§ [Relevant documents: European Community Document No. 9487/89 on the Annual Economic Report 1989–90 and the un-numbered Explanatory Memorandum submitted by HM Treasury on 31st January 1990 on the final version of the Report as adopted by the Council.]
§ Mr. Speaker
In view of the great number of right hon. and hon. Members who wish to participate in the debate, I propose to put a 10-minute limit on speeches between 6 and 8 o'clock this evening.
§ Mr. John Smith (Monklands, East)
I congratulate the Chancellor of the Exchequer on the pleasant and competent way in which he introduced his first Budget. I am sure that he was very glad to get it over. On the substance of his proposals and their relevance to Britain's economic predicament, I fear that I cannot be so congratulatory—not that the formal proposals in the Budget will detain us too long in the debates of which today's is the precursor.
Many of the non-controversial proposals in the Budget will attract little, if any, hostility from any quarter. The move to independent taxation was signalled in previous Budgets, even if it is now at the point of implementation. There is widespread approval for the introduction of independent taxation of men and women, even if there will be serious debate about some of the details, such as whether the new married couple's allowance should be capable of being distributed between spouses rather than being given automatically in the first instance to the man.
Useful changes in the administration of VAT and corporation tax have been proposed. The assistance that will be forthcoming to football grounds will be welcomed as clubs face up to implementing the Taylor report against the background of a sharp increase in rates under the uniform business rate.
The Government will, I hope, acknowledge the important part played by the Opposition, and by my right hon. Friends the Members for Birmingham, Small Heath (Mr. Howell) and for Birmingham, Sparkbrook (Mr. Hattersley), in debates on the Taylor report, in securing 1126 the assistance offered. Sports other than football, such as cricket, rugby union, rugby league and athletics, will also have to face the cost of improvements, and they clearly have a strong case for receiving equivalent assistance.
In principle, incentives to saving are welcome. It remains to be seen how much the new savings plan will attract new rather than diverted saving, but there is nothing wrong with fiscal incentive for saving. As a means of controlling demand, it makes much more sense than prohibitively high interest rates—"usuriously" high interest rates, as the Chancellor described them the last time they were 15 per cent. in 1981, when he was a Back Bencher.
Savings have dropped so much in the past decade that incentives are undoubtedly required. Many families in Britain, as they struggle with mortgage repayments, the poll tax and high prices at every hand, will feel that chance would be a fine thing. They have a hard enough task to make ends meet, let alone find £150 a month for a savings scheme.
Nor will the Chancellor find any objection to abolishing the foolish tax on workplace nurseries which was introduced by the right hon. Member for Blaby (Mr. Lawson) in 1985. I shall not detain the House with an examination of the other measures, because the Chancellor took time to explain them yesterday.
§ Mr. Nigel Lawson (Blaby)
On a point of fact, I should like to assure the right hon. and learned Gentleman that at no time did I introduce a tax on workplace nurseries. The tax on workplace nurseries arose out of the tax on benefits in kind, which has been on the statute book for many years under Labour and Conservative Governments. It took positive action by my right hon. Friend the Chancellor to remove it in this year's Budget.
§ Mr. Smith
The right hon. Gentleman protests too much. It is quite clear that action was taken in 1985. It may have been based on previous legislative possibilities, but action was clearly taken. What is undoubtedly clear is that Budget after Budget passed but the right hon. Gentleman refused to do anything about it. However, I am glad that he is a participant in these debates again, and I hope that he will rise to his feet to give his views on some of the current problems, for which he bears a heavy responsibility.
I shall not detain the House by examining in detail the other measures, because the Chancellor properly took time to explain them yesterday. I noticed that in his television broadcast last night, he dealt with them in a few sentences. He was probably right to do so, because they do not amount to very much. One gets the impression that, over the past few months, Treasury officials have been combing the files and searching the shelves for administrative changes that could be usefully offered to a Chancellor who needed to fill out his Budget speech.
I shall refer later in my speech to the raising of the savings limit for housing benefit and poll tax rebate, because it raises significant issues, not least in relation to Scotland.
There are significant omissions from the Budget. The Government's so-called concern for the environment found little expression in it. Indeed, the word "environment" was never uttered by the Chancellor. Perhaps I should not place too much stress on that, as the words "medium-term financial strategy" were not uttered 1127 either, although I discovered from the Red Book that it remains a crucial part of the Government's economic strategy—so crucial that the Chancellor forgot all about it when he addressed the House.
Before the Budget, we proposed changes in value added tax, corporation tax and vehicle excise duty, which would have assisted the promotion of environmentally friendly products and acted as a deterrent to the use of harmful products. I hope that it will not be long before the growing, genuine environmental concerns throughout the nation find some positive fiscal expression.
There was no reference in the Budget to child benefit. Before Conservative Members complain that this is a social security measure, let me remind them that child benefit was a combination of the old family allowance and the child's tax allowance. Had it remained a tax allowance, it would have been uprated in the Budget, like any of the other allowances. Once again, the Conservatives have breached what was thought to be an all-party agreement to update child benefit regularly. It should have been increased to at least £8.60, the amount if it had been uprated in line with inflation since 1987. It would have been highly appropriate if the Chancellor had signalled an intention to return to an honourable course of dealing, from which the Government have so significantly departed.
The Chancellor, at the start of his speech, described his objectives as "to bring inflation down" and to enable Britain to seize the economic opportunities of the 1990s. I am happy to accept these as important economic objectives, but the right hon. Gentleman's Budget is at best irrelevant, and at worst harmful, to both.
This Government have said more about inflation than any other Government in history. At the last election, many hon. Members were rash enough to assure their electors that the problem had been solved. Not that long ago, the Prime Minister talked absurdly in the House about moving towards zero inflation. Extensive talk, bountiful promises—miserable action. Let us get one thing clear about inflation in modern Britain: it is not, as the Government would have us believe, some satanic force which invades us like a mediaeval plague about which little can be done except to toil manfully to mitigate a scourge for which no one can really be held responsible.
Does inflation, for example, come from abroad? Can we, like the Government—who always try to blame others—blame the nasty foreigners for our problems? There was a hint of that in the Chancellor's remark in his Budget speech that inflation wasa problem common to all nations".—[Official Report, 20 March 1990; Vol. 169, c. 1010.]which was qualified by the words "to a degree."
In the circumstances, that was a wise qualification. It is extremely difficult for the Government to mount the argument that inflation has been imported into Britain when Britain is at the top of the European inflation league. Or inflation is at 7.7 per cent. and, as we know, is heading for 9 per cent. The G7 average is 3.7 per cent.; the EC average, 4.6 per cent.; Italy, 5.7 per cent.; Canada, 5.3 per cent.; the United States, 4.3 per cent.; France, 3.4 per cent.; West Germany, 2.6 per cent.; and Japan 1.3 per cent. So we cannot blame the nasty foreigners. The 1980s have been a decade in which the movement of commodity prices has been unprecedentedly favourable for the management of domestic inflation.
1128 After 11 years of Conservative government, are we to blame the last Labour Government? The Government might try—they are willing to try almost anything—but I do not think that one will find that one very convincing. The truth is that Britain's inflation is made at home, and the authors are on the Government's Front Bench, with the odd one on the Conservative Back Benches. The explosion of demand, caused by the credit free-for-all and the tax cuts for the rich, far exceeded the capacity of our weakened industrial sector to supply, so we got sharply rising inflation and a plunging deficit in the balance of payments. What have the Government done about that? They constantly push up prices. Despite all the talk about "bearing down" on inflation, the Government keep scoring inflationary own goals.
§ Mr. Tim Smith (Beaconsfield)
There is something that I do not understand about the right hon. and learned Gentleman's criticism. He talks about a credit free-for-all, yet two years ago, when the Government admittedly reduced interest rates, he tabled a motion calling for even lower interest rates. What is his policy?
§ Mr. Smith
We regularly criticise the Government for the total deregulation of financial services. The hon. Gentleman is correct to say that, in the wake of the stock market crash, I agreed with the action that the Government and the then Chancellor, the right hon. Member for Blaby (Mr. Lawson), took in lowering interest rates, and I think that I was right to do so. Many other countries did the same, and it was a wise course to adopt and to advocate. What I certainly did not propose or support was the total credit free-for-all that was happening prior to that, and the Opposition strenuously and vigorously opposed the irresponsible tax cuts in the Budget of 1988, as the hon. Gentleman knows.
Despite all the talk about inflation—no Government have talked more about it—this Government have repeatedly scored inflationary own goals. It is the Government who are to blame for increased prices in public transport, electricity and water, for increased prescription charges and for the large rise in council rents that has yet to come.
It is the Government who have chosen the usuriously high interest rate level of 15 per cent. as their exclusive means of attack. Look at the consequences of that on the mortgage rate and one sees the inflationary result. Take a typical family with a new mortgage of £40,000. In June 1988, the monthly repayment was £267; today the monthly repayment is £420—an extra £153 each month. No wonder wage claims go up as people struggle to make ends meet in the face of such new imposts.
Now a new twist has been added to the problems of millions of people and a new boost has been added to inflation, and that is the poll tax. Now that the bills are coming in, people in England and Wales are discovering this year, as the people of Scotland discovered last year, what the poll tax means for the ordinary family budget. As the Chancellor conceded yesterday, poll tax levels are about one third higher than domestic rates. In fact, a massive extra £3 billion is to be raised this year. That is the equivalent of adding 2p to the standard rate of income tax. No wonder the Secretary of State for the Environment told us that it would havea devastating impact on the retail prices index".1129 Last year, the average household in England and Wales paid £500 in rates. The poll tax bills arriving from 1 April will be on average 33 per cent. higher than that, at £667—an increase of £167.
The double effect of mortgage increases and the poll tax is hitting ordinary families hard. Of course, much of the argument has rightly been about the unfairness of the poll tax. It is the most unfair tax in the world; no doubt that is why no other country has adopted it or even thought about adopting it. But it is crucial too, to understand its inflationary impact. The poll tax alone has added more than I per cent. to the retail prices index.
§ Mr. David Nicholson (Taunton)
The right hon. and learned Gentleman talks about burdens on working families. Will he give a commitment that the Labour party would not favour replacing domestic rates or the community charge with a local income tax, which would bear down exclusively on working families?
§ Mr. Smith
As the hon. Member for Taunton (Mr. Nicholson) knows, the Labour party has proposed a local government tax based upon the occupation of property. That is the proper way to proceed. It is common among most other countries in western Europe and it is the typical form of local taxation in the European Community.
I note that the hon. Gentleman did not take the opportunity to seek to claim credit for the poll tax. Very few Conservative Members will wish credit for having taken part in devising and implementing the poll tax to be recorded in their political curriculum vitae. I do not notice Conservative Members jostling with each other to take credit for it. No one has asked for it to be called the Baker tax, the Ridley tax, the Rifkind tax, the Howard tax or the Patten tax; indeed, there has been a distinct lack of enthusiasm from that last quarter. If one is to be fair, a proper description of it might be the Thatcher tax. After all, the Prime Minister has pursued it ruthlessly. She has trampled on opposition, on wiser counsels and even on wiser councillors to secure its implementation, come hell or high water.
However, before we rush to judgment about what the poll tax should properly be called, we should recall the shrewd observations of the right hon. Member for Henley (Mr. Heseltine)—[HON. MEMBERS: "Where is he?"] Well, these days he is probably out working hard for the Conservative party in the country. He is indefatigable in his support for the Government and for the present leader of the Conservative party. I do not know whether the right hon. Lady really understood that, when her right hon. Friend said that he would take no part in any subsequent election for the leadership, he meant that he would not even turn up to vote for her.
We have to be extremely careful about what the right hon. Member for Henley says. When taking part in discussions on the passing of the poll tax for England and Wales, he told us that it would be called the "Tory tax". I know that these days the right hon. Gentleman could be described as having "a complexity of motives", and one has to be careful when working out exactly what he means, but he was right in the sense that the poll tax is a unique encapsulation of rampant unfairness and explosive inflation. Nothing more deserves to be called a "Tory tax".
1130 So much of the Budget has been affected by the poll tax. It bulks large in the Chancellor's assessment of inflationary factors in the economy. It pops up again in the changes that were made in the capital rules for eligibility for housing benefit and poll tax rebate. The Chancellor presented the raising of those limits as if it was the result of some careful consideration and reflection between himself and the Secretary of State for Social Services. It was nothing of the kind. It was a panic reaction to the wave of anger that is running from one end of the country to the other. No doubt it was also a reaction to urgent messages that are coming from places not far from Mid-Staffordshire.
When the Opposition argued vehemently that the capital limit of £8,000 was far too low, we got little shrift from the Government, but circumstances alter cases, and particularly, by-election circumstances particularly alter cases. Of course we welcome the relaxation of an unjust rule against which we campaigned, but I remind the House that the reduction in potential benefit for all those with capital of more than £3,000 remains in place. I fear that many of those who believed that they might benefit from the doubling of the capital limit may be disappointed by the extent of any relief that they can obtain.
If the Government are genuine in their concern about the hardship that is being caused, especially to elderly people, why has that concern manifested itself only now, not a year ago when the Government pushed through the poll tax legislation in Scotland and when even the right hon. Member for Henley supported that legislation, like many Conservative Members who were happy about the introduction of the poll tax, provided that it had nothing to do with their own constituents and their own electoral opportunities? We know that spineless Ministers in the Scottish Office did nothing about it. They were not bothered by Tory councillors resigning. If many Tory councillors resign in Scotland, there will not be any left at all. Scottish Tories are so adrift from what is happening in their own country and from the circumstances of life there that they sought nothing by way of alleviation of that rule and, as a result, nothing was done.
The Government now have to explain what they are going to do about the injustice of the poll tax which has been inflicted over a substantial part of the kingdom without any relief being offered for the year of suffering that has just gone by. Why did the Government do that? The answer is not complex or difficult. As was clear from the Chancellor's demeanour yesterday, I do not think that it was a calculated plot against the interests of the people of Scotland. It was much simpler than that. Once again, the Government forgot that Scotland existed. When the Chief Secretary to the Treasury replies, I ask him to outline the Government's proposals to remedy that injustice, which many Opposition Members find totally intolerable.
Therefore, high interest rates, mortgage rises and the poll tax are the reasons why the Government have failed to combat their own home-grown inflation. I have a simple message for them: "Stop causing inflation if you want to bring it down".
§ Mr. Alex Salmond (Banff and Buchan)
I endorse everything that the right hon. and learned Gentleman has said about the capital limits concession announced yesterday. Given that I understand that it will take four years to repeal the poll tax before a capital value tax can be introduced by a Labour Government, will he give a 1131 guarantee that he will find a way to introduce backdating to alleviate the great injustice done to many people in Scotland last year?
§ Mr. Smith
The hon. Gentleman's assumption that it will take us as long as four years to sweep away the poll tax and to replace it with something better is absurd. That may be his estimation of how long it will take, but it is not ours. A Labour Government will always take care to ensure that people are treated fairly throughout the whole of this United Kingdom from one end to the other. It is the Government's own fault in introducing legislation in one part of the country which they were not prepared to introduce in another part, which has given rise to this very problem.
§ Mr. John Townend (Bridlington)
If the Government are so unfair to Scotland and do not think about it, can the right hon. and learned Gentleman explain why public expenditure per head is much higher in Scotland than in England and much higher than it is in the north of England, which has problems far greater than those of Scotland?
§ Mr. Smith
The hon. Gentleman is riding one of his usual hobbyhorses. Expenditure levels in Scotland are assessed at their present rate, no doubt, because the case has been properly made for the expenditure to be set at that level. If that is not so, the Chancellor of the Exchequer should tell us as he has just sanctioned a lot of the public expenditure proposals in the Autumn Statement. I note that the right hon. Gentleman points to his right hon. Friend the Chief Secretary—I hope that he does not think that he is any better at explaining these things than he is. No doubt the Chief Secretary can deal with that interesting inquiry from his hon. Friend the Member for Bridlington (Mr. Townend). I have one word of advice for the Chief Secretary: he should keep his hon. Friend south of the border, because the Tories are in enough trouble already without sending him north to ask such questions against the background of Scottish political opinion.
The second of the Chancellor's objectives is to promote economic success in the 1990s, and that shows how supremely irrelevant the Budget is to Britain's real situation. What is our economic situation today? What economic policy should be adopted for the 1990s? The Chancellor was forced to admit that all was not well. For this year, overall growth will be just 1 per cent., inflation will remain depressingly high, interest rates will be kept up and the trade deficit will still be heavily in the red this year, next year and the year after. Fixed investment—an alarming statistic in the small print of the Red Book—is set to fall this year by 1.25 per cent. and by three quarters of 1 per cent. in 1991. That is a significant downward revision even from the Autumn Statement of November 1989.
In an ominous remark in his speech, the Chancellor observed that thedownturn may become quite sharp."—[Official Report, 20 March 1990; Vol. 169, c. 1012.]Quite a change from the Budget of 1988, from those happy, heady days when the right hon. Member for Blaby was assuring us that we were undergoing an economic miracle comparable to that previously enjoyed by West Germany and still enjoyed by Japan. The present Chancellor could not but join the act as well and, during consideration of the Finance Bill in 1988, he told us: 1132During the 1960s we praised and envied the German economic miracle. In the 1980s the position has been precisely reversed."—[Official Report, 26 April, 1988; Vol. 132, c. 214.]Let us look at the facts and statistics of Britain's present situation. At the beginning of the decade, the trade deficit with West Germany was less than £1 billion; it is now heading for £10 billion. In the context of the European Community and the wider world, Britain's true predicament is exposed.
I have already said that the United Kingdom is top of the inflation league. The sad and depressing fact is that we are also at the top of the trade deficit league and at the bottom of the growth league. We have a much higher trade deficit than any other EC country. The G7 and EC averages are in surplus. The other EC countries which are in deficit have a much smaller deficit than we have. In the growth league, although the United Kingdom achieved 2.5 per cent. growth in 1989, the G7 average was 3.5 per cent. and the EC average was 3.6 per cent.
What is worse is that, for 1990 and 1991, the OECD predicts higher growth for all the other leading countries, in both the European Community and G7. There is no room for complacency for an economy and country that are top of the inflation league, top of the trade deficit league and bottom of the economic growth league. Things have gone wrong, and they need to be put right.
§ Sir Peter Tapsell (East Lindsey)
How can the right hon. and learned Gentleman account for the undoubted fact that international financial opinion is far more worried by the possibility of another Labour Government than by any of the statistics that he has just quoted?
§ Mr. Smith
I do not know to whom the hon. Gentleman speaks when he is abroad, and it may well be to people who share his political opinions, but on any objective basis—I find, increasingly, that people are objective about such matters—there is no foundation for his proposition. It might occur to the hon. Gentleman that the strains and stresses that sterling is under today—he knows perfectly well that sterling is under strain—have everything to do with yesterday's Budget and the present economic fundamentals of this country. I hope that hon. Members will not try to steer genuine political debate into the sort of scarifying cul-de-sac that the hon. Gentleman wishes us to enter. It is up to the Government to run sensible economic policies in this country, and their failure to do so causes pressure on the currency, whether from home or abroad.
The core of the problem, and what has, above all, gone wrong in the past decade, have been the neglect of the manufacturing sector. Investment in the 1980s has been hopelessly inadequate to secure the new technology and extensive development of skills that should have occurred during this decade. That is why we need a crucial change of policy and the adoption of a strategy for industrial recovery. The move towards a competitive and productive economy, which alone can secure our success, has yet to occur in this country. To achieve it will be the vital task for the 1990s.
We must adopt a framework of policies which permits interest rates to come down and stay down. That is why the Labour party advocates that the Government should begin negotiations to join the exchange rate mechanism of the European monetary system. Stable exchange rates would give British companies the confidence that they need to invest, and joining the European monetary system 1133 would help to lower interest rates and reduce inflation. What the Chancellor said on the subject yesterday, was, to put it mildly, distinctly unhelpful.
In addition, the Government should reverse the cuts they have made in public expenditure programmes, training, support for industry and regional development. It is quite absurd that, at this crucial time in the development of our economy, public expenditure cuts should be made in those sectors.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
I agree strongly with the commitment that the right hon. and learned Gentleman has made to early membership of the European monetary system, but will he say how inflation can be kept down while interest rates are brought down under this regime?
§ Mr. Tristan Garel-Jones (Treasurer of Her Majesty's Household)
Do not answer that question.
§ Mr. Smith
I shall not follow the advice of the hon. Gentleman, and I shall answer the question.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) knows perfectly well that the advantage of being in the exchange rate mechanism is that we shall have stability of the exchange rate. That is the prize that we gain and the objective that we secure if we join—[Interruption.] If the Financial Secretary of the Treasury wants to ask me questions, will he kindly get to his feet and do so?
§ The Financial Secretary to the Treasury (Mr. Peter Lilley)
The exchange rate mechanism of the EMS is a commitment to keep the exchange rate stable, not a magic potion that achieves that end painlessly.
§ Mr. Smith
The hon. Gentleman is adept at expressing the obvious. When we enter it, as I hope we will, we shall accept certain disciplines. We have the obligation to maintain the exchange rate within a certain band. Monetary policy is relevant to that. It does not mean that monetary policy must be dedicated exclusively to that single objective—there are domestic concerns too, but it becomes a principal concern of policy.
Before the Financial Secretary to the Treasury makes any more grimaces, I should remind him that he was a member of the Government who were busy shadowing the deutschmark. I do not know if he is so keen on maintaining and defending that policy now—it appears to have had a mixed reception, or at least a mixed recollection, among right hon. and hon. Members of the Government Benches—but the prize that we can gain from joining is exchange rate stability, the confidence that flows from it and the capacity to operate the economy at significantly lower interest rates, which will help generate the investment, particularly in the industrial sector, that the country needs so much.
The public expenditure component is also important. There must be Government support and involvement, particularly in education and training, which have been so grossly neglected in the past decade, principally because of the Government's desire to eschew responsibility for it. The right hon. Member for Blaby used to say time and again that training was a matter for companies—but training is too important to be left exclusively to 1134 companies. It gives people opportunities and it adds to our economic strength; it enlarges personal opportunity and increases the wealth of the community.
There also ought to be—this is relevant both to our present situation and to the Budget debates—fiscal incentives for investment in new technology, particularly in manufacturing. I hope that the Government will give careful consideration to that as we proceed with the Budget debates.
I have, therefore, recommended a European initiative, a public sector expenditure commitment and a fiscal strategy to help us make sure that investment, particularly in manufacturing, is increased and maintained at the levels necessary if we are to be successful in the 1990s; but I select training as the matter that needs particular attention.
I notice that, although the Government talk a lot about training now, and although they have set up the training and enterprise councils, quite a number of people are expressing concern about the cuts that have been made. The Guardian of 17 March said:Mr. Christopher Johnson, chief executive of Wedgwood and a director of the Staffordshire training council, said Staffordshire's budget had been reduced from £50 million to £35 million. He said, 'We cannot survive without better training standards. When we set out last year we had high hopes, but now the Government keeps on changing the goal posts.'That is the view of the Government's own appointee in the Government's own system, operating the Government's own policy. He appears to have lost confidence in their commitment to education and training. Yet this is the area that stands out above all others because, in the modern economy, it is the development of skills that counts more than anything. Our competitors in Europe know that perfectly well; our competitors in newly industrialised countries know it. That is why they have a massive commitment to education and training. They know it and they act upon it, but this do-nothing Government seem incapable of assessing the nature of the challenge, let alone of devising a strategy to meet it in the 1990s.
Britain will not make the crucial move to a genuinely productive and confidently competitive economy until the Government understand and accept their own responsibility to lead a partnership between themselves and industry to achieve these goals. Once again, in their irrelevant Budget, the Government have shirked their crucial responsibility to initiate economic policies which permit our industry and our people to compete on equal terms in the new European market. For Britain to have a real future in the 1990s, it needs above all one crucial change—a change of Government.
§ The Chief Secretary to the Treasury (Mr. Norman Lamont)
We have heard a speech from the right hon. and learned Member for Monklands, East (Mr. Smith) which, as always, had its entertaining moments. We know from him that he sees it as his function to entertain. In a newspaper interview the other day he said that unless he entertained, he could not hold the attention of his colleagues. They should be warned that he has a low opinion of the attention span of most of his colleagues. We can certainly say of his speech that it was almost up to his usual level of entertainment and certainly up to his consistent level of content.
1135 The Budget is right for our economic circumstances. It is cautious, prudent, firm and neutral, but accompanied by a tight monetary policy that the Government are determined to maintain until inflation is markedly reduced. To those who say that the Budget has not been tight enough, we point to the large fiscal surplus which is unequalled by any country, except Japan. The background to the Budget has been an economy which has shown extraordinary resilience. It is wholly misleading of the right hon. and learned Gentleman to say that in one year Britain will be bottom of the growth league when we have been grappling with the problem of too high growth. He should know that, even when we take account of the lower rate of growth predicted by my right hon. Friend the Chancellor of the Exchequer in his Budget statement, in the 1980s Britain will have grown faster than France or Germany. That could not have been said in the 1960s or the 1970s, so he was misrepresenting the position.
Our economy needs to slow down after the extraordinary growth of recent years. Clearly, the process has begun, but it needs to slow down further. It is not too much to ask British business or the British people to accept a period of pause after a period of such rapid and extraordinary growth for so many years.
§ Mr. Nigel Griffiths (Edinburgh, South)
Although the Government are forcing British industry and the British public to slow down, are not Germany, France and Japan, our competitors, speeding up, flooding this country with imports and meeting markets that we cannot meet because of the damage that the Minister and his party have done to industry?
§ Mr. Lamont
If the hon. Gentleman had been listening, he would have heard me explain that for a whole decade we have been out-performing our competitors in growth. The fact that we shall have one year of slower growth in no way denies that achievement.
The tax measures are broadly neutral. It is a remarkable testimony to the Government's tax-cutting record that this Budget is the first since 1981 to reduce neither income tax nor national insurance contributions. My right hon. Friend avoided the temptation of fiscal finetuning. Many people will agree that merely to increase taxes by £1 billion, £2 billion or £3 billion in an economy of over £500 billion would be marginal and make no difference.
It must be obvious to everyone that the present increase in inflation has its origins in monetary policy. It is partly the result of interest rates being cut too much in 1987 in response to the stock market crash. At that time the right hon. and learned Gentleman urged us not only to cut them further, but to give a fiscal stimulus to the economy to increase public spending. Part of the problem has been caused by the British people's confident outlook for the future.
The boom of the past few years has owed absolutely nothing to any fiscal stimulus from the Government. Government spending has increased only slowly over this period and it is a convenient fiction, which the right hon. and learned Gentleman wishes to nurture, that the 1988 Budget cut taxes massively. Many argue that the 1988 Budget, which generated a larger than expected surplus and increased revenues, could he described as increasing taxes and creating a budget surplus of a kind that we had not seen for many decades.
1136 The growth in demand in this country has been the response of United Kingdom firms and individuals to financial deregulation. The private sector, both companies and individuals, has borrowed heavily and moved into financial deficit on a scale not seen for years. This rapid growth in private sector spending has been essentially an expression of confidence about the economy and its prospects.
Companies went into deficit to finance an investment boom. In 1987 and 1988 investment grew by 23 per cent., its fastest-ever growth in a two-year period and twice as fast as consumption. So it has not been just a consumer boom. It has been too much growth across the whole economy. That has been an expression of confidence, because firms do not invest if they do not have confidence in the future.
Clearly, this remarkable growth in demand has been a monetary one. That is why the response should also be a monetary one, of higher interest rates. This is not so much a question of one-club golf as of not attempting to play golf with a cricket bat or to play cricket with a golf club. We would not get far against the West Indies' bowling if we dangled a No. 2 iron in front of our wicket. Against that background, the response of the Government has been entirely appropriate.
The right hon. and learned Gentleman suggested that the reliance on interest rates is obscure dogma not followed by other countries. He seems to forget that a few years ago the United States had to put up interest rates to over 20 per cent. to cope with a temporary surge in inflation. Australia currently has them at over 17 per cent.
Interest rates are, of course, a means to an end. The right hon. and learned Gentleman seems to regard them as an end in themselves. At times, our interest rates may have been higher than those of some other countries, but that has not—despite the fact that we have used interest rates consistently to control the economy—prevented us from having a faster rate of growth than the rest of the EC. It has not prevented us from having a better performance on investment and productivity than the rest of the EC. Our reliance on interest rates has not prevented us in the past few years from having a far higher rate of employment growth than the rest of the EC.
The right hon. and learned Gentleman returned to the question of credit controls. He seems to be in two minds about that, but there is no lawyer who cannot argue two sides of a question simultaneously. In his interviews on radio and television, he sometimes expresses reservations about them. He and the Leader of the Opposition use a curious phrase. They say, in effect, "We recognise that credit controls cannot be hermetically sealed." The right hon. and learned Gentleman has used the curious phrase "hermetically sealed" three times and the Leader of the Opposition four times. I do not know whether they have been memorising a brief, or whether it is pride of ownership. They seem to be saying that they recognise that, in the end, credit controls will break down; but they hope that they will work for a little while.
I see little attraction in following a policy which one recognises from the word go is doomed eventually to break down. Credit controls were abandoned in this country before the City of London had become as international and as deregulated as it is today. It would be far more difficult to make them work today. We cannot have credit controls without the reimposition of exchange controls. Perhaps that is what the right hon. and learned Gentleman 1137 has in mind. Of course, he would not tell us or the markets, but without the reimposition of exchange controls, they would not work.
Opposition Members have said that it would not be easy for the average consumer or shopper to open a bank account in an offshore bank. That may be so, but that is not the point and it is not necessary. It is easy for a store, finance house, retailer, wholesaler or manufacturer to borrow from abroad and to extend credit domestically. The right hon. and learned Gentleman is wrong to advocate credit controls, and he knows it.
The right hon. and learned Gentleman welcomed some of our savings measures, and there has been a warm welcome in the country for the many imaginative and far-reaching proposals in the Budget to help us to raise our savings ratio. There has been a fall in our savings ratio, as there has been in a number of countries, including the United States, Germany and Japan. One reason for that fall is the increase in borrowing which reflects the spread of home ownership. To some extent, the perceived fall in the savings ratio is merely the spread of home ownership through increased mortgage borrowing. But we need to increase our savings ratio, and that is what the Budget measures are designed to achieve.
§ Mr. Peter L. Pike (Burnley)
The Government may want to help savers, but why do they not recognise that many people in Britain cannot afford to save? In my constituency and in many other parts of the country millions of people will not be able to pay their poll taxes, their increased rents and their mortgage payments, let alone save, so the Government's measures will be no use to them at all.
§ Mr. Lamont
The hon. Gentleman is close to saying that there is no point encouraging anybody to save because nobody can afford to save. The whole point of the new tax-exempt special savings account is that it is designed not for the stock exchange investor or the wealthier person, but for the person who wants to save modest amounts. The tax-exempt special savings account will help the individual with a small capital sum—for example, the person approaching retirement—and it will enable the younger saver to accumulate capital, even if he is earning only a modest amount and can regularly put aside only a small sum. I am sure that the 34 million people who put money into banks or building societies will find the tax advantages of this new facility very attractive.
§ Mr. Dennis Skinner (Bolsover)
The point is that measures to encourage savings cannot be hermetically sealed. In other words, they will affect some people, but not everybody. The British people want to know how on earth the Government can continue a policy that is based on high interest rates but, when anybody puts forward an alternative, such as credit controls or exchange controls, the Government cast it to one side. The Government's policy is based on a 15 per cent. interest rate which has lasted nigh on 12 months, looks like lasting another 12 months and might be 18 per cent. before the end of the year, yet will bring down the balance of payments deficit by only £5 billion. That policy is leading to chaos. The wheels have dropped off it.
§ Mr. Lamont
The hon. Gentleman is a bit off his trolley. High interest rates have brought down inflation in the past, and they will do so again.
Another measure that is designed to encourage savings and which I think will be warmly welcomed is the abolition of stamp duty. As my right hon. Friend the Chancellor explained, the stock exchange will move to a new paperless system of transactions, and even the most ingenious would find it difficult to levy stamp duty on non-existent documents. We hope that the abolition of stamp duty will improve the City of London's competitiveness and give a further boost to wider share ownership. I am sure that my hon. Friends were extremely encouraged that my right hon. Friend the Chancellor was able to announce yet another increase of 2 million in Britain's share owners—no less than one in four of the adult population—following the flotation of the Abbey National.
By abolishing the composite rate tax, the Budget has also removed what many people—including the hon. Member for Berwick-upon-Tweed (Mr. Beith)—have regarded as a long-standing injustice. In the past, the composite rate tax has applied even to those people with incomes below taxable level. That may have been tolerated in the past, but the introduction of independent taxation threw into relief the injustice that would be done to many married women, especially those with small savings incomes. Therefore, its abolition will surely be widely welcomed.
I had hoped that the Labour party would give a warmer welcome to some of the measures, but it has never been the party of the saver. It seems to have the odd idea—both in its policy and by its past action—that saving can be encouraged by the curious notion that deferred consumption should be more heavily taxed than present consumption. That was the thinking behind the investment income surcharge. We all know how badly savers did when the Labour party was in government. It bequeathed to us an economy in which pensioners were robbed of a large part of their savings; real interest rates were low and often negative; and those who put money in a building society in 1974 would have seen the real value of their savings fall by 20 per cent. by 1979. It was a cruel injustice, and one that we must never let happen again.
§ Mr. John Smith
If the Conservative party is such a party for the saver, why has the savings ratio dropped so alarmingly during the past decade?
§ Mr. Lamont
The right hon. and learned Gentleman's attention span is obviously the same as that which he ascribed to his colleagues. I have explained at considerable and, no doubt, rather tedious length that the rise in mortgage borrowing has much to do with the fall in the savings ratio.
Perhaps the right hon. and learned Gentleman does not really understand what the savings ratio is. Perhaps he will tell us about his policy for savings. The other day he warmly endorsed a Fabian Society report urging a future Labour Government to reintroduce an investment income surcharge for those under pension age, by charging national insurance contributions on savings incomes; to tax the income and capital gains of pension funds; to charge—this is really bizarre—national insurance contributions on capital gains; and to end retirement relief for small business men. That is not a very convincing way to 1139 encourage savings. It may or may not be Labour party policy, but it is curious that it should be given even the most modest encouragement or endorsement.
§ Mr. Norman Tebbit (Chingford)
Sitting where I do, I have a slight advantage over my right hon. Friend. I distinctly heard the right hon. and learned Member for Monklands, East (Mr. Smith)—who speaks for the Opposition as shadow Chancellor—say that those proposals were not Labour party policy. Will my right hon. Friend give the right hon. and learned Gentleman the opportunity to say now, clearly and distinctly, that no Labour Government of which he might be a member would introduce such policies?
§ Mr. Lamont
I gave the right hon. and learned Gentleman that opportunity, but—as always when he is asked to answer a question—he merely asked another question.
Another proposal that has been widely welcomed has been the change in the capital limits that apply to income-related benefits, including community charge relief.
§ Mr. Dick Douglas (Dunfermline, West)
As the Minister knows, the Budget is a matter for the Government as a whole. We in Scotland are interested to know what part the Secretary of State for Scotland played in agreeing that the cut-off would be at £16,000 for England and Wales, but with no retrospective action for Scotland. Did the Secretary of State for Scotland learn of that in Cabinet and, if so, what was his posture?
§ Mr. Lamont
Obviously, that point was considered carefully. It would not be practical to implement the change retrospectively in Scotland, as it would create all sorts of administrative problems and anomalies, and could be done only on the crudest basis. People's incomes, savings and even place of abode may have changed considerably. It would be extraordinarily difficult to introduce such a change retrospectively.
But there is another argument against retrospection. The capital limits apply not just to community charge benefit but to housing benefit and income support. The rebate that applied to the community charge in Scotland last year applied also to ratepayers in England. If a change were to be retrospective, it would be extremely difficult to justify not making further changes for ratepayers in England as well.
§ Mr. Lamont
I will give way once to my right hon. Friend. However, as there will be a chance to debate this point later, I do not wish to go much further on it.
§ Mr. Buchanan-Smith
I accept that retrospection would involve the problems that my right hon. Friend mentioned, but does he realise that the community charge has brought far more people within the net of local government taxation and that many people, particularly elderly people with savings, have seen the level of their local government taxation rise far above the rate of inflation? In practical terms, therefore, there is an anomaly, an unfairness, which is felt by Conservative Members as well as Opposition Members. If my right hon. Friend cannot do something 1140 retrospectively, is there not some other concession that might be considered with a view to compensating for this unfairness?
§ Mr. Lamont
I note what my right hon. Friend has said, as, I am sure, will my right hon. and learned Friend the Secretary of State for Scotland. I have explained the problems, which I believe are overwhelming. I do not think that we can make the concession, although I understand the concern of my right hon. Friend. But there will be a chance to debate the matter later.
§ Mr. John Smith
I should like to make what I think may be a practical suggestion. I understand that, because of the late arrival of transitional allowances, no payments have been made in Scotland for the current financial year, which has only three weeks to go. In any event, rebates will have to be recalculated. Would it be possible, in that process, to take into consideration changes relating to the previous year, so that account might be taken of the suffering endured during that year?
§ Mr. Lamont
One problem is that it is not possible to split community charge benefit from housing benefit. That cannot be done if we introduce the scheme this year, as we want to do. Of course I will study what the right hon. and learned Gentleman has said, but my position and the Government's position remains as it has been stated. That is all that I will say on this subject at the moment.
§ Mr. Tony Worthington (Clydebank and Milngavie)
On a point of order, Mr. Deputy Speaker. This is quite outrageous. We are supposed to be having a debate, but this is not a debate. The Minister totally refuses to answer the reasonable points made by Opposition Members.
§ Mr. Salmond
On a point of order, Mr. Deputy Speaker. Bearing in mind the fact that the Government have already agreed to backdate the transitional payments, which are equally, if not more, complex, is not the Minister in danger of misleading the House in arguing that these payments cannot be backdated?
§ Mr. Deputy Speaker
Order. I will take points of order if they are genuine, but the ones that have been made so far have been points for debate.
§ Mr. John Battle (Leeds, West)
On a point of order, Mr. Deputy Speaker. We are in difficulty when a representative of the Treasury addresses the House on social security matters without the Secretary of State for Social Security being here to confirm what he is saying. It seems to me that there is a real danger——
§ Mr. Deputy Speaker
Order. These are perfectly legitimate matters for debate, but not points of order for the Chair.
§ Mrs. Maria Fyfe (Glasgow, Maryhill)
On a point of order, Mr. Deputy Speaker. As has been said by other hon. Members, the Minister is misleading the House. It is 1141 perfectly possible to calculate housing benefit and poll tax rebate. Local authorities in Scotland have been doing it for the past year. It involves no difficulty at all.
§ Mr. Deputy Speaker
Order. It is clear that these are not points of order. We should get on with the debate.
§ Mr. Griffiths
It is genuine, Mr. Deputy Speaker. By what mechanism would it be in order for the Secretary of State for Scotland to come to this House and explain whether he is going to fight for the backdating of this benefit? Thousands of senior citizens and other people in Scotland have been penalised over the past year because of the unfair way in which the tax has been applied.
§ Mr. Lamont
The analysis of the British economy by the right hon. and learned Member for Monklands, East is wholly flawed. The right hon. and learned Gentleman seems to have an infinite capacity for grabbing the wrong end of any stick that happens to be around. He believes that our economy is beset by long-term structural problems, with a weak supply side, demoralised businesses, and a work force crying out for Government intervention. One thing is clear: these are not the problems of the British economy.
The right hon. and learned Gentleman's analysis is wrong, so, inevitably, his prescription is wrong. Our problems are precisely the opposite of those that he described. Our supply performance has been strong, and confidence is high. As I said earlier, the growth of the economy has been too strong. Even taking account of the slower growth that we expect in the coming year, the United Kingdom will have recorded higher growth since 1980 than either France or Germany. That is a demonstration that the British economy has transformed itself and is doing better than ever.
The right hon. and learned Gentleman referred to manufacturing. From 1980 to 1989, the output of United Kingdom manufacturing industry grew faster than that of either France or Germany. The right hon. and learned Gentleman is looking at the wrong problems and is therefore putting forward the wrong solutions. But the Opposition's solutions are always the same: more public spending on training, research and development, and education. The reality is that many of these matters are being tackled by Government and by business. Already, employers are spending £20 billion a year on training. On top of this, Government expenditure is about £2.5 billion a year. Companies spend £5 billion a year on research and development. Indeed, they increased their spending by 46 per cent. between 1983 and 1988. The evidence that the supply side of our economy is strong is clear. The right hon. and learned Gentleman's analysis is wrong.
The right hon. and learned Gentleman made no mention of the measures in this Budget to help smaller businesses. We know that the Labour party, with its corporatist approach, is interested only in large businesses 1142 —it cannot focus on small businesses. The fact that 300,000 out of 350,000 businesses in this country pay the small rate of corporation tax means that the changes in my right hon. Friend's Budget will help many parts of British manufacturing and other industry.
This Budget will be judged by what it does for inflation. The Government have brought inflation down from the disastrous levels that it had reached under the Labour Government, of which the right hon. and learned Gentleman was a member. The battle against inflation has to be fought year after year, but it is not one that the right hon. and learned Gentleman has ever shown any willingness to fight. In an interview with The Daily Telegraph recently, he said that getting inflation down was not his top priority; it was just one of several priorities. To the Government, it is more important than that: inflation remains our top priority.
The right hon. and learned Gentleman is also wrong in his comments about the current account. The current account deficit is a symptom of our excess demand, not of weak supply side performance. If that were not true, we should not have the extraordinary resilience in British exports that has been shown in recent months. As demand has slowed, exports have rebounded strongly. In 1989, the volume of manufactured goods exports rose by 11.5 per cent., the highest recorded rise since 1973.
The truth is that our problems now are modest compared with those that the country faced in the past, and modest compared with the problems when the right hon. and learned Gentleman's party was in office. He would have given a lot to have had some of our present problems when he was in office: too much growth, too much investment, and inflation under 8 per cent. In one of the right hon. and learned Gentleman's speeches, he congratulated the Labour Government on having got inflation down to under 8 per cent. For us, inflation at its present level is a setback, not a matter for self-congratulation.
Our economy is certainly strong. The right hon. and learned Gentleman's analysis is not correct. However, the real question is whether the policy is succeeding in slowing down the economy enough. At this point sometimes the good news can become the bad news and the bad news the good. Is it good news or bad news that employment growth was slowed? Is it good news or bad news that last year growth reached almost 3 per cent.? Mr. Samuel Brittan, commenting on the recent retail sales figures, said:A nation whose main economic problem is the shops are too full of goods which people can afford to buy is hardly experiencing a tragedy.Our citizens have experienced very sharp increases in living standards, and in recent years a period of extraordinary growth. Sometimes when I listen to Opposition Members I get the impression that they do not realise what the purpose of economics and economic policy is. The purpose is not to achieve a particular level of investment; it is to increase living standards. In that respect, the Government have been conspicuously successful.
It is curious that not just the previous Labour Government but every Labour Government have found that goal wholly elusive. Since the second world war there have been 17 years of Labour Government and 27 years of Conservative Government. In the 17 years of Labour Government, living standards rose by 14 per cent. In the 27 years of Conservative Government, living standards 1143 rose by 78 per cent. Can one suggest that that is a coincidence? The reason is clear: all Labour Governments make the same mistake. This time, however, we are told that it will be different. Quite how it will be different remains obscure because the right hon. and learned Gentleman will not tell us.
The right hon. and learned Gentleman is the leading Scotsman in his party but, when asked what he would do, he always repeats the excuse of the Irishman: "I would not start from here." When asked what he would do in his first Budget, if he became Chancellor of the Exchequer, he says, "It is too early to say." This is the man who said in an interview in The Daily Telegraph:I have a passion for detail. In detail you find the answers to difficult problems.If the right hon. and learned Gentleman is so interested in detail as the answer to problems, perhaps he will answer a few of the questions that journalists and broadcasters have been unable to get him to answer about Labour's tax policy. The other day, poor Mr. Giles Keating of Credit Suisse Boston incurred the wrath of the right hon. and learned Gentleman for asking him some questions about Labour's tax policy. Because he would not answer them, Mr. Keating came to his own conclusions, which were that, as a result of the right hon. and learned Gentleman's policies, many couples without children but below average earnings would be worse off, that those earning only one and a half to two and a half times average earnings could, over time, find themselves paying up to another £4,000 a year in tax and that marginal tax rates would go up from 25 to 50 per cent. What would be the result of this great redistribution? Everybody earning below £18,000 a year would get another £100 a year.
The right hon. and learned Gentleman says that he believes in fair taxation. To some of us, it seems like the same old incorrigible spite that we have always had from the Labour party. We know that we shall not get any answers from the right hon. and learned Gentleman, because the Labour party is dominated by public relations. It has made a god out of public relations. Quite how dominated by the public relations industry the Labour party is was made clear in a book published recently—"Labour Rebuilt", written by political correspondents of The Guardian and The Independent.
The book details the use made of a shady group of consultants, known as "the agency," and the use of image-making services as a substitute for policy. Details are given in the book of how Front-Bench Opposition spokesmen have been given advice on how to dress. On page 59 we are told of the analysis given to the hon. Member for Peckham (Ms. Harman). She was asked how she wanted to look. She replied, "Like a confident, assertive, self-possessed woman capable of running things." She was then told, we read, to go and buy a dark suit with shoulder pads—which she did the next day.
I do not know whether the right hon. and learned Gentleman has made use of that service. We read in the book that the service is used more by men than women but that the men do not talk about it. However, it is clear that the right hon. and learned Gentleman has been given his instructions by the image makers. They are, "Brush your hair, brush your shoes and, above all, don't say anything."
§ Mr. D. N. Campbell-Savours (Workington)
On a point of order, Mr. Deputy Speaker. Will not those who are watching proceedings today feel that what is happening is 1144 a disgrace to the House of Commons? This is supposed to be a speech on the Budget but we are getting nonsense from a Minister.
§ Mr. Lamont
No amount of advice on public relations is a substitute for policy. No policies have been put forward by the right hon. and learned Gentleman. Asked on television last night what he would do about inflation, what did he say? He said that he would not put up taxes but that he also wanted to bring down interest rates. If that is the way to deal with inflation, we know that the only result of a Labour Government would be runaway inflation.
My right hon. Friend the Chancellor of the Exchequer did not dodge the problems in his speech. He put forward the solution to them. He also emphasised that our problems today should not obscure the real gains that our economy has made in recent years. They include improved productivity, high investment, strong profitability, an end to the decline in our share of world trade, effective control of public spending, improved industrial relations, a fast rise in employment and the lowest national debt relative to gross domestic product since the first world war. The over-rapid growth of the past few years requires a pause. It began last year and will continue this year. However, once the excess demand has been removed, the economy will once again resume its upward trend, with a lower inflation rate.
Pain there may be, but gain there will also be. By this time next year, the prospects will be distinctly brighter. I commend the Budget to the House.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
If the test yesterday had been the presentational qualities of the first television Chancellor of the Exchequer in presenting his first television Budget, he would have come away with full marks. But there was a great deal more at stake: not only his own political future but that of his Government and, in particular, that of his Prime Minister—and, moreover, the ability of the country's economy to weather the next 12 months and the ability of many families to cope over the next 12 months with the enormous pressures on them. I do not believe that the Chancellor passed those tests.
The Budget will have been greeted with the same great disappointment in many households as it has clearly been greeted in the City and in sections of the press which are normally sympathetic to the Government. If the Chancellor read through the editorials of some of the major national newspapers this morning, he will have read some pretty disappointing news.
Mortgage payers and poll tax payers will feel that sense of disappointment most acutely, as will the markets to which we look for confidence in the economy and in our currency. The Chancellor has shown that he understands the psychology of his own Back Benchers and his own party. The delight and joy on Conservative Back Benches 1145 when he reached the end of the Budget was a demonstration that he knew what they needed and he gave them just a little dose of it. But he has not shown the understanding of the psychology of markets that one would have expected from a Chancellor with banking experience, and he will have to reflect on the absence of that delirium from the City today.
The fatal weakness of the Budget's strategy is not primarily of the Chancellor's making. It is the Prime Minister's determination that we will not join the exchange rate mechanism of the European monetary system so long as she has the capacity to stop us. That is at the heart of the Budget strategy; and the repetition by the Chancellor yesterday of the same old formula about how long we will have to wait before we enter the exchange rate mechanism did nothing to satisfy voices in so many quarters that are now calling for our entry into the EMS.
Alongside that was the Chancellor's total failure to face the need for a tight fiscal strategy which would require increases in taxation. In that respect, the Chancellor shares the attitude of those on the Opposition Front Bench. They, too, have not said very much about it and still shown no signs of doing so. They still seem to believe that we can have lower interest rates, a lower exchange rate deficit and lower taxation all at the same time. There seems to be an inability to face the fact that a strict fiscal policy would be particularly needed if we were in the European monetary system. But if we were, it is generally agreed that we could achieve lower interest rates which would help all those mortgage payers who are suffering so badly at the moment and would give a badly needed fillip to industrial investment. But if we are to do so we need a much stronger fiscal policy.
It is not sufficient for the Government to draw attention to the size of the Budget surplus. It is only half the Budget surplus that they forecast, and it will not meet the problem that will be created by the demand in the economy.
The Chancellor's speech yesterday gave no sign of a clear and secure policy to deal with inflation. Despite the assertion that inflation would be the judge and jury, the zero inflation for which the Prime Minister aims and the falling inflation which the Chancellor promised only six months ago, there is still uncertainty over monetary policy. It is not quite clear to me from what the Chancellor said yesterday or from the Red Book whether there is any serious monitoring of broad monetary targets. There are certainly none of the tough taxation policies which I have mentioned.
One of the things that the Chancellor could usefully do is to creep into the residence next door one evening when the Prime Minister is not looking fish out of her wastepaper basket the proposal from the right hon. Member for Blaby (Mr. Lawson) for a more independent central bank and place it back on the Prime Minister's desk with a little note saying, "Please read this again." There may be much merit in having a more autonomous judge of our monetary policy and an institutionalised battle against inflation. We will get that under European monetary union, but why not have it in the meantime by giving the Bank of England greater independence?
Judgments about these aspects of the Budget are being made in this place and in the City, but judgments about different aspects of it are being made in ordinary homes. 1146 The biggest taxation change to have affected many people in Britain for many years is the poll tax. It is a quite dramatic and terrifying change. The Chancellor has done something to alleviate the burden. He has removed a capital limitation which will benefit many pensioners who have savings. That is to be welcomed, but I regret that he has not dealt with the problems faced by people in Scotland who had to bear the full brunt of the poll tax a year earlier. He will have to look at that issue again; it will not go away, and will continue to be raised. He will have to do something to provide justice for people in Scotland.
The Chancellor must also recognise that he has not done anything for the large majority of poll tax payers who are disqualified from any relief, not by any capital or savings, as they do not have any, but by their incomes even though their incomes are very low. In the past few days, I have attended some very large poll tax meetings in my constituency attended by some very angry people. In the village of Widdrington Station, the meeting was attended by a quarter of the population. I have received a mass of correspondence particularly from people in the Castle Morpeth borough in my constituency, where the poll tax is particularly high. One part of the borough is relatively poor and another part is relatively rich. Therefore, under the Government's safety net scheme, poor people in that area are paying into the safety net to help people who are better-off in other areas.
I have come across case after case of people who are paying hundreds of pounds a year more in poll tax than they paid in rates. One couple whose income is just over the limit—the man works as a joiner earning £136.89 a week—and whose rates were £255 a year will have to pay poll tax, after all reliefs, of £672 a year. Where can those people find another £400 a year on an income of £136.89 a week? They have no savings. There are millions of people in that position. If the Chancellor intended to do anything about the poll tax for most people, he would have had to provide some extra Exchequer relief for the safety net system for this year and then cleared the way for a sensible income-based tax for next year. Even now, at this late stage, as he has been prepared to make changes to the capital limits, he should have been making changes affecting the majority of people suffering from the impact of poll tax, particularly those who have faced huge increases.
§ Mr. Ronnie Campbell (Blyth Valley)
Did the hon. Gentleman advise those people not to pay the poll tax, or will they have to pay it?
§ Mr. Beith
What they told me was that they could not afford to pay the poll tax. Unlike some Labour Members, I am not prepared to back a campaign of non-payment of the poll tax. I am not prepared to put in the firing line pensioners who can least afford and least cope with court summonses. I do not believe that many Labour Members are prepared to do that either.
§ Mr. Beith
No. I have just given way and I am answering my near neighbour, the hon. Member for Blyth Valley (Mr. Campbell). I listened to the Labour chairman of the Northumberland county council finance committee saying that he was not prepared to back a campaign of 1147 non-payment. He can see what the impact would be on the finances of the county council as it tried to provide social services.
The Chancellor must realise that many of those people cannot pay and they will be issued with summonses not because they are engaged in any political demonstration, but because they do not have the money out of their income to pay such a high tax.
The Chancellor made an interesting point about credit. He said that the banks ought to stop the high-pressure advertising of credit. I welcome that, but I suggested it two years ago as one of the ways of trying to limit the credit boom without indulging in ineffective and unfair credit controls. Why was that not said when the Chancellor was Chief Secretary to the Treasury, at the height of the Lawson boom? That would have been a more useful time to make that comment, as that was when most of the credit advertising was pouring through people's letter boxes.
I welcome what the Chancellor said about savings. The measures that he has introduced are very useful. I particularly welcome, having argued for it last year, the abolition of the composite rate of taxation on building society and bank interest. It is a manifest injustice that pensioners and other non-taxpayers should have tax taken from them to which they are not liable and which they cannot reclaim.
I am very pleased that the Chancellor decided to change that. If he had made that decision a year ago and not resisted my new clause to last year's Finance Bill, he could have done the preparatory work last year and we would not be in the current position that for one year it will be in the interests of many married women, for example, to open offshore accounts in banks and building societies in Jersey, Guernsey and the Isle of Man. The Chancellor clearly does not want that to happen on a large scale, because he has told banks not to advertise that facility. Nevertheless, I welcome the decision that he has taken, which his predecessor failed to take.
I welcome the concession on pools duty, which will benefit football clubs at a time when they very much need it, not least as the stand and terrace covering at Berwick Rangers football ground has had to be removed because it was unsafe. I hope that the Football Trust will contribute to the provision of good, safe and comfortable facilities at that ground before too long.
For a Government who claim to have green credentials, there was an enormous green gap in the Budget. There was little in it apart from the measure on company cars. The Chancellor increased excise duty on petrol, but that partly compensated for not increasing vehicle excise duty. Why did he not take the opportunity to introduce a range of vehicle excise duties that penalise large high-consumption cars? Why did he not seek a tax means to discourage the high consumption of fuel?
Why did not the Chancellor make progress on taxes on pollution? He may say that he wanted to wait for the White Paper from the Secretary of State for the Environment, but why was there not at least a commitment in his speech to such taxation measures in principle? He could have offered incentives for waste recycling, and given the indication that was so lacking in the Autumn Statement that there will be be sufficient investment in the railways to ensure the access to the Channel tunnel and to ports that industry will need to compete successfully in Europe after 1992.
As my comments will show, and as other hon. Members have said, there are good and useful small measures in the 1148 Budget, but they do not add up to a Budget to deal with the problems facing the country. I do not like to say this about the Chancellor, who still has considerable capital of respect and friendship in the House which he so far has not dissipated, and I hope he will not do so, but he appears to have fallen completely under the control of an increasingly isolated and irrational Prime Minister. The major weakenesses of his Budget strategy are her refusal to enter the European monetary system and her anxiety about the effects of a stronger taxation policy on the immediate political popularity of her Government—and there is not much of that at the moment.
The Chancellor is obviously pleased that he managed to resist the Prime Minister on one change that everyone knows or assumes she wanted him to make—to raise the £30,000 threshold on mortgage interest relief. That is a very small triumph to set against continued defeat on the exchange rate mechanism and the continued primacy of politics over economics in the decisions that he has taken.
The Budget may have pleased Conservative Back Benchers, but it has not addressed the problems that the Chancellor will have to face in the next 12 months. In just under a year's time, when I believe he will still be Chancellor, he will be trying to set an election-winning Budget. Messages will come from her next door—perhaps it will be him next door by then—saying "For heaven's sake put together a Budget that can recover the lost ground." The Chancellor will be saying to himself, "I wish that a year ago I had taken a tough line with the problems that now make an election-winning Budget impossible.
§ Sir Ian Gilmour (Chesham and Amersham)
I am not sure from the comments of the hon. Member for Berwick-upon-Tweed (Mr. Beith) whether it is his party's policy that we should enter the exchange rate mechanism straight away, but I agree with the Government's view that the current rate of inflation would make that unwise, if not impossible.
Like the hon. Member for Berwick-upon-Tweed, I welcome many measures in the Budget, which I hope will prove historic for savers, and I applaud the proposals of my right hon. Friend the Chancellor to make it so, particularly the ending of the composite rate of tax. Like everyone else, I welcome the concession on workplace nurseries, and like almost everyone else I welcome the concession for football. I only wish that the reduction in entertainment tax had been doubled, which would have cost little but would have made a substantial difference. Above all, like everyone else, with the exception perhaps of the Scots, among whom I number myself, I welcome the capital limits concession for pensioners on the poll tax, income support and housing benefit. I congratulate my right hon. Friend the Chancellor on those measures.
I am rather less exultant about what appears to be my right hon. Friend the Chancellor's political and economic strategy. As my right hon. Friend said today and on the wireless, this is undoubtedly the toughest Budget since 1981, but it is a long way from being a tough Budget. It is broadly neutral, and I should have thought that, politically, it would have been far better to have a tough Budget this year and got most of the pain out of the way, rather than having it running on, at a slightly lower level of intensity, to uncomfortably close to the next election.
1149 My chief worry about my right hon. Friend the Chancellor's economic strategy is his apparently cavalier attitude, which was rather shared by my right hon. Friend the Chief Secretary today, to the balance of payments. Last year's horrendous deficit of more than £20 billion is due to fall this year to a mere £15 billion. As there will be practically no growth this year, that is fully credible. In the first half of 1991, it is due to fall to £6 billion, but because of the pick-up in growth it will presumably increase quite sharply and will probably be about £15 billion in 1991. That is a most alarming prospect. The problem will not go away or improve merely by being ignored. Its full gravity has not been properly appreciated in public discussion.
Some people say that the deregulation of international monetary movements has abolished the balance of payments as a problem, but I do not believe that that is true. Some Third-world and European countries have demonstrated that it is not true and have experienced tremendous difficulties with their balance of payments.
In Britain, we have seen several times the unsettling effect on the pound that even one month's bad balance of payments figures can have, and with a £15 billion deficit projected, it is unlikely that we shall avoid bad figures every month in the next two years. Another story has been circulating that we shall be bailed out by invisible earnings. I have never believed that, because the increase in insurance and tourism would have to be unimaginably large; anyway, invisibles have now gone negative.
The balance of invisibles may be worse than it appears in the official figures. Page 43 of the Red Book says:The difficulties in measuring certain capital flows—reflected in the large balancing item in the overseas account—and with the valuation of direct investments mean that estimates of net overseas assets are subject to a wide margin of error.There have been statistical discrepancies in the balance of payments figures amounting to over £50 billion since 1984. That missing money must be somewhere, and we hope that it is going in the right direction, but if a significant portion of it were to take the form of unrecorded liabilities to foreigners, there would be unrecorded flows of interest out of the country. According to some estimates, the flow of property income could be £7 billion higher than the official figures show. I should be grateful if the Financial Secretary would comment on that interpretation of the residual error, as it is a matter of enormous importance.
The conventional wisdom has always been that the effect of North sea oil on sterling contributed to the blitz on manufacturing capacity at the beginning of the 1980s, but it enabled us to build up at least £100 billion of foreign assets overseas. It would be a considerable blow if that conventional wisdom was proved wrong and a high percentage of those assets had been spent on the consumer boom. If that had happened, we would have been deprived of the cushion that North sea oil provided and the need to correct the balance of payments problems quickly would be even greater, because we would run the risk of becoming a debtor nation. I look forward to hearing my hon. Friend on the subject.
The balance of payments position is all the more serious because—if I may differ from my right hon. Friend the Chief Secretary—it is not just the result of recent fast growth. It was deteriorating appreciably before our period of fast growth, and I think that my right hon. Friend will 1150 concede that that is true. In other words, there is a major weakness in the British economy. The fundamental cause of our deficit is the slow growth in manufacturing production between 1974 and 1989. Between 1974 and 1979, manufacturing production declined—a point for the Labour party to bear in mind when it makes much, rightly, of the importance of manufacturing industry.
Between 1973 and 1989, manufacturing output in France increased by 19.5 per cent.; in Germany, by 21.1 per cent.; in Italy, by 37.6 per cent.; in Canada, by 46.8 per cent.; in the United States, by 55 per cent.; and in Japan by 69.9 per cent. In the United Kingdom it has increased by 8.9 per cent., which is a derisory increase compared with those of our chief competitors. Over the past 10 years, our manufacturing output has increased by 1 per cent. per year and our imports in manufactured goods have more than doubled. That is the cause of our balance of payments problem. If my right hon. Friend the Chief Secretary will forgive me, it is not likely to be cured by one year of pause. The problem is deep-seated.
This dire position surely calls for the Government to do everything possible to help manufacturing industry. Unfortunately, they have not done so. Their sole weapon in fighting inflation—high interest rates—obviously damages manufacturing industry. Despite the eloquence of my right hon. Friend the Chief Secretary, I still believe that it is a considerable mistake to rely solely on interest rates. They have slowed consumption a little, but their impact has not been large enough. We know that they hit borrowers but help savers. Many building societies have eight times as many savers as borrowers, so there is one obvious defect in using that weapon solely. The effect of high interest rates has proved uncertain in its magnitude and their incidence has been arbitrary and unjust. High interest rates have already had a destructive effect on industrial investment and therefore on our future ability to compete on the world market.
The Government would have been far wiser to raise income tax levels. They should have done so long before yesterday. I believe that the Government should also have used credit controls. The Red Book states that there is a trend against their use in other countries, but nevertheless it shows that other countries still use them. According to Mr. Alex Brummer in The Guardian today, the Bundesbank has issued a paper saying that reserve requirementshelp control liquidity in the money markets as well as automatically acting as a brake on the creation of money.In controlling inflation, what is good enough for the Bundesbank should be good enough for the Bank of England and the Treasury. But my right hon. Friend the Chancellor has decided to continue with high interest rates alone, and I hope that he is right. His Budget is humane and caring, but he has taken a huge gamble on the balance of payments and inflation. I hope that he wins it.
§ Mr. Bill Michie (Sheffield, Heeley)
Like many Opposition Members, I am disappointed by the Budget and its implications, or perhaps in many cases its lack of implications. It will not help the people whom we have proudly represented for many years. The Budget says little about what will happen to the infrastructure and about whether we will build a new manufacturing base. It says nothing about the caring services—hospitals and housing—and their dilemmas.
1151 I often ask myself what the Government consider to be the "nation". Is the nation basically this great global thing, consisting of an economic package, the balance of payments, invisible earnings and all the rest which lead the Government proudly to say that the nation is better off? If so, why is there a deficit in the balance of payments and why have invisible earnings become invisible? The Government cannot be talking about that nation. They must be talking about the other one, in which I believe—the people.
Are the people better off? I do not see that they are better off in my constituency or in those of many of my hon. Friends. The infrastructure is falling apart. The caring services—whether voluntary or local government—are screaming out for help and for recognition of the problems. Hospitals are closing and waiting lists are increasing. We tried in the past to reduce the housing waiting list from two years, but it is now between 10 and 15 years.
What is this prosperous nation that we are supposed to have? Where is the magic figure? It is not in the balance of payments or the invisible earnings and it certainly does not exist for the ordinary population in terms of their environment, the caring services, housing and family life. The pressures are continually growing. I deal with many social services matters in my constituency and I know that it is almost impossible for social workers to help the ever-growing number of needy people. The Budget gives not a glimmer of hope that some provision will be made for them later in the financial year.
We receive many letters from parents and the groups that represent the mentally ill and the mentally handicapped and cannot get the necessary services because of public spending restrictions. Hospital services cannot provide the necessary beds and space, so the authorities try to move people into the community. Social services departments cannot deal with the expense and staffing implications. Throughout the country, and certainly in my constituency, people who would normally be cared for either in an institution or by a social services or area health authority are sleeping rough in our city centre streets and parks. Is that what we call a prosperous nation? Is that the great success story of monetarism, about which the Conservative Government have been talking for years?
My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) was right to say that the omissions in the Budget are the most worrying features of all—no uprating of child benefit, no promises to provide massive investment in the environment and no increased expenditure to help those who care for the many people who are disabled, ill or in need. Inflation will remain high, as will interest rates, rents and electricity, gas and transport prices.
The poll tax has affected most of our constituencies. Like any other council in any city, Sheffield city council was misled over the poll tax. The calculations have caused havoc and will continue to do so. The city council states:The long-term loss of income from grant and business rates will be almost £60 million per year after the Safety net grant is withdrawn. This is equivalent to £160 per year extra on the Poll Tax bill in Sheffield.Even in the first year of the new system the Safety Net grant leaves the City Council £13 million worse off in cash terms compared with the last year of the old system. The average household bill will need to increase by around £70 just to cover the loss of income to the City Council.The Government has not accepted the representations that the City Council has made over the problems of using out of 1152 date information from the Poll Tax Register. This is likely to cost the City Council around £4 million in grant and business rate income in 1990/91.All the representations that have been made on care, housing and hospitals have been ignored. The Budget comes at a high cost to our constituents but does not repay them with high wages or with job opportunities. There is no future because, as the Chancellor said, there is a downturn and growth will be slow. The Budget will help people buying and selling shares, but it will be of no help at all to our constituents trying to buy or sell homes. It offers no hope to industry, which has been neglected for years and looks as though it will continue to be neglected. That affects my constituents in Sheffield, which has been devastated by industrial decline over many years.
We still lack training. The Government have bragged about training, but have not invested in it as they should have done. I recall the Prime Minister saying many years ago, "You can't spend what you haven't got." What we did have 10 years ago was a massive North sea oil asset, but the Government have spent it and have produced nothing for the nation in return. They have spent everything and invested nothing in the future prosperity of the nation.
Many of our firms, private and public, have tried to help in training, and agencies were set up. But many schemes have failed and many more will fail in the future. The other day I received a letter from South Yorkshire Constellation Ltd.—part of our probation service—which has done a magnificent job in getting a dynamic manager to set up youth training schemes for people in trouble, or in particular need or under threat. Most of the schemes seem to be falling apart, not because of the incompetence of the organisation but because of the Government's lack of enthusiasm and their failure to provide adequate finance.
Let me read one small part of that letter:There are three other Youth Training Schemes in the city … offering training for youngsters with special training needs and we asked them to co-ordinate discussions regarding some rationalisation, as we knew at least one other was in financial difficulty. The Training Agency took a 'hands oil' view and decided to allow market forces to operate to see who collapsed first. The consequence was that we were the first to collapse.We have heard the phrases "market forces" and "hands-off policy" before because that is precisely the policy that the Government have adopted since they came to power, and certainly over the past six years.
The nation has been badly let down by the Government. They claim to be responsible, but the opposite is the case. But at least there is one consolation: the people of the nation now know.
§ Mr. Alan Haselhurst (Saffron Walden)
I add my congratulations to those of other right hon. and hon. Members to my right hon. Friend the Chancellor for the way in which he presented his Budget to the House. The Budget was likeable in tone and it will be appreciated quite widely for a good part of its content.
In this age of particular sensitivity about Members' interests, perhaps I should tell the House that I have a number of connections with industry—notably in the chemical and electronics industries. It is possible that some of my observations will stem from the experience that I have gained with those industries, although it could be 1153 said, perhaps more simply, that they will be based on what has been said by industrialists in general and by the CBI in its advice to hon. Members and to the Government.
The background to the Budget is one of high interest rates, high inflation, a large balance of payments deficit, the widespread unpopularity of the Government and much confusion about exactly what the economic and financial statistics tell us about what is going on in the economy. My right hon. Friend the Chancellor was therefore faced with a particularly daunting task in preparing his Budget this year.
It is hard to tell how industry is performing. Clearly, some companies and sectors are doing extremely well and are exporting an increasingly large proportion of their output, while others are now in difficulties. In the retail sector, too, there are some signs of depression in the high street, but oher sectors seem to be bearing up remarkably well.
There was a danger that, if the Chancellor's judgment was not exactly right, Britain could lurch into recession—something which my right hon. Friend wisely sought to prevent. He had two tasks—in the short term, to bolster confidence at home and abroad in his ability to get a grip on inflation and bear down upon the balance of payments deficit and, in the longer term, to strengthen the economy and make it more proof against sudden loss of favour in the markets.
On the home front, there is absolutely no doubt in the mind of any hon. Member that the Government's anti-inflation policy is hurting many people. People feel pessimistic about the prospects. Their incomes are under severe pressure; there can be no doubt about that. Obviously people would like the load to be eased, but I agree with my right hon. Friend that a quick fix is not the way to achieve that, especially if it would mean the speedy restoration of limits within a matter of months.
People want to feel that, as we seek to bear down on inflation, our collective burden is being fairly shared. There is unease that some sections of the community are losing badly at present. I therefore welcome my right hon. Friend's announcement that he is to change the capital rules for social security benefits and community charge rebates. That is extremely good news. I also welcome the fact that my right hon. Friend felt able to achieve the full indexation of personal tax allowances this year.
There is also a suspicion that too much reliance is being placed on interest rates. I concede that it is quite clear that a large proportion of domestic credit is tied up with land and property purchase and, that being the case, I see little alternative to a fairly heavy reliance on interest rates. I am glad, though, that the Chancellor has been prepared to look again at credit controls and has undertaken to monitor the situation.
I found it interesting that, on Budget day, I should receive through the post from a well-known credit card company the invitation to spend 16.5 per cent. more should I wish to do so. I must emphasise that that is not an invitation to which I shall be responding speedily, but I am sure that it went out to many other people, too.
It is a question of psychology. Such increases may not add up to a great percentage in terms of the overall national scene but people get a blurred message when they receive invitations to spend more, and that may impede 1154 what the Chancellor is trying to do. My right hon. Friend's measures on saving and giving are timely and show greater breadth in his approach to defeating inflation.
The public are impatient about the pace of improvement in public services. These days, a typical letter of discontent is likely to mention the failure to pay public servants sufficient money, the failure to get on with introducing more measures to protect the environment and the failure to invest in the infrastructure. People also bemoan the fact that insufficient sums are spent on health and education. Those are just some of the matters that typically come up in letters from our constituents.
Those sentiments would certainly find an echo in the remarks of the. Leader of the Opposition, yesterday and probably at other times. The right hon. Gentleman spoke of an under-invested and debt-ridden economy. He should certainly be listened to seriously, because he can draw on years of Socialist experience of running such an economy. What is the right hon. Gentleman's answer now? It was summed up in the word "partnership". There is no substance to that. It is a user-friendly word, but I cannot help thinking that we could substitute the phrases, "social contract", "national plan" or "technological revolution". We have heard it all before.
No one seems to understand—least of all the Opposition—that there are limits to growth. Yet all our experience—certainly that of the Opposition—should make us wary about having over-ambitious expectations about growth. My right hon. Friend the Chancellor has been appropriately modest. He estimates that growth will be 1 per cent. this year and 2.75 per cent. next year. That still means an average growth over five years of about 3 per cent., or perhaps slightly more. That is a remarkable record for the British economy in the post-war years. From a growth rate that has any reasonable chance——
§ Mr. Martlew
Does the hon. Gentleman agree that a growth rate of 1 per cent. next year will increase unemployment in this country?
§ Mr. Haselhurst
Its effect on unemployment remains to be seen. A number of complex factors are at work, but if the figures that my right hon. Friend the Chancellor gave yesterday are fulfilled, the overall average increase will still mean growth of 3 per cent. per annum. The hon. Gentleman should envy that, rather than disparage it.
If we have a growth rate that is attainable in the first place, and then sustainable, from what can realistically be achieved we shall not be able to generate resources to meet all the demands placed on us at present. We cannot get rid of all the shortcomings in provisions for health, education and the environment within the likely level of growth that could be achieved by any happy combination of policies. However, the Leader of the Opposition seems to imply that that would be possible if a Labour Government were substituted for the Conservative Government. If we are to have sensible discussions of these matters, one of our tasks must be to bring the debate about what needs to be done within reasonable and practicable bounds.
Those are matters for domestic politics. Further afield, my right hon. Friend the Chancellor has to satisfy world opinion that he has a firm grip on inflation. Perhaps he also has to persuade world opinion that the Conservatives can win the next election, because the alternative seems to worry the markets.
1155 The question is, therefore, has my right hon. Friend done enough in his Budget this year? A tax take of £430 million and a projected growth rate of 1 per cent. is surely indicative of a degree of rigour. I debate with my right hon. Friend the Member for Chesham and Amersham (Sir. I. Gilmour) whether a symbolic 1p or more on the standard rate of income tax would have made a great contribution towards easing the burden of interest rates. More than anything else, that might have risked tipping the economy into recession. The right hon. Member for Plymouth, Devonport (Dr. Owen) was probably more nearly right when he said yesterday that the Budget will take a few weeks to settle in before a fair judgment can be made about whether the Chancellor has struck a reasonable balance.
I agree with my right hon. Friend the Member for Chesham and Amersham that in the longer term we need to strengthen our industrial base. Unit labour costs in manufacturing industry are deteriorating in comparison with those in Germany and France. The annual rate of change in Great Britain is 4.8 per cent., it is 2.2 per cent. in Germany and 0.6 per cent. in France. That spells bad news for the British economy and for our ability to increase our share of world markets. Therefore, we must improve investment still further. Although I do not deride what has been achieved in recent years, and while our private sector investment as a percentage of GDP is comparable with that in France and Germany, we still have a lot of catching up to do.
I welcome the Chancellor's measures to help small and medium-sized companies. However, he might have done a little more for larger companies. As a percentage of GDP, corporate tax revenue in the United Kingdom has increased from 2 to 3.5 per cent. over the five years 1983 to 1988, which is 50 per cent. higher than in France or Germany.
If we are to improve our industrial base, we must also do more for training. Therefore, I welcome my right hon. Friend's measures on that. It is a bizarre thought that, with the prospect of a turn in the trend of unemployment, we have too few skills in parts of our economy. Although there will be no shortage of jobs in my constituency or in many other parts of the country in the foreseeable future, there is a question whether those jobs can be filled by people who have the skills to take advantage of them.
In the longer term, we need the symbolic—but more than symbolic-gesture of joining the exchange rate mechanism of the European monetary system. It is not just whether taking that step would be good for the British economy, because as a country we are now in danger of being left behind in the moves that our European partners will undoubtedly make towards fuller economic monetary union. British business men understand that and the British public probably sense it.
We are even in the happy position that the Labour Opposition—the lame European ducks of the 1980s—are now in favour of ever-closer European union in the 1990s. However, I suspect that, when the Government take Britain into the exchange rate mechanism, the Opposition will find weasel words to say that the terms are not exactly right. We should replace doubt with determination. We should cease the constant refining of words and conditions. No clearer signal could be given to overseas opinion or to our own industry that we have our priorities right than if we were to set out a firm timetable for entry.
Overall, my right hon. Friend the Chancellor is maintaining the broad course for recovery, but with some 1156 welcome adjustments. My right hon. Friend's Budget could be dubbed a "save and prosper" Budget. I hope that that is how it turns out. I believe that the Budget offers hope that we can pull out of our present difficulties. I trust that my right hon. Friend's judgment and instincts will be borne out by events.
§ Mr. Tony Worthington (Clydebank and Milngavie)
Anyone who wanted to know why the Tory party has done badly in Scotland would have found the answer encapsulated in a single moment yesterday when the Chancellor came to the high point of his Budget. He was giving away goodies, but was confronted not with silence or applause—not that applause is allowed in here—but with uproar from the Opposition because of Scotland. I was sitting opposite the Chancellor, who was totally bemused about the reason for that uproar.
Like all my hon. Friends, I am absolutely convinced that the right hon. Gentleman had not even thought about the Scottish dimension. He had not realised that it is appalling that when one group of people, who have not yet paid a penny in poll tax, protest about what it will mean to them, they are listened to, whereas another group of people, who have been paying the poll tax for a year, are not listened to. The right hon. Gentleman had not thought about the political consequences of that.
The Government must find a way of bringing equity into the system. There is a way to do so, because wherever there is the will, there is always a way. I applaud the relief that was given yesterday, but the Government always seem to be listening to only some people. They are listening to people who have savings. They do not listen to those with no savings. They have not listened to the people of Scotland who have paid the poll tax for the past year.
We must ask about the role of the Secretary of State for Scotland in all this. On Monday, in the Scottish Grand Committee, the Secretary of State told us that the poll tax had been accepted in Scotland and was working well. If hon. Members on either side of the House believe that, and believe that the poll tax problems will disappear, they should forget those thoughts at once. The problems surrounding that tax will rumble on and on. The Government must listen. They must realise that they have backed a loser and that there can be no justice while the tax exists.
Yesterday's announcement show why the Government's standing in Scotland will worsen beyond its present low ebb. The Prime Minister came to Scotland and in a memorable interview referred to, "We in Scotland," but yesterday's announcement shows how false those words were. It is clear that the Government have not even thought about the consequences of the poll tax in Scotland.
The Government's action has been unprincipled not only in their neglect of Scotland in terms of the relief given yesterday, but in the implementation of the poll tax. The most striking thing that I read in the past few weeks was a statement by the Tory chairman of Berkshire county council which gives the lie to what the Government are saying about Labour councils. He said that, if he had been given as much money by the Government as Westminster council has, he would have been able to charge a nil poll 1157 tax and to give £200 to every citizen in Berkshire. That is the truth behind the way in which the poll tax has been set and the money distributed.
§ Mr. Worthington
My hon. Friend is right.
We should ask the National Audit Office and the Public Accounts Committee whether they can detect any principle behind the way in which the poll tax money is being distributed. There is no justice in the system and, once again, the figures are being fiddled to help the Government's friends.
I was interested by what the hon. Member for Saffron Walden (Mr. Haselhurst) said about training and its importance, but I am at a loss to see how yesterday's announcement will be of any significant assistance. Someone will receive tax relief on giving a donation to his local technical and enterprise council or, in the case of Scotland, the local enterprise council. Why he should seek to do that rather than invest in training in his own company I do not know.
The Government have cut expenditure on training. This year in Scotland, comparing like with like, nearly £30 million has been cut from the training budget of the training agencies. Despite that, one can read glossy Government documents saying that the worse time to cut training is in times of hardship. In those documents the Government urge private manufacturing industry not to take a short-term attitude to training. What do the Government do, however, when faced with difficulties? They cut training.
It is interesting to note the excuse given for that by the Minister responsible for training in Scotland. He told us that the Government have cut expenditure on training in Scotland because of the diminishing client group and the fall in the number of long-term unemployed and young people. We were told that during our deliberations on the Enterprise and New Towns (Scotland) Bill. The same Minister, however, has boasted that there are more people in employment than ever before. Surely that means that the client group is enhanced and that more people need to be trained, some of whom may not yet be in the work force.
The report on training by the Confederation of British Industry says that we need to take a completely different attitude towards it and to make a quantum leap in terms of training and its quality. It states that the quality of training is manifestly inadequate and that the youth training scheme is still in an embryonic state and needs to be developed. How have the Government responded to the demand for training? They have introduced the employment training scheme. How can one argue that that scheme matches up to and meets the challenges thrown at us by the German, Scandinavian and Japanese training schemes? The motivation behind our scheme is, essentially, to lower unemployment, to reduce wages and to reduce the contribution of local authorities and trade unions to training.
My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) has made it absolutely clear that, if we are ever to compete effectively in the world, we must tackle skill shortages. In Scotland we have significant 1158 unemployment. The city of Glasgow still has male unemployment of 20 per cent., but the city also suffers from skill shortages. The House will appreciate that it is rather difficult to achieve a situation in which firms cannot fill jobs in that city, while male unemployment is still running at 20 per cent.
The CBI in Scotland has said that skill shortages there are chronic, particularly in engineering. Engineering employers have also revealed how serious the shortage of engineers is at all levels. They are reported as saying:The recruitment shortages of 1989 are evidence that spare capacity is not available".Those difficulties are also experienced in information technology. Indeed, there are innumerable areas in which we are experiencing skill shortages, but industry has not picked up the need to rectify that problem.
In Scotland, as elsewhere, the private sector has been told that the Government want it to take over the training system, but that sector, above all others, has been guilty of not training. We are now told to place our trust in those who have failed us, and that is not good enough. There must be a partnership between private industry and the public sector, and it cannot be left to the private sector alone.
I was pleased to hear what previous hon. Members said about our manufacturing industry. Am I the only one who felt a sense of shame when I heard the Chancellor bragging about a surplus of manufactured television sets? We have that surplus because the Japanese have come in and rescued us. I am ashamed, because we used to have a television manufacturing industry, but now the Japanese, for their own reasons, have come in and are providing us with that surplus.
In common with all hon. Members I visit factories, and it is interesting to consider from where the raw materials come. The answer is striking. Recently I visited a British kitchen manufacturer based in the south-east. As I went round the factory I asked where some run-of-the-mill components—certainly not exotic products—came from. I asked from where the blockboard came and was told, from Belgium or Sweden. When I asked why, I was told that Britain does not produce it to the required standard. I asked where the finishes for certain kitchen products came from, and was told Italy. No machine tools used in the manufacture of these products came from Britain. I wondered where the taps came from and found that four out of every five taps in this country are imported. I said to myself that I should be pleased because here is a kitchen manufacturer who is trying to recover the ground that was lost to the Germans and the Italians. However, I wonder if such manufacturers are worsening the balance of payments deficit because what they import is greater than anything that they export. They are not exporting, but simply trying to work in this country.
I wonder whether the Government have yet realised the problem. Why is it that throughout this century—I accept that this is true of Labour as well as Tory Governments—whenever there is growth, it has to stop? It stops because when the British people get more money in their pockets they do not buy British goods but exhibit a preference for foreign goods. We cannot compensate for those sales by what we sell overseas. I do not understand how, simply by slowing things down for a while, we shall deal with that problem, unless we deal with the problem of the manufacturing base.
1159 The Financial Secretary has been promoted this year; I wonder whether he has learnt his lesson from last year. He used to scoff at manufacturing industry and say that we should not exaggerate it.
§ Mr. Worthington
No, I shall not withdraw the remark, because I remember that in equivalent debates the Opposition, year after year, have said that manufacturing industry was neglected. The Financial Secretary asked why the Opposition were obsessed with manufacturing industry, and put all the emphasis on service industries and the financial sector. The Government must realise that we shall achieve exports and get rid of the financial deficit only by dealing with the problems of manufacturing industry.
In the past, the Financial Secretary seemed to align himself with the right hon. Member for Blaby (Mr. Lawson)——
§ Mr. Lilley
On a point of order, Mr. Speaker. Is it possible for an hon. Member to continue a complete fabrication when he has admitted that he has no reference to back up anything he says? The hon. Gentleman has not even volunteered to go off and find anything to back up his argument.
§ Mr. Speaker
Every hon. Member must take responsibility for what he or she says in this place, provided that it is in order. I have no knowledge of whether what the hon. Gentleman said is inaccurate. I imagine it must be accurate or he would not say it.
§ Mr. Lilley
Further to that point of order, Mr. Speaker. That is a slur on me. I have assured the hon. Gentleman and you, Mr. Speaker, that I have never said any such thing. If you would like to join the hon. Gentleman——
§ Mr. Speaker
I apologise to the Financial Secretary. He knows that I came into the Chamber two minutes ago and have not heard the arguments.
§ Mr. Worthington
I had not noticed you entering the Chamber, Mr. Speaker. I assure you that, as always, I am behaving responsibly.
In the past, the Financial Secretary seemed to align himself with the previous Chancellor of the Exchequer, who certainly said that the deficit—the excess of imports over exports—about which we are so desperately worried, should not worry us as it would be self-rectifying. It would be interesting to know the present attitude of the Financial Secretary and his senior colleagues to the trade deficit. Has it now become a major problem, or does it remain a hiccup? How can we rectify this deficit unless we start seriously paying attention to the needs of manufacturing industry, particularly research and development and training?
§ 6.5 pm
§ Mr. Nicholas Budgen (Wolverhampton, South-West)
The hon. Member for Clydebank and Milngavie (Mr. Worthington) and my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) are agreed on 1160 one point—the balance of trade deficit is important. I have the misfortune to disagree with both of them. On that point at least, I agree with my right hon. Friend the Member for Blaby (Mr. Lawson) that the balance of trade deficit will, in the end, be self-correcting.
In the short time available I wish to make two points. First, I offer strong support to the Chancellor of the Exchequer for having avoided what would have been a substantial mistake. Without doubt, great pressure was exerted on him to make greater concessions, by way of tax relief, to those who borrow on mortgage against housing. It was urged that the £30,000 limit should have been raised to £41,000, or even £60,000.
It was good that the Chancellor of the Exchequer resisted that pressure. [HON. MEMBERS: "Hear, hear!"] I am heartened by the way in which my hon. Friends show their approval of that remark. There are others in the Conservative party who, misguidely, wish the relief to be extended. If it were, it would simply mean that house prices generally would be driven up and more potential first-time buyers would be priced out of the market. The people who benefited would be those owning development land and, to a lesser extent, builders and those associated with the building industry. I said "to a lesser extent" because it is by no means certain that high land prices alway act to the advantage of builders. That is the case only when they have a large land bank. The Chancellor behaved most responsibly in resisting that pressure.
Secondly, I shall refer to the Chancellor's overwhelming duty to restrain inflation. He is not entirely to blame for the position in which the country now finds itself. Between 1986 and 1988 the previous Chancellor of the Exchequer grossly over-expanded the economy and allowed the money supply to get out of control. Now, inflation may rise to 9 per cent. and in every aspect of the nation's affairs we can see the disadvantage of an unexpectedly high inflation rate.
There has been some discussion in the debate about the effect of the community charge. One reason for the extra-large community charges—only one of the reasons—is that the inflation rate is much higher than the Government anticipated when they set out the guidelines for the community charge. Such problems occur in every sphere of the nation's economic activities. This is the one opportunity that the Chancellor has to halt inflation——
§ Mr. Budgen
Yes, the one opportunity that this Chancellor has to do so before the election. Everyone knows that he uses two main weapons: monetary policy—in shorthand, interest rates—and fiscal policy—in shorthand, taxes.
It is all very well to say that it is possible to squeeze inflation out of the system by monetary policy alone—I remember acutely the row when interest rates went up to 15 per cent. I can only assert that I do not think that it would be politically possible to raise interest rates much above the present 15 per cent. The political row that would ensue if, for the sake of argument, interest rates were banged up by another 1 or 2 per cent. at the present time would be enormous.
If I am right in saying that, then it was necessary in the Budget to raise taxation somewhat. Here I marginally disagree with my right hon. Friend the Member for Chesham and Amersham. He is in favour of an increase in 1161 the standard rate; I think that it would have been perfectly adequate not to index the personal allowances. What was necessary, however, was to show some fiscal tightening. Here I disagree with the approach of the Chancellor, who said that he did not wish, on the one hand, to underdo it, but nor did he wish, on the other, to overdo it and run the risk of tipping over into recession. Our society enjoys and encourages inflation. It is rubbish to say that inflation is unpopular. The present Government were very popular indeed when they created inflation between 1986 and 1988. What the British people dislike is the check upon inflation, not its creation.
What we require now is to run the risk of overdoing it—the risk of underdoing it scarcely ever exists in our society. We should have taken the risk of perhaps raising a bit too much taxation. The result of being unprepared to take the risk of overdoing it is that the last chance before the election may well have been missed. The Chancellor's estimate of inflation in 1991 is that it may be 5 per cent. I hope that he is right, but it must be said that Treasury estimates of future inflation have nearly always proved to be under-estimates. Even if the Chancellor is right, one thing is clear: there is no room for a pre-election boom and reflation based upon a 5 per cent. rate of inflation.
§ Mr. Robert Litherland (Manchester, Central)
I am pleased that the emphasis in the debate has been placed on manufacturing industry, because, once again, the Budget has miserably failed to tackle the reason for our floundering economy. The Chancellor, like his predecessors, has missed the opportunity to revitalise our manufacturing and industrial base, which has eroded rapidly in the past 10 years in a collapse that has affected some regions more than others.
For proof, we have only to see the vast tracts of industrial wasteland in the north of England, especially in the north-west, where we have witnessed the evaporation of large labour-intensive manufacturing firms, household names, now gone for ever and with them the hopes of many people still adrift in the sea of unemployment. Job losses in this area from the collapse of manufacturing industry such as light and heavy engineering, textiles and chemicals have been almost double those in the south-east. In spite of the Government's cosmetic statistics, my constituency, where most of the heavy manufacturing and industrial firms were situated, still has 30 per cent. male unemployment.
The concept of replacing manufacturing industry with service industry is a fallacy. The unemployed recognise far better than the Chancellor that once a manufacturing base disappears it never comes back. It is a myth that the country can sustain a buoyant economy on the back of the service sector—deterioration to an underdeveloped economy is unavoidable without a strong manufacturing base. The service industries in my constituency that once provided the requirements of the manufacturers have now become obsolete because there are no longer firms who need their services.
These jobs have to be replaced with less essential, low-paid, part-time jobs such as hotel work, fast food shops and employment in pubs and bars. All these try to fill a void, but they fail to solve the problem. The service 1162 industry has failed to offset manufacturing job losses. The Greater Manchester low pay unit has recently produced a report that emphasises that service industries are not a panacea for all the economic ills in our area. Miss Gabrielle Cox, the author of the report and the unit's project co-ordinator, said:Our whole economy in this region is under threat. Over the past decade there has been a massive reduction in the number of employed. Higher paid production and construction jobs have fallen by 30 per cent. Opportunities in service jobs have increased by 5 per cent., but often these are very lowly paid. We cannot rely on tourism to revive our local economy. That is not a viable tactic for survival. This region must be more than a museum of our glorious industrial past. What we need is an industrial future. There is an urgent need for significant investment in new industries and technologies.The Budget has once again failed to tackle the long-term problems of the economy—no new measures to regenerate manufacturing industry and no real capital investment.
I will say this, however: in all the Budgets that I have experienced since I became a Member in 1979, the biggest beneficiaries have always been the wealthy, with gains from tax concessions on their investments, on stock exchange deals or on their inheritance. The losers are always the poor and unemployed. Tax changes to these people are meaningless. They are the people who have meagre incomes and little prospect of employment.
It adds insult to injury when the very services that these people need—services that are essential to the needy, the public services—have been drastically cut. This exposes another myth. Chancellors always insist that to provide public services, taxpayers have to dig deep in their pockets. What Chancellors always fail to mention is that, in order to provide the massive tax handouts to the rich, public expenditure on essential services for the poor has to be cut. As public sector services have declined, so, once again, the deprived in our society have been hit the hardest. If one ever has to switch from public spending to private pockets, someone gets hurt—and in every instance it is someone who can least afford the burden.
§ Mr. Litherland
I am sorry, but my time is limited and others want to speak.
The Budget does nothing for the poor. It makes a mockery of individuals and families who struggle day by day to exist, the elderly, the homeless and families who have the spectre of the poll tax looming. If it is said that we cannot spend what we cannot afford, it is equally true that these people cannot save what they have not got. Those people also suffered during the so-called 1988 economic miracle.
To call this the savers' Budget is insulting to the majority of my constituents, because saving always assumes that people have money to spare. So far is that from reality that many must borrow to make ends meet. The loan sharks thrive in inner-city areas. The Budget is without hope and without vision, and once again it appeases the wealthy in society. If, after 11 years in government, this is the best that the Government can do, they are an abject failure. The sooner we boot them out and replace them with a Labour Government, the better.
§ Mr. Andrew MacKay (Berkshire, East)
I commend my right hon. Friend's Budget, particularly because it is such a good Budget for savers.
I was disappointed when the hon. Member for Clydebank and Milngavie (Mr. Worthington) said that through the community charge rebates the Government were helping only those with plenty of savings and not the genuinely poor. He completely fails to understand that pensioners with no other income are already receiving substantial rebates up to a maximum of 80 per cent. Those who are suffering or are likely to suffer because of the community charge are those who have saved a nest egg and are not eligible for a rebate. There has been a major disincentive to save which has aggravated many people. That needs to be re-emphasised because it was not sufficiently picked up by the newspapers following yesterday's Budget statement.
My main concern is for people who have never earned much money, but who have been thrifty and each week or month saved a little so that they have a nest egg of about £8,000 or £12,000 for a couple, for their old age. Throughout their working lives they may have lived next door to a couple who have chosen a different route and spent the money that they earned. Some would describe such a couple as feckless.
§ Mr. MacKay
No, we have only 10 minutes for our speeches.
For those who have saved, it is adding insult to injury to see their neighbours getting an 80 per cent. rebate on housing benefit, council rents and community charge. They can ill afford to pay the full community charge and find difficulty paying the full rent. The Chancellor of the Exchequer is to be commended for doubling the savings limit from £8,000 to £16,000.
People who live together and are not married will not now be disadvantaged. All hon. Members will have come across this further anomaly. A husband and wife who have saved a little more that £8,000 may live next door to another elderly couple, perhaps a widow and widower who are brother and sister, who, obviously, are not married and are not eligible for a rebate on their community charge. That was patently unfair. My right hon. Friend has erred on the generous side by raising the individual savings limit to £16,000. I imagine that he did so because if he raised it to £8,000 per individual, a millionaire pensioner could move all his savings from his wife, who would than receive an 80 per cent. rebate on the community charge. That would he disgraceful—some would describe it as obscene—and it certainly was not intended.
I am worried about a further group and I hope that my hon. Friend the Minister will take note for the future. Counties such as Berkshire have suffered from an unrealistic standard spending assessment which I hope can be corrected, although we may have to debate that another time. I am worried for my constituents who earn just above the level at which they would receive family credit or income support and who have wives who look after the children and therefore cannot work. Incidentally, any young mother in the Thames valley who wants to work will be able to find a job because we have negative 1164 unemployment and because of the help that my right hon. Friend has provided by scrapping the benefit in kind tax on workplace nurseries.
The families that I have referred to will find it extremely difficult to pay the community charge. Those couples need help in the form of rebates, similar to that which pensioners have received. I hope that my hon. Friend the Minister will bear that in mind when he considers further changes in rebates.
My hon. Friend may ask how I would pay for that and I have a suggestion. It is unwise to ask the Treasury for extra money without explaining where it will come from. I must be somewhat critical of my right hon. Friend the Chancellor because the increased duty of 10p on 20 cigarettes is insufficient. If we are serious about preventive medicine and health care, we should provide major disincentives to smoking. I should have liked a 20p increase on cigarettes. I suspect that there is only one reason why the Chancellor did not do that and that is because it would have had a remarkable effect on the RPI and therefore on inflation.
As all hon. Members strongly oppose encouraging young people to start smoking and support preventive medicine, perhaps we can agree across across the Floor of the House that the best way to reduce the long-term cost to the NHS is to take tobacco and cigarettes out of the RPI. Incidentally, I should also like to see mortgage repayments taken out of the RPI, but Labour Members—[Interruption.]—as the hon. Member for Blyth Valley (Mr. Campbell) characteristically points out, would yell "Sham" and "Fix". I would not necessarily expect all-party support on that. I hope that if my hon. Friend the Minister were assured of all-party support to remove the cost of cigarettes and tobacco from the RPI, he would undertake to consider it seriously. It would be in the interests of health care and would make a great deal of sense.
The provision on workplace nurseries will help my constituents, but I should like to nudge my right hon. Friend to go a little further next year. I have already pointed out that the lack of benefit-in-kind charges on workplace nurseries will be of great help to many young mothers who wish to return to work and to employers who have skills shortages, especially those in the Thames valley, but let us be absolutely honest about this: there are not many workplace nurseries in my constituency, and I can see hon. Members on both sides nodding in agreement. There are few.
I hope that the concession in the Budget will increase the number of workplace nurseries, but I fear that it will increase them only among large employers. I imagine that large firms in my constituency who complain that they cannot find people for vital jobs will invest in one, but small firms cannot. If we are realistic, we must concede that the great majority of employees will not find a job in a firm with a workplace nursery. Instead, they will pay for the child to be cared for, either in an ordinary nursery or by a child minder.
If we are serious about giving an even break to young mothers who want to return to work—the Chancellor was right to say that we should not be in favour or against mothers going back to work; in a free society, it is for them to decide, but we must end barriers that prevent them from returning to work—if we are serious about improving skill shortages and if we are serious about finding people to 1165 take up jobs where there are vacancies that cannot be filled from the existing work force, as is happening now in the Thames valley, we must do more.
A good start has been made. As the next step, mothers should be given tax relief or partial relief on the expenses that they incur in placing their children in nurseries or paying child minders.
§ Mr. MacKay
I am running out of time, so I cannot give way.
It is clear that workplace nurseries cannot be established at every place of work. I commend the Budget, which is sound. I hope that the next Budget will take into account my mild criticisms and will cater for all the requests that I have made.
§ Mr. William Ross (Londonderry, East)
I watched the Chancellor's performance yesterday with some fascination. He was brilliant and he is to be congratulated on his performance. I am sorry that he is not in his place to hear me say that. On the other hand, perhaps it is as well that he is not, because it was a brilliant performance in trying to make a silk purse out of a sow's ear.
The situation in the economy is grim. The Chancellor was dealt a poor hand and, although he handled it superbly and sold his and the Government's case to the country well, the underlying problems will remain for some time. To give credit where credit is due, he tried to place the few goodies that he had to distribute with those in the greatest need. On behalf of the Ulster Unionist party, I welcome the help for charities, inheritance and capital gains tax indexation, the disappearance of composite tax, the introduction of tax-exempt special savings accounts and the changes in VAT.
The tax allowances for blind people are especially to be welcomed, and I hope that, having dealt in that way with that group of the disabled, the Government will go further and consider other disablements. I hope that they will look with particular care at the needs of blind students, because the special equipment that they require imposes extra costs on them. They have fewer job prospects at the end of their training and education and they will experience considerable difficulty over the student loans scheme. That issue must be examined with care and in detail.
We on this Bench welcome the social security changes. I listened with interest today to the hullabaloo that arose during the speech of the right hon. and learned Member for Monklands, East (Mr. Smith), who claimed that the Government had forgotten Scotland. Those who accuse the Chancellor of that seem to forget about the one part of the kingdom where rates are still the norm for local government finance. In Northern Ireland there is no poll tax, or community charge, or whatever it may be called. We have not yet had spelled out to us what the effect of that change will be on the ratepayers of Northern Ireland. I hope that before the end of the debate we shall be given a clear understanding of that.
I was glad to see independent tax for women finally coming into operation, although that change was prophesied last year. That procedure has been followed in a number of other goodies this year; we were told that they 1166 would be coming next year or, in the case of TAURUS, at some future time, perhaps never. As I do not invest much in the stock exchange, never having had that sort of money, it will not affect me. Indeed, that goodie will not feature much in the eyes of the general public.
I welcome the Government's commitment to the further repayment of central Government debt, and I particularly welcome the fact that there has been no wild rush to European monetary union, because on this Bench we have not shifted much in our opposition to the Common Market and all its works. As for the desire of the farmers' union to enter EMU, let us remember that that union advised farmers to vote for entry into the Common Market years ago. I thought that that decision was wrong then, it was proved later to be wrong, and the farmers' union did not get all the benefits for the farming community that were sought. I have no doubt that the union is wrong again now. We cannot hide away from the blasting winter gales that the economy of this country faces, either in EMU or anywhere else. We must get out there, manufacture, sell and earn our own living in the world.
I object to the petrol and diesel tax increase. Hon. Members will not be surprised to hear that, because I represent a largely rural community where a car is a necessity and not a luxury. Nor does the tobacco tax increase meet with general approval on this Bench, since many jobs in Northern Ireland depend on the tobacco industry.
I regret that further help has not been announced for investment by manufacturing industry. The hon. Members for Manchester, Central (Mr. Litherland) and for Clydebank and Milngavie (Mr. Worthington) dealt with that issue at length. We need manufacturing industry. The hon. Member for Clydebank and Milngavie described what was in effect an assembly line rather than a manufacturing line in the sense that so much of the basic and high-value materials used were imported. We should be trying to manufacture more of those items at home, for the basis of this country's wealth is manufacturing industry.
More help should be given to inventors, many of whom are individuals rather than organisations. They have problems in financing their inventions through to the market place. They have difficulty with patent costs, achieving production, money flow, obtaining grants, and so on. Their difficulties in Northern Ireland are especially great because of the effects of terrorism. I hope that the Government will take further interest in that matter.
The Chancellor did not have many goodies to distribute. One could say that he had a few Polo mints to dispense. An outstanding characteristic of Polo mints is that they have a hole in the middle. Much of the Budget is like that, because it is designed to paper over some cracks.
I was concerned whenever the Chancellor spoke about a strong pound. I was wondering what that was and came to the conclusion that it was a pound that would retain its value against the currencies of the other major industrial economies with which we are in competition. The pound would not need support from the Bank of England—it needed it today—and could float successfully, and I am left wondering what has happened to the whole concept of a floating pound. Is the pound at present floating?
There are many other matters to which I wish I had time to refer. The Chancellor has been described as a one-club man in that it is said that he has only interest 1167 rates to use. There are other things that he could use, such as income tax rates and action on public expenditure. Does he believe that the minimal steps that he has taken will be sufficient to correct the problems of the economy? Is it his perception that private expenditure is going down fast and far enough to bring down inflation? Why has he ignored public expenditure if he really wants to squeeze out inflation?
While we hear much about local government spending, no attempt has been made to decrease central Government spending, which, we were told on 15 November, would rise from £168 billion this year to £203 billion in 1992–93, a small increase of £35 billion. That increase, of nearly 21 per cent., concerned me at the time and my concern has not lessened in the intervening weeks.
The last time that the Government started to squeeze out inflation, in 1981, they allowed inflation to run at roughly 5 per cent. for years in order to cushion those who had bought ahead of themselves in the expectation that inflation would roar ahead. I wonder whether there is the same carry-on today. If so, I strongly advise the Government against it. Inflation is an evil hydra which needs to be crushed out of existence and kept out of existence. That will not be achieved simply, easily or painlessly.
The Chancellor's judgment may well have been coloured by electoral prospects. If his judgment is right and inflation comes down, victory will flow from the measures that he announced yesterday. If he is wrong, he will curse the day that he did not follow more closely the example that Brazil set him only the day before.
§ Mr. Robert Boscawen (Somerton and Frome)
No one will disagree with the hon. Member for Londonderry, East (Mr. Ross) that inflation is a monster and must be crushed out of existence. I whole-heartedly agree, and I am delighted that my right hon. Friend the Chancellor put that objective at the head of his opening remarks in his Budget yesterday when he said that he would use every method to bear down on inflation.
As is usual these days, and has been for as long as I can remember, when we have had a Budget the financial pundits race to their microphones to give long-term guesstimates of what the Budget will do, and one guess proves as indifferent as another But it is usually many months before we see the results of the measures announced by the Chancellor.
I can say unreservedly that the Chancellor's performance in the presentation of his Budget yesterday was exceptionally skilled. He had few cards to play, but he appeared to play them effectively. Few Chancellors in recent years have had such a poor hand before coming to the Dispatch Box. I am grateful for the talents that my right hon. Friend displayed.
I am amazed how many commentators have been calling for an easier time, particularly on interest rates. They have called for interest rates to come down and for the Chancellor to take risks with inflation so as to ease the pressures on family budgets, on medium and small firms and on farmers, of whom I have many in my constituency. Farmers have been among the first to call for the easing of pressure on interest rates.
Many people seem to have forgotten how the effect of inflation soon turns up in high unemployment. Thank 1168 goodness, my constituency has low unemployment—about 4 per cent. The hon. Member for Clydebank arid Milngavie (Mr. Worthington) said that, sadly, in some places in his constituency it was 20 per cent. Such differences in unemployment have been the most persistent long-term problem during my adult life. There may be rising inflation in one area and unacceptably high unemployment in another.
No Government, certainly since the war and before the war—it was worse before the war—have been able to overcome the discrepancies in Britain's labour markets. Easing up on inflation in the more prosperous areas will do nothing but harm to areas such the one that as the hon. Gentleman represents. My right hon. Friend the Chancellor has no alternative but to persist in bearing down heavily on inflation in the quickest and most direct way by raising the price of money.
In most of Britain there has been great improvement in unemployment, and that is welcome. Above all, we must keep it that way. Having a job to go to, a career to follow and a lifetime in a particular calling is the most important benefit that young people can ask for and that we can give them. The short-term effect of interest rates on mortgages, family incomes, and so on, can be lived with, but if we let inflation get out of hand, the unemployment that would follow would do immense harm to the Government and even more harm to our young people.
It is also of great importance that my right hon. Friend tackled the problem of savings in the Budget. There are no prizes for anyone who guesses why savings have been virtually completely squeezed out from people's normal habits. There were the huge inflation rates of the 1970s. the ludicrous tax-and-tax-again policies on savings of the Labour Government, and the ridiculous measures that were taken against savings for administrative reasons, such as the composite rate tax, which should have gone long ago. My right hon. Friend was right to try his best once again to encourage the ethos of saving in Britain. Saving is so much better than taxation. I hope that the Opposition will put behind them all the ideas about those who saved too much being parasites on society.
My right hon. Friend has made some excellent suggestions for overcoming some of the anti-saving devices of the past, and he has done a great service to the small saver with his new scheme for saving relatively small sums of money provided that the savings are held for 10 years. I hope that his new-found friend TESSA will be a popular girl. I have already mentioned the composite rate, and the ending of that is good news for those whose incomes are too low to pay tax.
Too many people come to my surgeries and say that when they were young it was impossible to save. That was true in many cases. This year my right hon. Friend has made a good start in trying to revert that trend, as his predecessor did with his personal pension plan. I see my right hon. Friend the Chief Secretary to the Treasury in his place. He should ensure that the rats in the Inland Revenue do not get at the new schemes in the same way as they did to the personal equity plan scheme which they made so difficult and so complicated that it was hardly taken up to begin with. They are getting it better now, but will my right hon. Friend do what he can to ensure that the rats do riot get at it and the good intentions are not lost? I hope that people will say that the 1990s were a good time to save and so to acquire the sense of independence that adds so much to the character of any society.
1169 I commend the Chancellor's Budget to the House, and I give it my full support.
§ Mr. Ronnie Campbell (Blyth Valley)
This Budget seems to be that of a Government in their death throes. There was nothing for anyone, other than those with a few pounds to save. There must be one in a thousand who are not paying poll tax, or who are paying high interest charges and have any savings left.
The Chancellor made it plain that he intended to raise interest rates this year, if need be by 2 per cent. That is an indictment in itself. Obviously, by the end of the year, the interest rate will be about 2 per cent. higher than it is now.
Let me say to my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) that a Labour Government will inherit that problem and have to put it right. The Government are making such a mess of things that it will be one big black hole by the time the Labour party gets into power. The Conservatives will lose the by-election on Thursday, and they will lose the next general election. There is no way that the Government can regain the initiative, and a Budget like this will not help.
As a result of the Budget, more people will be means-tested. Some 5,000 will be drawn back into income support; 1.2 million will be brought into housing benefit; 85,000 people will be brought into tax who did not pay it before. The Government try to say that they are taking people out of taxation, but this Budget brings them in. The Government constantly say that they are the party that does away with taxes, or reduces income tax. However, since 1979 the tax burden has shifted from income tax to national insurance, value added tax and indirect taxation. People are being hoodwinked: the taxes that they were paying under the last Labour Government were no different from those that they are paying under this Government. The only difference is that they are not included in direct taxation.
Those earning £157 per week are now on the low-pay threshold. Some Conservative Members might think that that is a lot of money; they might be lucky enough to get it in their tax rebate. However, some families earn that amount in a week. People on that wage will lose £10 a week. In the north-east of England, there are many people on low wages, and £157 is considered to be a low wage.
Poverty has been continually growing in this country since the Government took office in 1979: 9.4 million more people are now believed to be living on or below the poverty line, and 2.25 million of them are children. There was no charity or giveaway for the people on low wages and income support in the last Budget or the one before that—the "giveaway Budget." Since coming to power, the Government have done absolutely nothing for the poor. The official poverty line has increased by 55 per cent. which is another indictment of the Government. Since 1979, some 100,000 families have lost their homes; mortgage payments have risen; and repossessions have increased by 800 per cent. Yesterday the Chancellor said that interest charges will increase even more, which will mean that even more people will lose their homes.
Before I left my office for London on Monday, I saw two families with housing difficulties—they could not afford their mortgage payments. I could do little for them, 1170 apart from telling them that they must present themselves as a homeless family. It is another indictment of the Goverment that so many people must lose their homes.
In January, a parliamentary question asked how many people would benefit if capital loans were abolished. The DHSS said that it would affect only 166,500 people, but the Chancellor suggested that 225,000 people would gain. I do not know who is right, the DHSS or the Chancellor. Perhaps someone can answer that question later. Even if the Chancellor is right, and the figure is 225,000, only 0.8 per cent will gain. We could abolish it altogether and, according to the estimates, it would cost only £136 million.
It would have been better for the Chancellor to throw the capital loans out altogether, thereby saving on administration, and so give the local authorities at least a chance. The local authorities have had a hell of a job to get the poll tax and the rebates off the ground. Everybody believes that he is entitled to a rebate. What is not realised is that, even with a rebate, everybody will have to pay at least 20 per cent. of the poll tax.
What does this Budget do for pensioners who do not have loads of money? For those who do have loads of money, there are some fancy savings schemes, but what about the others? We hear constantly about what a good Government we have. Some people would try to make us believe that things have been wonderful since 1979. But in that 10-year period the income of pensioners has been cut. The Government have removed the earnings link and, as a result, single people have lost £12 a week and married couples £19 a week. In this way the Government have saved £4 billion——
§ Madam Deputy Speaker
Order. I am afraid that, as the hon. Gentleman has had his 10 minutes, I cannot allow him to wind up. Sorry—another time.
§ 7 pm
§ Mr. John Townend (Bridlington)
I think that most people agree that the Chancellor, in presenting his first Budget, faced a daunting task. I congratulate my right hon. Friend not only on his presentation of the Budget in the House but on his excellent performance on television last night.
With the retail prices index still rising—albeit as a result of technical factors rather than the underlying rate of inflation—my right hon. Friend clearly had little room for manoeuvre this year. The Budget judgment this year is critical for the Government. I believe that, if the Chancellor has got it wrong, we can say goodbye to the next general election. He had to satisfy the market by continuing a tight fiscal stance—possibly even tighter than before—but he had to avoid being too tough, as that would have pushed the economy into severe recession. As a result of being boxed in, he was faced with the prospect of presenting a very boring and dull first Budget. I am delighted that that has not happened. We have had an innovative Budget with some imaginative ideas.
In particular, the Chancellor, at long last, has tackled the United Kingdom's major problem—the decline of thrift. As to the overall judgment, the Chancellor has opted for a marginally tighter fiscal stance, taking out just under £0.5 billion extra in taxation this year. Clearly this 1171 will not put us into a recession. Only time will tell whether it is sufficient, but I think that, on balance, my right hon. Friend has got it right. The initial reaction of the markets today and last night was that the Budget should have been tougher, but markets often react rather nervously after a Budget, and I am afraid that a number of the financial scribblers have been trying to talk down the market and the pound.
This week we shall get another set of balance of payments figures and another set of retail sales figures. I feel that, after last month's blip, these will be more favourable, and, as a result, the pound could rally. However, it would be foolish not to appreciate that the next few months will be critical. If we can get to the autumn without having to raise interest rates again, we will be through to clear water. Inflation will start to come down, and the Budget will be seen as a triumph for the Chancellor.
I want to turn now to the effect of the Budget on small businesses. In Committee on the last Finance Bill, my hon. Friend the Member for Dover (Mr. Shaw) and I pressed the Treasury Ministers to increase from £500,000 to £750,000 the limit on the amount that BES trading companies may raise. We are absolutely delighted that the Chancellor has done so this year. We hope that during the passage of this year's Finance Bill he will accede to our other two suggestions regarding BES schemes, by reducing the limit from five years to three years and by allowing salaries for investor directors.
We welcome the changes in VAT regulations, which will enable businesses to reclaim VAT on bad debts much earlier. We welcome also the increase in the VAT threshold and the simplification of the rules for traders. The fact that VAT registration will now be based on a simple rule—the previous year's turnover—will mean that small businesses may register later and make some cash savings.
In the case of corporation tax, the increase of £50,000 in the limit for the small companies rate will be welcomed by medium-sized businesses but will not help small businesses that make a profit of less than £150,000. I strongly urge the Government to consider allowing the first £5,000 to £10,000 profit of small companies paying the small rate of corporation tax to be tax-free so long as the profit is retained in the company. This would be of very great help to young companies, which are often desperate for capital once they have become established and start to expand.
There is another concession that I should like the Government to consider giving to small businesses. It concerns inheritance tax. I think that the principle has been accepted that it is of no benefit to the country that successful small businesses should have to be sold in order to pay inheritance tax. Even if such businesses do not have to be sold, substantial sums of capital have to be provided to pay inheritance tax when the entrepreneur dies. I know that it is now easier to give shares away, but that is not always practicable. Indeed, sometimes people die out of turn. My suggestion is that inheritance tax on the shares in a private company should be rolled over until those shares are sold or until the company goes public.
As many right hon. and hon. Members have said, one of the problems in our economy in recent years has been the propensity of the British to save less and to spend more than the people of other industrialised countries. One of the reasons for this is the previous economic success of this Government. People have been more prosperous and have 1172 felt more secure under this Government, and therefore have not felt it necessary to save. They thought that they could spend their money as they earned it. It is vital that that trend be reversed. A Budget for savers was absolutely essential, and that is what we have got. In this respect, the Chancellor has performed brilliantly by encouraging new savings and by removing impediments to saving.
The tax-exempt special savings account—TESSA—is particularly welcome. This is a simple, unsophisticated brother—or sister—to PEP. PEP encourages investors. The increase of 25 per cent. in the annual limit is welcome, but PEP does nothing at all for the saver who does not want to take any risks. TESSA fills the gap, and that is very important. It is very simple. It will be easily understood by everybody, and will be readily available to every saver in the land. I believe that, over the years, it will have an enormous effect on efforts to bring thrift back into fashion.
The Chancellor has dealt with a number of impediments to saving. I welcome the abolition of the composite tax rate, which was long overdue. This not only is a bonus to savers on low income but removes a clear injustice. In my own mind, I could never justify low-income savers not liable to tax having to pay tax merely for administrative convenience. This change will help many pensioners and married women in my constituency.
The abolition of stamp duty on securities not only removes an unnecessary investment cost but will improve the competitive position of the City of London and give it a tremendous boost to become the securities centre of Europe.
One of the greatest impediments to saving has always been the belief that, if one saves for one's old age, one will lose all the benefits that are available to those who have been less prudent. With the introduction of the community charge, this problem has been brought home to all hon. Members. Like many of my colleagues, I have been pressing the Government to increase the £8,000 capital limit per couple to £8,000 per person, making it £16,000 for the couple. I am delighted that, although the Chancellor has not accepted that suggestion, he has doubled the limit for a couple to £16,000, thus achieving basically the same result. That shows that we have in No. 11 a Chancellor of the Exchequer who listens to Members of Parliament.
However, I ask him to take no notice of the Scots. The concession should not be retrospective. It applies to housing benefit as well as to the community charge. To be retrospective, it would have to cover England, Wales and Scotland. The administrative problems would be enormous. It would set a dangerous precedent. Retrospective tax changes, whether they increase or reduce taxation, can be dangerous.
I agree with the Chancellor that credit controls are impracticable. However, many people are upset with the banks and other financial institutions for having thrust credit on people. Many of them cannot afford it. It is especially objectionable when circulars arrive for 16 or 17-year-olds. I am delighted that the Chancellor said that from now on he will use his influence, and that he will get the Bank of England to use its influence. Influence can work.
The Chancellor has made a brilliant start. It was a Budget for women, savers, small businesses, the blind and football. I support it whole-heartedly.
§ Mr. Eric Martlew (Carlisle)
I should like to put the Budget in the context of the real world—not the world of the stockbroker who is delighted that stamp duty has been removed from share dealings, or the world of the multi-millionaire who, on a whim, may give £5 million to charity. I want to put it in the context of the people who come to see me in my surgery every week. They are worried about the bills that drop through their letter boxes—the increasing size of the electricity, water and gas bills, and now the poll tax. Then there is the letter from the building society. In the last two years they have had seven, or perhaps eight, such letters. My authority is Labour controlled. The poll tax will be £365. If the Conservatives had been in control, it would have been £350. The amount would not have been all that much different, but if the Conservatives were in control there would be some nasty cuts.
In a typical family, the husband works full-time. He is a skilled worker. His wife works part-time. They have two children and they live in a semi-detached house. They left the Labour party in 1979 and voted Conservative and they have returned the Conservatives to power ever since. If they had come to me last Saturday, I should have said, "Don't worry; the Chancellor will help you next week. He will solve the economic problems and give you the help you need. That's why you voted Conservative last time. He's supposed to help people like you."
If they come to see me next weekend, what shall I say to them? Will I say, "You're lucky, as top rate taxpayers; your tax rate has not been increased"? A typical family earning £16,000 a year is never likely to pay the top rate of income tax. Will I tell them that they are lucky not to have a company car and that therefore they will not have to pay the extra 20 per cent? Will I say to them, "With independent taxation you will have two capital gains tax exemptions of £5,000 each, so you can sell one of your valuable assets and realise a tax-free profit of £10,000"? But their only asset which is worth over £10,000 is their home, which they may have to sell because of increased mortgage repayments. But in any case their house is exempt from capital gains tax. So they will not be very happy if I tell them that.
I could say to them, "Why don't you look on the bright side? Think of all the benefits you will get as a saver. You'll be able to open your own TESSA account. You'll be able to invest £150 a month for five years and the interest will be tax-free." I can imagine the reply: "For the last two years we've been unable to save anything. In fact, we've had to take out a second mortgage to make ends meet." It would be useless to tell them that they can increase the amount that they invest in a personal equity plan from £4,800 to £6,000 a year. I know what they would say about that.
I could say, "The answer to all your problems is that the composite rate tax on savings has been abolished," but I am sure that that would not help them. I could say to them, "The Chancellor abolished stamp duty on share dealings, didn't he? That will help you." They would say, "Yes, we used to have some shares in British Gas but we had to sell them six months ago to pay the gas bill." I could also say, "You'll get tax relief on workplace nurseries." Their answer would be, "That's all very fine, but there are no workplace nurseries." Mrs. Typical is not too keen on workplace nurseries. They are an extension of the tied 1174 cottage principle—once in, one cannot get out. The only employers with workplace nurseries are banks. Few of my constituents work in banks.
The only Budget change that the typical family can see that will help them relates to charities. The husband is thinking of having his children registered as charities so that they can go begging round stately homes and board rooms for money.
The typical family will suffer as a result of the Budget. Duty on cigarettes and petrol is to be increased. That will increase inflation. The Chancellor has predicted a 1 per cent. growth in the economy. That will mean unemployment. Mr. Typical could soon be out of a job because of the Budget. If we accept that industrial productivity must grow by at least 4 per cent., growth at only I per cent. means that three out of every 100 employees will be made redundant next year. This is a Budget for unemployment.
My constituents are typical of many others throughout the country, from Finchley to Mid-Staffordshire. The Budget has been billed as a Budget for savers. It will do little to encourage spenders to become savers. It will only benefit existing savers. Disposable income will be eroded by high interest rates, inflation will continue, the rich will become richer, and the poor will pay for it.
To anyone who has been prepared to listen to him, the Chancellor has said, "Don't panic." It reminded me of a television series: we have a shell-shocked Chancellor in a "Dad's Army" Government. The sooner they surrender the better it will be for Britain.
§ Mr. Julian Critchley (Aldershot)
To speak in the House of Commons, even on a subject as important as the Budget, between 7 and 8 o'clock is like appearing on Sky Television. Sooner or later, one has the nasty feeling that one is all alone.
I do not wish to exaggerate. We are lucky enough to have a distinguished junior Minister, somnolent but assiduous, in his place—and a young man in the Whips Office who is paid to attend and who has upon his knee a chart on which he writes down his opinion as to the speakers on this side of the House. Phrases such as "sound" or "very satisfactory" are the ones that come to mind. Even the political correspondents are drinking their proprietors' champagne. Only the Wykehamists in the Treasury, whose task it is to sustain our masters in argument, are prepared to stay on. I can only say that, as a Back Bencher of very long standing, I can remember the time when my right hon. Friend the Prime Minister was a brunette. I can also remember when Lord St. John Stevas was a Protestant.
It is an awkward time for a loyal Tory Back Bencher to be on his feet, sandwiched between the harshest Budget since 1981—remember the halcyon days of 1981?—and the Mid-Staffordshire by-election tomorrow. It is a position of some discomfort, so I shall tread with great care.
After 11 glorious years, we are looking at the next election and there are three possible scenarios. First, it could be rather like 1970, when we snatched victory from the jaws of defeat and were returned with a reduced majority—clearly that is the aim and ambition of all Conservatives. The second option is another 1964 when the Labour party sneaked back with a majority of three, and sometimes six, votes. We must remember that in 1964 the Conservative Government enjoyed the same majority 1175 as we do today. The third alternative, which hardly bears thinking about, is a repeat of 1945, which could conceivably happen after a period of 11, 12 or 13 years. Clearly Conservatives must aim for a repeat of 1970.
I watched yesterday's Budget upstairs in my office on a very small black-and-white television set made in Japan. I thought that, perhaps because of the cameras, everyone was marvellously well behaved. It was a bit like being at divine service, until towards the end the Scots became rather agitated. But I am told that in Scotland they do that sort of thing in divine service; they are encouraged to participate in a way that does not happen south of the border.
I wonder whether my right hon. Friend the Chancellor, who made a good impression. might not have fallen between two stools—one being that the aim and objective of Government policy ought to be to overcome inflation and thus maintain the exchange rate, and the other being to restore the morale of Conservative Members. I noticed that, after his performance yesterday, there was a spring in our step and more bottles were opened last night at dinner than for some time.
However, there is a contradiction between those two objectives. Clearly one must hope that my right hon. Friend the Chancellor has achieved both, but the prospect for 1990–91 is not a cheerful one, with a 1 per cent. increase in growth, interest rates at 15 per cent. and wage rates at 9.5 per cent. or more which must mean an increase in unemployment. If inflation is still at its current rate this time next year, we shall be denied an election-winning Budget. How many Governments in the past, of all political complexions, have relied on the cyclical manipulation of the economy to achieve the return of their own political party?
It dawns on me that people are most prosperous in the year before an election. As elections take place only every five years, if we were to reduce the time between them and hold them every three years, surely we would be able to enjoy wider prosperity.
In the three and a half minutes that I have left to speak, I shall revert to the morale of the Conservative party. I voted against the poll tax. That gives me little comfort and my constituents no consolation whatsoever, so I resist the temptation of saying, "I told you so." I am not against obliging the working class to pay for local government, but there should have been a more sensitive relationship between a person's ability to pay and the size of the tax.
Between now and next year, my right hon. Friends the Secretary of State for the Environment and the Chancellor must get together to oblige the Prime Minister to inject into local government spending an additional £4 billion, so that next year the poll tax is brought down to more manageable levels. They must make the Prime Minister an offer that she cannot refuse. Unless that demand is met, I see very gloomy prospects for the Conservative party being returned to office.
Finally, the Tory party is threatened with a running leadership campaign. We have a superfluity of contenders, one of whom, if he is ever elected to Downing street, has promised to make me the last governor of the Falkland Islands. Might it not be wiser if the Tory party, meeting upstairs in Committee Room 14 on a Thursday evening—the longest running show on earth—instead of altering the rules of election for our leadership, as was threatend by my hon. Friend the Member for Shipley (Sir M. Fox) on "The World at One", reverted to the magic circle, so that 1176 our next leader eventually emerges from a smoke-filled room at Pratt's or Whites and has the blessing of Lord Whitelaw himself?
§ Mrs. Maria Fyfe (Glasgow, Maryhill)
I shall not congratulate the Government on abolishing the tax on workplace nurseries. They should never have imposed it in the first place. My sympathies are with the women who have forked out several hundred pounds every year in tax for the past five or six years. Perhaps the Government will consider reimbursing them now that they have acknowledged that it was wrong to collect it in the first place. My sympathies are also with the thousands of women and men who could not use workplace nurseries because taxation had made it impossible for their employers to run them. Many people in Britain find it impossible to have the child care facilities that they need.
As recently as 7 March, the Under-Secretary of State for Employment, the hon. Member for Teignbridge (Mr. Nicholls) was still denying that it would be possible to abolish the tax on workplace nurseries, so it appears that the Government should try to get their act together. Although it is a small advance, it will be useful only to a tiny minority of women.
Abolishing the tax on workplace nurseries will cost that Government only about £1.5 million in revenue. The cost of providing comprehensive child care facilities would be about £2 billion. That is the yardstick against which the Government's neglect of child care can be measured. The figure that they are willing to spend comes nowhere near what is needed.
Separate taxation for women has been proclaimed as a great advance. Of course the idea of separate assessment is welcome, but many women must have assumed that that meant that they would be taxed equally. However, in reality if Harry meets Sally and they get married, tax independence does not mean tax equality. If, for example, a husband and wife each earn £15,000 he will pay £2,558.75 in tax, while she will pay £2,998.75 in tax, so he will take home £430 more. Why could not the Chancellor allow married couples to divide the allowance between them? Does he believe in equality? It seems incredible that he did not undertake that small step, which would have cost precious little. Another attack on women's rights is the phasing out of child benefit.
Separate assessment of taxpayers is welcome, but for the life of me I cannot understand why the Government cannot apply the same principle to the poll tax. We have heard much about TESSA, but one particular poll tax phenomenon could be called JASPER—joint assessment of pensions eliminate rebates.
I quote the example of a couple in my constituency; the husband is severely mentally impaired and is exempted from paying the poll tax, but his wife must pay it in full because their joint incomes are taken into account in her assessment. She receives a state pension of £29 a week and a works pension of £43 a month. Her husband receives a state pension of £46 a week and a works pension of £115 a month. In assessing her liability for poll tax, the state has decided that those four small pensions should be joined and that therefore she must pay the poll tax in full, whereas if she had been a taxpayer she would have been in a different position. It is a severe injustice that she should 1177 have to pay a full poll tax from so low an income. I hope that one day the Government will address themselves to that problem.
The Chancellor has had 24 hours to reflect on the problem of retrospection for pensioners in Scotland. So far, we have heard that it is irrelevant because pensioners paid rates in England, that is not too easy to do and is far too much trouble and that attention should not be paid to the excitable Scots. If Conservative Members think that Scots are excitable, they have seen nothing yet. There has been a massive reaction to this in Scotland, and it is a further example of how the Chancellor has failed to think about the problem, as was obvious when the question was asked yesterday.
That was irritating enough, but more irritating was the fact that it did not matter to the massed ranks on the Conservative Benches. They voted for the poll tax in Scotland a year before they did so for England and Wales. Once again, they were presented with sheer thoughtlessness by the Chancellor, but again they did not care tuppence. That fact is noted and resented in Scotland. If the Conservative party wants to hang on to its 10 seats in Scotland, it clearly has much to learn. Perhaps the Prime Minister should pay more attention to what she hears when she visits Scotland, instead of trying to play Lady Muck.
Another pensioner couple in my constituency are both on disability pension. The wife receives an industrial injury pension. Their total weekly income is only £130, but they are not eligible for poll tax rebates, whereas previously they were eligible for 100 per cent. rate rebates. We are always hearing about how those in poverty will receive poll tax rebates, but it does not seem to have dawned on Conservative Members that under the old rating system couples living in such impoverished circumstances rightly paid nothing in local taxes.
That couple, whose income is £130 a week, have no savings. Industrial injury benefit is supposed to be non-contributory and non-taxable, but it is counted for poll tax purposes. Such injustices are causing much resentment in Scotland. Hon. Members who voted for the poll tax in England and Wales will soon see the results of that in their surgeries when their constituents raise such problems with them. If they think that they will sail through and coast to another election victory, they have another think coming.
§ Miss Emma Nicholson (Torridge and Devon, West)
My right hon. Friend the Chancellor offered us a minimalist Budget, which rests for its effectiveness on others' actions—a real Conservative effort which I commend to the House.
Let us consider the way that the Budget feeds covenants and voluntary giving. It is an excellent progression, because covenants have gone down from seven years to four years and we await new Inland Revenue guidance to simplify charitable giving, which must be welcome because it will enable charities to plan ahead. It is all very well relying on emergency appeals showing a giver-friendly photograph of a starving child, but most charitable efforts rest on long-term work. I offer the House the example of the sponsorship of children's education, which rests on 1178 covenanting and has been going on since 1921. Many millions of children worldwide have been educated as a result of British donations and the covenanting system. The new easement of covenanting is very welcome.
An even better present is the big gift campaign for charities, which so far has been confined to the United States of America. That will make a difference to the incomes of volunteer organisations. I only wish that it were being introduced sooner than 1 October so that my local church, the steeple of which fell through the roof and will cost thousands of pounds to repair, could regain the tax from my first gift.
There are 37,500 charities and, as my right hon. Friend the Chancellor said, social causes, the arts and other charitable efforts will benefit from the new tax system. A healthy and growing volunteer sector is a good indicator of the health of the economy and of the community. I fear that often it is not so popular with some Labour Members because it rests on individual initiative, but it epitomises the community spirit. I have experience of that from earlier days.
The immense difficulty with charitable giving is broadening the base of donors. It is saddening to realise that only about 4 million households give to charity. Churchgoers are top of the pops, and the generosity of Jewish community members is greater than anyone else's. Generally, an orthodox donor will give to 25 different charities regularly throughout the year. The big gift tax relief announced by my right hon. Friend the Chancellor will give much scope to broaden the base of support.
Which volunteer carries out the work that is financed by individual donors? The classic volunteer in the United Kingdom—our old friend the married woman—is in shrinking supply. I share the concerns expressed by other hon. Members about married women but want to concentrate on the income and capital of the married woman and the married couple's allowance under the new independent taxation system.
Without wishing to appear ungrateful, I believe that the married couple's allowance is an unfair anomaly that should be scrapped. It gives higher net pay to a married man than to a married woman in equivalent circumstances. What justification is there for that? Even if a married couple wish to share the MCA, which is similar to the monetary compensation amounts in farming terms, they cannot do so unless the husband's income is too small to benefit, in which case it may be set against the wife's income. Why not give couples a free choice and then phase it out, distributing the takings equally? What is the point of identifying a woman as the lesser partner in a marriage? After all, real freedom is economic freedom, and one cannot compete equally in economic terms unless one is equal in terms of human dignity.
The tax system should be family-friendly. The most vulnerable member of society is the child, whose care and nurture is mostly undertaken by the mother, and her financial health is crucial to the child's stability and growth. From that base, we should move rapidly towards independent assessment of married women's income for income tax purposes. That should be matched now by independent assessment for rebate for the community charge. Although I welcome the Chancellor's doubling of the capital limit, a wife's capital should be assessed separately and the ceiling should be double that of a single person. I would impose a ceiling to avoid creating a new unfairness and giving big gifts to the 11 per cent. of women 1179 who do not work, who have no small children, sick people or elderly people at home and who are married to wealthy men.
I welcome the beginning of a vision of affordable quality child care. It will help working women immensely. I welcome the lifting of taxation on access to child care nurseries at workplaces. I hope that it will herald a move toward nursery places for all children in the United Kingdom. Most mothers do not want to take their children to work. Most mothers would prefer quality child care near home. At some point, this will have fiscal consequences for future Budgets.
§ Mr. Graham Allen (Nottingham, North)
The object at fault was probably not the Budget but the job description. The Chancellor was clearly told how far he could go and told that the main planks of economic policy rested not with him but through the door that is never opened between No. 10 and No. 11 Downing street. He was told that he could tinker around the edges if he felt like it, which is what he did. As far as job description went, he did a reasonable job, but it is irrelevant to the main problems confronting the economy.
On Friday, I went to the Nottinghamshire CBI to find out what it thought the problems were, although one may think that that was not necessarily a favourable audience for my political point of view. The chairman of the CBI asked a number of his colleagues in the audience—senior directors, managing directors, and executives—to state what they thought the problems were. The person from the textile training association said that the main problem was the lack of training and the increasing closures in the area. A person involved in a medium-sized engineering plant said that the main problems were basically skill shortages. He was unable to get the quality of people that he needed, especially with the Japanese company, Toyota, moving in just over the border in Derbyshire and sucking in skilled workers from local companies.
Another senior CBI member mentioned labour shortages. A person involved in heavy construction in the brick industry reported that the demand for bricks was down 50 per cent. and that he was running his plant at half capacity. Many of the problems that he encountered were due to interest rates. Someone from another engineering plant talked about the poaching of people who had gone through apprenticeships and then gone down the road to another company which was not prepared to train people but, because of the money thereby saved, could offer a marginally higher income. A local bank manager pointed out that lending had levelled out.
Not one of the problems identified at that meeting was tackled by the Chancellor in the Budget. The Budget was irrelevant to the main problems of this country—irrelevant to the highest trade deficit in the G7 countries, to the highest inflation rate compared with our industrial competitors and to the highest interest rates in Europe. It was totally pointless and worthless in terms of the major direction of economic policy.
Taxation is another matter that has not been dealt with in sufficient depth in this debate. A myth about taxation has developed under this Conservative Administration. It has been useful for the Government to reduce the level of income tax and to pretend that the taxation burden has fallen, but that is a myth. Because of the resources at their 1180 command, they have had the mastery to shuffle and reshuffle taxation. They have changed the pack without changing the basis and level of taxation. In terms of corporate and individual taxation, taxation is as near as dammit to the 1979 level.
One specific tax to which I should refer before going much further is the poll tax. We have heard of the need to counter the actions of spendthrift councils, but it is worth pointing out that local goverment spending in England and Wales rose by only 15 per cent. in real terms over the 10 years from 1979—less than the 25 per cent. growth in national income and a small increase by previous standards. The Sunday before last, an article by William Keegan in The Observer referred to non-domestic rates growing by 59 per cent. and domestic rates by 83 per cent. and explained why. The article stated:They were not only financing the (relatively slow) growth of local government spending; they were also filling the gap created by a fall of 18 per cent. (in real terms) in central Government grants to local authorities. In the current 1989–90 financial year domestic and non-domestic rates have together been financing 56 per cent. of local government current expenditure, against 38 per cent. 10 years ago".The proportion financed by central Government grants has fallen from 49 per cent. to 52 per cent. The Government have deliberately shifted the burden of total taxation towards the local ratepayer or the local poll tax payer. The extra burden on the rates has been equivalent to 3.5p in the pound on the rate of income tax, taken out of the 8p in the pound alleged reduction in the basic rate of income tax.
Labour Members must continue to expose that sleight of hand, despite the central position given in people's minds to income tax. We must examine the income tax structure and reform it drastically. We need to legislate to do away with the effects of fiscal drag and to have an honest, clear debate each year on real taxation levels. The allowances and all the other factors associated with tax should be linked and increased automatically—perhaps in line with growth in the economy.
If we wanted to reduce or increase taxation, there would be an honest debate on the level. Matters would be clearer if the tax system were structured into not two bands but many bands from zero to the top rate of tax, whether it is 50 or 60 per cent., in a series of 1 per cent. increases. In that way, income tax would be removed from its central place in the equation of our national spending.
We need to restore our central objective in the economy. It must be a clear redefinition of our desire to invest more of our national wealth in our national well-being, forgetting our obsession with indicators and returning to the real economy. Our major and most successful competitors—Japan and Germany—pursued domestic growth and a reinvigorated domestic economy. We must do nothing less. There is a growing alliance in favour of that objective, which takes in the trade unions, the CBI and all the opposition parties. With that alliance in favour of manufacturing—an alliance for the real economy—we shall begin to crack some of our major problems.
We shall also need—I am sure that my hon. Friends the Members for Brent, South (Mr. Boateng) and for Newcastle upon Tyne, East (Mr. Brown) will think this increasingly—to make an impact on the massive flows of hot money round the globe. We now have nearly $1 trillion floating round looking for a home. Now that interest rates in Japan are likely to increase, it is likely that much of that 1181 money will no longer go to subsidise our economy and that of the United States. We are staying alive on short-term foreign capital. We need to tackle that major problem and to reinvest in, and reinvigorate, our own economy. That will not be done by this Government; it will have to be done by a Labour Government.
§ Mr. Michael Jack (Fylde)
On Saturday evening I had the pleasure of watching my right hon. Friend the Chancellor of the Exchequer being probed by a young lady on "Jim'll Fix It" on the subject of her pocket money. She asked a lot of searching questions and I now know where the principles of the Budget came from. She talked about thrift, budgeting and the care of one's money. Having examined the proposals in this, the first televised Budget, I think that this is a case of John having fixed it. I congratulate my right hon. Friend on having found a way of giving so much to so many when he had so few resources to deal with.
The most important thing that my right hon. Friend did in the Budget was to rekindle the savings habit. That is especially important for children. Budgets are as much about short-term economic activity as about laying the foundations for the future. Having said that, I asked my right hon. Friend to consider the role of the national savings movement in the new world of saving. Many will look to national savings as the ultimate safe haven for their money. Savings may still be clouded by the taint of the Barlow Clowes affair.
My hon. Friend the Financial Secretary will know that in my own constituency, and in the adjoining constituency of Blackpool, South, many thousands of workers do vital jobs in the savings movement. National savings sometimes provides the Treasury with much-needed smoothing finance to enable the Government to pay their bills. I ask my hon. Friend the Financial Secretary to look again at the range of products and the rates of return, in spite of the announcements made in the Budget, and to ensure that the national savings movement can play a full part in the new world of savings.
In particular, I ask my hon. Friend to view premium savings bonds sympathetically. Last year, for reasons of administration and cost, Treasury Ministers raised to £100 the limit on entry to this very good savings scheme. I ask my hon. Friend to consider lowering the figure to £50. If he cannot do that, I ask him at least to consider introducing a savings stamps scheme to enable people to save to enter premium savings bonds as they represent an attractive form of savings for the unsophisticated, and as many of my constituents make their living by administering them I would be much reassured if my hon. Friend the Financial Secretary agreed to do that.
The Budget is good for pensioners' savings. Many pensioners have saved throughout their lifetime, and at last the Government have answered the plea of many of us that they should stop penalising thrift. I congratulate my right hon. Friend the Chancellor on that.
I have referred to children and to savings. I also have a query about my right hon. Friend's excellent announcement on nursery places and the exemption from tax. What happens if a company that does not have a workplace nursery issues vouchers to employees? Will they be 1182 included in the schemes that my right hon. Friend announced? Will such vouchers be encashable, for example, against pre-school playgroup activities? Many people find pre-school playgroups an adequate source of child care, and I feel that my right hon. Friend may come under pressure to grant such a concession. We seek clarification on that point.
I also have a question about children and value added tax. I have two sons, both of whom seem to be growing at an alarming rate. My wife tells me that already my 10-year-old is moving into adult-size clothing and shoes. It was in the early 1970s that the size of children's clothing was first established for the purposes of the VAT regime. Will Ministers look again at the sizes of children's clothes because the information available from the retail trade and other sources suggests that children are wearing larger sizes for their age than they were when the regulations were first framed? If the Budget has anything to do with children, Treasury Ministers should reconsider that. At a time when my right hon. Friend the Chancellor—perhaps for good reasons—has had to freeze child benefit, he could help children and their mothers greatly by changing the regulations in respect of the sizes exempt from VAT.
I express some disappointment that the sum total of the environmental content of the Budget was to widen the differential between leaded and unleaded petrol. In my constituency, energy saving is an important industry in its own right. We have a company that has pioneered many techniques in the contract energy field. Surprisingly, the company accounts of Emstar—a subsidiary of Shell which is not in my constituency but which is dedicated to energy-saving techniques—show that that company has recorded a loss. The sales of energy-saving equipment are also declining.
Such investment may well be affected by world energy prices, which have fallen in real terms, and may be marginalised by current high rates of interest. I accept that those high rates are vital if we are to fight inflation, but I believe that the wider environmental issues—for example, dealing with the greenhouse effect—cannot be left entirely to the operation of market forces. I therefore ask my hon. Friend the Financial Secretary to consider changing the capital allowances for those expenditures that save energy and contribute to the reduction of the greenhouse effect, and thus to help environmental investment.
Let me deal with the question of investment in industry. I am sad that the hon. Member for Manchester, Central, (Mr. Litherland) is not in his place. I am fed up with Opposition Members denigrating investment in the north-west of England. To talk about Manchester as he did is to undermine the investment that has taken place in Salford Quays, in Trafford Park, in Preston, in my own constituency and throughout the north-west. We have had massive investment in aerospace. We have had investment in traction plants such as GEC Alstone in Preston. We have had £14.5 million-worth of investment in Foxe's Biscuits in my own constituency. I see my hon. Friend the Minister for Roads and Traffic in his place. In his constituency of South Ribble, too, investment has taken place in aerospace. Those investments were made not with failure in mind but with success in mind.
If the Chancellor has achieved one thing in the Budget, it is that, by underlining his target of 5 per cent. inflation by 1991, he has given confidence to those who are investing in the economy. Our present difficulties will have a satisfactory resolution. Now is not the time to stop 1183 investing; now is the time to invest, to take advantage of a more competitive currency and of the export opportunities and to help Britain—particularly the north-west—to continue the economic growth that my examples have underlined.
I was delighted that my right hon. Friend the Chancellor took time in his Budget speech to highlight the growth in local government expenditure. The hon. Member for Nottingham, North (Mr. Allen) should compare the national pay and prices index with local government expenditure on pay and prices. He would find a picture very different from the one that he painted for the House this evening. Many local authorities have been profligate over the past few years, encouraged by the inadequacies of the grant-related expenditure system. One advantage of the community charge is that it will help them to curb their expenditure by bringing discipline in that area.
Finally, I congratulate my right hon. Friend the Chancellor on the changes that he made in the capital allowances relevant for help with the community charge. His measure will enable more people to gain income support and to be passported to other benefits, such as free prescriptions, vouchers for glasses and free dental care. That will be of great value to the elderly. However, much as I applaud the increase of the capital allowance to £16,000 for community charge benefit eligibility, I ask him to listen sympathetically to the Secretary of State for the Environment, because there are other ways in which the rebate scheme will require modification and they will cost money.
Above all, the Budget has underlined our commitment to fighting inflation. It shows that that can be achieved. I congratulate my right hon. Friend the Chancellor on his efforts.
§ 8 pm
§ Mr. Thomas McAvoy (Glasgow, Rutherglen)
Thank you for that, Madam Deputy Speaker.
After listening to the hon. Member for Fylde (Mr. Jack) and having ascertained that his majority is not all that big, I look forward to seeing his photograph flashed across the television at the next general election with the words "Labour gain" above it—[Interruption.] I am advised that the hon. Gentleman's majority is 18,000. Perhaps we should ask him on Friday morning about Mid-Staffordshire's previous majority and about whether he expects his seat also to be a Labour gain.
The problem with speaking after four and half hours of debate is that many of my hon. Friends have scored off subject after subject, leaving me with only a few subjects on which to speak. I shall concentrate on only two areas that have not been mentioned previously, but first I reiterate the point about interest rates.
Hoover has a factory in my constituency. Indeed, I used to work there. About 50 years ago that factory employed 5,800 people, but in October or November last year, the company announced that it had only 1,000 workers. In that announcement, the company specifically mentioned interest rates as the direct cause of the latest round of cuts and redundancies. Hoover is an important manufacturer in this country, with a plant in Wales as well as a factory in Scotland. It has been affected by the high interest rates, 1184 which have directly caused a fall in sales, which has resulted in a downward spiral of employment in my constituency and in Wales. High interest rates also contribute in bringing imports into the country.
If we look to the Government to deal with that problem and to reduce interest rates, we are looking in vain. There was nothing in the Chancellor's speech yesterday to help with that problem. Indeed, at the risk of upsetting the Financial Secretary to the Treasury, who gets upset if he is mentioned, I did not hear anything from him today to suggest that there is any hope that the Government will give any consideration to the plight of manufacturing industry. In the past 11 years, the Government have run down manufacturing industry and seem to have a guilty conscience. Perhaps that is what seemed to upset the Chief Secretary earlier when he responded so immoderately to the speech of my hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington).
Although Conservative Members will not like this, I remind the House of the way in which the Government have treated Scotland as a nation since 1979. It is interesting that the hon. Member for Londonderry, East (Mr. Ross) noted that nothing has been said from the Dispatch Box about how any of the Budget changes will affect Northern Ireland. That is typical of the Government's approach. The Government are simply election-minded. They consider those who vote for them; those who do not vote for them do not count. That is a disgraceful attitude from a party that has trumpeted for years that it is the party of empire and of nation.
Let us consider the way in which the Government have treated Scotland and the attitude shown by yesterday's poll tax announcement. I do not agree with the conspiracy approach that suggests that the Government deliberately snubbed Scotland and planned to be vindictive towards it, although that seems a usual enough course for them to follow. My hon. Friend the Member for Glasgow, Maryhill (Mrs. Fyfe) put her finger on it when she said that the Government did not realise what they were doing—they neither appreciated nor cared. Although there are still 10 Conservative Members representing Scottish seats, we in Scotland do not count.
That attitude causes strains and tensions within the United Kingdom. When even a moderate person such as the hon. Member for Gordon (Mr. Bruce), reacting to yesterday's announcement, said that it called into question the Act of Union between England and Scotland, surely that flags before the Government the fact that they are creating tensions within the United Kingdom that no Government, of any party, should cause.
My party has not advocated disruption or non-payment of the poll tax, although we recognise the right of individual conscience. However, the Government do not seem to realise—the Chancellor certainly did not seem to realise this yesterday—that yesterday's announcement will contribute to a heightened atmosphere of injustice and insult in Scotland and a feeling that the Government here are alien and do not have a sovereign right to govern in Scotland. I do not normally support that point of view, but I warn the Government that the Chancellor's reaction yesterday will result in a social movement in Scotland which, in turn, will result in opposition to the Act of Union.
The Tory party takes the view—we rightly hear it from the Chair—that this is a United Kingdom Parliament. As a Member of Parliament and a former councillor, I take 1185 the view that I was elected on a certain political platform and I expect to live up to it. I also take the view that, once elected, I represent all my electorate on matters of social justice. If anybody comes to me with a problem, it is my job and my duty to ensure that I represent that person, irrespective of party. In the best traditions of the Labour movement, I have always been told that I should represent all my electorate on matters of social justice.
Although we welcome yesterday's announcement about capital allowances and the poll tax, because any relief for anybody is welcome, there is no doubt that that measure was achieved only because of the backlash from English and Welsh Conservative Back Benchers who have been pressured by their constituencies.
We hear many confessions from Conservative Members who say, "I voted against the poll tax," but time after time when we look back at their individual records, we see that they voted for the poll tax for Scotland. That is hypocrisy. They may have voted against the poll tax for England and Wales, but they trooped through the Lobbies to impose it on Scotland. Therefore, I do not take kindly to crocodile tears from Conservative Members about the backlash in England and Wales.
As the transitional payments in Scotland have not yet been paid, perhaps they could be backdated. It is reasonable that the £16,000 capital allowance increase should be applied retrospectively to Scotland. We have heard weak points about why that cannot be done. However, we keep hearing from the Prime Minister that if the political will exists, something can be achieved. It is clear that there is no political will to do that for Scotland. That is a social injustice and a disgrace. That demonstrates once again the folly of the tax being introduced initially in only part of the kingdom and introduced in England and Wales as a second stage.
Although I do not normally attack or criticise hon. Members who are not present, I must comment on the absence of Scottish nationalist Members from the debate. Yesterday, they sought to follow my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) who, uncharacteristically, rose to intervene in the Budget debate to try to gain an assurance for Scotland. I do not see why Scottish National party Members cannot sit in the Chamber for four and a half hours, as I have, to try to get five or 10 minutes in which to make Scotland's case. They are not here when there is any work to be done or any applications to be made on behalf of Scotland.
Only a Labour Government can bring social justice to the United Kingdom. In the past 10 years the Government have breached the convention that means that, once a Government are elected, they represent all the people. I remember the Government of Harold Macmillan. I never felt that I was living under a Government who oppressed me or who were vindictive towards me. I did not agree with that Government, but, as a British citizen, I never felt that the Government of my country were treating me as an alien. However, that is how people now feel in Scotland.
The Secretary of State for Scotland did not see fit to show his face in the Chamber yesterday and, as far as I am aware, he has still not chosen to appear in the Chamber. On Monday, when I attended the Scottish Grand Committee, I referred to the Secretary of State as toom tabard. That is a Scottish term that goes back to the 1186 Edwardian wars when mediaeval England was trying to make Scotland a vassal state. The Scottish people were so contemptuous of the then Scottish king that they nicknamed him toom tabard, which meant that the suit of armour was empty and that the man who represented Scotland was empty. The Secretary of State for Scotland is exactly the same.
According to press reports, the right hon. and learned Gentleman sat through the Cabinet meeting, heard the Budget, but did not see fit to stick up for Scotland when it came to backdating the capital tax allowance. Where was the voice of Scotland? That man is supposed to represent all the Scottish people at the Cabinet table, but he did not speak up for them. He has abdicated his responsibilities and he should resign. According to press reports he followed the Budget speech from his office in Whitehall—and no wonder. He knew full well what the reaction and resentment of Scottish Labour Members, as well as his right hon. Friend the Member for Kincardine and Deeside (Mr. Buchanan-Smith), would be to the announcement.
It is interesting to contrast the allegedly powerful position in Cabinet of the Secretary of State for Wales with that of the Secretary of State for Scotland. We can speculate as to why the Secretary of State for Scotland remained silent at the Cabinet table. Perhaps it was due to lack of courage or lack of weight, as he knows that he is not really considered "one of us" by the Prime Minister. Perhaps he was scared to speak up, pure and simple, because he knew what the reaction of the Prime Minister would be. Whatever the reason, he was a toom tabard and he is not fit to hold office. He should resign.
When the announcement about the capital allowance was made yesterday, I watched the reaction of the Secretary of State for Wales. He took great delight at sneering, denigrating and laughing at the anger and resentment expressed by Scottish Labour Members. That was the reaction of a so-called "wet" who is supposed to speak for all the bleeding hearts on the Back Benches of the Tory Party. Yesterday he demonstrated the vindictiveness of a true Conservative of the present mould by his reaction to the anger of Labour Members.
My right hon. Friend the Leader of the Opposition has described the Budget as a "bits and pieces Budget" and I agree with him. If anyone on the Conservative Benches thinks that our anger yesterday was fabricated and that it did not amount to anything, they are in for a shock. That anger will be maintained. At present there are 10 Tory seats left in Scotland. Before yesterday I would have said that the Tories would hold on to four or five of them, but, after yesterday, they are heading for a complete whitewash.
§ Mr. Graham Riddick (Colne Valley)
It is always interesting to follow a Scottish Labour Member, and it is always somewhat amusing to Conservative Members to note the continual squabble between the Labour party and the Scottish National party.
The hon. Member for Glasgow, Rutherglen (Mr. McAvoy) referred to Conservative Members voting in favour of the community charge for Scotland. I did not vote for its introduction in Scotland as I was not in the House at that time.
Scottish Labour Members have some cause to feel slightly aggrieved that the Chancellor made the concession 1187 on capital limits yesterday and that that concession was not made this time last year. Let us be brutally honest about why that did not happen. The Chancellor made that concession because a sufficient number of English and Welsh Members of Parliament urged him to make it. He took their request on board and conceded to the pressure.
The problem for Scotland is that the Scottish people failed to vote in sufficient Tory Members to carry enough weight within the Conservative party. If there were more Scottish Tory Members, the views of Scotland would be heard more loudly. That is a purely personal view, but I believe that there is a strong element of truth in it. If there were more Scottish Tory Members, Scotland would have more influence with the Conservative Government. I hope that the Scottish people will take that on board as a lesson to be learnt. They should send more Conservatives to this House so that Scotland has more influence on this Conservative Government.
I add my congratulations to my right hon. Friend the Chancellor on the relaxed, confident style of his Budget. His room for manoeuvre was, of course, limited. It was a neutral to toughish Budget, which made it crystal clear that the defeat of inflation was the Government's No. 1 objective. Within the confines of the current economic scenario my right hon. Friend was able to provide real help to savers, charities, small businesses, blind people, working mothers, and, last but by no means least, football fans. This Budget has pitched the Conservatives firmly into the middle ground of British politics.
Some analysts have suggested that the Budget should have been tougher. I do not believe that the Budget could possibly be described as soft when its net effect is to take some £500 million out of the economy. To have made a significant impact on the wider economy the Chancellor needed to take billions of pounds—perhaps as much as £10 billion—out of the economy. To raise taxes along those lines, however, would have been indefensible on fiscal and moral grounds at a time when we have a budget surplus. If monetary policy was to be tightened—I believe it is tight enough now—interest rates would have to rise once more. I sincerely hope that that does not happen.
Some people, particularly Labour Members, have suggested that the explosion of credit that occurred in the past two years was caused by the reduction in taxes announced in the 1988 Budget. That Budget put some £4.5 billion into the economy. I contend that it was the unnecessarily steep reduction in interest rates in the first six months of 1988, which put some £44 billion into the economy, which caused the problem. The sum of £4.5 billion pales into insignificance when compared with £44 billion. It was loose monetary policy, not loose fiscal policy, which led to the current problem of inflation. With interest rates at their current high level, no one could possibly claim that we are following a loose money policy.
I applaud the straightforward approach adopted by my right hon. Friend the Chancellor. He had to raise some money, and he did so by openly raising excise duties and not by craftily extending the net of capital gains tax or extending the composite rate tax to personal bank accounts—quite the reverse. My right hon. Friend now intends to abolish one of the most sneaky and immoral taxes, the composite rate tax, which is paid by millions of non-taxpayers who see building societies and banks as safe havens for their savings. They probably know no other form of savings vehicle and many of them probably do not 1188 realise that the income from those savings is taxed. I commend my right hon. Friend the Chancellor of the Exchequer for that brave and thoroughly correct decision.
On behalf of salesmen, sales managers, district nurses and thousands of others who could not do their jobs without company cars, I thank my right hon. Friend for not hammering company car drivers. The 20 per cent. increase in company car taxation is quite enough, but certainly nothing like as bad as many people predicted. I speak from personal experience, because before I came to the House I was a sales manager at the sharp end of industry. I travelled many thousands of miles in my company car, and there is no way that I could have carried out my job without that vehicle. I used to resent the fact that company car tax was being increased when I had absolutely no choice in the matter because I had to have a company car. I know many people who drive 20,000 30,000 or 40,000 miles a year in pursuit of their careers. The Government should be careful before hitting such people. By all means, they should hit hard directors who do little mileage in their company cars and for whom they are a perk.
I shall touch on one other aspect of the Budget relating to cars. I commend my right hon. Friend the Chancellor's decision not to raise vehicle excise duty, but to raise the excise duty on petrol, DERV and unleaded petrol by more than the inflation rate. That provides an element of choice, whereas if the vehicle licence is raised by £10 or £20, regardless of the mileage done in the car, drivers have to pay that extra amount. If the extra cost is put on petrol, the more mileage is done, the more is paid in excise duty, and that is only fair.
I thank my right hon. Friend the Chancellor for significantly relaxing the savings rules relating to community charge rebate. With many colleagues including my hon. Friend the Member for High Peak (Mr. Hawkins), I have been pushing the Government to increase the savings limit of £8,000 above which a married couple do not qualify for rebate. My right hon. Friend the Chancellor doubled the limit to £16,000 not only for married couples but also for single people. Therefore, ironically, the anomaly still exists. There could well be a case for saying that, for a married couple, the savings limit should be raised to £24,000 and should be £16,000 for a single person.
The new higher savings limit is most definitely a step in the right direction. However, much more will have to be done to alleviate the introduction of the community charge. For any tax to work, there has to be general public acceptance of it. One does not have to be a brilliant political strategist or analyst to acknowledge that the community charge does not enjoy such public acceptance at present. When I talk to my constituents and meet members of the public, I find that people accept that everyone should make a contribution to local services. The community charge ensures that that happens and will certainly, in future, make local councils more accountable to their electors.
However, public acceptance does not exist at present because the community charge levels are simply too high. We know that the major reason for that is that many councils, mainly Labour councils, have taken the opportunity of the changeover to the new system of local government finance to jack up their budgets and spending. It is immoral for councils to take advantage of many thousands of ordinary people by increasing their budgets 1189 and thereby levying unnecessarily high community charges. However, that is happening, and the Government have a responsibility to try to alleviate the problems associated with high community charge bills.
The Government must make two moves. First, they must disregard savings when calculating whether someone qualifies for community charge rebate. Qualification for rebate should depend entirely on income. That will ensure that the disincentive to save no longer exists and those on low to modest incomes will be properly helped.
In response to a parliamentary question which I tabled about 10 days ago, the Department of Social Security estimated that such a move would cost the Exchequer between £250 million and £300 million per annum. In the mysterious and discouraging way of departmental answers, that one ignored the income from savings, so the figure would actually have been substantially lower. Some people say that such a move would benefit rich people, who could then qualify for rebate. I do not believe that that will happen. There is clearly a relationship between the amount of savings people have and the income they receive from them. If someone has £30,000, £40,000 or £50,000 of savings, the income from them will take him or her above the income threshold below which he or she qualifies for rebate. Therefore, to help many people on modest incomes, particularly pensioners, we must examine the possibility of doing away with the savings limit altogether.
The second move will cost the Exchequer a great deal more. Public acceptance of the community charge will come when the bills arrive later this month only if community charge levels are significantly lower than those proposed. We shall have to use any money available for tax cuts next year to reduce this tax, the community charge. We shall have to use more Government money to reduce the community charge level. Whatever pretext we use, be it taking a portion of education spending, the police or the fire service away from local authority control or simply increasing the revenue support grant, the Government will have to act.
A good starting point would be to provide the same level of Government grant in England and Scotland as is enjoyed in Wales. My right hon. Friend the Secretary of State for Wales has boasted in the House that community charge bills in the Principality will be £100 per person lower than they will be in England. That will do for me for starters. In a debate on 18 December 1989—about three months ago—my right hon. Friend the Secretary of State for Wales boasted that people would be paying £100 less in Wales than in Scotland and England. He also said that 85 per cent. of local government expenditure in Wales is met by the business community and the Government. I believe that the figure in England and Scotland is about 75 per cent. We shall have to come in line with Wales.
I congratulate my right hon. Friend the Chancellor of the Exchequer on an interesting and imaginative Budget and on making the most of the few resources available to him. I fear that his most difficult task lies ahead. I hope that he will be able to alleviate most of the problems that many constituents are suffering due to the introduction of the community charge.
§ Mr. William O'Brien (Normanton)
I am very disappointed that the hon. Member for Colne Valley (Mr. Riddick), a Member from west Yorkshire, an area that I too represent, could talk about company cars and about giving up local influence in education, the police force or the fire service but found no reason to refer to the problems of industry in west Yorkshire, particularly the textile industry. Neither the Chancellor nor the Financial Secretary has mentioned this at any time, yet west Yorkshire has significant problems. The hon. Member for Colne Valley must have constituents who work in textiles, so I am disappointed that he talked about company cars but could think of nothing to say about local industry.
The hon. Member also gave us some reasons why the Treasury should reconsider the poll tax next year—but he voted for the introduction of the poll tax at the very beginning. How hypocritical can people be? The hon. Member for Colne Valley goes through the Lobby supporting the introduction of the poll tax, yet when the wrath of the people is felt he and others shy away and now want to introduce alternatives to ease the burden. Why did not the hon. Member join Labour Members in opposing the poll tax in the very beginning? The hon. Member for Colne Valley should have thought of this when Opposition Members were warning of the likely results of the poll tax.
Nor has the hon. Member for Colne Valley found anything to say about housing in west Yorkshire. In his constituency, as in mine, there is a shortage of rented accommodation. Throughout west Yorkshire there is a shortage of affordable housing. Yet the hon. Member appeared to see no reason to refer to the problem in his speech tonight.
The hon. Member for Colne Valley referred to our Scottish colleagues. He said that more people should vote Tory in Scotland so as to have better representation. The same principle applies in west Yorkshire, only there we need more people to vote Labour so that a Labour Member could properly represent the constituents of the hon. Member for Colne Valley. If the principle applies to Scotland, it must also apply to west Yorkshire.
§ Mr. Riddick
The hon. Member for Normanton (Mr. O'Brien) clearly has nothing to say of his own; he is just waffling on, trying to waste some of the time available before 9 o'clock. His attack on me is smutty, wholly unnecessary and wholly out of place. As regards the community charge, I voted against my Government on a three-line whip: I voted for the Mates amendment which would have improved the community charge markedly in relating it to people's ability to pay. Although we did not win that vote, I did my bit.
§ Mr. Martlew
On a point of order, Mr. Deputy Speaker. Is the hon. Member in order to speak in this way?
§ Mr. Deputy Speaker (Sir Paul Dean)
Order. It would be helpful if the hon. Member for Colne Valley would conclude his intervention.
§ Mr. Riddick
Thank you, Mr. Deputy Speaker. I am surprised that the hon. Member for Carlisle (Mr. Martlew) does not believe that I should have an opportunity to reply to a wholly scurrilous attack. May I make two brief points before I sit down? Inflation is the biggest concern facing industry in my constituency. Unemployment has come down by 50 per cent. in the past two years.
§ Mr. O'Brien
Was the hon. Member for Colne Valley trying to extend his speech? My points must have been relevant or he would not have risen to the bait as he did. He told the House that he voted for the poll tax. He cannot have voted against it because he told us that he had voted for the Mates amendment. The amendment was still in favour of a poll tax although trying to find a different formula. Yet tonight the hon. Member says that changes should be made.
My point was that if it was right for the hon. Gentleman to address his remarks to my Scottish colleagues as he did, he cannot object to my addressing remarks in a similar vein to him.
§ Mr. Lilley
Will the hon. Member for Normanton (Mr. O'Brien) confirm to his constituents that he will have the courage, should the unlikely time ever come when there is a Labour Government, to vote against a three-line Whip on a Bill to impose a roof tax on those constituents?
§ Mr. O'Brien
Under this system there is a roof tax because the standard rate of tax is on property, not on the individual. The Financial Secretary should realise that when the Government say that no property tax is attached to the system that they are introducing they are again misleading people. The standard rate of poll tax is nothing more than a property tax.
Earlier I said that the hon. Member for Colne Valley had made no reference to housing or to the high interest charges on mortgage repayments that people in west Yorkshire must face. The Chancellor informed the House yesterday that interest rates would remain high for some time. He could give no assurance that they would be reduced either in the near future or at some later stage. All that he said was that interest charges would have to remain high for as long as was necessary and that he would decide when it was necessary to reduce them.
This is cold comfort for businesses and for people with mortgages. Using high interest rates to control expenditure and reduce inflation hurts not only those who run businesses, particularly small operators, but the middle-aged or elderly people who have mortgages. It also hurts younger people who are starting to buy their own homes. They too have to face high mortgage charges plus high interest rates.
There is no comfort whatsoever in what the Chancellor said yesterday and what the Chief Secretary has said today for people who are trying to meet their commitments in buying their homes. They must dread the thought of interest charges being increased again. The Chancellor made it clear that in the coming months it may be necessary to raise interest rates again. Tory Members have shown that they are worried that there may be further increases in mortgage charges. What comfort is that for people who have a mortgage and have to meet the extra increase each month?
Young couples with gaunt looks on their faces attend my advice meetings, asking what: they can do to obtain council houses because they can no longer afford to pay the increased mortgage payments. They thought that the increases could last three or four months, or perhaps six months at the outside, but they have been going on for so long with no hope of a reduction that it is impossible to meet the repayments. They hope that the local authority will give them council houses.
1192 Because of the Government's policy, council dwellings that used to be available for rent no longer exist. In addition, local authorities have no opportunity to replace the houses that they have lost from the rented sector. Conservative Members are reconciled to the fact that further increases in mortgage charges are inevitable. If that is the case, business people and home buyers, particularly in my constituency and generally throughout the country, must be horrified that the Chancellor has given no hope of a reduction in interest rates but has mentioned the possibility of an increase in mortgage charges.
After 11 years of Tory rule, we have record interest rates, the highest mortgage charges, the longest waiting lists for rented accommodation, including council houses, the highest number of homeless people and the lowest number of houses for rent in the past 30 years, yet the Chancellor does nothing whatever about it. That is Tory Britain of the 1990s.
I join Tory Back-Bench Members who have the courage to say what they think is wrong with the economy. They ask the Chancellor to reconsider how the Government are tackling inflation. Not only interest rates should be used to control inflation; taxation should be considered. Even the hon. Member for Colne Valley, who is no longer in his place, said that the Government should consider taxation as a further means of solving our economic problems. The Government should not rely completely on high interest rates to get the Tory party out of the mess that it has created.
Many constituents have made representations to me that since the Tories came to power prescription charges have increased by over 1,000 per cent. In 1979 the charge was 20p whereas now it is £3.05. That is Tory Britain in the 1990s. That is the direction in which the Government are leading the country.
I could have challenged the hon. Member for Colne Valley about the way in which Yorkshire water authority is charging for water services. It has doubled the standing charge. The Prime Minister's reason for a change in the rating system now applies to water charges. Often at the Dispatch Box she has defended that dear old lady living alone yet paying the same rates as a family of four adults living next door. She made it clear how unfair that was. That same dear old lady is paying the same standing charge for her water services as the family of four adults next door. What justice is there in that? Yet Ministers do not comment on that injustice.
Let us analyse the unit costs. That dear old lady is paying much more per gallon of water than the four adults next door. What justice is there in that? Yet neither the Chancellor nor the Chief Secretary to the Treasury mentioned that unfairness.
Council house rents are being increased in line with Government policy. Under the Local Government and Housing Act 1989 local authorities must increase rents until they reach what is termed market rent level. What does the Budget provide to ensure that market rents are fair and reasonable? We often hear the Secretary of State for the Environment say that it is Government policy to encourage affordable rents so that people on low incomes, particularly those in rural areas, can meet the charge for rented accommodation. Yet the Budget provides no help for people who will face massive rent increases.
A great deal has been said about the poll tax and the increase in the savings ceiling to £16,000. It is hoped that that will bring more people into the rebate scheme. 1193 However, it is the basis of the rebate scheme that is at fault. Whether or not a person has savings of £16,000 or less, if his income is less than £46 a week, he will qualify for a rebate. A widow in receipt of state pension plus a small occupational pension, in her own right or that of her husband, could lose under the rebate scheme because she has an income of £46 or £47 a week. It is little comfort to people constantly to hear about the rebate scheme when many of them will not qualify. In any event, as a result of the taper, more people will lose out.
Under the existing rating system, people whose property is not coupled to the main sewer can qualify for a rate reduction because they are not receiving that service. Also, because they have a cesspool and must bear a charge for its being emptied and the sewage being treated by the water authority, they can qualify for a reduction in their gross rateable value and hence pay less rates. But they must pay the same poll tax as those whose property is attached to the main sewer. In addition to paying the same, they must continue to pay for the cesspool to be emptied and for the sewage to be treated by the water authority. How inhuman and unjust that is. It means that people are not only not receiving a service but must pay twice for the privilege of being in that position. That is Toryism in the 1990s.
The same can be said of properties that are not on a made-up road. Under the present rating system, the occupiers can apply for a reduction in gross rateable value because they are not receiving the service of a properly made-up road. Under the Government's poll tax system, they must pay the same as people who live on a made-up road. Indeed, they will be charged extra if the local authority decides to make the road serviceable.
§ Mr. Malcolm Moss (Cambridgeshire, North-East)
As I have listened to the hon. Gentleman I have become angrier and angrier because what he is saying is just not true. Will he name one local authority in Britain that is not responsible for water services?
§ Mr. O'Brien
The hon. Gentleman is not aware of the facts of life. If a property is not coupled to the main sewer, the water authority informs the occupier that an order must be obtained from the local authority for the necessary work to be done, as the local authority must make a contribution to the cost of that work. I am happy to educate the hon. Gentleman. The practice that I have described was introduced by a Conservative Administration. If the hon. Gentleman agrees, as he must, that it is an injustice, I trust that he will join Opposition Members in the Lobby on Monday and vote against the anomalies that we are exposing.
I was recently a member of a Standing Committee which considered a statutory instrument concerned with the amount of money being made available to the Housing Corporation so that housing associations may finance the building of additional rented accommodation throughout the country. As we looked into the matter, we discovered that less was being made available in 1990 than in 1985. In 1985, £3,500 million was made available to the Housing Corporation. In 1990 the sum had fallen to £3,300 million. In other words, the Government are ignoring the need to provide homes for the people at a time when we have record homelessnes, with huge numbers of people looking 1194 for rented accommodation. The Government in general, and the Chancellor in particular, are doing nothing to ameliorate that.
Tory councillors all over the country are leaving their party because of the problems they face over the poll tax. In Beverley, 10 Tory councillors resigned; in Cornwall, a number of Tories quit the party because of the poll tax; in West Devon, 19 Conservative councillors left the party for the same reason; and I draw the attention of the House to early-day motion No. 743, which says that Boothstown Conservative club members have decided to opt out of the Tory party and have taken down the portrait of the Prime Minister, their president, because of the poll tax provisions.
Conservative Members must accept that so hated is the poll tax that even their supporters in local government are leaving the party in droves. Whatever happened when the Labour party was in office, the party was strong. Today the Tory party is weak. Conservative Members who are sincere in wishing to represent their electors will make sure that the Budget provisions which injure their constituents are not allowed to go through. Accordingly, next Monday they should vote with my hon. Friends and me against those provisions.
§ Mr. Alan Meale (Mansfield)
I am surprised to have this opportunity to speak in the debate. About an hour ago I was in the Lobby and was told that, if I came into the Chamber, I might be called to speak.
In the Tea Room, the Library and elsewhere in the Palace of Westminster I have been listening to hon. Members of all parties discussing the Budget. I have heard it described as a poor Budget, as a bad first performance by the Chancellor, as a juggler's Budget—not surprising, in view of the activities of his parents—and as a cigarette card Budget, meaning that it would be of interest to smokers but of no interest to non-smokers.
The most apt description is that it is a sad Budget, because it is a Budget of lost opportunities. It contains only short-term solutions to the problems facing the nation. It deals purely with the electoral strategies of a Government in severe danger of defeat at any election that they face, whether in Mid-Staffordshire tomorrow, a local election or an election in a Conservative club in Yorkshire or Oxfordshire. Everything that is happening at present seems to be bad for the Conservative party.
The Budget gives little hope to the people of the nation, particularly those who need a lot of help as a result of the Government's strategies over the past 10 or 11 years. It will be remembered as much for what it did not do as for what it attempted to do. The parliamentary agenda provides a day in which a Budget must be set. The Budget tries to spend nothing and tackle nothing so that it can get away with doing nothing at a time when the Government are in severe trouble.
I hope that all those Conservative Members who truly disagree with what is happening will go into the Lobby with us on Monday. I know that they talk to their party members and their constituents on the high streets and market squares in their constituencies.
The Budget offers the unemployed nothing. The stark reality of the Budget is that it makes no attempt to discuss the needs of the millions of people who are unemployed. Instead, it says that economic growth has gone out of the 1195 window for the next few years. In the foreseeable future the economy will be in a worse state than it is now. Even some Conservative Members, admit that; some of them may be more daring than others on such things as economic strategies or the poll tax. They trip the light fantastic and vote against the Government, although usually on an amendment, and they go missing for the vote on the main Question. They have crossed the Floor into our Lobby, but they stay around for only a short time.
The Chancellor and his Back Benchers have been offering a great hope to the people of Britain that next year will be the big give year. Between £16 billion and £17 billion will be thrown about by the Government before the election. However, they have missed a real opportunity this year to do something for the millions of electors who are pensioners and who, for the past 11 years, have had a bad deal from the Government. [Interruption.]
It is no good the Minister smiling and telling us to look at what the Government are doing for the pensioners—the investment plans that are available to them and the raising of the threshold from £8,000 to £16,000 for relief on housing benefit and so on. I am talking about the millions of pensioners who have not got £8,000 or £16,000 and who rely on state benefit to get by day after day. A 0.37 p tax increase would have enabled the Chancellor to give every pensioner and severely disabled pensioner in Britain a free television licence. That is a small amount of money.
§ Mr. Meale
That question has been answered for me. We are committed to increasing pensions and we shall give winter allowances before the winter sets in. Pensioners are a major part of our strategy, as are the National Health Service and the unemployed.
The Government talk about helping pensioners, but they are not willing to increase taxes by 0.37 p to give pensioners and disabled people a free television licence. I welcome the increase from £8,000 to £16,000. That is better than nothing, but that will affect only a few people. The vast majority of pensioners, particularly those who rely on the basic state pension, will still have to pay at least 20 per cent. of the poll tax. There is nothing in the Budget to give them hope. The Chancellor should have remembered that, in this great nation of ours, the fathers and grandfathers of the adults of today took part in two world wars, but they are on the lowest pensions in Europe. That is disgraceful; financially, we treat our pensioners worse than any other European country. Why did the Chancellor not take the opportunity to do something for our pensioners?
Another major group that the Chancellor missed were the homeless. We have discussed their problems week after week in the Chamber. We toss around ideas occasionally about what is being done in the inner-city areas for the homeless. I must say to Conservative Members that, at the moment, that is very little. Much has been said before the Budget and since about what the Government should do for building societies to help those with mortgage problems. They should act, but that should not be the only major thrust of a Budget. One million or so people are supposed to be registered as homeless in Britain—that figure has been quoted by many organisations.
1196 Instead of considering building societies, why did not the Chancellor go to his right hon. Friend the Secretary of State for the Environment and say that he would create more money for the market to help with the problem of homelessness by allowing local authorities to spend the millions of pounds that they have acquired through the sale of council houses—but which they are not allowed to use—to build council houses again? If the Government want to sling around a few hundred million pounds or £1 billion—about £2 million to each district authority—50,000 council houses could be built, which would take at least 100,000 people off the homeless list immediately.
There are many things wrong with this Budget. It is not only a poor Budget, but a Budget of missed opportunity. It is a juggler's Budget—the Budget of the son of a juggler—and nothing useful will come out of it. All that will happen is that some of the juggling balls that the Chancellor chucked into the air will be remembered in the next 12 months when many of them hit the ground. The people will remember the lost opportunity of this Budget. I am sure that at the next general election, in a year or less, they will prove that they remember by removing the Government from office.
§ Mr. Riddick
On a point of order, Mr. Deputy Speaker. I believe that the hon. Member for Normanton (Mr. O'Brien) criticised me for leaving the Chamber after about 10 minutes of his speech. I do not know whether there is a convention that says that I should have stayed for the entire speech; if so, I apologise. However, the hon. Member for Normanton did not stay for more than 10 seconds of the speech of his hon. Friend the Member for Mansfield (Mr. Meale). That is gross hyprocrisy.
§ Mr. Deputy Speaker
Order. I am sure that, on reflection, the hon. Member for Colne Valley (Mr. Riddick) will wish to withdraw his last remark and rephrase it.
§ Mr. Riddick
Is that unparliamentary, Mr. Deputy Speaker? If so, I say instead that it was a clear case of double standards.
§ Mr. Deputy Speaker
Order. Of course I will take points of order, but a phrase has been withdrawn. The House always accepts that, and I hope that the matter will not be pursued.
§ Mr. Allen McKay
It will not be pursued, Mr. Deputy Speaker, but if the hon. Member for Colne Valley (Mr. Riddick) had asked me why my hon. Friend the Member for Normanton (Mr. O'Brien) had left, I would have told him.
§ 9.9 pm
§ Mr. Paul Boateng (Brent, South)
I begin by adding my congratulations to those of my right hon. and hon. Friends to the Chancellor for the manner in which he presented his Budget. His presentation was pleasant. It was in marked contrast to, indeed free from, the bullying and bombast that characterised the presentations of his predecessor. The problem was that his speech was free of much else, too: free of any content capable of effectively altering the current dismal state of the economy; free of anything that addressed the issue of interest rates or inflation, which is nudging 9 per cent. and will soon be 10 per cent; free of 1197 anything that sought to deal with the current crisis of an all-time low level of manufacturing investment; free also of anything that sought adequately to tackle what the right hon. Member for Chesham and Amersham (Sir I. Gilmour) described as the horrendous deficit that currently afflicts our balance of payments.
The political circumstances in which this debate takes place, and in which the Budget was delivered, demanded a Budget for Back Benchers. That is precisely what we got. The City analysts cried out for a Budget for the City. They did not get that. The nation cried out, in its need, for a Budget for the country. That was not forthcoming. There was no relief for home owners, no relief for those who, day in day out, have to face the reality of high interest rates. There was no relief for those in manufacturing industry who seek at this time the means, the wherewithal, to promote the investment that they know is so vital if we are to be competitive in the international marketplace. They found little, if anything, of comfort to them. There was no immediate prospect of a fall in the rate of inflation. This was not a Budget for the country.
It was to a very large extent a damnable budget. I see that the Financial Secretary to the Treasury is a little perturbed by my use of the word "damnable". I use it advisedly. The Chancellor was in this dilemma: he was damned if he did, he was damned if he did not, and he was damned if he knew what to do. That shone through his Budget. The consequences are to be seen in this evening's newspapers. Opposition Members take no joy in this headline:Budget Blues Savage the £Defiant Major"—defiant already, after less than 48 hours—insists: It was tough enough".As I have said, we take no joy in that headline. We do, however, take considerable interest in what the chief economist of Union Discount, Mr. Nicholas Parsons, has to say.
The Chief Secretary ought to pay a little attention to what people in the City say. Not long ago he and his colleagues were telling us that the market was the depository of all wisdom. Do hon. Members remember that? Do they remember Ministers coming to this House and, day in day out, thrusting down our throats that we ought to listen more to the market? Well, let them now listen to the market. Let them listen to what the market says about the Chancellor's Budget:He hopes inflation will come down but he hasn't got a plan.That, I fear, says it all—he is damned if he knows what to do.
Throughout the past decade the Government have made obeisance before two altars: the altar of dogma—I see that that brings a look of recognition into the eye of the Chief Secretary—and the altar of expediency. I see that that brings a look of recognition into the eye of the Financial Secretary. Over the years, he has had to learn about expediency. He will have to learn still more about expediency before the next 24 months are out.
We must not be too hard on the Government. There has been some progress and we must celebrate it: the hard passage from making a fetish of monetarism to a fixation on interest rates. One only has to look at the Red Book to chart that progress. It makes fascinating bedtime reading, 1198 which I commend to both hon. Members and the nation. This year, interestingly, it begins with a little homily about the medium-term financial strategy and it seeks to explain to those poor souls who are mystified by the subject the significance and importance of monetarism.
It is worth looking at the individual letters and words in the Red Book and at what the Chancellor of the Exchequer had to say. Let us use the one to lead us on to the other. The Chancellor's words are interesting and worthy of note. To those of us who pay attention to these matters they suggest a distinct shift. The Chancellor said yesterday:although monetary policy remains the key"—note the word "key"—to controlling inflation, it is not realistic to suppose that we can take decisions solely by reference to the way any one particular measure of money is growing. In"—wait for it—a more sophisticated world, we must apply judgment and take into account the evidence about monetary conditions that may be available.Is it not wonderful how, during the past 24 months, the world has suddenly become more sophisticated? I wonder whether it has anything to do with the Chancellor's brief sojourn in the Foreign Office? Suddenly he has discovered that the world is a more sophisticated place than he thought it was when he was Chief Secretary. He went on:I have looked afresh at the role of monetary targets. Having done so, I am clear that it is sensible to retain a target for narrow money, and that this is best measured by the familiar aggregate MO. Since this is essentially notes and coin,"—[Official Report, 20 March 1990; Vol. 169, c. 1013.]—blah, blah—we have heard it all before.The significance of that passage becomes all too clear when it is related to the Red Book, where one can see that a number of hands have been at work. The Chief Secretary had a bit of a nerve to chastise us with the words of Mr. Samuel Brittan. He always makes a good read, and occasionally one agrees with one or two of the things that he says. Before the Chief Secretary quotes Mr. Brittan to us, perhaps he should read a little more carefully what he has to say about the Chancellor's speech and the Red Book.
He defines two sets of hands at work in writing that homily. Mr. Brittan has done rather a good job. First, he finds the hand of someone who he describes as "Author A" who givesa straightforward textbook account of the virtues of monetary policy, arising from the ability to move interest rates quickly in either direction in response tothe needs of the time. He then finds the hand of "Author B" who "reads much more like" the Chancellorand even more his next-door neighbour".So there are now three sets of hands at work, two of them indistinguishable, one from the other, and the other some wretched Treasury mandarin given the hapless task of stating an authorised line.
Mr. Brittan goes on to point out a problem that Ministers face:Ministers are happy to explain why they cannot reduce interest rates very soon. But they shy away from the prospect that they may have to move them upwards.
§ Mr. Boateng
I hear the hon. Member for Wolverhampton, South (Mr. Budgen) say, "Hear, hear." His voice is always welcome in these debates and I shall refer briefly to what he had to say. I know that the Chief Secretary dreads to hear the familiar voice of the hon. 1199 Gentleman. He leads what I would describe as the disaffected monetarist tendency of the Conservative party. He can be found at every committee meeting and, no doubt, at every Back-Bench meeting, grumbling away at the laxity of successive Chancellors. Who can blame him? He must be living an absolute nightmare as one of the last few remaining committed monetarists to be found anywhere, let alone on the Conservative Back Benches. There are certainly none to be found on the Government Front Bench, where, if any existed, they have long since been silenced, although Ministers continue to pay the ritual obeisance to the gods of montarism.
It must be heartbreaking for the hon. Member for Wolverhampton, South-West to be obliged to endure the Chancellor's speech, but he was very gracious and it is fair to him to say that he partially pardons the Chancellor for the excesses of the period when he was Chief Secretary. The Chief Secretary and the Financial Secretary are in a real dilemma from which they will not find an easy escape.
§ Mr. Julian Brazier (Canterbury)
The hon. Gentleman started with a most interesting hellfire homily and is now steadily working through in some detail one or two of the minutiae of Mr. Brittain's and other views of Government policy. Is he planning at any time in his speech to touch on Labour economic policy, as the House is anxious to hear about that?
§ Mr. Boateng
I am glad to find such eager anticipation on the part of the hon. Gentleman for what will be the heart of my speech. So let us get to it now.
Let us move from the ju-ju economics of the monetary system—the Chancellor knows as much about ju-ju as I do—to another difficulty for the Government, which causes us no difficulty—our entry into the exchange rate mechanism. [HON. MEMBERS: "Ah."] That is welcomed by Conservative Members, but not so much by some Ministers. The Chancellor's hands are tied on our entry into the ERM, but it causes us no problem because we believe that, following negotiations to preserve Britain's best interests, it is vital to preserve and to develop——
§ Mr. Boateng
As soon as possible after the election of a Labour Government, so anything between 18 to 24 months. I know that that will be of some comfort—[Interruption.] I said "after appropriate negotiations". [HON. MEMBERS: "Ah."] That is no secret. We believe in negotiating for Britain, in sticking up for British manufacturing and in creating a climate to promote investment in manufacturing industry to provide the stability that will be vital. The Chancellor failed to tackle that in his Budget.
§ Mr. Boateng
No, not at the moment. I am coming to the heart of Labour party policy.
We do not believe that entry into the ERM is an easy panacea, a magic potion or an elixir. We see it as part and parcel of the context in which we shall carry out our economic policy, which will be based on recognition of the importance of training and of research and development. The Budget has tinkered with training in such a way as to produce a bribe to make employers co-operate with a 1200 training scheme that is not satisfactory and is grossly underfunded. We do not believe that that is the way forward.
We believe that we should place emphasis on training and on research and development. Our industrial policy will create a firm and sound infrastructure for British industry, which will be vital if we are to go forward and to reverse the disastrous decline in British industry in recent years. The right hon. Member for Chesham and Amersham gave the figures earlier, and they were an indictment. Manufacturing output in France increased by 19.5 per cent. between 1973 and 1989, by 21 per cent. in Germany, but by 8.9 per cent. in Britain. We believe that we can and will do better under our industrial policy, which was outlined by our chief economic spokesman, my right hon. and learned Friend the Member for Monklands, East (Mr. Smith).
Even the right hon. Member for Henley (Mr. Heseltine) recognises the importance of an industrial policy. Conservative Members should begin to recognise its importance, too, or they will find themselves in much difficulty.
§ Mr. Boateng
Not at the moment.
It is important to recognise the pool of skills and the commitment to enterprise among women workers. The Budget contained grossly unsatisfactory measures for women. That was clearly shown by the useful and important speech of my hon. Friend the Member for Glasgow, Maryhill (Mrs. Fyfe). If the Government want to help women, they must do something about a system in which only I per cent. of our children have the opportunity of education for the under-fives. We fall behind our competitors in France and Germany with nursery provision. We should be spending the money on that.
§ Mr. Boateng
The hon. Lady has not been here at all during this debate and I do not intend to give way to her now. She will know the importance of ensuring that child benefit is available to mothers whether they work or not.
If the Government cared about alleviating poverty, closing the employment gap and tackling the issues that make women and children disadvantaged, they would upgrade child benefit. They have consistently failed to do so. The Government could pay for that and restore cuts in research and development and training out of the £800 million that the abolition of stamp duty on share trading has cost the Exchequer. The Government did not. introduce environmental measures which are essential to sustainable economic growth. We must care for our climate and create the context in which it is possible for the nation to grow and for the industrial sector to expand without disadvantage to the environment.
There should have been proposals in the Budget for negotiations with our EEC partners on a more satisfactory use of VAT as a mechanism. We should have heard about capital allowances for clean technology, but we heard nothing. We heard nothing about capital allowances, for which the Trades Union Congress and the Confederation of British Industry have called, to assist manufacturing industry. The Budget was not about sustaining and developing the economy. It was not geared to those ends.
1201 That is our vision of the economy. It empowers and enables the worker, the consumer and the industrialist to build up our economy. That is the way forward. We are not talking about something that is opposed to enterprise. Our vision of enterprise Socialism puts enterprise at the forefront. We believe that it is important to grow, that we must increase the size of the cake and that we must welcome a system in which the economy grows and in which there is enterprise and initiative, because that is the way to improve the lot of all.
I realise that that is heresy to the Government. They find it difficult to grasp, but they find the needs of these times difficult to grasp. The Budget misses every opportunity. It is not a Budget for the times or the nation. We will give the nation just such a budget, and soon.
§ The Financial Secretary to the Treasury (Mr. Peter Lilley)
We warmly welcome the hon. Member for Brent, South (Mr. Boateng). We enjoyed his speech, which I believe was his first contribution in winding up in a Budget debate. That is not to say that we do not miss the billed performance of the hon. Member for Islington, South and Finsbury (Mr. Smith), who we understood would wind up the debate for the Opposition. We understand why he has not done so. He would have been reluctant to defend the budget of his constituency in Islington——
§ Mr. Lilley
It is not. The hon. Member for Islington, South and Finsbury would have been reluctant to defend a budget that, we are told, involves £68 of poll tax for every citizen of Islington, which was spent on a list of 300 dole-outs.
I was asked to raise this matter by an inhabitant of Islington whom, being Irish, is particularly insulted that Irishmen are to get a grant of £100,000 and Irishwomen a grant of £45,000. I also want to inquire about the Anglo-Akanthou Aid Society, which is to receive £46,788. Who are the Akanthou, we ask ourselves?
§ Mr. Chris Smith (Islington, South and Finsbury)
Perhaps the Financial Secretary would like to reflect on the fact that every organisation listed in the article in The Sun from which he is quoting is funded by the London borough of Islington under partnership arrangements, in which 75 per cent. of the funding comes from the Department of the Environment. They are agreed and approved by the Department and presumably by the Treasury.
§ Mr. Lilley
Nevertheless, the total of £8 million still represents a huge increase in the average poll tax of every citizen in Islington. The hon. Gentleman is clearly ashamed and would dissociate himself from the large sums being squandered in his borough in this deplorable manner.
I shall respond to a number of the queries that were raised during the debate before going on to the main measures that my right hon. Friend the Chancellor introduced in his Budget. The hon. Member for Londonderry, East (Mr. Ross) asked whether the capital 1202 disregard measures announced in the Budget would apply in Northern Ireland and to Northern Ireland ratepayers. I can assure him that they will.
The hon. Member for Blyth Valley (Mr. Campbell) asked why the latest figures for those affected by the community charge differ from those that he has received in reply to an earlier question. The answer is that the level of overspending—as illustrated by the London borough of Islington—has increased considerably since the earlier estimates were made. As a result, larger sums are being made available to those who benefit and more people come within the range of potential benefits—[Interruption.] Opposition Members are clearly extremely nervous of associating themselves with Islington borough council, and I can well understand it. Not one of those items of expenditure did they seek to justify. [Interruption.]
§ Mr. Lilley
I come now to the main measures in the Budget. They must be seen against the background of two major measures announced in previous Budgets that will come into full effect only in the current year. The first is the national insurance contributions reform, which was announced in the last Budget but which came into force only last October. This will be the first full year in which people will benefit from it. It removes an insurmountable hurdle of steps in the progress of national insurance contributions which effectively amounted to a tax of more than 100 per cent. at certain steps of the income progression of those earning less than £115 a week. For 15 million people earning more than £115 a week, it represented an increase of £3.20 net extra in their pay packets, which all have been enjoying since then. More than three quarters of those 15 million people—who Opposition Members appear to treat with disdain—earn less than the average male earnings in this country.
The second of the tax measures that had already been announced was the introduction of independent taxation. That gives complete privacy and independence to women for the first time since income tax was introduced by William Pitt the younger two centuries ago. The introduction of independent taxation costs a lot, but that is a measure of the injustice which the old income tax system perpetrated on women, and which past Labour Governments were willing to tolerate.
About 3.75 million people will benefit from the extra money, of whom 70 per cent. have incomes of less than £10,000 a year. About a third of the gainers are elderly and will gain an average of £350 each. About four out of five of the taxpaying elderly will benefit from independent taxation, not to mention all those with savings whose level of income, from savings and otherwise, is below the threshold.
My hon. Friend the Member for Torridge and Devon, West (Miss Nicholson) and the hon. Member for Glasgow, Maryhill (Mrs. Fyfe) asked whether the married couples allowance could be made divisible between husbands and wives. My right hon. Friend and I have looked carefully at that. My right hon. Friend concluded that, although it might be desirable in principle—all of us can see the attraction of the principle—it would be impossible to introduce it without delaying the introduction of independent taxation for a further two years.
Even if we were to give everybody the option to choose how the married couples allowance should be divided 1203 between husband and wife, millions more households would have to fill in tax forms. If there was a disagreement between a husband and wife about how it would be divided, the Revenue would have to sort out intractable problems. Obviously it would have been unfair if the allowance were rigidly divided between the two without any opportunity for them to transfer it between them. At present the husband can transfer it to the wife.
Therefore, although I understand the attractions of the measure that has been urged upon me by the two hon. Ladies, that measure is not administratively possible and it would not have been worth delaying for two years the extremely desirable introduction of independent taxation.
The savings element of the benefits of independent taxation naturally draws attention to the operation of composite rate tax. It highlights the injustice that composite rate tax has long perpetrated on small savers and low-income savers whose incomes are below the normal tax threshold but whose savings were taxed and who could not reclaim that tax. That has been going on in some form or another since the 19th century, although the composite rate of tax was put on the statute book by Stafford Cripps after the war.
Composite rate tax had many virtues. It was an efficient, cheap and simple system with just one disadvantage—it was unjust. Therefore, we decided to do away with it, as my right hon. Friend the Chancellor announced yesterday. That measure will benefit 14 million savers, of whom 5 million are women, 4 million are pensioners, 2.5 million are other adults and 2.5 million are children.
One reason that composite rate tax has not been abolished before is that its abolition is costly and administratively difficult. Administrative problems will be created in implementing the new system. However, after rightly pointing out those problems to us, the Inland Revenue has responded with immense vigour to the challenge that our decision to abolish CRT has given it. I want to pay tribute to the Inland Revenue and to those who work there for the vigour, imagination and energy that they are putting into forcing this measure through as rapidly as we intend so that the provisions can begin on 1 April next year.
The hon. Member for Beith—[Interruption.] I am sorry, I mean the hon. Member for Berwick-upon-Tweed (Mr. Beith), who is not as eponymous as I made him sound—asked whether we could abolish CRT earlier and simultaneously with the introduction of independent taxation. The introduction of independent taxation was a major and immense task. Abolishing composite rate tax will also be an immense task. It would not have been possible to do both simultaneously. To do the two in series as rapidly as we are is an achievement of which the Inland Revenue can well be proud.
Likewise I pay tribute to the Inland Revenue on developing the tax-exempt special savings account—TESSA. A number of my hon. Friends have already paid tribute to the simplicity and flexibility of the proposal. In the past the Inland Revenue has often been accused of burdening good ideas with complex rules, but if hon. Members look closely at TESSA they will find that that is not the case. She is a simple, straightforward soul, and she will be attractive to savers and institutions, which I believe will make such accounts widely available.
A battery of other measures to benefit savings have been introduced. They have been praised by my hon. 1204 Friends the Members for Somerton and Frome (Mr. Boscawen) and for Bridlington (Mr. Townend). My hon. Friend the Member for Fylde (Mr. Jack) also welcomed those measures and asked me to emphasise the continuing role of the Department for National Savings. That was highlighted in my right hon. Friend's Budget speech by his decision to raise the rate of interest on a number of national savings products. My hon. Friend will be aware of the excellent job performed by employees of the Department for National Savings in his constituency and in a number of other constituencies, for which we are grateful.
The Government believe that savings are immensely important for individuals and for the nation. Opposition Members pay lip service to investment, but every pound of investment ultimately needs a pound of savings to finance it. Investment as a proportion of our national income is already running at a record level, but we need to maintain through the 1990s a high level of savings to finance that continuing high level of investment. That is why we have taken the measures to promote and encourage a culture of savings and thrift.
Because of the measures that my right hon. Friend announced, he has been dubbed by the press as the small savers' friend. That is indeed true. The Labour party, by its attitude, exemplifies the fact that it has always been, and always will be, the enemy of savers. It is their enemy because inflation destroys savings and the Labour party has always let inflation rip. The policy objectives described by various Opposition Members today suggest that they would let inflation rip once again. The Labour party is a party of spending, not saving, and it is excessive spending that generates inflation.
The Labour party used to operate the investment income surcharge—a tax on what Opposition Members derided as unearned income. However, we have recognised that income as income from savings. The Labour party, to its eternal shame, allowed that tax to run up to 98 per cent.—and it voted against its abolition.
A number of myths have been raised in the debate, one by the hon. Member for Clydebank and Milngavie (Mr. Worthington). He suggested that this country no longer makes manufactured goods and that we import disproportionately more than we produce. The level of import penetration in this country is not out of line with that in other major countries. It is rising in this country, but it is also rising in other major countries because international trade is rising internationally. As that happens, it is inevitable that countries spend more on other people's goods because other people are spending more on theirs.
I look around my constituency and note the products that we manufacture of which I am proud. We manufacture aircraft, testing equipment and hi-fi recording equipment, largely for sale to Japan for use by the recording industry, not private individuals. We manufacture street cleaning and other environmental equipment, all of which is exported in large amounts, but none of it, of course, purchased in the shops. Those sales enable us, through the foreign exchange that they earn, to purchase goods in the shops. The hon. Gentleman should not be disappointed as he failed to see the things that we produce in the shops.
§ Mr. Lilley
I shall happily give way to the hon. Gentleman to give him an opportunity to withdraw the slurs that he cast earlier.
§ Mr. Worthington
I certainly shall not withdraw the slur; I may well add one or two. I shall quote from what the Minister said last year about the balance of payments, and ask whether it is still the Government's position. Last year he referred to meeting the foreign financial press corps who grilled him 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."—[Official Report, 16 March 1989; Vol. 149, c. 627]Is that still the Government's attitude towards the importance of the balance of payments?
§ Mr. Lilley
Of course it is, and I withdraw not a word. Earlier the hon. Gentleman said that I had denigrated manufacturing industry and said that it was not important. He said that I attached far more importance to the service industries. I have never said any such thing. I asked him to find any reference to them and I asked one of my hon. Friends to look through the speech last year to which the hon. Gentleman referred. There is no such statement. He also looked through all the speeches in the Finance Bill Standing Committee, and there is no reference to me speaking about manufacturing during those debates. I was not involved in manufacturing because I was talking about other issues. If the hon. Gentleman wishes to provide the House with a text, he is quite welcome to do so, and I shall naturally accept it. I have always thought that the hon. Gentleman was a reasonably honest individual.
§ Mr. Worthington
The Government have paid inadequate attention over the years to manufacturing industry, whose products can be exported. Goods and services, particularly financial services, cannot be exported in the same way. The Minister says that the balance of payments is not important. That is a direct statement that manufacturing industry is not important.
§ Mr. Lilley
That is absolute twaddle. I have always said that, as far as the balance of payments reflects an inflationary, excessive demand in this country, inflation being the priority and the balance of payments being the symptom of it, it is important. I am sorry that the hon. Gentleman did not choose to withdraw or substantiate his earlier slurs. I know that he was for a period an inmate of a borstal. I am sorry that he learned more from its inhabitants than he was able to teach them.
§ Mr. Worthington
On a point of order, Mr. Speaker. That is a slur. For four years I was a member of staff of a borstal, not an inmate. I hope that the Minister will withdraw his remark.
§ Mr. Lilley
When you, Mr. Speaker, are even-handed in your search for the truth on this matter, perhaps I will.
§ Mr. Lilley
Earlier today you, Mr. Speaker, said that you were sure that any allegation mady by the hon. Member for Clydebank and Milngavie was right. Now you are asking me to withdraw a perfectly fair, knockabout statement——
§ Mr. Speaker
Order. I am not having that from the Minister, who knows that I had then been in the Chair for two minutes, and I apologised to him because I had not heard the arguments that had gone before. He cannot sustain that argument. Furthermore, I am now asking him to rephrase what he said. There is a difference between being an inmate and being on the staff.
§ Mr. Lilley
Of course, in that case I shall say that the hon. Member for Clydebank and Milngavie was on the staff of a borstal and, as I said, during his period there he clearly learned more from his fellow inhabitants of the institution than he was able to teach them.[Interruption.]
It is clear from every contribution made from the Opposition Benches—I am glad about this, although Opposition Members are getting a little rowdy now—that they welcome every measure in the Budget since they have not criticised any of them. They clearly recognise the skill of my right hon. Friend in framing his Budget.
They have been less forthcoming about what they would do. They have made it pretty clear that they would like to see higher spending on a range of different items. They want a Budget for spenders, not for savers. But when they are asked which of their promises amount to firm commitment, they become rather shifty and evasive; and when they are asked how they would finance their spending pledges, they shut up like clams.
I risk a rebuke from Opposition Members because I know that they have dissociated themselves from their comrade, Mr. Scargill, but I cannot help feeling that they are adopting a policy similar to what might be called Scargill economics: they will not say where the money is coming from or where it is going to, they deny that they would ever touch a penny of their members' or, in this case, ordinary citizens' cash, but at the same time they promise to dish it out discreetly to their friends. It seems as if Scargill economics has become the new orthodoxy of the Labour movement.
Unfortunately, like their friend, the Opposition have a few friends who have grassed, so we know a number of elements of their package. They would, for example, put the top rate of tax back to 50p in the pound, which would hit some 1.7 million taxpayers. They would abolish the earnings limit on national insurance contributions, effectively putting a 9p in the pound tax on earnings over £17,000, which would hit 3.8 million taxpayers. They 1207 would phase out the married couples allowance, which would hit some 12 million households. They would restore the investment income surcharge, or something like it, on savings, which would hit at least 20 million savers. Finally, they would impose a roof tax, rising every year with the value of one's home and effectively incorporating a local income tax, which would hit the best part of 15 million households.
I want to make it quite clear that there is some overlap in those numbers. One should not just add them up and assume that all those people would be hit. A number would be hit several times by several of the taxes and some would be hit by all five taxes that Labour proposes. Yet those taxes alone would not raise enough to finance a fraction of what has been implicitly promised today.
As Opposition Members will not tell us how they will raise taxes from the rest of the population to finance that extra spending, so we must look back at their record. I am reluctant to do so, but if they will not tell us we must deduce what they will do from what they have done. I look back at the 1976 White Paper on public expenditure, when the right hon. Member for Leeds, East (Mr. Healey) spelled out the position very clearly:The ratio of public expenditure to gross domestic product has risen from 50 per cent. to 60 per cent. … The tax burden has also greatly increased. In 1975–76 a married man on average earnings is paying about a quarter of his earnings in income tax, compared with a tenth in 1960–61. At two-thirds average earnings, he is paying about a fifth compared with less than a twentieth. Tax thresholds have fallen sharply in relation to average earnings"—this is under a Labour Government—and people are being drawn into tax at income levels which are below social security benefit levels. The increase in the tax burden has fallen heavily on low wage earners. Those earning less than the average contribute over a quarter of the income tax yield. This cannot be made good simply by increasing the burden at the top: if no taxpayer were left with more than £5,000 per annum after tax"—1208 in present-day money that is £15,600—
this would increase the yield by only about 6 per cent.In other words, as the right hon. Member for Leeds, East found then, and as any future Labour Chancellor, if ever there were one, would find, their programme could be financed only by taxing people down to levels below the level of social security benefit. That is why Labour Members are so quiet, shifty and evasive when it comes to answering questions about their tax policies.
The right hon. and learned Member for Monklands, East (Mr. Smith) has had plenty of opportunities to spell out his tax proposals, but he has remained quiet. The measures will not succeed, as they proposed, in solving their problems, so they have to do worse elsewhere. Labour Members want us to forget their record. They are worse than the Bourbons—
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.