§ [Relevant documents: European Community Document No. 9561/87, Annual Economic Report 1987–88 and the unnumbered document, Annual Economic Report 1987–88 (final version as adopted by the Council).]
§ 5.1 pm
§ The Chancellor of the Duchy of Lancaster and Minister of Trade and Industry (Mr. Kenneth Clarke)
The Opposition's campaign against my right hon. Friend's Budget so far seems yet again to be based on the false belief that there is a choice between enterprise and compassion. I do not believe that there is necessarily any conflict between the two. The Government firmly believe that enterprise and compassion must go hand in hand. The successful creation of an enterprise economy enables the country to give practical expression to its compassion, as the Government have been doing during the past 12 months.
The Chancellor has shown admirably in his Budget, for the second successive year, before and after a general election, that it is possible to increase public spending substantially in the autumn, to reduce taxation substantially in the spring and still be able to pay back public borrowing. That has been achieved because the climate has been created for the economic growth that enables that unique trio of achievements to be repeated for the second year.
When I listen to the remarks of Labour Members it is clear that they are still rooted in the belief that the country can pay for public services only by imposing incredibily high taxation on every working person. We all recall that at the last general election the Labour party was committed to increasing the basic rate of taxation by 2p if it was elected. The Labour party believed that the country can pay for good public services only if it raises 1251 particularly high levels of taxation from the most successful and talented people in our society. That lies at the root of all its arguments so far on the Budget.
We do not accept that. We believe that we can best pay for the good public services which we all require by creating the conditions for sound economic growth. We believe that it is necessary to encourage people to earn the wealth that the country needs to pay for personal prosperity and good public services. One way in which we can encourage people to engage successfully in the wealth-creating process is to reduce taxation generally, and particularly on the most successful people who provide the leadership of British industry.
The idea that reducing taxation enables the country to generate wealth and is beneficial to public services, particularly in the medium term, has never been accepted by Labour Members. I do not understand that. They should look back at their own experiences, particularly at the year which should have scarred the Labour party for ever—1976. At that time, they were levying taxation on earnings up to the absurd maximum rate of 83 per cent. In 1976, the maximum taxation on capital was 98 per cent. —a quite nonsensical level. In that same year, when they were levying punitive taxation on the rich, they were obliged to cut spending on the National Health Service in a way which has been done only once, by one Government since 1948, since the National Health Service started. When imposing that punitive taxation on the rich for their own political purposes, they cut revenue spending on the National Health Service by 3 per cent. in real terms. They cut capital spending on the National Health Service by no less than one third and delayed new hospital building throughout the country.
In contrast, this tax-reducing Government are steadily increasing resources. Since last autumn in particular, we have increased resources substantially for health, education and, above all, for social security, for the benefits that are paid to pensioners, the disabled and the poor. We have steadily increased those resources because we were taking the benefit of the growth produced by the enterprise economy which the Government have created. We are able to sustain those improvements in our public services as a result of the success which has been won by the men and women who work in British industry and commerce who have taken advantage of the climate which we have created.
Against that background, today I propose to examine the implications of my right hon. Friend's Budget for commerce and industry, on whose well-being practically everything else with which the House is concerned depends. I could hardly have chosen a better day. Things have improved even since my right hon. Friend sat down after his Budget speech on Tuesday.
It is not a very difficult task to address the House about the conditions of industry and commerce when interest rates have fallen this morning, as I am sure all hon. Members were delighted to hear, and unemployment has fallen by another 33,000 to its lowest level for six years. Hon. Members may not realise that this morning it was announced that capital expenditure by the manufacturing, construction, distribution and financial industries in the fourth quarter of 1987 was more than 6 per cent. higher than in the preceding quarter, and more than 12 per cent. higher than in the fourth quarter of 1986.
1252 I do not envy the hon. Member for Livingston (Mr. Cook). He must try to address the House on the subject of commerce on a particularly bad day from his point of view when so much good news has been flowing in.
§ Mr. Eric Forth (Mid-Worcestershire)
Does my right hon. and learned Friend agree that there are only about eight Labour party Members in the Chamber—probably because he has had so much good news to impart, and they have no answer to what he is saying? Does he think that it has scared them all away?
§ Mr. Clarke
It is remarkable that the Labour party does not seem to be able to sustain its campaign against my right hon. Friend's Budget for more than 24 hours and that the three items of extremely good economic news this morning have driven practically every Labour Member back to his or her constituency. They are probably already back in their constituencies getting the judgment of the general public.
§ Mr. Clarke
This year, at the time of this debate, the economic environment for business is extremely favourable.
§ Mr. Clarke
I shall give way in a moment.
It is not merely that the economy has continued to prosper during the past 12 months which is part of the enviably solid record of economic achievement and growth which is behind us. The economy has grown steadily for seven years, the longest period of sustained growth since the war. We are seeing the end of the caution and scepticism that was understandably ingrained in the British business community by so many years of comparative failure. Most of us with any contact with managers and leaders in British industry and commerce can sense the increased self-confidence and competitive-ness that is now felt by those who lead our businesses.
We have not achieved that splendid result simply by riding a wave of international economic prosperity. For the period since 1981, since recovery has been under way, we have recorded the fastest sustained growth of any of the major European economies. The contrast with the 1960s and 1970s when we were stuck firmly at the bottom of every league table could hardly be more striking. British economic achievement is now a subject of envy and admiration internationally and is a source of pride that we all feel when we are congratulated on it by our colleagues overseas.
The principal duty of my right hon. Friend the Chancellor on Tuesday was to maintain the climate to sustain as much economic growth as possible in uncertain world conditions. I believe that he can do so. The House will see that my right hon. Friend's Industry Act forecast predicts continued growth in GDP of 3 per cent. in the present year. The House will recall that the prediction for 1987, which he made this time last year, proves to have erred on the side of caution.
Opposition Members often emphasise the particular importance of manufacturing performance. To some extent, when we make comparisons between manufactur-ing and services, we rather overlook the extent to which developments in technology and in the organisation of business are making the old clear-cut distinction between 1253 manufacturing and services a thing of the past. Given that we have a traditional definition of manufacturing and service activity, I know that pretty well everybody in the House will share my satisfaction that manufacturing output, as traditionally defined, rose by no less than 5.5 per cent. in 1987. Again, my right hon. Friend the Chancellor was modest last year in the expectations of what he was then doing. His forcast of 4 per cent. growth in manufacturing industry in this country has been exceeded.
The volume of manufacturing output now stands higher than when the Labour party left office, having risen by more than 20 per cent. since the trough of the most severe recession since the 1930s.—[Interruption.] I can sense a little scepticism. It may be that Opposition Members are aware that we still have a little way to go before the somewhat higher level is reached at which the previous Labour Government entered office in 1974. However, we are nearly there and, if my right hon. Friend's forecasts of a further 5 per cent. growth in manufacturing output in 1988 is realised, that level will be attained very soon and we will be on to record-making levels.
In addition to that improvement in our manufacturing performance, I trust that the House welcomes the sharp fall in unemployment that has now continued for more than 18 months. This morning's news simply underlines the benefit for the unemployed of economic success. The total number out of work and claiming benefits is now some 680,000 lower than its peak in 1986. The House knows that no one finds it possible to forecast future levels of unemployment. I certainly leave the House in no doubt that the existing figure of about 2.5 million is higher than anyone would wish and higher than anyone can tolerate, and a continued fall is desirable. In the present climate, there is every reason to expect a further reduction in the coming year, provided that pay increases are kept at a sensible level. I shall come to that subject shortly.
The hope for the remaining unemployed must come from the continued ability of British industry to continue to create additional jobs. Here, again, recent experience is encouraging. The improvement in the number of people in employment is dramatic. There are now more than 1.5 million more jobs in the economy than there were in 1983. The main contributors to that turn-round have been self-employment and employment in the service industries. Even in manufacturing, despite the historic and continuing trends against labour-intensive manufacturing, the long decline in the numbers employed has slowed almost to a halt in recent months.
When I look at the employment picture of the past 18 months, I cannot help remembering last year's major attack on the Budget by the right hon. and learned Member for Monklands, East (Mr. Smith). He was laying his principal emphasis on the problems of unemployment. The right hon. and learned Gentleman was putting forward the preposterous proposals of the Labour party for a great spending programme to bring down unemployment. That is what he said we should have done before the election. The Labour party was saying that a public expenditure programme of about £6 billion—that was the figure advocated last year—devoted largely to creating more public sector employment, principally in local government, could seek to reduce unemployment levels by 1 million over the next two years.
1254 Following our approach, encouraging an enterprise economy and not putting £6 billion into the pockets of public authorities to create artificial jobs, seasonally adjusted unemployment has fallen by 535,000 over the past year and by 506,000 since last March, which is when the right hon. and learned Member for Monklands, East made his assertions. Therefore, after one year, we are half-way towards the Labour party's ambitious two-year target, which was set by the right hon. and learned Gentleman in his speech on the Budget last year. However, in my opinion, what he was setting out —tax increases, massive public spending and artifical public sector jobs — would have failed. More people would have been unemployed today. The right hon. and learned Gentleman was right to say that unemployment was a principal problem, and we have achieved his laudable aims. We have hit his targets for reducing unemployment but we have done so by adopting much more sensible and successful policies.
§ Mr. John Smith (Monklands, East)
While the right hon. and learned Gentleman is in this confident mood, can he say whether unemployment, by the end of this period of Government, will be higher or lower than when the Government came into office in 1979?
§ Mr. Clarke
Of course I cannot. I said that no one can successfully forecast the level of unemployment. I do riot believe any forecasts of unemployment more than three or four years ahead. It depends on the success of British industry in continuing to expand and create jobs. I am saying that the more we create an enterprise economy, the more prospects we have of increasing the total number of jobs and reducing unemployment. I am also saying that our record is as good as anything the right hon. and learned Gentleman aspired to and it has been achieved by our successful policies.
§ Mr. Heffer
Is the right hon. and learned Gentleman aware that in February 1987 unemployment in my constituency, in real figures, was 10,929 and that this year, February 1988, it is 10,031? It has gone down by about 800. Is that a great success? Is that the success that the Government talk about?
§ Mr. Clarke
The hon. Gentleman represents a depressed part of the country. We all know that. There are many other depressed towns. The fact is that a drop of 800, down to 10,000, is a substantial move in the right direction. My right hon. Friend the Chancellor is seeking to sustain that by creating the right conditions for economic growth. I trust that the hon. Member for Liverpool, Walton (Mr. Heifer) shares with me the special pleasure of the fact that the improvement in employment has extended throughout the whole country. The sharpest reductions over the past year in the numbers out of work have been recorded in the west midlands, Wales, the north-east and, the hon. Gentleman's own area, the north-west. The least prosperous regions have, most encouragingly, shared fully in the recent growth in employment, particularly in self-employment.
§ Mr. Max Madden (Bradford, West)
The right hon. and learned Gentleman has been talking about new jobs. Is he concerned about the proportion of those new jobs that often involve long hours of work, including night and 1255 regular weekend work, for rates of pay which, in many cases, are less than £2 an hour? Is he concerned that there are allegations that jobcentres are advertising jobs, which are affected by wage councils, at rates that are below the legal minimum for those jobs? What action is being taken to ensure that jobcentres do not collude with unscrupulous employers and advertise jobs below legal minimum rates? What is being done to improve the rates of pay and the conditions of work of many of the new jobs being created in this enterprise culture?
§ Mr. Clarke
If jobs are being advertised in job clubs at below the legal minimum rates, those allegations will be investigated. My right hon. Friend the Secretary of State for Employment has just told me that the one allegation of that sort that he has received has been dealt with.
The idea that the increase in employment is a low-wage increase is absurd. The general level of earnings in the British economy is rising rapidly. Indeed, if there is one cause for concern about the continuing fall in unemployment in this country, it is that we are beginning to slip back into the practice of paying ourselves rather too much, a little too quickly, which will slow up the fall in unemployment.
As far as I can see, the shadow Chancellor said that the excellent climate, which I have just described, is threatened mainly by the adverse balance of payments. The allegation is being made that we are facing a slow-down in growth because of the balance of payments problems that are being foreseen by some of our critics. His predecessor as shadow Chancellor, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), was making exactly the same predictions of a serious balance of payments crisis 12 months ago. In early 1987 he was saying that the balance of payments deficit would be £14.5 billion for the coming financial year. Last year's current account deficit is now estimated at £1.7 billion. Again, my right hon. Friend the Chancellor erred on the side of caution. His estimate last year was rather more than the outturn for the balance of payments deficit. It is not too surprising that we are facing a slightly adverse balance of payments. The principal reason is that the United Kingdom economy is growing faster than that of most of our main competitors. This is making the British market the one to go for as far as most of our competitors are concerned.
The volume of visible exports that we achieved was 5.5 per cent. higher in 1987 than in 1986, but at 7.5 per cent. visible imports rose somewhat faster because our market was expanding faster than the markets abroad to which we were selling. But those imports were not all, or even mainly, consumer products; a high proportion of imports were raw materials and intermediate goods for industry. That is the kind of increase in imports to be expected at a time of more rapid growth of our own industry. My right hon. Friend has predicted a rather larger current account deficit of £4 billion for 1988, which is easily sustainable by our present performance.
§ Mr. David Ashby (Leicestershire, North-West)
Does my right hon. and learned Friend also agree that the reason for part of this deficit may be that companies, foreseeing a great future for this country, have been looking for new machinery for their companies and much 1256 of this machinery is foreign—German or Japanese—so that it is really investment for the future that we are seeing as well?
§ Mr. Clarke
I agree with my hon. Friend that the majority of the imports that we are seeing are raw materials, semi-manufactured goods and machinery —capital investment. That is an inevitable consequence of the current expansion of our economy.
Of more lasting significance last year was the very strong performance of our invisible earnings.
§ Mr. Bryan Gould (Dagenham)
I have been trying to follow the right hon. and learned Gentleman's argument that the rapid rate of growth by which he is so pleased inevitably means that we should move into balance of payments deficit. How does he reconcile that with the experience of more successful and stronger economies than our own — notably the Japanese economy — for which rapid growth has invariably meant the building up of very substantial surpluses in their balance of payments?
§ Mr. Clarke
That was true of the rapid growth of the Japanese economy because of the then exchange value of the yen and the way in which the Japanese expansion was particularly export-led.
What I am saying is that we are currently expanding far faster than most of our competitors. It is in the nature of the British economy that we tend to import semi-manufactured goods, materials and machinery as we expand. What is being produced is a very modest balance of payments deficit, which is of no concern whatever as a percentage of our GDP.
If hon. Members wish to be reassured, I suggest that they look at the very strong performance of our invisible earnings. These contributed a surplus of almost £8 billion to the balance of payments, much of it in the form of net income from our portfolio of overseas assets, which is now second only to that of Japan. Members of the Opposition have objected strongly to our building up our portfolio of overseas assets. They would probably dissipate those overseas assets by higher discriminatory taxation and politically controlled investment in the country. But that overseas portfolio is of very great assistance to us in financing our balance of payments deficit.
Productivity has been the main key to industrial success. The strong growth in productivity has been maintained for another year throughout the economy. This, again, has been particularly striking in manufactur-ing, which should be encouraging for us all. Output per man in manufacturing industry has now risen by more than 50 per cent. since 1981 and by over 40 per cent. compared with the year when the Labour party left office. The growth in manufacturing productivity over the past seven years has exceeded that achieved by any of our main competitors, including Japan. The basis of that improved productivity has been the fundamental changes in working practices in very many industries and the ending of outdated demarcations between different trades. We still find that on the ground, throughout the country, in many industries those very necessary changes are still being opposed by some of the Labour party's allies in the trade union movement. We need to go still further. The levels of productivity in the United Kingdom still have some way to go before they match the best achieved by our competitors. Our aim must be nothing less than to achieve the best achieved elsewhere.
1257 In my opinion, the Labour party is complacent about these improvements in productivity and about the need to stimulate still further the performance of the enterprise economy. It fails to realise that international circum-stances are becoming more competitive. We have to succeed in the single European market in 1992. That is now the biggest single change facing British industry. I cannot help reflecting on what a disaster it would have been had the single European market been achieved in the mid-1970s when the Labour party was in office; it would have been a very major threat to British industry. It is now a considerable opportunity. And we have not only to succeed in the single European market; we have to aspire to compete with Koreans, Taiwanese and Japanese—the new strong performers in the world economy—in what is increasingly becoming a global market for a high proportion of goods and services. I believe that with our present sustained growth we are on target to do so.
Last year our sustained improvement in productivity meant that in manufacturing our unit costs remained virtually unchanged in 1987 despite a 7.75 per cent. increase in average earnings. The most recent figures suggest that in 1987 our performance on unit costs was better than that of Germany, although less good than that of Japan or the United States, where the figure for unit costs was negative. However, the present trend of increases in earnings is running at around 8.5 per cent. and that is of some concern. The biggest stimulus to that was quite clearly the rather disgraceful level of settlement achieved by largely Labour-dominated local authorities with their own trade unions. Any continuation of the upward trend that that settlement seems to have provoked would be bound to put severe pressure on unit costs over the next 12 months.
Fortunately, the private sector figure is an increase of 5.5 per cent., but in all parts of the private sector people must appreciate still more the direct link between moderate pay increases and improved employment prospects, which is still not fully recognised in this country.
I hasten to add, before any hon. Member takes up the point in a later speech, that the Government are most emphatically not in favour of a low-wage economy; that is quite plainly not what we are creating in the United Kingdom at the moment. We are in favour of a situation in which higher pay is achieved by higher productivity and better performance that generates the profits to finance the higher wages that everybody understandably wishes. It is unearned pay increases that raise costs and cost jobs.
The tax reductions in this Budget enable employers to create jobs. The improvement in industrial performance has been fully reflected where it matters—in the bottom line. The profits of non-oil companies have grown steadily from the beginning of the decade and the real rate of return among these companies in 1987 reached 11 per cent., which is its highest level for 20 years. The increased profitability of manufacturing industry made a major contribution here. With three quarters of capital investment funded from retained profits, business is at last freeing itself from the shackles of inadequate profitability. The benefits of this are not confined to the shareholders; they extend to the employees, the customers and the whole community.
My right hon. Friend has encouraged us by producing a situation in which we now have, I am glad to say, one of the lowest rates of corporate taxation in the developed world. Our small company rate is particularly low, at 25 1258 per cent., because my right hon. Friend has lowered it in line with the reduction of base rate income tax. The low level of corporate taxation is having the effect that we have always forecast on business investment, and particularly the quality of business investment, in this country. The year 1987 saw a rise of 4 per cent. in business investment, to a record level. It was made clear in the DTI's investment intentions survey, published last December, that we can expect an even sharper increase of about 9 per cent. in business investment in 1988. The increase in the volume of manufacturing investment was resumed in 1987 after a pause in 1986. The forecast for 1988 is of another increase of no less than 11 per cent. in the level of manufacturing investment. If that level is achieved, it will bring manufacturing investment also to an all-time high.
It is not only the Government's word and my word that says that the economy is thriving under the kind of treatment that my right hon. Friend the Chancellor of the Exchequer is giving to the British economy. The CBI industrial trends survey in February was merely the latest in a line of reports on the buoyant state of business confidence. Output is expected to grow strongly. Both home and export order books remain healthy. The latest chambers of commerce regional survey for the last quarter of 1987 also shows that any effect of the stock market crash was confined to a narrow circle of financial institutions, and that confidence has remained at a high level through the rest of the economy.
Just look at the warm welcome that my right hon. Friend's Budget on Tuesday has received from industry. The president of the CBI, Sir David Nickson, said that it will help to maintain the momentum of our economic recovery and will give a great boost to business confidence. The director general of the Institute of Directors, Sir John Hoskyns, has also given his strong support. I listen to people like that rather than to Opposition Members, as such people have a proper understanding of the needs of industry upon which our prosperity depends.
If the Opposition do not like domestic praise for the present situation, perhaps they will look abroad for some evidence that people believe that the progress of the British economy is solidly based. I have no doubt that they all know of the recent speech of the Japanese ambassador, who spoke of the "British miracle". He not only talked about the British miracle, but he gave his reasons for saying so. He attributed our performance to the policies of deregulation, privatisation, tax and trade union reform, and to the encouragement of competition, all of which have contributed to the revival of an enterprise culture.
There is not only praise in speeches. People abroad are showing their confidence in the British economy in the most important and practical way. Nissan has decided to undertake a further major expansion at Washington new town, to accommodate the production of a second car model. Only this week, Nissan announced that it was going to locate a new design centre in the United Kingdom. Sanyo announced last week a major new investment in the north-east for the manufacture of microwave ovens and magnetrons. There was an announcement in January by the Finnish paper manufacturer Kymmene-Stromberg of the largest new investment in Scotland by an overseas company. So our policies are being imitated abroad and attract investors from abroad. We are setting the fashion in how to create the right climate for an enterprising economy.
§ Mr. Nicholas Fairbairn (Perth and Kinross)
Does my right hon. and learned Friend recall that when the "Locate in Scotland" survey was done in the United States, 80 per cent. of all firms that proposed to locate in Europe said that they would rather come to Scotland than elsewhere in Europe, provided that the Government stayed in power and that their policies were continued?
§ Mr. Clarke
I entirely agree with my hon. and learned Friend. Most of those who are responsible for the investment decisions that I have just mentioned themselves cite the economic climate that the Government have created as one of their principal reasons for coming here. Alarm is expressed nowadays about the activities of overseas companies looking to locate in this country only when, for example, Ford contemplates a major investment in Dundee and encounters the last echoes of the sort of attitude encouraged by the Opposition, with threats of curious industrial activity being imposed upon that company. There was resistance to its sensible proposal for a single union agreement.
My right hon. Friend's Budget will increase business confidence still further. By aiming for a substantial Budget surplus for a second successive year, my right hon. Friend has made clear his determination to pursue a prudent fiscal strategy. This confirms the priority that is given by the Government to the reduction of inflation. By doing so, they set the scene for continued steady growth in the economy in a way that does not put the achievements of the past nine years at risk. In its overall fiscal stance, this Budget is for the long haul. This is just what is needed for business and for wealth creation if we are to take still further the change in attitudes and improved performance.
This Budget is also a Budget for enterprise in its detailed measures. First and foremost, the increase in the tax thresholds of double the rate of inflation and the reduction of 2p in the basic rate of income tax are worth almost £5 to a married man on average earnings. There is nothing wrong with all working people keeping a larger share of increased prosperity. Labour always objects to ordinary working people taking a larger share of increased prosperity via tax reductions. The Labour party consistently prefers a situation where each section or group fights for a particularly large share of prosperity, for themselves, as on the picket lines at Land Rover or wherever, where they prefer the nation's wealth to be divided up.
The abolition of the four highest rates of personal tax had become necessary if Britain was to retain her hard-won status as an enterprise economy. The energy generated by these lower rates will produce more wealth for the whole country, from which the whole community will benefit. We last reduced the higher rates of taxation nine years ago. At that time, our tax rates of up to 60 per cent. were among the most competitive in the industrial countries; but the world has moved on since our reductions of nine years ago. Our top rates of taxation were becoming once more among the highest in the developed world, until my right hon. Friend's Budget.
Not only have the United States reduced their higher levels of taxation, but a Labour Government in Australia have recently cut their higher rates. A Labour Government in New Zealand too have recently cut their higher rates —if the hon. Member for Dagenham (Mr. Gould) is tempted to return there. In my opinion, because there is plainly a prevailing mood throughout the world that is in 1260 favour of getting rid of punitive levels of taxation, most of western Europe will follow this fashion in the next few years.
The entrepreneurs and managers who will benefit from such changes in fiscal policy are vital to our economic success. Again, in modern conditions, more and more leading managers, scientists and engineers are becoming internationally mobile, and they are not tied to this country. We cannot isolate our tax structure realistically any longer from those of our competitors, even if we wish to do so.
Changes in capital taxes will be of particular benefit to business. The exclusion from capital gains tax of all gains dating from before 1982 will enable companies of all sizes to realise their gains on assets that were acquired before then. This will release substantial amounts of capital for more productive new investment. In addition, the extension of capital gains tax retirement relief to half of all gains between £125,000 and £500,000 will be of major help to proprietors of small businesses wishing to provide for their old age. It will make it particularly easy for such proprietors to hand on their businesses to the next generation as a going concern, which also helps the creation of an enterprise economy.
This is the Budget of a Government who understand the fundamental importance of enterprise and wealth creation to all of the other objectives that we have for the whole community, for our public services and everything else of importance to us. The overall fiscal policy, and the economic strategy of which it forms an integral part, is cautious; but within that prudent framework is a radical and reforming tax package that complements the earlier reform of corporate taxation, whose benefits we now see in the performance of industry. Indeed, changes in personal taxation in particular will continue to change the attitudes and actions of those individuals who do most to make the economy dynamic.
The community as a whole benefits from the creation of a more prosperous economy. That fundamental truth is sometimes questioned, albeit subconsciously, by some on the Opposition Benches. In my opinion, it is not true that if a person becomes wealthier, he necessarily becomes less generous. [Interruption.] It is certainly not true that, if a society becomes more prosperous, it becomes meaner. The Labour party frequently tries to claim that the greater prosperity of the past few years has been somehow divisive or has created a meaner spirit in this country. There is no evidence for that. Indeed, my right hon. Friend's concessions will make it even easier for charitable giving and will, among other things, reinforce the huge increase in charitable giving that the British public have been undertaking in recent years. If we look at the state of society today, and if the Labour party's fundamental message is that it does not like the new, healthier, Conservative society because it is less attractive than the poorer one over which it presided, it has a rosy recollection of conditions in society when it was in office.
Let us look at how wealth was created and shared out by the Labour Government in the 1970s, applying Labour principles. What happened then was that every section of society took it in turn to strike against the other. Every section of society took it in turn to deprive the wider public of transport, of heat, of essential services. There was a nasty mean streak in British society in the 1970s, as people tried to get their 17 per cent. increase over and above the 16 per cent. increase of their neighbours.
1261 The Labour party has not understood that today's society is not only a more prosperous but a more attractive one, and that reducing the level of taxation to redistribute greater prosperity to those who have earned it is the way to stimulate further growth of an altogether more prosperous and better society. Not only are we creating wealth; we are re-acquiring confidence. This is a one-nation country that now believes in itself again. The two Conservative Chancellors that we have had in the past nine years have played a major part in that, not least my right hon. Friend with the most successful Budget produced so far, which he gave us last Tuesday.
§ Mr. Robin Cook (Livingston)
The Chancellor of the Duchy of Lancaster and Minister of Trade and Industry has addressed the House for three quarters of an hour, preening himself and his Government on their economic record. The stream of consciousness was broken only for one passage in which he had the sheer gall to describe Opposition Members as being complacent. We had nothing but 39 minutes of complacency in the rest of his speech. If the right hon. and learned Gentleman wants to talk about complacency, no innocent listener to his speech could have imagined that he was a member of a Government who had managed to combine a surplus in oil with a deficit on visible trade—an achievement that they share only with Iraq and Venezuela—and had managed to achieve between 1979 and 1987 zero growth in manufacturing output — a distinction that they share with Malawi and Barbados. I grant the right hon. and learned Gentleman, magnanimously and generously, that yesterday's figures mean that we have now pulled ahead of Malawi and Barbados.
On investment, the figures from the Organisation for Economic Co-operation and Development, published earlier this month, show that on all capital formation we are currently 21st out of the 24 member states of OECD. We are producing less fuel than Poland, fewer motor cars than Spain — and all this against a background of unemployment still more than double the level that the Government inherited. Even when measured by all the fiddles that they have used, all 23 of them, the Government still cannot bring that down to less than the figure that they inherited.
The right hon. and learned Gentleman represents this to the House as a unique economic success. It is unique certainly: as a success, it is rather less recognisable. To be fair though, the Chancellor did not invite us to judge his Budget by its contribution to commerce and industry and business. His Budget did absolutely nothing for business and industry, unless we count the business expansion scheme for Rachmans setting up for the first time in the centre of London. Perhaps it was the absence of any scheme for business or industry which led the right and learned Gentleman, wisely, to refer to the Budget as little as possible in the course of his speech. It certainly was not the need for brevity that caused him to leave out the references. It would, therefore, be unfair to judge the Budget by what it has done for business and industry.
Let us judge the Budget by the standard that the Chancellor himself set for it. He invited our applause because he had presented a balanced Budget. Let us then judge it as such. I am bound to say that to myself and to many of my hon. Friends this Budget does not appear balanced at all. It is a lopsided, cock-eyed, warped Budget.
1262 The Chancellor had £4 billion surplus this year to spend; he will apparently have a full £6 billion to play with next year. All of that sum he chose to put into private pockets; none of it did he put into the public services.
That is not a balanced judgment at all; it is a triumph of prejudice and dogma over common sense. It is a Budget for private affluence and public squalor; and nowhere do we see public squalor more clearly under this Government than in the National Health Service.
It is, of course, charming to have the right hon. and learned Gentleman speaking to us, and we are grateful to him for being able to spare us so much time, but the member of the Cabinet that the Opposition really wanted to hear, trying to defend the Budget, was the Secretary of State for Social Services. What we wanted to hear from him was how he defended the balance of this Budget— one that gives more to the rich but no more to the Health Service and even less to social security.
The Secretary of State for Social Services has not even been allowed near the Dispatch Box—something that we might have expected from the earlier proceedings of the House this week. On Monday we had a debate, when the House guillotined the Minister's own Social Security Bill, in which he did not take part. Yesterday he produced what, by any standards, was a major statement on community health care on which he made no statement to the House and held no press conference for the public. We are, therefore, familiar with the pattern that today he is silent again, and even absent from the Chamber. No doubt, another engagement was arranged for him in case he was tempted to interrupt.
We can conclude only one thing from his absence: that the National Health Service, in the Government's judgment, is adequately funded. We are obliged to conclude this because the Budget contained not a single extra penny for the Health Service.
Let me say straight away that I understand the Government's problems in identifying the financial difficulties of the National Health Service. We know that they have problems in identifying these difficulties because, in the December statement, the Minister for Health electrified the House with the observation that the Government's monitoring arrangements had identified a cash shortage in the Health Service. That was after Six weeks in which every television bulletin had identified a cash shortage.
I regret to say that it would appear that the Government's monitoring arrangements have gone on the blink again. Yesterday, in the course of the debate, there was some play on the part of the Chief Secretary to invite my right hon. Friend the shadow Chancellor to intervene in his speech. As challenges appear to be the name of the game of this particular debate, let me issue a challenge to right hon. and hon. Gentlemen on the Treasury Bench. I challenge them—and I will willingly give way if they can produce one—to name a single organisation represent-ing the people who work in the National Health Service, who administer the National Health Service, who represent the consumers of the National Health Service, which shares their view that the Health Service is adequately funded and that priority should be given to tax cuts. There is not one.
Yesterday my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) referred to the British Medical Association survey, but he could equally well have referred to similar statements from any of half 1263 a dozen royal colleges — from the Association of Community Health Councils of England and Wales, the National Association of Health Authorities in England and Wales and the Chartered Institute of Public Finance and Accountancy, whose survey only a fortnight ago identified the £400 million of bad debts of the health authorities, which they cannot pay and which must go forward into next year.
Even those Conservatives who have listened to those who work in the Health Service have come to the same conclusion as the workers. We have the Conservative majority on the Select Committee for Social Services, which came out in support of a request for an immediate transfusion of £1,000 million. Our absent Secretary of State responded immediately by describing that figure as arbitrary, which produced the second report of the Select Committee, with the stinging observation:The only arbitrary aspect of our recommendation for £1 billion was that it was less than the £1.896 billion shortfall that we had identified.Yesterday, the Chief Secretary informed the House that we were spending more on the Health Service.
§ Mr. Cook
Let me finish this passage and then I will give way to the hon. Gentleman.
Let us look at how much more the Government are spending. I put down a parliamentary question to the Secretary of State a couple of months ago, inviting him to express the required increase in expenditure on the Health Service, applying the pay and prices rate of inflation. That is a fair test. We know that it is fair because, after only a couple of weeks, the Government used the same rate of inflation as a test of the amount by which they should increase prescription charges. Prescription charges had to go up by 8 per cent., they said, because that was the rate of inflation in the price of medicines. If that test is fair for deciding how much prescription charges should rise, it is fair for deciding by how much the funding of the Health Service should increase. The answer showed that since 1982 the total increase in spending on the Health Service was a niggardly £50 million—half of I per cent. That is why the Health Service is in crisis today.
§ Mr. Hanley
Will the hon. Gentleman tell the House in how many Budgets between 1974 and 1979 the Labour Government announced increased expenditure on the Health Service?
§ Mr. Cook
In the last Labour Budget, in 1978, the Chancellor announced a significant increase in the health budget. If the hon. Gentleman intended to help his hon. Friends, he would have been wise to consult them in advance. They would have pulled him down before he made precisely the contrast between the way that previous Labour Chancellors behaved and the way in which the present Chancellor has run away from the real needs of the Health Service. Because he has done so, operations are being cancelled at a rate of 300 a week, 20 cancer patients on the waiting list for operations in the west midlands die every month and beds are closing at three times the rate of the 1970s. That is why, on six separate occasions in October, women in labour had to be taken from central London by ambulance to Brighton, because that was the nearest place with an empty maternity bed.
§ Mr. Kenneth Clarke
The hon. Gentleman has complacently defended his Government's record by relying on 1978. Let me remind him of what the president of the Royal College of Nursing said on 6 June 1978 to the then Secretary of State for Social Services:I can tell the Secretary of State what is wrong with the Health Service. It is basically suffering from a shortage of cash with which to train and employ nurses and other personnel.She said that those involved in the service were "at breaking point". Before the hon. Gentleman calmly claims that Labour financed it properly in 1978, he should recall the strikes, crisis and turmoil that his party left behind in 1979.
§ Mr. Cook
I welcome that interruption. The reason why the previous Labour Chancellor was quoted yesterday by my right hon. and learned Friend the Member for Monklands, East, and today by me, is that we were reminded specifically of that precedent by members of the Royal College of Nursing, who drew it to our attention with plaudits and warm, nostalgic affection, in com-parison with their treatment under the present Government.
If hon. Members wish to talk about nurses, let us do so. There are now fewer nurses in the wards. We know that because we have seen the Government's submission to the pay review body. Their own evidence admits that there are now 6,000 fewer nurses in general nursing wards than in 1982—not that there were enough to go around in 1982. An article in the Nursing Times and Nursing Mirror in that year stated:We follow with a brief tour of the hospital and I note again how easy it is to construct buildings, yet fail to provide the staff, particularly nurses.The author of that article was a councillor Mrs. Currie, chairman of central Birmingham district health authority. I took the precaution of looking up central Birmingham to find out how well it is doing now that councillor Mrs. Currie is Parliamentary Under-Secretary of State for Health and Social Security. I can report that the authority now has a shortage of 350 nurses, and the number of beds for children has halved since the general election. As a result, consultant surgeons are being told to take every seventh week off. They are told, "Go away. Go to the golf course. Take the family to the seaside. Do anything but operate and involve us in extra cost." Where is the cost-effectiveness there?
Lest it be thought that central Birmingham has fallen into neglect because its former chairman is now concentrating on the affairs of southern Derbyshire, I can also quote from last month's Burton Daily Mail, which reports:Local health chiefs are predicting the worst cash crisis in the history of Southern Derbyshire Health Authority … The only hope may be to get out the prayer mats", according to the district treasurer.
§ Mr. Nicholas Bennett (Pembroke)
So that we can keep the nursing position in perspective, perhaps the hon. Gentleman would like to note the international comparisons. He will find that there are 34.5 nurses per 10,000 of the population in West Germany, 51.4 per 10,000 in France, 46.9 per 10,000 in Japan, 54.3 per 10.000 in the United States of America and 84.2 per 10,000 in this country.
§ Mr. Cook
I suggest that the hon. Gentleman gets in touch with whoever put the Minister in touch with the Royal College of Nursing, because that person can put 1265 him right on the figures. The British figures count all nurses—auxiliary, state-enrolled and student nurses—and weigh them against people of graduate experience in foreign countries. If the hon. Gentleman bothers to go around the hospitals in central London, he will find that it is the student nurses who are keeping those hospitals open.
Yesterday, as we debated the Budget, Bloomsbury district health authority debated its budget for next year. It was a very different story. There is no surplus in that health authority; there is not even a balanced budget. The authority faces a £5 million deficit next year, and the only way that it can see of closing the gap is to shut its hospitals to all but life-and-death emergencies.
To wipe out the deficits of central Birmingham, south Derbyshire and Bloomsbury would take less than half of what the Chancellor gave away yesterday in capital gains tax alone. The deficits of all the district health authorities in England could be wiped out with one third of what he gave away in capital transfer tax. There are jobs in this. Three quarters of the expenditure on the Health Service goes on staff. The Minister lamented the passing of labour-intensive industry, but there is still one labour-intensive industry around—the Health Service. There is no surer way of creating jobs than investing in the Health Service.
That means not just jobs for Health Service workers. On Friday at a conference of the National Association of Health Authorities in England and Wales, a staggering figure was produced. It was revealed that the backlog of maintenance and repair work in our hospitals is now £4,000 million. Tackling that backlog would mean contracts for the private sector; it would mean real jobs in construction and labouring; it would mean profits for the small business man — the very person whom the Goverment claim to encourage. There is an opportunity to tackle unemployment there.
I understand that the Government defend tax handouts on the lofty ground of freedom: that people should be free to spend their money as they choose. Poll after poll shows that the people of Britain want their money put into the Health Service. The NOP found that 95 per cent. wanted more funds for the Health Service. The MORI poll found that 79 per cent. wanted it. Monday's "You and Yours" programme on the BBC found that only 1 per cent. supported tax cuts before the NHS.
That is the sort of result that gets the BBC into trouble with the Government. But that is how the people of Britain want their money spent. They have the sense to know—unlike the Chancellor— that it is no good getting a couple of pounds in your hand today if you have no hospital tomorrow. The NHS is a cost-effective service that provides value for money, and it is time that the Government provided it with money to the value of the service that it provides.
In part, I must admit that the Health Service is so cost-effective because it is held together by low pay. That brings us to the other measure of the imbalance of this Budget —the gap between the rich and the poor. I am grateful to the hon. Member for Derby, North (Mr. Knight), who has a question for answer today on the rates of tax among the Group of Seven. It shows that, after the Budget, Britain has the lowest top rate of tax in the group. It also has the highest starting rate of tax in the group.
This is a low-tax country only for some people. We know how well the rich have done out of the Budget. We know that Sir Ralph Halpern, knighted by this 1266 Government, got £265,000 out of the Budget. When the Minister tells Opposition Members to warn the trade unions that we should not pay ourselves more than we can afford, he should suggest that to the Chancellor who is giving £265,000 to Sir Ralph Halpern. I hope that Conservative Members had the sense to celebrate with gin and tonic. The Government put up the duty on beer but not on gin.
Last autumn in the uprating statement the Secretary of State for Social Services froze child benefit. The reason he gave for doing that was that child benefit was not well targeted. He said that the problem with child benefit was that it did not help only those who needed it most. References were made to the Duchess of Westminster. We were told that child benefit could not be increased by 30p because the Duchess of Westminster would get it as well. As a result of freezing child benefit the Government saved £120 million. In his Budget the Chancellor gave away £270 million to people in the top rate bands. That money was solely and entirely targeted to give help to those who need it least. Why is it wrong to give the Duchess of Westminster an increase of 30p but entirely right to slash the top rate of income and inheritance tax which will give her thousands of pounds?
Each person on the top tax rate has gained, on average, £3,300 from Tuesday's tax cut. Under the new social security scales, that is more than a single parent with two young children will get to live on for a year. That brings us to the real contrast in the Government's policy—the contrast between cuts in taxes in March and cuts in welfare benefits in April.
Yesterday the Chief Secretary to the Treasury claimed that there were very few losers. That was certainly an advance on his performance on "Newsnight" the previous night when he said that there were no losers. The Government are putting up the package of social security changes under the heading, "Shouldn't you know the facts?" Taking that heading entirely seriously, let us try to explain to Conservative Members the facts about the gainers and losers from the Government's package. First, there are some spectacular losers, such as the one that my hon. Friend the Member for Bristol, South (Ms. Primarolo) told us about on Monday. My hon. Friend has a constituent suffering from multiple sclerosis. Under the new rules that constituent will lose her entire entitlement to social security and will, therefore, lose £48 a week. She is losing £48 a week while someone on four times average earnings is gaining £48 a week from the Budget.
The irony is that the people who lose most are those who are in work, because the cuts are focused on housing benefit. A family of four paying average rent are worse off on any income between £60 and £140 a week. When we put that to the Minister for Social Security and the Disabled a week or two ago, he said that it was a purely hypothetical, fanciful example. When pressed to say why it was purely hypothetical and fanciful, he said that it was because we assumed the family were paying average rent. I plead guilty, because we were assuming that. If they were paying more than average rent the losses that they would incur would be even greater.
There is a link here with the National Health Service. We cannot have a healthy population when children are being brought up in poverty. The best promoters of disease are low income and bad housing, and the cuts in April will drive more children further into poverty. Yesterday the Chief Secretary said that 88 per cent. of people were no 1267 worse off. That 88 per cent. includes 2.25 million who will not get a penny more in April and who will, therefore, be worse off in real terms. Of the remainder, another 2.25 million will get a cash increase that is lower than the rate of inflation. Collectively, that means that 4.5 million households face a decline in their standard of living in real terms. Even that flatters the figures, because it takes no account of the abolition of single payments.
On Monday the Under-Secretary of State for Health and Social Security told the House that my constituents will benefit from the social fund to the tune of £51 per claimant. That is the allocation to my constituency, and I concede that the figure is correct. Two years ago the expenditure on single payments in my constituency was £154 per claimant. The new figure represents a cut of £2 per week per claimant in my constituency.
I shall conclude with two stark contrasts. This Budget will be remembered for what it does for the super-rich. The top rate of tax that anyone can now pay is 40 per cent. The funny thing is that that cut to 40 per cent. is taking place at a time when more people on benefits will have to face a higher rate of deduction.
§ Dr. Norman A. Godman (Greenock and Port Glasgow)
Is it not the case that with the social fund we now have public provision for money-lending and the state system for money-lending will take place within local DHSS offices? The only difference between the state money-lending service and the loan sharks who infest many of the schemes in the west of Scotland is that this heartless, inhumane Government offer no-interest loans.
§ Mr. Cook
As the previous Secretary of State observed, the social fund is to be a banking facility for the poor. Of course, it differs from other banking facilities because the bank manager is guaranteed repayments. He will make the deductions at source from a subsistence level income that will, logically, leave families with children on an income that is below subsistence level.
Yesterday I interrupted the Chief Secretary to tell him that the number of people on benefit who would face a deduction of over 70 per cent. would double in April. The Chief Secretary said that he suspected that I had got my figures wrong. It is quite likely that the figures are wrong. I confess that I do not have a high degree of confidence in them, because I got them in a parliamentary answer from the Government. The figures show that the number of people facing a deduction of over 70 per cent. will increase from just over 250,000 to 550,000. That is a clear coincidence because Britain has 600,000 top tax payers, all of whom have seen their tax rate fall in the Budget. They are to be weighed against the 550,000 welfare benefit claimants, some of the poorest people in our country, who face a deduction in their benefit of over 70 per cent. This is indeed redistribution with a vengeance.
The Budget marks a massive shift in the burden of taxation from the rich to the poor and a massive shift in benefits, both by way of tax handouts and in terms of welfare benefits, from the poor to the rich. The Government have mastered the advice of Ivan Boesky who said :You do not need to feel guilty about being greedy".I am sorry to say that I have not yet achieved that state of moral anaesthesia. I find it difficult to relish these tax cuts.
1268 Yesterday the Chief Secretary said that the tax cuts were not just of value to the super-rich. I accept that. I have a personal involvement, as has every hon. Member, in the tax handouts. To my embarrassment, I find myself a gainer from the tax cuts because my income tax will go down by about £6 a week.
§ Mr. Cook
Perhaps my hon. Friend would let me finish.
Next year I will benefit from the poll tax when it is introduced in Scotland. The poll tax demand on me and on my wife will be £600 less than our current payment in rates. Therefore, we will benefit from the Budget and the poll tax. When I contemplate those benefits I do not relish them. I feel a sense of shame, because I expect to pay my fair share for public services. I am conscious of the poverty of some of my constituents whom I met this winter, such as the unemployed family of six who during the winter had to live on cold meals because they could not get a single payment to replace their cooker. The single mother of an incontinent child spent this winter hand-washing sheets because she cannot get a single payment to buy a washing machine. A constituent with a curved spine spent most of the winter lying in bed because the reclining chair is broken and she cannot get a single payment to replace it. That is the true face of poverty in Britain today. By the way, I do indeed make donations in my constituency; I do give to welfare organisations to help my constituents. But I do not believe that my constituents should depend on charity. I believe that they should get that benefit as of right.
The Government have chosen to cut the top tax rate rather than help people in poverty. They have chosen to cut inheritance taxes instead of helping the Health Service. This is not a balanced Budget. It is a dangerously, disturbingly unhinged Budget which is an affront to decency, to justice and to fairness. Long after the Minister's and my names are forgotten, the Budget of 1988 will be remembered. It will be remembered as a Budget for the greedy paid for by the needy.
§ Mr. John Biffen (Shropshire, North)
A Budget debate inevitably involves such a pervasive coverage of the economy that I think it appropriate to declare an interest. The Register of Members' Interests will show that I am a director of the engineering company, Glynwed.
Let me say at once that I hope I shall not trespass upon the privileges of privy councillorship and detain the House overlong, but there are two aspects of the debate upon which I wish to touch. The first is the tax changes themselves and the formidable challenge that they represent. The longer the debate proceeds, the more discomfort Opposition Members will suffer, because they will be confronted with the challenge of deciding whether they would reverse the changes if they were in government. Secondly, I wish to talk a little about the economy to which the Budget is related.
I accept the broad philosophy embodied in the tax changes, and I should like to make three comments upon them. First, the hon. Member for Livingston (Mr. Cook) talked about the Budget lasting in memory. I think it will. I think it will compare with the Budgets before 1910 and Lloyd George, and I think that my right hon. Friend the Chancellor will be remembered as much as anything for 1269 his reforms in husband and wife taxation. Those reforms will be long-lasting and will retain their message long after the arguments about the rates have settled into near consensus between the two sides of the House.
Secondly, from what I have just observed, it will be clear that I am not outraged by the concept of two rates of taxation, with the higher rate at 40 per cent. I understand that that is the New Zealand practice, so we have thus validated the hon. Member for Dagenham (Mr. Gould) as a reverse tax exile. But when the door is opened, it is amazing what opportunities begin to arise.
I commend to my hon. Friends the reinforced potency of the arguments of my hon. Friend the Member for Ealing, Acton (Sir G. Young) that a community charge could he based upon a graduated system—a proposition further reinforced by the fact that my right hon. Friend the Chancellor has not altered the national insurance rates. That is not to argue here the alternative to the present near-universal flat-rate poll charge unhappily proposed by my hon. Friends on the Treasury Bench but to say that my hon. Friend the Member for Acton has argued his case with great diligence. I think we shall hear more from him.
Thirdly, in the debates about the rates of higher tax, I am sure that a great deal will be said about alleged incentive. I use the word "alleged" because I am tolerably agnostic about all this; I am prepared to be open-minded in considering these matters. These things operate not only at the top end of the income scale but also at the lower end. We should not be so elitist in our view of lower-paid wage earners as to suppose that they do not have a shrewd idea where their marginal rates come into effect. My right hon. Friend said that he hoped we would proceed to a basic rate of 20p. I am not too happy about such long-range targets, which then begin to exercise a clammy embrace on all intermediate policy.
However, if we are to have that objective, it might be worth while for the House, in a calm and unpartisan way, to consider the possible reintroduction of the reduced rate band, for all its administrative difficulties. We should ensure that the question of thresholds, of the reduced rate band and of the basic rate can all be related to provide as effective a counter as we can achieve against the ravages of the black economy and the relationships between taxation and benefit. I hope that, when the noise of the battle that will take place over the next few weeks about hither rates of tax has abated, consideration can be given to that issue. However, there is enough reform in this Budget without bringing such considerations before the House on this occasion.
My second point concerns the economy more generally. Every Budget has its characteristics, and this Budget has been stuffed with drama. The Budget itself is heroic; as I said, I am sure that it will command comparison with Lloyd George. The reaction on the Floor of the House, to use the most moderate language, was vigorous. I understand that the sentiments were genuine, deeply felt and spontaneous, although I think we might just as well make our arrangements to avoid such exuberance.
Underlying everything was the prologue to the Budget which was an everyday story of Downing street folk. It seemed as though there were nuances of difference about how the exchange rate policy should be operated. We have put all that into happy context, although it would be a heroic judge indeed who decided that the issue might not yet arise again at some time in the future. I was very 1270 impressed by the way in which my right hon. Friend the Prime Minister dealt with the matter in her exchanges with the Leader of the Opposition. She said :It is absolutely vital to try to keep inflation down." —(Official Report, 10 March 1988; Vol. 129, c. 517.]I do not think that that was just philosophical reflection or abstract comment. I believe that my right hon. Friend believes that the price of stability is external vigilance and that there are plenty of signs in the economy to require us to be conscious of the inherent challenge of inflation.
I should like to detain the House for a moment on the subject of how such matters used to be regarded when inflation was much more to the forefront of our economic debates. Those who worshipped at the ancestral shrine of money supply were very much in vogue—born again—in the 1970s and early 1980s. Alas, my hon. Friend the Member for Wolverhampton, South-West (Mr. Budget), who is still keeping alive that faith, is not here. I always think of him as a 1660 Prayer Book monetarist.
I have observed my right hon. Friend the Chancellor for a while. At first he seemed to have gone to series 3 and now I think he walks his monetary dog on the heath on Sunday mornings, so some of the more familiar landmarks for the debate have become somewhat fudged. It is undeniable that practically every monetary measure now shows a money supply expansion at an annual rate of something like 20 per cent. One or two odd measures, which tend to be picked up for their providential use, might falsify that proposition. When I see the Chancellor's Parliamentary Private Secretary scribbling down every word, I know this must be good stuff. If I had to summon experts, I should call Mr. Tim Congdom who knows that the Treasury still trembles a little at the thought of such representation.
I have managed to stumble through life without one day of formal education in economics, so I belong to the instinctive school of economics. My judgments are thus more prosaic, but none the less effective in that they are based on certain signs in the economy which I believe are trying to tell us something. At present, there is no shortage of such signs. The Bank of England says that lending is up by 20 per cent. over the year. The Building Societies Association and the Department of the Environment say that United Kingdom house prices generally are up by 16 per cent. and those in greater London by 24 per cent. over the year. The Department of Employment says that earnings are up by 8.5 per cent.
Anecdotal evidence comes from the Association of British Chambers of Commerce survey, which has just been published. The ABCC states:Skill shortages in London, the Thames Valley and East Anglia have reached 'crisis levels', according to Chambers' 4th Quarter Regional Business Survey, published today (14 March) by the Association of British Chambers of Commerce…The ABCC was so concerned by the sheer scale of the skills gap reported by 8 of the 12 regions surveyed that it double-checked the figures.Unemployment figures are probably the most difficult to interpret. I acknowledge that this is anecdotal, but my right hon. and learned Friend the Chancellor of the Duchy of Lancaster reported sharp falls in Whitehall-recorded unemployment. One way or another, all the signs point to a tightening in the labour market. Treasury statistics and privately collected statistics all show that we are 1271 uncomfortably close to an overheated economy in many selected but substantial areas. Rodney Lord wrote in The Times on 24 February:Last year saw the fastest growth in the economy since 1973, the year of Lord Barber's boom.That was a very happy reference to Lord Barber. I hope that references to him will not become less happy as time goes on. Politically, I am a child of the late 1960s and early 1970s. I know what has been the consequence of inflation, socially and politically. I know how easy it is in the early stages to convince oneself that it will all come right and that there is no need to do too much about it.
On Tuesday, we had a very ambitious Budget which has understandably overlain this aspect of economic argument. How could the House do otherwise than feel passion about the proposed tax rates and the implied social and political judgments? Behind all this, however, lies the problem of the economy out there, which is showing signs of incipient inflation. I have to ask myself — it is a personal question and I do not invite my hon. Friends to share my agonies about it—whether tax cuts of such an ambitious character are the appropriate response to what I believe to be incipient inflationary conditions. I believe that their magnitude implies risk, about which I wish to register unease.
Therefore, if I can thread my way through the melee of Budget resolutions on Monday night, I shall vote specifically against the reduction of the basic rate of taxation by 2p. I shall do that as a personal gesture. It is not perverse, and it carries not an iota of disenchantment. Indeed, I applaud my right hon. Friend the Chancellor for what I believe to be an imaginative and thoroughly welcome Budget. But inflation is not a challenge to be put aside until more comfortable times when one can choose more politically congenial company. I shall make my judgment and expect to be judged by it.
§ Mr. William Ross (Londonderry, East)
The right hon. Member for Shropshire, North (Mr. Biffen) reminded us of the words uttered by the hon. Member for Wolverhampton, South-West (Mr. Budgen) yesterday. I wish to remind the House of something else that the hon. Gentleman said. He pointed out that the present Administration were elected first to control and then to eliminate inflation. Like the right hon. Member for Shropshire, North, I detest inflation as the theft of people's work, their thrift and their efforts to provide for the future, and I applaud any Government who succeed in bringing it down.
The Government were also elected on a pledge to reduce Government expenditure, but that pledge seems to have vanished into the mists of time and to have been replaced by calls for greater efficiency in the way in which the expenditure is used. To give credit where credit is due, the Government have brought inflation down to 4 or 5 per cent. for the past several years. As that seems to have been deliberate policy, I wonder when they intend to squeeze the last 5 per cent. out of the economy. If they were letting it run at that rate to ease the financial pain of those who overreached themselves in the late 1970s, that need has passed and it is time to bring inflation down still further to give more protection to those on fixed incomes who are hardest hit by inflation.
1272 When I first came to the House, the air was full of arguments about the public sector borrowing requirement. The Chancellor told us the other day that that problem had been relegated to history. I hope that he is right, but I am not sure that he is. We must see what happens next year. I was pleased that the Chancellor used some of the surplus to repay debt, as the Prime Minister put it. I do not wish to hurt anyone's feelings by talking about selling the family silver, but if the family silver has to be sold, the proceeds should certainly be used to reduce the overdraft. If that has been the case to some extent in the past year, so much the better. Page 58 of the Red Book shows that 10 per cent. of Government expenditure goes to pay interest charges on this country's existing debts.
It is perhaps not a fair analogy, but if I were running a household and constantly had to use a large part of my income to pay the interest on my overdraft, I would expect my bank manager to be very worried. Over a long period, balanced or surplus budgets should gradually reduce interest payments. That too is money saved, although I have not heard any economists making that comment. If I am wide of the mark, I hope that the Minister will take this up when he replies to the debate. As I foolishly took on a very early morning engagement in Northern Ireland tomorrow, I must apologise for the fact that I shall not be here for the winding-up speeches, but I shall read with great care the Official Report of the Minister's response.
If the Government wished to make massive tax cuts, they were wise to do so on this occasion. If one does not get round to doing it in the first Budget after an election, it will certainly not be done in the last Budget before the next election, so this is indeed the time to do it. The Government have, by so doing, got rid of what is bound to be most offensive to their principal political opponents at the earliest stage of this Parliament and taken all the flak that will come in order to get it over and done with.
I quibble with the statement that we are down to two levels of income tax. We still have differing rates of national insurance contributions, which can be considered part and parcel of income tax. If they are taken into account, we still have five or six rates. Perhaps the Government made a serious error in allowing national insurance contributions to cut off, rather than carrying them through all levels of income. That would have diminished, to some extent, large tax decreases for the highest paid, and made them rather more acceptable to many people in the country.
Given that the Government have made a commitment to get income tax down to 20 per cent., we can look forward to certain adjustments in coming years, with the Government perhaps tying together national insurance contributions and the basic tax rate, so that there will be a reduction in one and an increase in the other. In that way, when we get down to a basic rate of 20 per cent., people will pay a basic rate of 25 or 26 per cent. in real terms, taking national insurance contributions into account. Most people would like that, as they would know where they stood.
The Government must also face the fact that the cut of 20 percentage points in the top rate of income tax is equivalent to a massive pay increase for people on very high incomes. I have been a Member since 1974, and I remember endless rows about people receiving huge pay increases of £10,000 or £12,000 a year, so as to put a few hundred pounds in their pockets at the end of it all. Can we be assured that there will not be such increases for those 1273 people this or next year? They have already had their 20 per cent., and not many people in the country will get 20 per cent. — mighty few will have 20 per cent. more in real terms in their pay packets.
It was all very well for Governments to give these massive increases when inflation raged at 15 or 20 per cent., or even 26 or 27 per cent. But now inflation is down to 5 per cent., and all the chickens that were let loose in those days of high inflation by those paper increases have come home to roost. I appreciate that this Administration were not responsible for that inflation —the Labour Government were — but the Government must take account of the problem. We cannot forget the consequences of that inflation. I abhor allowing inflation to get out of hand to that extent.
In the coming months and years, more thought must be given to, and more action taken for, people who are truly unemployed — there are many of them —and whose weekly income is tiny. They suffer real hardship. My hon. Friends have objected strongly to many of the things that the Government are bringing into operation in April. I hope that, although those changes will be rushed through now, they are only the beginning of a serious look at how to care for those who are unemployed, chronically ill and unable to work. There is real hardship in that section of the community. We should recognise that, and do our best to help them.
The Chief Secretary told us—truthfully—that lower taxes create jobs. In the long term, provided that we manage to defeat terrorism—there has not been much evidence of that lately—that will be of great benefit to Northern Ireland whenever foreign firms, especially the Americans, are looking around for places in which to put their money. Such firms will compare Northern Ireland not with Scotland, Wales and England but with what else can be found on the island of Ireland.
The Republic's corporation tax was reduced this year from 50 per cent. to 47 per cent., going down to 43 per cent. So even Mr. Haughey, who has not yet been mentioned, is following the taxation policy of the Government. The rate of income tax in the Republic, which a comprehensive article in The Economist recently pointed out was driving the best people out of the Republic, still starts at 35 per cent., rising to 58 per cent. The comparison between the Republic and Northern Ireland will be wholly to the advantage of Northern Ireland when people look for places in which to site their factories and jobs in the future. I welcome that, and I hope that the Government will maintain that gap for a long time.
Finally, I refer to the enormous help that reforms in recent Budgets have given to capital taxation, especially for small family-owned firms and, above all, for owner-occupier farmers in places such as Northern Ireland. The teeth of capital transfer tax were drawn when its name was changed to inheritance tax 14 or 15 years ago. This year, the re-basing of the capital gains tax from 1965 to 1982 will have an astonishing effect on farmers' liability to the tax. In 1982–83, and just before, land prices were at their highest and if anything they have declined since then. That means that many small owner-occupiers and family farms will wind up paying no tax on that score. I hope that that is a long step on the road to the end of that tax.
The increase was a paper increase in value, which the person concerned never got his hands on. The farmer who worked all his life to build up his farm to a reasonable size 1274 and left it to his son or daughter was leaving a burden of debt to them that they found it difficult to meet. It is welcome that the Government have got rid of that devastating burden on the agricultural community. These two taxes have been the cause of much heartbreak in small family firms and in the farming community. I am glad that they have been so diminished in scope.
Although we do not like some parts of the Budget very much, there is much in it that we welcome and I am glad that the Government are trying to reduce taxes. That can only be good for the economy in the long run.
§ Mr. John Butterfill (Bournemouth, West)
My right hon. Friend the Member for Shropshire, North (Mr. Biffen) said that he grew up as a political child of the 1960s. I, by contrast, was probably a political infant at that stage. I joined the Conservative party in 1957 and my abiding recollection of our economic performance since the last war has been our relative economic decline compared with our western competitor nations. Not until the Government came to power and my right hon. Friend became Prime Minister was that economic decline correctly arrested.
My right hon. Friend the Member for Shropshire, North was clearly concerned about the growth of money supply. His speech echoed many of the fears expressed yesterday in our debate by my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour). He drew a parallel between the expansion of the money supply today and that of the early 1970s, at the time when my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) was Prime Minister. That parallel is badly drawn, although it reflects the concern about broad money, M3, and the growth of debt.
The circumstances applying today are different from those applied in, for example, 1972. I have taken the trouble to look at the economic background to the 1972 Budget and should like to draw some of those comparisons to the attention of the House. It is true that in 1972 the productivity of British industry was rising by about 5 per cent., compared with a 7 per cent. rise today, but it is also true that unit labour costs were also rising, whereas today they are falling significantly, and have been falling for some time—by 20 per cent. since 1980. It is also true that our gross domestic product was growing in 1972. Indeed, in 1971 it had grown by more than 1.5 per cent., but that compares with 3.5 per cent. today, using the non-oil figure. That shows that we are now growing much faster than our western competitors whereas in 1972 we were growing considerably more slowly. Similarly, business investment is up today by 9 per cent., but was falling in the period immediately prior to the 1972 Budget. Non-oil exports rose — we must take oil out of the equation—by 5 per cent. in 1971–72, but are now rising by 7 per cent. Today our share of world trade is increasing faster than ever. However, more important than anything else, we need to consider the public sector borrowing requirement. Only now, in this last Budget, have we achieved a balanced Budget and a debt repayment, rather than a borrowing requirement.
All those circumstances are materially different from those that prevailed in 1972. I advise my right hon. Friends the Members for Chesham and Amersham and for Shorpshire, North that, although it is right to draw parallels with the past — how else can we learn — the 1275 fears that they expressed are no longer as valid as they would have been in the early 1970s. If we do have a growth in the money supply, that is a reflection of an underlying healthy economy, which is expanding, rather than a reflection of one that is incipiently unhealthy.
I should like to pay tribute to the amazing reforms that have been brought about in our economy by the present Chancellor of the Exchequer. Those reforms have been striking. We have had a growth in home ownership, a wider ownership of shares, and reforms in company taxation. Those have been followed this year by the very important reform of the taxation of married couples. I know that that reform will be widely welcomed in my constituency. Indeed, that is perceived throughout the country as having been long overdue.
My constituency is one in which there is a considerable housing shortage at the moment. Many people are moving into Bournemouth from the north, seeking employment, because we have a thriving and buoyant economy in southeast Dorset, in which many people from all over the country would like to participate. Therefore, I am especially pleased that my right hon. Friend has proposed to include the provision of assured housing schemes within the business expansion scheme. That will contribute materially to the provision of rented housing for those who would otherwise be unable to afford it. It is an excellent use of the business expansion scheme which has done so many good things elsewhere in the economy. One hopes that that will carry forward into housing. It is an innovative measure that I heartily applaud.
My constituency also has a large number of small businesses. I know that they will be particularly pleased that the Chancellor has been able to raise the VAT threshold to the maximum now permitted by the European Economic Community. One can only hope that negotiations within the Community in the near future will enable that ceiling to be raised still further. I am sure that my right hon. Friend will maintain his efforts in that direction.
Small businesses will also be particularly pleased at the reliefs given in capital gains tax, especially those relating to retirement relief. That will enable many small family businesses to continue to thrive and not suffer the penalties that they have in the past. It will enable the people who have built up those businesses to enjoy the fruits of their lifetime of labour. Small businesses will no doubt also welcome the reductions in the small business rate of corporation tax to 25 per cent.
I should like to turn to a particular problem that affects my constituency with its high number of elderly people who have retired and who have relatively low incomes. Many people in my constituency retired on what might have appeared to be good pensions some years ago and bought small homes, but they now find that the effect of inflation over the years has eroded the value of their pensions or savings. They now find that they can no longer afford to enjoy the standard of living that they thought that they might be able to. My right hon. Friend the Chancellor will no doubt be aware that to address that problem I have proposed that annuity schemes secured upon the home of an elderly person should be afforded additional tax relief by allowing the interest to be rolled up and repaid after death if a mortgage is taken out to purchase such a scheme. That kind of proposal has met 1276 with a good deal of support in the House. The early-day motion that I have tabled, which recommends such a scheme, has now been signed by 233 hon. Members. That illustrates the degree of support in the House for the proposal.
There is no doubt that such a proposal would give a significant advantage to elderly people, and especially to those in my constituency. I shall give an example of the difference that such tax relief would make. If we consider an elderly widow, aged 75, living in a house that is worth about £100,000—that may sound an awful lot, but it is not a great deal of money in my constituency, given the inflation in property values, and it is certainly not a great deal in London today — if that lady were to borrow £30,000 on the security of that property to purchase an annuity, under current tax law that annuity would yield her a net spendable income of £1,908 per year. If my right hon. Friend were to permit the interest to be rolled up while allowing tax relief to be given, that income would more than double to £4,120 per year.
We must make a choice when considering the position of elderly people, many of whom have worked hard throughout their lives, but whose savings are locked up in their sole residence. We must decide what we want them to do with the savings that they have worked so hard to accumulate over their lifetimes. Do we wish those savings simply to be passed on to their heirs, affording no benefit to the elderly person, or do we think that we should make arrangements that would enable the elderly to make some use of those savings during their lifetimes? It seems enlightened self-interest as far as we are concerned to do the latter. If we do not, it may well be that the incomes of those elderly people will fall to the point where we may be obliged to offer them support — as we often do —through housing benefit or income support. Therefore, enabling them to remain independent in their own homes is to the advantage of the community as a whole and also enables them to do what they would most like — to remain independent and to stay where they have chosen to retire.
Such a scheme poses certain problems. My right hon. Friend the Financial Secretary has written to me only recently outlining some of the difficulties that will arise if we pursue such a scheme. He has told me that the principal difficulties that he envisages are, first, the problem of a level playing field between annuity schemes and other similar schemes, for example, where the elderly person sells part of his home or part of the equity in his home to purchase an annuity. Any improvement or reform that we make in that respect will inevitably change the levels in the playing field in one direction or another, although that should not necessarily deter us from going down that route.
My right hon. Friend has also pointed out that the accumulation of interest would lead to a diminution of the estate of the annuitant and, therefore, a loss to the annuitant's heirs. However, most heirs whom I know would be happy to accept a reduction in the value of what they might receive upon the death of a relative if it meant that that relative could live in much greater comfort.
My hon. Friend has also pointed out that this would not target particularly well on poorer pensioners, because only those with relatively large house values could afford to borrow a significant sum to purchase an annuity. If interest is not paid but rolled up, the accumulated debt would, over a period of years, grow larger and it would be 1277 necessary to restrict quite severely the proportion of value of a home that was given by way of loan. To some extent, that is true. Indeed, it is inevitable that those people with larger value homes could afford to borrow larger amounts of money on them but, nevertheless, it would be valuable for all the elderly to be able to borrow in that way.
It does not necessarily follow that home values have a direct correlation with income. Indeed, in many cases, it is clear that they have not. Many people from all over the country retire to my constituency. When they retire, their income may be high, but 10 years later their income may be relatively low. However, at the same time, house prices in my constituency have risen enormously over the past 10 years, so it may well be possible for people to have high value homes but low incomes. The final point made by my right hon. Friend—this is a more valid point—is that, if annuitants are encouraged to take out such schemes when they are relatively young, and if they live a long time, the debt will become an unacceptable proportion of the value of the home. That is true and such annuity schemes would, therefore, be unsuitable for younger retired people and might need to be restricted to those aged at least 70 or perhaps even 75.
Finally, I should like to turn to one other matter which, to my disappointment, was not covered in the Budget speech, but to which I hope we shall turn during the forthcoming Finance Bill — single property ownership trusts. During the proceedings on the Financial Services Bill 1986, the Government agreed that single property ownership trusts would be a good thing because they would particularly assist urban renewal schemes which had high values. The idea behind a single property ownership trust is that a group of investors can get together and own a large property between them in the same way that they would if they were direct single owners with all the advantages of single ownership. There are problems in many of the large urban redevelopment areas because the schemes proposed are so large that they are beyond the resources of one institution or even of a consortium of institutions. They involve an unacceptable level of risk for, for example, pension funds, but by allowing a group of institutions each to take a small part in the scheme, the risk is spread and schemes become possible that could not otherwise have gone ahead.
Such schemes require some changes to the Finance Acts to enable such trusts to become tax-transparent. I very much hope that my right hon. Friend will bring forward amending legislation in his forthcoming Finance Bill.
§ Mr. Andrew Smith (Oxford, East)
Like my hon. Friend the Member for Livingston (Mr. Cook), who made such a fine speech, my theme is the unbalanced Budget. I make no apology for repeating that theme because never before in a Budget can the word "balance" have been so callously misused. Where is the balance between the Government's obsession with some monetary and fiscal targets, on the one hand, and their neglect of the real world of economic, industrial and public expenditure policy, on the other? Speaking of contrasts, I was amazed at the gall of the Chancellor of the Duchy of Lancaster in opening the debate, when he spoke about paying ourselves a little too much, a little too quickly. There are some people not a million miles from here who are paying themselves a great deal too much, a great deal too quickly. I am staggered that such hypocrisy is not recognised.
1278 There is no balance in the Budget in the huge benefits to the well-off, not just in the massive 50 per cent. of concessions available which have been concentrated on the richest 10 per cent., but in the increased thresholds in inheritance tax and in the absence of any proposal to tackle the gross inequities of national insurance, which becomes increasingly regressive. Nor is there any balance in the failure to limit tax deductible allowances to the basic rate. There is no balance in the extension of opportunities for untaxed capital gains.
There is no balance between the interests of the few who can afford to pay for private medicine and the view of the vast majority of British people that Health Service funding should have top priority. Knowing that that is his weak spot, the Chief Secretary yesterday made something of a meal of Labour estimates of the cash injections needed to bring the NHS back from the brink of utter collapse. He appeared to be overlooking the fact that the figures that he mentioned referred to different things.
The first figure of £200 million was the absolute minimum immediate cash injection that we advocated in the current financial year to avoid the worst of the cuts, just to keep the NHS ticking over in its present inadequate state. The second figure of £1.3 billion referred to the cumulative underfunding of the NHS, based on the assessment of the Select Committee on Social Services. That figure merely showed the money needed to make good the underfunding of the NHS to date and was quite separate from the Labour party's additional commitment to improve the current levels of service. So my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) was perfectly correct to identify the Government's gross misuse of £2,000 million in tax handouts to the super-rich as the figure which Labour says should have been put into health care.
The Chief Secretary would have served the country far better, as would the Chancellor, if, instead of his mealymouthed sniping at Labour's commitment to the NHS, which commands overwhelming public support, he had come clean on how far the Government are prepared to dig into the £3 billion reserve to fund the Health Service and to meet the nurses' pay review. The important point is that the Government have the money. Why will not they give it to the nurses and the NHS?
Given the vast amounts of money at the Chancellor's disposal, the continued underfunding of essential services is nothing short of obscene. Indeed, it is becoming increasingly obvious that the only possible explanation for the Government's fiscal intentions, even more so in the light of the savaging of social security benefits in April, may be found in an extreme Right-wing ideology which raises Galbraith's nightmare of public squalor and public affluence to the level of a deliberate policy objective, the better to undermine the public services by starving them of funds.
We can see who the Government are looking after best in the Budget by examining the benefits of just a couple of the Prime Minister's friends. Sir Ralph Halpern will get £5,134 extra a week, and Lord Hanson £4,728 extra a week. While some richly-paid bosses receive £5,000 per week, some of our nurses barely take home £5,000 a year. Where is the balance or the justice there?
There is no balance either when we examine what he April social security changes will mean in practice. The Government's and DHSS's press releases talk about roughly equivalent numbers of gainers and losers, but a 1279 detailed survey undertaken in Oxford for the welfare benefits research team of the department of social and administrative studies has provided shocking new evidence of just how far from the truth that is.
Previous studies, including those by the DHSS, of the effects of the social security changes were based on estimates of the effects of 20 per cent. rates contributions and the loss of single payments, but this one study has recalculated the effects using actual claimants and known levels of rates. They show that 79 per cent. of those submitting a claim after 11 April will be worse off than at the moment.
Those groups who will especially lose are pensioners, single people under 25 and, in sharp contrast to what the Chief Secretary said yesterday in the House and the day before on television, even people with disabilities. Some of the losses are significant. Overall, between 37 and 38 per cent. of the sample will lose more than £4 a week. That might not seem much to some Conservative Members, but it is £4 out of a weekly benefit of just £50 a week. That is the real obscenity of the Budget.
On Budget day the Chancellor had a clear choice on how to spend the £11 billion windfall. He chose to give it to those who are already doing nicely. It is a Budget for the healthy and the wealthy, for those with a high-paid job, not one for unemployed or retired people or those on low pay. When one takes into account the increase in electricity prices and other charges, it provides literally nothing extra for those who, through no fault of their own, now find themselves lodged in an underclass of this callous Government's creation. It must be becoming clear, even to some Conservative Members who may have had doubts before Tuesday, that the creation of that underclass has become a clear objective of Government policy. The Government say, "It is all a question of mind over matter. We do not mind and you do not matter." Basically, the Chancellor's message is that the person who earns £2,000 a week can have a tax handout of £250, less a few extra quid, of course, for the company car. The low-paid person needs only a couple of quid and those who do not have a job can make do with even less.
Even the Chancellor's much vaunted tax changes for married couples has its greatest impact in effectively doubling the capital gains allowance for those rich enough to realise £10,000 of capital gains in a year. Paying the proposed married couple's allowance to the man, albeit with transferability, is a pretty strange way of going about eliminating sexism in the tax system.
Finally, perhaps most serious of all are the effects on the economy in the long term. Whatever effects the Chancellor was expecting his decision to have, one thing is sure : the Budget will do nothing for the economy's industrial strength and nothing for long-term future employment.
The agonies of 1980 and the subsequent years were, we were told, necessary to transform British industry. We were to cut the fat and become a modern economy, able to export in good times and in bad. What happened to that supply side revolution? I draw attention to the remarks made yesterday by the right hon. Member for Chesham and Amersham (Sir I. Gilmour). He said that the question of the so-called "transformation" of the economy must be examined in its proper context in the period snce 1979. When we do that, we find that production in 1280 manufactured goods is barely higher than when the Government took office. That should not surprise us because the Government's figures show that gross domestic fixed capital formation in manufacturing was down 5 per cent. in 1986—lower than in 1980.
That shows, and also explains, the widespread scepticism, even in the City, about the Budget's impact on industry—that the much vaunted boom simply has no foundations. The worry is that we are in a boom and bust situation, with increased output coming about not because of investment in new machinery, but because of massive amounts of overtime. The Government's own statistics acknowledge that. The "Financial Statement and Budget Report 1988–89" on page 27 says :It is difficult to discern a reliable trend in recent private sector pay settlements. They have been markedly lower tjan the recent high growth in earnings, which reflects record overtime working and bonus payments.What is all the suffering, hardship and unemployment, and all the grand talk and excitement of Conservative Members about our booming economy and the spirit of enterprise based on? At the first hint of a downturn the overtime will stop, our so-called competitiveness will crash through the floor and the tired machinery which is being flogged to death will come to a halt.
What have the Government done in the Budget? Where is the balance in investments in the future of science and technology and industry in Britain? When one compares what the Government put into research and development in industry with our competitors, one sees that the United States is spending £9.3 billion, and it is rising; West Germany is spending £4.3 billion, and it is rising; Japan is spending £3.6 billion, and it is rising; and Britain is spending £2.2 billion, and—hon. Members have guessed—it is falling.
Despite the fact that the Chancellor's friends in the City are cock-a-hoop at their personal good fortune as a result of the Budget, there is no sign that it will affect or help the future of British industry and competitiveness and employment in the future. Shorn of its pretensions, of which there are many, it boils down to a purely partisan Tory Budget for the rich. The Chancellor has intoned the final requiem of what was once called one-nation conservatism.
The Chancellor may delight in fiscal balance and in the sickening greed of those gloating in the City, but the Budget is divisive beyond belief, contemptuous of the common good and ignores with deliberate disdain the nation's need for investment in health, education, housing, science and industry. It will serve the country and ultimately the Conservative party badly, because, judged against the standard of future opportunities for all citizens, it is not just unbalanced; it is morally bankrupt.
§ Sir Anthony Grant (Cambridgeshire, South-West)
I disagree with everything in the speech of the hon. Member for Oxford, East (Mr. Smith) except for two points. I agree with him about the importance of research, as Cambridge is in my constituency, and I agree with him about nurses' pay. As I am married to a nurse, I very much hope, like him, that a substantial increase in pay is given to nurses, after the report of the review which was set up by the Government in April.
When I sought to intervene in the speech of the hon. Member for Livingston (Mr. Cook) to suggest that he 1281 should give some of his new-found largesse to one of my charities, as I sought to encourage him to do, it was not meant personally. I have a very high respect for the hon. Member for Livingston, having been to the Council of Europe and the Western European Union with him for many years. I wanted to make the point not that people should depend upon charity, but that if we take away the characteristic of voluntary giving and receiving, we lose part of the fabric of a decent, civilised society.
I enjoyed very much the speech of my right hon. Friend the Member for Shropshire, North (Mr. Biffen). He will become one of those very rare hon. Members to whom Back Bench Members come in to listen, and we shall do much of that in the future. It was a little whimsical of him, as it was charming, to praise the Budget and then announce that he will vote against its main thrust, but he is a whimsical man.
For a nation which is as dependent as we are on international trade, it is immensely important to ensure that the Budget takes account of trade. If we do not get that right, we can forget about the National Health Service and everything else. The Chancellor anticipated that this year there would be pressure on the balance of payments, but that we should be able to sustain it because of the strength of our economy and the substantial overseas assets that the Government have built up. We should be able to sustain pressure on the balance of payments provided, first, that there is no return to protectionism. I hope that the Chancellor and his colleagues in the Government in all the forums—the EEC and GATT—will strongly resist attempts by other nations to resort to protectionism, which would be disastrous for the whole world. Secondly, we should be able to sustain pressure if there are no wild fluctuations in the dollar.
Like my right hon. Friend the Member for Shropshire, North, I find it difficult to understand what, if any, debate took place within the Government about our currency. I was abroad at the time, so I could not possibly know, but the strength or weakness of sterling is determined ultimately by the confidence with which it is regarded by the rest of the world. Interest rates are important, and I am delighted that they have been reduced today, as I do not like high interest rates, but it is equally absurd to pretend that one can opt out through a return to fixed exchange rates.
I remember when Lord Callaghan came to the House and announced, when he was Chancellor, the devaluation of the pound sterling. It was a traumatic experience for the House and for the nation. It provoked Lord Wilson of Rievaulx to reassure the nation that the pound in their pockets had not been devalued, but we know how misleading that proved to be.
It is essential that the Treasury and the Government use all the weapons at their disposal to prevent excessively wild fluctuations in currency. If I have rightly interpreted that as the view of the Chancellor and his Ministers on the Treasury Bench, I share that view, if that is any consolation to them. The CBI and other such organisations sometimes whine too much about the value of the pound. If it is too low, they give us a lecture on inflation; if it is too high, they moan about export difficulties. Businesses want reasonable stability, not artificial stability, from our currency so that they can plan ahead. If I am right in assuming that my right hon. Friend the Chancellor believes that we should fairly soon be members of the EMS, he has my agreement and support.
1282 I have just returned from a visit to Japan and the United States with the Select Committee on Trade and Industry. In Japan I saw amazing opportunities for our exports and industries. Since I was last in Japan some 17 years ago, a remarkable but not perceived change has taken place, in that the people are becoming a consumer society and they are encouraging imports. There are many subtle non-tariff barriers which must be overcome, and there is constant argument and debate, but I doubt whether many hon. Members realise that Japan has introduced favourable interest rates for the import of certain goods.
It would be better if we heard less from industrial bodies, businesses, Parliament and the press about how difficult it is to export to Japan and how appallingly the Japanese behave, and instead just got on with the job in the new climate. Many people are getting on with it by exporting textiles, chemicals and even motor vehicles and motor vehicle components. Substantial exports are earned in this country, but we do not talk about them; we talk about the difficulties, snags and impediments. That is a national characteristic.
Much the same situation prevails in the United States, but in both countries I found enormous admiration and even envy of Great Britain's economic performance. I was pleased to discover some praise for Cambridge, which is still held in high esteem throughout the world for the original research work that goes on there. The economic transformation was described, perhaps rather boldly, as the British miracle. I do not call it a miracle; it is a triumph of common sense and good housekeeping, as evidenced by the Chancellor in balancing his Budget. If the Prime Minister were to run in the presidential election, she would win by a landslide, with or without primaries.
People in the United States find our tax system and the level of taxation inexplicable when they contrast it with other EEC countries and with Socialist Australia and Socialist New Zealand. They said, "You seem to be keen on exports, but why are you so keen to export your best brains and ability?" That is why the principles of the Budget are absolutely right — to reform and reduce taxation.
I have only one complaint about the Budget. I would have liked the Chancellor to tackle stamp duty, perhaps by raising the threshold level to help housing, but apart from that the principles in the taxation proposals are absolutely right.
I urge the Government to disregard whining, egalitarian fanatics who would level us down to the state of the lowest. It has been our clear policy for many years to reduce direct taxation. That has been overwhelmingly endorsed by the people at no fewer than three general elections. I am delighted that the Government and the Chancellor are fulfilling that pledge.
One of the great illusions of our age is that there is some peculiar merit in extracting more taxation from the public—including nurses, teachers and fairly humble people—swirling it about in a vast, expensive bureaucracy, and doling it out in response to the latest and loudest clamours. Another illusion is that there is a choice between giving more to the National Health Service and reducing taxation. That is an illusion. We can have both. No one wants more funding for the National Health Service more than I do, as Addenbrooke's hospital and Papworth hospital are in my constituency.
1283 That bunkum of soaking the rich as a viable policy that we have heard in speech after speech of Opposition Members was really debunked by the late Anthony Crosland as long ago as the 1950s. He pointed out that there was no substantial overall increase to be achieved in the standard of living merely by distribution through the taxation system. I know that Anthony Crosland is no longer fashionable among Opposition Members, so I suppose that they disregard him.
I believe that the Budget will be good for British international trade, good for Britain and, ultimately, good for the health of the nation.
Mr. Eric S. Heifer (Liverpool, Walton)
Many years ago, just after the war, an Italian partisan who I knew came to this country and gave me the watch that I now wear. He looked around the country and said, "How civilised Britain is." I thought that he was referring to our manners and willingness to hear the other chap's point of view. He was not referring to our manners; he was referring to our society, to the things that we had done, to the fact that we had raised the living standards of the poor and had actually tackled the problems of poverty by creating a National Health Service and a social security system that removed the fear of poverty.
At the same time, if one went to Rome, Milan or Turin, one still saw people huddling in alleyways, out in the cold, because they had nowhere to shelter, and one saw the shanty towns. Therefore, he was contrasting the civilised behaviour of our Governments and people in dealing with those problems.
The Budget has been described by some newspapers, by the Chancellor and by other Conservative Members as a radical Budget. I think that that is a misuse of the term "radical". It is not a radical Budget; it is a reactionary Budget. In some respects it puts us back in history, before the days of a genuine radical Budget, as far back as the radical Budget of Lloyd George. This Budget is not radical at all.
If hon. Members do not believe me, perhaps they should read what was said in the Financial Times. I will not bore the House with the full editorial of the Financial Times, but I think it would be very good if hon. Members were to read it. It starts with the headline "A one-sided budget." The heading on another page is, "Impact On the Taxpayer," with the sub-heading "Dramatic gains for the rich". It says :The 1988 Budget is one for the rich to a much greater extent than any of the Conservative Government's previous Budgets.Apparently, that is radical, as far as the Financial Times is concerned. The fact that it is the worst Budget we have had and puts more and more money into the pockets of the super-rich means that it is radical. I thought that the term "radical" meant that one was helping those at the lower end of the scale.
When I hear all the talk about those who earn a great deal of money getting more money back or assistance initiatives of one kind or another, I want to ask one question : who really creates the wealth of this country? The wealth of this country is created by ordinary men and women at the point of production. The wealth comes from the application of their labour, together with the 1284 machinery which they have produced over the years. The wealth is not being distributed to those at the lower end of the scale; the money is going to the top end of the scale. That is what is happening. The Budget is a redistributive Budget to the rich.
I think that the Financial Times was absolutely right in stating :The Thatcher Government swept to power in 1979 promising incentives and opportunity in place of old-fashioned egalitarianism.That point was made by the hon. Member for Cambridgeshire, South-West (Sir A. Grant). The Government do not say any more about the egalitarian society. They do not worry about the bottom end of the market; they do not concern themselves with the unfortunate. They only look after the rich. They are a Government of the rich for the rich, and nothing else.
There is an old saying in our movement that goes back a long way : that the Conservative party does not preach the class war, it carries it out. The Government are certainly carrying it out in this Budget, not on the streets, not in a violent way, not with the jackboot, but in the form of the new Finance Bill this year, and they are redistributing the wealth of this country to those who are already doing very well under the system. That is the biggest criticism that we should make of the Government.
The Chancellor of the Duchy of Lancaster spoke about unemployment coming down. It would be hilarious if it were not so serious. The "Financial Statement and Budget Report" states :The objective of the Government's economic policy is to defeat inflation and to maintain a vigorous and enterprising economy, with sustained growth of output and employment.That sounds all right until one examines the Government's record over the years. The right hon. and learned Gentleman talked about unemployment falling recently. In my constituency in the course of a year it has gone down by approximately 800. I welcome that.
We have heard much criticism of that terrible Labour Government. Conservative Members never seem to get off their seats and vote against their own Government when they do not agree with them. I have never known such a lily-livered lot of hon. Members on the Government Benches. When the Labour Government cut the amount to be spent on housing and cut the money for the National Health Service, Labour Members made it quite clear where they stood. We traipsed through the Lobbies and voted against the Government. On one occasion my Chief Whip said to me, "It would be very nice, Eric, if you actually voted with the Government on occasion." We did that because we disagreed. Compared with the present Government, the Labour Government were angels; they were wonderful people.
When some of us were being critical of that Government from January 1979 until the election in May 1979, in Liverpool alone they reduced unemployment by over 2,000. They were actually bringing unemployment down when we lost the election. Now look at what has happened. Unemployment in Liverpool was 57,000 in May 1979 when the Government took office. Today, despite all that is being said about bringing unemployment down, unemployment in Liverpool—and remember that thousands of people have moved out seeking jobs elsewhere—is 89,366.
Certainly, there has been a small decrease in unemployment over a period of time, but that is nothing. As long as the capitalist system is in existence there will be 1285 booms and slumps. At the moment, we are in a mini boom. The Government can come along and say, "Look, we have modernised our industry. We have done a great job and really shown what can be done with our competitive capitalist system. Unemployment is going down and employment is going up." All I have to say is, "Yes, OK, that is expected to a certain degree, but it does not get away from the fundamental fact that as long as this system exists things will not really improve." If the Government continue to put private profit before the interests of the community or the interests of the people as a whole, and if they do not build the things that are required or put money into the NHS or the regions or invest in new industries, preferably publicly owned, the improvement will be an illusion. It will last for a time, but, when the crash comes, it will be even greater than anything we have experienced up to now. That is the reality.
This is a kidology Budget; it is a deceiver's Budget. In fact, although it talks in terms of reducing taxation, the amount of taxation will be about the same as it was before. [HON. MEMBERS: "Oh!"] Not for you lot; you will be doing very well indeed.
§ Mr. Heffer
I apologise, Mr. Deputy Speaker. I would certainly not put you in the same category as Conservative Members. Having battled with you against the Conservative party on previous occasions, I know that that would be a gross insult to you and I would not wish to do that. I do not want to insult that lot either. I simply think that what I am saying is the truth. I am not insulting Conservative Members; I am simply telling the people of this country, through the House of Commons, what is happening.
I will not make a long speech, but I wish to refer to one other point. The Government have hit their supporters. For example, the change in the rules concerning covenants will affect many people. What will happen to the lower middle classes who accept the terms of the Government and do something about financially supporting their young people through school and university? They will be worse off.
This time—I am thankful about it—the Government have gone over the top. At the same time as they are handing out money to the super-rich and to the new millionaires who have grown up under this Government, they are putting the worst possible pressure on the people at the bottom end of the scale. After 1 April those people will suffer cuts. At the moment they do not understand what will happen. However, when they do understand, they will be hurt and will suffer tremendously. All people with a conscience will wake up to the fact that it is time that the Government were ended once and for all. They have three more years before going to the polls, but I predict that this time they will have had it. One Conservative Member boasted about them having won three general elections. However, they did not win the majority of votes. They are a minority Government. They may have more seats in the House of Commons, but they have never had the majority of votes. Next time people will understand what has happened to the Social Democratic party, the Liberal party and the new party. Their day has gone. [HON. MEMBERS: "Where are they?"] They have gone from here and they are gone politically.
1286 Next time there will be a Labour Government, and I trust that the Labour Government will reverse what this Government have been doing. There will be another redistribution of wealth in this country, but it will be to the people who create the wealth—the working people. We will get back to the position that the Labour party has always advocated of creating a decent and civilised society.
§ Mr. James Hill (Southampton, Test)
It seems rather strange that my right hon. Friend the Chancellor is not receiving more congratulations this evening from the Opposition. After all, I can recall no Chancellor in this House who has spent more than £2.5 billion, cut taxes by £4 billion and cut borrowing, overseas borrowing in the main, by £7 billion. To balance those three things is the finest art of financial management.
We are lucky to have my right hon. Friend as our Chancellor. I hope that there is no hesitation in all of us insisting that, certainly for the lifetime of this Parliament, he should stay as our Chancellor. Whatever the Opposition may say, he has got the formula and he is beginning to deliver the goods. I believe that the Budget will make the Conservative party, not the party in opposition, the party that will easily win the next general election.
§ Mr. Hill
I am sorry but cannot give way. There are still several hon. Members who wish to take part in the debate.
My right hon. Friend the Chancellor has created two tax bands. He has simplified the tax system and, whether one would call it radical or otherwise, he has reformed it. He has done that by many methods.
This country has been notorious for its tax system for many years. At one time the top rate was 83 per cent. and there was even an extra little prod to take it up to 98 per cent. I remember saying to a Labour Chancellor of the Exchequer, when he was proposing a 2 per cent. wealth tax—I am sorry Mr. Deputy Speaker, but it was from a seated position — "Don't you realise that that is everything?" I began to wonder what would happen to the economy, to industry and to our progress if that happened.
The hon. Member for Livingston (Mr. Cook) devoted almost his entire speech to the National Health Service, regardless of the fact that tonight is industry night, and I should like to say a few words about the NHS. First, all staff in the NHS will benefit from this Budget. The nurses' pay review is under way and I have already written to the Royal College of Nursing saying that I am anxious that they should get an extremely good review. And I hope that we shall carry forward a good training programme in the skills that we need in the nursing fraternity.
Although NHS spending has risen substantially both in real terms and as a share of total public expenditure, it is clear that all is not well in the National Health Service, and I am pleased that there is to be a fundamental review. I hope that we shall all take part in the debate on that review to find out how to improve the NHS. I do not support the blinkered approach according to which only another £2 billion this year and perhaps another £2 billion next year will solve all the ills; that is not the problem with the National Health Service. It has been proved conclusively 1287 over the past three of four months that there are radical faults connected with the NHS and that this review must be carried out.
When I go further into the Chancellor's speech, I begin to understand what he means by raising the thresholds. This time he has taken another 750,000 people out of paying any income tax at all. There has not been a word about this from the Opposition, yet it must be an enormous benefit to those three quarters of a million people.
Then there is the inheritance tax. My constituency is not a wealthy one and for the inheritance tax threshold to be raised from £90,000 to £110,000 is a real bonanza for a working-class person whose mother or father may have died. That is a first-class move.
The Chancellor also dealt with one of the greatest anomalies in the tax system—the capital gains tax. Once again I quote my constituency. One of my constituents is a corner shop newsagent who lives over the shop. He has not been able to sell his business because he has been afraid that the capital gains tax would not leave him enough to buy a little home. The Chancellor has looked at that and when I get back to my constituency I shall expect to find a nice letter from that newsagent thanking me for what the Chancellor has done. Capital gains provide one way of getting the business community moving. How many people realise that, until the present Budget, it has been almost impossible for anyone to sell property, regardless of the fact that by selling that property he or she could expand the business in other directions?
Another very good thing that the Chancellor has done, as Opposition Members who are worried about the homeless and residential accommodation must agree, is to enlarge the business expansion scheme to allow firms that are letting residential property to borrow from £0.5 million to £5 million to produce homes for rent. I cannot see that there can be any argument against the Chancellor on these scores.
The only thing that I am a little disappointed about is that the Chancellor has increased the tax on petrol and diesel, because that will add to delivery charges and cut down some people's motoring. Apart from that, however, I can see no reason why he should have acted in any other way than he has.
I represent a part of Southampton, which is well known as a seaport. We have gone through some very bad times and have had strikes that even Liverpool could not duplicate. At the end of the day we privatised and Associated British Ports is now in being. The port is flourishing. There is a great deal of building going on and a great deal of interest. These lower rates of tax will obviously encourage more investors, and my area wants investors as much as Liverpool does. This Budget will give the people in the business world confidence. It is not only a good Budget but the threshold of many more years of Conservative rule. It will give people in all regions, not just Southampton, confidence to invest and will mean a tremendous amount of business activity over the next year or two.
§ Mr. Robert N. Wareing (Liverpool, West Derby)
I was interested in what the hon. Gentleman said about Liverpool, because my constituents live in the city of 1288 Liverpool. Can he tell us what the strike record has been in the Liverpool docks during the last five years compared with the situation in the Southampton docks?
§ Mr. Hill
I was talking about the period in the early 1980s, when everyone who knew the shipping world realised that there were not only strikes in Liverpool, Southampton and London but a general feeling that there was unrest in the ports and docks of our country. I am not saying that we are any better or any worse than Liverpool; I am merely pointing out that we went through a very bad spell. Casting one's mind back to the early 1980s, what investor would have invested in the port of Southampton? Even the shipping companies were avoiding us. So there has been a complete change of atmosphere. Confidence has returned, and this Budget will increase that confidence.
My right hon. Friend the Chancellor has done a magnificent job and I hope that he will give us many more Budgets like this one. When we talk about taxation, we mean everyone's taxation, and the fact that some people, by paying less tax, will be able to employ more staff. [Interruption.] The hon. Member for Islington, South and Finsbury (Mr. Smith) disagrees. What does he think running a company is all about? If a company pays low tax it can expand and if an investor pays low tax he can help the company expand. This is a Budget that is going to get us off the ground almost rocket-propelled to a more prosperous future.
§ Mr. John Battle (Leeds. West)
Government Members have suggested that tonight is "industry night", and I should like to suggest that the debate tonight should he about investment. [HoN. MEMBERS: "Hear, hear."] Hon. Gentlemen say, "Hear, hear," but we have not heard in this Budget proposals for investment in either the private or the public sector, which we would insist on and want to see.
I want first to draw the attention of the House to the analysis in The Times today headedCuts give most benefit to the top 3.7%".That makes it absolutely clear that the Budget is for the richest. The Minister may well want to rebut those figures in detail and deny that the Budget benefits have gone to such a tiny group in our society, because for 3.7 per cent. to receive most of the benefits is targeting with a vengeance.
§ The Financial Secretary to the Treasury (Mr. Norman Lamont)
Is the hon. Gentleman aware that 70 per cent. of the cost of the Budget in the first year will go on the basic rate of tax, and to increase personal allowances? How does he square that with what he has just said?
§ Mr. Battle
I will be coming to that. I am happy to answer the Minister. Most of the .commentators on the Budget have made it clear that this is an inegalitarian Budget for the rich. Yesterday, the Chancellor said, in an apparently throwaway line, that most of those who were complaining were rich men themselves, who could always send the money back. Remarks like that provoke real anger in my constituency, where I estimate that more than 30 per cent. of those I represent will not benefit at all from the Budget. They are still unemployed and they have to survive on benefits or are on low pay and still caught in the poverty trap. The Minister ought to take that into account in analysing the figures.
1289 Even in television interviews, some Conservative Members seem to be saying that everyone will gain. Do they not realise that about 30 per cent. of people in our society earn too little to pay tax in the first place? Are they really unaware that 13 million live in families that are below the threshold for untaxed benefits? In other words, they will get not tax cuts at all.
For 2 million people living on low incomes, the benefit cuts due on 11 April will cancel out any tax cuts. I hope that Conservative Members will condemn that. There must be real contempt on the Government Benches for Tory Members to condemn those who cannot pay tax and have no share in this new-found national wealth, which the Government have chosen to distribute to so few in our society.
The Times leader on Monday 14 March announced:The Chancellor … has the best opportunity for many years to make Britain's tax system both fairer and more efficient.The Treasury's press release says—we have heard this repeated often—that the Budget is a radical, reforming Budget. There has certainly been a clear shift of resources from the poor to the rich, but there has not been an attempt radically to restructure the relationship between taxation, national insurance contributions and benefits. Whereas, as a result of tax cuts, some people may not have to think twice before they buy a new microwave oven, others in our society will have to struggle to get the assistance even to buy a second-hand cooker. That is the reality when we compare the Budget with the budget for the poor that will come on 11 April.
Here I am responding to the hon. Member for Southampton, Test (Mr. Hill), who asked why the Labour party was not applauding the tax cuts. In practice, although the reduction in the basic rate, coupled with a reduction in tax allowances, will float some families out of poverty, the interaction between family credit and housing benefit, which will be based on net income after 11 April, will mean that the income tax cuts for the poorest families will have little effect on the poverty trap or on their poverty. I pointed that out in the Consolidated Fund debate last Thursday, very late at night.
When the Budget for the rich is compared to the budget that will take from the poor on 11 April, it will be as plain as day that there has been a massive redistribution of wealth from the poorest to the rich. Many of the poorest in our society will lose out altogether from the benefits changes, and they will feel cheated by the priorities of a Government who have set their course on targeting their resources directly on those who are least in need of them. People in such a position will feel rightly insulted at the Chancellor's remark that they might like to give the money back.
Last Monday night, I heard the hon. Member for Northampton, North (Mr. Marlow) highlight the connection between the freezing of child benefits and the expected tax cuts. He said:by combining these two measures, we are taking money from those with children and giving it to those without. That cannot make sense."—[Official Report, 14 March 1988; Vol. 129, c. 928.]I have to say, for once, that I absolutely agree with the hon. Gentleman, and perhaps the hon. Member for Test will agree with his hon. Friend as well.
If the Minister's concern to improve incentives is genuine, it obviously does not reach out to many of the poorest in our society. Many of them face a marginal 1290 adjustment of their tax rate. They will have to pay more taxes, as their rate of payment will be twice as high as that of the highest paid. The line in the poem by Samuel Johnson, "The Vanity of Human Wishes"—Slow rises worth by poverty depress'd"—has never rung truer. The poor will have no chance, as they have been effectively priced out of the benefits of our society—as the Government heralds them. There has not been a radical change, or a reform in the tax system. There has been a crude operation of the ratchet mechanism, which gives proportionately the most to those with the most. That is why a nurse earning £6,250 a year will get £1.82 a week, whereas someone earning £65,000 a year will get £129 a week. The Chancellor has adjusted the ratchet by a few notches to direct even more income to the richest.
What is notable about any ratchet mechanism is that it is set for the purpose of preventing reversible action: it is one-directional. In this case, the direction is from the poor to the rich. When the common treasury of our society is geared to funding the better-off at the expense of the poor, surely the ratchet mechanism should be changed and the tax, benefits and National Insurance system should be changed radically to ensure that the poor, albeit a minority of only 30 per cent. of our society, are not priced out of our society.
Surely tackling that would have warranted a radical and reforming Budget. What happened on Tuesday was in effect a tampering with the tax system to gear it further towards the richest. The Government seem to fall back regularly now on the dictum of Bentham, that the greatest happiness of the greatest number is the foundation of our morals and legislation. That statement has a superficially democratic ring to it, but the problem is that such a dictum completely excludes minorities.
Is the purpose of the Budget to price out the poor, not only excluding them from the benefits of the Budget but putting them out to live at the margins of our society in dehumanising poverty? They are not offered incentives but condemned to continuing hopelessness. How many people in Britain will be unable to get a break before the Government are prepared to write them off politically?
In terms of the future, I shall refer briefly to the Budget proposals for housing, and the changes in capital gains and inheritance tax. The housing proposals make it apparent that not only is this not an investing Budget; it is a "cashing in on the assets" Budget. It withdraws mortgage tax interest relief on home improvement loans. That clearly is a case of throwing out the baby with the bath water.
If the abuse of that system was that people were buying second-hand cars with the loans, why not tie such loans to specific home improvements? If the Chancellor wished to prevent luxury improvements, the relief could have been retained for basic improvements and essential repairs, such as the installation of damp-proof courses, inside bathrooms and toilets. Could we not have had the relief limited to the lower tax bands, on the ground that those in the higher tax bands already had a tax windfall? That would have been targeting on those in real need.
It is interesting to note that the National Council for Home Improvements is amazed at the proposals for housing contained in the Budget. How will it ensure that basic improvement of the housing stock in Britain, which some could claim to be our country's greatest asset— 1291 people's homes? Yet £29 billion has been estimated to be needed to improve and enhance the housing stock in the private sector alone.
How can this Budget tackle that? How can this Budget be an investment Budget, in that context? What has the Budget to do with investing in housing as our key national asset? At a stroke, the Government-backed building society scheme which would enable key workers, such as nurses, to get together to buy a home is crossed out by the pen of the Budget. Do the Government propose to step back from that policy now?
The hon. Member for Southampton, Test (Mr. Hill) referred to the business expansion scheme proposal. It is all of a piece with the Housing Bill which has been heralded as a means of extending the private rented sector. The proposals in the business expansion scheme for housing are the clearest signal yet of the Government's intention to give a direct subsidy to individual landlords. Yet what an outcry there is about public subsidies to local authorities. Why is a subsidy to an individual landlord right, and a subsidy to a public body wrong? The effect of the business expansion scheme proposal will be to give a tax advantage to the landlord. It will encourage the individual Rachman rather than the institutions, the building societies and the pension funds that the Minister himself said would become—it is his term—the new "social landlords" of Britain. Those very people will now be priced out.
§ Mr. Ian Taylor (Esher)
Does the hon. Member not realise that this piece of legislation is tied to assured tenancies, which will give him the comfort that he seems to lack?
Mr. Battle: I am sure that the hon. Gentleman will be interested in the debate—I invite him to participate in it—on Report and Third Reading of the Housing Bill, which has just gone through Committee, a debate in which we will make it plain that the assurances in the Bill are no assurances at all. If these proposals for housing go through, how on earth can the Government claim, as they did in their manifesto proposals, that they will make Britain the best housed nation in Europe? That claim now rings hollow, because the Government have totally withdrawn from investment in housing.
The selfish generation who presently rule us seem intent not only on personally pocketing the nation's oil benefits but even pocketing the income from taxes levied on the worst off. The Budget is socially divisive, economically unsound and morally unjust. The people of this country are already almost universally condemning it.
§ 8.1 pm
§ Mr. Ray Whitney (Wycombe)
The hon. Member for Leeds, West (Mr. Battle) complained about a lack of investment. He seems unaware that investment is scheduled next year to increase by 9 per cent. He seems not to understand that investment is made not only by Government but by companies and individuals. He complains about the social security budget. He seems unaware that in the lifetime of this Government social security spending has increased by something like 35 per cent. That has been made possible by the strength of the economy.
§ Mr. Whitney
Yes, I know what the hon. Member is going to say—I will give way to the hon. Gentleman.
§ Mr. Battle
I am grateful to the hon. Gentleman. Will he tell me whether the increase is due to the fact that those on benefit are now better off or to the fact that more people need benefits?
§ Mr. Whitney
Both are correct. Benefits are higher in real terms and there are more people. That is to say, there are now nearly one million more elderly pensioners, and that is where more than half the social security budget goes.
§ Mr. Whitney
No, I will not give way. There are too many people wanting to speak.
That is where £46 billion in the social security budget goes, and we are able to make those payments because of the strength of the economy.
The hon. Gentleman also complained about Health Service spending and, if I have your permission, Madam. Deputy Speaker, I will return to that in a moment.
I would like to join in the congratulations of nearly all my hon. Friends to my right hon. Friend the Chancellor and his colleagues in the Treasury on what they have achieved, both in the Budget and in the stewardship which they have carried out on the nation's behalf, which has created the wealth of this economy, and, in turn, enabled the Budget measures to be put into place.
I have some concern about the inflationary tendencies which still exist in our society, and I believe that we must exercise careful monetary control in the months ahead against that danger, so that we can ensure that the steady growth of the economy, now into its eighth year, will be sustained. Of course, I stop a very long way short of the concerns expressed by my right hon. Friends the Member for Shropshire, North (Mr. Biffen) and the Member for Chesham and Amersham, (Sir I. Gilmour). I believe that my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) did the House and the nation an excellent service by pointing out the significant differences, the beneficial differences, between the situation now and the situation in, for example, 1972–73. We could very well not be in the dangerous situation that my right hon. Friends fear—the positive signs greatly outweigh the others—but we must have regard for the inflationary pressures that are still present.
Much has been said by Opposition Members today and earlier in the debate about the National Health Service. I would like to offer a few thoughts on that very important issue. What we have had of course, is no thinking, or no new thinking, on this subject from either the Labour party or our absent friends from the Liberal-and-whatever-their-other-names-are-now Benches. We have had a string of figures plucked out of the air. I know that some hon. Members on the Opposition Benches have displayed some sensitivity because their figures increase as it becomes clear that the money available for the Government is increasing. Not many weeks ago the official figure of the official Opposition for our extra requirements in the National Health Service was £200 million. The figure then went up to £500 million. Then we reached £1 billion and £1.5 billion. Today's figure seems to be £2 billion.
This is, of course, typical of the Labour attitude. Labour Members have no thoughts at all to offer on any 1293 area of our national life, least of all here. They have no new ideas and are wedded to the old ideas which have failed the British people. The Government are absolutely right to reject the Opposition's charges and their demands, not least because of the Government's own record of provision for the National Health Service. My right hon. Friends, however, are also right to make a review of the whole question of health care provision in this country. Such a review must be careful and thorough, but must not be delayed.
§ Mr. Heffer
The hon. Gentleman says that we have no new ideas. Is he suggesting that the Conservative party, based on the views of Adam Smith, Samuel Smiles and Professor Hayek, is putting forward bright, modern ideas?
§ Mr. Whitney
If the hon. Gentleman will bear with me, I will offer him some new ideas about the National Health Service. The tragedy of the hon. Gentleman, who is almost invariably the authentic voice of the Labour party—and we heard him in typical flow tonight—is that he speaks as the uncomprehending, out-of-date voice when all the Labour and socialist parties in the rest of the world have learned the lesson. The Labour parties of Australia and New Zealand and the socialist parties of France and West Germany understand that if one wishes to look after the poor and needy one can do so only if one has the resources, and that the way to produce resources is the way we have chosen to use, a way that is being copied by Labour and socialist parties in other parts of the world.
§ Mr. Whitney
I will give way for the last time, if the hon. Lady wishes—no, she does not.
The Labour and socialist parties in these countries have new ideas—I see that the hon. Lady is rising again.
§ Mrs. Fyfe
I thank the hon. Gentleman. So many hon. Members on the Government Benches have produced these figures on taxation from other countries described as socialist that I can only imagine that they have all been reading the one brief and very little else.
Is this by any chance the Tory party's application to join the Socialist International, since they feel that their policies are to some extent in line with those of other, socialist Governments?
§ Mr. Whitney
The hon. Lady showed diffidence in getting to her feet and I now understand why.
I return to the essential point of introducing new thinking into the National Health Service. If the hon. Member for Liverpool, Walton (Mr. Heifer) has any new ideas, they would be most welcome, although I think its very unlikely that he has. It is essential that we look in a serious and open-minded way at our own historical experience of the provision of health care and that of other countries. When we look at the latter, there is no doubt that we shall find that a significant number of countries now provide a substantially higher standard of health care than our National Health Service does.
The simplistic answer to that—the Pavlovian response that we are likely to receive from Opposition Members: the simplistic reaction of those who still have not woken up to the fact that the National Health Service, sadly, is not and never has been the envy of the world—is "Let us have another £1 billion, another £2 billion, another £3 billion."
1294 Such an attitude reveals a total failure to understand the nature of the problem, which is that we were led down a cul-de-sac by Aneurin Bevan in 1946. He went against the thinking that had been put into health care by parties of all complexions and experts of all types: thinking enshrined in the 1944 White Paper on health introduced to the House by the then Conservative Health Minister, Henry Willink, on behalf of the wartime coalition. The aspirations of that White Paper were the same as all our aspirations. It called for a comprehensive Health Service, free at the point of delivery. But there is no doubt that there are alternative methods of achieving that laudable objective—not just the method that Aneurin Bevan foisted on the House and the country.
§ Mr. Whitney
No, I am sorry. I shall not give way.
Aneurin Bevan could, for instance, have built on the insurance-based system that had been in place since 1911. Our absent friends from the Liberal Benches referred last night to Lloyd George. The Lloyd George National Insurance Act 1911 gave the country—for a time—a structure that was progressive and highly beneficial. By 1945 or 1946, it would have provided the opportunity of advancing to an insurance-based system. Sadly, however, we did not go down that route, which was adopted by most countries that now provide their people with a higher level of health care. Bevan did not accept the views of the Labour party at the time, which may come as a surprise to some Opposition Members. The Labour party conference at the end of 1944, just before the general election, endorsed the Henry Willink White Paper objectives, and said that there should be regional or locally funded hospitals. That, too, was thrown out of the window by Bevan.
The third resistance that Bevan overcame was that of Herbert Morrison, who warned against the Bevan plan. He said that it was overly centralised and overly bureaucratic, and who is to say that he was wrong? For 40 years, the health issue has been in the political bear garden that it has so notoriously occupied for the past few months. For 40 years, we have tried to meet the resource implications, and we have failed.
Only a few months after Bevan launched his scheme—after he had, as he said, stuffed the doctors' mouths with gold—he was complaining to the late Hugh Gaitskell about what he described as cascades of medicine pouring down British throats. It took him by surprise, and year by year it has taken every Health Minister by surprise. Over the past 40 years, averaged out against inflation, spending on the Health Service has risen by 3.7 per cent. a year. Of course, it has risen much more in years when the Conservatives have been in charge of the economy than when Labour has been in charge of it. But I do not want to make this a party issue; it is a national issue, which we should now approach coolly and with knowledge that has been ignored.
We have had 40 years of struggling with the structure. We have had 40 years of committees, Royal Commissions, inquiries and reorganisations, and it is still a mess. Every Minister who has been in the DHSS knows that it is a mess. Every Minister who has stood at that Dispatch Box seeking to answer for something that has been done, or riot been done, in some district general hospital knows that the 1295 structure is ludicrous. We have created the ultimate in the sense of responsibility without power, and for 40 years we have tried to change that.
The Government must understand that, after 40 years of attempted change and 40 years of increased funding, the system cannot be reformed; it must be changed. I hope that they will regard this as a new opportunity. They must recognise how different we are as a society from the society in which the Health Service was born; the society of 1946, when Britain was weak and worn out, not only from the war but from the inter-war years; a society accustomed to rationing and queues.
We see that reflected now, as we always have, in the waiting lists of the Health Service. There have always been between half a million and three quarters of a million people on our waiting lists. That is virtually unknown in many advanced industrialised countries, countries with which we rightly like to compare ourselves. Those countries have different systems, and we must learn from them.
I would offer my own solution, Madam Deputy Speaker, but I think that you would rule me out of order, as this is not a debate on the Health Service. Nevertheless, although we must fund properly the present structure and the nurses' pay review, I beg the Government to understand that there is no thinking on the Opposition Benches, and very little—sadly—among Health Service professionals. The Government must provide that thinking, and I assure them that it is available.
I hope that in the near future the Government will produce a new Health Service, truly worthy of a modern Britain: a Britain that is economically sound, where the people can look after themselves and where we are now rich enough to ensure that those who need proper care can receive it.
§ Mr. Gerald Bermingham (St. Helens, South)
I listened with amazement to the speech of the hon. Member for Wycombe (Mr. Whitney), who, I know, served as a Minister for Health. He had no faith in the system, and that may well explain some of the problems of the system today. It may be why the medical practitioners' committee in my constituency, which is not overtly political, writes to tell me that orthopaedic consultancy appointments involve a wait of about 152 weeks. How am I to go home to St. Helens and explain that it will still be 152 weeks next week, next month and perhaps even next year?
We are not a poor nation; we are a rich nation, as has been shown time and again. We have the skills—inventive, manufacturing and economic skills—to make the products and provide the services that the world wants. We have the skills and the manpower, but we waste them. Our priorities are wrong.
When I examined the Budget, I asked myself, "What am I to say to the guy in Corporation street, St. Helens, on Saturday morning? How am I to explain the Budget? That man will want to know what it means for him." The average person in St. Helens does not earn much more than the average wage, and probably earns a bit less. What does it mean in terms of investment and what will it do for the town that I represent? The more that I considered that question, the more difficult I found it to answer.
1296 In St. Helens we do not have vast numbers of people earning £30,000, £40,000 or £50,000 a year, so not many people will be affected by the top rate tax cuts. Many people earn £120 to £130 a week. I looked at their tax cuts, but they did not seem very high. Then I looked at what would happen to the not-so-well employed in my constituency, those on low wages or on benefits. I looked at the workers in the glass industry who have been made redundant because of modern technology. Over the last five years the coal mining industry in the area has shrunk from a work force of about 4,000 to 400 or 500. I looked at those who had been employed in the chemical industries that have moved away or closed down and the industries that have modernised and shed labour. Many small engineering companies, which fed off the large companies, have gone out of production. Their ex-employees are now in their 40s and 50s and are on benefit.
What will the Budget mean to all those people? Much of what I have heard in the debate about what will happen on 11 April I need not repeat. We know that the benefit system will change and that for many people benefits will decrease. The Budget means little to those people because they are unemployed. As regards people on low pay, one newspaper quoted a saving of £90 a year in tax. I am not the world's best economist but I can do my arithmetic, and I know that if 5p is put on a gallon of petrol it will affect the people of St. Helens because we are landlocked and, as we do not make most of our consumer durables, they come in by road. That increase in the price of petrol will push up costs.
I looked at how interest rates stood until today. I welcome the cut of half a per cent., but they need to go down much more. All those who understand anything about these matters would agree on that. Interest rates are still high.
I examined other factors in the Budget. The Government have put 1p on a pint of beer and increased the price of cigarettes. Those are things that matter to ordinary working people. Effectively, the Government have put up the cost of living. That is a simple and straightforward fact. They have written off any benefit for those who are employed in St. Helens. As income tax has been reduced, it follows that mortgage repayments will go up slightly—depending on one's tax position. There is a balancing effect. But for many people in employment in St. Helens, there is no real benefit in this Budget.
I looked at the Budget again from a completely different aspect—from the point of view of what is in it not for the citizens of St. Helens but for the economy. How will it affect the production of motor cars? We do not make them in St. Helens but we make the glass that goes into English motor cars. I asked myself how the Budget would affect the motor industry and found the answer was simple: it will hurt it. People asked me why I thought that, and I said that we have only to use our common sense. It is because the great perk of the motor industry, the car allowance, has been affected. Many people in the middle order band of industry and management will no longer want a company car because it will cost an extra £700, or whatever the figure is, per year. It will be more economical not to have a company car and to rely on the wife's car or the small family car.
There is something quite fascinating about motor cars. When people buy a car for themselves they tend to buy the 1297 cheapest foreign little model that they can find, but when fleets of cars are bought by companies they are English motor cars.
§ Mr. Bermingham
The hon. Member says no, but he ought to do his research before he hops on the bandwagon. They buy Vauxhall, Ford—
§ Mr. Bermingham
I know where I am, Madam Deputy Speaker, so I shall not say what the hon. Member is, but I will treat his remark with contempt. It is the sort of stupid remark that has led to the economy and our manufacturing industry being in the state that they are in.
§ Mr. Bermingham
My hon. Friend is right. That is an example of how the Government have not thought through what they are doing, and it is by such means that one can see the Budget for what it is. It will not induce people to invest in industry. I am no great lover of capital gains tax or of anything that goes with it, but even that aspect of the Budget is a disincentive to the small saver, the person who might have money out of this Budget—with which I fundamentally disagree—that he might want to invest. That is a disincentive because the Government have not thought it through.
At the end of the day one asks: who will gain from the Budget? The answer: a tiny minority. The Government have made no secret of their sectional interest or their belief in a divided nation. They make no secret of the fact that they believe that those who have shall have more, and if someone can crawl over the guy ahead of him to get more, so be it, and the Government will support him. They make no secret of the concept of greed as their dominating feature. The Budget is a reflection of that. It says to the guys who have a lot, "Here you are; have a lot more." To the guy who has nothing, the Government say, "We are not really interested in you, and you will not get very much." The British people are a strange race. They will take it and take it, and then one day they will decide that they have had enough. This Budget displays blatant divisionism—that is about the best word that I can find. It divides the rich from the poor. The majority of our people—the poor, those on social welfare benefits or on low incomes—are ignored and will get nothing from the Budget. The nation has seen demonstrated in the Budget the triumph of greed over need, and the Government will pay for that.
§ Mr. Jeremy Hanley (Richmond and Barnes)
I shall be as brief as possible, although hon. Members might imagine that, as a chartered accountant, I find that there is a great deal in the Budget that I should like to speak about. I have a sneaking suspicion that the abolition at a stroke of the attraction of many tax havens in the world will mean that there might be a slight reduction in the income of many chartered accountants who give tax advice. I welcome that! Sir Humphrey Appleby, that well-known Secretary to the Cabinet, said that the three most unreliable things in public life were political memoirs, official denials and manifesto promises. After this Budget the list should be 1298 reduced, at least for the Conservative party, because our manifesto commitment was to reduce income tax to 25 per cent. and my right hon. Friend the Chancellor has done that on this historic occasion. He said that it was a historic occasion and it certainly has been. It will be seen as a new dawn, not only this year by people in Britain, but by people throughout the world. It will be seen as a major watershed for investment in Britain. In one fell swoop, money, effort and talent will return to this country and those are the things that would have been exported because of our previous tax rates. No greater contribution could be made to Britain than a Budget that will retain our doctors, scientists, engineers, teachers, qualified people and, indeed, nurses.
The change will be so deep-set that these tax cuts will be difficult for any other party in government to reverse. The tax changes are the successful culmination of nine years of prudent management of the economy and the background to them is clear. Only this week The Independent said that manufacturing output supports optimism. The article in The independent says, contrary lo the argument of the hon. Member for St. Helens, South (Mr. Bermingham):Mr. Lawson's Budget forecast of continuing firm economic growth was supported earlier yesterday by figures showing that manufacturing output, led by the motor industry, is increasing at its fastest for 15 years.The article says that manufacturing output, even excluding North sea oil, is higher than it has been for many years. The Guardian, not usually quick to praise the Government, says:The last economic indicators before the Budget confirm a picture of strong economic growth".The article in The Guardian concludes:The sectors which have grown most rapidly comparing the latest three months … are metals … plastics, toys, jewellery and other manufacturing (up 11.5 per cent.)".In other words, it is an extremely healthy economy that the Chancellor has to play with, and he has earned that play.
In this Budget we have given something to those who have provided the increased wealth needed to produce the increased expenditure from which all our people have benefited. Even socialist Australia and New Zealand have seen the light, but then they have at least had the responsibility for running an economy in the modern world—something that Opposition Members have not done for many, many years, thank goodness.
We should remember that almost every aspect of government is now receiving more in real terms than ever before. In the National Health Service, pensions, the police, even in Scotland, Northern Ireland and Wales, more money is spent by this Government in real terms than has ever been spent before. Only in housing and energy do we spend less and that is because the expenditure is matched by increased private sector expenditure. All that expenditure is paid for by increased growth. Let us consider increased expenditure on the Health Service. When the Government came to power we spent £8 billion on the National Health Service whereas the sum is now nearly £24 billion—an increase of £16 billion. That is nearly five times as much as the total tax cuts in this Budget.
All that the Labour party can say is that the Chancellor did not use the Budget to make an Autumn Statement. Either Opposition Members have short memories or it is gross incompetence. It is the wrong time of year to talk about expenditure. I sometimes wish that it was called not 1299 the Budget but the income debate and that the Autumn Statement was called the expenditure debate. I wish people understood when is the time to talk about which. It is no good blaming the Chancellor for not taking enough wickets or scoring enough runs when he is meant to be playing football.
Our economy is now so strong that we have increased the take through reducing tax rates since 1978–79. The total tax taken in 1978–79 at today's prices was nearly £119 billion. This year it is £156 billion. In other words, we have taken nearly one third more through cutting tax rates. In 1987– 88, we shall spend £46 billion on social security and in 1988–89 it is estimated that we shall spend £48.5 billion. Therefore, at the same time as announcing a cut worth £1 billion to top taxpayers we have announced an increase of £2.5 billion in social security, which will benefit the least well off. I think that that is perfectly fair. That does not represent the reduction that the Opposition claim. But then Opposition Members have always preferred the cynical gesture to the genuine solution.
I have every confidence that, because of the healthy economy and because of the extra boost given, even more will be spent on the National Health Service and all the Government's responsibilities. I believe that as tax rates fall the tax collected increases. One of the simplest examples that one can give is of the supermarket manager who cuts prices not to sell less but to sell more. In the United States, the top rate is between 33 per cent. and 40 per cent. when federal and state taxes are taken into account. For the first time there, the majority of millionaires are self-employed people. Those are the people who create the jobs. They create sub-contracting and enhance the local economy. That is the sort of success that flows from wealth.
If Opposition Members want to soak the rich, I remind them that in 1978–79, the last tax year for which they were responsible, the top 5 per cent. of taxpayers paid 24 per cent. of our total revenue, whereas in 1987–88—before the present tax changes—that top 5 per cent. contributed 29 per cent. of revenues. Even after the tax reductions, the top 5 per cent. will pay 27 per cent. of the revenue. In other words, the top 5 per cent. have increased their contribution to the total taxes taken by 3 per cent. In volume terms, the top 5 per cent. now pay one third more than they did in 1978–79, so the Opposition should not complain.
It is difficult to forecast the actual rise in revenues. In America, it is said that revenues may now be falling, but that is because the American economy is weaker than ours. Ten years ago we were the sick man of Europe. The Labour party had had to have the International Monetary Fund brought in to look after its affairs. Even three years ago, in 1985, the Opposition tabled a censure motion because the exchange rate was $1.04 to the pound. Opposition Members now complain about the strength of the pound. Opposition Members will remember Westland and Land Rover in 1985 and 1986. People were saying that our economy was crippled. We should remember that at that time British companies in America were buying companies the size of Westland every week and companies the size of Land Rover every fortnight. Now, thanks to the strength of our economy, we are buying companies the size of Westland every other day and companies the size of Land Rover every week. If one asks the man in the street, 1300 "Does America own more of Britain than Britain owns of America?", he will say that the Americans own more of British industry. That is not true. British companies now own 25 per cent. more of American companies than American companies own of British companies. Such is the strength of our economy. Alas, next year, following the American general election, our tax rates will probably be lower than those in America. We can then expect a rapid repatriation of those who have fled our shores for America. It will be a strong incentive, too, for Americans to come here.
The Chancellor's achievement is unique in the world. He has cut taxes and produced a balanced Budget. He has got rid of anomalies and of unfairnesses and discrimination between men and women. He has created a simpler system. I must admit that, for this Chancellor, any other Budget must be an anti-climax but I hope that he will see through his pledge to cut the bottom rate to 20 per cent.
The problems that might flow from the Budget could be an overheated economy because of the extra money pumped into the system, a rush of imports, a balance of payments problem or an increase in interest rates. Those are the possible problems listed last night at an excellent Budget briefing run by Ernst and Whinney. In fact, interest rates have fallen today and they look as though they will fall further. Furthermore, only £4 billion has been injected into the economy and I do not think that that is inflationary against the total of £160 billion of tax; 2.5 per cent. is not enough to create the rush of imports that some fear. This is not a spending Budget so much as a Budget that will encourage saving and investment. Being a prudent and modest Budget, it should encourage prudence and modesty among those who have benefited from it. I do not believe that consumer spending will go through the roof. I regret that there is no tax on credit card spending, because that would reduce debt. I would also prefer it if the Chancellor did not use the blunt instrument of interest rates to manage the economy, although, as we have seen, they have fallen.
There are four ways in which the Chancellor could have done a tiny bit better. This may seem like carping after so much success. I think that the top limit on mortgages should have been raised. I represent Richmond and Barnes where house prices are astronomical—unfairly so to many young people. Most young people in dormitory areas of London need to share houses to get a foot on the property ladder. In areas such as the south-east, the increase from £30,000 would not be before time; it should increase to £60,000 or even £100,000, particularly for shared accommodation. I fear accommodation poses problems for nurses. Such a provision would also help with the right to buy. I would have pegged the mortgage rate at the standard rate, but because of the reduced top rates perhaps that is not necessary. Before the Budget, I stated openly that I hoped that the national insurance top limit would increase. I believe that there was justice in the case for that increase. I now understand why the Chancellor did not make such an increase. The generous reductions in all rates of tax have rendered it not only unnecessary but undesirable. Had it been increased beyond the 9 per cent. limit, middle and lower managers would be paying more rather than less tax in total as a result of the Budget, which would have been unjust.
I am sorry that there are no research and development incentives. I had hoped for more in that respect, but other incentives to industry are greatly improved.
1301 Does the Budget answer the needs of the nation? It certainly answers the needs of the taxpayer. Let us never forget that we are not putting money into people's pockets—we are taking less out. That is an important distinction. The Budget also helps non-taxpayers by creating an even healthier economy. As a result of the Budget, a further 750,000 people will not pay tax at all. The Opposition's envy—a deadly sin—is sickeningly destructive and exploiting it shows up the negativity for which the Labour party is famous, dragging down rather than pulling up helpless people and ignoring the facts and the history of this Government. In terms of meeting the needs of the nation, the Budget deserves a resounding welcome. As for our position in the world, the Budget puts us in the forefront with an exciting economy which should bring people here to trade from all over the world, to the benefit of all our people.
§ Mr. Andrew Welsh (Angus, East)
The hon. Member for Richmond and Barnes (Mr. Hanley) produced various theories and some statistics, but I wish that I could impart to him even a glimmer of knowledge of what life is really like for large sections of the population. He clearly fails to understand the reality of trying to scrape together some quality of life in parts of the north of England, Wales and Scotland. I shall be brief and stick strictly to the points that I wish to make so as to allow other hon. Members to take part in the debate.
From the Scottish point of view, the Budget is a great disappointment. It is a Budget for the south-east of England—designed, conceived and executed from the viewpoint of the Government's stronghold. As such, it is a disappointment and a wasted opportunity for Scotland. There is nothing in the proposals to hold out much hope for the regeneration of Scottish industry and commerce and nothing to tackle the fundamental social problems of Scotland, such as housing and unemployment, or to wage war on the poverty that afflicts our nation. On the contrary, the Budget gives massive tax handouts to the rich while totally ignoring the imposition of the poll tax on the poor and the needs of the National Health Service. It is a Budget for London—
§ Mr. Welsh
It is a Budget for parts of London—for the money market and the rich sectors of the south-east of England economy. Scotland and other areas need a Budget to tackle poverty and promote social justice and an all-out drive to create new jobs and industrial regeneration. We need investment in health, housing and education, but the Budget fails to deliver it.
There is an air of unreality about this Budget. The London Evening Standard carries stories of individuals who are gaining more than £5,000 per day as a result of the Budget while one in three of the Scottish population lives on or below the poverty line. How can the Minister talk of a one-country economy when tax handouts of that magnitude are made to the rich while many people—if they are employed at all—probably will not earn that amount of money in a whole year? The Budget increases inequality and ignores the economic reality facing large sections of the population.
The so-called Thatcher economic miracle does not apply to oil-rich Scotland. Throughout 1987 and into 1988 1302 we have been told how well our economy is doing. Yet seasonally adjusted unemployment in Scotland has fallen by only 1.6 per cent.—from 349,300, or 14.1 per cent., in January 1987 to 306,200, or 12.5 per cent., in January this year, whereas the United Kingdom rate fell from 11.2 per cent. to 9.2 per cent. The unemployment rate in Scotland is still 35 per cent. higher than the British average. Is that what the Government regard as doing well?
The index of industrial production in Scotland—the best available measure of output—in the second quarter of 1987 was only 0.1 per cent. higher than the average for 1980, seven years earlier, while in the United Kingdom as a whole it had risen by 11.6 per cent. The Prime Minister's economic miracle does not bear close inspection. For Scotland it represents nine years of wasted opportunity and more than £30 billion in oil revenue poured down the drain in support of unemployment levels unknown since the 1930s. Community programmes, youth training schemes, part-time work and a host of definitional niceties have been used to underestimate the unemployment figures and to hide the fact that almost a quarter of those fit and able to work in Scotland are without full-time employment. According to the latest figures from the Scottish Council (Development and Industry), Scottish manufactured export trade showed an unprecedented decline in 1986, completely out of line with the United Kingdom trend. The Government are now heaping on extra petrol taxes which will directly harm the rural areas and other parts of the Scottish economy.
I have outlined briefly some of the problems that a true Scottish Budget would tackle in the knowledge that the SNP can offer alternative proposals which have been mapped out and costed in detail and which I commend to the Chancellor. To meet Scottish needs, our proposals would include a massive programme of public works and industrial investment to create 290,000 new jobs in five years. We would propose expenditure of £200 million on house modernisation and insulation, an increase in basic pensions to £60 per week for a single person and £90 per week for a married couple, bringing us into line with European standards and well above the pittance currently offered in the United Kingdom. We would propose a cold climate allowance of £7 per week throughout the winter and a 10 per cent. increase in social security benefits rather than the cuts offered by the Government. We would inject £350 million extra resources into the National Health Service in Scotland. We would propose controls on takeovers of Scottish companies. We would set up a Scottish oil fund for industrial research and investment, a Scottish export unit to boost sales of goods and services, and extended powers and budgets for the Scottish Development Agency and the Highlands and Islands Development Board.
Those are just a few of the measures necessary for Scotland and they could easily be afforded within a Scottish Budget. Our economists calculate that a Scottish Treasury would have a pre-Budget surplus for 1988–89 of £2.2 billion. The total gross cost of our Budget package would be £2.7 billion. As the net cost would be substantially lower due to increased tax receipts and fewer benefit payments as a result of reduced unemployment, the Scottish Treasury would be left with a modest surplus. We look in vain for such positive proposals for Scotland in the Chancellor's Budget, which fails to provide any such policies and completely fails the Scottish people.
§ Mr. David Shaw (Dover)
I welcome the Budget because throughout the 1970s—the start of my working career—I witnessed an economy which went from stop-start to start-stop. The 1970s began with economic growth, but ended in decline. Towards the end of the 1970s, world opinion of us was at an all-time low. Far worse than that, however, was the attitude of the Labour Government towards the Health Service in 1976. The National Health Service suffered badly under Labour, but last November my right hon. Friend the Chancellor announced that £1.1 billion more would be put into it next year.
Many things are wrong with the National Health Service. There are no satisfactory performance indicators by which to monitor its efficiency. Numbers of administration staff are still rising; on figures that I have seen, it appears that there are more administrators in the National Health Service than in the health service of the United States. I welcome the Government's review, therefore. The Government's approach has to do with value for money, not blank cheques.
My right hon. Friend the Chancellor gave us all good news about the economy in his Budget speech. He said, among other things, that manufacturing exports were up by 8.5 per cent. and that unit labour costs hardly rose last year, which shows that there is more efficiency and success in the economy.
§ Mr. Shaw
I shall not give way. There are others wishing to speak.
The figures that were announced today should no longer be known as the unemployment figures but as the employment and job vacancy figures. In February alone, 86,000 more jobs were created. There are now 260,000 registered vacancies, which—it is well known—are only a third of total vacancies.
I was delighted with my right hon. Friend's other announcements of success. He said that we had had six years of sustained economic growth, achieved through tax cuts. We have had six years of sustained increases in public expenditure and of real increases in National Health Service funding. That could only come about through managing the economy successfully. However, I suggest to the Minister that the Government have had one economic failure—they have not yet convinced the Opposition that there is no such thing as a free lunch.
§ Mr. Shaw
The Budget was about increasing personal responsibility and putting people's incomes under their own control. It was also about home and share ownership. I am delighted that there are now 9 million shareholders in the country, a number which the Government proposals should increase. The benefits of privatisation are not only to widen ownership but to increase the profits being earned by the privatised companies to levels higher than they earned in the public sector. As a result of those profits, more taxes are paid to the Exchequer than when the companies were in the public sector. The privatised companies are also better at providing consumer services than they ever were in the public sector.
Budgets are about income and how much the Government take away in taxation. I welcome the proposals on the taxation treatment of wives. For more 1304 than 200 years that treatment has been unfair. For much of that time the tax on marriage has been excessive. When I got married, I was charged more by the Inland Revenue on my marriage than my wife's wedding ring cost.
There are lower taxes for everyone in the Budget. Some will ask, "Why not more lower taxes?" About 750,000 people have been removed from tax altogether and some us might ask, "Why not a million?" The staff nurse who has had a 2.5 per cent. net pay increase as a result of tax deductions is a case in point. Some will ask why she should not be given a 3 per cent. reduction. I want more tax reductions.
As for the famous business man that almost every Labour spokesman has mentioned, one must ask why the Opposition hate success. Why do Opposition Members hate the people who create jobs and who earn money overseas and bring it back to this country? Why do they hate successful business men who manage companies here and abroad and who bring profits and dividends to this country? The Opposition hate, and will always speak against, success. We should not lose sight of the massive contribution that the higher rate taxpayers have made to the country under the Government. When in government, the Labour party tried to squeeze them until the pips squeaked, but they raised only £800 million from the higher rate taxpayers. Under this Government, higher rate taxpayers pay £3,800 million a year which, even after the reduction of £1 billion, will still be about three times as much as Labour managed to get from them by the end of their years in office. I believe that next year the higher rate taxpayers will still be paying as much as this year because, with the tax cuts, they will be earning more, going in for fewer tax avoidance schemes, putting less money into pension plans and more into creating jobs and new businesses.
We are going to remove many of the technical requirements that have been holding some share option schemes back, but they have not exactly held back share ownership in this country: 1,500,000 people are now in such schemes. We now have a true capital-owning democracy. I am pleased to say that some of those 1.5 million people are in my constituency. Many secretaries, typists and shop floor workers there are part of share option schemes and have done well out of them.
I was also delighted by the abolition of yet another tax—capital duty. I have been involved for some time in my business career with helping to raise equity finance for companies and businesses, and capital duty was a considerable expense that hit those companies' receipts right at the start of their new expansion phases. It came in just as the equity finance was being raised, and has proved extremely disadvantageous over the years.
I wish to draw attention to the business expansion scheme, in which I worked for some time raising money for very small businesses. It has been a success, not as a means of helping the rich to avoid taxes as Opposition Members say—according to one report, more than 20 per cent. of the people who invest in the business expansion scheme pay tax at the standard rate—but in helping 2,200 small businesses, many of them having raised less than £100,000.
However, there has been one thing wrong with the business expansion scheme. Indeed, four years ago I brought this to the attention of my right hon. Friend, who was then a Treasury Minister and is now the Secretary of State for Social Services. In a paper which is no doubt 1305 gathering dust in the Treasury, but which perhaps might have been brought out recently, I pointed out that we should cap the business expansion scheme. I am delighted that the Government are now to do so at £500,000 for any one company.
However, I draw the attention of my hon. Friend the Economic Secretary to the Treasury to articles in today's newspapers and to representations that have been made to me that that policy, as announced, could be unfair. There are several prospectuses out at the moment for the purpose of raising money under the business expansion scheme. The case of one small company has been brought to my attention. Although only about £600,000 is being raised to help expand the business and to create more jobs, that company may lose the whole of the money subscribed for shares because it may not he able to close the issue. That company has had to spend between £70,000 and £100,000 in legal and advisory fees, which will be lost if the issue cannot be closed. The problem of costs is caused by the Financial Services Act 1986, which is correct and proper in protecting shareholders but which has made more expensive the legal and professional advice that is required for the issue of prospectuses. I hope that my hon. Friend will be able to consider that, if the date of the issue of a prospectus is after Budget day, then that date could be the closing date for investment under the business expansion scheme being limited to £500,000 or so. I would advise him that some relief is needed on this point.
I realise that time is getting on and conclude by saying that I welcome the Budget and the tax changes that have been made. This Budget is about increasing the number of jobs in our economy and the prosperity of individuals and businesses. I believe that the nation will be a lot better off with the many years of sustained economic growth that lie ahead of us because of this Budget.
§ 9 pm
§ Mr. Robert N. Wareing (Liverpool, West Derby)
The hon. Member for Dover (Mr. Shaw) has just repeated many of the myths that we have heard since the beginning of this afternoon's debate. When I listened to the Chancellor of the Duchy who opened the debate, I was troubled not so much by what he said about the so-called buoyancy of the British economy, but by whether he actually believed it. If he is only saying those things, he is a fool, but if he really believes that the British economy is doing as well as he argues, he is more than a fool—he is a dangerous man and we shall have to take cognisance of that fact.
The tax cuts that have been made in the Budget are not simply the way in which the rich will be fed from the tables of the needy, but the way in which the consumer boom will receive a boost. In the context of the British economy at present, that consumer boom means an increase in this country's trade deficit.
It was interesting to hear the hon. Member for Dover talk about the percentage increase in exports. However, he never mentioned the percentage increase in imports, which is the true guide to whether the economy is moving in the right direction. Therefore, let us look not at what the Labour party says about exports and imports, but at the Treasury's forecast. The Treasury forecasts an increase of 3.5 per cent. in exports next year, but it also forecasts a 7 per cent. rise next year in imports. Again, according to the Treasury, that will lead to a manufacturing trade deficit of £8.5 billion next year.
1306 What would be the deficit in our balance of payments next year if we did not have North sea oil? There has not been a single mention in any of the Tory speeches this afternoon—or indeed yesterday—about North sea oil. When Conservative Members talk about the then Government running to the International Monetary Fund in 1976, they should ask where this Government would be running if they had not inherited the bonanza of North sea oil. Britain is the only oil-rich country in the European Economic Community.
This afternoon the Minister talked about the top rates of income tax and gloried in the fact that, in giving largesse to the richest people in this country, the top rates have been reduced to 40 per cent. He is happy about that and tried to snipe at the Labour party by saying that Labour Governments in New Zealand and Australia have relatively low rates of taxation. However, he has forgotten that in capitalist countries such as Japan the top rate of income tax is 60 per cent. In both Holland and Belgium the top rates are 72 per cent. In Germany the top rate is 56 per cent. —nearly as high as it was in this country before the Government came along with their giveaway Budget to the rich. In France, the figure is 58 per cent. and in Sweden, which has a Labour Government, it is 77 per cent. The Government might say that the figure in the United States is as low as 33 per cent., but they forget that United States federal Government taxation is supplemented by taxes from the state and local authorities. The Minister had the gall to refer to workers paying themselves too much too quickly, yet he is a member of a Government who are giving large sums of unearned income to many rich people, as my hon. Friend the Member for Livingston (Mr. Cook) illustrated earlier.
In his Budget speech, the Chancellor of the Exchequer said:During the 1960s and the 1970s, Britain's growth rate was the lowest of all the major European economies. During the 1980s, our growth rate has been the highest of all the major European economies."—[01ficial Report, 15 March 1988; Vol. 129, c. 995.]The true test of whether a country is building an economy for the future is whether it is modernising its equipment, building factories and providing the most up-to-date equipment in those factories. On 2 March, I asked the Chancellor of the Duchy of Lancaster about Britain's standing in comparison with OECD countries in respect of the proportion of gross domestic product spent on fixed investment. He gave me a comparison between this country and OECD countries. In Australia, Austria, Canada, Denmark, Finland, France, West Germany, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Turkey and the United States—that is 20 out of the 24 OECD countries—fixed capital investment in relation to GDP is greater than in the United Kingdom. The Government have nothing to be proud of there.
That proportion is also reflected in the fact that the United Kingdom spends the lowest percentage of GDP on health of all EEC countries, with the exception of Greece, Spain and Portugal. The Government claim that there has been a 30 per cent. real increase in health spending since 1979, but that takes no account of the fact that pay and price levels have risen faster in the Health Service than in the economy as a whole. It takes no account of the need 1307 for NHS resources to grow in real terms each year to keep track of the rising number of elderly people and advances in medical technology.
Even the former Minister for Health, the right hon. Member for Brentford and Isleworth (Sir B. Hayhoe), has said that NHS funding needs to rise by at least 2 per cent. every year to keep up with prices. That has occurred only once since 1979, in 1981–82. The Government insist on keeping expenditure low in the essential services. The Minister said that Labour Governments would have contributed to local authority expenditure as if there were no tomorrow, suggesting that local authority expenditure was of no importance. Without investment in our infrastructure — roads, schools, the Health Service, the lighting of our streets and the provision of homes — there is no modern civilised economy. Those who think that public expenditure is a waste should look to the private contractors who feed off the contracts of local authorities. Ask them how they have suffered from the cuts in local authority expenditure.
This is a rich man's Budget. It was Benjamin Disraeli who once said that the Conservative party is the party of the rich. He also said, as Conservative Members in their speeches have attempted to confirm tonight, that the Conservative party is an organised hypocrisy.
§ Mr. Ian Taylor (Esher)
I am delighted to catch your eye, Madam Deputy Speaker, and I promise that I shall take no more time than a long wink.
The Budget is to be welcomed. I have sat through many Labour Members' speeches. They seem to forget that for many years the great economic objective of many of us was to see a balanced Budget which at the same time released resources to individuals to spend as they would wish.
This is a balanced Budget which gives us tax reform and simplification, for which many of us have been searching for many years. It removes the worst excesses of tax as a weapon of so-called enforced egalitarianism.
No longer can it be regarded as immoral to have unearned income from capital or savings as opposed to the so-called superiority of earned income. Many people who are dismissed as being rich by Labour Members are ordinary working people who have scrimped and saved to achieve an unearned income, only to find that the Labour party points a finger at them as if they had descended into some deep immorality.
The Labour party's thinking on that issue has stultified since the 1970s. It is the policy of envy to call rich anybody who has worked hard and thriftily.
The Conservative party has given people an opportunity. It is we who have enabled them to buy their council houses and to buy shares so that there are now as many shareholders as there are members of trade unions.
The Budget has kept the level of taxation as a stable percentage of the gross domestic product but made radical shifts in the rates that are payable. It has taken 750,000 people out of tax altogether. That is not something of which we need be at all ashamed.
There are one or two anomalies in the Budget which I should like my right hon. and hon. Friends on the Treasury Bench to consider, including the fact that there now seems to be a bias against incorporation. If one adds up the national insurance paid by employers and 1308 employees, it comes to 19.45 per cent., payable by companies which are owned by their directors. The self-employed pay only a 6.3 per cent. rate. I do not have time to amplify the implications this evening, but I hope that it will be looked into.
In broad terms, the Budget gives us all an opportunity to look forward to a sustainable growth in the economy, the creation of jobs and a thriving Britain.
§ Mr. Chris Smith (Islington, South and Finsbury)
Our debates yesterday and today have revealed the Budget to be fundamentally uncaring, divisive, inegalitarian and based on an utterly misplaced sense of priorities.
My hon. Friends the Members for Oxford, East (Mr. Smith), for Liverpool, Walton (Mr. Heffer), for Leeds, West (Mr. Battle), for St. Helens, South (Mr. Bermingham) and for Liverpool, West Derby (Mr. Wareing) have made a powerful case for the uncaring nature of the Budget that the Chancellor introduced on Tuesday.
Conservative Members have stressed the prudence with which the Chancellor has approached his task. "Prudence" has been a favourite word this week. It was used frequently by the Chancellor. It was used again yesterday by the Chief Secretary and it was used by the Financial Secretary to the Treasury. Doubtless it will be used by the Economic Secretary when he replies to the debate.
How should we rate the Chancellor for prudence? What would a prudent Chancellor, faced with the economic circumstances of this country, have done in a prudent Budget? He would have looked, first, at the worsening balance of payments. The Government predict a deficit of £4 billion on our balance of payments next year. The scale and trend of the deficit ought to be worrying the Government, because the trend is in the wrong direction.
The Chancellor, in considering the deficit, should have decided to make his Budget choices in ways best designed to encourage and stimulate exports, not to suck in imports; yet he has done precisely the opposite. The Budget has been designed to fuel personal consumption of durables, which is the highest import content of economic activity.
The Chancellor should have looked at interest rates. He should have given a much clearer signal than he gave today to the markets, first, about the need for a stable but competitive exchange rate, which at the moment is desperately uncompetitive; and, secondly, about a substantial reduction in interest rates, because we have one of the highest real interest rates, in real terms, in the developed world. The Chancellor today has gone some way towards restoring his credibility and a better policy direction, but it is too late and the reduction is not sufficient. We must have lower interest rates and a more stable and competitive exchange rate to improve the competitive edge for business and trade.
If the Chancellor were being prudent, he would have considered the value of United Kingdom-owned assets abroad. The Government have given the game away at page 22, paragraph 3.29, of the Red Book:The value of the UK's stock of net overseas assets is provisionally estimated to have been about £90 billion at the end of 1987, some £20 billion down on end-1986.The reduction in value is due to the exchange rate with the dollar and to the fall in the equities market last October. The Chancellor ought to have thought carefully 1309 about avoiding actions which would lead inevitably to the accumulation of further assets abroad. The combination of available liquid resources for the rich and an overvalued pound is guaranteed to do precisely that.
The Chancellor should have looked also at the disturbing level of growth in personal consumer credit and he would have noticed that from 1979 to 1986 mortgage borrowing rose as a proportion of GDP from 3.2 per cent. to 7.1 per cent., and personal credit other than mortgages rose from 7.3 per cent. of GDP to 13.5 per cent. of GDP. If the right hon. Member for Shropshire, North (Mr. Biffen) is worried about the economy overheating in the south and south-east, he should look carefully at the figures for personal debt and personal savings. Personal savings are at their lowest since 1959, which is indicative of the current real state of the British economy. Instead of a Budget for personal spending, largely by the rich, a prudent Chancellor would have gone for a Budget spending money on investment. He did not do that, so I fear that the Chancellor has not done terribly well by the prudency test.
What other tests should we apply to test the Chancellor? Let us be charitable to him, to start with, and consider him in his new guise as an environmentalist. He has done one or two sensible things in the Budget for the environment. For example, the differential way in which he has approached lead-free petrol is much to be welcomed. We strongly applaud that. But what steps are the Government taking to make it worth while for the manufacture or conversion of vehicles which take lead-free petrol?
The Chancellor has also taken one or two sensible steps in regard to the taxation regime for commercial forestry. We welcome the removal of tax relief on planting and maintenance. I note that he has also removed taxation on sale, but, of course, hardly anyone paid tax on sale anyway, because it was easy to avoid. The introduction of grants for small-scale planting, especially of broadleaves and deciduous trees, is also to be welcomed, and the guidelines issued for England and Wales by the Forestry Commission are indeed worth while.
However, we are entitled to ask further questions. First, what is the Scottish Office up to? The Scottish Office has yet to issue the same sensible guidelines for Scotland that the Forestry Commission has issued for England and Wales. In Scotland, the principal environmental concern about forestry planting being damaging to the environment is at its height. We are also entitled to ask about the 100,000 hectares of land which currently have forestry approval, but which have not yet been planted. That land includes four environmentally sensitive sites totalling 2,000 hectares in the flow country in the far north of Scotland. We do not have the details of the Chancellor's changes, so we do not know whether his changes will still permit those areas to be planted under the previous taxation regime, as that would be environmentally damaging.
We are also entitled to ask why the Government have not taken the most environmentally sensible step in relation to forestry, which is to bring maintenance within the planning system. Perhaps "Mr. Lawson the environmentalist" deserves one and a half or two cheers.
What then of "Mr. Lawson the feminist"? The Chancellor, in his Budget provisions, has made much of the relationship between a husband and wife. In particular, he brought in, from the introduction which he gave them, 1310 what sounded to be extremely valuable proposals. The principle of independent taxation for a husband and wife and the end of aggregation and the disgracefully demeaning process whereby a wife's income automatically counts as her husband's income is very much to be welcomed. If the Chancellor's scheme as proposed in the Budget actually did all that, we would be applauding it to the echo, but of course his scheme does not really do that at all.
The present system operates the married man's allowance which is worth something like 0.6 the ordinary personal allowance. If the wile goes out to work, there is the earned income allowance to be added to that, so that 2.6 times the personal allowance is made available to the husband.
Under the Chancellor's new scheme the husband will have one personal allowance, the wife will have one personal allowance, and there will be a floating married couple's allowance worth 0.6 of a single allowance. That married couple's allowance will go, in the first instance, to the man. The press handout from the Inland Revenue gives the game away. It says:The married couple's allowance will go in the first instance to the husband, so he will see no reduction in his tax allowances as a result of the change to the new system. But if he does not have enough income to make full use of the allowance he will be able to transfer any unused portion to his wife.The transfer of that allowance to the wife will take place only if the husband's income is insufficient to make full use of the allowance and only if the husband decides to transfer it. I do not call that independence for married women.
Of course, some people will gain by the changes that are proposed to the married man's allowance, especially about three quarters of a million pensioner couples with savings. However, their gain will come not because of the new independent principle that the Chancellor claims he is instilling into the system, but because of the change in the wife's earned income allowance into an earned or unearned income allowance. It is not the principle of independence that produces the financial gain, but the change in the nature of the allowance that the Government are introducing.
Of course, a substantial number of people in higher income brackets will gain from the new extra allowance that will effectively be given for capital gains or investment income. So "Lawson the feminist" does not come out terribly well from the Budget.
We should look at the other things that the Chancellor is doing. For example, the changes in maintenance will, in our view, almost certainly lead to lower maintenance provision being made by the courts. The Chancellor has failed to take the three principal decisions that he could have taken which would have transformed the economic and taxation status of women. The first decision would have been a substantial improvement in child benefit — not just removing the refusal to uprate fully in line with inflation but to go further. Child benefit is far and away the best targeted means of improving the ability of women to bring up children. The second decision would have been proper taxation relief for workplace nurseries. The third decision would have been to persuade his colleagues to remove the poll tax. On precisely the same date as the Chancellor's much trumpeted taxation independence for 1311 a man and his wife takes effect, the man and his wife will become jointly and severally liable for the payment of the poll tax.
What about "Nigel Lawson the battler against perks and loopholes"? There are one or two bits of tightening up in the Budget which are to be welcomed. However, it is hardly a great package of reforms. Of course, some additional anomalies are being included in the Budget. For example, we have only to look at the pre-1982 provisions on capital gains tax. Some Conservative Members—for example, the hon. Member for Southampton, Test (Mr. Hill) —made considerable play of the small shopkeeper who is likely to benefit from the proposals. Who will really benefit from the changes in the capital gains tax regime?
It is no accident that while the Chancellor was making that announcement on Tuesday the value of property companies on the stock market was going up dramatically, and it has continued to go up since. Warburg's analysis of the Budget, for example, says:The change in the base date … for both companies and individuals will have an enormous impact on contingent tax liabilities. For many older established property investment companies, the change in the base date together with the benefits of indexation since then will virtually eliminate the tax liability.If I were a Chancellor aiming at targeting £290 million of tax relief I would not particularly target Peachey Property, Town Centre and Chesterfield to benefit.
One of the most outrageous decisions in the Budget is the extension of the business expansion scheme into the private rented sector. It is bad enough that the Chancellor has left the business expansion scheme more or less intact, with one or two minor changes at the margin, but here a massive and highly lucrative new loophole has been created. Under the present terms of what the Chancellor is proposing there is no guarantee that the property that is to be let by the newly established companies will have tenants. They need only have property available for letting. I hope that when we get the detailed rules there will be a provision that the property must be let to tenants.
Conservative Members have said that there is security in the fact that they are going to be let on assured tenancies, but assured tenancies have open-ended rent provisions. In addition, according to schedule 2 to the Housing Bill, there are 12 ways in which a landlord can get rid of a tenant under an assured tenancy, and the tax relief that will be available under the business expansion scheme will be not only on the initial investment but on the capital gain after five years.
The financial pages of the Evening Standard are perhaps not the normal place that one would look for evidence to back up a case mounted by the Labour party, but in yesterday's edition there is a quotation from accountants Grant Thornton, who say that such residential property could become Britain's number one tax shelter. The article concludes by saying:Rachman, one suspects, would not have been slow to take advantage of the scheme if it had been around in the 1960s.That is the real nature of the business expansion scheme change that the Chancellor introduced on Tuesday.
So, "Lawson the prudent Chancellor, Lawson the environmentalist, Lawson the feminist and Lawson the plugger of loopholes" does not get a very high rating on any of those tests.
1312 What of "Lawson the fair-minded maker of choices and priorities"? On this count, above all, the Budget stands roundly condemned. Any Budget is about making choices: where to raise money, where to return money, where, indeed, to spend money. It becomes increasingly clear, if we look at the figures in this Budget—£2,195 million on top-rate taxpayers, £40 million on the business expansion scheme extension, £10 million on capital gains tax retirement relief, £290 million on the ending of the early capital gains tax liabilities, and £200 million on inheritance tax — that those are the decisions on priorities that the Chancellor has made in this Budget, and those decisions have been made just three weeks before major changes in social security and housing benefit will savagely hit the poorest people in our society.
What are the Government saving by those measures on housing benefit and on social security? If one counts the savings and costs of the transitional arrangements, the Government are saving about £480 million on their changes in social security which are due in three weeks' time. The cost of their 1982 decision on capital gains tax and their inheritance tax decision, taken alone, could have paid for those savings in social security, which will hit the poorest in our society. Nothing could more eloquently highlight the Government's sense of priorities.
This Budget does nothing for the Health Service and it does nothing to bring about a truly progressive tax system. That would have been a really radical reform by the Chancellor. The Budget merely pretends an interest in the needs and wishes of women. It creates massive new loopholes for tax evasion and makes the wrong decisions about the macro-economic effects of public and personal sector spending. It leaves industry competing internationally with its hands tied behind its back. Above all, the Budget redistributes resources fundamentally from the poor to the rich. As such, it is a wrong-headed, socially divisive and fundamentally unfair Budget. Given what the Chancellor was saying on Radio 2 earlier today, I sincerely hope that it is his last Budget.
§ The Economic Secretary to the Treasury (Mr. Peter Lilley)
I congratulate the hon. Member for Islington, South and Finsbury (Mr. Smith) on his contribution to the debate, which was characteristically lucid, eloquent and constructive. Regrettably, few contributions from the Opposition these days have those features, so I welcome his speech all the more. I will not damage the hon. Gentleman's career any further, however, by saying that I agreed with everything that he said, although I agreed with some of it.
I often agree with much that the hon. Gentleman says. For example, I am a regular reader of his column in Tribune. I agreed with much of what he wrote in his October column, where he said:There is now widespread agreement, through most parts of the Labour movement, that one of the principal reasons for our election defeat in June was our failure to convince many of our potential supporters that we had it right on economic policy.He was right. Unfortunately, after two and a half days of debate, the Labour party is no nearer convincing its supporters, or the House, that it has got it right on economic policy. The party has not succeeded because no one on the Opposition Front Bench who has addressed the House in the past two and half days has endeavoured to 1313 spell out an alternative strategy to that laid down in my right hon. Friend's Budget. They have told us what they dislike, but not what they like.
I have three very simple questions for the hon. Gentleman. One of them picks up a matter that he went on to discuss in the Tribune article. He said:We lost support in the final week of the campaign over taxation and especially on the married man's tax allowance issue.I want to know from the hon. Gentleman, or from his right hon. and hon. Friends, what they are going to do about the married couple's allowance, as it will be soon. Will they abolish it, as they said they would during the election campaign? "No answer" came the stern reply.
Perhaps the hon. Gentleman will answer a second question, which has been raised by several Opposition Members. Will Labour abolish the upper earnings limit on national insurance contributions? Hon. Gentlemen have criticised my right hon. Friend the Chancellor for not doing so.
§ Mr. Chris Smith
The Economic Secretary clearly has not been listening to the debate in the past days. We have made it very clear that the existence of a ceiling on national insurance contributions is profoundly regressive in the tax system, and we want to see a properly progressive tax system that does not leave that anomaly in place.
§ Mr. Lilley
It is very useful to have that on the record. It would move in the opposite direction to that taken by my hon. Friend in his Budget. Marginal rates of taxation were reduced across the board. He will be increasing the marginal rates of tax and contributions which people face across a broad spectrum of incomes.
A third question, to which I will also welcome an answer, is this. Will they oppose the reduction in the basic rate of income tax on Monday? They will have to make up their minds on Monday night when the chance will come to choose. We have heard his decision from one of my right hon. Friends, the Member for Shropshire, North (Mr. Biffen). Will they also have the courage to join him? We would like to know. Once again, "No answer," came the stern reply.
§ Mr. Whitney
Would my hon. Friend allow me to join him in pressing the Labour party on this? We had an interesting contribution from, I think, the hon. Member for Livingston (Mr. Cook), who complained that 25 per cent. is a high rate of entry to tax. That statement appears to be in some contrast to the Labour party's objection to reducing the tax, when at one point Opposition Members seemed to advocate that 25 per cent. was too high. I hope that my hon. Friend will join me in welcoming this converstion of the Front Bench of the Labour party.
§ Mr. Lilley
My hon. Friend is quite right. It is a shame that we have not been able to flush them out on this issue. If they believe in open government, do they not believe in open opposition as well?
§ Mr. Robin Cook
I am afraid that the hon. Gentleman —I cannot remember whether he was here at the time— has apparently forgotten that the very first Budget that his Government brought in abolished the reduced rate band, a reduced rate band which was then 8p less than the current standard rate. If one wishes to reduce the starting rate of taxation, one begins with the reduced rate band.
§ Mr. Lilley
Since we are all now on what was Labour's reduced rate band, that does not really carry us much 1314 further. Would Labour Members reduce the rest of us to the reduced rate band if they had their way on Monday night? That is what we would like to know.
My right hon. Friend's Budget has many facets — fairness to married women, recognition and removal of penalties on marriage, simplification, the removal of perks —but a major aspect is the range of measures designed to improve the working of the supply side of the economy. As the theme of today's debate is industry, I shall try to concentrate on these supply side measures, but, first of all, I want to respond to a number of comments made by my right hon. and hon. Friends and by Opposition Members.
I turn first to the contribution of my right hon. Friend the Member for Shropshire, North who made, as he always does, a punchy, witty and excessively modest contribution. He was modest in one respect, in that he said that he had never had a day's lesson in economics.
I think that my right hon. Friend may have forgotten summoning me round, when he was Chief Secretary to the Treasury, and asking me to explain and elucidate the monetary situation at the time, which was causing him concern, as it apparently does now. I remember the occasion vividly. He sat there behind an otherwise empty desk, containing one book, which faced me rather than himself, a biography of Enoch Powell. When I asked him why it was there, he said that it was to show his officials where his intellectual loyalties lay — where, of course, they still lie.
But I wonder whether his master, from whom I take many of my own views, would agree with his proposed decision today, because I then pointed out to him — I think that he agreed with me—that, although the money supply figures were showing considerable expansion, one should, as he always does, use common sense and examine the situation as it is. Clearly it was wrong to say that we were being profligate monetarily at a time when unemployment was far too high, when the exchange rate was visibly very strong, and when interest rates had been raised to considerable levels.
I would ask my right hon. Friend to consider today whether it can really be said that there is a serious danger of overheating from this Budget, which, for the first time for 20 years or so, gives us a substantial surplus; when we have interest rates which, in real terms, are significantly positive and obviously bearing down on inflation; and when there is, regrettably, still a high measure of spare capacity and unemployment in the labour market.
Surely, with a strong exchange rate, with a surplus and with the capacity and resilience that the economy has shown, we do not need a yet larger surplus, as my right hon. Friend implicitly proposes. Or am I mistaken in thinking that, in voting against, as he has suggested he may —and I hope that he will reconsider it— a cut in the basic rate of income tax, he wants to add that money to the public sector borrowing requirement, the repayment of debt? If not, and if it were merely to be spent by the Government, that must be at least as, if not more, inflationary in its consequences. [Interruption.] If the hon. Members who are making sedentary contributions wish to make more reasoned contributions in an upright position, I shall give way.
§ Mr. Nigel Spearing (Newham, South)
I am grateful to the Minister for that invitation, because he may be able to give us a lesson, as well as his right hon. Friend the Member for Shropshire, North (Mr. Biffen).
1315 If the money was spent on, say, the Health Service, would that necessarily be inflationary?
§ Mr. Lilley
It would be just as inflationary as leaving the money in people's pockets and allowing them to spend it themselves—no more, and no less.
The hon. Member for Londonderry, East (Mr. Ross) welcomed the Budget from the point of view of Northern Ireland. I am sure that, on St. Patrick's day, and after yesterday's tragedy, all of us wish success for any measure that may bring renewed peace and prosperity to Northern Ireland. The hon. Gentleman is absolutely right that the lower tax rates will render that Province more attractive to international business, as well as giving a domestic stimulus to the economy.
My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) has campaigned effectively and assiduously on behalf of a proposal which he believes would help the elderly to benefit in their retirement from schemes enabling them to raise income from their residential homes. My hon. Friend has received a detailed reply from my right hon. Friend the Financial Secretary. Let me add that such schemes are possible under the present law. He proposes extending extra tax relief not so much to the existing occupants as to their heirs, who would get double relief.
The proposals as my hon. Friend has suggested them would be of little or no value to those living in houses of modest value—£50,000 or less. They become a serious proposition only if the houses are worth £100,000 or more. There, the case for making such a concession is much less strong, on social grounds. Although we shall respond to the suggestion in greater detail, I do not know whether we shall be able to change our view.
My hon. Friend was followed by the hon. Member for Oxford, East (Mr. Smith). I look forward to going to his constituency tomorrow, and visiting the Radcliffe hospital. I noticed that, unlike many of his hon. Friends who have berated Conservative Members for using national statistics about the Health Service and have responded with anecdotes, the hon. Member for Oxford, East stuck to the statistics. He told us no anecdotes about his local Health Service. I suppose that that is because his local newspaper — which I just happen to have with me —featured the headlineCash tonics for health service".
§ Mr. Lilley
The hon. Gentleman had his chance to talk about his local Health Service, and refused to do so.
The hon. Gentleman was followed by my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant), who represents the other great university town, which I visited rather longer ago. My hon. Friend paid a generous tribute to my right hon. Friend the Chancellor. I thought that he was excessively modest, because he too is always eminently worth listening to. I found his report from Japan about the incentives being given to importers very interesting.
It may be no surprise to my hon. Friend, although it will be to many Opposition Members, that exports from this country to Japan have increased by some 30 per cent. over the past year — from a base that was not high 1316 enough, but a 30 per cent. growth rate is surely proof that competitiveness is to the advantage of British firms, and that they are exploiting it.
The hon. Member for Liverpool, Walton (Mr. Heifer) is not present, so I shall not reply to what he had to tell us.
My hon. Friend the Member for Richmond and Barnes (Mr. Hanley) was enthusiastic about the Budget, because he believed that it would put one category of people out of work: the tax consultants. I share his view that those gentlemen could turn their brains to more productive use after the Budget is implemented.
The hon. Member for Angus, East (Mr. Welsh) said that his part of the country needed investment. He will be pleased by the figures in the Red Book, which show that manufacturing investment in the coming year is expected to grow by 11.5 per cent. He will also be pleased at the proposals on the oil industry announced in the Budget. Measures were announced that affect the southern part of the North sea, but there was also one that did not receive so much publicity. It is about the disposal of oil licences throughout the North sea.
When I spoke last year in the Finance Bill debate, I said that we would look to see whether there were ways in which we could prevent capital gains tax from blocking rearrangements of licence interests, farm-ins and farm-outs and swaps of licences. After helpful discussions with the industry, we succeeded in doing so, and have come up with a proposal that we think will enable a proper market interest in offshore oil licences to take place. It will enable those who are best equipped and best financed, who have the best ideas and are most eager to explore and develop blocks, to farm them without a fiscal penalty. I hope that the hon. Gentleman and his hon. Friend who also spoke about the oil industry will welcome that.
My hon. Friends the Members for Dover (Mr. Shaw) and for Esher (Mr. Taylor) spoke about the business expansion scheme. They were anxious about schemes that are caught by shares being issued after Budget day. The new limit that we propose is a maximum of £500,000 per company. The press release published by the Inland Revenue on Budget day explained that this limit would apply only to shares issued after Budget day. This follows the normal practice for implementing changes to the business expansion scheme.
It has been put to us that the £500,000 limit could bear harshly on companies that issued a prospectus before Budget day but did not issue shares before the end of that day. We decided to make a small relaxation in the scheme to help such companies. Provided that a company has issued a prospectus before Budget day and issues the shares before the end of the present tax year, there will be a higher limit. This will be £1 million instead of £500,000. This doubling of the limit should help most companies in this position to raise more than their minimum targets set in the prospectus. It will prevent an excessive amount of money from being channelled artificially into the last of these larger schemes. I am sure that this change will be widely welcomed.
I make it clear that, if we think it necessary, we shall in future make changes to the BES scheme to apply to shares issued on Budget day as well as afterwards. This is in accordance with our general policy, where there would otherwise be scope for forestalling by doing business very quickly on Budget night.
1317 This debate is about industry, which means that we are talking about the supply side of the British economy. There is no doubt that the supply side of the economy has been transformed over the past eight years. After coming bottom in the growth league of major European countries in the 1960s and 1970s, we have come top in the 1980s. Last year, we enjoyed more rapid growth than any other major industrialised country, including Japan.
In terms of competitiveness, we are on top of the world league, both in manufacturing industry and growth. As a result, the volume of British manufactured exports is up by over a quarter since 1978. Last year, manufactured exports rose by 8.5 per cent. [Interruption.] The Opposition will find a dark cloud in any silver lining. The reflationary fallacy has underlain much of the Opposition's thinking. They used to believe that the prime determinant of economic growth was the level of demand. They believed that demand could be manipulated only by increasing Government borrowing. They thought that, if economic growth was sluggish, it was merely a symptom of deficient demand. I am speaking of the bad old days when the Opposition learned their economics and they have learned nothing since.
That view was expressed by 364 economists seven years ago this month, in a famous letter to the Chancellor. The experience of the last seven years has proved them wrong, because they said that growth could not occur unless there was increased Government borrowing to stimulate demand. In the last six years, the economy has grown even though we have been reducing Government borrowing. This past year has put the kybosh on Opposition views. We have witnessed the most rapid growth in the British economy for 15 years, in a year when Government finances have finally moved from borrowing to repayment of debt.
The measures in the Budget that contribute to the supply side improvement of the economy include a whole range of matters, but one of the most important of them is clearly tax reform and tax reduction. It is impossible to distinguish the impact of past changes from the many other supply side changes that have contributed to the improvement of the economy. However, there is no doubt that the changes that we have made have proved that, on the whole, lower taxes tend to be followed by increased revenues.
For example, in 1984 my right hon. Friend the Chancellor announced a reform of corporation tax involving cutting the rate from 52 per cent. to 35 per cent. Since then, far from declining, the yield of corporation tax has more than doubled. Stamp duty on shares has been quartered and that on houses has been halved, yet their yield in the year now ending is estimated at £2.4 billion, as against £1 billion in 1984. The introduction of indexation and exempt allowances in 1982 reduced the effective rate of tax on capital gains, yet since that time the yield from capital gains tax has risen by more than two thirds in real terms.
There is every reason to suppose, in the light of that experience and in the light of the experience repeated several times by my right hon. and hon. Friends, that the cuts in the top rates of tax to the more bearable and acceptable level of 40 per cent. will be followed by an increase in tax revenues, as was the cut from 83 per cent.
1318 and 98 per cent. to 60 per cent. We can expect a renewed reinforcement of supply side measures that have reinvigorated the economy.
I want to announce one supply side measure that does not depend on taxation. Competitive and efficient markets rely on the free flow of information. Following the announcement in last year's Budget debate, a consultative exercise was carried out during 1987 on a number of propositions involving the disclosure of information about importers. The main proposal was that Customs and Excise should disclose by sale the names and addresses of importers listed against the commodity codes under which the products they import are classified. A majority of the comments were in favour of the proposals.
Following an interdepartmental review of the results of the consultative exercise, I announced in a written reply earlier today that the Government have decided to proceed with the proposal. A new provision in the Finance Bill will enable Customs and Excise to extract information from statutory declarations made by importers or their agents on import entries. Customs will provide marketing agents each month with the names and addresses of importers listed against each of the nine-digit commodity codes as published in the integrated tariff of the United Kingdom. There are 11,500 different codes in all. The provision of the information should help all firms to identify markets, so helping to improve the effectiveness of their marketing, market research and product development to the benefit of industry and consumer alike.
The charge to the marketing agents will be set at a level to cover customs' costs and the marketing agents will be free to publish the information in a form and at a price attractive to their customers. We hope to implement the arrangements from January 1989, subject to the satisfactory conclusion of contractual arrangements with the marketing agents and implementing the necessary changes to computer systems. The arrangements will be kept under review. Customs will continue the current arrangements known as suppressions, under which customs may, for example, combine information for two or more commodity codes when importers can show that the publication of a more detailed breakdown would enable more confidential information about their business activities to be identified, directly or by deduction. I hope that the House will agree that that should prove a useful measure.
I have illustrated the fact that this is a supply side Budget. And it is a Budget that will powerfully reinforce the measures that have revitalised our economy over the past eight years. That vitality is already bringing us prosperity, generating jobs and restoring national pride. Eighteen months ago exactly, the hon. Member for Dunfermline, East (Mr. Brown), now Labour's shadow Chief Secretary, told The Guardian:The Government simply cannot reduce unemployrnent by present economic policies.Since then, unemployment has fallen by nearly three quarters of a million. That is our answer to Opposition Members.
Our policies are working. The people of this country know that they are working. We were re-elected in June to defend and extend the policies of success. That is what this Budget does, and I commend it to the House.
§ Debate adjourned.—[Mr. Maclean.]
§ Debate to be resumed upon Monday next.