§ [Relevant documents: European Community Document No. 10277/84, Annual Economic Report 1984–85 and the Unnumbered document Annual Economic Report 1984–85 (final version as adopted by the Council).]3.35 pm
§ Mr. Roy Hattersley (Birmingham, Sparkbrook)
In his new year's day message to the City and the world, the Chancellor of the Exchequer promised Britain a Budget for jobs—[HON. MEMBERS: "Where is he?"] Now, only the most gullible of his supporters would believe that the Chancellor had kept that promise. When next year the Chancellor or his successor introduces the Budget for 1986, unemployment will be no less than it is today. Indeed, the probability is that it will continue to rise throughout the next 12 months. Yet, had he chosen to do so, the Chancellor could have begun to put Britain back to work—[HON. MEMBERS: "Where is he?"] Might I suggest to my hon. Friends that, while they naturally resent the usual absence of the Chancellor, it is probably better that we proceed without calls for him, because if we call he might come.
When next year the Chancellor or his successor introduces the Budget, unemployment will certainly be no less than it is today—perhaps a great deal more. I also repeat that the absent Chancellor, had he chosen to do so, could have introduced a Budget which began to put Britain back to work. The nation's tragedy and the Chancellor's disgrace is that once more he and the Government have chosen the high unemployment option.
At another phase of the Chancellor's pre-Budget cycle, he decided to excite hopes of tax cuts. Today, nobody believes that the hopes which he encouraged have been realised. Indeed, the total annual tax burden will rise by a further £4 billion between now and the next Budget. Table 5.4 on page 39 of the financial statement makes it clear that, between the 1979 general election and the end of the present financial year, the total increase in our annual tax burden will be about £26 billion. That is the 870 increase imposed on Great Britain by a party and Government who won two general elections on the promise of tax cuts.
What most families may have received yesterday in the form of tax reductions will not compensate for the extra charges, payments and indirect taxation which they must pay. Many of those charges were not announced in the Budget. They were announced to prepare the Budget's ground and to enable the Chancellor to put as good a face as possible on yesterday's dreary event. However, prescription charges, water rates and bus fares are still to be paid, and they are the basis on which the Chancellor was able to make his other proposals.
In addition, one direct result of the Government's folly will cost many families virtually as much as the income tax reduction provides. A married couple with one child will enjoy an income tax reduction of £7.50 a month. However, even if the building societies make no further increase in their lending rate, which I fear is a most optimistic assumption, the cost of an average mortgage has gone up since Christmas by £7.25 a month. Even if there is no further increase on Thursday, Friday or next week, the one fact of the mortgage increase, which was the direct result of the Chancellor's mishandling of the sterling crisis and the increased interest rates that followed, will virtually wipe out the average reduction in income tax.
No wonder that the Chancellor's supporters were so glum yesterday afternoon. As the speech went on, they edged nearer and nearer to the edges of their seats, waiting for the rabbit that they assumed that the Chancellor would produce from his hat. At the end of his speech, in the words of Dorothy Parker, they looked like men who had bought tickets for a quite different play.
The Chancellor's unpopularity is not confined to his party. He is, according to the evidence and the polls, the most unpopular holder of his great ofice in modern history. It would be both mistaken and uncharitable to jump to the obvious conclusion and blame that unpopularity on his personality and character. As I was defending the Chancellor for an uncharacteristic moment, I shall repeat what I said now that he has come into the Chamber. We were discussing the unpopularity from which he uniquely suffers. In a mood of typical charity, I repeat that it would not be right to jump to the obvious conclusion and attribute his unpopularity to his personality and character.
Equally, it would be wrong to assume that the right hon. Gentleman's unpopularity is a result of the incompetence with which he has performed his duties, although the combination of bluster and indecision with which he faced the sterling crisis in January did not make him a national hero. The Chancellor's status and standing—
§ Mr. Hattersley
Does the hon. Gentleman wish to say something, or is he just going to shout?
The Chancellor's status and standing is largely a result of a single characteristic. He represents, indeed he personifies, the callousness of Conservatism. He is essentially the man who does not care, as was demonstrated yesterday in his attitude towards the wages councils. The wages councils were created by the Prime Minister's greatest of all heroes, Sir Winston Churchill. They were created to protect the weak and the vulnerable. The then Mr. Winston Churchill said when the Bill was introduced: 871It was formerly supposed that the workings of the laws of supply and demand would naturally regulate or eliminate that evil"—that is, the evil of living on less than a decent wage—But when you have no organisation, no parity of bargaining, the good employer is undercut by the bad, and the bad employer is undercut by the worst."—[Official Report, 28 April 1909; Vol. 4, c. 388.]It is to that situation that the Chancellor proposes to return us. The weak-minded reliance on the free market will cause much anguish and deprivation to the men and women who now receive a modicum of protection, provided by the wages councils.
As to the workers who are covered by the wages councils provisions, far from causing unemployment, they have, over the past five yars, been its principal victims. In the last decade, the average earnings of wages councils employees have fallen from 73 per cent. to 65 per cent. of the average national wage, and the notion that we might find some economic salvation in depressing their wages still further is simply grotesque.
Indeed, even if the formula worked, we would only be replacing one sort of grinding poverty with another, and that is not the sort of society in which I, or my hon. Friends, wish to live. Yet the abolition of the wages councils and the abolition of employment protection are part of the price that the nation pays—
§ Mr. Hattersley
If the two-year rule is introduced, it will be abolition in everything other than name. If the right hon. Gentleman does not understand that, he does not understand the workings of the legislation over which he is supposed to preside. That rule, that new change and the abolition of the workers' councils—or rather the wages councils—[AN HON. MEMBER: "Workers' councils?"] The hon. Gentleman is quite right — we shall create some of them, not abolish them.
The price for abolition is the price that the nation has to pay for the half-thought-out, superficially clever but fundamentally flawed economic prescription on which the Government now operate. That prescription is called the medium term financial strategy. It has collapsed under the weight of its own contradictions.
Indeed, yesterday afternoon the Chancellor of the Exchequer performed the last rites over the corpse when he warned the House and, for all I know, the country and perhaps the foreign exchanges about "benign neglect" of the exchange rate. Until 11 February, benign neglect was official Government policy, but then it was called the free float of sterling. If the Chancellor of the Exchequer shakes his head, perhaps I should remind him of something that he said in the House on 12 July:We have demonstrated by action that there is not an exchange rate target".—[Official Report, 12 July 1984; Vol. 63, c. 1399.]My word, was not the Chancellor of the Exchequer proved right in February? Has he not learned the lesson since? Why does he not have the good sense to avoid the volatility that is now doing so much damage by openly admitting that there is now an exchange rate policy, and admitting, therefore, that the medium-term financial strategy has collapsed?
§ The Chancellor of the Exchequer (Mr. Nigel Lawson)
There is no exchange rate target. That remains the position. If the right hon. Gentleman contests that, does he say that he thinks there should be an exchange rate target? If so, what is his preferred target?
§ Mr. Hattersley
I told the right hon. Gentleman at the time of the February crisis—using almost exactly the same words as the Prime Minister, but I make no apology for that—that, thanks to the Government's mismanagement, the sterling rate had settled lower than it should have done. It was necessary for the right hon. Gentleman to make up for his misdeeds by taking some positive action about a proper rate. But I do not believe that the possession of a target is the same as the announcement of one. The right hon. Gentleman knows that perfectly well. He will not announce a target, but he should have in his mind—and I suspect that he does — a target that he is now prepared to defend. Until 11 February he was not prepared to do that, and consequently we had all the difficulties that characterised that difficult and dangerous month.
The medium-term financial strategy now exists only as a series of targets which are constantly revised but very rarely achieved. Yesterday, the failures of the Government's forecasting were institutionalised by the announcement that the contingency reserve is to be increased by £2 billion this year and next year. Indeed, the Chancellor of the Exchequer is now preparing for his forecasting errors a year before he actually makes a forecast. Yet he continues with his manic pursuit of the elusive targets. It is, I suppose, for that reason that he failed to provide the remedy that the country so desperately needs to the unemployment crisis. That remedy is a substantial investment in public capital. That is the most certain and beneficial way of creating new jobs.
I am delighted to see that the Prime Minister has become a belated convert to that cause. Yesterday, during Prime Minister's Question Time, she told my hon. Friend the Member for Burnley (Mr. Pike):Public investment was purposely higher in the north so as to help with the unemployment problem."—[Official Report, 19 March 1985; Vol. 75, c. 781.]If that is why the Prime Minister pushed public investment to the north, and, if she was right—as I believe she was—in saying that that is how public investment works, why is she not applying the same policy to the whole country, and why has she cut the level of public capital expenditure by more than 20 per cent. over the past three years?
We believe that the Prime Minister was right about the way in which public investment works, and that is why we regret, and resisted, the £3.3 billion reduction now scheduled for between last year and 1987–88.
§ Mr. Edward Leigh (Gainsborough and Horncastle)
If public investment is so effective, why is the area that has received the most public investment—the north-east—suffering from the highest level of unemployment?
§ Mr. Hattersley
The first answer is that, for structural reasons, as the Prime Minister pointed out yesterday, that area has the greatest problems. The hon. Gentleman should address that question not to me but to the Prime Minister, who argued yesterday that more investment in the north-east produced more jobs. He should also ask the right hon. Lady why, if that policy works in the north-east, it should not be applied all over the United Kingdom.
873 I know what answer the Chancellor would give. He would say that that cannot be done, because of the potential effects on public borrowing. We accept, of course, that we need prudent control of public borrowing. We also need a better definition of public borrowing than the public sector borrowing requirement, according to which investment in British Telecom was classified as a liability on the day before privatisation and as an asset on the day afterwards. But even if the inflated and bogus definition of the public sector borrowing requirement, which includes capital in a way unknown in any other OECD country, is taken as our guide, the level of public borrowing in this country is lower than the OECD average. Yet, although the figure for public borrowing is lower than in many of our successful competitors, the Chancellor insists that it must be cut again this year from 3.25 per cent. of national income to 2 per cent.
If the public sector borrowing requirement had simply been left at the same figure, and augmented by the use of what the Chancellor calls fiscal adjustment, he could have financed a £5 billion job package. Resources should have been divided initially between a job creation programme and public investment. As the construction industry geared up and training programmes produced the necessary manpower, the emphasis should have been switched to new roads, sewers, hospitals and schools and to the building and renovation of houses.
All the work that would have been done under that programme is desperately needed and could be justified on its own merits. Reporting to the Government three months ago, the National Economic Development Council made that clear. It said:delays in maintenance so sharply increase necessary expenditure in subsequent periods that no rational discounting process can justify them".If we do not invest now in restoring our decaying roads and houses, we will have to spend far more in the future on replacing derelict roads and houses.
§ Mr. John Butterfill (Bournemouth, West)
Can the right hon. Gentleman explain, if he really believes what he is saying, why it was that, when he was last a member of the Government, unemployment doubled? Why, for example, if he believes in the capital investment programme, did the Government of whom he was a member cut the hospital building programme altogether? The right hon. Gentleman says one thing when in government and another when in opposition.
§ Mr. Hattersley
It is not just me who believes what I am saying. The Confederation of British Industry, the engineering employers, the Trades Union Congress, the construction industry and the road haulage industry believe what I am saying. Indeed, the right hon. Member for Old Bexley and Sidcup (Mr. Heath) believes what I am saying, as do a substantial number of the hon. Gentleman's party. The comparison between what happened when we were in office and what happens now is clear. The comparison is based on the certainty that, during the past five and a half years, unemployment has risen by more than 2 million. For the hon. Gentleman to suggest that we were somehow deficient in these matters when unemployment was 2 million lower than it is today is to stand the facts on their head.
If the Government did not prefer the high unemployment option, they could have a PSBR cost of £2.5 billion, which would create 100,000 genuine jobs and 874 restore the crumbling fabric of the country. If we spent the same amount—the other half of the £5 billion package — on direct job creation schemes, we should reduce unemployment by a further 200,000 this year. After two years, that programme would reduce unemployment by 1 million.
Could we be told by the Chief Secretary over what period the Chancellor expects his measures to have an effect and how great an effect that will be? At the moment, we have what the Chancellor claims to be a Budget for jobs, without knowing when it will work, what its effects will be or what estimates have been made of the unemployment reductions that he anticipates. Can we be told at least the reductions in unemployment that the direct job creation measures are expected to create and when they will move into success?
Of course, the Chancellor will go on to insist that his attack on unemployment is also concerned with the use of wages to stimulate jobs. In that respect, I repeat the general welcome for the principle of the changes in national insurance contributions which my right lion. Friend the Member for Islwyn (Mr. Kinnock) offered the House yesterday, although I wish that the Chancellor had summoned up enough courage to extend the employee's contribution to the top of the income scale and to use the extra revenue for greater relief at the bottom. The Chancellor will know that the man or woman earning £55 a week—the key figure in the formula—will still, after that formula is applied, pay a higher rate of national insurance contribution than he or she did under Labour in 1979. The Chancellor will also know — I put it no higher — that there is a great danger of a wage or national insurance trap applying at about £55 a week.
Perhaps the Chief Secretary will explain how, in the new circumstances, he justifies the national insurance scheme still levying a smaller percentage of earnings from the rich than from the poor. Putting those reservations aside, I welcome the new scheme as far as it goes, although I do not believe for one moment—nor, I think, does the Chancellor — that it will have a significant effect on the number of jobs. Without a general increase in demand, the overwhelming likelihood is that it will simply reshuffle employment from skilled to unskilled jobs.
We were told last year that a similar measure —abolition of the national insurance surcharge — would reduce unemployment but, since then, unemployment has risen by 120,000.
§ Mr. Hattersley
Somebody says that it would have gone up more. Would somebody like to have a guess how many? Was it not the Secretary of State for Employment who cried that it would have gone up more? Nobody wants to put a figure on it. Is there any advance on 120,000? I think not.
The second item that we were told last year would increase jobs was tax cuts. They also clearly failed. I hope that the Chief Secretary will say exactly how the tax cuts are supposed to work to promote employment. Are they supposed to hold down wage costs by acting as a substitute for negotiated increases? If they are, they will not widen the gap between wages and social security payments.
The two supply side arguments which the Chancellor has advanced to justify his wages policy as a means of 875 creating new jobs work against each other. In any event, the idea that a significant number of men and women choose unemployment because they can do almost as well on social security is an insult not only to the unemployed but to the intelligence of anyone who examines that proposition.
The unemployment crisis comes not from an imaginary reluctance to look for work but from a real inability to find it. Two weeks ago the director of the CBI told me that his members all over the country were reporting vacancies which they could not fill. I promised him that, putting aside specialist employment—where the problem is not paying but trading — I would fill every Birmingham vacancy about which the CBI notified me. I have to report that the CBI has not yet taken up my offer. Notwithstanding that, I extend that offer to every Conservative Member of Parliament who believes that unemployment is the result of the unemployed's reluctance to work. The people are there looking for jobs; the Government's duty is to find the jobs for them Look at the simple figures. On the Government's own figures, today unemployment stands in excess of 3,300,000 and there are fewer than half a million unfilled vacancies. Even if six people refuse to take a job, a seventh is still waiting for employment. Yet, yesterday, the Chancellor had a message for the men and women who were looking for jobs. It appears in column 792 of Hansard under "Employment and training measures". His message was:Impatience is a bad counsellor." —[Official Report, 19 March 1985; Vol. 75, c. 792.]I must say to the Chancellor, on behalf of my unemployed constituents, that it is a great deal easier to be patient in No. 11 Downing street than to be patient in the dole queues.
How long does the Chancellor expect the patience to last? One hundred thousand people have been unemployed for five years or more. Have they been patient enough? Have they waited long enough? Does the Chancellor urge patience on them? Putting it more simply and directly, can we be told when the unemployment measures will work? For five years, every ministerial broadcast on the subject and every prime ministerial pronunciation has told the House and the country that, sooner or later, the unemployment prospect will improve and jobs will be found. When will that happen—this year, next year, sometime, or never under a Conservative Administration?
The Chancellor told the House yesterday, and, I understand, repeated it to journalists verbatim, that his room for manoeuvre in the Budget was limited by the effects of the coal dispute on Government expenditure. That is a selective version of the Chancellor's public spending problem. Fourteen months ago, to make the Chancellor's strategy seem plausible, the 1984 public expenditure White Paper was based on a series of wholly unjustifiable assumptions, which I told the Chief Secretary during that debate were unjustifiable — assumptions about public sector pay, about local authority spending and about unemployment. Because of those errors—in part, intentional errors—the contingency reserve was spent before the cost of the major contingency was calculated.
What is more, the Government clearly badly under-estimated the cost of the miners' strike. Yesterday the Chancellor replied to a letter I sent him a fortnight ago 876 asking him a series of questions. He declined to answer most of the questions — for instance, he did not say whether the cost of the Trident programme, which was wholly carried out in the United States, has been included in the Government's estimate to pad out the figure. The right hon. Gentleman did, however, answer a question about the cost of the miners' strike, saying:What I actually said on 31 July was that the cost of resisting the strike was a worthwhile investment.The Chancellor seeks to re-write both Hansard and history. That is what he meant to say. [Interruption.] Even now he is crying that it is clear in Hansard. On 31 July 1984, the Chancellor said:even in narrow financial terms, it represents a worthwhile investment". —[Official Report, 31 July 1984; Vol. 65, c. 306–7.]
§ Mr. Hattersley
No. The truth is that the Government woefully miscalculated the cost of the miners' strike. I give the Chancellor credit for this: if the Government had not under-estimated to such a degree, the right hon. Gentleman would probably have had the sense not to prolong the strike for as long as Government intervention prolonged it.
§ Mr. Hattersley
Wait until I get to the end of the subject.
Another question arises from the Government's attitude to these matters and the way in which the Chancellor now whines about the costs that his policy have made necessary. I asked him this second question during the last public expenditure debate. It is a question that my right hon. Friend the Leader of the Opposition asked the Chancellor yesterday. I repeat it today, and I believe my party will repeat it for the rest of this Parliament—if the Government could afford £3 billion to fight the miners, why cannot the Government afford £3 billion to fight unemployment?
§ Mr. Yeo
Does the right hon. Gentleman not recognise, as every hon. Member and everyone in the country recognise, that the only real miscalculation in respect of the miners' strike was made by Mr. Arthur Scargill? Does the right hon. Gentleman not recognise that everyone knows that the financial, social and employment consequences and costs of giving in to that strike would have been much more massive than any cost that the Government have paid?
§ Mr. Hattersley
The hon. Gentleman is welcome to his opinion. My only criticism is that the hon. Gentleman did not explain the point to the Chancellor, before the Chancellor made a quite different point. The Chancellor said:even in narrow financial terms".Clearly, that does not stand a moment's examination.
I repeat: if the Government could afford £3 billion to fight the miners, they should be able to afford £3 billion to deal with the greatest scourge of our generation—the curse of continual unemployment. What is more, the Government should be able to afford something in this Budget to help the worse off—the lowest paid. Precious little has been done for them. The lowest paid will pay the largest percentage of their income in increased charges and indirect taxes and their real incomes will suffer most from 877 deteriorating public services. We believe, and have urged this point on the Chancellor, that the right hon. Gentleman should have helped families most in need of help—
§ Mr. Hattersley
—by programmes specifically designed to help the three groups on whom the financial pressure is the greatest—the pensioners, families with young children and the long-term unemployed.
The House may have escaped hearing the Chancellor's cry that that is exactly what he has done. I hope that the Chief Secretary will tell me exactly what the Chancellor has done in the Budget to help pensioners and families with young children, particularly unemployed families with young children. I hope that the Chief Secretary will not only tell me what has been done to help the long-term unemployed but remind the House of the difference between unemployment benefit levels after 12 months and unemployment benefit levels after 12 months and a day. The Chancellor should have provided a pension increase of £5 a week for the single pensioner and of £8 for a married couple, a child benefit increase of £3, which is by far the easiest, best and most direct way of helping to alleviate poverty and an extension of supplementary benefit for the long-term unemployed. That would have cost, in addition to the statutory upratings, which I assume the Chancellor has already provided for, £2.825 billion in a full year.
I have no doubt about where that money for the poverty programme should have come from. Before yesterday's Budget, the Government—twice elected on promises of tax cuts—had increased the annual tax bill by £21.5 billion. They have now increased it to over £26 billion.
Against this background of general increase, one group has enjoyed tax reductions. This group comprises the 5 per cent. of highest income recipients. In principle, we all believe in tax cuts but cutting taxes, especially for one group, is not a discreet choice. The price that we have had to pay for cutting the taxes of the well off is increased charges for welfare benefits, reduced public expenditure and limits on the PSBR which prevent a decent job package and a regional aid programme appearing in the Budget. I hope that the Chief Secretary will explain the justification for a policy which over five years has helped the rich at the expense of the poor. I think that the right hon. and learned Gentleman is just the man to explain why that has been done.
§ Mr. John Maples (Lewisham, West)
If the right hon. Gentleman were the Chancellor of the Exchequer, would he restore the 98 per cent. rate of income tax which was a feature of the previous Labour Government?
§ Mr. Hattersley
I was coming to that. I have a major objection to the 98 per cent. marginal rate of tax because hardly anyone paid income tax at that rate except pop stars with huge investment incomes and rotten accountants. I want to see an added tax contribution from the wealthiest members of society, but 98 per cent. on the marginal pound is not the answer. The answer lies in a higher rate of average taxation by removing some of the tax privileges which the wealthy in our society presently enjoy. There is something deeply demeaning—
§ Mr. Hattersley
I shall give way to the hon. Gentleman in a moment.
878 There is something deeply demeaning in Conservative Members and newspapers, who have not raised a word about the deprivation of unemployment and the problems of poverty, producing or using headlines about the dozen or two dozen who might have to pay high rates of taxation on the last pound of their gigantic unearned income. My objection to the 98 per cent. rate is that it does not operate in a way that will produce the revenue that I want to see. There will not be a 98 per cent. rate in those circumstances, but £3 billion should be contributed by those who have been the only beneficiaries of Government policy.
§ Mr. Hattersley
No, I shall not give way for the moment. I shall be more than happy later to give way to the hon. Gentleman, of all people.
The other scare about high rates of taxation comes from the notion that by taxing unearned income we shall be taking the savings of individuals with little money, little independence and a low standard of living. When the unearned income surcharge was abolished last year, the starting point was £7,000. At that time it was thought to be produced by about £70,000 in the bank. I am not suggesting that £70,000 in the bank is a fortune, but in my constituency I doubt whether there are a dozen people with that sum in the bank. However, there are thousands who need decent child benefit, who cannot afford to pay for their children's school meals and who, above all else, want a job which will give them something like a decent standard of living.
§ Mr. Hattersley
No. I gave way to the hon. Gentleman a short time ago, and no one can regard that as a rewarding experience. I give way instead to the hon. Member for Grantham (Mr. Hogg).
§ Mr. Hogg
The right hon. Gentleman has told the House how he proposes to finance what he is pleased to call his poverty relief programme, to the tune of £2.5 billion. Apparently it is to be achieved by withdrawing tax privileges. It will be helpful if he tells the House exactly what tax privileges he has in mind. Do the privileges include mortgage interest relief and contributions to pensions? Does he suppose that the withdrawals that he is contemplating will raise the money, or will he hit the average taxpayer?
§ Mr. Hattersley
I knew before the debate started that we would have a scare about mortgage interest relief. The hon. Gentleman has given me the opportunity to say, as I was able to say to the distinguished economics editor of The Times, that I do not have the slightest intention of attacking the concept of home ownership. One of my complaints about the Government is that they have made home ownership so difficult, especially for those seeking new mortgages. As for tax privileges, I believe that 14 of them are listed in the latest publication of the Institute of Fiscal Studies. These are tax privileges that are available to the very rich with expensive accountants and they are a scandal when set against the payments that they receive. No one wants to see—[HON. MEMBERS: "Name them".] I am not sure whether Conservative Members are crying "Name them," or saying that they claim them. I have no doubt that some Conservative Members claim the tax privileges that I have in mind.
879 The idea that the highest 5 per cent. of income earners should be the principal beneficiaries of tax cuts which the Conservative party proposes, when every other group in the population is paying more and getting less, is not a vision of society which I believe civilised and decent men and women outside the House are prepared to accept.
The Government's callous disregard for families in the middle of the income scale as well as at the bottom have marked them out from every one of their Conservative predecessors. That callous disregard for the poor, including those with low incomes is the hallmark of the Budget. Indeed, it is the hallmark of the Government over the past five years. I believe that their callous disregard for these considerations will result in their defeat at the hands of an electorate which rejects tax cuts at the expense of public services and rejects unemployment at the expense of policies which the Government have abandoned merely to protect the privileged. The British people have a great deal more concern for the poor in general, including the unemployed, than the Government realise. As a result, they will rise up and sweep the Government out of office.
§ The Chief Secretary to the Treasury (Mr. Peter Rees)
The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) has opened the debate with a characteristic and almost endearing combination of irrelevance and bombast. [Interruption.] The Leader of the Opposition may well laugh. We listened with care to his speech yesterday. It is a difficult speech for a Leader of the Opposition to make. Alas, the parts that had obviously been prepared for him did not fit the measures that my right hon. Friend the Chancellor of the Exchequer had announced, and so he had to extemporise. Unfortunately his extemporising did not tie in with the more formal parts of his speech. We shall come to that in a moment. I shall deal also with the points of the right hon. Member for Sparkbrook, if any serious points were made by him, in the course of my speech.
First, I shall take up two of the general observations that were made by the right hon. Member for Sparkbrook. He has told us that he will not make an attack on home ownership. I am sure that that will be reassuring for the country, which will remember his uncharacteristically diffident admission at the close of the first debate which he conducted on behalf of the Opposition on the sale of council houses, that when the Labour party was returned to power it would take back into public ownership council houses which had been sold. We are glad that life has moved on—
§ Mr. Hattersley
I remember distinctly the intervention to which the Chief Secretary has referred. The right hon. and learned Gentleman's allegation is untrue and I hope that he will withdraw it now rather than seek to do so later in the day.
§ Mr. Rees
Mr. Speaker, what is important, and this is the point that I am making, is that—[HON. MEMBERS: 880 "Withdraw."] I am not exactly certain what I am supposed to withdraw. If the right hon. Member for Sparkbrook assures the House that at no time was it in his contemplation that the Labour party would take back into public ownership council houses, I am very happy to accept that assurance. All I am saying is that the right hon. Gentleman obviously has developed his thinking on this question. [Interruption.] I have said that I am very happy to accept reassurance from the right hon. Gentleman. I have made my position absolutely clear. If the right hon.Gentleman— [Interruption.]
§ Mr. Speaker
Order. I do not see why the Chief Secretary should be subjected to such barracking. He is seeking to explain his position.
§ Mr. Barry Sheerman (Huddersfield)
On a point of order, Mr. Speaker. Is the Minister withdrawing what he said when he says that he is resting on what he said a minute ago, or is he reaffirming what he said? We must know, if the disorder on the Opposition Benches is to cease.
§ Mr. Speaker
That is the problem. Because of the noise, it was impossible to hear exactly what the Chief Secretary was saying.
§ Mr. Rees
I have said very clearly that if the right hon. Gentleman wishes to reassure the House that at no time did he assert that the Labour party would take back into public ownership council houses that had been sold to their tenants, then I am very happy to accept the right hon. Gentleman's reassurance. I said that a moment ago. I am merely accepting the reassurance of the right hon. Gentleman. Does he wish to give me another one?
§ Mr. Hattersley
Let me make it clear to the Chief Secretary that he is not accepting my reassurance—that is not the issue. The issue is what he said that I had said. What he said that I had said was that we would take back into public ownership the houses which had been sold to their tenants. It is not a matter of my reassurance; it is not a matter of any degree of speculation; it is a matter of false allegation. The right hon. and learned Gentleman now has two choices. The first is to withdraw it with what grace is left to him now. The second is to wait until Hansard is published and then withdraw it more shamefully.
§ Mr. Rees
Mr. Speaker, I think that we are getting a little far from the debate on my right hon. Friend's Budget statement. I am not certain what I am asked to withdraw, quite honestly.
Let me move on to the next point. The right hon. Gentleman also asserted that in principle we all believe in tax cuts. The right hon. Gentleman—[HON. MEMBERS: "Withdraw."]—in case the House did not hear, asserted that in principle we all believe in tax cuts. [Interruption.]
§ Mr. Sheerman
On a point of order, Mr. Speaker. If you compare the attitude of the Minister whenever 881 Rossminster was uttered in Committee or in the House with what he has said to my right hon. Friend the Member for Sparkbrook, I think that you will know, Mr. Speaker, that some kind of an apology or withdrawal is now in order.
§ Mr. Hattersley
Since I am now not so much enraged as embarrassed by the right hon. and learned Gentleman's performance, I shall explain not only the reference to him but his error. In the wind-up of the debate to which he referred, the Opposition were asked whether we would abolish the legislation and withdraw the right to buy, and we said, of course, that we would. That is not the allegation which the right hon. Gentleman made. The right hon. and learned Gentleman made the allegation that we would return to public ownership houses which had been sold to individuals. That he must withdraw, and he must withdraw it now.
§ Mr. Rees
On the assurance of the right hon. Gentleman — [HON. MEMBERS: "Withdraw."] Mr. Speaker, it is very difficult to know against this barrage what I am expected to withdraw. I am very happy to withdraw on the reassurance of the right hon. Gentleman that it is not part of the policies of the right hon. Gentleman and his right hon. and hon. Friends to take back council houses into public ownership. If I may say so, this is not relevant to the debate on which we are embarked.
The other point that the right hon. Gentleman made was that—[Interruption.]—in principle we all believe in tax cuts.
§ Mr. Speaker
Order. I ask the House to let the Chief Secretary continue. [HON. MEMBERS: "Withdraw."] Order. I distinctly heard the right hon. and learned Gentleman say that he would withdraw. [HON. MEMBERS: "No."]
§ Mr. John Morris
On a point of order, Mr. Speaker. You said a moment ago that you distinctly heard the right hon. and learned Gentleman say that he wanted to withdraw. A moment or so earlier, he had said not those words, but that he was not sure what he was supposed to withdraw. In those circumstances, might it not be more convenient to check exactly what the right hon. Gentleman did say?
§ Mr. Speaker
Order. This is the problem. When there is so much noise, it is very difficult for anybody to hear. Perhaps I should have said that I thought I heard what the right hon. and learned Gentleman said. Let us now continue in an orderly manner, otherwise the debate will be very unruly.
§ Mr. Sheerman
It is a most important point. Mr. Speaker, either you did hear the Minister say that he withdrew or you did not hear. It must be clarified, or the Minister is hiding behind the skirts of the Speaker.
§ Mr. Speaker
I said a moment ago that because of the noise it is very difficult to hear what is being said, but I thought that I heard those words uttered. In the interests of the House, will the Chief Secretary say again what he said a moment ago?
§ Mr. Rees
Mr. Speaker, I thought that I had made my position absolutely clear on this. I said that on the reassurance of the right hon. Gentleman I was very happy to withdraw. [Interruption.] Mr. Speaker, I hope that we may continue to debate my right hon. Friend's Budget statement, and not the Labour party's housing policy. I would, however, be happy to debate with the right hon. Gentleman—although he did not spend a great deal of time on the subject—the Labour party's tax policies.
§ Mr. Richard Holt (Langbaurgh)
On a pont of order, Mr. Speaker. In all the hubbub, may we have it confirmed one way or the other—because I could not hear what the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said — whether it was the Labour party's policy to withdraw from council tenants the right to purchase? I could not hear the answer.
§ Mr. Speaker
The hon. Gentleman will know that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) read something from Hansard. If the hon. Gentleman will wait until tomorrow morning he will be able to read it.
§ Mr. Allan Rogers (Rhondda)
On a point of order, Mr. Speaker. I am not quite sure of the rules of procedure of the House but, as I understand them, it is improper for one hon. Member to call another hon. Member — or dishonourable Member—a liar. [Interruption.] I gather that that is correct. That being so, is it not incumbent on anyone speaking in this House not deliberately to lie or to distort the views or the statements of another hon. Member? Any hon. Member who does so opens himself to being called a liar.
§ Mr. Speaker
That is a pedantic argument. The whole House has heard the exchange between the two Front Benches on the matter. I think that it would be profitless to pursue it further. Will the Chief Secretary continue?
§ Mr. John Morris
Further to the point of order, Mr. Speaker. My hon. Friend the Member for Rhondda (Mr. Rogers) has made a very important point and, with respect, it is not a pedantic matter. When there is a challenge to the Official Report, surely every hon. Member has a right to expect that matter to be put right. If there is a mistake in the Division Lobby, one can come to the House to have the matter corrected. If there is any other mistake, which touches on the honour of an hon. Member, he can have the 883 matter put right on the Floor of the House. The right hon. and learned Gentleman, in seeking to give his reassurance, has not been withdrawing the allegation that he specifically made — that my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said in terms that we would take back houses that had been sold to individual council house tenants. That is the matter on which the right hon. and learned Gentleman has been asked to withdraw—
§ Mr. Speaker
Order. Every right hon. and hon. Member must take responsibility for his own speech. I cannot answer a point of order such as that.
§ Mr. D. N. Campbell-Savours (Workington)
Where is the right hon. and learned Gentleman's integrity?
§ Mr. Campbell-Savours
On a point of order, Mr. Speaker. Is not the record clear? Is it not laid out in the Official Report, which is there on the Opposition Dispatch Box? Is it not clear that the Chief Secretary knows precisely what the House demands of him? We are asking him to withdraw a statement that he made and that he knows is completely untrue. If he is a man of integrity, why does he not make a withdrawal, which will take only seconds, and allow the debate to continue? I assure him that we intend to keep on pressing him until we get it. The debate rests in his hands.
§ Mr. Rees
It may be that right hon. and hon. Members on the Labour Benches did not hear accurately what I said. I suggest that they wait and read in Hansard tomorrow—[HON. MEMBERS: "No".] If they wait until tomorrow they will find that I have entirely accepted the reassurance offered by the right hon. Member for Sparkbrook. [Interruption.] I do not know why hon. Members are getting so exercised about the matter. I could not possibly be expected to say more.
§ Mr. McKay
On a point of order, Mr. Speaker. I want to be helpful. Is it within your power or jurisdiction to ask now for a transcript from Hansard so that we and the right hon. and learned Gentleman may be sure what was said? If it is shown that he said what we believe he said, it is up to him to apologise. Is it within your jurisdiction to ask for that?
§ Mr. Speaker
Even if it were within my jurisdiction, the hon. Gentleman will understand that it would be drawing me into the debate, and that is not my function.
§ Mr. Rees
I am very happy to say — [HON. MEMBERS: "Withdraw".] I hope that the House will at least 884 allow me to say what I want to say. I made it very clear about 10 minutes ago that, on the reassurance of the right hon. Member for Sparkbrook, I withdrew my remarks. [Interruption.] Further than that, I do not see what I can honourably be required to do. [Interruption.] If there is any doubt about it, I suggest that right hon. and hon. Members would do well to check the matter in Hansard. I hope that I have now made it absolutely clear that I said — [Interruption.]—that on the reassurance of the right hon. Member for Sparkbrook I was very happy to withdraw my remarks. I said that 10 minutes ago. Labour Members must be very short of issues to debate, if I may say so, if they choose to ignore what I said and to engineer a slightly frivolous encounter.
§ Mr. Speaker
I think I should say to the House that a large number of right hon. and hon. Members are seeking to take part in the debate. It will be impossible for me to call them if the Chief Secretary is unable to continue his speech.
§ Mr. Skinner
On a point of order, Mr. Speaker. Without wanting to get too deeply involved in what has occurred, but just for future reference, will you explain why, on one recent occasion when I was asked to withdraw a statement when I called the SDP leader a pompous sod and I gratuitously withdrew half of it, I was told by you that I had to withdraw the lot or nothing at all, and that if I did not I would have to go out of the door and take an early bath? Why is that ruling not being applied to the Chief Secretary?
§ Mr. Speaker
The hon. Gentleman knows the answer. He used two words that are unparliamentary. The Chief Secretary has not used any words that are unparliamentary.
§ Mr. Roland Boyes (Houghton and Washington)
On a point of order, Mr. Speaker. When my hon. Friend the Member for Bolsover (Mr. Skinner) called the SDP leader a pompous sod, that was a matter of opinion—
§ Mr. Boyes
My hon. Friend the Member for Bolsover had a personal opinion about an individual, but what the Chief Secretary said is a matter of fact. What he said is wrong, and that is the difference. If the words had been used by my hon. Friend the Member for Bolsover (Mr. Skinner) I do not doubt that by now he would have been on his bike down the road. The words were said by a senior Minister. He should be asked to withdraw unreservedly, to apologise, and then resign.
§ Mr. Speaker
So that we may now make progress, let me assure the hon. Member for Houghton and Washington (Mr. Boyes)—I am sure that he knows this as well as anyone—that to me, it matters not whether it is a senior Minister or a Back Bencher; the same rules apply to everyone. However, the situation as explained by the hon. Member for Houghton and Washington is entirely different. This is a matter of debate. No unparliamentary words have been used. I distinctly heard—I am sure that the whole House heard—the Chief Secretary say on 885 several occasions that he withdrew the remark—[HON. MEMBERS: "No."] I heard him say it. I do not know what else the right hon. and learned Gentleman can do.
§ Mr. Neil Hamilton (Tatton)
On a point of order, Mr. Speaker. Might it be for the convenience of the House if I quoted what the Labour party said in its manifesto on this issue, which will bear out—
§ Mr. Speaker
Order. If the hon. Member catches the eye of the Chair later, he will be able to do that.
§ Mr. Sheerman
On a point of order, Mr. Speaker. I came to the debate because I thought it important to hear the Chief Secretary's speech. Only one person in this Chamber is obstructing that process, and that is the Chief Secretary who will not conform to what you, Mr. Speaker, said—namely, that he should withdraw the remark that he made. If he does that, the proceedings will continue, but my hon. Friends and I cannot allow them to continue unless he withdraws the remark.
§ Mr. Speaker
Order. I hope that that was not a threat. I did not ask the Chief Secretary to withdraw anything. That is not my role in this instance. I said that I heard him say that he had withdrawn, and that is a matter of the record.
§ Mr. Rees
Perhaps I may now revert to the main theme of the debate—[HON. MEMBERS: "No."]—and to the Government's economic strategy, which was clearly outlined in the days of Opposition before 1979, which was restated after the election of that year and in all subsequent years and which has been consistently followed.
In brief, the Government's overriding objective is to establish a healthy, flexible and dynamic economy from which real sustainable jobs will come and which alone can finance our public expenditure commitments, whether in health, social security or education. We must get to the roots of the unemployment problem rather than treat only the symptoms of our condition.
§ Mr. Sheerman
On a point of order, Mr. Speaker. I cannot allow this to continue — [HON. MEMBERS: "Sit down."] — without asking you whether the Chief Secretary will assure the House that he will examine the Official Report and make a statement after having done so. If he gives that assurance, he may be assured that most of my hon. Friends will discontinue our points of order—[Interruption.] May we be assured that a statement will be made about what was said, once the Official Report has been examined?
§ Mr. Peter Rees
I shall continue to deal with the Government's economic policies — [HON. MEMBERS: "No."] Our overriding objective is to establish a healthy, flexible and dynamic economy from which real sustainable jobs will come and which alone can finance our public expenditure commitments, whether in health, social security or education. We must get to the roots of the unemployment problem rather than treat only the symptoms of our condition. Real sustainable jobs are generated by a dynamic, flexible economy. An economy debilitated for two decades or more could not be expected to generate jobs on the scale required or the resources for all the good things that hon. Members on both sides of the House want for the country.
It is no accident that countries that have performed best and have produced the highest standards of living for their 886 people are those in which the economy has not been overburdened, overtaxed and overstretched. The twin themes of our strategy were set out in 1980 and I hope the House will forgive me if I restate them.
The first is the continued reduction of inflation. That in turn involves unrelenting concern with public expenditure and borrowing. The second is to ensure that the economy in all its aspects, but particularly the labour market, is working as smoothly and effectively as possible. Hence our concern with supply side measures, some of which may seem small but which, in the aggregate, are important, and I shall deal with both.
My right hon. Friend announced yesterday that the public sector borrowing requirement for 1985–86 should be £7 billion. That is the same figure as we announced last year and the same percentage of the gross domestic product, 2 per cent. Siren voices will whisper that we could support a higher figure and that other countries do. Events in past months demonstrate that the markets still view warily, even though we may feel that such wariness is unjustified, this country's economic performance. Thus, I hope that, on reflection, the House and the country will see some virtue, as we do, in consistency.
Some might regard that consistency as being of a somewhat austere kind, but we see some virtue in a lower figure than might be advocated by some. They will feel, in particular, that while oil revenues are at their peak, there is a case for reducing public sector borrowing. The right hon. Member for Sparkbrook argued for a public sector borrowing requirement of something over £10 billion; if I have that wrong, he will correct me.
The right hon. Member for Glasgow, Hillhead (Mr. Jenkins)—we are pleased to see him back in our debates — who is perhaps the most distinguished economic spokesman for the SDP and Liberal parties, will, I hope, support us in that, as his claim to fame as Chancellor of the Exchequer was that he produced a balanced Budget in 1969, and we remember that with admiration.
To the right hon. Member for Sparkbrook, I quote what his right hon. Friend the Member for Leeds, East (Mr. Healey) said in November 1976:We must, therefore, aim at a steady and continuous reduction in the size of our PSBR". — [Official Report, 30 November 1976; Vol. 921, c. 716–7.]The right hon. Member for Sparkbrook, if he is anxious about that, might wish to look at the Official Report for that date. I hope that he will be courteous enough to check the quotation.
Underlying the amount of our borrowing requirement lies the question of public expenditure. We have recently debated the public expenditure White Paper. I said then, and I repeat, that the containment of public expenditure is, and will, I suspect, always remain a continuing, arduous and thankless task.
Even when inflation falls faster than expected, which it did between 1981 and 1983, and even when the gross domestic product grows faster than expected, the problems remain. In an elective democracy, the pressures for more expenditure are there the whole time. The pressures to improve the National Health Service, to add to the social security programme and to extend local government services, to name but some of the areas of sensitivity, will always be likely, if unchecked, to outrun the resources that we can make available.
In the debate on the public expenditure White Paper, and in my evidence to the Select Committee on the 887 Treasury and Civil Service, I emphasised that circumstances had altered since the material for the White Paper had been brought together before Christmas. I emphasised then that public expenditure, borrowing and revenues would have to be considered again at Budget time. I instanced—and was much pressed on—the cost of the coal strike. Even now, the costs for 1984–85 are difficult to quantify with absolute precision, but they are likely to be, as my right hon. Friend stated yesterday, about £2.5 billion, and there will be some further cost in 1985–86.
Beyond that, the turbulence of the last few months, which no deftness of touch could have stilled, developments in the exchange markets and in interest rates, which will temporarily feed through into the retail price index, have affected our calculations. All in all, for the current year there is likely to be an overrun of the borrowing requirement of £3.25 billion, and a public expenditure overrun of nearly £3.5 billion. To bring public expenditure back on to the path set out in January's White Paper would involve, therefore, an extremely large real decline, if one compares the balance for 1985–86 with the likely outturn of 1984–85. I must again emphasise that the pressures that I have outlined will continue.
Despite those uncertainties, and so that our position should be seen in its true perspective, I can tell the House that we have succeeded in holding expenditure to central Government cash limits. The pressures on programmes which are not subject to cash limits remain intense. We have been much pressed by commentators, not least by the Treasury Select Committee, that our figures should eschew optimism and be firmly realistic. On that basis, and recognising the events of this year and the continuing pressures that I have outlined, we decided to add £2 billion to the reserve, and so the planning total for each of the three years covered by the White Paper. In short, we decided to build up the reserve to ensure that it is adequate to cope with unexpected developments.
The decision represents no change in the Government's policies of public expenditure. Planned expenditure has been falling as a proportion of GDP since 1981–82. The fall is planned to continue. Spending will be held constant in real terms while the economy continues to grow. However, I must emphasise that that pattern will still require consistent restraint.
Our decision certainly does not offer a soft option on public expenditure. Cash limits must hold as they have held hitherto. In the public expenditure survey for future years there can be no relaxation of our approach to this crucial aspect of our economic policies. I hope that the good sense and realism of the decision to add to the reserve will commend itself to all thinking Members of the House and the public.
Indeed, I recall with pleasure and admiration the words of the right hon. Member for Sparkbrook to the Ruskin Fellowship on 15 May 1984. He said:The assertion that a massive increase in effective demand would be a certain and automatic remedyto unemploymentis no longer convincing … There can be no dash for growth.He will recall and, if need be, repeat those wise words. Now, the right hon. Gentleman and his hon. Friends assert that they want a dash for growth, and that my right hon. Friend's Budget is not a Budget for jobs. First, there is no evidence of a lack of demand.
§ Mr. Terence Higgins (Worthing)
Will my right hon. and learned Friend explain the terminology "reserve" that he and the Chancellor of the Exchequer have been using? Previously, it has normally been known as the contingency reserve, and I am not sure whether he is referring to that. Secondly, he referred to £2 billion in each of the three years. I understand that the interest charges which are not included in the planning total, contrary to the advice of the Select Committee, are expected to be higher. Will he tell us how much higher they will be?
§ Mr. Rees
My right hon. Friend follows these matters closely and knows that the reserve covers both contingencies and overruns in the estimation of demand-led programmes. Therefore, it is more accurately described as a reserve. He is right that an additional figure will be included for debt interest, which will be £500 million.
§ Mr. Rees
I return to the point made by the right hon. Member for Sparkbrook, today and by the right hon. Member for Islwyn (Mr. Kinnock) yesterday. There is no evidence of a lack of demand. Retail sales have increased by 5 per cent. in the three months to February 1985 compared with a year ago, business investment increased by 12 per cent. in 1984, manufacturing investment by 13 per cent. in 1984, and investment in the construction and service industries by 12 per cent. That does not bear out the right hon. Gentleman's point that there is a shortage of demand.
We must analyse the problem of unemployment more coolly and with less rhetoric. The population of working age increased in the 12 months to September 1984 by 450,000. In the same period, 390,000 extra jobs were created. Opposition Members may say that that is not fast enough, but it is a travesty of the truth to say that the economy is not responding to our measures. The right hon. Member for Sparkbrook is, therefore, right to approve the adjustments to the national insurance contributions and the abolition of the national insurance surcharge last year. However, by implication, he will surely admit that some of our measures will create the right climate for increased jobs.
§ Mr. Jack Straw (Blackburn)
Since the Chancellor of the Exchequer yesterday described the Budget as a Budget for jobs, and as I anticipate that the Chief Secretary will confirm that the Treasury calculated that these measures would lead to an increase in jobs, will he now tell the House the estimated number of jobs that these measures will produce?
§ Mr. Rees
No, we are calculating, as the Treasury press release made clear yesterday, that 150,000 extra jobs will be created over two years, as a result of the addition to the youth training scheme and the increase in the community programme, and 200,000 by the spring of 1988. That is a provisional calculation. I hope that on the more general measures I shall demonstrate that we hope that there will be a climate which will create jobs. We cannot make a precise calculation.
§ Mr. Dave Nellist (Coventry, South-East)
The figures that the right hon. and learned Gentleman gave are a 889 cosmetic fiddling of the dole figures. They represent the people who will be taken off the 3.25 million unemployed list and transferred to schemes. It does not answer my hon. Friend's question about how many jobs the Chief Secretary expects the measures to create. If the answer is 200,000, as has been floated in the press, what will the Chief Secretary tell the remaining 4 million people who will not get jobs from the Budget?
§ Mr. Rees
The hon. Gentleman cannot have listened closely to my answer, which was that the general fiscal and insurance contribution measures make it impossible to calculate the figure. After all, they are creating a different climate, and opportunities and incentives. We cannot give a figure with scientific accuracy. I gave the estimation of the increase in jobs—that is, the number of people who would be taken off the unemployment figures through YTS and the community programme measures. I hope that that will satisfy the hon. Gentleman.
§ Mr. Rees
I shall not give way, but shall press on.
I now turn to the tax and other measures in my right hon. Friend's Budget. We inherited a tax system which reflected all the Socialist prejudices of the previous Government. Today the right hon. Member for Sparkbrook said that we all believed in tax cuts. However, within the past fortnight he told us that he proposed to reintroduce the penal tax rates that prevailed in 1979. I remind the House that income tax rates were rising to 98 and 83 per cent. Since he suggested that he would abolish the upper earnings limit for the employees' contribution right up the scale, I hope that he will confirm that he is contemplating a top rate of income tax of about 91 or 92 per cent. It may be that I misunderstand his calculations, but that seems to follow from what he said.
§ Mr. Hattersley
I had determined not to interrupt the right hon. and learned Gentleman but to leave him alone in his glory. While some of my hon. Friends may forgive him for misquoting me from a debate five years ago, it is a little more difficult to forgive him for misquoting me from today's debate. He is describing policies which half an hour ago I said categorically were not mine nor my party's.
§ Mr. Rees
If the right hon. Gentleman is now retracting what he said and is saying that the Daily Mail misreported him, I accept that. He also held a press conference. Is he now saying that he will not abolish the upper earnings limit for the employees' contribution? [Interruption.] The right hon. Gentleman would. Presumably it would have to be superimposed on the top rate of income tax that he has in his sights. I understood the right hon. Gentleman to say that he would reimpose all the tax burdens that we have painfully dismantled since 1979. There may now be a slightly different edge to his policies, but it is difficult for the House to weigh contributions from Opposition right hon. and hon. Members because they have not been free with their policy thoughts. They should perhaps take the House into their confidence.
All that the Opposition propose is in the name of redistribution. I describe it as a rage to destroy, because 890 any redistribution that they contemplate seems to be in favour of the state. In a different sense, redistribution has taken place under this Government but more positively. Dare I touch on this sensitive subject again? It has been by the sale of council houses at a discount, by employee buy-outs — the National Freight Corporation offers a good example — by more generous share incentive schemes, and by public participation in privatisation measures. Those redistribution measures are critical and important to ensure the proper diffusion of wealth in our society. I contrast them with the prejudiced contributions of the Opposition.
It apparently has not occurred to the right hon. Member for Sparkbrook — at least he did not mention it in his speech — and his right hon. and hon. Friends that one conspicuous reason for the poor performance of the United Kingdom economy in the decades before 1979 was that the tax system accurately reflected their prejudices. It was designed to discourage incentive, risk-taking, and the accumulation of savings, it drained companies of resources and it diminished the availability of capital for productive enterprise. In short, it was calculated to reproduce here the rigidities and failures of the east European economies.
We are trying to fashion a tax system in harmony with the needs of the 20th century, the needs of a more effective economy and the needs of a more mobile and enterprising society. It involves a process of tax reform and tax reduction. The speed at which we can move must depend in part on the ingenuity which we can show, but also on the resources which we can command — which in turn will depend on the containment of public expenditure.
Last year, building on the achievements of my right hon. and learned Friend the Foreign Secretary, we initiated far-reaching reforms of corporate taxation, which will bring pre-tax and post-tax profits closer into line and which are designed to encourage profitable investment. Inevitably there are areas that need to be reviewed. That is why businesses are to be given the option of depooling short-life assets so that they can receive a balancing allowance if disposed of at less than written down value. That is why the scientific research allowance has been retained at 100 per cent.
Personal taxation is at the same time more intricate and, in view of the numbers of taxpayers involved, more costly to reform and more difficult to administer. My right hon. Friend has said that our intention is to publish a Green Paper covering a number of possible ways of reforming personal taxation which we should like to consider following the time when the Revenue has computerised the administration of PAYE. I should emphasise the massive scale of this computerisation exercise which is the largest in Europe and possibly in the world. It will affect somewhat more than 20 million taxpayers directly or indirectly. We believe that it would be folly to contemplate fundamental tax reforms before that great administrative measure is properly in place and working smoothly, but we must plan against that date.
One option in those reforms that we particularly favour — the fully transferable allowance — would end I he discrimination between one-earner and two-earner married couples. The new structure would give a relatively higher allowance to married men supporting families. It would give married women equality and the possibility of complete privacy and independence in their tax affairs. It would overall be a more rational and comprehensible 891 system, better adjusted to the personal aspirations and economic needs of our time. In case any hon. Gentleman should suggest that we should go for a system of fully separate personal taxation, rather than transferable allowances, I will confess, without embarrassment, to a Tory prejudice. We believe that the tax system should recognise the special status of marriage.
As I have said, the need for consultation and detailed planning means that a new system cannot be in place until 1990, although we intend to legislate in 1987.
§ Mr. Fred Silvester (Manchester, Withingtom)
One of the disappointing aspects of this part of the package is the delay. As we have already had a Green Paper on the options available for the taxation of married women, why can we not now have a White Paper, which would clearly set out the Government's conclusions, rather than a Green Paper, which implies that the decisions set out in the press release are not final, and that the whole matter is still in the melting pot?
§ Mr. Rees
I understand my hon. Friend's point, but the Green Paper will set out our views. We shall not leave the public or the House in doubt about them. As I said, as these administrative problems must be faced first and therefore legislation is some time ahead, it is right that we should consult fairly widely to take the mind of the country on this important reform of personal taxation which will follow the reform of corporate taxation initiated last year.
In the meantime—I hope that this will command the support of the whole House — we have decided to concentrate resources on increasing the threshold of income tax. The resources are not inconsiderable—£1.5 billion in 1985–86 and £1,870 million in a full year. If the House wishes to know the figure, the cost above mere indexation is £730 million for 1985–86 and £910 million for a full year.
That is a real increase in the basic personal allowances for the fourth successive year. Thresholds will now be over 20 per cent. higher in real terms compared with 1978–79. Part of our long-term programme is to raise the starting point for income tax progressively and to reduce the burden of direct taxation.
It is a measure completely compatible with our economic strategy. It will take some 800,000 taxpayers out of tax. It will help the unemployment trap. It will improve real take-home pay. It should encourage working people to accept lower pay increases. It should, in short, improve incentives for the individual and the competitive position of business, apart from the supply side consequences which will not be negligible. It will give the greatest proportionate benefit to the lower paid.
I hope that the hon. Member for Thurrock (Dr. McDonald), who I think is to reply, will have the grace to acknowledge the advantages of that measure, to which the right hon. Member for Sparkbrook did not refer at any length.
In parallel with our proposals on the income tax thresholds are the reforms we shall bring forward to the structure of employee and employer National Insurance contributions. This radical restructuring will encourage employers to take on young people and unskilled workers and give them an incentive to take jobs at wages that employers can afford. Almost 1 million families with 892 children will benefit, including 300,000 with family earnings under £90 a week. That is not a negligible achievement.
Since the employment statistics show that self-employment provides an increasing source of new jobs, it is right that we should turn our attention to that sector of the market. Sub-contracting, for example, not only in the public sector, but by the larger public companies, will, we believe, depend on an increasing class of self-employed. It is right therefore that the structure of our tax and national insurance system should recognise and foster this trend. The reduction of class 2 contributions and the introduction of tax relief on half class 4 contributions, which recognise a long felt grievance of the self-employed, will encourage the contribution that self-employment is making and has progressively to make to the economy.
Again in regard to reform I commend to the House the abolition of yet another tax, development land tax. We recall the circumstances which led to its introduction which, I hope, will not be reproduced at any rate under this Administration. The reasons for repeal will, I hope, be recognised and approved. Apart from the pleasure of removing over 200 pages of legislation of formidable complexity from the statute book, the repeal will, I hope, release a flow of projects which will do more for housing, or for the infrastructure, than any uncritical application of public moneys.
I revert to the basic themes of the Government's economic policies. The public expenditure measures, and the fiscal measures which are their counterpart, are designed to make for a smoother working and expanding economy from which profits, investment and jobs will flow. Let us not under-estimate what has been achieved already. The unemployment figures remain obstinately high, but employment is increasing.
Let me record that in 1984 company registrations reached a record level of 100,000. Let me record that retail sales were up by 4 per cent. in 1984. Let me record that construction industry output was up by 3 per cent. in 1984. Let me record that exports in manufactures were up by 10.5 per cent. last year. Let me record that the country's current account has been in surplus for five successive years. Let me record that total investment is at an all-time high.
Without an atom of complacency we can point to results achieved so far. It may be objected that this is a cautious Budget. I would not object to that, but there is a time for caution and a time for boldness. It is an imaginative Budget. It is a Budget which is part of a coherent, consistent and successful strategy. It is part of a strategy that we intend to see through. It is part of a strategy that was clearly put to the country and overwhelmingly endorsed both in 1979 and in 1983. It is a Budget that I have no hesitation in commending to the House.
§ Mr. Richard Wainwright (Colne Valley)
The Budget speech yesterday, in sharp contrast to the performance of the Chief Secretary today, was briskly lucid. I am afraid that I cannot join those who have said that the record brevity of the Chancellor's speech was cause for congratulation. If hon. Members encourage Chancellors to be ever more brief when they make their Budget statement we shall encourage assertion, of which there was a great deal yesterday, rather than argument, which always takes 893 longer, and we shall be allowing Chancellors to skate over matters which embarrass them but ought to concern the House greatly.
For instance, it has already been said to me, from outside the House, that yesterday the Chancellor made no serious reference to the consequences for the general national economy of the £3.25 billion overshoot in the public sector borrowing requirement during the current year. He regretted it but he did not explain all the horrors that presumably, in view of his stance on economic affairs, must follow from it. The people who have complained about the lack of reference to that have reminded me that last year, when various hon. Members on both sides of the House recommended a PSBR of approximately the size that it is turning out to be, they were told that they would be unleashing all kinds of evil things on the economy and that they ought to be ashamed of themselves and should know better. The Chancellor owed the House — I hope the Financial Secretary will repair the omission tonight — some explanation of what the Government consider has happened because of the very large overshoot.
§ Mr. John Townend (Bridlington)
Now that, by accident of the miners' strike, the hon. Gentleman has got the PSBR that he required, can he tell us why we have not got the jobs? Will he not accept that one reason for high interest rates is because we have overshot the PSBR?
§ Mr. Wainwright
It never astonishes me when the hon. Member for Bridlington (Mr. Townend) completely misses the point. There was no suggestion that any critics in the House of last year's Budget would have spent the extra PSBR on costly oil imports or on anything of that sort. I simply made the point that the House is entitled to know what the Government think are the main economic consequences of such a large overshoot in the PSBR.
Another matter on which we should have had a paragraph from the Chancellor — again I hope the omission will be repaired this evening because I am sure the Financial Secretary can do so—is the possibility of a substantial fall in the dollar, which is a preoccupation of everybody round the world who watches the financial scene. We should have been told what preparations in outline the Chancellor has for dealing with a marked change in the exchange rate, which the majority of commentators think will happen during the current year.
The main omission was any explanation of the single sentence in which the Chancellor said:At the same time, I have further increased the estimate for debt interest in each year."—[Official Report, 19 March 1985; Vol. 75, c. 791.]It is common ground that one of the great virtues of all the ceremony, fuss and attention that our annual Budget receives is that it is an opportunity for the Government to make a major signal to all the business, financial and economic interests of the nation as to their intentions for the coming year. That is a valuable opportunity which justifies much of the special concentration on the Budget speech.
The speech yesterday contained very little by way of signal. On future interest rates the indications were very definitely confusing. Clearly the whole purpose of the Chancellor's main Budget judgment was to try to ease interest rates down as quickly as possible—an ambition that all of us would applaud. Indeed, if we do not get back to single digit base rates fairly soon, there will be a bleak outlook for investment and other capital expenditure.
894 Having indicated that a reduction in interest rates was one of his prime aims, the Chancellor then inserted the throw-away sentence that in regard to Government interest he has most exceptionally altered his public expenditure White Paper, on which the ink is scarcely dry, and has increased the estimate for debt interest in each year. Surely the House is owed an explanation of that remarkable change but, of course, it has not had it.
By fairly common consent this is the toughest Budget for, at any rate, four years. What is the nation to receive in response for putting up with this austerity? The Budget, for all its severity and, no doubt, the courage required to introduce such a disappointing Budget to one's own side of the House, will not attack the heart either of the twin evils of rising, prolonged unemployment or deep family poverty. It is by those two tests that we on the alliance Benches at any rate, and I guess most hon. Members, want to judge the Budget.
On unemployment, may I plead with the Government to be a little more refined and, indeed, more accurate in their reports on jobs? At the moment it is clearly Government policy to treat even a part-time job as a full-time job for the purposes of their returns to the House and their statements. It is dishonest, unhelpful and greatly misleading to treat part-time jobs in that way.
I am sure that all hon. Members are familiar with manpower statistics in business and other spheres, in which a part-time job is meticulously recorded as half a job or three quarters of a job. However, in the last year or two, in the Government's language any job which has brought the employee to the notice of national insurance staff is simply recorded as a job, and the unspoken implication is that it is full-time. Any stimulus which the Government's general measures give to employment as a result of this Budget will largely be in respect of part-time jobs.
I regret to say that the interesting and admirably intended restructuring of national insurance will not overwhelmingly benefit those who are genuinely low paid for a full week's work, but will immensely add to the attractions for employers to take on part-timers. Such people are often quite well paid if one takes account of the modest hours that they work. In general, there has in recent years been a marked trend, with Government encouragement, for employers to move over to a part-time work force. That is not a satisfactory answer to the real hard core of the unemployment problem.
As to deep poverty — usually family poverty — the lifting of thresholds, although pleasant and admirable for taxpayers, sidesteps the real problem. A very modest bonus for the generality of taxpayers, especially those earning up to £13,000 a year, is an extraordinarily expensive way of scattering largesse and means that only a few crumbs will reach the really poor.
The alliance parties would have considered two measures as much preferable to the indiscriminate raising of thresholds for every taxpayer, especially in a year such as this. We would have preferred a broad increase in the scope of family income supplement. That is a Conservative measure in origin, although we know that no one loves it very much. Yet for all its crudity and the means testing that it involves, it permits meaningful amounts of cash to go into the hands of households where the money is desperately needed. In cost benefit terms, FIS is the quickest and most direct way of relieving, although not curing, deep family poverty.
§ Mr. Andrew F. Bennett (Denton and Reddish)
Does not the hon. Gentleman accept that it makes the poverty trap that much more acute?
§ Mr. Wainwright
It makes the poverty trap wider but more shallow. I am not advocating FIS as a great reform to last for all time. I am simply explaining how deep poverty could be relieved at a time of great economic stringency at relatively modest cost. In fact, the two measures that I am advocating would cost the Exchequer less than the proposed increase in thresholds.
The other attack on poverty was rightly mentioned by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who referred to the long-term unemployed whose clothing and household requirements have worn out and who should, at long last, be entitled to the full long-term supplementary benefit rate. The alliance parties along with others have pressed for that for many years.
Those are our two alternatives to the raising of the thresholds, although we look forward to better years under better financial management when the thresholds can be raised very considerably indeed.
Some taxes are not required to go into a Budget. They are never the subject of a Budget resolution, and need never receive the explicit sanction of the House of Commons. I refer to the deliberate increase in taxation which this Government levy through their powers over the nationalised industries. Nothing which has been done by way of raising thresholds or anything else will compensate poor households for the recent average 4.5 per cent. increase in gas prices and the coming 4.3 per cent. increase in electricity prices. Neither industry regards those increases as necessary for its own purposes, but they have been forced upon them by the excessively stringent external financing limits imposed by Government. Also on the horizon is an average 12 per cent. increase in water rates, as well as various other increases in official charges.
At this point I wish to welcome two measures which are not all that modest. The first, which it is estimated will bring benefits of about £300 million a year to British industry, is the Government's welcome change of heart on capital allowances for short life assets in industry and commerce. Last year, alliance Members pleaded with the Government, both in Committee and on Report, pointing out that their reducing balance method of writing down would cripple those who use machinery with a short life cycle. We were thinking of machinery which quickly became obsolete in fast-developing technology or which wore out quickly because of the strenuous tasks it had to perform. I congratulate the Treasury on a most ingenious method—apart from the unfortunate term "depooling"—which puts it well ahead of the accountancy profession and top of the league for fiscal ingenuity.
The other welcome part of the Budget is the long overdue reduction from seven to five years in the length of time that an employee, under an approved scheme, must keep his or her shares intact in order to get full tax relief. Seven years has seemed an age to middle-aged workers, and in many cases made the schemes sound scarcely worth while. Five years is much more realistic, and I am glad that the Government have come round to that view.
The national insurance contribution has for long been conveniently excluded from Budgets because it was a kind of crude poll tax which no Government wanted to advertise. It is, however, a source of enormous annual revenue. I congratulate the Chancellor on bringing it 896 frankly and openly into the Budget statement and on making a start on restructuring. This is only experimental, and involves severe traps at £55 and £90. It will make pay increases of practically negligible value unless they are in the order of £6 or £7 a week or more, but that is unusual in poorly paid occupations. This will place a severe burden on the admirable, dynamic, high technology firms that employ highly paid staffs.
For example, if a boffin is paid £20,000 a year, the employer will have to fork out another £730 a year as the employment cost of keeping that person on the payroll. The employment cost for a man on £20,000 a year will become no less than £2,090 simply by way of national insurance contribution. I realise that the money must be found somewhere, but I doubt whether that part of the experiment will survive for very long.
In the longer term, one must ask why our benefits and pensions have to be paid for by, of all things, a payroll tax. Why are jobs singled out to be the subject of taxation for financing benefits and pensions? There is no longer any logic in the system. It belongs to the era before the two world wars. It needs to be looked at root and branch, and I am glad that the examination has at least been started.
As people are gradually coming to realise, this is the year in which it is likely that our North sea oil value of production will be at its peak. We should be thinking, as many people already are, about how the country will pay for its imports and other necessities when the oil ceases to provide any export value to our balance of payments. I am bound to say, with a heavy heart, that I cannot see any measure in the Budget which will assist our other industries and services to fill the enormous gap that looms ahead, and to make up for the loss of our oil exports and revenues. I hope that I am wrong, but nothing has yet shown that the Government are tackling that matter with either the resolution or the flexibility that is required.
§ Mr. Francis Pym (Cambridgeshire, South-East)
For a number of years, both while I was a Minister and since, like the hon. Member for Colne Valley (Mr. Wainwright), I had the strongest reservations about the wisdom of the Government artificially raising energy prices and water charges. However, although the hon. Gentleman criticised that policy, he did not make any alternative suggestions as to where the additional income would come from.
I congratulate my right hon. Friend the Chancellor on his presentation. His was one of the best-constructed Budget speeches that I have ever heard, and it was remarkably concise. The contrast with the speech of the Leader of the Opposition yesterday, and that by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), the deputy leader of the Labour party, is striking, to say the least.
The proposals that my right hon. Friend announced yesterday have so far attracted predictable reactions both within and outside the House. It is fair to say that on the Conservative Benches the response has been more one of muted welcome than of positive enthusiasm.
Many of my right hon. Friend's measures clearly command broad support, and quite rightly so. The reduction in national insurance contributions at the lower end, the raising of income tax thresholds, the extension of the youth training scheme and of the community programme, the measures to help small businesses and the self-employed, and the prospect of a future convergence 897 of the tax and benefits systems are all to be welcomed warmly. There is nothing in the Budget to which exception can sensibly be taken and much in it that is highly commendable.
However, there is a world of difference between avoiding a bad Budget, which this most certainly is not, and producing a really good one. The proposals need to be judged not only on what they contain but on what they do not contain. The fundamental question is whether this Budget, and the whole economic and industrial approach of the Government, add up to a coherent strategy that will encourage the sustained growth of our economy and the prosperity of all our people in the future.
My right hon. Friend the Chancellor took as his theme "a Budget for jobs". Within the context of his viewpoint, that is what it amounts to. However, for those who take a broader view of the role of Government and see a more positive scope for their action, it is not that. It is a Budget that will do a certain amount to remove disincentives to employment, and that is obviously essential, but it does not look like a Budget that has been conceived with the stimulation of employment on a substantial scale as its main objective. If it had been, the first requirement would have been the rewriting of the medium term financial plan and an increase in the PSBR.
I find it extraordinary that my right hon. Friend the Chancellor takes a rigid attitude to the PSBR, protesting that the slightest increase would wreck everything. His assertion that increased borrowing would fuel inflation is not borne out by the facts. He has announced an overshoot of £3 billion, a fact that appears to have no impact on inflation. I find it ironic to speculate that, had the Government chosen to recoup the cost of the miners' strike by passing it on to the consumer, that course of action would have been inflationary. By absorbing the cost into Government spending, the Government have avoided the inflationary effect.
The fact is that my right hon. Friend the Chancellor is operating within a straitjacket of his own choosing. I very much admire the agility of his performance, but we should be questioning why he has bound himself up in this way in the first place. This straitjacket makes it impossible for him to produce a real "Budget for jobs". His proposals veer in that direction, but they do not go very far.
In that context, the real question is what the Government's economic policy is, which is not an easy question to answer. The Chancellor has announced, as is customary, the Treasury's forecast of the immediate economic outlook, but he has not amplified that to give us his assessment of the problems that confront our economy over the coming years, or provided us with a strategy to meet them.
My right hon. Friend has given us a modern version of "1066 and All That"—a world of good things and bad things. Inflation is a bad thing. Cutting taxes is a good thing. Public expenditure is a bad thing. Monetary control is a good thing. Unemployment is a bad thing, but it is clearly a better thing than borrowing money. In fact, borrowing money for any purpose is the worst thing of all. In consequence, we have a Budget that picks its way, with my right hon. Friend's great skill, through a landscape dominated by fear of the bogey man of borrowing. Its principal flaw is that responsible financial management, however necessary, does not in itself constitute an economic strategy. To me, the lack of such a strategy is the glaring gap.
898 As the starting point for a proper strategy, both sides of the House would do well to stop debating what factors have contributed to the present position, and to look with fresh eyes at where we are now and where we should be going. Trying to apportion blame between the so-called years of profligacy, the so-called over-deflationary policies of the Government and the effect of the world recession is ultimately a fruitless exercise. It is the future that matters. We need to look anew at the present and the future and we should take into account three main factors — growth in output, international competitiveness and unemployment.
Thank goodness we now have some growth. No one pretends that it is enough, and it still has not returned us to the level of output of 1979. Everything that we want to achieve for our country is dependent on attaining a high and sustained level of growth. That will be difficult enough anyway, but all the more so against the background of a progressive fall in oil revenue.
The level of growth that we need will not be achieved without an improvement in our competitiveness. We have made gains in productivity, but most other major countries have made bigger strides than we have. We are no more competitive today than we were six years ago, and probably less so. We still have a lot of progress to make.
The third major factor is unemployment. Many of us have spoken about the social and human evils of mass unemployment and especially of mass long-term unemployment as it exists in many communities it Britain today. The economic evil is no less immense, and it was good to hear my right hon. Friend acknowledge this.
A huge proportion of the natural resources of the country are lying to waste, financed by a massive payment that brings no long-term gain to the people, or to the country as a whole. Despite the very welcome rise in the number of people in work, there are no signs that the number of people out of work will fall appreciably, at least for some years to come. To many right hon. and hon. Members it is inconceivable that such an unacceptable situation should not substantially influence the objectives and the strategy of the Government.
The correct economic objective must surely be that which would be pursued by a company that found itself in the same unfortunate circumstances: to seek growth by simultaneously improving performance in existing areas of business, investing in new areas of business, and making the most of all the resources available.
The strategy that flows from such objectives should have three main features. First, the achievement of growth and the prospect of new long-term jobs are dependent not only on continuing to improve our performance on the supply side, but on stimulating the demand side. Secondly, improvements on the supply side are dependent on increased levels of investment — especially in new technology, but in other things too — on a further reduction of inflation and of industrial costs, and on a stable exchange rate. Thirdly, the stimulation of demand is dependent on injecting more money into the economy, through increased public sector investment.
The consequences of such a strategy would be the opportunity for a sustained growth in output, an increasing competitiveness in British industry, and the creation of more jobs both immediately and in the long term. 1 must stress that there is no reason why inflation should rise in consequence—and no reason, in fact, why it should not fall further.
899 If such a strategy, or something close to it, lay behind the Government's thinking, I would have hoped and expected that yesterday's Budget would have included all the following features and not just some of them: an increase in Government investment in the public sector, with a consequent increase in the PSBR; incentives to investment in the private sector; a reduction in the cost of employment for both employer and employee; the creation of a major regional aid and development programme, and a programme to make possible far greater mobility of labour—a point mentioned by my right hon. and learned Friend the Chief Secretary; further assistance towards the creation and success of new businesses; and the announcement of a more considered attitude towards the exchange rate.
When one compares these measures with those announced by my right hon. Friend the Chancellor of the Exchequer, the differences are more substantial than the similarities. For that reason, my fear is that this Budget will not achieve the objectives that my right hon. Friend has set for it. I hope that I may prove to be wrong, but that is what I think. None of my right hon. Friend's changes go in the wrong direction, but few of them go very far in the right direction.
It seems to me that the time has come to question some of the assumptions that have governed economic policy for the past six years, and to question why British industry is less competitive internationally, despite attempts to make it more competitive. It is time to question why, although the conditions for growth have supposedly been created, the output of manufacturing industry is lower than it was six years ago; and why an increase in company profits has accompanied a decline in investment in manufacturing industry. It is time to question why the control of inflation has not led to much growth, to greater competitiveness or to reduced unemployment.
My right hon. Friend the Chancellor of the Exchequer assured us yesterday that his Budget was directed towards the continued control of inflation and the reduction of unemployment. Significantly, he added:Nor is there any conflict between these two objectives."—[Official Report, 19 March 1985; Vol. 75, c. 787.]But experience to date has been the opposite. The continued control of inflation has been accompanied by an inexorable rise in unemployment. I agree with my right hon. Friend the Chancellor that the two objectives need not conflict, but since — on present policies — they have conflicted, how can one have confidence that they will not continue to do so?
I do not think that it is unreasonable to ask whether we are any nearer to an answer to our main economic problems than we were six years ago. My answer would be, not much, with the exception of inflation. In that case, surely it is time to look for changes in policy. There seems to be little advantage in reshuffling a pack that has so far, at any rate, failed to produce any aces.
§ Mr. John Townend
My right hon. Friend has put forward an alternative policy of increased expenditure on the infrastructure. But are not many of his suggestions those that were carried out by Mr. Mitterrand after being elected to power in France? They resulted in a higher rate of inflation, increased unemployment and in an ultimate volte-face.
§ Mr. Pym
No, indeed not. If my hon. Friend reads tomorrow the speech that I have made, he will find that that is certainly not the case. I have argued quite carefully, and I hope reasonably briefly, that it is right to consider an alternative approach on the evidence of the results so far of our present economic policy.
We all share the objectives that my right hon. Friend the Chancellor of the Exchequer outlined yesterday. What we need is a strategy that will deliver them. My real criticism of the Budget and of economic policy in general is not that it is wrong, but that it is inadequate for the problems that we face and the task in hand.
§ Mr. Doug Hoyle (Warrington, North)
The Chief Secretary's speech was marred, although it need not have been if he had had the decency — I do not want to go over what was said before—to apologise properly to the House. Hon. Members might then have listened to him with more rapt attention, but I am not too sure whether his speech would have told us much more.
The right hon. Member for Cambridgeshire, South-East (Mr. Pym) damned the Budget with faint praise at the beginning of his speech, and then put forward an alternative Budget that would have given the people of this country far more hope. I agree with him that it is time that the Government asked themselves, if their economic strategy is not working after six years, what confidence anyone can have that it will work at all. Yesterday, the Chancellor of the Exchequer forgot to mention that he has presided over the greatest ever fall in the pound and over a great increase in unemployment. According to the Government's figures, unemployment stands at about 3.3 million—
§ Mr. Hoyle
In the real world—where it matters—we know that unemployment stands at over 4 million, and is still rising. I agree with my hon. Friend the Member for Great Grimsby (Mr. Mitchell) that the Government have massaged the figures to make them appear to be as low as possible. Nevertheless unemployment is still rising. There has been a lack of investment in British industry and there has been no rise in productivity. But at the same time billions of pounds have gone overseas quite freely. That money should have been invested in British industry. Instead it has been invested in our competitors. Thus, all the time we have been strengthening the economies of Japan and other nations. Their products now compete highly successfully with British products not only in the other nations of the world but in this country. As a result there is even more unemployment.
There has also been a dramatic rise in interest rates. Therefore, I cannot see any hope of the economy recovering in the next 12 months if the Government's strategy remains one of a little tinkering here and a little tightening of bolts there. Indeed, as my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) has said, not only is there no recovery, but the infrastructure of the nation is still decaying. Not only is there not enough investment in manufacturing industry, there are appalling standards in other vital sectors of the economy, especially education at all levels. Standards in higher education are falling. We are losing the seed corn.
901 We have a tatty and tarnished Health Service that is also in decline. It is apparent to the rest of the world, and it is dawning on hon. Members on the Government Benches, that our nation will continue to decline while the Government pursue their current economic strategy.
The Chancellor's speech yesterday suggests that no lessons have been learned. I was always taught not to look into the crystal ball when I could read the book. The Chancellor prefers to look into the crystal ball because what he sees in the book is too horrible to contemplate. He is not prepared to hold up his hands and say that the Government have been wrong, even though, apart from the reduction in inflation, nothing has improved.
For the first time, under this Government we face a deficit on our manufacturing trade. If we are not a manufacturing nation we are nothing, yet nothing is being done. We were told that the Government's measures would make us more competitive, leaner and keener. However, they have not done so. As the right hon. Member for Cambridgeshire, South-East said, productivity is no higher now than it was six years ago. Indeed, it is lower.
Nevertheless, a terrible cost has been paid in the regions of this country for the Government's activities. While listening to the Chancellor's speech yesterday I was wondering what effect the Budget will have on areas such as my own constituency and other areas in the north-west, the north-east and Yorkshire, and on ports such as Grimsby. The answer is that it will have no effect at all on such areas. Indeed, rather than getting better, the situation in such areas will get worse.
All that the Chancellor said yesterday was that if wage levels were depressed even further, we would in some way become more competitive. He has not learnt a simple economic lesson. Perhaps there should be a primary course for the Prime Minister and the Chancellor in Keynesian economics. The Chancellor is simply depressing purchasing power, when we need a boost to the economy to raise purchasing power.
§ Mr. Austin Mitchell
The Prime Minister recently went to the United States to lecture President Reagan and to tell him that he could have our failures instead of his success. Perhaps it would have been better if President Reagan — the only Keynesian economist who does not yet have grey hair — could come here to lecture the Prime Minister about the economy.
§ Mr. Hoyle
I have my doubts about President Reagan's hair. However, he has learned better than our Prime Minister how to use the economy, and he has learned how to use a deficit budget. We hear time and time again from the Government Front Bench that we have much to learn from the American economy about the revival of small businesses. We should also learn that the American economy has been revived by pumping purchasing power into it, not by depressing wages. If depressing wages was the answer, Calcutta would be the Mecca for us all, and so would Bangladesh.
The tragedy of the Government's policies is that they will create a low-technology, low-wage, low-economy society when what we need is a high-technology, high-wage, high-productivity society that looks forward rather than looking back to the 1920s and the 1930s.
People in the regions are feeling the effects of the Government's policies. One of the things that the 902 Government have succeeded in doing is pushing the frontiers of the depressed north even further south. That area now encompasses the west midlands, an area that was once the manufacturing barometer of the nation. In the past, when we were closer to full employment, people looked to the west midlands to see, for example, what was happening to the motor industry. One has to look very carefully now to find any motor industry there at all. The place is a shambles. It is a desert.
§ Mr. Hoyle
The hon. Gentleman shakes his head, but the Conservatives will suffer in the west midlands at the next election unless Government Members pay more attention to the right hon. Member for Cambridgeshire, South-East, and less to the Chancellor. The Government offer nothing to the west midlands car worker, the unemployed steel worker in my area, the unemployed textile worker in north-east Lancashire or the unemployed coal miner.
There is no sign of a revival, and the Government have done nothing not only for what used to be the basic industries but for the scientific industries of the future. There is now to be a tax on companies for employing people who have the expertise and scientific knowledge that might pull them companies out of the mire. Such people are needed in management if we are to have any chance of success.
The situation is tragic. However, as we frequently hear, the Government have one asset that no other Government have had before. They have the windfall of North sea oil. Unfortunately, the day of North sea oil may now be over. It will last for a little longer—thank goodness for that—but the reserves will become more difficult and more costly to extract.
North sea oil has provided the Government with £l2 billion that they would not otherwise have had. However, the tragedy is that, instead of using those resources to build the new science-based industries of the future, the Government are paying out £17 billion in unemployment pay and social benefits. That is the economics of madness, yet there is no evidence of any new thinking at all on the Government Front Bench.
At long last the Government are crying about the plight of the unemployed, but they are making no attempt to solve the problem. They would have done better to invest some of the £12 billion windfall in the industries of the future.
We should also be plugging the gaps that permit money from the pension funds and the insurance companies, for instance, to flow overseas. We should be directing that money back into the long-term future of this country, especially by investing it in the new industries.
I welcome the absence of one measure from the Budget. The Chancellor did not introduce a tax on occupational pensions. Perhaps that was because of the strong representations from my own union, the Association of Scientific, Technical and Managerial Staffs. I had a very heavy postbag on the matter and I am sure that many other hon. Members did too. On the other hand, the reason may be simply that the Government have upset so many of those who misguidedly supported them at the general election that they decided not to take that horse to the last fence.
903 The Budget lacks flair and imagination. All we need is a little more common sense and for purchasing power to be put back into the economy. We should invest in infrastructure — modernise ports, build houses, build new schools and get rid of the antiquated institutions in which our children are still educated, build hospitals and equip them properly and employ some of the nurses and doctors who are out of work to look after the needy. That must make far more sense, and it is how to create real jobs. Everyone put back to work would pay income tax and spend money on consumer goods such as textiles, motor vehicles and washing machines, thus putting others back to work. There is no sign of that. Indeed, there is no sign that the Chancellor understands the mechanism.
One thing will now exercise the minds of many Conservative Members — they are now only two years away from the general election.
§ Mr. Hoyle
Conservative Members will be pressing for a change which brings jobs to their constituencies and some security for those that are left. There was much speculation before the Budget and it was said that unless the Chancellor got it right, this would be his last Budget. My reaction, and that of many others in the City, trade unions and business, is that this is a non-Budget. It has already been forgotten, as has what it will do for the people. It has no imagination, flair or vision. Moreover, it will bring no hope to the regions or those I represent.
§ 6.2 pm
§ Mr. Michael Hirst (Strathkelvin and Bearsden)
Once the initial reactions to the Budget have passed, it is difficult to avoid assessing its implications for one's constituency.
I thank my right hon. Friend for declining to extend the scope of VAT to books, for the largest employer in my constituency—I have no shame in disclosing this naked self-interest — is a leading firm of publishers and the headquarters of a large educational publishing company is also in my constituency. My colleagues in the Treasury were aware of my strong representations on behalf of those companies, which were deeply worried that VAT could seriously damage their business.
I am heartily glad that my right hon. Friend effectively squirted a puff of DDT at the lobbyists who, I suspect, were responsible for our having enormously heavy mail bags during the past four months. His declaration that there are to be no further changes in VAT in this Parliament are welcome inasmuch as they ought to guarantee a rather lower level of constituency mail for the rest of the parliament.
I welcome my right hon. Friend's commitment that there will be no change in the fiscal treatment of pensions without prior consultation. I am firmly one of those who believe in legislative change after as wide consultation as possible. That is more desirable than Budget diktat, which can produce change rapidly. For that reason, I welcome my right hon. Friend's intention to produce a Green Paper on the reform of personal taxation. I am strongly attracted 904 to the notion of a personal allowance for both a husband and a wife. Such a long overdue reform will end an unfair discrimination against married women who choose to stay at home and look after their children rather than to seek employment.
I am also attracted by the possibility of bringing the tax system and the benefits system more closely together. Computerisation in the Department of Health and Social Security and the Inland Revenue should be recognised as an opportuniy for a greater coincidence of those systems, and therefore greater efficiency.
Like many others, I shall judge the Budget by its success in creating jobs and shortening dole queues. Notwithstanding what Opposition Members have said, I welcome the incentive to business to take on young people. I have listened to the outrage which appears to come from the Opposition. The word "sweatshop" is bandied about. There is an obscenity in the argument which supports an artificially high wage for a young person at the expense of another young person who remains on the dole. I welcome Treasury Ministers' courage in being prepared to acknowledge that and to give great hope to young people who are currently without a job.
I welcome unreservedly the fact that the Budget puts more into the pockets of the lower paid through tax cuts and national insurance cuts. There might indeed be groans in the boardrooms of the City about the extra cost of employing skilled people who can command high salaries, but it is not unreasonable to expect companies that employ people at the top of the tree to make a sacrifice for those who are at the bottom of the heap.
Like many other right hon. and hon. Members, I represent a constituency which has pockets of high unemployment. I am fortunate in coming from the west of Scotland and having a constituency in which the overall level of unemployment is less than 10 per cent., but that figure masks areas of considerably higher unemployment. It is hard not to be moved by the plight of youngsters who come to my surgery telling of their miserable experiences when applying for jobs. They apply again and again and suffer constant rejection or, worse, would-be employers decline to acknowledge their applications. I often feel guilt at their helplessness and the worries that are feelingly articulated by their parents. I am therefore extremely glad that the youth training scheme is to be extended to all youngsters without a job or the prospect of higher education on leaving school.
Nothing can be more wrong or demeaning than a school leaver finding himself sliding on to the dole and a life of institutionalised idleness. The extension of YTS to two years will present a great challenge to the Manpower Services Commission to be even more successful in seeking out employers prepared to take on people in training vacancies.
In areas such as mine, the MSC should endeavour to identify more local vacancies so that young people do not find that their fairly modest remuneration is whittled away by higher transport costs. A recent study in Strathkelvin showed a rather unfortunate shortage of training vacancies. I hope that the MSC will recognise the challenge implicit in an extension of the training period and do its best to find additional vacancies.
I am pleased also that my right hon. Friend the Chancellor has recognised the plight of the long-term unemployed and has been prepared to act. The Opposition 905 have only shed crocodile tears. By boosting the community programme, my right hon. Friend has shown the long-term unemployed that they are not the forgotten ones.
I have had a chance to visit many useful community programmes to see their operations. I have been intrigued by the fact that I, a Government Back Bencher — I am almost an island of blue in an ocean of red and, like my hon. Friend the Financial Secretary, represent a west of Scotland constituency — received invitations to visit projects in the west of Scotland. Having recorded my appreciation and admiration for a particular project, a few months ago I received a letter from the project's organisers asking me to send a warm letter of support to the area's manpower board requesting funding for a second year.
§ Mr. Hirst
I did. I also sent a letter to a major project in the hon. Gentleman's constituency. I am sure that he will be grateful to me for doing so.
In welcoming the changes, I cannot let the matter pass without articulating the concerns that have been so forcefully expressed by many people in the construction industry in the west of Scotland. A number of my constituents have positions of responsibility in the construction industry that present them with enormous difficulties in keeping together a core of skilled people to preserve their business and to take advantage of the upturn in construction activity. As one who has come from the business world, I recognise the difficulties of coping with vagaries of demand in business and the challenges thereby presented to management. I can only speculate on the extent to which the Chancellor could fund additional capital projects without damaging his medium term financial strategy. I dare say that the House could engage in such a discussion for the rest of the day. I recognise that there is a delicate balance between the borrowing requirement, interest rates and the imperative of low inflation, which is essential in encouraging investment and job creation.
§ Mr. Craigen
I am grateful to the hon. Gentleman for giving way to one who is part of that portion of red. Why have the Government singled out housing and construction for such cuts in investment, given the employment potential that the hon. Gentleman rightly sees in housing and construction?
§ Mr. Hirst
The hon. Gentleman cannot overlook the fact that low interest rates are the most compelling stimulant to the creation of private housing. Demand for private housing is enormous and as yet, unrequited in the west of Scotland. Private housing would be provided when stable economic conditions bring about low interest rates.
§ Mr. Hirst
The hon. Gentleman knows jolly well that interest rates are at their present level because of the budget deficit in America and the misery exported to the rest of the world by the artificially high borrowing requirement in America.
Whatever our views on the extent to which there should be a public sector borrowing requirement, we are united in our acceptance of the importance of low interest rates and the benefits they bring, spreading throughout industry to every borrower and home buyer.
906 I remind the hon. Member for Warrington, North (Mr. Hoyle), who talked of dismal levels of investment, that investment is running at an all-time record rate, but the trouble is that purblind commitments to ideology prevent him from seeing that much of the investment comes from the private sector. I have no doubt that the hon. Gentleman would prefer that investment to come only from the public sector. If we had the type of pools winner spending that is constantly advocated by the Opposition, the pound would be worth 90 cents, interest rates would be even higher and inflation would increase again. If the Labour party ever has a chance to form a Government, it would end, as has happened before, in tears, with the doctors from the IMF coming to give us the kiss of life.
§ Mr. Hoyle
The hon. Gentleman talks about interest rates being higher. Present interest rates are only high compared to previous rates under his Government. In fact, interest rates in real terms are overall about 30 per cent. below the rates in relative terms than when we were in government, and there was real spending power.
§ Mr. Hirst
The hon. Gentleman must make a proper and valid comparison. He cannot escape the basic truth that, if his party were in government and spending at the levels it says, interest rates would be much higher than they are. If the Budget package which the Leader of the Opposition was seeking yesterday were implemented, there would have been no cut this afternoon in lending rates—far from it.
The Chancellor has set aside an additional £2 billion each year for the next three years to boost his contingency reserve. I hope that that money will be spent to create jobs and not, as it was last year, to defend liberty from the abuse of industrial power for political ends.
Having made that point, I stake a claim for Scotland's hard-pressed domestic ratepayers who, next year, will suffer a rates increase perhaps more than twice the value of the tax relief given in the Budget through increased personal allowances. I am sure that my hon. Friend the Financial Secretary will forgive me if I import into the discussion a little of the concern expressed so strongly by my constituents. I know that he is aware of this worry.
As a professional accountant, I welcome many of the worthwhile — albeit undramatic — changes in the tax regime. In deference to so many of my colleagues who wish to participate in the debate, I may, as a member of the Standing Committee on the Bill, discuss the changes more fully later. [Interruption.] I assure the Opposition that I am expressing a desire to serve on the Standing Committee.
§ Mr. John Maxton (Glasgow, Cathcart)
May we have an assurance that, if the hon. Gentleman sits on the Standing Committee on the Finance Bill, he will play a more active part than most of his Tory colleagues have done during consideration of that Bill in previous years?
§ Mr. Hirst
The hon. Gentleman will know, because he sat opposite me during much of the discussion in Standing Committee last year, that when I and most of my colleagues opened our mouths we spoke quality rather than quantity, unlike the Opposition. I have no doubt thatguid gear comes in sma' bulk",which means that something that is worth while comes in small bulk.
The balance in the Budget proposals is about right in their emphasis on maintenance of stable economic 907 conditions and job creation. I represent a constituency in which the haves and the have nots are well represented. The Budget will give me the opportunity to look both straight in the eye and tell them that there is hope for all of them.
§ Mr. Peter Pike (Burnley)
The Chancellor of the Exchequer introduced the Budget as a package for jobs, but I would not describe it in those terms. If anything, it is a charter for lower paid jobs. That is about the only thing that can be said for it in terms of employment. My constituents will not see the Budget doing anything to help prospects in Burnley. I am concerned by further signs that the Government will abolish wages councils. This poses a threat to those who work in low-paid industries, and it must be of serious concern.
Many working people receive low pay and in the past that has done nothing to save their jobs. Yesterday the Prime Minister stood by her statement that low pay is better than no pay. There may be a little truth in that statement, but it is not an acceptable position for those who are having to work for low pay. Many employees of the Government who are engaged in public service, many hospital and local government employees and many in industry are working for unacceptably low wages. However, they still face redundancies and the threat of job losses is ever-present. Low pay does nothing to stop that. Anyone who works should receive a wage that enables him to live properly. He should not have to depend on benefits such as the family income supplement and unified housing benefit. That is wrong and we should be changing society to ensure that those in work no longer need to claim those benefits.
About two months ago, one of my constituents told me that he was working in a factory after having been unemployed for two years. He told me that his pay on the top line was £50 a week and that that was the wage which all the workers were receiving, apart from the foreman, who was receiving the extravagant wage of £54 a week. Would Conservative Members like to try to live and support a family on that sort of wage?
I do not accept the claim of the Chancellor of the Exchequer that the Budget will create jobs. The job losses that will result from the Government's actions will far outweigh any job gains that stem from the Budget. It was significant that the Chief Secretary was unable, when he sought to respond to the intervention of my hon. Friend the Member for Coventry, South-East (Mr. Nellist), to say how many new jobs will be created. He was able to describe the effects of the increased funding of the youth training scheme and the community programme, but he could not say how many new and real jobs would be created.
Local government is suffering capital cuts, and this will result in many people becoming unemployed. The Government's overall package, which is not confined to the Budget, will produce an unacceptable increase in unemployment. The Chancellor of the Exchequer talks about low wages. I believe that, if he were to be paid on the basis of productivity for his Budget, he would take a cut. That might be a good thing.
The Chancellor of the Exchequer referred yesterday to the many rumours that had been circulating about the 908 Budget. Perhaps he welcomes the rumours, even if he does not create them. They enable him to say after the Budget statement, "Well, it was not as bad as you expected." He hopes that the newspapers will give publicity to the things which he has not done but which the rumours suggested he would. Such publicity draws attention away from the measures that he has proposed and the measures which he should have taken but has not. Our attention tends to be drawn from the significant issues by the false rumours that circulate.
I welcome the fact that the Chancellor of the Exchequer did not include proposals in his Budget adversely to affect pension funds, to tax lump sum payments or to tax pension fund investments. I served as a worker-director of a large pension fund before I was elected to this place. I served also as a trustee of a county council pension fund. I am concerned about the considerable investment of the pension funds in overseas countries and believe that more of their investment should be within the United Kingdom. It is nonsense to say that the funds have a prime duty to protect those to whom they will pay a pension when they retire, when they are jeopardising the jobs of those whom they are trying to protect by investing so heavily in overseas countries.
§ Mr. Pike
I have always supported the concept of worker-directors of pension funds. They are a most useful addition to the pension fund boards. Unfortunately, most worker-directors and other participants from the work force do not have any real powers and serve only in an advisory capacity. Their powers should be increased.
It was rumoured that the Chancellor of the Exchequer would tax gas and electricity, newspapers and books. He did not do so, but he has proposed — I predicted two or three weeks ago that this would happen — to levy VAT on newspaper advertising. I accept that the present absence of VAT on newspaper advertising is an anomaly, but the Chancellor of the Exchequer's proposal to remedy it will have serious consequences, especially for the local and provincial press. Advertising budgets are tightly controlled, and the Chancellor's proposal, if implemented, will mean that there will be less money available to the local press, and this could well jeopardise jobs. I do not always agree with what appears in the local press—very often I disagree with the opinions that are expressed and printed in local newspapers — but it will be a bad day for the country if further local and regional newspapers cease to exist.
§ Mr. Pike
I can only assume that the hon. Gentleman has not been listening to my remarks. I recognise that there is an anomaly, but that does not necessarily mean that it should be removed. I believe that the Chancellor's proposals will place many local and regional newspapers in jeopardy. Advertising revenue is vital to their survival and if it is cut they will be placed in severe difficulties.
I am pleased that the Chancellor proposes to increase the single man's allowance and the married man's 909 allowance. This will be of great benefit to the lower paid. It will be more valuable than any reduction in tax rates. However, the increased allowances will be of no benefit to those who are paying no tax, and there are many in that position.
The Chancellor's proposals will benefit a married man by just under £2 a week and a single man by just over £1 a week. However, the increases in the price of petrol, beer and cigarettes will mean that the Government will take more, especially from working people, than they are giving. They are giving with one hand and taking back more with the other. My constituents will say that the increased taxation of beer and cigarettes will bear heavily on working men and their pleasures. This will be evident to them when they note the Chancellor's treatment of cigars and whisky, which is more favourable.
The Conservative Government were elected in 1979 and we should take account of their 1979 Budget, in which they reduced income tax at the ordinary rate by 3p but introduced a 23p reduction for those on the top band of income tax. That is indefensible and has given a massive benefit to highly paid people. Few people in my constituency benefited from the 23p reduction at the top of the scale. It would have been better to give more tax concessions in favour of the people at the lower end of the scale.
We have a responsibility to ensure that people have a decent standard of living. I have already said that people should receive a proper living wage. The same applies to pensioners. As a minimum, the link to wages should be restored. This would have resulted in the pensioners receiving more.
There are many anomalies in what the Government have done, but they are doing not one single thing that will solve the problems facing the country. One should consider not only the Budget, which does nothing to improve the number of jobs in the country, but other aspects—housing is in decline, hospitals are in need and there are long hospital waiting lists.
The record of the Government is a disaster. Until the Government and the Chancellor change direction, we will continue in a downward spiral. The Government should make a positive change in direction and start on a determined effort to create jobs. Only when the Government move in a completely different direction from that which they have been following for the past six years will we really begin to solve the problems facing the country and to deal with the difficulties that are facing so many of our constituents.
§ Mr. George Walden (Buckingham)
I hope that the hon. Member for Burnley (Mr. Pike) will excuse me if I do not follow the line of thought that he was developing.
I think that this is an excellent Budget, not least because it has one quality which in my view deserves more attention and perhaps more praise from the Opposition Benches—the quality of social solidarity. Most of the so-called give-aways in the Budget are at the bottom end of the scale. They are not in the form of sterile handouts, but are carefully calculated to stimulate employment and to motivate people to look for work. While I think this is an excellent Budget, I also believe that it is a limited one, for a number of reasons that I wish to outline.
First, I believe that there will be another budget in a few months' time which will be a benefits budget. So great is 910 the proportion of public expenditure currently accounted for by the Department of Health and Social Security—if we continue at this demand-led rate, it will be approaching half the total public expenditure — that, when the reviews which are currently being undertaken by the Secretary of State for Social Services come to fruition, it will amount to a benefits budget on its own. In contemplating that mini-budget which is to come, I hope that the Government will give it the same thrust that my right hon. Friend has chosen for his Budget. By that, I mean the concentration of effort and money where it is most needed, and dynamic thinking: not in terms of handouts but of helping the poorest in society in ways that make us more able to help each other in the future.
Secondly, the Budget is a rather limited one in the sense of what it omits. It is true that in our society benefits are now given from the cradle to the grave literally, starting with child benefit and ending with death grant. I am concerned not so much by the fact of those benefits, but because in this country to a much greater extent than other countries people start thinking about the grave so soon after the cradle.
That brings me to the delicate territory of pensions. The Chancellor implied that there is a case for considering pensions, but he also said that there would be no Green Paper on pensions. Thus the case for considering pensions will not be articulated at this stage in the form of a Green Paper. One does not have to be a great politician to understand the reason for that. I suggest that we keep this ball in the air. We should not lose sight of overall economic objectives. We are talking about £7 billion of tax forgone. From some figures that I saw today, I understand that the total has increased by £2 billion in the last two years alone. In a way, that is a splendid thing, and we all know the case for pensions — God knows we have received enough letters spelling it out. But let us not lose sight of the extent of the pensions business in the country, and the distorting effects that it can have on investment and possibly on jobs. Recently I was looking at some very nice paintings which had been bought by the British Rail pension fund and it crossed my mind that there are not many British jobs in French impressionists, so let us bear that aspect in mind.
§ Mr. D. Nellist
Does not the hon. Gentleman recognise that when Arthur Scargill and others in the National Union of Mineworkers argued the point about pension funds investment in British industry, Arthur Scargill was removed from the board of trustees because that decision was held not to be within his competence. How can the hon. Gentleman make the point that he has just made?
§ Mr. Walden
The difference between me and the hon. Member for Coventry South-East (Mr. Nellist) is that he is talking about compulsion and I am talking about freedom. The hon. Gentleman implies that the Government should take control of how pension funds are invested—
§ Mr. Walden
I will rephrase that—to direct that investment. The fact that those pension funds are given tax relief and are so large I suspect tends to have an inhibiting effect on the spirit of enterprise in the country and bence on jobs. In a sense, therefore, the hon. Gentleman and I are talking indirectly about the same thing from different angles.
911 I deal next with another limitation of the Budget.
§ Mr. Douglas Hogg
My hon. Friend is exploring the possibility of subjecting pensions to tax, but is not the problem that the greatest sum, £4,000 million, arises because the contributions are exempt? There will be great hostility to bringing those into tax. What would be more acceptable, subjecting the funds themselves to tax, would being in only about £650 million.
§ Mr. Walden
My hon. Friend and I may have looked at different figures, and I am perfectly prepared to accept that his figures are right. The last figures I saw show that the tax relief on pension funds is more like £2.5 billion. I shall look at that again in the light of my hon. Friend's comments.
The second limitation in the Budget to which I wish to point concerns mortgage interest relief—another matter not too popular among many of my hon. Friends, but I think that we should keep these questions in mind. In my view, the extent of current mortgage interest relief is another distorting element in the British economy. I would link it—because it is linked organically—to the question of pensions. I will give one small, colourful example. I was recently told that the fashion among hitherto rather prim civil servants is not to get married unless they actually have to because together they benefit to the extent of £60,000 tax-free on a house. That is a minor but colourful example of the distorting effect that the extent of mortgage interest relief can have. Here we are talking of £3 billion and, as in the case of pension relief, this is not static but rising.
The third avenue that the Chancellor of the Exchequer seems implicity to have closed is VAT. I shall not launch into a long discussion of VAT. I shall say only that I hope that, difficult though it is, he will pursue his strategy of going from direct to indirect taxation wherever possible.
In his decisions on pensions, mortgage tax relief and VAT, the Chancellor of the Exchequer appears to have cut off three important and—in terms of tax relief—very expensive areas. I do not think that we are in any position to do that. We should put constantly before the British public the facts about the benefits that they are receiving and what it means with regard to the Government's limited ability to bring down direct taxation. It would be a pity if the three areas that I have mentioned were to be lost from sight. We have all had many letters about them, and I think that the honest course is to go on putting those issues before the public, because there should be more discussion about them.
I should like to refer to an indirectly related subject —the state of relations between the Government and the TUC. In his speech the Chancellor of the Exchequer rightly talked a great deal about the youth training scheme and other forms of training. It is obvious that there is little scope for fruitful discussion at present between the Government and the TUC on such questions as how far employment can be inhibited by excessive wage rises. But if the Government can increase their contacts with post-Chernenko Russia, surely we can increase our contacts with the post-Scargill TUC.
§ Mr. Walden
The hon. Gentleman says that Mr. Scargill is still there. I believe that he is politically dead; 912 I certainly hope he is. One way to ensure the political death of the former miners' leader— as I prefer to think of him—is to go along the path that I have suggested, and to deal with the TUC on common ground. That common ground is training and what we can do together for our young people. I was glad that, in the Chancellor of the Exchequer's speech, he mentioned the need to consult the TUC about expanding the YTS. I hope that he will follow it up energetically.
We have a reforming rather than a radical Budget, and I well understand the constraints on the Chancellor of the Exchequer that made it so. It has been unfairly said of him that he backed away from the problems. It would be fairer to say that the problems backed away from him.
§ Mr. Dave Nellist (Coventry, South-East)
In one sense the Budget fulfilled one of my expectations. I did not expect any real relief for the more than 4 million unemployed and the further millions who have low standards of living. My expectations were fulfilled, because the Budget provided no real relief for those millions of people in our society.
The Chancellor of the Exchequer had the gall yesterday to describe his Budget as a Budget for jobs. It can more accurately be described as a low-wage Budget. It does nothing for the more than 4 million unemployed. The few jobs that may be created by some of his measures will be essentially low-wage jobs.
Last night, on the BBC television news, in an analysis of the Budget, an employer who had been listening to the live radio broadcast of the Budget was asked whether he thought that it would increase jobs. He said that he might consider taking on another young worker at the expense of an older worker, because it would become cheaper to employ young people. The Chancellor of the Exchequer's measures will not reduce the number of unemployed; they will simply shift the burden of unemployment increasingly up the age scale.
I believe that most of the changes in the employer's national insurance contributions will result not in businesses taking on new workers but in extra profits for those businesses. Chancellor of the Exchequer's measures are highly cosmetic. We have heard about the reduction in unemployment that is supposed to follow from stepping up the YTS and the community programme. A figure of a third of a million has been mentioned in regard to the two schemes. This afternoon, the Chief Secretary to the Treasury talked about 150,000 jobs being created by the expansion of the YTS. It is supposed to be a training scheme. Its failure is that at the end of the training there are no jobs for the vast majority of the youngsters concerned. We have heard of £1 billion being spent on those schemes, but when the net cost and the benefit of the so-called savings are taken into account, the cost is £75 million. That is less than the Government have been spending in one week on trying to break the National Union of Mineworkers.
It is all very well for the Prime Minister to shout about a task force to deal with football hooliganism. We do not hear her talking of a task force to deal with youth unemployment. There are 237,000 youngsters of 16 or 17 who are not on youth training schemes. At present they are claiming supplementary benefit. Yesterday the Chancellor of the Exchequer said that unemployment will no longer be an option.
913 That is a dangerous confirmation of what I have suggested, in the past few months, lies behind the thoughts of the Prime Minister and her Cabinet. They want to remove those youngsters from supplementary benefit and to introduce economic and industrial conscription. There is no guarantee that the youngsters will get jobs at the end of their training. The expansion in the scheme is taking place in order to fiddle the dole figures and to try to maintain that unemployment has been reduced by a third of a million.
There has been no mention of the allowances paid under the training scheme. When shall we hear from the Government that they intend to increase the allowances? The youth opportunities programme was introduced six years ago. If the allowances had been increased in line with inflation or earnings, the youngsters on YTS would be getting £40 a week today. Instead, the allowance has been frozen for years at £25 and it is now only £26. That is why there is a need for measures such as my own private Member's Bill to provide a genuine and decent training to youngsters and a minimum trade union rate for them of £55 a week.
Youngsters recognise that nothing that the Tory Government have done up to the present, or even in yesterday's Budget, alters the material fact that there is no future for the majority of young people leaving school. In 1983 in Coventry during the general election slogans were sprayed on the subway walls saying, "Vote Tory, retire at 16". That is what young people think of the Government's policies.
There are now rumours about the abolition of the wages councils, which protect the lowest paid 10 per cent. of the working population in shops, in hotels and in slightly more obscure occupations such as coffin manufacture and ostrich feather manufacture. Such people are on £40, £50 and £60 a week and need protection. If the Tory Government carry out their threat to abolish the wages councils, the trade union movement will have to organise a massive recruitment drive among those workers to offer them the hope of some protection.
In the past 24 hours, the Budget has been seen, and it will be seen in retrospect, as a Budget to drive down wages. It is offered by the Treasury Bench as a Budget that will create jobs. Where is the proof? At least a dozen times I have asked Ministers in the Department of Employment to justify the assertion that if the wages of young people are cut more jobs are created. Since the Tories came to office young people's wages have fallen by 8 per cent. for boys and 12 per cent. for girls. In the same period youth unemployment has tripled. Therefore, how can it be said that cutting wages creates more jobs? The only solution that the Tory Government are offering to cure unemployment is to have two workers doing the work of one and sharing the wage between them. The Government are trying to massage and fiddle the dole figures in some magical way to achieve that result.
§ Mr. John Townend
Will the hon. Gentleman give his opinion on the decision of the Electrical, Electronic, Telecommunications and Plumbing Union? It realised that apprentices had fallen in numbers because of the high starting wage. Therefore it agreed to a substantial reduction in the starting wage. As a result, the number of apprentices in the union has increaseed, whereas in other unions it has declined.
§ Mr. Nellist
The answer is simple, and I have made the point to the EETPU in the past two years. The price of that agreement has been to reduce the wages and allowances paid to apprentices in the industry. It would have been far better for that union to follow the policy of the sheet metal workers and the Transport and General Workers' Union. They argued with the management at Massey Ferguson in Coventry that there should be a trade union rate of pay for those on youth training schemes. As a result, the youngsters in that firm are getting £74 a week, with a guarantee of a job at the end of the scheme. It is the task of the trade union movement to protect and enhance the conditions of workers and not to cut the wages of apprentices.
This, therefore, is a low-wage Budget. When we consider the Chancellor's proposals in that light, and particularly the extension of unfair dismissal clauses to firms with more than 20 employees, we see the danger in the context of the general anti-trade union feelings of the Government, because some employers will use the change to attack trade union rights. In doing that, they will attack those who take on the job of shop steward in the first two years of their employment. I can foresee employers replacing youngsters aged 20 and 21 with cheaper, ex-YTS 17, 18, and 19-year-olds, sacking the 20 and 21-yearolds before they have achieved two years' employment.
We have already seen that happen, particularly with older women workers and youngsters who have left, or are still on, YOP schemes. Nothing has altered the scandalous postition by which part-time workers who work 12 to 16 hours a week must complete a five-year probation period before getting the most elementary unfair dismissal protection. That is another aspect of this low-wage Budget.
Great play has been made with the so-called give-away aspects of tax changes. Despite the Chancellor's attempts to cloak himself with a generous reputation, the increased allowances will mean, for most workers, £1.50 or £1.80 a week extra. But that has already been taken away by the previous announcement of price rises in gas, electricity, water and prescription charges and by the rises announced yesterday in the price of cigarettes, beer and petrol.
Nobody is fooled by the separate announcements that have become the hallmark of the Government. There was a time when all such announcements were made at one time, in the Budget. They included dental and prescription charges. Now, the Government separate increases of that sort by a couple of weeks, hoping to take the sting out of what they are doing.
When those increases are contrasted with the changes at the other end of the tax spectrum, such as in capital gains tax and the abolition of development land tax, it is clear that they have been warmly welcomed—I don't think—by the people in the dole queues. There was no dancing in the streets of council estates in Coventry last night over the widening of relief from capital transfer tax on land surrounding homes of architectural heritage, despite the fact that much of the worst housing in Britain could qualify for that on age alone. None of those changes will be welcomed by the majority of the population.
I wish to concentrate on what was not done in the budget. The Chancellor told lobby journalists that he was boxed in. We know why the right hon. Gentleman found himself in that position. He was boxed in by the £6 billion 915 that the Tories caused to be spent in the last year on the "worthwhile investment"—the Chancellor's phrase—of trying to destroy the National Union of Mineworkers.
We had the ludicrous announcement yesterday—as we had last Friday, when we debated the west midlands — that, somehow, we were in the fifth year of successful and sustained growth. We have had a plethora of statistics to justify that statement, showing a few percentage points increase in this or that index. But the Chancellor never tells us the base to which the statistics are supposed to relate.
The engine of any economy is manufacturing investment. That is still 25 per cent. lower than when the present Prime Minister walked through the door of 10, Downing street in 1979. Manufacturing production is still less than it was during the three-day week of a previous Tory Government in the early 1970s.
The Chancellor tries to depict trade unionists as Luddites. The Tories have presided over the biggest example of Luddism this century. They have destroyed one in five factories in Britain. It is all very well for the Tories to talk about creating small businesses. The easiest way to do that today is to start with a large business; it will soon turn into a small one under their policies. They have tripled unemployment. Britain has become a second-rate country with third-rate living standards. The Chancellor completely ignores the real position of capitalism in Britain.
In The Times, with pictures, appeared these words which appropriately described what the Chancellor did not mention when he presented his Budget yesterday:After the war Great Britain was the third largest steel producer. Now we are 10th.In 1900 Great Britain made 60 per cent. of the world's shipping. Today we make 3 per cent.Britain once exported motor bikes to over 100 countries. Now we import almost every machine we buy.After the war almost every car on the road was British. Now over half are foreign.Britain pioneered the world machine tool industry. Now our share is 3.1 per cent.Britain discovered the wireless. We now import 96 per cent. of all personal and portable radios.Britain made the first practical computer. Now we have 5 per cent. of the information technology market.We once made all the textile machinery in the world. We now make 8 per cent.That is an incredible advertisement of the present state of affairs. Since the Spanish empire collapsed 300 years ago, no economy in history has declined faster than Britain's in the last 30 years.
§ Mr. Nellist
I could not for a moment accept that. It has been due to the appalling inability of those who have had the real stewardship of British industry, the employers, for refusing to invest in industry and who, instead, have allowed £50 billion to leave the country in the last five years.
Trade unions do not have control of those investment decisions. Indeed, even Parliament does not have control over them. We have never been presented with a Dunlop (Closure) Bill, a Courtaulds (Reduction of Workers) Bill 916 or a GEC (Subsidy for Short-time Working) Bill. Decisions of that type are made in boardrooms by the directors and major shareholders of British industry. They are responsible for our lack of competitiveness and for all the money that has flowed abroad in the last five years.
The British economy will, once again, be heading for recession in the coming year or two, but it will be far worse than it was in 1974, 1976, 1979 or 1981. Already, Britain is seen abroad as a nation comparable to a Third-world offshore tax haven. In The Economist on Saturday appeared an advertisement relating to a report which could be purchased for £60, and another for $120, headed, "United Kingdom as a tax haven". It claimed:With low effective tax rates, reinforced by a wide range of government assistance to business by region and sector, the United Kingdom is a tax haven for those who know their way around.That is what the Government have turned our economy into.
It can more accurately be described as a rentier economy, an economy that depends on the ownership of shares, materials and investment abroad, rather than investment in our manufacturing industry. That spells future further massive attacks on the living standards of working people in Britain. That is the real reason why the Ridley report was written in the mid-1970s and enacted by the Conservatives to attack the NUM, hoping to demoralise the union and strip away the power of trade unions to defend their members.
What has the Budget done for Coventry? Ten years ago, two thirds of the people working in that city were employed in manufacturing, mainly for 15 companies which produced cars, engines, machine tools and telecommunications equipment. About 60,000 jobs have gone from those industries in the last 10 years. I told the House a couple of weeks ago that in one ward in the centre of the city—Coventry, South-East, which I represent—the unemployment rate was 32 per cent. It has now risen to 36.9 per cent.
When young workers, men over 60 and women workers who are not allowed to register for supplementary benefit are added to the total, the real rate of unemployment in that city centre area is over 50 per cent. For those workers, the cosmetic approach of the Budget means nothing.
The Chancellor says, "Hang about. The Government have no responsibility or ability to create jobs. Only the economic climate can create employment." That is not true in Coventry, nor, I suspect, is it true of other parts of the country. Many of Coventry's job losses have been due to Government decisions, particularly the closure in recent years of major parts of British Leyland.
Now, almost two in five—50,000 out of 135,000—workers there depend on central or local government spending for their livelihood. The largest is the city council, with 10,500 full-time and 7,000 part-time workers. yet Coventry city council has lost £80 million in the last five years as a result of Tory cuts, for example, in housing subsidies. Money spent by that means could have created jobs for building workers and provided better homes for people in the city.
When one adds to that the number of jobs lost through cuts in the NHS, DHSS, Inland Revenue, which once employed 9,000 people, and other public services, such as the university; in nationalised industries such as the gas, electricity and coal boards; in nationalised companies such as Rolls-Royce; in part nationally owned companies such 917 as British Telecom; and in all the other companies which rely on Government contracts in, say, defence, such as Alvis, GEC, Dunlop and Courtaulds, and other firms which supply those companies, we find that 40 per cent. of the jobs in Coventry are dependent on decisions made by the Government. Thus, the reduction in the number of workers in that city has been caused by decisions taken by the Conservatives in the last six years.
The Chancellor spoke of five years of successful economic recovery. Several of his leading supporters in boardrooms are talking of a new golden age in British capitalism. If prospects are so good, why has £50,000 million left the United Kingdom and gone abroad during the past five years to low-wage anti-trade union economies, such as South Africa, Brazil, Korea and Argentina? Where is the so-called patriotism of those directors that they would rather invest abroad than in British companies and jobs?
The little increases that we have seen in the British economy have been largely due to North sea oil. Without that crutch, there would be an even more calamitous drop in capitalism compared with our overseas rivals. Last year, for the first time since the days of Queen Elizabeth I, we imported more factory-made goods than we exported. At one time, we were known as the workshop of the world, but now we are more accurately described as the warehouse of the world. We have lost those world markets because of a lack of investment, especially during the past 25 years, and now we are also losing domestic markets.
We have seen the rise of the Chancellor and the Prime Minister — the representatives of finance capital as opposed to industrial capital. The Tory Cabinet has the ludicrous idea that manufacturing industry does not matter, that it can be replaced by service and financial industries. Some Tory Back-Bench Members have even talked about a rise in tourism as providing jobs, as if unemployed ship workers, car workers and steel workers can get jobs as beefeaters at the Tower of London. That is a stupid idea.
The service sector is entirely dependent on manufactuing for its products. Bankers depend on computers, hairdressers on scissors, hotels on furnishings and journalists—not many are present now—on typewriters. The production of real wealth is based on the production of manufacturing wealth. Yet that is the sector that the Government seek to ignore.
More than 30 per cent. of industry is now idle, and nothing that the Chancellor said will get that unused capacity moving. The Library estimates — I have challenged Treasury Ministers on this figure — that £200,000 million of investment would be needed in manufacturing industry merely to catch up with Germany, Japan and America. That is 40 times the present annual rate. Even on an exponential of that figure, under present policies it would take until the year 2025 before British industry was as competitive as those countries. There is no prospect of this Government or the capitalist system following that path. The Government and its supporters have given up re-tooling industry at that rate. They have convinced themselves that the only road to economic salvation lies in a further massive decline in the living standards of the British working class. That is why we have had a cheap wages Budget.
The Budget will not work. The next economic downturn will expose British capitalism still further, and squeeze foreign and domestic markets, with a consequent 918 rise in unemployment. Nothing in the Budget will fundamentally alter the long-term decline of the British economy.
For that, we need an early general election and a new Socialist Labour Government. We need public ownership, and workers' control and management of industry and finance across the commanding heights of the economy. We need a proper Socialist economic plan, which will not provide profits for a few thousand friends of the Chancellor and the Government, but fulfil the needs of millions of people. It must be based on a shorter working week with a maximum of 35 hours, early retirement and other measures to share work. It must end low pay and set a national minimum wage of at least £100 a week, with pensions to match. It must provide a massive boost to public expenditure to build thousands of schools and hospitals, and the millions of homes that are needed.
At present, 400,000 building workers are unemployed, yet millions and millions of bricks are stockpiled. Money is sloshing around in the financial system and people are living in 6 million damp houses. The Government cannot, and do not want to, match the needs of working people with the skills that can fulfil their needs. For that we need a Labour Government with Socialist policies. For those reasons I call on the House to reject the Budget, to demand the resignation of the Chancellor and to tell him to take the rest of the Government with him.
§ 7.4 pm
§ Mr. John Townend (Bridlington)
The House can judge the validity of the speech of the hon. Member for Coventry, South-East (Mr. Nellist) by the fact that he took a number and doubled it. He quoted the cost of the miners' strike as £6 billion, but page 40 of the Red Book sets it at £2.5 billion. It is also clear that he supports the policy of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) of attacking pension funds. He agrees that pension funds should be forced to bring their funds back from investment abroad, where they have been invested in the best interests of pensioners, and to invest them in projects which Labour Members think are socially and politically advisable. We all know what would happen to pensions if that were done.
At the beginning of the debate I was a little surprised at the disruption. However, I now have a copy of the Labour Party's general election manifesto. I understand the sensitivity of Labour Members about their council house policy. The manifesto states that the Labour party wouldEnd enforced council house sales, empower public landlords to repurchase homes sold under the Tories on first resale and provide that future voluntary agreed sales will be at market value.That policy was clearly unpopular with the electorate at the general election, and I understand why there was such uproar when that policy was quoted today.
To make a fair and unbiased judgment of the Budget, it is necessary to understand the constraints that severely restricted the Chancellor's ability to produce an exciting, innovative and tax-reducing Budget. Those constraints were the strength of the dollar and the weakness of oil prices, which had a considerable effect on currency markets; the cost of the miners' strike, which admittedly went on longer than expected; and the continued failure of the Chancellor's colleagues in some of the major spending Departments, especially the Department of 919 Health and Social Security, to keep control of public spending. The board and lodging allowance, for example, cost £62 million in 1979, has escalated out of control, and this year will cost £570 million.
I drew the attention of the House to many of these matters during the public expenditure debate, and I shall not repeat the arguments now. However, I shall comment on one aspect of public expenditure, which was dealt with in the Budget and the Red Book—that is, the increase in the contingency reserve of £2 billion for each of the next three years.
I accept that by doing that the Chancellor is being realistic and has accepted the recommendations of the Treasury and Civil Service Select Committee. However, the Government have yet again abandoned their public expenditure policy. We all know that we were elected to reduce public expenditure and that that policy was abandoned some time ago. Then the Government substituted the objective of keeping public expenditure broadly level in real terms. It is clear that once again the Treasury has had to submit to pressure and realism, and the planning total in real terms will be £1.2 billion more in 1986–87 than it was in 1983–84. In that year public spending will take no less than 40.5 per cent. of the gross domestic product. That compares with 39.5 per cent. when the Government came to power. In seven years, far from cutting expenditure, expenditure has risen in real terms as a percentage of GDP. I therefore find it strange that there is so much criticism of the so-called cutting of expenditure. It is an unsatisfactory record for a party committed to cutting spending.
I know that my right hon. Friends will maintain that there is only an increase in the contingency reserve and that it will not necessarily be spent. If one studies the Government's record in relation to the contingency reserve one sees that it is extremely likely that once a sum is in the planning total it will be gobbled up by the avaricious spending Departments.
As one who accepted and accepts the constraints facing my right hon. Friend in the Budget, it was clear that there would not be many resources available for dramatic tax reductions. As with most hon. Members, especially as the representative of a constituency in the north of England which has considerable unemployment, my first criterion was for the Budget to create jobs. To achieve that, it was essential for my right hon. Friend to reassure the markets that the Government had not weakened in their commitment to continue the battle against inflation. If that could be done, conditions would then be created for early reductions in interest rates which are at an unacceptably high level and do more than anything to prevent an expansion in the economy, an increase in investment and the creation of jobs.
By taking a tough line, by bringing the PSBR back to the planned level of £7 billion, by keeping monetary targets tight and by putting an extra £2 billion into the contingency reserve, the Budget has increased the confidence of the market. We have already seen interest rates come down by half a point today.
I say to my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym), who is no longer in the Chamber, that it is all very well to advocate increasing public borrowing year on year, but it all has to be paid back. If one studies the way that interest charges 920 are escalating in the national accounts one sees that by 1987–88 interest will cost as much as defence and far more than education.
One of the problems that has been in the forefront of the minds of many Conservative Members and many people outside the House, is the employment trap whereby workers in low-paid jobs are often little better off than they would be if they stopped work and went on social security. In some extreme cases they are even worse off being in work. It is surely ridiculous that unemployed people cannot afford to take available jobs. It is clearly wrong that a man working should be little or no better off than if he is not working. That problem could be reduced by raising tax thresholds — [Interruption.] If the hon. Gentleman does not think that there is a problem he should go back to the people in his constituency.
The problem can be solved only by dealing with benefits and restricting increases. Even if my right hon. Friend had used all the available resources this year to raise thresholds he would have made only a minor impact on the problem. However, my right hon. Friend did far more than expected by his imaginative proposals for restructuring national insurance contributions, on which I congratulate him most heartily. A married man earning £80 a week is now £3.33 a week better off. That is an excellent start, but we now look to my right hon. Friend the Secretary of State for Social Services to close the employment trap further when he reviews benefits.
§ Mr. Nellist
The hon. Gentleman talks about cutting benefits to create a wider gap between those who rely on supplementary benefit and those who go to work. Will he tell the House how many salaries he draws?
§ Mr. Townend
Such personal attacks do the House no good. If the hon. Gentleman is so interested he can look in the Register of Members' Interests. It has always been accepted in the House that it is not in the best interests of Parliament or the people for Members of Parliament to be full-time politicians with no other interests. People with other interests—many Opposition Members have other interests—bring their business experience to the House. I am not ashamed of being the third generation to run a family business giving jobs to more than 100 people.
The restructuring of employers' national insurance contributions will encourage them to take on unskilled workers at the bottom end of the labour market, and it will partially reduce the advantage that part-time workers have enjoyed in the past. It will create new low-paid jobs. It surprises me that Opposition Members seem to think that it is better for people to be unemployed than to be in low-paid jobs. That is an insult to the unemployed. One of the problems is that many of the people who regrettably are on the unemployment list are unskilled. There are vacancies for skilled people in many areas. The demand is for the creation of unskilled jobs which, by their nature, tend to be low-paid.
§ Mr. Robert N. Wareing (Liverpool, West Derby)
If we need so many skills in this country, how does the hon. Gentleman justify the Government's closure of 29 skillcentres?
§ Mr. Townend
Many of them were not being used to the full, and that is why they were closed. The Government have put billions of pounds into the youth training scheme.
921 The restructuring of national insurance contributions will benefit those employers who employ unskilled and lower paid workers. That is of great benefit to the north where pay levels are lower compared with the south and the City. The people in the north are not on £30,000, £40,000, £50,000 and £60,000 a year as they are in the City. I strongly support the other measures in the Budget designed to encourage employment—in particular, the additional 100,000 places on the community programme. I support the expansion of the YTS. In those places where there are vacancies on the YTS, I see no reason why social security benefits should not be withdrawn from school leavers who refuse to take part in such schemes.
The removal of social security benefits will remove the option of idleness. No one should encourage youngsters to turn down a training opportunity so that they may lie in bed all day or roam around the streets. That does those young people a disservice. I do not know whether Opposition Members are aware of the facts of life. If a youngster leaves school and goes onto social security benefit and remains there for 18 months or more he becomes unemployable. We do a great disservice to those youngsters. I have four children. If my children could not obtain a job, I should prefer them to be on a YTS scheme. I should welcome the Government removing their social security benefit to encourage them to go on the scheme.
§ Mr. Wareing
Does the hon. Gentleman agree with the DHSS which at present withdraws benefit from school leavers who go on to take academic courses at colleges of further education? That is what happens now.
§ Mr. Townend
Yes. The right way to deal with that is with educational grants. On the hon. Member's argument everyone who is on an advanced course or at university should be on social security for the whole time. That is nonsense.
I was disappointed that my right hon. Friend announced that a consultative document was to be issued on wages councils, especially after what he had said:Wages councils destroy jobs by making it illegal for employers to offer work at wages they can afford and the unemployed are prepared to accept."— [Official Report, 19 March 1985; Vol. 75, c. 794.]If that is so—and I agree with the Chancellor—surely we should get rid of the councils straight away and not procrastinate with a consultative document. If my right hon. and hon. Friends in the Department of Employment believe in a free market and in people having the right to price themselves back into work, the councils should be abolished. It would be no good tinkering with them, as some hon. Members have suggested, so that they excluded young people under the age of 18. If young people have the right to price themselves back into work, so have older people. The Opposition have put forward a good case for abolishing wages councils. I think it was the Leader of the Opposition who said that 40 per cent. of workers covered by wages council regulations were getting below their entitlement. If the system is not working, it might as well be abolished.
I welcome the help that is to be given yet again to small businesses. I hope that small businesses and the self-employed realise that year after year, in Budget after Budget, this Government are bringing forward more and more measures to encourage that vital part of our economy that will produce, and is producing, a considerable proportion of the new jobs that we need. I welcome 922 particularly the VAT relief on bad debts. That will be particularly helpful for small businesses. I welcome, too, the fact that owners of small businesses will be able to retire at 60 and get the capital gains tax benefit. That will encourage the promotion of younger managers. I welcome the reduction of class 2 national insurance contributions and the tax relief on class 4 profit related contributions which has been a running sore with the self-employed for a long time.
My right hon. Friend was constrained, but he has continued his policy of tax reform by abolishing the development land tax. I am surprised that the Opposition should object to that, because the abolition of that tax should do more than anything to stimulate development and to create new jobs in the construction industry.
When we have regard to the constraints that were facing him, we realise that the Chancellor has produced an imaginative Budget which has reassured the markets and provided a basis for lower interest rates. I am disappointed that the banks did not bring their rates down by one point today. The Budget will encourage the employment of more people and will significantly reduce the employment trap. At the end of the day it must be made clear again and again that it is not the Government who produce jobs, but industry, management and workers who combine to produce the right goods that customers both here and abroad want at the right price and the right time.
People talk about lack of demand. They have only got to go on to the high streets and the main roads and they will see the number of cars from abroad, the amount of white goods pouring in from Japan and other Asian countries and the increase in imports from the EC. That shows that the demand is there. Given the right atmosphere, which the Government are continually trying to create, if British industry seizes the opportunities and if there is co-operation between management and men we can win back those markets and create the jobs that are so necessary.
On reflection in a couple of years' time the Budget will be seen in a similar vein to the 1981 Budget which gave a firm economic base for recovery. This Budget will also give a base for a third Conservative general election victory.
§ Mr. Andrew F. Bennett (Denton and Reddish)
I never cease to wonder at the effrontery of hon. Members like the hon. Member for Bridlington (Mr. Townend) who coyly refuses to tell us how much he is earning from the two jobs that he is so proud of, whether it is up to £100,000 or whatever. He does not tell us how much he earns but it must be very close to £100,000.
§ Mr. Bennett
Until the hon. Member is prepared to tell us, we can only conclude either that he does not want to tell the tax man what he is earning or that he has a guilty conscience about it.
§ Mr. Bennett
If the hon. Gentleman is so keen to lecture people on low pay, he has a duty to tell us how much he earns. He also has a duty to examine the problems in his own constituency. I suggest that the depressed state 923 of much of Bridlington is a result of low pay, because many people in the catering industry suffer from extremely low pay. There will be a fair number in his constituency who are breaking the existing wages regulations. He should also be aware that many people cannot afford to go to holiday resorts like Bridlington because of the implications of low pay. If he is concerned about board and lodging allowances, the best thing that can be done about that is to provide people with homes of their own so that they do not have to claim board and lodging allowances. The hon. Gentleman should think carefully about the implications of his speech for his constituents. Low pay is no good for the majority of people in the country and certainly no good for his constituency.
Yesterday the Chancellor was almost strutting before us, like a rooster, proudly proclaiming his anti-inflation and pro-jobs Budget. Today his Budget seems less attractive and more like a feather duster, perhaps moving a little dust from here to there. When the majority of my constituents have had a chance to examine the Budget, they will think that it has as little relevance as feathers floating in the wind. They will not be impressed by the Chancellor's proposals to fight inflation. The £2 gallon of petrol will not go down well with them. The Chancellor claims that his tax changes will put only 0.5 per cent. on the retail price index but that will be an excuse for other people to add a little here and a little there. It will soon mount up to substantial increases.
The people will be faced not just with the increases in the price of petrol and in other duties. Added to those are all the other increases that the Government have imposed during the past fortnight. The latest was the increase in prescription charges. Then there is the extra amount that people will have to pay for mortgages. I think that since Christmas the average mortgage has increased by about £7 per month, and there is the prospect of a further increase this week. There is also Government pressure on local authorities to put up rates. They have also twisted the arm of water authorities to put up water rates. They have put pressure on the gas and electricity boards to increase their charges even though the boards do not want to do so.
When my constituents add up all these increases they do not believe that the Budget is anti-inflationary. They fear that it is very much a move in the opposite direction. They are also looking with alarm at the proposal to increase the television licence fee, which will hit most of them, particularly those on low incomes.
The Budget offers nothing at all to the increasing number of my constituents who face long-term unemployment. They will find the extra costs that I have just listed increasingly hard to bear. I had hoped that the Chancellor would have done something positive for the long-term unemployed. The first thing he could have done was to allow those who are stuck on short-term supplementary benefit to go on to the long-term rate. It is crazy that someone who has been on supplementary benefit for over 12 months should still be on the short-term rate that is designed to tide people over from one week to the next and which makes no allowance for the need to replace major household items.
There should have been a far greater effort to help people generally who are on benefit. I do not think the Government have any idea of what it is like to live on benefits. I should like to give some examples from my 924 advice bureau. A pensioner couple described to me last Friday night how they have got into a routine of walking almost a mile and a half down from Brinnington, one of the estates in my constituency, into Stockport town centre, where they walk round the shops, not to buy anything but so that they can keep warm during the morning. When they have spent some time in the warm shops they walk back home. They do that so that they do not have to light the fire until the afternoon. They are trying to avoid heavy heating bills.
Another gentleman from Haughton Green came to my advice centre at the weekend. He talked about having an income of £41.75 and about the problems of paying for heating during the coldest spells of the winter. Because he is in a badly maintained council house with high heating costs he found that almost half his weekly expenditure for two weeks went on heating. He had to make a choice between whether to keep himself warm or to have sufficient to eat. Most of his household items involved small amounts of money, yet this constituent gave me a long list of things he could not afford on long-term unemployment benefit.
§ Mrs. Edwina Currie (Derbyshire, South)
I do not wish to decry anything that the hon. Gentleman has said, but I came across a case at my advice bureau recently of a married gentleman with two children and a mortgage who on supplementary benefit was entitled to £181 a week. That was the sum that I got him.
§ Mr. Bennett
I certainly accept that some people get substantial sums, especially if they have been enticed into taking out an expensive mortgage, perhaps by the Government's enthusiasm. I suspect that a large slice of the sum that the hon. Lady mentioned will be for mortgage interest. However, the hon. Lady does not live in the real world if she thinks that the majority of people on benefit are entitled to such sums. Perhaps the hon. Lady would care to tell someone with an income of £41.75 how he can accumulate sufficient money to buy a washing machine or a fridge—
§ Mr. Bennett
That person can just about buy his food but cannot afford margarine or butter. Anyone looking down the list of items that he presented to me will appreciate the considerable difficulty he faces. Similarly, anyone living in the real world will know the acute hardship that is caused for someone living on benefit. For example, such people are often forced to place a piece of wood or a board underneath the settee once the springs go because they cannot afford to have it repaired.
Many of my constituents are suffering on benefit, yet the Chancellor did not offer them any prospect of help. Presumably, in this year's social security uprating, such people will get just enough to keep up with inflation—if they are lucky—rather than enough to ensure that they can enjoy some of the luxuries and benefits that the vast majority of people in work enjoy.
§ Mr. Christopher Hawkins
It does no good to argue that on the one hand some people on benefit get £180 a week, which is probably too much, and on the other that some get only £41 a week. The real problem with the social security system is that some people get that far too little, while some get far too much. That is why the entire 925 system needs to be reviewed. I agree with the hon. Gentleman that heating is a serious problem. In my own constituency, there are houses that cost around £20 a week to heat. Would not it be sensible to have a winter rate and a summer rate for old age pensioners and those on social security—
§ Mr. Deputy Speaker (Mr. Ernest Armstrong)
Order. The hon. Gentleman's intervention is turning into a speech.
§ Mr. Bennett
I do not accept the hon. Gentleman's argument. For many of my constituents, and I am sure many of the hon. Gentleman's, greater help could be provided if they were given money to spend on insulation, thereby making their properties much cheaper to heat.
The Chancellor's great claim was that he would increase job opportunities by introducing the new national insurance contribution system. However, I doubt whether he has looked at the practicalities of such a system, because it adds to the poverty trap by imposing a wages trap. It will be extremely difficult for those of my constituents who work in jobs such as shirt making to decide the point at which they should stop producing another item so that they do not cross the threshold and end up worse off. If that is difficult for the individual, it will be a bureaucratic nightmare for the employer. The civil servants who advised the Chancellor to dream up this scheme clearly do not appreciate the problems of people on low pay, particularly those who work in the clothing industry, who are employed on piece rates. It will be exceedingly difficult for such a worker to ensure that he or she does not cross a series of thresholds.
Difficulties will also be created when people on low pay are offered small amounts of overtime. They may well have to say, "We would like the money, but if we do half an hour's extra work we could end up worse off as a result." The Government must look at this carefully. They should consider allowing people to average their income over several weeks. That would help such workers avoid the possibility of going over the threshold one week and falling below it the next. That element suggests that this is much more a Budget for low pay rather than a Budget for jobs.
My constituency also needs a reversal of the Government's decision to close Denton skillcentre. That is absolutely criminal, especially as many of my constituents want the opportunity to obtain additional skills. Not only are the Government closing the skillcentre, they are also making the rehabilitation centre unviable. They have now told me that they are trying to find a new site for it, with all the disruption that that will mean. That is extremely unfortunate.
The Government can create many jobs in my constituency by quickly building the M63 from Brinnington to Denton. That would create many jobs in the construction industry and enhance the opportunities for Tameside to attract industry to the area. Similarly, many jobs could be created and the prosperity of the area enhanced if the Government put up the money for the rail link to Manchester airport.
Many of my constituents would dearly love decent council housing, and it is criminal that Stockport and Tameside do not have the resources to build new houses in significant numbers because of the Government's policy. Here again, that would create jobs and relieve much of the hardship caused to the individuals.
926 The same is true of housing repairs. Houses in the Brinnington, Betley road and Somers road estates are crying out for council renovation. Similar problems are to be found in Tameside. It is totally criminal that the Government refuse to allow unemployed building workers to improve such property.
There is also a desperate need for home improvement grants, yet the Government's policy means that no money is available and as a result many people are kept out of work. Many other jobs could be created if the local authorities had enough money to spend on road surfacing.
One of the nursery schools in my constituency is the Popular street nursery school. It is attached to the Popular school, and I was wondering whether the Chairman of Ways and Means would be in the chair, as that was the school he attended. He must have kicked a football around the playground, but there is now a nursery unit with special provision for handicapped children. In spite of persistent efforts to get the Tameside and Glossop area health authority to provide the necessary physiotherapy, we are continually told that because of economic and Government manpower restraints, it is unable to employ sufficient physiotherapists for that nursery.
These are all examples of the way in which the Government could improve the welfare of my constituents while at the same time providing jobs. We have heard about the review of the income tax system. I welcome that. However, what will happen to rates and local income tax? Do the Government intend moving towards a local income tax system? If not, what do they intend to do about rates? The review of rateable values has been deferred again and again. The excuse was that the Government would come forward with a solution to the rating problem. If they do not do so, the argument is that there should be a revaluation and that it should be determined on market value rather than rented value. I hope that the Government will say whether their reform of the taxation system will go towards the local income tax option.
We are grateful that VAT has not been imposed on newspapers, but we are worried about the implications of VAT on advertising for local papers, and in particular about the VAT that will go on advertising by many local organisations holding jumble sales and other such things telling people about their activities. The imposition of VAT will have a disturbing effect on organisations that are already struggling to make ends meet.
The Chancellor claimed that his Budget is anti-inflation and pro-jobs. However, it may turn out to be pro-inflation and anti-jobs. The only claim that can be made for it in the long term is that it is pro-low pay. My constituents are fed up with the Chancellor and would like him to go quickly. More important, they want a change of Government as well.
§ Mr. Douglas Hogg (Grantham)
The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) outlined the Labour party's spending policy when opening the debate. He clearly had in mind a considerable sum. He began by calling for expenditure on public investment of £3.5 billion. He then said that he wanted to promote a massive policy of poverty relief. Here, he was talking about an extension in child benefits and a substantial increase in the old-age pension. He put a value on that of £2.75 billion. As the House will appreciate, these figures are but part of the Labour party's spending programme.
927 There is never a debate in which the Labour party does not call for a reduction in user charges, an increase in subsidies or a massive expenditure on some programme or another.
The sums that the Labour party's policy contemplates being spent are great. I hope that, when she winds up, the hon. Member for Thurrock (Dr. McDonald) will tell us how the Labour party's policy will be financed. I intervened in the speech of the right hon. Member for Sparkbrook and asked him to be specific about this. He did not clear up the point, or even try to. He said that he believed that the spending programme could be met by taking away the tax privileges that had been conferred since 1979. He equivocated about that as well, because he said that he did not want to go back to the penal tax rates for which he was responsible when he was in office.
How real and sensible is the Labour party's approach? The amount of money that it is contemplating spending cannot be met from such sources of income. The Labour party could increase the PSBR by £3 billion or so. I would contemplate that, as I am not too dogmatic on that issue, but that would be only a small part of the whole. Even if one were to take the total value of tax concessions made since 1979 to the higher rate taxpayers, in the first year of full operation that would produce only £3,000 million. If one did away with tax relief for higher rate taxpayers on mortgage interest, that would produce only £150 million.
The significance of this is that if the Labour party wants to spend such sums, only part of which have been disclosed to us tonight, it has substantially to increase the burden of direct taxation on the ordinary taxpayers. That is the conclusion that the House must see and the country must learn.
§ Mr. Gerald Malone (Aberdeen, South)
I may be able to help my hon. Friend with this sum by reminding him of another policy recently announced by the Labour party. That is the policy of controlling the depletion of North sea oil, so a Labour Government would lose revenue there as well. I agree with my hon. Friend that that, too, would have to go on direct taxation.
§ Mr. Hogg
I am obliged to my hon. Friend. He makes an extremely valuable point, which adds further weight to what we are saying. In the Labour party's policy, although it is not fully disclosed, is the determination to impose on the ordinary taxpayer a heavier burden than that which is contemplated by this Government.
§ Mr. Hogg
The hon. Gentleman may say, "Not so," but the Labour party cannot count. Those of us who have looked at this problem and sought to balance expenditure against borrowing and revenue see that there is a massive shortfall, and that the Labour party must increase direct taxation. The Labour party will have to attack either pension contributions or the mortgage interest relief if it is to raise anything like the amounts that it wants to raise.
§ Mr. Gerald Bermingham (St. Helens, South)
Does this not all depend on what one spends the money on? If one spends it on senseless things such as armaments and unnecessary things such as Trident, more money will have to be raised for secondary programmes. It also depends on what investment is put into the country. If one allows £30 928 billion to flow out of the country, that is £30 billion less invested in the country, which could generate more income and in turn more revenue.
§ Mr. Hogg
The hon. Gentleman is not facing up to the problem. It is possible to redeploy expenditure between programmes, and one can make a policy decision between one policy and another and one programme and another. However, such savings are small in the context of the expenditure being called for. There is some force in what the hon. Gentleman says about investment, but the lag time is so much that finance has to be put up front, and that means either heavier taxation of the kind that I have suggested, or a borrowing policy that is wildly in excess of what the country can afford.
Like my right hon. Friend the Chancellor, I feel that he was operating within constraints. Broadly speaking, those constraints are inevitable. I do not see how he could substantially increase the PSBR. It could be marginally higher than the £7 billion that he has in mind, but at the most we are talking about an increase of £3 billion. At the same time, it was essential that he should reassure international markets that the Government's prime object was to defeat inflation. Therefore, he was constrained by factors that he had to take into account. However, within those constraints he has achieved effective targeting of the resources that it is within his ability to dispose of. That is a considerable achievement.
When my right hon. Friend the Chancellor comes to review the success of his policy in two or three years, I think that he will conclude that one of his most important measures has been the expansion of the youth training scheme. The Government are entitled to considerable credit for what has been done. To give 16-year-olds a two-year training scheme is an important policy. However, although it is right that employers should carry the major part of the increased cost, it is also right that the Treasury should recognise that the public interest is being served by this policy. That being so, we should not be too niggardly with the Government contributions towards the increased costs. If the Treasury is too frugal at this stage, the scheme may not live up to our expectations.
When one has a two-year scheme, one is giving employers and employees the opportunity to develop a training scheme that has the advantage of providing training in up-to-date technologies, the kind of technologies that will survive through the 21st century, when those going into the scheme will be at their most productive.
It is important that the Government should seek to encourage employers to provide training in precisely those areas that are likely to have a viable long-term future. Some fiscal encouragement should perhaps be given to promote that end, such as giving zero-rated VAT status to machinery or computers that are installed primarily in order to provide training within the YTS.
Before turning briefly to taxation, I shall make three specific points. The first concerns stamp duty. It is a great pity that we did not take the opportunity to abolish the stamp duty on property transfers. That would have been an encouragement to the construction industry that would be worth giving. Secondly, I recognise that we have raised the bands for capital transfer tax by the statutory amount, but I hope that the Government do not suppose that they have done all that their supporters want them to do during the lifetime of this Parliament. They have not.
929 Thirdly, my hon. Friend the Minister will appreciate that in the 1984 Budget marked changes were made to capital allowances. That was all right for the corporate traders, because they benefited from the reduced corporation tax, but it was not so all right for the non-corporate traders. I think particularly of farmers, as there are many non-corporate farmers. They were badly hit by the reduction in the value of the capital allowance introduced in the 1984 Budget. The Government must see what can be done to provide more parity in the matter of capital allowances between non-corporate traders and corporate traders in agriculture. I have made some suggestions in writing about capital allowances, and I should be grateful if my hon. Friend the Minister would look at them.
I have two points to make about taxation. First, I warmly welcome the decision of my right hon. Friend the Chancellor of the Exchequer to mount a full inquiry into taxation, and particularly the personal tax relief system. I am glad that it will be preceded by a Green Paper. Indeed, all tax changes of magnitude should be preceded by one. It is not right to introduce them in a Budget without prior consultation. I particularly welcome the proposal that husbands and wives should have separate tax allowances, capable of being transferred to the other partner if the allowance is not fully used up. That is a valuable step forward. Thus, I heartily welcome my right hon. Friend's decision to examine tax allowances and the income tax system generally.
My second point concerns national insurance contributions. I said earlier that I thought that, when my right hon. Friend the Chancellor came to consider his period in office, he would perhaps value most highly the expansion of the youth training scheme. But the other thing that he will feel very satisfied about concerns the changes that he has made to the national insurance contribution system. There have been two changes: the reduction in the cost of employing persons at the bottom end of the pay scale, and, perhaps just as importantly, the reduction in the total deductions from pay that are now made for workers at the lower end of the wage scale.
Two very important consequences flow from that. First, I am certain that the changes and reductions will encourage employers to take on more staff than they would otherwise do. Secondly, if we reduce the net cost of being in work at the bottom of the pay scale, it will do something positive to alleviate the poverty trap.
My right hon. Friend the Chancellor of the Exchequer said, when introducing these measures, that he regretted that he did not have more resources to devote to the reduction in the national insurance contributions borne by employers and employees. I echo that. I very much hope that in the 1986 Budget he will place even more emphasis on national insurance contributions, and that he will do more to reduce the cost of national insurance contributions to employers and to the lower paid employees.
This was a modest Budget, but it can be fully supported, and I very much hope that the House will do so.
§ Mr. Austin Mitchell (Great Grimsby)
The reaction of Conservative Members has been very interesting. Most of them have stayed away in embarrassment, but those who have spoken have said very little about the Budget.
930 We had a sort of economic diatribe from the hon. Member for Grantham (Mr. Hogg), who displayed an economic eccentricity that is almost certainly inherited. His sole recourse was not to defend the Budget but to attack the Labour party and thoroughly to misrepresent it. My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) made it quite clear that the money for our proposals would be raised by increasing the PSBR, so that it remains a constant proportion of gross domestic product. Indeed, Gavin Davies has made it plain that the PSBR could be doubled to about £16 billion without causing any inflationary monetisation.
Thus, we would increase the PSBR and we would take back the tax concessions given to the wealthy—that small proportion who have benefited so disproportionately under this Government. That is all. That would raise the money for our programme, which has been carefully announced and costed. Yet the hon. Member for Grantham tars that programme with all sorts of false smears and accusations.
That is one way of defending the Budget. The other way of defending the Budget involves the obscene spectacle of the well-heeled, like the hon. Member for Bridlington (Mr. Townend), demanding cuts in low pay sustained by cuts in benefits, so that low pay and benefits can pursue each other down pari passu. That is their only answer to the economic difficulties that their Government have created. To demand sacrifices of others when they have loyally supported policies which have destroyed jobs and generated such poverty is obscene in today's politics.
That is my reaction to the defence put up by Conservative Members. But my reaction to the Budget was, sadly, to feel rather sorry for the Chancellor of the Exchequer. I know that it is difficult to feel sorry for someone who is so cocksure of his own abilities but he has had to put up with a succession of editorials, and comments in the newspapers and from his own Back Benchers, praising the Budget with faint damns. He has also had to put up with the very unfair situation that he was sprung into by the Prime Minister.
Until January, the Chancellor was running a more accommodating policy than he was prepared to admit. It was the sort of accommodating policy that he wanted to pretend had fallen off the back of a lorry, but he was really expanding the money supply without it showing in the M3 figures by gobbling up commercial bills, which was of some benefit to industry. He was letting the exchange rate fall slowly and was not trying to deter that process. He was tiptoeing away from monetarism, and was trying to smuggle in improvement past mummy like a naughty boy who has brought in some sweets.
Suddenly the whole situation degenerated and collapsed on him in January, because the Prime Minister intervened to stop the pound falling. She interprets the exchange rate as some sort of phallic symbol. Any threat to the exchange rate is a threat to the national virility. The Prime Minister therefore intervened in a way that the Chancellor of the Exchequer had not been doing. Her signals to the markets so complicated the situation that we had the fiasco of January when everything was thrown into confusion. The Tory party in a crisis, particularly under this Government, reverts to orthodoxy. The Chancellor of the Exchequer was put back on a short lead, and has been on it ever since, as the Budget demonstates.
It was rather sad, because the career of the great tax reformer and the great economic reformer, that had begun 931 with such a bang, ended with a whimper at the whim of the bankers. He is now back to piggy-banking economics and budgets. This is a Budget of know nothing and do nothing, particularly for the poor and for those in the poverty trap. Since 1979, the number of those in the poverty trap has increased threefold to a present total of a quarter of a million families. The Budget will take 5,000 of those families out of the poverty trap—and that is all. It does nothing for the old or for the unemployed. Whatever the poor and the less well-off will gain through tax cuts will be taken back through increased prescription charges, increased excise duties and increased charges for water, electricity and gas. Any measly sum that they may be given with one hand is immediately taken back with the other.
Above all, nothing is done for the social and economic problems that beset our country, and, to my mind, perhaps the paramount accusation is that nothing is done for Grimsby and its people.
Yesterday we saw the pathetic spectacle of a Chancellor chained to the Prime Minister's outdated orthodoxies, miserably peddling his pathetic wares and trying to pass the blame for the Budget on to Arthur Scargill, as if it were Arthur's Budget rather than Nigel's.
The mountains—that is not a physical description of the Chancellor though he may accept it if he wishes—have laboured and have produced a ridiculous mouse. This is not a Budget — it is a bludge-it, a fudge-it, a perpetual financial fidget. It is only a confirmation of the strategy of preceding years—that of moving furniture on the deck of the Titanic and pretending that one is doing something to prevent the ship from sinking. And most of the furniture has been taken from the steerage passengers to improve the conditions of the first-class passengers.
No other Government since the war have enjoyed, like this Government, the great opportunity of North sea oil. That was an opportunity to expand and to put aside the balance of payments constraints that have shackled every other attempted expansion. The Government have thrown away that huge overdraft facility. They have done what a small-minded man would do. This is not a Budget for the small man—it is a Budget for the small-minded. The Government have simply moved the furniture, and they have moved it between the rich and the poor.
The effect of this Budget and this Government's preceding Budgets has been to cheese-pare the benefits to which people would have been entitled had the rules existing under the Labour Government been maintained. About £1 billion that should have gone to beneficiaries under those rules has been held back, while at the same time £3 billion a year has been given to a very small percentage of the population—primarily to those earning over £20,000 a year and, most of all, to the top 5 per cent. of the population. In this and the preceding Budgets, £3,000 million a year has been handed out to such people. That is an obscenity.
It is especially obscene to hand out benefits to those paying capital gains tax and capital transfer tax and then to talk about abolishing the wages councils that protect the earnings of the less well paid. The Government have a responsibility not to indulge in such grabbing, but they believe that the rich are not working hard enough because they do not get enough money, while the poor are not working hard enough because they have too much money.
932 That is the simple belief that motivates the Government. Such economics is obscene at a time when the Government have a responsibility to expand the economy and to improve the welfare of all—not to take from the poor to give to the rich.
The Government have used the effect of North sea oil on the balance of payments to finance imports and destroy jobs, and they have used the tax revenues to support the unemployment generated by that process. They have used North sea oil to destroy industry. Profits are now rising. Of course they are—any firm that could survive the squeeze from 1979 to 1981 must now be doing well—but we have lost an enormous amount of capacity in the process.
Industry is not emerging fitter, leaner and healthier. Despite all the cries from the Government Benches about rising investment, manufacturing investment, which is crucial to survival and jobs, has been running in the past five years at only 75 per cent. of the previous five years. Investment is falling, unit labour costs are rising, and the gains in productivity of which the Government boast are illusory. On the Government's reasoning, one could improve the batting average of a cricket team by shooting the last three batsmen. And even that benefit has petered out over the past year. We have shown less improvement than our competitors.
What formula is that for industrial and manufacturing success? What has the agony of the past five or six years been about? All that unemployment, all that discipline, all those constraints on industry and all those high interest rates have achieved only the preface to an even bigger failure in years to come.
The Government have concentrated on juggling. They have juggled between the public and the private sectors. They have taken wasteful resources from the private sector — the people whom their policies have taken out of work—and put them in the public sector by giving them unemployment benefit and supplementary benefit. Meanwhile, the Government have taken productive assets from the public sector and flogged them to their friends in the private sector. It has been a bankrupt's progress—an attempt to keep going.
The result of those policies has been economic disaster. In the five years to 1984, we lost 1.7 million jobs in manufacturing industry. That is 22 per cent. of manufacturing jobs. The rate of loss was greater than in any other advanced industrial country. Other countries are still prospering by dint of doing what we have destroyed our capacity to do. Japan makes hi-fi equipment, West Germany makes cars and Italy makes white goods.
Where will the jobs come from if we do not rebuild manufacturing industry? It is all very well to talk about new jobs in the new industries, but that development requires a climate of buoyancy, growth and the expectation of profit. Profit demands the expectation that things will improve. Under the present Government, there is no possibility that things will get better. The Government mean to carry on with discipline. Discipline is the enemy of investment because it is the enemy of the kind of profit and expansion that we need if there is to be investment.
These policies will never pay. The only new development that we are seeing takes the form of a few Japanese cast-offs. The outdated technology of Japan is being sent here for small-scale production units to supply the British market. Such are the developments for which 933 the Prime Minister goes grovelling round the world. She is pathetically, gibberingly grateful for droppings from the table of Japan.
What should the Chancellor have done? He should have stimulated economic development by spending on the infrastructure. Infrastructure is a fashionable word. Five years ago, we would not have known what the infrastructure was. Well, perhaps I might have known what my own infrastructure was. But the word is now so fashionable that even the daring revolutionaries of the CBI have got up off their knees to demand spending on the infrastructure.
This country is characterised by a creaking and disintegrating infrastructure. It is like the out-of-date theatre in which Laurence Olivier played in "The Entertainer": "Don't clap too loud — this is an old theatre." The stage is now set for the Widow Twankey and her team. The audience in the stalls is very well-heeled, but there are murmurings from the poor and badly-dressed people in the gods, the foundations are creaking and groaning, and there is a rising smell from the sewers.
The Government must spend money on the infrastructure in order to stimulate economic expansion. In the building trade, 400,000 people are out of work. By borrowing, and putting those people back to work, we would stimulate the economy. The Government will not do that because they do not like the public sector. It would have to be done by government, and government is their enemy. To this Government, the public sector is either a mulch cow—they take the money from electricity and gas—or, if it is profitable, it is something to be flogged off. The public sector must be used to stimulate investment in the infrastructure and so to stimulate the economy.
The second thing that the Chancellor should have done is to compensate people for poverty. The victims of Thatcherism demand compensation, and they should get it. I would have increased child benefit to £16 or £17 a week, and I would have taxed it. That would have been fair. To increase the benefit massively and to tax it would have been the most effective way of alleviating poverty directly. That measure would have gone to the core of the problem. As has been said, those who have been out of work for one year or more should, as a matter of social justice, get the long-term rate of supplementary benefit. It would cost only £500 million in a full year and make a difference of £12 a week for a couple. It is their due. It is social justice that they receive that rate from a Government who have created long-term unemployment, which is now three times its level of the 1930s. Indeed, even short-term unemployment is higher now than it was in the 1930s.
The Government should have stimulated jobs not by fiddling with the national insurance contribution, as they have, but by giving new jobs a national insurance holiday and by raising the limit, which comes in far too abruptly at £35.50, to £50. I should like the national insurance contribution to be transmuted into a simple social security tax. It is a form of income tax, after all. There is no reason why it should come in at £35.50. If the Government want to help the low paid, especially part-time workers, they should put national insurance contributions on income tax and make them what they effectively are — a social security tax. That worked well in New Zealand.
I would subsidise new jobs. It would cost about £4,000 a year to subsidise a new job. The cost of keeping people 934 unemployed in benefits paid and tax revenue lost is £6,000 a year. It is economic sense to subsidise firms that create new jobs.
The Chancellor should have paid attention to getting interest rates down. We are told that that has been the object of Government policy for six years. After six years of travail, difficulty and record interest rates, interest rates are at their highest real level since 1922. That is some achievement. All that to get interest rates to their highest real level since 1922. They are a drag on the whole economy. Indeed, the economy is being crucified by them. With interest rates, the free market will not work. It gives the banks too much power. Every time that there is a threat to the pound—there have been four in the past few years—the banks come in a Gadarene rush to push up interest rates, usually led by Barclays. To give the banks so much power over interest rates is to put the ivory poachers in charge of an African game park. The free market lets them push up interest rates, and they benefit by doing so. The Chancellor should take control of interest rates and, if necessary, expand the money supply to hold interest rates down and to get the pound down still more.
Although the pound is now undervalued against the dollar, it is overvalued against the deutschmark. Everyone chooses to forget that in 1976 we promised the International Monetary Fund that we would maintain the competitive position of British manufactures at home and abroad. Since then, the pound has been allowed to increase in real terms, because of our higher rate of inflation, by 40 per cent. against the deutschmark. That is why we have a deficit of £5 billion with West Germany in manufactured trade. That is why they are destroying jobs in the west midlands. It is crucial to get interest rates down and to remove that disparity.
The key to the Budget's failure is its failure to deal with the public sector borrowing requirement. We need deficit financing on the scale that the American Government have gone in for to stimulate the economy. I am going further than the Opposition Front Bench. I must point that out to the hon. Member for Grantham or he will wilfully misinterpret everything that Labour Members say. If purchasing power is deficient, and there is therefore a deficiency of demand, the only way in which to compensate is to increase demand and spend money. Demand is deficient because we have 4 million people out of work. It is no use telling us that there is a demand there for Japanese cars.
Bearing in mind the stage in the economic cycle and allowing for expenditure on unemployment, we are not in deficit but in surplus—to the tune of 2 per cent. of gross national product, according to OECD figures. Not many other countries are in surplus, and those that are are usually doing almost as badly as us. However, we are doing worse than most because our surplus is bigger. The United States, Japan and Italy are in substantial deficit. do not give me this nonsense about Keynesian expansion. The United States is doing what we should be doing — running a deficit and stimulating the economy by it.
The Chancellor talks to us of recovery from the depths of the depression that he and the Government have created. However, there will not and cannot be a recovery, nor can we describe the glimmering as genuine recovery, until unemployment begins to come down and until we have made some way in replacing the capacity that has been destroyed, especially in the disastrous years of overvaluation. The Government told us how good for us was 935 the over-valued pound during 1979 and 1981. We can talk of recovery only when social justice can be restored because unemployment has fallen. All that happens until then is "gather ye rosebuds while ye may, make money while you can" and stash it away overseas in the productive capacity of our competitors. The Budget is a tragic waste of opportunity. This is the last strong year of the oil peak.
§ Mr. Stuart Randall (Kingston upon Hull, West)
Does my hon. Friend agree that the Budget is irrelevant to the country's problems? Does he agree that the Government are relying on the Fowler report and a mass of Green Papers? Will not the Government rely on the Young report and therefore does my hon. Friend—
§ Mr. Mitchell
It is utterly irrelevant because the Government's only solution now, on the basis of the Fowler reviews, is to start cutting benefits. That is their answer to the difficulties that they have created.
Like the Government, the Budget is a tragic national waste. It is a waste of opportunity as, for the first time, we are self-sufficient in oil and do not have a balance of payments problem that comes from that. The Government have even thrown away the balance of payments benefit of oil because we now have so little room for necessary expansion, because they have wasted oil revenues. The Government and the Budget have wasted human resources by throwing people on the scrap heap. Many of them are strong of back or young. They want to get into the habit of working and to contribute to industries that they have watched being destroyed. We also have the waste of high interest rates, which are a crippling burden on the economy, the waste of under-capacity and of £17 billion every year spent just to finance unemployment. That is a conservative estimate based on the House of Lords Committee's estimate of the cost of unemployment. That is the biggest folly of all— wasting £17 billion every year on keeping people out of work rather than investment in capacity and growth.
The verdict is that the Chancellor fiddles while Britain sinks. Interestingly, I heard at a Christmas service, at which I read the lesson, a text from the book of Isaiah which was read by my hon. Friend the Member for Huddersfield (Mr. Sheerman). The text stated:You have enlarged the Kingdom and increased their joy".The Government's real responsibility is to enlarge the kingdom to build up the economic strength of the country and to provide the framework within which industries can grow. The enterprise economy about which the Government talk needs the framework of Government management so that the economy can grow. That enterprise climate cannot develop as a result of discipline and depression. The Government have a responsibility to provide the framework of economic management in which the climate of enterprise and expansion can grow to enlarge the kingdom and increase their joy. The Chancellor has weakened the kingdom and increased their misery.
§ Mr. Deputy Speaker
Order. I remind the House that the time for debate is limited. Brief contributions will mean that fewer hon. Members will be disappointed.
§ Mr. Gerrard Neale (Cornwall, North)
I apologise to my ministerial colleagues and to the House in general for the fact that I was not present for the opening speeches because of Select Committee duties. Although I am tempted to follow the path of some of the prejudices of the hon. Member for Great Grimsby (Mr. Mitchell), I shall resist the temptation, in view of your request for brevity, Mr. Deputy Speaker.
I congratulate my right hon. Friend the Chancellor and his colleagues on what they have done. The abolition of development land tax is extremely welcome. I am pleased that my right hon. Friend has not done anything on the pension fund front because, while the state pension system is under review, it is only right and proper that we should do nothing to discourage people from opting out of that state pension system and taking up private pensions. I am also pleased that my right hon. Friend has not imposed VAT on books.
A number of changes on the small business front will be welcomed, including VAT threshold and relief for bad debts. I am sure that my right hon. Friend knows that the small business community is never satisfied. It is always seeking further assistance, but there is no doubt that these changes will be most welcome.
In keeping careful control on public expenditure, my right hon. Friend has sought to do what he can to assist people, especially the low paid and the unemployed. I know, because I represent a constituency which has one of the highest unemployment levels and endures low average pay levels, that the Budget is especially welcome. It has considerably helped the low paid by lifting their tax thresholds disproportionately in comparison with the thresholds of those on high pay. The changes in national insurance contributions will make a real difference to employers' abilities to consider employing low-paid people and to the take-home pay of the low paid.
I am pleased that my right hon. Friend is examining seriously the future of a contentious issue — wages councils. In an area such as mine there is no doubt that there is work to be done but, whatever the Opposition may like to pretend, the fact is that work often does not generate a great deal of profit—whether it is distributed as profit to the employer or distributed as wages and salaries to the employed. If work does not generate a great deal of return, high wages cannot be paid.
In the west country, people who are willing to employ and people who are willing to be employed are unable to enter into such arrangements because of the law on wages councils. No one—least of all myself—is in favour of a low wage economy. We cannot escape the fact that, because certain types of work have only a low return, wages are low. I am keen to ensure that careful consideration is given to wages councils — not necessarily with a view to their total abolition, but to ensure that they do not fetter opportunities to find work in low pay areas, such as the west country.
The enlargement of YTS and the community programme is especially welcome. Throughout the country, and especially in the west, there is evidence that new jobs are being created. There are more jobs now, but they are often taken by people in their 30s and 40s, 937 including, perhaps, women whose children are old enough for their mothers to go out to work. Employers prefer such people to the youngsters leaving school or existing youth training schemes.
It is only right and proper that we should examine why that is happening and take every measure we can to increase the attractiveness as potential employees of young people leaving school or training schemes. I welcome the steps that the Treasury is taking to provide two years of training for 16-year-olds and one year for 17-year-olds. The community programme could not have been increased more than it has been. If my right hon. Friend the Chancellor had sought even to double it, it would have been impossible to find sufficient projects because of the controls that would have been necessary.
The Opposition must always examine local trade union attitudes to community schemes. Too often, such schemes are inhibited by the unions' attitude to pay rates. The Opposition should examine their conscience when they speak out so loudly and gladly about their concern to put the long-term unemployed on community schemes.
I urge my hon. Friend the Financial Secretary to pay careful attention to the review of board and lodging allowances by his right hon. Friend the Secretary of State for Social Services. It is all very well for the Opposition—I note that the hon. Member for Denton and Reddish (Mr. Bennett) is back in his seat — to speak with sincerity but dogmatically about levels of board and lodging and about creating more housing.
I have said in the House that the position in the west country is similar to that in many other places. There is virtually 30 per cent. unemployment in Newquay in my constituency. A substantial proportion of those unemployed people have nothing to do with Newquay. They were not born in Newquay and have only in recent times come to the town. I have been told unofficially that more than 2,000 young people have come to Newquay merely to claim the board and lodging allowance, with no prospect of obtaining work. They are doing so because the system encourages that action.
I know that my hon. Friend the Financial Secretary—I commend him for this—is determined to match work with potential employees, but we must consider how the system is working. We must ensure that people cannot enjoy uninhibited mobility to move from one area of unemployment to another to claim higher benefits when it is evident that there are not employment opportunities in the new area or, if there are, that there is already a pool of unemployed labour to take them up.
§ Mr. Butterfill
In my constituency, 7,000 people are on board and lodging who have come to the area only recently. It is estimated that nearly 4,000 of them come from greater Merseyside.
§ Mr. Neale
I agree entirely with my hon. Friend. Surely it is possible for a simple system to be devised to meet what I suspect is the case of the hon. Member for Denton and Reddish. If someone genuinely wants to move from one place of work to another and genuinely has interviews to attend, it will be possible for information and evidence to that effect to be produced. However, in my constituency, and in that of my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), people are arriving at this time of year from places such as Glasgow. They are choosing to move into towns with seasonal 938 employment such as Newquay. They expect to find work, but if they do not they are entitled to claim benefit. This is one of the nonsensical consequences of uninhibited mobility.
§ Mr. Neale
I would rather not give way. The hon. Gentleman did not give way to my hon. Friends and I am conscious that others wish to contribute to the debate.
The enterprise allowance scheme is a marvellous way of encouraging the long-term unemployed to find work. It is commendable that we encourage people to start up their own businesses under the scheme, especially in areas which involve subcontracting. We give them every encouragement by way of the allowance but it must be nonsense for us to place in front of them almost hopeless hurdles before they can overcome the 714 certificate procedure. I know that changes have been made recently and that if a new contractor can obtain a guarantee from the bank that he will be able to meet his tax liability, a 714 certificate will be issued, but I urge the Financial Secretary to give the procedure the most careful consideration.
I understand the historical reasons why the procedure was introduced but it should not be beyond the wit of any of us to devise an arrangement to enable someone who starts a new business, especially under the enterprise allowance scheme, to establish through his accountants, probably with a letter of confirmation, that it is a bona fide new business. This should enable him immediately to gain clearance and a 714 certificate without the paraphernalia of a bank guarantee or anything else.
It has been suggested in correspondence that I have had with my hon. Friend and his Department that it is not an inhibition to provide that arrangements can be made through those with whom he contracts—for example, a constituent firm — that they deal with the tax implications. The procedure is an inhibition on those who are starting a new business under the enterprise allowance scheme, and I urge him to remove it as soon as possible.
I am becoming increasingly concerned by reports that are reaching me from constituents and from accountants practising in Cornwall about the attitude towards small businesses and the self-employed by Inland Revenue staff. It appears on examination that we cannot necessarily criticise the staff for their actions. I suspect that my right hon. Friend the Chancellor of the Exchequer has said that the money-collecting processes of the Treasury should be tightened. I presume that he takes the view that one should run an efficient Department and that tax due to it through the Treasury should be paid. Perhaps that approach deserves some commendation, but it is imposing a degree of examination and analysis of the affairs of some of the self-employed in my constituency which is incredibly disruptive and which goes beyond what is fair and justified in some instances.
It is necessary only to deal with those who are in the process of starting a new business or venture to understand the pressures that are upon them during the first two years or so to get their business established. If they are to live in fear of such detailed analysis and investigation and to know that they must prove their innocence in tax affairs, we are not encouraging them to start their own businesses. I ask my hon. Friend the Financial Secretary carefully to consider the various incidents which I have related to him in the past. I suspect that others have provided similar examples.
939 Within the constraints that the monetary position has placed upon my right hon. Friend the Chancellor of the Exchequer, I feel that he has introduced a good Budget. He has attempted to apply the available resources in the right directions. He has tidied up a number of areas which needed tidying up. I feel that, within the constraints that have been placed upon him, the Budget will offer greater hope to low wage areas and areas with economies that have a low level of activity such as Cornwall. The Budget will help them to improve their positions.
§ Mr. Deputy Speaker
Order. It might help the House to know that the speeches from the two Front Benches in reply to the debate are expected to begin at 9 o'clock. This means that the time available for Back Bench contributions is very limited.
§ Mr. Michael Hancock (Portsmouth, South)
For the Chancellor of the Exchequer to present his Budget suggesting that it was a package for jobs was pushing credibility to the extreme. The way in which Conservative Members have tried to justify that statement has been eccentric if not bizarre. No hon. Member, certainly not on the Opposition Benches, could have been left in any doubt about the eccentricity in the suggestion that the Budget will serve to shorten dole queues. It is aimed and targeted more at the man in the City than at those queueing at the jobcentres and labour exchanges. It will do little except provide for fiddling at the margins. Some of the proposed changes will increase the number of unemployed instead of boosting job opportunities.
During the debate that took place last week on unemployment I said to the Secretary of State for Employment that the alliance budget was worth considering. He gave the impression that he was intent on taking on board some of the issues that I raised in the debate and I hoped that he would pass them on to the Chancellor. The policies that alliance Members have advocated consistently would provide the Chancellor with the opportunity to set a new political and economic course and to start the difficult task of reuniting the nation. The policies that we advance offer that new approach. They would allow the Government to start turning the rising tide of unemployment and assist industry to become more competitive. They would provide special help for those in most need such as the long-term adult jobless, the young, the elderly and working families caught in the poverty trap.
The Chancellor ignored, unfortunately, the arguments that I advanced last week in the debate on unemployment. He has ignored also the arguments that have been advanced consistently by Opposition Members and Conservative Members. It has not gone unnoticed by me during the nine months in which I have been a Member of this place that individual Members have pleaded on many occasions for something to be done to alleviate unemployment. At the same time they have offered solutions. Unfortunately, we have a lazy, lethargic Chancellor who chooses not to listen to these pleas. He chooses instead to go along the old trail that has been trodden before. The result is a Budget which is nothing more than a sackcloth package. It has been shorn of the 940 attractive tax reform trimmings that adorned the Chancellor's first Budget last year. His latest effort ensures another lean year for the unemployed.
In 1984, the Chancellor introduced his first Budget and proclaimed that it was a Budget for jobs. However, unemployment increased by 130,000 during the year. This year he has ensured that the jobless figures will undoubtedly go on rising by sticking so fanatically to his financial strategy. One can only guess how many jobs will be lost in the coming year.
The Budget is nothing more than a con trick, just like last year's. The Chancellor has not really given anything away. Last year, public borrowing overshot the Chancellor's target by a massive £3.3 billion. Even allowing for the £2.75 billion cost of the miners' strike, last year's public sector borrowing requirement would have turned out at approximately £8 billion. This year, he means to cut borrowing by a further £1 billion. This extra deflation means that the Government will be taking more money out of the economy than they are putting in. On recent trends, this will cost a further 100,000 jobs, severely limiting the effect of expanding special employment schemes.
The Budget has done nothing for jobs, competitiveness or compassion. The Chancellor could have used the resources by which he put up tax allowances for those in work to rebuild the crumbling fabric of Britain—for new house building, and the improvement of housing, road building and sewerage, and for maintenance generally of the shabby and dilapidated infrastructure in the country. Alternatively, he could have used the money to help those worst hit by the recession, the long-term unemployed and families in the poverty trap.
Opposition Members have repeatedly stressed this afternoon the difficulty that people living in that poverty trap face—not weekly, but daily and hourly. I witness at my advice surgeries many pensioners who struggle not only to see the week through but to survive the day with the escalating costs of heating and food bills. Many of them go very much without the essentials of life.
The Chancellor announced two main job creation packages in the Budget, both of which we on the alliance Benches have long advocated. First, he announced a restructuring of national insurance contributions, something universally welcomed by hon. Members in the last two days. It is hoped that this will provide employment opportunities for the young and unskilled on low earnings. Unfortunately, it will do nothing to get to grips with the problem of the 3.5 million people who sign on. It pays but lip service to the problem.
A Conservative Member spoke today about crocodile tears being shed by the Opposition. I have seen so many crocodile tears shed by Conservative Members that the place is awash with them. They pay but lip service to the problems facing the communities of the country.
The Chancellor's second announcement concerned the expansion of the community programme by an additional 100,000 places, and the extension of the youth training scheme to a two-year programme. We would welcome this, as have many other hon. Members, but, if the YTS is expanded to a two-year programme and employers come forward to offer jobs, we hope that there will be some strict control of the calibre and ability of those firms to maintain that programme, and to make sure that people are given a real opportunity of learning a skill and having two years' 941 worthwhile employment, with a real measure of hope that the training will sustain them in worthwhile employment in the future.
The Chancellor has increased allowances by 5 per cent. more than inflation for the standard rate taxpayer, but he has done little to help the badly off and relieve the poverty and unemployment traps. A more effective way of doing this for the same money would have been to increase the family income supplement and to extend the long-term rate of supplementary benefit to those unemployed for more than one year. It is absurd that those people who have been unemployed for over a year and who need most help are denied it because of the way in which the Government have chosen to manipulate the manner in which benefits are paid.
I find the Chancellor's whole attitude in the last few months grossly irresponsible. There is particularly the way in which he has allowed speculation about the VAT increases and pension rights to be used as a political football. He should have done the honourable thing and clarified the position, particularly on pensions. Perhaps then there would not have been the bitter scenes that were witnessed round the country in which senior police officers took early retirement to avoid the possibility of their benefits being taxed.
Every newspaper in the country has been worried about its future because of the possibility of the imposition of VAT. The manufacturer and the retailer of children's shoes and clothes were crying out for a specific statement from the Chancellor that this was nothing more than speculation, and that he had no intention of imposing VAT. Is it right that the Chancellor should allow a period of some four or five months of such speculation? Of course it is not. It is totally irresponsible. He made no effort to allay those fears, which were so rightly expressed.
What did we hear in the Budget? There was no VAT on newspapers, but there was VAT on advertising. The consequences of that pose a real threat to many of the provincial newspapers in the country, because the VAT will go on the very advertising on which many provincial newspapers survive. Is it right that VAT should have been imposed on death, marriage and engagement announcements, or, indeed, on the selling of individual items offered in the bargain basements that are found in so many newspapers? The very substance that keeps those papers in operation will be threatened yet again.
The alliance would have done more to help the jobless with a programme of investment. I am sure such a programme would have received the support of many of the Chancellor's right hon. and hon. Friends, had they had the backbone to stand up for it.
The Budget is nothing more than a Budget for the city slickers. It is not for those who are sick of the never-ending poverty and unemployment. It offers no hope and no compassion. It is a mealy-mouthed and hard-hearted attempt to pursue the same dogma. I end where I started. It is the Budget of a lazy and incompetent Chancellor who chooses to ignore the stark reality that hits hon. Members in the face every time that they go into their constituencies, if they are truthful. It is about the poverty, the unhappiness and the heartbreak that long-term unemployment brings.
§ Mr. John Butterfill (Bournemouth, West)
I made a speech in my constituency in Bournemouth last weekend in which I told those present what I hoped would be, and 942 what I hoped would not be, in the Budget. Hon. Members can imagine, therefore, how pleased I was when, on hearing it, I realised that almost everything that I had hoped would not be in it was not in it and that most of what I had hoped would be in it was in it.
I am particularly pleased that we have expanded the youth training scheme. I believe that it makes an enormously valuable contribution to the training of our young people. I am surprised that it has been so much criticised by Opposition Members. I can remember that they produced two or three Green Papers on youth training when they were in power, but succeeded in doing nothing. How they can criticise the Government not only for introducing the scheme but for subsequently substantially extending it I fail to understand.
Similarly, I am delighted that 100,000 more places are provided on the community programme. It has been enthusiastically taken up in Dorset and in the west country as a whole. It has provided useful employment. I know that in my constituency there are sponsors for the community programme who were looking for additional funding, and I am grateful to the Chancellor for making it available.
In particular, those in my constituency who are involved in the tourist industry will appreciate the changes that have been made in taxation thresholds and national insurance. They will undoubtedly encourage greater employment of low-paid people. Many people in the tourist industry in my constituency have told me that they have been advertising vacancies for a long time. I know that they are not very well paid. The problem is that, when one takes into account the benefits people can get, one realises that they are often no better off taking a job. What the Chancellor has done now at least will encourage the filling of those places, and it will encourage people to take up employment which in the end must be to the economic benefit of the country.
I am sorry that the hon. Member for Coventry, South-East (Mr. Nellist) is no longer in his place. He sneered at the tourist industry and thought it incredible that Conservative Members regard it as worth while. I remind Labour Members that tourism provides 1.4 million jobs. The next largest industry, the construction industry, employs fewer than 900,000 people. Tourism is by far the most important industry in employment terms.
Tourism produces about £5 billion a year in foreign revenue for Britain, making it our third largest industry in terms of overseas earnings. Therefore, its importance should not be under-estimated. I should like the hon. Member for Coventry, South-East to know that, apart from providing jobs for waiters, chefs and part-time workers, the tourist industry and, in particular, hotels, create many jobs in the construction industry. They create jobs in the manufacture of cutlery in Sheffield and linen in Lancashire. They employ people to make buses and coaches to carry tourists. Tourism is one of our most important industries. Therefore I am particularly grateful to the Chancellor of the Exchequer for helping it in the way he has.
With the present exchange rate of the pound against the dollar we have a unique opportunity to expand our tourist industry considerably. Therefore, I should have liked to see a little more help given to the work of the British Tourist Authority in promoting Britain overseas and in encouraging overseas visitors to come to Britain — particularly because tourism brings employment to the 943 regions. I am surprised that a midlands Member such as the hon. Member for Coventry, South-East does not appreciate that. I remind him that the chairman of our own Back Bench tourism committee is a midlands Member, and that Birmingham is one of our great and expanding centres for the tourist industry.
I shall not apologise for mentioning one or two things that the Chancellor of the Exchequer has not done. The hon. Member for Great Grimsby (Mr. Mitchell) — unfortunately, he is no longer in his place—referred to an extension of child benefit. I cannot imagine anything that would be less appropriate to our problems. The difficulty with child benefits and other similar universal benefits is that we pay out enormous sums and then collect back an enormous amount in taxation. That policy does not redress the fundamental problems. It does not help people to avoid poverty. There are still many genuinely poor and deprived people. Child benefit is not the route to take. I would rather see increases in family income supplement or special arrangements for supplementary benefit that would get rid of child benefit altogether.
There are special groups to which we are not necessarily addressing ourselves. The Minister will not be surprised if I mention the blind, because he will know that the early-day motion in my name, calling for a blindness allowance, has now been signed by over 250 hon. Members. It is a benefit that is direly needed by the blind, who are one of the special and deprived groups. I propose to table an amendment to the Finance Bill, if I am able to do so, calling for a blindness allowance to be introduced.
There are many measures in the Budget that will be extremely helpful to the nation as a whole and to my constituents in particular, and I congratulate the Chancellor of the Exchequer on them. I am particularly pleased with his measures to assist the self-employed. The self-employed and the non-corporate sector as a whole represent one of the most neglected components of British business life. Much has been done for the corporate sector but the non-corporate sector has suffered. Excellent schemes such as the business expansion scheme are, by definition, not available to the non-corporate sector. I hope that the Minister will consider whether ways can be devised to introduce something similar to the business expansion scheme that would be of benefit to the non-corporate sector.
I am most grateful to the Chancellor of the Exchequer for what he has done for the self-employed about early retirement and for the changes in national insurance contributions, which redress a long-standing grievance in that area.
On balance, it is an excellent Budget which has maintained the Government's policy on course. It has set the scene for the continued expansion of the British economy. It is most encouraging to see overseas observers such as the OECD predicting that once again Britain's economy is likely to grow faster than that of any of our other European competitors. What a refreshing change that is from the years when the Labour Government were in office. I urge the Chancellor of the Exchequer to continue with his present policies, because I am sure that they will lead to our success as a country.
§ Mr. Gerald Bermingham (St. Helens, South)
I shall try to be brief because my points are in themselves extremely brief. I do not believe that there is anything to be gained by going back to what happened in previous years and by comparing the performance of one Government with that of another. I am a realist and recognise that economic factors change from time to time. However, I wish that the Government would stop blaming everybody else. Last year it was the Americans, this year it is the miners, and no doubt next year the Americans will be blamed because of their over-valued dollar. That is all counter-productive. I prefer to consider what the Government have done in the Budget.
The Government have done nothing in the Budget for the ordinary man in the street in my constituency. The idea of changing the Employment Protection Acts so that no one is protected in the first two years of employment is not very fair. We all know what will happen, because it has already happened in some small industries. When a young man, after two years of training, is employed at the age of 17 he begins to earn a wage, but when he reaches 19 and his wage becomes realistic, the firm gets rid of him. That happens all the time. One has only to be a practising lawyer to see the result. Under the Government's proposals the young will get the push, and I plead with them to think again.
There is the suggestion that the wages councils may be abolished. I am glad that there is to be a Green Paper on the subject, so that representations can be made. We are likely to see the redevelopment of the sweatshop and of the outworker. We all know the scandals of the outworkers in the lace industry in Nottinghamshire and elsewhere. We know about the scandal of the outworkers in the garment industry. We have begun to see the creation of small businesses in which shirts and other garments are made. Low wages are paid and workers are exploited. It is already beginning to happen among the ethnic minorities.
Hon. Members with legal experience and practical knowledge of industry know that such cases are now coming forward. The Government must not go about matters in that way but must consider the real cause of unemployment, which, simply, is a lack of jobs. Abolishing wages councils will not help in any way. It will simply mean that more people will be exploited, because that is human nature. After all, why did we establish wages councils in the first place?
The fact that 40 per cent. of wages have been found to be below the rates fixed by wages councils is no reason for abolishing the councils. It is like saying that because several million cases of theft occur every year, we should abolish the Theft Act and let everybody go stealing. In reality, certain people will exploit other people. The Government cannot run away from that by abolishing wages councils and allowing the exploitation to continue. Instead, they should do something about those who pay below wages council levels.
I have a constituency interest in the construction industry because glass and bricks are made in my area. I urge the Government to reconsider, before the Bill is enacted, the production levels — I am talking not of monetary but of volume levels — of glass used, for example, in double glazing, and the number of bricks used in housing repairs and so on.
945 The result of last year's imposition of VAT on double glazing and insulation has been wholly counterproductive. The volume of goods sold in the market place is consistent with it having been pointless, and it has resulted in a considerable number of job losses. It is not too late for the Government to change their mind about that. I have been pleading for a year for VAT to be removed, and today I plead again.
There is a direct relationship between insulation and heat loss. There is no point in the Department of Energy appealing to companies to become thermally efficient while the Treasury is making it too expensive for them and householders to afford it. If the 15 per cent. rate of VAT were removed, we should start to insulate the nation, so reducing our heating bills, making houses more habitable and the quality of life improved.
I have declared my interest—as glass and bricks are made in my constituency—on several occasions. There are now pockets of unemployment in my area nearly as high as 40 per cent. The way to cut that is to get my people back to work. To do that, the Government must learn to invest in people and property.
This is a mean little Budget. It does not seem to take us anywhere down the road to full employment. Any future Budget that takes us down that road will have overwhelming support because we all appreciate that the curse of our time is the curse of unemployment. That curse can be lifted only by positive, rather than negative, actions by a Government who are really in control.
§ 9.3 pm
§ Dr. Oonagh McDonald (Thurrock)
I wish to make it clear at the outset that I do not intend to comment on the speech of the Chief Secretary, in view of his refusal to withdraw his deliberate distortion of remarks made about my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) in relation to our policy on council house sales. The right hon. and learned Gentleman refused to withdraw the statement that he made on that point and, by his behaviour at the outset of his remarks, he destroyed not only his speech but himself.
In last year's Budget we met a swashbuckling, reforming Chancellor. This year he has disappeared and in his place we have Nervous Nigel who, if today's Private Eye cover is to be believed, is more concerned with his own job than with the jobs of others. Indeed, I would not put any bets on his job lasting much longer, following this Budget. One might call it a Budget for the job of Nervous Nigel rather than for the jobs of others.
Again and again the Chancellor of the Exchequer expressed his anxiety about jobs, but there is nothing in his Budget that will produce them. He has boxed himself in with his medium term financial strategy. No one did that to him; he insists on doing it to himself. He has further boxed himself in through his mismanagement of the sterling crisis. I am not surprised that his right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym) said that the Chancellor's strategy had put him in a strait-jacket. That is another way of expressing what I intended to say.
After six years of Tory Government, the right hon. Member for Cambridgeshire, South-East said, it was time to question some of the assumptions underlying the Government's economic strategy. Indeed it is. Since the general election in 1983, the position has got worse. According to Government figures, unemployment then 946 was 2.9 million, or 12.4 per cent. of the work force, and inflation was running at 3.7 per cent. On the Chancellor's calculations, by June 1985 inflation will be running at 6 per cent., and unemployment will be at least 3.2 million in the second quarter—that is an average of all the forecasts, as we do not have a Treasury forecast.
After six years, it is time to reconsider the Government's underlying strategy. A less austere fiscal stance would be beneficial to the entire country, and could be consistent with a stable exchange rate. Stability matters most, after the fluctuations from day to day, and even within a day, that we have seen since Christmas. We want a stable exchange rate. That is possible, together with a higher level of real output, if the Government change their underlying stance.
The right hon. Member for Cambridgeshire, South-East said that we should have an investment programme. That is the way to produce jobs. I had hoped that my right hon. Friend the Member for Sparkbrook would miss the Prime Minister's words at Question Time yesterday, but he used her statement and I wish to refer to the Prime Minister's moment of truth. It is always disappointing when colleagues pinch some points that one wishes to make. It was a moment of truth for the Prime Minister when she found herself naturally forced to admit that public investment was purposely higher in the north to help the unemployment problem. If she would remove her ideological spectacles for a moment, she could see what the country's genuine problems were and how to deal with them.
Yet the Government have set aside the calls for public investment, which they have received from all sides. It is no longer merely a Labour cry, but is echoed even on Tory Benches, by the representatives of industry, the Confederation of British Industry and the established newspapers. On every side the Government faces calls for increasing investment, but they deliberately set them aside.
Instead, the White Paper plans to cut capital spending by a further £3.3 billion. Housing finance is especially badly hit. The Government propose a reduction in capital spending from £3 billion this year to £2.3 billion in 1987–88. The Building Employers Confederation judges that a 5 per cent. drop in capital spending on construction work will cause a loss of more than 600,000 jobs, and a drop in the work load worth about £500 million.
The sheer stupidity of the Government's view was well set out in the Audit Commission's report which was covered by The Guardian of 11 March. It stated:There will be a shortage of 500,000 homes and a council house repairs backlog of £15 billion.Every moment that goes by makes those repairs both more necessary and more expensive. The need for those repairs is reflected in the human misery suffered by people who live in damp, leaky houses. To delay repairs, to allow them to accumulate and to become more expensive, and to refuse to provide the homes that people need is little short of crazy at a time when needs are increasing so rapidly. Investment is necessary for jobs, innovation, competitiveness, expansion, to improve the environment and to ensure that people have decent working conditions. All those reasons justify investment and justify the Government borrowing a little more to ensure that investment.
The Government have made great play of reducing employers' costs. They claim to have done that, first, by 947 removing the national insurance surcharge and now by the changes in national insurance contributions introduced in the Budget, but to allow the infrastructure to continue to deteriorate adds to industry's costs.
Hon. Members will be aware that the CBI made proposals as to how the infrastructure should be improved. Its proposals were modest. It was mainly interested in road improvements. The improvement in the infrastructure that it proposes—the removal of bottlenecks and the building of some new roads, especially in East Anglia—would reduce transport costs by 10 per cent. That would mean an annual saving to industry of £2 billion. That is a way substantially to reduce employers' costs and to increase efficiency and productivity. Why not do that?
The irrationality of the Government's attitude towards infrastructure investment is now beyond belief. I would almost go so far as to say that it is no longer a political point; it is common sense. Work must be done if we are to have efficient industry and create wealth, yet the Government reject that and can give no sensible reason for so doing. The Financial Secretary will perhaps come up with a reason that no one else has managed to come up with so far in the debate that has been taking place not just on the Budget but during the preceding months.
Instead, the Government turned to wage cuts. That is the bottom line in the Budget. It comes out in their attitude towards wages councils and the Chancellor's clear, although not fully expressed, desire for their abolition. It also comes out in the national insurance contribution changes, because if we study those changes carefully we see that they are designed to encourage lower wages. There will be less incentive to allow wage increases at the new bottlenecks which have been introduced into the structure.
The Times today said that Ministers were going around saying privately that 500,000 jobs will be created by the Budget over two years. I am not surprised that Ministers said it privately. If they had said it publicly, evidence would have to be produced and there is no evidence for it. It is a wage-cutting Budget, but the Government have no evidence to show that it will work, but they produce two reasons for it. They point to the American experience and they talk about flexibility in the labour market.
"Flexibility in the labour market" are polite words for poor working conditions, insecurity and disgusting wage levels. The Government conveniently forget that America and many other western countries have minimum wage legislation. It is not half as secret as wages councils minimum wage levels. Minimum wage levels in the United States are widely publicised. One can hardly get on public transport buses in those parts of the United States that have them without knowing the minimum wage level. The 7 million jobs that have been created in America since 1982 have not been created because wages are low or because there is no wages legislation. They have wages legislation.
To bolster the Government's belief in low wages and provide evidence, after the Chancellor's claim about the number of jobs that would be created by a 1 per cent. wage cut, the Treasury produced a working paper. I read it carefully and I found it extremely interesting. The basic argument in the paper is that lower wages increase company income, and, given that increased company income combined with lower wages, companies will 948 immediately decide to employ labour rather than to invest in equipment. That is utterly unrealistic. Let us consider a precision engineering firm with increased company income that wishes to expand. Will it say, "We will forget about the new sophisticated piece of machinery which would enable us to compete with other firms and instead we will hire a couple more engineers with slide rules."? What nonsense. It is an entirely unrealistic paper. Indeed, its authors come to that conclusion, because they say that there is no evidence for the claim that increased company income and lower wages will lead to increased employment.
The Government have no reason for their supposition. It is utterly disgraceful that the Chancellor should try to force down wages in this way. It is not a new solution. It was the kind of thing that used to go on in the 1930s when there was an attempt to push wages down and when people undercut each other in trying to obtain jobs. It is an old solution. It did not work in the 1930s and there is even less reason to suppose that it will work now.
When hon. Members talk about the need to hold wages down, and particularly when they talk about wages councils, they carefully omit to mention the actual wage levels that are set by wages councils. I intend to rectify that. Let us take a 16-year-old. The highest rate for a 16-year-old is £59.20. This information is in a Hansard written reply of 18 March. The lowest rate for a 16-year-old is £29.71. The highest rate for an adult—this is for an unusual type of employment where one could not foresee an enormous expansion—is £97.20 per week, but that is for a non-residential club steward in one of the larger licensed London clubs. With the best will in the world I do not think that reducing wages in that sector would lead to an enormous expansion in jobs.
§ Dr. McDonald
I shall give the minimum wage, about which hon. Members on the Government Benches complain continually. The lowest rate set by a wages council for an adult is £47.50 per week. What I find so utterly disgusting is that even the highest rate I have quoted is an amount that many hon. Members on the Government Benches would think nothing of spending on a dinner for two in one of the most expensive London restaurants.
I have listened to the hon. Member for Bridlington (Mr. Townend) complaining about these wage levels. When I look up the Register of Members' interests, I find that he is not satisfied with his parliamentary salary but has at least two other jobs and is also a member of Lloyds, for which in practice, though not in theory, he has to show basic wealth of £50,000. Therefore, the wage levels that I have quoted are in many cases amounts that he would not miss in a week.
§ Dr. McDonald
I do not think there is any need to give way to the hon. Gentleman. He has had his say on more than one occasion about wages councils and he complains endlessly about the wage levels that are set. I think it disgraceful—
§ Dr. McDonald
—that he does so, given his background. What has the hon. Gentleman got to say for himself?
§ Mr. Townend
I am obliged to the hon. Lady for giving way eventually. Does she really expect the House to accept that £59 is a reasonable wage for a wages council to set as a minimum wage for a 16-year-old who has just left school, who is probably of very low ability and who is unskilled? Does she honestly think that that school leaver of probably low ability and low motivation should receive that amount? We must remember that that is the minimum wage, and not the wage set for the cleverest or brightest 16-year-old. Does she not agree that someone of low ability and no experience will not get a job if that is to be the minimum wage?
§ Dr. McDonald
I sometimes feel that the hon. Gentleman thinks that these people should live on 10 quid a week. The job which earns £59.20 is that of a laundry worker. It is hardly pleasant work. I agree that not many qualifications are required, but the work is not pleasant, it lasts for a full week, and 59 quid is not a lot of money. The hon. Gentleman would not even miss that amount each week. It is disgraceful that he should attack such wage levels.
§ Dr. McDonald
Conservative Members suggest that the abolition of the wages councils will greatly increase jobs—
§ Dr. McDonald
The estimates based on the Treasury's economic model suggest that the abolition of wages councils would create no more than 8,000 jobs over the next five years. That is the number of jobs lost every month since the Government came into office. It is disgraceful that the Government should even consider this as a way of increasing employment. Many jobs have been lost under their regime, and there are far better ways of increasing employment.
§ Dr. McDonald
I shall not give way.
The Government fondly believe that it is possible to foster a low-wage, low-tech economy. That is not the future for this country. High skills are available, as are great inventiveness and huge research facilities. That research is put to good use, and the notion that we can fall behind and endeavour to compete with Third-world countries over wage levels is utterly misconceived.
§ Dr. McDonald
Because I have several more points to make, and I wish to do so in the time remaining to me.
Instead, the Government are prepared to rely on oil and to destroy manufacturing industry, one fifth of which has already been lost since 1979. If this Government remain in office from 1979 to 1988, they will have obtained £75 billion from oil revenue, and in the same period they will have spent more than half of it on unemployment and social security benefits, merely to keep an army of at least 3 million and possibly 4 million unemployed.
When this Government again go to the country, one of the most serious complaints will be the waste of those oil revenues. The public know that that money has been 950 squandered on unemployment and that it has not been ploughed back into investment. Revenues at this level will continue for only a short time longer, and the way in which the Government have squandered them is quite unforgiveable. The people of this country will not forgive them.
The Government have done nothing about jobs. They have presented this Budget as a Budget for the poor and for families. The Chancellor has wept crocodile tears over the plight of those caught in the poverty trap. I shall not refer to the unemployment trap, because that exists mainly in the minds of Conservative Members. Fewer than 4 per cent. of people face replacement ratios of 90 per cent. of their income in work when unemployed — a tiny proportion. That is why I shall not spend time on the unemployment trap. Instead, I shall spend time on the poverty trap, because the Government have done little to aid those who suffer from it. The Budget has done little to aid the poor altogether. The Chancellor has thrown away a golden opportunity.
Last week a book called "Poor Britain" was published. It was based on the surveys carried out by the authors for London Weekend Television. It showed considerable public support for a serious anti-poverty programme. It even showed that people were prepared to pay not a lot, but a little, more income tax to pay for such programmes. The proposals that we have made for raising child benefit and pensions could be paid for by the funds that the Chancellor has already used and other funds available to us which could be put to a better purpose than those for which the Chancellor has used them.
§ Dr. McDonald
The hon. Gentleman is merely yapping away from a sedentary position.
Let us examine the way in which the Chancellor has used the amounts that are available to him in charging income tax and national insurance contributions. Those on levels of income of £60 a week, £90 a week or £200 a week, the average male earnings, will benefit by £1.73 a week as a result of the combined alterations in income tax and national insurance contributions. However, someone on £40,000 a year will receive £7.21 extra a week, a substantial change, but a change that is entirely in line with the changes made in the tax burden so far. The better-off have received far greater benefits through all these changes than those of average and below average income.
To take a typical family of a married couple with two children, with an income of £150 a week, the increases in weekly expenditure as a result of changes in water, rates, vehicle excise duty, cigarettes, beer and wine will wipe out £1.35 of the alleged benefits from the changes in taxation and national insurance contribution. These increases were announced both before the Budget and in the Budget statement itself.
Worse still, by the changes in the national insurance contribution, the Government have created a whole new set of poverty traps. They have done nothing to ease the number of those caught in the poverty trap. Rather, they have increased it. For example, someone earning £89.99 a week pays a national insurance contribution of 7 per cent., which is £6.30. If he earns £90 a week, national insurance contributions go up to 9 per cent., and the cost is increased to £8.10 so that marginal increase in wages 951 produces a new cost of £1.80. That is the kind of poverty trap created by the changes in the national insurance contribution.
§ Mr. Douglas Hogg
As I understand it, the hon. Lady is decrying the changes that have been made in the national insurance contributions, whereas the Leader of the Opposition welcomed them and said that he had been calling for them for a long time.
§ Dr. McDonald
The national insurance contributions should be more fairly distributed. One of the ways that the Government might have done this would have been to bring those earning over £265 a week into national insurance contributions net. This has been ill thought out, and as the Chancellor is supposedly so concerned about the poverty trap that he raises personal allowances and alters national insurance contributions, he should have done it with a great deal more thought. He should not have produced several new poverty traps, which is just what he has done.
I now come to those caught in the traditional poverty traps. I refer to the 270,000 families who are estimated to be caught in them. That number represents a threefold increase since 1979. But only 5,000 to 10,000 of those families will be lifted out of the poverty traps by the Budget changes. The Government have done nothing to ease the problem of those poverty traps. Instead, they have made the position considerably worse.
The Government had the opportunity of gaining tremendous public support for the Budget, and should have introduced a programme for the immediate relief of poverty. They should be increasing child benefit by £3 a week, because that is the best way of helping poor families with children. It ensures that they receive an increase in income without being caught in a poverty trap. The Chancellor of the Exchequer should also be increasing pensions in order to benefit many poor pensioners who are still on basic state pensions. Instead, he has thrown that opportunity aside.
§ Dr. McDonald
I shall not give way; I am about to conclude my speech.
The Chancellor of the Exchequer has lost public support. The Budget will not do anything for jobs or for families. It is a dismal, miserable Budget brought in by a Nervous Nigel of a Chancellor who will not be hanging on to his job for long as a result of this disgraceful Budget.
§ The Financial Secretary to the Treasury (Mr. John Moore)
Those of us who heard the speech of my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym), and the way in which when he complimented my right hon. Friend the Chancellor of the Exchequer on his presentation, will want to compliment him on his presentation too. I was particularly pleased about the way in which he warmly welcomed the changes in the national insurance contributions and the changes in income tax thresholds, the youth training scheme, the community programme and measures for small businesses and the self-employed. I recognise that there were areas of criticism that he shared with other hon. Members, but I shall come to those later.
952 I particularly compliment my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst). I heard interventions during the debate suggesting that he was not effective in Committee. But those of us who were in Committee last year know how effective he and his Scottish colleagues were. Indeed, they were so effective in persuading my right hon. Friend the Chancellor of the Exchequer, that he recognised the difficulties through which the Scotch whisky industry is passing and ensured that the Budget would help that industry.
§ Mr. Moore
Among other things, the debate concentrated on one legitimate major concern. Many hon. Members emphasised the problems of employment and unemployment, and discussed whether the Budget or Budgets of a similar nature would contribute to jobs. My hon. Friend the Member for Strathkelvin and Bearsden, my right hon. Friend the Member for Cambridgeshire, South-East, the hon. Members for Colne Valley (Mr. Wainwright), for Portsmouth, South (Mr. Hancock), for Warrington, North (Mr. Hoyle), for Great Grimsby (Mr. Mitchell), for Denton and Reddish (Mr. Bennett), and for St. Helens, South (Mr. Bermingham), and my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) sought in their different ways to address themselves to the critical question of unemployment and jobs. It is right and proper that I should deal first with those points.
I do not in any way doubt the sincerity of the comments made by the hon. Member for Thurrock (Dr. McDonald). I recognise the sincerity with which hon. Members on both sides of the House have expressed their views about the awful problem of unemployment. But I am concerned that hon. Members may give false hope to those who are suffering and who are out of work if they suggest that there is some simple money answer. I share the views of those who see unemployment as an evil, but with respect, I think that we must understand its causes. In particular, I do not wish to go beyond the Government's remit. We must understand those causes that are Government-induced.
I understand full well that sometimes one does not wish to look to the past but, with respect to my right hon. Friend the Member for Cambridgeshire, South-East, I must say that, although in my position of some responsibility I should like to look to the future, I must, in looking for the causes of unemployment, look to the past.
I hope that the hon. Member for Birmingham, Hodge Hill (Mr. Davis) will not mind if I remind him of the days in the late 1950s when he was a student at University College and I was a student at the London School of Economics, and the debates that he, I and others had at that time. [Interruption.] I trust that that modest remark will not create difficulties for the hon. Gentleman.
These important problems are not confined to the past five or six years. I and many others who have come into politics in the past 10 or 15 years remember the debates of the late 1950s. In the middle and late 1950s, unemployment averaged 300,000 a year. We were told that a higher level would create unacceptable social and industrial unrest. I remember the period between 1964 and 1970 when unemployment averaged 450,000 a year; the period between 1970 and 1974 when unemployment averaged 660,000 a year, and the period between 1974 and 1979 when unemployment averaged 1.2 million.
I am quoting statistics, and I do not quote statistics that are not verifiable. I recognise the tragedy of today's 953 average. I am conscious of the appalling level of unemployment today, when the figure is well over 3 million. But in my view the situation has been caused in part by the way in which our country, and Governments of the major two parties, represented here today, reacted to the challenge that faced, after the second world war, an essentially trading nation, one third of the GDP of which was involved in world trade. What was of great importance was the way in which, as a trading nation, we sought to respond to changed conditions, and to the need for new products, better services and better pricing.
In a competitive world, we should have been flexible and competitive. Instead of that, what were we? It was our people as well as our politicians who failed. Our people chose to buy foreign goods. It was not just a question of foreigners choosing not to buy our goods. It behoves us in this debate to concern ourselves with what the Government's role has been in our failure, and with the Government's attempts to correct it. However, we must reconcile ourselves to the fact that macro and micro policies over the generations have compounded our problems.
§ Mr. Moore
I have listened to the debate with considerable patience. I hope that I will now be given an equal opportunity to argue my case.
At the macro level, all Governments have reacted to rising historical unemployment by trying again and again to inject more money into the system. They have all had good and sincere reasons, but the consequence has been to breed inflation. In the 1970s, we reached almost the ultimate absurdity. There has been much debate today about the need for increased demand. During the 1970s, nominal demand increased by over 300 per cent., but productivity did not increase by much more than 20 per cent. Those who argue that the Chancellor should increase demand even more should remember that since the beginning of 1981 we have increased real demand by 3.25 per cent. a year. When the Labour party was in office, there was an average annual increase in real terms of 2.75 per cent.—a smaller real increase in demand. I should like to stress to those of my hon. Friends who would like an increase in demand that, in real terms, it is increasing. As my right hon. Friend the Chancellor said yesterday:I repeat today the undertaking I gave the National Economic Development Council last month: The medium-term financial strategy is as firm a guarantee against inadequate money demand as it is against excessive money demand.At the macro level, we did precisely the reverse of what we should have done and at the micro level we strangled our economy with a panoply of controls on wages and dividends. Moreover, we reacted to prices by putting controls on credit or hire purchase. All those controls were put on for legitimate and sincere reasons, but they made an economy that had already been weakened by inflation less flexible, less able to adapt to the markets and less able to be competitive in the world in which we have to earn our living.
During the past five years, we have reversed those policies. At the macro level, our medium term financial strategy has brought down inflation and created the conditions for sustainable growth. At the micro level, we have disposed of most of the controls and introduced policies concerning competition, deregulation and 954 privatisation. Domestic productivity has improved, as has competitiveness, though not sufficiently. There have been the beginnings of change.
The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) legitimately asked when the changes will occur. I have not talked, and do not propose to talk, about the problems of the world recession, changing technology and the changing pattern of demography. However there is no question but that the Government have set the proper macro and micro framework. As my right hon. Friend said, the framework has broken inflation and produced productivity. He continued:Too much of the benefit of economic growth is currently being enjoyed in higher living standards for those in work, too little in the form of better job prospects for those out of work. In a free societyhappily, that is what we still are—the remedy lies in the hands of those responsible for collective bargaining throughout the economy." — [Official Report, 19 March 1985; Vol. 75, c. 789.92.]The second major theme of the debate has been the burden of taxation. It was started by the right hon. Member for Sparkbrook and taken up by my hon. Friends the Members for Cornwall, North (Mr. Neale), for Grantham (Mr. Hogg), for Bournemouth, West (Mr. Butterfill), for Strathkelvin and Bearsden and for Buckingham (Mr. Walden) and the hon. Members for Thurrock, for Burnley (Mr. Pike) and for Great Grimsby. The facts are clear—the burden of tax is up relative to 1978–79 by £23.8 billion. Why? Because our first job was to repair the ravages of the previous years; to repay international debts, to control borrowing and to reduce inflation. Taxation is at least an honest form of burden on present generations, whereas inflation is a dishonest burden on future ones.
Opposition Members have not asked how and in what way taxes are up, in what way they are down and who pays. Two fifths of the increase is from the North sea. Do the Opposition want us to give profits back to the multinationals who extract oil? Another two fifths has come from an increase in taxes on expenditure. As my hon. Friend the Member for Buckingham said, that is part of our philosophic commitment to a switch from taxes on income to taxes on expenditure. Most of the remaining increase comes from increases in local authority rates and employees' national insurance. We get no help from the Opposition on, for example, controlling rates.
The Opposition do not discuss where taxes have decreased. We should compare income tax now with what it was under Labour. Income tax as a precentage of total taxation and national insurance contributions is down from 32.7 per cent. in 1978–79 to 25.6 per cent. in 1985–86 —a significant change. This again confirms our belief in the need to shift taxes from those generating wealth at work.
Income tax and insurance contributions as a percentage of the total are down from 39.6 per cent. in 1978–79 to 34.3 per cent. in 1985–86. My hon. Friends the Members for Strathkelvin and Bearsden and for Cornwall, North have welcomed the fact that, in real terms, the threshold will have increased by 20 per cent. since 1978–79 and that 1.25 million of our countrymen and women will have been taken out of tax altogether. I should have thought that that was a significant achievement.
The burden carried by employers, from whom jobs flow, is another aspect of taxation that is fundamental, and the Opposition have shown their sheer brass neck in even questioning this. The employers' percentage of total taxes 955 and national insurance contributions should drop from 14.1 per cent. of the total in 1978–79 to 9.1 per cent. in 1985–86. That is a significant change. In certain areas we are seeing obvious reductions—for example, through the national insurance contribution.
§ Mr. Moore
Nominal demand has been increased in some radical ways in the past. That did not prevent the extraordinary increase in unemployment that we have seen, ratchet-like, since the 1950s. It has not solved the problem. Demand in real terms has been increasing during the past three years by a greater rate per year than it did under Labour.
§ Mr. Moore
The hon. Member for Thurrock specifically asked me to compare the burden of taxation under Labour and Conservative Governments as it affects working people, especially those at the bottom of the scale. What would the tax burden have been if Labour had still been in office? How has the average employee fared under both Administrations? Ignoring any additions that the right hon. Member for Sparkbrook might recently have suggested in attempting to ensure that the Labour party loses the next election, if we had the same pattern and indexed system as when Labour last left office— unchanged, without the action that we have taken on thresholds — £6.25 billion more in taxes would have been paid by millions of our fellow citizens and employers would have paid £3.75 billion in 1985–86 through national insurance. That would have been £10 billion additional taxes.
§ Mr. Bermingham
I would not disagree with the hon. Gentleman's figures. Will he, however, tell the House which socio-economic group has received the greatest tax deductions? Does he agree that, in value terms, the answer is those at the top end rather than those at the bottom end of the scale?
§ Mr. Moore
I shall come specifically to the group that has benefited most at the bottom. By definition, if there are absurd, contorted forms of taxation—for example, taxes of 98 per cent.—and if changes are made, some of those at the top are bound to beneift more from a progressive system. Let me answer the questions specifically for those whom the hon. Gentleman thinks are his natural supporters. If Labour had been in power, what would have happened to the ordinary taxpayers—those in work? I shall remind hon. Members of the position when Labour was in office, because one judges the comments of politicians by their actions in government.
I shall give the Opposition the best set of statistics at my disposal. Between 1973–74 and 1978–79 a married couple with two children on half average wages would have seen their real take-home pay increase by 4.3 per cent. A married couple with two children on average wages would have benefited by about 1 per cent. A similar family on one and a half times average earnings would 956 have seen their real take-home pay reduce by 1.1 per cent. The family on twice average earnings would have seen a decrease of 1.5 per cent.
During the period of Conservative Government a married couple with two children on half average earnings have seen their real take-home pay increase by 12 per cent. A similar family on average earnings have seen an increase of 13 per cent. The same size family on twice average earnings have had an increase of 14 per cent. By definition, those at the top of the income scale must have improved their position. Do Opposition Members not care for those at the bottom of the scale, whose position has improved radically under the Conservative Government? Have they lost track of that?
§ Mr. Moore
No, I shall not give way. I have already given way on more occasions than Opposition Front Bench spokesmen and a limited time remains available to me. To the extent that the Opposition are concerned to assist the Government in further reducing tax levels, I am sure that my right hon. Friend the Chancellor of the Exchequer and I will be delighted to have their support whenever Divisions take place on this issue.
Infrastructure spending has been mentioned by many of those who have contributed to the debate, including my right hon. Friend the Member for Cambridgeshire, South-East, my hon. Friends the Members for Strathkelvin and Bearsden and for Bridlington (Mr. Townend), the hon. Member for Thurrock, the right hon. Member for Sparkbrook and the hon. Members for Warrington, North, for Portsmouth, South and for Great Grimsby. [Interruption.] I imagine that those who have participated in the debate, or have sought to do so, wish to have recognition of the fact that they did and wish me to address myself to the issues that they sought to raise. I ask those who were not present to participate in the debate to have a little patience while I respond to the contributions that have been made to it.
I found the comments of the hon. Member for Thurrock on infrastructure spending rather strange. She suggested that the Government are rejecting such spending. I remind the House of the facts, which are always relevant. Fixed investment in the entire economy in 1984, both public and private, is expected to be an all-time record of £55 billion at current prices. It is calculated that public sector capital spending will show an estimated outturn of £22 billion in 1984–85. That is an overall 3 per cent. rise in real terms since 1979–80. Of course these are unpalatable figures for Opposition Members.
We have heard strange comments about expenditure on roads and housing repair and maintenance from Opposition Members. Capital spending on national roads in 1985–86 will increase by 22 per cent. in real terms above the 1978–79 level. Capital expenditure on housing repair and improvement will increase by 37.5 per cent. in real terms above 1978–79 levels.
I recognise that there will be those who have questions and complaints about certain aspects of infrastructure spending. However, my hon. Friends the Members for Bridlington and for Strathkelvin and Bearsden recognise that in such a massive programme there is a balance between the Government's ability to sustain such a programme while maintaining a certain level of interest rates and ensuring that there is no return to the horrifying levels of inflation that we have experienced.
957 The hon. Member for Colne Valley was kind enough to refer to the changes that we are seeking to make on short-life assets. He was right to remind us that Liberal Members discussed the issue and voted upon it in Committee and in the House last year. He is right to identify this as an important area of budgetary changes for British industry and, therefore, for jobs. My right hon. Friend the Chancellor of the Exchequer announced the new arrangements that are aimed at assets whose working life is shorter than the average because of heavy use or rapid obsolescence.
For many years, annual writing-down allowances on most business machinery and plant have been calculated on a pooling basis and the cost of the plant goes into the pool, the proceeds from sales are deducted from it and the writing-down allowance of 25 per cent. is given on the balance.
The proposals on short-life assets will enable taxpayers to elect to have the assets depreciated separately from the main pool—depooling—for a period of up to five years. Taxpayers will have two years from the end of the year in which the asset is acquired to make their election. Thus, the new arrangement will have the twin advantages of enabling assets whose working life is very much shorter than the average to be fully written off while at the same time maintaining the advantages of pooling for the generality of business machinery and plant. I know that this will be much welcomed by British industry at large.
Beyond that, the House may recall that I announced during the Report stage of last year's Finance Bill that we would be providing in this year's Bill for free depreciation for the writing-down allowances for new ships. We have now decided that, as from 1 April, free depreciation should apply also to writing-down allowances for expenditure on second-hand ships on the same basis as earlier announced for new ships. Given the scale and lumpiness of investment in ships, and the strategic importance of the industry to the country, owners should not be deterred by the tax system from taking advantage of the opportunities which there are in the market today for acquiring nearly new second-hand ships at prices well below those for new vessels.
Other points raised by three Opposition Members left me almost speechless. The hon. Member for Great Grimsby raised the question of electricity and gas prices, and tried to suggest that somehow the Chancellor was taking, through price rises in this area, what he had given through tax and national insurance contribution changes. I shall put on record the facts on the prices for the domestic consumer in these areas.
Before 1984, domestic gas and electricity prices were frozen for 15 months and two years respectively. Increases since then have been at or below the prevailing inflation rate. For gas, they were 4.5 per cent. on average from January 1984, and the same from February 1985. For electricity, they were 2 per cent. from April 1984, and are expected to he on average 4.5 per cent. from this April. Domestic energy prices—this is the key point—have therefore fallen in real terms in the last three years.
958 It would be embarrassing to remind the Opposition that when they were last in office electricity prices went up 2 per cent. every six weeks.
§ Mr. Moore
I think that the facts are always more interesting and more important than some of the pontifications on the subject.
With rising real output, continued low inflation, record levels of investment and welcome increases in productivity, the past year has been one of achievement. However, while we have seen sizeable increases in employment, I recognise that we still face tragically high levels of unemployment.
It has also been a year of turbulence in the financial markets. The coal strike—
§ Mr. Nellist
On a point of order, Mr. Speaker. You will wish to know, Mr. Speaker, because it pertains to your role in the Chair, that not only was I here for most of the debate, but that I spoke for 20 minutes—and I was here last night, as was my hon. Friend the Member for Great Grimsby (Mr. Mitchell).
§ Mr. Speaker
As the hon. Member knows, if the Minister is not giving way, he must resume his seat, and that is exactly what happened.
§ Mr. Moore
The coal strike exacted a heavy cost in terms of reduced industrial output and higher public sector spending and borrowing. The strong dollar has dominated the international financial scene. This is the background against which the Budget decisions have been taken.
Our first priority remains to keep up the fight against inflation through firm monetary and fiscal policies. After last year's disruption, we are determined to get public borrowing as a proportion of the gross domestic product back on to its downward trend. The Budget is designed to ensure that this is done, and that the monetary and public sector borrowing requirement profiles are realistic and achievable. Within this framework, we have been able to make a modest reduction in the burden of taxation. We have been able to introduce some important measures to boost employment, and we have continued with out programme of tax reform. The extension of YTS and the community programme will help to reduce unemployment and produce a more skilled and adaptable labour force. Reductions in tax and national insurance contributions will improve the incentives for employers to create new jobs and the incentives for workers to fill them.
I believe that the Budget is good for inflation, good for enterprise, and thus good for jobs. I commend it to the House.
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.