HC Deb 14 July 1988 vol 137 cc580-611

Order for Third reading read.

4.50 pm
The Chief Secretary to the Treasury (Mr. John Major)

I beg to move, That the Bill be now read the Third time.

The Bill gives effect to the most far-reaching reforms of the personal tax system that we have witnessed in this country in a single Budget. Whatever else may divide us—we have discovered during the passage of the Bill that the Government and the Opposition are divided on some aspects of the Budget—we are united in recognising the significance of the reforms set out in the Bill.

Through all our debates, in Committee and on the Floor of the House, two facts have shone through with increasing clarity. The first is that the Government have a coherent and successful strategy for taxation, and the second is that the Opposition do not. Those facts not only divide the Government and Opposition; they are one of the main reasons that explain why we remain the Government and they remain the Opposition.

One notable feature of our debates has been the lengths to which the Opposition have often seemed to want to go to avoid debating taxation. They have been very reluctant to commit themselves to any specific proposals. Yesterday they tried, and failed, to have a rerun of the public expenditure debates that we all enjoyed last February.

It is no surprise that the Opposition want to avoid debating tax at all costs. They know, as we know and as the country knows, that the 1988 Budget of my right hon. Friend the Chancellor was a landmark. It marked the final and decisive move away from a tax regime based on envy to a tax regime designed to promote enterprise and efficiency and thus to enhance prosperity. The measures contained in this Finance Bill are not a one-off; they are the logical consequence of a series of measures introduced in nine successive Budgets and enacted in successive Finance Bills with one clear aim in mind—not, as the hon. Member for Wrexham (Dr. Marek) would have it, to line the pockets of the "super-rich", but to improve the supply performance of the economy.

It is self-evident that that is working. Our macroeconomic policies, designed to keep downward pressure on inflation and create the right framework for growth in the private sector, have been focused on improving incentives and creating a culture that encourages risk-taking and makes investment worth while. The investment boom, the like of which we have not seen for a considerable number of years, is not unrelated to the change in cultural attitudes that my right hon. Friend the Chancellor and his predecessors have brought about.

Opposition Members have either never understood that change or have never wished to understand it; it is not clear which. As far as one can see, they remain wedded to the orthodoxy of the 1960s—that the only purpose of cutting tax rates is to give a sluggish economy a short-term fiscal boost. That is stone age economics, and they ought to know better by now.

Mr. Gordon Brown (Dunfermline, East)

Will the Chief Secretary confirm a figure that the Treasury has produced? Will he confirm that of the 1.8 billion that has gone in tax relief to the top 1 per cent., £0.7 billion—£700 million— has gone in tax relief on unearned income? That £700 million could have prevented cuts in housing benefit, the freezing of child benefit and the creation of the social fund. Will the right hon. Gentleman tell us how giving £700 million in tax relief on unearned income to the top 1 per cent., who already earn on average £75,000 a year, boosts incentives to work?

Mr. Major

The hon. Gentleman is talking about investment income, which provides jobs and the economic growth that funds so many of the social services, which the hon. Gentleman claims to care about. I propose to deal with that point directly later and we shall then examine the reality of the tax changes.

It is important to understand the distinction that I mentioned a moment ago. The measures on the Finance Bill—contrary to what the Opposition have said—do not add to demand. Although tax rates have been cut, the tax burden itself has not—as Opposition Members occasionally point out to us during Treasury Question Time. The measures were enough to prevent the tax burden rising, but no more. The Budget and the Bill improve incentives and hence improve supply side performance.

In the long run, that means more growth, more jobs and more prosperity. In their obsession with the short run, the Opposition never seem to think of the medium and long term, yet all of us should have our minds fixed firmly on the medium and long-term outcome. The Opposition have no answer to the fact that our supply side measures are working. That is why they have conjured up false dragons to slay. Ludicrously, they appoint themselves the guardians of fiscal rectitude—unlikely casting to the mind of anyone who remembers the Labour party in government—and they tell us that the Budget is irresponsible.

It is hard to take lectures on fiscal rectitude from a party which. 13 months ago, fought an election with plans to spend an extra £35 billion in its back pocket—a party that planned not a public sector debt repayment of £3 billion but a massively inflated borrowing requirement. [Laughter.] Opposition Members may giggle like schoolgirls on an outing, but they have no proper economic policy, no tax policy and no understanding of what is going on. Until they change all that, they will remain what they are now—an Opposition with no policy and no hope.

Mr. Rhodri Morgan (Cardiff, West)

How can the Chief Secretary equate the claim that the Government have not increased the tax burden overall with the proposition that the redistribution of the tax burden by the Budget does not contribute to demand? Surely, by giving differentially high tax breaks to people at the top end of the income scale, he is contributing to a massive and extremely damaging increase in imports and consumption. That has given rise to the extraordinary news that the trade gap expected for the whole year has now been massively exceeded in the first five months of the year, to the tune of £4.7 billion.

Mr. Major

The hon. Gentleman makes some interesting observations, which suffer from only one defect: they are all wrong. The principal redistribution in the tax system is that there is now an increasing yield from corporate taxes because of the profitability of industry and commerce. That is why the sum total of the tax burden remains the same and has not fallen, and the burden of income tax has dropped—a very desirable development.

Yesterday we heard an interesting proposition about borrowing from the hon. Member for Islington, South and Finsbury (Mr. Smith). Uncharacteristically, he praised the virtues of the Government's being in debt and borrowing rather than balancing the budget and being out of debt. That is a remarkable proposition. His speech was not a casual aberration; its substance seems to have been carefully press-released and circulated, apparently before the new clause was selected.

The only virtue in the hon. Gentleman's speech was that it called forth a gem of a response from my hon. Friend the Member for Eastbourne (Mr. Gow). Those who heard the debate will understand what I mean. I propose to place my hon. Friend's speech beside my bed for constant reference. It can sit there in precisely the same way as the speeches of the former Labour Prime Minister, Lord Callaghan, and the letters to Dr. Johannes Witteveen from the former Chancellor, the right hon. Member for Leeds, East (Mr. Healey), sit beside my hon. Friend's bed. Yesterday was a memorable occasion, and the most memorable aspect of it was the remarks of my hon. Friend the Member for Eastbourne.

Mr. Chris Smith (Islington, South and Finsbury)

The Chief Secretary to the Treasury will, of course, have read the text of my speech in Hansard, rather than rely on his rather wayward recollection of what he thinks I might have said. If he reads my speech, he will find that I said: Inevitably from time to time a Government will need to borrow. There will be times when a Government want to be in surplus. It all depends on the circumstances at the time."—[Official Report. 13 July 1988: Vol. 137, c. 396.] That is what his hon. Friend the Member for Eastbourne also said.

Mr. Major

I also had the pleasure of listening to the whole thrust of the hon. Gentleman's remarks, which, as hon. Members who were in the House will recall, was precisely as I have described it. What the hon. Gentleman cannot take is the fact that the Government's finances are in surplus. The current account deficit, of which he tried to make so much a moment ago, essentially reflects purely private sector behaviour. That is a factor that the Opposition frequently tend to ignore. The contrast with the deficits over which the Labour Government presided could scarcely be more stark. Under Labour, a balance of payments deficit meant a balance of payments crisis. Today, that is certainly not the case.

Mr. Smith

I must ask the Chief Secretary to put the record right and to agree that the comment I have just read out is an accurate quote fron the Hansard record of our proceedings. It is there on the record, from yesterday's discussions. The right hon. Gentleman has been attempting to paint my remarks with a complete fabrication of reality.

Mr. Major

I do not doubt that the partial quotation that the hon. Gentleman gave reflected a portion of his speech. If he wishes to redefine his speech and say that that is what he meant, the House will observe that. I stick by the fact that the impression given by the whole of the hon. Gentleman's remarks yesterday was precisely that which I have described, and I do riot renege from that in the slightest.

Mr. Morgan

Try facts for a change.

Mr. Major

The hon. Member for Cardiff, West (Mr. Morgan), screaming like a banshee from a sedentary position, suggests that I should try facts for a change. Judging from the hon. Gentleman's record, he would not recognise a fact if it jumped up and gripped him by the windpipe.

The Budget's aim was not to boost demand, but to improve supply side performance. Tax reform is not the sole route to that objective. We have removed a whole battery of the constraints and regulations that acted as barriers to growth. We have at every opportunity extended competition and flexibility. We have allowed managers to manage, given trade unions back to their members, and minimised Government intervention in the affairs of industry and of the industrialists who create wealth and jobs. Through the manifest success of privatisation, we have dramatically extended ownership and removed a substantial section of British industry from state control. The result can be seen in industry's improved performance.

Tax reform has played a vital part in improving the economy's performance, and that performance is the overriding test by which those reforms stand to be judged. The record is overwhelming, and the Opposition know it. We are now entering the eighth successive year of sustained growth averaging 3 per cent.—a performance not equalled for half a century. We are at the top of the European growth league, after two decades at the bottom. Inflation is back to the levels of the 1950s and 1960s, and, in manufacturing industry, productivity has risen by more than 5 per cent. per year—faster than in any other major industrialised country. That is a remarkable turnaround for our country.

Far from that being the short-lived "boomlet" beloved of Opposition spokesmen, who believe that stop follows go, as night follows day—they proved it when they were in government—the outlook is for higher investment and continued growth. The latest CBI survey continues a run of surveys confirming, yet again, industry's strength and the high level of confidence about business prospects generally. This year, investment intentions have strengthened substantially, with the DTI's June survey predicting that manufacturing investment will rise by 16 per cent. in the present financial year.

The economy's strength has created the conditions for the longest period of falling unemployment since the war. Among other things, that has confounded the prediction of the hon. Member for Dunfermline, East (Mr. Brown), who, in October 1986, wrote in "Friday Agenda" in The Guardian: The Government simply cannot reduce unemployment by present economic policies". That is what he wrote. Perhaps people believed him then, but they know better now. Even the hon. Gentleman can see that unemployment is falling in every region of the country and that some of the largest falls are among the long-term unemployed. If the hon. Gentleman catches your eye, Mr. Speaker, he may care to comment on that article, on why he was wrong, on how his perspective has changed, and on what he now proposes to do to revise the Opposition's policies, so that they may follow those which are proving so successful for the Government at present.

Only this morning, figures were released showing another significant fall of nearly 40,000 in unemployment, in June. That is the 23rd successive monthly fall. The figures also show another significant rise in the number of jobs, which is up by more than 600,000 over the past year. Since 1983, the British economy has shown a greater capacity to create jobs than any other European country. Unemployment is not falling because of some irresponsible fiscal stimulus; it is falling precisely because we have created conditions in which businesses can expand and employ more people.

Ms. Hilary Armstrong (Durham, North-West)

The Government are fiddling the figures.

Mr. Major

The hon. Lady says that we are fiddling the figures. There have been 23 successive months of falling unemployment and an extra 600,000 jobs, yet she sits there and accuses us of fiddling the figures. Where has she been for the past 23 months, that she has not seen the changes?

During that same period, living standards rose at all levels of earnings. Since 1979, real take-home pay for the family man on average earnings has increased by 27.5 per cent. Between 1974 and 1979 the increase was less than 1 per cent. That is a comparison that even the Opposition may wish to ponder for a moment. For the man on half average earnings, the increase was 21.5 per cent. with us, and only 4 per cent. during the period of the last Labour Government. That is no coincidence.

Those are the results of Britain's transformation into a high-performance enterprise economy, whether the Opposition like it or not. Because they do not like it, they pretend not to notice that transformation. The electors do, as successive general election results have shown. The Bill's measures are designed to carry that transformation further forward, to consolidate and build on the achievements of the past few years.

The difference between the Government and the Opposition is that our proposals rest on a clear philosophy of reform and on a record of success that is plain for all to see. The Opposition suffer from a credibility gap and a policy gap: they have no credibility and they have no policy. In particular, they have no policy for the future, but a record of past government that they—and most of the people who lived through it—would rather forget.

Nowhere was that more clearly illustrated than in the Opposition's attitude to the Bill's most important clauses—those dealing with income tax changes. The Opposition voted against the higher tax cuts. We expected that, for it was consistent with their philosophy. However, after much agonising, and with few of their normal fanfares, the Opposition slipped quietly into the Division Lobby to vote against the basic rate reduction for 24 million taxpayers.

Mr. Nicholas Brown (Newcastle upon Tyne, East)

We did not keep quiet about it.

Mr. Major

The hon. Gentleman says that the Opposition did not keep quiet about it. Even those masters of the press release who sit on the Opposition Front Bench failed to issue one on their decision to vote against our cut in the marginal tax rate for 24 million taxpayers. Where was the article in "Friday Agenda" in The Guardian, justifying the Opposition's vote against a cut in the basic rate? At least they were consistent, because they voted against the basic rate cuts last year, too. Very probably, they will do so in respect of any future basic rate cuts that we may achieve, They cannot hide the fact that they are the high tax party, however many press releases they choose to forgo.

The changes in income tax are the essence of the Bill. They will produce one of the simplest personal tax structures in the world, fulfilling our pledge of a 25p basic rate, and reverse for good the absurd structure of nine higher rates and surcharges on investment income on top—the system which we inherited in 1979. The changes allow people to keep more of their own money—almost £5 a week for the man on average earnings—and thus help further to improve living standards. Another advantage in cutting taxes is that it also reduces substantially the value of tax breaks and perks and removes the need to waste time and effort in tax planning.

Opposition Members have described the Budget as one for the super-rich. No doubt they believe that, given that they have said it repeatedly. No doubt the hon. Member for Wrexham goes to sleep at night muttering that particular fact—[HON. MEMBERS: "He never sleeps."] Those of us who served on the Committee can well believe that the hon. Gentleman never sleeps.

The Opposition have said that we have done nothing for the poor, but, even after this year's Budget changes, the burden of income tax and national insurance has shifted markedly away from the very poorest toward the best off. The hon. Member for Dumfermline, East knows that—perhaps better than anyone else in the House—because the figures that illustrate that were compiled in response to a parliamentary question that he asked.

Those figures show that the bottom 20 per cent. of income taxpayers have seen real reductions in their average liability since 1978–79. The liability for the lowest 10 per cent. is down by 19 per cent. The top 10 per cent., however, are now paying 26 per cent. more than they were in 1978–79, despite the reduction in the top income tax rates from 83 per cent. to 60 per cent. and now to 40 per cent. In some eyes the old regime may have appeared to share the burden of tax more fairly. I understand that, but, because so few people actually paid tax at those absurdly high rates, the burden was less fairly shared than it is now. The reality is that Labour's income tax fairness was a mirage—our income tax reductions are real and they are there for all taxpayers.

As I have said before, the overriding logic and justification for the reforms is not to point up the ineffectiveness of the Opposition—enjoyable and necessary though that may be—but to strengthen the supply performance of the economy. The Chancellor made that absolutely clear in the Budget debate when he said that the changes are not a reward, but a challenge to British business. That is his fundamental argument, with which I entirely agree. I believe that business also agrees with it. The Association of British Chambers of Commerce said: We wanted incentives. We have got them. The message is also understood abroad—[HON. MEMBERS: "What about the CBI?"] I am intrigued that hon. Members should mention the CBI. I remind them that after the Budget the CBI said: This is the Budget that we have been waiting for. It will provide greater incentives for all in British business. That was the CBI's stated position after the Budget.

Mr. Doug Henderson (Newcastle upon Tyne, North)

Is the right hon. Gentleman aware that the northern division of the CBI thought that the Budget was most damaging for jobs in the north and that it was especially critical of the extension of the business expansion scheme to housing in London?

Mr. Major

I was quoting the views of the national CBI, but I hope that its northern branch and the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) will also observe the greatly improving employment prospects in the north, the north-west and all the other regions of the United Kingdom, where there has been a significant improvement in the past 23 months. I hope that that gives pleasure to all hon. Members.

Although the income tax changes were undoubtedly the most important, the Finance Bill introduced other considerable changes which will create a more just and, in my judgment, a more efficient tax system. Lower income tax rates have enabled us to achieve a radical reform of the taxation of capital gains, aligning rates with those on income and thus reducing the incentive to convert income into gains, or to pursue speculative gains to avoid higher rate tax. That measure, at least, was welcomed by Opposition Members, although, as usual, despite their welcome, they failed to recognise that that desirable change was possible only in parallel with the changes to income tax that they rejected out of hand.

The Bill also brings to an end the injustice of taxing pre-1982 gains, which owed much to the excessive inflation of Labour's years in office. Inheritance tax has been radically simplified, with a further increase in the threshold and a single rate of 40 per cent. Outside the North sea sector, the Bill will leave no tax rate above 40 per cent. The Bill abolishes capital duty altogether, the fifth tax removed by my right hon. Friend the Chancellor. I trust, in due course, that he may be able to improve on that record.

The Bill brings about a radical improvement in the structure of personal taxation, giving married women full independence and privacy in their tax affairs—a reform long overdue. It has been widely welcomed in the House and outside. The ending of the anachronism of aggregation will be welcomed by all married women, and a large number of married pensioners will also be better off.

Other measures in the Bill end the absurd and anomalous tax penalties on marriage, which had no place in any sane or satisfactory tax system. Taken together, the reforms provide a fair deal to married couples and to married women in particular; and, as importantly, they are reforms which can be implemented speedily. Married women have been waiting nearly 180 years for equity in the tax system. It is right they should not be asked to wait much longer, and with this Finance Bill my right ho n. Friend has ensured that they will not.

On top of the reforms, which in themselves add up to a substantial catalogue of change in areas previously found too difficult to tackle, the Bill contains a whole raft of measures designed to remove anomalies, reduce the scope for abuse and generally simplify the tax system. Ending relief for home improvement loans and hence focusing mortgage interest relief on its true purpose of promoting owner-occupation, taking forestry out of the tax system and tackling the under-taxation of company cars have all made their differing contributions to making the tax system fairer between individual taxpayers.

I have sought to make it clear that the Bill is primarily about improving supply performance. Better labour mobility is a vital element in that. The business expansion scheme already has a clear record of success. By extending it to the private rented sector we are giving a boost to housing deregulation, which is vital to achieve that objective. Deregulation is the key to extending real housing choice to the many people who cannot or do not want to be owner-occupiers, or at present have no choice other than a local authority house or a place on a council waiting list in an area without jobs.

The clause on this matter has provoked the Opposition as no other, for I fear that they are concerned at any measure that may break the local authority monopoly on rented housing. That may precipitate the end of their municipal fiefdoms, for surely they are coming to an end. Any contribution that this measure can make to creating a genuine private-rented sector in this country will bring positive economic and social benefits far outweighing the cost in revenue forgone.

The measures that I have outlined amount to a fundamental reform of the tax system and, not surprisingly, they have been unchanged in Committee. However, there are a few significant amendments, which I should mention to the House.

A principal theme of the Bill is that, as tax rates come down to sensible levels, it is as important as ever to ensure that everyone pays their fair share of tax. In Committee we have bolstered the company migration rules to ensure a capital gains tax charge when a company ceases to be United Kingdom resident by reason of a double taxation convention, plugged the loophole whereby restrictive convenants can be used as a tax-avoidance device, and prevented the use of trusts to avoid the higher tax rate on capital gains.

We have balanced those tightening-up measures by making a number of relaxations, most significantly on capital gains tax. Provisions were tabled on Report to give some benefit from rebasing in cases where, between 1982 and 1988, assets were acquired when holdover or rollover relief was claimed. We have enabled elections to be made for gains on certain pre-1982 assets to be computed by reference to 1982 values irrespective of acquisition cost. Those amendments were inspired by suggestions from Committee members and we were happy to accept them. The second will be a welcome simplification for those who make an election because it will remove the need to keep pre-1982 records. The company residence rules have been rationalised in various respects. In particular, certain United Kingdom incorporated companies that were non-resident at Budget day have been excluded from the ambit of the new regime.

My hon. Friend the Member for Croydon, South (Sir W. Clark) persuaded us that it was right to extend the special £5 million BES ceiling for ship chartering companies to those which operate their own ships. I was also pleased that we could make a worthwhile relaxation in the tax rules for seafarers which should ease the cost pressures on United Kingdom operators and allay fears about the availability of British-crewed ships for defence purposes.

One of the most remarkable features of these reforms is that they have been introduced against a backdrop of the soundest public finances that we have seen in decades. Important as tackling the supply side rigidities is and remains, our overriding priority remains the continued suppression and reduction of inflation. We give others incentives to take risks for the benefit of the country's future; we do not propose to take risks which would not benefit the country's future.

Perhaps one mark of my right hon. Friend's achievement in the Budget which paved the way for this Finance Bill is this. If he were prepared to tolerate the levels of borrowing seen under the Labour Government, we need not have been debating the reduction of basic rate tax from 27p to 25p; we could have been debating the complete abolition of income tax. We prefer to move rather more cautiously. Once the Bill is on the statute book, we can look forward to further tax reductions—to the reduction of income tax to 20p in the pound. But I can give the House the assurance that we will not achieve that objective on the back of a burgeoning Government borrowing requirement now or in future. But achieve it we most assuredly will, and as soon as we prudently can.

Meanwhile, I invite my right hon. and hon. Friends to give this momentous Bill its Third Reading.

5.21 pm
Mr. Gordon Brown (Dunfermline, East)

When we are debating the most controversial financial measures that any Government have introduced since the war, when we are debating a Bill which has been debated more days in Committee than any other Finance Bill of this Parliament and when we are debating a Bill the contents of which are infused with measures which promote selective generosity towards the rich, both sides of the House will agree that we might have expected the presence of at least one Social Democratic and Liberal party spokesman. It is remarkable that the relaunch of that party in the country has been accompanied by its virtual disappearance in the House. But at least that party is consistent. To miss this Third Reading debate is entirely in line with its performance in Committee, where it missed just about every sitting when major measures were being discussed.

Mr. David Wilshire (Spelthorne)

Surely the hon. Gentleman understands that it is probably more important to both parties to slug it out to see which comes bottom in today's by-election.

Mr. Brown

I am grateful to the hon. Gentleman for pointing to another problem that faces the Liberals in their battle against the SDP led by the right hon. Member for Plymouth, Devonport (Dr. Owen).

I hoped to enjoy the Chief Secretary's speech, which, given the advance publicity of the new role that he might expect in the Government, we might have expected to be statesmanlike and to concentrate on the detail of the tax reform. But his speech seemed to be designed for the Prime Minister to read rather than for his colleagues to hear. I noticed that at least four of his colleagues, including the chairman of the Conservative party, dropped off to sleep for at least some moments during his remarks.

I understand the difficulties that the Chief Secretary faces. He is now working under the watchful eye of the Secretary of State for Energy who has been promoted to head of the Star Chamber and is the Chancellor of the Exchequer in waiting. We know that any spending decision that is popular will be attributed to the Secretary of State for Energy and that any decision which is unpopular, unfortunately, will be blamed on the Chief Secretary.

That is not the only problem facing the Chief Secretary. The cuts that he may impose as Chief Secretary in the next few months he may have to administer in a new role as Secretary of State for Social Services, if we are to believe the report in The Guardian on Monday. The reputation of toughness that he builds as Chief Secretary will destroy for ever his chance of gaining a reputation for compassion, if he were to arrive at the Department of Health and Social Security.

Perhaps the Chief Secretary's biggest problem is that he has been named, not least by The Guardian, as a favourite of the Prime Minister. He is a central figure at her court—someone who has been feted and no doubt invited to Chequers. But I know that the Chief Secretary is a cautious man and he will be aware of the fate of others who have been similarly feted, not least the Foreign Secretary who, in the Prime Minister's eyes, might as well be in the Foreign Legion as at the Foreign and Commonwealth Office. The right hon. and learned Member for Richmond, Yorks (Mr. Britian), who is not present this afternoon, is having to choose between exile in the House of Commons and a more lucrative exile in Brussels, if that is how the decision goes.

Missing from the speech of the Chief Secretary was a willingness to address himself to the central problems of the Finance Bill. The Budget, which almost all the country regarded as unfair when it was announced in March, is, as we warned, now also seen to be ill-judged. It is unfair because with the top 1 per cent.—no matter what figures the Chief Secretary produces, he cannot deny this—securing 31 per cent. of the Budget's spoils and more than the bottom 70 per cent. of the Budget's handouts, and with the gains to the top 1 per cent. being not just income tax handouts, but exemptions from capital gains tax and inheritance tax, the business expansion scheme and other tax loopholes, this Budget has done more to widen the gap between rich and poor than any Budget at any time since the second world war.

The Budget is also ill-judged and imprudent. When we said to the Chancellor that there was an imbalance between investment and consumption in the economy and a need for greater investment, particularly in the Health Service, for which there was an economic as well as a social case, he was instead determined to pursue a strategy of top-rate tax cuts. When we said to the Chancellor that there was an imbalance between the shires and the suburbs, and the regions, that there was overheating, congestion, pressure on the green belt, escalating house price in the shires and the suburbs but underused resources in the regions, which should benefit from the Budget, he chose a tax-cutting strategy with most benefit going to those already well off in the most prosperous shires and suburbs.

In contrast to the clear advantages that would have been gained from a strategy which involved targeted investment on our public services, instead of top-rate tax cuts, the strategy is backfiring, first, by worsening the credit boom, forcing up interest rates and adding to fears about inflation and, secondly, by creating a situation in which we shall pull in more imports and the balance of payments will worsen.

We are already seeing the effect of that in two areas. The five rises in interest rates which have pushed up industry's costs by £600 million on top of the 11 per cent. rise in electricity prices, which also cost £600 million for a full year, are making it more difficult for industry to compete with our competitors abroad. Secondly, as a result of the five interest rate rises, we are about to experience mortgage rate rises.

Mr. Major

If it is so difficult for industry, why is there an investment boom, the like of which we have not seen for many years?

Mr. Brown

The Chief Secretary would be the first to admit that even if all the CBI's predictions about manufacturing investment were to bear fruit—none has in the past—the rate of manufacturing investment in real terms would still be below the level left by the Labour Government in 1979.

If the Chief Secretary doubts my figures, let him consult the excellent brief produced on these matters by the Library. That shows clearly that even if manufacturing investment rose by the amount that the CBI has stipulated in its investment intentions survey—it wa quoted by the right hon. Gentleman—investment in real terms would still be below the 1979 level. I checked the figures this afternoon with the statisticians in the Library. If the Chief Secretary really believes that the Government have a good record in manufacturing investment, which is still below the level of 1979, he must set low targets for the Government's performance.

The second effect of the Budget, adding to the rising credit boom and the worsening balance of payments, has been the rise in interest rates, which are now forcing up mortgage rates. What people gained in tax cuts from the Budget they are now beginning to lose in price rises and mortgage rises that have followed from it. The tax handout was followed by the mortgage clawback—the clawback perhaps the inevitable and delayed consequence of the handout—with the spending power that the Chancellor appeared to offer in March being reined back in July. The consequence is that that they have wiped out most of the gains for almost every group, with the exception of the top few.

The Budget is backfiring on the Chancellor. In the past, commentators have praised the Chancellor, but now the Financial Times is saying that he is skating on thin ice, It is no wonder that the Chancellor has to resort to calling commentators, whom he has praised in the past, teenage scribblers anxious for a quick headline.

Let us examine the impact of the Budget on families. We know that 7 million people on supplementary and other benefits did not benefit from the Budget and, in March and April, many of them experienced social security cuts. About 2 million people thought they were getting a 2p in the pound tax cut, but eventually they discovered that because their tax cut was followed by the withdrawal of housing benefit or family credit they ended up no better off and are facing large price rises as a result of Government decisions.

We know that the average extra bill for people who are paying mortgages is likely to be about £3 to £4 a week—for first-time buyers £4 to £5 a week-if mortgage rates go up by 1 per cent., as the Chancellor appeared to be predicting last week. On top of that, as my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) said at Question Time, ordinary families face price rises for electricity of 11 per cent., for water of 10 per cent., for prescriptions of 8 per cent., for rents of 11 per cent., for gas of 6 per cent.—and now there are charges for eye tests and dental check-ups, too. Almost every benefit that low-income families might have expected from the Budget has been wiped out by the price and mortgage rises that are on the way.

A home owner in my constituency on an average wage who has just bought a house on a high mortgage faces a large increase in his weekly payments. On top of the price rises that he must pay for electricity and everything else, he finds himself worse off even if he has had a £4 a week tax cut in his pay packet this month.

That is why we calculate that the Budget, which was to give a £6 billion handout, which was claimed to be the Budget for everyone and from which all families were going to benefit, has now, after the social security changes, the mortgage rises, and the freezing of child benefit, left 1 million families more than £4 a week worse off, 3 million families more than £2 a week worse off, and 9 million families will have lost money after the post-Budget clawback in price rises and mortgage increases. Large numbers of families will gain about £1 or £2 after the tax changes, but they will find that price rises in the family budget for electricity and everything else will wipe out that gain.

We started with a Budget that promised a £6 billion annual giveaway. It succeeded, however, in making millions of people worse off as a result of social security changes, price rises and mortgage rises. Interest rates have risen five times in the past month, which has started to damage British industry. These are not the marks of the most successful Chancellor since the war, as Conservative Members might like to think, but of a failed Chancellor who is now seen to be guilty of mistaken policies that are backfiring on the Government and on millions of people in this country.

If the objective was to ease the credit boom, to attack inflation and to help our balance of payments, if, having decided that there was an imbalance between investment and consumption, the aim was to help investment and aid the regions most in need, where there are underused resources, a proper Budget would have been an investment Budget. It would have invested in the Health Service, which was the one issue that almost everyone agreed should have been the Budget's first priority. The Budget should have invested in education and the rest of the public services.

No matter what the Chief Secretary produces this or any other afternoon, as a nation we still invest less as a share of our national income in ourselves than any other industrialised country, with the exception of Belgium. We invest a lower share of the national income in ourselves than countries with which the Chief Secretary would not want to compare us—Spain, Turkey, Greece and Portugal.

I emphasise the scale of underinvestment in British manufacturing industry and public services. If, with all the oil resources that we have enjoyed since 1979, we had invested at the same level as Japan, our assets today would have been £350 billion more than they are. If we had invested at the same level as Germany, they would have been £100 billion more. If we had invested at the same level as the much-criticised last Labour Government, investment over the past nine years would have been £50 billion more. Instead, we have wasted a once-for-all opportunity from North sea oil and the taxation it yields to invest properly in our public services, in education and health, in our infrastructure, in industries and technology, in research and development, and in science and innovation. All those are vital to our future.

One of the results of our failure to invest, apart from the high pound and high interest rates, is our worsening balance of payments deficit, not only in our traditional industries but in high technology industries. The Chancellor had the choice between investing in the Health Service and social services, but his priority, like that of the Conservative party, has always been to give to those who already have, even if that means making millions of people worse off.

Let me tell the Chief Secretary how much he and the Government have given the top 1 per cent. since 1979. The Government looked at the plight of the top 1 per cent. just before Budget day. It was not enough for them that they had reduced top rate taxes by 23 per cent. in the first Budget, that top rate thresholds had been raised, that capital gains exemptions had been given, that capital transfer tax had been abolished, or that tax loopholes had been opened up in so many ways. The cumulative effect of tax cuts since 1979 for people in the top 1 per cent. was to give them an extra £10,000 a year in tax cuts alone, £100,000 in total or £200 a week. That was by way of a gift from the Government, and it was more than most people are paid in a week merely as tax cuts.

But this was not enough for the Government. They looked at the problems of the top 1 per cent. and found that they were earning, on average, £75,000 a year. The Treasury computer showed that they would increase their incomes by 13 per cent., that they would do for themselves everything that they wanted to deny their work forces and that they would still enjoy enormous perks. Having seen all that, the Treasury decided to give this group an extra £10,000 a year, on top of the £100,000 that it had already received since 1979. There has been no evidence since the Budget that this group of people has worked harder. I saw no evidence of cancellations at Henley, Wimbledon or Ascot, or of cancellations of holidays in far-off places so that those people could work harder. There is no evidence that this group is more productive, hard-working or industrious, but there is evidence that they are wealthier as a result of what the Chancellor has done.

We are told that those people need an incentive to work harder. We also hear the argument, produced by the Chief Secretary this afternoon, that tax reductions on unearned income are essential so that people invest. However, we know that the record of investment in our manufacturing industry is very poor—even with the top-rate tax cuts made immediately after the Government came into office in 1979. There is no study to which either the Chancellor or the Financial Secretary—hard though he tries—can point to prove that tax cuts are necessary for incentives.

The need for incentives to make people work harder does not explain why the Government have given £200 million in tax relief to those whose pre-1982 capital gains tax liability has been wiped out. The need to work harder cannot justify the £235 million in tax relief for those who inherit—[Interruption.] The Chief Secretary had better keep quiet about the number of hon. Members who are asleep during speeches from the Front Bench. I counted the former Leader of the House, the Conservative Chief Whip and the chairman of the Conservative party, and perhaps the Chief Secretary's PPS will tell us that he was asleep as well.

Mr. Major

As it happens, my hon. Friends were lost in wonder, but it is a matter of fact that the hon. Members for Islington, South and Finsbury (Mr. Smith) and for Newcastle upon Tyne, East (Mr. Brown) were both enjoying a gentle doze while the hon. Gentleman was speaking. [Interruption.]

Mr. Brown

My hon. Friends deny it. I must say, however, that the Chief Secretary's intervention is on a par with his intervention in a previous debate when he talked about Woman's Own. We expect major statements from the right hon. Gentleman, who has been much advertised as the coming star in the Government, but when he rises to speak it is merely to tell us that one or two people in the Chamber are not awake. He will be hoping that the Prime Minister does not read the Hansard report of this debate, in case the invitation to Chequers is withdrawn.

The need for incentives does not explain why the self-employed, for example, are able to pay their tax on last year's earnings at rates decided for this year. The Chief Secretary has also been unable to explain why £700 million has been given in tax cuts on the unearned income of the top 1 per cent. who are already extremely rich. Much as he tries, he cannot explain what justification there was in the Chancellor's mind for denying pensioners housing benefit, freezing child benefit and introducing a social fund to replace single payments, all at a cost of £700 million, and then handing that over to the people at the top.

The results are beginning to be seen. I telephoned my social security offices a few days ago to ask what had happened as a result of the implementation of the social fund. The office was able to tell me that while the top 1 per cent. are walking away with an average of £10,000 a year in tax cuts, of the applications made for help from the social fund—to help pay, for example, for heating or for journeys that had to be undertaken—one third, 166, had been turned down in the first two months. They had been turned down because the office had said that they were not priorities, because there was not enough money in the social fund budget to justify the payments or because the applicants would not be able to repay the loans from their meagre supplementary benefits. How can the Chief Secretary justify circumstances in which people are not even given the basic dignity of help with key requirements such as heating, food and clothing, while the top I per cent. are given £700 million in tax relief on unearned income?

We were told at the beginning that the Budget was a Budget for all. That was revised, and we were then told that it was a Budget for the meritocracy. Then, when we found that the scientists, engineers, researchers and doctors were not such great beneficiaries, we learned the truth. It is a Budget fuelled by selective generosity towards the very rich. It is motivated not by academic theories such as supply-side economics or trickle-down theory, but by greed dressed up as ideology: greed to reward those who already have a great deal by denying to many millions money that they desperately need.

We know that the Government are prepared to ignore the evidence of the churches and other organisations that tell them about the growing gap between rich and poor and the social polarisation in our communities. We know that they are prepared to ignore the warnings of Conservative Back Benchers who ask for a change of course. We also know that they may try to ignore even their own Cabinet members. The Prime Minister is blind to the warnings of the Foreign Secretary, who spoke at Christmas of the danger that social tensions would be exacerbated, and said that the Government still had a long way to go in tackling them.

The Government may ignore the warnings of the Home Secretary, who has said that there is a danger to social cohesion in our communities as a result of the policies being pursued. They have, of course, ignored the warnings of the former Deputy Prime Minister in another place, who said that a little more compassion was needed. But they cannot continue to ignore the warnings of the general public, who in survey after survey show that they are not the narrow, blindly acquisitive, self-seeking individualists that the Prime Minister and her Ministers would have them be. They see the injustice of great economic inequality. They appreciate the contrast in a Budget and Finance Bill that give £2 billion to the rich and at the same time freeze child benefit, cut housing benefit, introduce charges for eye tests and dental check-ups, and push people into having to pay much higher mortgage rates. They also appreciate the waste, inefficiency and, now, incompetence with which the economy is being managed, so that, with interest rates and mortgage rates rising, the gains from the Budget are already being wiped out.

Because the Budget has backfired on the Chancellor, this is a bad Bill which no number of new, good clauses could make into a better Bill. The House should reject it and everything for which it stands.

5.47 pm
Mr. John Biffen (Shropshire, North)

The impresarios of the debate are to be congratulated. Rather than being scheduled in the narrow terms of a conventional Third Reading, the debate gives us the opportunity for a wider judgment on the economy. I should like to take advantage of that and make two quick preliminary points before turning to the one matter of substance with which I wish to detain the House.

My first point takes account of the fact that economic and Treasury affairs are a seamless robe, never ending. We are having this debate on the self-same day on which. I understand that the Cabinet went through its process of determining public expenditure levels and targets for the coming year. My right hon. Friend the Chief Secretary will go forth reinforced by that discussion and armed with his meat cleaver, and purport to be a surgeon.

I should like to give a kindly word of advice about the public expenditure task that my right hon. Friend will be attempting as it relates to the National Health Service He clearly has a major task in terms of his responsibility for public spending, but he also has a political task: to have a well-ordered sense of priorities, and not to view every spending Minister as potentially on the other side. As has already been said, his welcome and deserved ascent in his ministerial career will put him in charge of great spending responsibilities, and he would therefore be well advised to show a little delicacy, particularly in his approach to the National Health Service.

What I have in mind—this was touched on earlier this afternoon—is what may turn out to be the full cost of the increase in nurses' and related grades' salaries and, above all, the regrading that will be associated with that. It is a matter of some complexity which has meant that, from the outset, there could never be a precise figure, but only an estimate. If that outturn proves to be significantly higher than the estimate of the review board, and clearly beyond what is within the capacity of the area health authorities to master, it should be treated by him with the generosity which we know he has in private life, and which sound political judgment would also commend. I hope that my right hon. Friend will take those fraternal greetings from a former Chief Secretary, who, I might say, has never quite recovered from the experience, and that he will prove to be a good ally to the National Health Service in the discussions that lie ahead.

The second modest point with which I should like to detain the House for a moment is that reiterated by my right hon. Friend when he said that he was looking forward to an income tax rate of 20p in the pound. That objective is quite heroic and is certainly attainable, but it implies certain suppositions that should be shared with the House. The Treasury is forecasting a modest drop in the rate of economic growth. That does not come as a great surprise. I am assuming, therefore, that we may take as a starting point for the rest of this Parliament a rate of economic growth that is not merely a straight-line projection from the recent past. In other words, growth alone will not necessarily deliver the resources for that kind of tax change.

I am also assuming that there will be a certain political wisdom which will assume that public spending must be judged on its own merits and, in certain directions, will necessitate further increases, although I would be on the side of those seeking to obtain as much general economy as possible. However, I am assuming that there will not be great retrenchment in public spending to enable that change to come about. It is just possible, therefore, that it may come about as a result of a redirection of our tax balance so that it relates more to one's capacity in spending than it does to earning.

As a general proposition that may excite some anxiety, but the anxiety that it properly engenders is whether we will be the arbiters in that, or whether we will find that the value added tax that would lie at the heart of any such switch will be determined, not in this House, but elsewhere. The European Court indicated, over a relatively modest range of activities, what were to be our VAT rates. It is an open debate whether 1992 and the single market require a single pattern of VAT, uniform across the Community, or whether the sovereign nation states will still be given options on VAT and the House of Commons will remain supreme in those fiscal affairs.

I do not travel very hopefully. If the House is anxious to maintain its supremacy in those matters it will have to act with the utmost vigilance and it will, from the very outset, have to have much clearer understandings from the Government than hitherto about their overall views on VAT. That is of particular relevance when one considers the objective of a 20p in the pound rate of income tax. Tax switching will be central to that decision.

I wish to deal now with the one point of substance that I want to raise. It relates to clauses 23 and 24 and the major tax changes referred to by my right hon. Friend the Chief Secretary and the hon. Member for Dunfermline, East (Mr. Brown). I wish to relate those changes, which have certainly added to immediate purchasing power, to the inflationary pressure that could be perceived at the time of the Budget. Iain Macleod used to say that Budgets look very different after 24 hours. That was certainly true with regard to presentation. He said that of Labour Budgets. I am merely trying to be generous to both sides of the House.

Four months have now passed between the Budget and Third Reading this evening. The three specific indicators of an inflationary pressure are worth recalling and putting on record. Bank lending, which, in mid-March, showed an annual increase of 20 per cent., has now increased to 27 per cent. United Kingdom house prices, which showed an annual increase of 16 per cent., have now increased to 19 per cent. The annual earnings increase, which was 8.5 per cent., is at approximately the same level. Although figures for labour shortage cannot easily be identified, the Association of British Chambers of Commerce has just produced a regional survey which shows that the developing labour shortage is, if anything, sharper than it was a few months ago.

Those are statistics. They do not compel a conclusion, but they cannot easily or lightly be disregarded. However, there is one new factor to be added to anxieties about the extent of tightness or overheating in the economy, and that is the trade balance. When we debated the Budget we heard a Treasury forecast of £4,000 million on the current account as the expected deficit. After about five months of the year we know that the figure is already in excess of that, at £4,700 million, and that the figure for May, £1,705 million, is the largest current deficit ever recorded. Some of that may be explained by the restocking of raw materials and capital goods associated with an expanding economy and some of it can obviously be related to very strong demand in the high street. However, I find it extraordinary that the Treasury could come out with a figure of just £4 billion when that figure has now been overtaken on such a massive scale in so short a time.

If we take either of those factors—restocking because of the so-called boom or high-street purchasing—the Treasury was not making the appropriate analysis when it produced that figure. That statistic alone, when added to the others that I have mentioned, gives rise to a wholly legitimate anxiety which is in no way intended to undermine the respect and admiration for many of the major tax reforms that my right hon. Friend the Chancellor of the Exchequer and his team have produced in the Budget and the Finance Bill.

Given those figures of incipient and perceived demand now growing in the economy, it is a matter for judgment whether the tax cuts erred on the side, not merely of generosity. but of wantonness. That question looks a good deal more uncomfortable today than it did four months ago.

5.59 pm
Mr. Alistair Darling (Edinburgh, Central)

I noted that when the right hon. Member for Shropshire, North (Mr. Biffen) was praising the Chief Secretary, he paused for a moment. It is probable that the Chief Secretary thought that if the Prime Minister read praise of him from that quarter it might impede his so far rapid rise in her favour.

We have said from the time that the Chancellor of the Exchequer introduced the Budget that it is one of contrasts. This is not a time of crisis for the United Kingdom generally, but many individuals are facing great personal difficulties. There is the unfairness of tax cuts for those who are at the top end of the income scale and of benefit cuts for those who are at the bottom of the income scale, or who have no income at all. The Government are happy to tighten the screw on those who have little or nothing, while being generous to those who have done well, as my hon. Friend the Member for Dunfermline, East (Mr. Brown) said. Payments are being tightened for those who have to claim benefit, but, in the operation of the business expansion scheme, the Government are happy to enter into open-ended commitments for those who would seek to use tax breaks to provide accommodation for those who are at the bottom end of the income scale.

As I understand it, the Government's primary aim is to ensure that inflation is kept under control. The Government say, rightly, that inflation has dire effects, especially on those—they do not accept this—who will lose as a result of the Budget and the Bill. I am talking about those who will not enjoy the tax breaks that we have been discussing.

The majority regard a house as the provision of a roof over their head rather than an investment, and the position that this majority faces is grave in both the purchasing and rented sectors. It has been said that tax cuts are inflationary, and we know that house prices are escalating. We are told that house prices add about 0.4 per cent. to the retail prices index. When the Chancellor of the Exchequer was discussing inflation this afternoon, we were astonished when he distinguished two sorts of inflation. He said that the inflation of house prices did not really matter—at least, he could not control it—and that the other form of inflation that he could control was the one that mattered. That will come as news to those who buy houses or those who have to rent houses. To those people, the increase in prices is very much part of the inflationary package with which they have to deal.

There is a credit boom. We are told that there is £1 billion more credit this year than last year. However, there are many who are finding it difficult to make ends meet. They have to borrow more and more to ensure that they have a roof over their head, not because they desire to increase their spending or to improve their standard of living, although that is without doubt the motivation in some instances. Yesterday, on Report, the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) said that he regarded a house as a sterile asset. That is the hon. Gentleman's approach, but most people buy a house because they need it, not because they want to invest in a house as opposed to some other asset.

The plight of the first-time buyer is grave. There are escalating house prices for those who want to buy and escalating rents for those who want to rent, especially in the south-east of England and certain other areas. No tax relief is given to those who seek to rent. Why should not the same relief be given to those who want to buy and to those who want to rent? Sometimes it makes good economic sense to rent, especially at the beginning of a person's working life or when he has retired. Instead, we choose to give blanket mortgage tax relief whatever the individual's circumstances, subject to minor restrictions.

The Nationwide Anglia building society's latest survey shows that a three-bedroomed house in Haringey costs £1 13,000. The top prices in five London boroughs for a three-bedroomed house are all over £100,000. An equivalent house in Aberdeen would cost £50,000 and in Edinburgh £46,000. In Edinburgh, where I live, there are flats retailing in the new town for over £200,000 that would have cost £20,000 or £30,000 only seven or eight years ago. I read a speculative article in The Sunday Times this weekend, that the Government might be considering a form of capital tax on gains made through the sale of houses. There are many who would not understand that proposal. The Government would be taxing an inflationary increase that has been brought about through no fault, in most instances, of the owner of a house.

The Government will have to address themselves to rising house prices. There are many, especially those who are seeking to buy a house of their own for the first time, who are being priced out of the market. I suspect that the majority of hon. Members are living in houses that they have bought and lived in for some time. Alternatively, they are in their third, fourth, fifth or sixth house. We must bear in mind those who are leaving home and seeking accommodation for the first time, whether rented or purchased. Such people are facing an extremely difficult task. It is ridiculous for the Chancellor of the Exchequer to say that house price inflation has nothing to do with the Government and that there is nothing that they can do about it.

The Government could restrict mortgage tax relief to first-time buyers, and give similar relief to those who seek to rent for the first time. The Government could adjust their regional policy to ensure that industrial development is not concentrated in the south-east of England and that inflationary pressures are not built up in the area. The Government, through the Ministry of Defence, are a large employer. They could act to ensure that decentralisation works. Most defence installations are in the north, but most of those who run them seem to need to live in the south. I do not understand why that should be so. Some of the commanding officers and some of the high-ranking civil servants could be told that, while it is handy to visit Harrods every now and again, it is not necessary for the defence of Britain that they should do so.

Increases in interest rates are accompanied by increases in house prices. Interest rates are increasing. This is a mechanism to dampen down the credit that the Government have fuelled by tax cuts. Interest rates have increased on five occasions in the past few weeks. I suppose that the Chancellor of the Exchequer would argue that this is fine tuning. He lambasted my right hon. Friend the Member for Leeds, East (Mr. Healey), the Labour Government's Chancellor of the Exchequer, for regular fine tuning, but that is exactly what he is doing now. it seems to be all right now.

Inflation is being stoked up, and it is hitting those on low incomes about whom the Prime Minister claims to be concerned. These people have been hit extremely hard by Government policies over the past few years. I am talking of those who have no choice, those who cannot afford to choose whether to send their children to a private school or to a state school, those who cannot choose whether to live in one house rather than another, those who have to choose whether to eat or to heat their homes. These are the people who have been hammered by the inflation that the Government are fuelling.

We complain about the Budget and criticise its unfairness, but those who will pay the price of the tax cuts in income forgone and in the inflation that the cuts will create will be acutely aware of the unfairness. It is all very well to help those who have been helped already, but the Government must realise that in the coming months they will have to increase public expenditure to ensure that those at the lower end of the income scale are helped. They must understand also that they will have to take action to ameliorate the inflationary pressures that will hit especially hard those who usually bear the brunt of them.

An obvious consequence of inflationary pressures is debt. Interest charges are crucial to industry, and they are important also to individuals. The amount of indebtedness is increasing. The consumer credit boom means that more and more people are getting into debt. Many of those at the lower end of the income scale incur debt through necessity, not because they wish to obtain credit or to act imprudently.

The Chief Secretary gave us the view from the golf club, as it were, of lush green pastures and everyone doing extremely well. That is the view of the member of the golf club with a gin and tonic in his hand. Contrast that view with the reality of one of my constituents who is unemployed—she is in receipt of income support—and who recently applied for a grant from the social fund after having her first child. She was not offered a grant. Instead, she was offered a loan of £100, which she had to repay at £10 a week. That was somebody who was living on income support. The House must be aware that some people who are convicted in our courts and fined £100 pay such fines at £3 or £4 a week, yet the DHSS asked that young lady to repay her loan of £100 at £10 a week. That is an utter disgrace.

When we hear the Chief Secretary extolling the Budget's virtues, let us remember those who do not know the world that we heard talked about and who are the very people who will suffer from the inflationary pressures that the Government are stoking up. It is all very well for the Government to say that the economy is in good heart and there is nothing to worry about. The fact of the matter is that an increasingly large section of the population has everything to worry and despair about. It is clear that at present the Government do not seem to want to know. Unfortunately, the number of people who are feeling the wrong end of the Government's policies is growing day by day. That is a real tragedy and it is for that, if for no other reason, that the Budget will be remembered.

6.10 pm
Mr. Ian Gow (Eastbourne)

The hon. Member for Dunfermline, East (Mr. Brown) began his speech by remarking on the absence from our proceedings of any Member of the Social and Liberal Democratic party or the Social Democratic party. That absence is continuing.

At the outset of his remarks the hon. Gentleman also said that this was the most controversial Finance Bill since the war. That opinion does not seem to have been shared by those who served, as I did not, on the Standing Committee that considered the Bill. Indeed, it is a strange truth that the amount of time spent considering the Bill in Committee was the shortest for any Finance Bill since the war.

Mr. Nicholas Brown

I am sure the hon. Gentleman will freely acknowledge that the Bill was debated for more days than ever before, because the Opposition sought to fight this controversial measure topic by topic.

Mr. John Maples (Lewisham, West)

Press release by press release.

Mr. Brown

Perhaps, as the hon. Gentleman says, press release by press release. It is not the amount of words that were spoken on a topic that is significant, but their effect.

Mr. Gow

My point is legitimate. If this was indeed the most controversial Finance Bill since the war, many would have expected the Opposition to fight it continuously and persistently over a long period. In fact, the total amount of time spent debating the Finance Bill in Committee this year was 62 hours and 30 minutes. On five occasions the Committee rose before 8 o'clock. That total number of hours is inconsistent with the view——

Mr. John Battle (Leeds, West)

Will the hon. Gentleman reflect on the fact that the majority of Labour Members who were present throughout the proceedings in Committee that considered the Bill are present now opposing the Bill, whereas those Conservative Members who served on the Committee are not present in the Chamber to defend it?

Mr. Gow

That is a different point from the one that I was making. I was making the legitimate comment, in contradistinction to the assertions by the hon. Member for Dunfermline, East, that in reality only 62 hours and 30 minutes were spent debating the Bill in Committee, despite the Opposition's claim that it is the most controversial since the war. He did not say that it was the most controversial since my right hon. Friend the Prime Minister arrived at Downing street. His assertion was that it was the most controversial since the war.

Mr. Nicholas Brown

The hon. Gentleman is being unfair. At the beginning of the Bill's proceedings we fought hard to obtain an agreement with the Government so that we could conduct our proceedings in such a way that we had a measured political debate rather than a war of attrition. That was our choice. The Opposition's hostility cannot be measured in the crude way that the hon. Gentleman seeks to suggest. If the hon. Gentleman is urging us to return to the old way, I can assure him that my hon. Friend the Member for Wrexham (Dr. Marek), and others, will be more than willing to do so. If that is his foolish suggestion, I do not think that he will have the Government's support.

Mr. Gow

One can always tell in this place when an arrow has reached its target.

I leave that preliminary point to deal with two aspects of the wider issue of our economic policy and the Government's policy as reflected in the Finance Bill. I want to consider two aspects of inflation, which was the subject to which my right hon. Friend the Member for Shropshire, North (Mr. Biffen) devoted his speech.

I want to look, first, at the phenomenon of rising house prices. They are rising fast in the south-east, but they are probably also rising in almost every other part of the kingdom. That phenomenon has been taking place for some years, but with an acceleration during the past 24 months.

The first point that needs to be made is that rising house prices do not cause inflation. It is inflation, or incipient inflation, that is one possible cause of rising house prices, but there is another possible cause of rising house prices, and that is a definite choice made by the British people between supply and demand and between one area of investment and another.

Ms. Armstrong


Mr. Gow

Of couse, that arouses great hostility among Opposition Members. They still believe that wet pavements cause rain, and that is not the truth.

I want to develop the point, because there is one sure way in which we can reduce the rate at which house prices rise, and that is to increase the supply of houses. That is the best way in which the Government can act. The Government have no control over the value that the British people wish to place on one capital asset as opposed to another.

Ms. Armstrong

Of course they do.

Mr. Gow

It is not surprising that the hon. Lady is becoming agitated. I am about to explain to her a truth that the Opposition have never understood. Since 1979, precisely because of the policies that have rightly been followed by the Government, there has been an increasing desire among people to own their own homes, and over 2.1 million more people are home owners today than was the case in May 1979. Where there is an increase in demand and an increasing awareness among fellow countrymen of the attainability of home ownership, the increase in demand will be reflected in an increase in prices.

Ms. Armstrong

Will the hon. Gentleman give way?

Mr. Gow

I shall give way to every Opposition Member, whenever he or she seeks to intervene.

Ms. Armstrong

I understand why the hon. Gentleman needs to give way. There are no other Conservative Members here to speak. The hon. Gentleman is a long-standing Member and I am a new Member. The macho idea that the late hour that one stays up is a measure of one's resistance to a Bill is rather peculiar.

The reality of house prices is that in areas such as mine there are plenty of houses for sale. In bricks and mortar terms they are good houses, but we have a declining population because of the Government's economic policy. More people want to buy houses in the south-east than in the north-east, not because of the supply of houses, but because of economic inequalities and overheating in the south-east and a lack of economic growth in the north-east.

Mr. Gow

I have exciting news for the hon. Lady. Some of the houses which she says are presently empty will shortly become occupied. If there are unoccupied houses in her constituency and house prices in the south-east continue to rise dramatically, a growing number of employers and employees will realise the economic advantages of moving the area of their activities away from the south-east. That will happen.

Mr. Wilshire

It is already happening.

Mr. Gow

My hon. Friend does not disagree with me.

Mr. Churchill (Davyhulme)

We are already seeing clear evidence of that in Manchester and in the north-west of England. Employers and individuals are moving up from the south to where houses are affordable and jobs are available.

Mr. Gow

Of course, and in the case of my hon. Friend's constituency there is the added attraction of having him as its Member of Parliament, which is an advantage not conferred upon the constituency of the hon. Member for Durham, North-West (Ms. Armstrong).

Although that is the case, and two of my hon. Friends have asserted that what I have predicted is already occurring, I must tell my right hon. Friend the Chief Secretary that there is another way—apart from the normal laws of the market—in which we can meet that demand. I still believe that we are too restrictive in our planning controls and that the amount of time taken between making an application for planning permission and the application being granted—especially where the appellant procedures have to be gone through—is too long.

I wish to move on from the question of house prices, which, I repeat, are not a cause for inflation, to a wider issue about inflation. I remind the House of what my right hon. Friend said in his Budget statement: The medium-term financial strategy, now entering its ninth year, which continue to provide the framework for reducing the growth of money GDP, and hence inflation …These will be achieved by maintaining firm monetary discipline, buttressed by a prudent fiscal stance."—[Official Report, 15 March 1988; Vol. 129, c. 997.] I am in wholehearted agreement with that statement of the Government's objectives and the way in which diminished inflation should be achieved, I find myself in respectful disagreement with my right hon. Friend's decision five months ago to reduce interest rates, and I find myself in respectful agreement with his decision, taken in the last six weeks, to increase interest rates on five separate occasions —each by 0.5 per cent. My right hon. Friend was right to say that this year there will be a repayment of debt. Zero Government borrowing and, a fortiori, a repayment of debt will bring downward pressure on inflation. The other weapon in the hands of the Chancellor is to maintain interest rates at such a level that monetary growth is contained.

When Parliament met in May 1979, the most important danger facing the economy was inflation. Today, it is perceived that that danger is there no longer. I cannot agree with those who are complacent about the prospects for inflation. If it was possible for the Government to reduce inflation from its 1979 level to its present level of 4 per cent., it is most certainly possible for the Government to bring inflation down to zero, which is the declared policy of the Chancellor and the Prime Minister. I hope that the Government will give a higher priority to the abatement of inflation and that my right hon. Friend the Financial Secretary will say in his reply that the Government's aim is to have stable prices—that is to say, zero inflation—by the end of this Parliament. Stable prices will be the surest guarantee of fuller employment and of faster economic growth in the long term. The condition both for fuller employment and for accelerating economic growth is stable prices. I hope that my right hon. Friend will recommit the Government to that.

6.26 pm
Mr. John Battle (Leeds, West)

It is always a pleasure to follow the hon. Member for Eastbourne (Mr. Gow). I feel tempted to reflect that when all around him have gone he will remain standing as the last free marketeer. Having listened to the hon. Gentleman, many hon. Members will have gained the impression that the British people have been subjected to a great experiment, which has been variously labelled in the past few years—sometimes as monetarism, sometimes as the social market economy and now, perhaps more plainly, as the tax-cutting Budget.

I believe that the Government are inviting the people of this country to worship at the altar of the free market on which stands the idol of the atavistic individual. The latest high priest of this ideology is a young assistant professor of economics at Harvard, Lawrence Lindsey, who is regularly referred to by the Chancellor of the Exchequer. He was a member of President Reagan's Council of Economic Advisers in 1983 and 1984. Some of us fear—probably even the Government do—that our economy lives in fear of the debt in the American economy, despite advice from such as Mr. Lindsey. Mr. Lindsey has been proclaimed as one of the gurus of the American supply side economists. He is a strong advocate of tax cuts to encourage the sort of social mobility that the Chief Secretary referred to today. Professor Lindsey argues that cuts in higher tax rates would come through in extra tax revenues to the national economy.

The Chancellor boasted in his Budget speech: Throughout my time as Chancellor I have been on the lookout for taxes to abolish."—[Official Report, 15 March 1988; Vol. 129, c. 1003.] He then went on to abolish two minor capital taxes on share transactions, which was a little piece of self-indulgence amounting to £100 million. Some of us will note that that was almost as much as the amount by which the Chancellor claimed he could not afford to increase child benefit this year. It is now rumoured that child benefit will be phased out altogether, but the Chancellor still boasts that he will abolish income tax altogether. How does the Budget's approach match the simple Lawrence Lindsey test? On 23 May the Financial Secretary said that if the tax regime for1988–89 was still the same as that which existed in 1978–79, some £20,000 million more would have been paid this year than under the current Budget's arrangements. In other words, the Budget markedly fails the simple Lawrence Lindsey test.

In a piece written for the Sunday Times of 20 March this year, Lindsey said: In the estimates I did at the National Bureau of Economic Research, the 'supply-side' effect of the 1981 tax cuts probably added about 2.5 per cent. to America's GNP over the first five years they were in effect. That works out to about 0.5 per cent. per year, nobody's idea of a miracle. Some, I am sure, would argue that the impact of 0.5 per cent. is so marginal that it could be interpreted as meaning Professor Lindsey does not know what the effects of the policy are. It would, as my hon. Friends have said, perhaps be much better for the Government to have a strategy on interest rates for individuals, companies and industry in order to get real growth in the economy, because Lindsey will prove to be a false prophet followed by a Government casting around for reinforcement of their preconceived ideas.

Of that £20,000 million reduction in tax liabilities, no less than 46 per cent.—that is £9,300 million—is now being enjoyed by the top 10 per cent. of taxpayers. Looked at from another angle, the top 1 per cent. of taxpayers have had their tax liabilities reduced by £22,680 each, whereas the bottom 50 per cent. have had reductions averaging £3.30 each. Some of the lowest income earners—as I know, and as other hon. Members know from their advice surgeries—are paying more in tax now as a result of the operation of this Budget.

Lindsey went on to say: Patience may be sorely tried by the approach of his strategy. Data will no doubt be produced showing that the measured income distribution has become less equal. Of course it has. Data are emerging daily, through careful interrogation by our parliamentary questions, both of the Budget impact and of the operation of the social security system, which show that, while the very rich are getting richer, the poor are getting poorer. It is clear that for the most part pensioners, in particular, low-wage families and single homeless people are receiving less in social security than they were before 1 April of this year. If the Government had held, for example, to the previous method of pegging the basic pension level at the level of inflation, or the level of average earnings increase, whichever was the higher, a pensioner couple would now be getting £79.90 a week instead of the £69.50 that they receive under the present arrangement. To that has to be added the cuts that have taken place in housing benefit.

I was somewhat surprised to hear Government Members refer in Committee to statutory pension payments as "handouts" to pensioners. It is an insult to pensioners to suggest that they live on handouts, when they have worked all their lives, have paid in to the national insurance system and have a right to a decent income when they retire. Many Conservative Members did not seem to realise that all people receiving housing benefit have to pay 20 per cent. of their housing costs because of the statutory rate contribution that was imposed in April of this year, regardless of ability to pay.

I refer to the Government's admission on 27 May that families in Coventry earning between £60 and £120 a week, with two children, wound up between £5 and nearly £11 a week worse off as a result of this Budget. That was because, although the introduction of the new credit benefit was raising entitlement by some £10 to £13 a week over the previous system, that raising of the family credit was offset by the loss of free school meals and free milk. It amounted to just over £4 a week, and in some families there were cuts of between £15 and £16 a week. Those are not our figures. They were given in replies to questions put to the Minister.

It sometimes strikes us as absolutely astounding that the Prime Minister can come to the House at Question Time and say that everyone is participating in the prosperity of Britain, because we know that people have been pushed to the margins of our society and are not participating in that wealth. Some of the poor are getting much poorer. Claims by the Government, such as we have heard this evening, to have removed restraints to growth and given free rein to competition, and about the success of the privatisation programme, emerge as shibboleths at the altar of the free market. Under this Government's economic policies millions are now being excluded from the wealth that the Chancellor of the Exchequer proclaims.

In practice, the economic policies are fostering what some might describe as a social malignancy, the "loadsamoney" culture, in which the poor are priced out to the margins of our society, while the rich in the city centres get richer and richer. The people of this country, unlike, it seems, the Government, know that economic justice is at the heart of social growth and that people ought to be at the core of the economy, not an arithmetical equation or the idol of the free market. That is why in the weeks and months to come this Budget will be clearly understood by the people for what it is. That is why the great experiment that has been tried once again in this Budget will, as my hon. Friends have said, eventually blow up in the Government's face.

6.36 pm
Mr. David Wilshire (Spelthorne)

It is a happy coincidence that the hon. Member for Leeds, West (Mr. Battle) has tried to focus the attention of the House upon worshipping at the altar, because it is the theological overtones that opposition to this Bill has attracted that I want to refer to this evening.

Despite the fact that the Bill has 170 pages packed full of detail, it seems to me that its key issue is the principles that lie behind the tax reductions. These principles, I have no hesitation in saying, are absolutely right, despite all the nonsense that we hear from the Opposition Benches.

Mr. Battle

The hon. Member throws out the remark that it is nonsense coming from these Benches. Does he include in that the reference to his own Government Ministers' answers to our questions?

Mr. Wilshire

No. I am focusing on the criticism that I have heard here today, the criticism that I have heard before and, particularly, the criticism that has come from outside the House about a splendid Budget and a very splendid Bill.

All the criticism that I have heard, particularly from outside and particularly from the Labour party, is quite unjustified. I have tried to sort it in my mind and have come to the conclusion that the sources of criticism can be put into two groups. The first of these groups is the envious, bitter politicians, and the second is the "holier than thou" clerics. Sadly, as I try to sort out the distinction between these groups it becomes ever more blurred. The joint message that I increasingly hear seems to be something like this: that God has joined the Labour party and all Conservatives are now banished to the everlasting bonfire.

This Third Reading debate seems to me to be the ideal time to reaffirm the philosophy that underpins these proposals. It is not greed, as Opposition Members keep saying. Opposition Members would do the country a favour if they tried to learn these basic principles, because then they might be some good to the country.

The principles seem to me to be these: that wealth must be created before hon. Gentlemen can spend it or redistribute it; that the state cannot create that wealth—all it can do is provide the right climate for individuals to create it for themselves; and that capitalism is the best system yet devised for enabling individuals to create that wealth. This Bill is all about creating that right climate so that all of us may prosper.

Ms. Joyce Quin (Gateshead, East)

Does the hon. Gentleman accept that there is an enormous amount of money available to the Government from their privatisation receipts, oil revenues and so on, that they could spend for the benefit of the country? Why do they refuse to spend it?

Mr. Wilshire

I was referring to the fact that it is individuals who create wealth. I want to discuss what individuals should do with that wealth. They should not simply leave it to the Government to do things on their behalf. If we follow the principles and the Bill is accepted, we will all be better off. That will enable all of us to do more to help those less fortunate than ourselves.

What should we make of the joint criticism that the Bill has received, particularly the criticism from Socialist politicians and trendy clerics? Their approach is politically stupid.

Mr. Darling

Would the hon. Gentleman care to name the trendy clerics he is disparaging?

Mr. Wilshire

That is what I intend to do. I am grateful for being given an opportunity to do that.

The joint approach is politically stupid because Opposition Members and those who support them seem to have failed to learn the lesson from three election defeats. They have not managed to take on board the message of the current opinion polls.

Mr. Tony Worthington (Clydebank and Milngavie)

May I remind the hon. Gentleman that he has not yet mentioned the trendy clerics?

Mr. Wilshire

That is a surprise that I shall spin out for a moment. I want to whet Opposition Members' appetites. —[Interruption.] It ill becomes Opposition Members to sleep. They were going to sleep before you arrived, Madam Deputy Speaker, when their Front Bench spokesman was making them nod off. Many of them are awake now because they are jumping up and down.

As I have said, the political lesson that the Opposition have failed to learn from their election defeats is that seeking to blame prosperity for social ills will get them nowhere.

Their theological approach is dangerous. It divides a dwindling Church and ignores chunks of the New Testament. All alert students of the utterances of those who advance theological reasons for rejecting the Bill and for opposing the Government will be aware of the trendy cleric to whom I wish to refer. If they have studied carefully, they will have noticed the recent outbursts from this year's Methodist conference. As a Methodist, I am saddened that our new president—bear in mind that our president occupies John Wesley's chair—has joined the growing band of trendy and misguided clerics who oppose the Bill.

In all conscience, if I describe somebody as "misguided", it is only right that I should justify that remark. I shall attempt to do that by using two quotations. The first is from a little tract given to me when I tackled that cleric on what he had said. It is entitled, "A Methodist view of capitalism in Britain today". It is written by the president, the Rev. Richard G. Jones. It says that capitalism has no place for the poor, the weak, the sick, those who cannot work". I quote that to make clear where the president of the Methodist conference stands as an individual. But where does the Methodist Church stand?

Methodism's distinctive contribution to Christianity is to be found in the first four volumes of John Wesley's sermons. Sermon No. 44, published in 1760, is entitled, "The proper use of money." By happy coincidence, that title could easily be the short title of the Finance (No. 2) Bill. The sermon says: The right use of money-a subject largely spoken of, after their manner, by men of the world"— politicians— but not sufficiently considered by those whom God hath chosen out of the world"— clerics. These generally do not consider, as the importance of the subject requires, the use of this excellent talent. Neither do they understand how to employ it to the greatest advantage". John Wesley goes on to say that the introduction of money into the world is one admirable instance of the wise and gracious providence of God. It has, indeed, been the manner of poets, orators and philosophers"— and, dare I add, the Labour party— in almost all ages and nations, to rail at this" —

Mr. Darling

With respect, this sounds like the Monty Python guide to religion and the Budget. Will the hon. Gentleman say whether he is criticising the view taken by the president of the Methodist conference, who said that under the present system there is no place for the poor or the sick? Is he saying that that is wrong?

Mr. Wilshire

The quotation from John Wesley will show that one has to understand what money is and then understand how to use it.

John Wesley went on: It has, indeed, been the manner of poets, orators and philosophers, in almost all ages and nations, to rail at this, as the grand corrupter of the world, the bane of virtue, the pest of human society …But is not all this"— railing against money— mere empty rant? We have heard such rant from Opposition Members. Is there any solid reason therein? By no means. For, let the world be as corrupt as it will, is gold or silver to blame?…The fault does not lie in the money, but in them that use it …It is, therefore, of the highest concern that all those who fear God know how to employ this valuable talent".

Ms. Armstrong

Will the hon. Gentleman give way?

Mr. Wilshire

I will give way to another Methodist with pleasure.

Ms. Armstrong

I suggest that the hon. Gentleman looks at last week's edition of The Methodist Recorder where he might see another interpretation of John Wesley's sermon. The hon. Gentleman says that he wishes to give the view of the Methodist Church. The view of the Methodist Church was expressed not just by the president but by the conference. There was one dissenter to that. I do not know whether the hon. Gentleman was at the debate, but the Methodist conference roundly condemned the Budget, not because it talked about money but because of the way in which it distributed and used that money. In that sense, the Methodist conference was totally in support of John Wesley in that money in itself is not evil; it is the way in which one chooses to use it. We and the Methodist conference want to see that used to support and protect the vulnerable first.

Mr. Wilshire


Mr. Speaker

Order. I have only just returned to the Chamber. This is the Third Reading of the Finance (No. 2) Bill and I suspect that what takes place at Methodist conferences may not be wholly relevant.

Mr. Wilshire

I am desperately sorry, Mr. Speaker, that you did not hear what came before. It is relevant. If you will bear with me, I have to make one final point. The creation of wealth is at the heart of the Bill. Only after creating wealth can one discuss what to do with it.

You are right, Mr. Speaker. I will not discuss the Methodist conference but I want to put on record what John Wesley said because it is at the heart of the Bill. He said: It is, therefore, of the highest concern, that all who fear God know how to employ this valuable talent …And, perhaps, all the instructions which are necessary for this may be reduced to three plain rules. The House should take on board those three rules. The first is, "Gain all you can." In other words, it is a good thing to be better off. Secondly, "Save all you can." Despite what we have heard from Opposition Members, investing is encouraged if we take note of that point. Thirdly, "Give all you can." That does not mean encouraging the state to tax people; it means that people should give what they can themselves.

Mr. Worthington

Would the hon. Member quarrel with the right hon. Member for Old Bexley and Sidcup (Mr. Heath), who referred to the "unacceptable face of capitalism"? Does the hon. Member think that he was being doctrinally unsound?

Mr. Wilshire

The difficulty is to get in touch with him to agree or disagree with him. When I see him here, it is usually in the opposite Lobby.

Having quoted John Wesley at length, with many interruptions, I conclude by saying that I think he would have approved of the Budget and would have been voting in the Aye Lobby tonight. Therefore, I urge all hon. Members to back the Bill because it will help all of us to make more money. [Laughter.] Opposition Members may laugh, but the point has to be understood that there is nothing to be ashamed of in making money.

Mr. Battle

Will the hon. Gentleman explain to the House, as he has so far failed to do in his jibes and slurs on the Methodist Church and his criticisms of the Budget, how a person whose income has been reduced as a result of the Budget and the changes in benefit can spend more money? The people have not got the money to spend because his Government have taken it away.

Mr. Wilshire

The Budget is about creating wealth. The Bill will do precisely that and will give opportunities for everyone, despite what Opposition Members say.

Mr. Alistair Burt (Bury, North)

Does my hon. Friend agree that the anger among Opposition Members has arisen because they have not yet found out that the policies of the Government have created wealth for a growing majority of the people? That is why Labour Members sit on the Opposition Benches and we sit on the Government Benches. The Bill will continue that process. Opposition Members are angry because they are still getting it wrong.

Mr. Wilshire

I agree completely. I have always found, when I have been heckled, that it is because the hecklers do not like the argument and cannot think of anything else to say. They claim that the Bill is unjust and unfair. It is not. What would be unfair and unjust would be if individuals who benefited from the Bill turned their backs on those who need help. That represents the issues for the trendy clerics.

My final message is: let all of us in this House support the Bill and help to create more wealth. Then let the clerics in God's House teach all of us as individiuals how to use the wealth and how to help other people.

6.53 pm
Mr. Tony Worthington (Clydebank and Milngavie)

In considering the Budget, we should ask ourselves whether it corresponds to the needs that we see in our constituencies. Does it have relevance for the people whom we have the honour to represent? Does it make the choice of priorities that they would make, given the needs that they see around them? In my constituency I have not met anyone who feels that the Budget matches those needs.

Throughout the consideration of the Bill in Committee, we have been acutely conscious of living in one world and of Ministers living in a completely different world. In the world in which many of us have to live, a third of the population of Scotland in my region of Strathclyde are living at or below supplementary benefit level. That proportion is not diminishing; rather it is increasing.

In March 1988, 16.8 per cent. of the people in Strathclyde were unemployed. I am intrigued by the Government's calendar which refers to falling unemployment for the last 23 months. The interesting thing is that it ignores the previous 86 months for which the Government were in control. If we consider unemployment on a fair basis—taking it over the time that the Government have been in control—we note that unemployment in Scotland has gone from 165,000 to 296,000. The unemployment to vacancy ratio is still 20:1.

Since 1979 Strathclyde has lost 200,000 jobs, which is 20 per cent. of all jobs in the region. Strathclyde now employs 3.6 per cent. of the total of British people who are employed; in 1979 it employed 4.4 per cent. There has been a massive proportionate decrease. Since 1979 manufacturing employment in the region has fallen by 47 per cent. When we listen to the Government, it seems that the decline has been reversed, but in the year up to September 1987 a further 11,000 jobs were lost. On present trends the loss of jobs is likely to continue.

Mr. John Marshall (Hendon, south)

Despite the dreary noises, does the hon. Gentleman agree that disposable incomes in Scotland are much higher than in other regions, and are growing rapidly?

Mr. Worthington

I do not agree with that; I shall come to that later.

Large parts of the industrial north and Scotland are projected by the Cambridge Econometrics people to lose 85,000 more jobs by the year 2000. The Budget changes do not help. Poor people have lost money. [Interruption.]

Mr. Battle

On a point of order, Mr. Speaker. I have been here throughout the debate, often in the absence of Government Members who obviously were not prepared to defend their Budget. I am now finding it difficult to hear my hon. Friend's remarks because of the noise being made by the hon. Members who have just rushed into the Chamber.

Mr. Speaker

Order. I ask hon. Members not to have private conversations.

Mr. Worthington

I am grateful, Mr. Speaker.

The alleged tax cuts and the changes in social security benefit, as well as increases in rents and electricity charges and the 20 per cent. minimum of rates which people have to pay, have affected incomes. In our surgeries we hear a catalogue of woe because of the problems caused by the Government's policies. In addition to all that, from next April people in Scotland will have to pay the poll tax. That means a transfer of resources from the poorer to the richer areas. Also, the uniform business rate is not to be introduced in Scotland until nearer the year 2000 than 1990. Again, in effect, that will lead to a transfer of resources from Scotland.

If one looks around, one has a picture of public squalor. One can see that the roads are inadequately repaired, public buildings are in poor condition and, above all, housing is visibly in disrepair. The reason is not mismanagement by the public sector; the work should be done by the private sector, but it is not being done.

There is a progressive lack of investment in Scotland. Conservative Members pointed out in Committee the growth of the venture capital industry. That is good to see, but, once again, most of that venture capital investment is in the south-east. Sixty per cent. of the growth in venture capital investment has been in the south-east, although it has only 47 per cent. of firms, whereas Scotland has only 6 per cent. of venture capital investment, although it has 12 per cent. of firms. In Scotland, we also have a banking system that is short-sighted about investment. The pattern in Scotland is that lending is done through overdrafts rather than through medium term loans. In the south-east the lending pattern is different.

We have a far from free market in which the Government are stoking up the south-east. It is interesting to note that the M25 was built at a cost of about £980 million, whereas the main road into Scotland, the A74, is not likely to attain motorway status until after the turn of the century.

It is interesting to consider the figures for the London docklands. The budget for the docklands for 1987–88 is £132 million, although the London docklands cover a small area. That budget dwarfs the combined budgets of the Scottish Development Agency and the Highlands and Islands Development Board. The Budget has a pattern, to which I am sure other Opposition Members will refer. The effect of the Budget is to leave more resources in the south than there are in the north and in Scotland.

We hoped that the Budget would help to resist the trend towards the centralisation of resources in the south-east. Is it the inexorable consequence of Government policies that we shall be living in two nations? Will not people in the north and Scotland have the right to live in the same country as those in the south-east? The Opposition believe that, if we are all members of a United Kingdom, there should be comparable standards throughout. The inevitable consequence of Government policies is that people will be paid less and less in the north and Scotland, and more and more in the south. The standard of services in the north and in Scotland will progressively decline.

The Government must recognise the importance of manufacturing industry. We must have long-term investment. The Government have an antipathy to manufacturing industry that is difficult to understand. In Scotland, 23 per cent. of employment is in manufacturing. We are led to believe that more and more employment will be in the service industry. In two countries, manufacturing industry's share of employment is not 23 per cent., as it is in Scotland, but 29 or 30 per cent. They are not Third world or backward countries; they are Japan and West Germany, which have more jobs in manufacturing industry than we have in Scotland.

We must accept that much of the apparent movement from manufacturing to the service industries is illusory. Jobs that used to be done in-house in manufacturing industry are now being done out of house in the service industries—in banking, marketing and so on. There has been a transfer of jobs from inside jobs to outside firms.

We must realise that manufacturing industry will not play a declining role in future. At the very least its role will remain as it is and it is likely to increase. Service industries' overwhelming purpose is to serve the needs of manufacturing industry. The Government's lack of interest in the needs of Scotland and manufacturing industry—quite apart from the immorality of their taxation policies—is the fundamental weakness of their Budget.

Motion made, and Question proposed, That the debate be now adjourned.—[Mr. Kenneth Clarke.]

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