HC Deb 06 July 1981 vol 8 cc111-38

Question again proposed.

Mr. Mawby

Before we had the Division, I was explaining why the Chancellor had been required to introduce additional taxation measures. Opposition Members have spoken at great length. I think that my right hon. and learned Friend is setting the tobacco duty a little too high. The increase that was introduced in the Budget was about right. The additional 3p might be too much and the result may be that many will stop smoking. There are those in the House who believe that there should be a social tax on smoking. As a smoker, I do not believe that that is right.

Mr. Stoddart

I agree with the hon. Gentleman that the additional tax on tobacco and cigarettes in the Budget was swingeing enough. It is a disgrace that the Chancellor seeks to increase the tax yet again. The hon. Gentleman speaks about health. Is it not a fact that there are many other commodities, including butter, that are said by the doctors to be bad for our health? Is he suggesting that the Government should put a tax on commodities such as butter?

Mr. Mawby

We read many medical reports that suggest that anything that we eat or drink is bad for us. I merely say that the extra taxation on tobacco and cigarettes that my right hon. and learned Friend introduced in the Budget was about as much as the traffic would stand. Any additional increase will reduce the consumption of tobacco. Unlike Opposition Members, I do not need an hour to explain that.

I accept that it is necessary for the Chancellor to gain extra revenue by additional taxation. He should obtain it by taxing some other commodity. I mention casinos in passing. Of course, none of us has to smoke tobacco, whereas we have to use diesel and petrol. I ask my right hon. and learned Friend to look at other ways in future of finding alternatives to the tax, which must be collected.

10.15 pm
Mr. Clive Soley (Hammersmith, North)

I do not believe that the Minister has made the economic case for this motion. There is a health case, to which I shall refer in a few moments. I do not believe that the Minister has made the case for that either. As a number of my hon. Friends have said, the resolution is rather petty as it is getting back at the Conservative Members who chose to persuade the Government in a forceful way to reduce the tax on derv by 10p.

We have had a classic case of the Minister coming to the House, putting on his best party smile and saying that this is the fine tuning of the economy. He then turns round to face the decrepit old car and does a Jekyll and Hyde act in which his face turns into an evil scowl, and he lashes out at that rickety old car and yet another bit drops off. This is about a bit of discipline in the Conservative Party and how to keep the troops from rebelling because they are not too happy.

In his opening remarks, the Minister came up with the famous old phrase that the motion is necessary because monetary and fiscal restraint is central to the defeat of inflation. However, the point is that the Government have not defeated inflation. They more or less doubled it as soon as they came to office and it is still higher than it was when they took office in May 1979. By this resolution they are putting it up again tonight. Rightly or wrongly, cigarettes are in the RPI and it is pushed up. If they used the new measure—the PTI—the rate of inflation would be greater. There is a failure in the economic policy which they are trying to achieve. It is a basic failure.

It has to be said that we are now facing a more serious problem, which is unemployment. Although I would not say that unemployment was a direct cause of the type of violence which we saw at the weekend, no one can pretend that it is not a contributory factor. It is a contributory factor not least because it produces a ripe breeding ground for extreme Right-wing parties which have racialism as their creed. That is a much greater threat to the social fabric of this country than the rate of inflation.

Mr. Cryer

Is not that precisely the point that the right hon. Member for Sidcup (Mr. Heath) was making so emphatically and is it not clear that members of the Conservative Party have been trying to gag him to prevent him saying that those economic policies—in his words—are promoting race hatred and crime?

Mr. Soley

Crime and race hatred in particular are being promoted by those policies. It is not only the right hon. Member for Sidcup (Mr. Heath) but the Home Secretary, who in January or February of 1978 or 1979 said that unemployment was one of the causes of crime and that we in the House bore a responsibility for it. The Government knew it then, yet the position is infinitely worse now. We cannot laugh off or dismiss a situation when unemployment is producing more of a threat than inflation to the social fabric of the nation.

I do not want to spend much time on the wider economic arguments. The monetary squeeze had the effect of pushing up interest rates in this country, which attracted hot money from abroad into what was already an overvalued sterling. That is largely responsible for the excessive crash in the domestic economy which we have experienced. That is also being emphasised by the Government's economic policies.

I turn to the issues that we raised on the Finance Bill, which my hon. Friends who served on the Committee with me will remember well. We put it to the Minister time and again, just as I did tonight to hon. Members on the Conservative Benches, that, if the Government wanted the money, they could get it from those who had it, not least in capital transfer tax. As a result of the Budget, a parent can bequeath £50,000 tax-free every 10 years to his child, yet the Government are introducing this measure. As has been said, in Committee we spoke against the excessive burden being placed on people with low incomes, while the load on people with high incomes was lightened. We challenged the Minister again and again to justify that, but he did not. The only justification appears to be that, if the load on high taxpayers is lightened, the economy will be regenerated as those people will invest in industry, but there is no evidence of that.

Mr. Ian Mikardo (Bethnal Green and Bow)

All the evidence is that the rich people and companies that benefited from the tax concessions invest a large part of their money overseas.

Mr. Soley

That is right. It is said that investment will come back later in the form of profits, but that does not make up for our collapsing industrial base, which has added massively to high unemployment.

When the Finance Bill was in the House previously, Conservative Members remained silent about the issues affecting the low paid, but, suddenly, at about 1 am, our discussion switched to the retrospective tax on bank profits.

Mr. Campbell-Savours

Conservative Members were set alight.

Mr. Soley

Conservative Members poured into the Chamber and rose like trout to the evening fly, one after the other. They got uptight not only about the tax itself but also about the fact that it was retrospective. We have a Government not only of mass unemployment and inflation. They are becoming the Government of public and civil disorder, which are associated with those factions, and they are now the Government of retrospective legislation. That is the nature of the Budget.

If the Government wish to be consistent, why did they not put the additional tax on high tar cigarettes? In fact, they took the extra tax off high tar cigarettes. I hope that the Minister can explain that.

There is a strong health argument for increasing tax on cigarettes. My hon. Friend the Member for Glasgow, Springburn (Mr. Martin) believes that we should have legislation dealing with other manufacturing processes that cause health problems, and I agree. However, if we wish to eliminate or reduce the use of tobacco, we should encourage the companies to diversify and, above all, retrain the workers in the industry on a wage similar to their current wage.

The health case, which the Minister sadly has not made, is important. I put it to hon. Members on both sides that if tobacco had remained unknown until today we should take a different attitude. Let us suppose than an hon. Member or a Minister is sitting in his advice surgery when a man looking remarkably like Sir Walter Raleigh comes to see him and says that he has been to a far-off land where he discovered that the natives used this weed. The hon. Member would wonder whether this was another of those rather odd cases that one gets at surgeries from time to time, but he would give such a person the benefit of the doubt and ask him to explain. He would be told that in the far-off land they grow plants, which are then cut and hung up to dry until the leaves and stalks are all brown and shrivelled.

Mr. John Golding (Newcastle-under-Lyme)

How does my hon. Friend find time to deal with people telling stories about weeds from foreign lands with so many people waiting outside with housing problems, supplementary benefit problems and social security problems, and the queue for hospital beds and so on? How can he justify devoting his time to this Sir Walter when so many of his constituents have far more important problems than simply having had a tiff with the Queen?

Mr. Soley

If my hon. Friend comes to my surgery—indeed, I invite him to do so—he will find that he has to deal with people of this kind because they are somewhat persistent and will not go away. That does not lessen the time that one gives to the others whom he rightly describes as having housing problems, unemployment problems and so on.

Our latter-day Sir Walter Raleigh will explain that having dried the leaves and let them become crinkly and brown one then pounds them up with a bit of sulphur or tar and a few other ingredients and mixes them all up together. By this time the Member of Parliament will be looking distinctly worried and reaching for his telephone in case the person is violent as well. Sir Walter then explains that one rolls the mixture up in a piece of paper, sticks it in one's mouth and sets light to the end.

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

Bob Newhart did it better.

Mr. Soley

I think that the hon. Gentleman is confusing Bob Newhart with Tom Lehrer. Whichever it was, he will recall that in that case it was put into one's ear, not one's mouth.

The hon. Member would then ask the latter-day Sir Walter what effect this had. He would explain that initially it makes one choke and cough, one's lungs go hot and one feels terrible, but that after a few hundred or a few thousand one begins to feel that one's day cannot begin or end without a cigarette and one has reached a state of happiness that one would not otherwise have known.

The Member of Parliament might then ask about the long-term effects. Let us assume that our latter-day Sir Walter had some extra knowledge that the original Sir Walter did not have. He would explain that one is more likely to suffer from a heart condition, that one will almost invariably have a severe bronchial condition and that one is considerably more likely to die of lung cancer.

In those circumstances, would any hon. Member be prepared to allow that drug into the country? The answer is almost certainly "No". The same applies now to cannabis, which is probably safer than ordinary tobacco, although that does not make a case for allowing it and we would not do so. There is, therefore, a strong case, if the Minister wishes to use it, for an increase in tax on cigarettes. But that has absolutely nothing to do with the case that he is making—unless, as has been suggested, it has more to do with another Department's wishes and is a way of disciplining Tory Back Benchers as well as getting his £83 million or £85 million back. That is what it is really about. If we extend the principle too far, it becomes absurd.

Mr. Foulkes

Does not my hon. Friend agree that the Chief Secretary cannot advance the health case, because it contradicts his basic argument about raising more revenue? If the right hon. and learned Gentleman is advancing a case for reducing consumption by increasing the tax, he must accept that that decreases the revenue. He is trying to convince us, with not much success, that he will obtain more revenue.

Mr. Soley

The Minister is in even worse trouble. He is trying to say that it is not a matter of health but is to get inflation down. The tax goes straight into the RPI. It is nonsense.

I am beginning to think that this tobacco tax is bad for the Minister's health—his mental health, if not his physical health. It is a logical absurdity, on the basis of his own argument.

I do not wish to pursue the matter further now. Other matters need to be raised later. The proposal is an economic absurdity, although underneath it there is a good argument on health and social grounds.

10.30 pm
Mr. Austin Mitchell (Grimsby)

The Chief Secretary mentioned my right hon. Friend the Member for Leeds, East (Mr. Healey) and his mini-Budgets. I know that the Government are anxious to avoid any imputation that they introduce mini-Budgets, but they are getting into the habit. If what we have before us is not a mini-Budget, it is certainly a micro-Budget. It is one of those endless appendices and footnotes to the Chancellor's measures that we have come to expect.

The Chancellor's motives are essentially petty. On behalf of his right hon. and learned Friend, the Chief Secretary is administering a public chastisement to those Conservative Back Benchers who were brave enough to threaten to vote against the Government and force them into the humiliating retreat from their asinine proposals on derv. Now those hon. Members have to be reprimanded and punished, and that is what is happening. It is the Chancellor's revenge.

We are dealing with a motion that shows who is boss, a motive from which I would not dissociate the Prime Minister. The action smacks of the schoolmarm, the governess, the nation's elocution teacher. Such a motive is not only unworthy. At this stage, it is counter-productive to increase taxation.

The Chief Secretary talked about restoring the integrity of the Budget. That is one of the biggest jokes around at present, apart from the expectation of introducing later this year the invisible miracle. To restore the integrity of that besotted harlot, the Budget, is an achievement well beyond the efforts of the Chief Secretary.

The Government's action is the result of an obstinate adherence to economic policies that are already discredited and of a perverse desire to punish. That demonstrates only the obsessive deflationary zeal of this Government rather than anything to do with economic sense or restoring integrity. When the Government talk of restoring the Budget's integrity, I think that the lady doth protest a great deal too much. The Government are simply reinforcing their original mistake in a Budget that was too deflationary. Obstinacy in the pursuit of folly, although the Prime Minister might like to preach it as virtue, is folly rather than virtue.

It is generally agreed that the economic impact of the Budget was already far too deflationary. Indeed, the Budget was improved by the Government's concession on derv. Now the Government have made the deflationary impact greater still.

The united chorus of protest that greeted the Budget cannot have been equalled in recent history. The TUC and the CBI joined in condemnation. A former president of the CBI talked of the Government's squeeze on jobs and profit. The Manchester chamber of commerce described the Budget as woefully inadequate … nothing to boost economic activity in the North-west". The Times talked in an editorial of fiscal measures in the Budget which amount to a further deflation of £3.3 billion, which would, other things being equal, promise a further reduction in output and an increase of perhaps 200,000 in unemployment. It is clear that this is massive deflation.

The Times, which originally proposed and propounded monetarism and helped to make it fashionable enough for this Government to take up in the first place, now tells the Government that their monetarist Budget is far too deflationary and will lead to another 200,000 becoming unemployed, and when The Times economics editor, David Blake, points out that the main burden of this Budget is, by trimming the economy in this fashion, to try to make the Government's own figures look reasonably consistent with the predictions of last year, and when he tells us that the Budget is certain to push down output and to push unemployment up by defying economic logic, it is clear that the deflationary impact has been far too great and the essence of this policy has been disastrously deflationary.

These measures add to that deflationary impact, and that is the strongest possible argument for resisting each of them. They deepen a deflation which the Government themselves have produced. It is no use the Government saying that this is their method of fighting inflation. Their only method of fighting inflation, apart from putting it up as they have done incessantly by VAT increases and tax increases such as this, has been to allow the pound to rise as it has done steadily since the Government took office, and by allowing sterling to rise they hope to fight domestic inflation by bringing down the price of imports. I am reminded of the Prime Minister's famous advice to Austin and Pickersgill to cut their costs by importing more components.

That is the economic logic of the Government's fight on inflation. It is a fight, therefore, carried on at the expense of jobs. But the fight on inflation is not the logic of it. Nor is world depression. Why should we be the first to go into this world depression and far deeper than any other country, when we should be well shielded by oil?

Mr. Soley

We were going into it before it started.

Mr. Mitchell

My hon. Friend is right. We went into it before it started and we went into it deeper, when we should have been shielded as never before by being self-sufficient in oil.

The logic of the deflation which the Government have produced is simply and solely to break the negotiating power and industrial muscle of the working class and the trade unions. It is the Government's substitute for an incomes policy. That is their muscle, which they are trying to strengthen by this kind of deflationary measure. They will not have an incomes policy. They do not like to deal with the unions. They do not like the unions. So they feel that they have to break the power of the unions by deflation and by the increase in unemployment that that produces arid which the Budget has accelerated.

There are two consequences of a policy of this kind, one of which we face tonight. It is the inevitable increase in unemployment that the Budget has accelerated and that will be increased further by this measure.

It is no good the Conservative Party posing as the party of tax reductions. The party of deflation, depression and unemployment is the party of high public spending and of high taxation. The biggest cause of the increase in public spending that we are having to finance is the unemployment which the Tories have generated by their economic policies. That will guarantee the Conservatives remaining the party of high taxation which is engaged in a constant battle for further economies in other sectors of Government spending to try to finance the unemployment and the increasing costs in the nationalised industries that have been generated from the depression which they have produced.

The "We need the money" syndrome, so characteristic of the proceedings on the Finance Bill, is a direct result of the Government's policy. They need the money, in large measures. The Budget has demonstrated the "We need the money" syndrome with taxes on lighters, matches, mopeds, chewing tobacco and banks and their failure to raise the allowances. All these taxations, petty and large, are a direct consequence of the Government's deflationary strategy with the increase in public spending and the increased need for taxation that that produces.

The Budget has seen the Government—and these motions see them again—scraping the bottom of the barrel for the kind of money they need to finance the economic disaster they have produced. Every petty form of taxation has been increased in the Budget. Yet as my hon. Friend the Member for South Ayrshire (Mr. Foulkes) pointed out the Government have cut capital taxation for their supporters—the wealthiest and best-off section of the community, which has done well out of the Budget. The Budget has effectively dismantled capital taxation.

Increases in taxation such as this are inevitable in the Government's policy. We also see the launch of the next drive of economies on which the Chief Secretary has already unsuccessfully—one gathers so far—embarked. He is probably too nice for the job. But, from a predicted target of £3 billion-worth of economies in Government spending, he has already retreated to the present estimated target of £1 billion cuts in public spending. That demonstrates the impossibility of the job that he has. Of the two "ancient Brittans", the other, who writes for the Financial Times, has much the easier job. It is far easier to demand cuts in public spending or impractical economic policies from the security of a column in the Financial Times than it is to fight for them in a Government who have entered the depths of this depression as the Government have. This sort of measure is forced on them by their economic policies and strategies. That does not make what they are proposing right—it merely heightens and deepens the folly of what they originally proposed in the Budget.

The other consequence of the Budget and these motions, as well as the increase in taxation and the desperate search for economies, is further unemployment. A direct consequence of that is the sort of events we have seen this weekend in Liverpool and Southall and that we saw earlier in Brixton. As my hon. Friend the Member for Hammersmith, North (Mr. Soley) pointed out, if unemployment is not the immediate cause, it is a major cause. It does not necessarily trigger off violence, but it is present as a dominant factor in the background because people relegated to despair have no other way of demonstrating that despair. That is bound to lead to the sort of events we saw in Toxteth, Southall and Brixton.

Mr. Soley

We should not let that point go by without saying that the main problem is that despair provides a breeding ground for the Right-wing racialist organisations, because the other ethnic minority groups can be used as scapegoats, in much the same way as the Jews were in Nazi Germany. The problem is racialism, but racialism is always compounded by unemployment.

Mr. Mitchell

The problem is complex, as my hon. Friend says, but despair is the inevitable consequence of Government policies and the increase in unemployment that they generate. Despair is a breeding ground for negative actions, hostility and the fostering of the sort of hate that my hon. Friend mentioned. Despair increases with unemployment. We shall see further developments of that nature. Because blame is the apostle of the Prime Minister, she will seize her opportunity to apportion the blame in a divided and embittered society produced by the sort of economic policies that the Government have generated.

Those are the consequences of a Budget and measures that produce unemployment and which increase a rapidly rising unemployment. It was not a Budget that nipped a recovery in the bud, but it takes money in taxation out of an economy already in deepening recession. That made the recession worse and helped to heighten the unemployment which produced the despair about which I was talking.

Before the Budget, Ministers were suffused with a kind of optimistic glow. They said that the depression was bottoming out and that the invisible miracle was on its way. According to the Chief Secretary, night would follow day in economic regeneration. All that was based not on any economic forecast, prediction or necessity but simply on a declaration of faith that recovery must come, because they were praying for it. It was a question of faith rather than of economic laws.

There was nothing in the Government's policies to produce the kind of recovery which they said was on its way. In fact, their policies made such a recovery impossible and ruled it out. Every forecast since the Budget has predicted deepening gloom. No one has upheld the Chief Secretary's predictions or those of any other Minister. The National Institute's forecast was perhaps gloomiest of all because it demolished all the indicators of better times on which the Government were so desperately relying, and it put the trough of the depression back from 1981 into 1982.

In addition, we had the forecasts of the CBI, the OECD and even the London Business School—last, loneliest and most loyal—which did not bear out any of the Minister's predictions.

Therefore, the economic situation since the Budget has got worse, and the predictions have become more depressing. All the arguments were for changing course, not for reinforcing the Budget and for restoring its integrity, or whatever public relations phrase the Government care to choose. The arguments were for changing the Budget round and weakening its impact on the economy.

Peter Jenkins in The Guardian painted an image of Labour activists wanting a Labour Prime Minister lashed to the wheel of a Labour Government vessel tied to its course. Of course, instead of writing commentaries on the Warrington by-election, Peter Jenkins should be standing in it because he is more of an advocate for the Euro fun party than he is objective critic.

That image of a Prime Minister lashed to the tiller with the ship set on course is directly relevant to the situation in which the Government now find themselves, with Mrs. Queeg on the bridge frantically clicking balls, the crew increasingly mutinous and the ship headed straight into the storm.

All the evidence points to the need for increased Government spending and a cut in the burden of taxation. We should stop taking money out of the economy, with all its depressing inflationary consequences. We should reduce taxation and expand by borrowing more. We should stimulate the economy to get those vital resources, particularly in construction, back to work. That is the economic strategy at which we should be aiming, not the strategy of deepening gloom which this measure proposes.

Despite the forecasts, the real economic situation is frightening and is becoming more so. In spite of the slight drop in the value of the pound, we are still disastrously under-competitive and unable to continue the one-third of production which is currently exported. The prospects are deeply gloomy.

That is the first reason why we oppose the motion. We oppose it because it takes more money out of an economy that is already in far too deep a depression. It does nothing to stimulate the economy at the moment when it desperately needs stimulation. The Government should have acted in the way that the Labour Government did in 1977 and accepted their defeat with good grace. They should have kissed the money goodbye, as the Labour Government did. The then Chancellor of the Exchequer was not wildly enthusiastic about giving up the increases in petrol duty, but it helped to add to the stimulus of the economy and to the expansion of the economy which ensued in 1978. The present Chancellor of the Exchequer could do the same by not pressing this increase in taxation.

The next basic argument relates to the position of the tobacco industry and the problems produced for it by the increase in taxation. I am well aware that there is a strong health-moralistic argument for increasing the tax on tobacco, provided that the burden is being shifted from other areas. After all, taxation on tobacco is a voluntary tax in that people do not have to smoke. It seems to be true that substantial increases in taxation on tobacco help to combat the habit of smoking and reduce the amount of smoking. Perhaps we should be grateful for that.

I am alarmed that the figures indicate that, although smoking is declining among men, it is increasing among women. According to the title of a recent book, "Smoking is a feminist issue", and I am sure that that is true. It would seem that the tensions imposed on women in modern society are driving them to smoke more, so that they take those tensions out on themselves and on their own health and well-being. That is a tragedy and one would not want to encourage the process.

There is, therefore, a strong argument for taxing tobacco, and I appreciate the argument as a non-smoker who is married to a smoker. I am fed up with waking up every morning to the smell of stale cigarettes from ashtrays around the bedroom. If the Government were really concerned about the health argument, they would have increased the differential taxation on high-tar cigarettes. Instead, they have abolished it.

In tonight's considerations we should leave aside the question of health, because the Government have already massively increased taxation on cigarettes—14p on a packet of cigarettes is a substantial increase by any standards. The problem that we now face is the too sudden adjustment that has been imposed on the industry. The further increase in tonight's motion is too massive. The tobacco industry employs about 40,000 people directly, as well as helping to support about 300,000 other people who are involved in the retail outlets for tobacco.

Mr. Golding

When my hon. Friend is attacking his wife for using ashtrays in the bedroom, will he bear in mind that not only are the jobs of cigarette makers at issue? There are those of the people in the pottery industry who make ashtrays. Will he take that into account in pursuing in public these domestic disputes?

Mr. Mitchell

I am grateful to my hon. Friend for that correction. But my wife is one of the biggest consumers not only of cigarettes but of ashtrays, because most of the ashtrays are heaved out of the window by a bad-tempered husband who, in the morning light, cannot stand the smell of ashtrays filled with cigarette ends.

There is a large volume of employment in the industry and it is the responsibility of any Government who use the industry as a mulch cow, in the way that this Government have chosen to do, to make proper arrangements to transfer people to new work or to create alternative employment for the people in the industry.

Mr. Cryer

Cannot the Government's confusion be summarised as a lack of any indication that people may expect a better life when these incomprehensible policies come to an end? Does my hon. Friend agree that this was a pretty good summary by the right hon. Member for Sidcup (Mr. Heath)?

Mr. Mitchell

I do not wish to continue talking too much about my wife. If, however, one of the reasons for smoking is anxiety and the fact that the more anxious the person the more that person smokes—I am not sure whether it is related to going back to the breast—the Government's economic policies and the resulting unemployment should have led to a massive increase in smoking. The strains imposed among women might account for the increase in smoking among women.

Mr. Mikardo

Has my hon. Friend noticed that, while there has been considerable increase in smoking among women, there has been an enormous increase in the taking of tranquillisers by women? Both are evidence of the anxieties imposed upon them by what the Government are doing to them.

Mr. Golding

Is it not true that, if one had a husband who threw ash trays out of the window, one would want to take tranquillisers?

Mr. Mitchell

There is no answer to that.

The original question concerned the right hon. Member for Sidcup (Mr. Heath). I do not know whether his smoking has increased, given the attempts to repress his freedom of speech made by the Conservative Party. So great would be my anxiety about the Government's economic policies if I were a Government Back Bencher that would probably take up smoking large numbers of cigarettes.

The tobacco industry employs about 40,000 people directly. Another 300,000 are employed indirectly in retail outlets. Already, following the Budget, the Imperial group has laid off 5,000 people for up to two weeks at seven of its factories. Gallaher's has asked for short-time working from 6,000 of its workers at six factories. BAT and Carreras were better shielded by their success in exports but also face a situation in which they would have to move to short-time working as sales fell. There is no doubt that sales have fallen and that they will fall further as a result of this measure.

Sales of cigarettes have gone down each year since 1973. It is no coincidence that there have been substantial increases in taxation during that period. In 1980, total sales were 12 per cent. down on 1973. The Government had anticipated a drop of 9 per cent. in sales of cigarettes following the Budget. The immediate consequence, in fact, was a drop of 15 per cent. I recognise that the figure may now have levelled off at just over 11 per cent. There can be no doubt that the Government's predictions will be falsified by the greater fall-off in smoking as a result of the Budget coupled with this measure.

Prices of cigarettes in this country are already substantially higher than those in most other EEC countries. The Government constantly make EEC comparisons. They say that the price of petrol is around the average for EEC countries, although I believe it is slightly higher. Why do they not inform the House of the price of cigarettes in the EEC? In the United Kingdom it costs just under £1 for a packet of 20 cigarettes. The price in Belgium is 44 pence, in France 27 pence, in the Federal Republic of Germany 62 pence, in Greece 21 pence, in Italy 31 pence, in Luxembourg 35 pence, in the Netherlands 47 pence and in the Republic of Ireland 63 pence. In most Common Market countries the price of cigarettes is much lower than it is here. Yet the tax content here is substantially higher. It represents over three-quarters of the price.

Sudden and unpredictable lurches—and no doubt there will be more as the Chancellor continues his desperate search for money—are playing havoc with the forward planning and profits of the industry. Hon. Members might be critical of the tobacco industry, but it is involved in a massive process of diversification. Food processing in Grimsby is an example of diversification. Tobacco has generated the funds to finance many other industries. To strike at the tobacco industry is to strike a blow at other industries associated with it.

The industry has been successful in its exports. It has also succeeded in combating imports. Only about 2 per cent. of cigarettes sold in Britain are imports. That is a record of which any other industry would be envious. Keeping import penetration down to 2 per cent. is an achievement.

However, that success has been based on a stable home market. That is being threatened by the sudden and unpredictable actions of the Government. They are a threat to a successful and wide-reaching industry and have repercussions for other industries.

Social priorities are also involved in the Budget and tonight's measure. The Budget benefits the rich and those with capital. It dismantles the structure of capital taxation, particularly as it applies to land. Massive handouts were made in the Budget. The Government, who needed money, were not averse to making massive handouts to their friends and supporters. The price of such handouts is to be imposed on the sections of the community which are least able to bear the price.

Who smokes the cigarettes? They are the pensioners and the poor. Consumption of cigarettes by the middle class has reduced in the last decade but it has held steady among manual workers. We are talking about the poor and, increasingly, women. They are being taxed to pay for the give-aways and handouts in the form of capital transfer tax. That is being done to demonstrate the virility of the Chancellor and to chastise the naughty boys, such as the hon. Member for Aberdeenshire, East (Mr. McQuarrie) who rebelled earlier.

Mr. Cryer

Does my hon. Friend accept that the way in which the Government are treating the House in attempting to crush their Back Benchers is reflected in the way that they have been trying to gag the former Prime Minister, the right hon. Member for Sidcup (Mr. Heath)? It is to the right hon. Gentleman's credit that he has said that he will speak out against the Government's disastrous policies. Other Conservative Members should be prepared to speak out against this monstrous motion.

Mr. Mitchell

I deprecate all attempts to tell anyone to shut up and not to say what is on his mind. The right hon. Member for Sidcup has been treated shabbily by members of his party who are taking out on him the fact that they were too weak and frightened to say the obvious themselves. They will pay the price at the next election.

The Government's proposal will tax the less-well-off and those, particularly pensioners, who are addicted to the comfort and relaxation that a cigarette affords them, and it will have marked inflationary consequences. The Government say that they are fighting inflation, but they put up prices. The logic of that escapes me.

Sir William Clark (Croydon, South)

Any logic would escape the hon. Gentleman.

Mr. Golding

Has my hon. Friend considered that the inflationary impact of the Government's proposals will be particularly severe because the pocket money of many men and women will be regarded as inadequate, particularly in the light of still further price increases that we shall be debating later? Working men will demand wage increases because of the squeezing of their pocket money. There will be a significant impact on the ability of working men and women to manage on the pocket money that they allocate themselves from inadequate wages.

Mr. Mitchell

There is no danger that the logic of the hon. Member for Croydon, South (Sir W. Clark) will escape me, because he has demonstrated none, either in the Finance Bill Committee or tonight.

My hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) makes a valid point. If the number of women smokers is increasing, their demands for more housekeeping from their husbands will have the usual knock-on effects.

There is no possibility of fighting inflation by increasing prices. The Government's so-called achievement, after two years of agony and mass unemployment, in getting inflation down to the level that it was when they came to power is threatened by the rise in the value of the dollar and the corresponding decline in the value of the pound, which will increase the price of imports. Adding to those problems an unnecessary increase in the price of tobacco is unrealistic and stupid.

Mr. Woolmer

My hon. Friend is being far too generous to the Government. The infamous prices and taxes index is well over 3 per cent. higher than the RPI and the motion before us will add yet another twist to the PTI and will increase the cost of living by far more than the Government admit. Why do we not hear so much from the Government about the prices and taxes index? Could it be because it is increasing by so much more than the retail prices index?

Mr. Mitchell

I have been distressed by the silence on the taxes and prices index. I had hoped to hear more about it. No doubt when the Financial Secretary next visits Geneva to make one of his speeches away from the prying eyes of the British media he will tell the remainder of the world, when we cannot hear, how well Britain is doing and unveil his thoughts on the taxes and prices index.

The more direct and immediate impact is on the retail price index, which will rise again after all the agony, torment and toll of bringing it to its present level. For the Government to do that with a quite unnecessary increase in taxation, simply to show their virility and to chastise their own Back Benchers, perverts the purposes of economic policy and the morality that the Prime Minister has made her peculiar branch of economics.

Mr. Joseph Ashton (Bassetlaw)

Are there not consequences other than economic? Has my hon. Friend thought about sponsorship? The cigarette companies sponsor such events as the world snooker championship at the Crucible in Sheffield. Far more people watch that event on television than watch Wimbledon. Lack of sponsorship would have a devastating effect. Twenty-nine cinemas are to close because of economic difficulties and the lack of advertising from cigarette companies. The public will be deprived of snooker championships, cinemas and other sponsorships. That will take the quality of life from the ordinary working people. The Government want to bankrupt cigarette companies.

Mr. Mitchell

My hon. Friend is correct. We shall discuss the fate of the cinemas later when we reach the motion relating to increases in the bingo levy. Bingo has kept many cinemas in being as institutions. Even that precarious survival is threatened by the Government. The tobacco companies cough up a great deal of money—just as their customers cough up in other ways—to finance sponsorships both in sport and, in the case of the Crucible and other activities, in culture.

The financial position of the tobacco companies—they have always been good money spinners, almost as good as commercial television—is threatened by a Government who say that they will regenerate business initiative and the spirit of enterprise but who are threatening even the most sound and secure of companies. That is a measure of the Government's economic policy—[Interruption.]

Mr. Golding

I hope that my hon. Friend will take advice from those of us who have been here for many years. Do not be intimidated by Left-wingers and Front-Bench spokesmen. Let the rank and file speak loudly on behalf of working people who object to this iniquitous tax.

Mr. Mitchell

I am grateful to my hon. Friend. Advice of that nature from a member of the national executive is compelling advice indeed to an insecure Member such as myself.

Mr. Cryer

My hon. Friend has dealt with the economic arguments pretty well. We have with us the compound of ignorance and prejudice from the hon. Member for Aberdeenshire, East (Mr. McQuarrie). He has shouted out "cancer"—among other remarks—several times. My hon. Friend commented on that difficulty. It is unquestionable that ill health arises from smoking. Over the long term cigarette smoking is bound to decline. My hon. Friend commented on alternative jobs being provided and planned for by the Government, instead of this sudden vicious onslaught when almost 3 million are unemployed. He metioned his concern for the social consequences. As the hon. Member for Aberdeenshire, East has joined us—

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

Order. The hon. Gentleman knows that interventions should be brief.

Mr. Cryer

I was concluding, Mr. Deputy Speaker. I wonder—[HON. MEMBERS: "Speech".]

Mr. Deputy Speaker

Order. The hon. Gentleman has made his intervention.

Mr. Mitchell

I am grateful to my hon. Friend the Member for Keighley (Mr. Cryer) for his intervention. There is an argument for increasing the taxation on tobacco because of the health consequences of smoking. However, transitional increases must be planned and regularised. There should not be the sudden and unpredictable lurches that we see from the Government in their desperate search for new sources of revenue to finance the economic disaster that they have generated. That approach to the problem negates its own objectives and achieves none of our health objectives.

The consequences of the motion are unplanned, ill considered, unnecessary and inflationary. All these ills will be suffered in the pursuit of an economic policy that was wrong when the Government adopted it in 1979. That has been demonstrated by the deepening recession and the worsening economic situation that have been evident since then. It is a policy that has produced unemployment that will rise to 3 million this year. It has produced a fall in industrial output greater than that which occurred between 1929 and 1931. It has obliterated one job in every eight in industry since the Government took office. The economic folly should have been stopped long ago.

The Government deepened the depression by their Budget. They now choose to go to the limit in chastising their Back Benchers by deepening the depression still further. That demonstrates the wilful folly, the obstinacy and the petty-mindedness of the Treasury Ministers and the asinine motivations of the Government's policies.

Several Hon. Members


11.17 pm
Mr. Robert Sheldon (Ashton-under-Lyne)

I merely intervene in the debate. It is an intervention that will not stop my hon. Friends from making their contributions, to which I look forward to listening. We shall be interested in the reply—I trust that it will be full—of the right hon. and learned Gentleman the Chief Secretary to the Treasury to this interesting and important debate.

On 30 April the announcement was made that the tax on derv would be reduced. The Chancellor stated that he had no option but to ask the people to bear the cost in some other way. The Chancellor has decided to recoup the tax that was lost on derv. He will do so largely from the tobacco industry. We have had important contributions from my hon. Friends the Members for Glasgow, Springburn (Mr. Martin) and for Nottingham, West (Mr. English).

The tobacco industry has had considerable difficulties. Not content with the increased taxation that he introduced in the Budget, the Chancellor has decided to have another bite at the same element of taxation. The industry hardly had time to accustom itself to the first assault before the second assault was launched. It had barely dealt with the fall in consumption caused by the first bite of additional taxation before the second bite took place. It feels it is merely the plaything of an errant Chancellor.

My hon. Friend the Member for Hammersmith, North (Mr. Soley) referred to the health issue. It should be stressed that the Finance Bill seeks to repeal the surcharge on high-tar cigarettes. That was mentioned by my hon. Friend the Member for Grimsby (Mr. Mitchell). It will also increase the taxation on cigarettes generally. Therefore, the arguments for the health aspect, which we debated in Committee, must be seen in the context of a further increase in taxation different from what we saw in Committee, which was a reduction in at least one aspect of the taxation on cigarettes.

The Chief Secretary said that he saw nothing to invalidate the decision to recoup the £85 million which was made earlier in the year, in April. That was over two months ago. I find it astonishing that the Chief Secretary to the Treasury should come to the House seeking to convey the accuracy of the Budget arithmetic, not as it is today but as it was three and a half months ago. Those who hoped that it would be possible to fine tune the economy know full well the derision with which that was met in the 1950s and 1960s and the jokes and the sarcastic comments about the impossibility of fine tuning the economy which came from the Conservative Party at that time.

In these resolutions tonight there is fine tuning of a sort which no one previously conceived of—one-tenth of 1 per cent. The Chief Secretary says that there is nothing to invalidate the decision to recoup that element in the Budget judgment as he sees it several months later. He is as certain now of that accuracy as he was then.

It is necessary to get that phoney accuracy into perspective. We saw in 1979–80 that the forecast for the amount of revenue to be raised was £51 billion and £13 million. That was out by £2.3 billion. The following year the error was £1.4 billion. Those figures are enormous sums in comparison with the £85 million which the Chief Secretary says is the figure which will be out as a result of the changes.

What we have heard today convinces us, if we needed any further conviction, that the Chancellor of the Exchequer and the Government have limited vision. Not only do they look to the candle ends but, as we saw in Committee, they have been trying to get increases in revenue out of matches, lighters, chewing tobacco and Tupperware parties. They have been concerned with the trivia and have failed to look at the important matters on which Chancellors of the Exchequer should be spending at least part of their time.

The Chancellor of the Exchequer reminds us of a Dickensian bookkeeper perched on his high stool, his quill poised to ensure that the figures tally and without a thought for the accuracy or even the existence of the figures which he sets down in his ledger.

The Chancellor of the Exchequer has, I regret to say, an essentially static view of the economy. He looks at it in March and again in July and sees the same thing. Iain Macleod observed that a Finance Bill in July never looked the same as a Finance Bill in March or April. He was right. It does not. Since March there have been a number of important changes. We have seen the dollar decline, inflation rise, a new French Government with a new economic policy, and unemployment increase. We have seen those major changes, but the Chancellor of the Exchequer does not see those differences. He runs the economy on a theory and all he believes he has to do is to implement that theory.

If that is all that is required, we as politicians, as potential Ministers and as people who try to run the country's economy must hand over the operation to civil servants and economists. If they are going to be in charge of those matters and there is to be an automatic pilot, at any rate we should have the best expertise available. It used to be said that the Chancellor of the Exchequer should drive the economy on the seat of his pants. However, in our view, the Chancellor of the Exchequer does not even seem to be able to look out of the windscreen.

Last December the Financial Secretary said that the upturn was upon us, but we have waited for month after month and it has not happened. In a speech to the Institute of Fiscal Studies on 23 March 1981, the hon. Gentleman said that he was quietly confident about control over the economy. We are aware that he is confident of everything that he does, but the fact that he is quietly confident passes the understanding of all who know him. When he talked of output on a rising trend, he failed to take into account the fact that destocking may not slow down. It may still have some way to run.

Industry has two reasons to subsist on stocks lower than anticipated. First, interest rates have penalised those holding even limited stocks. Stock levels that industry was accustomed to suddenly proved too large for the high rates of interest. Secondly, under the Finance Bill the clawback of stock relief will be much more limited. Previously, if stocks ran too low, there was the danger of tax being clawed back. From 10 November, that was largely ended. Firms can reduce stock without endangering their tax relief. Those two considerations may mean that destocking will be greater than the Chancellor estimated.

A constant refrain in our debates is that the Chancellor needs the money—to our shame—because of the high and rising cost of unemployment. That is a major element of the expenditure that he has to provide. The Chief Secretary assesses the cost of each individual unemployed as £3,500 per annum. Multiplying by the number currently unemployed, the figure is something more than £10 billion.

It is interesting to compare that figure with the benefits received from North Sea oil. The royalties, petroleum revenue tax, the supplementary petroleum revenue and the corporation tax this year total between £5 billion and £6 billion. That is the reputable estimate of Phillips and Drew and others. The revenue will rise next year and the year after. In two years' time, it is likely to be more than £10 billion, which is about what we are spending on unemployment. It is a coincidence that could have been devised by the Devil himself that the benefits from North Sea oil could go directly to keep the unemployed walking the streets in despair. The danger and disgrace is that the North Sea oil revenue will not benefit industry and be a source of prosperity to be shared by the whole community. North Sea oil is a means by which we can pay unemployment benefit to those who are out of work. What a blow that is to our hopes and what a blight to our expectations.

The £85 million itself will pay for about 20,000 people unemployed, or one-sixth of the 123,000 increase which brought the total to 2.6 million last month. Conservatives used to quote regularly the dictum about money fructifying in the pockets of the people. It is now money being taken by the State to compensate our people for the jobs that the State itself has taken away. The money taken in taxation is not being used for the great schemes of public enterprise, the great municipal ideas of the nineteenth and twentieth centuries or the great electric grid system plans of the 1930s. The money taken in taxation is withering on the boughs of the State. We are living off the investment of the past and not providing the benefits for the future.

The Chancellor of the Exchequer claimed that the £85 million to be raised in revenue is related to the concession on derv. It could be said to be related to the concessions in the Finance Bill to the banks and the better-off. It could be said to relate not to derv but to the cost of the dispute with the Civil Service and the Government's unilaterally abandoning the pay research unit operation. By a surprising coincidence, the cost of interest charges on the £4 billion to £4½ billion revenue which is not being collected due to the dispute is about £85 million—the amount for which we are asked to vote tonight. It might also be related to five days' cost of the increase in unemployment last month. Finally, £85 million is only a small fraction of the £75 billion-plus that the Chancellor expects to raise this year.

The £85 million is not to recoup the money lost on derv. My hon. Friends the Members for Hammersmith, North and for Nottingham, West are quite right. The Chancellor wants to teach Conservative Back Benchers a lesson and to show himself a firm Chancellor to his colleagues and to the Cabinet when he goes to them for further expenditure cuts.

The House should not be taken in by the Chancellor's strength of purpose and resolution. It should scorn this foolish attempt of bugetary accuracy and vote against the absurd measures placed before us tonight.

Mr. Mikardo

On a point of order, Mr. Deputy Speaker. When my hon. Friend the Member for Grimsby (Mr. Mitchell) resumed his seat after his very interesting speech, my hon. Friends the Members for Batley and Morley (Mr. Woolmer) and for West Stirlingshire (Mr. Canavan) rose. You clearly and audibly called my hon. Friend the Member for Batley and Morley. After you had called him, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) rose and in some way which I do not understand you changed your call. You had called my hon. Friend the Member for Batley and Morley, who had a right to be heard. I cannot understand how you managed to withdraw that call. Would you be good enough to explain to me whether it is your view that a right hon. Member who rises after an hon. Member has been called has precedence? Will the rest of the proceedings be merely a debate between the Front Benches? Is it not the business of the Chair to protect all hon. Members, not least Back Benchers? Finally, if it is to be a debate between Front Benchers only, is there any reson why the rest of us should stay?

Mr. Deputy Speaker

The hon. Gentleman has been here long enough to know that it is by no means unusual for a Front Bench spokesman to be called if he rises. As soon as I saw the right hon. Member for Aston-under-Lyne (Mr. Sheldon) had risen, I called him.

11.35 pm
Mr. Brittan

I find it slightly amusing that there should have been so much reference to teaching Back Benchers a lesson. I cannot help feeling, from some of the more recent altercations, and viewing some of the to-ing and fro-ing, that the business of teaching lessons is more actively occupying the attention of the Opposition Front Bench than the Government Front Bench. The invention of this as an explanation of what the Government are about is a product of a febrile imagination turned in on itself and reflecting on its own activities. However, I shall intrude no further on this matter, and I shall revert to the subject matter of the debate.

There are a number of different bases on which objection has been made to the measures that the Government are putting before the House tonight. The first, and in a sense the most fundamental, is the proposition that the Government's Budget judgment was wrong in the first instance. I understand that, but the time to debate it was during the debates on the Budget and on the Finance Bill. The House will understand if I do not revert to them.

The second proposition, and a related one, is that in some sense the situation has changed since the Budget and that the attempt to correct the changes made in the essential Budget judgment by the alterations in the derv rate of duty are inappropriate because of the changes in the economic situation since the Budget. If that argument had any relevance, I could see its force and one should have regard to it. But I do not accept that the analysis given mostly by the right hon. Member for Leeds, East (Mr. Healey), who speaks principally on these matters for the Opposition, and most recently by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) is a correct analysis of what has happened to the economy since the Budget. It is at best an incomplete one.

The Government do not give a formal unemployment prediction, as has been made clear in recent debates. The change that the right hon. Gentleman referred to was in a Government Actuary assumption. One can make fun of the distinction between an assumption and a forecast, but there is indeed a distinction. Leaving aside that distincton, the difference was a comparatively limited one of 100,000, which could not possibly be regarded as invalidating the Government's strategy as a whole. I put it no higher than that.

Mr. Shore

We are not talking about a small matter, nor about simply a forecast. The Government Actuary has to do something more than make a forecast; he must make a plausible and carefully thought out assumption, because on the basis of his assumption and estimate of the future national insurance revenues have to be raised. In the three-month period, that assumption about unemployment has risen by 100,000. I said that to the cost of that to the PSBR could not be less than £400 million to £500 million during this year. If that is so, how can the right hon. and learned Gentleman say that nothing has changed in the assumptions that underlay the Budget three months ago?

Mr. Brittan

I do not deny that the assumption is genuine. I am merely putting it in context. I was going on—and that is why I was reluctant to give way to the right hon. Gentleman when I did—to the relevance of the changes.

One has to look at the picture as a whole, and it is not one which the Government seek to present in an unduly rosy manner. I do not accept that that is a criticism which can be levelled. The picture as a whole is that the evidence that the right hon. Gentleman gave of the state of the economy is not very accurate or precise. It does not take account of the fact, for example, that the April industrial, manufacturing and production figures provide the firmest evidence so far that output has stabilised over the past three to four months after the sharp falls in the second half of 1980.

Anyone reading the totality of the reports of the economy will say that it is interesting that, in the short period since I became involved in these debates, the balance of the argument has shifted. Whereas earlier those who cavilled at the Government's strategy and policy doubted whether the low point had been reached or would be reached, now it seems that those who are no more sympathetic to the Government than they were before but have to recognise reality are complaining that even if the bottom point has been reached they see no evidence of a recovery.

That is a very different proposition, and it is one which again we can debate. But, even if we look at the unemployment indicator, which lags behind the production and the output ones, the June figures show a very significant slackening in the underlying rate of increase. [Interruption]. Both right hon. Gentlemen are too sophisticated observers of the economic scene to attempt to palm off a jeer at an examination of the rate of increase. They know that, although that is no consolation to those joining the unemployment register, equally it cannot be disregarded.

Broadly speaking, the picture is the one foreseen by the Chancellor of the Exchequer at the time of the Budget. The right hon. Member for Stepney and Poplar (Mr. Shore) elaborated and extrapolated the implication, as he saw it, of the Government Actuary's assumption. In an interesting later part of his speech, he said that, in effect, the Budget judgment was falsified by the fall in the sterling rate which in his view had inflationary consequences or implications.

To the extent that that is so and to the extent that the picture has had the effect that the right hon. Gentleman described, that is not an argument for reflation. It is quite the reverse. If inflation is more of a risk as a result of the changes that have occurred, that is an argument for taking a tighter stance both from the monetary and from the fiscal points of view. Therefore, what he says does not flow.

I leave the macro-economic argument and turn to the suggestion—

Mr. English


Mr. Brittan

I am afraid that I cannot give way to the hon. Gentleman at this stage. Even if the macro-economic judgment need not be changed—

Mr. English


Mr. Brittan

No. I am not giving way.

Mr. English

It is an open-ended debate.

Mr. Brittan

It is an open-ended debate, and the House has had the benefit of listening to the hon. Gentleman for a considerable time. I take account of the fact that the hon. Gentleman did not see fit to be present for the opening of the debate and did not hear me or his right hon. Friend the Member for Stepney and Poplar.

Mr. English

I was attending a meeting of the Select Committee on the Treasury and Civil Service.

Mr. Brittan

I am not blaming the hon. Gentleman. I am merely observing that he did not hear the beginning of the debate.

It is suggested that, even if the macro-economic argument holds good and there is no justification for differing from my right hon. and learned Friend's assessment on that basis, there is no point in trying to replace the £85 million that was removed because of the derv change because one cannot fine tune it to that extent.

I hope that I dealt with that matter fairly by saying candidly that I am not pretending that that estimate of the consequences of the budgetary picture is so precise that one has it right within a few million pounds here or there. That was not the way I put it to the House. The right hon. Gentlemen know that, because they heard what I said in my opening remarks. Although one is not being precise in that sense, the Chancellor has to reach a judgment about what he should do. It is his judgment and he is entitled to tell the House that if it is disturbed by the view of the House he can put it right subsequently. That is not an unreasonable view to take and it has led to the present measures.

Mr. Robert Sheldon

But what might have been correct in April—because that formed the judgment on the nature of the revenues expected and the expenditure that the Chancellor would make—will not necessarily be the same in July. That was the point that the late Iain Macleod made. When one takes into account what has happened with the dollar, in international affairs and domestically, that sort of accuracy is spurious.

Mr. Brittan

I agree, but if there have been changes, those might be reasons for changing the Budget judgment. It is for that reason that I dealt first with the suggestion that the Budget judgment should be changed.

Mr. English

Will the right hon. and learned Gentleman give way?

Mr. Brittan

I might, if the hon. Gentleman will allow me to finish my sentence.

I have dealt, first, with the the general Budget judgment. I accept the view that, if matters have moved on so much that that judgment has been disturbed, one might feel that things should be changed. I am now dealing with the £85 million on the basis that I am seeking to persuade the House to take the view that there is no basis for altering the Budget judgment.

Mr. English

If the Chancellor got the 1980 budget judgment wrong by £5 billion and did nothing about it, why should we think that he will do anything about this Budget?

Mr. Brittan

I should not put it that way about the 1980 Budget. It would take a long time to explain fully what happened. This is the first occasion that I have quoted myself, but in the debate on the public expenditure White Paper the factors that led to the change are clearly set out and are explained fully. On reflection, the hon. Gentleman will accept that it is a question not of misjudgment, in the sense of miscalculating the effect of individual measures, but of events supervening which were not in operation at the time.

Mr. Foulkes

If the Chief Secretary is correct in saying that Budget judgments are as valid today as they were when the Budget was announced and he is making fine tuning to the extent of £85 million, which he says is justified, will he make further fine tuning to the extent of £25 million which will take account of the give-away in bank windfall tax?

Mr. Brittan


Mr. Foulkes

Why not?

Mr. Brittan

I shall explain. I take it that the hon. Gentleman wants an explanation as well as an answer. I am sure that he wants the answer before the explanation, otherwise I shall be accused of not giving the answer. The estimate of the revenue arising from the bank tax was approximate. The hon. Gentleman waves his hand as if that was some fantastic concession, but it was made absolutely clear that this was a one-off measure. One cannot expect to estimate the consequences of doing that as accurately as changes in well-established revenue measures.

I take the points made by several hon. Members, including some of my hon. Friends, about the good aspects of the tobacco industry, such as its industrial relations and employment benefits. I also appreciate the difficulties that the industry has been facing. I revert to what I said earlier, that the difficulties that the industry has been experiencing have largely been caused by the problems arising from the high purchases before the Budget and the forestalling of the Budget.

I accept that the effect of this measure will be that the 9 per cent. to which I referred will become 10½ per cent. I fear that it has that consequence, but I assure the House that I shall bear in mind the points that have been made about the industry.

The higher tar surcharge was removed because it had largely achieved its effect. Consumption of higher-tar cigarettes had been reduced to a quarter of 1 per cent. of the total cigarette market. The abolition of that surcharge involved a loss of revenue of less than £1 million.

Mr. Austin Mitchell


Mr. Brittan

Perhaps the hon. Gentleman will bear with me. He held the House for 45 minutes, and I am sure he had an opportunity to put forward at least his best points, if not all his points.

Mr. Robert Sheldon

Nothing would have stopped the right hon. and learned Gentleman from reducing the tar level at which the supplementary tax took effect. It was originally placed at 20 milligrams, and there was nothing to stop that being reduced so that the Government could have retained the revenue from that useful supplementary duty.

Mr. Brittan

I have indicated that the level was extremely small. Therefore, I do not think that the right hon. Gentleman is making a substantial point, although it is a real point.

It was suggested that an easy way to raise the revenue would have been to clobber the rich who, it was alleged, were given all these benefits. If hon. Members look in the Red Book at the forecasts for 1981–82 of the effects of the capital transfer tax and capital gains tax changes, they will find that that argument is strong on prejudice and emotion but a bit short on figures and logic.

If one takes into account everything done in Committee, the net effect of the proposals in the capital tax sector will be a cost of £5 million in the coming year but a gain of £15 million in a full year—the saving from the anti-avoidance measures exceeding the cost of the reliefs proposed by the Chancellor.

Therefore, these measures do no more and no less than what the Chancellor foreshadowed on 30 October and recoup in the fairest possible way the changes to his Budget judgment made by the alteration in the derv tax level. A general change to the Budget judgment is not called for. Such a change is not produced in these resolutions, nor would it be justified. But these resolutions are the implementation of the 30 April announcement and are reasonable in that sense.

11.55 pm
Mr. K. J. Woolmer (Batley and Morley)

I was not present at the beginning of the debate and I apologise for that, but I have been here for nearly four hours. Having the opportunity to speak after the Chief Secretary, I can only say that I found his defence of the measure totally unsatisfactory and completely unconvincing. I do not think that he can have convinced anyone with an impartial mind of his reason for seeking to raise the sum of £65 million. I waited for him to produce a reason, but he failed to do so.

I would be willing at any time to consider voting for an additional tax if I could be persuaded that it was necessary, but after several hours of debate we have been given no convincing explanation. My hon. Friends have challenged the Chief Secretary to explain why, when we have a Budget with an uncertainty of hundreds if not thousands of millions of pounds, it is thought necessary to come to the House to ask for a tax which can only raise the cost of living and involve a loss of jobs and which in the end can raise only £65 million of revenue.

The Government's record is one of total uncertainty as to the consequences of their policies. In their first full year in office, an error was made in their financial estimate of the borrowing requirement. The figure involved was £5 billion. I therefore cannot accept the Chief Secretary's argument that the measure is necessary. Indeed, when he sought to justify it to the House, he did not pretend that the Budget judgment was so precise that he needed to raise this extra revenue. His explanation was that the Chancellor of the Exchequer has to reach some judgment and that, having reached it, he has to stick to it to the tune of £65 million. He further explained that if that was disturbed by the House—by which I presume he meant defeated by his own Back Benchers—he would have to take it out on somebody, not because he needs to do it and not because the Budget judgment can be so precise but because he must teach the House a lesson. I think that that is a fair way of putting it. He has to teach his own Back Benchers a lesson and to teach the Opposition and the country that if he says something he means it.

Since the Budget was introduced—and this measure, it is argued, is justified because it is designed to set the Budget judgment back on course—so many things have happened that to pretend that £65 million has to be raised in this way defies credulity. The pound has changed significantly since the Budget. Are we to be told that it has had no effect on the Budget judgment? Interest rates in the world economy have increased substantially. Investment has slumped. Unemployment has risen. No doubt other hon. Members have read in the last day or so the judgment that is being reached by other people—that unemployment is now significantly above the estimate at the time of the Budget.

Are we to be told that these various changes that must have had an impact on the Budget judgment of hundreds of millions of pounds will be swamped? I would be more convinced if hon. Members were faced by a series of measures representing an attempt by the Chief Secretary to alter course and to take account of changes since the Budget judgment. Instead, hon. Members are confronted by the Government's obstinate refusal to take account of the changes that have occurred. We face a total irrelevancy and a harking back to the good old days of the Budget when, in fact, many things have altered.

We need now what the Opposition were urging at the time of the Budget—not further deflation but expansion of the economy. The Government should have accepted in good grace the reduction in the duty on derv as a start in the direction of reflation. A sum of £65 million or £85 million is not excessive. No one outside the Chamber doubts that if any erring is required it should be on the side of expansion and not further deflation.

The Chief Secretary was defensive about the capital transfer tax and decried the amount that it raised. I have noticed in Standing Committee on the Finance Bill the sensitivity of Conservative Members on that matter. Why, if it is so insignificant, have the Government considered it necessary, at a time when further imposts are put on working people, to introduce such a tax? If taxes are to be raised, why has this method been chosen?

Many of my hon. Friends have commented upon the impact of this measure on the tobacco industry and the pottery industry. It should be recognised that many industries are up in arms over the Government's policies. Yorkshire has experienced a collapse in engineering and in textiles and clothing. There is uproar over the policies because of the unemployment problems created. I hope that the industrialists who have been lobbying hon. Members in the last few hours over the measure we are discussing will think about the resources that they contributed towards financing the Government at the time of the general election. What they now see, in terms of loss of employment in the tobacco industry, is what those in Yorkshire have seen in terms of engineering, textiles and clothing for many months. The number of jobs lost in the textile and clothing industry alone since the Government came to office—160,000—has been quoted many times.

I recognise the argument that further deflation is not required. I wish that many hon. Members and many of the industrialists who have been lobbying us had recognised the inevitable consequences of Government policy two years ago. I am aware of the need to strike a balance between the problems of health and the argument for increasing this form of taxation against the job losses that are inevitably involved. I am extremely wary of the danger of moralising about tax policy.

I should be impressed by the arguments for the tax if—and this is why I shall vote against it—there were a reason for levying it at this time. I see no reason why such taxation should be levied now. It will increase the cost of living, and that will hit the lowest paid most. It will cause a loss of jobs and is unnecessary. If the Government want to ask for an endorsement of a change of direction, they should ask for confirmation that there is no requirement to replace the loss of revenue through derv and ask the House to oppose the change. I hope that the House will oppose a measure which can only increase the cost of living for the average person.

12.6 am

Mr. Dennis Canavan. (West Stirlingshire)

In the last Parliament the then Chancellor of the Exchequer made secondary, or mini-Budget, proposals and there were cries of protest by Conservative Members about a Treasury which, they said, was incapable of planning 12 months in advance. The then Opposition said that it was an example of the Government's incompetence in planning. Yet, at a time when the present Finance Bill is not even on the statute book, the Government have proposed this additional financial measure. I am surprised that we do not hear cries of protest from Tory Members who jumped up in protest about previous Ministers and Treasury officials whom they described as incompetent bureaucrats.

The Government have been forced to capitulate because of pressure from their Back Benchers, notably from the hon. Member for Aberdeenshire, East (Mr. McQuarrie). Having had their backsides bitten by the "Buchan Bulldog", the Government are determined to muzzle the doped bulldog and put him back into his kennel by introducing measures such as this motion.

Following an unprecedented increase of 14p in the price of 20 cigarettes, there is to be another increase of 3p. That is supposed to bring in most of the money that the 'Treasury will lose as a result of the announcement last week about the proposed increase in the price of derv being cut by 10p per gallon.

The Government hope that the increase will bring in about £65 million a year. I am not sure that we can put any faith in Treasury estimates, but I am informed that the public sector borrowing requirement is about £13 billion. That means that we are debating only about half of 1 per cent. of the total PSBR.

I do not know how the Government can calculate as closely as that. On past performance there does not seem to be such a level of arithmetical or economic genius in the Treasury at any level.

The sum that we are discussing is a mere drop in the ocean compared with total public expenditure—less than one-tenth of 1 per cent. I do not understand why we are wasting hours of parliamentary time on this snivelling little motion. The money could easily be found from the Contingencies Fund or from an increase in public borrowing.

There are signs that the Government's proposal may in fact be counter-productive. It is nonsense to imagine that we can keep on taxing the tobacco industry without adversely affecting consumer demand and, therefore, reducing the Government's revenue. There is a danger that we will kill the goose that lays the golden eggs. The Government's proposal will also be inflationary.

The 3p increase in the price of a packet of 20 cigarettes will add 0.1 per cent. or 0.2 per cent. to the RPI, but, taken with the 14p a packet increase in the Budget, the effect could be as much as a one percentage point increase in the index. That would be a significant increase in the rate of inflation at a time when the Government claim that they are reducing the rate—even though it is still above the rate that they inherited from the Labour Government in May 1979.

Several of my hon. Friends have referred to the deflationary effect of the Government's proposal on the whole economy. That has its most measurable human impact in the increase in unemployment. The Player's factory at Stirling is in my neighbourhood. It is situated in the constituency of my hon. Friend the Member for Stirling, Falkirk and Grangemouth (Mr. Ewing), but it is one of the major employers of my constituents as well as his.

Because of that firm's fears of what the Government will do, I was invited to the factory recently to discuss the problem with representatives of the management, the Tobacco Workers' Union and other unions with members at the factory. The tobacco industry faces similar problems to those confronting other industries because of the abysmal failure of the Government's economic and industrial strategy represented by high energy costs and interest rates and the collapse of whatever development policy they may have started out with.

The Stirling travel-to-work area, in which the Player's factory is situated, was singled out by the Secretary of State for Industry for relegation from development area status. The result is that one of the major employers in that area of high unemployment faces further difficulties because of the increased taxation on tobacco and is already considering a reduction in the number of jobs in its factory, hoping that that can be achieved, in consultation with the trade unions, through natural wastage. But that was before last Thursday's announcement of the order that we are debating. It will add another 3p to the price of a packet of 20 cigarettes. That will mean a reduction in the employment opportunities for the hundreds of workers employed in the factory in my area, as well as the thousands of tobacco workers employed at other factories in Scotland and other parts of Britain. I hope that the Minister will pay attention to those points. He has not given any real estimate of the measured effects on employment—or unemployment.

When I visited the factory, representatives of both management and trade unions told me specifically that any further attempt to recoup the money lost by forgoing part of the increase on derv by a further levy on tobacco would have a detrimental effect on the industry and on employment prospects. The Minister knows of the advance warnings from the industry, yet he has ignored them.

I wish to refer briefly to the health arguments, to which several hon. Members on both sides of the House have referred. I used to smoke up to 50 or 60 cigarettes a day. I have not smoked for the best part of 10 years. I strongly recommend it to other hon. Members, but there must always be an important element of personal responsibility and freedom of choice in health education. It is no use Tory Members paying lip service to freedom of choice in some aspects while they throw that out of the window in relation to health education. Many other factors have a detrimental effect on personal health—not only smoking too many cigarettes but, for example, too much drink, too much food, and too little exercise. I have never heard anybody argue that we should be so totalitarian in health education that we should have compulsory teetotalism, statutory diets or enforced early morning marches to make the general population healthier. I am all in favour of discipline, but surely it should be self-discipline, discipline from within.

The late Gerald Nabarro, a Tory Member of Parliament, was in the forefront of the compaign for health education and the link between tobacco smoking and ill health. He was instrumental in getting on to the statute book the legislation that enforces tobacco manufacturers to label their products "H. M. Govt. Health Warning: Smoking may damage your health". When we see the wrecking job that the Government have done on the National Health Service, it might be more appropriate to make it compulsory for Tory Members and their dwindling number of supporters to wear lapel signs—some of which I have seen worn by schoolchildren in my area—saying "Warning: H. M. Govt. will damage your health". The Government have done more than any Government in history to damage the personal health of the nation, the health of British industry and the health of the economy in general.

There is no justification for this petty, mean and vindictive measure. Increased duty on cigarettes and tobacco, bingo, off-course betting and gaming machines will discriminate against working-class people, their pastimes, their pleasures and their pursuits, or whatever little pleasure they have left. It is unjustifiable discrimination against those on lower incomes. It will discriminate against those who play bingo in working people's clubs or who play betting machines.

If I wanted to raise extra money to recoup the reduced increase in the duty on derv, I could think of 1,001 means of so doing instead of the measures that are before us—for example, by introducing a wealth tax, by increasing capital transfer tax and other taxes on capital, by introducing a tax on private yachts and some of the other pursuits of the idle rich and by introducing a tax on large landowners such as the chairman of the Tory Party, Lord Thorneycroft, the Vesteys of this world and all the others who are bleeding the country and contributing nothing towards its economic betterment. If they want to redistribute wealth by means of the tax system, there are far fairer ways of so doing than the measures that are before us.

Tonight's motions are further attempts by this mean and discredited Government to pick the pockets of the poor and to line the pockets of their rich friends. That is why I hope that as many right hon. and hon. Members as possible will vote against the motion.

Question put:

The House divided: Ayes 113, Noes 40.

Division No. 248] [12.23
Alexander, Richard Buck, Antony
Ancram, Michael Butcher, John
Baker, Nicholas (N Dorset) Cadbury, Jocelyn
Banks, Robert Carlisle, John (Luton West)
Beaumont-Dark, Anthony Carlisle, Kenneth (Lincoln)
Benyon, Thomas (A'don) Clark, Hon A. (Plym'th, S'n)
Benyon, W. (Buckingham) Clarke, Kenneth (Rushcliffe)
Berry, Hon Anthony Clegg, Sir Walter
Bevan, David Gilroy Colvin, Michael
Biggs-Davison, John Cope, John
Blackburn, John Cranborne, Viscount
Boscawen, Hon Robert Dover, Denshore
Boyson, Dr Rhodes Dunn, Robert (Dartford)
Braine, Sir Bernard Dykes, Hugh
Bright, Graham Fairgrieve, Russell
Brinton, Tim Faith, Mrs Sheila
Brittan, Leon Fell, Anthony
Brown, Michael(Brigg & Sc'n) Fenner, Mrs Peggy
Browne, John (Winchester) Fletcher-Cooke, Sir Charles
Bruce-Gardyne, John Fookes, Miss Janet
Gardiner, George (Reigate) Page, Richard (SW Herts)
Garel-Jones, Tristan Pattie, Geoffrey
Goodlad, Alastair Rees, Peter (Dover and Deal)
Griffiths, E.(B'y St. Edm'ds) Renton, Tim
Griffiths, Peter (Portsm'th N) Roberts, M. (Cardiff NW)
Grist, Ian Roberts, Wyn (Conway)
Hamilton, Hon A. Sainsbury, Hon Timothy
Hannam, John Shaw, Giles (Pudsey)
Hawkins, Paul Silvester, Fred
Hawksley, Warren Skeet, T. H. H.
Heddle, John Speed, Keith
Henderson, Barry Speller, Tony
Hogg, Hon Douglas (Gr'th'm) Stainton, Keith
Howell, Rt Hon D. (G'ldfd) Stanbrook, Ivor
Jopling, Rt Hon Michael Steen, Anthony
Kershaw, Anthony Stevens, Martin
Lang, Ian Stradling Thomas, J.
Le Marchant, Spencer Taylor, Teddy (S'end E)
Lloyd, Peter (Fareham) Thomas, Rt Hon Peter
Lyell, Nicholas Thompson, Donald
MacGregor, John Thorne, Neil (Ilford South)
Major, John Townend, John (Bridlington)
Marlow, Tony Trippier, David
Maude, Rt Hon Sir Angus Viggers, Peter
Mawby, Ray Waddington, David
Maxwell-Hyslop, Robin Wakeham, John
Mellor, David Walker, B. (Perth)
Meyer, Sir Anthony Waller, Gary
Miller, Hal (B'grove) Watson, John
Mills, Iain (Meriden) Wells, Bowen
Moate, Roger Wheeler, John
Morgan, Geraint Wickenden, Keith
Murphy, Christopher Williams, D.(Montgomery)
Neale, Gerrard Wolfson, Mark
Neubert, Michael
Onslow, Cranley Tellers for the Ayes:
Osborn, John Mr. Tony Newton and
Page, John (Harrow, West) Mr. Peter Brooke.
Page, Rt Hon Sir G. (Crosby)
Alton, David Cunningham, Dr J. (W'h'n)
Ashton, Joe Dixon, Donald
Beith, A. J. English, Michael
Booth, Rt Hon Albert Foulkes, George
Campbell-Savours, Dale Garrett, W. E. (Wallsend)
Canavan, Dennis George, Bruce
Cocks, Rt Hon M. (B'stol S) Golding, John
Cowans, Harry Harrison, Rt Hon Walter
Craigen, J. M. Haynes, Frank
Cryer, Bob Howells, Geraint
Cunliffe, Lawrence McDonald, Dr Oonagh
Martin, M(G'gow S'burn) Steel, Rt Hon David
Mikardo, Ian Straw, Jack
Mitchell, Austin (Grimsby) Tinn, James
O'Neill, Martin Wainwright, R.(Colne V)
Penhaiigon, David Welsh, Michael
Powell, Raymond (Ogmore) Winnick, David
Prescott, John Woolmer, Kenneth
Sheldon, Rt Hon R.
Shore, Rt Hon Peter Tellers for the Noes:
Skinner, Dennis Mr. George Morton and
Spearing, Nigel Mr. Allen MacKay.

Question accordingly agreed to.

Resolved, That as respects any time after 7 July 1981 the Resolution of the House (Tobacco products) of 16 March shall have effect with the substitution for £18.04, £34.29, £29.56 and £21.92 of £19.03, £35.91, £30.96 and £22.96 respectively. And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

Mr. Campbell-Savours

On a point of order, Mr. Deputy Speaker. Apart from leaving the Chamber for about 15 minutes, I was here throughout the tobacco duty debate, willingly and without complaint, hoping to speak on an important issue.

The Government Chief Whip is a Cumbrian Member of Parliament and knows that unemployment in our county is particularly high. A factory in my constituency is directly affected by measures in the Budget. Another factory in the Northern region in the constituency of a Deputy Speaker—Rothman's at Spennymoor—is also affected, and I wished, too, to raise that issue.

My point of order is this. Is it in order for the Chief Whip to come into the Chamber and curtail debate when he knew that other hon. Members, particularly hon. Members in his own part of the country, intended to raise matters of direct concern and interest to their constituents? As a result of the curtailment of the debate, the case of a factory in my constituency has not been heard. I take exception to that.

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. That is not a point of order. It is a matter for the Government, not for the Chair.