§ [Relevant documents: European Community document No. 8887/88, Annual Economic Report 1988–89 and the unnumbered document, "Annual Economic Report 1988–89" (final version as adopted by the Council).]
§ Mr. Speaker
Before I call the Chancellor of the Duchy of Lancaster, I must repeat to the House that a large number of right hon. and hon. Members wish to participate in the debate. It would therefore be fair today for me to propose a 10-minute limit on speeches between 6 pm and 8 pm.
§ The Chancellor of the Duchy of Lancaster and Minister of Trade and Industry (Mr. Tony Newton)
As the House would expect, my speech today will be concerned principally with industry and commerce, and with the clear aim of the Budget to maintain what the Government have created—a climate in which British industry can flourish.
It is worth noting at the outset that, for the third year in succession, my right hon. Friend the Chancellor of the Exchequer has shown that it is possible to increase public expenditure on important public services and at the same time to reduce the tax burden and the overall level of public borrowing. The contrast with 10 years ago, when the right hon. Member for Leeds, East (Mr. Healey) was predicting a public sector borrowing requirement of about £8.5 billion for the forthcoming year, is, perhaps instructive. It is a measure of the present Government's success over that decade that we can repay this year, as last, some £14 billion of the debt that the last Labour Government did so much to build up.
I shall listen with considerable interest to the hon. Member for Livingston (Mr. Cook) to hear whether he will be able to avoid the temptation of so many of his predecessors—and of himself, on many occasions in the House—of simply talking about different or new ways in which that debt can be re-created and the burden on the British economy restored to the level at which the last Labour Government left it.
558 By a succession of measures of which the present Budget is simply a further step, our economy has been transformed in the past 10 years and it is now stronger than it has been for generations. As my right hon. Friend said, we are now looking towards our eighth successive year of strong and steady growth in the economy. We have now become so familiar with it that it is perhaps all too easy to take it for granted, but it is a striking fact that, since 1981, the United Kingdom has had the fastest growing of all the major European economies, and the cumulative effect has been striking. Gross domestic product is some 20 per cent. higher than when this Government took office. The Government can rightly be proud of a 20 per cent. increase in national prosperity in a decade.
My right hon. Friend's new Industry Act forecast predicts that that steady progress will continue in 1989 at a rate of about 2.5 per cent. That will maintain our position as the fastest-growing major European economy in the 1980s. I shall not labour too much the comparisons with what went before, but it should not be forgotten that, in contrast with what has happened in the 1980s, our average growth record in the 1970s was probably the worst in Europe and the worst of the seven leading industrial countries.
The Opposition always put great emphasis on manufacturing industry, so I want to make the point that manufacturing output is now, by a comfortable margin, at an all-time record. My right hon. Friend has forecast a further increase of some 3.5 per cent. in the current year, which follows increases of 7 per cent. in 1988 and 5.5 per cent. in 1987. That at least should be welcome news to the Opposition, in view of their quite correct interest in manufacturing industry. However, it is worth recalling that, when the last Labour Government left office, manufacturing output was lower than at the time when they came to office.
The major improvement in productivity has enabled us to achieve that improvement in manufacturing output. Manufacturing productivity in the United Kingdom has risen by over one half since 1980, which is an average annual improvement of more than 5 per cent.—far and away the best performance of any of the seven major industrial countries. In the last quarter of 1988, output per employee in manufacturing was almost 6 per cent. higher than it was a year earlier.
The combination of sustained growth and rising productivity has meant that British companies now have levels of profitability that have not been seen for over 20 years. The real rate of return of industrial and commercial companies in Britain rose in 1987 to more than 10 per cent., and for manufacturing companies alone, the figure was 9 per cent. The importance of that, as even the Labour party now accepts, is that it has helped to overcome the failure to invest which for so long was one of the main features of the British economy.
Throughout the 1980s, total business investment in the United Kingdom has again grown faster than in any other European Community country. Business investment is now at a record level as a percentage of gross domestic product, with a further increase forecast for 1989. That must be taken as clear confirmation of the confidence that practical business men feel in this country's economic future and this Government's policies.
Ever since my right hon. Friend made some of those same points on Tuesday, we have received further news 559 that confirms those aspects of the strength of the British economy. This morning, for example, statements of capital expenditure in the fourth quarter of 1988 and 1988 as a whole were published which show that the volume of investment in 1988 was nearly 11 per cent. higher than in 1987. For manufacturing industry, the figures show that the volume of investment in 1988, including leased assets, was almost 9.5 per cent. higher than in 1987. Again, all hon. Members, not least Opposition Members, will welcome that.
Let us consider some of the more notable changes by individual manufacturing industries on the same annual basis—excluding leasing, for purely technical reasons. There were rises in investment of almost 27.5 per cent. in paper, printing and publishing, 25 per cent. in vehicles, more than 15.5 per cent. in metal manufacture and nearly 14 per cent. in food. That is a reflection of the continued strengthening of the British economy.
Provisional figures were published this morning for United Kingdom vehicle production in February 1989. For cars, compared with the corresponding period a year ago, output was 14 per cent. higher, with production for export up by 21 per cent. For commercial vehicles, compared with the corresponding period a year ago, output rose by no less than 39 per cent., with production for export up by 52 per cent. Again, that is striking evidence of progress in an industry which, for all too long, was very much in decline.
Perhaps most strikingly, we have today received the unemployment figures for February, showing a further fall, seasonally adjusted, of more than 41,000 to 1,947,000, or under 7 per cent. of the work force. The unemployment figures have now fallen for 31 months in succession, the longest and largest sustained fall in unemployment since the war.
Another point that will certainly be of interest to all hon. Members, especially to the Opposition, is to remind them of the leaflets the Opposition published at the time of the last election. I have one here, with the facsimile signature of the Leader of the Opposition himself. The leaflet says:We will reduce unemployment by one million within two years.
§ Mr. D. N. Campbell-Savours (Workington)
Yes, but we shall really do it—not with a stroke of a pen.
§ Mr. Newton
We have now reduced unemployment by more than 1 million since the election, a period of significantly less than two years. What is more, we have achieved that without the measures that the Labour party then said would be necessary, such as increases in income tax and massive increases in the level of public expenditure.
§ Mr. Newton
I shall come to that, if the hon. Gentleman will wait for a moment.
The fact is that the rate of unemployment in the United Kingdom has fallen faster in the past year than in any other major industrialised country and is now lower that those of the majority of our European Community partners. What is more—this too will interest Opposition Members—the comparison is particularly good when it comes to young people. The latest figures show that the 560 United Kingdom has a lower unemployment rate for the under-25s than all other major European countries, except West Germany.
I come now to the point raised by the hon. Member for Workington (Mr. Campbell-Savours). The downward trend in unemployment has been more than matched by the growth in jobs. The revised figures in the 1988 labour force survey show that the number of people in jobs in the United Kingdom rose by 735,000 in the year to September and, at 26.4 million, is now at its highest ever level, even after taking account of trainees on work-related training schemes. Employment has been on the increase for more than five years and over the past two years has shown its fastest growth since 1945. To return to employment in manufacturing—I know that it interests Opposition Members—it is now increasing following several years of decline.
I advise the hon. Member for Workington, who has been intervening so assiduously, that about 85 per cent. of the growth in jobs in the past year has been in full-time employment.
§ Mr. Newton
I shall give way in a moment.
Self-employment has continued to increase and is now more than 1 million higher than in June 1979.
§ Mr. Leighton
The Minister referred to the last general election, but is it not the case that the Labour party suggested an investment of £6 billion in the public sector to reduce unemployment by the amount that he has mentioned, but that we have had an explosion of £40 billion in the private sector, which has stoked inflation so that we must now put the engines into reverse, with either a hard or a soft landing which will stop the growth in the economy? Will that not also stop the fall in unemployment?
§ Mr. Newton
During the last general election campaign, the Labour party produced all sorts of strange ideas about how it would achieve its aims, against a background where the application of the self-same policies during its previous five years in office had reduced the British economy to stagnation, slow growth, relatively low productivity and an inability to sustain many of the public services about which people talked so much.
§ Dr. Godman
I hope that the Minister will forgive my parochialism, but I advise him that unemployment in my constituency is still touching 17 per cent., that in 1979 it was at the disgracefully high level of 12 per cent., and that 3,500 people have been unemployed for 12 months or more.
When does the Minister expect finally to close British Shipbuilders? Has he received from John Lister, the chairman of British Shipbuilders, a preferred bidder for the last British shipbuilding yard, Ferguson-Ailsa, in Port Glasgow? Again, parochially, that is of immense importance to the people I represent.
§ Mr. Newton
I know and understand the hon. Gentleman's interest in such matters and hope shortly to say a little more about one or two of them—not in my speech today but in other ways. At this moment I cannot give him the name of a new preferred bidder for 561 Ferguson-Ailsa following the difficulties that arose in the previous negotiations. The hon. Gentleman is aware of the current re-bid process, but I can offer no conclusions from it at the moment. There are also developments, in which the hon. Gentleman will be interested, in respect of Marine Design Consultants, British Shipbuilders' training operation, and on the future of Sunderland Forge Services, which currently accounts for the employment of about 400 people in the north-east. If I may, I shall give the hon. Gentleman further details of that in a more appropriate way at another time. As far as British Shipbuilders as a whole is concerned, a number of tasks remain that need the continued existence, for the time being, of a central operation. I have no immediate plans for changing that. I hope that that answers the hon. Gentleman's question.
§ Mr. Christopher Hawkins (High Peak)
As there seems to be a break at the moment, I should like to ask my right hon. Friend whether he thinks that, given the welcome growth in productivity in the British economy, the 2.5 per cent. growth in the economy as a whole next year will be enough to keep unemployment falling at anything like the rate that it has been falling in the past?
§ Mr. Newton
My hon. Friend knows that forecasts of the precise rate of change in unemployment are among the more difficult to make in a world in which economic forecasts are well known to be subject to uncertainties——
§ Mr. Newton
I do not want to venture to predict the precise rate at which unemployment will continue to fall. On the face of it, if the rate of growth in the economy as a whole is somewhat moderated, which is what my right hon. Friend the Chancellor has suggested he expects to happen in the forthcoming year, at some stage that will have an effect on the rate of the fall in unemployment. However, as there is a basis for a continued decrease in unemployment because of our increasingly successful economy, I see no reason to doubt that.
The results of our policies, not least their effects on employment, are being felt in all parts of the United Kingdom. In the north, unemployment has fallen by one third in the past three years. In the past year, the sharpest falls have been in the west midlands, which went through a particularly difficult time earlier in the decade, and in Wales. Since 1981, manufacturing output has risen by almost 13 per cent. in Yorkshire and by more than 20 per cent. in the west midlands.
We have seen a tremendous surge of inward investment in the north-east—Nissan is only the largest and best known example. There are some 220 foreign-owned businesses in the north-east, employing 42,000 people. The recent confirmation from Toyota that Britain is in the lead for its choice of location for its first manufacturing investment in Europe is another in the growing number of signs of a practical expression of confidence from people overseas in our skill, workmanship and capacity for management, as well as in the competitiveness of the British economy as a base for their operations.
One thing that I have found most striking in recent weeks, and which has put me in mind of the different situation that would have existed 10 years ago, was when I was talking to a significant German company that was 562 contemplating the possibility of significant investment here and its people referred not only to our generally good business climate, but to the fact that our corporation tax was among the lowest in Europe—that was one of our major attractions. That is an almost incredible change from the position 10 years ago, when the notion of a major German company contemplating investment in this economy, partly because our tax regime is at least as favourable as, if not more favourable than, that in West Germany, would have been unbelievable.
§ Mr. Daffyd Wigley (Caernarfon)
A moment ago, the Minister mentioned the growth of jobs in Wales and it is true that there has been a growth in certain areas, but does he accept that in other areas, such as in rural north-west and south-west Wales and in the old industrial valleys, there are high levels of unemployment, ranging between 15 and 20 per cent.? Given the contrast between those levels of unemployment, which also exist in other parts of these islands, and the low levels in places such as the home counties, where there is 2 to 3 per cent. unemployment, is there not now a case for looking at some mechanism for a differential expansion of the economy, especially in terms of the regional policy which has been abandoned by the Government in recent years, but which is now much needed to overcome that discrepancy?
§ Mr. Newton
The hon. Gentleman knows that I have considerable respect for him on this and on other subjects that we have debated over the years, but he obviously has a different perception from that which I would have about the extent to which the Government are pursuing a number of policies, including regional selective assistance, which is available in the pattern of assisted areas in a way with which the hon. Gentleman will be familiar, precisely to seek to make further progress in overcoming regional and in some cases local imbalances that have been a feature of our economy for many years, not just for the last few.
What I was seeking to say a few moments ago is that, when I frequently travel around the country with my various regional and inner-city responsibilities, it is clear that the effects of our policies are being increasingly felt in areas that had felt left out of the general improvement in the economy. The mood in places such as south Wales, Newcastle, Merseyside, Manchester, Bradford, Leeds and almost wherever one goes is of much greater confidence and optimism about the way things are going than would have been the case for many years past. That is not the least encouraging aspect of what my right hon. Friend and the Government have achieved in getting the British economy on the move.
§ Mr. Campbell-Savours
The Chief Secretary to the Treasury made some interesting comments yesterday, when he said:It is interesting that fully three quarters of our imports of manufactures now consists of production and investment goods. Consumer goods are only a small proportion."—[Official Report, 15 March 1989; Vol 149, c. 427.]Will the right hon. Gentleman explain why, in a document that was published by his Department relating to production and investment goods, those sections are preferable as imports to consumer goods? Why is it so important that that three quarters consists of production and investment goods rather than consumer goods?
§ Mr. Newton
That was a point that I sought to make in one way earlier on. The difficulties of the British economy over a long period have been associated in many people's arguments—I believe rightly—with the tendency of the economy to invest less than most other economies. That has changed dramatically and importantly in the past few years. Indeed, there has now been a fairly consistent pattern over a considerable period—probably five years or more—in which the growth in investment has consistently out paced the growth in consumption.
§ The Chancellor of the Exchequer (Mr. Nigel Lawson)
§ Mr. Newton
My right hon. Friend the Chancellor informs me that it is seven years. That is a major change when compared with the previous 20 years.
That investment is reflected to some extent in the figures of imports of semi-manufactured and capital goods, to which I believe the hon. Member for Workington (Mr. Campbell-Savours) was referring to and to which my right hon. Friend the Chancellor would have referred. That increase in investment is associated with an increase in such imports. However, its importance is that it is part of the process of strengthening the British economy—which is what is happening—to build up the capacity of our industries for the future, to improve their competitiveness and to strengthen their capacity successfully to export and to improve our trade balance.
I do not want to over-simplify the matter or to suggest that we are not concerned to see an improvement in the trade balance, because that is part of the aim of our policies. However, a key part of achieving that improvement is continued investment in British industry. To the extent that the current level of imports reflect that investment, it is very different from a level of imports solely fuelled by the imports of consumer products.
§ Mr. Tam Dalyell (Linlithgow)
On what is admittedly a difficult and complex problem, what advice would the right hon. Gentleman give to Sir Kit McMahon, Sir Jeremy Morse and other major bankers faced with the problems of South American debt?
§ Mr. Nicholas Budgen (Wolverhampton, South-West)
The Minister is not quite the right person to ask, is he?
§ Mr. Dalyell
He is a major economics Minister—[Interruption.] I am told that I am right to have asked. Is it the policy of the Government seriously to consider the debt for nature swap?
§ Mr. Newton
The Government are obviously concerned to ensure a stable international financial framework. The advice that I would give the hon. Gentleman, or indeed anybody else who might ask, would be to pursue policies that contribute to that end, but beyond that I do not think I shall be drawn into commenting on the hon. Gentleman's points.
§ Mr. Campbell-Savours
The right hon. Gentleman was talking about the balance of payments deficit which is a major problem. Has he noticed that sections 51 to 89 of the overseas trade statistics, which deal with three quarters of the imports that were referred to by his right hon. Friend the Chief Secretary yesterday, are in the main the very areas of industry that have closed down over the past 564 years? Can the right hon. Gentleman not see a connection between the loss of those areas of industry and the high level of imports in those sectors?
§ Mr. Newton
I see a connection with the difficulties of the many parts of British industry that were associated with policies pursued not least by the last Labour Government, which left them in a significantly weakened state and which have necessarily taken time to overcome. The thrust of what I have been saying today is that, whether one looks at the figures of output, of productivity or of investment, one can manifestly see a restrengthening of important parts of British industry, although of course it will take time to achieve all that we would wish.
The motor car industry—the figures for which I have already mentioned—is an interesting case in point. We now see new investment in the motor car industry. Nissan is the most obvious example, but there has been investment, too, by Ford, Vauxhall and others. We see rising production for export and many other signs that we are getting back into business with the motor car industry in the way that both the hon. Member for Workington and I would undoubtedly wish.
Before that intervention, I was seeking to underline the extent to which unemployment is falling and output is rising in every part of our country. It is worth noting that that is to be seen not only on a regional basis, but in respect of those areas that we have come to call the inner cities. Unemployment in the inner cities has fallen by more than 20 per cent., and long-term unemployment by even more. Half a million people have been assisted in those urban programme areas by training programmes to help them to take the job opportunities that the expanding economy is creating. There are major improvements in infrastructure, and around the country there is a new sense of optimism and self-confidence that those areas can and will tackle their problems.
I want to emphasise to the House that we can make that progress in areas that have been among the black spots of our national economy over many years only because the national economy is strong again and because the business community has the confidence and the good commercial reasons to invest in areas where formerly it had virtually ceased to invest.
It is that change in the climate and the confidence of British industry that is above all the striking feature of developments in the past few years. Of course, my right hon. Friend's Budget is designed to ensure that that climate of greater confidence, of investment, and of a willingness to get back into the inner cities and the regions is maintained. That is the way in which the proposals in the Budget have been designed, both in their overall impact on the economy and in the detail of the particular tax and the other reforms contained in it.
The Budget reflects a recognition that the commitment to the defeat of inflation is the foundation of maintaining that greater business confidence and willingness to invest and—as I was seeking to say to the hon. Member for Workington—that in turn is the key to improving still further our competitive and trading performance in a way that will help us to improve the trade balance to which the hon. Gentleman referred.
It is for all those reasons that my right hon. Friend put his emphasis on personal taxation and other charges on a further reform of employees' national insurance contributions. I believe that that has been generally welcomed and 565 will act directly to restore work incentives by removing large numbers of people from the poverty and unemployment traps.
It will once and for all end the anomaly whereby, at various intermediate steps, the employee earning an extra pound could find himself several pounds worse off. My right hon. Friend has performed the happy trick of a change which produces no losers but which concentrates the gains among the lower-paid. It is good that a reform which will have important effects in promoting enterprise has also been so widely welcomed on both sides of the House, not just on the Conservative Benches.
As I said a few moments ago when talking about a German company, our level of corporation tax is now one of the lowest anywhere in Europe. The small companies' rate of corporation tax has been successively reduced in line with the basic rate of income tax. That is now being extended to companies with profits of up to £150,000, with the threshold for marginal relief being extended to £750,000. Those increases more than compensate for the rise in prices since the limits were fixed, and the scheme will be of particular benefit to the growing number of smaller companies which have contributed so much to the revival of enterprise in Britain. It will reduce the tax burden on no fewer than 20,000 companies, half of those not already paying tax at the small companies rate.
A significant aspect of the Government's policies to revive the enterprise of our economy has been the encouragement of wider share ownership, both by the employees of a company and by the public at large. Again, my right hon. Friend's Budget has introduced new incentives for both. Existing tax reliefs for employee share schemes are to be substantially improved and there will be a generous new relief from corporation tax for an employer's contribution to an employee share ownership plan, provided that the purpose of the plan is to pass shares to individual employees. That is a response, as I think will be recognised, to representations from both sides of the House and will be of particular value to unquoted companies wishing to enable employees to share in their success.
Profit-related pay offers an alternative approach to promoting a community of interest between employer and employee. The increase in the maximum amount of pay relieved under the scheme, and the relaxation of some of the associated conditions, will substantially improve the attractions of such profit-related pay.
For the investing public, the terms of relief for investment in personal equity plans have been greatly improved, with a 60 per cent. increase in the annual investment limit, a more than fourfold increase in the amount that can be invested in unit and investment trusts, and the relaxation in the rules which will permit newly issued shares as well as cash to be placed in a personal equity plan. I have little doubt that, in their new guise, PEPs will be well received by individuals and investment managers.
We have been asked by Mr. Speaker to keep speeches reasonably brief and I shall not seek to take up much more of the time of the House. The context of the Budget in an economy which is expanding, which is more productive and which is investing more for the future, and a society in which standards of living are rising, in which ownership is 566 more widely spread than ever before and in which the results of our greater national prosperity are being increasingly felt by every part of our country. The purpose of my right hon. Friend's Budget is to ensure that that progress continues, and I have no doubt that it will.
§ Mr. Robin Cook (Livingston)
I notice from the Minister's use of statistics at the start of his speech that the right hon. Gentleman has lost none of the deftness in selection that he displayed as Minister for Health. He will pardon me if I begin by putting some of the statistics that he used into perspective, which, unaccountably, he omitted to do when he presented them to the House.
For instance, there was the Minister's entertaining reference to manufacturing investment in 1988 being 9 per cent. up on 1987. That is, of course, perfectly true. I entirely concede that. But what he omitted to point out was that the figure for 1987 was 10 per cent. down on 1979. In other words, last year manufacturing investment finally crept back to where it had been in 1979–10 lost years. If we had been investing the same share of our economy in manufacturing as Germany over that 10 years we would have invested an additional £100 billion, and Germany did not have a drop of oil during those 10 years.
The right hon. Gentleman said that manufacturing output fell under Labour. I am a fair-minded gentleman and an honourable Member of the House and I readily concede, as he will remember from the previous debate, that between 1974 and 1975 manufacturing output under Labour did fall as a result of the oil price. But it rose in every year from 1975 to 1979. But what is truly interesting is that every year under the previous Labour Government manufacturing output was higher than in any year of this Government until last year. Last year, at long last, the Government finally got in front of 1979—another 10 years of stagnation. Between 1979 and 1987 the Government failed to get manufacturing output above the level of 1979—a period of stagnation which it shares solely with Malawi, Barbados and Fiji.
But the most remarkable omission in the Minister's speech, given that he comes here from the Department of Trade and Industry, is that he managed to address the House for over half an hour without once referring to the fact that we have at present a balance of payments deficit without precedent in our history. It is worse than anything ever contemplated by any previous Government; worse even—I understand that this is the worst insult that I can offer the Treasury Bench—than anything recorded during the period of Government under the right hon. Member for Old Bexley and Sidcup (Mr. Heath).
Moreover, the Government have achieved that during a period of oil surplus. To achieve a current account deficit and an oil surplus at the same time takes genius. In the rest of the world it has been achieved only by Iraq, Iran and Venezuela. That is the league in which we find ourselves. It was achieved by turning the £3 billion surplus in manufactures which they inherited from Labour into a staggering £20 billion deficit last year.
I was astonished that the right hon. Gentleman should claim an increase in output on commercial vehicles and coaches as evidence of the Government's success. Since he mentioned that particular sector, let me share with him the trade figures for those sectors. In 1978, imports of buses and coaches took up 3 per cent. of Britain's domestic 567 market. In 1988 they took up 38 per cent. That is the area that the right hon. Gentleman chooses as a success story. In 1978, imports of commercial vehicles took up 22 per cent. of the British market. In 1988 they took up 40 per cent. That is not, I grant, such a dramatic increase as for buses and coaches, but the import penetration has doubled.
As The Guardian reminds us this morning, the Government are now even running a trade deficit in putty. We are £500,000 down in trade on putty. The Government cannot get their hands on enough putty to stick their policies together.
It is a pleasure to follow the right hon. Gentleman again. I had been rather afraid that with one bound last July he leaped from Richmond terrace to Victoria street and leaped free from the consequences of the NHS review which he helped to set in hand. He will recall that, when that review was set in hand, the Secretary of State for whom he then worked said that its consequences for health in Britain could be as dramatic as the discovery of penicillin. If I may say so, the consequences of the NHS review have certainly been dramatic, but they have perhaps not been as benign as the discovery of penicillin.
This morning the Royal College of Nursing published its report saying that it had the gravest reservations about the proposals. It said that they undermined and threatened fundamental principles of the NHS. Last weekend the British Medical Journal accused the Government of using the same strategy for the NHS as a steaming gang demanding money at knifepoint. But the unkindest cut of all comes from David Green, whom the hon. Gentleman will recall is one of the directors in the Institute of Economic Affairs, who spent all the preceding year urging the right hon. Gentleman to set up the review. Last month David Green wrote in the Health and Social Service Journal that the Government's proposals are in danger of giving competition a bad name.
I presume that at some stage the Secretary of State for Health will come to the House and invite hon. Members to debate the White Paper in full. I presume that that will be his intention, even if only by remote television link-up, which appears to be his favourite mode of communication with NHS staff. He would be wise to debate it in the House of Commons because, increasingly, it looks as if that is the only place in which he will ever muster a majority for his proposals. The last opinion poll to seek evidence on public reaction to his proposals discovered that of those members of the public who had heard of them, 14 per cent. approved and 71 per cent. disapproved. The truth is that the public do not want the NHS broken up. They do not want their doctors to have to weigh the treatment that they can afford against the treatment that the patient needs. But most of all, they do not trust a Government who propose cash controls for public health and cash subsidy for private medicine.
I turn to one of the key elements in the Chancellor's statement. The Chancellor of the Duchy of Lancaster suggested that I would spend money throughout my speech. I disabuse him of that notion, because I wish to propose a modest saving. The Government could save the £40 million that they are to give in tax concessions to the private medical sector, in the form of tax relief to elderly people paying for private medical insurance, such as the Prime Minister.
§ Mr. Cook
The hon. Gentleman says that is cheap, which is absolutely true. The Prime Minister spent a year devising a proposal for the NHS review, over which she presided. The first proposal to come out of that review and to be put before the House is one from which she will benefit, while the majority of pensioners will find it totally irrelevant. If the hon. Gentleman finds that cheap. perhaps he should take it up with the Prime Minister.
It speaks volumes for the Government's priorities that the first of the White Paper's proposals to be put before the House is not one that will improve the public sector but will give an old-fashioned handout to the private sector. It appears that the private sector appreciates the gesture. At breakfast yesterday, I was discomfited to be confronted with a photograph of the Chancellor of the Exchequer naked. I am not sure whether I was more distressed by the impersonation of his torso or by the text underneath that was an advertisement for BUPA. That advertisement promoted something called "Budget BUPA". It has indeed been a BUPA Budget, because the subsidy offered by the Budget to that organisation is substantial.
I noticed that yesterday, the Financial Secretary—who is with us in body if not in terms of attention at the moment—referred to figures that I and my right hon. Friend the shadow Chief Secretary revealed at a press conference. The right hon. Gentleman said that the average cost of the relief per taxpayer would be £100. I find that rather curious. Earlier this week, my office contacted BUPA and invited it to quote a premium for a person aged 60 wishing to continue with the kind of medical insurance cover that they enjoyed while at work—which I understand is the intention behind the Chancellor's proposal. BUPA quoted £1,080 per year. With tax relief at 40 per cent., that means a cost to the public purse not of £100 but of £430.
§ The Economic Secretary to the Treasury (Mr. Peter Lilley)
Perhaps the hon. Gentleman was so riveted by the picture purporting to depict my right hon. Friend's torso that he did not read the wording that appeared below it. Had he done so, he would have read that BUPA estimate the cost of "Budget BUPA" to befrom around £15 a month at age 55 to £27 at age 74, or even less.
§ Mr. Cook
The hon. Gentleman is right in giving those figures, but he must recognise that "Budget BUPA" in no way replicates the cover provided by a company scheme—which is, we understand from the White Paper and the reference in the Chancellor's speech, the intention behind the tax relief. If anyone wishes to follow the Government's logic and obtain cover that is equivalent to that which they enjoyed during their working life, the figure that will be quoted to them by BUPA will be £1,080, involving tax relief of £430.
Yesterday, the Financial Secretary to the Treasury suggested that the average cost of an elderly person to the NHS is £1,000. I invite the right hon. Gentleman to refer to his own White Paper, where he will find that the cost of hospital services for a person aged 65 to 74 is £415, which is half the figure that he quoted. I begin to understand why the forecasts of the Treasury team are so wildly wrong. The Treasury propose spending more in subsidy so that wealthy elderly people may go private than it would cost to treat them in the National Health Service. That is crazy 569 economics, but the whole Treasury team knows that the proposal has nothing to do with economics but is entirely the product of political dogma.
The cost of providing private health relief is estimated at £40 million. The Treasury Bench arrived at that estimate as the figure necessary to cover those who already have private health insurance, plus, if I correctly understood the Finance Secretary yesterday, a 10 per cent. increase. I am sorry to tell the right hon. Gentleman that again.
BUPA is not playing ball with the Government. It estimates that the number of elderly people who will be covered as a result of the new tax relief will increase from 350,000 to 1 million subscribers. It adds that that figure of 1 million is a modest estimate. That represents not a 10 per cent. increase but a threefold increase and implies a total cost, using the right hon. Gentleman's own figures, of £ 120 million.
Even a figure of £40 million is sufficient to pay the annual salaries of 3,000 nurses or 1,000 consultants. It is enough to purchase 20,000 ventilators or 1,300 ambulances. It is enough to meet the operating costs of 35,000 cataract removals or of 17,000 hip replacements. Those are the substantial lost opportunities caused by putting that money into private health care rather than into the Health Service.
The Chancellor knows that he will get better value for money using that sum for direct NHS expenditure rather than using it for indirect expenditure on the private sector. One reason for saying that is that the effect of subsidising the private sector will be to target help on those who are most fit and least in need of help. They are the people who obtain private medical cover.
The private medical sector, unlike the NHS, screens applicants to ensure that they are well enough. The private sector, unlike the NHS, has no Hippocratic oath by which it is bound to treat the sick. Instead, the private sector smartly passes them back to the public Health Service on the basis that, as was helpfully observed by the managing director of one private health insurance company, such screening enables the private sector to protect essentially healthy people against the cost penalties of unhealthy people. That statement has the advantage of originality, in that it perceives healthy people as the vulnerable group that needs to be protected from the unhealthy.
Meanwhile, the NHS is left struggling to cope with the costs of the unhealthy. The extent to which it is losing that struggle was tellingly revealed by a blatant example of news management, with which the Chancellor of the Duchy of Lancaster will immediately identify as he will remember the trick from his old days. On Budget day, the Department of Health slipped out the latest hospital waiting list figures. As soon as I heard of that device, I assumed that the Department had something to hide—and it did. The six-monthly waiting list revealed on Tuesday shows a jump of 50,000 since September 1988. The figure now totals 900,000, of whom one quarter have been waiting almost one year. Nevertheless, the total sum of money given by the Department of Health this year to the waiting list initiative is only about £30 million, or £1 million less than the Government propose providing as a subsidy for private hospitals.
There is another dimension to the Government's handsome handout to the private sector. The tax relief for 570 the elderly is the sole proposal from the Government's whole NHS review to improve the health care of the elderly. The speed at which it is being implemented contrasts with the Government's indifference to the plight of the elderly in need of care in the community. The Chancellor of the Duchy will remember the Griffiths report, because he was Minister of State when it was presented to his former Department. That report was also subject to a spectacular example of news management, being smuggled out and published in Budget week one year ago this very day.
The Government's response to the Griffiths report has been one year's silence. During that year, another 30,000 people have been added to the list of those aged over 85 requiring care in the community. During that year, another half dozen hospitals have been closed. The consequences can be seen within walking distance of the House. A hostel for the homeless in Covent Garden calculates that in 1983, 10 per cent. of its residents had a serious mental health problem. It calculates that this winter the proportion was 50 per cent. They are the victims of the Government's year-long neglect.
Another aspect of the Budget that is critically important to the Health Service involves not what the Chancellor did, but what he did not do—his failure to increase excise duty. I notice that the chief executive of the Health Education Council said that he was dumbfounded by this, and the director of ASH said that it was incomprehensible. I understand their surprise. After all, only two months ago the Prime Minister launched a campaign to cut teenage smoking by half. Only last week, the Minister of State, Department of Health launched no-smoking day with the ringing declaration that he would give up smoking after dinner. This week, the Chancellor has knocked a hole below the waterline of both proposals.
There can be no room for doubt about the consequences of his action. More people will smoke more cigarettes—in particular, more teenagers will start smoking. Most people start smoking before they are 18, and making cigarettes cheaper makes it more tempting for them to do so. This is the second time in three years that the Government have failed to increase the duty on tobacco and is another stage in the Government's constant, pusillanimous retreat in the face of the tobacco lobby.
At present, the Government are the only Government in Europe resisting tougher warnings on cigarette packets. They defend their stance on the basis of voluntary agreements with the tobacco industry. Of course, since the Government have a cosy, voluntary agreement with a company such as Imperial Tobacco—its parent company donated £80,000 to Tory Central Office last year and £102,000 to it in election year—it is hardly surprising that the company finds its interests protected by this Government, in Brussels and in the Budget.
On the radio, the Chancellor said that it was necessary to control the excise duty rise because of the fight against inflation. That will not wash, because only last week the Secretary of State for Health slapped another 20p on prescription charges on the grounds that it was necessary to keep up with inflation. I remember that in 1979, when prescription charges were 20p, we were assured during the general election that it would be a lie to suggest that the Government had any intention of increasing prescription 571 charges. However, they did not merely double them but increased them fourteenfold in 10 years. That is a heroic rate of inflation.
The result of that rise is that chemists in every constituency in Britain are faced every week with people at their counters asking which of two or three prescriptions they really need because they cannot afford them all. If the Chancellor was so anxious to control the fight against inflation, he would have frozen prescription charges, not the price for nicotine.
Another freeze announced in the Budget was that on child benefit. It is particularly important and appropriate to recall this in the Budget debate, because child benefit replaced child tax allowance. Since 1983, child benefit has decreased in real terms by 13 per cent. During the same period, every other tax allowance has risen by 22 per cent.
I have asked the following question on three successive occasions in the past six months, and I shall ask it a fourth time in the hope that someone on the Treasury Bench will have thought of an answer. Why do the Government imagine that the cost of maintaining a child has dropped by one eighth in the past 10 years, but the cost of maintaining a wife has risen by one fifth? How can they justify that double standard?
Child benefit is superior to tax allowances because it puts the cash into the hands of the mother who feeds and clothes the child. If the target of child benefit is to help with the cost of children, it hits the bull's eye because it puts the money in the hands of 98 per cent. of mothers and is therefore, dramatically better than family credit, which, we are told, is a targeted benefit. The problem with family credit is that it keeps missing two thirds of its targets.
We were promised that family credit would achieve a 60 per cent. take-up rate, but it has never been anywhere near that rate. The current take-up level is stuck at about half that target. When we debated the matter in January, I pointed out that, far from increasing, the numbers of those taking up family credit fell between November and December. I was told by the Secretary of State for Social Security that this was because Christmas had resulted in a delay in applications. Apparently, families on family credit were too busy Christmas shopping to submit their applications on time. As a result of my private notice question last week, I have found that at the end of February, far from recovering from the Chrismas blip, the numbers on family credit had actually decreased from the December figure. Christmas was not a temporary blip. I presume that, this time, it was because the applicants were all out at the January sales that they forgot to submit their applications.
The truth is that family credit is a failure. It has failed to protect families from the extra costs of the loss of free school meals and the cuts in housing benefit. It can no longer be used by the Government as the threadbare pretext for freezing child benefit, which goes to far more poor families than family credit ever could.
Mr. Humfrey Matins (Croydon, North-West)
Does the hon. Gentleman agree that the present rate of child benefit is about £40 a year more valuable than child tax allowance would have been if it had been indexed at the same rate as the married man's allowance?
§ Mr. Cook
The hon. Gentleman cannot escape the fact that child benefit was a merger of both family allowance and child tax allowance. When the Labour party left office, 572 it did so with child benefit higher in real terms than it is now. I am not suggesting—and I wish to disabuse the hon. Gentleman of any misunderstanding that he may have on this matter—that we should convert child benefit hack into a tax allowance. That would be regressive and would not give money to poor families, but to the father, rather than the mother. However, I do sometimes suspect that it might be in the interests of the 7 million mothers to rename child benefit child tax allowance, because the Government would then immediately uprate it in the way that they uprate everything that is labelled tax allowance.
One last group was entirely left out of the Budget. They will not gain, either from this week's statement on tax or from next month's uprating of social security. The 570,000 claimants, who are mostly pensioners, are almost double the 350,000 who gained tax relief for private medical cover. There will be no tax relief for this group because they do not pay tax—their income comes from social security benefits. They will receive no increase in benefits in April because last April they received a litle bit extra for heating costs because they were housebound, for their diet because they have special needs, for their laundry costs because they are incontinent. Last April, the Government scrapped all those allowances and as a result this group found that they had more in cash than they were entitled to in benefit. Therefore, they are not entitled to any increase from this year's uprating.
Every one of those 570,000 cases was one of the 88 per cent. whom the House was assured last spring would not lose from the changes in social security. I invite the Ministers on the Treasury Bench to the surgeries held in my constituency and to explain to my constituents who fall within that group that they do not lose because of the changes in the rules.
This is the second year running in which this group of poor, vulnerable people have suffered a freeze in income—they are probably the only ones to have suffered that two years running. Ironically, by definition, the group contains the most frail, elderly and disabled, and their treatment has been a disgrace. It is also a disgrace that, in a Budget with a surplus of £12 billion, the Chancellor could not find enough to uprate their benefit by 5 per cent. The total cost of uprating would probably be £60 million a year, which is not that much more than the £40 million that he has handed out to private medicine. If the Chancellor had to make a choice, he should have given the money to those half million pensioners. It would have proved better as a contribution to the health of our nation to enable those half million adequately to feed and heat themselves, rather than to provide a subsidy to private hospitals.
I do not doubt that, when the Division bells ring on Monday, the Government will find a majority for these polices. I do not doubt that the Whips would be able to find a majority of Back Benchers willing to vote for the proposition that pensions should be taken away entirely. Equally, however, I do not doubt that when history judges this period it will be as bewildered by such priorities as all the pensioners who are the victims, and will join us in condemning the social strategy that financed tax cuts for the rich through cuts in benefits for the poor.
§ Mr. David Howell (Guildford)
Although we are not yet in the "long speech exclusion zone", which I think begins at 6 pm, I shall try to apply a voluntary quota to my remarks and keep them as brief as possible.
The House has heard a detailed speech from the hon. Member for Livingston (Mr. Cook) about the National Health Service and social policy. NHS issues are vastly important and will no doubt be debated in the Chamber at great length, but I hope that the hon. Gentleman will forgive me if I return to the impact of the Budget on the economy, and discuss the industrial energies and dynamism from which funds must flow to finance the social policies that the hon. Member for Livingston and others wish to see. It is on such energies that we must concentrate our efforts if the goods are to be delivered in the form of higher living standards, whether in health, education or any other regard.
I confess that I do not consider the Budget statement a very good occasion for the examination of economic policy. First, the current policy is very complex, and it is hard to establish what point we have reached in the unwinding of the overheated economy. The Budget statement must be made at some time, but this happens not to be a very good time to pull up the economy by its roots and examine it in broad daylight.
Secondly, I entirely share my right hon. Friend's view that fiscal policy is not a suitable instrument for short-term management of the economy. It should be carved and shaped for the medium term to achieve supply side improvements. Attempts to use fiscal measures to adjust the wing flaps, as it were, and to change the steering at the last minute, are almost certain to end in tears and to prove futile.
Much of the comment on the relationship of the Budget and the Government's fiscal stance to the immediate position is entirely unrealistic. Fiscal policy works on a different time scale, and we cannot draw any fresh conclusions about the evolution of short-term economic policy from my right hon. Friend's statement. It is impossible to rush forward and take a snapshot of the economy on Budget day, and to be wonderfully well informed as a result. I sometimes feel—my right hon. Friend must feel the same—that it is as though someone ran up with a camera and took a flashlight picture, I hope in a more suitable place than a nightclub, and then expected that picture to portray the scene truthfully. Often an entirely false impression will be given.
I note that some of my right hon. Friend's critics, especially in the press, are rushing to conclusions. My right hon. Friend is being accused of being a closet Keynesian. One commentator suggested in yesterday's papers that he was discarding monetary controls. That, I think, is a facile picture—a back-seat commentator's view. I suspect that the reason why my right hon. Friend no longer mentions some of the monetary controls and aggregates of which he and others talked earlier in the decade is that they have been tried and found useless and irrelevant in today's wide open economy.
I do not think that my right hon. Friend has gone back to closet Keynesianism or that he is trying to manage the United Kingdom economy as a separate, closed entity, steering the ship from day to day. Nor do I believe that he has thrown over monetarism, deciding that such issues do not matter. The reality, in my view, is that the instruments 574 that are all thought important to steering the monetary side of the economy and controlling inflation—as at one time they were—have turned out to be levers with no wires connected to them.
Like Finance Ministers in other western economies, my right hon. Friend is having to fly his aircraft in exceptionally difficult circumstances. He is, indeed, flying blind, in that all economists disagree on where the economy now is. We are given contrary statistics, which in themselves are suspect, and—almost daily—contrary assessments of the rate at which the economy is cooling down.
As my right hon. Friend peers through the fog, all he has to go by is one glimmering dial before him: M0, which is not a control mechanism but merely an indicator. He has, and is using vigorously, the lever of interest rates, and intends to continue to do so. What he lacks is the additional support that he would receive from a clear sterling exchange rate policy within the framework provided by the European monetary system. I believe that such a policy, underpinned by a relationship to the grid of European currencies through the exchange rate mechanism, would enhance the Government's credibility in squeezing inflation out of the system. My right hon. Friend, however, is denied that, and is thus faced with an extraordinarily difficult task.
Some of my hon. Friends, along with the high priests of monetarism and monetary technicians, say that that is all wrong, and that those other monetary instruments should be installed. They say that my right hon. Friend should be pressing different buttons. I cannot help feeling that it is useless to tell a pilot trying to land his aircraft in foggy conditions that he should be in a different type of aeroplane, and that it is a pity that he is in that one.
I wish my right hon. Friend well in his attempt to achieve a soft landing for the economy in the next few months with the limited instruments that he has to hand. I think that he will achieve it, although I do not believe that the tax changes or even the broad fiscal stance in the Budget will make much difference to what is happening from day to day.
I think that it was David Lloyd George who said that, when making a speech in the House of Commons, Back Benchers should stick to one point and Ministers to two. I shall therefore make only one point about the tax policies presented in the Budget speech. Let me begin with a slightly worrying fact. We now have the lowest ratio of personal savings to disposable income since the 1950s. According to the Central Statistical Office, it fell as low as 1.3 per cent. in the last quarter of last year. That should be of particular concern to my party when we consider the way in which we want to shape our fiscal policy for the medium term.
It does not matter in the very short term if personal savings ratios are as low as that—and one does not know whether the figures are accurate—because this is a credit-worthy economy. We can continue to borrow, we can continue to finance a large trade deficit easily and, in any event, if personal savings are low, corporate savings are high. Government savings are also high, and that is what the public sector surplus is all about.
Overall, the savings of the economy may not be too bad and one can argue that, for the time being, we need not worry on that score and that no problem exists just because of the low savings ratios for individuals. I suppose that it can also be argued that high personal saving is not 575 necessarily a guarantee of economic perfection and dynamism. After all, the savings ratios in the Soviet Union are among the highest in the world—not due to any economic efficiency but because they cannot find anything on which to spend their roubles.
It matters a great deal, however, in the medium term, which is where we should be focusing our attention in considering my right hon. Friend's fiscal reforms. It matters because the expansion of personal and domestic savings is the key to the creation of the kind of society that Conservative Members believe is right, just, flexible and fair for the future.
Our whole party aim—my right hon. and hon. Friends need no reminding of this—is to avoid the state doing all the saving and investing. We think that the state makes a rotten job of both. Our intention over the years has been to encourage personal savings, not merely for their economic contribution but as part of the pattern for a future in which people take more responsibility for organising their own lives, health, education, retirement, housing and the rest.
It worries me, therefore, as a member of the Conservative party and a Member of this House that the personal savings ratios have fallen to dramatically low levels. It would seem a legitimate object of policy to try to get them up, even though the overall savings of the economy may not immediately be a matter for worry.
Another reason why these matters concern us is that they reflect something of a slowing down in our ambition to achieve a popular capital-owning democracy. The Chancellor of the Duchy has had much to say about democratic capitalism. It has been a central theme of successive Conservative Governments since 1979. It gives momentum to what we Conservatives are trying to achieve, which is to extend and spread ownership, to turn earners into owners and to get away the sort of mad propositions of the past which set capital against labour and made the war on capital, ownership and profits such a feature of successive Labour Governments and Oppositions.
We must continue to watch how well the pattern of popular personal share ownership is getting on, and it is not getting on as well as it has in the past. I read in the Financial Times today that personal shareholding has ceased to grow; it has been static for the last year.
I note that the proportion of shareholding by people, as opposed to the great institutions, far from rising, has continued to fall, until it is now below 20 per cent. That, too, worries me, and I look to the Budget to see what can be done to reverse that trend because it is vitally important for the whole momentum of our economic and social programmes that it should be reversed.
The Budget helps in those areas in some ways. As the Chancellor of the Duchy mentioned, a welcome boost is given to employee share ownership. This is immensely valuable and is one of the good things that the famous Lib-Lab coalition of the late 1970s achieved. The Administration of the time did much damage to a great deal of the economy, particularly the health sector and the public infrastructure, with the appalling cuts that were made, which some of us have been trying to restore ever since.
But Labour Members agreed, under pressure from the Liberals and with our support, to introduce employee share ownership plans with tax relief on them. That is how it started, successive Conservative Chancellors have built 576 on that and today we are seeing a growth in employee ownership, which is healthy for industrial relations, social responsibility and a wider share-owning democracy generally.
We are proposing that personal equity plans should be expanded so that people can now invest in pooled forms of savings—unit trusts, investment trusts and equity shares. I make no secret of the fact that I would have liked to see something more dramatic. I would have liked to see the personal pension plan participant's present freedom to put quite large sums of his or her income tax-free into a savings plan extended to the freedom to invest in equity shares, unit trusts or investment trusts tax-free up to a certain amount, with that applying to every working person who wishes to save. That could have been an opportunity vastly to increase personal savings and personal participation in the wealth and industrial strength of the nation.
I hope that what has been done is not a surrender to institutional saving, as the distinguished financial editor of the Financial Times suggested this morning. The implication was that we had gone back from encouraging individual share ownership and were now trying to encourage institutions to flog people more savings plans. That is a misjudged interpretation. That is not what the Chancellor is doing. Wider ownership involves a vast variety of forms of encouragement everything from small business ownership and unit trust investment right up to the full action of investing in equity shares, a difficult and sometimes not particularly rewarding occupation.
I hope that the interpretation in the financial columns is not right and that the Chancellor will reassure us that the Government are still committed to the goals that we set ourselves in the 1970s of widening personal ownership in every way.
Those are ways in which the Budget somewhat helps the situation which causes me unease about low personal savings and a static pattern of personal ownership. However, those issues do not touch the heart of the matter, which is that the pattern of savings in Britain is mad. That is the case because it is influenced by a traditional pattern of fiscal privilege which, in turn, is mad.
As a nation, we invest a great deal, as the Chancellor of the Duchy said, and we are doing well on that front; investment is roaring ahead, at the moment even more in cities in the north than in the south. But we are not saving, which is why we have the present trade deficit. We are not saving on the personal level because of an extraordinary traditional pattern of fiscal and tax privileges which sends strange messages to families and individuals in all income groups and causes a major distortion in the pattern of saving.
The message that comes from the tax system today, even though the Chancellor has struggled to change it a little, is that one should save for one's house—reflected in the vast growth in house prices, a trend that is now spreading across the whole country—that one should save for one's pension, which is fair enough, and that one should stick in one job for life and take no risks. The message, generally speaking, is that one should sit tight and take no risks.
The message that we should be sending, if we can engineer it, is that people should save for investment, for undertaking entrepreneurial risks, for the next generation—for health and education. These things may be anathema to Members of the Opposition, including the hon. Member for Livingston, but to us they are extremely 577 welcome concepts and ideas that should be spread, to bring privilege and opportunity of that kind to everybody in society so that they save for these things.
The trouble at present is that the tax system is only just beginning to be tilted in the direction of encouraging saving for those social aims rather than merely for the pension and the house; and encouraging savings for investment, therefore matching—as must happen in the medium term—the savings of the nation with the huge desire to invest that now exists in this nation and which I so greatly welcome.
I believe that my right hon. Friends are grappling with an immensely difficult task and that they have begun to grapple in the right way. But only when——
§ Mr. Speaker
Order. I must say to the right hon. Member that the 10-minute limit on speeches began at 6 o'clock, so I think he must sit down now.
§ Mr. Frank Haynes (Ashfield)
I shall be very different from the right hon. Member for Guildford (Mr. Howell) because he is a financial whiz kid and I am not. I have my feet on the ground, not my head in the air. That has not been the situation as regards Conservative Members, either at the Dispatch Box or behind the Chancellor and the various Ministers. I know what the members of this Government are all about. They are a load of pawnbrokers. The things they are doing are a disgrace. But I have my feet on the ground and I am a realist.
I talk to people in my constituency who have problems. I do not bother those who have no problems; they can look after themselves. I have plenty of people with problems in my constituency. There were 550 of them in a theatre on Friday afternoon listening to what we had to say about what they should be getting, but are not getting, from this Government. Those pensioners and lower-paid workers told us in no uncertain terms how they felt about the way they are being treated by the Government.
I have elderly people and lower-paid people in my constituency who cannot afford the kind of contribution that the Chancellor of the Exchequer suggested for private health. They are totally dependent upon the National Health Service. I am right behind the National Health Service and I will give my reasons in a very few minutes, because I only have eight left.
The surplus that is knocking around could have been spent in a very sensible way to do something, for instance, about waiting lists. My right hon. Friend the Leader of the Opposition, following the Chancellor's statement, said quite clearly that money should have been spent on the National Health Service from that massive surplus that the Government have created. One way it could be used is to get waiting lists down. We spend millions of pounds on operating theatres and on equipment for them, and for eight hours of the 24 they are doing nothing. That is shocking.
I can tell the Government why that situation exists. It is because consultants will not work a night shift. We expect the workers that provide all the necessary services to work mornings, afternoons and nights. What is wrong with a consultant working a night shift? [HON. MEMBERS: "Hear, hear."] Hon. Members are agreeing with me. I did 578 not think they would. So let the Minister take it on board and let us have something done about it. That is one thing that will help to get waiting lists down.
The Government will start making excuses about beds not being available. That may be the case, so let us put more beds in. In the last 10 years the Government have set about taking beds out, so let us put them back. Then, if there is still a problem of shortage of beds, we should provide a proper service in the community so that, if people have to leave hospital early, at least they will be looked after properly.
I am opening an exhibition in my constituency tomorrow afternoon on behalf of the Central Nottinghamshire district health authority, the object of which is to let people know exactly what is available in the way of community services. They will get a message from me as to what the Government have done about community services. It is shocking. They have been cutting the money for services which people require.
The Government should be spending more money on education. We now have a shortage of teachers. Is there any wonder, under this lot? They cut university places drastically, for a start. I remember Lord Joseph standing at the Dispatch Box talking about what he was going to do about education. He did it, all right, and as a result we have a shortage of teachers.
The Secretary of State for Education and Science ought to come and have a look at my constituency and see the number of schools built in the 1890s. They are falling down and the Government should be spending money on them. Yet, in the rich constituencies of the Chancellor of the Exchequer and his right hon. and hon. Friends, they are opening a new school every five minutes. That is wrong. Those are plush, green Conservative areas. What about areas in which the workers live, such as my constituency? We want a fair share of the cake and we are not getting it.
The Chancellor stood at the Dispatch Box and bragged about how they were going to help the pensioners and the lower-paid, but with all the increases that are coming along, that help which the Government say they are going to give the pensioners and the lower-paid will be cancelled out. As you know, Mr. Speaker, I have just been doing a hell of a stint on the Electricity Bill. Electricity was up 9 per cent. last year and will be up 6 per cent. next year. This is paid by the lower-paid workers as well, not just by people who have plenty in their pockets, into which the Government keep pouring more and more.
Those poorer people have to find money for these increases in prices, and in addition increased water charges are on the way. There was the announcement made yesterday. I think that the right hon. Member for Shropshire, North (Mr. Biffen) was right when he said that this lot will get kicked out next time if they do not change their ways. But, make no mistake about it, they will not change their ways, because of the leadership from No. 10, No. 11 and, yes, No. 12, for the Patronage Secretary is backing them up and making sure that they do not. I know all about that, because I am in the Whips Office on the Opposition side, so I know what he is up to at No. 12.
Then there are dental examination and eye test charges. All that will be borne by the lower-paid and those people who do not qualify for that little bit extra.
The Financial Secretary made a statement not many days ago about taxes being paid generally. We are paying 579 more taxes now than we were in 1979, yet Ministers stand at the Dispatch Box and say how well they are doing for the economy and the people.
The cost of privatisation is an enormous burden on ordinary folk. The rich will fill their pockets from it; it is the lowr-paid and the pensioners who will pay for it. This is a shocking state of affairs and it is time, as the right hon. Member for Shropshire, North said, for the Government to change direction; otherwise, they will get booted out. I look forward to that day. The enormous cost of privatisation is all coming out of the taxpayers' pockets, including the pockets of those poor beggars at the lower end of the scale who are still paying taxes.
They also have to pay for all the advertising. I saw the advertisement yesterday for BUPA. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) stood at the Dispatch Box and held up for all to see an advertisement for BUPA with the Chancellor's face on it. It was really ugly. When I looked at it I thought that for a start he needed a size 42 bra. That is how it looked. In Committee this morning we were talking about the cost of advertising. I suggested that the Government might use the young lady who has been on the front pages of the newspapers for the past few days. The lass is electrifying, but she will be very costly, according to the reports, so if the Government use her it will cost the taxpayer a few bob.
You have given me my 10 minutes, Mr. Speaker, and I have enjoyed them. I hope that you have too. You are a great friend of hon. Members, you have to look after them and you have looked after me this afternoon. At the next general election, I look forward not to returning here, but to remembering where I had been and how much I had enjoyed myself. I hope that at the next general election we get rid of that lot, return to power and really work for the nation.
§ Mr. Richard Page (Herefordshire, South-West)
It is always a pleasure to follow the hon. Member for Ashfield (Mr. Haynes) who is good value for money, but I hope that the House will excuse me if I am a little more temperate and conciliatory.
I support the Government in much of their general policy and I was delighted at the improvements in the Budget for small businesses and share ownership schemes. However, I am concerned about our manufacturing industry. This is the second Budget that should have done more to push forward the recent improvements in production and investment.
About two years ago I expressed my concern about the state of our manufacturing industry and said what I thought would happen to the balance of payments. I was reassured that I was worrying about nothing, but today there is a huge balance of payments deficit and 8 per cent. inflation. Inflation has been brought under control by the use of one lever, and I have no doubt that the squeezing of demand will reduce our current high deficit and choke off the import of foreign goods, but it will not eliminate the balance of payments deficit completely. I see nothing in the Budget to prevent the same balance of payments deficit that we face today re-emerging when interest rates drop and demand rises. If nothing is done, I envisage the emergence of an economy behaving like a car with kangaroo petrol, bouncing forward and backwards in a cycle of stop-go reminiscent of the 1950s and 1960s.
580 At the beginning of the decade I supported the Government's industrial policy and helped to push it towards making industry more independent and more self-sufficient, pulling it away from that teat of state support. With the improvements that flowed from management starting to manage, the privatised state industries became major contributors to the current account surplus, from the sales and from the fact that the Government no longer needed to find billions of pounds to prop up lame-duck nationalised industries. But nothing is for ever, and the time has come for a further boost to our industrial strategy.
The excess demand in our economy produced the expected results of rising inflation and a widening trade deficit when British industry has been selling all that it can make. Industrialists are human beings. When they are faced with excess demand over production they are not under so much pressure to hold down prices. Consumers faced with non-supply or slow supply of products and money burning a hole in their pockets readily turn to buying foreign goods.
If there were evidence that British industry was growing at a sufficient rate to meet the demand that will be rekindled when interest rates have dropped, I would be relaxed about advocating any change. I certainly do not sneer at the improvements that have been made towards productivity and investments, as Opposition Members have done. But unfortunately, I consider the rate of improvement in our industrial sector to be considerably below the level required.
Last year's expenditure way outstripped the capacity of our industrial base to satisfy it, so imports soared. January's results reinforced that position. To put the problem into perspective, manufacturing output last year would have had to rise by some 24 per cent. to meet the increased demand in the home market. Industry managed an 8 per cent. growth.
Much play has been made of the improvements in productivity and manufacturing investment. I welcome them—I certainly do not knock them but—we should examine those figures not in isolation but in comparison with the world stage, because we compete on the world stage. Recent OECD figures show that we still have a productivity gap of 30 per cent. against the United States and 25 per cent. against the rest of Europe. The figures covering investment by our manufacturing industries in machinery and equipment as a percentage of GDP, or our gross domestic fixed capital formation as a percentage of GDP compare badly with our foreign competitors. Let us not forget that the majority of countries with which we have a £15 billion deficit last year belong to the EEC. The figures are available for everyone to see, so I shall not go through them all, but will select a few examples.
Although I welcome the improvements, investment by manufacturing industries in Britain has yet to reach 1979 levels. In domestic gross fixed capital formation costs as a percentage of GDP, we are at the bottom of the list of 23 major industrialised countries. It is significant to note that, in all those figures, the Japanese invest 50 per cent more than the average in fixed capital formation and in machinery investment. There is no sign that, if demand is allowed to expand, British industry will have the capacity to meet it.
Leaving aside my concern that present interest rates could slow down capital spending as much as we hoped they will slow down consumption, I ask the Government 581 to look further than the current short-term problems and set in place an enhanced strategy to further increase the capacity of British industry. The problem can be tackled only by the Government putting out strong signals. It cannot simply be left to the market. So often, industry's horizons are dominated by the short-term and medium-term levels of investment. The Government have to look further.
Like every other nation we have our strengths and our weakness and our national characteristics. It is a matter of puzzlement and concern that for some reason British industry and commerce does not pay as much attention to training, research and investment as do our foreign competitors. The results reflect that lack of attention.
The Government recently announced a major shake-up in training in which industry will be involved, and they are to be congratulated on that welcoming initiative, but stronger signals and inducements have to be set for research and capital investment which will require a strategy to identify our exporting priorities and provide appropriate measures to support them. We have to consider initiatives such as the "Better made in Britain" campaign run by Sir Basil Feldman. I know that the Government have given it great support but they could suport it still more. In the critical sector of information technology, we have to look more closely at discouraging reliance on computer components imported from the far east. It must be wrong to have higher levels of import duty on silicon chips than made-up circuit boards. We are a value-added economy and having duties the wrong way round is not the way to make things work.
The third vital ingredient is a coherent industrial strategy for research and development. By that I mean that the tax structure must be adjusted to push, persuade, cajole and force industry into supporting basic and applied research.
Budgets should seize opportunities to persuade our manufacturing industry that it is always easier to retreat from areas of policy than to devise and carry through constructive new schemes. Our rivals abroad are exporting vast quantities of goods into this country. They show that it can be done. Sooner or later, we must do that as well, in order to survive.
§ Mr. Dafydd Wigley (Caernarfon)
The Chancellor of the Duchy of Lancaster referred to considerable improvement in unemployment levels as a justification for the Government's overall financial and economic policies. But as I said in an intervention, it is hard to believe that from my perspective. Perhaps unemployment in the constituency represented by the hon. Member for Hertfordshire, South-West (Mr. Page) is only 2 or 3 per cent.—I see the hon. Gentleman nodding—but unemployment in my constituency is approaching 20 per cent. Many hon. Members who represent other parts of Wales and north-west and north-east England, as well as Scotland, with the same problem fear that the Government are slowing down the economy when those regions have not yet caught up and do not yet benefit from any of the advantages resulting from economic improvement.
I noted with concern the words of Samuel Brittan in today's Financial Times. He says: 582even if the Treasury's real growth forecasts are right, the present level of capacity and labour utilisation could well be too high even to stabilise inflation, let alone to drive it down.He goes on:One alternative.….is a sharp and perhaps short recessionary shock, with a period of sterling overvaluation.When such remarks are made arising out of the circumstances of the economy in the south-east, they create a shock wave in areas such as mine. Our levels of unemployment are unacceptable.
Against this background, measures such as the pensioners' earnings rule relaxation, which is welcome in itself, are irrelevant in areas such as mine, where youngsters cannot get jobs, although they might be relevant in other areas to provide incentives to work for those over retiring age.
The Chancellor replied to my intervention by referring to the importance of regional selective assistance. But we have seen only in recent weeks how that tool is not being effectively used in my constituency, when a television film studio project was discouraged from pursuing regional selective assistance, even though about 200 jobs could be created. The Government seem to have withdrawn from regional policy as part of the desire to save money in the past two to three years. The consequence is an unbalanced development of the economy, which is in itself an inefficient way to run any economy.
Incidentally, in that context of the waning of regional policies, even today we hear of 60 job losses within the Welsh Development Agency. We know that the important programme of the rural conversion grant scheme was ended summarily only last month because of lack of funds to keep it going.
Therefore, we have real misgivings about the failure of the economy to provide jobs and to get economic development in areas such as mine. We need capital investment programmes to give local stimulus, programmes that can be closely directed to areas of high unemployment. Most areas need new hospitals, modernised schools, improved roads, electrified railways, and upgraded sewerage and water systems. These programmes could be used to ensure that jobs are developed in the areas where they are most needed. We greatly fear that a brake will be put on the economy before we see any real recovery in Wales.
With regard to high interest rates, which are clearly a problem for manufacturing industry as well as for home owners, I believe that if they are caused by excessive consumer spending and demand, they can be better controlled by the use of selective credit controls rather than the market place attitude of the Government. The cost of present policies is high to many families.
The main drift of Government policy over recent years seems to have supported cutting back spending and reducing services, to which the hon. Member for Livingston (Mr. Cook) referred. The increased emphasis on making profits rather than answering needs seems to have been the direction of Government thinking. That has led on to the concept of privatisation. A spiv value society is being created, which is only concerned about costs and profits, and is indifferent to needs and values.
The manifestation of that approach in my constituency is seen in all directions. Earlier this month, four hospital closures were confirmed, although there is a great need for those services. Only last week there was another school closure in Gwynedd by the Welsh Office, although the 583 education provided by the school was needed in that area. Those closures were designed to reduce spending by the education and health authorities.
More generally, a freeze of benefits is hitting pensioners. Those who had anything above the bare minimum pension last year, such as in heating allowances, will have no increase in their pensions this year as the transitional arrangements are eroded. Yet they face many increased bills. Not least, many council house tenants are being billed directly for the first time for their water charges. That is hitting people in our area. Pensioners living on £40 to £50 a week receive lump sum bills for £150. They do not have any money and do not know where to turn. They are required to make this payment as part of the privatisation process.
They are helping to create the £14 billion surplus which the Government announced for last year and are working to this year. We have seen the same thing in relation to charges for eye tests and prescriptions. Each man, woman and child in these islands is being required to pay £5 a week to fund that surplus. One really questions whether the Government's social objectives are right.
The Government's ethos is seen in other directions. The cuts affect other areas of social policy. The police are not getting the resources they need to do the job. There are even reductions in water bailiffs on our rivers. They fear for their lives in doing their jobs. The need to spend money on reducing environmental pollution in the air, on beaches and in rivers is manifest in all directions. People keep reminding us of the need to improve standards, but we are cutting costs.
The cutting of costs is an attitude that can go in very dangerous directions. One thinks of the dangers on the railways recently. Although we do not know the reasons for these tragedies, the cutting of costs can sometimes lead to disaster. One also thinks of food safety and the danger from the closure of research centres. One wonders whether we are being penny wise and pound foolish. Service after service is being privatised, but the major privatisation is the privatisation of public debt—the reduction of the national debt at the expense of creating the massive hike in private debt, which many people face.
I was a little surprised by what the Leader of the Opposition, the right hon. Member for Islwyn (Mr. Kinnock) said in his reply to the Budget. He referred to the Government's taxation policies and criticised the Government for having placed the highest tax burden in peace-time history on the people of this country. He said:This Budget will not lessen the burden either on the family or on the national income."—[Official Report, 14 March 1989; Vol. 149, c. 311.]
I suggest, however, that that is not what Opposition Members should be looking for. If we believe in public expenditure and public services, we must will the taxation to do that. We are not taking up an exceptional moral position by criticising the Government for their taxation levels when that taxation is needed to maintain services. Indeed, I should have liked to see the indexation of duties on alcohol and tobacco, because the money that would be raised by those methods could better be spent on services that are needed by ordinary people. People in receipt of attendance or mobility allowances are losing their benefits, although their conditions are worsening, because of the need to make cuts in expenditure.
§ Mr. Wigley
No, I will not. I am about to run out of time.
If there was a surplus of £14 billion, would it not have been sensible to provide £4 or £5 a week extra to pensioners and disabled people? Surely that would not have affected the balance of payments or seriously fuelled inflation. It would have been a worthwhile step which we could have afforded and would have been of benefit.
We welcome the incentive to use unleaded petrol, the VAT relief for charities, in so far as it goes, and the relief from car tax for cars leased to disabled people. Those are relatively small measures. We are worried about the lack of underlying strategy and of solutions to the unemployment problems of areas such as mine.
§ Mr. Michael Jopling (Westmorland and Lonsdale)
I am pleased with the Budget, but few Opposition Members will hold that view. I know that it is fashionable to try to sum up a Budget in a phrase. My summing up would be that for the majority of people it was a something-for-nothing Budget.
In the debates since the statement made by my right hon. Friend the Chancellor, Opposition Members—especially Labour Members—have found it extremely difficult to criticise the Budget. Listening to the hon. Members for Livingston (Mr. Cook) and for Ashfield (Mr. Haynes), one might have been excused for thinking that one had stumbled into a debate on the National Health Service. We have heard little from Opposition Members about the Budget. Being slightly more charitable, one could say that Opposition Members, including the hon. Member for Caernarfon (Mr. Wigley), have confused the Budget debate with one on the public expenditure White Paper. It is time that we returned to the Budget.
I began by saying that I was pleased with the Budget, and I shall briefly pick out five matters—there are many others—that pleased me. I was most pleased by, at long last, the abolition of the earnings rule for old-age pensioners. I cannot think of anything that has more irritated my constituents than this rule. People have never understood why they were fined for working, or why reductions had to be made in what they thought they had earned and paid for, merely because they wished to continue to work for the good of their health and the good of the nation. It is the best measure in the Budget.
The second matter that pleases me is that the Treasury appears determined not to let up in the fight against inflation. All Conservative Members share discomfort and considerable surprise that we are on the threshold of an 8 per cent. inflation rate. I say to the Treasury that this is not why Conservative Members were elected. Once again, inflation seems to have become the No. 1 priority of the Treasury; it is essential that it remains so. I hope that it will ensure that nothing stands in the way of reducing the inflation rate to manageable proportions.
The third matter that pleases me is the way in which the Government have dramatically started to repay the national debt. I was always brought up to believe—as, I suspect, were other hon. Members—that the national debt was a burden imposed on current and future generations by previous ones. I was brought up to believe—and I have some experience because this is the 25th Budget to which I have listened—that the national debt is something with which we must live. Until the past few years, even given the 585 Goverment's outstanding record on the economy under this Chancellor and his predecessor, I never thought that we would get round to paying it off. The news that we heard this week—that at the end of the coming financial year we shall have paid off 16 per cent. of it and shall save £3 billion a year in interest charges—was a revelation. I hope that in the next Budget, and in subsequent ones, Conservative Chancellors will tell us some of the measures that have been made possible by the money saved from interest payments that would otherwise have had to be made.
The fourth matter that pleases me is the accent that the Chancellor has put on savings. I share the concern of my right hon. Friend the Member for Guildford (Mr. Howell) about the lamentably low level of savings. Clearly something had to be done, especially in this period of inflation.
In his speech, my right hon. Friend the Chancellor mentioned his brainchild—the introduction of personal equity plans. It was a brilliant scheme and it is disappointing that it has not succeeded as much as it deserves to. I hope that the new steps that the Chancellor has taken to breathe life into PEPs will be successful and that he will not hesitate to make them more attractive. It was a highly imaginative idea and everything should be done to encourage it.
The final matter that pleases me is the Chancellor"s freeze on excise duties, which will please many people. I notice that already a torrent of abuse is coming from that vociferous group whose business it is to tell us that more or less everything that we want to drink, eat or inhale is bad for us. Most of us are coming to the conclusion that they should be completely ignored, and I hope that the Chancellor will ignore all those who are criticising him so firmly for freezing excise.
I shall end on an important note of caution. I am concerned about the current balance of payments deficit. I heard the comments made about it by my right hon. Friend the Chancellor and my right hon. Friend the Chief Secretary to the Treasury yesterday and my right hon. Friend the Chancellor of the Duchy of Lancaster today. I hope that, with the greatest charity in the world, they will understand when I say that they tend rather to shrug off the current balance of payments deficit in a sentence or two. I am bound to say that I have considerable anxieties about it. It is hideously large and I hope that the Chancellor will reconsider the need to encourage endeavour in making import savings.
The Treasury should understand that revenues and production from domestic oil and gas supplies will soon be running down. All the reports produced on the subject bear that out, and in future we shall need to import much more energy, which is likely to bring us to a structural balance of payments problem similar to the problems with which we were so familiar in the pre-North sea era.
It is not good enough to wait until that happens; the Chancellor should be looking now at ways in which import saving endeavours could be stimulated. Over the years, one of the great opportunities for stimulation was provided by British agriculture. That opportunity was grasped in recent years, but nowadays, given that we are much more self-sufficient in foodstuffs and that there are massive European Community surpluses, there is much 586 less opportunity to do so. However, there are still many opportunities to prepare for the time when we may run into balance of payments problems much more serious than we have been used to over the past 10 years. There are ways of doing this, and they ought to be thought through now. The Government ought to begin to make arrangements, because we shall need them before very long.
§ Mr. Tom Pendry (Stalybridge and Hyde)
The right hon. Member for Westmorland and Lonsdale (Mr. Jopling) said that the Government had not been elected to preside over an inflation rate of 8 per cent. That is true, but why did the right hon. Gentleman stop there? The list is endless: the Government were not elected to preside over the current unemployment rate; they were not elected to see the rundown of our National Health Service; they were not elected to see the rundown of our housing stock. I think the right hon. Member was rather too kind to the Government and their Budget.
The Budget was a disappointment for some, but for many it was little short of disastrous. It was out of touch not only with the realities of the British economy in 1989, but with the vast majority of the British people as well. It was a hands-off Budget, at a time when the economy is running out of control and is in desperate need of a firm steer from our helmsman. I am sure that, in making that point, I will have the support of the former skipper of Morning Cloud.
At 4.30 pm on Tuesday I was reminded of a saying that I learned as a lad, when I was evacuated to the north-east during the war: "When in doubt, do nowt." I have to say that my hon. Friend the Member for Easington (Mr. Cummings) would do more justice to that saying, but, while I may not have the accent right, I am sure that the meaning is clear. The Chancellor did not do very much that was relevant, and that Geordie sentiment sums up this particularly boring of all this Government's boring Budgets.
Hundreds of thousands of people were crying out for some fairness and help following last year's unbalanced Budget. As a NUPE-sponsored Member of Parliament, who represented many thousands of low-paid workers in the public sector before coming to this House, I know that this Budget leaves them as badly off as ever—and that is badly off. That a married couple on one third of average earnings will benefit by £2 a week, compared with the £7.40 that a couple on five times average earnings will gain, shows what this Chancellor's priorities really are. In his speech he claimed that his Budget had eased the poverty trap. That is complete nonsense, particularly in my patch of north-west England. It simply is not the case. Earnings of £60 a week will no longer face a marginal tax rate of 25p plus 5p national insurance; the rate will rise to 25p plus 9p, making those people much worse off.
Labour Members, and, indeed, the low-paid, had hoped that the Budget would lead to an attack on poverty. Of course, it will not. The few crumbs given out by the Chancellor will be clawed back by his ministerial colleagues through family credit. It is high time the Government started to help the 300,000 people in the north-west alone, and many thousands more in the country at large, who do not earn enough even to pay tax. 587 An increase in child benefit—long acknowledged as the best way to attack poverty—would have been very welcome indeed to those people.
I wish now to address my comments to a group who, sadly, have once again been neglected by the Government—the pensioners, whom, strangely, the Chancellor thinks he has helped in large measure. There are now some 10 million pensioners in this country—almost one in five of our citizens are over retirement age—yet this Budget does nothing for the two thirds of pensioners who do not have sufficient income to be liable for income tax. More than four fifths of our pensioners rely, for the vast majority of their income, on state pension and housing and other benefits. The much-publicised abolition of the earnings rule, which we certainly welcome, will affect just 200,000 of our elderly. Welcome though that measure is, it will leave the other 9.75 million pensioners no better off. We have to see the measure in that context.
Likewise, the tax relief on private health insurance now on offer says far more about the Government's lack of commitment to the National Health Service than about caring for pensioners. All that the change will do is reduce the tax base for funding the National Health Service, while demonstrating once again the Government's lack of faith in a properly funded National Health Service for all. What is more, the Government do not even understand the private health sector. Both BUPA and Private Patients Plan make it clear that they are not interested in having long-term elderly ill people on their books—they are much more for the quick buck and the easy operation.
Many pensioners are more alarmed than ever about the future. The Chancellor admitted that inflation would top 8 per cent., yet pensions will rise this year by just 5.9 per cent., leaving the pensioners worse off than ever. The pensioners whom I know have long memories. My 96-year-old mother still remembers the day in 1980 when the split was made between pensions and earnings. She and millions of other pensioners have cursed that day ever since. As Age Concern points out, the pension is now worth just 80 per cent. of its 1980 value, and will be worth even less by the end of 1989. Given that the pension increase is based on the rate of inflation last October, and not the current rate, the real value of the next pension increase will have been eroded even before the money is paid out.
The inadequacy of the state pension means that more and more pensioners have to rely on means-tested state benefits. More than 5 million senior citizens now receive income support or housing benefit, yet 34 per cent. of pensioners do not claim the supplementary benefit to whch they are entitled, and a further 19 per cent. do not claim housing benefit. The cuts that the Government make in housing benefit hit those who can least afford them, while this Budget does nothing to help the self same elderly people. The latest change in housing benefit cost over 2.5 million pensioners some cash, and some 750,000 further senior citizens lost all their entitlement. This is against a background of five successive changes since 1983, which have cost more than a million pensioners real money.
It is no wonder that pensioners are now standing up and being counted. It is not just national organisations, such as Age Concern and the National Pensioners Convention, that are voicing their grievances so clearly; there are now many local groups that are becoming very effective. The pensioners action committee in my own area of Tameside is active. This week, knowing that the Budget 588 was coming, it lobbied me about the rights of its members. Local vocal leaders, like Tameside's Judith Clayton, come and lobby me actively. There are many Judith Claytons, and if they are not already making their presence felt in the constituencies, they certainly soon will be.
I conclude by referring to two letters that I received recently, which give some indication of that feeling. One senior citizen, from Dukinfield, writes:When we served in the Army we fought for a first-class Health Service to keep us fit to fight for Britain, and they did not count the cost of the bullets.Now that we are not fit to work, through no fault of our own, they are counting the cost of keeping us from pain and suffering, let alone dying.The second letter says:I have voted Conservative for 55 years … I am no longer a Conservative and will in future turn my allegiance to your party. I trust Mr. Kinnock will be more sympathetic to us pensioners, who will be the turning point in the next election. Ten million are a hell of a lot of votes, and I am convinced most of them will be on your side.Pensioners like these will not lightly forgive the Government, and they look to the Labour party to fulfil their just needs after the next election.
§ Mr. Christopher Gill (Ludlow)
I salute the Chancellor. As another former naval person, I appreciate the slogan of the Budget, which is, "Steady as she goes." That is good news for the good ship Great Britain.
We still have too many taxes. I join other hon. Members in applauding the fact that the earnings rule for pensioners has been done away with. We still have too many taxpayers. Too many of the best brains in the financial circles of this country are employed on tax matters. That is because, regrettably, our taxes remain too complicated. Many of them are beyond the intellectual capacity of the majority of taxpayers.
The Budget is realistic, prudent and thrifty. "Thrifty" is an important word, because, try as we may, we cannot encourage prosperity by discouraging thrift. Since the Government came to office in 1979, thrift has been encouraged in the public sector. It is now firmly established. We have a balanced Budget, and buoyant revenues and, what is more, we are repaying debt.
What is to be done about encouraging thrift in the private sector, where experience is altogether different? We are living beyond our means and borrowing more than we can afford. My right hon. Friend the Member for Guildford (Mr. Howell) drew attention to the low level of savings in the country today. It is self-evident that savings—thrift, if hon. Members want to use another word—are more difficult and relatively unattractive when they must come out of taxed income, especially when the products of such savings in turn are taxed.
When the Government came to office in 1979, they did two things. First, they dramatically reduced taxation rates. Secondly, they instituted a major shift towards indirect taxation. I urge my right hon. Friend to accelerate that process.
Direct taxation is an enemy of thrift. Direct taxes—that is, taxes on income—are taxes on hard work and honest endeavour. Taxes on income, at whatever rate and for whichever group of workers we are considering—whether they are blue collar or white collar workers—are disincentives. They always have been and they always will be. They are disincentives to thrift, saving and risk-taking. I want my right hon. Friend to consider the many 589 substantial benefits of shifting more of the burden of our taxation on to an indirect basis. One virtue of that is that we would give the average citizen greater self-esteem. The majority of our citizens enjoy greater freedom to determine their own priorities. We have proved beyond any doubt that, when we give individuals greater responsibility for their actions it works—and I want to see more of it.
It is easier and cheaper to collect indirect tax, and there are fewer opportunities for evasion and avoidance. Many hon. Members are aware of the black economy. More important, as we shift the burden of taxation on to an indirect basis, we put savings on the same basis as any other disbursements. Again, that encourages thrift. But, equally important, by shifting the burden of taxation on to an indirect basis, we would shift the burden from production, where it currently lies, on to the consumer. That is important. Direct taxes—taxes on wages and salaries—are taxes on production, which is inconsistent and incompatible with the aspirations of a manufacturing nation trying to regain its confidence, its competitiveness and its capacity, to become once again the workshop of the world.
§ 7.4 pm
§ Mr. Ron Leighton (Newham, North-East)
I will not waste breath on this frightened and timid Budget. Gone is the swagger and braggadocio of last year's Budget. Because of the mistakes then, we have virtually a non-Budget. Last year's Budget was for the rich. This year, some expected a Budget for the poor, but it was not to be. I shall say a few words about the effect on employment and training.
At the last election, the Labour party suggested that we should invest £6 billion, mainly in the public services, to create 1 million jobs. The Conservatives said that that was wildly irresponsible and even inflationary. But in the last Budget £4 billion was given to the rich. The message was, "The good times are here, so spend, spend, spend, and borrow to do it." With unprecedented competition between banks and building societies to lend, credit was thrown at the public, and never have so many been able to borrow so much. About £40 billion was borrowed. Instead of £6 billion, more than £40 billion was spent as a private sector, not public sector, borrowing requirement. It spilled over into a new breakneck consumer boom, and it has had two effects.
First, as Labour said it would, it brought down unemployment. Secondly, as the extra demand did not go where Labour wanted—that is, into investment in industry, research and development, education, training, housing, schools, and the environment—but into the consumer boom, it was not sustainable. The weakened, ravaged supply side of the British economy could not cope, so private borrowing sucked in imports, and we had the catastrophic deficit in our balance of payments of about £15 billion. In addition, because of the extra demand, producers were able to put up their prices, hence the big rise in inflation. The so-called blip is still with us, and it is rising.
Because of the resulting high inflation, high balance of payments deficit and high interest rates, the engines have been put into reverse. The punitive interest rates signal 590 stop, not go. Instead of flying, we are to have either a soft or hard landing, and growth is to be cut by more than half next year. If that policy succeeds, the fall in unemployment will stop and be reversed.
There is nothing in the Budget about training. That is a major reason for the weakness of British industry and for the balance of payments deficit. After 10 years of this Government, we have one of the worst trained work forces in the world, yet there is nothing in the Budget about encouraging training. As soon as we get growth, we run into skill shortages. They are a major restraint on Britain's ability to grow and compete. We have a yawning skills gap. Unless and until that is transformed, we shall be trapped into a low skills equilibrium, with our enterprises having poorly trained managers and workers producing low-quality, low-value, goods and services, and earning low pay. We already have the cheapest labour in Europe. We are falling behind even countries such as Korea and Taiwan.
We have a market failure, and it cannot be left to market forces. We need greater public financial commitment to encourage investment in training. The money exists—£14.5 billion—yet the opportunity has been thrown away. The Chancellor is afraid to spend, because of the inflation that he stoked up. Investment in training is non-inflationary. It is counter-inflationary. It would aid the supply side and enable us better to compete in the markets of the world and diminish the trade deficit.
Let us examine the much-vaunted employment training scheme. It is grossly underfunded. The Government instructed the Training Agency to put twice as many people on ET as on previous programmes but for the same amount of money. One does not need to be a genius to realise that it was an impossible task and that the programme would be crippled by that handicap.
The Select Committee on Employment has been studying the matter. On 15 June 1988, it examined the Training Agency on the failure of the previous programme, the job training scheme. It told us that the JTS target was 232,000 adults in 1987–88, and 110,000 at any given time. The programme ended with only 30,000 people on it, and only about 100,000 had entered—in other words, less than half the expected number. It was such a failure that it spent only 42 per cent. of the original financial provision. There was a massive underspend and a massive failure. Why was that?
We were told in the Select Committee on Employment that there were four lessons to learn. There had to be, first, realistic targets and numbers and, secondly, adequate financial incentives; thirdly, the programme should be sold better to employers, and, fourthly, it was important to secure the co-operation of the partners needed for the delivery of the programme—that is, the local authorities, the trade unions, the voluntary organisations and the employers.
None of those lessons has been learnt and the same mistakes have been repeated, with predictable results. The whole programme is going off at half cock. The financial incentives are inadequate. I suggested doubling the £10 above benefit, which was a modest proposal that would have cost £180 million. The Government said no. As a result, the programme is not attractive to the unions, which did not support it, and largely because of that the local authorities did not either. The Secretary of State for Employment gloried and rejoiced in that and he hurried to expel the trade unions from the Training Agency. But the 591 programme can succeed only with the co-operation of the unions and local government. We need consensus and agreement, not conflict. Because of that fundamental blunder, the programme is failing.
On 15 June, Roger Dawe, the director-general of the Training Agency, told the Select Committee on Employment:350,000 … is the number of entrants we expect to come in between … 5 September and the end of the financial year.He told us that he expected 45,000 a month. On 22 June Geoffrey Holland, the permanent secretary, said:In the scheme at any one … time … there will be about 300,000 places in total.When, on the same day, I asked the Minister of State, Department of Employment whether those figures were realistic, he said that they were, because he had had bids for 700,000 places from training managers. What has really happened? The latest figure is 157,000, which is half. Because of that failure, there will be a massive underspend.
A fortnight ago, the Select Committee went to Scotland to look at these matters. We were told there by the Training Agency that its target was 41,000 by the end of the financial year. How many are there? On 24 February, there were only 18,000, plus 3,000 on community programme pay, so the agency had only half the expected number. The reason was that the local authorities did not join the programme. They rely on the partners for the delivery of those programmes and it is essential to bring them in for success. We must enlist their co-operation and not antagonise them.
In Dundee, we learned that, of those referred by the employment service, 53 per cent. had dropped out by the time they reached a training agent and 35 per cent. had dropped out by the time they reached a training manager. The average across Scotland was that only about 25 per cent. of those referred actually completed six days with a training manager. That can only be described as shambolic. Even after that, I have been told in answers to parliamentary questions that tens of thousands have dropped out nationally thereafter. That is ludicrously inadequate for the nation's training needs. After 10 overlong years of this Government, we are falling further and further behind. It is a scandal that, with a Budget surplus of 14.5 billion the Government are unwilling to invest more in the training of our people.
§ Mr. Nicholas Budgen (Wolverhampton, South-West)
The hon. Member for Newham, North-East (Mr. Leighton) was right at the beginning of his remarks to draw attention to the credit boom which has been such an important part of the cause of the Government's present difficulties. I want to make a point about the Government's relations with the level of the stock market at present. I am sure that the hon. Gentleman will agree with me that credit had much expanded before the last election in June 1987. Many of us who managed to keep our mouths more or less shut during the election hoped that that credit would be much reduced immediately after the election. It was not. I suggest that the reason was that the Government were interested in the level of the stock market because they hoped to float BP shares on a high and rising market.
The Government then found themselves caught in the stock market crash of October 1987. My right hon. Friend the Chancellor now says that it was both inevitable and 592 necessary that further liquidity should be put into the market. If I may be pompous, I said at the time and I say again that it was not necessary and that there was no proper comparison between October 1987 and the autumn of 1929, for 1929 was a time when there had been a long period of tight credit. There had been high inflation at the end of the 1914–18 war and that had been corrected by high interest rates. There had been a progressive squeeze from 1922 until 1929 and the authorities were mistaken in further contracting credit in 1929. But in October 1987 there had been a year of lax monetary policy and that was then greeted with yet further laxity.
Why do I say that that particular mistake needs to be borne in mind at present? The reason is that there is every sign that the Government are, once again, concerned about the level of the stock market. It is, of course, inevitable that once a Government become involved in the level of any market, they give that market particular tax concessions. When we consider, for example, the proposals for the personal equity plans or the proposals by which employees will be able to save on advantageous terms and to purchase shares in their own concerns, it is obvious that the Government are anxious to channel savings into concerns that have been privatised and to encourage employees to buy those shares, even at a substantial discount.
You will have noticed, Madam Deputy Speaker, that employees may be given the opportunity to buy shares in the water concerns at a discount now increased to as much as 20 per cent. I am not making a point about that, because it seems inevitable that, if the Government are interested in the gilts market, for example, tax advantages will be given to the gilts market. If the Government are interested in privatised shares, it is the nature of government that tax advantages will be given to shares in privatised concerns.
But I want to make it plain that I do not agree with Mr. Sam Brittan in today's Financial Times that it would not be the end of the world if, at the end of this Parliament, the underlying rate of inflation were 5 per cent. I make that point because I know that Mr. Brittan often speaks with the voice of my right hon. Friend the Chancellor. One of the principal reasons why this Administration attained power in 1979 was that it was believed that they would eventually and properly restore sound money. It would not, of course, be the end of the world if the underlying rate of inflation were only 5 per cent., but it would be a sad letdown for all those who voted in 1979 and later for a Conservative Administration. Inflation at 5 per cent. would be a major cause of social disruption and unease. Those of us who believe ourselves to be not so much Gladstonian Liberals as Tories, believe in social cohesion. The enemy of social cohesion is inflation—perhaps at 5 per cent.
I hope that, when the time comes to float the shares in the water companies, it will not be thought wise to let up on the present restriction on credit simply to ensure that asset prices go up. That will not be a genial mistake that is easily understood by historians, who may say that the present Chancellor of the Exchequer lost the only chance in the electoral cycle of getting on top of inflation simply because he wanted to ensure that water shares were floated on an attractive market in the way that he certainly wanted to float the BP shares back in the autumn of 1987.
§ Mr. Eric S. Heffer (Liverpool, Walton)
This is probably the 24th Budget debate in which I have participated. I took no part in one, because I was a Minister of State at the time.
I always consider that in these debates we are usually discussing how best we can operate the present economic system. The right hon. Member for Guildford (Mr. Howell) put his finger on it when he said that he passionately believed in people's capitalism, a share-owning democracy. I find it difficult to adjust my mind to such debates because I think that the system of society we operate is ludicrous, selfish, greedy and beneficial to small groups of people but not to the mass of ordinary people. Therefore, I have some difficulty in relating to the discussion in this House.
The fissures opened up again this evening. We have seen the more moderate Tories who, of course, have rejected the full-scale monetarist position and who are not too happy about the way in which the Government are moving, and we have had other Tory Members who have supported the Government, but who perhaps have thought that they are not going far enough. We are back to discussing the nature of society and the best way to run it.
Sometimes some of my hon. Friends use phrases such as, "The Government have failed," or "The Government should have done this," or "They should have done that." I do not think that the Government have failed. In running the capitalist system in the interests of the small group or class that they represent—the big business interests of the City of London—they have done pretty well. They cannot be accused of failure, because the rich have done exceedingly well out of this Government.
The rich did particularly well in the last Budget, when the poor did very badly. This time the poor are hardly getting anything out of the Budget, and although the rich are not getting as much as they might have wanted, they are not unhappy, as could be seen in the reaction of the City of London immediately the Budget was announced. Business men in the City sat and drooled. They were as happy as Larry saying, "How good it is for the City. We're not unhappy with this Budget."
The Government are very much a class party. Their Budget proposals are beneficial to their class and it is about time that we, the Opposition, began to think seriously about an alternative strategy to eliminate this type of society which the Government think is getting stronger and less and less helpful to ordinary people.
The top 10 per cent. have gained more from the Budget than the whole of the bottom 50 per cent. The bottom 30 per cent. received only 5 per cent. of the total tax reduction. The only point that I could make when I shouted out during the Chancellor's speech—it is a rule that Chancellors do not give way when making their Budget speech—was, "It is all right for the rich," and the Budget is certainly very good for the rich.
The Budget proposals, or rather the failure to uprate personal allowances and the threshold in earnings, mean that 160,000 families on low incomes will pay tax when previously they did not. That is an example of the class nature of the Budget.
Let us see who has not been helped in the Budget, despite all the talk from the Government Front Bench about helping the low-paid. The unemployed and pensioners living on state pensions are not helped in this 594 Budget. Women receiving child benefit will not be helped either. It is a fact that 48.1 per cent. of women full-time workers earn less than £100 per week.
Look at what happened with the bonanza last time. A person earning £100,000 a year was given £260 a week. That underlines the nature and character both of the Government and of the sort of Budgets they introduce. This year, the gains for the majority of ordinary working-class families will be only £1 or in some cases £3 a week. However, that gain will quickly be lost if they have to pay the high mortgage rates. I remember when I had a mortgage. It seemed as if the burden got bigger every year, although I was supposed to be paying it off. I shall never forget it—it was a dreadful business—and that is the position for the majority of people in this country.
This capitalist system, with its selfishness for the few at the expense of the majority, is basically an evil system. I use the word "evil" because to me it is evil that small groups of people can become exceedingly wealthy under a Government who help them to become even wealthier, when the mass of the ordinary people are not receiving their rights.
We had an example of those differences in attitude when the Prime Minister recently came to Liverpool. She went to the Birds Eye Foods factory which has been in Liverpool for 35 years. She said that it was closing down—this is what the firm told her—because of the lack of productivity. She did not say that the company had been building another factory on Humberside for the past two years. She did not say that what worried the workers at Birds Eye was losing between 300 and 400 jobs. In an area where 18,000 people have been out of work for over five years—on Merseyside as a whole, well over 100,000 are out of work—the loss of one more job is an extra burden. What the workers felt was compassion. They believed in putting the needs of their fellow workers before the profit concept and the profit-making system that we have in this country.
I know that I must bring my speech to a fairly quick close, but I should like to comment on what I often hear—that unemployment has been going down under this Government. I for one do not deny that, because our system of society has booms and slumps. Sometimes there are booms and almost full employment, but at other stages of the capitalist system there are slumps where thousands of workers are out of work. Despite what the Government say, they have never yet got the level of unemployment to as low as it was when the Labour Government left office in 1979.
Those are the facts. According to a report published by the Organisation for Economic Co-operation and Development, we still have the highest level of unemployment—apart from France, which might be the same—of any nation in Europe. That is the reality and as long as we have a system where profit is the motive for production, there will inevitably be unemployment.
When taking about the Budget and the future of our industries, it is time that we had a new concept of industry being for the benefit of the mass of the people. Why do we not, for example, talk about reducing hours of work? Why are we not talking about workers having longer periods off with full pay? Why are we not talking in those terms? We do not, because the profit motive is the basis of this society.
I would have liked to say a great deal more than I have had the time to say. If we look closely at the Budget, we see that there are certainly some measures in it to which no 595 one will object. I do not object to some of the points—who could?—but the overall aim of the Budget is to reinforce this rotten, lousy, capitalist society. The quicker we get that message across, and the sooner we have a Labour Government, who will begin to transform society into something better, the better it will be for the people of this country.
§ Mr. John Greenway (Ryedale)
It is appropriate that my right hon. Friend the Chancellor of the Duchy opened the debate, because his departmental responsibility is for the investment and savings industry. Hon. Members will know of the problems that the Financial Services Act 1986 has created for that industry. My right hon. Friend's Budget brought some welcome relief from the difficulties that the industry has been facing in recent months.
During the past few months, there has been a growing chorus of advice to my right hon. Friend the Chancellor to introduce measures to boost personal savings and investment. We have heard much about that during the debate. I hope that my right hon. Friend and my hon. Friend the Economic Secretary found my forceful baritone contribution nonetheless sympathetic. It is certainly the case that the choristers have inspired my right hon. Friend to produce another virtuoso performance in the Budget measures. That is especially so for personal savings and investment. As the House knows, I have an interest to declare in these matters—as do a number of other hon. Members—because of my career in the insurance industry.
The argument in favour of increased savings is often thought to rest on the perceived fall in the savings ratio. I believe that there is some reason to treat such perceptions with caution. I know that my right hon. Friend the Member for Guildford (Mr. Howell) quoted recent statistics, but there is reason to doubt the accuracy of some of them. It is clear that the increased prosperity in our country has created a whole new generation of low income and lower middle income families who, many for the first time, have the capacity to save and to invest. Until now, their savings habits have largely been to keep their money on deposit in banks, building societies and the Post Office. We must persuade them to undertake real investments beyond home ownership.
My right hon. Friend the Member for Guildford appeared critical of institutional savings, but to move from the building society or Post Office account to owning a portfolio of shares requires a quantum leap of philosophy and attitude. That the personal savings ratio is so low is clear evidence that we still need to encourage the many millions of people, who have the ability to invest, to take those first steps into equity investments, unit trusts and the more sophisticated insurance plans.
We on the Government side of the House support the concept of individual choice—tax people less and leave them free to spend their money as they choose. However, one must question whether the people of Britain are utilising their new-found and increased wealth in the way that the Government would like and the nation needs. That is especially so in respect of the priority given to higher borrowing as against personal savings.
We must never lose sight of the value to any society of financial independence of individuals and their families. That demands setting aside part of today's income for tomorrow's need and not simply relying on the ability to 596 borrow to get out of difficulty. The Government are taking the lead in reducing the national debt which, in the dark days of the 1970s, threatened to overwhelm our children's generation. We must encourage the same attitude and response among the greater population, so that our children's generation will be better able to achieve the economic and personal success that they desire in the increasingly competitive world of tomorrow.
It is for that reason that I greatly welcome the improved range and choice of savings opportunities that were outlined in my right hon. Friend's Budget statement.
The proposed changes to the taxation of life assurance are entirely right. My hon. Friend the Economic Secretary will know that there is some relief in the insurance industry that its worst fears were ill-founded. The Association of British Insurers has accepted that there were anomalies and abuses that needed to be dealt with. I believe that it has been welcomed that there will be no more stamp duty with life assurance policies and that my right hon. Friend has taken the bold and imaginative step of bringing the rate of corporation tax paid on life assurance funds and on unit trusts down to the basic rate of income tax. I would ask my hon. Friend the Economic Secretary to place on record the commitment that, as the basic rate of income tax comes down in the future, so too will the corporation tax rate on life assurance and unit trusts.
I was glad to hear from the Chancellor that, when he considered the life assurance industry's representations on the proposals for tax reform, he took full account of the prospects for increased competition within the European Community after 1992. At the risk of appearing greedy, I would ask that the Treasury and the Inland Revenue have the completion of the internal market similarly at the forefront of their minds as they consider the taxation of general insurance business. At present, the overall tax burden on general insurance is not out of line with that of other member states, but the incidence is markedly different and enables continental insurers to build up reserves, on a deferred tax basis, to cover those large industrial and commercial risks that will be opened up to competition under freedom of services before 1992. It would be unfortunate if the industry's position in the European Community was weakened by the imposition of American practices, such as the discounting of claims provision in computing profits liable to tax.
It is greatly to be welcomed that the opportunity for enhanced provision of personal pensions, especially by older age groups, has been included in the Budget. However, I believe that one political point needs to be made. The closure of over-exploitation to high income earners gives the lie to the constant accusation that the Chancellor is the friend of the better-off. The alternative step that he has taken is for those on middle and low incomes, especially small business men, to have an even better opportunity to make proper provision for their retirements. Many small business men in the early days of their businesses do not have the profits from which they can put aside money for their pensions. When they are older, they often have that chance, and it is entirely right that we should allow them to contribute as much as they can afford and within much wider bands of eligibility.
There are bound to be some who will argue that the £.60,000 limit for company schemes will inhibit mobility at the higher executive level. Two years ago, similar fears 597 were expressed when other changes in pensions were introduced. However, I am not aware that those have proved justified.
It is also right to point out that the new provision for higher pensions, but without tax relief, is entirely welcome and answers the point that I have made. Once again, that prevents over-exploitation of the tax system by the top earners. It is entirely right that, with a 40 per cent. top income tax rate, and a 35 per cent. top corporation tax rate, the amount of tax relief should he limited. The benefits of buying those rates should lie not in tax avoidance but in pension provision.
But it is in the changes in personal equity plans that my right hon. Friend the Chancellor has been most imaginative. Fiscal neutrality always seems to be interpreted as bringing to an end tax concessions. That is not true. What my right hon. Friend has done, as I called for some months ago, is to create a superstructure for modest concessions which are available across the savings industry. For example, institutions such as building societies, banks, life assurance companies and unit and investment trusts will be able to operate and run personal equity plans through the unit trust vehicle. The prospect of investors being able to put £200 per month into a tax-exempt fund, with no commitment to do so beyond 12 months, is imaginative and will bring a much-needed shake-out in the marketing of investment plans in the investment industry. It is thanks to my right hon. Friend's imagination that that is possible.
It has been said that the low-paid will not benefit from the reductions in national insurance. I do not believe that to be true. For example, a single person earning £75 a week will save 87p in income tax as a result of the inflation proofing of the personal allowance. Had that been increased by, say, 10 per cent. the further tax saving would have been 38p. Alternatively, a 2p cut in the basic rate of income tax to 23p would have saved only 43p a week. Under the national insurance reductions, that worker will save a further £1.51 per week, making a combined tax and national insurance saving of £2.38. Therefore, it is clear that reducing national insurance in the way that my right hon. Friend has done benefits the low-paid far more than had we had the kind of tax reductions which many of the teenage scribblers, as they are often referred to, were recommending.
I greatly welcome the enhanced age allowance, bringing it down from 80 to 75. When I first spoke on financial matters in the House two years ago when the 80 age limit was introduced, I asked my hon. Friend to consider that reduction and I am delighted that we are taking this action now. The scrapping of the earnings rule is a long overdue reform and I am sure that for many pensioners throughout Britain 1 October cannot come soon enough.
In conclusion, the greatest threat posed to the economy is the upward trend in inflation. My right hon. Friend's strategy is the right one to bring inflation down and I hope that the House and the nation will support him in his actions.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
I want to use my brief contribution to this evening's debate to try to counter the impression that the Budget gives the 598 elderly a substantial financial advantage. In doing so I will be supporting many of the arguments made earlier by the hon. Member for Stalybridge and Hyde (Mr. Pendry).
Some aspects of the Budget will be welcomed by many pensioners, marked out by the fact that as a group they are in receipt of either income or occupational pensions or have savings in addition to their pensions. To them, the abolition of the earnings rule, the relaxation of the rate of withdrawal of the age allowance on incomes and the extension of the higher allowance to people aged between 75 and 80 are all both beneficial and welcome, as they are to hon. Members on both sides of the House, as the hon. Member for Ryedale (Mr. Greenway) said. But that good news does nothing for the other two thirds of pensioners who are too poor to pay income tax. The House must bear their plight in mind when considering the Budget's impact on the nation.
I wish that Treasury Ministers would stop using average figures when they calculate pensioner incomes. As was shown clearly in an article in Economic Trends in December 1988, the top 20 per cent. of pensioners enjoy a level of income which substantially skews the average figure for the remaining 80 per cent. Between 1979 and 1986, there was an increase in the average incomes of pensioners of some 24 per cent. But the top 20 per cent. of pensioners with relatively high incomes make such an impact on that figure that it is dangerous to draw conclusions from average incomes.
I have talked to a number of pensioners since the Budget was unveiled. Their main cause for concern is that since 1980 they have lost the benefit of the linkage between the state pension and the level of earnings. They make the powerful point, which the House should consider, that in April 1989, under the current system of indexation, a single person will receive £43.60, but if the link with earnings had been maintained he would have received £53.30. A pensioner couple who will receive £69.80 this April would have received £82.25 had the earnings link been maintained. That is a substantial reduction in the spending capacity of the vast majority of our pensioners.
Another cause of anxiety among pensioners is the substantial loss that they suffer from the current upratings which where announced in the autumn but will not be paid until April. The RPI is now 7.5 per cent. and rising, but pensions will be increased by only 5.9 per cent. in the spring. That means that married pensioners will be £1.05 worse off and a single pensioner will be 65p worse off than if their pensions were uprated at the real current rate of inflation.
Inadequate state pensions require a great number of our pensioners to rely on means-tested state benefits than would otherwise be the case. I remind the House that, even on the Government's own figures, 1,777,000 pensiners claim income support and 3,465,000 claim housing benefit. That is a substantial number of people in some degree of poverty, some of them in abject poverty. Moreover, those figures ignore the fact that in 1985—the last year for which figures are available—34 per cent. of pensioners did not claim supplementary benefit and 19 per cent. did not claim housing benefit.
The situation for those pensioners is dire and the impression given after the Budget that they would be better off was substantially wrong. Indeed, the reverse is the case. Pensioners have been hardest hit by recent cuts in 599 housing benefit, and more will lose benefit when the existing transitional protection is withdrawn in the spring of this year.
The Budget has dismally failed the two thirds of our pensioners who, for the greater part, still rely on state pensions and other benefits. More than anything else, a higher state pension is essential to enable that group of our citizens to catch up with the growing prosperity of other sections of the community. Insult has been added to injury by the £40 million concession in respect of tax relief on private health insurance premiums. That will not touch the real needs of sufferers from conditions such as arthritis, rheumatism and senile dementia. It will merely raise expectations for a few and create a two-tier health system for the elderly. The Daily Telegraph leader for 16 January anticipated those proposals and described them as beinga most undesirable and mistaken precedent.If The Daily Telegraph takes that view, it is a matter to which the Government should pay some attention.
The decision not to raise excise duty on cigarettes and alcohol has the potential of having a disastrous effect on the health of millions of younger citizens. Every day, 270 people are prematurely killed by cigarette smoking—100,000 a year, or one every five minutes. I believe that smoking is the largest single cause of death in middle age in Britain. The Government's position veers between complete abdication of responsibility and paying lip service to public information campaigns.
The Prime Minister launched a £6 million campaign to halt the rise in teenage smoking, which is the crucial age group one needs to influence if young people are to be prevented from getting the smoking habit. Had tobacco tax been valorised even by the same percentage rise as the retail prices index, the £137 million it generated could have been sensibly deployed in establishing much larger public information campaigns. The message from that part of the Budget is clear. The failure of the Government's economic policy of restraining and bearing down on inflation will seriously damage one's health by increasing tobacco sales.
The failure to increase duty on alcohol was an equally bad decision. There is widespread public anxiety about the impact of the 18 per cent. increase in one year in public drunkenness offences, and the fact that one out of five Health Service beds is currently occupied by someone suffering from an alcohol-related illness or an alcohol-related accident. The Chancellor did not even need to increase alcohol excise duty, although that would have been the right course. He could alternatively have taken non-inflationary action by drastically reducing excise tax on low-alcohol drinks—but he did not do even that.
The Budget is deeply damaging also to the nation's environment. The reduction in duty on unleaded petrol is welcome, but a truly green Chancellor would have used fiscal and other interventionist measures to protect the environment. I shall give two examples. First, it would be possible and beneficial to introduce a reduced green rate of VAT for environmentally friendly products such as energy-efficient electrical goods. Secondly, the Chancellor could have introduced tax incentives to encourage the conversion of houses to the use of energy-efficient techniques, particularly in relation to private sector landlords. There is a long list of measures that could be taken, but the Chancellor adopted none of them.
The Government's lack of action and their disregard for the environment shown in the Budget demonstrates once more that being green is basically incompatible with 600 the free market philosophy and hands-off practices that they favour. The Budget is a feeble attempt to rectify the economic mistakes of the past few years. It does nothing for pensioners in financial need, damages the health of the nation, increases the costs of the NHS, and does little or nothing to meet public demand to improve the environment.
§ Mr. Matthew Carrington (Fulham)
Most of my right hon. and hon. Friends will agree that the biggest problem facing the Government and the country is inflation. I welcome the tight fiscal stance that my right hon. Friend's Budget adopts. Perhaps it is not as tight a stance as some commentators may wish, but it is a tightening to the extent of £4 billion to £5 billion.
I share some of the concerns of my right hon. Friend the Member for Guildford (Mr. Howell), who doubts whether a tight fiscal stance will have a major short-term impact on inflation. However, if the Chancellor's tight fiscal stance is coupled with high interest rates at the level now being employed to tighten money supply, the effect should be to bear down heavily on inflation in the short term. It is possible that that stance will produce a psychological change that will in itself be very beneficial.
I wish to comment in particular on two measures of importance in the Budget, because they both address the major problem of poverty. Before doing so, I make it clear that, in my view, there is no possibility of the Budget being able to address all aspects of poverty. However, if it can alleviate two causes of distress among the less well-off in society, that in itself is a worthwhile objective.
Yesterday, the hon. Member for Leeds, West (Mr. Battle) argued that the effect of the Budget's national insurance changes will not be to remove the poverty traps encountered by low paid workers. He gave as an example the national insurance threshold of £43. Although that argument is to some extent true, the poverty trap is caused not by national insurance contributions but by the way in which the social security system operates.
Looking back on these times, none will seriously credit that we tolerated the pensions earning limit as long as we did. It will be thought ridiculous that someone who earned as little as £79 faced 100 per cent. marginal tax rates. The removal of that rule is greatly to be welcomed. That measure enables pensioners who want to work to do so without being heavily penalised by the tax system. Many pensioners aged 60 or 65 are hale and hearty and keen to carry on working. Their reasons for doing so are not always financial, although that may be of pressing importance in some cases. People's reasons for carrying on working are often social, or to do with prestige in their own community. It is not unreasonable for them to wish to defer the time when they make the change from a working life to a state in which they may see themselves as less useful to society.
That change in the earnings rule is to be welcomed for other reasons. This country will soon face severe problems of recruitment resulting from demographic changes and the decline in the number of young people available to take jobs. For those reasons, we must make it easier for people to prolong their working lives. Inner London, for example, is facing a major skills shortage. If people who have skills that cannot easily be replaced are allowed to continue working, that will be very beneficial. The major benefit will 601 be for pensioners who, until now, have been forced to live on their old-age pension without supplementing it with a part-time job or with low earnings from working in the retail trade, for example.
The other change on which I shall comment is that affecting national insurance. I have believed for a long time that the system is unfair. I am glad that major changes have been made, including the removal of the steps that it embodied, which were the most outrageous element of the system as it existed. The contributory element of the national insurance system is important. There must be a connection in people's perception so that they believe that they are actually paying for the non-means-tested benefits which they will receive. However, over the years, the connection between contribution and benefit has been severely weakened.
I believe that it was in 1960 that the national contribution was first made earnings-related—it was its first weakening. Then, as bands were introduced into the national insurance system, that further weakened it to the point that we have reached today, when there is a large element in the national insurance contribution which is, effectively, the same as any other tax on income. That causes severe problems.
When future Budgets provide the opportunity, we need further to reform the national insurance system. That should not be carried to the point of a total meshing of the national insurance and income tax—the two should be kept distinct. However, there should be a change in the balance between the two in the ways in which they raise revenue.
I shall give one example that concerns me. Below the upper limit for national insurance contributions, the effective tax rate on income is 25 per cent. If we add on the 9 per cent. for national insurance contributions, the marginal tax rate becomes 34 per cent., which is a very high rate. That marginal tax rate is a major disincentive to people to work because it is too high.
There are two ways of tackling this problem. We could reduce the 25 per cent. marginal tax rate of the basic rate of income tax or we could reduce the 9 per cent. on the national insurance contribution. I should like the 9 per cent. to be reduced, while at the same time we head towards a 20p in the pound basic rate of income tax. I am not sure what the appropriate level of national insurance contributions should be, but it should be considerably below 9 per cent.—perhaps as low as 5 per cent.
Another problem of the national insurance contribution is that, beyond the upper limit of national insurance contribution, the marginal tax rate drops to the basic rate income tax of 25 per cent. There is a strong—although much more complicated—argument for ensuring that we do not end up with a period in earnings when marginal tax rates are reduced the more we earn. That could be interpreted as an argument for increasing the upper limit on national insurance—which causes problems with SERPS contributions and non-means-tested entitlement—but the limit would have to be increased to a level where the 40 per cent. income tax band started to bite. That in turn raises difficulties about the way in which the national insurance contribution and income tax bandings are 602 calculated, which is much more complicated. A certain amount can be done to simplify that calculation and to smooth out the dip in the marginal tax rate that it causes.
I am much less concerned about the employers' contributions. It has been said that, due to the high level of employers' contributions to national insurance, employers will still be reluctant to employ people who earn just above the national insurance contribution level of £43. I find that hard to justify, because most employers will have to employ somebody for whom they must pay national insurance contributions. The extra administrative work needed to move somebody from the £42 to the £44 bracket would not be a disincentive. It would be of great benefit to remove the disincentive for the employee.
The Budget was justifiably cautious, at a time when we face high inflation—the reduction of which must be our first priority. It was also a fair Budget, and I was glad that the Chancellor left himself with opportunities to adjust some of the tax rates in the future, when he may have the opportunity to relax the current very tight fiscal stance.
§ 8.7 pm
§ Mr. John Cummings (Easington)
I am extremely grateful for this opportunity to draw to the attention of the House, the anger, anxiety and frustration of the people whom I represent in my constituency at what they term a non-Budget and non-event.
Much has been said this evening by Conservative Members about savings, equity plans, credit booms and credit cards. I intend to direct my remarks—short though they may be—to support those people who cannot afford to save, will never be able to afford to enter an equity plan, have never seen or owned a credit card and do not participate in the credit boom.
This afternoon, I asked the Prime Minister about the £14 billion on which the Chancellor of the Exchequer is sitting. I asked why a small amount of that £14 billion could not be directed towards the relief of the hardship and anxiety of the pre-1973 war widows. The right hon. Lady did not even give one word in response. I am sure that this diminishing band of gallant ladies who have suffered, and still suffer, deprivation, will take to heart the Prime Minister's off-hand arrogance, and I am confident that the Prime Minister has not heard the last of that incident. Those women want some of the £14 billion to enable them to live a decent life and not have to eke out an existence on the widow's mite.
I intend to be parochial in my remarks this evening and to speak on behalf of those people—pensioners and retired mineworkers—in my area who, after a lifetime of service to the industry and the nation by providing energy and heat for the country by their hewing, are now denied their cash-in-lieu benefits. That sum of money was made available to them through their lifetime's work in the mining industry but is now set against housing benefit. That is a national disgrace when Mr. Chancellor is sitting on £14 billion worth of taxpayers', ratepayers', pensioners'—indeed, our—money.
Much has been said about the earnings rule tonight. Perhaps I can give it a cautious welcome but what does the Chancellor say to my father, who, after 51 years of work in the mining industry, has been invalided out, cannot work and has to rely on state pension and a small supplementary payment from the mineworkers' pension scheme? What does the Chancellor of the Exchequer say to 603 the retired steelworkers and those in heavy industry who, after a lifetime of service, now find themselves chronically sick and disabled, and unable to work? It would be interesting to hear what the Chancellor has to say to that band of people. Out of the £14 billion, is it not possible for the Chancellor to direct his attention to supporting pensioners by abolishing standing charges on telephone, electricity and water bills? The people who made this country great are entitled to some of the huge bonanza on which the Chancellor is sitting.
I come from an area where the unemployment level is more than 20 per cent. That disguises figures as high as 35 per cent. in some villages where collieries have closed. What does the Chancellor of the Exchequer have to say to the unemployed in my area, who may have no hope of finding a job ever again?
I want to see some of the £14 billion accumulated from the taxpayer directed back into my local economy—for instance, to provide more housing for the disabled and more special-purpose accommodation. As our population decreases, we are left with increasing numbers of aging and chronically sick people. We need funds to assist areas suffering from the deprivation caused by colliery closures, redundancies and people moving away, leaving vast areas of derelict properties.
Owner-occupiers who have bought their properties from the council or from the Peterlee development corporation have subsequently found structural and design defects, some caused by past corrupt practices in the building trade. They cannot obtain a second mortgage to repair faults, as no financial institution will help them. The Government are not prepared to do anything other than reducing the HIP allowance year after year. What does the Chancellor say to people who desperately need assistance and cannot receive it from the money markets?
Aging people in Easington who have given a lifetime's service also need NHS resources for the increased services that they so richly deserve. Has the Chancellor any idea of the indignity suffered by geriatric patients? What price privatisation—what price is put on service—when we must see an elderly person lying in a soiled nightdress because of NHS cuts? After 51 years as a working man and a taxpayer, my father must wait three years to have a cataract removed. Why should he have to become virtually blind in the 78th year of his life? That is the cause of the anxiety, frustration and anger expressed throughout my constituency.
In South Hetton, a mining village where a colliery has closed—which means virtually the death of a village—money is needed for the protection, enhancement and possible rebuilding of the local school. I look to the Chancellor's £14 billion to provide the necessary resources.
This really is a humbug of a Budget.
§ Mr. Ian Taylor (Esher)
We have just heard a moving speech from the hon. Member for Easington (Mr. Cummings). We share his worries about the plight of some of his constituents—I wish him to know that—although we may differ on the appropriate remedies.
Many of yesterday's headlines purported to give the gist of the Budget, but the only one that struck me as accurate 604 was "Cautious but clever". That is what I think the Budget has been, but many journalists appeared to overlook many significant factors included in it.
In my view, the most significant change is the alteration in national insurance, to which several of my hon. Friends have already referred. This year the cost to the Exchequer of the proposed changes will be £1.9 billion, and in a full year it will be about £2.8 billion. That is roughly equivalent to 2p off the basic rate. If that had been the way in which my right hon. Friend had announced the injection of such a sum into the economy, the press would probably have sat up and paid attention. The problem is that few outside observers seem to appreciate the full impact of national insurance. It is, in a sense, the forgotten tax, which goes by the more favourable epithet of a contribution.
My hon. Friend the Member for Fulham (Mr. Carrington) made some telling points about the way in which the national insurance changes are targeted towards the lower paid. I urge Treasury Ministers to ensure that, in future years, when considering reducing standard and higher rates of income tax, they ensure that parallel changes are made in the way national insurance is levied. It should be borne in mind that national insurance contributions raise a sum 70 to 75 per cent. as high as that raised by income tax. Nevertheless, I welcome what the Budget has done to help the lower-paid.
I also welcome the incentives for the elderly. Many people in my constituency who felt that the earnings rule was unfair will be delighted to learn of its removal. I am also pleased about the repayment of the national debt. Not only is this a prudent policy but, as my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling) pointed out, it will in a sense relieve the burden on future generations. Nevertheless, I ask the Treasury Ministers, in the autumn public expenditure review, to consider allocating the £1.75 billion per annum saved through the debt servicing cost reductions to further public expenditure. Many of my hon. Friends are keen for more to be spent particularly on transport infrastructure and other such supply side measures.
My main concern this evening, however, is the impact of the Budget on individual shareholders. The increase in the number of such shareholders under the present Administration has been startling: it has risen from 3 million to 9 million, representing about 20 per cent. of the adult population. Many of those new shareholders have invested as a result of privatisation issues. Lest Opposition Members believe that only the rich in the south-east buy shares in such issues, let me say that figures announced today suggest that nearly two thirds of individual shareholders live outside the south-east.
Encouraging though the figures are, there is no doubt that most of those shareholders own few shares. Moreover, the proportion of shares owned by individuals has fallen since the war, as was pointed out by my right hon. Friend the Member for Guildford (Mr. Howell). The Budget has attempted to broaden individual share ownership in some important ways. Personal equity plans have been discussed by my hon. Friend the Member for Ryedale (Mr. Greenway) and I do not wish to go into great detail about them, except to say that I welcome the Chancellor's announcement. I expect a major advance in both their adoption by the City and their attractiveness to individual investors, and consider the use of privatisation share issues as a PEP investment a particularly significant development.
605 But the area of outstanding development in the Budget is that of employee shareholding, where there has been a real breakthrough. There are already 1.75 million employees benefiting through the allowances given under the 1978 and 1980 Finance Act schemes, and we are pleased with that number. But the increased allowances under the improved all employee share scheme and the share option scheme announced in the Budget will go a long way to making sure that that number increases.
I am particularly delighted with the announcement about employee share ownership plans—ESOPs—for which I and many others have campaigned since the last Finance Act. As a result of the announcements made in the Budget, ESOPs are on the map. The announcements in the Budget on tax deductibility, the improved clearance procedure and the removal of the material interest clause will satisfy the majority of the worries of those of us who felt that the Treasury had not gone far enough in the past.
We are pleased with those changes, and I pay tribute to the Financial Secretary for the hard job he had in making sure that they reached the Budget speech and did not get lost somewhere between the Treasury and the Inland Revenue. I noted his remarks yesterday, reported in column 500 onwards of Hansard, where he referred to those measures, and I know how great has been his personal involvement.
ESOPs have distinct advantages, and, although they can take advantage themselves of the 1978 and 1980 schemes to which I referred, they have many other features. They may borrow to acquire the shares that they hold, rather than rely entirely on funds provided by the company. They may need to hold shares for a longer period—for example, while repaying borrowings—than is possible for 1978 scheme trusts. In the case of unquoted companies, they may wish to provide a market in the company's shares for the benefit of employees and they may wish to distribute larger amounts of shares to employees than is possible under 1978 schemes.
The proposed Finance Bill legislation is designed to encourage companies wishing to set up trusts of this type for the benefit of their employees by removing the uncertainty which previously surrounded the tax deductibility of contributions by companies, thereby extending the entitlement to corporation tax relief. I welcome this and I have noted the conditions which are applied; I do not think many professional advisers will find those insurmountable.
ESOPs are extremely important. In the United States they now cover 10 million workers, and the Avis company, which has benefited from the scheme, has a new slogan. Instead of "We try harder", it is "Owners try harder". That is indicative of that firm's return to profitability since the ESOP scheme was announced.
It is the traditional lack of access to capital, and the income which it provides, that has left working people hard up compared with the owners of capital. Conservative Members who are aware of this problem do not see the solution in programmes of state aid or wealth transfer through the tax system, but much more look to an answer in the widening of access to capital. Employee share ownership broadens the ownership of capital without invading the property of existing owners. It is a form of populism without Robin Hood.
606 By the transfers available under the 1978 scheme, employees in effect get their shares free. They do not pay cash. They are therefore receiving capital from the fruits of their labour, an important and significant development in the extension of the property-owning democracy.
We on these Benches have promoted schemes such as this, in contrast, it is sad to say, to Opposition Members, many of whom, in the words of the hon. Member for Dagenham (Mr. Gould), often feel, as soon as they hear the word "shares", that the person uttering it is a raging capitalist. That is a dismissive attitude to an important social revolution which, slowly but surely, some of their trade union colleagues are beginning to endorse. I pay tribute to the work of Unity Trust bank, which has trade union shareholders, for the way in which it has made a specialist activity out of promoting employee share ownership plans.
There are at present about 15 specific employee share ownership plans, covering about 20,000 employees. It is interesting to note that the average percentage of the companies held by those trusts for the benefit of their workers is 25 per cent. Under the 1978 scheme, most of the companies involved have put aside only 5 per cent. of their shares, and most of the schemes under the 1978 Act are in public companies or subsidiaries of public companies rather than in private companies. Yet more than half the employees in this country are employed in private companies.
I do not have time to go in detail into all the benefits, but there is no doubt that the economy will benefit from the introduction of ESOPs through better productivity, better output, improved financial performance and—this will interest Opposition Members—increased regional regeneration if companies are taken into employee hands when the current owners wish to sell rather than into the hands of a publicly quoted company, perhaps based out of the area.
The employee benefits because he has a much greater sense of purpose in the company, and the company benefits because there is a unity of interest within it, and that is in its very success. It could also have a beneficial and important impact on reducing inflationary wage claims.
There is still much to be done. I note with pleasure that in the other place there has been a sympathetic response to proposed amendments to the Companies Bill, a point to which the Financial Secretary referred last night in the House. But the financial assistance provisions in the Companies Act 1985 must be looked at closely because at present they restrict a company's ability to provide financial assistance and guarantees to ESOPs.
I shall he looking carefully at the detailed proposals in the Finance Bill. We were sad that there was no capital gains tax roll-over relief for sales to ESOPs, and we were concerned that there were not further changes to provide an inheritance tax concession for sales to ESOPs. But, on the whole, those are details. Most important has been the tremendous advance achieved for ESOPs by including a clear statutory recognition and corporate tax deductibility in the Budget. It would therefore be churlish of me to be critical.
I urge the professional investors' organisations to be more generous in their attitudes to the dilution problems which could come if companies issue more shares to their employees. The position is often misunderstood by many in the City, who believe that only the Government can improve the situation in areas such as ESOPs. That is not 607 the case. I have praised the Financial Secretary. I also praise my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) who, before his enforced silence as PPS to the Chancellor, had an active role in the House in encouraging advances in employee share ownership.
I make the rallying cry that every future privatisation should have an ESOP. I want to make sure that every Department now takes the lead from the Treasury. We want ESOPs in the electricity industry, in the future privatisation of coal, in British Rail—in all of them; and I noted, in respect of the water industry, an announcement by the Minister yesterday about discounted shares as well as free shares. By itself that is not enough. We must have an employee share ownership structure through an ESOP.
It is not sufficient to have a one-off benefit to employees through share distributions at the time of privatisations. We must set up a trust which will ensure continuity of employee interest, not only for those who are in the firm now but for the benefit of future employees. That is what an ESOP enables us to do and why it is so important. In this Budget we have had the next stage of the Conservative capitalist revolution, which opens up capital-owning to the nation's working population. We must follow it through.
§ Ms. Marjorie Mowlam (Redcar)
In the last 12 months since the previous Budget we have seen a radical transformation in the image of the Chancellor. I am sure that many hon. Members will remember the banner headlines in the newspapers after the last Budget. The Daily Mail was a good example: its headline was "Lawson the ladies' man". I must admit that when I saw that I thought it was a matter of taste, because he had not done much to help women. There is no doubt that after this Budget I and many other women will know that although people may say "Lawson the ladies' man", it is all promise and no delivery. The majority of low-paid people, single parents, pensioners and carers are women, and we have to ask ourselves what there is in this Budget for them.
I have sat throughout the debate this evening and the most stunning comment was one made by the right hon. Member for Westmorland and Lonsdale (Mr. Jopling), who described the Budget as "something for everyone". I wish that he was here now so that he could explain what he meant, because for many women in the categories I have just listed the Budget holds very little. In particular, it holds very little for pensioners. Sixty-six per cent. of all pensioners are women and I can guarantee that they will take no comfort at all from the Budget.
The changes in the earnings limit and the age allowance will help only a very small minority of pensioners. The elderly will now be able to work without penalty, which, as many Members of the Opposition have said, we welcome. But it has to be said that the meagre size of the state pension will mean that many women and men pensioners will have to work if they are just on a state pension, because they will not be able to live on it. The Budget is worth nothing to those pensioners, the many who survive just on a state pension. We all know why. It is because the pension has fallen behind what it would have been if the policy of increasing it in line with prices or earnings, whichever were higher, had continued to be followed since 1979. We all know that since 1979 the single pensioner is £10 worse off and pensioner couples are £15 worse off.
608 Hon. Members must realise, however, that it is not just the loss of money that is causing worry to pensioners now. Many pensioners are equally concerned about inflation. They know that their pensions and benefits will go up by 5.9 per cent. in April, and they know, because the Chancellor has told them, that inflation will go up to 8 per cent. This, for the two thirds of pensioners who survive on a state pension, will make life very difficult.
It has to be remembered that, for the 300,000 pensioners who are on transitional payments, the loss will be even greater. I hope that the Financial Secretary this evening will have something to say to those pensioners who are on transitional payments. They are expecting an increase in April, and they will not get it. They come to see me in my surgery, as a couple did last week, and ask how they are expected to manage without it. They telephone the office in Glasgow and they write letters because they think that there is some confusion or mistake. They do not understand that that money is to be denied them.
There is absolute bewilderment on the part of many pensioners as to why that has happened. If one bears in mind the fact that they will have lost their transitional payment, their pensions will not go up in line with inflation, they have the increase in water and electricity prices, they have the continuing problem of the TV licence and they have rent and rate rises before the benefit goes up, one begins to understand why so many pensioners are concerned.
It is all very well for Government Members to say the Budget has helped some pensioners. We readily acknowledge that, but I would like to hear what the Financial Secretary would say to two women pensioners who came to see me in my surgery last Saturday from Dormanstown and said that they could no longer manage. They are not extravagant or silly, but they seriously doubt their ability to manage. The poll tax looms in the future for them and they do not know what to do. There is an air of frustration, desperation and bewilderment of which hon. Gentlemen must take note because, even though the Budget will help some pensioners, it will not help the two thirds who are on state pension.
A second group of women who will not benefit from this Budget are the 55,000 war widows who lost their husbands before 1973. My hon. Friend the Member for Easington (Mr. Cummings) pointed out in his contribution to the debate that he asked the Prime Minister about this specifically this afternoon. She avoided the question. What she cannot avoid is the letter that she wrote as Leader of the Opposition in the 1970s, when she made that commitment to those war widows. We did not hear that this afternoon. She ignored that part of the question. That commitment was there and she ought to go back and look at what she said in the 1970s and not try to fob people off and ignore them.
If the Chancellor is serious about helping the low-paid, two thirds of whom are women, he could do so by increasing child benefit. It has been said by hon. Members in all parts of the House that the one clear, easy way to help those women would be to restore child benefit in line with inflation. My hon. Friend the Member for Livingston (Mr. Cook) made the point quite clearly that child benefit is now 13 per cent. down in real terms as compared with 1983. The Minister should think about what that freezing of child benefit means in terms of this Budget, when something could have been done. It means that 1,000 to 2,000 more families will become dependent on income 609 support; 2,000 to 3,000 more families will become reliant on housing benefit; and 20,000 to 25,000 more families will claim family credit. That is the impact of freezing child benefit. I should be very interested to hear whether the Minister, in his closing remarks, can explain how that helps low-paid people, particularly the majority of them who are women.
There are other problems for women workers, whether they be low-paid, part-time or even in full-time employment because of the wages they receive. This Budget will not touch them. More than 50 per cent. of all adult women full-time workers, including nearly 90 per cent. of all manual workers, earn less than the Council of Europe's decency threshold. That is the impact of low pay in this industry. The hon. Member for Esher (Mr. Taylor) said that he understands and sympathises with the points made by Opposition Members. I am afraid there comes a point where sympathy is appreciated but in the end it means very little to people living on those wages.
Taking together the 1988 and 1989 Budgets—this has to be done with the social security changes in the last two years because the two have to be run in unison—the impact on a single women with two children earning £74 a week is that she has lost £4.42 by this stage of this Budget. If we look at specific cases we begin to realise the effect of this Budget on women who are low-paid, single parents or pensioners. Those are the examples that we have to look at.
One problem that the Budget does not address is the one which many women face in looking after a family and earning a living—the problem of the care of children. The Chancellor failed to abolish the tax on workplace nurseries. That shows his genuine failure to understand what would really help many women. We have to ask ourselves why the Chancellor did not do this. In what conditions would the Chancellor consider abolishing this tax? The Chancellor himself has not said much on this, but a number of his colleagues have. His hon. Friend the Member for Oxford, West and Abingdon (Mr. Patten), who, ironically, chairs the Tory ministerial group on women's issues—I wonder how that choice was made—in an interview in The Guardian at the beginning of this year, said:I don't think the state should step in to help the working mother unless her life has collapsed.Those are the conditions in which the hon. Member for Oxford, West and Abingdon considers that working mothers should be given a hand.
We also have to look at the comments made by the Financial Secretary to the Treasury yesterday when he was asked this question about the burden of taxation of workplace nurseries by my hon. Friend the Member for Glasgow, Maryhill (Mrs. Fyfe). He said:I understand the sensitivity of that issue but it is predominantly a matter for employers, not for the tax system. We look to employers and employees to make these arrangements."—[Official Report, 15 March 1989; Vol. 149, c. 433.]That is a complete and absolute abdication of responsibility. Workplace nurseries are the subject of taxation and that is clearly the responsibility of the Treasury. I wonder what the right hon. Gentleman does at the Treasury all day if he does not consider that part of his responsibility.
610 It is not only Opposition Members who are concerned about workplace nurseries. A survey in the Sunday Mirror in which 300 Members of Parliament took part showed that a large majority of Members of Parliament not only wanted tax relief on workplace nurseries and some incentive to employers but were in favour of a creche here. That would be an advantage to woman and men Members of Parliament. I have it on good authority that even the Prime Minister wished to see that introduced, but certain individuals in the Treasury were not so keen and managed to avoid including such provision in the Budget. Hon. Members on both sides of the House support it, and the thousands of letters to the Sunday Mirror since that poll was published show how many working parents would appreciate such a change.
If women are to enter the labour market and achieve their full potential in the workplace, Britain must have comprehensive nursery provision. Yet Britain lags behind the majority of European countries. Italy and France have a higher proportion of three to five-year-olds entering full or part-time nursery education. Opposition Members would like that to be changed.
We should be encouraging nursery education. Parents with children in nurseries provided by their employers have the imputed value of that service added to their taxable income if they earn more than £8,500. The tax raises only £1 million, so what is its purpose? I asked that question during last year's Budget debate and I ask it again tonight. Why are company cars taxed more favourably than workplace nurseries? Does the Chancellor believe that cars are more important than kids? The Government offer tax incentives for cars, sports facilities and canteens, but the Chancellor seems to have some mental block on providing workplace nurseries as a facility for working parents. That would be the one way to get women back into employment and allow them to work and look after their families at the same time.
It is not just a matter of workplace nurseries; there is a necessity for adequate state provision. An examination of local authority nursery provision shows the Labour party's commitment in contrast to that of the Conservative party. The 24 authorities that have the highest proportion of three to four-year-olds in pre-school nursery places are all Labour. The bottom 24 are all Conservative authorities.
This year the Chancellor had the opportunity to bring more women into the work force on the grounds of equality and efficiency. He could have offered incentives to employers to set up more nurseries, but he has not. Far from showing that he wants to help women and children, he has done exactly the opposite.
§ Mr. Tam Dalyell (Linlithgow)
Before making a very gentle speech, I must say that I agree with my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) and my hon. Friend the Member for Livingston (Mr. Cook) in their assessments. In Scotland the debate is against the background of the poll tax, which is causing endless trouble in all Scottish constituencies. I do not think that Ministers or anyone else really understands the amount of difficulty that the poll tax will cause.
My first question refers to taxpayer confidentiality. The Chancellor said:In particular, it does not cover information in the possession of either the Inland Revenue or Customs and 611 Excise concerning the private affairs of specific taxpayers … I therfore propose to introduce provisions in this year's Finance Bill to ensure that it will continue to be a criminal offence for officials or former officials of either of the Revenue Departments to reveal information about the private affairs of a specific taxpayer."—[Official Report, 14 March 1989; Vol. 149, c. 298.]
I do not under stand why that was not included in the official secrets legislation, as was requested by a former Home Secretary my right hon. Friend the Member for Morley and Leeds, South (Mr. Rees), at business questions this afternoon. Nor am I clear as to whether that is really necessary. I could be persuaded, but I should like to know whether it has been agreed with Tony Christopher of the Inland Revenue Staff Association. Is it not rather like using a hammer for cracking a nut?
I have great admiration for the Inland Revenue, and I think that the tax inspectors deserve the praise of the House. I do not particularly wish to single out any office, and as far as I know I have no constituents who work at East Kilbride, but I should like, as a constituency Member of Parliament with the tax problems that we all experience, to register the fact that the Inland Revenue gives extremely good service to Members of Parliament. I am also aware that there is a tremendous temptation for many tax inspectors to leave the Inland Revenue after a few years and work for private solicitors' firms for a markedly greater salary. Is it not a tinge offensive to change the criminal law to deal with a problem that, as far as most of us know, is non-existent? I have never heard of any revelation of private individual affairs. The Minister should tell us whether there is a problem. If it is not a problem, why tinker with the criminal law?
My second question is equally interrogatory. It refers to the Chancellor's statement:I have been particularly concerned about the impact of the European Court's ruling on charities. Unfortunately, charities' business activities cannot lawfully be shielded from the effects of the ruling."—[Official Report, 14 March 1989; Vol. 149, c. 305.]That raises the wider question whether we can amend or change European law on such matters. I do not wish to quote him out of context, but I have discussed this with David Edward, a distinguished Queen's counsel, whom the Government have appointed as one of the judges at the European Court. It was certainly his opinion that changes can be made, and perhaps our partners are not inflexible but have never been asked to make those changes. Has the Treasury really tried to persuade other European Finance Ministers to change the law on charities?
My third question arises out of the undoubted fact that an enormous amount of what the Chancellor has been able to do has resulted from privatisation. Without privatisation and North sea oil, the Government certainly would be in no position to produce such a Budget. Therefore, it is very unfair to refer to what the Labour Government did in the 1970s in totally different circumstances relating to oil and privatisation.
I shall home in on one particular aspect of privatisation—the curious statement from the Secretary of State for Employment on Monday. Apparently, on the advice of Deloitte Haskins and Sells, it was agreed that the skill agencies and skill centres should be the subject of a management buy-out. What estimate exists in the Treasury of the amount of money that will accrue to the Treasury arid to those who will undertake the management buy-out? A great deal of money is involved. There are considerable properties, often in prime sites. Those of us 612 who have visited skill centres have high regard for them. Certainly in the north they are doing a very good job. The skill centres that I have visited have much valuable modern equipment. To whom do the profits from this transfer go? What volume of profits are we talking about? This is a profoundly unwise policy.
I should like now to ask a rather different set of questions. This afternoon I interrupted the Chancellor of the Duchy of Lancaster to ask about debt, especially south American debt, and how it fitted in with the Budget strategy. There was some ill-informed laughter from the Under-Secretary of State for Trade and Industry. A Minister is very unwise to laugh at this subject. If the Financial Secretary laughs, I shall tell him that the chairman of Midland bank certainly does not laugh. I have spoken recently to Kit McMahon about his problems. If one inherited the difficulties of the Midland bank, or even those of Jeremy Morse at Lloyds bank, one would think it was no laughing matter.
Third world debt is a very dangerous matter. If we press south America too strongly on debt, the political consequences will be destabilising and harmful to many British and American banks. This is not the place to repeat my long contribution to the Consolidated Fund Bill debate last Tuesday morning, reported in Hansard at columns 157 to 165, but I ask the Treasury for some reflections on how they fit into decision-making.
Has any consideration been given to measures to encourage British banks with large exposures to Third-world countries, especially in Latin America and in Brazil, to reduce those countries' indebtedness in exchange for measures to protect and conserve their natural resources, especially tropical forests? I believe that the Minister for Overseas Development and the Under-Secretary of State for Foreign and Commonwealth Affairs are very sincere about the matter, but if we are to be serious about the rain forests, we must also be serious about debt.
Secondly, has any consideration been given to provisions that could be made to encourage commercial banks to exchange Third-world debt for nature? What steps will the Treasury take to encourage the progressive reduction of Third-world indebtedness to British banks?
May I say to the Economic Secretary that it is very unsatisfactory for the House to be denied any information about the instructions that our Government give to the British director of the World bank? I am not blaming Mr. Cassell, who occupies that position as minister in Washington, and our executive director of the World bank—this complaint is not made personally about him—but I do not understand why we cannot have as full information as the Americans.
On 13 March, the Under-Secretary said:Environmental issues are being given much greater attention in the World bank, in part due to the efforts of the United Kingdom and several other members.Could the Treasury write to me saying exactly what it has done in that regard? The Minister continuedThe reorganisation of the World bank in 1987 strengthened its capacity to ensure that environmental costs and benefits are systematically addressed in projects appraisal. It is clear that the bank is aware of the sensitivities surrounding the proposal, but I repeat that we will need to look at the precise terms of any proposal.
I then asked a question of the Minister about the Americans and he replied:There is possibly a difference in approach between us and the Americans on this matter. It relates to our reluctance to 613 use our voting in the World bank as any kind of political lever or pressure-a reluctance which the Americans certainly do not go along with to the extent that we do."—[Official Report, 13 March 1989, Vol. 149, c. 172–3.]I ask the Treasury Ministers whether they are sure that we are right and that the Americans are wrong. There is a very powerful case for adopting the American practice.
What environmental controls do we have in relation to the European development fund? Are we sure that a sufficient period of consultation for the British representatives in the World bank is provided to give a considered opinion, given that instructions seem to be given at the shortest notice?
I tabled a question recently asking the Chancellor of the Exchequer if he will make a statement on recent progress by the International Monetary Fund and the World bank on development loans to Brazil, relating to the power sector and rain forests. I received the usual courteous reply—that it was a matter for the Foreign Office. May I ask the Minister, even at short notice, to write to me formally saying precisely what is the role of the Treasury as opposed to the Overseas Development Administration with regard to ecological impact assessments in World bank and International Monetary Fund policy?
As another hon. Member has come in to speak, I shall end my remarks there.
§ Mr. William Cash (Stafford)
It strikes me, on occasions like this when the clock is moving towards 9 o'clock, that it is better just to take a brief snapshot, so to speak, of the philosophy and attitudes that underpin the Budget. In particular, I feel strongly that this Budget builds on previous Budgets under our very successful Chancellor, although that has not been said so much in the media.
We have had a succession of tax cuts together with incentives that have led people perhaps to expect that that would go on indefinitely. There is no doubt, as my hon. Friend the Member for Esher (Mr. Taylor) said, and as has been said in the press, that this is a cautious and clever Budget.
We have heard much talk of ESOP. I was reminded of Aesop's fable of the tortoise and the hare. Not for a moment would I refer to my right hon. Friend the Chancellor of the Exchequer as a tortoise, but there are times for caution and prudence, and he who adopts that philosophy is most likely to succeed in the longer term.
The Budget fulfils three main criteria. I had an opportunity before the Budget to discuss this with some colleagues. I was asked what I would say if I was in a position to make proposals in a Budget. Bearing in mind that it is unlikely that I would be asked to do so, I said that I would choose three criteria. First, there would be savings. Secondly, there would be quality, by which I mean quality in performance of British industry and services. Finally, there would be care. It is my judgment that the Budget carries with it all three of those ingredients in equal measure.
Just briefly, as time is short, I remind hon. Members of what happened in Japan in the 1950s, when it re-geared its tax policy to put the emphasis on savings. In a nutshell, that has led to the yen being the most powerful currency in the world. There is much in this Budget that goes to the very heart of this question.
614 With regard to quality, one fact that we know is that we are consistently being outdone by imported foreign goods. The question is not whether we have a trade deficit, but why. On closer examination, it is invariably because British goods do not match the quality that imported goods succeed in achieving. I thoroughly applaud the provisions in the Budget that place emphasis on profit-related savings mechanisms, because people will have an incentive to produce higher quality goods. Essentially, this is a self-help Budget, combined with a practical opportunity for people to use their labour to improve the quality of the goods that they produce.
Everyone must admit that the provisions relating to the elderly are a significant step in the right direction to ensure that those who wish to remain in work, for perhaps only two or three years, may do so. The psychology of this measure is important because people can remain in work rather than feeling that at a given date there is a shut-off point and that they will be regarded as redundant and irrelevant, when they are not. The provisions in the Budget enable them to make choices. Choice and freedom of choice will give those people dignity and self-respect. I applaud the Budget for the reasons that I have given.
§ 9.1 pm
§ Dr. John Marek (Wrexham)
We have had a deliberately low-key Budget. It blames the people for high interest rates, and the Chancellor cheekily said that high interest rates were here to stay for the time being. Ordinary people, who borrow money to buy a car or home, will have to cough up; they will pay through the nose. The rich, who depend on unearned income for their life styles, will laugh all the way to the bank.
We have had a typically mid-term Budget, which gave nothing away, but which the Chancellor hopes will allow for a better Budget just before the next election. We have had a Budget that shows that the Chancellor is scared about the economic position, and that inflation will continue to rise higher. We have had a Budget that helps those who drink much alcohol and heavy smokers. It will cost the nation dearly when our hospitals and National Health Service have to treat the increases in drink-related disease and cancer of the lungs.
The debate has been well informed, and my hon. Friends clearly showed why the Budget strategy is wrong. My hon. Friend the Member for Ashfield (Mr. Haynes) made some pertinent remarks about the National Health Service. The hon. Member for Caernarfon (Mr. Wigley), who is not present but no doubt will be soon, should not will taxation to provide services for our constituents, who desperately need them; the Chancellor has £15 billion at his disposal, but dare not spend it. The problem is, even if he did, he would not spend it on services for our people.
My hon. Friend the Member for Stalybridge and Hyde (Mr. Pendry) spoke eloquently about the plight of pensioners. My hon. Friend the Member for Newham, North-East (Mr. Leighton) detailed the problems with training schemes and the lack of training. Our next generation will pay dearly for the Government's lack of care in training. I agree with my hon. Friend the Member for Liverpool, Walton (Mr. Heller), who dwelt on the handouts given to the rich and the super-rich in last year's Budget.
My hon. Friend the Member for Easington, (Mr. Cummings) spoke movingly of his elderly constituents, 615 and my hon. Friend the Member for Redcar (Ms. Mowlam) spoke of workplace nurseries, the problems of women and the Government's apparent lack of concern about them. My hon. Friend the Member for Linlithgow (Mr. Dalyell), in his own way, asked not one or two but four or five questions. The Minister has half an hour to sort out some answers to his interesting questions, which the House will wait with bated breath to hear. My hon. Friend made an important point about the oil crisis with which the Labour Government of the 1970s had to deal, whereas this Government have had the revenues from North sea oil and the sale of the family silver at their disposal. That important distinction must always be remembered, and I thank my hon. Friend for making it.
I have two main themes to my remarks. First, the Government are showing a lack of care and irresponsible recklessness in not giving proper consideration to our infrastructure, public spending on roads, schools, houses, railways and services such as the National Health Service. The second theme is that the Government are economical with the truth when it suits them. As my hon. Friend the Member for Livingston (Mr. Cook) said, they spend many hours on news management and disinformation. My hon. Friend dealt with news management and exposed the glib phrases used by the Chancellor of the Duchy of Lancaster for what they were—shallow, glib phrases that added nothing to the debate.
In his Budget statement, the Chancellor said that Inland Revenue consultative documents would be issued. When I visited the Vote Office, I was told that it did not have them and to try the Library. I went to the Library, which said that it had some documents but that I had to read them there. There are three consultative documents—the tax treatment of swap fees, the tax treatment of foreign exchange gains and losses and the sub-contractor scheme reducing paper work. Will the Economic Secretary ensure that they are available in the Vote Office? If he is unable to do so, I hope that he will at least provide Opposition Front Bench spokesmen with copies. Preferably, they should be available to all hon. Members.
§ Dr. Marek
Yes, indeed—and to my hon. Friend the Member for Linlithgow.
I would not be allowed to say, too baldly, that the Chancellor of the Duchy of Lancaster was dishonest, but it is true that he was economical with the truth when he said that the index of manufacturing production was lower when the Labour Government left office in 1979 than when they took office in 1974. That statement is true, but it does not give the full picture. There is no mention of the oil crisis of 1974–75 or of the fact that the index of manufacturing production for the Labour Administration was always higher than under the Conservative Administration between 1980 and 1986. It is only now returning to its level under the last Conservative Government of the 1970s led by the right hon. Member for Old Bexley and Sidcup (Mr. Heath).
The contribution of the Chancellor of the Duchy of Lancaster was an example of news management, was glib and made no contribution to the debate.
Let me give another example of news management. The Chief Secretary to the Treasury said yesterday:we are enjoying the longest period of growth since the war."—[Official Report, 15 March 1989; Vol. 149, c. 435.]
616 Today, that was almost parroted by the Chancellor of the Duchy of Lancaster when he said:We are in our eighth year of growth.
If the average person were to hear that without giving it a great deal of thought, he might think that the economy was actually a success. The right hon. Member for Chesham and Amersham (Sir I. Gilmour) had it right yesterday when he said:in the whole period from 1979, the growth rate has been unusually slow. The growth of manufacturing output since 1979 has been the slowest of the post-war period—that is, slower than any nine-year period before 1979."—[Official Report, 15 March 1989; Vol. 149, c. 440–41.]That is the fact of the matter. It is all very well to use glib words such asWe are in our eighth year of growth",but they are meaningless and add nothing to the debate. Indeed, it demeans Members on the Treasury Bench when they make statements like that without any thought as to what they mean and the impression that they may give. Such remarks are simply facile, and I hope that Treasury Ministers will turn over a new leaf.
Let me give another example of news management. At 10.30 pm on Tuesday, the day of the Budget, the Chancellor was giving his forecast on Radio 4. I am not sure that I have got it right, but he said something like this: "There has been a massive break-away from the policies of the past of high taxation"—the implication being that Labour is the party of high taxation and that he has broken away from that. [HON. MEMBERS: "Hear, hear".] I hope that those hon. Members who are saying "Hear, hear" will explain carefully what they mean. I will give them every opportunity to do so.
Again, the Chief Secretary parroted in the House what the Chancellor had said on radio:Labour is the party of high taxation. We are the party of low taxation.But he gave the game away earlier when he said:The right hon. and learned Member for Monklands, East (Mr. Smith) said, correctly, that the tax burden has gone up".—[Official Report, 15 March 1989; Vol. 149, c. 425–29]The tax burden has indeed gone up, and in the Red Book, page 18, there is a very telling table. Table 2.5 deals with non-oil taxes and national insurance contributions as a percentage of non-oil money GDP. From this table it can be seen that under the last Labour Government from 1974 to 1979 that percentage was never above 36 per cent., yet under the Conservative Administration from 1979 until 1989 it has never been below 36 per cent. Where now are all those Tory Members who were saying "Hear, hear", meaning that Labour is the party of high taxation?
§ Dr. Marek
That is exactly what one gets from Members of the Tory party. [HON. MEMBERS: "Answer."] I will give the answer in a minute. Tory Members are talking only about taxes on income. What about taxes on expenditure? Who raised VAT from 8 per cent. to 15 per cent.? It was not the Labour party. That is why I say that it is the Conservative party that is the party of high taxation, whereas Labour is the party of low taxation. We have no intention of increasing the burdens on the people of this country that have been placed on them by the Tory Administration not just over the last one or two years but over the last eight or nine years.
617 The Government have been paying back the national debt. It is a latter-day conversion. They cannot do anything else. It is simply a matter of expediency. They cannot use the Budget surplus for anything else. Certainly they do not want to spend it on services, and they cannot give any more handouts to the rich and the super-rich because problems of inflation have begun to come to the fore. So, what do they do? They fall back on the expedient of repaying the national debt. In fact, they are now frightening people with scare stories about Labour increasing national insurance contributions if they were ever to come to office.
§ Dr. Marek
The hon. Member nods his head. One has only to read the reports of the debates of yesterday and the day before to see a number of references by the Financial Secretary and others to this matter. Labour Members think that it is unfair that the person earning £15,000 a year should be paying 9 per cent. in national insurance contributions, whereas a person earning £100,000 a year is paying in effect a little less than 1.5 per cent. in national insurance. We think that national insurance contributions should be raised for the person who is getting £100,000 a year. That would allow a reduction for the person earning £15,000 a year.
The Tory party, besotted with its huge majority in this House, thinks that it can indulge in any misrepresentations it likes and manage the news in any way it sees fit.
Let me turn now to the Chancellor's wish to doctor the retail prices index—another example of news management. It was a bit inconvenient for the Chancellor recently that, because of mortgage interest relief being included in the RPI, inflation was a bit high. It is a little bit high for the country—we all agree with that. But what does the Chancellor do? He does not want to do something about inflation. No. Instead he wants to doctor the RPI by taking mortgage interest relief out of it. He never mentions that the housing market in the United Kingdom is very different from those of other countries in the Common Market and for that reason we, with Ireland, have mortgage interest included in the RPI and in other countries, where the housing market is different there is an imputed rent, a rent that the property would attract on the open market.
Let me quote what the Chancellor said in his statement on 12 January 1989:So far as the recorded RPI is concerned, the position is complicated by the fact that, of all 12 nations of the European Community, we are one of the only two—the other one being Ireland—that is daft enough to include mortgage interest payments in its retail price index … It is again my task to seek to educate the Leader of the Opposition"—the Leader of the Opposition came in—Of the other 10 countries of the European Community that do not include mortgage interest payments, there is a minority, it is true, that do have as a proxy for the cost of owner-occupied housing—it is a minority—imputed rents.Well, if the figure were 10, four would be a minority at most. The Chancellor went on to say:The majority have nothing at all. So the Leader of the Opposition was trying to mislead the House, no doubt through his own ignorance."—[Official Report, 12 January 1989, Vol. 144, c. 1007–10081
618 I went and got hold of the OECD main economic indicators. I must say that these figures relate to 1980 so there may have been a change. I looked down the lists and found, for example, that the following countries, in making up their RPI, have some form of rent or mortgage included in the figure with some weighting: Canada, United States of America, Japan, Australia, New Zealand, Austria, Finland, Iceland, Norway, Switzerland, Turkey and Yugoslavia. Luxembourg does not. Greece and Portugal, I think, have. The OECD document does not say that they do not but the amount of detail is not sufficient. But it does say that the following EEC countries have a component for housing or rent: Belgium, Denmark, France, Germany, Italy, the Netherlands, Spain, Ireland, and the United Kingdom.
Who is right? Are the 1980 OECD main economic indicators wrong? Have several countries stopped including rent? Is the Chancellor badly advised, or is he trying to pull the wool over our eyes? The matter should be cleared up. Following the lead given by my hon. Friend the Member for Linlithgow, I should be grateful if the Economic Secretary would write to me with full details about the truth of the matter. It would certainly help the House. There would be much less news management and misinformation in this place, which is all to the good.
The Government are also obsessed with saving money on public services. Let us examine the railways. Ministers like to boast about high levels of investment in British Rail. We need only refer to any Transport Question Time to note the Minister and the Secretary of State for Transport boasting that investment in British Rail is at an all-time high, and comparing it with the position under the last Labour Government. I got the Central Statistical Office database figures relating to railway gross domestic fixed capital formation at 1985 prices. In 1974, it was £409 million, and in 1975 it was £517 million. The figure remains around that level until—surprise, surprise—we get to the Tory Administration, when it dropped to £370 million in 1980. In 1982, it was £283 million. The lowest point was in 1984, when it was £274 million. It has since gone up a little.
To provide an average, under the Government of the right hon. Member for Bexley and Sidcup it was approximately £350 million a year. Under the last Labour Administration it was £472 million a year. Under the first Conservative Administration led by the present Prime Minister it was about £307.5 million, and under the second Administration in 1983–87 it was £353 million a year. It is still less than the amount invested under the last Labour Government. It has gone up a little. I should like to see a record figure for this year—I do not have the 1988 figure—but one swallow does not make a summer.
Hon. Members should remember that it is no good the Secretary of State for Transport saying that, in 1988, we had the highest level of investment in British Rail since 1970. That is what he tried to do during Transport Questions last October. It is meaningless. It is a glib, empty and shallow phrase which conveys nothing and adds nothing to the debate. It does not fool any Opposition Member or the press.
The lack of investment in British Rail in recent years has had to be compensated for by revenue generated by British Rail's operations. These are higher fares and lower wages. In the past three years the increase in fares has been wel above the RPI. Let us remember that the basic rate for railway employees is now lower than that for agricultural workers. I do not say anything derogatory about 619 agricultural workers, but relativities have been upset. The lack of Government investment has caused British Rail to cut jobs. Since 1979, 50,000 jobs in British Rail have been lost.
There have also been improper maintenance, checking and control procedures. It is no use blaming the driver or the technician for the Clapham accident. If the old track layout had still existed, the Glasgow accident would have been impossible. The new lay out allowed human error, perhaps, to cause that accident. An article in the London Evening Standard of 13 March stated:Signalling equipment in the Waterloo area of Southern Region has been deteriorating so badly that there have been three major failsafe errors in the past two years.That is directly attributable to the lack of public expenditure on our railway infrastructure. Yet again in the Budget, the Chancellor has seen fit not to provide any more money for the public services that the country desperately needs.
British Rail is doing other things such as abandoning the systematic maintenance of lineside telephones. On the west coast main line, it has produced cars called pacers. They are too light, they leak and they will not go uphill. There are problems at open level crossings because there have been signalling failures, but the Government are trying to export the model. They did not get a single order at the Vancouver exhibition. I am not surprised. Every country knows exactly what we produce under the present Government.
In their search for public expenditure cuts, the Government relaxed conditions on open level crossings, which culminated in 10 deaths at Lockington, north of Hull, and resulted in Professor Stott's report. The Government have now put back barriers on about half the number of level crossings. Any hon. Member could mention other examples in other spheres of Government policy.
§ Dr. Marek
The Prime Minister does not like trains at all.
The Government are besotted with their huge majority in the House. They know that, whatever happens in the country, they have a secure majority in the Chamber. They have power over the media and news management.
Last year's Budget was notorious for its unfairness. The unearned income of the richest 1 per cent. has nearly doubled—there was an 89 per cent. increase—and last year's tax cuts have brought them about £400 a week extra. This year, there is no talk of putting that right. Conservative Members talk about balanced, fair Budgets. There is some sense in that, but hon. Members must remember that this Budget succeeds one of the most unfair Budgets this century.
In contrast, since the last Budget the poorest 2.5 million taxpayers—not the unemployed—got tax cuts of about 92p a week. Of course, those cuts have been wiped out by price rises, mortgage and rate increases and utility price increases. I do not have to spell out the figures. Any home owner with a mortgage knows the extra amount that they have to pay. The Government will not put up child benefits. That is scandalous. The figure is £7–25, and it should be £8–35. Above all, the Government have 620 produced the highest balance of payments deficit ever and the highest interest rates and inflation rate of all the G7 countries except Greece and Portugal.
We have a Government who, on the other hand, are happy to throw away £40 million on the Chancellor's estimate, on the estimate of the Chief Secretary to the Treasury—and perhaps it will be over £100 million—as a tax subsidy to the wealthy retired for private medical insurance. It has been said before, but I think it should be said again, that the Prime Minister will no doubt benefit, but there will not be many pensioners in my constituency or my hon. Friend's constituencies who will benefit from this. There is no targeting or testing in this proposal, except in one respect. One has to be rich to take account of the concession.
The Chancellor could have expanded our training progrmme to develop our skills, because skills shortages are appearing everywhere. The Chancellor could have provided finance for more teachers. He could have cut National Health Service waiting lists. He could at least have valorised excise duties on drink and tobacco because of the nation's health. The Chancellor did nothing of the sort. I received a letter from the Privy Council Office signed by the Leader of the House saying;As Chairman of the Ministerial Group on Alcohol Misuse, I am writing to let you know that the first ever National Drinkwise Day will be held on 20 June 1989.That day will be drinkwise all right. Drink will be cheaper and we shall be able to drink more of it for the same amount of money. I wonder what the Leader of the House thinks about the Treasury's action this year, which was taken because the Treasury was scared of adding 0.1 per cent. or 0.2 per cent. to the level of inflation, so it did not valorise, or even attempt to valorise, increases for alcohol or tobacco.
The Chancellor could have avoided increases in charges for water, electricity, public transport and prescriptions. That would have kept inflation down. Why did he not do that? He could have cancelled charges for eye tests, but he has not and instead we shall have a two-tier system of eye tests under which a person can go to an optician and have a quick test which would not detect cancer, diabetes or many other diseases.
The Chancellor could have produced a programme for public spending on essential services. The Government could have spent a little more to ensure that airlines—and in particular Pam Am—received the bomb warning immediately, rather than sending it by post at Christmas [HON. MEMBERS: "No."] The Government send letters by second-class post at Christmas. If the Government provided a different policy for the Post Office, I am sure that it would take on many more people, but I do not want to take up time on that. The Government send letters by second-class post to Members of Parliament. I shall not name a Department because it would be unfair, but Departments are doing that. It is time that the Government got rid of their dogmatic obsession about saving public money and expenditure—[HON. MEMBERS: "Why?"] It would have saved 200 lives at Lockerbie for a start; we should be clear on that.
People demand a proper level of service and a proper level of care from the Government. They are not getting it, and the Budget stands condemned because of that.
§ The Economic Secretary to The Treasury (Mr. Peter Lilley)
This has been an interesting debate, reaching a high point of the several days of Budget debate so far. It has been interesting, above all, because it has demonstrated the wide measure of support for the Budget not just among Conservative Members, among whom whole-hearted support has been manifest, but among a range of Opposition Members, among whom partial support has been apparent for individual measures.
There have been some notable contributions, especially from my right hon. and hon. Friends, beginning with a cogent speech from my right hon. Friend the Member for Guildford (Mr. Howell), who has long been an advocate of popular capitalism and wider share ownership. He urged greater incentives for that and for savings. I am not wholly convinced of the necessity for any front-end relief for the savings that he favours, if only because it would, of necessity, have to be accompanied by considerable complications to prevent abuse. Above all, we want to keep matters such as personal equity plans as simple and usable as possible.
My right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling) continued the debate with a pithy description of the Budget as one with something for everyone. That was confirmed by the debate as a whole. He pointed out that the Opposition parties were largely unable to criticise the Budget because of its many popular features, which he enumerated.
My hon. Friend and neighbour, the Member for Hertfordshire, South-West (Mr. Page) eloquently expressed his concern about the health of manufacturing industry, and he sought an even more rapid recovery than it is manifestly enjoying at present. I confess that I remain unconvinced that his remedy of the Government setting priorities and targets and picking winners would be more successful than relying on greater enterprise and competition. However, I noted his speech with interest.
My hon. Friend the Member for Ludlow (Mr. Gill) made a forceful plea to encourage savings by a shift to indirect taxation. He will have seen that this is not the year in which we felt it right to increase the burden of indirect taxation—for obvious reasons.
The hon. Member for Stalybridge and Hyde (Mr. Pendry) welcomed the abolition of the earnings rule. That feeling was echoed by hon. Members of all parties. Nobody opposed what my right hon. Friend the Chancellor described as that "long overdue" measure.
The hon. Member for Newham, North-East (Mr. Leighton) rightly analysed the effect of the extra spending in the economy being the result not of the Budget changes last year but of increased borrowing. However, he was wrong to say that none of the extra money in the economy has gone into investment. Indeed, it is extraordinary that he should say that in a year in which we have seen a marked investment boom and business investment reaching the highest proportion of national income that it has been since records were first kept.
My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) made a lucid speech, saying that we must get our priorities right and put inflation first. That is precisely where our priorities lie, and that is what we intend to do. I thought his speech in many ways the best of the debate. It was marred by only one thing—his compulsive cynicism, which requires him always to find 622 some nefarious motive for the Government's monetary policy. In this case, he believes that it is primarily designed to manipulate the equity market for our privatisation measures. If that were the case, I for one—although I have long worked in those markets—would not know quite what monetary measures to take to achieve the result that he thought we were seeking.
My hon. Friend the Member for Ryedale (Mr. Greenway) asked for an assurance that the new tax rate for life assurance would be linked firmly to the basic rate. That is indeed the intention of my right hon. Friend the Chancellor. I hope that my hon. Friend and the industry will welcome that.
Unfortunately, I missed what I gather was an excellent speech by my hon. Friend the Member for Esher (Mr. Taylor). I understand that he made a compelling case for the use of ESOPs. Before the Budget he played a leading part in advocating measures to encourage that. I shall read his speech with interest, as I did the excellent pamphlets that he produced ahead of the Budget.
Unfortunately, I also missed the speech of the hon. Member for Redcar (Ms. Mowlam), who asked for some statement on the tax position of workplace nurseries. As I have said, although I did not hear the hon. Lady's speech, I have heard other references to that issue during the Budget debate. It is not always universally recognised that an employer who provides workplace nurseries or the cash for employees to hire child minders can set the money spent for that purpose against his profits for corporation tax purposes and receive full relief against his corporation tax.
The benefit to the individual from such payments or benefits in kind is treated like all benefits in kind. If, together with other income, the total is less than £8,500,. no tax is paid, but for those whose total incomes are over £8,500, benefits in kind, whether they are that sort of benefit or any payments made to help with the purchase of, for example, a season ticket, are taxed, and it is obviously right that they should be treated in the same way as other financial benefits.
I heard part of the speech of the hon. Member for Linlithgow (Mr. Dalyell), who raised a catalogue of questions. I shall go through them and write to him in due course. I understand that he asked why the Official Secrets Act does not include the measures that we propose for the Finance Bill to protect the security of information provided by taxpayers to the Revenue Departments. The answer to that is simple. The Official Secrets Act concerns Government information, but we are concerned here with the private information that is provided by taxpayers and we want, above all, to give reassurance to private taxpayers. I believe that that is widely welcomed.
The hon. Member for Linlithgow also asked whether there was any hope of getting agreement within the European Community for any alteration in the results that we now know from the ruling of the European Court of Justice on the impact of the abolition of the United Kingdom's zero rates on certain previously zero-rated supplies, notably new construction for charities. Unfortunately, to achieve any change in a directive in the Community, one requires not just a majority of member states to agree with one—not even unanimity among member states, which would be extremely unlikely given the attitude of some member states to the existence of zero rates—but the support, or at least the acquiescence, of the 623 Commission. As the Commission brought the case in the first place, it is inconceivable that it will suddenly stand on its head.
The hon. Member for Linlithgow asked other questions of a more complex nature, and I shall write to him or ensure that he receives the information.
§ Mr. Dalyell
On the question of the World bank and the directions that are given to Mr. Cassell, I have asked Treasury Ministers whether they could not he as open as the Americans on this issue and also at some time to give a Treasury view on the concept of the debt for nature swap. Will the Treasury Ministers consult Sir Kit McMahon about the problems of the major banks in relation to the Brazilian debt?
§ Mr. Lilley
If those questions are not already on the list that my right hon. Friend has prepared, I shall add them and answer them as best I can in due course.
The debate was opened by the hon. Member for Livingston (Mr. Cook), who was on his best and most pugnacious form. I have always thought of him as one of the best boxers in the shadow Cabinet, but today he was a shadow boxer. He paid an implicit tribute to the Budget by attacking only one measure—a small measure in financial terms—within it. By implication, I may take it that he accepted the rest, albeit with somewhat bad grace. His hon. Friends have tended to be equally resolute about specific Budget measures. They limit themselves to expressing generalised concern about inflation, about savings and about the trade balance. Despite expressing concern about those matters, they condemn the very policies that are essential to curb inflation, to encourage savings and to bring about an improvement in the balance of payments.
The shadow Chancellor, whose absence I regret, yesterday told my right hon. Friend the Chief Secretary that he had never been in favour of stoking up credit, that he just wanted to cut interest rates. He had never been in favour of increasing domestic demand, he just wanted to increase public spending. Of course, he is a leading and distinguished advocate and I am sure he comes across that sort of plea all the time from bank robbers, caught red-handed—"Well, I didn't really mean to rob the bank, I was just there to help my friends open the safe."[Interruption.] I see that I have hit the bull's eye on this occasion.
The shadow Chancellor expressed his concern about inflation, but concern from the Opposition about inflation is always synthetic, and concern about an 8 per cent. rate of inflation is positively hypocritical. I looked up the last but one Budget speech of the right hon. Member for Leeds, East (Mr. Healey) back in 1978, which began with him boasting that they had just got inflation down to single figures—to 9.5 per cent. By his next Budget, of course, it was creeping back into double figures. The Labour Government had one temporary dip whereas we have the occasional blip.
§ Mr. Lilley
It is about as low as the Labour Government ever got inflation. Their visit into the lower single figures was as fleeting as our upward movement in the single figures will be, because we are determined to give priority—as this Budget shows—to getting inflation back down. It is that feature of the Budget which probably has the greatest support on the Conservative Benches and in the country.
The Opposition expressed concern about savings and asked how the Budget would improve the aggregate amount of savings in the economy—[Interruption.]—and my hon. Friend the Member for Stafford (Mr. Cash) answered them eloquently and excellently.
There is a simple straightforward answer to that question. The Budget increases savings by £14 billion. The £14 billion repayment of debt is equivalent to adding £14 billion to the amount of savings in the economy. That money is available to be borrowed to finance our current investment boom.
It is a strange paradox that the Left in Britain and in the House want the state to do almost everything. They want it to have a monopoly of health care, to be in charge of investment, to do all the research and development, training and education and everything else. Yet from their reaction to the repayment of the public debt it seems that the one thing they do not want the state to do is save.
The Government do not intend their revenues to be in permanent surplus. We intend to move gradually back to a position of balance. However, if during that period we can contribute to the overall level of savings in the economy, particularly during a period when private savings are being restored to a more satisfactory level, so much the better.
Before I return to the important macro-economic matters, I want to refer to two specific facets of the Budget which deserve greater attention than they have received. The first is the help that my right hon. Friend chose to give to charities. The Budget has been warmly welcomed in the charity world. The charities' VAT and tax reform group described it as "a significant Budget for charities", and so it is.
Central to that measure was my right hon. Friend's concern to protect charities as far as possible from the adverse consequences of the European Court of Justice's ruling on zero rates, to which the hon. Member for Linlithgow referred. In the first place, it was not necessary for the Commission to bring that case. It was able to do so only because of the Labour Government's assent in 1977 to the directive under which it was brought. Its decision to pursue it is a symptom of its obsessive passion for uniformity throughout the Community. It ignores the fact that different countries have different ways of organising things. We in particular have a well developed and important charity sector, which is not present in many other continental states.
§ Mr. Lilley
What a petty point. Britain has an important and worthwhile tradition of voluntary activity and voluntary giving, which I am proud of and would not seek to denigrate. [Interruption.] This is not something that we have had to resort to. Britain has a history of prosperity that few other countries have had.
§ Mr. John Greenway
Does my hon. Friend agree that many of the major charities in the world have their roots in Britain and that they are helping people abroad, not in Britain?
§ Mr. Lilley
That is right, and that reinforces the disdain that I feal for the point made by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood).
We have endeavoured to interpret the court's ruling in a way as favourable as possible to the charity world, but we are not able to protect the charities' business activities as defined in VAT law. We have been able to ensure that charities' non-business activities are protected and that residential buildings, including hospices, old people's homes and churches are protected, but we have not been able to protect their business activities. Therefore, we have looked for other ways to ensure that charities are helped as much as possible.
My right hon. Friend has taken VAT off charities' fund-raising activities. Until now, charities escaped VAT only if they succeeded in keeping the revenue from such events below the registration threshold, which often required a complex sub-division of their activities. My right hon. Friend has also exempted classified advertising, thereby extending an aspect of zero rating that he introduced in a previous Budget. He has extended it also to sterilising equipment. My right hon. Friend also removed VAT from car tax. I refer not to vehicle excise duty, because arrangements for that already exist, but to the tax on the value of cars leased to the disabled, largely through Motability. That involves a large sum of money for each car, and that measure has been warmly welcomed by the disabled.
My right hon. Friend has relaxed rules on covenanting membership of and subscriptions to heritage and conservation charities. He has also improved the payroll giving scheme by doubling the limit to which people are able to donate, tax included, to charities of their choice. That improvement will give a further fillip to that excellent scheme.
All that is a continuation of measures undertaken in a series of Budgets presented both by my right hon. Friend and by his predecessor, my right hon. and learned Friend the present Foreign Secretary. They add up to a formidable list. They include improvements to covenanting and to the ability of companies to make one-off donations, changes affecting value added tax liability, and an enhancement of the payroll giving scheme. Today, I answered a parliamentary question by my hon. Friend the Member for Beaconsfield (Mr. Smith), asking me to list all the financial measures introduced by the Government to help charities. I warmly commend my reply, which will be published in the Official Report tomorrow, to all my right hon. and hon. Friends, who will find that it serves as a handy reference to all the Government's measures of benefit to charities.
The value of the grants and reliefs that the Government now give the charitable movement is more than £1.5 billion, which in real terms is twice the sum given 10 years ago. Even more important is the fillip to private giving by covenants, the payroll giving scheme, and other means. Above all, there is the series of tax measures that have left people with more of their earnings from which to make donations if they so choose.
It is often said by the Opposition that we encourage selfishness. If that were true, we have failed—because there 626 has been a great increase in generosity and in the level of giving in this country. Private giving to charities has more than doubled in real terms during the lifetime of the present Government. That is something that all right hon. and hon. Members must welcome.
Another measure that was welcomed in all parts of the House—possibly even by the Liberal party, grudging though its members may be—is the decision to encourage the use of unleaded petrol. There are three ways of encouraging greater take-up. The first is price. There was already a considerable fiscal differential in favour of purchasing unleaded petrol. We are increasing that differential by a further 4p a gallon, making it the biggest differential in favour of unleaded petrol of any country in the European Community, with the solitary exception of Denmark.
The second is by improving unleaded petrol's availability. Although the number of garages offering unleaded petrol has increased severalfold since the last Budget, they still number only about 5,000, or a quarter of all garages in the country. The number is rising fast. About half of all garages devote storage capacity and pump space to two-star or three-star petrol. Therefore, we made the decision—the Financial Times called it a master stroke—to increase duty a little on two-star and three-star petrol, so that its cost would be much the same as four-star. By encouraging the phasing out of two and three-star petrol—sales of which are fast dying out anyway, to only 6 per cent. of the total—we are encouraging stations to increase availability of unleaded petrol.
The third way of encouraging greater use of unleaded petrol is through greater information. We have already referred to the myths surrounding unleaded petrol. Few people realise that most cars can take unleaded without conversion, or with a simple conversion costing only £15 or £20, and sometimes available free. Motorists who change to unleaded petrol can easily switch back to using four-star leaded petrol if unleaded is unavailable, and there is no difficulty about mixing the two in the tank. I understand that my right hon. friend the Secretary of State for the Environment will in the coming days and weeks step up the information campaign to ensure that these points are widely understood. I am sure that the House will welcome that.
Another important issue which has featured in the debate is the trade balance. The shadow Chancellor said that it was a more important indicator of the success of economic policy than the standard of living. That is a wonderful return to the old mercantilist fallacy. The ultimate end of economic policy is to improve the standard of living of ordinary people. In that respect, we have been immensely successful; our record completely out-classes that of former Labour Governments. Perhaps that is why the Labour party has to look for other measures of economic success with which to judge us.
The Government believe that, as regards the instruments and measures of economic policy, the main priority should be inflation. The measures necessary to bring about a reduction, and the ultimate elimination, of inflation are precisely those which will, in time, bring about an improvement in the balance of payments. The importance which the Opposition attach to the balance of payments is quite clearly out of line with that of the rest of the world. They are content, willing and anxious to finance the investment boom that lies behind much of the imports to this country and therefore to finance the deficit.
627 I noticed the contrast between the words of Opposition Members and those which characterised the foreign financial press corps, whom I met yesterday and who grilled me about every aspect of British economic policy. They concentrated on inflation and every aspect of the Budget; only at the very end of the evening did one person mention the balance of payments and balance of trade. They have their priorities right, and the Opposition should learn from them.
The Opposition made much of one measure in the Budget—one would think it was the only measure—that seemed to rile them beyond belief. That was the measure to encourage private health insurance by the over-60s. As regards the National Health Service, I start from exactly the same standpoint as the hon. Member for Livingston and other Opposition Members. I have always supported the NHS and believe that the rich must pay for the poor and the healthy pay for the care of the sick. It is a privilege for us to do so and a duty from which no one has the right to opt out. However, there is absolutely no reason why, if they wish and can afford to, people should not opt out of burdening the NHS with the costs of their own health care.
It is extraordinary that the Opposition seem to resent that, because when people do so they reduce the burden on the NHS and the length of queues. They release beds and resources and make it easier to finance improved health care.
§ Mr. Budgen
That argument could have wider applications. Is my hon. Friend now promising tax relief for people of all ages?
§ Mr. Lilley
There is a particular case for those who have reached 60 or retirement age. Many of them who have been covered, during their lifetime, by schemes paid for by their employers or by job-related schemes, find when they retire that the cost of health care rises and their ability to pay falls. As a result, the market in provision of health care for the elderly has not been as developed as we would like, and we wish to give it a stimulus—as this measure does.
The Opposition bandy about absurd figures and suggest that attracting additional people into private health care will not save money. That is manifest nonsense. The cost to the Exchequer of every extra person who, as a result of this incentive, takes out private health insurance, is—at most, if he or she is a top rate payer—40 per cent. of the cost of that insurance. The saving to the Health Service is 100 per cent. of the health care that those people no longer require from the NHS. Unless the cost of private health care is 100 over 40–2.5 times—the cost of NHS provision, there is a net saving at the margin from the scheme.
The Budget is commendable on three counts. It demonstrates the improvement of our public finances from a borrowing rquirement of some £25 billion, in today's terms, under the last Goverment to a surplus of £14 billion. It demonstrates the improvement of our economy, which has risen from the bottom of the growth league to the top, where we are still riding high. It has also transformed the politics of this country. The Opposition are now constantly at a loss as to what to do. They know that the 628 policies that we have introduced are working, are seen to be working and are welcomed by the country as a whole -as I believe will this Budget.
§ Debate adjourned.—[Mr. Sackville.]
§ Debate to be resumed tomorrow.