§ Relevant documents: European Community Document No. 9792/85, Annual Economic Report 1985–86 and the unnumbered document, Annual Economic Report 1985–86 (final version as adopted by the Council).
§ 4.5 pm
§ Mr. Roy Hattersley (Birmingham, Sparkbrook)
When, by the weekend, the media froth has been blown away from the statement of the Chancellor of the Exchequer, the 1986 Budget will be remembered for two characteristics. First, it will be remembered for its essential triviality. It did not even acknowledge, far less attempt to tackle, the three great crises now facing Britain, which are the crisis of unemployment, the crisis of poverty and the crisis of collapsing or collapsed manufacturing industry. That is the inheritance of the first five years of this Conservative Government.
The second characteristic of the Budget is its partiality. It is a divisive Budget. It is a Budget for part of the nation. It is a Budget for men and women with £200 a month to spend on share acquisition. It is a Budget for families who wish to manipulate large estates to avoid death duties. It is a Budget for the stockbrokers, who were seen on television yesterday afternoon going wild with delight when their stamp duty was cut by 50 per cent. Even the change in the basic rate of income tax, which was described yesterday by the Chancellor of the Exchequer as concentrating benefit on the great majority of ordinary taxpayers and not on the rich, has quite the opposite effect from that claimed by the right hon. Gentleman.
The family earning £5,000 a year will be 26p per week better off as a result of the change in the basic rate of income tax. The family on average earnings will be £1.22 better off per week and the family earning £50,000 a year will be £3.30 a week better off. The family living on unemployment benefit will be caught by the indirect tax changes and will be 55p a week worse off as a result of yesterday's Budget.
The basic pattern of Tory taxation policy remains the same: the rich pay less and the rest pay more. Conservative Members will remember that last year, at the Tory party 306 conference, the Prime Minister spoke movingly about the tax problems of a nurse, a teacher and an engineering worker. Ever since then we have followed carefully the fortunes of the three examples that the right hon. Lady quoted. I can tell her—she must know this—that the three categories of people for whom she expressed so much concern last October are still paying more income tax now than they were before she was elected to power. They are paying more as a proportion of their earnings and more in terms of the gross sum than they are required to contribute.
The pattern of Tory taxes is easily described. For taxpayers on ten times the national average income, the tax bill is down by 22 per cent. For taxpayers on average earnings, the tax bill is up by between 1 and 3 per cent. This Conservative Government are the first Government this century to carry out a policy of redistribution by taking from the poor to give to the rich.
Once more the Chancellor has not paid the House the courtesy of attending this debate. If he had wanted to reverse that trend of taking from the poor and giving to the rich, he would not have altered the basic rate at all. His best course would have been to use his £1 billion either to cut unemployment or to increase child benefit. His second best course would have been either to raise the personal allowance or to introduce a reduced rate band. The Chancellor had five options on how he might use the £1 billion which he said yesterday he had found at his disposal. Of the five options, he chose the one which least helps the low wage earner.
The battle over taxation within the Tory party was won by the 1922 Committee and lost by social justice, and so was the battle over unemployment. I know that within the Cabinet and within the Conservative party itself there is a continuing argument about how the Chancellor's resources ought best to be used. It is worth describing to Members of the Conservative party who thought that those resources would be best used to reduce unemployment how the balance has turned out. The net cost of the entire jobs package in yesterday's Budget was less than £100 million. That is not as much as the Chancellor devoted to halving stamp duty and reducing capital transfer tax.
If that is the Chancellor's order of priorities, no wonder unemployment rises month by month and looks as if it will remain stubbornly, on honest figures, at 3.5 million or more at the time of the next general election. It is no wonder that the job start pilot schemes about which the noble Lord in another place will be saying a great deal on television this evening have produced only 70 jobs in total in nine areas. I understand that in one area the pilot scheme has created only one job, and that is the job of interviewing non-existent applicants for the pilot scheme.
§ Mr. Michael Fallon (Darlington)
Does the right hon. Gentleman not understand that only part of the job start scheme is a £20 a week top-up? The other part is calling in and identifying the longer-term unemployed and giving them personal counselling and help. Is he not aware that 80 per cent. of those who go into that scheme think that the interview and the help are worth while?
§ Mr. Hattersley
I am aware that the scheme for identifying the long-term unemployed and giving them counselling and help is not only deeply patronising to the long-term unemployed, but demonstrates a deep ignorance of the problem. The problem is not that the long-term 307 unemployed do not know how to find jobs; the problem is that there are no jobs to find. That is particularly true in the hon. Gentleman's area. The same thing applies to the job clubs, where, as I understand it, young people come together and discuss why it is that they are out of work. They know why they are out of work: it is because of Government policies.
§ Sir Peter Hordern (Horsham)
The right hon. Gentleman says that only 70 jobs have so far been found by way of these pilot schemes. I am happy to be able to tell him that when I made a telephone call to my local jobcentre at Crawley, an area of the country in which there is relatively high employment, I found that out of 555 people interviewed, more than half had been found jobs.
§ Mr. Hattersley
I wish the same could be said for the area represented by the hon. Member for Darlington (Mr. Fallon). These schemes will help people who might well have got jobs anyway in areas where job opportunities already exist. The idea that the schemes will make a significant inroad into the unemployment levels typifies the paucity of Government thinking on this matter. It is all the more unacceptable to us because if the Government had chosen to do so we could have had a real jobs programme.
An additional reason why we might have had an effective jobs programme is the reduction in oil costs, which, whatever temporary inconvenience it causes to Britain and the Chancellor, offers the hope of increased world demand, increased world output and increased world trade. The Chancellor ought to have taken advantage of all those things to mend his ways and attempt an economic breakout.
The Chancellor was wholly wrong yesterday, and must know that he was wholly wrong, to say that as we have survived a reduction of 50 per cent. in oil revenues in 25 weeks we will easily be able to accommodate the reduction of the other 50 per cent. of our benefits in 25 years. The comparison is clearly absurd. The general cut in oil prices over the last three months helps all industrial countries by promoting trade. Therefore, it compensates economies like ours which both use and produce oil. On the other hand, the gradual exhaustion of British oil simply harms Britain, and the certainty that one day our oil will run out makes an industrial policy vital.
The Chancellor fails to recognise that a fall in oil prices means that this is the moment when an industrial policy should be used to maximum benefit. British manufacturing industry should be able to take maximum advantage of the new opportunities that a reduction in costs and an increase in trade provide. Unfortunately, because of the ravages of the last six years, that will not be so. The decline in manufacture has left us perilously dependent on oil revenue — vulnerable to the loss of income, instead of poised to take advantage of the fall in oil prices.
The improvement in manufacturing productivity about which the Chancellor tells us day after day, and in speech after speech, has been achieved at the expense of a disastrous loss of capacity and disastrous losses of output and jobs. Unless the Government change course we will remain incapable of taking advantage of what ought to be a stimulus to growth. I fear that the chances of that change in course taking place are gloomily remote, not least because the Government in general, and the Chancellor in particular, seem wholly incapable of recognising the failures of the last six years.
308 Many of the improved prospects which we should now begin to exploit, and which the Chancellor was happy to brag about in his speech yesterday, are the direct result of economic changes which the Government first opposed and then failed to prevent. I repeat that I see the reduction in oil prices as offering us a new long-term prospect. That price reduction was welcomed by the Prime Minister in her party speech on Saturday, but three months ago the Government's plans for tax cuts were based wholly on the hope that oil prices would stay firm and stay high.
A depreciation of sterling, which would make our exports more competitive, has been held back by the Government. When my right hon. Friends and I have urged a depreciation and an end to the fall in competitiveness to which over-high exchange rates lead, we have been attacked and excoriated by the Government. Yet now that has become an incentive to exporters and one of the Chancellor's achievements. For far too long the exchange rate was held above its proper level by ruinously high interest rates.
§ Mr. Hattersley
I should have known better than to give way to the hon. Gentleman—[HON. MEN1BERS: "Answer the question."] The proper level is the level at which British exporters can maximise their sales potential. The CBI and everybody involved in manufacturing industry will say that the rates have been held artificially high for far too long by the Government's intentional policy of keeping interest rates high as well.
§ Mr. Hattersley
Even now, interest rates in this country are far too high. Even now, interest rates stand at a level that penalises industrial investment and pauperises many owner-occupiers. Today, interest rates stand at a level that was inconceivable before the Conservative party was elected, and at a level that is much higher than the level of real interest in our competitor economies. That is wholly true——
§ Mr. Hattersley
I shall not give way in the middle of a sentence.
The height of our interest rates and the extent of the burden that they place on industry and owner-occupiers remain intolerable despite the 1 per cent. reduction in base rate that was announced this morning. During the debate Conservative Members will no doubt cheer and welcome a real interest rate of 8 per cent., but they will merely be showing their relief that a tragedy has turned simply into a disaster.
§ Mr. Hattersley
Our interest rate was higher than the rates in our competitor economies a month ago. Those countries reduced their interest rates, while we reduced ours belatedly to a point at which we are still running 1 or 2 per cent. higher than theirs in real terms. This morning the interest rate was managed down by the Bank of England to help the Chancellor of the Exchequer.
§ Mr. Hattersley
Indeed, I told the Chancellor of the Exchequer that that would happen during last Thursday's 309 Question Time. The interest rate was managed down this morning, in order to help the Chancellor, by the Bank of England cutting the dealing rate by 1 per cent., but it should have been managed down a month ago to help the British economy.
Yesterday the Chancellor of the Exchequer once again dangled before us the prospect of massive tax cuts. It is difficult to focus on his long-running fantasy, but it is clear that if there are massive tax cuts next year they will be wholly dependent upon, and financed by, the sale of British Gas, British Telecom and other national assets. Yesterday the Chancellor spoke about how he had held down the total of Government spending and Government indebtedness. By a slip of the memory, or some error in his notes, he did not mention the £4.75 billion that he intends to obtain from asset sales. The truth is that the Chancellor of the Exchequer has financed his Budget deficit by selling national assets.
Selling assets and gilts is simply an alternative way of financing a Budget deficit. However, when, as is the Government's practice, assets are priced below their true value and priced, if the Government are true to form, at about £3 billion below their true value to ensure a quick sale, that is not a prudent way of raising revenue, but is a wilful waste of taxpayers' money.
The Chancellor apparently wants to know whether I wish to increase the Budget deficit. I have no complaint about his increasing the Budget deficit. But why, having increased the Budget deficit, did the right hon. Gentleman choose to use it to finance tax cuts rather than jobs? Why does the right hon. Gentleman have such an obsession with people's capitalism and so little interest in people's jobs?
§ Mr. John Maples (Lewisham, West)
Without asset sales—which a Labour Government would not have—next year's PSBR would be projected at £12 billion. That would be the starting point for the right hon. Gentleman. How much higher could he safely go?
§ Mr. Hattersley
I shall give the figure in a moment. For the time being, the answer is "Considerably," and I shall justify that shortly. I am glad that the hon. Gentleman at least, if not the Chancellor of the Exchequer, understands that asset sales and other means of supporting the national debt involve exactly the same economic operation.
Before dealing precisely and directly with the question of the hon. Member for Lewisham, West (Mr. Maples), I must deal with the Government's plans for tackling the unemployment crisis. The planned increase in all the special employment schemes announced yesterday amounts to 90,000 jobs. That is 90,000 on an unemployment total which, by honest calculation, is nearer 4 million than 3 million. We are talking about 90,000 jobs, when unemployment rose by 130,000 in January alone. Similar schemes to those announced by the Chancellor were announced last year. Indeed, yesterday the Chancellor persisted in including the schemes announced last year in the figures that he gave, as if they were all for this year. Since the announcement of those schemes, unemployment has risen by 228,000. Indeed, every time the Government announce a new remedy for unemployment, unemployment increases.
There was a time when transferring assets from public to private use would automatically reduce unemployment, 310 but unemployment has increased. There was a time when reducing inflation would reduce unemployment, but unemployment has increased. There was a moment when appointing Lord Young as a Minister would reduce unemployment, but unemployment has increased. The truth, as typified by Lord Young's appointment, is that the Government are engaged not in an assault on the level of unemployment but in an assault on the unemployment statistics.
Even the Government's plans for changing the married man's tax allowance are calculated to keep married women off the labour market. The Government now believe that what no doubt in their private moments they call a pool of unemployment of 3 million or more is inevitable. That is not our view. We believe that we can begin to put Britain back to work, but we can do so only if we escape from two debilitating prejudices. The first is the obsession with the PSBR—an affliction which so grievously affects the Government. It is now generally accepted that the PSBR is a wholly inadequate measurement of Government borrowing. Setting policy by the ratio of Government borrowing to national income is a far more responsible way of determining the fiscal stance and is the method employed in many economies more successful than ours. Were we to employ that technique, I believe that it would make us more clearly understand that there are times in the life of an economy, as there are in the life of a family or of a company, when borrowing for investment is the prudent option, and that failing to borrow is the profligate alternative.
We must abandon the second prejudice — which in one sense is not so much a prejudice as a pretence—that unemployment costs nothing. It costs the Exchequer £21 billion a year in lost taxes and benefits paid. It costs the economy a further £30 billion a year in lost output. Perhaps more important is the simple fact that to reject borrowing as a means of financing a massive job-creating programme is to accept unemployment remaining at 3 million or 3.5 million for the rest of this decade and beyond. That is the choice, and the Government do themselves no credit by pretending that they have some other way of gradually putting Britain back to work. They have not. On present policies, there will be no significant fall in unemployment before the next election or beyond.
The drive to create jobs could begin now. There should be public sector capital programmes doing vital and necessary work, at a net cost of £1 billion a year, which would reduce unemployment by 67,000 in two years. There should be public sector service employment, making additions to the nursing, midwifery and home-help service, reducing unemployment by 100,000 in two years, and costing a further £1 billion. There should be reductions in national insurance, something which was flaunted by the Government two months ago and then abandoned, at a net cost of £1.5 billion a year. We could reduce unemployment by 200,000 in two years. There ought to be a job guarantee scheme based on that recommended by the all-party Select Committee on Employment, which would build up, as it calculates, to a cost of E3.3 billion, and which would result in a reduction in registered unemployed of 750,000 in three years.
The cost of the proposals is less than 1.6 per cent. of gross domestic product, and it is wholly consistent with a broadly stable debt to income ratio. That ought to have been the central theme of the Chancellor's budget.
311 The second theme ought to have been help for those members of the community who need most help—the pensioners, the families, and the long-term unemployed. If, as I and as my party believe, the national resources that are available were concentrated, to the excluson of other objectives, on the reduction of long-term unemployment, the anti-poverty programme—the schemes to help pensioners, families and the long-term unemployed—would be self-financing, and would have to be financed from within the tax and benefit system itself—by redistribution.
Pensions should he increased by £5 a week for a single pensioner and by £8 for a married couple. Those increases would more than restore the link between pensions and earnings. Child benefits should be increased by £3, and supplementary benefit, at the full rate, should be made available to the long-term unemployed.
It is intolerable that long-term unemployment, which denies those who have been out of work for a year or more their skills, often their self-respect, and their hope, should also in the end deny them the proper rate of unemployment benefit. We would, and could, provide it, along with help for the pensioners and for families, at a cost of £3.45 billion. That would include the additions to supplementary benefit, to ensure for the pensioners that what we gave with one hand we would not take away with the other.
Fortunately, that sum is readily available. While the nation as a whole is paying an annual tax bill of £30 billion higher than it was in 1979, the richest 5 per cent. are paying less. The richest 5 per cent. are paying £3.64 billion a year less than they were when the Prime Minister was elected, when she promised to cut everybody's taxes, but not the taxes of the richest 5 per cent.
Those cuts have not come simply in income tax alone. There have been a wide variety of concessions to the richest 5 per cent. There were 15 concessions in 1980 alone, and the concessions to this favoured group have averaged five a year throughout the life of this Government.
Yesterday, on a quick calculation, there were nine. I make a simple point, which I think Conservative Members may find it difficult to dispute. The richest 5 per cent. of the population should at least be making their proper contribution to the national well-being. It is intolerable that when poor people are paying more, rich people are paying less.
During this three-day Budget debate I shall look forward to hearing an argument which says that we should reduce the taxes of the rich and increase the taxes of men and women on average earnings. It is intolerable that the wealthy should have been uniquely benefited in this way, not least because tax cuts cannot be isolated from the rest of the policy. By cutting the taxes of the rich, the Government have been forced to hold back benefits from pensioners, from families and from the long-term unemployed.
Taxpayers earning £50,000 a year or more, have received from the Government an annual tax reduction of £1 billion, while pensioners are living on £40 a week, and dying from hypothermia because they cannot afford their fuel bills.
The truth is that there cannot be any escape from the choice. We must decide whether cutting the tax on unearned income, or increasing child benefit, is the most important objective. We must decide whether abandoning 312 capital gains tax and capital transfer tax, or helping pensioners, is the first priority. For us the priority is the pensioner, the long-term unemployed, and the child.
I end on a charitable note towards the Chancellor. I want to conclude on the wild assumption that his predictions of economic success—so wrong in the past—will this year be justified. Even if I make the wild hypothesis that the great breakthrough that he has recognised has come, that continued expansion of the economy is certain, and that continuing improvement in prosperity is not now in dispute, how will those successes affect the pensioners, the unemployed and the poor?
We know that they will not affect pensioners at all, for they have formally been excluded from any improvement in national prosperity, by the break in the link between pensions and earnings. We know that the number of families living in poverty increased by 1.5 million between 1979 and 1981, and then the Government stopped counting. We know from the pattern of taxes which the Chancellor has proposed, and from the holding down of benefits for which he is responsible, that the number of families living below the National Health Service poverty line will increase.
We also know that, despite his claims, unemployment at the next election will be 3.5 million to 4 million on the honest calculation that was made by previous Governments before the figures were manipulated.
The truth is that for those groups — even if the Chancellor's shop-soiled braggadocio turns out to be true—there is nothing in this Budget and nothing in this Government's policy. The truth is that the Chancellor has wilfully failed the pensioners, the long-term unemployed, the families and the poor. By failing them he has failed the nation, and the nation will make him pay the price.
§ The Chief Secretary to the Treasury (Mr. John MacGregor)
The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) finished with a forecast—rather a more shaky forecast than one is accustomed to hearing from him. I can understand why, because his record on forecasts and on understanding the underlying economic situation, has always been shaky. Just before the last election, he predicted that with our policies, inflation would soon be rising to double figures. It never did. It never has.
Only two months ago in the House the right hon. Gentleman raised under Standing Order No. 10 the urgent issue that there would be an imminent increase in real interest rates, which he described as being a matter that is directly within the responsibility of the Government. There was not, and the House knows today that the actual change is in the reverse direction.
So it was in approaching this Budget. Although the dramatic fall in oil prices has been good for British industry and for our economy, the right hon. Gentleman thought—there was a hint of it in what he said today—that it was really bad news for my right hon. Friend the Chancellor, because of the known and substantial loss of oil tax revenue. He hoped that that would have completely destroyed any room for manoeuvre in this Budget—or that, if my right hon. Friend wished to find scope for tax cuts or other new initiatives, that could be achieved only by substantial increases in indirect taxes over and above inflation, especially on petrol.
313 That is no doubt why the right hon. Gentleman encouraged his right hon. Friend the Leader of the Opposition to make the theme of his response yesterday jam tomorrow, because he thought that the Chancellor was in a jam today. But as the Budget unfolded, it became clear that my right hon. Friend was not in a jam. He was able to reduce both direct taxes and the borrowing forecast for next year, thus maintaining prudent and responsible control over the economy, without any increase in the real burden of indirect taxes—thereby ensuring that the benefit of the recent drop in oil prices remains with both industry and private motorists.
My right hon. Friend was able to announce a series of imaginative and innovative measures to promote enterprise, to spread share ownership and to help charities. He was able to agree to additional employment measures on top of the very large sums that we are spending already within our planning totals. Because of this prudent management, we now learn that interest rates have come down by one percentage point today, bringing further benefits to businesses and to families throughout the land.
The right hon. Gentleman talked a great deal about real interest rates, but the combination under the Labour Government was very high interest rates and even higher inflation. That combination was lethal.
§ Mr. Hattersley
The right hon. Gentleman makes this point every week, I ask him a question every week, and perhaps he will give us the answer today. Was the real interest rate ever as high under the Labour Government as it is now?
§ Mr. MacGregor
There was a very simple reason. The right hon. Gentleman's Government had such an enormously high level of inflation, and the right hon. Gentleman always tells us that high inflation destroys jobs.
All this is a direct result of the underlying strength of the economy. The right hon. Gentleman called the Budget staggeringly trivial. He got it staggeringly wrong, because he staggeringly misunderstood the situation. He concentrated a great deal on manufacturing industry, so I shall respond to that point. However, we all recognise that there are many other aspects of the economy that are every bit as significant, including the £6 billion a year in invisible earnings that the City brings in and which the right hon. Gentleman denigrates so much.
Let us look at the record on industry and at some of the critical factors. The real rate of return of industrial and commercial companies rose to 8 per cent. in 1985—the highest level since 1973. Manufacturing profitability also reached its highest point since 1973. One of the most devastating symptoms of Britain's industrial decline in the 1970s was that we had far too low a rate of profitability.
The Opposition parties talk much of more investment going into research and development. This increase in profitability will enable that to happen. To judge from the record of the Government of which the right hon. Gentleman was a member, he and his colleagues may not think that company profitability matters and that it is somehow wrong for real profitability to return to this country. It is not wrong; it is essential. It is the engine of future investment and jobs, and of confidence among those with the capital available to invest in the future of this country.
314 It is quite clear that the Labour party simply does not understand that the return of profitability, and real rates of return at decent levels to industry and commerce, is one of the signs that the real economy is getting stronger. The signs can also be seen in investment. Total fixed investment rose by 8 per cent. in real terms in 1984 to reach an all-time high. Some further increase is expected to have occurred in 1985, and we expect another 5 per cent. increase in 1986. Total business investment went up 10 per cent. in 1984 and a further 2 per cent. in 1985. It is expected to grow 5 per cent. more in 1986. I can understand why the right hon. Gentleman does not want to listen to good news. This investment is happening now, and every increase in investment means that the economy is getting stronger.
The signs of what is really happening can also be seen in the balance of trade. The current account surplus was £3 billion in 1985—the sixth successive year of surplus. Since 1981, United Kingdom manufacturing exports in volume terms have increased their share of world trade. We are taking on the competition and matching it. That is a measure of our new strength, and what a welcome change it is from the story of earlier years, when our share of world trade in manufacturing was constantly declining.
Underlying these successes are the real changes that companies have made to become competitive. The number of industrial disputes in 1985 was the lowest for 50 years, and productivity—where we have lagged behind for so long—is rising steadily. Since 1979, manufacturing productivity has increased by around 3.5 per cent. every year, compared with 1 per cent. between 1974 and 1979. This means that our productivity has improved more than in France, Germany and the United States—more signs that we are again getting stronger.
Above all, we must never forget the essential part played by the reduction in inflation achieved by this Government's policies.
§ Mr. Neil Kinnock (Islwyn)
Will not the right hon. Gentleman give appropriate recognition to the fact that the rise in productivity is generally taken to be a consequence of producing 6 per cent. fewer goods with 25 per cent. fewer workers?
§ Mr. MacGregor
Since 1981, after the world recession had been got out of the way and we had dealt with the inheritance we faced, productivity has increased even more, with increases in manufacturing output every year. The right hon. Gentleman still fails to understand the significance for the long-term strength of the economy of achieving that level of increased productivity.
The devastating effect of high and fluctuating rates of inflation on industry, trade, commerce and confidence—and hence on jobs—can scarcely be measured. That is why the reductions in inflation are so important to the long-term strength of the economy. The right hon. Gentleman used to agree with that.
The fact that we could take further steps in all the directions that my right hon. Friend announced yesterday is another illustration of the underlying strength that our policies have brought to the economy. That strength allowed us to see through a year-long coal strike and a spectacular shift in oil prices, and still to keep on course.
§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)
My right hon. Friend properly mentioned profitability, which is so important to manufacturing 315 industry. We all want to see increased profitability. Does he agree that one of the wise things that the Chancellor did yesterday was to put the price of oil up by only 7½p—which was meant to come out of the excess profits of the oil companies—when the price could have come down by 12p. Will he try to ensure that profitability for manufacturing companies is not made up by profiteering by the monopoly oil companies? Can we be firm with them, as we were with the banks, and see that if they do not play the right game they have to pay excess profits tax, so that they serve the people and do not just profiteer?
§ Mr. MacGregor
I certainly hope that many of the comments that have been made will be noted by the oil companies. I believe that we shall now see considerable competition at the pumps throughout this country and that this will have an impact in ensuring what my right hon. Friend said yesterday that he hoped for.
Having talked about the underlying strength of the economy, I turn now to what I regard as three of the major themes of this year's Budget. This Budget marks a further step in our programme of reducing the burden of income tax on the British people, despite the constricting circumstances resulting from the loss of north sea oil revenue.
Our reasons are well known. Income tax as a proportion of most people's earnings has increased enormously over the years. Tax and national insurance paid by a married couple on average earnings was about 29 per cent. last year—double the share taken in tax at the end of the 1950s. It is therefore still too high, and I hope that the hon. Member for Blackburn (Mr. Straw) will support us in all the efforts that we are making to get it down.
The right hon. Member for Sparkbrook referred to the burden of tax compared with 1979. What in fact matters is a person's take-home pay. Let me take the case of the real take-home pay for a married man with two children, on average earnings. His real take-home pay will be up by over 17 per cent. in 1986–87 compared with 1978–79. Under the Labour Government, from 1973 to 1979, the same person saw his real take-home pay grow by only 0.5 per cent.
§ Mr. Hattersley
Could the Chief Secretary tell us if he is glad or sorry about the figures that he has just given us, since yesterday the Chancellor of the Exchequer was urging people to keep their wage claims down?
§ Mr. MacGregor
Obviously, there is increased revenue when pay increases. The real problem—I will come to this later—is that our greatest danger is the increase in unit labour costs. One of the very important points about the changes in income tax is that they will help to ease that problem of increasing unit labour costs. What the right hon. Gentleman said about the burden of tax means, I hope, that he will continue to support us in our efforts to get it down.
We want to enlarge the area of personal choice so that individuals are able to keep more of what they earn and to spend it as they wish, including, if they choose, important areas of expenditure which the Labour party would see as the preserve of central Government alone, using, of course, the taxpayers' money.
Moreover, the evidence suggests that excessive tax rates damage economic performance. There are many reasons why this may be so. Higher taxes on individuals lead to the problems of the poverty trap, with which we 316 are all familiar, the compression of incentives for those in work and the reduction in incentives to take jobs at all. High taxes on employers increase their costs relative to international competitors and reduce the number of jobs that they can afford to offer—a point which the right hon. Gentleman completely ignored. Above all, there is the stifling, crushing effect of high taxes on enterprise, on the activity of creating new businesses, on which lasting jobs and future prosperity depend. So much for the principle.
There are several features of this year's income tax changes which I should like to single out.
§ Mr. MacGregor
I really cannot give way again. I have already given way a great deal. [Interruption.]
§ Mr. Deputy Speaker (Sir Paul Dean)
Order. The Minister has made it clear that he is not giving way.
§ Mr. Stuart Bell (Middlesbrough)
Is it not a fact, Mr. Deputy Speaker, that this is the Budget debate and that it is right and proper that the Minister give way and he cross-examined on the proposals of the Government?
§ Mr. Deputy Speaker
It is well known to the House that it is a matter for whichever hon. Member has the floor whether he gives way, but I have noticed that the right hon. Gentleman has given way frequently.
§ Mr. MacGregor
I am very grateful, Mr. Deputy Speaker. I have given way frequently. I know that many people want to speak, and my right hon. Friend the Financial Secretary will happily answer points made in the debate. There are many points that I want to make and I do not want to take too long.
I want to single out several features of this year's income tax changes and to begin by stressing that the gains, compared to indexation, have been quite deliberately concentrated on the vast majority of ordinary taxpayers, those in the broad income band fluctuating around the average—in other words, from well below average earnings to twice such earnings. I noted in some of the pre-Budget comments doubts about reducing direct tax rates because, so it was thought, this would particularly benefit the higher paid. The House will have noted that we have deliberately skewed the changes so that it does not do so. Those at the top of the earnings scale broadly get no greater gain than they would have got from simple indexation of allowances.
Those in all income ranges have seen their income tax reduced in real terms as a percentage of their tax liability compared to the last year of the Labour Government after adjusting for inflation, in other words, assuming normal indexation since that year. That is another response to the right hon. Gentleman. Until, this Budget, the percentage tax reduction had been greatest at both ends of the income scale, but for those within the income ranges of £5,000 and £20,000 the percentage income tax reduction was less than for all the others. That is one reason why there was a strong 317 case for concentrating on this large income band, for whom the 1p reduction in the basic rate means most. It was their turn.
This brings me to the rates v. threshold argument. In choosing to make a 1p reduction in the basic rate this year the Government are not saying that basic rate reductions are in some sense better than threshold increases. The fact is that we need both as part of our programme of reducing the burden of tax. Our record shows the importance we attach to raising the threshold. The basic allowances will be over 22 per cent. higher in real terms next year than they were in 1978–79. This substantial increase in allowances means that there are 1.4 million fewer taxpayers than if we had merely indexed the 1978–79 regime. It means also that the real value of the married man's allowance is the highest since 1945.
In the Green Paper on personal tax reform, which my right hon. Friend the Financial Secretary will be dealing with later, we described a possible strategy for the future. One of the main purposes of the paper is to show how we could increase thresholds in a way that is more cost-effective and gives more help to those whose family commitments are high. It shows that our long-term objective continues to be to make further substantial increases in allowances. All this demonstrates our commitment to thresholds.
It is time, however, that something more was done about the basic rate. It gives help to very large numbers of people on a very wide range of incomes. It is bound to do so, when some 95 per cent. of taxpayers pay at the basic rate. For all those taxpayers, their marginal rate will fall, so incentives will improve. The argument about marginal rates is a very important one in the context of the economy.
The reduction in the basic rate, moreover, is of greater benefit than an increase in allowances, for the same overall cost, for single people and married women with incomes as low as £115 a week. This is little more than half average earnings. It is of greater benefit for married men earning £180 a week, which is still well below male average earnings.
Let me just take the single person earning £140 a week to whom the right hon. Gentleman referred. Everyone agrees that he or she is paying too much tax. I suspect that in most people's minds that person is thought to benefit more from higher thresholds than from the basic rate reduction. On the contrary, that person will gain 95p a week from the reduction in the basic rate, compared with 69p a week for an equal-cost increase in allowances. I might add that, as a direct result of this Budget, he will have £1.70 more in his pay packet, and for a married man on average earnings the figure is £2.59. That, of course, comes on top of all the other benefits that will ensue from the Budget. So that is another argument for doing something about the basic rate this year.
A basic rate reduction also helps small businesses and the self-employed. I know only too well the argument which is sometimes deployed—that we have greatly helped the small incorporated business by big reductions in the small business rate of corporation tax, and that all other businesses have benefited by having the lowest rate of corporation tax—at 35 per cent.—in any major industrial country. The self-employed and our unincorporated businesses do not feel that they have always benefited to the same extent.
318 In fact, 90 per cent. of all self-employed non-incorporated businesses have earnings at the basic rate of tax. This 1 per cent. reduction in the basic rate will be of particular benefit to them, on top of all the other measures we have taken for them. It will enable the small business rate of corporation tax to come down again.
The basic rate reduction helps with one other issue of great importance which the right hon. Member for Sparkbrook raised in his last question. The House is well aware that one of the greatest threats to jobs in this country today is the fact that our labour costs have been rising faster than those of our major competitors. I make no apology for emphasising the latest figures yet again. In the 12 months to the third quarter of 1985, unit labour costs in manufacturing in this country rose by 6.25 per cent. In the United States they rose by 2 per cent., in Germany by 1 per cent. and in Japan by 0.5 per cent.
For the employee on average earnings, the reduction in the basic rate of tax plus the increase in thresholds is the equivalent of £4 a week increase in gross pay. That is a pay increase which does not damage the competitiveness of British industry and does not put other people's jobs or that employee's job at risk.
As the CBI has acknowledged, it is essential that we bring our increase in labour costs more into line with those of our competitors through realistic and sensible pay settlements. The Budget—I notice that the right hon. Member for Sparkbrook is not listening; I am about to answer his question fully—through direct tax changes, through its encouragement of lower inflation and through its assistance in lowering mortgage rates, which were decreased today, has greatly helped that process. I hope that employers and employees will take note and act accordingly.
I turn to my second theme—enterprise and job measures. Of course, we all want the level of unemployment to be brought down, but the Government at least recognise the formidable nature of the challenge, which is a worldwide one, in the face of the increasing impact of technology, the increased threats from greater competitiveness in our own and world markets from more and more newly industrialising countries and the problem of coping with substantial increases in the potential work force—an all-time high in Britain of some 510,000 extra in 1984, which was a point conveniently forgotten by the right hon. Member for Sparkbrook.
Faced with all these, we have made considerable progress, with more new jobs being created in Britain since the last election than in the rest of the Community put together. My right hon. and learned Friend the Paymaster General and Minister for Employment will elaborate on that aspect if he catches your eye tomorrow, Mr. Deputy Speaker.
§ Mr. Sydney Bidwell (Ealing, Southall)
On a point of order, Mr. Deputy Speaker. Is it not customary and courteous for a Minister who has named a Labour Member to give way?
§ Mr. Deputy Speaker
The hon. Member well knows that it is for the hon. Member who has the Floor to decide whether to give way.
§ Mr. MacGregor
I shall give way to the hon. Member for Blackburn just this once, and then I must continue.
§ Mr. Straw
Is the right hon. Gentleman aware that the name of the Paymaster General appears on the proposals of the Tory Reform Group which called for job creation before taxation cuts and for an increase in spending of £3 billion? What answer has the right hon. Gentleman given to the Paymaster General and the other two Cabinet Ministers whose names appear on the front of that document?
§ Mr. MacGregor
My right hon. and learned Friend the Paymaster General will make it clear himself that he was not part of the process of developing those policies and will give a very satisfactory answer tomorrow. My right hon. and learned Friend was not involved in framing that set of proposals.
I should like to confine myself to three comments on the employment side. First, the employment and training measures currently pursued by the Government are much wider and more extensive than ever before. We are planning to spend about £2.5 billion in 1986–87 on those measures, increasing to nearly £3 billion in 1988, compared with £300 million in the last year of the last Government. The bulk of the benefits from last year's Budget are only now beginning to work through. That is not surprising. The restructuring of national insurance contributions came into effect only last October. The two-year YTS begins next month, and the expansion of the community programme is only part way through. My right hon. Friend the Chancellor was therefore right to include those measures in considering the effects on employment in the coming year.
The new measures announced yesterday, at some £195 million gross, are on top of all that, so it is ridiculous to describe them as the response to the problem of the unemployed. They are in addition to everything else that has been and is being done.
Moreover — this is very important — we have concentrated on those measures which have been proved to he the most cost-effective. It is, of course, only too easy for one to promise to spend much more of the taxpayers' money on such schemes and to claim that in that way one was making a greater Government contribution to jobs, but it is false. What matters is that we ensure that this is the best use of taxpayers' money and that it is effectively spent. The Opposition constantly fail to take into account the fact that every £100 million spent on such employment measures comes from other businesses and other people in employment. Squeeze them too hard by higher taxes or higher interest rates and one destroys hundreds of thousands of jobs which would otherwise be lasting.
Secondly, as a former Minister with responsibility for small businesses, I am delighted to see the emphasis on measures to promote enterprise, to encourage small businesses and to assist self-employment. Two of the schemes for which I had initial responsibility — the 320 enterprise allowance scheme and the loan guarantee scheme—have proved themselves, and I am sure that all my right hon. and hon. Friends will welcome their extension in the Budget.
§ Mr. MacGregor
I am delighted, too, that another scheme in which I took particularly close interest, the business expansion scheme, has received the thumbs up from the Peat Marwick report and is being extended indefinitely. I welcome, too, the fact that the Leader of the Opposition has recognised its value and supported what we have proposed in the Budget.
The CTT changes are important in this context, because their main effect will be to help the family businesses. There is little incentive to build up a family business beyond a certain scale if it cannot be passed on to the next generation without heavy tax bills on transfer. Increasingly, it has become clear that the effect of the lifetime gifts provision was to prevent new jobs being created. It led, possibly because of the need to meet tax bills, to the actual loss of many existing jobs. I hope that the right hon. Member for Sparkbrook will reflect on that point if he concludes that he wants to oppose the proposal.
Thirdly, it is nonsense to suggest that the only impact of this Budget on jobs will be through the specific employment measures. Expenditure is only part of the story. The Opposition live under the delusion that Governments alone can create jobs by spending other people's money. We disagree. Lasting jobs are created by business success in the market place—by businesses producing goods and services which people want to buy and which they will have more money to buy after the Budget.
For me, the third main theme of the Budget is the further encouragement it gives to wider share ownership. For many years, I was an active member of the Wider Share Ownership Council, and, like my right hon. Friends, I have a passionate belief in seeing the capital-owning democracy, begun with the massive extension of home ownership, augumented by as many of our fellow citizens as possible being able to build up investments of their own, over and above their pensions and life policies, to enhance their financial independence of the state and to spread the investment habit.
We have built on the success of previous Budgets, of privatisation and of increased employee participation. We are breaking down the old demarcation between capital and labour. I am therefore delighted at the warm welcome—with the obvious exception of the right hon. Member for Sparkbrook—given to my right hon. Friend's radical new scheme, the personal equity plan. It is important that the tax advantages hitherto given to institutional investors are counterbalanced. Small investors will now be able to build up substantial nest eggs for their retirement, to complement their pensions or for other purposes. More and more of our fellow citizens are increasingly coming to see that share ownership is just as natural and just as realistic an ambition as home ownership. I hope that this new scheme will help to turn those ambitions into reality.
Of course, I did not expect Labour Members to understand or welcome the new scheme. At heart, the Labour party believes in the municipal Socialism of the town hall landlord and the central Socialism of the man in Whitehall. On this matter, philosophically and in practice, 321 there is a fundamental divide between the parties, and this Budget has intensified it. Not so long ago the Labour party showed itself to be out of touch with the aspiration of people to own their own homes when it opposed the sale of council houses. It had to come round to that because of its popularity. I tell hon. Members that the time for people's capitalism has come.
Something of the same spirit underlies the Budget proposals on charities. Of course, this Government have done much in successive Budgets already to help charities, but this is far and away the best Budget ever for them. My right hon. Friend has given an enormous boost to charities with the imaginative steps he is now taking. A vast range of activities are affected—good social causes, the arts, conservation, the heritage, education, including universities, medical research and the Third world. Of course, the proposals have been welcomed on all sides, and give charities the opportunity to attract a huge surge in charitable giving, estimated to be at least £120 million by next year, and perhaps more.
It is not just the national organisations which will benefit. I expect that there will be a significant boost to many county and small local charities and charitable activities and events, in my own county and constituency as in those of my hon. Friends, and not least to the churches, with the money coming from local employers and employees.
For me too there is a wider significance. There is state funding on a substantial scale for many of these purposes, and it will continue. But the decisions in practice are very often concentrated in a few hands, and very much focused on the centre. Letting individuals and companies decide what they want to give to, and to whom they want to give it, means that decisions are diffused throughout the community, are in as many hands as possible and have a strong regional and local focus. We have always supported an active and flourishing voluntary sector. These measures should reinvigorate it.
§ Sir Eldon Griffiths (Bury St. Edmunds)
As chairman of a national charity for mentally handicapped people, may I say that the proposals by my right hon. Friend the Chancellor will without doubt enable us greatly to extend the recreational and sporting facilities for large numbers of mentally handicapped children who otherwise would not be assisted?
§ Mr. MacGregor
I am grateful to my hon. Friend; I entirely agree with him. Although the charitable proposals have had a wide welcome, I suspect that their real significance and impact have not yet sunk in. They are a major step forward for all charitable and voluntary activities.
The Budget documents this year do not announce any new major developments in public expenditure. The planning totals have not been changed from those set out in the White Paper and the package of employment measures will be met from the reserve. There should be no criticism of that. As we get nearer to the year in question, we are able to respond to changing circumstances by switching some resources from the reserve to specific programmes while remaining within the totals which we have set.
The essence of sound control is, as the Green Paper on the longer term expressed it,
322to establish a clear view of what can be afforded, set out our spending plans accordingly, then to stick to those plans".That is precisely what we are doing.
Whereas in the autumn statement and in the public expenditure White Paper we expected the outturn for 1985–86 to be at the level of the planning total, we now expect it to be slightly below. That will no doubt surprise those who last autumn took the view that our determination to achieve the planning totals was no more than a pious hope which would be rapidly undermined in practice. But it shows that, far from it being a case of virtue tomorrow, good housekeeping and proper restraint of public expenditure are being practised right now.
How important it is that that good housekeeping should be maintained. For it has been the soundness of public finances, together with the underlying strength of the economy, which has enabled us to weather the huge fall in oil prices and its impact on Government revenues, to achieve yesterday's Budget and to make possible the interest rate fall today.
There could be no greater contrast than that between our plans and those of the right hon. Gentleman. Where we offer consistency and realism, he offers inconsistency and, as has been pointed out by one of my hon. Friends, unreality. The right hon. Gentleman clearly thought that he could play both sides against the middle. He thought he was on to a very good thing. He thought he could play a statesmanlike role, rushing round the City making play of his own conversion to the joys of sound finance, while at the same time, his colleagues were covering the length and breadth of the land making promises to lobbies and pressure groups, and committing themselves to more and more additional spending, to please the Left wing behind him.
But, to the right hon. Gentleman's evident chagrin, we were observing the process and noting down each and every promise as it appeared, until the total cost—as the House and the country now know—came to £24 billion. The right hon. Gentleman ought to be grateful to us for blowing the whistle at that figure. If we had not, who knows where the Labour party might have ended up. Since we announced it, the right hon. Gentleman has tried every way he knows to wriggle off the hook; and failed.
So far, on the basis of our exchanges and the right hon. Gentleman's assurances, I have agreed to make two changes. They put one figure down and another figure up, leaving the total pretty much the same. For weeks the alarm bells have been ringing in top Labour circles. Last Sunday's press quotes " a senior Kinnock aide" as saying that the Labour party has
got to get out of the habit of ringing up the promises on the cash register".So we come to today's figure. I shall leave aside such things as pensions, although I assure the right hon. Gentleman that if he financed his programme as he intends, he would do devastating damage to much of the economy. I shall tot the figures up later but I reckon that the total would approach £10 billion. Perhaps he will tell me if I am too high.
§ Mr. Hattersley
On the programme I have described, the right hon. Gentleman is wrong by 50 per cent. I want to ask him about the previous figures. In regard to the £24 billion he will recall that on television last night and again this morning I called him something which the rules of order prevent me from calling him in the House. He will also recall that, when he told the House of the figures, he 323 said that they had been compiled by the Civil Service. I have today received a letter from the secretary to the Cabinet. I shall quote two sentences:I understand that Treasury officials were asked by Treasury Ministers to provide them with estimates of the costs of implementing proposals which Ministers, with the assistance of their political advisers, had identified as having been put forward in Labour Party documents or by Labour Party spokesmen. The list of proposals to be costed was not compiled by officials.Whom does the right hon. Gentleman think will be fooled by that?
§ Mr. MacGregor
We never argued that it was compiled by Treasury officials. We followed the normal practice of the past in asking them to do what they did. I sent to the right hon. Gentleman the list on which the figure was based. It was a list compiled by him and his colleagues from pledges which they had made. I have given the right hon. Gentleman many opportunities to deny them and so far he has denied only a tiny amount. I have admitted that we got one wrong; it should have been higher. I have told him constantly in the House, not least last Thursday, that he would have to bring his commitments down. It has only been our constant promptings, I suspect, that have caused him to do so. Today we are getting a response.
I do not think the right hon. Gentleman will be able to finance the other parts for which he thought the finance would come from the self-financing of capital taxes and higher rates of tax. For this year, we seem to be on £5 billion to £6 billion. I make only two comments. First, we and the country will watch constantly to see that the right hon. Gentleman really has control of his colleagues. We will want assurances that all the other programmes in the list of commitments which I sent him have been dropped. We shall be watching like hawks to see that they do not start ringing up the promises on the cash register again. I shall be interested to hear what his right hon. and hon. Friends on the Back Benches think about the pledges which, on what he has said today, he does not now intend to carry through. [Interruption.] If that is his strategy for the Budget, the fear remains for the country that that figure of £24 billion is what the Opposition are committed to. We now have it on record that the right hon. Gentleman's lower figure applies to this Budget, but we still want to see what in the £24 billion programme the right hon. Gentleman wants to knock out.
Secondly, the right hon. Gentleman's figure for this Budget is still far too high. It appeared that the right hon. Gentleman wanted to finance much of the Budget on the borrowing requirement. He said that borrowing is an option. He and his Government tried it, and look what happened. During that period we saw a rise in interest rates, devastation to the economy and higher inflation rates.
If the right hon. Gentleman intends to finance the extra expenditure today entirely on the borrowing requirement, that would have made impossible today's fall in interest rates. His figures would have pushed them much higher. Up would go mortage rates, squeezing the income of millions of families. Up would go inflation, harming the poor and the pensioners, about whom he talked, destroying existing jobs and new employment opportunities. Was it not the right hon. Gentleman who told the House last month how important it was to cut interest rates in order to bring down unemployment?
324 The right hon. Gentleman told the House recently that the Labour party would no increase the basic rates of income tax. I have explained to the House the benefits to jobs, enterprise and families of the penny off—the reduction to 29p that my right hon. Friend the Chancellor has now announced. Will he and his party now oppose that? I take it that the right hon. Gentleman will support it.
§ Mr. MacGregor
That is useful to know. It means that the right hon. Gentleman must find another £1 billion on the borrowing requirement. The only conclusion that I can reach is that he would never be able to do so. He would have to turn once again to raising substantive VAT and petrol taxes, again with harmful effects on inflation, the poor and pensioners.
The right hon. Gentleman has not got out of his dilemma or off the hook at all. His programme is still unfinancable without devastating effects. The contrast is that, by prudent finance and sound public expenditure policies, my right hon. Friend was able to announce a Budget yesterday which will be good for enterprise and jobs tomorrow.
§ Mr. Roy Jenkins (Glasgow, Hillhead)
I hardly wish to intrude in the private quarrel between the Chief Secretary to the Treasury and the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). There is a sharp contrast between the oratorical style of the Chief Secretary and his predecessor the right hon. and learned Member for Dover (Mr. Rees), who has just left us. It is rather like having a machine gun battalion replacing a stately and elegant squadron of cavalry. I am not sure that the quick burst of tactical fire from the right hon. Gentleman, while in many ways very effective, enables him to stand back and look at the strategic landscape.
Let me look at the Chancellor's last three Budgets. I see that the Chancellor, who was the first Chancellor for 20 years or more to be late for the speech from the Opposition Front Bench, has now left us. I was about to pay him a few tributes, but he really is a remarkably bad listener. His first Budget was, in my view, remarkably well presented. It was taut, logical and lucid, the best for quite a long time—about 14 years, I would be inclined to say. It did not in my view engage wholly with the central problem, but it made some sensible changes around the edges.
The second Budget was less good. I think that the right hon. Gentleman had been rather thrown by the mismanagement of the sterling crisis in January of last year, and the bombast was a little more to the fore when he proclaimed that it was a Budget for jobs, which it manifestly was not, whatever else it was.
How does this year's Budget fit into the pattern? First, the right hon. Gentleman has had the advantage of being able to prepare things under the shadow of the Westland affair, while the attention of his colleagues was almost totally occupied elsewhere. Secondly, he seems to have learnt the lesson that if one wants to make a Budget speech interesting, it is rather a good idea not to put most of it in The Sunday Times two days before.
The Chancellor started with a brisk canter of contents, announcing exactly what he was going to say, and what subjects he was going to cover. I thought that the Budget 325 was going to be as clearly delineated as his first Budget, but it did not entirely hold up in that respect. The pudding had some good plums in it, but in my view it did not have a theme. Nothing very logically or obviously followed from anything else, and several vital issues were glossed over. Poor old sterling M3, after its days of glory in the early 1980s, really was pushed firmly into the wastepaper basket. It can go away and grow if it must by 11 to 15 per cent., but do not trouble us again. That was the dismissive message it received.
The exchange rate also had some fairly cursory treatment. We heard a number of tributes from the Chancellor to the Plaza accord, but I missed the vital factor, particularly for next year, of the Chancellor's description of his exchange rate policies. The Plaza accord means that benign neglect is out of the window, was wrong, has been abandoned and will not be reverted to. But it does not amount to an exchange rate policy for Britain, which British business men would greatly like to see.
On Saturday the Financial Times leader said that British business men wouldwelcome a stable exchange rate, help for the unemployed, and lower interest rates, in roughly that order, with tax cuts far behind.Judged by that test, this is not much of a Budget for business. How long will the Chancellor and the Foreign Secretary allow the Prime Minister to continue with her prejudice against joining the European monetary system, for which conditions are now almost ideal, and against which there is now hardly any rational case left?
However, it would be quite idle to deny that this is an ingenious Budget, with some good things in it. The provisions for charities are right, the paving of the way—although there is some way to go—to profit-sharing is right, the excise duties have been handled skilfully, and on the whole wisely, with just as much skill devoted to their presentation as to their formulation, and that is well done.
I have substantially more doubts about the destruction of capital transfer tax. This tax undoubtedly raised genuine and difficult problems, and it was not a perfect tax, but to go back to death duties, unsupported by any tax on gifts inter vivos, is pretty unsatisfactory, too. Death duties are an extremely haphazard and weak tax. If people die old, it is, broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue. Therefore, it effectively becomes a levy on the rich who die young and unexpectedly, which is not a satisfactory fiscal basis. It is also a weak tax because of the arrangements, in themselves desirable, between spouses, which means that families have two chances to avoid it.
I am no believer in punitive taxation, but the forces making for inequality in Britain today are so strong that I am surprised that it should be within the philosophy, even of this Government, substantially to add to them in respect of inherited wealth. It cannot make sense for this tax, which is essentially one of long-term effects on the nation and long-term dispositions to the individual, to be such a political football, to be so frequently kicked back and forth and up and down the pitch. This is pre-eminently a tax for 326 which we should try to get some permanent arrangement agreed between the parties, within the walls of which individuals can do some sensible planning.
There is another distributive point. In the argument over the turn of the year about the relation between direct taxation concessions, which it was thought would be much bigger. and a stimulus to the economy by an increased level of investment in the public sector, the Prime Minister, supported by the chairman of the Conservative party, was much concerned, as usual, to try to capture the populist ground and talked about people on lower pay who are paying too much tax. I remember her saying that nurses, in particular, were paying far too much tax. I am not sure that the Chancellor can have heard, because the low-paid will be lucky if they get a reduction of 0.2 per cent. out of the Budget. Those on between £15,000 and £20,000 a year will have a percentage benefit approaching 1 per cent., and therefore a significant level. It reaches its maximum in money terms even higher up, but to some extent that is inevitable with all direct taxation changes.
There can be no doubt that this is a remarkably stony-hearted Budget for those who are the casualties of the Government's policies. The Budget further divides an already dangerously divided realm. That is the major, but not the central, criticism of the Budget. The central criticism is that it is a complacent Budget. It is a modest Budget, and in this one respect it is the Budget of a Minister of taxation who accepts the economic weather, rather than that of a Chancellor of the Exchequer who tends, to some extent, to make the economic weather. Whether that approach is right depends essentially on two issues. First, is the present weather in the sense of the condition and prospect of Britain acceptable; and, secondly, if it is not, can a Chancellor do anything significant about it?
The Chancellor answered firmly yes to the first question about whether the weather is acceptable both now and in the future. That is the cause of his complacency. To paraphrase what he said, our growth is the highest in Europe. the fall in the rate of inflation is a triumph, the loss of half our oil revenues has been surmounted with hardly a tremor, and the prospect ahead is almost blissful. I became just a little frightened when I heard that.
On the individual points, there is, as the Chancellor and the House will know, a possibility—there always is—of putting different glosses on particular statistics. For instance, how good the growth rate is depends essentially upon the starting point. If we compare growh today to 1981, it is not too bad. However, if we take 1979, a date not without significance—only the starting point of the Government—our growth now is 1.1 per cent. per annum, which compares with 2.5 per cent. per annum in the preceding and now much-derided decade and a half from 1964 to 1979.
Inflation is certainly down, but it is not strikingly so by international standards. The record is at best indifferent, and at worst almost bad. German inflation is now probably below 1 per cent., and the French inflation rate is well below ours. I much enjoy recalling how the Prime Minister used to excoriate the French Government and their economic defence. We do not hear a great deal about that now. When the French Government came to power, for the first 18 months after 1981 they endeavoured to pursue a Socialist policy, and the result was a pretty good disaster. They then turned to a Social Democratic policy, and the result has been a level of unemployment barely two thirds 327 of ours and a level of inflation barely half of ours. There is no question but that both the Prime Minister and the leader of the Opposition might well put this in their pipes and smoke it.
§ Mr. John Browne (Winchester)
The right hon. Gentleman has denigrated the Government's achievements on growth and inflation. He spoke about the higher growth rate in the 15 years preceding 1979, which was an era of high growth. Since 1979, and particularly since 1981, we have been in an era of low growth. The right hon. Gentleman compared our economy to that of the Germans. The achievement of this Government is to have reduced inflation from 27 per cent. to near 3.5 per cent.
§ Mr. Browne
They did that because they had to absorb the shock that they inherited. The German achievement is to bring inflation down from a much lower point.
§ Mr. Jenkins
If the hon. Gentleman is to make rather over-long factual interjections, he should at least get his facts right, and he is not right on either point. He said that the recent period had been one of a low growth rate world-wide. The growth in the United States in 1983–84 was one of the most exceptional in a major economy of the world which can——
§ Mr. Jenkins
As the economy of the United States happens to be about half that of the free world, it is not a minor exception. I hold no brief for the previous Administration, not at the end, at any rate. The right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) will speak for that, if necessary. My recollection is that when he left office, inflation, perhaps temporarily, was only 10 per cent., not 27 per cent. We must have accuracy in factual interventions.
§ Mr. Jenkins
I do not have time to give way. Had the hon. Gentleman kept the hon. Member for Winchester (Mr. Browne) a little shorter, I might have been able to give way.
We then have the Chancellor glorying in the fact that we have lost half our oil revenue in less than 25 weeks and we are still well on our feet. The sterling-dollar rate has stood up better than I would have expected [HON. MEMBERS: "Ah."] Conservative Members should not get into the state of mind in which they think that every statement is so notable. I know that we are engaged in adversarial politics, but it is too tedious if that has to be seen in terms of one of these weather things, where the man comes out and the woman goes in. It is a rather two-dimensional and childish view. The sterling-dollar rate has, for the time being, stood up better than I would have expected.
The Chancellor reminds me of someone who falls off, or throws himself off, the 50th floor and as he passes the 25th floor says, "All right so far." It must be said that there is still some distance to go and the effects are liable to be delayed, because hitting the ground is still to come.
A thesis which is often forwarded by Conservative Members is that the capacity of an economy to adjust should not be under-estimated. Total catastrophe for national economies very rarely happens. Equally, the capacity to adjust should not be exaggerated. There is no 328 method by which Britain can accommodate the disappearance of the oil surplus and the likely projections of our manufacturing balance of trade. Unmasked by oil, it would give us a deficit which there was no chance of covering by invisibles and services. One could cover it for a time by borrowing, particularly as we have had a fairly strong balance of payments recently, but not indefinitely. If one has to correct by deflation the effect on unemployment, starting from its present level, would be devastating and would take us to undreamt-of totals. Therefore, it appears to me that set alongside the Chancellor's self-congratulation there must be a range of considerations.
First, the oil surplus is going quite rapidly, although perhaps not the oil production. As the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said, there is a considerable difference between a loss of revenue through falling price, which brings other benefits to the economy and to other economies, and a loss of revenue because the oil has run out, which does not bring any corresponding benefits.
We have not done much with the oil during that period. We have built up some overseas assets, for which there is something to be said. I am not against that by any means. [HON. MEMBERS: "Something?"] Yes, something, but certainly not everything. I do not believe that anybody sensibly believes that pouring money overseas and neglecting our investments at home solves everything. A certain balance must be struck.
During the Government's period of office the oil revenues to the Government have been £51 billion, and the unemployment costs during the same period have been £33 billion. That is a substantial proportion to have gone in that direction.
Secondly, manufacturing industry is in no position to close the gap. Investment in manufacturing industry is still well below the 1979 level.
Thirdly, unemployment is untouched, at significantly above 3 million. I started to believe last autumn, as the Government certainly suggested, that we were at least on a plateau and that there might be a slight fall. That did not happen. On the contrary, there was a vicious little up kick at the turn of the year. It is certain that it is now impossible seriously to sustain the view that a reduction in inflation will in itself bring about a reduction in unemployment. Inflation is certainly a scourge, and can also be the enemy of employment, but it is a logical fallacy to say that, because that is so, if inflation is brought down it will spontaneously generate employment. That does riot happen without other sensible economic policies.
Fourthly, there is a serious rundown of general public maintenance of housing stock and a whole range of other matters of that sort. This rundown strikes most people coming here from outside the United Kingdom, and is strongly supported statistically. However, to an extent which I do not believe is fully appreciated yet—certainly not on the Labour Benches; I am not sure about the Conservative Benches, and perhaps not on our Benches—a major long-term public expenditure difficulty is looming. We have managed to get through with the vast costs involved in massive unemployment only because of the oil revenue. At the same time, there is no doubt that, whatever statistics are produced saying that more money is spent on the Health Service or education, there are serious strains on those services. Therefore, one has a conjuncture of issues which produce 329 a different public expenditure forecast, whoever is trying to deal with it. The pressure on resources with unemployment and without oil is formidable, and the blissful prospect ahead seems to be highly dangerous.
What can and should the Chancellor do about it? There is fairly wide agreement nearly everywhere, except on the Treasury Bench and on some parts of the Government Back Benches. The Confederation of British Industry, nearly every Tory Minister, as soon as he ceases to be a Minister—with the exception of the right hon. and learned Member for Richmond, Yorks (Mr. Brittan), whom I acquit of that for the moment—the all-party Charter for Jobs, the House of Lords Select Committee on Overseas Trade, the House of Commons Select Committee on Employment and the statement by the alliance, which is the clearest, most succinct and carefully costed of all, move broadly in the same direction. They may conceivably all be wrong, but it seems a little presumptuous of the Treasury Bench to be so certain of that. I wish that I was as certain of anything as the Chancellor is of everything.
As I said, the right hon. Gentleman is an ingenious Chancellor who presents his Budgets, particularly this one and his first Budget, skilfully, but there is a grave danger that he will have presided over almost the last opportunity to turn round the manufacturing decline of this country before it is too late.
§ Mr. Terence Higgins (Worthing)
The unusual feature of this year's Budget is that it is remarkably difficult to find anyone who is significantly worse off. Indeed, if one takes the view, as I do, that there is a positively beneficial effect if those who smoke smoke less and have an incentive to smoke less, it is true to say that the only groups who have really been penalised are foreign artists and sportsmen who happen to be working here. If one looks at the Budget in the context of what I might presume to call Higgins' first law of Budgets—that those who have taxes increased scream louder than those who cheer tax deductions—I think that there is a strong argument for saying that this should be a popular Budget.
The Chancellor has had meagre resources this year and he has been heavily curtailed by the fall in oil revenues. As a result he has resorted to a variety of ingenious solutions to particular problems. Indeed, I think that it is true to say that ingenuity is the hallmark of this Budget, and it is reflected in almost every proposal that it contains.
I should like to begin by expressing appreciation of three particular items in the Budget. First, this is undoubtedly the best Budget ever for charities. It has not been an easy task. When one becomes involved in that area of policy, it is easy to disrupt those who are benefiting from existing concessions, particularly with regard to covenants. On the whole, that has been avoided. The change in the value added tax relief is important, as is the provision for public companies to make charitable donations and the arrangements for payroll giving. All those issues have considerable significance for my constituents.
Secondly, I welcome the proposal for a personal equity plan. That is a move in the right direction. I am a little worried about the scope of the concessions for tax relief on dealing charges. If we want to move the balance away 330 from institutional arrangements to direct investment in shares, I think that we shall have to look carefully at the arithmetic.
Thirdly, I welcome the indefinite extension of the business expansion scheme. I should like to make one constituency point, to which I do not want an answer this evening, but I hope that I can have an early reply. The restrictions of the business expansion scheme with regard to proposals involving property investment are right in principle, but the Chancellor said that that would be imposed on shares issued from the day of his Budget statement. In my constituency, one business expansion scheme—I gather that there may be others—has started the operation of issuing the shares, but has not completed it. That could be a dangerous aspect of the problem. While it is not of great national significance, perhaps the Minister will look at it.
The changes in income tax are ingenious. I am a little worried that the Chancellor has not fulfilled completely the statutory requirements introduced as a result of the Rooker-Wise-Lawson amendment to the Finance Bill some years ago. None the less, the way in which the balance has been struck between those at the upper and those at the lower end of the scale, by not fully indexing the top end and by giving the 1p reduction in standard rate, has biased it in the right direction. That is to be welcomed. However, I continue to hope that the emphasis will be put on threshold raising rather than on standard rate cutting. We shall need to consider that in the context of the Budget next year.
I should like to refer to broader issues. The strategic success of the Budget must depend on its effect on unemployment. I believe that that is common ground on both sides of the House. If we are to analyse the problem correctly, we must appreciate that reasons for the present unemployment are different from those in any previous period. In 1979–80, the effect of the inflationary Clegg pay awards, which the incoming Conservative Government conceded—indeed, they went beyond them—the effect of the high exchange rate resulting from the high oil price, and the effect of the world recession squeezed company profits to an unprecedented extent. As a result, many companies that previously had not been prepared to make people redundant, because of the heavy costs of redundancy pay imposed by the so-called Employment Protection Act 1975, cut their labour forces by as much as third. They then found that they could produce virtually as much as before. The reality was that many of the jobs were not really there in the first place. There was much overmanning and concealed unemployment.
That once-and-for-all change, which was a terrible human tragedy for many individuals and their families—no one, least of all myself, would wish to deny that—had two results. First, there was the potential for a substantial increase in productivity the moment the economic situation began to improve. That is taking place now, and we need to take that into account. Secondly, the country has been faced with the task of generating an immense number of new real jobs. That is bound to take time. Against the background of that major restructuring, it will not be possible to solve the problem in the short term
It is right to go for retraining, the youth training scheme, the community programmes, and so on. We have been generating many new jobs, and employment has been increasing, but the demographic trend has been against us. Therefore, the crucial question is: are we setting the right 331 economic framework within which that huge number of new jobs can be generated as fast as it can reasonably be done without jeopardising that progress, so that we get a continual improvement rather than just a sudden improvement? The economic forecast in the Red Book shows that our growth rate is about 3 per cent. and, as the Chancellor said yesterday, we have been achieving that for some time. I have not heard from the Opposition any suggestion as to how much faster the growth rate should be. By historic standards, 3 per cent. is a high rate of economic growth, certainly when sustained for several years.
Therefore, my feeling about the level of demand in the economy is that, give or take half a per cent. here or there we are probably going as fast as we safely can, but we are doing so against the background of lower inflation. As the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said, that is still not very good compared with some of our competitors. That remains a real problem, but it is certainly a great deal better than when the Conservative party came to office.
The overall combination of a reducing exchange rate and a safe but, by historic standards, fast rate of economic growth, gives us the best prospect for maintaining the upward trend in employment. As the demographic factors change, there should be a gradually improving trend in unemployment. However, longer-term improvement must also depend crucially on the level of investment. That is the main point that I want to make. It is a matter not only of profitability, as my right hon. Friend the Chief Secretary said, but of profitability in relation to interest charges or the cost of capital. My right hon. Friend mentioned the figure for profitability of 8 per cent. That has to be looked at against the cost of capital. It is therefore very important that we should reduce the real level of interest rates. That being so, we must face the fact that they are being maintained at the present high levels for either domestic or international reasons.
It is right that my right hon. Friend the Chancellor should seek to reduce the level of public sector borrowing because, the amount that has to be funded is less, and it can be done with lower interest rates while still avoiding an excessive increase in the money supply. I leave on one side the controversy in which the Select Committee on Treasury and the Civil Service has been engaged with the Chancellor—which, from time to time, the right hon. Member for Sparkbrook seems to understand—as to whether the proceeds of privatisation represent a means of funding the public sector borrowing requirement, revenue or a reduction in public expenditure. I do not want to go over that matter today. The crucial point is that if, for domestic reasons, we can restrain the level of borrowing, there is no reason for interest rates to be as high as they have been. That is reflected in the reaction of the City today in the light of the Budget itself. We could have had lower interest rates for domestic reasons, but they have been kept high for international reasons.
I was intrigued by the passage in the Chancellor's speech, when he said:
Short-term interest rates are the essential instrument of monetary policy. Changes in interest rates have a reasonably quick and direct effect on narrow money, as they do on the exchange rate."—[Official Report, 18 March 1986; Vol. 94, c. 170.]We do not have a monetarist policy now. In fact, it is not that monetarism is dead; it has never been born under 332 this Government. At present we have an interest rate-exchange rate policy. Therefore, it is important that we get the interest rate down from an international point of view. That being so, it is extremely important that we should do everything possible to encourage the Americans to reduce their budget deficit, which is keeping up American interest rates, which, in turn, have been keeping ours up. We need to ensure that we have a sensible exchange rate.
The answer that the right hon. Member for Sparkbrook gave to a question about the appropriate exchange rate was extraordinary. He said that it was that which maximised sales or turnover. If companies want to maximise turnover, there is no problem. They just cut their prices to ribbons. I say, if one is to say anything at all, that profits should be maximised, although I should be hesitant to make any such statement. The right hon. Gentleman's answer was not sensible.
Interest rates are higher than they need be because of the need to maintain the differential to prevent the exchange rate from collapsing. However, we must look at different exchange rates. It is not exactly true, but it is often said, that we buy in dollars and sell in deutschmarks. In the past six months there has been an extraordinary change in exchange rate relativities. They are more favourable for us now because sterling has depreciated significantly in relation to the deutschmark and, on the whole, its relationship with the dollar has improved. However, we must consider that in the context of the Group of Five discussions. That being so, it is now appropriate to consider the exchange rate mechanism of the European monetary system.
There are many conflicting arguments about that, and they are set out clearly in the Treasury Select Committee report which was published a few months ago. If one were uncertain whether to join and dithering on the margins, it would be difficult not to think that this moment is a much better opportunity than previous moments. I do not agree with the Prime Minister when she said at Question Time a couple of weeks ago that if we had joined earlier when we were being asked to join, we would have greatly regretted it. The implication was that it would be wrong to consider the matter afresh now. I still believe that we should consider it at this stage because, although it may not be worth buying something at a high price, that does not logically mean that one should not consider buying the same product at a lower price.
We need to analyse the matter carefully against the background of the change in the French Government. If the sterling exchange rate gave a greater impression of stability, it is possible that much of the money which is at present in Germany would, after the Budget, come to the United Kingdom. If that is so, the potential for cutting interest rates could be as much as 1.5 or 2 per cent.—a prize greatly to be welcomed. Against that background, and taking into account all the conflicting arguments which the Select Committee set out, we should consider the position in relation to the differential exchange rates which exist at present.
Overall, this is a remarkably ingenious Budget. It will be widely welcomed throughout the United Kingdom, and certainly by my constituents.
§ 6.2 pm
§ Mr. Willie W. Hamilton (Fife, Central)
The right hon. Member for Worthing (Mr. Higgins), for whom many of us have great respect partly because he is not 333 afraid to rock the boat when he thinks that his party is on the wrong tack, has come down on the other side today. I agree with him that the Budget is ingenious, but not for the reasons that he has adduced.
The right hon. Gentleman said that he would judge the Budget by its effect on unemployment, and I shall refer to that shortly. The Budget was ingenious and wise in the sense that the Chancellor of the Exchequer was careful not to claim that it was a Budget for jobs. That is one claim that cannot be made for it, and at least the Chancellor seems to have learnt that painful lesson from previous Budgets when he has made that claim and been disproved each time.
Yesterday the Chancellor put on a slick performance, but he did little to allay the anxieties of most people, including a large number of Conservatives inside and outside the House, about the long-term prosperity of the United Kingdom. In that respect his performance was on a par with that of the Prime Minister when she spoke to her party disciples last Saturday. She used that occasion as an excuse for not attending the funeral of the assassinated Prime Minister of Sweden. Mr. Olof Palme was one of the finest international statesmen of our time. He was a ceaseless peace campaigner and a never-tiring worker for the underdeveloped Third world, yet our Prime Minister had no time for him or his principles. Her absence from his funeral was a contemptible dereliction of duty and a sad commentary on her sense of priorities and decency.
§ Mr. Michael Fallon (Darlington)
On a point of order, Mr. Deputy Speaker. I do not see what the Prime Minister's attendance at a funeral has to do with the debate, especially as she has committed herself to attending the memorial service.
§ Mr. Hamilton
The hon. Gentleman had better learn the first lessons of behaviour in the House before he seeks to intervene in that stupid way.
I wish to relate the Prime Minister's speech on Saturday to the speech of the Chancellor yesterday. The Prime Minister's speech was as raucous and deceptive as the Chancellor's was smooth, smug and complacent. After listing the post-1979 alleged successes, the Prime Minister said that we were only just beginning and that we had barely got past the stage of excavation. Some of us would put it another way. The hole that we are digging for the British economy is only half dug, so we must go on digging. That seems to offend the first principle of holes which was first annunciated by my right hon. Friend the Member for Leeds, East (Mr. Healey) who said, "When you are in a hole, the first principle is to stop digging." But the Prime Minister says that we must continue to dig because we have only dug half the hole.
Both the Prime Minister and the Chancellor sought and seek to create the impression that all is going to plan, so we must all continue to take the same medicine that has been forced down our throats for the past seven years. That medicine and their policies have led to the decimation of our manufacturing industrial base. Despite the Government's claims, manufacturing output is still less than it was when they first started out on this course in 1979. Despite the Prime Minister's boast about the level 334 of investment, and indeed the boast of the Financial Secretary on television last night, manufacturing investment today is still about 20 per cent. less than it was when they took office in 1979.
The massive bonanza of North sea revenues has been squandered on the financing of ever-lengthening dole queues when it should have been invested in modernising our industry and infrastructure, notably housing, education, health and communications, as the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) and others have continually said. When the House of Lords Select Committee on Overseas Trade published its authoritative report eight months ago and made a devastating analysis of the parlous plight of the British economy, the Government ridiculed it. Yesterday the Chancellor rubbished it.
My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) referred to the report this afternoon. The Chancellor said:If we can survive unscathed the loss of half our North sea oil revenues in less than 25 weeks, the prospective loss of the other half over the remainder of the next 25 years should not cause us undue concern."—[Official Report, 18 March 1986; Vol. 94, c. 168.]That was breathtaking complacency. The right hon. Member for Hillhead said that it is the equivalent of a fellow hurling himself from the 50th floor of a multi-storey block and saying at the 25th floor, "So far I am all right." It is just about as logical as that.
This same Chancellor, referring to the Select Committee's report, said some time ago that the challenge to this country is to foster and nurture a low-tech or no-tech economy and that the future of this country lies in an increase not so much in manufacturing industry as in service industries. He said that we should make this country into a nation of cooks, shop assistants, bottle washers, Chinese laundries and waiters. That would be a low-wage, low-tech and suitably subservient labour force.
The Chief Secretary to the Treasury referred to the increase in the standard of living and to the high earnings of British people. I do not know whether he approves of increased earnings or whether he sides with the Chancellor, who said yesterday that we have got to get wages down. I know what his answer will be. He is in favour of increased earnings if they are matched by increased productivity. I should be very glad if the Chief Secretary to the Treasury and the Government were to apply that policy to the City slickers and their very high earnings. The Chancellor of the Exchequer and the Prime Minister are aware that they are on a very sticky wicket when they seek to lecture my workers, my nurses, my teachers—the teachers in Scotland and England—and also professors and lecturers about the need for restraint. The Government are letting City slickers who are not yet 30 years of age get away with earnings of £275,000. A few months ago the Government also granted high awards to those on top salaries—judges, admirals and generals—without the flicker of an eyelid and without a moment's hesitation.
§ Mr. Campbell-Savours
Should we not wonder at the very carefully planned propaganda campaign of the last two months in which the Prime Minister and, repeatedly, other Ministers made statements about what they intended to do before the big bang because of their great concern about what is happening in the City? They led people to 335 believe that something would be done about those high salaries. The public may believe that something has been done, but in fact, nothing has been done.
§ Mr. Hamilton
Before the Budget, one forecast was that something would be done about City tycoons who are enjoying unearned incomes and that something would also be done about the managing directors and top executives of private companies and about the enormous unearned profits that have been made by the banks during the last few months. Nothing has been done about them, although, as I have already said, the forecast before yesterday's Budget was that something would be done.
Far from facing up to these problems and the future challenges, the Chancellor sought yesterday to create the feeling that I suppose the drug addict experiences when he gets his jab: the feeling of heavenly bliss that lasts for as long as he gets his jabs. Yesterday the Chancellor sought to persuade the British people that everything has been so magnificently planned during the last seven years that we must keep on with this policy. To prove it he gave out a few dribs and drabs, some of which are welcome, although others are less welcome. We shall deal with them during the proceedings on the Finance Bill and in other ways. Many of the proposals are to he welcomed, but I do not intend to enumerate them.
The right hon. Member for Worthing said that few people would be worse off after this Budget, but there are many millions of people who will not be much better off, either. There will not be much rejoicing about the Budget among the old folk, the unemployed and many other struggling sections of the community.
When referring to her concern about the high level of taxation, the Prime Minister has often quoted the nurse on £140 a week. Who put her on that figure and who has kept her on that figure? The nurse pays at least a third of her salary in tax, which we all deplore. She will not get all that much help from the Budget. If she is paying prescription charges or if she smokes cigarettes, she will get nothing at all out of the Budget. Furthermore, she might be evicted from her hostel accommodation. She will then have to seek accommodation for which she will have to pay an economic rent. If that happens in London or in other big cities, she will be very much worse off because of the measures that the Government have introduced.
Although Conservative Members approve of the Budget, I noticed yesterday that at least the first two Conservative Members expressed in their speeches the gravest reservations about the lack of a strategic plan, despite short-term ameliorations and the pretence that all will be well if we stay on this course. Many reservations are being expressed by people about the direction in which we are going. The Chancellor has included very little in his Budget that will help to solve the problem of mass unemployment that plagues us and the divisions in our society between rich and poor and north and south. There are massive social, economic, geographic and class divisions. They have been exacerbated during the last few years. The Budget will do little to solve them.
The rich have undeniably got richer during the last few years. Very telling figures have been given during this debate and they will continue to be given up and down the country during the next 12 months. The rich have undeniably got richer during the last six or seven years 336 while the poor have undeniably got poorer not only in terms of cash receipts but also in terms of services provided, not least those of health and education.
In that context, I wish to refer to an article that appeared in this morning's edition of The Guardian. It is a devastating exposure of the cuts that are being made in a teaching hospital. Professor Sam Shuster is professor of dermatology at the university of Newcastle upon Tyne and he has written an article about what is happening to services which form a substantial part of the quality of life of the people whom all hon. Members represent. He said:At the same time as the NHS is run down, private medicine is being encouraged. Industry contributes increasingly to private schemes. Since the government persistently and dishonestly denies its attack on the NHS and has effectively prevented those administering it from speaking up, the most important contribution by doctors would be to put this on the public agenda for debate. The public must know that the NHS is being dismantled.We all see evidence of that in our constituencies. Whatever figures are quoted by the Government, the fact is that the NHS is being taken apart. That is not denied by most knowledgeable people in the Health Service, whether doctors, nurses or patients.
The article continues:The public must know that the NHS is being dismantled, and will want to express an opinion on how the limited resources of our society should be used. It seems to many of us that politicians can no longer be trusted to guard the needs of society: they seem unable to face, let alone resolve, the paradox of an expanding military expenditure with less spending on social services, health and education.In the next paragraph there is a reference tothe progressive deterioration of the NHS".That is not an isolated opinion.
In education there is a similar grisly story of neglect: and under-funding. This is producing rumbling and seething discontent at all levels among parents, teachers, students, university professors and others. I shall quote from an article written by Sir Kenneth Alexander that appeared in the Scottish Sunday Mail on 16 February. Sir Kenneth, who is the principal and vice-chancellor of Stirling university, wrote:top talent from Scottish universities is continuously draining away. And goes virtually un-noticed.Within two years four professors have left Stirling. Two went to the USA and two to Australia, and it was a severe loss to a small university.The process mostly affects science and technology, but talent is also drained from the arts, languages and culture.The professors we lost overseas were in biological science, accountancy and business law, maths and philosophy.Most professors going to the USA will enjoy at least a 50 per cent. increase in real income — with many doubling their salaries.Sir Kenneth then addressed himself to Strathclyde university and wrote:Strathclyde lists five departures to the USA and three to Norway in the last two years. Edinburgh reports that a major project, given special support as being of international standing, is being substantially hindered because two key personnel "rave gone to the USA.The Glasgow School of Art is losing its brilliant director to Chicago.In addition to the overseas brain drain, losses to industry in the UK are reported by all universities.A technological university in England recently held ten professorships vacant—a deliberate decision by the vice-chancellor, who couldn't get good enough candidates.Sir Kenneth concluded — [Interruption.] It is interesting that Conservative Members do not want to hear an exposé of what is happening in Britain. When listening to the Chancellor of the Exchequer yesterday, no one 337 would have thought that the problems which I have recited are exercising the minds of many responsible people in all political parties.
Sir Kenneth concluded:When too high a proportion of a nation's intellectual seed-corn goes abroad, there is trouble ahead.That is happening at a time when the Government have the benefit of North sea oil revenues. How much worse will the problem become as the revenues rapidly cease to exist? It is a frightening proposition. In the context of the long-term well-being of the United Kingdom, the Budget must be seen as little more than short-sighted and mean-minded. The one thought uppermost in the mind of the Chancellor of the Exchequer and that of the Prime Minister was all too obvious. They were intent on winning votes at the next general election, and damn the consequences.
§ Dr. Alan Glyn (Windsor and Maidenhead)
I shall not take up the comments of the hon. Member for Fife, Central (Mr. Hamilton) except on a few matters as I proceed with my speech. First, I pay tribute to my right hon. Friend the Chancellor of the Exchequer for the simple way in which he has laid out his Budget. His statement was easy to understand and I have never known a more comprehensive and clear exposé than that which my right hon. Friend gave yesterday of Britain's financial position.
I pay tribute to the Government's sound monetary policy and their control of inflation, which is probably one of the most important factors in the economy. Inflation is now running at 5 per cent. and my right hon. Friend the Chancellor of the Exchequer estimates that it might fall to 3.5 per cent. next year. The record of the previous Labour Government on inflation and the control of it bears no comparison with what we have been able to achieve. When the previous Labour Government were in office, inflation was something over 20 per cent. Over the years, it increased to 27 per cent. or 24 per cent. The Government's control of inflation is a remarkable achievement.
At the same time, growth is running at 3.5 per cent., and it is estimated that it will increase to 5 per cent. next year. As my right hon. Friend the Member for Worthing (Mr. Higgins) said, our old industries, which were overmanned, are beginning to fade away. They are being replaced by new industries with fewer employees, and this is producing an extremely worrying situation. I welcome the schemes which have been introduced to assist young people, which are ingenious and well thought out.
The hon. Member for Fife, Central and the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) addressed themselves to unemployment. I listened especially carefully to the remarks of the right hon. Gentleman. As always, his remedy for unemployment was to borrow, borrow and borrow again. I found it difficult to estimate what it would cost in money terms to implement the programmes which he suggested. He spelt out the cost of the various programmes bit by bit but he did not present the House with the overall cost. I hope that the Opposition spokesman, the hon. Member for Thurrock (Dr. McDonald) will take up this important matter when she replies.
The Government have created 700,000 jobs, and I acknowledge that that has reduced unemployment by only 338 a fraction. The right hon. Member for Sparkbrook said that a Labour Government could cure unemployment, but I suggest that that would be done by borrowing, in the same way as the previous Labour Government. I have no doubt that the result would be the IMF moving in as it did then.
The right hon. Member for Glasgow, Hillhead (Mr. Jenkins) was wise when he spoke of the serious strain that unemployment imposes on Britain's resources whichever Government happen to be in power. For once, the right hon. Gentleman was right.
I was surprised by the agreement of the right hon. Member for Hillhead about investment abroad, which now stands at £90 billion. I understand that this investment yields about £6 billion a year. Our overseas investments provide a great source of revenue.
The capital transfer tax concession will help the continuation of small family businesses. We are talking about steady expansion. As the Chancellor said, expansion is determined by many factors, but the principal one is that if the public sector borrowing requirement is controlled and if labour costs are restrained, then there is the opportunity and the right climate for expansion. That applies especially to small businesses to which my right hon. Friend has paid so much attention in the past and to which he has given much of his time.
A property-owning democracy is one of the bulwarks of Tory philosophy. As we know, home ownership has increased, but equally important is wider share ownership in the denationalised industries and the concept of the people having a shareholding and owning a stake in the country. It is of paramount importance that they have a stake in the industry in which they work, and the £2,400 a year tax concession is certainly an incentive towards that goal.
I should like to see shares being owned by more ordinary people. Figures show that a great proportion of shares are owned by great institutions, but I should like to see share ownership apread much wider so that the ordinary man can be a shareholder and a property owner. I am certain that is the meaning of a property-owning democracy.
One of the problems that has for years taxed successive Administrations is how to deal with charities. I have seen numerous early-day motions of one form or another and all of them have touched on the same point—how can we help charities? While the state provides a certain amount of help, it is the voluntary organisations upon which we rely for many services, and to be able to give them more money by the incentives produced by the Chancellor is commendable and will be welcomed on both sides of the House and certainly by all sections of the community.
I am sorry to say that there is one point upon which I do not agree with the Chancellor; that is the penny off the income tax. I would rather see the threshold reduced. I say that for two reasons. My first reason is that it would have a good effect because it is important to narrow the gap between what is earned from work and what an unemployed person receives from the state. Secondly, it would give people an incentive to work. A penny off the top does not make much difference, but reducing the threshold would be far more acceptable because it would reduce the number of taxpayers and tax inspectors and narrow the gap between earnings and social security payments.
339 Britain has the beginnings of a great expansion. It will be a new expansion and one in which the economy will be strong enough to be able to give more by way of public and social services. There is no point in saying that we should spend more in this or that area, because the money has to come from somewhere and it can only come from proper administration. We cannot get money out of the sky. It has to be earned and the only way of earning it is by increasing our economic capacity and the output of our industries and selling it to other countries. As I said earlier, those industries have to be changed and our whole concept of industry has to be altered. We must recognise that some of the traditional industries will have to go and will need to be replaced. I know that that will create problems but I am afraid that change will have to be accepted. The encouragement the Chancellor has given to the saver and to small businesses is most encouraging.
§ Dr. Norman A. Godman (Greenock and Port Glasgow)
There are some good and sensible elements in the Budget. They are few, but one of them that I readily acknowledge is the decision to make concessions to charities. That is long overdue—not just from a Conservative Administration—but it is a fine gesture.
I was also pleased to hear about the increase in the tax on cigarettes. I sincerely hope that as a direct result of that increase we will see a sharp diminution in the consumption of cigarettes. Far too many people in Britain often meet a painful and premature end as a result of that form of drug abuse. There is a warning there for some hon. Members. I am certainly not aiming my remarks at you, Mr. Deputy Speaker.
I was sorry to learn of the refusal to introduce a swingeing increase on the tax on drink, because alcoholic beverages are far too cheap.
§ Dr. Godman
The hon. Member for Strathkelvin and Bearsden (Mr. Hirst) says that. I am a killjoy. I am not a killjoy, nor am I a prohibitionist—not by a long chalk—but if it is correct, as has been suggested in a recent Select Committee report, that the drug of choice for far too many Americans is cocaine, certainly the drug of choice for far too many British people and far too many youngsters is alcohol. It is a major social evil, and I should like to see it costing more.
I want to focus attention not on drink or on tobacco, but on unemployment and poverty. I have a lot of sympathy with this morning's editorial in The Scotsman, which says:What will not escape criticism is his refusal to make any concessions to those, including many of his Cabinet colleagues, who consider that the Government's priority ought to be tackling unemployment. His measures on the jobs programme front will cost a net £165 million which, in what he describes as the fastest growing economy in Europe, is only the small change. He has changed neither his remedies nor excuses though the case for more public investment is accepted everywhere but in Downing Street. Even the £900 million he has conceded to taxpayers, the brightest of all the pieces of tinsel, would have produced a better return in jobs had it been directed not to people's pockets but to their roads, houses, schools and hospitals.The Chancellor has given little hope to the millions of British citizens living in poverty. I say that despite his statement that a total of £485 million is to be spent on additional measures to tackle unemployment. The right hon. Gentleman claims that such proposals are aimed at 340 helping young people aged between 18 and 20, and those unemployed people aged over 45. I believe that the total is made up of £195 million in 1986–87 and £290 million in the following year. That money will be taken from the reserve so that there will be no increase in public expenditure planning totals. I give those five main measures—the enterprise allowance scheme, the small firms loan guarantee scheme, the new workers scheme, the community programme, and counselling for the older unemployed—a qualified welcome. Indeed, the latter may be important in helping many dispirited middle-aged unemployed people.
However, the expansion of the community programme should be accompanied by a much better wage than the increase from £63 to £67 per week. My experience of the community programme and of the complaints that some of my constituents have made leads me to say that the Chancellor should urge on his colleagues in the Department of Employment the need to eliminate, wherever possible, the lengthy, cumbersome and bureaucratic procedures and regulations surrounding such programmes and applications for assistance.
The Chancellor's so-called employment measures have met with a sceptical, if not jaundiced, reaction in Scotland. This morning, the chairman of the Scottish CBI, Mr. Ian Little, said:The Chancellor has missed the opportunity created by the strengthening UK economy to make a substantial attack on unemployment…The figure is likely to stay at the present horrific level for some time to come. He could have taken the opportunity to expand public sector capital investment rather than taking the wrong course on personal taxation. Those at the bottom of the tax ladder caught in the poverty trap are still not going to escape into work.The truth is that the Budget will do nothing for the 370,000 Scots who are registered as unemployed. The unemployment statistics for my constituency are a scandal. In Greenock and Fort Glasgow 9,000 people are unemployed. In the Greenock travel-to-work area, which embraces part of the constituency represented by the hon. Member for Renfrew, West and Inverclyde (Mrs. McCurley), the number of unemployed stands at 10,500. I am using February 1986 figures. I can tell the Chancellor that the unemployment rate in that travel-to-work area stands at 21.9 per cent. Moreover, male unemployment is 26.1 per cent.
Unemployment in the Strathclyde region is almost 44 per cent. higher than the figure for Great Britain as a whole. In addition, the figure for the Greenock travel-to-work area is about 60 per cent. higher than the figure for Great Britain. However, I have painted only part of the very dismal picture of poverty in the west of Scotland. In November 1979, there were 157,000 supplementary benefit claimants in Strathclyde. By July 1985, that figure had risen to 305,000 claimants—an increase of 94 per cent. That massive increase is largely the result of the Government's economic policies.
In Scotland as a whole, 531,000 people were claiming supplementary benefit in July 1985. So far I have mentioned only claimants, but if their dependants are included — wives, husbands, and children—the total number relying on supplementary benefit in Strathclyde in July 1985 was 495,000, or 20 per cent. of the population. The figure for Scotland was 867,000, or 16 per cent. of the population.
The figure for Glasgow is much worse. About 39.5 per cent. of the population of that great city exist on, or below, 341 the level of supplementary benefit. The Government may have written off Scotland's economy, but it is becoming increasingly clear that Scotland has written off the Tory party. Recent opinion polls show that to be the case, as does the disastrous result for the Tory party in a recent by-election. Indeed, I believe that the Tory candidate finished behind the Communist party candidate.
§ Mr. John Maxton (Glasgow, Cathcart)
I must tell the hon. Member for Strathkelvin and Bearsden (Mr. Hirst) that the Labour party won that seat.
§ Dr. Godman
As always, the hon. Member for Strathkelvin and Bearsden is rather adrift from reality.
I make no apology for voicing my concern about the problems of unemployment and poverty in Scotland or for focusing my criticisms on the Government's failure to deal effectively with such scandalous issues. Scotland has experienced both decline and growth in industry, neither of which began in May 1979. Once a leader in shipbuilding, marine engineering, steel-making, heavy engineering and manufacturing industry, the country is now seriously adrift in the league of advanced industrial nations. There has been a dreadful decline in employment in all those industries, as well as in textiles, clothing, motor car manufacture, and coal mining.
Taking 1980 as the base year, the index for employment in manufacturing in Scotland was 111.4 in 1977. By June 1985 it had slipped to 76.5. Last year, a Scottish economist, Mr. Bell, said:
The rate of growth of real incomes in Scotland lags way behind that in the United States of America, France, West Germany and Japan…These countries have also, by and large, provided a continuous growth in employment to absorb any increase in labour supply…In Scotland, employment opportunities have tended to decline even though labour supply has increased, leaving little option but emigration or unemployment".Emigration is the traditional Scottish solution to unemployment. In last year's Budget debate, the right hon. Member for Western Isles (Mr. Stewart) said that if it were not for the 18,000 skilled Scots leaving the country each year, unemployment would be far worse. During a debate in the House last year, I said that North sea oil, the new high technology industries and the service industries, particularly the tourist industry, had saved Scotland from utter humiliation, but that for many Scots the experience was one of poverty amidst much affluence. One year later, the position is precisely the same for many Scots. Last year's Budget was not one for jobs. The same can be said of this one. In the debate on the economy and industry in Scotland, I said:Investment in the infrastructure would be one of my policy recommendations. Such investment is desperately needed in my constituency for the replacement or modernisation of a decaying housing stock. Secondly, economic trade and industrial policies should be centred on a precise objective—the development of a manufacturing industry which can compete in all the worlds markets.I went on to quote Sir Alec Cairncross in a paper that he presented a few months earlier, when he said:
In the end we cannot escape from the present depression without a large increase in demand and there is no likelihood of such an increase without an initiative on the part of governments. It is pure fantasy to suppose that output will recover of itself."—[Official Report, 29 March 1985; Vol. 76, c. 816–17.]342 The only reversal of the Government's employment policies that I have come across recently has been the decision by the Secretary of State for Social Services to increase over the next year by more than 5,000 the number of officials employed in local DHSS offices. This is needed to deal with our worsening economic circumstances and the growing number of claimants. That reversal of Government policy, in terms of increasing numbers in that Department, more than anything else shows to my mind the measure of this Government's economic policy.
§ Mr. Michael Fallon (Darlington)
The hon. Member for Greenock and Port Glasgow (Dr. Godman) does not seem to understand that in recent years Scotland has had the second highest GDP in Great Britain, after the southeast and East Anglia. There has been tremendous growth there, which has not been reflected in the north-east and north-west, and if the hon. Gentleman does not understand that, I invite him to visit some of the other regions of our country.
This is a popular Budget, and it has had a good press. It is a people's Budget, and I do not say that in respect of the various alliances and the bits and pieces of good news. Time and again, when weighing up the balance of advantage, one sees that it is a people's Budget, because the Chancellor has favoured individuals rather than institutions. That is as true of the cut in the base rate as it is of the imaginative new schemes for share ownership, capital transfer tax and the relief on giving to charities rather than to the institution receiving it. It is also true of the training measures, where the emphasis is on job clubs, job start, the enterprise scheme, and on the individual trying to get himself into work, rather than on the organisation that might or might not be helping him to do so.
That has to be right, because individuals, after all, are the key to enterprise. It is the individual release of talent and energy, of personal potential, that will create an enterprise culture. It will not be done by politicians, enterprise boards, county councils, development agencies or all the machinery and paraphernalia of the 1960s and 1970s.
Job creation will in the end depend on individuals, and I should like to stress four aspects. First, and most important, there is employment. We can no longer depend in our industrial society on large employers and on job-intensive, internationally mobile investment. Our culture has to rely much less in the employee mentality and much more on the self-starter, the risk taker, the small business man and the new business man. I give a warm welcome to the extension of the enterprise scheme; to the 100,000 places that will be provided by this low-cost, high-value scheme, because 70 to 80 per cent. of those who pass through the scheme are still in business long after the subsidy stops.
I also particularly welcome the extension of the job club and job start scheme nationwide, which restores the link—which I do not think should have been broken, although I understand how Sir Derek Rayner recommended that it should be broken—between the unemployment office and jobcentre. The only way to tackle long-term unemployment is on an individual 343 personal basis, by calling in the individual who is out of work and offering him practical help and a real measure of support.
In placing the emphasis on that kind of support, the Government recognise that this is part of a much more general change in the nature of employment in our industrial culture, which embraces the growth in part-time working, contract working and the huge increase in self-employment. There is a curious paradox in a society with too high unemployment. As the manager of my local unemployment benefit office put it, "There is plenty of work about, but very few jobs." That distinction is still not properly understood in Whitehall, and the implications for the better and more rapid distribution of jobs into work really needs to he followed through.
§ Mr. Fallon
No, I will not.
There are two ways in which it has to be followed through. We need to boost the self-employed. The self-employed are the enterprise corps at the heart of our economy. There are 2.6 million of them now—up nearly 1 million since the Government came into power. More significant than that, one in three of the self-employed hope to take on another person within two years. That will mean 750,000 new jobs.
We need to help make that happen. I should like to see us cut national insurance contributions for the self-employed further and make self-employment a right for anyone who wants to be self-employed, rather than a privilege accorded, after long deliberation, by officials in the Inland Revenue. I should like to make VAT registration an option—not compulsory—for the self-employed, so that if it is beneficial to them they can register, and if it is not they need not do so.
We need to do something about the black economy. We need to buy it in. The black and grey economies are rampant in my region. They are far larger than the Inland Revenue thinks, especially in areas of high unemployment. I should like to see a radical, imaginative approach by the Treasury, to offer incentives to get people to cross the line from the black and grey economies into the white economy; to bring the Arthur Dalys and Terry McCanns out of the Winchester club into the legit world, so that they can pay in a little revenue in taxation.
Let us have an imaginative proposal to pull those self-employed people, who have these nice little earners after their main job, or those who are out of work and earning a little on the side, into our system. A few months after the Bill becomes law, why not have an amnesty for two or more months, with no retrospection. Let us not look back at anything that has gone before. Let say to them, "Come on down. Cross the line. Pay a little tax and national insurance, and from that point on we will consider you part of the system. There could perhaps be tougher penalties thereafter for non-declaration."
On share ownership, I give a warm welcome to the personal equity plan. I have no hesitation in saying that my right hon. Friend went further than I had dreamt or even hoped as part of his moves to widen share ownership. It has been obvious that simply selling shares in public utilities, important as it is, would not in itself dramatically extend share ownership in the way that we have dramatically extended home ownership.
That has been a huge achievement, but nonetheless there is a striking disparity between what we have 344 achieved in home ownership and what we have yet to achieve in share ownership. I had it costed last year, and it was calculated that the average Briton puts into his home about £654 a year in mortgage payments, repairs or rent, whereas the average commitment of each of us to share ownership of industry and our place of work is £2.20. In other words, each of us in investing 300 times more in his home than in his place of work. I welcome the introduction of the personal equity plan and the measures, on which my right hon. Friend will consult industry, to widen share ownership and to convert us from a nation of small shopkeepers to a nation of small shareholders.
Another side to that policy is the need to ensure that the huge growth in home ownership is not artificially stimulated by too liberal a credit policy. We must ensure that growth in home lending is real and organic, rather than being driven merely by favourable fiscal treatment. In other words, I do not believe that mortgage tax relief at the higher rates can escape my right hon. Friend's review if it is shown that house prices are being driven up and that the real benefit passes through the recipient into the price of the land. That would make initial purchase more difficult, rather than less difficult, for the first-time buyer and would widen the differences between the north and south of our country by making mobility and the movement of the middle and lower management sectors that much more expensive.
I welcome the cut in the base rate, which benefits everyone and, most important, the lower paid. I welcome even more the commitment of cuts to come. I also welcome the reminder of the present Foreign Secretary's original commitment to 25 per cent. income tax, which was made in 1979. It is a commitment which I am sure the Treasury has not forgotten. It will mean our money coming back in our pockets, and that is the best employment policy of all.
In the meantime, on the road to 25 per cent. tax, I can cheer the tax breaks that are being given to pensioners this year. We should not forget that 40 per cent. of all pensioners pay tax, and that they have paid quite enough tax as it is during their working lifetime. I also welcome the tax breaks for donors to charities.
In the longer term, as we pursue the goal of 25 per cent. tax, it will be important to ensure a greater contribution to it from those institutions which at present benefit too favourably from the tax system, such as the pension funds, banks, and some financial services.
In my view, there is no case at all for tax breaks for the City. There is already a danger that the big bang Will become an excuse for quite unjustifiably high salaries. The stronger our commitment to a market economy, the more ruthless we must be in tackling fraud—and to be seen to be tackling it—and taxing money which at best can be said to be ill-made.
In that connection, I should like to comment on the business expansion scheme. It will not have escaped the notice of the Treasury that too many of these schemes are essentially candy floss schemes. Some of them have been very important in attracting new venture capital into investment, and I know that a high proportion of that has gone into manufacturing industry, but even after the tightening up about which- we heard yesterday, some of these schemes remain candy floss schemes in which the principal beneficiaries are the directors, whose salaries 345 and pension prospects are enhanced, or the banks and the funds which have placed these schemes and have earned large commissions as a result.
I suspect that too little of the risk involved is low risk rather than high risk, and that too little of the money is getting out of the south-east into our older industrial areas. I very much hope that the next time my right hon. Friend looks at the business expansion scheme and tightens it up further, after removing the mainly asset-based schemes, he will look at the possibility of establishing job-creating criteria which can be applied to other policies, such as regional industrial assistance.
I am suggesting that fiscal reform is by no means complete. I hope that I can be assured that the programme of fiscal reform will not in future years be restricted by political lobbying and the vested interests which will obviously be upset. I hope that we will restore the goal of fiscal neutrality and continue a medium-term fiscal strategy to complement the medium-term financial strategy. I accept that in that programme the Treasury cannot fight alone. It will need a substantial input from other Departments of State, and it will also require other measures by other Departments to continue to loosen up our labour market.
The truth is that too many people in our industrial culture are trapped on council estates in the province of high-spending councils. They have the low-rented council house, the free bus pass and the regular giro. But they do not have a job, and they do not yet have the chance to move to a job or to price themselves into a job, perhaps in another part of the country.
Given that programme of continuing fiscal and labour market reform, and given my right hon. Friend's promises to continue to tackle national insurance contributions, personal taxation and his moves towards employee share ownership, the verdict on a popular Budget from a people's Chancellor—certainly from those who want to set these people free, particularly in the north of the country, and who want to release the individual talent and energy that is at present wasted on unemployment — remains proxime accessit.
§ 7.9 pm
§ Mr. Stuart Bell (Middlesbrough)
It is always of interest to follow the hon. Member for Darlington (Mr. Fallon), because he is a constituency neighbour. I listened with great interest to his speech. Along with his hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Merchant), he made a number of propositions to the local newspaper that were obviously designed for local consumption before the Budget. He referred to one of them this evening when he spoke of the black economy. The hon. Gentleman will recall as well as I do what the Northern Echo thought of those comments.
The hon. Gentleman also mentioned a series of fictional television characters whom he believed we ought to copy, but most of those characters are crooks. I wonder whether the hon. Gentleman is genuine and sincere in thinking that we should adopt the kind of model to which he referred as the model for the north-east. He also made great play of the black economy in the north-east.
A feeling that afflicts many in the north-east, not only the hon. Member for Darlington, is that somehow the prosperity in that region is based on the black economy and 346 that the people that can buy goods in the shopping centres can do so because they have earned their money in an underhand fashion. I reject totally the suggestion that there is such a black economy in the north-east. I reject totally also the concept that those who fiddle ought somehow to be given an amnesty so that they stop the fiddling. If the hon. Member for Darlington believes that a black economy exists he should ask himself why it exists after something like six years of a Tory Government. He seems to mix his high monetarist principles with a concern for his constituents and for the rest of the people in the north-east. I am prepared to give him the benefit of the doubt about his concern and to say that it is genuine.
The hon. Member talks of low-rent council houses, of those with free bus passes and of giro, but of course he has not had personal experience of having to wait for a giro coming at the end of the week and the dilemma of those who, if for any reason the giro does not arrive on a Friday, have to wait until the Monday without the benefit of a cheque book or a credit card. It is for all these people, many of whom live in my constituency, that we are concerned about this Budget and the fact that it does not address itself to the ordinary people who live in the council estates and in the terraced houses in my constituency and elsewhere.
I do not wish to broaden the debate to all the aspects of the Budget, but I will confine my remarks as much as possible to the impact of the fall in oil prices upon our economy, on which the Chancellor spent some time yesterday. I submit that the Chancellor has made a monumental blunder in his assessment of the impact of the fall in oil prices upon our economy. Over a period of weeks, even months, he maintained a haughty silence on the subject. Yesterday he accepted that the oil price fall has bitten deep into our North sea oil tax revenues and our earnings from exports. In fact, the fall has wiped £6,000 million from the national economy. That is the exact amount of the Contingency Fund. It is also twice the cost of the Falklands war. For every $1 fall in the price of a barrel of oil, a further £500 million is wiped from the revenue, and that is on the assumption that the exchange rate against the dollar stays as it is today.
In his budget statement yesterday the Chancellor made the remarkable claim that the fall in oil prices takes us back in real terms not to 1979, when the price of oil shot up from $12 to $30 a barrel, but to 1973, before the Yom Kippur war and before the recession which the massive increase in the price of oil—at that time from $3 to $12 a barrel—had inaugurated. It also takes us back to a time when Great Britain was still relatively holding its own in the export of manufactured goods and before North sea oil truly came on stream, although the report of the Select Committee on Overseas Trade from another place makes it clear that by 1972, in relation to manufactured exports, the rot had already begun to set in.
The Chancellor yesterday implicitly accepted that for the outside world the pound sterling is a petrocurrency, for in his Budget statement he accepted that he had intervened earlier in the year, in January, with a 1 per cent. increase in the interest rate in order to prevent a free fall in our exchange rate. The fact that this put up our industrial costs and made our industrial goods less competitive apparently hardly crossed his mind. We see again the familiar emphasis on the City and the importance of confidence in 347 the City, as opposed to the importance of building up our industry and keeping interest rates, and therefore the cost of industry, down.
The Chancellor also admitted yesterday that he had resisted the pressure to raise interest rates still further. He claimed that he did this in order to quell the turmoil in the financial markets caused by the free fall in the price of oil. He has not, however, addressed his mind to what the consequences will be for sterling in the event of the oil price falling still further, and even less to what the attitude of the British Government should be if the price should drift slowly down to $8 a barrel with the onset of the summer and the traditional weak demand for oil.
The true hostage to fortune was the Chancellor's statement:there is no question whatever, and never has been any question, of the United Kingdom cutting back its oil production in an attempt to secure a higher price." [Official Report, 18 March 1986; Vol. 94, c. 168.]Those words are not — nor could they be—a true statement of fact. At least they lay to rest the shibboleth that the Chancellor of the Exchequer cannot intervene with the oil companies, a pretence that he and the Secretary of State for Energy have kept up for some time, stating that there is a free market in North sea oil and therefore the Government cannot tell the oil companies how much they should be pumping.
Of course, that has not been accepted by any of the oil-producing countries. The Egyptian oil Minister, when he went to the conference of the Organisation of Petroleum Exporting Countries this week, echoed the words of the Secretary of State for Energy, saying that the Government could not intervene, but no other OPEC country believes that—certainly not the Government of Saudi Arabia. The British Government can intervene with the oil companies if they wish, and the message from the Chancellor yesterday was that they do not so wish.
Another statement that the Chancellor put out yesterday attributed the success of North sea oil to the fact that it is the freest oil province in the world. He was paying homage there to the statement that the Prime Minister had made before him. But the success of North sea oil has nothing to do with its being a so-called free oil province. It is, in the first instance, a national bonanza, an unexpected energy resource that we have found in the bed of the North sea and in which £36 billion was invested between 1965 and 1985. Because of its national importance, the Labour Government set up the British National Oil Corporation to protect the national interest, although, in order to assist the oil companies. the Labour Government of 1974 agreed not to interfere in oil production for a period of 10 years. Therefore, with the British National Oil Corporation, the oil companies were as free then as they are now to bring the oil out from under the North sea.
Since 1978 we have seen the importance of oil to our national economy. Eighteen new fields have begun production since 1978 and nine fields have been approved for further future production. Oil should begin to flow from two of those fields from 1987 and from five more in 1988. I mention those figures not only to show the importance of North sea oil to our economy but to show again that there can be and there is no such thing as a free market in oil. If it takes seven years to find the oil, to put the platform modules into place and to draw the oil from the North sea, how can we say that there is a free market as regards the price of oil on a day-to-day basis? 348 The oil industry employs over 60,000 people, 29,000 of whom work on installations on the United Kingdom continental shelf, surface vessels and manned mobile drilling rigs and, of course, in the refinery industry and the module yards. I declare a constituency interest here because we have a series of module yards on Teesside. They recently obtained £85 million-worth of orders from Shell for continuing exploration for oil in the North sea.
However, none of this—this is the point that I want to make—has anything to do with a free North sea oil province. It has everything to do with the nature of the product, the investment over 20 years and the input of the work force. If we were able to get back to a British National Oil Corporation tomorrow, the benefits would be even greater, for we should be able to get some planning into our North sea oil production, the depletion of which must be a matter of national concern, while at the same time avoiding the disasters inherent in the Chancellor's present policy.
The Chancellor's second misstatement waswe are not only, or even principally, a major oil producer".In fact, only the United States, the Soviet Union and Saudi Arabia produce more oil than we do. If being the fourth producer in the world does not make us a major oil producer, it is difficult to see what does. The Chancellor compounded that misstatement by declaring:we are also a major world producer and trader of many other goods and services—[Official Report, 18 March 1986; Vol. 94, c. 168.]The recent report by the House of Lords Select Committee on Overseas Trade showed us just how far we have fallen away as an industrial power. We import more manufactured goods than we export. The report showed how enfeebled we have become in the world of competition.
The Chief Secretary spent much of his speech making unconstructive attacks on the Opposition, the shadow Chancellor and the costing of our proposed Budget. He did not seek to draw attention to the massive deterioration in our surplus in manufactured goods since 1980.
The House of Lords Select Committee on Overseas Trade cited startling figures showing that we have fallen from a surplus in manufactured goods of £5.5 billion in 1980 to a deficit of almost £4 billion in 1984—a deficit equal to 8.25 per cent. of manufactured exports and 1.2 per cent. of GDP. We can see, therefore, how important it was for the Government not only not to refer to that report but even to rubbish it, as the Chancellor did yesterday.
As usual, when one hears the Chancellor's Budget speech — yesterday's speech was the third to which I have listened—it takes a little time to digest it. It takes a little more time when one reads through the speech carefully to find his sleight of hand. Yesterday, he was boldness personified, because he actually dared to quote part of the report by the House of Lords Select Committee on Overseas Trade, when he said:
as the oil revenues diminish the country will experience adverse effects which will worsen with time".Yesterday, the Chancellor again refused to face the prospect of an oil price of $8 a barrel. He again preferred not to face the consequences of his policy of nonintervention. Yesterday, that was clearly revealed as the policy of the Chancellor rather than of the Secretary of State for Energy. The Chancellor and the Treasury are making what might be called an energy policy rather than the Secretary of State for Energy and the Department of 349 Energy. The Chancellor, in his haste to wash his hands of the oil policy, pushed — metaphorically at least — the Energy Secretary aside to take the credit for the consequence of falling oil prices. He will continue to do so—provided, of course, that the price does not fall too far.
North sea oil, as the Chancellor predicted, wil last on a diminishing basis for another 25 years. I suppose that that will see the right hon. Gentleman and me through our respective lifetimes. I wonder what future generations will think, looking back at what I have described as this North sea oil bonanza. Will they ask: how was it spent? What happened to it? Where did it go? yesterday, the Chancellor would have been hard pushed to answer any questions on forward planning because he was living in the present—the everlasting present, as some of us might say. He was not prepared to look beyond what could happen if the oil price were to fall cataclysmically still further. He declared:If we can survive unscathed the loss of half our North sea oil revenues in less than 25 weeks, the prospective loss of the other half over the remainder of the next 25 years should not cause us undue concern.The Chancellor will live to regret such statements. Even he had to admit:
the really big gains will be made by the major non-oil-producing countries, such as Germany and Japan, where growth will be boosted and inflation, already low, is likely to fall virtually to zero."—[Official Report, 18 March 1986; Vol. 94, c. 168.]The Chancellor was again acknowledging what he had denied—that British industry would not be in the same competitive position as industry in Japan or Germany. He might have added, for good measure, that we would not be in the same competitive position as France, Italy or the United States.
The Chancellor admitted that our oil exports would decrease, but he avoided giving details. He simply ignored the unpleasant facts. However, oil has accounted for more than 20 per cent. of all United Kingdom exports in the past three years. That represented a sterling value of £16.05 billion in 1985 and £14.85 billion in 1984. Net exports of oil were £8.2 billion and £6.9 billion, respectively, in those years.
Happy is the Chancellor who can sniff at the loss of such exports—happy, or ignorant, or living in a fool's paradise. The Chancellor was simply reinforcing his own self-fulfilling prophecy because, although the oil will last for another 25 years, the impact of lower revenues from it has been expected for some time, and the expectation was that the revenues would decrease as the volume of production fell. The fact that the loss has come earlier has given the Chancellor the opportunity to seek to prove his point—that our economy is essentially service-oriented and that the abolition of exchange controls since 1979 has permitted extra foreign investment. The return on that additional borrowing investment will cover the loss of North sea oil revenue.
The Chancellor said:Our net overseas assets have, in fact, risen more than sevenfold from £12 billion at the end of 1979 to almost £90 billion at the end of last year.Some might feel that that is not a transfer of assets but theft from the British people. It is theft from investment in our country which could have created jobs in Britain, defended traditional industries and made us a competitive force in the world. Japan's success lies in its investment in its 350 country, but we have signally failed to carry such investment forward here. Even the greatest failures that we have with the Chancellor have to be trumpeted as some kind of success.
Yesterday, the right hon. Gentleman said:This is a far bigger total than that possessed by any other major nation.No other nation has invested £90 billion abroad. What other nation would be so crazy as to invest so much of its vital assets in the wealth of other countries? This must be the most lunatic economic policy in the world. The only other major country with larger net overseas assets is Japan, as the Chancellor said. He did not say that Japanese investment is aimed essentially to assist its manufacturing industry and to provide against the day when the major industrial countries begin to close their doors to Japanese imports — hence the Nissan factory in Washington in County Durham, where CKD sets from Japan will be converted into European manufactured goods for the European market.
British investment abroad has been essentially in services and in property. That does not provide work in Britain or safeguard jobs. It provides only profits in the best traditions of the Conservative party, of the Conservative Government and of the City of London. Even the Chancellor, with his usual sleight of hand—as I said, one must read his speeches carefully to see how he covers all his options—agrees that
the British economy may not gain a great deal overall as a result of the oil price collapse"—[Official Report, 18 March 1986, Vol. 94, c. 168–69.]Of course, there will be considerable differences within the economy. I can list one difference immediately. The fall in oil prices assists European plastics producers who are making their highest profits since the 1970s because the price of naphtha, the industry's chief raw material, has halved since the beginning of the year. There has been no benefit to the consumer. What happens to the consumer in regard to all the benefits? In the plastics industry prices have remained strong and some producers are even seeking increases. Therefore, the benefit is going straight into their pockets, not into the pockets of the consumers.
Yesterday the Chancellor took the easy way out by saying that the price of petrol should come down by about 12p; therefore, although he was putting a higher tax on petrol, he hoped that the petrol companies would not pass it on. How naive can he be? How easy it is to brush aside one's responsibility and put it upon others. Of course the petrol companies will increase their prices, and the extra money will come out of the pocket of the consumer. The electorate will not be fooled by such sleight of hand.
There will be losers because of the rapid fall in the price of oil. The losers will include oil companies, and many will go into bankruptcy. Those which wish to listen have already heard of the severe impact of the fall in oil prices on Texas and Louisiana, on oil drilling in Canada and even on new oil drilling in the North sea. Companies are already cutting back on investment, expansion and exploration because of the drop in the price of oil.
The Chancellor yesterday told us how the Government had weathered the storm of the year-long dispute in the coal industry when the pits were not working. What will happen to the plans for coal and to those who work in that industry as the generating plants of electricity boards change to oil because it will be cheaper? What crisis will we have again in the coal industry? What will the impact 351 of the fall in oil prices be on the module yards, to which I referred earlier, in the north of England and in Scotland? Will they continue to turn out production rigs? Will the refineries which take oil from the North sea find it prohibitive to continue to refine oil when the price falls below $13 a barrel? Will the oil last for even 25 years if exploration in the marginal fields is to cease?
Neither the Chancellor yesterday nor the Chief Secretary to the Treasury today referred to the financial consequences for debtor nations which, although they produce oil, still have to service the massive debts which they have accumulated since 1974. Already the combined current account deficits of Mexico, Egypt, Algeria, Iraq, Iran and Nigeria are projected to be $15 billion. There will have to be more borrowing on the international market from international banks just to enable those countries to stand still. I believe that Mexico has about $90,000 million of debt and needs another $9,000 million to cover the interest which it has to pay. Because of the fall in oil prices, Mexico no longer has the wherewithal to cover such a massive debt.
Probably the Chancellor has already foreseen the consequences of his non-policy on North sea oil production and prices. Already the familiar exercise of washing his hands and transferring the burden of responsibility has begun with the Budget statement. Of course, as he said, and as my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said earlier, the conditions are there for British industry to become more competitive. Again the Chancellor warned that labour costs would have to be kept down; but he said that there must be more investment in research, development and training. At least he referred yesterday to the need for more investment. Today the Chief Secretary to the Treasury said that it was the lack of investment in the 1970s which was the cause of the difficulties in industry. Yesterday the Chancellor said:Both the opportunity, and the responsibility to see that it is not thrown aaway, rest fairly and squarely on the shoulders of British management."—[Official Report, 18 March 1986; Vol. 94, c. 169]Surely it rests fairly and squarely on the shoulders of the British Government and of the Chancellor of the Exchequer.
Thanks to the surplus from North sea oil, the surplus for the year on the balance of payments is £3.5 billion. It is like the man who, having thrown himself out of a window on the 25th floor, half way down says to himself, "This does not hurt a bit." There has already been reference to that twice in today's debate, perhaps because great minds think alike or because hon. Members have come to a sensible conclusion. Having lost £6,000 million of oil revenue in a few weeks and having braced himself for the loss of a further £3,000 million, the Chancellor is saying, "It does not hurt a bit." As oil exports fall and as oil prices are continually whittled away, it will bite on the balance of payments. The advantage of North sea oil will be thrown away even more quickly.
Even the Chancellor of the Exchequer yesterday, towards the end of his statement on oil, was reluctantly accepting the serious consequences of the free fall in oil prices for the Treasury. Again, in contradiction to the Chief Secretary, he said that North sea oil revenues, which were likely to be £11.5 billion for 1985–86, would be severely reduced in 1986–87. 352 I began by saying that the Chancellor had made a monumental blunder in regard to oil. He comforted himself by believing that the price of oil would stabilise at around $15 a barrel, thus halving North sea revenue to £6,000 million. What if the price should fall to $8 a barrel? The consequence will be that the tax revenue will be halved again to £3,000 million. Will the Treasury be able to live with that, too, or wilt it feel that the time has come to be prudent and to talk to the OPEC producers to see if there can he a planned rather than a free market in oil? We should have a market planned in the interests of consumers and producers.
The fall in the price of oil has presented the Government with an opportunity which they have not had until now. They can regain a position of influence in the world. They can seek to stabilise oil prices so that the gyrations in the price of oil from $12 to $30 a barrel and back again in a decade need not happen again. That would genuinely create conditions for a planned and steady growth that would be of benefit to the world. By washing his hands of that opportunity, the Chancellor lost the chance to show leadership. He lost the chance to show leadership in dealing with a scarce commodity, in preventing yet another energy crisis and in preventing the price of a barrel of oil from going up to $30. In the meantime he has brought closer the risk of a world monetary collapse, with debtor nations going bankrupt. He said that the British economy will find more minuses than pluses as other nation states take advantage of the lower oil prices to our detriment.
Again the Chancellor will have to tell the House that he got things wrong. Last year's Budget was to be a Budget for jobs. In the meantime, 116,000 more people have found themselves out of work. Yesterday he said that there would be no question of talking about a limitation on the production of North sea oil. As others have learnt before him, he, too, will learn that jaw-jaw is better than war-war on the oil front. In any event he will find that there will not be scope for his promised tax cuts. All there will be room for are more asset sales to keep the Budget afloat and to make up for the loss in revenue from North sea oil.
The debate should be constructive and objective rather than having the Chief Secretary to the Treasury seeking to score easy political points. The world has a major problem in the production of oil and its price. The Government have an opportunity to add their weight to the resolution of that problem. They refuse to do so for ideological reasons because they believe in the so-called free market. They do not believe in protecting our investment in the North sea.
It will be a tragedy for all the British people—for all those who work in the oil industry and for everyone else when we seek to help by the creation of jobs and the steadying of prices—if the Government do not, in the weeks and months ahead, take a lead, talk about oil production and prices and thus stabilise the world's energy market.
§ Sir Peter Hordern (Horsham)
It ill becomes the hon. Member for Middlesbrough (Mr. Bell) to lecture hon. Members after a speech lasting more than half an hour, about "jaw-jaw". So far as I could tell, the hon. Gentleman's speech could have been condensed into one sentence: we should join the OPEC cartel. He said that we 353 should enter "meaningful negotiations". I took down his words. I assume that meaningful negotiations must have some intent or purpose.
§ Sir Peter Hordern
I hope that the hon. Gentleman does not want to intervene. I shall give way, but the hon. Gentleman had better be quick.
§ Mr. Bell
I thank the hon. Gentleman for giving way. Every time one seeks to make a balanced and objective speech on oil prices and oil, the immediate response of Conservative Members is to say that we wish to join the OPEC cartel. That is not the policy of Her Majesty's Opposition. It is not the suggestion that has been made. We do not seek to join OPEC, nor do we advise the Government to do so. To enter into meaningful talks on oil production between OPEC and non-OPEC countries is a constructive suggestion, without the implication which the hon. Gentleman has given to it.
§ Sir Peter Hordern
I understand that the hon. Gentleman is a lawyer; I do not know whether he is. The truth of the matter is that, however it is wrapped up, meaningful negotiations, if they are to have any meaning, must lead to negotiations towards either production or price fixing. They cannot be otherwise.
I have listened to the hon. Gentleman at great length, and I can say only that if there were such a cartel I wonder how pleased his constituents would be to find that production had been curtailed and that the operations of the oil companies had been restricted in some way.
If it were the case that oil prices were a great deal higher than they are now, no doubt it would be good for our revenue, but it certainly would not be good for world trade, which has received a considerable impetus from the reduction in the price of oil, from which nobody can be calculated to have received greater benefit than Britain as one of the major industrial countries—a point which the Select Committee in the other place might have taken into account.
While I am on that point, the Select Committee might have referred in greater detail to the increase in wage costs which has occurred in Britain and which is still occurring. If the distinguished people on that Committee had bent their energies and influence to keeping down wage costs, which they may be in a position to do, our industry would be in a great deal better position than it is today.
In the introduction to the Green Paper on the reform of personal taxation my right hon. Friend the Chancellor reminds us that before the last war a married man on average earnings paid no income tax. In 1960 the threshold was 60 per cent. of average earnings, and I believe that it is now 38 per cent. My right hon. Friend was right to remind us that if the tax burden is to be further reduced the first need is to contain public expenditure, which, between 1964 and 1984, rose from 35 per cent. to about 45 per cent. of GDP.
After the many compliments that have been paid to my right hon. Friend, especially about charities, the business expansion scheme and the expertly aimed measures to help employment, I hope that I will not sound ungracious if I say that there is still a long way to go, not just in reducing taxation but in recasting our public expenditure so that it 354 accurately reflects the social changes that have occurred over the past 20 years and is far more responsive to modern needs.
I congratulate my right hon. Friend on his new personal savings plan. It seems to form the third leg of a tripod, the first of which is to own one's own home, the second to provide for one's retirement, and now to provide a savings fund during one's lifetime. I have no doubt that this may take time to catch on, and perhaps it would have been better brought about through specific tax concessions such as in France and the United States. Whatever success there may be will bring with it an increasing sense of security and confidence which could have a profound social effect. I recognise that it is also designed to secure wider ownership, although unhappily not in quite such a generous way as the loi Monory in France.
Let me contrast the tax treatment of those who now wish to buy equities and those who seek to save in Government securities. For years, Government securities have had tax privileges not available to equities. Low coupon gilts, as well as index-linked stocks, have been free of capital gains tax if held to maturity, and only the income element has so far been taxable. Now, as a result of this new and welcome measure, investors may buy equities in their own fund which may be held free of tax on dividends and capital gains.
It would surely make sense to allow the same privilege for Government securities if they were held in a special fund. Otherwise there is bound to be some switching out of Government securities into this new equity fund. The equity fund is bound to be more favourably treated and more warmly received than gilt-edged securities.
I yield to nobody in my admiration for wider share ownership, but there is much to be said for the incentives for saving generally and not just in equities. The savings ratio generally has fallen recently and the real returns now available on Government securities are most attractive. There is a real need, as many who have contributed to this debate have already said, to bring interest rates down. That would be helped by switching from consumption to saving, because lower interest rates encourage investment and it is investment which is fuelling the West German economy.
My right hon. Friend the Chancellor mentioned West Germany as a country which benefits relatively more from the fall in oil prices than we do and that is true. Indeed, if one takes into account the recent reduction in taxation in West Germany, which amounts to 13 billion deutschmarks, and adds to that the benefit to the economy from the drop in the price of oil, that produces at least another 13 billion deutschmarks.
This extra demand in West Germany that makes West Germany an extremely attractive target for our own exporters, but of course the West Germans are tough competitors. Last year in West Germany prices rose by .3 per cent. and the latest figures show that the rate of inflation is now .7 per cent. If things go on as they are there could be a negative rate of inflation. Prices could fall in real terms in West Germany. Over a year ago its prices fell by 1.3 per cent. and its wages are rising by 3.3 per cent. At the moment our prices are rising by 5 per cent. and our wages are rising by 8.6 per cent. The other important point is that three months' money in Germany is 4.5 per cent. In the United Kingdom, even after the drop in the interest rate, it is over 11 per cent. 355 How is it that the West Germans manage to keep not only their inflation rate but their interest rate so low? They do so by the strictest control of their money supply, and in particular through the control of their central bank money stock. This includes the currency held by non-banks and the required minimum reserves on banks' domestic liability. The only point about this is that monetary policy in West Germany is strictly applied and for the past two or three years, our monetary policy has been at the very least confusing and, in the more important sense, hardly in existence at all. Not only does monetary policy work for the West Germans in the sense that inflation is controlled, but it allows for a continuing regime of low interest rates, which encourage investment.
There are many good things going on in our economy, such as the control of inflation and the record in growth, and I yield to no one in the admiration that I hold for the Government for the way in which they have succeeded in reducing the rate of inflation and advancing the rate of economic growth. However, our level of inflation owes much to the fall in commodity prices, which are now 20 per cent. down from a year ago, and many former Chancellors would have liked such a thing to happen to them.
Growth is uncomfortably dependent at present on consumer expenditure in our economy. Real personal disposable income is due to increase by 5 per cent. this year, and most of this will be reflected in higher spending. That is what the money supply continues to reflect. The M3 statistic is designed no longer to represent a target, but as a sort of running commentary on how free and easy credit is. There is no attempt to regulate the monetary figures, as used to be the case, by selling more gilts than necessary to fund the borrowing requirement—there is over-funding. Instead, we have, as the House must accept, a plastic card economy, which will fuel the consumer boom that is going on. In turn, this is likely to lead to further pressures on wage increases, which will be readily conceded by the likes of Sir John Harvey-Jones, who has the nerve to criticise the Government for not reducing the price of sterling and allowing his products to become more competitive.
In the absence of monetary policy, the Government have only one method to counter defeatist industrialists of the kind who wrote to the House of Lords Select Committee, and that is the interest rate, which will be used whenever it looks as though the exchange rate is falling too far.
However, the interest rate is too blunt a weapon. It would be better to have a proper monetary policy, like the West Germans, so that we can have stable prices and much lower interest rates. In its absence, it is now a complete mystery to me why we have not joined the European monetary system. If we were to join, we should have the additional protection that a closer association with the deutschmark will bring. Somebody must think that it is a bad idea. I do not know who it is, but whoever it is, whether a he or a she, some explanation, of which the House can determine its relative importance, should be given.
It matters that our interest rates are so much higher than anybody else's in real terms. It matters to the Government as well that this is the case. In 1982 and 1983, interest on Government loans amounted to £14.5 billion. The forecast for the coming year is that it will be £18.2 billion. That is 11 per cent. of total expenditure. It is clear that if interest 356 rates remain at the same level as they are, this level and proportion of public debt will assume even greater proportion than it now has of total expenditure. Therefore, from every point of view, it is desirable to reduce the burden of interest rates on Government, expenditure and industry.
It is worth noting that the level of consumer credit is now at an all-time high and growing fast. I notice that in the first three quarters of this financial year, consumer credit was as high as for the whole of the previous year, which was itself at a record level. The evidence points to the need to encourage savings and, besides tax concessions to help industry in many ways, there should be tax concessions on saving. Perhaps the best form would be to encourage the portable pension schemes by more generous concessions. It is horrifying how poorly protected we are for old age. Only a tiny minority retire with two thirds of final salary, and I notice what a powerful position the National Association of Pension Funds has. It had only to fire a few shots across the bows of the Government last year to produce a retreat. It is disgraceful that more is not known of the true level of pension for the great majority of those who retire from occupational schemes.
Most people change jobs at some time in their life, and therefore carry with them only their contributions plus a tiny amount. That is never admitted by the National Association of Pension Funds. Nor does it say that the proportion of people who are protected, so-called, by pension funds remains at about 50 per cent., with the other 50 per cent. of people who retire having no occupational pensions at all. Therefore, the case for portable personal pensions is strong.
There should be tax concessions, of the kind that my right hon. Friend the Chancellor has started, in an encouraging way, with his support for personal equity savings, to encourage people to contribute to funds much more than they are likely to do with the rather slim concessions in the social security White Paper, which does not go far enough.
The prospects for the growth of world trade are excellent, for the very reasons that the hon. Member for Middlesbrough was deploring—the fall in the price of oil. It would be good if we could have a larger share in the increase of foreign consumption rather than depend as much as we do on domestic consumption. If we are to have that, we need lower interest rates, which would come from higher savings as well as a low borrowing requirement. It would help nationalised industries in their borrowing and it would help local authorities. It is not enough to keep public borrowing low. We have to have a long-term review of all our public expenditure.
I have to ask why it is that the pattern of our public expenditure is so very different from those of other countries. I recognise that education will never be properly funded while it is supported by the rate support grant, which in its turn is reduced every year as a matter of fixed policy.
§ Mr. Mark Fisher (Stoke-on-Trent, Central)
The rate support grant is reduced only by this Government.
Sir Peter Harden
That is not the case. The rate support grant has been reduced by successive Governments over a long time.
Education should be directly funded, like the Health Service, and it is time to look at the organisation and 357 structure of public expenditure. For example, when will we stop supporting cereal farmers? Is there any need for a whole tier of health authorities—the regional health authorities? Why has it been necessary to spend £5,000 million on torpedoes? Could we not have the housing benefit properly reformed in integrating the tax and benefits system?
I think that there is a good case for a Green Paper on public expenditure. We have a good Green Paper on the taxation of husband and wife which breaks new ground and I think that if we were to have a similar Green Paper on a long-term review of public expenditure, we would see whether our public resources are being properly directed.
I think that it is quite right to boost enterprise with job creation schemes as well as training schemes, which are involved in this Budget and in other ways. However, what about education for the large number of youngsters who have not been able to find work? Are we sure that our education budget is sufficient under the present system? Are we directing public expenditure in the best way available? I believe that the whole of our public expenditure needs to be reviewed to see that it is being properly used.
I believe that in our system we have a little too much interest and emphasis on tax reform and not enough on the reform of public expenditure. Much could be done to help housing and other important matters in our economy. The most direct way of doing so would be the abolition of rent control for first time lets. I hope that that will be introduced as soon as we win the next election and that no further excuses will be given. There is nothing worse than the sight of those who want to accept work in busy parts of the country, such as the area I am fortunate enough to represent, only to find that there is nowhere to live. The sooner the Rent Act 1977 is abolished, the better.
I give my right hon. Friend's Budget a sincere welcome. I hope that what I have said will be accepted as a long-term look at what I still think is desirable—the imbalance of our enthusiasm for tax reform and not enough attention to the essential reform of public expenditure.
§ 8.2 pm
§ Mr. D. N. Campbell-Savours (Workington)
My views to some extent accord with those of the hon. Member for Horsham (Sir P. Hordern) on the oil price. I have given that matter much thought over the past few weeks and I increasingly draw the conclusion that what is happening to the oil price may spark off a new era in world trade and have a major impact. My natural planning and interventionist instincts have somehow had to be subdued on the question of the oil price and even on the question of negotiations with the Organisation of Petroleum Exporting Countries. I think that there is an argument for keeping out.
That may well appear to be the kind of argument that a Socialist should not advocate. However, I think that the moment we enter into discussions with OPEC, by our presence we imply controls on production and certainly some desire to introduce a mechanism into the pricing arrangements for oil. That in itself may well put a block on the development of world trade. I think that we all have that in common.
I dissent from the view expressed by the hon. Member for Horsham, because I am not altogether convinced that 358 Britain is equipped in every way to deal with the surge in world trade which might arise. I know that falling oil prices have had a good effect on the exchange rate, in that sterling has fallen, and that must obviously help our export efforts. However, even then are we equipped? Do we have the pool of adequately trained people to support the sort of industrial take-off which might take place? Is it not fair to say that substantial damage has been done to the British economy over the past few years, certainly to the industrial base, and that we might not be able to deal with it in the way that we should?
There is another problem. If we accept a noninterventionist policy on oil prices—of which, as I say, I am generally in favour—I think that we must be very wary of political developments in the middle east. They are matters that we would do well not to ignore. Islamic fundamentalism and its growth is geared in many ways to the failure of middle eastern economies, and we must take those matters into account when we take decisions and draw conclusions.
When I was asked yesterday by my local television station, Border Television, what I thought of the Budget, I summed it up by saying that there were a few interesting delicacies to be found, but, in general, it was the same old main course of cod and chips which really would not succeed in putting my constituents, and certainly not the people of Cumbria, back to work.
This is not an imaginative Budget. There are a number of small and interesting measures. For example, I 'think that the measures introduced to help charities will have a major impact. We should not under-estimate their potential effect on the funding of charities. However, we must not get those minor changes, although they may be important to charities, out of proportion. The effect of the Budget is quite neutral. It will have no real effect on demand in the economy. Indeed, the business men who say to us all the time that enterprise packages require increasingly buoyant markets and increases in consumption, will be upset by this Budget. They may well be making positive noises now, but within a matter of months the truth will sink in and they will realise that we are really in for very little change in the medicine we have had over the past few years.
I want to address my comments to the issue of the £24 billion about which Conservative Members have spoken repreatedly and, I must say, quite successfully over the past week. It is obviously an orchestrated campaign on the Tory Benches. They are feeding out the questions at Prime Minister's Question Time on Tuesdays and Thursdays and they are using every opportunity to discredit the Labour party and its alleged programme.
The £24 billion has no basis. Any hon. Gentleman who does his homework will quickly establish that it has been drawn from a few grey statements and inferences about the priorities of a future Labour Government. It is no more than that. Some Treasury official, pinched by a Minister, has been instructed to put a price on it, and we are now left in the House defending the accusations of the Government who have whole Departments costing out those things. The figure is wrong.
I can say that a Labour Government will increase expenditure in a number of areas. We will easily find the money. If I am right about the impact of the oil price and its affect on world trade and if I am right that the policies of the Labour Government to put people back to work will generate additional wealth which will have to be taxed and 359 therefore increase the tax take of the Labour Treasury, that will provide funds. If I am right that every year since 1979, on average, £3.65 billion of taxation has been removed from the richer people in society and we are to restore levels of taxation, if not to the former levels of 1979, certainly to far greater levels than currently exist for the top 5 per cent., that will produce funds. I believe that, from those sources we will find sufficient money to fund the programme of the next Labour Government, who, in my view, will be elected in 1988.
The problem is that the campaign being waged by Conservative Members may well be getting through today, but in the long term it will not get through. Last weekend on "This Week, Next Week" we saw a junior Minister from the Department of Health and Social Security, pushed into a corner and realising that he was about to be caught out, making statements which he knew were not true. When he was asked by Mr. David Dimbleby where a Labour Government would find the money to fund the child benefit, pension and other benefit increases, he said that we would raise it by way of national insurance contributions. He insisted, throughout 15 minutes of that programme, on adopting that line, knowing that it was not true and that it had already been denied by my right hon. Friend the Shadow Chancellor.
It is obvious that this campaign is being organised on the basis of telling a series of lies. I am not referring to statements in the House, because I know that I am not allowed to use such a word in relation to statements by Ministers, but I can refer to them outside. In the end, when the truth comes out, Conservative Members will have undermined their whole campaign. If they attempt to go into the next election on the basis of a lie, they will quickly be found out. We should remember the headline in the Daily Mail in the 1979 general election. A major lie was told to fool hundreds of thousands of people. It will never happen again.
In his statement, the Chancellor referred to the enterprise culture. That is an interesting term. The first phase of the Government's enterprise culture was the introduction of the business expansion scheme in 1982. It provides us with a good basis on which to examine the success of that approach. I supported the business expansion scheme in part on its introduction, on the basis that it could direct funds into small manufacturing industry. To that extent, it has failed because the Chancellor has refused, apart from a minor amendment last year connected with land, to intervene where abuses are going on. According to the Inland Revenue's statistics, published this year, only 4.4 per cent. of the £700 million invested by the year 1983–84 had gone to the north-west and the north of England, only 12.8 per cent. had been invested in Scotland, Wales, the north-west and the north, and 61 per cent. had been invested in London, the southeast, the south-west and East Anglia. Therefore, there is an emphasis on the south in the location of funding from the business expansion scheme.
Those areas do not provide the industrial base, the engine room, of the British economy in terms of industrial and manufacturing industry. One must ask why the scheme was not devised in such a way that more emphasis was placed on the need to back manufacturing industry in the regions. Under the scheme, most of the money is being invested in the very areas where we have the highest employment—that is to say, the lowest unemployment. If one looks at the regional location of firms financed 360 under the business expansion scheme, one finds that only 8 per cent. are in the north-west and north-east of England, while 53 per cent. are in the south-east, London and the home counties. That is a major problem for the Government, which they should examine. I know that it is hard to regionalise the tax system, but further amendment to the scheme might have the effect of generating business enterprise, certainly in manufacturing, in the areas of the United Kingdom where unemployment is at its highest.
The second phase of the enterprise culture to which the Chancellor referred yesterday is to be found in the personal equity plan that he announced. At first glimpse, I thought that it might take off. I was not endorsing the principle, mainly because I think that it is unnecessary. However, I am not now altogether convinced that it will take off. I have been able to establish that, due to the high threshold for capital gains tax, which this year is to be raised from £5,700 to £6,300, only a small number of people buying personal equity plan packages will benefit from this half of the beneficial arrangements available under the scheme. I should have thought that they would have to invest £20,000, £30,000, £40,000 or £50,000 before they saw any benefit, depending on the level of capital gain. They might benefit from the dividend payment arrangements, but that would never be sufficient to generate enough public interest.
If great public interest is generated, a time bomb will be placed at the heart of the enterprise culture. People like to buy shares when they are going up. Some might say that today we are in bull times, but what happens when we are in bear times? What happens when the market begins to fall, and people point a finger at the Government and say, "It's your fault. That is why we are losing."? A sense of recrimination will set in against the Government if there is a fall in the market. It is highly likely that there will be a fall. The public might be insulated from the fall by the big bang and the interest that it will engender in the City in November, but I believe that it is inevitable that the stock market will fall. In those conditions, many people will be lured into share ownership under the principle of the enterprise culture and the personal equity plan, and, when their investments fall, they will blame the Government.
Furthermore, to some extent those people might come under the looser arrangements in the City after November following the big bang. They might be lured into buying shares that they should never have bought. Under the arrangements in the Financial Services Bill the policing of the City is to be carried out by a private company, the Securities and Investments Board Ltd. It is not a public authority that will police standards in the City; it is a private organisation. There are great dangers in that, certainly if there are failures. Public perception of the City will be affected. A public reaction might set in against many City institutions, which would be unreasonable.
The employment premium scheme provides people with £40 a week if they go into business and if they can cough up the additional £1,000 for the funding of their enterprise. Under the Budget proposals, there is an increase in the number of places available, from 60,000 to 100,000. The complaints that I have heard were about not only the number of places available, but the value of the payment. The sum of £40 a week is too little. That sum should have been inflation-proofed this year.
361 Many people want to go into business, but find that they can neither raise the 1,000 nor manage on the £40 a week. We are talking about people on the lowest rung of the enterprise ladder. Every help should have been given to them. I vigorously supported the introduction of an allowance when it was first announced by the Government some two or three years ago, following the original six pilot schemes. A mistake has been made. That money should have been raised. Money for capital gains tax or capital transfer tax reductions should have been earmarked for that scheme.
I have a reservation about the community programme. The number of places is to be increased by some 20 per cent. Under the present arrangements, the only people over 25 who can apply for support under the scheme are those on supplementary benefit. That is wrong, because it excludes many people who should be entitled to community programme places. I know that the allocation of places is in favour of those who have been unemployed for more than 12 months, but people who have been unemployed for less than 12 months have an equal right to employment. People throughout the country, certainly my constituents, are sore about that.
Three months ago when the rate support grant settlement was notified to Cumbria, we realised that a great deal of money had been cut from our budget and that, unless we slashed services in a way which the people in the county would find unacceptable—many Conservatives want the services provided by Cumbria county council—the rates would have to increase. No one wanted to do that, but they were increased to compensate for the loss in rate support grant. Yesterday's tax reductions do not cover the rates increase for the majority of people in the county. They are of no consequence to us. What the Government have taken away with one hand they may have given us with the other, but it is insufficient to match our needs.
§ Mr. Michael Hirst (Strathkelvin and Bearsden)
I shall endeavour to be brief, to allow my colleagues who have sat throughout the debate to have an opportunity to speak.
We have been living with the collapse of oil prices for so many weeks now that many of us have been conditioned to limit our expectations about the Budget. So, like most people, I congratulate my right hon. Friend the Chancellor of the Exchequer on what appears to be an ingenious Budget, handing out so much and satisfying so many interests. However, I paused this morning after reading the comments of adulation or criticism, depending on the newspaper, to consider how the Budget may affect my constituents. I have listened to the speeches of Labour Members who represent Scottish constituencies, and they make me wonder what part of Scotland I come from because the evidently gloomy picture which they paint is not shared in every part of my constituency.
There is unemployment and the worrying problem of young people who have been unemployed for some time. Therefore, I listened particularly attentively to the measures which the Chancellor announced to assist the long-term unemployed. When I visit local factories I invariably ask the management what it expects of Government, and what the Government can do to help it. After one overlooks a particular gripe, whether for more 362 public expenditure or whatever, management invariably settles for stable economic conditions, low inflation, the prospect of economic growth and, particularly, for lower interest rates.
Managements must all welcome this morning's change in the latter respect. They will have seen the confirmation of those conditions in the Chancellor's forecasts yesterday. When asked about the prospects of employing more people they say that they seek some incentive to make it worthwhile. I hope that the new workers scheme will prove to be a financial incentive to employers, that they will be prepared to take it up and, through it, to generate employment.
I am pleased, as are many of my hon. Friends, that the national restart scheme will provide, not just an allowance, but the opportunity for the long-term unemployed to have a counselling session. There can be no better way to restore the morale of a person who has experienced unemployment for a long time than the knowledge that somebody is sufficiently concerned and is taking a continued interest in one's plight.
Opposition Member's condemned the community programme for its shortcomings, but I have seen some of the excellent work that it does. Eighteen months ago when there was a shortage of take-up in the south and places were transferred north of the border, the community programme made a significant surge forward in parts of the west of Scotland where it has already significantly improved some of the areas of dereliction, and provided training for young people into the bargain. They are imaginative, successful, schemes, and we should all welcome them.
While I particularly welcome the increase in the number of places, I find, from constituency experience, some of the rules about eligibility particularly irksome. It does not seem reasonable that a man who has been unemployed for more than the qualifying period and who possesses experience to make a significant, worthwhile contribution to the scheme but who happens to have a wife working part time should be excluded. I shall continue to make representations to Ministers to relax the rules in such cases.
I am interested to see further encouragement for the enterprise allowance scheme. Recently, I met several young participants who had taken advantage of the scheme. Contrary to what the hon. Member for Workington (Mr. Campbell-Savours) says, they were self starters and had pulled themselves up off the ground. They showed enormous pride in what they could achieve by being self-employed. The importance of proper financial control of a business should be emphasised during the vetting procedure. No matter how talented or how much flair people may have for sales and marketing, if they cannot control the finances of a business, it will not ultimately be successful. There is a responsibility on professional firms to respond with the services that these people need.
We must not allow these improvements in job creation schemes to be obscured by the chorus of critics on the Opposition Benches saying that they are not enough or that there should not be tax cuts. The argument that tax cuts and spending on jobs are mutually exclusive is wholly fallacious. I make no apology for taking the time of the House to say again that tax reductions stimulate demand, which in turn creates lasting, worthwhile jobs. We should be prepared to take the political kudos for lifting 500,000 363 people out of tax paying altogether and, more particularly in our tax-cutting measures, to direct the principal benefit of those cuts to those on average wages and below. The Opposition cannot have it both ways. They cannot criticise the Government for increasing the tax burden, as the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) did, and then condemn our efforts to reduce that burden in the Budget.
My constituents who are happily in business will be encouraged by the Budget's incentives. I welcome the abolition of capital transfer tax on lifetime transfers. From professional experience I have seen how that tax has borne down—[Interruption.] The hon. Member for Thurrock (Dr. McDonald) may laugh. It may benefit her to speak to the people who create work and provide employment and who have had to live with that tax. The diversion of management skills into looking at ways to carry on a family business while that tax has existed is a complete waste of time. I hope that its abolition will prove worth while to those who wish to pass on family businesses and create employment.
I am delighted to see that the Chancellor has lost none of his enthusiasm for abolishing taxes. My right hon. Friend the Financial Secretary will know that on previous occasions I have offered advice about taxes which may be abolished. Development land tax has been abolished, and today I remind him of capital gains tax. Despite the Finance Act 1985, it remains an iniquitous tax in that it taxes inflationery gains pre-1982. It is probably a disincentive to investment, and it should be a candidate for abolition in 1987, with short-term gains being taxed as income and with a taper for gains on assets held between one and three years.
I am aware that many colleagues wish to speak, so I shall comment on the Budget proposals on charities. I am encouraged and refreshed by the Chancellor's reiteration yesterday of the importance of the voluntary sector. Charities do excellent work, and I am delighted that the Budget proposals recognise that fact. It is good to reverse the automatic conditioning whereby people constantly look to the state to fulfil their every need. The voluntary sector can often fulfil those needs far more efficently.
For many years I have been involved with a Scottish hospital, the Princess Louise Scottish hospital for the war wounded. It does outstandingly good work and about £3 million a year is needed to run it. The hospital frequently complains about the imposition of value added tax on the medical equipment that it requires. It benefits from the largesse of social schemes run by companies and from the contributions that it receives from other voluntary bodies. I am glad that the Budget contains proposals that will encourage company donations and employee tax deductions. I am certain that that hospital, like many other charities, will benefit from the Budget proposals.
Once again I say, as a Scot, to my right hon. Friend the Chief Secretary to the Treasury that the Scotch whisky industry will appreciate the assistance that this year's Budget has given it. During the proceedings in Committee on previous Finance Bills I have criticised the burdens that are placed on that industry. It is vital to Scotland. I am sorry that the hon. Member for Greenock and Port Glasgow (Dr. Godman) does not recognise the importance of this industry to exports, wealth creation and employment in Scotland. I am certain that the industry will welcome the relief that was afforded it yesterday.
§ Mr. Deputy Speaker (Mr. Harold Walker)
I am grateful to the hon. Gentleman for his brevity. I understand that the first Front Bench speakers will seek to catch my eye at about 9.15 pm. I see that about five hon. Members are seeking to catch my eye, so the arithmetic is fairly obvious.
§ Mr. Gerald Bermingham (St. Helens, South)
I noticed with some amusement the anger shown by the hon. Member for Strathkelvin and Bearsden (Mr. Hirst) when the Opposition expressed dissent from his comments on capital transfer tax. I wish that I had constituents who could afford to worry about it. Many thousands of my constituents are faced with a much more pressing problem. It is called worrying about a job, or trying to find work for school leavers. Most of my constituents could afford to transfer only their social security payments. They could not transfer their wealth.
What will this Budget do for St. Helens? Will it increase its industrial base? The Budget contains no proposals to aid construction or to encourage investment that might produce more jobs in St. Helens. We talk about capital gains tax. I should like to know how many of my constituents could afford to put aside £200 a month. Many of them have to live on £200 a month. They have to try to keep a family on £200 a month. The idea of saving £200 a month can be only a dream to them. If the Budget meant that every elector in my constituency could put aside £200 a month, we should be going somewhere.
The Budget is supposed to result in a penny off income tax. I ask myself what that means to those who live and, if they are lucky, work in St. Helens. The reality is that if somebody earns under £80 a week it does not mean very much. It means piffling pence. If somebody earns between £80 and £150, again it means piffling pence. Many of my constituents would give their right arm to be able to earn £150 a week.
My hon. Friend the Member for Workington (Mr. Campbell-Savours) said that the rates will be increased. Of course they will be increased. Rate support grant is being cut. Furthermore, the abolition of the metropolitan counties will result in an increase in rates. In St. Helens it will result in an increase of 22p in the pound on the rates. That is the consequence of taking over services that were formerly provided by the disbanded metropolitan authority. It is ridiculous to dismantle something that costs money and then to find that the cost of dismantling it imposes an extra burden on the people who live in the area.
Treasury Ministers have the gall to tell those who live in the north of England that this is supposed to be an adventurous Budget, a forward-looking Budget. It is anything but that. It is a Budget of mudge and fudge, of fiddle and squeeze, of giving a little bit more to those who have already got an awful lot of it and doing nothing for those who are at the bottom end of the scale. Oh yes, they have got their allowances and their tax thresholds and a penny has been taken off the standard rate of income tax. But the reality is that the Government have forgotten about the rates that people will have to pay. They have forgotten that in reality this Budget means a few extra pence per week for the average family, if members of that family are lucky enough to have jobs.
The Government keep telling us that they are good for the country and that the Budget is good for the country. 365 If the Government had any go about them they would be asking themselves, "How can we get Britain back to work?" I look at the figures contained in the Budget. I am no economist——
§ Mr. Bermingham
The hon. Gentleman says, "Hear, hear." The reality is that I can read a balance sheet and can tell when funds are not being utilised properly.
Last year, £5 billion were held in the reserve. This year, £4.5 billion will be held in the reserve. If I understood the Chancellor's speech correctly, a little of it is to be used for his advice shops for the long-term unemployed. How about the Government being really adventurous and using the rest of the reserve? It should be used for creating jobs in the construction industry. It should be put into the public sector. The Government should take a gamble and do what the Americans have done. They should invest in this country'. They should not allow the money to go abroad. The Government will not waste the £4.5 billion by investing it. It might result in getting people back to work. Then they might want to buy goods. They would also pay tax and national insurance contributions. They would not have to draw the dole or get supplementary benefit. If the Government did that, we should begin to cheer.
There is an old economic maxim which goes like this: speculate to accumulate. That is as true of individuals as it is of countries and Governments. If the Government believe that they are good for Britain, they should invest in Britain. They should not for ever be thinking of chopping, scrimping and saving. They should not for ever be thinking of what this country can do without. They should begin to think about investing in Britain and putting people back to work. It is not a very adventurous suggestion, but I do not expect for one second that it will be taken on board by the Government.
The Government are headed by a Prime Minister who will sell anything. They intend to sell off the water industry and British Airways. They have already sold off British Telecom. It reminds me of the shopkeeper who sold the shelves. The reality is that we are selling, not investing. But to invest would be to think forward: to think forward about how we can give back respectability and a future to the people of this country.
The object of the Budget must be to help, to encourage, to build. In reality, this Budget helps nobody. Unless one is at the top end of the scale, nobody is helped. What encouragement does this Budget provide for the people of St. Helens? In reality, it means very little to them. The people of St. Helens could tell the Government about the amount of money that needs to be injected into the local economy. They could tell the Government about the need for money to be spent on public sector housing and new houses for first-time buyers, upon industry and the infrastructure. if the Government adopted that policy, the glassworks of St. Helens and its other factories would begin to produce goods and employ people. That is what the people of St. Helens want. But what are they getting? As I said earlier, very few of the people of St. Helens have £200 a month to invest. I say again that many of my constituents have less than £200 a month on which to live. I say to the Chancellor of the Exchequer and the Financial Secretary to the Treasury, do not bring in a Budget that offers so little because it insults so many.
§ Mr. John Browne (Winchester)
The Leader of the Liberal party, the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel), is on record as saying that the Government must be judged by their stewardship of the economy. That is indeed an acid test.
Let us cast our minds back to ascertain the precedent. Under both Conservative and Labour Governments since the war there has been a continual series of stop-go policies. What do we see now? Since 1979 there has been steady growth and clear policies, which are key ingredients to investment into the economy both from outside and within.
Where we saw low growth, we see high growth. Our growth is the highest throughout Europe. Indeed, it is even higher than that of the United States. Where we saw high inflation, we see low inflation. Amazingly, inflation has been controlled and pulled down from a staggering high of 27 per cent. Where we saw balance of payments deficits, we see continual balance of payments surpluses. Where we saw low productivity and low profitability, we see high productivity and high profitability.
Where we saw employment decreasing, we see employment rising. Indeed, Britain has achieved the highest rate of job creation throughout Europe over the past two years. We see job creation, wealth creation and the promise of being able to afford to spend much more on improvements to law and order, education, health and social services.
All this has been achieved despite a crippling one-year miners' strike and the loss of 5.5 billion of our oil revenues—that is half of our oil revenues—in less than six months. We now have a steady and growing economy. There is solid, quality growth that is not only non but anti-inflationary. What is most impressive is that it is the manufacturing sector, or non-oil sector, of the economy that has allowed the Chancellor of the Exchequer to be generous in his Budget. I point especially to the treatment of charities. The package for charities is the best that has been offered by any Chancellor.
The leader of the Liberal party set an acid test and the Government have shown that they have achieved that which has eluded all other Governments since the war. They have managed the British economy prudently and successfully and I congratulate my right hon. Friend the Chancellor of the Exchequer, his predecessor, his team and the Government generally.
The Budget is courageous as well as being filled with ingenuous and constructive measures. In the long term it is an employment, enterprise and wealth-creating Budget. My right hon. Friend was courageous in resisting the temptation to finance the shortfall in oil revenues by raising the borrowing requirement and, therefore, putting upward pressure on sterling interest rates. It is essqntial that he continues to manage the economy on a sound and prudent footing and with clear policies because that will create confidence, which in turn will create investment.
I am pleased that my right hon. Friend abolished the tax on lifetime gifts but I am sorry that he did not announce the abolition of capital gains tax. In my opinion CGT is unfair and it wastes an enormous amount of management or enterprise time.
The ingenuity that my right hon. Friend the Chancellor of the Exchequer has shown in the Budget is outstanding. He was boxed in by the fall in oil revenues, yet he has 367 produced a superbly balanced and creative Budget. The raising of income tax thresholds, skewed heavily towards the lower paid, and the reduction in the basic rate of income tax has achieved a good balance, especially in the light of the NIC measures taken in the last budget.
The withholding tax on foreign performers is innovative. It will not have an adverse effect on them because they would have paid tax in their own countries in any event. The yield of £75 million will finance the capital transfer tax changes, the personal equity plan and the transfer of the pension calculation date from November to April.
My right hon. Friend the Chancellor of the Exchequer achieved a major initiative in removing some of the discriminatory tax privileges that past Governments have given to the pension funds, which were leading to over-funding. This led to the siphoning off of moneys into major institutions and away from individual hands, and the large institutions have the very, worst record of investing in venture capital.
The Budget is constructed to enhance enterprise, and as chairman of the Conservative small businesses committee I thank my right hon. Friends the Chancellor of the Exchequer and the Financial Secretary for meeting many of the measures for which we have been campaigning. I suspect that my right hon. Friend the Chief Secretary, who was the Minister with responsibility for small businesses, also had some important influence in this area. From a small business point of view, the Budget is outstanding. It is extremely creative. Some of the most notable measures are the raising of VAT thresholds to the EEC maximum, the extension of the loan guarantee scheme and the abolition of the lifetime gifts tax. Those are three substantial measures.
The abolition of the gifts tax must not be underestimated. There are those who argue against it, and in effect they are arguing for a one-generation economy. It is difficult to start a new business and it is even more difficult to start a successful one. A new business has to meet competition, and when it grows its markets will become increasingly competitive. This measure will prove invaluable when it comes to raising finance to enable the business to expand in competitive international markets where financing "flow production" is often the key.
My right hon. Friend the Chancellor of the Exchequer was absolutely right to close the loopholes in the business expansion scheme. It is important to concentrate the scheme on high-risk, low-asset companies.
The personal equity plan is an outstanding development for enterprise and a real step forward in the creation of venture capital. It is individuals who are both the natural and most efficient investors of venture capital, and not institutions. Individuals better understand and often know individual entrepreneurs, and on the whole they make the most successful investments.
There are no easy answers to dealing with unemployment and my right hon. Friend the Chancellor of the Exchequer should be praised for resisting popular gimmicks. The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), the shadow Chancellor of the Exchequer, argued that the Government must finance and create jobs; he must learn that it is customers, not financiers, who create jobs. He must realise also that it is entrepreneurs who create customers. The Government have gone for the creation of real jobs that are financed by 368 customers. The Government have created an enterprise culture that will encourage the creation of jobs by encouraging entrepreneurs to start businesses and succeed.
The Government are helping by initiating training schemes. They are spending £2.5 billion on the youth training scheme and they are now offering ads ice in a consultation process. I welcome the spread nationally of the job club and the job start programmes.
The clear message of the Budget is that the non-oil economy is growing steadily in an anti-inflationary way. The economy is under sound and successful management, which is the envy of those in other political parties and of most Governments in the developed world. The Budget offers real reason for thanks and real hope for better things to come.
I congratulate my right hon. Friend the Chancellor of the Exchequer and his team of Ministers and Civil Servants. They have done an outstanding job.
§ Mr. Ken Eastham (Manchester, Blackley)
Budget days are usually exciting. However, I have been a Member of this place for seven years and I can say that yesterday was as flat as a pancake. The Government have been in office for seven years and we have had seven years of misery. The Government have blamed the previous Labour Government on numerous occasions for the actions that they have taken. Time is running out for apportioning blame on previous Governments. How many years do the Government need to get the economy going? If seven years is not enough, what do they need—70 years? The Government have an abysmal record.
I was fascinated last night watching the Chancellor making his statement on television. He used graphs during his statement on television, and it struck me how selective he was with his illustrations. On some occasions he quoted from 1983, not from 1979 when this Government carne into power. On other occasions he switched and quoted from 1973 and 1974 when there was a world oil crisis. That was the sort of comparison he was making. However, he never presented the people with a graph showing the implications of mass unemployment. He was afraid to put that on the television screens, because it would have shown the people the monstrosity that unemployment has become since this Government came to office.
One after another, Conservative Members have congratulated the Chancellor but I liked the comment made by my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley), that he would not even buy a secondhand bike from the right hon. Member for Chingford (Mr. Tebbit). That sentiment will be shared by many people outside this House.
What is wrong with this Budget is that there is no sharing of prosperity. It is the same theme as the one we have had from 1979. Since then there has been the selfishness of consistently giving to the rich, and this Budget is no different.
People have gradually recognised that tax reductions ought not to be the first priority. The Government and Conservative Members proclaim this great achievement of a 1p tax reduction, but I can tell the Government and those hon. Members that people will not jump and shout and sing in the streets about a 1p tax cut. The people that I represent will hardly even notice it. Many industrialists said that tax reductions were not essential to get the economy right. Along with the people, those industrialists 369 said that the best way to use any available money would be by investment in industry. Not only did they call for investment in industry, but they said there ought to be more money for technology and research. We claim that in the long run investments will create prosperity that everyone can share, not just the people in the stock exchange.
We need more skill training. It is ironic that we have a shortage of skilled people, yet this Government in their campaign to make cuts and so-called savings have closed skillcentres. I am a member of the Select Committee on Employment, and nobody is more conscious of the horrific unemployment figures than I am. The measures outlined in the Budget come nowhere near solving some of the problems in that area. After seven years of this Government, we have 3.2 million unemployed. That is the official figure, but it is probably far higher than that. If it were not for the massaging of the figures, we would know the true extent of the problem. Some 1,352,000 have been workless for over a year; 193,000 under 25-year-olds have been workless for between six and 12 months; and 532,000 people have been unemployed for over three years. People are just rotting away, and many of them are highly skilled people. People who are over 50 will probably never work again.
There has been a lack of investment in the infrastructure, and hon. Members who represent city constituencies will recognise the grave deficiencies in housing alone. There is massive unemployment in the building trades, yet there is a desperate need for houses. In the Budget there is no mention of a surge forward to revitalise the building industry, even though people are crying out for help.
Contrary to the Government's claim about investment, there ought to be more massive investment in the National Health Service. I tabled a question today on the behalf of some of the pensioners in my constituency. They ask what kind of sacrifices they are expected to make. It appears that some health authorities are posing questions about a system based on what is referred to as a quality adjusted life years formula. The Government are saying that they have less money for the Health Service. People who are getting on in years and reaching retirement age are asked about their possible life expectancy and the Government are asking whether they should be spending money on such people or saving it. That is creating horror in the minds of old people, but those are the sort of cuts being introduced.
The Chancellor says he has a certain amount of money to spend, but some pensioners are living with cuts year in, year out. Hon. Members will remember that two or three weeks ago there was talk about hardship over the expense of fuel. What mention has been made about giving assistance to old people for fuel bills? There is also hardship relating to transport but things like that do not matter to the Government or to Conservative Members. They are important issues that we should be considering.
This is a cosmetic Budget. The Government are more interested in the stock exchange than in anything else. That has been admitted on numerous occasions by hon. Members on the Government side. Many of my hon. Friends claim that many people in the stock exchange ought to be in prison, but the stock exchange seems to have a new respectability nowadays. Not many of my constituents will queue up at the banks to invest £200 a 370 month in stocks and shares. The looting of public assets cannot go on for ever. What will happen when the Government finally sell off British Gas and British Airways? The time will come when there will be nothing left to sell. Perhaps then they will put Buckingham palace up for sale or put the Palace of Westminister on lease.
The Goverment are building up problems for a future Labour Government to pick up. They have done nothing for the poor or for the pensioners. Of course the next Budget will be quiet different. It will contain the usual manipulation, priming the people to go forward with this dynamic Conservative Government; but, as soon as the election is over, if the Conservatives come back to power, they will resort to the type of economic policy that they are pursuing today.
I hope that my constituents and voters throughout the country will recognise this miserable Budget for the sham it is.
§ Mrs. Marion Roe (Broxbourne)
I shall address my remarks to the Green Paper on the reform of personal taxation. Its publication marks an important step forward towards the equal treatment of women, and at the same time stresses the importance of marriage in the fabric of our society.
The Green Paper is long overdue, and I congratulate the Government on tackling the issues directly in a well-argued case. I believe that the first requirement of reform must be to place men and women on an absolutely equal basis. It should not matter whether they are married or single, or whether they work unpaid at home for the family, or in the office or factory for pay. A tax system based on the equal treatment of the individual is another step towards a society with those values.
The first step must be a move towards a single personal allowance, with the phasing out of the married man's allowance. Equality of treatment—and flexibility in family relationships—suggests that there should be no distinction between husband and wife. Thus, each individual would be responsible for his or her tax returns and correspondence with the Revenue, and would remain, if they so chose, absolutely independent for tax purposes.
These allowances would apply to all forms of income. The present bizarre treatment of married women in relation to savings income should be ended. That is an important point, and is by no means as peripheral as some would have us believe. It is a mistake to think that only the wealthy have savings income. Everyone with a building society account does. Likewise, as home ownership has moved towards 60 per cent. owner-occupation, as occupation and private pension provision increases, and as employee share schemes multiply, so the level of capital ownership in society rises.
The fact is that the spread of ownership of wealth is improving. A simple example illustrates that. Let us take a couple aged 50 with a mortgage that they have nearly paid off. They may well have savings invested, and the possibility of an occupational pension. Let us then say that the wife's parents die, having previously bought their council house, and that she inherits that house. Even following the appropriate tax, the wife will still have substantial capital to invest. As home ownership spreads, this will be more and more common, and the tax system should recognise it.
371 I strongly support the case that the Green Paper makes for transferable allowances. I do so because I believe that the current tax regime offers disincentives against marriage, and because equality of treatment between the sexes combined with transferrable allowances will remove that disincentive and alleviate the difficulties experienced by couples when the wife works unpaid in the home.
The Green Paper sets out the figures in paragraph 3.24. Under the present system, there is a sharp increase in the percentage of income paid in tax when a wife stops paid work—hardly an incentive to do so. Nor are some of the attitudes expressed an incentive. I have heard transferable allowances described as a "housewife's charter". Why should that be such a bad thing? There is no finer career for a woman than to be a housewife and a mother. Can there be an hon. Member here who does not recognise the maternal influence on his or her life, beliefs and values? Is it a complete coincidence that for 40 years we have discriminated against women who worked at home with their families, and have witnessed a simultaneous increase in violence and a lack of self-discipline in society?
Society needs to recognise the importance of the role of parents who choose that one should take on the continuous responsibility of caring personally for their families. The more that the state can do to support family units—or rather, the more unnecessary disincentives it can remove—the greater the stability of society as a whole. The consequences, not least in terms of Government expenditure, needed to perform a role historically taken by families themselves, are profound. It is right that the state should regard the family unit as the main building block of society, and marriage as the foundation which supports it. The tax system needs simplicity to be seen to be fair: it needs, too, to reflect society's values. It is, as the Green Paper suggests, invidious to treat one married couple differently from another.
It is argued by some that this form of transferable allowance scatters relief where it is not needed, to the detriment of those with young children in the poverty trap. The argument continues that it would be better to target assistance by, say, abolition of the married man's allowance, and using the money saved to fund a substantial increase in child benefit. But this implies that the state should give greater weight to the bearing and raising of children than it does to a wide range of other unpaid activity which people do, and upon which society also depends to a great extent. Those who argue for the child benefit route are arguing ultimately that the wide range of other voluntary activity should be replaced by state-run bodies, with the bureaucracy and uncertainty of long-term policy that that inevitably implies.
I have heard another argument against transferable allowances. If a spouse transfers allowances to his or her partner, on returning to work later they pay tax from the first penny earned. In some way this is said to be unfair. That is hard to understand. A person returning to work would presumably use his allowance, which would no longer be transferable. That is perfectly equitable. More money would he being earned and the family would be better off overall. The spouse who had previously received the transferred allowance might he paying more tax, but together the couple would be paying less tax, exactly as before, with the same overall relief. 372 It is worth remembering that it is not just the married woman now who will benefit. The single woman of today will be the married woman of tomorrow. Whether married or single, they should all have the opportunity to make their own choice without disincentives.
Reform of personal tax can do more than stress equality. It can act to encourage self-help, and the removal of high levels of dependence on the state, by use of reliefs and allowances. In the latter category, allowances for the blind, widow's bereavement and dependent relatives, are obvious cases. These are specific allowances, and the transferable allowance will complement them in less specific areas. One such case is that of a dependent relative who does not live under the same roof but whose care prevents a person from seeking paid work.
The other category of relief lies in the area where the state provides a minimum level of provision, but where by personal choice individuals can, throughout their lives, improve upon that. Pensions are the first example of this.
It is right that the state should recognise and make possible the widest possible take-up of occupational and private pension arrangements. Not to do so is to fail to see that Government expenditure has limits, that people prefer to make their own decisions about their lives, and that such relief will assist in mitigating the effects of poverty in old age. The key is Government as facilitator, and not as controller.
The same can be said of housing and mortgage interest tax relief. The ceiling limits are a matter for judgment, but the point of the relief is clear. Owner-occupation implies a personal responsibility for the quality of one's environment. Taking action on repairs is not hamstrung by bureaucracy, or restrictions on how, or when, or by whom that work is done. By providing this relief the Government give impetus to the development of the majority of the nation's housing stock being in the hands of those who have responsibility and direct personal interest in its maintenance. It is cheaper than direct intervention, and allows funds to be provided for the repair and additional provision of public housing.
There is one anomaly in the Green Paper that I would like to see ended. At present, mortgage tax relief is available on the basis of individual borrowers. This means that an unmarried couple receive tax relief on loans up to £60,000, but on marriage this figure falls to £30,000. That is hardly a situation favouring marriage. The answer is for the maximum of £30,000 to apply not to individuals but to the property itself.
These are my personal thoughts on the reform of taxation. I look forward to the earliest introduction of proposals in the Green Paper. The problems are complex, but what is needed is the political will to sort them out. It is outrageous that this discrimination against women still continues, and the sooner we correct it, the better.
§ 9.9 pm
§ Dr. Oonagh McDonald (Thurrock)
A few weeks ago in an interview with CBI News, the Prime Minister trailed what she thought should happen in the Budget. In her usual style she lectured the CBI membership through this newspaper. She said:Let me tell you, a nurse on £140 a week pays £40 in tax and national insurance contributions, and I think she pays too much. So just you in the top quarter have some regard for those in the bottom half who are paying far too much tax.But yesterday she allowed her Chancellor to introduce a Budget that produced tax reliefs for the better off and did 373 very little at all to help the nurse on £140 a week. Indeed, if that nurse is living in residential accommodation provided by the hospital, she will probably find herself booted out and will be desperately looking for other accommodation locally.
This Budget does very little for the unemployed, still less for the low paid, and nothing at all for the 500,000 families that are caught in the poverty trap. The low paid on £5,000 a year will benefit to the tune of about £1.40 a week. The high paid on £20,000 a year will benefit to the tune of £4.96 a week. The highest paid on £50,000 a year will get an extra £11.36 a week. The Chancellor has wasted the money that he was going to spend on tax relief by reducing the standard rate rather than raising personal allowances.
If the Prime Minister really was concerned about the proportion of pay taken in tax and national insurance contributions—she linked the two in her remarks to the CBI—and if she was really concerned about families caught in the poverty trap, personal allowances would have been increased rather than the standard rate reduced.
The changes that have been introduced in this Budget do nothing to relieve the poverty trap for the 500,000 families that are now caught in it. The Low Pay Unit estimates that that figure has gone up fivefold since 1979, when it was 90,000. None of those families will get much out of this Budget.
If income tax and national insurance are taken together, people on five times average earnings do far better than people on average earnings or below. For example, a married couple with two children on five times average earnings will find that the proportion of their income taken in tax and national insurance contributions has gone down by 13 per cent. since 1979.
Even the little that has been gained by the very poorest families as a result of the tax changes in this year's Budget will soon be absorbed in the increase in petrol duties, which have been passed straight on to the customer, and the increase in cigarette duties. Of course, the Opposition do not quarrel with the latter.
There has been no help for the low paid and for families caught in the poverty trap. Those families could well have been helped by an increase in child benefit. We would like to have seen that benefit go up by £3 a week. That would have been of real assistance to low-paid families. Instead—despite what the Prime Minister said both in her "Panorama" interview and to CBI News—there have been further tax cuts to help the wealthy. There has been the abolition of CTT on lifetime transfers—so-called popular capitalism, which is still best called top people's capitalism, because, despite all the Government efforts to increase share ownership over the past seven years, only six out of every 100 people own shares.
According to The Economist, in 1985 even the sale of British Telecom, which almost doubled the number of individual shareholders then, did not prevent the personal sector as a whole from being a net seller of shares. As for putting away £200 a month in order to get the full tax benefits from this new scheme, few of my constituents have anything like that amount of money to save, and many of them must eke out an existence on £50 a week.
All these tax concessions, including the halving of stamp duty, total £155 million—three times the cost of the recently announced child benefit. No wonder the 374 Government have given up calling themselves the party of the family. They have abandoned any concern for the family, especially the low-paid family.
It is going to be a difficult Finance Bill. The Opposition will resent a Bill that, for the seventh year in succession, will give tax cuts to the rich at the expense of the poor. We shall resent a Bill in which the Government side will be led by the Chief Secretary, a Minister we cannot trust. He has distorted statements made by my right hon. Friend the shadow Chancellor, other right hon. and hon. Friends and myself. He plainly believes that it is useful to employ the well-worn propaganda techniques which depend on the belief that if lies are repeated loud enough and often enough people will accept them. If this is the way in which he intends to behave, he must understand that the Opposition will treat him with the contempt he deserves and I am afraid that the ill feeling which he will have aroused in the Opposition will bode ill for our deliberations on the Finance Bill when it is eventually introduced.
§ Mr. MacGregor
I obviously heard what the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said this afternoon about this year and I understand that the figures which he is proposing are a good deal less than the £24 billion. That, of course, is a hypothetical situation, because he is not in a position to implement any Budget proposals in the coming year. The £24 billion to which the hon. Lady was referring is a figure for the Labour party if and when it ever gets into full swing with its programme. Quite simply, the remedy lies in the right hon. Gentleman's hands. If he wants to take items off the list, I shall be very happy to tick them off.
§ Dr. McDonald
Let me just give an example of the pure invention in which the Chief Secretary has indulged. Part of the £24 billion, the figure that he has dreamt up, purports to cost a number of education proposals described in The Guardian on 17 April 1985. I give the reference because hon. Members can then go away and read the article for themselves.
The Chief Secretary claims that the Labour party proposes to spend £235 million on teachers. No such figure appears in the article, nor can such a figure be substantiated from anything that appears in the article. On building and equipment, the figure £871 million appears in the Chief Secretary's cumulative list. Again, no such figure appears in the article, nor is there any figure by which it can be justified. The article is headed "Labour pledges £200 million boost for schools". The Chief Secretary's calculations increased that to over £1 billion. The article is there for all to read. The claims in the article are clearly made. I cite this as just one example of the fantasies in which the Chief Secretary indulges.
§ Mr. MacGregor
I say quite simply to the hon. Lady that I am happy indeed to get the record right. What I want to establish is precisely what pledges the Opposition are putting forward. I shall be very happy to tick them off from the £24 billion because I believe that that is in the interest of all of us. If the right hon. Gentleman would like to write to me telling me what pledges I have got wrong, I will do the costing accurately.
§ Dr. McDonald
As I have just said to the Chief Secretary, I cited one example. I chose it because it concerned a specific pledge. It described the money that 375 we proposed to spend on education and the items on which we proposed to spend it. The Chief Secretary should have the decency at the very least to withdraw that allegation. His behaviour in the House is utterly disreputable.
We made specific pledges, which have been costed. I cited one, and the right hon. Gentleman did not even have the courtesy, never mind the decency, to withdraw his allegations. That was not the only example I could cite. The Chief Secretary well knows that, in the unemployment debate, I disputed his allegations about my letter to the Chancellor. On 17 February I wrote to the Chief Secretary repeating what I had said in that letter and asking him to withdraw what he had said. However, the right hon. Gentleman has not even done me the courtesy of replying to my letter of 17 February—more than a month ago.
If that is the type of behaviour that we get from the Chief Secretary, obviously we cannot trust him. That is why I referred to the manner in which the Finance Bill debates might be conducted. We cannot deal with a person who distorts the statements we make during our speeches and produces fantasy figures.
Of course we know why the fantasy figure of £24 billion was produced—it was to cover up the fact that, in the past seven years, unemployment has already cost this country more than £24 billion. The costs in terms of lost output must be immense. No wonder the Chief Secretary wants to distract attention from the Government's record. The fact that he has to resort to these methods shows how utterly disreputable his behaviour is.
The fact that the right hon. Gentleman has not at least apologised for the item to which I referred shows how discourteous and how lacking in courage he is—never mind his failure to acknowledge, reply to or withdraw his allegations about my statements. The Chief Secretary's behaviour is amazing. It shows the Government's moral and intellectual bankruptcy. They have no direction in their economic policy. Faced with falling oil prices, they do not know what to do to put the economy back on the right course. Such decisions as they do make on those issues are entirely wrong. I should gladly sit down at any point if the Chief Secretary has the decency or courage to apologise, but I do not think that he has those qualities.
I should like to give an example of the mistakes that the Government have made in the Budget. Petrol duties have increased more than the rate of inflation. Obviously that was a mistake. It was clear that the increase would be immediately passed on to the consumer. Shell could not act quickly enough to do that, despite the Chancellor's plea, and, this morning, BP announced that it would do exactly the same thing.
What is important is not just the fact that these prices are passed on immediately to the consumer and hit the consumer's pocket but the fact that, despite what the Government say about the value to the economy of falling oil prices, unless the fall in crude oil prices is fully passed on to industrial and domestic consumers, our economy cannot possibly benefit from lower prices to the extent that it should. Our economy will suffer in terms of inflation—although to a lesser extent—unemployment and growth.
The failure to pass on the full benefit of the 50 per cent. drop in crude oil prices is immensely damaging to the economy. The Chancellor knew that. He was warned that that would happen. He was warned by my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) and by several of my hon. Friends about the 376 dangers of increasing such taxation. He was warned that, if he allowed the oil companies to profiteer in that way, it would damage the economy. That is what will happen. It is possible to demonstrate that, even using an optimistic economic model such as the London Business School model. That shows clearly that if oil prices do not drop for industrial and domestic consumers, we will not get the fall in unemployment and the growth which might otherwise occur.
§ Mr. Higgins
If the hon. Lady thinks that the taxation increase will be passed on entirely, does it follow from that that she thinks that the elasticity of demand for petrol is zero?
§ Dr. McDonald
Of course it does not mean that. By applying a model to such calculations we see clearly that we do not get the benefits for unemployment and for growth that we might otherwise get. Of course, that is even more damaging for us because some of our main competitors, such as Germany, are oil importers and get far more benefit from lower oil prices. That makes it even more difficult for us to compete with them, and to overcome the problems already faced by our manufacturing industry.
In all the Budget debates the effect of falling oil prices on the balance of payments has been overlooked. Plainly, the Chancellor would rather not think about that. Again the LBS model suggests that about £2.5 billion will be knocked off the balance of payments this year. That figure could increase in subsequent years because of the fall in oil prices. To make up the gasp in the balance of payments, service industries would have to grow by 10 per cent. and manufacturing exports by 4 per cent.
Service industries are unlikely to meet the growth necessary to fill that gap because, although growing, they have a falling share of the world market. As for manufacturing industry, our share of the world export trade in manufactured goods was just over 9 per cent. in 1979. Despite the constant repetition by the Chancellor that the value of our exports is at record level and so on, the truth is that by 1985 our manufactured exports had fallen to 7.8 per cent. of world trade.
In a harshly competitive world, when others benefit more from falling oil prices than we do, it will be very difficult to make up through manufacturing industry the gap left by declining oil prices in our balance of payments. Neither investment in manufacturing industry nor manufacturing output has reached the 1979 level. Today the Financial Times reported:The pace of growth of Britain's manufacturing output appears to have slowed and the upward trend of overall industrial production has also weakened in recent months.So output is growing much more sluggisly than it did in the past. The Budget does nothing to remedy that. Investment will not go into manufacturing industry as a result of the Budget. There is no public spending in the Budget that would give a boost to the construction industry or to any other of our basic industries.
I listened to the Chancellor's interview on the "Today' programme this morning and heard him, once again, being extremely dismissive about the importance of investment in manufacturing industry. He said that it is not just a matter of going out to buy a new machine or piece of equipment. He does not understand manufacturing industry. His training and experience have been in finance and financial journalism. He neither understands, cares 377 about, nor even likes manufacturing industry. He makes no attempt to understand industry and its needs. Nor does he understand the importance of investment.
No, it is not just a matter of buying a new piece of machinery; it is now a matter of applying new technology and high technology to industry. Unless we adopt and apply techniques such as computer integrated management to our industry, we shall be unable to compete with American and German industries. That is the kind of investment that is essential, yet the Chancellor does not even begin to understand that. Such investment is important. Without it, we fall behind.
The Chancellor and the Treasury rely far too much on the importance of price competitiveness for exports. Of course that is important.[Interruption.] My hon. Friends are saying loudly behind me, with the connivance of Conservative Members, that we see that the Liberals and Social Democrats are not here to say anything. It appears that Banquo—my hon. Friend the Member for Bolsover (Mr. Skinner)—has also turned up at the feast to tell us of the absence of Social Democratic and Liberal parties. It is not surprising that they are not here because they have nothing relevant to say about the needs of our economy and our manufacturing industry.
§ Mr. Willie W. Hamilton
To be fair, only nine hon. Members who support the Government are present at the moment.
§ Dr. McDonald
After gathering so many Tory Members at the last election, it is unfortunate that not many are here to hear the second to last Budget before the next election.
The Budget is immensely disappointing and it does nothing for manufacturing industry or exports, nothing to make up the gap in the balance of payments, nothing for the poor and nothing for the unemployed. Despite the Prime Minister's promise, there are only yet more tax cuts for the rich.
§ The Financial Secretary to the Treasury (Mr. John Moore)
We have had a wide-ranging debate. We have had contributions on the overall strategic judgment and on all aspects of the economy. There have been detailed speeches on topics ranging from the Health Service to the North sea to Scotland.
I share the views of the hon. Member for Thurrock (Dr. McDonald) about the extraordinary absence throughout the major part of our proceedings of the parties which are supposed to represent what they regard as part of the Opposition. The hon. Lady was right to draw attention to that. I had assumed that the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) would be present for the closing speeches. I had wanted to make some references to his speech, but I had better restrict myself to his description of my right hon. Friend's Budget as a pudding that had some good plums but no theme. He was reminding us of a quotation by the late Sir Winston Churchill. I find the concept of a pudding with no theme more fitting to the policies of the alliance than the serious decision-making process in which he once participated, when he was in government. Its absence from the 378 conclusion of the second day of the Budget debate shows the lack of seriousness with which the alliance views the House of Commons.
I have now a slightly technical matter that concerns arrangements for bringing Budget changes into operation, which affect income tax and corporation tax. Every year, some changes have to take effect more or less immediately. For those which work to the taxpayers' advantage, the normal rule is that they take effect on or after Budget day, but for those changes that work the other way—by imposing or increasing tax—the practice has been to apply the changes after Budget day. In most cases, this works well enough, but there may be occasions when some people engage in forestalling, which could be costly to the Exchequer, by doing business very quickly on Budget night. To allow this would be neither fair nor sensible, and it may be necessary in future to make changes effective from the start of Budget day. I thought it right to draw the attention of the House to this change, which may be used in a future Budget.
The Budget continues the process of radical reform started by my right hon. Friend's predecessor as Chancellor of the Exchequer, my right hon. and learned Friend the Foreign Secretary, and welcomed by my hon. Friend the Member for Darlington (Mr. Fallon). It completes the corporation tax reform package of 1984, and following this, the main corporation rate will be 35 per cent. for those paying mainstream corporation tax and for small companies, 29 per cent.
My hon. Friend the Member for Darlington, and my hon. Friend the Member for Broxbourne (Mrs. Roe) in a thoughtful and distinguished speech, drew the attention of the House to the Green Paper on the reform of personal taxation which has clearly been associated with the Budget. I know that hon. Members may not have had time to read the Green Paper, but it is an important contribution to the next stage of the reform of the taxation system. I trust that the House will not mind if, as there have been references to it, I take a little time to discuss certain aspects of the Green Paper. General and genuine consultation and a full debate outside and inside the House on this Green Paper will be beneficial.
Hon. Members on both sides of the House find the present system quite unacceptable. It discriminates against women in marriage, denying them independence and privacy, and placing tax penalties on marriage, which must be changed. The question is to what kind of independent taxation it should be changed, and two basic kinds are generally argued for. There is what might be called independent taxation, with transferable allowances, which is the argument outlined in the Green Paper, and there is the argument for mandatory separate taxation—MST. I shall consider both briefly, as they are germane to the overall Budget debate.
I wish to show why we see transferable allowances as clearly superior. The Green Paper goes into this in some detail. First, they recognise the key role and importance of marriage. Secondly, they remove all discriminatory features from the present system. Thirdly, they offer independence and privacy for all and—this is crucial—the flexibility of transferability as well. This is particularly effective in recognising the life cycle of couples in marriage and their changing needs. For almost all couples one partner is dependent upon the other at some time— 379 often at a time of greatest need, for example the birth of the first child, or when a wife may give up her job when her husband's job forces him to move.
Fourthly, transferable allowances recognise that an allowance is not much use without an income to set it against. There have been several criticisms of these proposals, with two basic criticisms. One is that the new system will be complicated. I am not sure that I fully accept that because——
§ Mr. Moore
This has a great deal to do with it. I have sat throughout the debate, and I shall endeavour to make my own speech on a rather critical part of the overall tax system.
The first criticism is that they were complicated. Anybody who looks through our tax system could, when he looks at it with some care, regard the already existing set of allowances as very complicated. I do not think that they could be more complicated. Secondly, it is suggested that operationally the new system would be complicated. Provided that the proper mechanical, computerised system is put in, the additional flexibility will create operational difficulties and extra operational work for the Revenue. The staff consequences of that are covered in the Green Paper. However, I do not think that they will be any more complicated for the customers of the system — the general public. In fact, I think that they will be more simple.
The second main criticism which genuinely puzzles me is that the proposals might be a disincentive to women to go out to work. My hon. Friend the Member for Broxbourne discussed that in part of her speech. I find that very difficult to understand. The disincentive argument rests on a strange view of British men. Will they really object to family income going up if it means their own take-home pay goes down? In most cases the couple would be going back to the situation before the wife gave up work.
§ Mr. Moore
I should like to continue, because I am genuinely trying to contribute to what I hope is a serious debate on this issue.
As I said, in some cases the couple would be going back to the situation before the wife gave up work—in other words, one single allowance each. It is the preference for mandatory separate taxation that I cannot understand. In practical terms, mandatory separate taxation and transferable allowances both give each partner a single allowance. However, mandatory separate taxation will not allow the husband to use the allowance when the wife is not in paid work. Therefore, the only difference is that the husband cannot lose an advantage which he never had in the first place. Therefore, it is not obviously a superior system. My difficulty is that this is a consultation debate and we will not have the opportunity in Committee to discuss what is obviously an important issue. It is critical to note that the liberal nation in western Europe which has the highest percentage of married women in work is Denmark, with transferable allowances. I think that we have to consider that carefully.
I should like to look seriously at mandatory separate taxation.[Interruption.] It would be helpful if I could 380 continue without sedentary interruptions. Some of us have listened very patiently to the debate throughout the whole evening on areas surrounding all aspects of the Budget.
The problem we have when looking at mandatory separate taxation is that in principle it seeks to ignore marriage. It does not think through the practical consequences. Perhaps—this is a legitimate point which 1 see the strength of—it is because very different schools are espousing this set of suggestions. I see arguments in logic for all of those schools. There is the tax theology school which will want to see people taxed as individuals.
§ Mr. Bermingham
On a point of order, Mr. Speaker. Is it not an abuse of the House for a Minister not to reply to a debate and the many speeches made by hon. Members on both sides of the House, but to use it to raise what is clearly a Committee point?
§ Mr. Speaker
Order. The Financial Secretary has been speaking for about seven minutes. I think that this may be a preamble. He has plenty of time to answer the debate.
§ Mr. Moore
It is more than a preamble; it is a fundamental part of my right hon. Friend the Chancellor's speech and a critical part of some of the Budget announcements. I immensely resent somebody who has spent little time in the Chamber tonight suggesting that I am not answering the debate.
As I was saying, there are three different schools which suggest that we should espouse mandatory separate taxation. Those who believe in tax theology would want to see people taxed as individuals, irrespective of their circumstances or responsibility. The social theology school would not want to take any account of marriage as distinct from other relationships in tax or social policy. Then there are what might be called welfare theologists, who believe that there is a pot of gold in the married allowance and want it directed to those most in need rather than, as they see it, to all one-earner couples. The practical consequences are critical for millions of our fellow citizens in the debate that we should be having on the issue. Those theologists have not thought through the practical consequences, which I want to draw to the attention of the House. Those consequences flow from the logic of a tax system ignoring marriage.
The first, I imagine, is the need to abolish married women's retirement pension and widow's benefits. The second is the setting up of an anti-avoidance system, discriminating specifically against marriage, to ensure that under MST in one-earner families, the transfer of income between couples, via covenanting, trusts and other settlements could not occur.[Interruption.] I know that some hon. Members were not present to hear the excellent speech of my hon. Friend the Member for Broxbourne on that subject, but I was.
Within the capital taxes system, there would, of course, be no spouse exemption. We would have to establish precisely, in a marriage, separate taxable interests in the assets of the marriage so that any transfers could be properly taxed. For example, a widow would face intolerable hardship when she would have to pay tax on her inheritance of the family home.
We could examine that in great detail, and I shall not go into much more, but let us consider the couple who would lose from MST not recognising marriage, who benefit under the present system, or who could benefit 381 under transferable allowances. Hon. Members should note well that, where the wife does not go out to paid work, two thirds of those of working age look after children. Presumably there would be a need to ensure that they were at least no worse off. Of the remaining one third, many look after dependent relatives, are themselves unable to work, through illness or disablement, or are of an age when it would be difficult to return to the labour market. It seems absurd to allow them to suffer because of a refusal to recognise marriage and its responsibilities in the tax system.
What about the 340,000 wives who support their husbands who are ill or unable to find work? Do they suffer because of a rigid adherence to an inflexible form of mandatory separate taxation? What about families where the husband or wife has moved to find work or transferred to an area of high unemployment—the high unemployment that was discussed legitimately earlier in the debate? What happens if one spouse simply cannot find a job? Are those families to suffer a further blow than the loss of one income because there is to be no transferability of allowances?
What about the elderly? Over two thirds of couples drawing married age allowances are one-earner couples. They would lose sharply through MST and, clearly, would need to be compensated.
The reality is that only about 10 per cent. of all wives of working age, who are not in paid employment, and who might—I stress "might"—be in a position to seek work, may benefit "indiscriminately", as is said, from transferable allowances.
I should like to conclude this important section. It is vital. I trust that hon. Members will look at it with care because it is a serious issue. Transferable allowances offer the opportunity for privacy and independence for all married women, but recognise in a fair and flexible way the fact that at different times and for different reasons, one partner in a marriage supports the other. Transferable allowances let that person keep more of his earnings. MST, though offering independent taxation and privacy, would be inflexible, so it would fail to recognise marriage. It is that absurdity in practice that makes it unsurprising that no other country has a tax system that fails to recognise marriage or proposes to adopt one.
The second major theme of the debate arose when many of my right hon. and hon. Friends and Opposition Members tried to understand the ways in which the Chancellor, in his Budget, sought to create an enterprise culture. As my right hon. friend the Member for Worthing (Mr. Higgins) rightly said, in what I thought was a wise analysis of the problem of long-term unemployment, it is from enterprise that lasting jobs will come.
The Budget has three basic interlocking themes in regard to ownership. First, it seeks to encourage ownership at the place of work. I think that there is some amity across the House on that. There is some support—I hope that there will be in Committee—for the changes that the Budget foreshadows in employee share ownership. In past years the hon. Member for Birmingham, Hodge Hill (Mr. Davis) has raised many points about constraints and I am sure that hon. Members on both sides will be delighted at the extension of employee share ownership in future.
The hon. Member for Hodge Hill will not mind me mentioning the name of Paul Derrick in relation to 382 industrial co-operatives. I am sure that the significant advance in ownership opportunities and benefits will be welcomed in Committee. Yesterday, my right hon. Friend the Chancellor of the Exchequer spent considerable time on the encouragement of ownership of the place of work and profit sharing. My hon. Friend the Member for Darlington (Mr. Fallon) and the right hon. Member for Hillhead, who is absent, welcomed that, and we look forward to detailed consultations on that.
Secondly, the Budget seeks to encourage ownership of equities in general. The hon. Member for Middlesbrough (Mr. Bell), prior to a detailed lengthy speech, to which I listened with considerable care and enjoyment, with 33 minutes spent legitimately on the subject that he regards with the importance that I place on the Green Paper and particular aspects of tax reform, asked from a sedentary position why we should encourage the ownership of equity when my hon. friend the Member for Windsor and Maidenhead (Dr. Glyn) was arguing for it. The reason is that we can expect to create the climate in which entrepreneural activity can flourish through an understanding of the risk and rewards of ownership. I am sure that that was my hon. Friend's argument when he sought the extension of ownership.
I was delighted by the way in which my right hon. Friend the Member for Worthing, and my hon. Friends, the Members for Darlington, for Windsor and Maidenhead, for Horsham (Sir P. Hordern) and for Winchester (Mr. Browne) were excited at the Chancellor's commitment to the new personal equity plan. It is a major and significant extension of what may be called popular capitalism—an extension beyond the ownership of homes and the ways in which people seek legitimately to own parts of their place of work to ownership of the wider equity market.
I know that my hon. Friends welcome our encouragement of people to understand ownership and the risk-reward relationship. It will be regarded in future as one of the single most significant movements forward. I shall look with interest at the remarks of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who dismissed the plan, and of the hon. Member for Workington (Mr. Campbell-Savours) who was worried about the implications for bear markets and who saw a time bomb. I am sure that they will eat their words and worries as they did with the concept of council house sales. Their reaction is precisely the same. They simply cannot understand the nature of ownership and the way in which it creates genuine benefits, not only for individuals and their families, but for the wider community. I was delighted at the reaction of all of my hon. Friends to that significant part of the Budget.
The third main aim of the Budget in the encouragement of the enterprise culture is to encourage enterprise by supporting and rewarding risk taking. My hon. Friends the Members for Darlington, for Strathkelvin and Bearsden (Mr. Hirst) and for Windsor and Maidenhead rightly recognised the role of the enterprise allowance scheme, and welcomed its extension to this area. Obviously, I look forward to their further support of that. My hon. Friend the Member for Winchester, who had to apologise to the House for his absence during the replies, particularly welcomed the extension to three years and the reduction in the premium on the loan guarantee scheme from 5 per 383 cent. to 2.5 per cent. That has received a relatively wide welcome. I am delighted to receive the support of the hon. Member for Workington.
My hon. Friend the Member for Winchester, my right hon. Friend the Member for Worthing and my hon. Friend the Member for Darlington greatly welcomed the changes and extensions—as did some Opposition Members, including the Leader of the Opposition—of the business expansion scheme. Hon. Members have not yet had an opportunity to read the very large but very good Peat Marwick report, but when they have had an opportunity to do so they will see that the scheme has been a considerable success. The final picture for 1983–84 shows an investment of £105 million in 715 companies.
§ Mr. Moore
I shall turn to that point in a moment. Last year the hon. Member for Workington quite legitimately referred in Committee to the nature of the geographic spread. I am sure that he will again legitimately raise that point. The preliminary figures for 1984–85 show an investment of £135 million in 688 companies. The final figure will be higher than that.
Hon. Members will be interested to note that the Peat Marwick study shows that 72 per cent. of the companies raising finance are under five years old, that 54 per cent. of them raised £50,000, or less, that 69 per cent. raised £100,000 or less, and that 42 per cent. of the companies were engaged in manufacturing. Hon. Members might wish that percentage to be higher. I understand that wish, but 42 per cent. is not quite so insignificant a percentage as many people thought it would be. The Budget proposals intend to build on that success. The Government hope to try to promote a better focus on this area of high risk investment.
My right hon. Friend the Chancellor of the Exchequer said yesterday that we shall seek to extend indefinitely the life of the scheme. We shall exempt from capital gains tax gains on shares qualifying for business expansion scheme relief in order to encourage high risk investment. We shall extend the scheme to ship chartering companies to help to promote high risk investment in the United Kingdom shipping industry. This proposal has received a general welcome from all sides of the House. We are also seeking to tighten the controls so as to restrict the scheme to high risk investment. We shall seek to exclude investment in companies that have substantial property backing or those that carry on the trade of holding investment goods—for 384 example, fine wines and antiques. We shall take power, by statutory instrument, to make further changes in the coverage of the scheme.
The Budget contains changes in stamp duty. My hon. Friend the Economic Secretary to the Treasury w ill seek to deal with those changes tomorrow evening, if he catches your eye, Mr. Speaker.
Despite the dramatic and unprecedented fall in world oil prices, the Government's objectives remain unchanged. They have two objectives: the conquest of inflation and the creation of an enterprise culture. Their policies also remain unchanged. They are sound money and free markets. They provide the only route to more jobs and to lasting jobs. The Government's adherence to firm monetary and fiscal policies has enabled the economy to weather both the coal strike and the fall in the price of oil—two more than significant events in the last two years. Despite that, the Government have maintained inflation on a downward trend, with steady and balanced growth, a current account surplus and rising—I stress rising—employment.
The high level of unemployment remains, as my right hon. Friend recognised yesterday, a major problem, although the prospects are better now than they have been for some years. The responsibility for a reduction in unemployment, as my right hon. Friend stressed yesterday, lies primarily with management, through improved industrial and economic performance and through a lower rate of pay settlements. We have to recognise that the excessive growth in unit labour costs is the Achilles heel of the British economy.
The Government continue to pursue an economic policy that remains within the framework of the medium-term financial strategy. It is designed steadily to reduce growth of total spending power in the economy at a pace that will gradually squeeze inflation out of the system while leaving adequate room for sustained growth in real output. The central role of monetary policy in influencing growth of money GDP through variations in short-term interest rates remains essentially unchanged. The precise mix, as my right hon. Friend the Chancellor of the Exchequer said yesterday, is not sacrosanct; monetary policy must always be supported by low public sector borrowing.
Given the dramatic fall in the price of oil, with consequences for North sea tax revenues and the need to maintain a prudent fiscal policy, the 1986 Budget updates the medium-term financial strategy to 1989–90——
§ Debate adjourned—[Mr. Sainsbury.]
§ Debate to be resumed tomorrow.