angela |
| Baker, Rt Hon K. (Mole Valley) | Bruce, Ian (S Dorset) |
| Baker, Nicholas (Dorset North) | Budgen, Nicholas |
| Baldry, Tony | Burns, Simon |
| Banks, Matthew (Southport) | Butler, Peter |
| Banks, Robert (Harrogate) | Carlisle, John (Luton North) |
| Bates, Michael | Carlisle, Kenneth (Lincoln) |
| Batiste, Spencer | Carrington, Matthew |
| Beggs, Roy | Carttiss, Michael |
| Bellingham, Henry | Cash, William |
| Bendall, Vivian | Chapman, Sydney |
| Beresford, Sir Paul | Churchill, Mr |
| Biffen, Rt Hon John | Clappison, James |
| Blackburn, Dr John G. | Clark, Dr Michael (Rochford) |
| Body, Sir Richard | Clarke, Rt Hon Kenneth (Ruclif) |
| Bonsor, Sir Nicholas | Clifton-Brown, Geoffrey |
| Colvin, Michael | Higgins, Rt Hon Sir Terence L. |
| Congdon, David | Hill, James (Southampton Test) |
| Conway, Derek | Hogg, Rt Hon Douglas (G'tham) |
| Coombs, Anthony (Wyre For'st) | Horam, John |
| Coombs, Simon (Swindon) | Hordem, Rt Hon Sir Peter |
| Cope, Rt Hon Sir John | Howard, Rt Hon Michael |
| Cormack, Patrick | Howarth, Alan (Strat'rd-on-A) |
| Couchman, James | Howell, Sir Ralph (N Norfolk) |
| Cran, James | Hughes Robert G. (Harrow W) |
| Currie, Mrs Edwina (S D'by'ire) | Hunt, Rt Hon David (Wirral W) |
| Curry, David (Skipton & Ripon) | Hunt, Sir John (Ravensbourne) |
| Davies, Quentin (Stamford) | Hunter, Andrew |
| Davis, David (Boothferry) | Hurd, Rt Hon Douglas |
| Day, Stephen | Jack, Michael |
| Deva, Nirj Joseph | Jackson, Robert (Wantage) |
| Devlin, Tim | Jenkin, Bernard |
| Dickens, Geoffrey | Jessel, Toby |
| Dicks, Terry | Johnson, Smith, Sir Geoffrey |
| Dorrell, Stephen | Jones, Gwilym (Cardiff N) |
| Douglas-Hamilton, Lord James | Jones, Robert B. (W Hertfdshr) |
| Dover, Den | Kellett-Bowman, Dame Elaine |
| Duncan, Alan | Key, Robert |
| Duncan-Smith, Iain | Kilfedder, Sir James |
| Dunn, Bob | King, Rt Hon Tom |
| Durant, Sir Anthony | Kirkhope, Timothy |
| Dykes, Hugh | Knapman, Roger |
| Elletson, Harold | Knight, Mrs Angela (Erewash) |
| Emery, Rt Hon Sir Peter | Knight, Greg (Derby N) |
| Evans, David (Welwyn Hatfield) | Knight, Dame Jill (Bir'm E'st'n) |
| Evans, Jonathan (Brecon) | Kynoch, George (Kincardine) |
| Evans, Nigel (Ribble Valley) | Lait, Mrs Jacqui |
| Evans, Roger (Monmouth) | Lamont, Rt Hon Norman |
| Evennett, David | Lang, Rt Hon Ian |
| Faber, David | Lawrence, Sir Ivan |
| Fabricant, Michael | Legg, Barry |
| Fairbairn, Sir Nicholas | Leigh, Edward |
| Fenner, Dame Peggy | Lennox-Boyd, Mark |
| Field, Barry (Isle of Wight) | Lester, Jim (Broxtowe) |
| Fishburn, Dudley | Lidington, David |
| Forman, Nigel | Lightbown, David |
| Forsyth, Michael (Stirling) | Lilley, Rt Hon Peter |
| Forth, Eric | Lord, Michael |
| Fowler, Rt Hon Sir Norman | Luff, Peter |
| Fox, Dr Liam (Woodspring) | Lyell, Rt Hon Sir Nicholas |
| Fox, Sir Marcus (Shipley) | MacGregor, Rt Hon John |
| Freeman, Rt Hon Roger | Maclean, David |
| French, Douglas | McLoughlin, Patrick |
| Fry, Sir Peter | McNair-Wilson, Sir Patrick |
| Gale, Roger | Madel, Sir David |
| Gallie, Phil | Maitland, Lady Olga |
| Gardiner, Sir George | Malone, Gerald |
| Garel-Jones, Rt Hon Tristan | Mans, Keith |
| Garnier, Edward | Marland, Paul |
| Gill, Christopher | Marlow, Tony |
| Gillan, Cheryl | Marshall, John (Hendon S) |
| Goodson-Wickes, Dr Charles | Marshall, Sir Michael (Arundel) |
| Gorman, Mrs Teresa | Martin, David (Portsmouth S) |
| Gorst, John | Mates, Michael |
| Grant, Sir A. (Cambs SW) | Mawhinney, Rt Hon Dr Brian |
| Greenway, Harry (Ealing N) | Mellor, Rt Hon David |
| Greenway, John (Ryedale) | Merchant, Piers |
| Griffiths, Peter (Portsmouth, N) | Mills, Iain |
| Grylls, Sir Michael | Mitchell, Sr David (Hants NW) |
| Gummer, Rt Hon John Selwyn | Moate, Sir Roger |
| Hague, William | Monro, Sir Hector |
| Hamilton, Rt Hon Sir Archie | Montgomery, Sir Fergus |
| Hamilton, Neil (Tatton) | Moss, Malcolm |
| Hampson, Dr Keith | Needham, Richard |
| Hanley, Jeremy | Neubert, Sir Michael |
| Hannam, Sir John | Newton, Rt Hon Tony |
| Hargreaves, Andrew | Nicholls, Patrick |
| Haselhurst, Alan | Nicholson, David (Taunton) |
| Hawkins, Nick | Nicholson, Emma (Devon West) |
| Hawksley, Warren | Norris, Steve |
| Hayes, Jerry | Onslow, Rt Hon Sir Cranley |
| Heald, Oliver | Oppenheim, Phillip |
| Heath, Rt Hon Sir Edward | Ottaway, Richard |
| Heathcoat-Amory, David | Page, Richard |
| Hendry, Charles | Paice, James |
| Heseltine, Rt Hon Michael | Patnick, Irvine |
| Patten, Rt Hon John | Sweeney, Walter |
| Pattie, Rt Hon Sir Geoffrey | Sykes, John |
| Pawsey, James | Tapsell, Sir Peter |
| Peacock, Mrs Elizabeth | Taylor, Ian (Esher) |
| Pickles, Eric | Taylor, John M. (Solihull) |
| Porter, Barry (Wirral S) | Taylor, Sir Teddy (Southend, E) |
| Porter, David (Waveney) | Temple-Morris, Peter |
| Portillo, Rt Hon Michael | Thomason, Roy |
| Redwood, Rt Hon John | Thompson, Sir Donald (C'er V) |
| Renton, Rt Hon Tim | Thompson, Patrick (Norwich N) |
| Richards, Rod | Thornton, Sir Malcolm |
| Rifkind, Rt Hon. Malcolm | Thurnham, Peter |
| Robathan, Andrew | Townend, John (Bridlington) |
| Roberts, Rt Hon Sir Wyn | Townsend, Cyril D. (Bexl'yh'th) |
| Robertson, Raymond (Ab'd'n S) | Tracey, Richard |
| Robinson, Mark (Somerton) | Tredinnick, David |
| Ross, William (E Londonderry) | Trend, Michael |
| Rowe, Andrew (Mid Kent) | Trotter, Neville |
| Rumbold, Rt Hon Dame Angela | Twinn, Dr Ian |
| Ryder, Rt Hon Richard | Vaughan, Sir Gerard |
| Sackville, Tom | Viggers, Peter |
| Sainsbury, Rt Hon Tim | Waldegrave, Rt Hon William |
| Scott, Rt Hon Nicholas | Walden, George |
| Shaw, David (Dover) | Walker, Bill (N Tayside) |
| Shaw, Sir Giles (Pudsey) | Waller, Gary |
| Shephard, Rt Hon Gillian | Ward, John |
| Shersby, Michael | Wardle, Charles (Bexhill) |
| Sims, Roger | Waterson, Nigel |
| Skeet, Sir Trevor | Watts, John |
| Smith, Sir Dudley (Warwick) | Wells, Bowen |
| Smith, Tim (Beaconsfield) | Whitney, Ray |
| Smyth, Rev Martin (Belfast S) | Whittingdale, John |
| Soames, Nicholas | Wiggin, Sir Jerry |
| Speed, Sir Keith | Wilkinson, John |
| Spencer, Sir Derek | Willetts, David |
| Spicer, Sir James (W Dorset) | Wishire David |
| Spicer, Michael (S Worcs) | Winterton, Mrs Ann (Congleton) |
| Spink, Dr Robert | Winterton, Nicholas, (Macc'f'ld) |
| Spring, Richard | Wolfson, Mark |
| Sproat, Iain | Wood, Timothy |
| Squire, Robin (Hornchurch) | Yeo, Tim |
| Steen, Anthony | Young, Rt Hon Sir George |
| Stephen, Michael | |
| Stern, Michael | Tellers for the Ayes: |
| Stewart, Allan | Mr. Andrew MacKay and |
| Streeter, Gary | Mr. Andrew Mitchell. |
| NOES | |
| Abbott, Ms Diane | Byers, Stephen |
| Adams, Mrs Irene | Caborn, Richard |
| Ainger, Nick | Callaghan, Jim |
| Ainsworth, Robert (Cov'try NE) | Campbell, Mrs Anne (C'bridge) |
| Allen, Graham | Campbell, Menzies (Fife NE) |
| Anderson, Donald (Swansea E) | Campbell, Ronnie (Blyth V) |
| Anderson, Ms Janet (Ros'dale) | Campbell-Savours, D.N. |
| Armstrong, Hilary | Cann, Jamie |
| Ashton, Joe | Carlile, Alexander (Montgomry) |
| Austin-Walker, John | Chisholm, Malcolm |
| Banks, Tony (Newham NW) | Clapham, Michael |
| Barnes, Harry | Clark, Dr David (South Shields) |
| Battle, John | Clark, Eric (Midlothian) |
| Bayley, Hugh | Clarke, Tom (Monklands W) |
| Beckett, Rt Hon Margaret | Clelland, David |
| Beith, Rt Hon A. J. | Clwyd, Mrs Ann |
| Bell, Stuart | Coffey, Ann |
| Benn, Rt Hon Tony | Cohen, Harry |
| Bennett, Andrew F. | Connarty, Michael |
| Benton, Joe | Cook, Frank (Stockton N) |
| Bermingham, Gerald | Cook, Robin (Livingston) |
| Berry, Roger | Corbett, Robin |
| Betts, Clive | Corbyn, Jeremy |
| Blair, Tony | Corston, Ms Jean |
| Boateng, Paul | Cousins, Jim |
| Boyes, Roland | Cox, Tom |
| Bradley, Keith | Cummings, John |
| Bray, Dr Jeremy | Cunliffe, Lawrence |
| Brown, Gordon (Dunfermline E) | Cunningham, Jim (Covy SE) |
| Brown, N. (N'c'tle upon Tyne E) | Cunningham, Rt Hon Dr John |
| Bruce, Malcolm (Gordon) | Dafis, Cynog |
| Burden, Richard | Dalyell, Tam |
| Darling, Alistair | Home Robertson, John |
| Davidson, Ian | Hood, Jimmy |
| Davies, Bryan (Oldham C'tral) | Hoon, Geoffrey |
| Davies, Rt Hon Denzil (Llanelli) | Howarth, George (Knowsley N) |
| Davies, Ron (Caerphilly) | Howells, Dr. Kim (Pontypridd) |
| Davis, Terry (B'ham, H'dge H'l) | Hoyle, Doug |
| Dewar, Donald | Hughes, Kevin (Doncaster N) |
| Dixon, Don | Hughes, Robert (Aberdeen N) |
| Dobson, Frank | Hughes, Roy (Newport E) |
| Donohoe, Brian H. | Hughes, Simon (Southwark) |
| Dowd, Jim | Hutton, John |
| Dunwoody, Mrs Gwyneth | Ingram, Adam |
| Eagle, Ms Angela | Jackson, Glenda (H'stead) |
| Eastham, Ken | Jackson, Helen (Shef'ld, H) |
| Enright, Derek | Jamieson, David |
| Etherington, Bill | Janner, Greville |
| Evans, John (St Helens N) | Jones, Barry (Alyn and D'side) |
| Faulds, Andrew | Jones, Jon Owen (Cardiff C) |
| Field, Frank (Birkenhead) | Jones, Lynne (B'ham S O) |
| Fisher, Mark | Jones, Martyn (Clwyd, SW) |
| Flynn, Paul | Kaufman, Rt Hon Gerald |
| Foster, Rt Hon Derek | Keen, Alan |
| Foulkes, George | Kennedy, Charles, (Ross, C&S) |
| Fraser, John | Kennedy, Jane (Lpool Brdgn) |
| Fyfe, Maria | Khabra, Piara S. |
| Galloway, George | Kilfoyle, Peter |
| Garrett, John | Kinnock, Rt Hon Neil (Islwyn) |
| George, Bruce | Kirkwood, Archy |
| Gerrard, Neil | Lestor, Joan (Eccles) |
| Gilbert, Rt Hon Dr John | Lewis, Terry |
| Godman, Dr Norman A. | Litherland, Robert |
| Godsiff, Roger | Livingstone, Ken |
| Golding, Mrs Llin | Lloyd, Tony (Stretford) |
| Gordon, Mildred | Llwyd, Elfyn |
| Graham, Thomas | Loyden, Eddie |
| Grant, Bernie (Tottenham) | Lynne, Ms Liz |
| Griffiths, Nigel (Edinburgh S) | McAllion, John |
| Griffiths, Win (Bridgend) | McAvoy, Thomas |
| Grocott, Bruce | McCartney, Ian |
| Gunnell, John | Macdonald, Calum |
| Hain, Peter | McFall, John |
| Hall, Mike | McKelvey, William |
| Hanson, David | Mackinlay, Andrew |
| Hardy, Peter | McLeish, Henry |
| Harman, Ms Harriet | McMaster, Gordon |
| Hattersley, Rt Hon Roy | McNamara, Kevin |
| Henderson, Doug | Madden, Max |
| Heppell, John | Maddock, Mrs Diana |
| Hill, Keith (Streatham) | Mahon, Alice |
| Hinchliffe, David | Mandelson, Peter |
| Hoey, Kate | Marek, Dr John |
| Hogg, Norman (Cumbernauld) | Marshall, Jim (Leicester, S) |
| Martin, Michael J. (Springburn) | Rooker, Jeff |
| Martlew, Eric | Ross, Ernie (Dundee W) |
| Maxton, John | Rowlands, Ted |
| Meacher, Michael | Ruddock, Joan |
| Michael, Alun | Sedgemore, Brian |
| Michie, Bill (Sheffield Heeley) | Sheerman, Barry |
| Michie, Mrs Ray (Argyll Bute) | Sheldon, Rt Hon Robert |
| Milburn, Alan | Short, Clare |
| Miller, Andrew | Simpson, Alan |
| Mitchell, Austin (Gt Grimsby) | Skinner, Dennis |
| Moonie, Dr Lewis | Smith, Andrew (Oxford E) |
| Morgan, Rhodri | Smith, C. (Isl'ton S & F'sbury) |
| Morley, Elliot | Smith, Rt Hon John (M'kl'ds E) |
| Morris, Rt Hon A. (Wy'nshawe) | Smith, Llew (Blaenau Gwent) |
| Morris, Estelle (B'ham Yardley) | Snape, peter |
| Morris, Rt Hon J. (Aberavon) | Soley, Clive |
| Mowlam, Marjorie | Spearing, Nigel |
| Mudie, George | Spellar, John |
| Mullin, Chris | Squire, Rachel (Dunfermline W) |
| Murphy, Paul | Steel, Rt Hon sir David |
| O'Brien, Michael (N W'kshire) | Steinberg, Gerry |
| O'Brien, William (Normanton) | Stevenson, George |
| Olner, William | Stott, Roger |
| O'Neill, Martin | Strang, Dr. Gavin |
| Orme, Rt Hon Stanley | Straw, Jack |
| Parry, Robert | Taylor, Mrs Ann (Dewsbury) |
| Patchett, Terry | Thompson, Jack (Wansbeck) |
| Pendry, Tom | Turner, Dennis |
| Pickthall, Colin | Vaz, Keith |
| Pike, Peter L. | Walker, Rt Hon Sir Harold |
| Pope, Greg | Wallace, James |
| Powell, Ray (Ogmore) | Walley, Joan |
| Prentice, Ms Bridget (Lew'm E) | Wardell, Gareth (Gower) |
| Prentice, Gordon (Pendle) | Watson, Mike |
| Prescott, John | Welsh, Andrew |
| Primarolo, Dawn | Wicks, Malcolm |
| Purchase, Ken | Williams, Rt Hon Alan (Sw'n W) |
| Quin, Ms Joyce | Williams, Alan W (Carmarthen) |
| Radice, Giles | Wilson, Brian |
| Randall, Stuart | Winnick, David |
| Raynsford, Nick | Wise, Audrey |
| Redmond, Martin | Worthington, Tony |
| Reid, Dr John | Wright, Dr Tony |
| Rendel, David | Young, David (Bolton SE) |
| Robertson, George (Hamilton) | |
| Robinson, Geoffrey (Co'try NW) | Tellers for the Noes: |
| Roche, Mrs. Barbara | Mr. Alan Meale and |
| Rogers, Allan | Mr. Eric Illsley. |
§ Question accordingly agreed to.
§ Bill read the Third time, and passed.