Commons Sitting of 30 April 1991

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
PRAYERS
  PRIVATE BUSINESS
    TAY ROAD BRIDGE ORDER CONFIRMATION BILL
    Lords amendment agreed to.
Oral Answers to Questions
  DEFENCE

    Gulf War
    Mr. Flynn: To ask the Secretary of State for Defence what assessments have been made of the efficiency of exotic conventional weapons by Britain and coalition forces in the Gulf war; and if he will make a statement.
    The Minister of State for Defence Procurement (Mr. Alan Clark): I do not understand the hon. Gentleman's question as I do not recognise the term "exotic" conventional weapons. I assure him that all aspects of the Gulf conflict are being investigated and assessed.
    Mr. Flynn: I hope that I can enlighten the right hon. Gentleman. Will he confirm that the fuel air explosive bomb, used for the first time by the Americans in conflict without prior consultation with Britain, has a blast as destructive as a nuclear weapon, is deadlier than chemical weapons, cannot be accurately targeted and was almost certainly responsible for the collateral extermination of thousands of Iraqi conscripts? Will he also confirm that the bomb is already in the possession of Saddam Hussein and other deranged tyrants and that it is on sale in the arms bazaars of the world? Will the right hon. Gentleman confirm today——
    Mr. Speaker: Briefly, please.
    Mr. Flynn:—that he will press for the 1981 convention on inhumane weapons to be used to control the sale and use of fuel air explosives, daisy-cutter bombs and cluster bombs, which are not conventional weapons but exotic weapons——
    Mr. Speaker: Order. The hon. Gentleman is being unfair to his colleagues. That is enough.
    Mr. Flynn rose——
    Mr. Speaker: Order. This is disgraceful.
    Mr. Clark: Every single fact that the hon. Gentleman cited was wrong. Fuel air explosives were used by the United States only to clear minefields. I know that a number of Opposition Members, of whom the hon.
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    Gentleman is presumably one, would prefer to fight all battles with loudhailers and food parcels, but that attitude is not shared by those who sit on this side of the House. Our purpose was to end the conflict as speedily as possible, with the minimum of British casualties.
    Mr. Sayeed: Is my right hon. Friend aware that the troops down there were delighted by just how effective these very modern weapons were? It was a considerable surprise to many that they worked as effectively as they did.
    Mr. Clark: It is perfectly true that the conflict was extremely effective. It provided a determinant test for a whole range of our equipment. The lessons are being assessed and will be of very great value.
    Mr. Flynn: On a point of order, Mr. Speaker. Due to the unsatisfactory nature of the answer and the importance of the matter, I give notice that I shall seek to raise it on the Adjournment at the earliest opportunity.
    Mrs. Mahon: To ask the Secretary of State for Defence what is the latest estimated total cost of (a) the war in the Gulf and (b) his Department's assistance to Kurdish refugees.
    The Secretary of State for Defence (Mr. Tom King): The latest estimate for the additional defence costs of the Gulf conflict, to be spread over several years, is of the order of £2·5 billion. Contributions to these costs already made or pledged by other countries now exceed £2 billion. It is not yet possible to estimate the total cost of helping Kurdish refugees, but the full Ministry of Defence cost of aircraft, helicopters and 3 Commando Brigade, when deployed, will be at least £2 million a week.
    Mrs. Mahon: Does the Minister accept that that is a shameful statistic? Why is it that the Government can respond so readily with massive resources for war, yet respond so inadequately to help the tragic Kurdish refugees in Iraq, Turkey and Iran and the Shias in the south?
    Mr. King: The hon. Lady decided on her supplementary question before she listened to the answer. I said that the overwhelming cost of the Gulf conflict is being met by contributions from other nations, for which we are extremely grateful. If she were prepared to speak up for her country occasionally, she would recognise that of all the countries that have responded to the Kurdish problem she need not feel ashamed of or seek to criticise this country, whose contribution, in terms of forces, helicopters and the aid that we have given, compares very favourably with that of any other country.
    Mrs. Mahon: On a point of order, Mr. Speaker. I am sure that you will agree that the Minister should withdraw that disgraceful remark.
    Mr. Ward: Does my right hon. Friend agree that the hon. Lady has once more demonstrated that she is more adept at criticising Britain than supporting it? Does he further agree that Britain has every reason to be proud of its contribution not only to the Gulf war, but to the relief operation for the Kurds? Are not the armed forces doing as much as the relief organisations?
    Mr. King: I am grateful to my hon. Friend. I was trying to point out to the hon. Lady, as she would have heard had

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    she listened to my answer, that I hoped that she would take pride in the contributions made by our airmen and helicopter pilots instead of leaping up to criticise their efforts. They come from her constituency as well. Why does not she speak up for the efforts that they are making to help alleviate a desperate and tragic situation in which all help is needed? I agree with her about one thing——
    Mr. Speaker: Order. I am sorry to interrupt the Secretary of State, but I remind him that he is answering a question from his hon. Friend.
    Mr. King: I am grateful for the support of my hon. Friend in reinforcing the point that I was making to the hon. Lady.
    Mr. O'Neill: In the light of the Secretary of State's point that the cost of the Gulf war will be somewhere in the region of £5 billion, why is it taking so long to produce the defence estimates this year? Will they incorporate the long-term costing overruns that have been reported in the press and are widely believed to be £21 billion over the next 10 years?
    Mr. King: The hon. Gentleman is getting a bit muddled. He probably knows that my right hon. and learned Friend the Chief Secretary has already confirmed that the defence estimate for this year is likely to be about £1·5 billion above its planned level. I have already had discussions with the Treasury about that. I have also made it clear to the House that it is vital that we learn the lessons of the events in the Gulf in carrying forward our plans. Before the summer recess I hope to publish the annual defence White Paper, in which I shall make clear the way ahead for "Options for Change".

    Missiles
    Mr. Nicholas Winterton: To ask the Secretary of State for Defence what recent meetings he has held with the aerospace industry about new generation missiles and on-going research.
    Mr. Alan Clark: My ministerial colleagues and I have regular contacts with the aerospace industry at which a wide range of issues is discussed.
    Mr. Winterton: I am grateful to my right hon. Friend for that brief reply. Does he accept that British Aerospace Dynamics has devoted many years and a great deal of money to the advanced short-range air-to-air missile project and makes a major contribution to the research and manufacturing base of our defence industries? Will he ensure that any decision that is likely to be taken by his Department bears that in mind so that the company can continue to make a major contribution to employment and to the health of the economy in the United Kingdom?
    Mr. Clark: I am grateful to my hon. Friend for his question. We have corresponded on the subject and I pay tribute to the detailed knowledge with which he expresses his mastery of the topic. It is perfectly true that British Aerospace has done a considerable amount of what will prove to be valuable work on the advanced short-range air-to-air missile, which will be the successor to the Sidewinder missile and which the United Kingdom still judges to be an essential enhancement to our air fighting capability. However, as my hon. Friend also knows, the original collaborative programme formed under a
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    memorandum of understanding with the United States has, effectively, collapsed and for that reason we must go through well-established procurement procedures and issue a new invitation to tender which I have done today. We await a response and I assume that British Aerospace will be among those responding.
    Mr. Rogers: I was appalled at Ministers' answers to some of the earlier questions from my hon. Friends. We certainly do not need lessons in patriotism from the Conservative party.
    Is the Minister of State aware of the substantial redundancies taking place in the aerospace industry? Does he realise that unless he stops dithering and makes some choices for "Options for Change", many highly skilled personnel in this country will be out of jobs?
    Mr. Clark: It is, of course, a general truth that the reduction in defence spending worldwide has led to redundancies in certain specialised industries, nowhere more than in the United States. I regret the fact that some skilled craftsmen may face redundancy, but I believe that their skills will be such that they will not be redundant for very long. That has nothing to do with the "Options for Change" exercise, but is British Aerospace anticipating its commercial decisions and programme. In the fullness of time, "Options for Change" will set the pattern for development in future years.
    Mr. Thurnham: Will my right hon. Friend confirm the outstanding importance of the missile industry in this country and bring forward purchase decisions wherever possible?
    Mr. Clark: Bringing forward purchase decisions is subject also to resource and budgetary constraints. I endorse what my hon. Friend said about the importance of the missile industry. I am fully aware of the fact that British Aerospace plays a key role in our indigenous missile capability.

    Tornado F3
    Mr. Menzies Campbell: To ask the Secretary of State for Defence if he will make a statement about the performance of the Tornado F3 aircraft in the Gulf war.
    Mr. Mans: To ask the Secretary of State for Defence if he will make a statement on the performance of the Foxhunter radar fitted to the Tornado F3 in the Gulf and elsewhere during the last nine months.
    Mr. Alan Clark: During the period of the Gulf crisis, including hostilities, RAF Tornado F3 aircraft flew over 2,000 operational combat air patrol sorties and made a valuable contribution to coalition air defence forces. The performance of all aircraft and equipment used in the Gulf operation, including the F3 and the Foxhunter radar, is being evaluated.
    Mr. Campbell: Does the Minister accept that his comments about the Royal Air Force will be particularly well received at RAF Leuchars in my constituency where 43 Squadron, which served with such distinction in the Gulf, is usually based? Has not the review of the performance of the F3 served only to underline the need for its supplement and eventual replacement by the European fighter aircraft? How confident is the Minister that the European fighter aircraft will reach the production

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    stage? Is his confidence dented to any extent by the continuing uncertainty about Germany's participation in the production stage of the programme?
    Mr. Clark: We are currently assessing studies into options for the future of the Tornado F3 and I hope to announce our conclusions shortly. As the hon. and learned Gentleman knows, the House will be debating Royal Air Force matters on Thursday this week. There is a question on the prospects for EFA later on the Order Paper, but I am entirely confident that the aircraft will move into production investment and later into the production stage.
    Mr. Mans: I thank my right hon. Friend for his earlier answer. Does the Foxhunter radar meet the original specification laid down by the Royal Air Force?
    Mr. Clark: Yes, the Foxhunter radar has already exceeded the original specification. In fact, there is an enhancement programme, which was originally intended to be complete in October this year, but which has been brought forward in respect of the aircraft operating in the Gulf. For that reason, it has not been uniformly faultless in its implementation, but considerable improvements have been made to the Foxhunter radar fitted to aircraft in the Gulf during the war.
    Mr. Dalyell: Could the House of Commons have a polite answer to a polite question? What is the truth or otherwise of the reports coming out of Washington that the accuracy of the coalition bombing was nothing like what was claimed during the Gulf war? Are they true or false?
    Mr. Clark: I hope that I am always polite to the hon. Gentleman, who is always very polite to me. The under-secretary-general of the United Nations, Mr. Ahtisaari, has conducted an investigation and written a report. The hon. Gentleman will probably not welcome his judgment that the strategic bombing was conducted with the highest accuracy. It was perfectly clear that every effort had been made to avoid civilian casualties.
    Mr. Bill Walker: Does my hon. Friend agree that one of the clear lessons to emerge from the Gulf war is the urgent need for an agile air superiority aircraft in battlefield conditions? The Royal Air Force has no such aircraft.
    Mr. Clark: I would not go so far as to say that, because in many circumstances the Tornado F3 is an excellent aircraft. As my hon. Friend knows, it was designed to intercept Soviet bombers over the north Norway sea. There are many lessons to be drawn on air superiority, air domination and equipment and, as I have told the House several times, they are all being carefully investigated and assessed.
    Mrs. Ray Michie: Having reviewed the performance of Tornados, will the Minister turn his attention to Buccaneer jets? A potentially catastrophic incident took place off the coast of my constituency yesterday, when a Buccaneer jet took evasive action and missed a ferry by only 40 ft. We accept that pilots must train, but does the right hon. Gentleman agree that it is wrong for them to do so along busy ferry lanes?
    Mr. Clark: The hon. Lady is right to make that point on behalf of her constituents. We have the report, but all that I can tell her is that the incident is being looked into.

    European Fighter Aircraft
    Mr. Dykes: To ask the Secretary of State for Defence if he will make a statement on the latest developments for the European fighter aircraft project.
    Mr. Alan Clark: The European fighter aircraft development programme proceeds with the full support of all four partner nations. Work is progressing well on the prototype aircraft, the first of which is scheduled to fly in spring next year. Of the 285 airframe equipments, 235 have been selected on a competitive basis. The development of the engine is also proceeding satisfactorily.
    Mr. Dykes: I thank the Minister for that reply and reassure him that, unlike the hon. and learned Member for Fife, North-East (Mr. Campbell), I shall not use the question to raise matters about the Tornado. I shall concentrate on the EFA. Subject to what my right hon. Friend may say in Thursday's debate, does he agree that the project is on course, that there is no question of the main partners withdrawing and that no fundamental problems remain with ancillary and related equipment?
    Mr. Clark: I can give my hon. Friend the assurance that he seeks. As he rightly said, this will probably be a subject on which further discussion will take place in Thursday's debate.
    Mr. Strang: Is the Minister aware that, to some extent, his answer is a vindication of the Government's stand on GEC-Ferranti? As time goes on, the Royal Air Force's case for this plane becomes stronger, not weaker. Is not it fair to say that although a decision on ordering the plane will not be taken for some years, we should not assume that we need all the partners on board to make it a success, although that is the favoured option?
    Mr. Clark: I am grateful for the hon. Gentleman's remarks and for his support in the trying period when we were attempting to put together the GEC-Ferranti deal, with the concept of the EFA radar in the forefront of our minds. With one exception, whom I do not see in the Chamber, all Opposition Members who had a constituency interest were supportive and that played a significant role. I welcome the hon. Gentleman's comments about proceeding even if all the other partners drop out. That would certainly be my instinct, but there is no denying that it would be extremely expensive. I do not think, I am glad to say, that there is any prospect of that having to be considered.

    Wroughton Airfield
    Mr. Simon Coombs: To ask the Secretary of State for Defence if he will make a statement on the future use by his Department of Wroughton airfield.
    The Parliamentary Under-Secretary of State for Defence Procurement (Mr. Kenneth Carlisle): The greater part of Wroughton airfield is owned by the Department of the Environment and occupied by the Science museum. On the Ministry of Defence-owned land around the perimeter, various support activities are undertaken by all three services and we have no present plans to change them.
    Mr. Coombs: Is my hon. Friend aware that a recent survey conducted by Swindon chamber of industry and

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    commerce showed widespread support for the development of a civilian air facility somewhere in the area? Will he bear that in mind when, with the Secretary of State for the Environment, he considers the future of Wroughton?
    Mr. Carlisle: As I said, at present we have no plans to move any of our activities from the land that we still own around the perimeter at Wroughton. My hon. Friend has always argued that if we should ever leave, we should fully consult local interests about the best use of the land and we would, of course, do that.

    The Gulf
    Mr. Ron Brown: To ask the Secretary of State for Defence how many units are currently engaged in the Gulf area; and if he will make a statement.
    Mr. Tom King: There are now some 6,000 service personnel in the Gulf area. An infantry battlegroup with supporting armour is in Kuwait. Further Army units in Saudi Arabia provide its support while organising the return of our equipment to Europe. A squadron of Tornado aircraft is currently based in Bahrain and one destroyer and two frigates continue to patrol the Gulf. Three Royal Navy mine counter-measures vessels and the Royal Engineers are continuing to participate in the international mine clearance operations in the northern Gulf and Kuwait itself. In addition, 20 British officers are serving with the United Nations observation mission, which will take full control of the demilitarised zone along the Iraq-Kuwait border tomorrow.
    Mr. Brown: There is a problem about the new imperialism. Why should British troops remain in that part of the world? We must remember that the Security Council has not endorsed that action and that the lives of British troops are being put at risk. Surely the Kurdish problem should be resolved by all the countries in that area, because it goes wider than Iraq. This issue should be resolved through negotiation rather than confrontation. There must—I hope that there will—be a peaceful way out. What will the Minister and the Government do to achieve that aim? Previous Tory Governments have been involved in all sorts of problems in the Gulf area. It is about time that the issue of the Kurdish people was resolved because they have a right to independence.
    Mr. King: The hon. Gentleman is now talking about something that was not in his original question. We have no wish to keep British troops in the Gulf in the long term. At the moment, we are there to ensure a safe handover to the United Nations observation mission which, as the hon. Gentleman would know if he had listened to my answer, is due to take over tomorrow. Soon after that, I hope to see the withdrawal from Kuwait of both the American and our own forces.
    Dr. Goodson-Wickes: Does my right hon. Friend agree that one of the major British contributions to the Gulf campaign was the tri-service co-operation, which was for the good of everybody in the area? Were not regulars, reservists and the Territorial Army able to work together with considerable force for the good of the area both now and in the future?
    Mr. King: I certainly endorse that. The reservists, including my hon. Friend, played a valuable part. I need
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    to check the figure, but I believe that some reservists are there at the moment, helping with the withdrawal and recovery of equipment from the Gulf and especially with transport.
    Dr. Reid: Will the Secretary of State confirm that British soldiers of the Royal Engineers are to be effectively hired out to a private British company, putting their lives at risk in the dangerous task of locating minefields in Kuwait? Will he further confirm that in that cosy deal both the Royal Ordnance company and the MOD will receive substantial payments for the work, but that none of it will be passed on to the soldiers involved? Does not the right hon. Gentleman realise that we are disgracefully misusing our young soldiers if we subcontract them out as cheap labour—and perhaps as cheap lives—to a private, profit-making concern? Does he further realise that that shabby treatment in privatising the operations of our armed forces can do nothing but undermine the morale of our troops after their splendid and courageous efforts in the Gulf war?
    Mr. King: That is a disgraceful distortion of what the Corps of Royal Engineers has been doing in Kuwait. The hon. Gentleman does not seem to be aware that since the recovery and liberation of Kuwait, the Corps of Royal Engineers has done excellent work in giving humanitarian relief and in helping the Kuwaiti Government to make it possible for fuel, water and power supplies to be restored, and to remove booby traps from the plants involved. We thought, and the Kuwaiti Government thought it right, that if we were to continue this work, which we have been doing free of charge in a humanitarian cause, they should now pay for the services being provided. Royal Ordnance will be directly responsible for minefield clearance and our engineers will be involved only in locating, surveying and marking minefields. We have said that they will continue that work to enable Royal Ordnance to build up its team to take over. I have specifically insisted that the commander of the 21 EOD squadron should have sole responsibility for deciding on the spot what work shall or shall not be done.
    Mr. Tredinnick: Is my right hon. Friend aware that there is considerable concern among the Gulf units because the £30 water allowance has been stopped? My hon. and gallant Friend the Member for Wimbledon (Dr. Goodson-Wickes) tells me that that was in the personal gift of the King of Saudi Arabia. Nevertheless, will my right hon. Friend agree to consider the problem as temperatures soar, to ensure that the troops have the water supplies that they need?
    Mr. King: A problem arose in the first deployment of troops, but I was not aware that it had arisen more recently. However, I shall consider the issue to see whether it has arisen again.

    Royal Naval Bases
    Mr. Douglas: To ask the Secretary of State for Defence if he will make a statement on the numbers currently employed at the royal naval bases.
    Mr. Kenneth Carlisle: There are currently about 26,000 service personnel and 16,000 civilian personnel employed at Her Majesty's naval bases. Those figures include

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    personnel serving afloat in ships base ported at the naval bases and support units directly connected with the work of the bases.
    Mr. Douglas: Will the Minister acknowledge that, while "Options for Change" will involve reductions in defence employment generally, and those reductions might be compensated by the private sector, any reductions in employment in the dockyards will be a matter for which his Ministry will be directly responsible? If Ministers make statements—albeit in their constituency capacity—that one naval base will not close, the repercussions on morale in other areas will be severe. Will he confirm that there will be no reduction in employment at Rosyth naval base without prior consultation with, and the approval of, the Scottish Office?
    Mr. Carlisle: The hon. Gentleman has confused two different operations. There is a dockyard at Rosyth, which he mentioned in the first part of his question, and there is a naval base, which he mentioned in the second part. As we have said many times, no decisions have been taken on naval bases and we are considering the future of them all. In view of the smaller Navy envisaged under "Options for Change", it would be wrong not to do so. We shall consider all the relevant factors in reaching a decision.
    Mr. David Martin: As my hon. Friend knows, when naval bases are mentioned, people think of Portsmouth. Will he assure me that the contribution made by the work force at the naval base in Portsmouth will be taken into account at all times and that there are no plans to shut the base, because there are rumours, which are sometimes stirred up by the Opposition?
    Mr. Carlisle: As my hon. Friend will realise, under "Options for Change", the number of frigates and destroyers is being reduced from 50 to about 40. It would be a dereliction of duty if we did not seek savings at least as great on the support side. We are examining all naval bases, but I confirm that we have no plans to close the base in Portsmouth. As Devonport has also been mentioned, I must say that I deplore attempts by the Opposition to spread as much alarm and fright as possible about that, for purely political reasons. My right hon. Friend the Minister of State for Defence Procurement has made the position absolutely clear: there are no plans to close Devonport.
    Mr. Duffy: In any post-Gulf review of the fleet and corresponding support in the dockyards, whether that be achieved in the context of "Options for Change" or as a result of Treasury pressure, will the Minister and the Minister of State for Defence Procurement bear in mind that the last time such a review was undertaken, 10 years ago, it was necessary within a year or so to set in hand a most significant revision? Let us not get it wrong again.
    Mr. Carlisle: The hon. Gentleman is right. We have to take very grave decisions. We shall consider all the factors most carefully.
    Mr. Ian Bruce: Will my hon. Friend confirm that the Minister of State for Defence Procurement was able to say, without the benefit of a study, that Devonport was not to close? Can my hon. Friend the Minister today set at rest the minds of my constituents in Portland, who have had the benefit of a study which shows that trying to move the
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    facilities elsewhere would be too expensive? Can he announce today that there will be no closure at Portland naval base?
    Mr. Carlisle: As I said in reply to the hon. Member for Dunfermline, West (Mr. Douglas), under "Options for Change" we have to consider all the options open to us. No decisions have yet been taken and we have no plans to close the base at Portland.
    Mr. O'Neill: Will the Under-Secretary confirm for the benefit of the House that no decisions have been taken to close Rosyth, Devonport or Portland? Therefore, what the Minister of State for Defence Procurement said yesterday is worthless and was simply an electioneering gimmick to try to hold on to Plymouth council for the Tories.
    Mr. Carlisle: The hon. Gentleman is making a false allegation. We were dealing with unfounded rumours and scaremongering. As I said, we are considering all the options. No decisions have yet been made and we shall take those decisions with the greatest care.

    Arms Trading
    Ms. Ruddock: To ask the Secretary of State for Defence if he will make a statement about his Department's role in the trading of arms.
    Mr. Alan Clark: The Department will continue to support the sales of British defence equipment and services overseas provided that they are compatible with our own security and broader political and humanitarian considerations.
    Ms. Ruddock: Learning from the consequences of arming Saddam Hussein, will the Minister instruct the Defence Export Services Organisation to stop promoting sales among other Saddam Husseins around the world? Will he change his Department's policy and make clear what is lethal and non-lethal equipment and support the proposed United Nations arms transfer register? Finally——
    Mr. Speaker: Briefly please. This is wide of the original question.
    Ms. Ruddock: Finally, will the Minister accept from me that, given continuing oppression in the Gulf, there is considerable revulsion among the British people about the staging of an international arms sale in Birmingham next month? Will he withdraw the Government's support for that event?
    Mr. Clark: My right hon. Friend the Prime Minister stated in Luxembourg his full support for a United Nations arms transfer register. That is being pursued rigorously within the United Nations. To be fully effective, such a register would have to be universal and undiscriminatory. However, I remind the hon. Member for Lewisham, Deptford (Ms. Ruddock) that the United Kingdom chairs the experts group in the United Nations, the purpose of which is to measure and to increase transparency in arms transfers. If the hon. Lady reflects on that, she will realise that considerable progress is being made.
    Mr. Brazier: Is it not an uncomfortable fact that many extreme and unpleasant third-world regimes have enormous stocks of weaponry, and will continue to

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    acquire them from the Soviet Union and from other sources over which we have no control? Would it not be a grave dereliction of duty if this country, or other western countries, were to cut off the supply of weapons to our allies, who may need them on occasion to defend themselves from those countries?
    Mr. Clark: My hon. Friend is right. The basis of Britain's role is the right to self-defence, and that right is enshrined in article 51 of the United Nations charter.
    Mr. Clelland: Is the Minister aware that our trade in arms will be severely and adversely affected if he does not order Challenger 2, as it is now clear that there are friendly nations who are interested in the equipment and are waiting to see what the British Government are going to do? Will he stop the unnecessary dithering and delay over the issue and tell us what his intentions are now?
    Mr. Clark: I welcome the hon. Gentleman's attitude. I hope that, in the fullness of time, he will have a quiet word with the hon. Member for Lewisham, Deptford. I am certainly well aware of all the factors that the hon. Gentleman has mentioned, and they will be borne in mind as we consider the many different elements to which we must pay attention in coming to a decision on the future tank of the British Army.

    New Zealand
    Mr. Amos: To ask the Secretary of State for Defence if he will meet the New Zealand Minister of Defence to discuss closer co-operation between the two countries; and if he will make a statement.
    Mr. Tom King: I was in contact with the New Zealand Minister of Defence, Mr. Cooper, about his country's excellent contribution to allied efforts in the Gulf, but we have no early plans to meet. I had a meeting last week with Mr. McKinnon, the New Zealand deputy Prime Minister and Minister for Foreign Affairs.
    Mr. Amos: In view of the extremely close historical and cultural links between the two countries, and given the change of Government in New Zealand last October, will my right hon. Friend ensure that the United Kingdom plays an active part in maintaining the essential defence link with that country, which has only 3 million people?
    Mr. King: I recognise the close relationship that we have had with New Zealand and continue to have in many aspects of defence. My noble Friend the Parliamentary Under-Secretary of State for the Armed Forces is with the New Zealand Defence Minister at this moment at the five power defence arrangements conference in Malaysia. We shall certainly seek to develop our defence arrangements.

    United Nations Forces
    Mr. Simon Hughes: To ask the Secretary of State for Defence what is the cost to his Department of the British contribution to the United Nations forces.
    Mr. Kenneth Carlisle: The cost of United Kingdom support for United Nations forces is met by the Foreign and Commonwealth Office by payment to the Ministry of Defence for the assistance provided.
    Mr. Hughes: Many people will welcome the announcement that British forces are to be replaced by United
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    Nations forces in Iraq. Does the Minister agree that the most effective use of British forces abroad is under the United Nations flag?
    Mr. Carlisle: The hon. Gentleman makes a good point. We can all welcome the Prime Minister's brave initiative in northern Iraq. The sending of United Nations troops there is under discussion in the United Nations.

    Gulf War
    Mr. Trotter: To ask the Secretary of State for Defence what assessment he has made of the extent to which the future procurement of equipment for the armed forces will be affected by the experience of the Gulf war.
    Mr. Alan Clark: We are considering the outcome of the campaign and the conclusions to be drawn from it in this as in other areas.
    Mr. Trotter: Does my right hon. Friend agree that, whatever the detailed lessons to be learnt from the Gulf campaign may be, there can be no doubt that we still need tanks for the British Army? Does he agree also that there is no reason why we should not proceed with placing a new order and that that order should be for the successful Challenger?
    Mr. Clark: I agree with the general lesson that my hon. Friend has drawn. As I have said, we are considering all the elements that we need to consider in coming to a decision on the winner of the competition, and I hope that the decision will not be delayed too long.
    Mr. Nellist: Should not one of the lessons of the Gulf war—about the availability of equipment—be absorbed not only within the right hon. Gentleman's Department but commercially? For example, the Birmingham arms fair will open two weeks from today. What is the difference between General Pinochet and Saddam Hussein? Why is the Department laying out the red-carpet treatment for the Butcher of Santiago to come to this country, go to Royal Ordnance plc, go to British Aerospace, and, in two weeks today, go to Birmingham? Has the Department learnt nothing at all from the Gulf?
    Mr. Clark: Neither General Pinochet nor Saddam Hussein has ever been, or ever will be, an official guest of the British Government.

    Horseshoe Barracks, Shoeburyness
    Mr. Teddy Taylor: To ask the Secretary of State for Defence what consideration he has given to the future of the Horseshoe barracks at Shoeburyness, Essex; and if he will make a statement.
    Mr. Kenneth Carlisle: We aim to sell Horseshoe barracks as soon as it is financially viable for us to move out. We hope to apply for outline planning consent later this year.
    Mr. Taylor: As this superb site of 22 acres has been virtually surplus to requirements for several years, does the Minister agree that it is time that the Government made up their mind what to do with it? Will he consider the possibility of turning it into a study centre for a university or other institution of learning?
    Mr. Carlisle: I understand my hon. Friend's wish to see this site put to a beneficial purpose. The Government are anxious to help, provided that we can afford to move and that we have the support of the local authority for a sensitive development.

  PRIME MINISTER

    Engagements
    Mr. Kirkwood: To ask the Prime Minister if he will list his official engagements for Tuesday 30 April
    The Prime Minister (Mr. John Major): This morning I had meetings with ministerial colleagues and others. In addition to my duties in this House, I shall be having further meetings later today.
    Mr. Kirkwood: Does the Prime Minister recall that when he was a parliamentary candidate in 1983 he gave a commitment, on the questionnaire he returned to the World Development Movement, that he would want to see British aid increased, over a period of five years, to the official United Nations target of 0·7 per cent. of the country's national wealth? Will he confirm that the level of official aid is now running at well under half that target figure, at a time when 27 million people on the continent of Africa face the prospect of imminent starvation? Does not the right hon. Gentleman recognise that his credibility as Prime Minister is at stake? If he does not find the money to meet the commitment that he made in 1983, his credibility will be severely dented.
    The Prime Minister: The important point is that our aid programme is both effective and growing. Where necessary, as the hon. Gentleman will have seen in the case of the Kurds, we provide extra and well-targeted aid. For example, we have now provided more than £60 million to aid the Kurds, and the amount is rising each week. We still accept the principle of the 0·7 per cent. aid target, and like other donors, we shall move to it as and when economic circumstances permit.
    Mr. Dunn: Can the Prime Minister give a guarantee that the advanced level examination will be maintained, and not diluted or weakened in any way whatsoever?
    The Prime Minister: I can certainly say that my right hon. Friend the Secretary of State for Education and Science will shortly announce comprehensive proposals for 16 to 19-year-olds. I agree with the point that my hon. Friend has made so clearly—that the Opposition's proposals for slimmed-down A-levels are likely to mean more certificates, but certificates of less value.
    Mr. Kinnock: Will the Prime Minister take this opportunity to reject the view of his Secretary of State for Health, who says that cuts in the numbers of doctors and nurses and cuts in patient care in opted-out hospitals are nothing to do with him?
    The Prime Minister: There are two things that I hope that the right hon. Gentleman knows about the health service-first, the vast increases that there have been in the numbers of doctors, nurses and other people in the service and, secondly, that the purpose of the reforms is to make sure that the management of the service becomes as efficient as its medical delivery.
    Mr. Kinnock: Will the Prime Minister tell us where he thinks responsibility lies? The managers of the the Guy's and Lewisham opted-out hospitals have said that there will be
    "substantial and inevitable reductions in direct patient care."
    How can the Prime Minister justify turning his back on the consequences of his own policies? Does not he think that he has a moral obligation to ensure that the loss of vital patient care services at Guy's and Lewisham is not repeated anywhere else? Will he ensure that opting out is stopped right away?
    The Prime Minister: If the right hon. Gentleman were really concerned about matters like hospital doctors, he might perhaps have looked at their pay record and have seen a real terms increase of 37 per cent. under this Government and nothing remotely like that increase under the Labour Government, for doctors' pay fell under the Labour Government.
    Mr. Kinnock: Is not it clear from the Prime Minister's answers that when it comes to the national health service and patient care, he, like his predecessor, could not care less?
    The Prime Minister: The right hon. Gentleman should know that I am personally committed to the national health service, and that I want the management of the service to be as efficient as the medical care in the service. Unless and until it is, we shall not deliver the level or amount of patient care that we need.
    Sir Nicholas Fairbairn: If my right hon. Friend has read the latest Labour party document——
    Mr. Speaker: Order. Even if he has, would the hon. and learned Gentleman please ask a question relating to the Prime Minister's responsibility?
    Sir Nicholas Fairbairn: To the extent that it is readable, will my hon. Friend endorse the fact that the poorest in the country will be poorer and the part of——
    Mr. Speaker: Order. Will the hon. and learned Gentleman please ask a question relating to the Prime Minister's responsibility? He may not ask the Prime Minister directly about the Opposition's policy.
    Sir Nicholas Fairbairn: Will my right hon. Friend, as a matter of his responsibility, having read that document, ensure that a Labour Government never return, so that the poor do not get poorer? The part of the country that would get poorest would be Scotland.
    The Prime Minister: In answer to my hon. and learned Friend's direct question; willingly I will make sure that a Labour Government are never returned to power. I think that Labour's policies will be of some assistance in that, for the electorate know that it has no fresh policies and no fresh ideas and that many of its policies, like renationalisation of British Telecom, it fails to put in its policy documents.
    Mr. Archer: To ask the Prime Minister if he will list his official engagements for Tuesday 30 April.
    The Prime Minister: I refer the right hon. and learned Gentleman to the reply that I gave some moments ago.
    Mr. Archer: Will the right hon. Gentleman find time to recognise in some way that today is the anniversary of the

    165
    completion in 1821 of the first iron steamship, all the components of which were completed in one factory in the industrial black country, launching an industry which over the years offered employment to millions? Since over the past 12 months the numbers employed in manufacturing industry have fallen by 178,000, does the Prime Minister wish to remember our industrial history, or does he agree with his Secretary of State for Education and Science that history is unnecessary and perhaps better forgotten—[Interruption.]
    Mr. Speaker: Order. We are taking a long time over this history lesson.
    Mr. Archer:—or does he find it hard to make up his mind?
    The Prime Minister: The right hon. and learned Gentleman, apart from misquoting my right hon. and learned Friend, has picked an odd day to raise that point because, as the Confederation of British Industry business agenda brochure shows, manufacturing output has just risen to new record heights, and in the last quarter of 1990 it stood 50 per cent. higher than in the first quarter of 1981.
    Mr. Harry Greenway: To ask the Prime Minister if he will list his official engagements for Tuesday 30 April.
    The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.
    Mr. Greenway: Is my right hon. Friend aware of the widespread support for his personal vision of a first-class education for everyone? To that end, will not the promised pay review body for teachers bring better professional status for them without the strikes that have so damaged education? Does not that mean a better deal for teachers all round, for children and in the end for the prosperity of the country?
    The Prime Minister: I believe that it does. I believe that the introduction of a pay review body for teachers will be warmly welcomed. The House will have noticed that at the end of a six-hour debate yesterday, no one was clear whether the Opposition were for or against the pay review body, because the National Union of Teachers had not yet told them.
    Mr. Ernie Ross: To ask the Prime Minister if he will list his official engagements for Tuesday 30 April.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Ross: Can the Prime Minister confirm that when Peter Griffiths was given the job of running the opted-out Guy's Hospital, the salary for that post was doubled to £90,000 a year, and both he and his wife were given cars? What possible justification for this scandalous misuse of public money can there be when much-needed doctors and nurses at the same hospital are facing the sack?
    The Prime Minister: Peter Griffiths has the job of ensuring the adequate and proper delivery of services and he is committed to achieving that. What has so frequently damaged services in the national health service is that whenever there has been a move towards natural and necessary rationalisation, the Opposition have turned it into a political football.
    Mr. Colvin: To ask the Prime Minister if he will list his official engagements for Tuesday 30 April.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Colvin: If one man's pay rise is another man's job loss, how many jobs does my right hon. Friend think are being lost in Britain this year as a result of the astronomic pay rises which Britain's top business men awarded themselves last year? Is it not the duty of leaders to give a lead on pay restraint?
    The Prime Minister: Pay must always reflect both performance and responsibility. In many countries, pay already includes a large performance element and I thoroughly welcome that. In the difficult months that we have recently seen many top managers have held or cut their pay, and that is an excellent example.
    Mr. Ashdown: Does the Prime Minister realise that many in our country will feel pride at the role that he and Britain have played in relieving the suffering of the Kurds? However, many will have felt dismay at the complacent answer which he has just given on the African famine. Does he not realise the scale of that disaster, in which not 1 million but more than 20 million lives are now at risk? Will he assure the House and the nation that he will apply the same determination to making sure that we play our part in relieving that towering tragedy that he applied to assisting the Kurds?
    The Prime Minister: I am grateful to the right hon. Gentleman for his first remark. As to his latter remarks, I would remind him that this country has committed something over £4 billion to Africa in the past decade and that we invariably play a significant part in dealing with the tragedies that occasionally occur, not only in Africa but elsewhere. Even as the right hon. Gentleman asks his question, we are examining what assistance might be given to Bangladesh in the aftermath of the cyclone.
    Mr. Viggers: To ask the Prime Minister if he will list his official engagements for Tuesday 30 April.
    The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.
    Mr. Viggers: In the difficult international climate for business expansion and employment, is it not clear that the countries that will benefit first from a renewal of confidence will be those with flexible work practices? Does my right hon. Friend agree that the worst that could happen would be for us to adopt the statutory pay and training schemes advocated by the Labour party?
    The Prime Minister: I entirely agree with my hon. Friend. The greatest danger, of course, would be to adopt the Labour party's minimum wage plans which, were the right hon. Gentleman to implement them, would inflict not the 750,000 to 1 million job losses that we thought they would but between 1 million and 2 million job losses.
    Mr. John Evans: To ask the Prime Minister if he will list his official engagements for Tuesday 30 April.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Evans: Has the Prime Minister had the opportunity to read early-day motion 747, which has been signed by

    167
    148 Members who are worried about the proposed takeover of the Tootal Group plc by Coats Viyella plc and the impact on jobs in the textile industry? Is he aware that 540 workers at the Tootal Slimma works in St. Helens fear that they will face the sack if that unnecessary bid succeeds? Will the right hon. Gentleman instruct the
    168
    Secretary of State for Trade and Industry to change his mind and refer this unnecessary bid to the Monopolies and Mergers Commission?
    The Prime Minister: That is a matter for my right hon. Friend the Secretary of State to consider. The hon. Gentleman and his hon. Friends are in no position to talk about unemployment while they hold to their minimum wage proposals.

Points of Order
3.31 pm
Mr. Donald Dewar: On a point of order, Mr. Speaker. This morning, the Secretary of State for Scotland announced that he would uphold the appeal by Nirex against the refusal to grant planning permission for test boring in Caithness. As you will appreciate, this is a matter of great concern and controversy in Scotland. People are afraid that the decision will allow Nirex to go ahead with any scheme it has to build a deep depository for nuclear waste in Caithness.
In a debate last Thursday led by the Scottish Office, there was broad agreement among almost every party that contributed and among all hon. Members, whether for or against the nuclear industry, that Caithness was not a preferred option for such a scheme. In those circumstances, may I ask whether the Government have said that they will make a statement or offer an explanation about a matter that clearly will be of great interest to the people of Scotland?
Mr. Speaker: I take it that that matter arose after 12 o'clock, when I consider such matters?
Mr. Dewar: Yes, Sir.
Mr. Speaker: If the hon. Member's comments are correct, I am sure that they will have been heard by the Government Front Benchers who are responsible for these matters?
Mr. James Wallace: Further to the point of order, Mr. Speaker.
Mr. Speaker: Does it concern a matter raised today?
Mr. Wallace: The point made by the hon. Member for Glasgow, Garscadden (Mr. Dewar) is valid, but the Secretary of State for the Environment is ultimately responsible for Nirex and the policy which it is pursuing. Although the Secretary of State for Scotland could have denied planning permission, the Secretary of State for the Environment can clear up this matter and take away this blight from the north of Scotland if he instructs Nirex to get packing and leave Caithness.
Mr. Speaker: That is as may be, but that matter should be raised at another time.

Points of Order
  BILLS PRESENTED
    BAN OF IMPORTS (CHILD LABOUR)
    Mr. Jimmy Dunnachie, supported by Mrs. Irene Adams, Mr. Jimmy Wray, Mr. Frank Haynes, Mr. Jimmy Hood, Mr. Alan Meale, Mr. John Hughes, Mr. Frank Cook, Mr. Don Dixon, Mr. George Galloway, Mr. Keith Vaz and Mr. Mike Watson, presented a Bill to prohibit the sale of imported goods, the manufacture of which has involved child labour: And the same was read the First time; and ordered to be read a Second time upon Friday 10 May and to be printed. [Bill 148.]

    GAMING MACHINES (PROHIBITION ON USE BY PERSONS UNDER EIGHTEEN)
    Mr. Jimmy Dunnachie, supported by Mr. Alan Meale, Mr. John Hughes, Dr. John Reid, Mr. David Marshall, Mrs. Irene Adams, Mr. Thomas McAvoy, Mr. Michael J.
    170
    Martin, Mr. Robert Litherland, Mr. Stanley Orme and Mr. Thomas Graham, presented a Bill to prohibit the use of gaming machines in cafeterias, small shops, amusement arcades, snack bars, fairgrounds and other places by persons under the age of eighteen: And the same was read the First time; and ordered to be read a Second time upon Friday 10 May and to be printed. [Bill 149.]

Statutory Instruments, &c.
Mr. Speaker: By leave of the House, I shall put together the Questions on the four motions relating to statutory instruments.
Mrs. Alice Mahon rose——
Mr. Speaker: Order. The hon. Lady must see that I am on my feet.
By leave of the House, I shall put together the Questions on the four motions relating to statutory instruments.
Ordered,
That the Estate Agents (Specified Offences) (No. 2) Order 1991 (S.I., 1991, No. 1091) be referred to a Standing Committee on Statutory Instruments, &c.
That the Estate Agents (Undesirable Practices) (No. 2) Order 1991 (S.I., 1991, No. 1032) be referred to a Standing Committee on Statutory Instruments, &c.
That the draft Employment Codes of Practice (Revocation) Order 1991 be referred to a Standing Committee on Statutory Instruments, &c.
That the draft Veterinary Surgeons Qualifications (EEC Recognition) (German Democratic Republic Qualifications) Order 1991 be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Chapman.]
Mr. Speaker: Now, what point of order can arise out of that matter?
Mrs. Mahon: On a point of order, Mr. Speaker. Will you examine the Official Report? When you have done so, will you instruct the Secretary of State for Defence to issue an apology to me? He gravely impugned my character. He suggested that I was in some way unpatriotic, which is not true. I was criticising the Government—not the country, not the generosity of the British people and certainly not the bravery of our troops.
Several Hon. Members rose——
Mr. Speaker: Order. Let me deal with one matter at a time, please. I must say to the hon. Member for Halifax (Mrs. Mahon) that I am sure that the Secretary of State would not make that allegation against any hon. Member. Many rough things are said in the Chamber. I am not responsible for answers or for questions, provided they are in order.
Mr. David Winnick: On a point of order, Mr. Speaker. I wonder whether you would give further consideration to the point made by my hon. Friend the Member for Halifax (Mrs. Mahon). I take exactly the opposite view to her on the Gulf war, but she is an hon. Member of the utmost integrity. It would be extremely unfortunate if people gained a different impression from the Secretary of State. An apology is due to her.
Mr. Speaker: I say again, rough things are said here. I am sure that what the hon. Lady has alleged will be reported to the Secretary of State for Defence, and that if he has impugned the hon. Lady's honour, he will apologise to her.
Mr. Tam Dalyell: Further to that point of order, Mr. Speaker.
Mr. Speaker: Goodness me. We have a very busy day ahead of us.
Mr. Dalyell: It is true, Mr. Speaker, that many rough things are said in this Chamber, but what is entirely new is calculated rudeness in the answers that Ministers give to questions.
Mr. Speaker: As we approach an election—[HON. MEMBERS: "Oh!"]—it is probably true that the temperature rises a bit in this place. Ten-minute Bill—Mr. Banks.
Mr. Dick Douglas: On a point of order, Mr. Speaker. During Defence questions, certain questions were asked of the Secretary of Stale, and answered by the Under- Secretary of State for Defence Procurement, about the future of naval bases. The Prime Minister is in his place now, and has an opportunity to consider the co-ordination of policy in respect of that matter. It is extremely disturbing when Ministers make statements——
Mr. Speaker: Order. The hon. Member is clearly attempting a continuation of Question Time under the guise of a point of order. We cannot deal with his point now.
Mr. Doug Hoyle: On a point of order, Mr. Speaker. Did I hear you say, "As we approach an election"? If so, can you give us a date?
Mr. Speaker: It was unwise of me to express an opinion. Mr. Tony Banks.
Mr. Harry Ewing: On a point of order, Mr. Speaker.
Mr. Tony Banks: Mine will soon be a five-minute Bill.
Mr. Speaker: Is it a point of order for me, or about me?
Mr. Ewing: I always try to clear up misunderstandings, Mr. Speaker. When you referred to the onset of an election, did you have in mind a general election, or the election of a new Speaker?
Mr. Speaker: They are synonymous.

Abolition of Political Honours
3.36 pm
Mr. Tony Banks: I now realise, Mr. Speaker, that this might be a touchy subject.
I beg to move,
That leave be given to bring in a Bill to abolish political honours; and for connected purposes.
Some argue that the honours system should be abolished altogether—[HON. MEMBERS: "Hear, hear."] Obviously a number of my colleagues have no expectation of honours to come, and agree that the honours system should be abolished lock, stock and barrel-—or rather, coronet, garter and gong.
I suspect that such a proposal would not be universally popular in the House or in the country as a whole. Most people seem to agree that a country should maintain an honours system that enables the community to express its gratitude to those who have rendered a signal service. I refer to acts of bravery or heroism involving the saving of life; people who have dedicated their lives to the service of others without expectation of preferment or advantage; and those who have enhanced, beautified, or enriched our lives through their contribution to science, the arts, sport or entertainment.
Society will always want to acknowledge such contributions in some fashion, and an honours system is one way. Of course, one cannot beat decent wages and conditions, but the honours system can be an acceptable way of saying thank you. It pleases the recipient, and does not cost the rest of us an arm and a leg.
Unfortunately, the honours system has always been wholly or partially corrupt. Large numbers of those who regard themselves members of today's so-called nobility are nothing more than latter-day beneficiaries of past political, financial, or sexual favours rendered unto past kings, queens and prime ministers. The mind boggles at that latter category.
One recalls the famous quotation of the Rev. John Ball:
"When Adam dolve, and Eve span,
Who was then the gentleman?"
That puts the entire concept of class and nobility into perspective.
In the modern age, Lloyd George blew the gaff on the whole system by playing the part of the honest crook and openly selling honours. The scandal broke with the publication of the 1922 honours list and resulted in the establishment of the Political Honours Scrutiny Committee in 1924 to ensure that the most obviously corrupt nominees for honours were weeded out.
That task has proved difficult for the Committee, which has enjoyed a rather patchy record since 1924. Notwithstanding all its efforts, a large number of honoured individuals have turned out to be traitors, crooks and miscreants.
At present, the noble Lords Shackleton, Pym and Grimond are doing the laundering, and they have a great problem on their hands. However, my Bill—if it were allowed to be introduced—would replace the Political Honours Scrutiny Committee with a joint Select Committee of both Houses.
The honours system undoubtedly continues to give pleasure to recipients, but there is a growing awareness among the public that the system is fixed and decidedly tacky. Indeed, the honours system might better be

173
described in certain vital respects as the kickback or pay-off system. The time has come to make some fundamental and cleansing changes to the entire system.
Many of today's awards do not fall into the categories that I listed. They are not honours bestowed for conspicuous bravery or service but rather the routine gongs handed out in the civil service and military forces on the less than distinguished basis of Buggins' turn. The honours go according to rank in those services and are allocated in a ratio of honours to post holders.
There is a wide range of honours to choose from, since they consist of five degrees of the peerage; one of baronets; 14 knighthoods or orders comprising 11 different methods of securing a knighthood—28 ranks in all, excluding the two Indian and one Irish order which have now lapsed since independence, which account for another seven ranks, plus 27 medals or decorations.
The entire edifice reeks of snobbery and class division. If the Prime Minister meant what he said about a classless society, he could do a lot worse than start on the honours system and eliminate some of those preposterous awards. We know that there are class divisions galore in the civil service and the armed forces. Routine awarding of honours to those people simply reinforces and reflects that class system.
Honours given to civil servants and senior military officers as a matter of course, accompanying their not insubstantial pay and rations, are not worthy of being described as honours. Thus, the next recommendation in my Bill would be to exclude all civil servants and military personnel from receiving routine honours.
The next category of people who should normally be precluded from receiving honours are politicans—[Interruption.] I expected that to go down a lot worse. Since politicians and civil servants decide who is to be recommended for honours, it is no mere coincidence that so many civil servants and politicians receive honours.
In 1979, the right hon. Member for Finchley (Mrs. Thatcher) revised the practice of awarding party political honours. Those honours are used by party Whips and Prime Ministers as a way to exercise control. Honours are employed as an integral and important part of the patronage system, which is so debilitating of principle and integrity in politics today.
Both the right hon. Member for Finchley and her predecessor, the right hon. Member for Old Bexley and Sidcup (Mr. Heath), justified their use of party political honours on the basis that political parties were integral to the democratic process. One accepts that, but, that being so, why do we not publicly fund political parties and cease the use of the honours system as a way of rewarding time servers in this House and corporate financiers outside it?
Having said that my Bill would normally preclude honours for Members of Parliament, there must still be room for the appointment of working peers to the House of Lords while it exists in its present form—we saw the announcement that was made today.
I now come to the most venal and cynical use of the honours system—as a way of rewarding business men who give money and newspaper editors who give unstinting support to the Conservative party. That practice represents the selling of honours by any other name.
174
I asked the Labour Research Department—an independent body which is not connected to the Labour party—to collate the money provided by big business to the Tory party since 1979, with the honours received by the chairmen and managing directors of those same companies. I refer only to peerages and knighthoods, and where the company was mentioned in the citation. The statistics show that over £12 million was received by the Tory party from those companies. In return, their chairmen and managing directors received a total of 75 peerages and knighthoods. It works out at a going rate of around £160,000 an honour, a sum which would have pleased Maundy Gregory, Lloyd George's hawker of titles, but which is unlikely to enhance the integrity of the honours system today. My Bill would preclude anyone at board or executive level from accepting an honour if their company has made a donation to a political party, whether Conservative, Liberal Democrat or Labour, so I am being wholly impartial.
The Bill would also exclude working journalists from receiving honours. The recent honouring of the editors of the Daily Express a and the Daily Star by the last Prime Minister was revolting. It was obviously their pay-off for being loyal Tory hacks. Democracy needs impartial and objective media. No self-respecting journalist should ever accept a party political honour. Politicians using the honours system to buy the media is even more dangerous than selling peerages on a street corner.
In short, the honours system has been hijacked by the party political machines, particularly that of the Tory party which shamelessly exploits the system for its own base purposes. If we are to retain an honours system, it should be based on criteria that are publicly known and approved of. It should be restricted to those persons whose services to the community are acknowledged by common consent to be worthy of reward. Excluding time-serving civil servants, politicians, brass hats, Tory business men and hack journalists would be widely welcomed in the country. I seek the leave of the House to introduce my Bill and begin the cleansing process.
3.46 pm
Mr. Teddy Taylor rose——
Mr. Speaker: Is the hon. Gentleman seeking to oppose the Bill?
Mr. Taylor: Yes, I want to oppose it.
Sir Nicholas Fairbairn rose——[Interruption.]
Mr. Taylor: I hope that the House—[Interruption.]
Mr. Speaker: Order. The hon. Member for Southend, East (Mr. Taylor) has the right to oppose the Bill.
Mr. Dennis Canavan: On a point of order, Mr. Speaker.
Mr. Speaker: What possible point of order can arise on my having called the hon. Member for Southend, East to oppose this ten-minute Bill?
Mr. Canavan: My point of order, Mr. Speaker, is quite admissible. Does not a knight take precedence over a mere commoner?
Mr. Speaker: As the House knows, I need give no reasons for my decision.
Mr. Taylor: After that typical cross comment, I appeal to the House to reject this absurd Bill. I ought to say straight away that I have no personal interest whatsoever in it. Even if the Prime Minister were to offer me a political honour, my wife would stop me taking it because she is more of a democrat than I.
I want to make it abundantly clear that at this stage we must not abolish political honours. By so doing, we should abolish about the only remaining power of a British Prime Minister. Nothing would be worse for the status and morale of our revered Prime Minister and those who may follow him if we took away the one thing that he can do himself.
I shall give three examples. First, this morning in the Court of Appeal, our Sunday trading laws were effectively wrecked, on the basis of an application by some stores which said that our laws were contrary to the treaty of Rome. They won their case. Even if the Leader of the Opposition, the Prime Minister, the Liberals and all the other political parties want Sunday trading laws, we cannot have them. The decision has been made to dump them, because of the treaty of Rome.
Secondly, we are now all talking about lotteries. We used to be opposed to lotteries, but now we find that Ministers are suddenly thinking that they are a great idea. We have to ask ourselves why. The only reason is that a case is being pursued through the courts by German lottery salesmen who say that it is illegal for us under the treaty of Rome to stop lottery tickets being sold. We know that, and the power has already gone.
Thirdly, there is the potato crisps issue. Surely, if one issue should still be for the House of Commons and the Prime Minister to decide, it is what potato crisps we can produce in Britain. This week, not because the European Parliament or our Parliament wanted it, but simply because Mr. Bangemann had had a bad breakfast, he said that certain potato crisps could not be produced in Britain.
Our glorious Prime Ministers used to make treaties and laws, and Members of Parliament thought they had some meaningful role to play in making laws, spending money and keeping control of it, so for goodness' sake let us retain for our Prime Minister the only effective power that Jacques Delors is willing to let him have—the award of political honours. Let those who want them have them, and let the Prime Minister sit down at his breakfast table and say, "Who will I give this to and who will I give that to?" Quite frankly, there is precious little that a Prime Minister can do. The House should reject the Bill, save the Prime Minister's freedom and integrity and at least let him have something still to do.
Question put, pursuant to Standing Order No. 19 ( Motions for leave to bring in Bills and nomination of Select Committees at commencement of public business):—
The House divided: Ayes 122, Noes 90.

Division No. 131]

(3.50 pm

AYES

Adams, Mrs Irene (Paisley, N.)

Benn, Rt Hon Tony

Allen, Graham

Bennett, A. F. (D'nt'n & R'dish)

Archer, Rt Hon Peter

Boyes, Roland

Ashton, Joe

Bradley, Keith

Banks, Tony (Newham NW)

Bray, Dr Jeremy

Barnes, Harry (Derbyshire NE)

Brown, Nicholas (Newcastle E)

Barnes, Mrs Rosie (Greenwich)

Brown, Ron (Edinburgh Leith)

Barron, Kevin

Buckley, George J.

Battle, John

Caborn, Richard

Beckett, Margaret

Callaghan, Jim

Beith, A. J.

Campbell, Menzies (Fife NE)

176

Canavan, Dennis

McNamara, Kevin

Cartwright, John

Madden, Max

Clark, Dr David (S Shields)

Mahon, Mrs Alice

Clelland, David

Marek, Dr John

Cohen, Harry

Marshall, David (Shettleston)

Cryer, Bob

Marshall, Jim (Leicester S)

Cunliffe, Lawrence

Martin, Michael J. (Springburn)

Dalyell, Tarn

Michie, Bill (Sheffield Heeley)

Darling, Alistair

Moonie, Dr Lewis

Davies, Rt Hon Denzil (Llanelli)

Morgan, Rhodri

Davis, Terry (B'ham Hodge H'I)

Morris, Rt Hon A. (W'shawe)

Dixon, Don

Nellist, Dave

Doran, Frank

O'Neill, Martin

Dunnachie, Jimmy

Parry, Robert

Eadie, Alexander

Patchett, Terry

Eastham, Ken

Pendry, Tom

Evans, John (St Helens N)

Primarolo, Dawn

Ewing, Harry (Falkirk E)

Radice, Giles

Fairbairn, Sir Nicholas

Redmond, Martin

Fatchett, Derek

Rees, Rt Hon Merlyn

Fearn, Ronald

Richardson, Jo

Flannery, Martin

Rogers, Allan

Flynn, Paul

Ross, Ernie (Dundee W)

Forsythe, Clifford (Antrim S)

Rost, Peter

Foulkes, George

Rowlands, Ted

Fyfe, Maria

Sedgemore, Brian

Galbraith, Sam

Sheerman, Barry

Golding, Mrs Llin

Sheldon, Rt Hon Robert

Gordon, Mildred

Short, Clare

Griffiths, Nigel (Edinburgh S)

Skinner, Dennis

Grocott, Bruce

Smith, C. (Isl'ton & F'bury)

Hain, Peter

Smith, Rt Hon J. (Monk'ds E)

Hardy, Peter

Spearing, Nigel

Heal, Mrs Sylvia

Steel, Rt Hon Sir David

Hinchliffe, David

Steinberg, Gerry

Hood, Jimmy

Strang, Gavin

Howarth, George (Knowsley N)

Taylor, Matthew (Truro)

Hoyle, Doug

Thompson, Jack (Wansbeck)

Hughes, Robert (Aberdeen N)

Turner, Dennis

Hughes, Simon (Southwark)

Vaz, Keith

Illsley, Eric

Wallace, James

Kennedy, Charles

Walley, Joan

Kirkwood, Archy

Wareing, Robert N.

Leighton, Ron

Watson, Mike (Glasgow, C)

Lestor, Joan (Eccles)

Welsh, Michael (Doncaster N)

Lloyd, Tony (Stretford)

Wigley, Dafydd

Loyden, Eddie

Winnick, David

McAllion, John

Wray, Jimmy

McCartney, Ian

McFall, John

Tellers for the Ayes:

McKay, Allen (Barnsley West)

Ms. Diane Abbott and Mr. Jeremy Corbyn.

McKelvey, William

NOES

Arbuthnot, James

Fox, Sir Marcus

Arnold, Jacques (Gravesham)

Goodhart, Sir Philip

Ashby, David

Grant, Sir Anthony (CambsSW)

Atkinson, David

Greenway, Harry (Ealing N)

Batiste, Spencer

Griffiths, Sir Eldon (Bury St E')

Beaumont-Dark, Anthony

Grist, Ian

Bevan, David Gilroy

Grylls, Michael

Blackburn, Dr John G.

Harris, David

Bonsor, Sir Nicholas

Haselhurst, Alan

Bowden, Gerald (Dulwich)

Hayward, Robert

Boyson, Rt Hon Dr Sir Rhodes

Hicks, Mrs Maureen (Wolv' NE)

Brazier, Julian

Holt, Richard

Brown, Michael (Brigg & Cl't's)

Howarth, G. (Cannock & B'wd)

Bruce, Ian (Dorset South)

Hunter, Andrew

Buck, Sir Antony

Jessel, Toby

Butterfill, John

King, Roger (B'ham N'thtield)

Carlisle, John, (Luton N)

Knight, Dame Jill (Edgbaston)

Clark, Rt Hon Sir William

Lawrence, Ivan

Coombs, Simon (Swindon)

Lloyd, Sir Ian (Havant)

Cormack, Patrick

McCrindle, Sir Robert

Currie, Mrs Edwina

Marlow, Tony

Durant, Sir Anthony

Marshall, John (Hendon S)

Dykes, Hugh

Martin, David (Portsmouth S)

Evans, David (Welwyn Hatf'd)

Meyer, Sir Anthony

Evennett, David

Mitchell, Andrew (Gedling)

Fenner, Dame Peggy

Molyneaux, Rt Hon James

177

Monro, Sir Hector

Smith, Tim (Beaconsfield)

Montgomery, Sir Fergus

Smyth, Rev Martin (Belfast S)

Morrison, Rt Hon Sir Peter

Soames, Hon Nicholas

Nelson, Anthony

Speed, Keith

Neubert, Sir Michael

Stanbrook, Ivor

Nicholls, Patrick

Stokes, Sir John

Onslow, Rt Hon Cranley

Taylor, Ian (Esher)

Page, Richard

Taylor, Rt Hon J. D. (S'ford)

Pattie, Rt Hon Sir Geoffrey

Thornton, Malcolm

Porter, Barry (Wirral S)

Townend, John (Bridlington)

Powell, William (Corby)

Tracey, Richard

Price, Sir David

Tredinnick, David

Rattan, Keith

Ward, John

Riddick, Graham

Warren, Kenneth

Roe, Mrs Marion

Watts, John

Rowe, Andrew

Wheeler, Sir John

Sayeed, Jonathan

Woodcock, Dr. Mike

Shaw, David (Dover)

Shaw, Sir Michael (Scarb')

Tellers for the Noes:

Shersby, Michael

Mr. Teddy Taylor and Mrs. Teresa Gorman.

Skeet, Sir Trevor

Question accordingly agreed to.
Bill ordered to be brought in by Mr. Tony Banks, Mr. Bruce Grocott, Ms. Dawn Primarolo, Mr. Don Dixon, Mr. David Winnick, Mrs. Alice Mahon, Mrs. Maria Fyfe, Mr. Paul Flynn, Mr. Martin Redmond, Ms. Diane Abbott, Mr. Jeremy Corbyn, Mr. Dennis Skinner and Mr. Harry Cohen.

Abolition of Political Honours
  ABOLITION OF POLITICAL HONOURS
  Mr. Tony Banks accordingly presented a Bill to abolish political honours; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 19 May and to be printed. [Bill 150.]
Orders of the Day

  Finance Bill
  Order for Second Reading read.
  [Relevant document: Second Report of the Treasury and Civil Service Committee of Session 1990–91 on the 1991 Budget ( HC289)]
  4.1 pm
  The Chief Secretary to the Treasury (Mr. David Mellor): I beg to move, That the Bill be now read a Second time.
  The Bill implements the measures introduced by my right hon. Friend the Chancellor of the Exchequer in his Budget. As background to today's debate, the House has the benefit of the report of the Treasury and Civil Service Select Committee on the Budget—a thoughtful and thorough document. I am glad that so many members of the Select Committee are here for the debate. I hope that its Chairman and others will succeed in catching your eye, Mr. Speaker.
  We are studying its recommendations carefully and will respond fully in due course. This is not the place to comment in detail, but perhaps I might briefly address one point made by the Committee. It was apprehensive in its report about the pace and strength of recovery. It is always difficult to forecast a turning point, but there is now accumulating evidence of one. Retail prices index inflation has fallen 2·7 points from its peak in 1990. Recent surveys show a rise in business and consumer confidence. Only this morning the CBI's quarterly trends survey showed a marked increase in optimism and output expectations. In the three months to February, private housing orders were up 12 per cent. over the previous three and exports, excluding oil and so-called erratic items, grew 2 per cent. in the year to March. That is firm evidence of the underlying strength and competitiveness of British business.
  Mr. A. E. P. Duffy: The engineering employers association for Sheffield has just published its April quarterly survey of its members. It is as contemporary as the report that the Chief Secretary is quoting in his aid. It offers no support for his view about a recovery in business confidence among engineering employers in south Yorkshire.
  Mr. Mellor: If that is the case, I regret it. We can rely only on the national survey that was published today and on other evidence from which it is clear that there is a recovery of confidence. We are confident that that will lead to an increase in activity. All the business organisations have stated that the growth in the strength of so many companies in many different areas of economic activity during the 1980s means that the British economy is now far better equipped to come out of a recession than it was during the previous recession. I appreciate that that fact does not suit the Labour party's case, but it is what all the business organisations are saying and it is a matter of fundamental significance to this debate.
  Mr. Giles Radice: The right hon. and learned Gentleman will have noted that the chairman of the CBI said today, when commenting on the report:
  "We should not underestimate the severity of the current recession and its impact on industry."

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  The right hon. and learned Gentleman would do well to listen to those words.
  Mr. Mellor: I imagine that the hon. Gentleman is referring to a quotation from Sir Brian Corby—
  Mr. Radice: From Mr. David Wigglesworth, the chairman of the CBI's economic situation committee.
  Mr. Mellor: Well, the president of the CBI, Sir Brian Corby, said this very month:
  "Underlying confidence in the strength of British industry and commerce is much stronger than in the early 80s—quite rightly in the light of the improvements in productivity and profitability that we have seen over the past decade … This is a better picture than is currently believed to be the case. Indeed, part of the problem that manufacturing industry faces in the UK today is that perceptions lag behind reality."
  That is the crucial point.
  Mr. David Winnick rose——
  Mr. Mellor: I have already given way twice and so that I do not unnecessarily detain the House, I shall continue for a while and then give way.
  Mr. Winnick: Will the right hon. and learned Gentleman give way on this particular point?
  Mr. Mellor: The hon. Gentleman is extremely persistent. I hope that he will appreciate that it will not be evasion if I do not give way so many times later in my speech, but I shall give way to him now.
  Mr. Winnick: I am grateful to the Chief Secretary. Was he in his place during Prime Minister's Question Time when my right hon. and learned Friend the Member for Warley, West (Mr. Archer) referred to what is happening in the black country and throughout the west midlands? Is the right hon. and learned Gentleman aware that hardly a single day goes by in my region without some news of further redundancies or closures? The west midlands fears that it will go through the same sort of thing under this Government as in the early 1980s. Will that be the case?
  Mr. Mellor: I have said that many companies are passing through difficult times, but I have also said that it is undeniably true that the exports figures to the end of the first quarter of this year show an increase over the preceding year of 2 per cent. Once again, that pays tribute to the underlying strength of the economy. If, as Sir Brian Corby said, perception is lagging behind reality, some Opposition Members must take their share of responsibility for any perception of gloom, given their enthusiasm for talking down the British economy.
  Mr. John Watts: Does my right hon. and learned Friend agree that the recovery will very much depend on a revival of confidence and that Opposition Members who seek to talk down the economy and to pour gloom and despondency on the country are doing nothing either to aid the recovery or to further the interests of their constituents, not least their prospects of better jobs?
  Mr. Mellor: I entirely agree with my hon. Friend. His point is even more relevant when one considers what Opposition Members would try to do if they were ever elected to Government. They would make whatever situation they inherited far worse, but I have no doubt that we shall come to that later in the debate.
  Mr. Roger King rose——
  Mr. Mellor: I give way to my hon. Friend—[Interruption.] I have already given way to three Opposition Members. This is only the second intervention from a Conservative Member. Perhaps the right hon. and learned Member for Monklands, East (Mr. Smith) will keep to that ratio in his speech.
  Mr. King: I am extremely grateful to my right hon. and learned Friend for giving way and will seek to press the problems of the British car industry at a later stage. However, is he aware that in the first few months of this year, its production is already running at 6 per cent. more than in the first quarter of 1990, which in itself was level with the record production of 1989? In terms of exports, therefore, the British car industry is doing better than ever before.
  Mr. Mellor: I was glad to give way to my hon. Friend the Member for Birmingham, Northfield (Mr. King) and I was even more glad to hear the point that he made. He is exactly right. If one industry has shown more clearly than almost any other what happened to the British economy in the 1980s as opposed to the 1960s and 1970s, it is the car industry, its rebuilding and its record of export achievement. In the 1960s and 1970s, nothing exhibited more clearly the folly of the fudge and mudge of corporatism under a Labour Government than what happened to the car industry, which is now recovering.
  Several Hon. Members rose——
  Mr. Mellor: The blood pressure of the right hon. and learned Member for Monklands, East would not stand my giving way to anyone else. He is always passing responsibility to others, but I shall shoulder the burden of refusing to give way to my hon. Friends. I wish to press on.
  We were discussing the underlying strength of the British economy, which I assert and on which my hon. Friends agree. More significantly, hosts of business organisations also agree, notwithstanding the difficult times through which we are passing. It may be worth dwelling for a few moments more on the transformation of the British economy in recent years.
  Before plunging into the thicket of detail rightly contained in the Finance Bill, we must remember how far we have come from the stagnant economy over which the previous Labour Government presided. Lest I be accused of excessive partiality and as we have already heard the Opposition cite one CBI officer, let me remind the House of a striking passage in a recent publication by the CBI which was called "Business Agenda for the 1990s". It states:
  "It is all too easy to forget what the situation was like in the late 1970s. Industrial disputes, apparently regarded as inevitable, were exacerbated, if not caused by wage and price controls and over regulation. Tax avoidance and 'grantsmanship' were growth industries. Wealth was being destroyed rather than created, with negative real returns in many businesses. Investment in all its forms—new plant, innovation and skills—fell back. Britain's share of world trade was declining, seemingly inexorably. Failure was almost expected, success a surprise."
  That is the CBI's comment on what happened in the 1970s and that was what we inherited.
  The strength of the British economy since then has surprised many people because, despite the current recession, the past 10 years have been a success story. We have cut through the tangle of unnecessary controls which immobilised industry. We have reformed the tax regime

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  for business and for individuals and that process is taken a stage further in the Finance Bill. Tax rates, which were punitively high under Labour, have been reduced and we have already done away completely with six taxes. We have made far-reaching changes to trade union law, while keeping a firm grip on expenditure. As a result, the nation's finances have been transformed and the budget brought back into balance, far from the days when the right hon. Member for Leeds, East (Mr. Healey) might have echoed the words of President Hoover: "Blessed are the young for they shall inherit the national debt."
  The results were dramatic by any standards. For eight years, the United Kingdom economy grew by an average of 3 per cent. a year.
  Dr. Lewis Moonie rose——
  Mr. Mellor: I shall finish this point. [Interruption.] I was saying that President Hoover would have lined up with the right hon. Member for Leeds, East in his addiction to the national debt and its growth and to saddling future generations with the cost of borrowing to sustain unsustainable public expenditure. The right hon. Gentleman was a member of the Government in 1975 when the public sector borrowing requirement was—in today's cash terms—£60 billion. It is against that background that we might find ironic criticism of the limited PSBR that we shall be running this year.
  Mr. John Smith: As the right hon. and learned Gentleman has been claiming that the Government have been successful during their period in office, will he comment on an answer given by one of his colleagues? When asked what was the annual average economic growth for 1979 to the end of 1981, the answer was 1¾ per cent. Is that a creditable record?
  Mr. Mellor: In the first two years, we dealt with the recession caused by the economic mayhem of the previous Labour Government. The question that perhaps should be asked is about the position since 1982, as the benefits of our policies came into effect.
  Mr. Smith: That is ridiculous.
  Mr. Mellor: The right hon. and learned Gentleman would say that. However, when did a Labour Government last give us eight years or even five years of sustained growth of more than 3 per cent. with investment, much of of it in productive capacity, at 80 per cent.? When did a Labour Government last give us that kind of record on productivity, output and on all the indicators in which we used to be bottom of the league during the 1970s, but in which we have been top of the league during the 1980s? When, under a Labour Government, did the British economy grow faster than the economies of the majority of the G7 countries? The right hon. and learned Member for Monklands, East would be hard pressed to find a precedent.
  Mr. David Shaw: Has my right hon. and learned Friend the Chief Secretary had time to consider the latest Labour party document and the costings carried out by people in the City of the Labour party's programme showing a total of £50 billion? Are there any Treasury
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  estimates of the level of interest rates required if the public sector borrowing requirement was increased by £50 billion a year?
  Mr. Mellor: A very interesting story will be told quite soon about the cost of Labour's programme. That story will be a revelation. My hon. Friend the Member for Dover (Mr. Shaw) referred to Labour's policies. In their enthusiasm, for electoral or other reasons, to ditch the neo-Trotskyists of the early 1980s who dominated so much of Labour's thinking we are back—in the words of Sam Brittan upon which I cannot improve—to the soft collectivism of the 1960s and 1970s which failed under Wilson and Callaghan. That involved national assessments, interference, quangos, the things that were solemn and binding and the minimum wage. Although all those matters are probably more properly the subject for another debate, Tory Members approach them with some relish. There is precious little evidence that Labour Members can say anything about the state of the economy today that would in any way be improved by the remedies that they propose. Indeed, it is hard to think of a remedy that was not tried in the 1960s and 1970s which did not fail catastrophically.
  In the 1980s the United Kingdom's GDP, investment and manufacturing productivity grew faster than that of Germany or France. Our ability to compete was restored internationally. Profitability reached a peak in the late 1980s and was at its highest level since 1973 living down the problems of the late 1970s. Combined with dramatic improvements in capital productivity, there is clear evidence of the higher quality of investments as well as of higher levels. That basic underlying strength is pulling the British economy through this recession.
  I wish to consider the Bill against that background. I recall that happy phrase, "To govern is to choose." The Budget is full of wise choices. The Budget's first priority is to help businesses of all sizes both immediately and as they plan for future recovery.
  Clauses 22 to 24 deal with corporation tax.
  Mr. Michael Grylls: There is a very imaginative proposal in the Budget about carrying back corporation tax from losses against profits in earlier years—from one year to three years. That is very helpful because it gives a cash injection at a time of recession. We all welcome it because it will help companies in a difficult position. Obviously my right hon. and learned Friend the Chief Secretary to the Treasury will not be able to answer my question now. However, will he consider putting that date back further because the date of 31 March 1991 announced in the Budget would mean that the cash injection for those companies would not arrive until 1992? One needs a lifeboat when one needs it, not when the storm is over. If that date could be brought back to 31 March 1990, companies would receive the cash this year when they most need it.
  Mr. Mellor: I shall certainly reflect on what my hon. Friend said, knowing that few hon. Members have more knowledge of what is happening with business, particularly small business, than he has.
  I now refer to the principal clauses, 22 to 24, on corporation tax. Clause 22 cuts the main rate of corporation tax for 1990 to 34 per cent. That allows companies to keep £380 million in profits which they were expecting to pay in tax. Clause 23 goes a step further by

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  cutting the rate for 1991 to 33 per cent. That double cut will benefit 80,000 companies to the tune of £830 million in 1992–93. That will increase the reward to profitable investment without subsidising uneconomic investment. It represents what I hope the House will consider to be a worthy further step along a road on which we so dramatically set out in 1984 when the main rate of corporation tax was cut from 52 per cent. to 35 per cent. Of course, that gave us the lowest taxes on companies of any economy in the industrialised world. Other countries then followed our example. Now we are setting the pace again. That is a worthy point with which to start our detailed consideration of the Bill.
  Mr. A. J. Beith: The Chief Secretary will set the matter in context, will he not, and compare the gains from that useful measure with the £1·6 billion additional spending by business on the uniform business rate, which has gone up by an amount much higher than the actual rate of inflation?
  Mr. Mellor: That is not a fair statistic. The hon. Gentleman knows that what we have done for business is to remove the vagaries of local government decision-taking that we can see in London. Perhaps it resulted in booms in business in sensibly run areas such as Wandsworth, where I have my constituency, but it left large swathes of London denuded of industrial investment. People were not prepared to invest because of the increase in business rates imposed by left-wing authorities. The hon. Gentleman will know also that, although there is a difficult transitional period—there was bound to be—the maximum increase for the business rate is tied to the rate of inflation. That is the maximum. Over the past decade, the actual increase in business rates was 40 per cent. above the rise in inflation. We know that, in 1978, in boroughs such as Ealing and Waltham Forest, rates were put up 50 per cent. overnight. That was the reason. It is worth noting that the policies of the Labour party are to give back to councils that power to raise taxes locally from business. I am sure that that point will not be lost on the business community.
  Clause 24 raises profit limits for small companies and, of course, the limit for marginal relief both by 25 per cent. That will benefit about 30,000 companies. It means that the limit for small companies rate has now been raised by 150 per cent. in the past three years—a real help to small companies. Of course, as well as rewarding success and allowing companies to keep more of their profits, as my hon. Friend the Member for Surrey, North-West (Mr. Grylls) pointed out, we have made arrangements so that those who temporarily make a loss can recover back taxes paid in the three previous years.
  It is worth noting also that all levels of business are important and that all levels of business require assistance. That is why, in clause 64, my right hon. Friend helps small firms as well as larger ones with losses by allowing unincorporated businesses to set off trading losses against capital gains, just as companies may already do. That is a help.
  The total value to British industry and commerce of this package of measures relating to company taxes is £1·1 billion next year—money that can be used for productive investment. Of course, we have gone beyond that and
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  made other efforts to change the way in which the tax system works when those in business who have to operate it told us ways in which it could work better.
  Sir Robert McCrindle: In directing his attention not only to small companies that need assistance but to large companies, will my right hon. and learned Friend include building societies? If that is the case, will he be prepared to look again at clause 50? People are saying to me and, I suspect, to other hon. Members that that clause is a vehicle not only for retrospective legislation but for double taxation. As this stems from a court victory by one building society, would not it be extremely unfair that it should result in the Government's gaining about £250 million in taxation? That would represent a reduction in the capacity of the building societies to lend, just at a time when we hope that the housing market is beginning to prosper again, and it would have an adverse effect on investment.
  Mr. Mellor: As the immortal Jim Hacker would have said, I am glad that my hon. Friend asked me that question. It gives me an opportunity to deal with a point that is giving rise to concern among a number of hon. Members. I shall deal with clause 50 as thoroughly as I can. As my hon. Friend knows, the Finance Act 1985 made changes in the manner in which building societies pay tax on the interest paid to their investors. Previously those money had been rendered up in one lump sum on 1 January each year. The change meant that, from the tax year beginning in April 1986, those moneys had to be rendered up quarterly, as had been done for some time in the case of banks and other financial institutions.
  Regulations to deal with a problem that was very openly signposted at that time were laid before the House. Building societies have different year ends, and we needed to cover the period between the end of their 1985–86 year and the beginning of April 1986, when the new arrangements were to come into force. The regulations charged building societies at the 1985–86 rate of tax. One case went all the way to the House of Lords, which determined that, while it was lawful for the Government to make arrangements for those moneys to be liable to tax, it was ultra vires that we should apply, by way of the regulations, the rate that prevailed in 1985–86. It was only right that tax should be rendered up on moneys withheld from interest payments to investors. The court's determination was that it was lawful—of course, it must be—for tax to be paid, but not lawful for a rate to be applied. That is the present position.
  The Bill will put us in the situation in which we understood ourselves to be before the House of Lords gave its judgment, and will apply the 1985–86 tax rate. Without it, a number of building societies would make windfall profits, as the moneys that they had withheld—perfectly properly-from interest payments to their depositors would not then be liable to be rendered up. The moneys would not go to depositors. There is no question of double taxation; the issue is whether there should be taxation at all. The amount involved is £250 million. This is the basis of clause 50.
  Sir Robert McCrindle: I followed with great interest the technical explanation that my right hon. and learned Friend offered, and I accept at least a goodly part of it. Irrespective of the position for investors, it is extremely difficult to deny that if this £250 million ends up under

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  Government control, money that would have been available for future mortgages, at a time when, we hope, the housing market is beginning to move, will be in the coffers not of the building society but of my right hon. and learned Friend.
  Mr. Mellor: With great respect to my hon. Friend, whose return to vigour and effectiveness in the House all of his hon. Friends welcome so much—I say that genuinely as someone who has admired and respected him throughout my time in Parliament—I cannot agree with his point. The money was interest due to depositors with building societies. If it were not for the fact that there was a tax liability, all that money would have had to be paid to investors. Moneys were withheld on the basis that they would have to be rendered up to the tax authorities. But for the fact that a change was made from annual to quarterly payment, those moneys would have been paid to the Government without argument.
  In making the change, there was a transitional period for which we thought provision had been made, between the end of the financial year of the building society through to the beginning of the financial year in which the new arrangement would come into effect, in which the tax rates prevailing for 1985–86 would apply. The only consequence of no tax being applied would be that moneys had been deducted by building societies from interest properly due to their investors which, because they were not rendered up to the taxation authorities, would go, in my judgment quite undeservedly, into the coffers of the building societies themselves. That is the position. All that we are doing is restoring the position to what everyone understood it to be until it was subject to legal challenge.
  Several Hon. Members rose——
  Mr. Mellor: I will give way once more. The fact that so many hon. Members want to make points is precisely the reason why we have a Committee stage, which will give hon. Members a chance to explore the matter further.
  Mr. Peter Bottomley: May I try to help my right hon. and learned Friend? Is not the position that the money which was withheld from depositors would have been paid in tax in a subsequent year because the tax to be paid in the actual year had already been paid? Is not it also the position that people who had mortgages with the Woolwich or who had lent money to the Woolwich—I do both—have got their £90 million, and that all other building societies have been treated differently? Was it not the House of Lords' judgment that it was restrospective and double taxation, which the House had authorised, without knowing that it had done so? Would not it be better for the Government to think again and drop clause 50?
  Mr. Mellor: Plainly there will be plenty of opportunity in Committee to explore the matter. The position is that but for the action which the Government are taking, no tax whatsoever would be levied on a substantial sum that fell due between the end of the financial year 1985–86—whatever month that was for the building society concerned—and 6 April 1986. I take the view that that would not be acceptable. I am sorry if it is held against us, but we are expecting the normal rules of the game in regard to the Woolwich. If the Revenue loses a case, it does not
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  seek to take back from the litigant the benefit that has been gained. When one is dealing with £250 million, which, but for this, should have been in the pockets of depositors, there is no reason why other building societies should gain the benefit.
  I appreciate that others take a different view on the matter. One reason for Committee stages is that people apart from me will be able to justify the policy in Committee. My hon. Friend the Financial Secretary, a man of infinite resource, is ready and available, as is the Economic Secretary. They will be willing to entertain the Standing Committee at whatever hour of the night appears appropriate to deal with the matter.
  I shall deal briefly with some other major points in the Budget. VAT relief on bad debts was widely welcomed when the scheme came into operation in April. It is worth noting that clause 14 will halve the waiting period to one year. That will boost cash flow by some £340 million—a vital way to help growing firms on whom the burden of bad debt can be particularly heavy.
  On the serious misdeclaration penalty, clause 17 responds to widespread representations about the VAT penalty regime. I hope that it shows the value to the House of the detailed representations that hon. Members make on behalf of the business community.
  Sir Eldon Griffiths: May I suggest to my right hon. and learned Friend, and indeed to the Financial Secretary, that there is likely to be a good deal more bad debt in VAT if nothing is done to help the racing industry? Will he, in the course of this Finance Bill, perhaps in Committee, give the Minister of State an opportunity to report to the House on how she is getting on in her search for a solution to a problem that is seriously damaging an important industry?
  Mr. Mellor: My hon. Friend the Minister of State will meet representatives of the industry next week to discuss this very point. I understand that it is because the great town of Newmarket is within my hon. Friend's constituency that he speaks as he does.
  I am anxious not to detain the House for too long, so I shall pass over a number of items in the Bill to which I might otherwise have drawn attention.
  On vocational training relief, I think that it has been widely welcomed that those who wish to improve themselves by financing training out of their own pockets will now get tax relief for it. I believe that that is a help to the work force.
  I should just pause over the policy for the family which is furthered in this Budget. Although business was the central theme of the Budget, my right hon. Friend made room for measures to benefit families. The rise in child benefit is already well known and I need say no more about it. It deals with an issue that has caused a great deal of interest in the House in recent years. I hope that this sets us on a course which the whole House will appreciate as being wise and necessary.
  There are also, of course, measures for the elderly. Clause 21 provides for the married couple's allowance generally to be unchanged, but the normal indexation provisions will continue to apply to the married couple's allowance for the elderly. For a couple over 75 the increase this year could be worth up to £4
  47 a week.
  With regard to health and the environment, I am personally pleased that in the Budget we recognise the

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  need to make further substantial increases in the taxes on tobacco. Clause 2 raises the duty on tobacco products by 15 per cent. That puts an extra 16p on a packet of 20 king-size cigarettes—in itself the biggest cash increase in taxes on tobacco since 1981. This, with the VAT increase, makes the total additional tax burden on 20 cigarettes about 22p. I believe that in raising the real level of total taxes on tobacco to the highest since the mid-1960s we have done the right thing for the future health of the nation.
  The duties on alcohol are increased in line with inflation. There are changes in clause 6 to the way in which we tax beer. The new system will be simpler and fairer, because the duty will be related more precisely than it is at present to alcoholic strength, so some strong beers and lagers will bear more duty. I believe that that is right, and anyone who is concerned about the problems of lager louts, particularly the extent to which strong lagers have come into fashion among youngsters today, might think that this a step in the right direction which is capable of being built on in the future.
  On the environment, this was not the year to burden industry with a tax on carbon. It was certainly not the year for the Government to strike out or take unilateral action to put our businesses at a competitive disadvantage. Nor, I thought, was it the year to introduce new complexities, such as different rates of car tax, graduated vehicle excise duty, and so on. But we have put up the cost of car use in what I believe is an acceptable way but which nevertheless leans in the direction of a policy that deals with some of the problems of pollution. The increase in fuel duties offers all of us a choice: pay more and forget about it, or think more carefully about our use of vehicles and cut costs. Of course, it adds to the incentive to buy a more fuel-efficient car, which I think is a responsible stance for us to take.
  One of the successes of the use of tax incentives to environmental ends has been the growth in the use of unleaded petrol. Four years ago the share of unleaded petrol in the United Kingdom market was negligible. A gallon of unleaded cost more than a gallon of leaded.
  My right hon. Friend the Member for Blaby (Mr. Lawson) introduced a tax differential to offset the cost disadvantage. Then he widened it to give motorists a positive incentive to convert to unleaded fuel. In last year's Budget, my right hon. Friend the Chancellor widened it still further. Now, just a few years later, unleaded takes 39 per cent. of the market. This year's proposal will widen the tax differential again. It now stands at 4p a litre.
  Mr. Keith Mans: Bearing in mind my right hon. and learned Friend's comments about unleaded petrol, does he believe that there should be a move in the direction of diesel, which is also environmentally friendly, and that we should encourage its use as much as possible?
  Mr. Mellor: We always consider such issues at the time of the Budget. I know that my hon. Friend appreciates that others argue against that approach, but I shall certainly have regard to his points.
  I should not end my comments on the Budget's effects on families without mentioning the relief that my right hon. Friend the Chancellor gave community charge payers. We have already enacted legislation to give effect to that. There cannot be a free lunch. The Bill implements the other parts of the switch from local to central
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  Government taxation. Clause 12 raises the rate of VAT to 17·5 per cent. In the circumstances in which we found ourselves, that was an appropriate step to take.
  VAT is a proportionate tax—the more we spend, the more we pay. Our zero-rated range is wider than that of any other European Community country. When we buy zero-rated items, we pay no tax. On average, half our spending on goods and services is on zero-rated items. Those are weighted heavily towards the necessities of life. I cannot improve on the comment in The Guardian after the Budget:
  "Using VAT to pay for the reduction in the poll tax was thus a broadly progressive measure."
  On that occasion at least, The Guardian was right.
  Mr. John Battle rose——
  Mr. Mellor: With respect, I have given way a lot. I have probably more than outstayed my welcome and I must conclude. If one gives way, one always faces the danger that people will say, "He spoke for far too long."
  Mr. John Smith: No, carry on.
  Mr. Mellor: I wish to draw attention to two points. Despite the injunction of the right hon. and learned Member for Monklands, East for me to carry on, I shall resist temptation. On fairness, clause 26, which limits mortgage interest relief to the basic rate of tax, means that the same mortgage now receives the same relief, irrespective of the home buyer's income. That is fair. It has been compensated for in clause 20 by raising the basic rate limit to take account of most of it.
  I am grateful to those in the press who drew attention to the problems of non-resident trusts. We have devised an effective way of dealing with them so that they cannot be used unfairly to avoid tax. That provision is made in clauses 71 to 80.
  Fairness, families and business were the themes of the Budget introduced by my right hon. Friend the Chancellor. They are faithfully given effect to in the Finance Bill. I hope that we can fully discuss any problems in Committee. I commend the Bill to the House.
  4.43 pm
  Mrs. Margaret Beckett: For the past year or more, my right hon. and hon. Friends and I have spent a great deal of time not just talking to people in industry and commerce but listening to them speak about the specific measures that they argue would promote success. One of the most noticeable features, especially in the past few months, is that, as those conversations develop, certain questions keep emerging—questions which came into my mind when I listened to the Chief Secretary to the Treasury.
  I find that I am continually being asked, "Do the Government really believe what they are saying about the state of the economy? If they do, why do they believe it? If they do not, why do they keep saying it?" I can answer the last question. It is clear that the Government keep saying it because they hope that, if they do, someone else will believe it. It appears from the Finance Bill that perhaps the Government believe what they are saying—that there is little need for action by them.
  The Government claimed in grandiose terms that this was a Budget for business. However, the Institute of Fiscal Studies and one of the advisers to the Treasury and Civil Service Select Committee suggested that that was

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  overstating the consequences for business. S. G. Warburg said that it was difficult to find a list of positives for business in the Budget, although it had no difficulty finding a list of negatives.
  The measures in the Budget that alleviate business costs through the reduction in the rate of corporation tax are almost offset by the introduction of national insurance contributions on company cars. As the hon. Member for Berwick-upon-Tweed (Mr. Beith) said, those measures must be set against the decision to increase the business rate by 10·9 per cent., the decision to increase business costs by reducing the share of statutory sick pay that the Government are prepared to fund—quite apart from the administrative charges incurred—and the charges on mobile telephones, which the Chief Secretary did not mention.
  We welcome some of the help that is given in the Finance Bill to small businesses. We particularly welcome the bad debt provisions, which we proposed in the debate on last year's Finance Bill, and the measures that include some movement to deal with the loophole involving offshore trusts. We give a whole-hearted welcome to the ending of the freeze on child benefit, even if we have reservations about the way in which the Government have done that. We welcome these and other measures for which we called either in debates on previous Finance Bills or in our proposals.
  We note the rejection of the argument, widely made by industry, that the most effective help for investment would have been to improve investment allowances. We note also—the Chief Secretary touched on this point—the minuscule help given in the Budget for training. That is particularly astonishing if both those measures are set against the considerable and continuing cuts in Government support for industry and training in this year of recession.
  Mr. John Butterfill: Would not the Labour party's proposal to put a payroll tax of 1·25 billion on industry to help pay for training be disastrous at a time when employers are trying to reduce costs?
  Mrs. Beckett: As we have no such proposal, I do not propose to dwell on that intervention. [HON. MEMBERS: "Oh."] The hon. Member for Bournemouth, West (Mr. Butterfill) may be referring to another proposal—that those who do not train at all and make no contribution, other than to poach on those who train, would have to contribute through training or through a contribution to a training fund. That is eminently sensible. Competitor countries have similar policies, which they have no difficulty in policing. We believe that that proposal will strengthen training and the position of the many people, to whom clearly the Government did not listen, who desperately resent the fact that while they invest in training, their competitors poach from them. The evidence of the Bill, and what it would do, must be examined in the context of what the Government say about the state of the economy.
  At long last, the Government have been forced, by a rising tide of incredulity, to admit that we are in recession, although they continue to claim that this recession will not be as bad as their last one in the early 1980s. They argue that not only we but many other countries are in recession
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  and that our recession is caused by the problems of excessive success, and we are on the way towards recovery. I believe that yesterday the Chancellor said that recovery was "around the corner".
  The argument about recession being caused by the problems of success is particularly hard to follow, especially as the Government contend that other countries are in a recession that is not as deep as ours. They argue that we have had such wild success that we found ourselves in recession and that other countries are in not as bad a recession because they have not been as successful as us. That is a peculiar argument, even for the Government. As to recovery being "around the corner", I share the view recently expressed by chambers of commerce that the Government were "over-optimistic" in their belief that inflation has been beaten and that the end to the recession is in sight. The Chief Secretary today made the same comment about cumulative evidence. I refer him to a Greenwell Montagu bulletin that states that it can find
  "few convincing signs that the recovery has yet begun."
  The Chief Secretary said that many organisations had claimed otherwise. Perhaps whichever Minister winds up will identify them.
  In an address recently to the Institute of Directors, the Chancellor of the Exchequer drew attention—this was very honest of him—to his 12 years' continuous service in Government, five of them as a Treasury Minister. It is a welcome change for a member of the Government to admit some responsibility for the state of the economy. He also made interesting remarks about the difficulty of forecasting when recovery will come. He spoke of his sceptical attitude towards forecasts, and, with his experience, who can blame him? However, he admitted to having a lot of respect for data, and made particular reference to surveys of business and consumer attitudes.
  It may have struck the Chancellor that there was a problem with that observation, and that perhaps he had launched yet another boomerang, because he hastily added that such surveys and data must be carefully interpreted. Although I read the Chancellor's speech with care, it was difficult to make out the points that he was trying to convey, but I will attempt to summarise them. The Chancellor said:
  "Lagging indicators will go on signalling recession when the economy has begun to recover … Once these points are understood, it is possible to reconcile the notion that recovery is on the way with a continuing flow of gloomy statistics."
  He went on to comment on unemployment. It is increasingly clear that the Chancellor is arguing that forecasts are okay as long as they are favourable, but not if they are gloomy, and that the same is true of results. Apparently, therefore, we should ignore unemployment figures, but believe forecasts of recovery.
  The Chancellor of the Exchequer decided yet again to fiddle with our inflationary expectations by making changes to value added tax. Only a few short weeks ago, Ministers stood at the Dispatch Box, one after the other, to tell the House that what mattered was not the headline rate of inflation but the underlying rate, leaving out mortgages and the poll tax. Now the Chancellor argues that the underlying rate is "utterly meaningless". Under pressure, he promised—in Committee, I believe—to take the underlying rate into account, along with a range of other indicators. But if he thinks that the underlying rate is fairly meaningless, it is also fairly meaningless for him to say that he will take it into account. He means that he will

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  ignore it because it might reveal the risks that he has been running with the underlying rate of inflation while talking loudly about his great concern for it.
  Mr. Quentin Davies: Does the hon. Lady deny that unemployment is a lagging indicator, that it increases after falls in output, and that increases or reductions in unemployment follow, but do not precede, a revival in output?
  Mrs. Beckett: There is something in what i:he hon. Gentleman says, but I do not recall him making the same point in 1979, when unemployment stood at 1 million. Today, the figure is 2 million, even after 30 changes to the way in which it is calculated. Nor did the hon. Gentleman make that comment when unemployment was falling.
  The Chancellor wants to assume that Britain is enjoying a recovery, no matter what the indicators suggest. He cites unemployment precisely because he expects it to go on rising, but for how long? Perhaps the hon. Member for Stamford and Spalding (Mr. Davies) can tell the House. Will unemployment continue to increase for a year, or longer? It will certainly rise for some time to come, and at considerable cost to many of our constituents.
  The Government's partial, self-selection of statistics created the problem in the first place. Just before the Budget, an economist with S.G. Warburg Securities, commenting on Government statistics produced at the time, said that the economy was
  "much weaker than the Government thought at the time".
  That cast doubt on the policy of keeping interest rates so high for so long. Another indicator of the economy is the 70 per cent. increase in business failures in the first quarter of this year, which is the highest level for many years. Unemployment has shown a cumulative rise of almost half a million over the past year, and the figure for last month was the highest since the second world war. The Government will not listen to any point of view that they do not share. In the words of the song, they are not listening still; perhaps they never will.
  Whatever the Government choose to hear, the people of this country have a right to learn some of the alarming evidence that Ministers discount. A recent analysis by Midland Montagu contrasted the comparisons that are continually being made between the current recession and that of the early 1980s. The actual results, which the Chancellor prefers, that are contributing to the developing economic pattern parallel exactly the downturn of the early 1980s. Sadly, the improvement is all in the forecasts. Perhaps it was after examining the same evidence that the chambers of commerce made their comment about the Government being over-optimistic, said that they do not expect a recovery until 1992, and warned that Britain is in a "deep recession" that no amount of talking will lead us out of.
  The Engineering Employers Federation drew attention to the increased investment in manufacturing needed for a sustainable recovery, and to the requirement for a higher level of skills in the existing work force and among potential recruits. The federation asserts that, even in a recession, skills shortages are a matter of continuing concern.
  Mr. Butterfill: Does the hon. Lady accept that if there is to be industrial investment, there must be savers whose money can be made available for such investment? If so, is it not curious that Labour proposes a tax on savings?
  Mrs. Beckett: Our proposal is only to treat unearned income in the same way as earned income, which seems a fair change. Our intention is to impose a 9 per cent. charge, equivalent to that made in respect of national insurance contributions. For that reason, it will not be applied to the incomes of those who have retired—to pensioners.
  Sir William Clark: I well understand the difference between earned income and unearned income—[Laughter.] I understand that the 9 per cent. charge will apply to salaried persons, but will someone who is well over the existing £3,000 on investment limit and earning a large salary also have to pay 9 per cent. on any excess income?
  Mrs. Beckett: Indeed. On income from investments of about £30,000—which would result in income that exceeded £3,000—they would pay a charge of 9 per cent. on the extra income in just the same way as someone who earns that extra money would pay that charge. However, that does not arise from the case that I seek to make in this debate and so, if the hon. Gentleman does not mind, I shall not pursue it. The position is quite clear.
  Sir William Clark: Does that mean that the highest rate of tax that can be levied on an individual is not 59 per cent. but 68 per cent. if that person has additional investment income?
  Mrs. Beckett: That is ingenious, but no.
  Mr. Quentin Davies rose——
  Mrs. Beckett: I shall not give way to the hon. Gentleman as I have already given way once to him.
  Like the chambers of commerce, the Engineering Employers Federation suggests that there is unlikely to be any real recovery until at least mid-1992. The CBI's forecast some little time ago, with which I think that all the House is familiar, of a fall in investment of about 16 per cent., would take the level of manufacturing investment below the level that the Government inherited in 1979. Despite the background of the Government's claims for the economy, the Treasury Select Committee expressed the view that
  "adverse international factors have been relatively unimportant in"
  shaping the recession. The Governor of the Bank of England said in evidence to the Committee that the recession is "somewhat homegrown". Whatever the Prime Minister may argue, the Chancellor said in evidence to the Select Committee that there is not a worldwide recession as there was the first time round.
  Against the background of those comments, I shall examine some of the evidence that those learned commentators may well have had in mind, especially since the Chancellor said in his speech to the Institute of Directors that we need to see our current difficulties in the context of what has been achieved since 1979—a view with which I whole-heartedly agree.
  The Government make many extravagant claims for the growth that has been enjoyed in the 1980s, as if peak growth were enjoyed in every year of that decade. However, a quick canter through the results—the Chancellor has told us that he gives great credence to results—of what happened between 1979 and 1991 does not give quite the picture that the Government paint,

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  especially if their claim is that Britain had a better performance in the 1980s relative to that of our competitors, which is what they said the other day.
  Let us consider the rate of growth of gross domestic product per head between 1979 and 1991. In the European big four—Italy, Germany, France and the United Kingdom—we came fourth; in the Group of Seven, we came seventh; in the European Community 12, we came 10th, as we beat the Netherlands and Greece; in the Organisation for Economic Co-operation and Development countries in Europe, we came 16 out of 19; and in the OECD 24, we came 20th, and this time we managed to beat Iceland and New Zealand as well as the Netherlands and Greece. So much for our claims to startling relative success in the 1980s, during which—as the Economic Secretary admitted the other day—our growth rate was below the rate that we enjoyed in the much-abused 1970s, when we lacked the advantage of North sea oil.
  Let us look a little nearer to the present day—at last year's results and at the signs of recession, although I think that the Prime Minister would prefer to call it weakening activity. There are some signs of recession in other English-speaking economies—in the United States, Canada and Australia—but not among our colleagues in the European Community, with whom we have to compete most directly after 1992. There are increasing signs of unemployment among those other economies but not among those with whom we must compete directly in Europe. In 1990, Britain had the slowest growth in GDP of all the OECD countries except Iceland. That shows our success in that decade and in the last year for which we have figures.
  However, there must be something in the Government's optimism. I decided that I had better turn to the forecasts because the Chancellor said that sometimes it was all right to look at forecasts. Midland Montagu point out that the forecasts for 1991 which were given in the Budget
  "represent a complete reversal of those given only four months ago in the Autumn Statement."
  The Budget Red Book shows a fall in total investment and the Government usually prefer that figure to the figure for manufacturing investment.
  In terms of total investment, the Red Book shows the largest year-on-year decline in total investment in the economy since the year of the great depression in 1931–32—which is as revealing as it is alarming. That takes account of the measures in the Budget which are supposed to have done so much to improve our position.
  The forecast shows that we shall have the slowest growth in GDP in 1991 of all OECD countries and the greatest decline in business investment, to which the Government are normally so wedded, in the OECD. The International Monetary Fund forecasts that the United Kingdom will have the lowest growth of all G7 economies for 1989, 1990 and 1991 and that, along with Canada, we are forecast to have a decline in growth in 1991.
  What is especially worrying is that, apart from that forecast of decline in investment in the Red Book—10 per cent., which is bad enough—the results so far, taking the year from the first half of 1990 to the first half of 1991, are greater than the Red Book forecast, at more than 12 per cent.
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  That brings me to today's survey results from the CBI, to which the Chief Secretary referred. [Interruption.] I am not surprised that Treasury Ministers do not want to listen; I would not want to if I were them. Let us set the CBI's survey results in context. There is a slight increase in optimism. In other words, people are not quite as pessimistic as they were in January. That might have a little to do with the Gulf war, but let us be generous and say that it is all to do with the signs of recovery that the Government detect. Whatever the levels of overall optimism, the survey shows that indications for investment, training, innovation and employment are still deeply alarming. Expectations for investment are worse than they were when the last survey was published in January. Expectations for training and innovation are no better than they were when the last survey was published—in other words, a continuing, although not worsening, decline in investment in training and innovation is expected. The expectations of unemployment are worse than they were in January. Orders and industrial output are expected to fall.
  In that context, it is especially alarming to note that the CBI tells us that the survey in January, although it was bad, understated the case and was too optimistic compared to the fall in orders that took place. No wonder that the CBI says—whatever the Chief Secretary says—that although the trend in output appears to be levelling out it is
  "too early to speak of recovery"
  and it will take a long time
  "to recover this lost ground."
  That is what the Chief Secretary called firm evidence of a recovery. Let me remind the House that these are forecasts. Somewhere in all these figures for outturn, figures for results and the figures that I have just given for a variety of people's forecasts, the Government are finding the source of optimism that they so repeatedly preach to us all in the House.
  Ms. Diane Abbott: They make it up.
  Mrs. Beckett: I think that my hon. Friend is right.
  It is hard to see what, other than a desperate attempt to obscure responsibility for the recession, fuels the optimism to which the Government lay claim. Since they admitted the existence of recession, late and grudgingly, they have been saying that it is nearly over. I shall consider the pattern of the Government's observations—one might call it the seven ages of a Treasury Minister.
  First, the Government said that there was no recession and they got very shirty with people who said that there was, claiming that they were trying to talk us into one. That was the first stage, although the Prime Minister, when he was Chancellor, said that things would not be easy. In the second stage the Government began to admit to a weakening of activity around the time of the autumn statement. The third stage was when they admitted that the recession had arrived but that they hoped that it would be, in the Chancellor's words, "shallow and short-lived." The fourth stage came with the recent admissions that the recession has turned out to be deeper than the Government thought. I regard it as the fifth stage that the Prime Minister identifies the fact that other people are on their way into recession because they have not been as successful as we have for as long as we have, so they were not so lucky as we were to get into the recession as fast as

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  we did. That bears no relation to any facts that I can discover. The sixth stage is that recovery is "around the corner", as the Chancellor says.
  The Treasury and Civil Service Select Committee says that it detects at present
  "the absence of any firm evidence that recovery is taking place."
  It is also concerned that recovery is so heavily dependent upon a revival of consumer confidence and consumer expenditure, which may falter if unemployment continues to rise. That is borne out by other comments. Midland Montagu says that the onus of proof lies on those who see signs of recovery and that the prime risk is on the other side. There is also a seventh stage, the other side of the hurricane—all the winds diminished, blissful calm beginning to appear but, on the other side of the eye, the winds beginning to rise again.
  I have no doubt that the forecasts that the Government would most prefer to discount are those that suggest that after a time, with inflation low and interest rates lower than they have been, once the recovery is under way the balance of payments deficit will begin to deteriorate, inflation may well begin to deteriorate and pressure will come on interest rates again. The tragedy of all this is that even the recovery that the Government suggest, delicate though it is, is not a recovery led by investment or exports. The danger is that that recovery may well be shallow and short-lived, as the balance of payments constraint re-emerges.
  Perhaps the most revealing as well as the most notable aspect of the Budget was the decision to raise between £4·5 billion and £5 billion through the increase in value added tax—revealing because it was a decision that had nothing whatever to do with long-term planning for the structure of local government, and nothing to do with long-term planning about what the balance should be between the moneys raised from local resources and from central Government, but everything to do with the timing of the election and the Government's desperate need to defuse the unpopularity of the poll tax. Between £4·5 billion and £5 billion is to be raised by means of this surcharge, but there will not be a single teacher, home help, cleaner or caretaker to show for it. On the debit side, yet again there is the risk of more inflationary own goals.
  With this Finance Bill, the Chancellor of the Exchequer is treading water. The only suggestion in the Bill that there is a long-term strategy behind what the Government are doing is their choice, when they decided to give some help to business, to focus on the rate of corporation tax rather than on allowances of one sort or another. It highlights the long-term direction set out by the Chancellor in his speech to the Adam Smith Institute—the long-term direction called for by bodies such as the Institute of Directors, which asked for cuts in the rate of taxes in order gradually to erode and allow for the disappearance of the welfare state. In that speech the Chancellor said:
  "The need to reduce the size of the public sector remains at the top of the Government's agenda. It is only by keeping spending under control that we will be able to deliver the income tax cuts to which we are committed."
  Yet again I am pleased to see that Conservative Members share that view whole-heartedly, and yet again, as throughout the Government's period in office, we see their determination to use the resources that become available to cut the rate of income tax, although that distributes resources most heavily to those who need them least. I am mindful that the cumulative cuts that the Government
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  have made in income tax mean that someone whose earnings amount to £70,000 a year has made £34,000 out of those cumulative income tax changes.
  The pursuance of that policy and the increases in VAT and national insurance contributions have already led to an increase during this Government's period in office in the overall tax burden for an average family, with one wage earner and two children. The income tax cuts that they have made have been almost outweighed to a penny—certainly to a couple of pounds—by the increases in national insurance contributions and the effect of the freezing of child benefit. On top of that, we have had not only the increase in VAT but also the poll tax.
  The Finance Bill will not do a great deal of harm, but it will not do much good, either. During the past few years, our economy has fallen into the hands of a group of joyriders. Like most joyriders, they grew more and more reckless as time went on and, as the excitement mounted, more and more convinced of their own skill and infallibility. Like so many joyriders, they have ended up in the ditch. Some of the casualties will never be the same again.
  It is evident, from both the Budget and the Finance Bill, that to us will fall the task of getting the vehicle out of the ditch and back on the road. That job will have to be done before we can even assess the full extent of the damage. The Finance Bill shows that it will not be done by this Government. The sooner they move out of the driving seat and let us get on with the job, the better.
  Several Hon. Members rose
  Madam Deputy Speaker (Miss Betty Boothroyd): Order. A great many hon. Members wish to speak in the debate, so brief speeches would be very much appreciated.
  5.15 pm
  Sir William Clark: Following the speech of the hon. Member for Derby, South (Mrs. Beckett) one thing has been made quite clear—that the Labour party's top rate of tax would not exceed 59 per cent. for any individual. I am delighted that she confirmed that fact.
  This was a good Budget. My right hon. and learned Friend the Chief Secretary was right to draw attention to the fact that, during the last few months, interest rates have come down from 15 to 12 per cent. Some of the forecasts—whether from the Confederation of British Industry or the various chambers of commerce—have overdone it. I do not know whether that was in an effort to stampede my right hon. Friend the Chancellor of the Exchequer into a precipitate reduction of interest rates. I am absolutely convinced that he is right to take the reduction of interest rates step by step and to do nothing drastic, which would set off a consumer boom and put us back to square one. The CBI has said today that the recession is flattening out. I agree with the Chancellor of the Exchequer that, after the second quarter of this year, we shall probably come out of it. Come the autumn and next year, the economy will be in very good shape.
  Before I come to the points that I really want to make, there is one small question that I ought to raise. At the moment, farmers are having a fairly hard time. I cannot understand why the vehicle excise duty on tractors has been increased from £16 to £30. That increase is mistimed for the farming industry.

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  In an otherwise excellent Finance Bill, I believe that clause 29 is petty. I do not know whether my colleagues on the Treasury Bench realise that mobile telephones are now a business tool. Particularly those people who work away from head office find that they are essential. I am the chairman of a company that insists that those of its employees who do not work at head office should have a mobile telephone so that we can get hold of them.
  I was encouraged by the remarks of my right hon. Friend the Prime Minister when he opened a factory in Worksop the week before last. Somebody tackled him about the value of mobile telephones. My right hon. Friend turned round to him and said, "I couldn't do my business without them." He is not alone. A lot of people in business need a mobile telephone, so this clause is very petty. It will produce £10 million, yet one is talking about a Budget amounting to well over £200 billion.
  We are playing around with a business tool. Let us not forget that the United Kingdom leads the world in mobile communications. It would be wrong to tax it. If the employee repays the employer for any private use of the mobile telephone, the employee becomes exempt from the tax. How will employers check on how many private telephone calls have been made on a mobile telephone? If that is the logic used by the Government, why are they stopping there? Why not surcharge private calls made by people who work at desks? I hope that my right hon. and learned Friend will look again at the tax, because it really is nonsense.
  If it were a matter of saving face, we could introduce self-certification. We have introduced it for the taxation of married couples. One's wife can certify that she is not liable to tax, and consequently the bank or building society must pay her interest gross. We have a precedent, so an employee could certify that he or she did not use the mobile telephone for more than 1 per cent. of phone calls.
  Mr. Robert Sheldon: Having read the clause dealing with mobile telephones, it is not clear that avoidance of the charge will be the easiest thing in the world, and does that not make it likely that £10 million could be an overestimate of the revenue to be raised?
  Sir William Clark: I agree with the right hon. Gentleman. Although the Exchequer might raise £10 million in revenue, the tax puts a burden on business by making it necessary to check whether an employee is using a mobile telephone for private calls. If we must tax mobile telephones, we might as well tax private calls made by people who work at desks.
  I was interested in the exchanges between my right hon. and learned Friend the Chief Secretary and my hon. Friend the Member for Brentwood and Ongar (Sir R. McCrindle). The Government must look again at clause 50. Despite the Government's statements, there is no question but that it is double taxation. If one has paid one's assessment for 1985–86, no more tax is payable for that year. However, more tax could be paid depending on the accounting date of the building society. If the building society's accounting year ends on 31 March, there is no tax to be paid, but if it ends on 30 September, tax would be charged not only on the full year 1985–86 but on another
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  six months' interest. If the building society accounting year ended in May, there would be considerable extra tax to pay.
  I have nothing to do with the Woolwich, but that building society won its case in the High Court in July 1986. The case went to the Court of Appeal in April 1988, and the Woolwich lost. Last October, the case was taken to the House of Lords, and the Woolwich won. If my right hon. and hon. Friends on the Treasury Bench cannot convince the highest court in the land that there is anything wrong, why was the Woolwich repaid £44 million? The money was repaid simply because the Law Lords said that it was double taxation and therefore should be repaid. An example of the anomalies and unfairnesses concerns the Leeds building society. Again I stress that I have no connection whatsoever with the Leeds. The Leeds and the Woolwich were working in harness, although the Woolwich brought the test case. Any lawyers in the House will know that, when there is a test case, anyone in similar circumstances benefits from that judgment. The Woolwich was repaid £44 million, but the Leeds remains £57 million out of pocket. That must be wrong, and the Government must look again at the matter.
  My right hon. and learned Friend the Chief Secretary said that it would be a windfall for the building society but would not affect its members. I should have thought that, if the Leeds building society were to receive £57 million tomorrow, that money would go into its reserves. Those reserves do not stand idle; they are invested. All the money in a building society belongs to the 30 million investors, so there is no difference between the building society and the investors; they are one and the same, and all the money belongs to them.
  Mr. Peter Bottomley: I agree with virtually everything that my hon. Friend has said, but he should make it clear that the House of Lords said that the subsequent regulations allowed for retrospection and therefore legalised the double taxation. The relief to the Woolwich turned on the rate of taxation, but the real issue is that Parliament did not expect to be imposing double taxation, yet the House of Lords said that it was double taxation. That is why the House of Commons has a rightful grumble, and that is why we want Treasury Ministers to think again.
  Sir William Clark: I remind the House that counsel for the Government said in the House of Lords:
  "Even if this amendment does impose double taxation, that is nothing to do with you because Parliament has willed it."
  My hon. Friend the Member for Eltham (Mr. Bottomley) is quite right. Parliament willed it, but it did so on the understanding that there was no double taxation. That is why we must go back and think again.
  Mr. Tim Smith: Is my hon. Friend aware that, when the Income Tax (Building Societies) Regulations 1986 that were made under the 1985 Finance Act were challenged by the Woolwich building society, the Government introduced a new clause at the Report stage of the 1986 Finance Bill. The matter was fully discussed and the Government said that it was not intended that there should be double taxation. The House of Lords has now found that Parliament approved double taxation by

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  agreeing to that new clause, so we approved something that we understood would not arise. That is the cause of the present difficulties.
  Sir William Clark: I am grateful to my hon. Friend for making that point so clearly.
  The philosophy of the Conservative party has always been against retrospection. It is a one-off case, so it cannot be said that we thought the law applied in a certain way and we are now putting it right. Since the House of Lords said that the Woolwich must get its money back, I am absolutely certain that the Leeds and every other building society will do the same. I am sure that my right hon. and learned Friend the Chief Secretary will realise that I am not in favour of wasting Exchequer money, but when unfairness has cost £250 million, we must do something about it.
  I regret this note of discord, but we should not be petty about mobile telephones or abandon the Conservative party's anathema to retrospective legislation. We have a strong economy and we must do all that we can to help businesses, both small and large, but we must always be fair to the taxpayer.
  5.30 pm
  Mr. Robert Sheldon: The right hon. Member for Croydon, South (Sir W. Clark) spoke about mobile telephones. It is rare that I agree with the right hon. Gentleman, but he made an important point. It will be a difficult tax to collect and, as one can see from reading the clause, it will be easy to avoid.
  The Treasury and Civil Service Committee has again produced its report, and the House is grateful. I have just one comment on the unanimity of the Committee, which I welcome. The Committee can be powerful or influential only when it looks at the facts and comes to a decision based upon them. I am pleased to see that it has achieved nearly new records of unanimity, and I welcome that. It is important, and I look forward to that standard continuing.
  On the Chief Secretary's arguments, I have been reading some of the economic debates of the 1920s and 1930s. They are remarkably similar to the arguments heard from the Treasury Bench today. There are many selective statistics, lots of clutching at straws and lots of hopes for recovery. That went on year after year. The Treasury Bench should look at those debates to see how the Government are copying so many of the errors of the past.
  In his Budget speech, the Chancellor said:
  "My central economic aim is to bring inflation down and keep it down."—[Official Report, 19 March 1991; Vol. 188, c. 163]
  I have heard that before. I went back to my valued Red Book of 1980. The medium-term financial strategy for that year said:
  "The Government's objectives for the medium-term are to bring down the rate of inflation and to create conditions for a sustainable growth of output and employment."
  The only difference is that the events are separated by 12 years. That was why we had three years of unparalleled austerity. We assumed that that phase of the operation to reduce inflation had finished. We thought that the Government had won that limited objective. The right hon. Member for Shropshire, North (Mr. Biffen) told us of those three years of unparalleled austerity. I wonder
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  whether anybody in the present Government will be equally straightforward and candid and tell us how many years of austerity we shall have to endure this time.
  In 1979, the Government were confident that monetarism would solve the problem. They believed that that nonsense would be the solution. They were going to reduce public expenditure and so on. In fact, North sea oil provided the Government with their real assistance to overcome the problems of those years. As a result of their policy, the country suffered. Thirty per cent. of my industrial firms closed and many others suffered as well.
  Twelve years later, the same problem confronts the Government as confronted them when they set out. Why is that? Inflation is still with us, but it is more severe in one respect. We may be in a slump rather than a recession. We are still not in balance in our external payments. Despite the enormous downturn the external payments position is still a major indictment of economic policy. What is to happen when there is some sort of recovery? If we cannot achieve balance of payments equilibrium now, when will we achieve it?
  Some say that this is a slump. If it is not a slump, what are the circumstances in which one uses that word, or should it be excised from the English language? I speak to many industrialists, and their major concerns are credit control, insolvencies and so on. They are all increasing their employment in those areas and are watching carefully. They have daily figures to show how many people make payments and how long the payments are being delayed. The old certainty of payments, even from respectable firms, is no longer with us.
  As my hon. Friend the Member for Derby, South (Mrs. Beckett) pointed out, it is easy to reduce inflation if there is a single target. One can deflate the economy by high interest rates and, for good measure, add a high exchange rate. One then reduces consumption and companies are destroyed indiscriminately, good and bad. Exports are hard to get with a high exchange rate and imports take advantage of that to compete with our own industries. However, inflation does come down as high interest rates restrict some forms of spending, although not all. Some individuals with high levels of savings profit from high interest rates.
  What will happen when there is an upturn? What happens to our balance of payments? There will be an £8 billion deficit next year, and we must wonder where the exports will come from when manufacturers have been so badly damaged by a Government who gave them little consideration and even less assistance. The problem is compounded because, far from the boom being investment-led, as some unwise commentators and Treasury Ministers affirmed, it was consumption-led. The boom was in finance, credit and consumption, none of which helped our long-term trading performance.
  The trouble with relying on interest rates is that some people gain and some lose. It is much harder to control the economy through interest rates alone now that so many people have such a high collateral in the houses that they occupy. So, in the middle of a slump, banks and finance houses are still anxiously trying to lend money to those with secure assets. We are paying the penalty of a housing boom fuelled and ignited by the former Prime Minister's dedication to absurdly lavish incentives to home ownership.
  Coupled with that, the Conservative party's attitude to pay claims has been farcical. First, the Government said

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  that it did not matter. They said that sterling M3 would take care of it and that controlling the money supply would remove money that might be used for pay increases. If companies paid high claims, they would be squeezed, and if they persisted, they would be eliminated by the operation of the iron hand of monetarism. So far did they believe that nonsense that they thought that they could raise VAT from 8 per cent. to 15 per cent. without affecting inflation. It is absurd even to consider that today, but those were the arguments used then. A year after coming to office, without the external trauma provoked by the oil price rises of 1973–74, the Government produced the self-inflicted retail prices index rate of 21·9 per cent. in May 1980.
  Eventually, all Governments learn something, and monetarism dropped out of their agenda. They then resorted to exhortation—pleading with industry to restrain pay increases. Their friends in the City responded by awarding themselves the £1 million salaries that have been a feature of this Government. Finally, the Government took refuge in the embrace of the exchange rate mechanism. They are now seeking to discipline employees by threatening them with a fixed and unalterable exchange rate. As if that were not enough, some people are producing the bogey of an independent Bank of England.
  I am not against fixed exchange rates. In the past few weeks, we have seen currencies varying by up to 15 per cent. and more, which can play havoc with a company's trading arrangements. When we had a fixed exchange rate up to the early 1970s, such a movement was considered catastrophic—a major devaluation, with all that that implied then. Now, I would wish to see fixed exchange rates that could be changed when the disparities were clear and consistent. I wish to see what I would call fixed but not immutable rates, as was the position in the late 1960s.
  The Government made the country pay a terrible price by reducing inflation by a means that caused great unnecessary damage to our economy. Having done that, why did they squander the one gain that they had achieved? After three years of unparalleled austerity and the seven fat years of North sea oil, why did they not look to the industrial investment which could alone prepare us for the rigours of the seven lean years?
  The truth is that they thought that our economic salvation lay in the City and its financial organisations. They are only dimly beginning to perceive that financial centres follow wealth creation, which comes mainly from manufacturing. That is why London became such a prominent financial centre; it rose on the backs of Manchester cotton and Birmingham metal industries. The enormous production of the United States created New York's financial centre, and Frankfurt and Tokyo have risen to challenge both older financial centres because of the dominance of manufacturing.
  Financial skills are more easily transferable than manufacturing skills. That, more than any of the market operations, threatens the valuable role that is still played by our City institutions. The lesson is that manufacturing industry is the principal begetter of financial institutions. To assume that finance can exist on its own is a folly that only the Government have entertained.
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  What are the Government doing to help our industries? They have made some concessions in corporation tax. I remind them that, in many cases, the reduced tax does not compensate for the tax paid on inflationary profits. If inflation is 10 per cent., companies are taxed at 3·3 per cent. of the stock that they held at the end of their financial year. Inflation on corporation tax extracts that wrongful penalty from them. For many companies, the reduction in corporation tax, although welcome, will not compensate them for the tax imposed on them because of the Government's failure to control inflation.
  The further failure of the Government has been to deal with the drying up of investment. There is no question but that investment is drying up—we can forget the past and the uncertain forms of investment that we had—because the Government did not raise capital allowances. Depreciation of 25 per cent. in the first year is nonsense for many forms of investment, and at a time of stringency they should have been increased. I should have wished capital allowances to be better targeted to manufacturing industry.
  I should raise the difficulty of ensuring that people pay the correct amount of tax. The Treasury, quite rightly, and the Inland Revenue certainly, used to oppose the claiming of expenses incurred at work because they thought that it would open the floodgates. I understood that and defended it many times, but now the costs of travelling to and being in work are higher than before and are growing fast.
  It would have been absurd for me, 20 or 30 years ago, to say that transport was a major cost of employment. Workers walked up the road to the mill or factory and that was it. They wore the same clothes and slipped back home for lunch. Many of my constituents travel 30 or 40 miles to work but receive no allowances for that. The clothes they wear must be a little better than in the past. They must eat in the canteen, and even a sandwich costs quite a lot. Women particularly, but many men as well, must consider the care of young children. Those major costs must be deducted from take-home pay. It is a serious matter and is becoming more so.
  We used to tax investment income from capital at a higher rate. It was argued that it was right to do so, because it was a more secure form of income than earning a living by taking a job. The problem today is not the investment income surcharge but the charge on the individual who must travel to work. Somebody who has investment income pays only for the journey to deposit his money at the bank. The case for an investment income surcharge is made stronger today by the many expenses that are incurred in earning a living.
  I welcome the changes in the Bill to excise duties. The retail prices index has been too prominent in keeping down duties on tobacco and alcohol. I would have preferred annual increases, at least to take account of inflation, rather than the Government, quite rightly, having now to try to make good those past lapses. An amendment like the Rooker-Wise amendment for personal allowances would be sensible for excise duties.
  I am happy, too, about the move to tax car benefits in kind, but I find the mobile phone tax hard to understand. The wording of the Bill is quite peculiar, but the Standing Committee will have to unravel that.
  A higher VAT rate of 17·5 per cent. means that the importance of the anomalies in the boundaries between 17·5 per cent. and zero rate will increase. There were

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  problems when VAT was 8 per cent., such as the size of the hem of a skirt for clothing allowances. Such anomalies will increase, and the Minister responsible for VAT will be heavily occupied trying to defend them.
  I welcome the provisions on mortgage interest relief and the PAYE quarterly payments scheme. VAT bad debt relief and the recognition of the role of child benefit are a move in the right direction.
  The Government started with a plan for inflation, and they will end with a plan for inflation. In the meantime, they will regret those years when they fooled around. The next Government, which I hope will be a Labour Government, will look to industry, which will be the only wealth creator. That is the only way of sustaining a prosperous and thriving economy.
  5.46 pm
  Sir Peter Tapsell: I agreed with the emphasis that the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) placed on the importance of wealth creation. Having spent most of my working life in the City, I also agreed that in the long term the City will not maintain its important place in international finance unless we improve our wealth creation. We must create more capital more rapidly and spread it more widely.
  In my lifetime, there has been an enormous improvement in our standard of living. Many more people own their own homes or are in the process of doing so and many more either have an occupational pension or are gaining entitlement to one than when I was young. Beyond that, amazingly few people have much disposable capital. Their capital is mainly locked up in their house or pension fund. It is extremely difficult, even with the considerable tax reductions made by the Government, for people who start without any money, as I did, to acquire capital.
  One of the main differences between this country and the United States is that it is easier to acquire capital in the United States. Someone can arrive in the United States from a third-world country with no English or qualifications, but after 20 years will have acquired a certain amount of disposable capital. One meets such people all over the United States. We do not have nearly such a dynamic economy. One reason for that, apart from the national temperament, is capital gains tax.
  I shall confine my brief remarks entirely to the capital gains tax aspect of the Finance Bill. I argue, as I have for a great many years, that we should abolish capital gains tax in the long term, although it may be necessary to have a short-term capital gains tax for, say, six or 12 months to make income tax avoidance difficult. People often forget that we have had a capital gains tax for only a short period of our fiscal history. Even Sir Stafford Cripps did not introduce a capital gains tax.
  I was in at the start of it in a funny way because, when he was Chancellor, Mr. Selwyn Lloyd asked me to talk to him about bond washing. I was a stockbroker and he assumed that I would understand how bond washing was done although my firm never did it. He told me that he wanted to stop it. I went along to the Treasury and tried to explain how bond washing was carried out although, as I was cross-questioned by Selwyn Lloyd and his senior civil servants, it became clear to me that I did not really understand how it was done. Selwyn Lloyd introduced a short-term capital gains tax in the 1962 Budget—primarily to stop bond washing.
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  In 1960–61, Britain had just had a mini-boom. It was nothing like as big as the boom of 1987–88, but it was a mini-boom with a certain amount of speculative land activity and a good deal of bond washing, out of which some people were making large sums at the expense of the general taxpayer. That was why a Conservative Government introduced a short-term capital gains tax. It was not intended as a general tax; it was a special tax to clobber the spivs, which is why it was supported by the Conservative parliamentary party at the time, but with some misgivings. In 1965, the Labour Government turned it into a permanent capital gains tax, although Selwyn Lloyd's short-term capital gains tax was not repealed until the 1971 Budget. This country has had a permanent capital gains tax of 30 per cent. since 1965 and I have always though it a bad thing.
  About 20 years ago, I remember asking Mr. Lee Kuan Yew, the Prime Minister of Singapore, how he accounted for the fact that his country, which had such an interventionist industrial policy and such high rates of income tax, had such a dynamic economy. He said that it was because Singapore did not have a capital gains tax. Last year in his economic report to Congress, President George Bush sent the same message—that if he was to make the United States economy more dynamic, he would like to see the CGT rate in the United States reduced from its present level of 28 per cent. He expressed the hope that he could get rid of it altogether.
  I do not think that anybody who has ever considered capital gains tax in any advanced country has denied that it has a bad effect on entrepreneurial activity. It distorts all sorts of markets. It dissuades people from selling shares and other things in an attempt to avoid capital gains tax when, on normal economic criteria, they would think that it was right to do so. A great many people nowadays have second homes, but because the principal home is excluded from capital gains tax, elderly people defer selling their second home, thinking, "When I die, the second home will not attract any capital gains tax." Capital gains tax means that, over a huge range of activity, people take decisions on disposals not on the merits of the disposal or its timing, but primarily because of the tax considerations.
  However, worse than all that is the appalling complexity of the tax which has worsened with every passing Budget. Governments are always tinkering with it. I have not checked, but I doubt whether there has been a single spring Finance Bill since 1965 in which capital gains tax has not been amended in an attempt to remove the anomalies that were created by previous amendments. This Finance Bill is no exception. The country's accountancy industry and tax lawyers spend a disproportionate amount of their time on capital gains tax. This Bill, for example, refers to overseas trusts, which have been legislated on in previous Finance Bills. People who become involved with overseas trusts do so primarily to avoid CGT.
  The return to the Revenue in the yield from capital gains tax is wholly inadequate when compared with the damage that it does to the economy and with the amount of time that some of our top professional brains spend on it. According to this year's Red Book, the yield for the current financial year is expected to be £1·4 billion. That is quite a large sum, but only a small element in the Budget. Last year, the yield was £.1·9 billion. The yield has been decreasing steeply since CGT was indexed. The indexation of capital gains tax removed some of its considerable

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  injustices because until the introduction of the 1982 and 1985 provisions, people were paying tax not on any real gain, but on the nominal gain of inflation. With inflation at 10 per cent. last year, one must deduct 10 per cent. from the rate of CGT. Obviously, therefore, the CGT yield is likely to come down unless capital values keep pace with the RPI.
  When the Tory party was in opposition and I was a Front-Bench Opposition spokesman——
  Mr. Robert Sheldon: And a very good one.
  Sir Peter Tapsell: The right hon. Gentleman and I had many debates then.
  At that time, the Tory team all agreed to get rid of capital gains tax. I was the only member of the team who thought that we should keep even a short-term capital gains tax. My right hon. Friends the Members for Finchley (Mrs. Thatcher) and for Blaby (Mr. Lawson), my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and all the subsequent Chancellors of Conservative Administrations thought that it should be completely abolished. I am amazed that after 11 years of Conservative Government we have still not got rid of CGT. Since 1979, I have written to every Financial Secretary to the Treasury well before each Budget urging that we should get rid of it. They have always written back most sympathetically and taken me to one side in a corridor or bar and said, "Yes, what a good idea, but the Inland Revenue does not want to get rid of it." The Revenue does not want to get rid of it because CGT is regarded by it as an essential means of preventing people from turning income into capital and thus avoiding income tax.
  Mr. Mellor ind indicated assent.
  Sir Peter Tapsell: I am glad that the Chief Secretary is confirming that. No doubt the Inland Revenue is still saying the same thing to him——
  Mr. Mellor: At least it is consistent.
  Sir Peter Tapsell: Yes, consistently wrong. There may be considerable strength in its argument that, without any capital gains tax, rich people with good professional advisers would try to avoid paying so much income tax and would try to turn as much as possible of their income into capital gains. Even if that is true—and it is true, up to a point—the fact is that capital gains tax has not done the prevention job for the Inland Revenue. If it had, it would not be necessary in Finance Bill after Finance Bill to pass special provisions that are separate from CGT to deal with the loopholes by which people seek to avoid income tax by turning income into capital gains and then seek to avoid that capital gains tax by moving into overseas trusts and other devices.
  I hope that CGT will be abolished. As a result of my conversations with successive Financial Secretaries I thought that it would eventually be abolished, so I was astonished and dismayed to find that instead of the reduction to a rate of 20 per cent. which I urged, or abolition, in the Budget of 1988 my right hon. Friend the Member for Blaby increased the rate from 30 per cent. to
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  40 per cent. to link it to the top band of income tax. He thus introduced an entirely new principle into our fiscal system.
  It had always been accepted by all Governments—going back to the time of Sir Stafford Northcote when we began discussing such matters—that income and capital were different and should be treated and taxed differently. With the apparent support of all members of my party, my right hon. Friend the Member for Blaby introduced the concept of treating capital and income in the same way and he increased the rate of CGT from 30 per cent. to 40 per cent. Given that we had earlier reduced the rate of income tax from 83 per cent. to 25 per cent., and 40 per cent., and indexed the CGT structure, that move to 40 per cent. would not have been so bad were it not for the establishment of that dangerous principle. Even in opposition, Labour Members now say openly that were they to take office they would increase the top rate of income tax to 50 per cent. and add a national insurance surcharge—as it were—9 per cent. So the top rate of tax would go straight from 40 per cent. to 59 per cent. We have not heard about it from them today or in their document, but I hope that we shall be told whether they would do the same with CGT.
  Once we have accepted the principle that the rate of CGT is linked to the top income tax rate, there is a tremendous danger that, if income tax rates are increased to, say, 50 per cent., Labour would say that when the Conservative Government were in power they accepted the principle of parity between the two, so they have automatically increased CGT to the same level. If the rate of CGT was 50 per cent. or 59 per cent., we should have one of the highest—if not the highest—rate in the advanced world.
  I cannot understand why my right hon. and hon. Friends are prepared to accept this situation. Many of them are far more enthusiastic than I about the wholly free operation of markets—it has always been my experience that the people who are most enthusiastic about the free operation of markets are those who have least practical experience of operating in them. I am a capitalist and I believe in free enterprise and in private savings. Over a 40-year period I managed, with the greatest difficulty, to acquire some savings and I should like other people to have the opportunity to do the same, but rather more quickly. If one believes in a free-enterprise capitalist economy, one must be hostile to CGT. I hope that on Report the Government will decide to abolish at least a long-term capital gains tax. If they are not prepared to do so, I hope that, for the political reasons that I have given, they will at least detach the rate of CGT from the rate of income tax and levy it at, say, 20 per cent. and make it clear that, as in the past, capital and income are different and must be treated separately.
  6.3 pm
  Mr. A. J. Beith: In his opening remarks, the Chief Secretary rightly said that there is an economic context for the debate, although his use of quotations to describe that context is slightly different from mine. I hope that we can reach agreement on the basic proposition that we are in the middle—or in the course—of a serious recession. I had better not say "middle" because that presumes that we know when the end will be. The recession is more serious than the

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  Government predicted, but as serious as the Treasury and Civil Service Select Committee predicted. Getting out of the recession will be a difficult task and will not necessarily be achieved quickly.
  Paragraph 6 of the Treasury and Civil Service Select Committee's report states:
  "Taking a longer period, the Treasury are now forecasting two half years of falling output; and output will now be 4·5 per cent. lower in the second half of 1991 than forecast for the same period just four months earlier. Clearly this is more than a relatively short-lived and shallow recession."
  The Government should stop pretending otherwise. They are in danger of being deceived by their own rhetoric. I understand why Governments confronted with elections try to make a story sound better than it is, but there are disadvantages to that. It has the effect of leading people to misunderstand the measures that might be needed and of making it more difficult for the Government to take those measures. For the Government to take some of the steps that we are urging on them might appear to be an admission of guilt on their part and an admission that things are worse than they have said. I should not want to put them in such a difficult position.
  I make the same argument about inflation. As long as the Government pretend that it is not as bad as it is, they make it hard to persuade people of the importance of the measures necessary to deal with it. I shall return to that issue later.
  The Chief Secretary quoted from the CBI survey and from the CBI's comments on the survey. I shall quote more fully the comments made by Mr. Wigglesworth, the chairman of the CBI's economic committee, which is responsible for the report. He said:
  "Although the trend in output appears to be levelling out it is too early to speak of recovery."
  That is quite different from what the Chancellor has said. Mr. Wigglesworth continued:
  "The survey shows that the intensity of the downturn is slackening and we may be approaching the turning point."
  The Government can reasonably claim that there is light at the end of the tunnel, but not that we have reached the turning point or that we have turned the corner.
  All this language about turning the corner makes me think that what is at the back of the Chancellor's mind is the Noel Coward song which states:
  "There are bad times just around the corner,
  There are dark clouds hurtling through the sky.,
  And it's no good whining
  About a silver lining
  For we know from experience that they won't roll by."
  [HON. MEMBERS: "Sing it!"] If there are any more requests, I might sing. What we do know from experience is that the Government's forecasts about the recession and about inflation tend to be inadequate. They are repeatedly inadequate and the Select Committee's report contains some useful tables showing how far that is so.
  I shall now deal with inflation. Language such as that used by the Prime Minister, who said that we have inflation "by the throat", also has a self-deceiving quality. We have not got inflation by the throat. The Government are making progress with headline inflation, but admit in their own forecast that underlying inflation will remain high and will be more than 7 per cent. even at the end of the year. I have listened to many lectures from Treasury Ministers about how deceptive the headline inflation figure is, especially with all the jiggery-pokery of the poll tax.
  The Financial Secretary to the Treasury (Mr. Francis Maude): If the hon. Gentleman is right and we are less
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  successful in reducing inflation than we believe, why did he recommend this morning that we should loosen monetary policy by reducing interest rates?
  Mr. Beith: Given the discipline of the exchange rate mechanism, I believe that it is now possible further to reduce interest rates while having an anti-inflationary policy. The Government also believe that, which is why they have made careful reductions of 0·5 per cent. at a time. I believe that they will make another reduction within the next three or four weeks.
  Mr. Archy Kirkwood: At the Scottish Tory party conference.
  Mr. Beith: Most reductions in interest rates coincide with events such as debates in the House of Commons or party conferences, and the Scottish Conservative party conference seems a likely place.
  It is possible to reduce interest rates now without threatening the anti-inflationary policy. It would not have been sensible to make a large and sudden reduction of, say, 2 per cent. to 3 per cent. in the weeks when our position in the ERM was uncertain. However, I am sure that Ministers will agree that the circumstances are now favourable for a reduction that would help us to deal with inflation.
  Mr. Tim Smith: Is the hon. Gentleman saying that we can succeed by cutting interest rates and that inflation will still fall? He has just complained that underlying inflation is going to remain stubbornly high. Is he now saying that it will fall even if we cut interest rates?
  Mr. Beith: The present level of interest rates is not necessary to assist in the battle against inflation. There will come a time when the Government will need to look to interest rate policy because of further inflationary pressures in the system. I am not sure whether the Government have recognised how difficult the situation might be when recovery begins. At the point of recovery it is difficult to maintain anti-inflationary policies and that is why we argued that it would be better to place responsibility for interest rate policy in the hands of a central bank with responsibility for price stability.
  I was interested in the different responses of two Ministers on that subject. When I engaged in a discussion on the radio at lunchtime with the Secretary of State for Employment, he tried to dismiss the idea as ludicrous and one which no civilised country would adopt. Obviously he was totally unaware of the way in which Germany has operated for many years. When the Chancellor of the Exchequer appeared before the Treasury and Civil Service Select Committee, he was at pains not to take that view. He took what I can only describe as a holding position.
  The Chairman of the Treasury and Civil Service Select Committee put the remarks of the Governor to the Chancellor, who responded to the Governor's view that a more independent role for the central bank would help in the battle against inflation by saying that countries differ in their practices in that respect. Some countries, he said, use a more independent central bank while others do not. Some have found that helpful in fighting inflation while others do not appear to need it. That was a perfectly respectable reply and one which is consistent with the Government in due course moving towards us on this policy, as they have with regard to several other policies, such as membership of the exchange rate mechanism. I

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  suspect that there may be a rethink in the Treasury which has not been communicated to the Secretary of State for Employment, who does not seem to get on very well with the Treasury anyway. He was not very successful in getting a decent training programme out of the Treasury, so it would not be surprising if the Treasury had not told him about its thinking with regard to central bank independence.
  It is striking that inflation is always reduced in advance of an election and that is clear if we consider the statistics over several years. However, it is not consistent with a sound anti-inflationary policy. Ministers have often told us that underlying inflation is important and that the headline figure is misleading. I cannot think of a better moment for the Government to act on their suggestion that we should have a new index of inflation. What better time could there be to devise a new index that took proper account of housing costs? It would have to do that; it could not omit all references to the effect of mortgage interest. If the Government were now to introduce such a new index, no one could accuse them of deliberately distorting the statistics in order to obtain a more favourable figure. The time is right for the Government to make an objective improvement in the way in which inflation is measured.
  The time is also right for the Government to take steps to help the country with the consequences of the recession which they have caused and which stems from the mismanagement of the credit boom. The Government could invest in a significant training programme, and by that I do not mean the training relief to which the Chief Secretary to the Treasury referred. How he can possibly advance that as significant in the present context, I just do not know. It does not happen until 1992–93; it applies only to people who finance their own training; and it represents only £15 million of public investment in training. It has absolutely nothing to do with the scale of skills shortages which industry is now experiencing and the contribution that training could make to solving that problem.
  I am surprised that the Government's traditional desire to see the unemployment statistics improved has not led to more expenditure on training. When budgets for training were first cut significantly and Ministers were asked in the Treasury and Civil Service Select Committee to explain why that had happened, we were told that it was because unemployment had fallen. That was a strange view of training, which is necessary whether people are employed or unemployed. The recession calls for a major improvement in training.
  Fiscal policy must also play a more important part in dealing with the recession. The Government have accepted in the Budget and in what they have told the Treasury and Civil Service Select Committee that automatic stabilisers are an important way in which fiscal policy contributes to handling a recession. The Select Committee records its appreciation that the Government made that point clear because it has tended to be obscured in the past. However, there is further scope in the measures, that I have described for a policy actively to encourage the country out of recession without taking inflationary measures, and training and investment in transport are part of those
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  measures. Present circumstances also allow a further interest rate cut, which would help to handle the problems of the recession.
  Why do we not have a draft Finance Bill? Would not it be more sensible for measures of this detail to be produced in draft form for widespread discussion instead of being pushed into a concentrated process that does not permit anything like the detailed consideration that it deserves? The Government tested the waters on this with a number of tax measures in last year's Finance Bill and that of the previous year. Why not introduce a draft Finance Bill system? Why not have a draft Budget? There are relatively few Budget measures which cannot be discussed over a period of time and which are so market-sensitive that they can be announced only overnight in a dramatic Budget day announcement. Much of the Bill's contents could have been discussed over a longer period.
  The Chief Secretary to the Treasury made great play of the fact that the Government have abolished six taxes. He was going for the George Bush award for how well one can stick to one's promise of no new taxes. The Government who claim that they are abolishing taxes have also raised VAT by 2·5 per cent. They also gave us the poll tax, they hope to give us the council tax after three more years of the poll tax and they have also introduced the 50 per cent. port privatisation tax. That is a long string of new taxes for a Government who claim not to like taxes.
  I liked the way in which the Chief Secretary introduced the VAT increase. He said that it was a reasonable step to take in the circumstances "in which we found ourselves"—circumstances in which they found themselves? The Government created the circumstances. They invented the poll tax and they created the mess. They then found themselves, as though by accident, in circumstances from which the only escape from the catastrophe wished upon them from somewhere else was to slap 2·5 per cent. on VAT with all the consequences for families, charities, businesses and the retail trade. What a hopeless alibi. The Chief Secretary would have demolished that alibi in his Bar days if it had been advanced by a common pickpocket.
  There were some simple alternatives. The Government were right to conclude that they had to do something about the ludicrously high rates of poll tax, but they had left it too late even to introduce the relatively straightforward mechanism of local income tax for the coming year. They could have transferred the cost to national income tax which would have been a fairer way of raising the money. I am surprised that the Government did not do that. Indeed, some Conservative Members would have preferred that step. As it is, the Government have left charities with an extra burden of £33 million a year in additional VAT. The Chief Secretary refers to the reliefs for charities in the Bill. There are some reliefs, but when the Bill was drafted no one thought that an extra £33 million would be taken from charities as a result of a separate increase in VAT. The Chief Secretary must reconsider the treatment of charities in the Bill and attempt to compensate for that serious increase.
  I remind Treasury Ministers that they have a responsibility for the Inland Revenue. While we are talking about new taxes and the administration of taxes, perhaps we should bear in mind the fact that one of the problems that they will have with the council tax will lie with the Inland Revenue. Ministers have been saying that there will not be many appeals under the procedures recommended for the council tax and that everybody will

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  be happy with the band into which they are put. I do not think that that is true at all. Indeed, doubts about it are already apparent in the hasty but now abandoned reconsideration of whether to have nine bands instead of seven.
  I hope that Ministers will remember that there are now 650,000 outstanding appeals on business rates with which the system has not yet been able to cope. There are even 30,000 appeals arising from the old rating system with which valuation officers and the appeals machinery have still not been able to deal. That is more than a year after we have finished with the rating system, and there are 30,000 outstanding appeals. The Inland Revenue is in for a very interesting time if the council tax ever sees the light of day.
  Mr. Roger King: The hon. Gentleman has criticised the new system of council tax, the valuation of properties and the appeals procedure. His party wants to introduce a local income tax. As he will appreciate, incomes are often not strictly related to the year that has just passed or to the year that will come, because of various claims and other incomes that must be assessed. How many appeals does the hon. Gentleman think a local income tax would create?
  Mr. Beith: The local income tax system would not create any more appeals than income tax itself creates, because appeals do not arise over the level of the tax. They arise over the liability of the individual. Appeals would therefore arise from the basic national income tax that an individual was paying, whether or not a local income tax figure was added to that. It would make no difference to the appeals machinery.
  I challenged the Chief Secretary on the uniform business rate and the enormous additional burden on business. In reply, he said that it is much better than having a lot of local councils, some of which imposed high increases in rates which hit the business community in their areas. He has imposed on business across the whole country from Bath to Berwick-upon-Tweed—it is noticed in both places, particularly the former—an increase in the business rate which is more than twice the level of inflation which he now says we shall experience this year. He complained about local authorities charging 40 per cent. or 50 per cent. more than inflation. He will charge more than twice what he now believes inflation will be, and significantly more than he was predicting it would be when the rate was fixed at 10·9 per cent., which is the highest level by which the Government were permitted to increase the business rate.
  Mr. Watts: Will the hon. Gentleman give way?
  Mr. Beith: I shall not give way any more because time is running out and I was hoping to make some brief comments before concluding my remarks.
  As hon. Members have said, another matter of concern is clause 50. The retrospective and double taxation aspects of it are of such concern that they should have been discussed on the Floor of the House and not upstairs in Committee, and I shall vote accordingly. Nobody consulted us on whether clause 50 should be taken on the Floor of the House or in Committee. I hope that the hon. Member for Eltham (Mr. Bottomley) will insist on his motion that it be taken on the Floor of the House and the Government could still easily concede that.
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  There are omissions from the Bill too numerous to mention. For example, I refer to the environmental taxes, which were hinted at in the White Paper; the relief for child care, about which there was much discussion before the Budget and for which we pressed when we discussed the two previous Finance Bills; and the abolition of tax relief for private medical insurance, which would have enabled at least some funds to go indirectly into a health service in which job losses are taking place. These would have been welcome features of the Bill.
  There are useful matters in the Bill—for example, the restriction of mortgage interest relief to the basic rate, the action on company cars and the VAT threshold increase. They are welcome features. However, I have the feeling that the Bill was conceived as one which contained a great many matters that could easily be dropped at the last minute if there were to be a sudden general election and an agreed version of the Bill could have been quickly brought forward. I should have welcomed that. I would much rather go round the country in the June sunshine, urging people to vote Liberal Democrat, than sit in a Committee Room considering the details of the Bill, as we are now certain to do. I see no sign of that June election taking place.
  6.23 pm
  Mr. Terence L. Higgins: The hon. Member for Berwick-upon-Tweed (Mr. Beith) may have an opportunity to go around in the June sunshine during a general election, but it will be in June next year rather than in June this year.
  Traditionally, the Second Reading debate on the Finance Bill is wide ranging. It always presents the Chief Secretary of the day with a difficult task because he has an obligation to refer in some detail to the individual provisions of the Bill while setting the framework within which the Bill is introduced. My right hon. and learned Friend hit a good balance, and showed a remarkable grasp in response to the detailed interventions to which he was subjected. The House should be grateful to my right hon. and learned Friend for the situation described in paragraph 92 of the Treasury and Civil Service Committee report, which brings up to date the contributions that have been received by the Government or have been promised to the Government in response to the appeal for other countries to help to finance the war in the Gulf and the efforts that we made there. To a considerable extent, that is a reflection of the effort that my right hon. and learned Friend the Chief Secretary has put into those difficult negotiations. I am grateful also for his kind remarks about the Committee's report, which helped to put some of the press comments about it into perspective.
  The centrepiece of the Budget is the increase in VAT, with the corresponding decrease in the community charge—the switch from local to central Government taxation. The House will know from my speech in the debate on the Budget that I should have liked to go further and abolish local taxation altogether. However, that is clearly a move in the right direction. The community charge was an improvement on the rates and, in turn, the council tax will be an improvement on the community charge. We are going in the right direction. Therefore, I very much welcome the proposals. Nonetheless, the measure will raise only about I I per cent. of local government finance. At

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  some stage, we must consider whether the task that that tax will perform is sensible. Nonetheless, the central part of the Budget in that respect is right, and I welcome it.
  The Treasury Select Committee report puts the Finance Bill in perspective. Of course, as we rightly point out, we have a recession which is more serious than the Treasury anticipated. We want to be quite clear about the causes of the recession. As the evidence from the Governor of the Bank of England makes clear, it is a reflection of the action that the Government have needed to take because inflation took off following the stock exchange crash of 1987. It is common ground that there was a misjudgment at that time. The present Prime Minister and the present Chancellor accept that there was an error of judgment at that time, against a background of very faulty statistics.
  he point that must be made strongly is that inflation and the subsequent recession would have been a great deal worse if the Government had accepted the views that the Opposition put forward at that time. I have looked carefully at the record. It is quite apparent from the speeches by the shadow Chancellor—the right hon. and learned Member for Monklands, East (Mr. Smith)—the hon. Member for Dagenham (Mr. Gould), and a number of others that they were advocating a massive fiscal stimulus on the one hand and reductions in interest rates on the other hand. Having gone through that record, I was rather surprised only a few weeks ago to hear, on the Walden programme, the shadow Chancellor say:
  "There was a problem following the crash. The great error of the Conservative party was not having lower interest rates at that time."
  The right hon. and learned Gentleman still does not understand that he was wrong then, that he is wrong now, and that, if we had done what he suggested, the recession would be a great deal worse. I do not know whether it is a Scottish legal expression—it is a legal expression otherwise—but the shadow Chancellor is estopped from the kind of criticism that he has made. He should recognise that and come clean.
  I now refer to the report of the Treasury Select Committee. I was somewhat surprised by the headlines that accompanied some press reports on it because it was mixed up with the conference of the Institute of Directors and some comments that were made there. The report contains a number of criticisms, to which I shall refer in a moment. The Institute of Directors was being a little unfair in some respects. In his conference speech, which I thought was very good, my right hon. Friend the Chancellor pointed out that he had accepted virtually every recommendation that the institute had made in its Budget representations. That being the case, the criticism was rather surprising.
  The Treasury Select Committee is particularly critical about forecasts. We point out that, at this time last year, we drew attention to the fact that the history of these matters shows that it is always difficult to detect turning points in the economy. The figures show that the effect, whether downward or upward, has always been under-estimated in the official forecasts. The Committee says that the errors in the forecasts have become worse and worse in successive economic cycles. At the time of the autumn statement, we said that, in our opinion, the
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  Treasury forecasts were wrong. That view has certainly been vindicated by subsequent events, as is evidenced by the facts set out in the Red Book.
  The Chancellor and his team are working under a severe handicap with forecasts. As to whether there is a Budget surplus or a Budget deficit, leading to either a public sector debt repayment or a public sector borrowing requirement, the official forecast, based on experience, is that the margin of error will be £5·75 million in either direction. That is an enormous margin of error. Repeating the corny analogy that I used the other day, I shall say simply that the Chancellor is trying to drive a car with an enormous amount of play in the steering—verging on one side to inflation and on the other side to unemployment. There is little clear guidance as to what is happening. The Committee is right to suggest that there should be an inquiry into the forecasting processes, in addition to the existing one concerning the improvement of statistics. We have a difficult and dangerous situation. In the context of the economic cost of the problems of managing the economy on the basis of the present forecasts, the cost of such an inquiry would be insignificant. The Opposition would simply veer off in the direction of inflation. They would drive straight off the road at an accelerating pace. We, on the other hand, say that we have got to get the steering right.
  We need quarterly, rather than half-yearly, forecasts. Everyone else produces quarterly forecasts. Indeed, for some it is a monthly process. Given the variation between the situation of last autumn and the current situation, we ought to have had an interim forecast. The expenditure that the production of such forecasts would involve would be worthwhile. The Committee has been addressing this real problem.
  The Government's overall strategy operates within the exchange rate mechanism of the European monetary system. The Chancellor is reducing interest rates as inflation comes down. In our report, we point out that the RPI forecast may well prove to be pessimistic. In other words, the rate may well come down even faster than the Government are forecasting, and, at any rate, to 4 per cent. by the end of the year. Of course, the underlying rate is a more difficult matter. It is particularly dependent on wage settlements, and here the public sector has an important role to play in bringing down the general level. We are not keen on staged settlements, which may well turn out to be examples of putting off the evil day. In this connection, the Institute of Directors has an important role to play. We do not know whether the foreign exchange markets will put more emphasis on the RPI or on the underlying rate of inflation, but I am sure that my right hon. and learned Friend is right to say that we do not want interest rates to be cut prematurely, and then raised again. That would be the worst possible course for business confidence. Thus, my right hon. Friend must be cautious.
  I welcome the fact that, in response to the Committee's earlier reports, the Treasury has said categorically that it accepts the role of the automatic stabilisers. If, as a result of increased unemployment benefit during a recession, or falling revenue and smaller profits, the deficit increases or the surplus decreases, the Government will not now take that into account. In other words, they will allow the stabilisers to work. A few days ago, there were press reports to the effect that if expenditure on unemployment

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  benefit would increase, there would have to be corresponding savings elswhere. That is not my understanding of Government policy.
  Mr. Mellor indicated assent.
  Mr. Higgins: I am glad to see that my right hon. and learned Friend agrees. I presume that the writer of the press article was living in the past. Automatic stabilisers have an important role to play. The Committee makes some specific remarks about whether the automatic effect is at the desirable level. In paragraph 26, we suggest that some modification might be appropriate.
  It is clear that the Government's objective is to achieve a balanced budget over the medium term. However, they fully accept that, over the cycle, there may well have to be a surplus in some years and a deficit in others. That is entirely appropriate. The Government's policy on interest rates, combined with the effects of the stabilisers and of fiscal policy, which has shown a substantial move into deficit I believe—that the foreign exchange markets realise that, as the Treasury Select Committee says, this is a sensible reaction to the present economic situation—gives us reason to believe that we may look for an upturn.
  The Committee's report is, of course, based on the evidence that it received. That is the purpose of Committees of this House. Reflection on the facts is an important component of the influence on our report, as is the evidence that we received. Clearly, we do not yet see clear evidence of an upturn. As has been pointed out, the unemployment figures are a lagging indicator. The policy as now enunciated is significantly different from the policy of six or nine months ago. That applies both to fiscal policy and to interest rates. I believe that the Government are now on the right course. If we can achieve some improvement in forecasting and in a number of other factors, the Committee will have fulfilled a useful function by keeping the Government on the right lines and ensuring that the recession is shorter than would otherwise have been the case. I welcomed the Government's acceptance of a number of the Committee's recommendations, and I look forward to their accepting even more in the future.
  6.37 pm
  Mr. A. E. P. Duffy: The unpopularity of the poll tax has diverted attention from the Government's failure with the economy. No hon. Member, recalling to what extent the Government were responsible for the 1980–81 recession, could really have expected that the country would ever again be called upon to go through all that. Then there was great talk about the need to shake out surplus labour in order to produce a leaner and fitter industry. That recession cleared my constituency of its industry. When I became the constituency's Member of Parliament, it was regarded as the most industrial area in western Europe. Now it has only one firm of any size and several smaller single entrepreneurial ventures-to become businesses, we hope, but that is a matter about which I shall say something in a few minutes.
  We are now doing it all over again, and it is still not working. Manufacturing output is plummeting, investment is collapsing and unemployment registered a record rise last month. But, disturbingly—here I reflect the experience of my own constituents—by comparison with
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  1980–81, more of the assets that are now being brought into receivership appear to have real value, as distinct from a scrap value. Again, I shall say more later.
  Although cuts in corporation tax will undoubtedly produce an increase in investment by the mid-1990s, could not the Chancellor have chosen other measures-such as investment allowances—if he wished to produce a surge in investment in the short term? Surely that is what hon. Members on both sides of the House see as our greatest need. The Retail Consortium welcomes the downward trend in interest costs but believes that further sustained cuts are needed.
  How fragile demand has become was brought home to us yesterday by the shock announcement of layoffs by Marks and Spencer. Some hon. Gentlemen from both sides of the House—I was one of them—visited the corporate headquarters of Marks and Spencer in Baker street only last week. We know what its problem is—lack of demand.
  The Budget decision to finance a reduction in poll tax bills by increasing VAT to 17·5 per cent. was clearly done with a cynical eye on the RPI, but that political manipulation of VAT will have far-reaching consequences and will place, for example, those involved in the bloodstock industry in the United Kingdom, following the arrival of the single market in 1993, at a tremendous disadvantage with their European partners, and in particular with the Irish and the French. It is an important matter which will need to be pursued in Committee, presumably on the Floor of the House. The increase in VAT presents the most serious threat to racecourse revenues and to thoroughbred breeding, and even calls into question the future of Tattersalls and Doncaster bloodstock sales. The Chief Secretary's confirmation that the Minister of State will receive a deputation early next week is very welcome.
  Despite the findings of the latest CBI survey, to which the Chief Secretary referred, Britain's business leaders have severely criticised the Government's economic record. Although a handful of companies in specialist or niche markets are doing well, the majority of members of the engineering employers' association of Sheffield, as I reminded the House earlier this afternoon, according to its April quarterly business trends survey, distributed only yesterday, arc finding the recession worse than that of the early 1980s. Last week, the president of the Association of British Chambers of Commerce publicly declared the Chancellor to be too optimistic. The Chancellor himself may now be of the same mind in view of recent utterances.
  As for inflation, according to almost every ministerial speech, it is being sent packing. On the short-term outlook for the headline inflation rate, Ministers must be on fairly solid ground, but the broadest inflation measure, the gross domestic product deflator, is another matter. Falling it certainly is, but, in the words of the chairman of the Conservative party, it is not "plummeting like a stone". Nor do the latest producer-price figures support the Prime Minister's claim that the Government have inflation "by the throat".
  Indeed, the Nomura Research Institute, in a new analysis, suggests that economic recovery will bring with it the speedy return of Britain's inflation and current account problems. It will not be easy for the Government to stimulate the economy at home on the one hand and on the other achieve purchasing power parity abroad, while at the same time arriving at a convenient election date.

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  Nowadays, however, it is no longer possible to blame the trade unions for most of that. Strikes remain at a very low level, and the number of days lost in January was the lowest for any month in 41 years.
  Nor is it hard to see who the pacemakers in the pay league have been in recent years. A recent survey for the CBI found that directors' salaries are rising by an average of 14 per cent. and have outstripped those of other employees for more than five years.
  The Association of British Chambers of Commerce has conducted a survey of 7,000 businesses in 15 regions. It finds that all regions are suffering, with London, the west midlands and Yorkshire and Humberside being the worst hit. With the permission of hon. Members, I should like to dwell on my own region of Yorkshire and Humberside. The recession is tightening its grip on the region, despite its contribution to Britain's export drive—27·9 per cent. of its GDP, as recognised last week in the Queen's birthday accolade to industry. The 1980s saw the loss of almost a quarter of Yorkshire's manufacturing jobs, yet Government preferential aid to the region's industry is less than 6 per cent. of the total for the entire United Kingdom. EC funding in 1987–88 was eight times domestic funding.
  As Yorkshire industry struggles to haul itself out of the pre-war era—its prime task now—thousands of small businesses are threatened by insolvency, according to the chairman of Sheffield enterprise agency. The old staples in Yorkshire, part of the cradle of our industrial society, are bent on the vital task of regeneration. Small businesses have been set up by skilled engineers and ex-coal miners in south Yorkshire and by Asian entrepreneurs elsewhere in the region, notably in Bradford and Kirklees. All promise to make substantial contributions to the local economies. However, interest rates are the trigger that have produced the slide into recession and that are pushing them into insolvency, thus threatening the existence of that fertile seedbed which is so vital to our future.
  In Sheffield, it has been evident for some time that there is a clear need for a strong proactive policy to regenerate the local economy. That is the city's main task. Thus, it has diversified from its steel-producing roots to adapt to changing times and technology.
  The city has also entered into a unique partnership between business and the community. Instead of rebuilding the past, the city is concentrating on using Sheffield's strengths to create a new culture, but it is choking in the present business climate. Its £2 billion redevelopment programme is being hit harder and harder by the recession. The number of projects delayed and abandoned is rising, piling on the misery for firms involved in the construction and development industries.
  Sheffield is within the major conurbation of South Yorkshire, along with Barnsley, Doncaster and Rotherham. The area may still be regarded by those who have not visited it in recent years as a traditional manufacturing region, but it is increasingly attractive as a cost-effective location for service, financial and administrative business. But it needs a different financial regime from that set out in the Bill.
  Mr. Mans: Can the hon. Gentleman tell us what the effect of the unified business rate is on his city?
  Mr. Duffy: Of course, that is one problem that small businesses are trying to shoulder. I receive more complaints about that than about most problems now facing small business men.
  Mr. Jonathan Sayeed: It is not as bad as it was.
  Mr. Duffy: It is still burdensome. I have found in reaction to the Budget that there is still the same concern not only about the uniform business rate but about corporation tax, despite the changes. There will be no flags out in Sheffield on those two counts.
  We all appreciate the need to control inflation. We do not minimise the task facing the Government, and we wish them well. It has to be mastered, but is it enough to rely solely on narrow, deflationary policies and to put the whole burden on the unemployed and the small business man? We need a broader range of policies: credit controls as well as lower interest rates, a greater emphasis on education and training, a modernisation of our infrastructure and greater investment in manufacturing. Above all, we need the involvement of both sides of industry if we are to make any headway towards low inflation and also a low unemployment society.
  6.50 pm
  Mr. Jonathan Sayeed: I quite often follow the hon. Member for Sheffield, Attercliffe (Mr. Duffy), usually in shipping debates, which is one of the subjects that he did not mention today. I hope to be allowed to remedy that situation and that he will be able to support my words. However, I would like to pick up one thing that the hon. Gentleman said. My understanding was that in Sheffield the uniform business rate had meant a reduction in costs from the old rating system. Of course, as we all know, corporation tax has gone down dramatically. We are delighted to ensure that rates and costs to businesses continue to fall.
  There is much to commend in this Finance Bill: lower corporation tax, relief on bad debts, help for charities, a boost for training, increased benefits for the needy and, above all, the continuation of a move from direct to indirect taxation. That is what encourages us all to plan for the future; that promotes investment, effort, thrift and enterprise and discourages conspicuous consumption. After all, we all want a nation that thinks of its future, and it is about the future, in particular the future of the British shipping industry, that I intend to speak today.
  Shipping is one of the major invisible earners in the country. It contributes, together with other maritime-related industries, more than £5 billion a year to our balance of payments. It provides training and skilled employment and is essential for the defence of the realm.
  These facts are accepted by the Government. It was, after all, the Government who set up the joint working party of the industry, together with the Ministries of Transport and Defence, the Foreign and Commonwealth Office, the Department of Trade and Industry and the Treasury. It was this group which categorised British shipping as "a vital national asset" in economic and in defence terms.
  Nor is that point lost on the House. My early-day motion 500, entitled "Merchant Navy", called upon the Government

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  "to take immediate and positive action to first ensure that the British fleet is strengthened by appropriate stimulation of investment in modern tonnage and second encourage the recruitment, training and employment of British seafarers."
  It attracted 356 signatures, 166 of which came from the Conservative Benches, and with very good reason. The United Kingdom-based fleet has declined by 90 per cent. in the past 10 years; it is one tenth of what it was a decade ago and the average age of what is left is greater than the world average. At the same time and within the same period, just 10 years, the number of British seafarers has fallen by two thirds.
  The continued contraction of the British fleet is a direct result of the nature of the competition that it faces-a competition which enjoys special advantages beyond normal commercial competitiveness. The two most important of these special advantages, those which are pertinent to today's debate, are the cost of investment and the cost of employing British crews.
  Major competitors—Germany, Denmark, Norway and many others—employ schemes to encourage investment in ships. Direct investment grants, soft loans, accelerated depreciation arrangements, special tax breaks, low or nil corporation tax—these and others all make the capital costs of France, Norway, Liberia, Denmark, Greece, Germany, Finland, Sweden and the Netherlands lower than ours. Nor can we match their crew costs. While the greatest competition inevitably comes from countries where labour is cheaper than in western Europe, other western nations—Denmark, Sweden, Belgium, Greece, the Netherlands and Portugal—have acted. They have introduced schemes, including exempting seafarers from income tax and national insurance payments, to reduce the disincentive of employing their own nationals.
  None of this is new. The industry, employers and employees, and many on both sides of the House, have expressed their concern over many years. What is new is the way in which the joint working party has given new urgency to the central question—what is to be done?
  The answer has been identified by the industry. It has proposed specific fiscal measures which would, first, stimulate investment and fleet renewal and, secondly, encourage the continued employment of British seamen.
  One conclusion of the joint working party was the following:
  "The UK's fleet is ageing…The overall level of investment by British companies is below that necessary to maintain the fleet at present levels."
  With 75 per cent. of our ships requiring replacement by the year 2000, a major programme of fleet renewal is urgently necessary. First-year allowances on a temporary basis for, say, five years would meet that objective; and the cost would be nothing unless there were new investment, and then it would be only in terms of the deferment of corporation tax on profitable enterprises.
  The benefit to British ship-owning companies would be considerable. By improving cash flow in the early years of acquisition when the financial burden is at its heaviest, this, allied to other measures, would turn a declining industry into one which within 10 years could contribute £10 billion a year to our balance of payments.
  The other prerequisite for reversing our maritime decline is the need to remove the disincentive to employ British seafarers. In his Budget speech my right hon. Friend the Chancellor said:
  "I recognise that there is a strategic case for measures to encourage shipping companies to draw their crews from
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  seamen in the United Kingdom, who would be willing and able to serve in time of war."—[Official Report, 19 March 1991; Vol. 188, c. 173.]
  Regrettably, and I believe inadvertently, the only measure that was introduced, clause 43, will do nothing of the sort. It will not reduce the cost of employing British crews; it will harm British companies which employ the two thirds of British seafarers who will not benefit and who will therefore be tempted away from their current employment to serve in deep-sea ships which, given the decline of our own fleet, are likely to be foreign-owned and operated.
  In order that the objectives that my right hon. Friend has enunciated may be fulfilled, it is essential that the cost of employing British seafarers be reduced. Merchant seamen should be afforded relief from income tax in a way that enables the employer to retain the earnings which would otherwise be remitted to the Inland Revenue.
  What would that cost be? It would be some £30 million in a full year in the short term, but the benefits in training, employment and the security of our nation would undoubtedly be considerable. There are precedents for these measures in the Netherlands, Denmark, Sweden, Belgium and Greece.
  I believe that not to follow such precedents would demonstrate a shortsighted, short-term, blinkered approach which would be uncharacteristic of a Conservative Chancellor. We have seen that, as the upper bands of personal tax are reduced, tax revenues from the same percentile increase. Similarly, more ships and more men paying less will produce more revenue than fewer ships and fewer men paying more. The precedent and the principle are clear.
  Some hon. Members may ask what is so special about British shipping that it needs and deserves special assistance. Others may suggest that we should reduce the intervention of other countries which places us at such a disadvantage. That is a fair question and an understandable comment to which I shall endeavour to give a clear answer and response.
  What makes British shipping unique is its importance to this nation's wealth and security, allied to the fact that ships, by their nature, are mobile and will seek out the most favourable fiscal and commercial environment.
  These measures are not without precedent in Britain. Some hon. Members may remember that companies in enterprise zones have enjoyed such first-year allowance provisions for some years. The Government have been prepared to take action to safeguard other major generators of invisibles, such as the stock exchange, which last year was exempted from stamp duty on paperless share transactions at a cost of some £800 million in a full year.
  As for subsidies enjoyed by our competitors, the Government and industry joint working party concluded:
  "The prospects for eliminating subsidies in other countries in the near future are not encouraging."
  As every hon. Member will understand, that is Ministry-speak for, "By the time it happens—if it happens—there will be no British ships or British seafarers."
  An ancestor of my right hon. Friend the Chancellor was Arthur Anderson, who founded P and.O With his Shetland ancestry, my right hon. Friend should understand the importance of the sea to this nation. He must know that the country faces the risk of the near-total loss of the United Kingdom-registered fleet. Other countries that share our free market philosophy have

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  decided that it is not a risk that they can afford and have taken remedial action. Their fleets are reviving and beginning to prosper. Unless the Government reach the same conclusions, we shall rue the day that we stood idle and watched our maritime heritage, power and commerce disappear before our eyes.
  Over the past 10 years, the British Merchant Navy has declined by 9 per cent. a year—there is only 10 per cent. left. The industry's needs are clear. The palliatives of Government have failed. The early-day motion has made clear the will of the House. It is time for the Government to act as the industry proposes and as the House requires.
  7.3 pm
  Mr. Denzil Davies: The hon. Member for Bristol, East (Mr. Sayeed) makes a powerful case for British merchant shipping with which most of us would agree, as the early-day motion shows. Unfortunately, the Conservative Government will not listen to him. This is another great British industry that has been run down by the right-wing market philosophy of the past 12 years.
  The Second Reading debate on the Finance Bill is unusual because it combines a debate on the clauses and a general economic debate on the development of the economy from the presentation of the Budget until now. The Chief Secretary to the Treasury spent most of his speech on economic matters.
  My hon. Friend the Member for Derby, South (Mrs. Beckett) referred to clause 12. Like many Labour Members, I deplore the increase in VAT to 17·5 per cent. I do so for many reasons. It reduces the local element in local taxation to 11 or 12 per cent. That makes a mockery of local democracy. It creates a "gearing" problem—to use the vogue word—and gives the Government an excuse to maintain capping on local government expenditure.
  There is also a central Government problem. I do not wish to indulge in the debate about hypothecation. Clearly this is not strictly hypothecation. It seems that the 2·5 per cent. proceeds on VAT are almost like the judge's salary and the European Community's budget expenditure—a charge on the Consolidated Fund. I do not know how Governments will deal with it and whether it will reduce their flexibility.
  My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said that 17·5 per cent. was too high. We should move to more positive rates of VAT. A single positive rate of about 14 per cent.—even 15 per cent. was too high—could be justified. A rate of 17·5 per cent. falls heavily on many disadvantaged groups, including charities, disabled people and churches. I remember as a Treasury Minister, when the rate was lower, replying to letter after letter about the problem of repairing church roofs. Churches collect considerable amounts to repair church roofs, but then face VAT bills. If we move to higher rates, we must have an intermediate rate between zero and 17·5 per cent.
  The Government are attempting to convince people that things are getting better. We had the usual bluster from the Chief Secretary. The Prime Minister and the Chancellor try to put a brave face on matters. We hear about lights at the end of tunnels, corners being turned, bottoming-out and turning points—various clichés are
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  trotted out. They are a sure sign that the Government are not sure of themselves and are not confident about their assertions.
  After 12 years of Tory Government, the underlying state of the economy is dire. A few percentage points off the retail prices index and a few percentage points off interest rates—although welcome—will not make much difference to the problems facing the British economy. Over the past 12 years, Britain has become a nation of consumers. The Government have never worried about production. Their philosophy is consumption. Goods must be bought—it does not matter where they come from. The drug must be found—it does not matter who the maker or the pusher is. It does not matter what it costs—it must be paid for.
  The best sign of the dire state of our economy remains the balance of payments—not the fact that the Government do not like the state of the economy. There are those, like Conservative Members, who do not want to hear about the balance of payments. As Chancellor, the right hon. Member for Blaby (Mr. Lawson) told us year in, year out, from one debate to another, that it did not matter. When eventually it mattered, he said, "It matters only if we cannot finance it." The right hon. Gentleman proceeded to finance it with high interest rates and the consequent recession from which we suffer now.
  Devotees of the Samuel Brittan column in the Financial Times will have noticed that from week to week the respected writer hankers for a common European currency. One reason is that, as he tells us, the balance of payments figures will completely disappear—like the bits of paper that went down the tube in George Orwell's "1984". The figure may disappear, but the underlying causes will remain. South Dakota and California have a common currency. They do not issue balance of payments figures, but South Dakota is probably the poorest state in the Union and California the richest—and any balance of payments figures that they issued would reflect that. Whether or not such figures are produced, nothing changes.
  Over the past 10 years, the Tory culture has been that consumers and consumerism are king. That was brought home to me when I re-read an article in the Financial Times, published a day after the latest trade figures were released, under the byline of a Mr. Peter Marsh, who is a member of the paper's economic staff. The headline was: "Trade gap may be start of recovery." I found that strange, but thought that it might be deliberate. The article began: "Britain's current account deficit widened last month,"—which was correct—"which is a sign that the country's battered economy may soon begin a recovery." I thought how odd that statement was. I would have said the opposite and that it was a sign of the country's battered economy becoming more battered. I do not blame Mr. Marsh. He is probably a child of the 80s and of Thatcherism and consumerism—under which, if consumption increases, it is thought that the economy improves, and if consumption falls, the economy is battered. For those who hold that belief, it does not matter whether the goods come from Pwllheli, Ashton-under-Lyne, Sheffield, or from abroad—to them, that is a secondary consideration.
  The Treasury forecast a £6 billion trade deficit in manufactured goods in The coming year which is half the figure for last year. The Red Book makes it clear that that is only because there is a recession. Otherwise, I suspect

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  that the deficit would be nearer £12 billion. As interest rates fall again, as apparently they will, the deficit will increase, growing nearer to £12 billion.
  Britain cannot call itself an industrial nation any longer. It is a service nation. Britain's percentage share of total EC manufacturing output is down to 15 per cent., lower than France and Italy—which are both of comparable size but without our industrial manufacturing tradition—and substantially lower than Germany, whose share is about 50 per cent.
  Consumption is not the only reason for the state of the British economy. This country has many efficient industries, and several have grown more efficient over the past 10 years, but there are not enough of them and Britain cannot simply up production when demand requires, so it is met from abroad.
  The problem lies not only with manufacturing industry. Britain's balance of trade deficit in food has doubled over the last 12 years of Conservative government. Last year, the figure was £6 billion, and because demand for food is probably less elastic, it is likely to be the same for the coming year. There was a time when that would not matter, because we could just about cover our food trade deficit with our surplus in manufacturing industry—as we did in 1979. But those days have gone, and I do not expect that we shall see another surplus for at least 10 years.
  It is a sad commentary on 12 years of Conservative government that we enter the 1990s with a substantial trade deficit in not only manufactured goods but food, and unable fully to produce all the food that we need to come anywhere near satisfying the demands of the British population.
  From 1985 onwards, Britain's trade deficits were masked by its energy surplus which, in 1985, reached a high point of £8 billion. Effectively, it was an oil surplus. It has fallen year by year, and I doubt whether there will be an energy surplus this year, any more than there was last. It has been lost for reasons that we all understand.
  Britain already has substantial manufacturing and food trade deficits, and there is a possibility that it will incur an energy deficit, too. The situation in respect of oil will be neutral, one way or another. Britain cannot look forward to the surpluses that it has enjoyed over the past few years. There may be a coal deficit because pit closures may make it necessary to import more coal. The existing small gas deficit may increase as other countries export their product to Britain to break its monopoly, and the French will no doubt be pouring their nuclear-generated electricity into the national grid, as they do already and are entitled to do. As French capacity increases, they will drive down the price to take an even larger share of the British market. We may therefore have an energy trade deficit of any thing from £2 billion to £4 billion over the next 10 years.
  Britain enters the 1990s with a potential trade deficit of £20 billion in respect of manufactured goods, food and energy. Who will pay for it? As the right hon. Member for Blaby said, if the deficit can be paid for, all will be well. Where are Britain's invisible exports? We found them again last year, when they were valued at about £5 billion, and took the form of interest, profits and dividends. However, that revenue is subject to the vagaries of the market, interest rates, and other factors. Let us not forget the payment that we make to the EC and to what used to be called the British Army of the Rhine. We could still be left with an annual deficit of about £16 billion over the next four or five years.
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  The service industries cannot cover that deficit, because they are consumers. Nor can property companies, which put up the marvellous buildings and shopping malls that have mushroomed all round the country over the past 10 years. Will the distribution industry, which puts all the foreign goods into those shopping malls, pay for that deficit? Of course not—it is concerned with increasing consumerism. Nor will pension funds pay, because they spend most of their time trying to beat inflation, and they are concerned with consumerism, too.
  The City does not contribute very much, despite the fact that it likes to think that it does. Stockbrokers and banks contribute very little to Britain's balance of payments. There is a powerful lobby to persuade the central European bank, which the Liberals love so much, to make its base in London. I do not know why. We already have plenty of banks. There are far too many of them, and another one will not produce anything, or help to reduce Britain's balance of payments deficit.
  If the Government look to the future, perhaps they can explain how Britain will pay for the enormous deficits in manufacturing goods, food, and energy that I mentioned. Those deficits will partly be met by invisibles, but the balance will be paid for, if "paid" is the right word, by low growth and high unemployment, interest rates, and inflation. I suggest to the House that an economy that cannot produce is prone to high inflation, as different groups try to get as much as they can and to beat the system because production is not up to it. That will be paid for by cuts in public expenditure and a rundown in welfare services as more and more has to be spent on unemployment and debt repayments as a result of high interest rates.
  That is the distressing scenario for Britain in the 1990s unless something drastic is done immediately. The Government cannot do anything about it as they have created the problem. Only a Labour Government can make a start on that difficult task.
  7.20 pm
  Mr. John Watts: I am grateful to the right hon. Member for Llanelli (Mr. Davies) for expressing so clearly his opposition to the measures taken in the Budget to reduce the burden on local taxpayers. I believe that he said that it made a mockery of local government to raise such a small proportion of the cost from local taxation. I am also grateful to him because he helped to dispel some of the cloud of confusion left by the remarks of his hon. Friend the Member for Derby, South (Mrs. Beckett).
  The hon. Lady and the hon. Member for Berwick-upon-Tweed (Mr. Beith) criticised two of the ways in which taxes are raised to pay for local government—the uniform business rate and the decision to put an extra 2·5 per cent. on VAT to shift the burden. Their accord on such matters must have brought back fond memories of the halcyon days of the Lib-Lab pact, when a lame duck Labour Government looked to cuckoos in the nest for support.
  It is perfectly reasonable for members of Opposition parties to criticise Government measures. However, at the end of the remarks of the hon. Member for Derby, South I was left unclear as to what proportion of the cost of local services she thought should fall on business rate payers. I assume that, if she is critical of the level of the uniform business rate now, she is hinting to the House that it is

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  Labour party policy that a smaller proportion of the cost of local services should be borne by business rates. However, at the end of her speech she was running short of time and was unable to give way to me when I sought to intervene. Perhaps one of her colleagues could clarify that matter now or in the winding-up speech, because it is of considerable importance to businesses and for the economy as a whole.
  I should have asked the same question of the hon. Member for Berwick-upon-Tweed if he were in his place, or of another member of his party if there were a Liberal present in the Chamber, but I suspect that it matters little whether the House and the country know the views of the Liberal party on the appropriate proportion of costs to be borne by business rates. I suspect that, after the next general election, the Liberal Bench will be as empty as it is for our deliberations this evening.
  The hon. Member for Derby, South also criticised the decision to increase VAT to reduce the burden of the community charge, and it is necessary to be clear about that. I understand her to be saying that my constituents—whose community charge has been reduced this year from £330 a head to £190—should not have that benefit but should be paying more. I assume that she was arguing, as was the right hon. Member for Llanelli, that it is appropriate for local tax payers to bear a greater proportion of the cost.
  If the hon. Member for Derby, South were in her place, no doubt she would swiftly rise and tell me that a Labour Government would not have introduced the community charge in the first place, so the need would not arise. Whatever the nature of the local tax used to raise revenue, its burden falls on the local tax payer, and it is important that my constituents and those of my right hon. and hon. Friends know by the end of this debate what proportion of the cost of local services the Labour party feels should fall on the local domestic taxpayer.
  If it is not in favour of that shift—I believe that the hon. Lady said that it would be £4 billion or £5 billion extra without achieving a single teacher—I take it to mean that Labour believes that, if more money is to be made available to local government, it should have been spent on extending services rather than on reducing the burden to the local taxpayer.
  How much does the Labour party believe that local taxpayers should bear to pay for the total cost of local services? I believe that the Labour party proposes, as a first step, that we should return to the unreformed domestic rate system. My constituents will know that, in the last year of domestic rates—1989–90—the average rate bill in Slough was £500. They will also know that the increase in precepts and expenditure since then would add another 38 per cent., taking the average to roughly £700.
  If the Labour party is against measures which reduce the burden falling on local taxpayers, it is offering my constituents in Slough, as a first step, a return to paying £700 per household on average in domestic rates, compared with £380 in community charge for a couple or, under the proposals of the Secretary of State for the Environment, a council tax of £357 for an average-sized property. I hope that the Labour party will spell that out. If it does, I know which options my constituents will back.
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  In his opening remarks, my right hon. and learned Friend the Chief Secretary to the Treasury rightfully took credit on behalf of the Government for having abolished six taxes. No doubt that inspired my hon. Friend the Member for East Lindsey (Sir P. Tapsell) to suggest another one—capital gains tax—that he thought should be added to the list. He acknowledged that that would be a fairly costly measure to add to this year's Budget—at a cost of £1·4 billion. I doubt whether he will be surprised not to receive a favourable response to his representations this year.
  I have another suggestion to put to my right hon. and hon. Friends on the Treasury Bench—one that would cost them less, perhaps about £2 million but no more. In 1982, bingo duty was extended to working men's clubs and similar non-profit-making members' clubs and voluntary organisations. Its introduction was to prevent unfair competition with commercial bingo operators and not as a means of raising revenue. Ever since that duty was imposed in 1982, the Working Men's Club and Institutes Union and other clubs which are associated with it through the Committee of Registered Clubs Association—including the British Legion, Liberal clubs, Labour clubs, and, although they are not in CORCA, Conservative clubs—have campaigned for the abolition of that impost.
  As the joint chairman of the parliamentary group for non-profit-making members' clubs, I have often been vocal in the Finance Bill Committee in advocating that case. As Murphy's law always applies, it was during one year that I did not serve on that Committee that my right hon. Friend the Member for St. Albans (Mr. Lilley), then Financial Secretary, conceded a substantial rise in the threshold at which clubs were required to pay the duty. Perhaps it was not Murphy's law: perhaps it was the absence of my persuasion that led him to do so. I hope that that was not the case, as I would not wish the argument to fail because of my advocacy today.
  Raising the threshold was a welcome relief to many clubs which had been on the margin of liability to pay the tax, and the clubs are grateful for that. However, the case for abolition remains as strong as ever. The argument, to put it concisely, is that the original reason for the introduction of the tax—to prevent unfair competition with commercial bingo operators—is no longer valid. When the case was put and accepted in 1989 for the threshold to be raised, no objection was made by the Bingo Association of Great Britain. The.association made it very clear that it wished to raise no such objection.
  When representations were made earlier this year to Treasury Ministers, the clubs movement also informed the Bingo Association of Great Britain what it intended to do and asked whether it had any objections. In reply, the association wrote to Customs and Excise and said:
  "We have been requested not to oppose the abolition of this duty for the clubs, and we want to make it clear that we do not want to be cited as an objector to this change and in no way do we wish to be seen at this stage as an adverse influence on the CIU's case."
  That should put to bed once and for all any suggestion that the maintenance of this duty is justifiable because of the need to protect commercial operators from unfair competition. If the trade body of the commercial bingo operators does not seek to argue that case, I do not think that Customs and Excise or the Treasury should seek to argue it any further on its behalf.

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  There is a powerful reason why abolition of the duty is required for non-profit-making members' clubs—and not merely further increases in the threshold at which they have to pay tax. The problem is that even those clubs that do not have to pay tax need to maintain all the records that would be required if they were paying tax in order to be able to prove to Customs and Excise that they are not liable to pay it.
  The effect of this on the literally thousands of volunteers who run these clubs up and down the country is a very considerable additional work load. It is imposed not on people who are paid to do the job but on volunteers from among our constituents, who give of their free time to serve these clubs that play such an important role in the life of our local communities. Whatever increases in the threshold may be made from time to time, that administrative burden continues to fall on all clubs where bingo is ever played.
  I urge my colleagues on the Treasury Bench, therefore, to look closely at the submission that has been made and to add bingo duty for non-profit-making members.' clubs to the roll of honour of unnecessary and unhappy taxes that the Government have so far succeeded in abolishing.
  7.33 pm
  Ms. Diane Abbott: A few hundred yards from where I live in Hackney lies Ridley road market, a famous east end market. We can get everything at Ridley road—fruit, veg, clothes, freshly baked bagels, West Indian sugar cane. We also have our share of con men. I put it to the House that this country's economy is being run by a bunch of little better than con men. Boring and grey suited they may be, but they have standards of honesty and probity that would embarrass the average east end street trader.
  As a member of the Treasury and Civil Service Select Committee, under the distinguished chairmanship of the right hon. Member for Worthing (Mr. Higgins), I have had the opportunity to observe this Government's dishonesty at first hand. The chairmanship of the right hon. Member for Worthing has been so scrupulously honest that the members of the Committee are worried that his honesty may stand in the way of him becoming Sir Terence.
  I wish to point to three of the most recent Government cons that provide the background to the Finance Bill. They are the bogus nature of the official statistics; the Government's misleading claims about the consequences of the VAT switch; and finally, and sadly, the way that they have conned innocent right-wingers in their own party about Europe. I shall come later to the touching plight of these innocent, blameless, harmless little Englanders and right-wingers. First, let me deal with the bogus Government statistics.
  The Treasury and Civil Service Select Committee has been agonising for some time about Government forecasts. In 1988, we said that there were a number of serious doubts about autumn statement forecasts. At first, we thought that it was just the statistics, so we said, again in 1988, that the Treasury's ability to come to any rigorous judgment about the economy is now severely circumscribed by the unsatisfactory state of the official statistics. In 1989, we pleaded with the Government to take urgent action to improve the quality and reliability of official
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  statistics. In 1990, we said that margins of error of the magnitude in the Government's forecasts present a serious problem in relation to the management of the economy.
  All along, we thought that the problem with the Government's forecasts was merely the statistics, but enter, in 1991, at one of our sessions of evidence on the subject, Mr. C. J. Mowl—grade 3, economic forecasts and analysis, Treasury. Our Chairman put to Mr. Mowl what I believe he imagined to be a helpful question. He said:
  "The Shadow Chancellor on the floor of the House has made considerable reference to what he describes as 'the Chancellor's forecasts' and indeed 'the Chancellor's previous forecasts'. Can you tell us to what extent, if any extent, Ministers have been responsible for any of the figures?"
  Mr. Mowl blinked, exposed as he was to the unaccustomed sunlight, and burbled. He talked about the confidentiality of advice to Ministers, about a large element of judgment and about the process of discussion. Finally, he said:
  "The forecast produced can be described as both the Treasury forecast and the Chancellor's forecast and the Government's forecast. It is a collective view."
  That is strange wording. The right hon. Member for Worthing tried again. He said:
  "But my previous understanding was that when the official forecast is produced and published Ministers do not look at a particular figure."
  He asked whether he was correct. He went on to say:
  "It certainly used to be the position. With the Red Books which I was responsible for issuing, I certainly would not have dreamt of altering any of the official forecasts."
  The Treasury officials hummed and hah-ed, but it was clear from that session of evidence that what is happening with the Government forecast is that the judgment of Ministers with no economic background is being used to tamper with the statistics.
  That is the basis for the recommendation in our report, which has been largely overlooked, that the Treasury should make full forecasts four times a year, and that the results should not be modified by Ministers. The reason why the forecasts have been so consistently out is that the statistics have been modified by Ministers—in my view, with political aims in mind. That is why the forecasts systematically failed to spot the recession, why they systematically underestimated its seriousness and why they are consistently wrong about inflation. There is one common factor in the errors in the forecasts: they are always in favour of the Government.
  Mr. Higgins: The hon. Lady is sliding from saying whether there is any political input in the forecasts into saying whether there is any political input in the statistics. It is important to make that distinction. My clear understanding, as we have heard frequently in evidence from the head of the Central Statistical Office, is that there is no question whatsoever of Ministers altering the statistics in any way. It is the case, as we understand it, that there may be to some extent a change in the forecasts, but that has happened under the Governments of all political parties in recent years, although it used not to happen some years ago.
  Ms. Abbott: I am grateful to the right hon. Member for clarifying my point. I am not suggesting that there has been political interference in the statistics; I am stating that it has been proven that there has been political interference in the forecasts. They are forecasts that have been written on the back of an envelope, and they are not worth the paper on which they are written. The errors in

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  those forecasts are consistently in favour of the Government. Year by year, the credibility of those inaccurate and misleading forecasts slides down the drain.
  The second great con of the Government's economic thinking which is enshrined in the Finance Bill is that switching a proportion of the poll tax to an increase in VAT will hit the rich harder than the poor. The Chief Secretary to the Treasury was reduced to quoting Guardian editorials to support that proposition, but Guardian editorials can be wrong. In the 1980s, Guardian editorials supported the SDP, and where is that party now?
  Although people who have millions of pounds to spend will pay more in VAT than people who have to watch every penny, as most of my constituents do, the Government's own statistics show that, proportionately, VAT hits the poor harder than the rich. The Government's statistical service publication "Economic Trends" conclusively gives the lie to the bogus claims that we heard from the Chief Secretary. It shows that, as a proportion of disposable income, VAT takes much more from the poor than from the rich—almost twice as much. On average VAT takes about 7·3 per cent. of an average person's disposable income.
  Mr. Mans: Bearing in mind what she says, am I to assume that the hon. Lady would like VAT reduced?
  Ms. Abbott: My purpose this evening is not to give a comprehensive analysis of the Government's economic errors, but merely to point out three particular spivvy bogus cons that have been put forward by the Treasury. If the hon. Gentleman will allow me, I shall continue with my speech, as I am aware that many other hon. Members wish to speak.
  The Government's publication "Economic Trends" points out that the bottom 10 per cent. of the population, the poorest of the poor, who are well represented in my constituency of Hackney, the poorest constituency in the country, pay 9·2 per cent. of their disposable income in VAT. However, the richest 10 per cent., who are represented by the Economic Secretary to the Treasury and by the right hon. Member for Worthing, pay only 5·6 per cent. of their disposable income in VAT. Proportionately, VAT takes almost twice as much from the disposable income of the poor as it does from that of the rich. The reason is obvious. Just like the poll tax, VAT takes no account of income. In swapping part of the poll tax for a hike in VAT, the Government have simply swapped one flat-rate tax for another.
  The Economic Secretary to the Treasury (Mr. John Maples): The figures that the hon. Lady has used need to be explained properly, because they do not add up. What she says about the people at the top of the income scale is true, because rich people save much more of their income. However, what she says about the rest of the income scale is not true, because the income and expenditure figures on which those statistics are based are taken from the family expenditure survey, in which people say that they spend much more than they earn. Their spending figures are based on a figure about 40 per cent. higher than what they declare as their income, so if one is taken as a percentage of the other, the figure is bound to be distorted. If the hon. Lady examines the basis of that, she will find that it is true
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  and that the family expenditure survey shows that people in the bottom two deciles of income have expenditure 40 per cent. higher than their incomes.
  Ms. Abbott: I was talking not about expenditure but about disposable income. What I said about disposable income can be found in the text of the Treasury and Civil Service Committee report on the Budget. Everyone pays the same VAT on a packet of cigarettes or children's sweets, whether they are the Duke of Westminster or his dustman. Despite the exemptions and the zero ratings, according to the Government's own publication, VAT hits the poor harder than the rich. In economic jargon, VAT is less regressive than the late unlamented poll tax, but to say that VAT hits the poor less is like saying that being in prison is less inconvenient than being hanged. It is a regressive tax if one considers income. [Laughter.] Conservative Members may giggle, but at a time of rising unemployment, they are more concerned about taxes on car phones than the plight of the people of this country. People will take note of that and express their opinions in the next general election.
  I would not like to leave the subject of the VAT switch without mentioning the cost of the poll tax. There has been a great deal of to-ing and fro-ing across the Floor of the House about what the poll tax has cost. Let me put on record the Treasury's own figures. The poll tax has cost British taxpayers £370 million in preparation costs, and the cost of collecting the poll tax over and above what it would have cost to collect the rates is £302 million. Those figures were not cooked up by the Labour party in Walworth road: they are the Treasury's own figures. The poll tax has cost the people of Britain unnecessary expenditure in the region of £672 million. How many nurses at Guy's or operations in Bradford could that have funded? That is what the Government's political spite and economic adventurism have cost the country.
  The third economic fraud that the Government have perpetrated on the British people concerns Europe. They are trying to con not only the people and the Treasury and Civil Service Committee but their own little Englander, "wogs begin at Calais" right-wingers, who have had the wool pulled over their eyes. The Select Committee recently visited Brussels to discuss European matters and economic and monetary union. Everyone in Europe except a few neanderthal right-wingers on the Conservative Back Benches knows that economic and monetary union is a moving train and Britain is most firmly on it.
  The opinion in Brussels is that there will be a single European currency by the year 2000. There is no real sign that the Government are trying to derail that process. British people are being backed into a single European currency by a Government who wish to avoid debate because they wish to avoid the venom of their own Back Benchers.
  Mr. Charles Wardle: The hon. Lady and I are both members of the Treasury Select Committee, and I enjoyed the trip to Brussels. Given what she says she saw at the European Commission, does she favour a single European currency?
  Ms. Abbott: I do not claim to have the economic expertise of many Conservative Members; I claim merely to be a proponent of honesty and openness in government. My charge is that the Government are dishonest and are

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  not open about the progress towards economic and monetary union because they do not wish to tangle with the neanderthals on their own Back Benches.
  Finally, the media tell us that the Government consist of quiet, grey, boring men. I put it to the House that they are quiet, grey, boring con men. Their figures are bogus, their forecasts are bogus and, above all, their claims of economic competence are bogus. My constituents are being crucified by a combination of high interest rates, record unemployment and record bankruptcies, yet Conservative Members are concerned only with a tax on car phones.
  The Government have misled the country with talk of a short, shallow recession, but the Prime Minister's hold on power will prove short and shallow as soon as there is a general election—which, for the good of the country, cannot come too soon. The country has had enough of grey-suited con men. They would be chased out of Ridley road market, and they should be chased out of power.
  7.49 pm
  Mr. William Powell: I must tell that doughty lady, the hon. Member for Hackney, North and Stoke Newington (Ms. Abbott), that honesty in politics includes declaring where one stands on the fundamental issues of the day. It is not enough merely to analyse, perhaps mistakenly, the position as one perceives it. One must tell the House whether one is in favour of the moving train of economic and monetary union. It also helps to have a clear idea of where the Labour party stands on VAT, local taxation and so on. We have had no convincing answers on any of those matters today.
  I want to give my hon. Friend the Economic Secretary some words of comfort about the progress of economic recovery. From several sectors, my right hon. and hon. Friends on the Treasury Bench have received a buffeting about the state of the economy and whether any recovery is under way. Right hon. and hon. Members know very well that the core town of my constituency has, from the mid-1980s, been one of the principal boom towns. However, by early autumn last year, new investment had virtually ground to a halt. The last new capital construction programmes started in October 1990 and there was nothing until February 1991. Since then, there has been a growing volume of new factory starts and new capital investment for the service industry and the manufacturing industry. There has been new inward investment into the United Kingdom.
  I am not saying that that is typical of the country as a whole. My constituency was always going to be the last to be hit by the recession and the first to emerge from it and there are clear signs that it is now beginning to emerge. Of course, there has been a rise in unemployment and I have no doubt that there will be some further bad news on employment. However, as I drive around my constituency several times each week, I see new capital investment in plant and machinery and clear signs that genuine job creation is under way again. It is extremely likely that the surge of economic activity that has been taking place during the spring will spread into my neighbouring constituency, that of my right hon. Friend the Prime Minister, and much further afield.
  I welcome the liberalisation of the tax regime for friendly societies. A great deal has been said in Standing Committee and in the Chamber about friendly societies. I
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  welcome the fact that the Government have made a modest change to the tax regime and I look forward to the introduction—I hope as soon as possible in the next Session—of the much wider range of reforms for friendly societies that has been envisaged since the consultation paper of about two years ago. I know that good progress is under way.
  In his speech in the Budget debate, which was unfortunately wrecked by his unnecessary and gratuitous last two paragraphs, my right hon. Friend the Member for Blaby (Mr. Lawson) said some interesting things about the structure of VAT. The thrust of his remarks was that the two rates of VAT—zero and 17·5 per cent.—cover too wide a band. Those comments have been echoed by the right hon. Members for Ashton-under-Lyne (Mr. Sheldon) and for Llanelli (Mr. Davies). The comments of my right hon. Friend the Member for Blaby about the current structure of VAT were wise. I believe that there should be other rates. The system that has existed since 1972, of which my right hon. Friend the Member for Worthing (Mr. Higgins) was the midwife if not the father, has served its time. Given the changing conditions and changing European circumstances, we shall have to have a much more fundamental look at different rates of VAT.
  The House knows of my interest over a number of years in the village hall movement. In the past, the Government have been helpful, but there is no doubt that this year they are not being as helpful as they have been because of the increase in VAT from 15 to 17·5 per cent. That affects all charities, but I choose to put my remarks in the context of village halls because of my interest in them.
  I want to reinforce the remarks made by the hon. Member for Sheffield, Attercliffe (Mr. Duffy) about the bloodstock industry. There is no doubt that unless some changes are made to the VAT regime, the bloodstock industry, which is important for exports and employment, will find itself seriously disadvantaged as compared to France and Ireland, which are our natural competitors in that industry. I know that my hon. Friend the Minister of State has in her constituency one of the foremost studs in the world in which stands, among others, the great stallion Nashwan. She will be aware from her constituency experience of how important the bloodstock industry can be.
  Much has been said about economic forecasts. I commend to right hon. and hon. Members a different source of forecast from those quoted this evening. I suspect that not enough right hon. and hon. Members read The Racing Post. It has a much better record of forecasting than many of the highly paid research institutes and other bodies which are constantly telling us what might be happening in the economy in the future. I am glad that my hon. Friend the Minister of State has entered the Chamber. I hope that she will take time to study a page in The Racing Post today which deals with VAT and bloodstock. As I have said, it is an important matter. I shall not go into detail but the learned commentator, Mr. Wright, analyses carefully and precisely how the bloodstock industry will be greatly disadvantaged by the new regime that will come into operation in 1993 unless my hon. Friend the Minister of State and representatives of the bloodstock industry are able to find a satisfactory way to ensure that this important industry, dealing with high quality stock, is not disadvantaged.
  One sector of the economy is extremely important for wealth creation. I was interested in the speech made by my

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  hon. Friend the Member for East Lindsey (Sir P. Tapsell) in which he advocated the abolition of capital gains tax. He put it in the context of the great difficulty facing British people in acquiring disposable wealth. He said that he was a famous exception to the rule that it is virtually impossible in this country for people with nothing to create wealth. That is in contrast to what might happen in the United States.
  In the happy days of old, when Lord Rees of Goytre was the Chief Secretary to the Treasury, he pointed to the distinguished record of my right hon. Friend the Member for Blaby in abolishing taxes and asked Conservative Members which taxes they would like to see abolished. I have never been in any doubt that my answer is income tax. The prospect of income tax being abolished is even more remote than the prospect of capital gains tax being abolished. However, I must bear in mind that it was my political hero, the younger Pitt, who introduced the awful income tax, and we have had to live with it ever since.
  I should like to see that abolition not only of income tax and capital gains tax but of inheritance tax, which has a great impact on family businesses. Family enterprises and businesses are responsible for an important part of wealth creation. No economy will succeed without a thriving family business sector. Some of the most successful European economies have no large industry but have such a thriving sector.
  Immense efforts have been made in the past decade to increase small and medium businesses, which include family businesses. The evidence shows that, under the Government, no more family businesses have been created than there were in 1979—we must do more to correct that—because the fiscal regime that they face, despite the improvements that have been made since 1979, is remarkably unattractive. Too much economic policy is aimed at quoted companies, but 52 per cent. of the population is employed by the unquoted sector.
  The inheritance tax regime is extraordinarily unattractive to the unquoted sector. In Britain, inheritance tax is 40 per cent., compared with an average top rate of 27·5 per cent. in 16 other European countries. The British threshold is £128,000, which is lower than in any other Organisation for Economic Co-operation and Development country, apart from Denmark, Greece and Norway. The British higher rate is levied on smaller estates than in virtually every other industrialised country. In Germany, the rate of 35 per cent., which of course is lower than the British rate, is not levied on an estate worth less than DM100 million. At DM2·95 to the pound, that is £34 million, or 265 times as much as the British rate.
  Inheritance tax almost always must be paid from the active assets of the company. In other words, the company has to be sold, and it is usually sold not to other family businesses but to quoted companies, which often extinguish competition rather than enhance the company's assets.
  One of the advantages of family businesses is that they tend to take a long-term view rather than the short-term view of reacting to today's share price and tomorrow's profit forecast. Often, those profit forecasts are made by unreliable journals that are produced at high cost rather than more reliable journals such as The Racing Post. Hon.
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  Members will learn much by turning their attention to real professional forecasters rather than the highly paid people who produce bogus forecasts.
  I make a plea that the Government reconsider the tax regime for unquoted companies. This is a matter of much importance. If inheritance tax cannot be abolished, I should prefer the introduction of 100 per cent. business property relief. Such relief should apply to the commercial sector and could be extended to farms. The annual cost would be not the £2 million that my hon. Friend the Member for Slough (Mr. Watts) mentioned in relation to bingo, but £20 million, as suggested by Treasury Ministers. The incentive for wealth creation and for the opportunities that even the right hon. Member for Llanelli mentioned would be much enhanced. I ask Treasury Ministers, please, to think again because much more can be done. The threshold for estate inheritance tax has not been fully indexed.
  Mr. Quentin Davies: Does my hon. Friend agree that if the heirs to a company—who are saddled with a substantial inheritance tax burden—decide not to sell the company, they must invariably borrow against the assets of the company, thereby burdening it with substantial debt and increasing its future risks? That burden of debt effectively becomes a charge on the company's cash flow. Resources that might otherwise be available for business investment are channelled through the Inland Revenue to Government expenditure. Is not that a most economically destructive process?
  Mr. Powell: My hon. Friend and neighbour the Member for Stamford and Spalding (Mr. Davies) is correct.
  My final point relates to employee share ownership plans. I see that my hon. Friend the Member for Esher (Mr. Taylor), who has played a considerable part in ESOPs, is here. ESOPs are excellent news for quoted companies or for unquoted companies that intend to become quoted, but they hold no attraction for the long-term family business. Many long-term family businesses would like to be able to offer their employees incentives, but there is an inherent contradiction between their need to keep the share valuation low and the desire of employees to increase it. I am not trying to undermine what my hon. Friend the Member for Esher has been working for, which has been accepted by Treasury Ministers in the past two years. Means to enable employees of long-term family businesses to have share participation schemes that do not undermine the fundamental balance of a company that, because of inheritance tax, wishes to keep the value of its shares to the minimum have been suggested to my right hon. Friend the Chancellor. A gap has opened up in employee share participation schemes for one important sector of the economy, and I ask my hon. Friends on the Treasury Bench to resolve it as quickly as possible.
  Several Hon. Members rose——
  Mr. Deputy Speaker (Mr. Harold Walker): Order. I remind the House of the earlier appeal for brief speeches.
  8.8 pm
  Mr. Peter Hain: On 4 April, the people of Neath delivered their verdict on the Budget and the Finance Bill. The Conservative party's vote collapsed and

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  its candidate barely saved his deposit. There is contempt in my constituency for the incompetence and arrogance of the policies of the Chancellor and of the previous Prime Minister.
  People are most offended by the dreadful short-termism of the Government—the short-termism of a Chancellor as he rearranges the deckchairs while the ship of state sinks beneath the economic seas. The short-termism of the United Kingdom's financial system means that share levels and dividends soar while manufacturing investment collapses. Yet again, British industry trails behind that of our economic competitors.
  The success that has been claimed by the Government is a mirage. The British economy is committing hara-kiri. Since 1979, consumption has increased by 40 per cent. after allowing for inflation, but the production of the British industries that produce those consumer goods has increased by only 7·8 per cent. In other words, our consumption has increased five times more than the production of our consumer industries.
  At the same time, consumer credit has soared to a staggering £52 billion, which is five times what it was in 1979. Under a Government who preach good housekeeping, it is extraordinary to find that staggering burden of personal debt. Equally astonishing is the amount of corporate debt, which has now reached £27 billion, much of it financing the avaricious thirst for dividends and the free-loading of company directors which characterises our industry today. In money terms, dividends have tripled since 1979 while investment has barely remained stagnant. This is a society living on tick, led by a Government living on borrowed time.
  As my right hon. Friend the Member for Llanelli (Mr. Davies) described so graphically, our trade position is catastrophic The report of the Treasury and Civil Service Select Committee warned that any recovery from the current recession, whenever it occurs, will turn our huge current account deficit into a mega deficit as Britain's insatiable appetite for imports is let rip.
  The people of south Wales cannot understand the crazy logic of a Government who are determined to close every coal pit in south Wales while imports soar to record levels, with 15 million tonnes of coal being imported every year. That has a dreadful impact on our balance of payments deficit and a huge social cost in terms of unemployment and its effect on the communities round those pits. That strategy makes sense only to yuppie accountants in the City of London, not to anybody living in Wales. We in Wales look with amazement at the brazen cheek of Ministers who spend their time in the House claiming success while the real economy collapses around our communities. As the Welsh Chamber of Commerce reported only last week, the recession in Wales is deepening, not only in the manufacturing sector where employment has fallen by over 20 per cent. since 1979, but in the flagship of this Government's economic policy, the service sector. We have not only had record closures and business failures, but the Confederation of British Industry in Wales reports that two out of three firms are currently working below capacity. That is some recovery from the recession.
  The Government are washing their hands of Welsh industry, having cut the real value of regional preferential assistance to Wales by 57 per cent. since the early 1980s. That has happened at the very time when regional investment and support such as long-term loan finance and
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  the backing for research and development were urgently needed to boost our industry to prepare it for the cold winds of European competition.
  The local economy of Neath has been shattered. Unemployment is up 33 per cent. on a year ago. The figure for March 1991 was 2,400, but, according to the unemployment unit, the real figure is probably 3,612 because the unit estimates the number of people out of work on the pre-1982 basis—that is, on the basis used before the Government started fiddling the official unemployment figures. That means desperation for the families that have been put out of work. There is also desperation for those seeking work and who are offered jobs paying £80 or £90 a week, which is barely enough to raise them above the standard of living of the many people who have to subsist on benefits. If the Chancellor could not live on £80 or £90 per week, how can he expect my constituents in Neath to take jobs that provide that level of income? Why do not the Government support a statutory minimum wage such as exists in many of our competitor countries in Europe, which are far more successful economically than we are?
  Mr. Mans: The hon. Gentleman has just mentioned a minimum wage. Would the introduction of a minimum wage increase or decrease unemployment in his constituency?
  Mr. Hain: I rely on the analysis of the National Institute of Economic and Social Research, which shows that the Labour party's policy for a statutory minimum wage would increase unemployment by perhaps 4,000, which is almost insignificant, but even that——
  Mr. Mans: Would it increase unemployment in the hon. Gentleman's constituency by 4,000?
  Mr. Hain: Be sensible. It would increase unemployment by 4,000 across the country. I repeat that comparable European countries that have a statutory minimum wage are far more successful than we are.
  Neath borough council has intervened in a way that would not attract the Government's approval. It has established five factory sites with starter units. Until recently, there have been long waiting lists for the starter units, which have proved successful, but 29 of the 134 units are now empty. That is an indictment of the Government's policy.
  Unemployment is increasing across Wales and has now broken the 100,000 barrier. On 16 May, when the voters of Monmouth go to the polls, that increase in unemployment will again be at a record level and I am confident that those voters will exhibit their protest against the Government's policies by returning a Labour Member of Parliament. Every working day in Wales, four struggling small businesses go to the wall. The number of employment training places in west Wales has been halved during the past year. Young people and women returners who urgently need training if they are to get decent jobs now face a hopeless situation. I recently visited Kenyons, a successful company in the town of Pontardawe making refrigeration equipment which it exports successfully. Its managing director described the frustration that it faces because it wants to train people and has places for them, yet its funding has been reduced because of the Government's cuts in employment training. That is what

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  is happening at a time when our skills base is collapsing. Apprenticeships are no longer advertised in south Wales on their previous scale.
  In addition, our infrastructure is decaying. How can the Government talk about wanting to make further cuts in income tax when they cannot invest in decent roads? There is a missing link in my constituency between Aberdulais and Glyn-neath because the A465 has not been built and there are no plans to build it despite the fact that it would be a much-needed improvement to the local infrastructure and would therefore increase employment opportunities. How can the Government claim to support local industry in Wales when they are unwilling to fund the infrastructure investment in transport which is so desperately needed?
  That is the dreadful impact of the Government's policies, but they also have tragic domestic effects. In 1990, actions at Neath county court for mortgage repossessions increased by 45 per cent. from 276 to 401, causing misery to local families. Across the country, one in five people now lives in poverty, which is a higher proportion than in any other European Community country. The 25p increase in child benefit for the second, third and fourth children in a family which is proposed in the Bill is, frankly, insulting. It will not buy more than a packet of crisps. Many of my constituents have said that they feel like sending a packet of crisps a week to the Chancellor to show the contempt with which they view that child benefit increase. The failure to uprate child benefit fully in line with the retail prices index has robbed families in Wales of a total of £48·19 million. That is the sum of money that the Government owe families in Wales and we expect them to repay it.
  VAT has already been mentioned and I read an interesting exchange in the Select Committee's report involving my hon. Friend the Member for Hackney, North and Stoke Newington (Ms. Abbott). People in Neath who are on low incomes are hit harder than are rich people by VAT. That fact is borne out in the Government's figures in "Economic Trends" for March 1991 which show that the poorest households pay 11·5 per cent. of their disposable income in VAT compared with the richest which pay half—6·2 per cent. As disposable income in Wales is much lower than the average across the country, people in south Wales have been hit hardest by the increase in VAT, especially those in the valleys in Neath.
  The Chief Secretary to the Treasury said that an acceptable way to solve the problems was to put extra duty on petrol and especially on leaded petrol. I understand that argument and I sympathise with him from a green point of view. However, families in the valleys and especially in Neath cannot rely on public transport because there are hardly any buses—the service has been cut to ribbons by Government deregulation and by cuts in local authority provision. They rely on cars and have therefore been hit especially hard by the increases in petrol prices and in VAT.
  I wish to deal with tax cuts. In the infamous Budget of 1988 there were tax cuts for the rich made by a Chancellor who was then called "unassailable" and who is now unmentionable. According to the Treasury's own figures, the average earner in Neath has benefited since 1988 from a reduction of only £150 in his or her income tax, whereas
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  over that same period a Minister has benefited from a reduction of £2,540. Those figures give the lie to claims about income tax cuts—they were for the rich.
  In my constituency old-age pensioners who may be surviving on a small miner's pension may receive an increase in their pensions, but it is then taken away through an increase in income tax. By every measure, the Government's claims of success are a failure or a fraud and the sooner the Government go to the country so that we can elect a Labour Government to build a strong and modern economy, the better.
  8.21 pm
  Mr. Ian Taylor: The speech of the hon. Member for Neath (Mr. Hain) underlines—or perhaps defines—the meaning of the saying that economics is a dismal science. His speech was dismal from beginning to end and it was not even accurate when he tried to deal with serious issues.
  The hon. Gentleman has clearly not read the report of the Treasury and Civil Service Select Committee, which is explicit about the effects of VAT. Paragraphs 95 to 102, which are worth reading, include the comment:
  "As VAT is a tax on expenditure, it is more appropriate to assess its progressivity in relation to expenditure rather than income. On that basis, VAT is clearly progressive".
  Ms. Abbott rose——
  Mr. Taylor: I am just warming up. I shall willingly give way if I may be allowed to finish my paragraph.
  The Opposition disapprove of the community charge, but even on their terms, and on the basis of indirect tax where there is an element that could be regressive, VAT is clearly less regressive than the proportion of the community charge—the £140—that has been reduced by transfer to VAT. Therefore, as the Select Committee's report states——
  Mr. Battle rose——
  Ms. Abbott rose——
  Mr. Taylor: I shall give way to the hon. Lady.
  Ms. Abbott: The hon. Gentleman has made my point, but it bears repetition. Considered as a proportion of disposable income, VAT is clearly regressive.
  Mr. Taylor: I said that the community charge to which the Opposition are opposed is more regressive even on that basis, as the Select Committee's report notes. VAT is an expenditure tax and in expenditure terms it is progressive.
  The hon. Member for Neath mentioned a minimum wage. If the Labour party wishes to talk seriously, rather than making party propaganda, about a minimum wage, they should state what its impact would be on British industry and on services within the economy, such as the health service. The introduction of a minimum wage in the health service could cost up to £500 million. Nearly 18 hospitals a year would have to close to fund that proposal. If we are talking about economic difficulties, we should bear in mind that a Labour Government would grind British industry into ruination if they imposed costs that it could never hope to recoup in the market place. They would also severely damage our public services.
  The Labour party talks happily about raising taxation without assessing what the buoyancy of the tax would be at the higher levels. It can give no firm idea about how it would fund its programme. In an interview on television

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  on Sunday, the Leader of the Opposition made it clear that in key areas such as the national health service there would be no more cash.
  My hon. Friend the Member for Norfolk, South-West (Mrs. Shephard) is now in her seat. I am sure that when the reports of the debate are read, it will not be our speeches that are noted, but the hunt for the Norfolk stud that my hon. Friend the Member for Corby (Mr. Powell) so eloquently launched, and information about the relief that might be available. The importance of that to my hon. Friend the Member for Norfolk, South-West will occupy the long weekends to come.
  I had intended to launch an attack on a friend of mine, Professor Tim Congdon, but I was disarmed by his invitation to his 40th birthday party, which is taking place now and where I should be happy to be. However, I must take him to task for being a co-signatory of a recent letter to The Times which criticised Government policy on the exchange rate mechanism. In rather panic-stricken terms, the letter urged a sudden reduction in interest rates regardless of what had happened to the exchange rate. The letter has not stood the test of time, even though it appeared only a matter of weeks ago.
  It is significant that this evening no one has queried the ERM, the rate at which we entered or the fact that it has introduced some stability into business relationships and exports pricing; nor has anyone queried the fact that entry into the ERM has had a genuine impact as a discipline to reduce inflation. It is also significant that the National Westminster bank's leaflet, "UK Economic Outlook", which is dated 19 April 1991, states:
  "Entry into the ERM can now be seen clearly to be a success, and very few in industry and commerce would wish us to change that policy … There have been no significant or serious complaints about the pound being over-valued against continental currencies."
  It is heartening when we get such information from economists in the City. We know that the Government were right to take us into the ERM in October last year. Despite the cavilling of Opposition Front Bench spokesmen about the rate at which we entered and about other aspects of our entry, they welcome the overall idea.
  The Government's policy was correct and those of us who supported our entry have been justified in our assertion that within the mechanism, for any fall in inflation, there would be the possibility of a faster fall in interest rates than would otherwise be the case. That is because the deflationary worry that has always been created for holders of sterling is gradually removed as the Government's firm commitment to hold to the exchange rate discipline has been realised. In time, that would enable the differential margin between interest rates here and those in Germany to narrow. As it narrows, British interest rates will fall disproportionately faster and could drop well below 10 per cent., depending on how far inflation falls. Some forecasts are of a headline rate of inflation of below 4 per cent. this year. That prospect is important for British industry because inflation creates difficulties for British industry. A 1 per cent. fall in the rate of inflation could well save British industry up to £5 billion, according to figures issued by the CBI.
  The Government's thrust to bear down on inflation, which is reinforced in the Budget, is absolutely correct. Given that the exchange rate mechanism is a vital discipline in achieving that objective, the Government
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  were absolutely right to enter it and correct not to panic over the past few months in the face of advice from my friends like Professor Congdon.
  Mr. George J. Buckley: The hon. Member for Esher (Mr. Taylor) has acclaimed the Government's entry into the exchange rate mechanism for reducing interest rates and inflation. Why did the Government not take advice from the former Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson), who recommended entry to the ERM three years earlier? Why did the Government not do that then if it is the criterion for bringing the Government on to a more even economic level?
  Mr. Taylor: The hon. Member has made a good intervention. I have always believed that we should have entered the exchange rate mechanism earlier and my view in that respect is on the record. However, that is not the point. We are not dealing with theory, we are dealing with the real world. The Government took the initiative last October. Sadly for the hon. Member for Hemsworth (Mr. Buckley), those on the Opposition Front Bench decided that, although in theory they were in favour of joining the ERM, they did not like the discipline. They wanted us to enter at a much lower level. That would have stored up inflation because, if we had dropped in at too low a central rate, we all know that a depreciating pound imports inflation into our economy. I admit that I have been a long-term believer in the ERM discipline.
  There are many aspects to the Budget, and I support the overall thrust of bearing down on inflation which it enshrines. When we consider the Finance Bill, we will consider detailed measures. I want to pay tribute to the Government for the measures that have been introduced to help industry and it is to the Government's credit that they have tried to meet some of industry's worries about cash flow. The changes in corporation tax treatment and rates have been welcomed by industry. Smaller businesses are grateful for the changes in corporation tax, VAT and PAYE which apply to them and those changes will be a significant encouragement.
  However, I want to make a point about industry not to the Government, but to the banks. I am perturbed by stories that I am beginning to hear from people in business. Although companies are grateful for some of the Government's reliefs and for recognition of their cash flow problems, there are signs that the banks are beginning to try to restore their profit accounts by applying higher than necessary premiums over base rate, particularly for smaller companies that are borrowing. I want to draw attention to that fact publicly, because it is a worrying development.
  The banks were charging 2 per cent. or 2·5 per cent. over base rate for smaller corporate clients. I hear now that they are beginning to charge much in excess of that. That means that the benefits of the fall in interest rates are not necessarily being passed through to smaller companies with the desirable speed. Given that the Government are doing their bit to control the economy for the benefit of business, the banks have a duty to take a more long-term view. I would welcome some banks stating publicly that they are not trying to restore their profit and loss accounts at the expense of British industry.
  An important objective of the Budget lies in the pattern of diversification of private investment. In this country there has in the past been a welcome priority in personal

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  investment on housing. I am in no way against a high proportion of personal investment in private housing which people are proud to own. Sixty-seven per cent. of the population now own their own house, and that is a significant percentage. Although it is socially welcome that people own their own houses, that seems to store up a resistance to the problems of inflation. If there is a disproportionate interest in house prices, there is a disproportionate interest in inflation. Therefore, I welcome the Government's realisation that the traditional tax relief for house purchases may need to be reviewed. There is a small, but welcome, start in removing relief on mortgages at the top rate.
  Mr. Paul Boateng: What next?
  Mr. Taylor: I believe that capital gains tax is too high; my hon. Friend the Member for East Lindsey (Sir P. Tapsell) made that point most strongly. One of the big distortions in capital gains tax is the fact that one's house is almost uniquely free of capital gains tax. In removing that relief, which I am not advocating—[HON. MEMBERS: "Oh, no."] I am sensitive to political winds just like Opposition Members. However, some matters must be considered closely and it might be time to consider ways of assisting other forms of investment through the tax system to run more equally alongside housing.
  I have been a long-term advocate of employee share ownership. That is a natural extension of people's interests in assets. What could be more in their interests than an asset in the company for which they work? My hon. Friend the Member for Corby was kind enough to say that I had worked on this point for some time. I believe that it is an important thrust of Government to enable everyone to have access to capital and the income that derives from the ownership of capital. Employee share ownership is a vital and necessary part of that and I do not believe that we have even begun to see the long-term implications of such ownership.
  I welcome the measures in the Budget and the incentive for management to have all employee share schemes in place. I can see many implications for company personal equity plan schemes and I welcome them. By themselves those measures are just the start of the revolution. I hope that we will go much farther and in Committee I will want to consider the more boring and technical matters which hold back the development of employee share ownership.
  The widening of the access to capital is very important. The Government have shown that they are prepared to act and that there should be a shift in traditional reliefs for homes and pensions into new forms of private investment, so that the savings can be properly balanced and perhaps be more resistant to inflationary factors that so often afflict this country as soon as we appear to be releasing tight monetary policies that are necessary to force down inflation. Having succeeded in forcing inflation down, we do not want to find that it is pushed upwards again simply because people are borrowing against their houses as happened in 1987 and 1988.
  I believe that many other technical factors will be raised in Committee. I was going to refer in detail to the comments made by my hon. Friend the Member for Corby about employee share ownership, but I will save that for another time.
  Mr. Buckley: Will the hon. Gentleman give way?
  Mr. Taylor: I am conscious of the time, and I have already given way to the hon. Gentleman, so I shall not do so again.
  There is an omission from the Budget, and that is the problem that is afflicting the Lloyd's insurance market. That problem is of considerable importance because Lloyd's is a major invisible export earner. It is important also because many of the names that are the bedrock of Lloyd's are facing cash calls on current years. I have no interest to declare. I am not a member or a name of Lloyd's, but I am concerned about the implications for that institution.
  Perhaps we should consider some form of tax relief on current-year cash calls, and possibly even enabling members of Lloyd's, and the syndicates in particular, to build up tax deductible catastrophe reserves, even if it means that the special reserves that currently exist are removed as a quid pro quo. I ask Treasury Ministers to consider that point because I am concerned that we are at the beginning of a crisis. If that crisis afflicts Lloyd's, one of the great British industries could be seriously damaged, and competition would mean that business would go elsewhere.
  Overall, it is an excellent Budget which pushes forward the battle against inflation and provides incentives for people who wish to get access to capital. I look forward to serving on the Committee.
  8.40 pm
  Mr. Tom Pendry: I welcome the opportunity of participating in this debate, not least because it gives the Financial Secretary an opportunity to reply to some of the points that I made on the Budget. I am relieved that he is present, because, although the Minister of State took notes on the previous occasion, he must have had difficulty reading her notes, because he did not reply to the points that I raised. I wish especially to obtain some information on the proposed foundation on sports and arts. Anybody who listened to the Chancellor's speech on 19 March would reasonably assume that such a measure would be included in the Bill. The Chancellor said:
  "On the understanding that all the main pools companies agree to participate and that the full amount would be passed on to a new trust established on satisfactory terms, I would be willing to reduce pool betting duty a final time—from 40 per cent. to 37½ per cent.—[Official Report, 19 March 1991; Vol. 188, c. 175.]
  However, in the Bill there is no mention of a reduction of pool betting duty. The Financial Secretary must come clean and tell the House why that is the case. Is it because two of the three main pools companies have not decided to participate? Is it that the Government have failed to arrive at satisfactory terms for the proposed new foundation? With hindsight, the Financial Secretary might be advised to reply, as I have asked a series of parliamentary questions, the replies to which forced the Chief Secretary and his colleagues to reveal the shameful muddle upon muddle and shady deal upon shady deal that have continued to surround this sorry affair.
  Indeed, there are only two possible solutions to the conundrum that the proposal has thrown up—either the Government have been guilty of the most crass incompetence and negligence, or they are guilty of embarking on a comprehensive strategy of deceit and duplicity. The Government can dodge the issue no longer.

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  The Financial Secretary must come clean and tell the House of which of those two sins the Government are guilty. The Dispatch Box could become a confessional box when the Financial Secretary replies.
  I am sure that the whole House will wish to know of the lack of progress to date of that wonder scheme. Certainly, I suspect that the Minister for Sport might welcome some further information—poor chap, he has once again been sidelined. It is getting to be a habit of the Government to treat their Ministers for Sport in that shabby way. As a result, the Minister found himself only last Tuesday at a press conference having to invent a fairy-tale figure of £75 million for the amount that will be generated by the proposed scheme, as opposed to the £60 million that everybody else has been told by the Treasury. He admitted to me in a written answer yesterday that the extra £15 million could come about only as a result of increased pools betting turnover.
  The Minister for Sport might know something that we do not know—certainly the Treasury does not know—about prospects for the pools industry. However, he might care to reflect on the fact which the Financial Secretary must confirm or deny tonight, that to raise that extra revenue the pools companies' turnover would need to reach £1 billion for the current 12-month period, as opposed to the £800 million that current estimates suggest. In normal circumstances, such a growth would take five years to materialise. That is hardly the most commanding and informed performance from the hon. Member for South Ribble (Mr. Atkins), but, given his shoddy treatment at the hands of his Treasury colleagues, perhaps we should make allowances for him. After all, the Government have revealed to me that he and his officials were kept in the dark about plans for the foundation and were excluded from any discussions surrounding its creation. Indeed, he was not even granted the courtesy of an official on-the-record meeting with his colleagues from the Treasury until last Wednesday. Perhaps the Financial Secretary might care to tell the House the reason for that disgraceful snub of his colleague.
  While he is about it, the Financial Secretary might care to explain plainly and simply to the 21 million adults and 7 million children who take part in sport and recreation in Britain why the Chancellor has seen fit to embark on a reckless and foolhardy gamble with the funding of that important part of their lives. The sorry tale that has been told to me by Ministers through parliamentary answers—or perhaps non-answers—is of a Chancellor who allowed himself, after just one meeting 11 days before his Budget statement, to be bounced by one pools company into an agreement to set up a body to channel funds out of our cash-starved national game, football, when they are urgently needed to provide the level of supporter safety and comfort required by Lord Justice Taylor's final report, and place it as a stake on a non-runner, the proposed foundation for sport and the arts.
  That body does not exist at present, nor is its eventual appearance a certainty, as in the past there has been an agreement between the English and Scottish Football Leagues and the Pools Promoters Association that any reduction in the football pool betting duty can take place only with the leagues' consent and that two fifths of that reduction must go to the leagues. However, that is not the case for this scheme. I understand that both the leagues are taking legal advice, and it may well be that there will be a court case as a result.
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  The Financial Secretary must confirm whether he knows of those developments and state why the Government agreed to a scheme fraught with such uncertainty. Is it simply that the Government were not sufficiently au fait with the matter to realise that possible danger? Either way, the Government have been guilty of either recklessness or incompetence.
  As the House knows, the round of talks takes place months before the Budget statement itself. Had the Chancellor acted responsibly and not dived into the scheme only 11 days before making his Budget statement, he would have had time to think through and consider all the possible snags that the proposal might encounter and which now endanger the scheme. Instead, we are left with delays, uncertainty and suspicion surrounding the feasibility of the scheme. Whatever the Government's view might be, it is clear from press reports that the other two pools companies which it is proposed should finance the foundation have severe reservations about the scheme. That is no wonder, bearing in mind that the first that they knew about the scheme for which they would have to supply millions of pounds was when, along with the rest of the nation, they saw the Chancellor's statement on television.
  The Chief Secretary confirmed in a letter to me on 17 April that the Government took a conscious decision not to inform the minority pools companies of the proposal, despite the fact that
  "all three companies will need to be closely involved in setting up the new trust."
  What sort of shambles is that? How do the Government intend to secure close involvement from those companies when the Government have been guilty of the most disgraceful deceit towards them? Moreover, even supposing that their co-operation is forthcoming, how can any progress be made when, as told to me in written answers, the Government have not the slightest idea who will comprise the new body's membership, the ratio of funding to sport and the arts, how its operations are to be monitored, controlled or audited, or how many people will be needed to staff and administer it.
  As the Government have said that this foundation will be in place by the start, in August, of the next football season, will the Minister revise that target? It is obvious that, given these problems, there is not the slightest chance of this new body's getting off the ground by then. No doubt the Minister for Sport is aware that the Government's reputation in sporting circles is currently all too low, and rapidly sinking. Who can be surprised at that when people saw their hopes raised, in the run-up to the Budget, by widely spread hints from the Minister for Sport that the Government would take some action to relieve sports' national governing bodies of the scandalous burden of corporation tax, only to see the promise replaced by this pig-in-a-poke scheme?
  I know that the Rugby Football Union views the Government's actions with disdain. It has written to me staying that not only will its corporation tax bill continue to be about £500,000 each year, on top of a rates bill of £130,000, but that, as a result of the Government's VAT/poll tax bribe, it will have to find £80,000 in addition to the estimated £300,000 that it had to pay in VAT last year, as it is too late to increase published ticket prices. Mr. Dudley Wood, secretary of the RFU, has told me that all

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  this money would have been spent on the development of youth rugby and on making up for the decline in team games in schools. Instead, he comments,
  "I must say we have fared pretty badly. I suppose we are a soft touch."
  Unfortunately, behind all the surface hype about a so-called sports-mad Cabinet and Prime Minister, that is the reality of sport and the present Government. Sport is seen by them as a soft touch. This has gone on for far too long and it must stop now.
  As one immediate step, to which the Minister must give his backing tonight, the Government could offer full and unequivocal backing to Britain's Olympic bid, which I, as a Greater Manchester Member of Parliament, am proud to say is once again to be led by the north-west. The Government could take that step through the removal of corporation tax from the British Olympic Association. Last year the Minister received a deputation on this very point. Ironically, the British Olympic Association is a victim of responding to the Government's urging that it take account of the increased competition for private funds from registered charities and the arts, and of adapting its fund-raising techniques to make greater use of corporate sponsorship agreements.
  The result has been a rise, one fifth to four fifths since 1979, in the proportion of the association's income that is subject to tax. The association has written to me saying that the Budget has left it
  "very disappointed … as the time is really now running out before the next Olympic Games."
  Unless there is immediate action from the Government, the BOA's £5 million appeal for the 1992 Olympics will be encumbered by a tax bill of £1·5 million for the preceding four years.
  The time for clever words and evasion from the Government is over. Both sport and the arts deserve proper funding. Whether the funds come from a national lottery or from some other source, the Government have a responsibility to see that they are made available. During the Budget debate, I asked for replies to very specific questions. Those replies were not forthcoming and, despite my writing to the Chief Secretary, I still await them. That will not do. Our sportsmen and sportswomen deserve better, our Olympic athletes deserve better and the House deserves better. I hope that the Minister will come up with some concrete replies this evening.
  8.53 pm
  Mr. Charles Wardle: Like my right hon. and hon. Friends who have spoken already, I welcome the Bill. In particular, I welcome the realistic approach of my right hon. Friend the Chancellor towards the current recession, which will prove to be considerably shorter than, a few months ago, it threatened to be because of the firm anti-inflationary stance that has been adopted by my right hon. Friend.
  In the Budget, with a general election not so very far away, my right hon. Friend might have been tempted to open the economic throttle to a certain extent in order to mask the downturn over the short term, but he did not do so. Unlike Opposition Members, who advocated a large and instant cut in interest rates, my right hon. Friend wisely stuck to his anti-inflationary guns, and there are already signs in some order books that his policy is paying
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  off. He knows that the only way to greater competitiveness and renewed growth is the maintenance of a tight fiscal policy and high interest rates until there is clear evidence of a consistent downward trend in the headline rate of inflation. In the Budget, he gave that clear message. He warned employers and employees that extravagant pay settlements would exacerbate the situation, and achieve nothing else.
  Over the past 18 months, I have not always been at one with Treasury forecasts. In November 1989, I challenged the assumption that the worst scenario for 1990 would be two quarters of zero growth. I also questioned the forecast trend for the surplus on invisibles, and last autumn I expressed concern that the spending plans of some Departments might make the underlying rate of inflation a tougher nut to crack this year. Those reservations have been very largely dispelled by the realism now being displayed in the fight against inflation. That is the cornerstone for the recovery from recession and for renewed growth.
  During the rest of this year, the headline rate of inflation will fall, and interest rates will be reduced to some extent, so long as German monetary policy does not pull the rest of the European Community in the opposite direction. The divergent attitudes of the United States and Germany at the G7 meeting over the weekend do not help those who wish to make short-term predictions about interest rates, but the United Kingdom rates will be lower in the months ahead, and the recession will bottom out. It will begin to bottom out in the second half of 1991.
  There are already some signs that this is beginning to happen. In coming to that conclusion, I do not make use of any econometric model; I simply talk to people and ask them what is going on at the factory gates, what order books and retail sales look like. Consumer demand will recover somewhat in the summer, and order books will begin to look firmer. In the south and the midlands, the momentum will certainly take some time to gather, particularly in service industries and, of course, in capital goods industries, but the corner will shortly be turned.
  Those who measure the recession by the announcements of job losses ignore the delays between a company's decision to cut jobs and the news of those redundancies being made public. For example, ICI heralded its jobs losses weeks ago, but they will take time to work through. Similarly, Marks and Spencer, which announced a reduction of 1·4 per cent. in staff numbers, did so only after a six-month study of the implications. Job losses are likely to continue to be announced well after demand has shown the first signs of recovery.
  Against the background of firm anti-inflationary resolve and an appropriate degree of cautious optimism about trade over the next six to 12 months, my right hon. Friend has announced a variety of measures to help business and individuals. In the limited time available to me, I should like to refer to two reforms and then, finally, to turn to the tax treatment of company cars.
  I welcome the removal of £140 from the headline community charge and its transfer to VAT. It is a pragmatic solution to a problem which beset a theoretically sensible and fair tax that has nonetheless been dogged by nightmarish difficulties of implementation. The move should be broadly neutral and will bear less heavily on those on low incomes.
  I especially welcome the abolition of mortgate interest relief at the higher rate of income tax. I raised the subject

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  in Committee on the Finance Act 1988 and have raised it regularly since. A Conservative party whose policy is to target help on those in greatest need should not offer home-buying inducements to those who are sufficiently well off to pay the higher rate of income tax. It was an inefficient, inflationary and expensive use of taxpayers' resources. I congratulate my right hon. Friend, who will no longer have to put up with my broaching the subject with him.
  As to company cars and VAT, I have long argued in the House and in Committee against the lenient treatment of the company car as a benefit in kind. It has been a tax anomaly that served neither the Exchequer nor the automotive industry well. I am pleased that the anomaly is largely being removed, but another problem arises.
  Since the Budget, many companies have felt that it would make sense to pay an employee increased remuneration in place of providing that employee with a car. Some employers are keen to move in that direction by offering the employee a choice of a higher salary or a car. However, such choice appears to give rise to VAT problems in that the Customs and Excise are insisting that VAT must be imposed on the cash forgone if a car is chosen. The technical basis for that approach is unclear, but such treatment is inconsistent with my right hon. Friend's declared aim of removing the tax and national insurance differentials between cash remuneration and the provision of a car. I hope that my right hon. and hon. Friends on the Treasury Bench will look into the matter and confirm that there is no VAT penalty where an employer decides to offer the choice of a higher salary or a new car.
  9 pm
  Mr. Mike Watson: I want to address my remarks to the most contentious aspect of the Budget, the increase in VAT, despite the fact that the media would have us believe that the tax on mobile phones was worthy of most coverage. Only a small proportion of the people have access to or need mobile phones, yet the increase in VAT hits every man and woman, no matter how old or how poor, when purchasing a VAT-rated item. Surely that goes against the grain for a Government who claim that cutting taxation is one of their main achievements.
  We should not be surprised about the increase in VAT, because one of the first actions of the 1979 Conservative Government was to increase VAT from 8 per cent. to 15 per cent. Now the Government of tax cuts have admitted that VAT is making up an increasing proportion of revenue. In 1990–91, revenue received through VAT was 55 per cent. of the amount raised in income tax. In the current year, that will rise to 60 per cent.
  Of course, it has to be recognised that the VAT increase was a fig leaf for the Government's understandable embarrassment about the disastrous poll tax. The hon. Member for Bexhill and Battle (Mr. Wardle) said that it was a good idea which could not be implemented, but that ignores the facts. It was not popular from the north to the south of the country, and particularly in Scotland, where we had to put up with it a year before anyone else. It was unsaleable to anyone in any part of the United Kingdom.
  The regressive poll tax has been replaced by a still more regressive measure. The 20 per cent. minimum poll tax payment which everyone was required to make has no
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  comparison in VAT. No matter how poor a person is, he still pays 100 per cent. of the 2·5 per cent. increase in VAT. There is nowhere to hide. VAT does not take account of an individual's ability to pay. That has to be recognised.
  A typical family now pays 5 per cent. of its income in VAT, compared to 2·8 per cent. in 1979 before the Conservatives' election victory. Because of the increase of 2·5 per cent., the proportion of income paid in VAT in the coming year will be 5·8 per cent. So much for tax cuts, and that despite the fact——
  Mr. Mans: Am I to take it from what the hon. Gentleman has said that he advocates the removal of the 2·5 per cent. increase in VAT?
  Mr. Watson: Yes, I do. I think that it was a mistake. As I said, it was a fig leaf for the Government, and it will not be popular. As was said earlier in the debate, VAT is an expenditure tax rather than an income tax, yet it is increasing the percentage of an individual's income that is paid in tax. The only reason that the poorest in society are not hit harder by VAT is that they can often afford little more than the basics, which are zero-rated. That is some escape for them, but not a means of escape that anyone would take willingly.
  The Government should not imagine that the people of Scotland, Wales and England will be fooled by the apparently generous cut of £140 in poll tax. They did not highlight in their announcement the fact that many people will not get a reduction of anything like £140. In Scotland, for instance, only 2·2 million of the 3·8 million due to pay poll tax will get the full reduction of £140. A massive 1·6 million will not qualify, because they were due to pay a lesser amount in terms of poll tax. So the £140 payment is a smokescreen. It will apply to some people; it will certainly not apply to many others.
  Leaving that not unimportant point aside, the people will not be fooled. It is not as if the Government can now say that the poll tax has been abolished and they have introduced a council tax, whatever form that may eventually take. The people will not forget the poll tax, because they will not be allowed to forget it. Every time they make a purchase of a VAT-rated item, they will be paying a 2·5 per cent. poll tax surcharge. That will stick in people's minds, and it will stick in people's pockets.
  A different, although also important, aspect of the VAT increase which I do not think has been covered in the debate so far is the heavy additional burden that will be placed on charities. The rise from 15 per cent. to 17·5 per cent. means an additional £33 million a year cost for charities in the United Kingdom. Before the Budget, the Charities Tax Reform Group had petitioned the Chancellor on behalf of the major charities with a means of reducing the VAT burden on charities. Not only was that ignored, but the Chancellor introduced measures which mean that charities are now much worse off. A sum of £250 million is now the total irrecoverable VAT bill facing charities in the United Kingdom.
  It has to be understood that that additional £33 million is money which must be taken from the many worthwhile causes for which charities raise their money. When people give to charities, they do not believe that they are putting a 10p, 50p or £1 coin in the tin to pay for increased VAT payments. In return, the Government's so-called

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  concessions to charities in the Budget amount to a miserly £5 million, a mere one seventh of the additional cost caused by VAT rising to 17·5 per cent.
  This takes place against the backdrop of a reduction in voluntary income to charities. With the recession at the moment, it is hardly surprising that people are able to give less, and charities are suffering. The VAT increase as a result of this Budget will make that situation even more difficult. Even with the advent some three years ago of the payroll giving scheme, a total of only around £16 million has found its way to charities in the intervening period.
  Doubtless that scheme will produce more over the years, as will gift aid perhaps, but that takes time, and that is the key to my argument. While time for such schemes to become established is necessary, increases in taxation, and particularly this VAT increase, take immediate effect. Charities have no chance to plan; there is no phasing-in period, no room and no time for charities to adjust.
  As for the effect on the average family, the Government have misread, or more likely simply ignored, the results at that level of the increase in VAT.
  I believe that the Government must take steps to reduce the effects of the blunt instrument that VAT inevitably is. I hope that they will use the Committee stage of the Bill to do so.
  9.7 pm
  Mr. Quentin Davies: This debate is taking place against a background of the concern of the House at the present state of the British economy. We find ourselves now at a particularly unfavourable moment in the trade cycle, but I am afraid that it is a fact of economic life that there always will be trade cycles. It follows from this that there will be times when we are at the bottom rather than the top of the trade cycle. If the Labour party has not yet focused on that fact and digested it, it has not really got to first base in terms of understanding the requirements of economic management. Given that there will always be trade cycles, the key thing that the electorate expect of a Government is that they will know how to manage the economy at whatever stage of the trade cycle the country may be.
  Here there is a very considerable contrast between what the Government are offering the country—I am quite convinced that we are broadly on the right lines—and what the Opposition are offering. I find some of the Labour party's remedies for dealing with our present economic situation bizarre, to say the least.
  I shall give four examples, the first being interest rates. It is common ground in the House that the economy was overheating in 1988 and 1989. Britain had a tremendous boom which was not enjoyed by other members of the European Community, and advantages flowed from it. It was clear that measures had to be taken to reduce borrowing and increase saving. There is only one way to ensure that people save more and borrow less—increase the cost of borrowing and the return from saving. That means increasing interest rates, which is what the Government did.
  Every time the Government increased base rates in 1988, 1989 and 1990, the Labour party opposed the increase. The Labour party was not willing to take the necessary measures. Had we taken its advice, the
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  overheating would have continued and inflation would have been about 20 per cent., as it was under the Labour Government. The measures needed—whether we had decided to take them or whether they were forced on us by the international community and our creditors through a sterling crisis, as happened in 1975 and 1976—would have been even more savage, and the recession would have been deeper than the present recession.
  Labour Members are attached to a second aspect of the Labour party's policies. They believe that an effective remedy for the British economy would be increased taxation—for example, income tax. We have dwelt on the considerable economic damage that would be done by increasing the income tax paid by higher earners, who tend to add the greatest value per head to the economy, for obvious reasons, and are internationally mobile. The damage that would be done is clear.
  My hon. Friend the Member for East Lindsey (Sir P. Tapsell) did not receive a reply to his question. He asked whether, if the higher rate of income tax was increased to 59 per cent.—as it would be under a Labour Government—the rate of capital gains tax would be increased to the same level. Conservative Members have a responsibility to continue asking that pertinent question until we get a reply. If the answer is no and we would keep capital gains tax at 40 per cent. while allowing the higher rate of income tax to increase to 59 per cent., the problems associated with bond washing, roll-up schemes and people converting income into capital gains would arise. The neutrality of the tax system which has been established by the Government would be destroyed.
  If we did as the Labour party intends and increased capital gains tax to 59 per cent., we would end up with the highest rate of capital gains tax in the western world. The reduction in after-tax returns to investors would have a crippling effect, and an enormous amount of investment would be forgone. There would be almost no venture capital investment with such a penal capital gains tax.
  Thirdly, Labour Members have advocated a training tax. That is superficially attractive. Companies would be told that, unless they spent a certain proportion of their turnover or wages bill on training, they would forfeit to the Government the difference between training spend and the threshold, and the money would be used to provide training.
  I wonder whether the Labour party has begun to think through the consequences. There would be enormous waste. Any firm that decided on purely commercial criteria to spend less than the threshold amount on training would have an incentive to spend the difference on anything that could be called training, however bogus.
  Precedents have been set in other countries. I know from my experience of running a subsidiary of a British merchant bank in France of the system that operates there. Unless I spent 1 per cent. of my wage bill on so-called training, I had to pay the difference between that and my actual training spend to the French Government. As there was no inducement to ensure that money was spent wisely, once I decided what needed to be spent on training in the interests of the business, if someone wanted to learn Spanish or even knitting, I did not mind because the money was lost to the company anyway.
  Such a training tax is a recipe for wasting valuable company resources. It is based on characteristic Labour prejudice and its belief that politicians and bureaucrats can second-guess business decisions and should decide

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  appropriate training levels. It is absurd for central Government to try to assess what is appropriate across the board—for all business sectors, for all time.
  Fourthly, the greatest folly of all is the concept of a minimum wage, which would of course increase unemployment. If one increases the price of any commodity, one also reduces demand for it. We could argue all night about the extent of the job losses that would result from a minimum wage, if it were ever implemented—but let there be no doubt that the figure would be substantial, with estimates varying between 750,000 and 1 million.
  A minimum wage would also serve to increase inflation by increasing labour costs at the lower end of the wage scale and the knock-on effect that it would have on wage rates and pay demands throughout the economy. A minimum wage would be of no benefit to those at the lower end of the pay scale whom it was designed to benefit, because they would lose family credit entitlement.
  Given the present state of the economy, it takes considerable genius to devise a system which would increase unemployment and inflation—two evils that the Government are currently addressing—and which would offer no benefit to the very sector of the community that it was designed to help. It is a form of genius in which the Labour party appears to specialise.
  9.17 pm
  Mr. Keith Mans: I congratulate the hon. Member for Glasgow, Central (Mr. Watson) on being honest in expressing his views on the increase in value added tax. Some Opposition Members—notably the hon. Members for Derby, South (Mrs. Beckett) and for Hackney, North and Stoke Newington (Ms. Abbott)—said that VAT is a regressive tax that affects the poor most of all. However, when it came to whether Labour would get rid of it, those hon. Members were less than honest in what they said. As was pointed out by one or two of my hon. Friends, they dithered—in the same way as the Leader of the Opposition is dithering over whether to commit Labour to abolishing VAT.
  The shift from local to indirect taxation was a fundamental part of my right hon. Friend's Budget, and it is one of which. I thoroughly approve. I go along also with my right hon. Friend the Member for Worthing (Mr. Higgins) in believing that it is a pity that the Government did not go all the way and got rid of local taxation—at least until such time as they decide on a new structure for local government.
  I am pleased that the Government went as far as they did, but hope that we will take on board the consequences. There is now a high level of gearing in terms of the way in which local tax works on local expenditure. It brings in only 11 per cent. of total local revenue, which means that just a small percentage increase in the tax could make for a large increase in the amount of money that people must pay. At least it is capped and I suggest that it will have to be capped at a relatively low level. That is the main difference between our suggestions for local government finance and those of the Opposition. Their fair rates proposal has no top limit, and no capping. It is rather odd that they are suggesting certain limits on central Government taxation and expenditure, but that they are
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  not suggesting any capping for local government expenditure. That is a fundamental flaw in their economic programme.
  Another aspect of the Finance Bill is the excellent help that it gives to worker share ownership plans and to profit-related pay. As many hon. Members know, I have encouraged that subject for a number of years, together with my hon. Friend the Member for Esher (Mr. Taylor). It is certainly encouraging that we are moving in the direction of allowing employees to take a fuller part in the operation of their companies. Profit-related pay improves productivity, cuts costs and improves job security. I hope that, at times when profits are not as great as they have been, directors and top managers will incur a cut in their profit-related pay.
  This Budget is undoubtedly good for business, but there is still a lot to do, especially as regards the environment. However, I sincerely hope that that aspect of the Budget can be dealt with in Committee.
  9.21 pm
  Mr. Chris Smith: We must always examine a Finance Bill in relation to the economic circumstances from which it arises, for it is against that background that it may best be judged. Tonight and in Committee it will be our argument that the Bill miserably fails to measure up to the desperately needed measures required by the economy. We are in a deep recession and no amount of hype from the Chancellor, the Chief Secretary or Conservative Members will hide that fact.
  That argument has formed a large part of our debate this evening. My hon. Friend the Member for Sheffield, Attercliffe (Mr. Duffy) spoke eloquently of the fact that engineers in his constituency are finding this recession even worse than the recession of 1980. My right hon. Friend the Member for Llanelli (Mr. Davies) talked about the great British industries which were being run down by the market ideologies of the past 12 years.
  My hon. Friends the Members for Neath (Mr. Hain) and for Hackney, North and Stoke Newington (Ms. Abbott) spoke about important issues—how our economic circumstances are affecting their constituents.
  Other important matters have been mentioned today. My hon. Friend the Member for Stalybridge and Hyde (Mr. Pendry) drew attention to the crucial question of what will happen to the proposed foundation for sport and the arts. My hon. Friend the Member for Glasgow, Central (Mr. Watson) spoke about the impact of measures in the Bill, especially upon people with low incomes. Perhaps most perceptive of all was my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), who contributes to our debates on the Finance Bill each year and who spoke about the Government's false optimism which parallels, almost precisely, what occurred in the 1920s.
  The bare facts of our economic condition are incontestable. Since the right hon. Member for Huntingdon (Mr. Major) became Chancellor, 500,000 people have lost their jobs. Last month's rise in unemployment was the highest since records began. Every day, 100 businesses go bust in Britain and 3,000 people lose their jobs. The Chancellor has forecast that growth will fall by 2 per cent. this year. Meanwhile, growth in Germany is 4·5 per cent. and in France it is 1·8 per cent.

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  Let us have no nonsense from the Government about international factors being the cause of the recession. Even the Treasury and Civil Service Select Committee did not buy that argument.
  Worst of all, investment as a whole is set to fall this year by nearly 10 per cent. and manufacturing investment is set to fall even further. Investment does not seem really to matter to the Chancellor. It is, in his words of yesterday, "a lagging indicator." Nothing could more clearly demonstrate the blinkered economic vision of this Government. Far from being a lagging indicator, investment is the key future indicator of economic performance. According to the CBI's industrial trends survey, which has been widely quoted by the Government today, the chairman of the CBI's economic situation committee, Mr. David Wigglesworth, makes that point. He says:
  "Investment in plant and machinery is still being cut heavily and this can only reduce the capacity of firms to respond when demand recovers."
  It was precisely the lack of capacity to respond to demand that created the problems of the mid-1980s and led to the recession that we now face. To write off investment as an indicator behind the present trend ignores the fact that it is a crucial determining factor of the future trend. The Chancellor would do well to recognise that fact.
  Mr. Butterfill: As the hon. Gentleman seems to regard investment as such an important factor, can he say what his party would do to encourage it? We have heard that the Labour party would put a tax on savings which, in turn, would have an effect on investment. More particularly, if we look at the unincorporated sector, his proposals for a 59 per cent. tax rate mean that the risk-reward ratio for the unincorporated sector would be absolutely diabolical.
  Mr. Smith: I shall turn shortly to the corporate tax allowance measures and the reform of the business expansion scheme which we propose, since they deal with precisely the point as to how we should encourage investment in a far more effective way than the Government propose in the Bill.
  When the Chancellor tells us that recovery is just around the corner and when the Chief Secretary speaks—as he did even today—about what he calls the transformation of the British economy, they are talking nonsense, and I think that they know it. All the figures for output, investment, job vacancies, bankruptcies, growth and unemployment reveal that our economy is in deep trouble. Both we and the British people will not accept any attempts by the Government to talk their way out of the morass that they themselves have created.
  Remember, these were the people who told us a year ago that there would be no recession and who said, a few months ago, that, yes, there would be a recession but that it would be relatively shallow and short-lived. We did not believe them then. We do not believe them now when they say that recovery is coming, and coming soon. I wish, for the sake of millions of people and of thousands of firms, that it were true. Sadly, it is not.
  There is one other myth that we must lay to rest. The Chief Secretary talked with astonishing pride of the Government's record on growth during the 1980s. He called it a success story. Let us get the figures perfectly clear. Average growth between 1979 and 1990 was 1·75 per
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  cent. a year. That is the lowest figure achieved by any Government in this country since the second world war. Average growth, incidentally, under the 1974 to 1979 Labour Government was 2 per cent.
  Mr. Sayeed: Can the hon. Gentleman give comparative figures for 1982 up to the present day?
  Mr. Smith: By asking that question the hon. Gentleman reveals precisely the fallacy in the figures that are constantly trotted out by the Government. Of course, they ask us to look at their performance during the period from when the first recession that they created was finishing until the second recession was beginning, ignoring the periods of negative growth before and afterwards which must also be included in the equation. If the Chief Secretary believes that the worst performance since the war is a success story, he had better think again.
  How does the Finance Bill measure up against a background of recession, rising unemployment and negative growth? Our opinion is that it measures up pretty poorly. There are some measures that we welcome. Last year we argued strongly for VAT relief on bad debts at one year rather than two years. Even after further consideration in last year's Finance Bill the Government rejected it. We welcome their repentance now.
  For many years now we have been arguing for mortgage interest relief to be available only at the standard rate of tax. The Chief Secretary has recognised belatedly that it is fair to give the same rate of relief to all taxpayers. So why did the Government reject our proposal last year and the year before and why did the present Prime Minister tell the Welsh Tories last July how strongly he condemned Labour for meddling by making precisely that proposal? Again, we welcome the Government's repentance.
  One item that was in the Budget but is not specifically included in the Bill is the increase in child benefit. It is long overdue and it is not enough. It involves a miserly 25p for the second and subsequent children, but at least it breaks the freeze and we welcome that repentance, too.
  However, we have one question. The Government saved £360 million by freezing the married couple's allowance. They used only £220 million of that saving for the change in child benefit. Why did not they use the whole lot?
  Although we welcome some items in the Budget and the Bill, many others are either iniquitous or inadequate or both. Of course, a general relief on corporation tax rates will be welcomed by some businesses, although not all, but it is better than nothing. It does not add up to a so-called Budget for business and will fail entirely to achieve what is most desperately needed—a motor to get investment going again.
  That is why before the Budget we proposed a system of enhanced first-year capital allowances for investment in manufacturing industry to help give a kick start to the purchase of new plant, machinery and technology and the carrying out of research. That would have done far more in a far more focused way than anything in the Finance Bill. That is why we also proposed a complete change in the business expansion scheme to attract private funds into new enterprises, especially in the regions. Yet the Bill leaves the business expansion scheme precisely where it was before—a tax haven for the rich that is used almost entirely for investment in private rented property.

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  I now turn to the miserable measure proposed in the Bill for training enhancement. Any recognition of training needs by a Government who have lopped £350 million off employment training and £300 million off youth training in the past two years is welcome, but what a wasted opportunity it is. We have been given a miserly scheme, hedged about with restrictions, which will cost the Exchequer only £15 million in a full year and will not come in for another year in any case. We could have had a proper recognition of the training needs of industry and a training programme led by Government initiative but drawing on the real enthusiasm to deliver in many industries. We proposed such a programme, but all that we got was £15 million in two years' time. That is hardly a good answer to our underskilled position in the world economic league.
  Mr. Ian Taylor: The hon. Gentleman is making a series of interesting expenditure commitments for a putative Labour Government. How do they fit in with the stated priorities of his colleague, the right hon. and learned Member for Monklands, East (Mr. Smith), and the statement on Sunday by the Labour party leader that there is no more cash?
  Mr. Smith: Clearly, the hon. Gentleman has not examined properly the proposals that we made in advance of the Budget. We set out clearly and in a costed fashion the measures that we recommended, including a major package of proposals on training, and we set out how we would go about funding them. The hon. Gentleman should examine his facts a little more carefully before intervening again.
  Mr. Mans: Will the hon. Gentleman give way?
  Mr. Smith: I have only five more minutes and I must get on.
  The centrepiece of the Budget and the Bill is the increase in VAT from 15 per cent. to 17.5 per cent. in order to get the Government off the poll tax hook. In a phrase that the Chief Secretary will come to regret, he said—I think that I am quoting him correctly—"In the circumstances in which we found ourselves, this was an appropriate step." Found themselves? Who dreamed up the poll tax? Who voted it through and imposed it on the British people? Who, even now, have offered no word of apology for the unfairness, administrative chaos, hardship and grotesque waste of public money that the poll tax fiasco has caused? The answer is the Government, including the Chief Secretary. The blame for the poll tax and for the shift in taxation to mitigate its electoral impact will lie fairly and squarely with the Government. The VAT increase is putting up prices, making people worse off and fuelling the underlying rate of inflation. The Government have made the wrong choice in their desperation to get rid of the poll tax liability that they created.
  There is precious little in the Budget for the environment. The Government have taken some steps to bring company car taxation more into line with the proper value of the benefit. However, there is still no satisfactory distinction in the tax system between a car provided as a perk and one that is an essential tool of the trade. Where are the imaginative measures that could have been taken? We proposed an increase in the differential between leaded and unleaded petrol, an incentive for the fitting of catalytic converters, incentives for the purchase of environmentally
  256
  sensitive products and the carrying out of home improvements, a graded scale of vehicle excise duty to encourage the use of smaller cars and a levy on landfill waste disposal. Such a programme of measures could have used the taxation system to help the environment. The Government have totally failed to take up that challenge.
  The Bill fails to take up the challenges facing our economy. It will do virtually nothing to help lift us out of recession. It will do precious little for families with children. It will do hardly anything for the environment. The Government started with a recession and are ending with a recession with an irresponsible short-term boom in the middle. They have failed the economy, as does the Bill. It is time for a Labour Government to start the recovery.
  9.39 pm
  The Financial Secretary to the Treasury (Mr. Francis Maude): The Budget will, this year alone, make available to business three quarters of a billion pounds by not taxing it to the extent that it would have been taxed without the changes in the Bill. That decision was taken because we know that businesses are going through a difficult period. The recession will not go on for ever. We can speculate endlessly about when it will end, but we know that it certainly will end, and that when it does, British business will be well placed to grow in the 1990s as it did in the 1980s.
  The hon. Member for Derby, South (Mrs. Beckett) seemed to forget that the debate was on the Finance Bill. She sent her researchers scurrying to find every bad statistic and every chance remark made by a commentator to construct a dreary litany of gloom. There was no good news that could not be rubbished and no bad news that could not be magnified. Sadly, she neglected the Bill and its important contribution to stimulating and encouraging recovery.
  We listened with interest to the hon. Member for Berwick-upon-Tweed (Mr. Beith), who maintained a curious combination of contentions—that inflation was out of control but that we should relax monetary policy by cutting interest rates. He seems to have become a late convert to the "Monklands law" that, whatever the interest rate, it should be lower. I am sure that the right hon. and learned Member for Monklands, East (Mr. Smith) is pleased to have a convert. It is important to be aware of the priority that the hon. Gentleman attaches to the reduction and control of inflation.
  The debate, as always, attracted many important and serious speeches. One thinks particularly of my right hon. Friend the Member for Worthing (Mr. Higgins), whose Committee has done such important work on the subject. He made, as usual, a speech of great authority, to which we listened with great respect.
  The hon. Member for Stalybridge and Hyde (Mr. Pendry) made a series of extraordinary allegations that will surprise my hon. Friend the Minister for Sport when he reads them in Hansard. He made several points; I regret that I did not answer them earlier, so perhaps I shall deal with a few of them now. Consultations are being held on the creation of the foundation for sport and the arts. It was always clear that we would contribute only if all three pools promoters participated, if the foundation was established on acceptable terms and if all the duty cut was passed to the foundation. He asked why the Bill does not cut the duty. That will appear as a new clause in

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  Committee, with other Budget proposals that were not ready for inclusion when the Bill was published. I am sure that my right hon. and learned Friend the Chief Secretary will deal in detail with any further questions from the hon. Gentleman.
  I am sorry that I missed the speech of my hon. Friend the Member for Corby (Mr. Powell), but I have seen a note of it. He mentioned inheritance tax and the possibility of 100 per cent. relief for businesses, which I have discussed with him previously. Already, 50 per cent. relief is available for substantial holdings in unquoted companies, which means an effective rate of 20 per cent. That compares well with regimes in other countries. Help is available in paying inheritance tax, such as payment over 10 years with interest-free instalments.
  My hon. Friends the Members for Esher (Mr. Taylor) and for Wyre (Mr. Mans) spoke of the proposals to encourage the use of employee share schemes. I am grateful for their support. The proposals will take this important process further, which is to be widely welcomed. I am sorry that it was not more widely welcomed by Opposition Members, who I would have thought would favour workers having the opportunity of being encouraged to participate directly in the success of the enterprises for which they work.
  My hon. Friends the Members for Stamford and Spalding (Mr. Davies) and for Bexhill and Battle (Mr. Wardle) made important and serious speeches. They both have considerable experience in the commercial world, which benefits their contributions and our debates.
  My right hon.Friend the Member for Croydon, South (Sir W. Clark) referred to clause 50 and my hon. Friend the Member for Eltham (Mr. Bottomley) mentioned it in an intervention. I know that several of my right hon. and hon. Friends have expressed concern about its provisions. We have listened seriously to what they have said about this difficult and technical set of issues. No doubt they can be thoroughly explored in Committee and I look forward to my right hon. and hon. Friends' contributions to those debates. I believe that the measure is right. It does not involve any double taxation and it is not retrospective. It simply remedies a technical defect and without it there would be a return to the building societies' general funds—not to the investors or depositors on whose interest the tax was levied in the first place—of the tax that properly should have been paid and properly was paid. I repeat that, without the provisions, there would be a capricious return of that tax to the building societies, which would reflect, at random, the point in the financial year at which their accounting year ended.
  Sir William Clark: In view of the interest in clause 50 among my hon. Friends and the importance of retrospection and double taxation, would it not be a good idea if that clause were discussed on the Floor of the House rather than upstairs in Committee?
  Mr. Maude: I hear what my right hon. Friend says. As he knows, such matters tend to be discussed through what are delicately known as "the usual channels" and no doubt they will be discussed in that way. Nevertheless, we are very much aware of the concern about this. The case for proceeding with clause 50 is powerful and we have
  258
  considered it extremely carefully. I look forward to the opportunity of continuing the task of persuading my right hon. Friend that it is right.
  Mr. Peter Bottomley: I do not want to dispute what my hon. Friend has said because he has much of the Finance Bill to cover in the next 14 minutes, but may I refer other hon. Members to the House of Lords judgments, because there is at least a point of argument about whether everything that their Lordships have said has been accepted by my hon. Friend?
  Mr. Maude: My hon. Friend makes the point that there are disputed matters. There is plenty of scope for argument, and I look forward to pursuing the subject with my right hon. and hon. Friends—or rather my hon. Friend the Economic Secretary is looking forward to pursing this matter in Committee. Comes the hour, comes the man, and I am sure that my hon. Friend the Economic Secretary will deal persuasively with this point in Committee.
  My right hon. Friend the Member for Croydon, South also referred to mobile telephones. I know of his concern about what he describes as a petty measure. I do not believe that it is petty. The private benefit of a portable telephone that is provided by an employer is already chargeable to tax but, at the moment, if it is to be properly accounted for, the employer has to keep detailed fiddly records, and that is a burden upon him. The introduction of a simple scale charge, at a modest level that would reflect only slight private use of the portable telephone, is a simplifying measure that will make life easier for employers. There has been a great deal of misrepresentation about the effect of this measure, but I believe that it is right. It is also right that we should extend it to car phones.
  Sir William Clark: Why should my hon. Friend suggest placing extra administrative burdens on small business men because of some private use, when mobile telephones produce about £10 million for the Exchequer? Surely that is administrative nonsense.
  Mr. Maude: The point I was making was that the introduction of a simple scale charge would reduce the burden on small businesses because if there is a private benefit from the use of a portable phone, that is already chargeable to tax and already required to be accounted for in detail to the Inland Revenue. That seems burdensome; it would be simpler and better to replace it with a straightforward and modest scale charge.
  My hon. Friend the Member for East Lindsey (Sir P. Tapsell) raised the issue of capital gains tax in general terms. I am not one of the Financial Secretaries who has had the benefit of a conversation about that with him, but I look forward to doing so and to pursuing the points that he argued so persuasively.
  My hon. Friend the Member for Bristol, East (Mr. Sayeed) talked about shipping. I know that there is concern about that, but as my right hon. Friend the Chancellor said in the Budget statement, there are limits to the extent to which the tax system can be skewed towards the special needs of a particular industry. It is worth saying that ships already receive capital allowances of 25 per cent. a year, which gives nearly full relief over seven to eight years. That compares with the average economic life of a ship—bought new—of 15 to 20 years, so the present regime already gives more relief more quickly against tax

  259
  than would be the case if there were a straightforward allowance for commercial depreciation. The most important help that we can give the shipping industry is to foster business generally. Shipping will benefit from many of the other measures contained in the Budget, especially the cut in the main corporation tax rate.
  Mr. Sayeed: Does my hon. Friend accept that our position is extremely poor vis-à-vis those countries with whom we must compete if we are to have an effective merchant marine because our competitors have much better capital allowance systems?
  Mr. Maude: There are different capital tax regimes and corporation tax regimes in different countries and that will always be the case. As a result of the Budget, we now have a corporation tax regime that will give us the lowest tax rate of any country in the European Community—indeed, of any country in the Group of Seven. That is a massive advantage to British business, including shipping. We should emphasise the great benefits that will flow from that system.
  Many of the contributions from the Opposition referred to investment. It is important, but it is not an end in itself—it is a means to increase productivity and to improve business. However, sometimes the Opposition talk as though investment were intrinsically desirable and as though one measured the success of an economy by the increase in the amount of investment. The economy did not grow to the extent that it did in the 1980s merely because there were record levels of investment; it grew because productivity increased, because industrial relations improved and because innovation increased. One can sometimes make too much of the influence of Governments on investment.
  "Tinkering via investment, subsidies or other means to alter the relationship between the cost of capital and the rate of return on investment has noticeably failed."
  Those are not my words, but those of the right hon. and learned Member for Monklands, East, in a speech that he made about five years ago. I think that he was right. He made the perceptive point that what matters is the real commercial rate of return on investment, not the artificial rate of return that is created by tax incentives and by subsidies. I am sorry that he has regressed from that position to the point where he and the Labour party now argue for increased capital allowances for industry, and for a tax credit for additional research and development. At one point, it seemed that the Labour party had accepted the Government's approach to corporation tax and it is sad that the right hon. and learned Gentleman has apparently not learnt the lesson but has regressed to previous heresies.
  This evening, we have heard much about what the Labour party would not like to see. We have heard less about Opposition Members do want. We know that they want to spend more public money because they have said so. That is a plausible claim and we believe that part of what they say because the Labour party has always spent more money when it has been in government. However, it is less clear where that money will come from.
  Oddly enough, the Labour party's documents do not throw much light——
  Mr. Allan Rogers: Which documents?
  Mr. Maude: I will show where the information comes from if that will help the hon. Member for Rhondda (Mr. Rogers) because he will not get the information from Opposition Front-Bench spokesmen.
  The Opposition claim that they will raise £1 billion by tackling offshore trusts. That is a spendid idea, but there are two snags. The first is that we are already doing that, and the second is that it will raise not £1 billion, but less than £100 million. There is no pot of gold there. What is the Opposition's next wheeze? "Opportunity Britain" states that there is £5 billion in uncollected taxes, enough to pay for the entire backlog of school repairs and rebuilding. Once again that is a pot of gold and a windfall of £5 billion just waiting to be scooped in. However, there is one problem That money does not stay uncollected. It is the amount of tax which, by the end of the Inland Revenue accounting year, happens not to have been collected. Nearly all of it is collected soon afterwards, much of it with interest added. Bang goes another pot of gold and with it bang goes Labour's programme for school repairs and rebuilding.
  Mr. Alfred Morris: With regard to collecting taxes, the Financial Secretary to the Treasury is aware of the vitally important cancer research at the Paterson institute in south Manchester and I use the word "vitally" in its literal sense. Is he aware that the institute faces a VAT bill of £1·2 million on its voluntary funded work and that that will now increase to £1·4 million? Is there nothing that he can do to help?
  Mr. Maude: The right hon. Gentleman raised that matter at Treasury questions a few days ago. I explained then that there are limits on the extent to which exemptions can be given under European Community law. There are already tax reliefs worth £800 million a year to charities, of which £150 million are reliefs on VAT. However, there are limits to the extent to which they can be extended. We understand what the right hon. Gentleman has said, and no doubt my hon. Friend the Minister of State will consider the point.
  Where else will the money come from to pay for Labour's spending programme? "Opportunity Britain" states:
  "We will increase the Inland Revenue staffing and introduce tougher tax laws thus raising substantial extra income for public services."
  That is the key. This brave new programme for "Opportunity Britain" is not just a tax collection programme; it is a job creation scheme. The brave new programme means more tax men and more staff for the Inland Revenue.
  What about those tougher tax laws? What tax laws? Are all tax laws to be made a bit tougher or are some to be made a lot tougher? Which tax laws? How much extra income? From whom? What on? Who pays? How much and who collects it? Where are the answers to those questions?
  What are the Opposition going to do about VAT? Apparently, the Opposition now accept the increase in VAT that we are introducing this year. However, I recall that when my right hon. Friend the Chancellor of the Exchequer introduced his Budget, the Leader of the Opposition claimed that that was not a fair way to collect additional taxation. Does that view still stand? Would the Opposition reverse the increase? If so, where are they going to get the extra money? If they are not going to

  261
  reverse it, why did the Leader of the Opposition say that it was unfair? Either they propose to leave in place something that they believe to be unfair or they believe that it is fair and the Leader of the Opposition has got it wrong. If he got it wrong, he should apologise. Which is it? Where are the answers? When it comes to taxes, the answer is always the same—"Tax the rich". That is what they always claim to do. They think that somehow the British public will accept that there is a painless way to raise all the extra tax.
  We know what they have done. We do not need to look at the crystal ball; we can read it in the books. All Labour Governments have increased the basic rate of tax—the rate of tax that every taxpayer pays—and yet all Labour Governments have claimed in opposition that they would increase tax only on the rich. We need only to look at the history books. In the 1960s, the Labour Government increased the basic rate of tax by 2½ per cent. In the 1970s, they increased it by 5 per cent. Had they told the electorate that? No, of course they had not. They were very coy about it. The British people know what they propose to do. The British people know that a Labour Government, like Labour councils, mean high spending and high taxes. They have had it once, they have had it several times, and they do not want it again. That is why they will continue to return a Conservative Government.
  Question put, That the Bill be now read a Second time:—
  The House divided: Ayes 310, Noes 209.

  Division No. 132]

  [10 pm

  AYES

  Adley, Robert

  Bright, Graham

  Aitken, Jonathan

  Brown, Michael (Brigg & Cl't's)

  Alison, Rt Hon Michael

  Browne, John (Winchester)

  Allason, Rupert

  Bruce, Ian (Dorset South)

  Amess, David

  Buchanan-Smith, Rt Hon Alick

  Amos, Alan

  Buck, Sir Antony

  Arbuthnot, James

  Burns, Simon

  Arnold, Jacques (Gravesham)

  Butterfill, John

  Arnold, Sir Thomas

  Carlisle, John, (Luton N)

  Ashby, David

  Carlisle, Kenneth (Lincoln)

  Aspinwall, Jack

  Carrington, Matthew

  Atkinson, David

  Carttiss, Michael

  Baker, Rt Hon K. (Mole Valley)

  Cartwright, John

  Baker, Nicholas (Dorset N)

  Cash, William

  Baldry, Tony

  Chalker, Rt Hon Mrs Lynda

  Banks, Robert (Harrogate)

  Channon, Rt Hon Paul

  Batiste, Spencer

  Chapman, Sydney

  Beaumont-Dark, Anthony

  Chope, Christopher

  Bellingham, Henry

  Churchill, Mr

  Bendall, Vivian

  Clark, Rt Hon Alan (Plymouth)

  Bennett, Nicholas (Pembroke)

  Clark, Rt Hon Sir William

  Benyon, W.

  Clarke, Rt Hon K. (Rushcliffe)

  Bevan, David Gilroy

  Colvin, Michael

  Biffen, Rt Hon John

  Coombs, Anthony (Wyre F'rest)

  Blackburn, Dr John G.

  Coombs, Simon (Swindon)

  Blaker, Rt Hon Sir Peter

  Cope, Rt Hon John

  Body, Sir Richard

  Cormack, Patrick

  Bonsor, Sir Nicholas

  Couchman, James

  Boscawen, Hon Robert

  Cran, James

  Boswell, Tim

  Currie, Mrs Edwina

  Bottomley, Peter

  Curry, David

  Bottomley, Mrs Virginia

  Davies, Q. (Stamf'd & Spald'g)

  Bowden, A. (Brighton K'pto'n)

  Davis, David (Boothferry)

  Bowden, Gerald (Dulwich)

  Day, Stephen

  Bowis, John

  Devlin, Tim

  Boyson, Rt Hon Dr Sir Rhodes

  Dicks, Terry

  Braine, Rt Hon Sir Bernard

  Dorrell, Stephen

  Brandon-Bravo, Martin

  Douglas-Hamilton, Lord James

  Brazier, Julian

  Dover, Den

  262

  Dunn, Bob

  Knight, Dame Jill (Edgbaston)

  Durant, Sir Anthony

  Knowles, Michael

  Dykes, Hugh

  Knox, David

  Emery, Sir Peter

  Lang, Rt Hon Ian

  Evans, David (Welwyn Hatf'd)

  Latham, Michael

  Evennett, David

  Lawrence, Ivan

  Fairbairn, Sir Nicholas

  Lee, John (Pendle)

  Fallon, Michael

  Leigh, Edward (Gainsbor'gh)

  Favell, Tony

  Lester, Jim (Broxtowe)

  Fenner, Dame Peggy

  Lilley, Rt Hon Peter

  Fishburn, John Dudley

  Lloyd, Sir Ian (Havant)

  Fookes, Dame Janet

  Lord, Michael

  Forsyth, Michael (Stirling)

  Luce, Rt Hon Sir Richard

  Fowler, Rt Hon Sir Norman

  Lyell, Rt Hon Sir Nicholas

  Fox, Sir Marcus

  McCrindle, Sir Robert

  Freeman, Roger

  MacGregor, Rt Hon John

  French, Douglas

  MacKay, Andrew (E Berkshire)

  Fry, Peter

  Maclean, David

  Gardiner, Sir George

  McNair-Wilson, Sir Patrick

  Gill, Christopher

  Madel, David

  Gilmour, Rt Hon Sir Ian

  Major, Rt Hon John

  Glyn, Dr Sir Alan

  Malins, Humfrey

  Goodhart, Sir Philip

  Mans, Keith

  Goodlad, Alastair

  Maples, John

  Goodson-Wickes, Dr Charles

  Marlow, Tony

  Gorman, Mrs Teresa

  Marshall, John (Hendon S)

  Gorst, John

  Martin, David (Portsmouth S)

  Grant, Sir Anthony (CambsSW)

  Mates, Michael

  Greenway, Harry (Ealing N)

  Maude, Hon Francis

  Greenway, John (Ryedale)

  Mellor, Rt Hon David

  Gregory, Conal

  Meyer, Sir Anthony

  Griffiths, Sir Eldon (Bury St E')

  Miller, Sir Hal

  Griffiths, Peter (Portsmouth N)

  Mills, Iain

  Grist, Ian

  Miscampbell, Norman

  Ground, Patrick

  Mitchell, Andrew (Gedling)

  Grylls, Michael

  Moate. Roger

  Hague, William

  Monro, Sir Hector

  Hamilton, Neil (Tatton)

  Montgomery, Sir Fergus

  Hampson, Dr Keith

  Moore, Rt Hon John

  Hannam, John

  Morris, M (N'hampton S)

  Hargreaves, A. (B'ham H'll Gr')

  Morrison, Sir Charles

  Hargreaves, Ken (Hyndburn)

  Morrison, Rt Hon Sir Peter

  Harris, David

  Moss, Malcolm

  Haselhurst, Alan

  Mudd, David

  Hawkins. Christopher

  Neale, Sir Gerrard

  Hayes, Jerry

  Needham, Richard

  Hayward, Robert

  Nelson, Anthony

  Heseltine, Rt Hon Michael

  Neubert, Sir Michael

  Hicks, Mrs Maureen (Wolv' NE)

  Nicholls, Patrick

  Hicks, Robert (Cornwall SE)

  Nicholson, David (Taunton)

  Higgins, Rt Hon Terence L.

  Nicholson, Emma (Devon West)

  Hill, James

  Norris, Steve

  Hind, Kenneth

  Onslow, Rt Hon Cranley

  Hogg, Hon Douglas (Gr'th'm)

  Page, Richard

  Holt, Richard

  Paice, James

  Hordern, Sir Peter

  Patnick, Irvine

  Howard, Rt Hon Michael

  Patten, Rt Hon Chris (Bath)

  Howarth, Alan (Straf'd-on-A)

  Patten, Rt Hon John

  Howarth, G. (Cannock & B'wd)

  Pattie, Rt Hon Sir Geoffrey

  Howe, Rt Hon Sir Geoffrey

  Peacock, Mrs Elizabeth

  Howell, Rt Hon David (G'dford)

  Porter, Barry (Wirral S)

  Howell, Ralph (North Norfolk)

  Porter, David (Waveney)

  Hunt, Rt Hon David

  Portillo, Michael

  Hunt, Sir John (Ravensbourne)

  Powell, William (Corby)

  Hunter, Andrew

  Price, Sir David

  Hurd, Rt Hon Douglas

  Raffan, Keith

  Irvine, Michael

  Raison, Rt Hon Sir Timothy

  Jack, Michael

  Redwood, John

  Jackson, Robert

  Renton, Rt Hon Tim

  Janman, Tim

  Riddick, Graham

  Jessel, Toby

  Ridley, Rt Hon Nicholas

  Johnson Smith, Sir Geoffrey

  Ridsdale, Sir Julian

  Jones, Robert B (Herts W)

  Rifkind, Rt Hon Malcolm

  Jopling, Rt Hon Michael

  Roberts, Sir Wyn (Conwy)

  Key, Robert

  Roe, Mrs Marion

  Kilfedder, James

  Rossi, Sir Hugh

  King, Roger (B'ham N'thfield)

  Rost, Peter

  King, Rt Hon Tom (Bridgwater)

  Rowe, Andrew

  Kirkhope, Timothy

  Ryder, Rt Hon Richard

  Knight, Greg (Derby North)

  Sackville, Hon Tom

  263

  Sayeed, Jonathan

  Townend, John (Bridlington)

  Scott, Rt Hon Nicholas

  Townsend, Cyril D. (B'heath)

  Shaw, David (Dover)

  Tracey, Richard

  Shaw, Sir Michael (Scarb')

  Tredinnick, David

  Shelton, Sir William

  Trippier, David

  Shephard, Mrs G. (Norfolk SW)

  Trotter, Neville

  Shepherd, Colin (Hereford)

  Twinn, Dr Ian

  Shepherd, Richard (Aldridge)

  Vaughan, Sir Gerard

  Shersby, Michael

  Viggers, Peter

  Sims, Roger

  Wakeham, Rt Hon John

  Skeet, Sir Trevor

  Waldegrave, Rt Hon William

  Smith, Tim (Beaconsfield)

  Walden, George

  Soames, Hon Nicholas

  Walker, Bill (T'side North)

  Speed, Keith

  Walker, Rt Hon P. (W'cester)

  Speller, Tony

  Waller, Gary

  Spicer, Sir Jim (Dorset W)

  Walters, Sir Dennis

  Squire, Robin

  Ward, John

  Stanbrook, Ivor

  Wardle, Charles (Bexhill)

  Stanley, Rt Hon Sir John

  Warren, Kenneth

  Steen, Anthony

  Watts, John

  Stern, Michael

  Wells, Bowen

  Stevens, Lewis

  Wheeler, Sir John

  Stewart, Allan (Eastwood)

  Whitney, Ray

  Stewart, Andy (Sherwood)

  Widdecombe, Ann

  Stewart, Rt Hon Ian (Herts N)

  Wiggin, Jerry

  Stokes, Sir John

  Wilkinson, John

  Sumberg, David

  Wilshire, David

  Summerson, Hugo

  Winterton, Mrs Ann

  Tapsell, Sir Peter

  Winterton, Nicholas

  Taylor, Ian (Esher)

  Wolfson, Mark

  Taylor, Teddy (S'end E)

  Wood, Timothy

  Tebbit, Rt Hon Norman

  Woodcock, Dr. Mike

  Temple-Morris, Peter

  Young, Sir George (Acton)

  Thompson, D. (Calder Valley)

  Younger, Rt Hon George

  Thompson, Patrick (Norwich N)

  Thorne, Neil

  Tellers for the Ayes:

  Thornton, Malcolm

  Mr. David Lightbown and Mr. John M. Taylor.

  Thurnham, Peter

  NOES

  Abbott, Ms Diane

  Crowther, Stan

  Adams, Mrs Irene (Paisley, N.)

  Cryer, Bob

  Allen, Graham

  Cummings, John

  Archer, Rt Hon Peter

  Cunliffe, Lawrence

  Armstrong, Hilary

  Cunningham, Dr John

  Ashton, Joe

  Dalyell, Tam

  Banks, Tony (Newham NW)

  Darling, Alistair

  Barnes, Harry (Derbyshire NE)

  Davies, Rt Hon Denzil (Llanelli)

  Barron, Kevin

  Davis, Terry (B'ham Hodge H'I)

  Battle, John

  Dewar, Donald

  Beckett, Margaret

  Dixon, Don

  Beggs, Roy

  Dobson, Frank

  Beith, A. J.

  Doran, Frank

  Benn, Rt Hon Tony

  Douglas, Dick

  Bennett, A. F. (D'nt'n & R'dish)

  Duffy, A. E. P.

  Benton, Joseph

  Dunnachie, Jimmy

  Bermingham, Gerald

  Eadie, Alexander

  Boateng, Paul

  Evans, John (St Helens N)

  Boyes, Roland

  Ewing, Harry (Falkirk E)

  Bradley, Keith

  Ewing, Mrs Margaret (Moray)

  Bray, Dr Jeremy

  Fatchett, Derek

  Brown, Gordon (D'mline E)

  Faulds, Andrew

  Brown, Nicholas (Newcastle E)

  Fearn, Ronald

  Brown, Ron (Edinburgh Leith)

  Field, Frank (Birkenhead)

  Bruce, Malcolm (Gordon)

  Fisher, Mark

  Buckley, George J.

  Flannery, Martin

  Caborn, Richard

  Flynn, Paul

  Callaghan, Jim

  Foot, Rt Hon Michael

  Campbell, Menzies (Fife NE)

  Forsythe, Clifford (Antrim S)

  Campbell, Ron (Blyth Valley)

  Foster, Derek

  Canavan, Dennis

  Foulkes, George

  Carlile, Alex (Mont'g)

  Fraser, John

  Carr, Michael

  Fyfe, Maria

  Clark, Dr David (S Shields)

  Galbraith, Sam

  Clarke, Tom (Monklands W)

  Galloway, George

  Clelland, David

  Garrett, John (Norwich South)

  Cohen, Harry

  George, Bruce

  Cook, Robin (Livingston)

  Gilbert, Rt Hon Dr John

  Corbett, Robin

  Godman, Dr Norman A.

  Corbyn, Jeremy

  Golding, Mrs Llin

  264

  Gordon, Mildred

  Nellist, Dave

  Gould, Bryan

  Oakes, Rt Hon Gordon

  Grant, Bernie (Tottenham)

  O'Brien, William

  Griffiths, Nigel (Edinburgh S)

  O'Neill, Martin

  Griffiths, Win (Bridgend)

  Orme, Rt Hon Stanley

  Grocott, Bruce

  Parry, Robert

  Hain, Peter

  Patchett, Terry

  Hardy, Peter

  Pendry, Tom

  Harman, Ms Harriet

  Pike, Peter L.

  Hattersley, Rt Hon Roy

  Powell, Ray (Ogmore)

  Haynes, Frank

  Prescott, John

  Heal, Mrs Sylvia

  Primarolo, Dawn

  Healey, Rt Hon Denis

  Quin, Ms Joyce

  Henderson, Doug

  Radice, Giles

  Hinchliffe, David

  Randall, Stuart

  Hoey, Ms Kate (Vauxhall)

  Redmond, Martin

  Hogg, N. (C'nauld & Kilsyth)

  Rees, Rt Hon Merlyn

  Hood, Jimmy

  Reid, Dr John

  Howarth, George (Knowsley N)

  Richardson, Jo

  Howells, Dr. Kim (Pontypridd)

  Robertson, George

  Hoyle, Doug

  Robinson, Geoffrey

  Hughes, John (Coventry NE)

  Rogers, Allan

  Hughes, Robert (Aberdeen N)

  Rooker, Jeff

  Illsley, Eric

  Rooney, Terence

  Janner, Greville

  Ross, Ernie (Dundee W)

  Johnston, Sir Russell

  Ross, William (Londonderry E)

  Kaufman, Rt Hon Gerald

  Rowlands, Ted

  Kennedy, Charles

  Ruddock, Joan

  Kinnock, Rt Hon Neil

  Salmond, Alex

  Kirkwood, Archy

  Sedgemore, Brian

  Lambie, David

  Sheerman, Barry

  Leadbitter, Ted

  Sheldon, Rt Hon Robert

  Leighton, Ron

  Shore, Rt Hon Peter

  Lestor, Joan (Eccles)

  Short, Clare

  Lewis, Terry

  Skinner, Dennis

  Lloyd, Tony (Stretford)

  Smith, Andrew (Oxford E)

  Lofthouse, Geoffrey

  Smith, C. (Isl'ton & F'bury)

  Loyden, Eddie

  Smith, Rt Hon J. (Monk'ds E)

  McAllion, John

  Snape, Peter

  McAvoy, Thomas

  Soley, Clive

  Macdonald, Calum A.

  Spearing, Nigel

  McFall, John

  Steel, Rt Hon Sir David

  McKay, Allen (Barnsley West)

  Steinberg, Gerry

  McKelvey, William

  Stott, Roger

  McLeish, Henry

  Strang, Gavin

  Maclennan, Robert

  Taylor, Mrs Ann (Dewsbury)

  McMaster, Gordon

  Taylor, Rt Hon J. D. (S'ford)

  McNamara, Kevin

  Taylor, Matthew (Truro)

  McWilliam, John

  Turner, Dennis

  Madden, Max

  Vaz, Keith

  Mahon, Mrs Alice

  Wallace, James

  Marek, Dr John

  Walley, Joan

  Marshall, David (Shettleston)

  Wardell, Gareth (Gower)

  Marshall, Jim (Leicester S)

  Wareing, Robert N.

  Martin, Michael J. (Springburn)

  Watson, Mike (Glasgow, C)

  Maxton, John

  Welsh, Andrew (Angus E)

  Meacher, Michael

  Welsh, Michael (Doncaster N)

  Meale, Alan

  Williams, Rt Hon Alan

  Michie, Bill (Sheffield Heeley)

  Winnick, David

  Michie, Mrs Ray (Arg'l & Bute)

  Worthington, Tony

  Mitchell, Austin (G't Grimsby)

  Wray, Jimmy

  Moonie, Dr Lewis

  Young, David (Bolton SE)

  Morgan, Rhodri

  Morris, Rt Hon A. (Wshawe)

  Tellers for the Noes:

  Morris, Rt Hon J. (Aberavon)

  Mr. Ken Eastham and Mr. Jack Thompson.

  Mullin, Chris

  Murphy, Paul

  Question accordingly agreed to.
  Bill read a Second time.
  Motion mae, and Question proposed,
  That Clause Nos. 14, 21, 22, 23, 24, 31 and 77 and Schedule 14 be committed to a Committee of the whole Housse;
  That the remainder of the Bill be Committed to Standing Committee;
  That, when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the

  265
  Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Mr. Maude.]
  10.15 pm
  Mr. Peter Bottomley: I beg to oppose the motion.
  For procedural reasons, I am speaking against the Government motion. I should, if I had been in order, have preferred to speak in favour of my instruction, but I understand that that is not possible.
  I want to argue why clause 50 should be taken on the Floor of the House, and it may be for the convenience of the House if I do that fairly briefly.
  It was a mistake for the Government to use the Budget in 1985 rather than primary legislation to achieve what they were after.—[Interruption.
  Mr. Speaker: Order. Would hon. Members below the Gangway please either leave the Chamber or come in and sit quietly?
  Mr. Bottomley: It would have been possible in a debate on the Floor of the House to argue that it might have been better for the Government to consult the Building Societies Association over what effect their regulations might have, rather than go through three sets of the law courts. It would be possible to argue in a Committee of the whole House that it has been a mistake for the Government to keep trying to change the law, and certainly it would be possible to argue that it was a mistake for the Government to keep the cash for five months after the House of Lords judgments on 25 October 1990. That may be a matter which could be dealt with in other ways. I have today referred the matter to the Parliamentary Commissioner.
  The difficulty that the House is in is that the House of Lords has judged very clearly that the House of Commons did not know what it was doing when it approved the amended regulations. The fact that the Revenue knew that the regulations by themselves were not sufficient is shown by the fact that they amended them.
  Page 4 of the Building Societies Association letter could be quoted in a debate on the Floor of the House, where it says that the House of Lords held that there was a fundamental flaw in the regulations—this is the important point which should be considered by the whole House—"consequent on the double taxation."
  There is also, on page 3 of the letter from the Leeds Permanent building society to my right hon. Friend the Chancellor, the statement:
  "In the unanimous opinion of the House of Lords, the retrospective Regulations tax twice."
  There is a subsidiary issue as to whether subsequent regulations of the House allowed the Revenue to tax twice, and that I think is a matter for the whole House. I do not think that anyone in the House realised at the time that that was what was happening.
  The final point, on page 4 of the Leeds letter, to which I would have referred if there had been a debate on the Floor of the House, is that the Inland Revenue's counsel argued in the House of Lords that he found it too embarrassing to defend the Government's windfall claim. That is a point which I was making to my hon. Friend the Financial Secretary more obliquely. The letter goes on to say that the counsel for the Revenue
  266
  "told their Lordships that they should not ask themselves if this was 'just or unjust', but only whether Parliament had, by the 1986 retrospective amendment, 'decreed this state of affairs, just or unjust'."
  It is clearly a matter for the whole House to decide whether it is just or unjust. That is why I argue that we ought to have clause 50 on the Floor of the House. However, if we cannot do it in a Committee of the whole House, we shall have to wait until the Standing Committee reports back to the House. Those are the words of Lord Oliver on page 9 of his judgment, Lord Goff on page 18 and Lord Lowry on page 25. Those seem to be points to which all hon. Members will,want to refer.
  My final point is one not of constitutional procedure but of politics. If each member of a building society loses £25 on average, there is the prospect of 10 million people writing to their Member of Parliament or to my right hon. Friends the Chancellor or the Prime Minister asking for their money back. That strikes me as rather inappropriate politics if we have a general election within the next year. My guess is that, on reconsideration, the Government will want either to change clause 50 or, preferably, to drop it. I hope that, between now and when the clause is debated, they will decide to do the latter.
  The Financial Secretary to the Treasury (Mr. Francis Maude) rose——
  Mr. Tim Smith rose——
  Mr. Speaker: Order. I am afraid that there can be only one speech against the committal motion.
  Question put, pursuant to Standing Order No. 61 (Committal of Bills):—
  The House divided: Ayes 290, Noes 28.

  Division No. 133]

  [10.20 pm

  AYES

  Adley, Robert

  Browne, John (Winchester)

  Aitken, Jonathan

  Bruce, Ian (Dorset South)

  Alison, Rt Hon Michael

  Buchanan-Smith, Rt Hon Alick

  Allason, Rupert

  Buck, Sir Antony

  Amess, David

  Burns, Simon

  Amos, Alan

  Butterfill, John

  Arbuthnot, James

  Carlisle, John, (Luton N)

  Arnold, Jacques (Gravesham)

  Carlisle, Kenneth (Lincoln)

  Arnold, Sir Thomas

  Carrington, Matthew

  Ashby, David

  Carttiss, Michael

  Aspinwall, Jack

  Cash, William

  Atkinson, David

  Chalker, Rt Hon Mrs Lynda

  Baker, Rt Hon K. (Mole Valley)

  Chapman, Sydney

  Baker, Nicholas (Dorset N)

  Chope, Christopher

  Baldry, Tony

  Churchill, Mr

  Batiste, Spencer

  Clark, Rt Hon Alan (Plymouth)

  Beaumont-Dark, Anthony

  Clarke, Rt Hon K. (Rushcliffe)

  Beckett, Margaret

  Colvin, Michael

  Bellingham, Henry

  Coombs, Anthony (Wyre F'rest)

  Bendall, Vivian

  Coombs, Simon (Swindon)

  Bennett, Nicholas (Pembroke)

  Cope, Rt Hon John

  Bitten, Rt Hon John

  Couchman, James

  Blackburn, Dr John G.

  Cran, James

  Blaker, Rt Hon Sir Peter

  Currie, Mrs Edwina

  Boateng, Paul

  Curry, David

  Body, Sir Richard

  Davies, Q. (Stamf'd & Spald'g)

  Boscawen, Hon Robert

  Davis, David (Boothferry)

  Bos well, Tim

  Day, Stephen

  Bottomley, Mrs Virginia

  Devlin, Tim

  Bowden, A. (Brighton K'pto'n)

  Dixon, Don

  Bowden, Gerald (Dulwich)

  Dorrell, Stephen

  Bowis, John

  Douglas-Hamilton, Lord James

  Boyson, Rt Hon Dr Sir Rhodes

  Dover, Den

  Brandon-Bravo, Martin

  Dunn, Bob

  Brazier, Julian

  Durant, Sir Anthony

  Bright, Graham

  Dykes, Hugh

  Brown, Michael (Brigg & Cl't's)

  Emery, Sir Peter

  267

  Evans, David (Welwyn Hatf'd)

  Jessel, Toby

  Evennett, David

  Johnson Smith, Sir Geoffrey

  Fairbairn, Sir Nicholas

  Jones, Robert B (Herts W)

  Fallon, Michael

  Jopling, Rt Hon Michael

  Favell, Tony

  Key, Robert

  Fenner, Dame Peggy

  Kilfedder, James

  Fishburn, John Dudley

  King, Roger (B'ham N'thfield)

  Flynn, Paul

  King, Rt Hon Tom (Bridgwater)

  Fookes, Dame Janet

  Kirkhope, Timothy

  Forsyth, Michael (Stirling)

  Knight, Greg (Derby North)

  Foster, Derek

  Knight, Dame Jill (Edgbaston)

  Fox, Sir Marcus

  Knowles, Michael

  Freeman, Roger

  Knox, David

  French, Douglas

  Lang, Rt Hon Ian

  Fry, Peter

  Lawrence, Ivan

  Gardiner, Sir George

  Lee, John (Pendle)

  Gill, Christopher

  Leigh, Edward (Gainsbor'gh)

  Gilmour, Rt Hon Sir Ian

  Lester, Jim (Broxtowe)

  Glyn, Dr Sir Alan

  Lilley, Rt Hon Peter

  Golding, Mrs Llin

  Lloyd, Sir Ian (Havant)

  Goodhart, Sir Philip

  Lord, Michael

  Goodlad, Alastair

  Luce, Rt Hon Sir Richard

  Goodson-Wickes, Dr Charles

  Lyell, Rt Hon Sir Nicholas

  Gorman, Mrs Teresa

  McCrindle, Sir Robert

  Gorst, John

  MacGregor, Rt Hon John

  Grant, Sir Anthony (CambsSW)

  MacKay, Andrew (E Berkshire)

  Greenway, Harry (Ealing N)

  Maclean, David

  Greenway, John (Ryedale)

  McNair-Wilson, Sir Patrick

  Gregory, Conal

  Madel, David

  Griffiths, Peter (Portsmouth N)

  Major, Rt Hon John

  Grist, Ian

  Malins, Humfrey

  Ground, Patrick

  Mans, Keith

  Grylls, Michael

  Maples, John

  Hague, William

  Marlow, Tony

  Hamilton, Neil (Tatton)

  Marshall, John (Hendon S)

  Hampson, Dr Keith

  Martin, David (Portsmouth S)

  Hannam, John

  Martin, Michael J. (Springburn)

  Hargreaves, A. (B'ham H'll Gr')

  Maude, Hon Francis

  Hargreaves, Ken (Hyndburn)

  Mellor, Rt Hon David

  Harris, David

  Meyer, Sir Anthony

  Haselhurst, Alan

  Miller, Sir Hal

  Hawkins, Christopher

  Mills, Iain

  Hayes, Jerry

  Miscampbell, Norman

  Haynes, Frank

  Mitchell, Andrew (Gedling)

  Hayward, Robert

  Moate, Roger

  Heseltine, Rt Hon Michael

  Monro, Sir Hector

  Hicks, Mrs Maureen (Wolv' NE)

  Montgomery, Sir Fergus

  Higgins, Rt Hon Terence L.

  Morris, M (N''hampton S)

  Hill, James

  Morrison, Sir Charles

  Hind, Kenneth

  Morrison, Rt Hon Sir Peter

  Hogg, Hon Douglas (Gr'th'm)

  Moss, Malcolm

  Holt, Richard

  Neale, Sir Gerrard

  Hordern, Sir Peter

  Needham, Richard

  Howard, Rt Hon Michael

  Nelson, Anthony

  Howarth, Alan (Strat'd-on-A)

  Neubert, Sir Michael

  Howarth, G. (Cannock & B'wd)

  Nicholls, Patrick

  Howell, Rt Hon David (G'dford)

  Nicholson, David (Taunton)

  Howell, Ralph (North Norfolk)

  Nicholson, Emma (Devon West)

  Hunt, Rt Hon David

  Norris, Steve

  Hunt, Sir John (Ravensbourne)

  Page, Richard

  Hurd, Rt Hon Douglas

  Paice, James

  Irvine, Michael

  Patnick, Irvine

  Jack, Michael

  Patten, Rt Hon Chris (Bath)

  Jackson, Robert

  Patten, Rt Hon John

  Janman, Tim

  Pattie, Rt Hon Sir Geoffrey

  268

  Peacock, Mrs Elizabeth

  Tebbit, Rt Hon Norman

  Porter, David (Waveney)

  Temple-Morris, Peter

  Portillo, Michael

  Thompson, D. (Calder Valley)

  Powell, William (Corby)

  Thompson, Patrick (Norwich N)

  Price, Sir David

  Thorne, Neil

  Raffan, Keith

  Thornton, Malcolm

  Raison, Rt Hon Sir Timothy

  Thurnham, Peter

  Redwood, John

  Townend, John (Bridlington)

  Renton, Rt Hon Tim

  Townsend, Cyril D. (B'heath)

  Riddick, Graham

  Tracey, Richard

  Ridley, Rt Hon Nicholas

  Tredinnick, David

  Ridsdale, Sir Julian

  Trippier, David

  Rifkind, Rt Hon Malcolm

  Trotter, Neville

  Roberts, Sir Wyn (Conwy)

  Twinn, Dr Ian

  Roe, Mrs Marion

  Vaughan, Sir Gerard

  Rowe, Andrew

  Viggers, Peter

  Ryder, Rt Hon Richard

  Wakeham, Rt Hon John

  Sackville, Hon Tom

  Waldegrave, Rt Hon William

  Sayeed, Jonathan

  Walden, George

  Scott, Rt Hon Nicholas

  Walker, Bill (T'side North)

  Shaw, David (Dover)

  Walker, Rt Hon P. (W'cester)

  Shelton, Sir William

  Waller, Gary

  Shephard, Mrs G. (Norfolk SW)

  Walters, Sir Dennis

  Shepherd, Colin (Hereford)

  Ward, John

  Shersby, Michael

  Wardle, Charles (Bexhill)

  Sims, Roger

  Warren, Kenneth

  Smith, C, (Isl'ton & F'bury)

  Watts, John

  Smith, Tim (Beaconsfield)

  Wells, Bowen

  Soames, Hon Nicholas

  Wheeler, Sir John

  Speed, Keith

  Whitney, Ray

  Speller, Tony

  Widdecombe, Ann

  Spicer, Sir Jim (Dorset W)

  Wiggin, Jerry

  Squire, Robin

  Wilkinson, John

  Stanbrook, Ivor

  Wilshire, David

  Stanley, Rt Hon Sir John

  Winterton, Mrs Ann

  Steen, Anthony

  Winterton, Nicholas

  Stern, Michael

  Wolfson, Mark

  Stevens, Lewis

  Wood, Timothy

  Stewart, Allan (Eastwood)

  Woodcock, Dr. Mike

  Stewart, Andy (Sherwood)

  Young, Sir George (Acton)

  Stewart, Rt Hon Ian (Herts N)

  Younger, Rt Hon George

  Sumberg, David

  Summerson, Hugo

  Tellers for the Ayes:

  Tapsell, Sir Peter

  Mr. David Lightbown and Mr. John M. Taylor.

  Taylor, Ian (Esher)

  NOES

  Beggs, Roy

  Kennedy, Charles

  Beith, A. J.

  Maclennan, Robert

  Bottomley, Peter

  Michie, Mrs Ray (Arg'l & Bute)

  Bruce, Malcolm (Gordon)

  Nellist, Dave

  Campbell, Menzies (Fife NE)

  Ross, William (Londonderry E)

  Canavan, Dennis

  Salmond, Alex

  Carlile, Alex (Mont'g)

  Skinner, Dennis

  Carr, Michael

  Steel, Rt Hon Sir David

  Cartwright, John

  Taylor, Rt Hon J. D. (S'ford)

  Cryer, Bob

  Taylor, Matthew (Truro)

  Douglas, Dick

  Taylor, Teddy (S'end E)

  Ewing, Mrs Margaret (Moray)

  Welsh, Andrew (Angus E)

  Fearn, Ronald

  Forsythe, Clifford (Antrim S)

  Tellers for the Noes:

  Hughes, Simon (Southwark)

  Mr. James Wallace and Mr. Archy Kirkwood.

  Johnston, Sir Russell

  Question accordingly agreed to.
  Committee tomorrow.

  Finance Bill
    ESTIMATES AND SUPPLEMENTARY ESTIMATES 1989–90

  Community Charge
  10.34 pm
  The Parliamentary Under-Secretary of State for the Environment (Mr. Robert Key): I beg to move,
  That a further sum, not exceeding £4,834,497,000, and including a Supplementary Sum of £4,013,497,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges that will come in course of payment during the year ending on 31st March 1992 for expenditure by the Department of the Environment on grants to local authorities in respect of the community charge and certain related administrative expenses; on rate rebate grants; on emergency financial assistance to local authorities; and on repayments of excess contributions made by local authorities and other bodies in respect of non-domestic rates in 1990–91.
  It may be convenient to discuss also the other two motions:

  Community Charge
    CLASS XV, VOTE 22
    That a further sum, not exceeding £520,381,000, and including a Supplementary Sum of £431,000,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges that will come in course of payment during the year ending on 31st March 1992 for expenditure by the Scottish Office Environment Department on grants to local authorities in respect of the community charge and certain related administrative expenses; on rate rebates and transitional relief grants; and the special payments scheme to local authorities in Scotland.

    CLASS XVI, VOTE 11
    That a further sum, not exceeding £333,187,000, and including a Supplementary Sum of £33,000,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges that will come in course of payment during the year ending on 31st March 1992 for expenditure by the Welsh Office on residual rate rebate for the disabled grants, grants to local authorities in Wales in respect of the community charge and certain related administrative expenses.
    The motions seek approval for expenditure under the Community Charges (General Reduction) Act 1991. The Act received Royal Assent on 28 March, and the expenditure is urgently needed to compensate local authorities for certain provisions in the Act. That is why we have taken the unusual step of bringing forward these supplementary estimates for the House's approval tonight.
    In recent years, the burden of paying for local services has fallen too heavily on local taxpayers. We propose to ease that burden through a series of measures that will redress the balance between local and national taxation. In the longer term, we shall ensure that the council tax which replaces the community charge will need to raise less money than was raised by the rates in their last years or the community charge last year. For the short term, the Community Charges (General Reduction) Act provides for an immediate reduction of £140 in the level of community charges set by local authorities for 1991–92.
    Since the Act will have a significant impact on the finances of local authorities during the current year, we are providing authorities with assistance in three ways. First, we are compensating them for the effects on their cash flow of the delay in sending out bills. Secondly, we are reimbursing them for the direct loss of community charge income as a result of the £140 reduction. Thirdly, we will
    270
    reimburse the reasonable additional administrative costs which they have incurred as a result of the recent legislation.
    Since this year's community charge bills are being sent out late, it is inevitable that authorities will suffer losses of interest on revenue that they had budgeted to receive in the first few weeks of the financial year. We are taking steps to offset those losses. In England, we have brought forward the amounts payable to local authorities from the pool of non-domestic rates. We made an extra payment on 5 April which authorities would not otherwise have received and, overall, in the first two months of the year, we are paying out 32 per cent. of each authority's business rates entitlement for the year as a whole.
    This should ensure that authorities are adequately compensated for the cash flow shortfall that they would otherwise face. In Scotland, a similar effect is being achieved by advancing payments of revenue support grant, and in Wales we are achieving the same ends by front-loading the new community charge grant which will reimburse authorities for the £140 reduction.
    As I have said, front loading is only part of the picture. We also intend to use our powers under the Act to pay two new grants to local authorities; and those grants cannot be paid without the specific approval of the House. That is why the supplementary estimates are being presented to the House today.
    Mr. David Wilshire: Before my hon. Friend pays the councils, will he make inquiries about the length of delay in issuing bills? Some councils will take longer than others. Will he also make inquiries into whether Labour councils are deliberately delaying issuing their bills until after Thursday, so that the public do not know the truth?
    Mr. Key: It would be outrageous if Labour councils were doing that.
    Mr. Wilshire: They will.
    Mr. Key: However, the evidence is that councils are, on the whole, doing the best they can.
    Mr. Wilshire: Some are.
    Mr. Key: Some of them have made remarkable progress. Within a matter of days of the changes being announced, they had got their bills out.
    As I have already said, front loading is only part of the picture. We also intend to use our powers under the Act to pay two new grants. The first will reimburse authorities for the direct loss of community charge income arising from the general reduction in charges. Of course, we shall not know until the end of the year exactly how much income each authority has lost, but we.can make an estimate, and that is what we have done. Our estimate uses authorities' own figures for the amount of income they were expecting to raise from charges. So it takes account of their expectations about non-collection, ensuring that our grant does not simply bail out authorities that are poor collectors, and it also takes account of standard and collective charges.
    Grant will be paid during 1991–92 to cover 90 per cent. of the estimate for each authority. Final payments, to bring the amount of grant up to 100 per cent. of actual losses, will be made next year. This year's payments will involve an increase in central Government support for the

    271
    current year of over £5 billion for Great Britain as a whole. We have already released the first instalments of community charge grant to local authorities. In order to permit that urgent expenditure, an advance of nearly £505 million has been made from the contingencies fund. That sum will be repaid to the fund when parliamentary approval for the additional expenditure has been obtained.
    Sir Peter Emery: Will my hon. Friend make it quite clear to the House and to the councils generally that the advance of that money in no way releases local authorities from their responsibility to collect outstanding community charge which has not yet been paid?
    Mr. Key: Yes, indeed. I am grateful to my hon. Friend for raising that point, and I can give him an absolute assurance that there is no question of an amnesty on the payment of tax due to local authorities. It is essential that all those in a position to influence non-payers use that influence to ensure that they pay. It would be grossly unfair to other law-abiding payers if that were not the case.
    As I have said, we are paying only 90 per cent. of the grant this year. The remaining 10 per cent. will be paid after the end of the financial year, subject to any adjustments that may be necessary, on the basis of audited claims. That arrangement is based on a recognition that authorities' own estimates of the amount of charge income to be raised are subject to considerable uncertainty. In those circumstances, it would be wrong in principle to pay 100 per cent. of the estimated entitlement until an audited claim has been received. We recognise, however, that the holdback of 10 per cent. will affect the cash flow position of authorities. We have therefore taken that into account in advancing the payments from the business rate pool.
    That brings me to the third measure on my list. We intend to reimburse authorities for all reasonable additional administrative costs incurred by them as a result of the recent legislation.
    Mr. Rhodri Morgan: I must compliment the Minister on his smooth performance, but is it not the first time that the Gerald Ratner principle has been applied to legislation? The Government has had to admit to the House that the legislation under which local government finance has operated for the past two years is, to use Gerald Ratner's phrase, nothing better than a prawn sandwich. In the light of the additional administrative costs to local authorities, does the Minister intend to deduct those funds from all the ministerial salaries that have been concerned with the fiasco over the pasi. two or three years, as Mr. Ratner would do?
    Mr. Key: The hon. Gentleman made a particularly long intervention. I can assure him that if he were to reduce ministerial salaries by anything at all, there would be precious little left for the benefit of his constituents.
    We are taking very great care to discuss with local authority associations what the basis and timing of payments should be. No decisions on that have been taken, but we expect that the cost to the Exchequer in the current financial year will be of the order of £60 million.
    Apart from those three initiatives, we are taking the opportunity to adjust the public expenditure provision required for the existing community charge reduction scheme and the assistance which is given towards the preparation and administration costs of that scheme.
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    Because of the £140 general reduction, the total amount of help that will need to be given through the reduction scheme will be reduced.
    The resultant savings have made it possible to make a number of improvements to the scheme. The threshold for entitlement has been reduced from £104 to £52. Allowance is now being made for people who changed their address during 1990–91, and, for the first time, the scheme will take account of as many charges as there are eligible charge payers in a property. Those changes in the rules mean that some 18 million people will still qualify for a reduction under the scheme in the current financial year.
    The cost of the revised community charge reduction scheme will now be £1·38 billion, which is about £450 million less than the figure announced in the local government finance settlement in January. As with community charge grant, 90 per cent. of that sum will be paid to authorities this year, with the balance of the grant payable after the end of the year on the basis of audited claims.
    The changes to the reduction scheme will also affect the preparation and administration costs incurred by authorities in relation to the scheme. We are therefore seeking additional provision to cover the extra costs of amended computer software and other administrative expenses.
    Mr. Richard Tracey: Before leaving the issue of adjustments and so on, will my hon. Friend consider a further point about the behaviour of some local authorities? Some in London say that the London borough of Lambeth has still not sent out bills for last year's community charge, and is therefore suffering a large shortfall in its community charge. It would be wise for my hon. Friend and the Department of the Environment to investigate that closely so that the truth can be found before the Government and the taxpayer make any payments to that borough. Other London boroughs may be in a similar position.
    Mr. Key: I regret to say that my hon. Friend is right. The London borough of Lambeth has a substantial debt, not only from uncollected community charges last year but from uncollected rents and rates and a great deal of other income due to it. I suspect that it would be extremely unfair on those who live in the London borough of Lambeth if we were not to assist the borough to finance its services this year, considering that the borough receives a substantially greater grant than its neighbour—Wandsworth—because of its additional needs. I take my hon. Friend's point, and I hope that those in Lambeth responsible for these matters will take careful note of it.
    The estimates will enable the Government to provide a substantial amount of additional assistance to local authorities in England, Scotland and Wales this year. They give effect to the commitment that we have made to reduce the burden on local taxpayers. I commend them to the House.
    10.46 pm
    Mr. William O'Brien: The Minister said that these estimates are before the House because of the extra that people were paying, first in rates and then in massive poll tax payments. I remind the Minister that ratepayers and poll tax payers have paid more over the past few years because the Government have so drastically

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    reduced the rate support grant that it was only reasonable that someone should have to pay more. Many people need and depend on the services of local authorities. The sorry fact is that it has taken the Government 12 years to realise that that has been happening.
    We are debating a contribution to help local authorities with their expenditure. However, we think that it would be better to reinstate the rate support grant as it was before the Government took office than to operate this mis-mash of resolutions and proposals.
    Mr. Wilshire: Before leaving his point about why people are paying such large bills, will the hon. Gentleman comment on the fact that one of the reasons for that is that some of his colleagues refuse to pay their community charge and have been stoking up many other people and encouraging them not to pay, so that the law-abiding citizens have had to pick up the tab?
    Mr. O'Brien: We hear that story a lot from Conservative Members, who do not mention that rates were increasing long before the poll tax came into effect. The poll tax has been in operation in England for only a year and in Scotland for two years. The Government have discovered that it does not work, hence the need for the estimates.
    On 25 March, the Minister of State announced drastic changes and hon. Members have been awaiting announcements or additions to the Order Paper today. We hoped to hear from the Minister that, from 1 April 1991, the Government would extend the 100 per cent. rebates for the poll tax to people on income support and to those whose incomes are such that they cannot afford to pay.
    In his statement on 23 April, the Secretary of State, who I am pleased to see in his place, made it abundantly clear that the Government are now aware of the hardship that people on income support, students, student nurses, apprentices and people on youth training courses experience in paying their poll tax bills. The right hon. Gentleman promised that under the new council tax, which will be introduced in 1993, the maximum rebate for people on income support, students and trainees would be 100 per cent.
    If the Government now recognise the hardship that people experience in paying their poll tax bills, why should they have to wait a further two years for 100 per cent. rebates? Ordinary people want an answer to that question.
    Mr. Malcom Bruce: Is not it unfair on people and absurd for local authorities to have to pursue 20 per cent. of a much reduced tax, when the cost of collection will probably exceed the revenue that will be secured? Does not that show how incompetently crazy the Government are?
    Mr. O'Brien: The hon. Gentleman makes an important point, with which I shall deal later.
    If the Government have recognised the need for 100 per cent. rebates, why not will they make them available from 1 April? Why cannot they be included in the estimates? Why does not the Secretary of State act immediately and offer them to those who are in greatest need?
    The House is agreeing to expenditure of £4·8 billion from the Consolidated Fund to meet the cost of the
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    Community Charges (General Reduction) Bill. The Chancellor of the Exchequer told us that, under that Bill, poll tax bills would be reduced by £140.
    Mr. John Bowis: Does the hon. Gentleman accept that the people about whom he is talking do not need to wait for two years? If Labour authorities were to produce spending plans at target or less, those people would not only receive the 20 per cent. this year; they would receive more than that through their income support level. The people the hon. Gentleman wants to protect could be protected this year if the Labour authorities that are wastefully overspending stuck to target.
    Mr. O'Brien: Those who are requesting 100 per cent. rebates are not found only in Labour local authorities. The Association of District Councils has suggested that there should be 100 per cent. rebates for those on income support and, as the hon. Gentleman knows, the ADC is Tory-controlled. The hon. Gentleman's own colleagues are also asking for that consideration. Collecting the 20 per cent. could be more expensive than giving 100 per cent. rebates to those people. That is the craziness facing the local authorities, but it is not too late for the Secretary of State to make that adjustment and to allow relief to those who most need it while also reducing the administration costs of the local authorities.
    The purpose of the three motions is to reduce the poll tax by £140 per person. They also relate to covering the cost of the changes that have been made to the poll tax reduction scheme that was announced by the Minister on 25 March. I believe that the Minister said that he would cover all the costs incurred by the local authorities that will be faced with extra work. Extra demands are being placed on their staff and resources because of making the changes that the Government have introduced.
    I believe that, as part of the general reduction scheme, we should include 100 per cent. rebates for those who have suffered the greatest hardship as a result of the poll tax. That is the most important matter before the House. However, there is also the question of rebilling, to which the Minister referred, and of the delay in local authorities' receipt of the income that would enable them to meet their costs. Can the Minister be more realistic in assessing those costs?
    If the cost will be met only at the end of the financial year when the audit is carried out, I must advise the Minister that that will create additional problems for local authorities, which may have to borrow to meet the cost of providing services. That will lead to interest charges, which will have to be taken into consideration when assessing the total cost of the extra charges and the extra calls upon the resources of the local authorities. I hope that that amount will be included in the total refund that is made to the local authorities. Has the Minister any updated figures for that cost? We were told that it could amount to £200 million of wasted taxpayers' money——
    The Minister for Local Government and Inner Cities (Mr. Michael Portillo): No.
    Mr. O'Brien: I am prepared to give way to the Minister of State. If he is saying that it will not be £200 million, what is his most recent assessment of the cost?
    Mr. Key: I am delighted to answer. In fact, I said that it would be £60 million
    Mr. O'Brien: But the Minister then said that that was only an estimate. There has been no real attempt to ascertain the actual cost. I suggest that £200 million is a more realistic figure than the one that the Minister has given. [HON. MEMBERS: "Why?"] Because local authorities are now making it clear that the Government have underestimated the real cost, and that their costs will be much greater than the £1, £1·50 or £2 per poll tax payer suggested by the Minister. The Minister of State has underestimated that figure. Bearing in mind the way in which the Government arrived at the figure of £60 million, one can readily accept that they have again underestimated and that they are not being honest or fair with the House or with the people outside.
    The money that we are told will be paid to local authorities for the extra billing and extra work that must be carried out would be better channelled into providing improved education facilities, community care and health care. The money that is being wasted on paper that is churned out and then destroyed, on equipment that must be purchased so that bills can be sent out and on the recruitment of additional staff to make up for the Government's mistakes could be better spent on the services on which people rely. It is sorrowful and painful to consider that people are suffering because services are not being provided and the Government are wasting money in the way that has been outlined tonight.
    Mr. Tracey: The hon. Gentleman is right to talk about services that the public are losing, but in his capacity as a Front-Bench spokesman, what advice would he give to the Labour authorities that are not sending out bills and that like the London borough of Lambeth, which I mentioned earlier, have not even sent out the bills for last year? Lambeth is one of the new inner London education authorities, and as such has responsibility for young people. What would he say to such a borough, which is not even attempting to collect the money from last year, let alone this year?
    Mr. O'Brien: Send out the bills. If that is the advice that Conservative Members wish me to give, I give it.
    There is a doubt about how many people will qualify for, and receive, the £140 reduction in the poll tax. The Budget brief presented by the Treasury on 19 March stated that one of the main features of the Budget was that the community charge would be reduced by £140 in 1991–92. The inference was that all community charge bills would be reduced by that amount. We are now told that that is not a realistic figure and we realise that the Chancellor's statement was wholly misleading. More poll tax payers will receive a reduction of less than £80 than will receive a reduction of £140. Five million pensioners will receive less than £80; 20 million poll tax payers do not qualify for the £140 reduction. They are the Minister's figures, not mine. The people who can afford to pay—such as right hon. and hon. Members—receive the full reduction. It is grossly
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    unfair that people who receive the largest reduction are those who can afford to pay their poll tax, but that is the crazy scheme that the Government have introduced.
    The Prime Minister and other Ministers have often told us that benefits that are available from Government sources and from tax sources should go to the people in greatest need, yet that principle does not apply to the poll tax relief scheme. If under social benefits the people in greatest need receive the greatest benefits, why should the same principle not apply with the poll tax rebates?
    We shall not oppose the motions because money is being channelled into local government and local government needs that money. As I said earlier, that money should have been channelled through the rate support grant. That would have allowed local authorities to provide the services that are needed in their areas and that would have been a better way to provide local authorities with resources.
    The £4·8 million should go to the people who need it most and the local authorities should decide how best the grants should be spent. That money could allow local authorities to provide better education and to repair and bring up to date schools that have not been painted or repaired for years because the Government have been reducing grants and resources to local authorities. We would prefer local authorities to spend the money in the way that they think fit. The money should allow local authorities to provide the community care and the sporting and recreational facilities that are so needed, particularly in rural areas. The Association of District Councils wants the resources to provide the services that are required.
    We press the Government to redistribute the money and to provide other resources to allow local authorities to provide the service that people demand. On 19 March, the Chancellor of the Exchequer said:
    "I have concluded that…the level of the community
    charge is still too high…the community charges recently announced in England, Wales and Scotland will be cut by£140."—[Official Report, 19 March 1991; Vol. 188, c. 180.]
    That does not apply. The Secretary of State for the Environment has also said that the number of people receiving help will increase to more than 18 million next year. We are now told that the number of people who will receive the maximum rebate has substantially reduced. In a written answer on 17 April, the Under-Secretary of State for the Environment stated:
    "the reduction scheme…as already planned for 1991–92, is estimated at £86."—[Official Report, 17 April 1991; Vol. 189, c. 184.]
    The figures show that 14·6 million charge payers will receive less than £80 and 20 million will receive less than the £140 that the Government have claimed will be distributed.
    We want a better redistribution of the money available to local authorities. Local authorities should have more freedom to provide the services that their communities are demanding. A Labour Government will ensure that that happens.
    11.8 pm
    Mr. Paul Flynn: It was interesting to hear the Minister discuss the Welsh situation. Clearly he is the Government representative who is the expert on what has happened in Wales. However, perhaps not many other hon. Members will realise just how ludicrous has been the pantomime of the rate reduction system that was introduced in Wales. A transitional relief system has been introduced and the Secretary of State for Wales confessed, showing rather more courage than sense, that the system is his brainchild.
    I shall talk generally about the system and say how the Government started out by coming to the conclusion that it would be sensible to give reductions not on the basis of what people paid individually under the old rating system but on an area basis. That works out as very rough justice indeed.
    I choose an area of Wales totally at random, the county of Monmouth. Strangely enough, it has the lowest reduction in all Wales—£4, compared with £82 in the Rhondda. That is £4 for an individual. Of course, there are people in the Rhondda who are very deserving of a reduction, but there are also people in the Rhondda who do not need a reduction at all. Many areas in Monmouth are very poor and will suffer because they are not getting that reduction. That is extremely rough justice, but when the system is broken down into individual parishes and communities it becomes even more demented. There is a degree of fairness if an area is homogenous—that is, if it is wholly rural or urban. In my patch of Newport, West we have a totally perverse result. Under the previous rating system, the areas where the rates paid per parish and per community were low are rural areas. That is for the good reason that the farms were derated. Although there might be 600 dwellings there, 300 of them may have been farms, and they were derated.
    When the Government did their arithmetic they came up with the absurd conclusion that areas of deprivation and need were rural areas. In my constituency—the same applies to Newport, East—all the rebate goes to rural areas. We have very prosperous rural areas getting rebates of £50 and large council estates getting nothing. That has caused considerable puzzlement and resentment throughout the constituency. My local newspaper has carried many stories of people asking why on earth they should pay the £50 David Hunt levy, as it has become known, when prosperous areas down the road are paying nothing.
    To give an example, under the old rating system, two people in a five-bedroom house were paying £1,500 in rates. Two people in a caravan a field away paid £12 in rates. Under the Tory tax, as described by the right hon. Member for Henley (Mr. Heseltine), they paid equal rates—quite unfairly, with two people in each house—of £460 each. Under the brave new world of the David Hunt levy there will be the generous boon and allowance from the Government; the £53 will go to the people living in the five-bedroom house and the people on the caravan site will receive nothing.
    The system needs some attention. The Minister should give some assurance to those who have lost out and are losing out. Some areas, including Rogerstone, Allt-yr-yn,
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    Bassaleg, Rhiwderin and Caerleon will get nothing. Areas such as the Christchurch road, Nash, Redwick, and the leafy world of Wentlooge are getting large handouts.
    Those will be matters of some significance on Thursday, as the voters will demonstrate. Tonight we are considering a system which the Government, on their own estimate, say will cost £60 million. We can be very cynical about that figure. That is £60 million to pay for the Government's attempt to save their skin. This is really a Tory tax. If my memory serves me correctly, according to newspaper reports, that £60 million is more than the personal fortune of the Secretary of State for the Environment. Would not it be just if that money were paid not from the public purse but from the funds of either the Secretary of State or the Conservative party?
    11.15 pm
    Mr. Malcolm Bruce: Nobody will oppose the motion, as people expect to benefit from this reduction—and soon. However, a number of questions that did not arise when the announcement was made are beginning to emerge. There is a specific question to which I would appreciate an answer. The total amount involved in the three motions is just under £5·7 billion. We were advised that the yield from the Budget increase in VAT would be about £4·25 billion. It would be helpful to know how the difference is made up. The exercise that began in the Budget could have gone very much further. If it had, perhaps people would be clearer as to the exact scale of the manipulation.
    The Government could have abolished local taxation altogether. Presumably people would have thrown their hats in the air and said, "Wonderful." But a few months later they would have begun to wonder how it was that their children continued to be educated in schools, that the streets continued to be swept, and that other services continued to be provided. The answer, of course, is that councils depend on Government grants to pay for those services. Indeed, that is how councils will increasingly have to be run.
    The Government, having steadily reduced the grants to local authorities in an attempt to squeeze them, have, at one go, reversed their policy and thrown billions of pounds back at the problem. Secondly, they have maintained that this is central Government money. I wonder how often we have heard Ministers say, "We don't have any money; it is taxpayers' money." That is not what the Chancellor said when he made his Budget announcement. He said that he had made funds available from the central Exchequer. That is the difference. At the end of the day, people have to pay, by way of one tax or another, for their services, and the VAT increase was immediate evidence of that fact.
    At the weekend, I discussed with an Environment Minister one of the interesting aspects of the new system. The Government say that the new property tax will not involve revaluation resulting from extensions or improvements to houses, as happened under the old rating system. On two counts, it appears that that is wrong. First, improvement could result in a valuation moving the house up a band or two. That would have a significant effect. Secondly, the cost of any major improvement would attract a substantial extra amount of VAT.
    A single person with a £58,000 house in Strathkelvin and Bearsden, if he were to undertake a £25,000 improvement, would pay a council tax that was £147 more

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    than the community charge or poll tax figure, in addition to £625 in extra VAT. All I can say is, "Eat your heart out, Michael Hirst. When you find out about that, you won't come back to this place." I could give other examples, but I shall not do so. No doubt the hon. Member for Eastwood (Mr. Stewart) will be happy if I do not go into cases affecting his constituency.
    The hon. Member for Normanton (Mr. O'Brien) made a very valid and relevant point. When the Chancellor made his announcement, many people thought that they would get a rebate of £140. It is all very well for Ministers to smile and say, "We all know that that was a reduction from the headline tax," but that is not what many people thought. Indeed, Charlie Gray, the convener of Strathclyde regional council, said that many people in that area thought that the tax had been abolished. The Tory tabloid press. which many of them read, told them that, effectively, the tax had been abolished: "Poll tax goes"; "Victory over the poll tax"; "Defeat of the poll tax". Only later did people realise that the tax had not gone and that they would not get reductions such as they expected.
    It is extraordinary, especially at the point of change between financial years, that the Government have not abolished the 20 per cent. rule. They have got themselves into an absurd bind. In the case of Shetland Islands council, the most extreme example, the council could be obliged to collect 20 per cent. of 97p from people who have not paid their tax. The cost of billing would be absurd. Being sensible, the council is not wasting its time pursuing the matter, although it has been suggested that the council may be in breach of the law. I only hope that there are not absolute lunatics in the Scottish Office, and that it will not pursue the council. Even where 20 per cent. is £25 to £30, the cost of collection could be out of proportion to the amount due.
    I have talked before about students who have spent short periods on courses—for example, at Robert Gordon institute of technology in Aberdeen, which has been successful in attracting students from Malaysia for three-month courses. The council has had to pursue people to Kuala Lumpur and to places in the jungle for amounts of £6 or £9. Because of the cost of recorded delivery to such places, it does not make sense to try to collect the money, but the director of finance says that he is legally required to do so. That may be an extreme example, but there is no doubt that the cost of collection in many cases is out of all proportion to the revenue involved.
    The wear and tear on council officials who have had to deal with the incompetence of the Government should not be discounted. The officials have wrestled with the difficulties with great commitment and success. Conservative Members should not be too sweeping in their denunciation of councils which have been dilatory in collecting the tax. There are bad examples—Lambeth is a case in point—but there are many efficient councils.
    My own council, Grampian regional council, was so efficient that it got its bills out before the Budget. As a result, it had to re-bill, at a cost of £250,000 in postage alone. In those circumstances, the officials should not be attacked by the Government. They have been victims of their own efficiency. Conservative Members, including the Secretary of State for Scotland, have criticised council officials for not being diligent enough in following up non-payers.
    While the Government may feel that the immediate rescue of the £140 reduction in the headline tax and the
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    introduction of the simplified council tax have got them off the hook, increasingly, as people study the proposals, they will find that there is another group of winners and losers. The Government will suffer because they will be hit by anomalies, rather unexpectedly, in their own heartlands. A growing body of opinion recognises the sheer incompetence of the way that the Government have gone about administering the tax and then the changes.
    When pressed on "Newsnight" a few weeks ago, the Minister of State said that the cost of the change would be about a few hundred million pounds. When I heard that, and when I read in my local newspaper that the prospective Conservative candidate for my constituency had criticised the council for spending £9,000 on producing three editions of a newspaper giving council information during the year, I could not help but be struck by the gulf between that modest cost and the squandering of enormous amounts by the Government, which was dismissed in such a cavalier way.
    Mr. Dick Douglas: Would the hon. Gentleman care to reflect on the position that persists in Edinburgh, where the university is being considerably embarrassed because of a deficit of about £20 million? Will he contrast the trauma that it is going through with the profligacy of the Government who are wasting good resources on trying to clear the poll tax problem?
    Mr. Bruce: The hon. Gentleman makes his point. Any hon. Member could make a variety of points about what could be done with the money instead of the waste that we have suffered.
    The main conclusion we have to reach is that, in spite of everything, the shambles is to go on until 1994. The problem has not been resolved; we will have to live with it until 1994. In the meantime, we have to get to grips with yet another change.
    The Secretary of State for Scotland maintained in an interview recently that he had no revolt on his hands. He said that he had always regarded the events of the past couple of years as a reasonable progression from the rating system to the lessons of the poll tax and on to a reformed property tax. I suppose that he could have argued that the first world war was a necessary expedient to ensure that women were given the vote. Everyone knows that the Secretary of State for Scotland has egg all over his face. He defended the poll tax to the last ditch, as did the Minister of State. Perhaps we shall suffer, because they will have the last laugh. After all, the poll tax will be implemented through the general election until 1994.
    I hope only that the people will realise how incompetent the Government have been, how crazy was the way in which they changed the system and how we have not passed through the wood to an efficient working system that will enable local government to implement a buoyant and reliable method of raising finance under which people will be charged fairly for the services that they must receive.
    11.25 pm
    Mr. Harry Barnes: The estimates are stage 1 of the Government's inadequate attempt to remove themselves from the mess that has been created by the poll tax. There was mayhem when many local authorities had to produce a second set of bills, and the estimates take account of the costs of second billing,

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    but other problems have not been overcome. For example, when poll tax bills are sent out, assessments and calculations for poll tax payers are down and out, as it were, and there is no entry to the system. When bills are produced twice, the problems are exacerbated. For example, the circumstances of some payers will change because of alterations to their social security payments and other arrangements. During the billing, the local authority can do nothing to assist those whose financial position has changed. It is difficult for an authority to implement manual changes, because of the problems encountered in attempting to enter the system to obtain basic information. There were enormous problems when the Government plucked a new system out of the hat.
    There has been talk about the 20 per cent. provision and £140. There are some who will enjoy the £140 provision under the new system, but they are the people who benefited from the introduction of the poll tax. In some instances, they were benefiting by thousands of pounds a year. At the same time, the increased prices that are the result of additional value added tax are picked up by all and sundry. In other words, there is no grand strategy to overcome the problems that were caused by the introduction and implementation of the poll tax.
    Stage 2 of the Government's so-called policy lies in the dim and distant future. It might be reached by 1994, but it might not. Of course, a Conservative Government will not be in office in 1994. An alternative policy will be produced by a Labour Government. In the meantime, the Government's plans will fail to overcome the massive problems that have been caused by the poll tax.
    The first motion refers to expenditure.
    "in respect of the community charge and certain related administrative expenses".
    I stress again a massive problem which was created by the poll tax and which much thought is needed to put right. High expenditure is needed to alleviate the damage. The poll tax has had a disastrous effect on electoral registration. The figures show that, last year, 1·6 per cent. of the population of England, Scotland and Wales who were estimated to be over 18 were missing from the electoral register. People dived for cover because of the difficulty that they would face in meeting the demands on them. Sometimes, a member of a large household who was about to turn 18, thus becoming liable to pay the poll tax, did not sign the register.
    Statistics show the numbers of 18-year-olds, of those over 18 and people on the electoral register. The number of people on the electoral register has fallen. The Government failed to produce district registration figures, although district council elections were to be held. It was apparent that electoral registration figures would not be available until after the elections. According to parliamentary answers, they were to be available on 10 May. We do not yet have the constituency figures. Theoretically, if the Conservatives do not do too badly in the local government elections, they may decide to call a general election and we would not know the electoral registration figures. That would be disgraceful.
    After some pressure, the Government produced district registration figures on 25 April. They show that there is a continuing, if marginal, decline in electoral registration in England, Wales and Scotland, but not in Northern Ireland, which does not have the poll tax. Northern
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    Ireland is in a healthy position in terms of the number of 18-year-olds coming on to the register for the first time, but the position in England, Wales and Scotland is disastrous.
    Money should be provided in the estimates to tackle the problem. The Government should have given attention to this point in the review. They had said that nothing was ruled out and nothing was ruled in. I wrote to the Secretary of State for the Environment offering to give information. About two months later, I received a letter from a junior Minister saying that the Department was sorry but it was too busy. Nothing was to be ruled out, but I was part of the nothing and I was ruled out.
    Between 1987 and 1990, the percentage of the population on the electoral register fell by 1·5 per cent. in England and by 1 per cent. in Wales. Over a slightly longer period—because the poll tax was introduced in Scotland a year earlier—the number declined by 1·7 per cent. in Scotland. Between 1987 and 1990, electoral registration increased by 0·6 per cent. in Northern Ireland.
    The position of those about to attain the age of 18 is far worse than it was at any time in the 1980s or 1990. The figure for attainers in Scotland has fallen from 52,000 last year—which itself was only 69 per cent. of the estimated population of 18-year-olds—to 47,000, compared with the 1982 figure of 70,000.
    The same pattern is seen in Wales, although the reduction there is not so dramatic, probably because the effect of the poll tax in Wales has not been so marked as in England.
    The attainer figure in England has collapsed between 1990—when it was at a low level anyway—and 1991 by 20 per cent., which has caused electoral chaos. Therefore, although the opinion polls may show that Labour and the Conservatives are neck-and-neck, that is not really the case. Such polls are based on random sampling and do not take account of who is and who is not on an electoral register. The 1·5 per cent. to 2 per cent. of voters missing from the electoral register are likely to be those who have most to fear from the operation of the poll tax—and you can bet your bottom dollar that they are also the people who would vote Labour.
    Madam Deputy Speaker (Miss Betty Boothroyd): Order. I draw the attention of the hon. Member to the motion on the Order Paper because, although it refers to "certain related administrative expenses", the hon. Member's remarks are going beyond that subject.
    Mr. Barnes: The motion clearly concerns expenses incurred in connection with the community charge in correcting errors in the system and other administrative expenses.
    Madam Deputy Speaker: But not opinion polls.
    Mr. Barnes: I was making the point that, whatever trend may be shown by opinion polls, there would be a very different result at the ballot box, with a 2 per cent. loss for Labour.
    Madam Deputy Speaker: Order. I have heard enough about losses and gains. Perhaps we can hear more from the hon. Member about the estimates that are before the House.
    Mr. Barnes: The estimates represent an attempt by the Government to overcome the vast problems that confront

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    them. If a Conservative Government continue in office, they will put other measures before the House to get themselves out of even more serious difficulties. Even if that is done, estimates will have to be presented to the House to ensure that something is done to defend this country's democratic system, which is based on electoral registration, and which has been seriously and deliberately hit by the Government.
    11.38 pm
    Mr. Paul Murphy: It is fitting that I should follow my hon. Friend the Member for Derbyshire, North-East (Mr. Barnes) because he, together with my hon. Friends the Members for Normanton (Mr. O'Brien) and for Barnsley, West and Penistone (Mr. McKay), served on the Standing Committee that, three and a half years ago, considered the legislation that introduced the poll tax.
    That Committee often sat until 2, 3 or 4 o'clock in the morning. I suspect that it would have astounded the Ministers who piloted that legislation if they had known what would be occurring tonight. Tonight's proposals for reduction schemes, £140 relief by means of value added tax, and requests to local authorities to shred their bills and spend—or misspend—millions of pounds on putting right all that has gone wrong would have seemed a fairy tale to those Ministers.
    Tonight the Government stand accused of a volte-face—of the biggest collective hypocrisy in 40 or 50 years of political history. Today's proceedings are wholly unnecessary and should not be occurring. The money that we have wasted and that we are proposing to waste is astounding. As my hon. Friend the Member for Newport, West (Mr. Flynn) said, the community charge reduction scheme must be the dottiest scheme that we have come across in many years as far as Wales is concerned.
    In Monmouth, which by chance happens to be the neighbouring constituency to mine, only four areas will get any relief through the relief scheme: Llantilio Crossenny, £4; Rogiet, £19; Caerwent, £6; and Tintern, £10. The rest of the boroughs, and most of the Welsh districts, will not receive the relief that they should have, according to the needs of the people within them.
    The Parliamentary Under-Secretary of State for Wales (Mr. Nicholas Bennett): Two thirds will get it.
    Mr. Murphy: The Under-Secretary of State says that two thirds of the community will get it. He does not take into account the people in those communities. The scheme makes no reference to their needs. They could be communities where many people are wealthy and a few are poor, or vice versa. At least the English scheme has the merit of considering the problems of individuals. The Welsh scheme has already been seen to be discredited, not merely by hon. Members on the Opposition Benches, but by all the Welsh local authority associations, which realise that they have made a mistake.
    Mr. Bennett: Last year, the Welsh authorities asked for this scheme. Two thirds of all communities will get it and the £62 million available—£40 million more than last year—is all going to community charge payers. None of it will go on administration. It is a very good scheme.
    Mr. Murphy: This year, the local authority associations have said exactly the opposite. They are saying that they
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    were mistaken. They thought that the scheme would save money on administrative costs, which might have occurred a year ago. However, what has resulted is a unique unfairness, because people are losing out. As my hon. Friend the Member for Newport, West said earlier, the justice is extremely rough.
    What is more important is that the scheme should have been unnecessary in the first place. We have effectively wasted nearly £80 million in the Principality by introducing a scheme which would never have been necessary had the tax been fair and just in the first place. That is the greatest indictment of this scheme.
    My hon. Friend the Member for Normanton (Mr. O'Brien) has already referred to the fact that many people will not receive the whole £140. If, under the new and revised community charge reduction scheme, they were to have obtained £140 or more, they will get nothing. People on income support will not get their money. Some will have their bills cut by just £28, including pensioners in the Principality. People with the highest incomes will get most, and those with second homes—an aspect that is especially relevant in the Principality—could get as much as £280 a week off their community charge bills.
    One aspect which has not been mentioned, and which hits the valleys in south Wales, is that many thousands of people who were eligible for home improvements and repair grants before this scheme now become ineligible. When we couple that fact, as we must, with the new means-tested improvement grants, the effects upon our valleys, which are trying to improve their areas with such grants and with other schemes, is calamitous. Had the Government thought a little more about their £140 off the scheme, the considerable poverty trap that exists in Wales could have been reduced.
    The greatest indictment that falls upon the Government's shoulders must be the administration costs of the scheme. The money that the Government have squandered and wasted in Wales during the past three and a half years is a disgrace. They have spent £10 million more than necessary on introducing the scheme. The Government spent another £20 million more than they had spent prior to that on administering the rates. On top of that, they spent another £80 million on sweetening the poll tax. Over £100 million has been spent in Wales that might just as well, for what good it has done, have been dumped in the Bristol channel.
    Only two days ago, the Secretary of State for Wales came to the Dispatch Box and boasted to the House of Commons about the money he was spending on two new hospitals in Wales. Had he not introduced this preposterous and discredited tax in Wales, we could have had another two new hospitals in the Principality. That is a measure of the disgrace that has resulted from the mess that the Government and the Welsh Office have got themselves into over the administration of the poll tax.
    We do not, of course, intend to oppose this motion, but another £3 million is to be wasted by giving our councils that sum of money to administer this latest scheme. Welsh councils have had to shred their bills, re-bill and employ extra people. They have had to borrow at least £100 million in order to cover the cash flow loss that occurred as a result of the latest scheme. They have also had to pay back another £100 million in interest rates. The Government will have to find another £3 million—rightly so—to give to local authorities. That is money that could have been spent on many other things.

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    The people of Cardiff will come to realise that they have to spend over £1 million a year—£5 for virtually every adult in the capital city of Wales—simply in order to keep alive a poll tax register that will have to linger on for another two or three years. It is a national disgrace for the people of Wales. It costs £5·5 million to administer the poll tax in the capital city of Wales—£26 for each charge payer.
    The administrative cost of sending out many of the poll tax bills is far greater than the cost of the bills themselves. [Interruption.] Again from a sedentary position the Under-Secretary refers to the valuation registers. Let me tell him that only this week we discovered that the Government have asked the district valuation officers in Wales to use the 1973 valuation register as the basis for a secret valuation of properties in Wales, by means of which they can change the new banding arrangements to something different from what they announced to the House. The Welsh Office said that there should be seven bands, but it has already begun to tell the district valuation officers that there should be nine because it realises that seven is wholly unacceptable to the people of Wales. It would mean that the rich still got richer while the poor got poorer.
    We are sorry that, during the past three and a half years, we have had to put up with a load of nonsense from Ministers, saying how marvellous the poll tax was. The fact is that £100 million of Welsh money has been wasted on putting through a measure that has now been abandoned. There are two years yet to go before something that is possibly even worse is put in its place.
    11.47 pm
    Mr. Key: In this short debate we have considered the need for additional funds to cover the costs that local authorities will face as a result of the Community Charges (General Reduction) Act. I need hardly remind the House that the Act was the outcome of three days of concentrated deliberations both here and in another place immediately before Easter. The supplementary estimates for which we are seeking the House's approval also reflect an unusual procedure. This is not the time of year at which supplementary estimates are normally brought forward. I have explained the reasons. However, these unusual measures have had a most benign purpose. They will ensure that throughout the country the community charges originally set by local authorities will be reduced by £140. The speed of the House in concluding its deliberations enabled the reductions to be made. Tonight's deliberations will, I hope, authorise the payment of grant to compensate authorities for all of the £140 that they will not now receive.
    The hon. Member for Torfaen (Mr. Murphy) spoke about a volte face, or an about-turn. The only about-turn being contemplated is the Labour party's return to the rates using the 1973 valuations.
    My hon. Friend the Under-Secretary of State for Wales has answered many of the points about Wales. I have great affection for Wales and for the people of Wales. I congratulate my right hon. Friend the Secretary of State for Wales on carrying forward the success of his predecessor in transforming Wales into the flourishing and enterprising community it undoubtedly is.
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    The hon. Member for Normanton (Mr. O'Brien) suggested going back to the local government finance regime of 1979. That would be a profoundly disagreeable prospect and we are certainly not contemplating it tonight. The hon. Member for Newport, West (Mr. Flynn) complained that the £60 million would be going directly to the charge payers of Wales. Many charge payers in Labour-controlled authorities, such as Lambeth, would be only too delighted to receive the community charge bills being distributed in Wales.
    The hon. Member for Normanton asked me to accept that the estimates for extra administrative costs were far too low, but at present they are our best estimates of the costs of computer software, staff training and so on. However, I stress that we have asked local authorities to discuss them with us, we have asked them for their own estimates, for which we are still waiting, and, as my hon. Friend the Minister of State said, we have announced that all reasonable extra costs will be met.
    The hon. Member for Normanton also asked whether authorities would be compensated for the short-term costs of borrowing. Of course they would, because compensation comes through advancing payments from the non-domestic rates pool, including an extra payment date on 5 April, as I have explained. In addition, payments of the community charge grant to cover the actual income lost began on 25 April.
    The hon. Gentleman also asked whether the Government had seen what he described as the error of our ways and why we did not reinstate the rate support grant. However, I can reassure him on that point. The revenue support grant for this year has already been made. It cannot be made again, so special arrangements are needed. That is the reason for the supplementary payments. Next year, the extra grant will be assimilated into the revenue support grant and distributed in the normal way.
    The hon. Gentleman asked why we did not do away with the 20 per cent. minimum payment. We took the view that it was right to reduce the contribution made by all local taxpayers and hence the £140 reduction was made across the board. Those on income support continue receiving a level of support calculated to cover the 20 per cent. of charges. That support has not been reduced, so those people are getting a reasonable deal.
    Mr. O'Brien: The abolition of the 20 per cent. minimum payment is an important issue because it will cost more to collect, particularly if it is paid in 10 monthly instalments. Does the Minister not realise that the situation is chaotic and that the minimum payment will cost more than it is worth in local authority administration? Why do the Government not accept that there is an urgent need to reconsider abolishing the 20 per cent. minimum payment by students and people on income support?
    Mr. Key: I suspect that the hon. Gentleman is making more of a political than an administrative point. The situation is not chaotic, but is being administered extremely well throughout the country. There seems to be little point in changing those administrative arrangements when the burden is not unfair and has been allowed for in the arrangements and when we are planning to change the local tax system. We fully intend to introduce the council tax in the year from 1 April 1993 and not in 1994 or 1995—the date that Opposition Members have used in their scaremongering.

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    My hon. Friend the Member for Spelthorne (Mr. Wilshire) complained of the lengthy delay in issuing bills. Perhaps that was a bit unfair.
    Mr. Allen McKay: Will the Minister give way?
    Mr. Key: We are extremely short of time.
    Mr. McKay: We have plenty of time for what the Minister has to say. Would it not be better for the Government to reconsider abolishing the 20 per cent. minimum payment? The treasurer of my local authority has assured me that the 20 per cent. costs much more to collect than the revenue it brings in. However, if local authorities do not collect the 20 per cent., they could be subject to surcharges. Would it not be possible at this stage to say that if it is foolish to collect the 20 per cent. and local authorities do not collect it, they will not be surcharged?
    Mr. Key: I cannot agree with the hon. Gentleman. The fact that we have now lowered the charge by a substantial amount should address most of the points that have been raised by hon. Members. I can do no more than repeat what I have already said.
    My hon. Friend the Member for Spelthorne was perhaps a little unfair. There is no evidence that any authorities have deliberately delayed issuing bills. For many, the issue of bills incorporating the £140 reduction could not be done before May, and we have had to accept that. Any authorities that delayed on purpose would be cutting off their nose to spite their face. It is simply money lost to the council, affecting the services that local authorities are keen to provide. The point about Lambeth was raised by several hon. Members. We are not compensating authorities that failed to issue bills last year. Some councillors are not aware of that. Entitlement to the new grant depends on collecting the balance due—no collection, no grant.
    The hon. Member for Gordon (Mr. Bruce) spoke of £5·7 billion and the fact that my right hon. Friend the Chancellor referred to only £4·35 billion. He inquired about the difference. That is a perfectly legitimate and straightforward question with a straightforward answer. The figure of £4·35 billion is the net cost after savings on the community charge reduction scheme. The hon. Gentleman also referred to the Shetlands. He suggested that in the Shetlands there would be a need for a bill of only 20 per cent. of 97p—the personal charge remaining after the £140 reduction. As he knows, that ignores the fact that water charges are also payable in Scotland. The water charge for the Shetlands is nearly £45. Therefore, revised bills will be somewhat larger.
    The hon. Member for Derbyshire, North-East (Mr. Barnes) clearly believes in conspiracy theories. The electoral consequences of the community charge are his forte. The marginal decline in the numbers on the electoral register is not the consequence of the community charge. Most importantly, there is normal demographic change. The hon. Gentleman cannot fail to have noticed that numbers in schools fluctuate. Sometimes the numbers are up and sometimes we have falling rolls. Also, the hon. Gentleman must realise that there are special circumstances in Northern Ireland.
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    I totally reject the hon. Gentleman's assertions that Labour voters are tax dodgers. That was an outrageous suggestion. I was canvassing in Derbyshire last week at the same time as the hon. Member for Dagenham (M r. Gould). We were on different sides of the same market in Ripley. I had no idea of the depth of loathing for Derbyshire county council and its Labour administration. It was an education for a Member of Parliament for a Conservative seat in the south to listen to the residents of that town speaking about their county council.
    This has been an instructive and helpful debate. We must keep our eye on the fact that the consequence of what we are proposing will be a substantial relief for the local taxpayers, and I commend the estimates to the House.
    Question put and agreed to.
    Resolved,

    CLASS VIII, VOTE 14
    That a further sum, not exceeding £4,834,497,000, and including a Supplementary Sum of £4,013,497,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges that will come in course of payment during the year ending on 31st March 1992 for expenditure by the Department of the Environment on grants to local authorities in respect of the community charge and certain related administrative expenses; on rate rebate grants; on emergency financial assistance to local authorities; and on repayments of excess contributions made by local authorities and other bodies in respect of non-domestic rates in 1990–91.

    CLASS XV, VOTE 22
    Resolved,
    That a further sum, not exceeding £520,381,000, and including a Supplementary Sum of £431,000,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges that will come in course of payment during the year ending on 31st March 1992 for expenditure by the Scottish Office Environment Department on grants to local authorities in respect of the community charge and certain related administrative expenses; on rate rebate and transitional relief grants; and the special payments scheme to local authorities in Scotland.—[Mr. Key.]

    CLASS XVI, VOTE 11
    Resolved,
    That a further sum, not exceeding £333,187,000, and including a Supplementary Sum of £33,000,000 be granted to Her Majesty out of the Consolidated Fund to defray the charges that will come in course of payment during the year ending on 31st March 1992 for expenditure by the Welsh Office on residual rate rebate for the disabled grants, grants to local authorities in Wales in respect of the community charge and certain related administrative expenses.—[Mr. Key.]
    Bill ordered to be brought in upon the three foregoing resolutions relating to Estimates and Supplementary Estimates, 1991–92 by the Chairman of Ways and Means, the Chancellor of the Exchequer, Mr. David Mellor, Mr. Francis Maude, Mrs. Gillian Shephard and Mr. John Maples.

    CONSOLIDATED FUND (NO. 3) BILL
    Mr Francis Maude accordingly presented a Bill to apply certain sums out of the Consolidated Fund to the service of the years ending on 31st March 1992: And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 139.].

  Commercial Whaling
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Wood.]
  11.59 pm
  Mr. Tony Banks: We move from the land of Wales to the killing of whales, but of a different variety, obviously.
  Earlier today, I sought to introduce a ten-minute Bill to abolish political honours. I enjoyed a minor triumph by winning the Division, thus depriving myself of any possibility of earning a K.
  Political honours pale into insignificance compared with the subject of the debate—the future of the great whale and, specifically, whether commercial whaling will once again blight the planet. I sought the debate because of the growing concern that has been expressed by environmental and animal welfare groups about the possibility of a resumption of limited commercial whaling. Those groups, and indeed Members of Parliament, were alarmed by hints that the Government were retreating from their total opposition to allowing some whaling in certain conditions.
  I do not intend to try to score political points; this is not a party political issue, nor am I seeking to make it one. Plenty of opportunities present themselves in the House for me to score points and turn issues to my advantage, but this is not one. I told the Minister outside the Chamber that I am seeking from him a cast-iron guarantee that in no circumstances will the Government agree to the killing of great whales, in the name of either so-called science or the far more open commercial reasons that are being advanced by the Japanese, Norwegians and Icelanders.
  It is not an issue of whale stocks and conservation, or indeed of humane methods of slaughter; it is a matter of ethics. Whales are intelligent, social, warm-blooded mammals that are close to humans in the order of being. For any of them to be killed is a criminal act that cannot be justified or tolerated.
  The alarm bells started to ring when the Secretary of State sent a letter on 27 March to Members of Parliament who had expressed an interest in the subject. He said:
  "The situation is now that certain whale stocks are reaching levels where it will be difficult to say that controlled and highly limited catches of whales would harm the stock…If there were, at some point, a resumption of whaling, the technology used should be a genuine and qualitative advance on the older methods so that any whaling that takes place is as humane as it is possible to be. At this year's IWC"—
  the meeting of the International Whaling Commission—
  "the UK will therefore continue to press for a sound and scientific basis to the decisions of the IWC based on the principles of caution and safety, and that any future whaling is conducted as humanely as possible."
  That is an ambiguous letter and it was not surprising that The Sunday Times subsequently ran an article under the headline, "Britain may back end to whaling ban". I am not an apologist for any journalist, but that headline, based on a reading of the Secretary of State's letter, was justifiable. But its impact in Japan was nothing compared with our feelings. We were outraged; the Japanese were overjoyed. I have extracts from Japanese newspapers that are in Japanese script. Fortunately, I have O-levels in Japanese and journalese and can translate them for the Minister.
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  The Japanese newspapers, in response to the letter of the Secretary of State and reaction in The Sunday Times, spoke of the United Kingdom turning away from the whaling ban:
  "Minister Gummer made clear that the United Kingdom could change policy on the whaling ban … that the United Kingdom was reconsidering her policy on anti-commercial whaling … that Britain was ready to restart whaling. It will be a big relief for Japan, which is seeking to reopen commercial whaling."
  That is what a Japanese newspaper stated. The Japanese were as delighted as we in this country were dismayed.
  Obviously, the Secretary of State cannot be held responsible for misreporting in Japan, but it was the Secretary of State's ambiguously worded letter of 27 March to hon. Members that started the whole thing off. I have responded to that letter, expressing my surprise that he appended his signature to a letter that was clearly drafted for him by his civil servants. I await the Secretary of State's reply.
  The Minister cannot be in any doubt about the sentiments in the House and the country about the killing of whales for whatever purpose. Nearly 200 hon. Members from all parties have signed early-day motion 697 on the subject. The first three signatories are from the three main parties. One of the co-signatories is in his place on the other side of the Chamber—the hon. Member for Brighton, Kemptown (Mr. Bowden).
  The hon. Gentleman, the hon. Member for Southwark and Bermondsey (Mr. Hughes) and I went to No. 10 Downing street to present a protest letter to our Prime Minister. We then went to the Japanese embassy to present a protest letter to Mr. Kaifu, the Japanese Prime Minister, in which we said that the great whales belong to all of us on the planet and are not the private property of any particular country to do with as it sees fit. We await a reply from Mr. Kaifu, perhaps more in hope than expectation, that the Japanese Government will reverse their unbelievably selfish, unacceptable and arrogant attitude to the whales.
  In the face of what is clearly widespread public concern in this country, the Secretary of State gave an interview to The Times on 26 April in which he stated:
  "Britain will not support the resumption of commercial whaling until there is a method of killing whales humane enough to meet British animal welfare standards".
  The Minister echoed that sentiment in a written answer to me on 25 April, in which he stated:
  "We are not prepared even to contemplate agreeing to the lifting of the moratorium placed by the International Whaling Commission on commercial whaling unless and until it is clear that whale stocks are at healthy levels, a satisfactory management procedure is in place and the methods of killing whales are as humane as possible. These conditions have not yet been met."—[Official Report, 25 April 1991; Vol. 189, c. 552.]
  That answer does not satisfy me, many of the Minister's hon. Friends or the British public. Nobody is interested now in finding humane ways of killing whales any more than we are interested in finding humane ways of killing people. Both are totally unacceptable, and we should not be contemplating killing whales for any reason.
  In response to Ministers' constant references to "humane ways of killing whales", I refer them to a new publication from the Royal Society for the Prevention of Cruelty to Animals, which is entitled, "The Cruel Seas—Man's Inhumanity to Whales". It details the different methods of killing whales, from the cold or non-explosive

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  harpoon to the grenade-headed or explosive harpoon. In the slaughter of minke whales, which the Japanese are still carrying out in the Antarctic, they are using a penthrite harpoon, which uses the explosive penthrite, which is six times more powerful than the black powder that is used in other explosive harpoons. All the technical jargon leads to one irreducible fact, that the whales die in absolute agony. The RSPCA document is interesting but horrific for anyone who is concerned about the welfare of whales.
  Whales are social creatures with family structures. Who knows—perhaps, as one of their number is dying in intense pain with an explosive harpoon embedded in the flesh, others in the group may be suffering similar feelings of grief and fear as any of us would witnessing one of our family being gunned down by terrorists. Some people might regard that as an emotive comparison, but perhaps it is because we know so little about these magnificent and mysterious creatures that it is an act of criminal folly to kill them.
  Anyone who has read Heathcote Williams' epic poem "Whale Nation" will have been moved by his description of the humpback whale's music or the awesome size of the blue whale, which is the largest creature ever to have lived on the planet and still be with us—but only just. It is only just with us because of the destruction inflicted on it. The whale nation described by Heathcote Williams which has been destroyed over the centuries stands as an indictment of all of us, now and in the past.
  We used to turn all that beautiful animal life into commonplace household products, and now we see the Japanese, the Norwegians and the Icelanders killing minke whales to eat them—that is disgusting and unacceptable and it must stop. But the killing continues to this day. The Japanese, the Norwegians and the Icelanders get round the IWC's ban on commercial whaling by employing the name of science to continue their barbaric activities. That killing must be stopped.
  I want the following assurances from the Minister in advance of the IWC meeting later this month. First, I want the Government to continue to oppose the lifting of the general moratorium on commercial whaling. I am sure that he can say yes quickly.
  The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. David Curry) indicated assent.
  Mr. Banks: I see that the Minister is saying yes.
  Secondly, I want an assurance that the Government will vote against any proposal to allow limited commercial catches of some whales, whatever evidence is advanced as justification by the Japanese the Norwegians or the Icelanders, who are the real villains of the piece.
  The third assurance is that the Government will use their best endeavours to stop the Japanese, the Norwegians and the Icelanders from continuing their so-called "scientific" whaling.
  Fourthly, should any of those countries quit the IWC, as Japan has threatened to do, in order to resume killing whales the Government should have urgent discussions with our EEC partners and with the United States Government so that appropriate sanctions can be imposed on any or all of those countries.
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  Lastly, the jurisdiction of the IWC should be extended to the small cetaceans—the pilot whales, the porpoises and dolphins—which are now being slaughtered in tens of thousands, mainly by the Japanese.
  The Government have enjoyed unanimous support in the House for their opposition to whaling. This is one Government policy that I do not wish to see altered in any way. I ask the Minister to assure the House that the Government's policy will remain exactly as it is, that the Government will represent the House and the entire British people by saying that there will be no resumption of the commercial killing of whales and that the killing of whales carried out in the name of science will cease forthwith.
  12.13 am
  Mr. Andrew Bowden: The hon. Member for Newham, North-West (Mr. Banks) reflects the views of millions of people. I have had the privilege of seeing the magnificent whales in their natural environment in the seas off Alaska. Anyone who has done that or who has talked to people who have studied whales will know that they are highly intelligent, warm-blooded creatures with a social structure and could not justify their slaughter in any way. We know that whales communicate effectively. It is only a matter of time before human beings will communicate with them.
  Future generations will look back in horror at the way in which we have treated whales in this and the previous century. I hope that the Minister will be able to tell us that the Government will remain firm in their policy and will oppose the resumption of any form of commercial whaling.
  12.14 am
  The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. David Curry): I remarked in the office last week that it was about time that the hon. Member for Newham, North-West (Mr. Banks) had his Adjournment debate on whaling. I was not disappointed because it came up on the following week's schedule. I note what the hon. Member for Newham, North-West has said. We had the same debate last year and there was no disagreement between us. I hope that we will be in the same position after this debate.
  I ask the hon. Member for Newham, North-West to accept one proposition—that we are all committed to the conservation of the whale. The hon. Gentleman also referred to hints. I am sure that he will also acknowledge that, in the discharge of my responsibilities, I do not normally deal in hints. Indeed, that has been a problem with my responsibilites.
  The argument is not about the classic great whales such as the right whale, the blue, the sperm and the humpback. The argument is about certain specific stocks of whales. I accept that for many people, and especially young people, the fate of the whale, like that of the elephant, is a symbol of man's acceptance that he is just one part of creation and that his role of dominance must lead him to accept the role of stewardship for the earth's diversity. I accept that proposition. However, how do we go about that?
  We should not go about it by force. That is clearly not a practical proposition. We cannot use threats either. We must use persuasion and persistant and powerful presentation of sound arguments. The forum for the

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  arguments is the International Whaling Commission. We have an important reason to keep the whaling countries in the IWC. The alternative—this is a real alternative, not just a hollow alternative—is that they might pull out of the IWC and form their own organisation and set their own rules. If they did that, there would be one big loser—the whale. Commercial whaling would resume, perhaps in considerable volumes.
  How we persuade those countries to stay within the IWC is a practical political question. How do we maintain the moratorium? I must make it clear to the hon. Member for Newham, North-West that the Government's policy has not changed in that regard. We stick to the long-established terms of reference of the IWC. That body's great achievement was the moratorium on commercial whaling of the mid-1980s. As the hon. Member for Newham, North-West said, certain forms of whaling continue under that. Aboriginal whaling continues even in the Alaskan waters. There is also research whaling, some of which, as the hon. Member for Newham, North-West said, is effectively a form of disguised commercial whaling. However, the take has declined, even in research whaling.
  At Reykjavik we are fully committed to the continuation of the moratorium. The IWC is working to achieve a series of long-established objectives which have not changed. All members of the IWC are formal subscribers to those objectives, the first of which is a comprehensive assessment of the state of the stocks, including the Antarctic minke, the central Atlantic minke and the grey whale. The latter is not in commercial contention, but there is a need to find out more about it. It tends to live in waters close to the United States and the Americans are anxious to collect further information about it. These assessments have been carried out.
  At the meeting this month, the commission should hear reports on assessments of the other stocks which are in contention, such as the north Atlantic minke. An assessment last year, on the north Atlantic fin whale and on minkes in the Okhotsk sea, which is off Japan, was sent back for further work, to come forward to the commission again this year. Those stocks are being assessed this year.
  Mr. Tony Banks: The assessment that is taking place is not to try to find out more scientifically about whales so as better to understand their lifeform, their welfare and all the other aspects to which the hon. Member for Brighton, Kemptown (Mr. Bowden) referred, but to establish whether it is possible once again to opt for more commercial whaling of that species. That is the whole point. We do not believe that there should be any killing of whales in any circumstances. The science is not about the understanding of whales; it is about whether the Japanese can be allowed to kill them in larger numbers than they do already.
  Mr. Curry: I accept that point. Of course we do not have the power to stop whales being killed. The object of the exercise is how to achieve the maximum conservation of whales. Our judgment is that we must keep the debate in that forum. If we say that that forum is now to be used for a wholly different purpose from that for which it was set up, countries that wish to whale might walk out. I cannot judge what assessment they will make of the risks
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  of doing that. That is for their own judgment. However, if they were to resume, we might end up with more whales being killed than otherwise. The judgment to be made is how, within that forum, we are able to persuade those countries that whaling is not in their broader interests. That is the task in front of us. I understand what the hon. Gentleman is saying.
  If we allow the debate to escape from the International Whaling Commission, we shall risk the whale being the loser, and nobody would accept that. The management of that dilemma is a difficult political decision, but we must address it. It is clear that the Japanese, the Norwegians and the Icelanders are members of the International Whaling Commission so as to achieve an agreed international rule for resumed whaling of the minke and the fin whale stock. We are not fools. We know that that is the purpose. In a sense, that is what the constitution of the organisation says, so that is a legitimate expectation on their part.
  The question is how, within that framework, we move on the debate. Our position is perfectly clear. The United Kingdom believes that the present state of work does not permit us even to contemplate the resumption of commercial whaling. Three vital questions must be addressed. The first concerns the re-establishment and conservation of healthy whale stocks; the second, the fully developed management procedure; and the third—the hon. Gentleman has said that he regards it as irrelevant, but we think that it is important—the methods of killing.
  Those criteria have not been fulfilled. Therefore, the question whether whaling should resume ceases to be scientific and becomes ethical. It is not even on the agenda at the moment, because the clear criteria that we wish to debate have not been fulfilled. On those scientific grounds, we believe that no case is made out for the resumption of whaling. The first reason for that is that the revised management procedure is not yet fully elaborated. Indeed, the options will not be presented to the commission until the end of May. Even if a possible procedure is identified or decided upon, or if some procedures are shortlisted, there will still be much work to be done. On top of that, enforcement and related arrangements must be addressed. There is a considerable volume of work, even in satisfying criterion No. 1, to be done. Secondly, as the hon. Gentleman has acknowledged, we are not satisfied with the slaughter methods that are used.
  We are going to the International Whaling Commission meeting with clear criteria and with a clear objective. Our objective is to hold it together so that we keep the debate within the practical political forum that has now been established and that has a good track record in reducing the hunting and harvesting of whales. In fact, it has the moratorium to its credit. As there is no other forum, there is no reason to bust that one.
  I emphasise that there is no question of our agreeing at Reykjavik to the resumption of whaling. We must persuade the whaling nations that it is in their interests to stick with the international approach. Equally, it is in our interests to stick with the international approach. If either we or other countries walk away, both will lose. I accept the hon. Gentleman's point about how the whale is seen and about its particular qualities as an animal. But the biggest loser, if there were to be a departure from the international approach, would be the whale itself.
  It is perfectly legitimate to say that this matter should be tackled on the basis that it is directly ethical, directly emotional, or directly moral. Clearly, however, we have to

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  use a coherent political process to give expression to that concern. That is the only means that we have. Declaiming does not save one whale. We must maintain the political engagement. That is how, in the past, we have managed to save whales, and I believe that it is how we shall do so in the future.
  Mr. Tony Banks: Consider the argument that has been going on about Antarctica. What is to stop any country from going into Antarctica to mine? What would the British Government or the United States Government do if some country were to say, "We do not care that all these nations say that this should be a wilderness park. We are going in"? Why should not we adopt towards the whale the same attitude as we adopt towards Antarctica? Why should we be blackmailed by the Japanese? In effect, the Japanese are using blackmail. They are saying, "If the IWC does not do what we want, we will quit it, and will go out and kill whales." Should that kind of blackmail be allowed?
  Mr. Curry: If we were to adopt the attitude that, on that basis, all the work of this organisation should be set at naught, they would say that we were using blackmail. We cannot just sweep to one side all the work of the IWC on the purely ethical ground that we want total prohibition, for reasons that go beyond any of the criteria that brought us into the organisation.
  As I have made clear, the United Kingdom Government do not want to see whaling resumed. It is not my purpose to argue the Norwegian case, the Icelandic
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  case or the Japanese case, and I have no interest in doing so. I do have an interest in trying to conserve the whale. Not for a moment do I impugn the sincerity of the hon. Gentleman, and I am being absolutely genuine when I ask what we could do if those countries were to walk out of the IWC and start whaling. We could not send a gunboat to stop it. Clearly, force is not a practical option. Some may ask about the possibility of economic sanctions. Let us not forget that there is aboriginal whaling in the United States. I find it difficult to imagine that, in that case, economic sanctions would be a practical proposition.
  We are left with the option of trying to operate the system as we find it, of using the only forum that exists for this purpose. The British Government's position is clear. Our policy has not changed. At Reykjavik, we shall oppose the resumption of commercial whaling. I was at a meeting in Oslo less than a fortnight ago, and whaling was very much at the top of our agenda. I explained directly to the Norwegian Minister the force of the argument and the power of the emotion that goes into British people's beliefs about whaling. I asked her to realise that this is a matter of great importance to her country. We must continue the negotiations. Their purpose is absolutely clear. It is to make sure that there is no resumption of commercial whaling in Reykjavik. We maintain that forum, and we maintain the framework in which we have managed to do a great deal for the whale. We continue to preserve it as one of the rarest animals in our creation.
  Question put and agreed to.
  Adjourned accordingly at twenty-nine minutes past Twelve o'clock.