Budget Resolutions and Economic Situation

HC Deb 25 March 1991 vol 188 cc613-707

[Relevant document: European Community document No. 4433/91 on the Annual Economic Report 1990–91.]

Mr. Speaker

Before I call Mr. Secretary Lilley, I should say that a large number of right hon. and hon. Members wish to participate on the last day of the Budget debate. [Interruption.] They have indicated their wish to participate. That being so, I propose to put a limit of 10 minutes on speeches between 7 and 9 o'clock.

3.43 pm

The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Peter Lilley)

I congratulate my right hon. Friend the Chancellor of the Exchequer on a Budget for enterprise. It is a Budget which has rightly been welcomed by businesses throughout the country.

The president of the CBI has hailed it as a budget for soundly based recovery, for savings and for investment. He went on: The Chancellor has listened to those who create the nation's wealth". The president of the British Chambers of Commerce said that the Chancellor really listened to everything we had to say. Chambers are delighted at the practical measures of support to help business during a difficult time. This was the Budget for business we needed. Even The Guardian applauded the Chancellor's cascade of measures to help industry big and small". I welcome the Budget because the Chancellor targeted his measures to help small firms, to ease cash flow pressures on those hardest hit by the recession, and to strengthen the incentive to invest. Small firms will benefit particularly from the halving of the wait for bad debt relief, from the dramatic increase in the small firms profit limit, and from the 38 per cent. increase in VAT thresholds. I particularly pay tribute to my right hon. Friend's forceful advocacy in finally persuading the European Commission to permit that increase. It will take 150,000 firms out of VAT entirely, relieving them of the compliance burden as well as the cost of the tax.

It is always particularly difficult to use the tax system to ease the position of companies which may be making no profits this year and so paying no tax. I applaud my right hon. Friend's ingenuity in finding ways of doing that: 700,000 businesses will be allowed to pay their employee's PAYE quarterly, thus enabling them to keep the cash longer; firms will be able to carry back losses against profits in any of the past three years; and the corporation tax rate on last year's profits has been reduced retrospectively.

The objective of all our industrial reforms over the past 12 years has been to make Britain the most attractive place in Europe for industry to invest in. Even before the Budget, we had achieved that.

Mr. James Wallace (Orkney and Shetland)

Many of the measures introduced by the Chancellor of the Exchequer are advantageous to business. However, does the Secretary of State accept that, if we add up the benefit to businesses as a result of the various tax changes announced in the Budget, that is still not as much as the additional £1.6 billion that will be taken by local authorities in the forthcoming year in respect of non-domestic rates as a result of the 10.9 per cent. increase in the uniform business rate announced for the next financial year?

Mr. Lilley

The purpose of introducing the business rate and the assurance it gives was to guarantee that the business rate would not rise unpredictably and capriciously in Labour-held areas, but by an amount governed by the rate of inflation.

The clearest proof that we have provided the environment that makes Britain the most attractive area for investment in Europe is the fact that Britain is now the No. 1 choice for inward investment. We attract over four times as much investment from Japan as France does and more than six times as much Japanese investment as Germany. Forty per cent. of all American investment into the Common Market comes into Britain, and German companies put more of their foreign investment into Britain than into any other EC country. Those inward investments are not bribed by discriminatory subsidies; they come here because our overall business environment is attractive.

Moreover, not a single grant or scheme is made available to inward investors that is not just as readily available to indigenous firms. Everything that makes Britain an attractive place for foreign companies to invest in also makes it an attractive place for British companies to invest in.

The Opposition, and some of our competitors, believe that the best way to attract inward investment is by outbidding each other with subsidies, nursing firms with quangos, and offering special tax reliefs. A recent study by Strathclyde university shows that they are mistaken. The majority of foreign investors studied were not interested in higher subsidies. They were not looking for quangos. They were not even looking for cheap loans.

The most important single factor was lower taxation. A major reason that the United Kingdom has been such an attractive place to invest is that the tax burden on companies here is significantly lower than in our main competitors. The sum of corporate and payroll taxes was 17.2 per cent. of national income in France, 10.5 per cent. in Germany—but only 8.9 per cent. in the United Kingdom. Our lead will be even greater as a result of this Budget.

Mr. Gordon Brown (Dunfermline, East)

Despite a 11 the measures that the Secretary of State has publicised today, and despite all his boasts about inward investment, why is investment this year to fall by 9.75 per cent.?

Mr. Lilley

Investment is about 75 per cent. up on the bottom of the recession. It is slowing this year, and that is not surprising, because it usually does so in recessions. However, the hon. Gentleman always ignores the rise in investment that has already taken place.

Mr. Brown

rose——

Mr. Lilley

If the hon. Gentleman is not content with a 75 per cent. increase, nothing will make him content.

We can now claim the lowest rate of corporation tax, not just in Europe, but lower than the United States or any other major industrial country.

Mr. Brown

Will the Secretary of State simply explain why, if the record he is describing is so successful, business investment is to fall by 9.75 per cent. this year?

Mr. Lilley

I have just explained that business investment is falling from a record level in a short-term recession. The hon. Gentleman is obsessively short-termist; I shall return to that.

It is instructive to compare the Chancellor's Budget with the taxation changes that the Labour party proposed before the Budget. The Labour party offered nothing targeted to help small firms, to help cash flows or to reduce tax rates. Instead, it offered a proliferation of tax distortions. Some were vague—for example, an enhanced allowance for certain categories of plant and machinery. Unfortunately, nothing about that proposal was certain. The Labour party did not specify which categories of plant and machinery would benefit, who would decide which would benefit, by how much or for how long.

Other proposals are unworkable, for example that genuinely innovative investments will be eligible for up to 100 per cent. write off''. Just imagine if the Inland Revenue had to determine for each and every investment—£100 billion-worth every year—which were "genuinely innovative" and which were not. It would be a nightmare. Far from encouraging investment, it would cause huge delays and damaging uncertainty to industry. Other proposals are demonstrably ineffective.

Mr. Robert Sheldon (Ashton-under-Lyne)

Does the Secretary of State recall that, for about eight years, plant and machinery were defined clearly, and that the system worked without any particular disadvantage to the Inland Revenue, which allocated capital allowances based on that definition?

Mr. Lilley

The right hon. Gentleman is absolutely right, but the Labour party's proposal was that certain categories of plant and machinery should be given different reliefs from others, without defining which those certain categories were. I noticed that the hon. Member for Dunfermline, East (Mr. Brown) had to lean across to the Shadow Chancellor of the Exchequer to find out.

Mr. Gordon Brown

When?

Mr. Lilley

Just when I was making the point. Far from encouraging investment, the Labour party's proposal would cause huge delays and damaging uncertainty.

Almost every published study of tax credits for research and development shows that the costs far exceed the benefits, usually by a multiple of between two and five. Moreover, the apparent benefits often seem to be largely illusory.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Does my right hon. Friend accept that, although there are many excellent measures in the Budget and that we on the Conservative Benches are not concerned with the Opposition, who are likely to remain in opposition for some years to come, this should be the last Budget in which the motor industry is singled out to be clobbered? At present, £1.5 billion of extra taxation is levied from one of our greatest employers. If we believe in Rolls-Royce, Jaguar, Bentley and Range Rover, is it not time that we stopped clobbering the motor industry at every turn? Without it, a great deal of engineering would disappear. Let this be the last Budget in which we clobber the motor industry above all other industries.

Mr. Lilley

I do not accept that a tax on personal benefits in kind constitutes clobbering an industry. It is only right that people should pay tax on the benefits in kind that they receive.

The Labour party proposed a tax credit for research and development, but ignored the evidence that it has been ineffective in other countries where it has been applied, that the costs exceed the benefits, often fivefold, and that the benefits are often thought to be illusory, as all that happens is that accountants reclassify expenditures as research and development in order to gain the tax break.

If we had accepted the Labour party's pre-Budget proposals, we would have given accountants a field day. We would have made the life of the production manager more complex and less certain. Labour's Budget proposals would have produced a Budget for creative accountancy. By contrast, our approach of cutting tax rates and pruning reliefs reduces the reward and scope for accounting ingenuity. It also increases the incentive for profitable investment. That is why, following our tax reforms in 1984, the amount of business investment has increased by 50 per cent. Even more important, the quality of investment has improved as well.

All too often, it used to be the finance director who made the investment decisions, simply to reduce the tax charge. Now it is the production engineer and the marketing director who make the decisions, on genuine business grounds. I believe that it would be the height of folly to reverse the 1984 changes, and I am delighted that my right hon. Friend the Chancellor took them further by again cutting tax rates and reducing reliefs.

Mr. Dennis Skinner (Bolsover)

Further to what the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) has just said, is the Secretary of State aware that there has just been an announcement that 1,800 more workers at Lucas Industries Ltd. will lose their jobs? Does the right hon. Gentleman accept that one characteristic of the Government's past 12 years in office has been that there are more and more building societies and estate agencies littered along every high street, but the factories that used to be located behind them and which used to employ our workers in every town and city in Britain have now been closed? Does the Secretary of State accept that our manufacturing economy has been almost wiped out by the Government, and that the casino economy has flourished?

Mr. Lilley

Manufacturing output fell under the previous Labour Government, but it has risen under this Government. We still have not heard from the Opposition what priority they will attach to inflation; nor have we heard any credible strategy from them for defeating inflation.

The right hon. and learned Member for Monklands, East (Mr. Smith) has recently been talking about "credit management"—his latest euphemism for credit controls—as an alternative to high interest rates. He and his hon. Friends continue to peddle the notion that other countries in Europe somehow keep interest rates down by intervening in credit markets. The fact is, they do exactly the opposite. The special deposits and reserve ratios imposed by central banks are not designed to reduce interest rates; they are to keep commercial bank interest rates above the central bank discount rate.

I challenge the right hon. and learned Gentleman to name a single European country which uses credit controls to ration credit and keep interest rates below the market clearing level. He does not respond, because he cannot respond.

On this side of the House, we do not pretend that there is any soft option to curb inflation; nor do we deny the pain which high interest rates and weak demand cause. But as a nation we have two great failings: we tend to take a short-term view, and we tend to focus on gloom. Now we can indulge both failings simultaneously, and many people are wallowing in short-term gloom. As I said earlier, nobody is more obsessively short-termist or more indulgently gloomy than the hon. Member for Dumfermline, East. I am sure that we shall soon hear him say that the end is nigh.

But we ought to take a long-term view, both about the changes over the last decade and about the prospects for this decade. Then we would see a big difference between this recession and that of the early 1980s. Demand now is certainly weak, but industry is strong.

In the last recession, demand was weak and industry was weak too—crippled by five years of Labour Government, by 10 years of inflation and by a generation of excessive union power.

Mr. D. N. Campbell-Savours (Workington)

rose——

Mr. Lilley

If the hon. Gentleman will forgive me, I shall carry on.

In a recent study by Investors in Industry, 80 per cent. of the firms interviewed said that industry was better able to cope with recession now than in the early 1980s, and they are right. Industry has been transformed over the last decade. During the 1980s, manufacturing productivity increased by 58 per cent.—faster than in any other major country, including Japan. Manufactured exports rose by 60 per cent. in volume. The seemingly inexorable decline in our share of world trade since the war came to an end in the early 1980s, since when our share has held its own.

That is all the more remarkable, given that, over the last 10 years, Italy, France, Germany, the United States and even Japan have all lost some of their share of world trade to the newly industrialised countries. But we have maintained our share over that period.

Mr. Campbell-Savours

This weekend, I talked to an industrialist in my constituency who drew my attention to a factor which may have escaped the Secretary of State. He said that he recalled that, in every Budget statement since 1979, when the Government were originally elected—12 years ago—the Chancellor of the day had committed himself to defeating and reducing inflation. He could not understand why, after all these years, the Government had not succeeded. He asked me to ask the Secretary of State for Trade and Industry why the Government were planning for a 5 per cent. reduction in manufacturing output this year. He could not understand how the Government could plan for a recession.

Mr. Lilley

The hon. Gentleman should have been able to tell him that the inflationary problem from which we are suffering dates back to the measures taken after the collapse of the world stock market in October 1987. At that time, the Labour party urged us to take even more inflationary action. If we had followed its advice, the problems that we face, and the downturn, would have been much more serious. I hope that the hon. Gentleman told his friend that.

The key to competitiveness is quality. Total quality management was an idea born in America, developed in Japan, but now adopted by Britain, which is in the vanguard of implementation in Europe. The British standard for total quality management has, over the past decade, effectively become the European and international standard. Already, some 12,000 British companies have gained certification for quality, compared with just 200 in France and a negligible number so far in Germany. Our lead on this front will give our companies a vital edge in the years to come, amusing though the shadow Chancellor and his colleagues may find quality.

Although the Opposition make great play of the predicted short-term fall in investment this year, they ignore the strong growth in investment to record levels in recent years. On last Monday's "Panorama" programme, the hon. Member for Dunfermline, East claimed that our current problems arose because, since the last recession, the Government had failed to ensure that any consumer demand increase be accompanied and preceded by industrial investment". He could not be more wrong. Between 1981 and 1989, investment grew almost twice as fast as consumer spending. That is a marked contrast with the recovery from the 1975 recession under Labour, when consumption grew almost twice as fast as investment. That has been completely reversed this time around.

The improved performance of the British economy over the decade has been the result of a series of reforms, but three key elements have been competition, privatisation, and wider share ownership. Nowhere is the contrast between our policies and those of the Opposition more clearly highlighted than in the Chancellor's decision to sell off more British Telecom shares. We believe in privatisation. Labour is committed to renationalising British Telecom, not to mention the water industry and the national grid. Our programme of privatisation is being copied around the world. By contrast, the Labour party is the only major party east or west of the old iron curtain which still plans to extend state ownership.

We believe in spreading share ownership more widely and more deeply. Hence my right hon. Friend's plans to encourage high street share shops and to introduce other imaginative methods of spreading share ownership more widely and deeply when he sells more of BT. By contrast, Labour would threaten the value of the investments of 1.2 million people, many of them employees, by taking control of BT and requiring it to make £20 billion-worth of uncommercial investment in cable.

Mr. Gordon Brown

When was that statement made?

Mr. Lilley

The hon. Gentleman said it in his last but one policy document. The phrase used was: We shall require British Telecom to make investments.

Mr. Brown

rose——

Mr. Lilley

Does the hon. Gentleman wish to withdraw or deny that?

Mr. Brown

rose——

Hon. Members

Give way.

Mr. Lilley

I shall set the timing of my own speech, and I shall give way to the hon. Gentleman if he proposes to respond to the point that I made.

Mr. Brown

The Secretary of State did not give way. Mr. Lilley: I am about to give way now.

Mr. Brown

Will the right hon. Gentleman point to the quotation in which I say that £20 billion of public money will be used for cabling Britain?

Mr. Lilley

The costing was done by ACOST. The Labour party has not costed its own pledge. It has said that it would require British Telecom to make those decisions and investments.

We on this side believe in greater competition. It is bringing cheaper calls, more choice, and better services in telecommunications. The Labour party could do little but sneer at competition when I announced on 5 March the end of the telecommunications duopoly.

I am very pleased with the interest that has already been expressed in obtaining new licences, so I am today publishing guidance notes for firms wishing to enter the market. We said that the consumer would benefit from lower prices. I am delighted to be able to tell the House that there will be a rolling programme of price reductions by British Telecom over the coming months.

On 2 April, the price of local and trunk telephone calls will fall by 4.5 per cent. and 7.3 per cent. respectively. On 10 June, British Telecom expects to reduce the cost of all international calls by 10 per cent. On 1 August, a new, tighter price cap will be imposed on British Telecom's charges, and they will fall by 6.25 per cent. in real terms. As the rate of inflation falls over the coming months, I expect that British Telecom's charges will fall not only in real terms, but in absolute terms as well. That is excellent news for the consumer.

I said that customers would benefit from increased choice. I can now announce two major steps to achieve that—one will liberalise satellite communications, putting us at the forefront in Europe; and the other will enable companies to install their own telecommunication networks. Both schemes will be in place by July. I believe that both will be welcomed by industry, especially by the major companies, including the many that are coming to this country because we now have the most liberal regime for telecommunications.

When we last debated industrial policy, we did not have the benefit of Labour's long-heralded policy document "Modern Manufacturing Strength". The Labour party clearly did not feel that it would stand up to close examination, so it postponed publication until after a debate of its own calling. When it finally was published, all it contained was the same old policies repackaged and relaunched for the umpteenth time. I suppose we should not have been surprised—the one guarantee which we can be sure will be attached to the hon. Gentleman's policies is "Never knowingly under-launched".

The old familiars were all there. There was, as before; the same old mistrust of the market; the same old infatuation with state ownership, with the commitment to renationalise BT reaffirmed; and the same old reliance on quangos, subsidies and tax distortions.

The Independent newspaper—which is scarcely a friend of the Tory party—described the document as carefully crafted though philosophically confused-drafted to appeal to those worthies who enjoy sitting on joint working parties. It concluded that the Labour party's understanding of the proper relationship between government and the market remains intellectually muddled.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

As we are discussing this year's Budget rather than next year's, can the Secretary of State please tell me precisely what measures in this year's Budget are designed to help the hard-pressed knitwear, textile and clothing industries, which form the bulk of employment in my constituency?

Mr. Lilley

I believe that all the measures that my right hon. Friend announced—especially those that I enumerated at the beginning of my speech—will benefit the hon. Gentleman's constituents.

Mr. Foulkes

rose——

Mr. Lilley

If the hon. Gentleman seriously believes that we should have a different tax regime for each industry, he should first tackle those on his own Front Bench, who do not appear to have such a policy.

The Economist was equally devastating about the Labour party's policy document: Sceptics still searching for firm evidence of a real anti-inflation policy … will find, when they scratch the shiny new industrial policy, that it is corporatism updated and resprayed". Nor were industrialists any more impressed, despite the Labour party's efforts to woo them. John Banham, the director of the Confederation of British Industry said: There remains, apparently a touching faith that the 'man in Whitehall knows best', and it is difficult to see how the proposals will be financed without levies on industry or raising personal taxes". Quangos, subsidies, tax distortions—that is Labour's relaunched policy in a nutshell. It did not impress the newspapers; it did not impress British industry, and I am sure that it will not impress ordinary British people.

Mrs. Alice Mahon (Halifax)

Would the Minister care to comment on the remarks by the boss of Rowntree Mackintosh, who says that the rise in VAT will affect jobs? The boss of Cross Lee near my constituency says exactly the same, and all the employers in the clothing industry think that the move will damage jobs.

Mr. Lilley

The hon. Lady should realise that the change is neutral. It is a switch of £4.25 billion of taxation from one tax to another, and it leaves the amount of money in people's pockets exactly the same.

Mr. Bruce Grocott (The Wrekin)

Will the Secretary of State give way?

Mr. Lilley

I shall not give way to the hon. Gentleman.

The Labour party has recently been trying to present itself as the friend of industry. Its Front-Bench spokesmen have been out visiting industrial companies. One suspects that this is the first time that many of them have met industrialists outside their own constituencies, because as far as I can discover, despite the size of the Front-Bench team, not one of its members has ever worked in industrial management.

To demonstrate its love of industry, the Labour party has selected seven industrial virgins, unsullied by any experience of industrial management. There are two former lecturers, a trade union official, a welfare rights officer, a television producer and a psychiatrist. Those are the people, apparently, who are going to pick winners, intervene, take industries back into state ownership and lay down an industrial strategy. When Caligula made his horse a consul, the people of Rome knew what he thought of them. I am pretty sure that British industry knows what the Labour party think of it now that Labour proposes to put it under the control of a group of lecturers, psychiatrists and television producers.

I do not know whether hon. Members saw the recent party political broadcast by the Labour party. In many ways, it was quite a professional effort. It showed pictures of those on the Front Bench, interspersed with pictures of industrial processes and products. But it was wonderfully revealing. It showed how out of touch and out of date the Labour party really is. Almost every process and product shown was at least 20 years old, and nearly every one had piled up huge losses.

Far from living up to the title of its recent policy document, "Modern Manufacturing Strength", the Labour party showed us that it believes in traditional manufacturing weakness. We saw men in cloth caps hammering in rivets by hand, the Flying Scotsman chuffing through the night and seaplanes floating at anchor. That was the best that the Labour party could do to describe modern British industry. It was a history lecturer's view of our industrial past, because Labour has nothing to offer our industrial future.

By contrast, this year's Budget is a Budget for our present problems and our future opportunities. It is the Budget of a Government with faith in the future of our industry, not nostalgia for the past. It is a Budget for the small businesses of today, which will be the bigger businesses of tomorrow. It will lay the foundations of our economic recovery and the basis of a fourth election victory.

4.13 pm

Mr. Gordon Brown (Dunfermline, East)

Since the "Budget for business" last Tuesday, 14,000 redundancies have been announced. Jobs have gone in Scotland, the north, the midlands and the south. They have gone in textiles, electronics, the retail trade and services. They have gone in every industry, service and occupation and, as I think Conservative Members will realise, they have gone in almost every constituency, too.

Companies are not going bankrupt because of bad management, indisciplined work forces or resistance to change, but because interest rates have been held too high for too long. In the face of the crisis confronting industry, the response of the Secretary of State today seems trivial, complacent and inadequate—a speech from a member of a Government who have failed.

Since the Budget, at least 300 companies have gone under, yet the Red Book admits—even if the Secretary of State refuses to do so—that, far from the recession drawing to a close, 1991 as a whole will see national income fall by 2 per cent.; manufacturing output by 5 per cent. and investment by almost 10 per cent. Unemployment will continue its inexorable rise beyond 2 million people. That shameful combination of events is not happening anywhere else in western Europe and it is rivalled in Britain by one post-war event only, the previous Tory recession.

I ask the Secretary of State to name any Chancellor facing a Budget in another country in western Europe where industrial output, investment, employment and exports are simultaneously falling by the same scale level. Can he name another country where the response would be a Budget that confirms a cut in the industry and training budgets?

Not once in the Secretary of State's speech did he mention the unemployed, the huge skill shortages that bedevil British industry—even in period of rapidly rising unemployment—or the sheer size and scale of the huge interest rate Bill that faces British industry, which is set at £20 billion this year, even after the 0.5 per cent cut. Yet we are told that we had a Budget for business. We were told that we had a Budget for business in 1979, and unemployment kept on rising. We were told that we had a Budget for business in 1980, but unemployment kept rising. Now we have another Budget for business, and I have news for the Secretary of State—as a result, unemployment will keep on rising. What is different about this Budget for business, except that it takes it for granted that thousands will go out of business?

As this Budget proves, there is one longer-running fiasco than the chaos over the poll tax of the past four years—the absence of a policy for industry throughout the 12 years of the Government. The tragedy is that, in this recession, growth is not giving way to slump on the road to the permanent elimination of inflation; growth has given way to recession on the road to the permanent elimination of much of our industrial capacity.

Our argument is clear: this Budget will do next to nothing for the unemployed; it will do little for training and, despite the corporation tax changes that we shall support, it will fail to prevent rising bankruptcies in industry. More than that, however, the Budget reveals that the Government now know that their flagship policies of the 1980s have failed and that they have no flagship policies for the 1990s to put in their place. That is revealed not just in the Budget's attitude to industry, but by what has happened on the poll tax, the public sector deficit and social policy provision. They have no new flagship policies for the 1990s, other than to deal with the consequences of the policies that have failed.

What is the Government's response on the poll tax, on industry and on everything else? The first is to panic, then to dither, then to make a decision—any decision—as long as they think it will help to hold together the divided factions of the Conservative party. A brainstorming session here—it did not last long—a weekend retreat there, and, when the situation is more serious, a Monday morning retreat at Chequers. The Government have been in retreat because they are in retreat. Clearly the Prime Minister and his Ministers felt it safer to go off to the country and to talk to each other when they should have gone to the country to listen to the people.

What of the victims of the recession? Since the previous Budget, unemployment has risen by 60,000 in the north, 54,000 in the midlands and 173,000 men and women in the south and south-east. We have the fastest-rising unemployment in Europe—a 400,000 rise in a year—which is greater than that for the rest of western Europe combined.

What is the response of the Budget and of Ministers to the rising unemployment that they have created? That high unemployment, along with declining investment, should have led to a real Budget for business. Have the Government responded as they should have with the temporary work programme that Labour recommended in its Budget submission? Did they respond with a new skills programme for Britain, which we have advocated, so that Britain is ready with trained men and women to come out of the recession? Did they respond by following Labour's recommendation for a full 1 per cent. cut in interest rates? Did they respond with the manufacturing investment programme that we proposed? Did they respond, as common sense should have dictated, by reversing the £245 million cut in the training budget in the year in which we are supposedly beginning a training revolution and the £300 million cut in the industry budget, which will have an effect this year?

The Chancellor of the Exchequer (Mr. Norman Lamont)

The hon. Gentleman makes much of comparisons between this country's training budget and those of other countries. Will he explain the figures used in the shadow Chancellor's Budget broadcast? Is he aware that they appear to have been based on a survey commissioned by the EC from a variety of individual national bodies with no common supervision and no common definitions of skilled and unskilled? The results purported to show that the low-skilled countries had more skills than the high-skilled countries. Does the hon. Gentleman think that a survey that purports to show that Greece has a more skilled work force than Germany is accurate?

Mr. Brown

Is the Chancellor telling us that he can visit industries and companies and find that we are spending sufficient on training, investment and skills? Is he really telling us that skill shortages do not exist? We have not spent enough on training.

Mr. Lamont

Will the hon. Gentleman answer the question? How can he maintain that those statistics which were broadcast to millions of people are remotely accurate? They are not.

Mr. Brown

My right hon. and learned Friend the shadow Chancellor was referring to a European Community survey on training. His point is proved by surveys by not only the European Community but the Organisation for Economic Co-operation and Development. If people have any doubts about the training crisis that this country faces, they need not read Labour party or Trades Union Congress documents; they need only read the report published by the CBI a few months ago which said that £800 million more had to be spent on training and which drew attention to the training crisis which has developed as a result of the Government's policies. What are the Government doing?

Mr. Robert Hayward (Kingswood)

The hon. Gentleman referred to possible expenditure of £800 million more on training. Is he committing the Labour party to spending that sum immediately in the first year of Government?

Mr. Brown

The hon. Gentleman did not listen to my remarks. I said that the CBI drew attention to the fact that £800 million more had to be spent. If the hon. Gentleman had read the report, he would know that the CBI said that industry had to spend £800 million more. If the hon. Gentleman had been here on the first day of the Budget debate, he would have heard my right hon. and learned Friend the shadow Chancellor draw attention to our training and skill proposals—the temporary employment scheme and the skills programme which add up to additional public expenditure of £900 million. We are committed to that.

Mr. Patrick Nicholls (Teignbridge)

I accept what the hon. Gentleman said about industry possibly paying more, but he talked about additional expenditure by a Labour Government. Will that money be spent at once or will it be spent as resources allow? If the hon. Gentleman does not know the answer, perhaps he will again have a word with the right hon. and learned Member for Monklands, East (Mr. Smith), who said that the money would be spent as resources allowed.

Mr. Brown

The hon. Gentleman is a former Minister with responsibility in these matters. If he reads our Budget submission, as the Chancellor undoubtedly has, he will see that we are committed to investing more in training and skills.

Mr. Nicholls

Will the money be spent immediately or as resources allow? We are talking not about what industry will spend but about the Labour party's proposals. For the third time, will that money be spent at once or as resources allow?

Mr. Brown

My right hon. and learned Friend the shadow Chancellor made it clear in a press conference held during the first debate on the Budget that Labour would have entered into that commitment if it had introduced the Budget last week. No one believes that the £25 million put towards training—not this year but next year—by the Government in the Budget is in any way adequate to deal with the skills crisis that this country faces.

Mr. Nicholls

The hon. Gentleman does not know the answer.

Mr. Brown

The hon. Gentleman says that I do not know the answer. I have made it clear that this is a commitment by the Labour party to invest in training and skills.

Mr. Nicholls

rose——

Mr. Brown

I do not know why the hon. Gentleman gets so excited when I speak in the House. I have made clear the Labour party's commitment to investment in training and skills. That commitment is welcomed not just by people in the Labour party but by people throughout the country.

People find it astonishing not just that the Government have failed to act on training and skills, but that their main contribution over the past few months towards dealing with the problems of the unemployed has been to provide not jobs for the jobless but billboards for advertisements about the jobless. No one can have failed to notice the huge poster campaign ordered by the Government and directed at the unemployed. The posters contain slogans such as: I can work, I will work, I am going to work, I will get a job. That campaign was commissioned from an advertising agency. There is not much in it for the jobless, but a great deal for Saatchi and Saatchi.

The hidden message of all those advertisements is dishonourable. It suggests that all that stands between the unemployed and a job is the determination to find one. Firms are going out of business not because the commitment, flexibility and competence of workers or management are too low but because interest rates are too high. What do Ministers intend to tell their constituents who have been made redundant because of high interest rates? Those people have been made redundant through no fault of their own and they include shop workers, small business men and business women, the self-employed, engineers and building workers. Will Ministers tell them that it is due to their personal failure that they are unemployed, as though attaching to the unemployed the blame that should be attached to the Government?

Is it not disgraceful to stigmatise the unemployed as uncertain, irresolute, incompetent and, as the advertisements suggest, dithering? It is not the unemployed but the Government who are guilty of those moral failings. The people at whom the advertisements are directed believed the Government when they said at the beginning of the 1980s that they would bring about an economic transformation. Those people made sacrifices for the Government and they were told to believe that an economic miracle had resulted. Now they find that the Government who made them unemployed are implying that somehow the unemployed are to blame. It is not the unemployed who have let down the Government, it is the Government who have let down the unemployed.

The British Textile Confederation predicts job losses of 25,000 this year. That is 500 a week. The Engineering Employers Federation says that 100,000 jobs will be lost, and that is 2,000 a week. The Building Employers Confederation predicts job losses of nearly 100,000 this year. Let us look at predictions, which even the Chancellor must accept, for our industrial future. Growth is rising by over 2 per cent. in France and Italy and by 3 per cent. in Germany, but in Britain it is falling by 2 per cent. Manufacturing output is rising by nearly 1 per cent. in Italy, 2.5 per cent. in Spain and 4 per cent. in Germany, but it is falling by 5 per cent. in Britain.

The Budget simply assumes that, having entered the downturn first in Europe, we will not be the first to leave it but almost certainly the last. On Tuesday, the Chancellor told us that this was all part of the ordinary economic cycle and that it was inevitable in a market economy. In other economies, the economic cycle means higher growth giving way to lower growth on the road to higher growth again. In Britain under the Tories, the economic cycle is growth giving way to slump on the road to a permanent loss of industrial capacity.

I shall give the Secretary of State for Trade and Industry the real position of British industry after 12 years of this Government. He said that we should look at the record as a whole. The real position is that, when the Budget predictions for 1991 are taken into account, manufacturing output in Britain will have grown over the past twelve and a half years slower than any country in the EEC, any of the G7 countries or any of the 20 top countries in the OECD. We will be at the bottom of the manufacturing league.

In 12 years manufacturing output in France has risen by 50 per cent. It has risen by 66 per cent. in Germany and by almost 150 per cent. in Belgium, but in Britain by the end of this year the figure for output will be only 6 per cent. In those 12 years we have had North sea oil and Government promises of miracles. We are entitled now to judge the Government not on their promises but on their performance. They have put Britain at the bottom of the manufacturing growth league, so what credibility do Ministers have left? They received warnings throughout the 1980s, including the House of Lords report in 1985, and subsequently received further warnings even from their own advisers.

What is the Secretary of State's explanation for the Government's neglect? Earlier, the right hon. Gentleman referred to his "Panorama" interview, when he was asked what had gone wrong with manufacturing industry since the House of Lords' famous report. He was asked why the Government had failed to act and ignored the warning signals. Did he stand up for the principles of the free market? Did he show resolution and say that industry must stand on its own feet? Did he defend the record of the two Chancellors of the Exchequer whom he so loyally served, including the right hon. Member for Blaby (Mr. Lawson)? Did the Secretary of State continue to fly the colours of the previous Prime Minister and to protect her reputation? When asked the vital question of whether, in the mid- 1980s, the Government had taken manufacturing industry seriously enough—yes or no—the Secretary of State paused, hesitated, dare I say dithered, and replied, "Maybe not."

The right hon. Gentleman went on to qualify that assertion with an astonishing excuse. He said: I certainly wasn't a Minister. I was a bag carrier at the time. So much for collective responsibility. So much for ideological resolution. In other words, "It wasn't me. I was a bag carrier at the time." They were all bag carriers at the time.

Why did not the right hon. Gentleman defend his free market philosophy and say that his No Turning Back group philosophy was the best way forward? Why did he not assert that problems are far better solved by industry itself without Government intervention? Was it because the right hon. Gentleman is trapped, as are the other members of the Government, between the ideology in which they still believe and the knowledge that it has failed?

The reaction today of all Ministers faced with problems in respect of industry, the poll tax, or anything else, is to say anything, as long as they think that they can sell it to all the factions of a divided Conservative party. What credibility do any of them have now? They said that manufacturing industry was merely an obsession with the Labour party and that the trade deficit was of little consequence.

The same Ministers basked briefly in the glory of the 1988 Budget, when they said that Britain was top of the league of manufacturing industry growth in terms of competitiveness, and that the supply side of the economy had been transformed. They claimed that the Government had revitalised the economy and had restored national pride and that no policy for industry was needed.

What credibility do the Government have left when they try to tell us now that manufacturing matters, that the trade deficit is important after all, and that there should be a policy for industry? The right hon. Gentleman may have been carrying the bags in 1985, but his failures since then mean that he must now carry the can.

Only a few days ago the House of Lords Select Committee on manufacturing industry reported that our share of world markets in manufacturing is too small; the implications for our future prosperity are grave; if market forces alone are to determine the course of events, it is conceivable that we will end up with no significant British-owned manufacturing industry in the United Kingdom; and that the Government must abandon their neglect of manufacturing industry. Confronted by the fact that manufacturing growth is falling this year by 5 per cent., investment in manufacturing industry is set to fall, and overall business investment is set to fall by 9.75 per cent., and given the fact that, with 1992 in view, investment in France is increasing by 4 per cent., in Germany by 5 per cent., and in Italy by 4 per cent.—but is falling in Britain by 9.75 per cent.——

Mr. Lamont

A few minutes ago, in giving figures for industrial production, the hon. Gentleman gave the impression, within the hearing of everyone in the House, that industrial production is growing everywhere in Europe except in this country. Leaving aside the fact that industrial production in the United States and Canada has also fallen compared with one year ago, will the hon. Gentleman explain why industrial production in France and Italy is lower than it was a year ago?

Mr. Brown

I have the figures produced by the OECD. The economic outlook produced in December 1990 shows industrial production in Italy rising by 0.6 per cent. in 1991 and that is a fact. It is also rising in France. [Interruption.] I am not prepared to take the Chancellor's word for it, when the figures that he produces continually turn out to be inaccurate.

Mr. Lamont

Will the hon. Gentleman table a written question and accept my word?

Mr. Brown

I shall be happy to table a written question to the Chancellor, but the right hon. Gentleman will agree that I should go on the information produced by the OECD and by the EC and that it is quite fair for me to listen to them in advance of listening to the Chancellor.

Mr. Jacques Arnold (Gravesham)

rose——

Mr. Giles Radice (Durham, North)

If the Chancellor looked at his own Red Book, which he was not very good at quoting from in his Budget speech, he would find this: In France and Italy growth in 1991 is expected to be around l½ per cent.".

Mr. Brown

I am grateful to my hon. Friend. Not only is that figure recorded in the Red Book, but I have the OECD forecasts for France and Italy in 1991. I am afraid that I prefer to listen to the EC and the OECD on these matters than to listen to this Chancellor.

What is the Government's response to what the House of Lords said about manufacturing industry? What is their response to the recommendations made by the House of Lords which are similar to the policy proposals that the Labour party has published over the past few months?

Although the House of Lords Select Committee recommended that support for industrial research and development should be increased, and although the Minister responsible says that he is in sympathy with that, supply estimates for the past few years show that, in 1989–90, support for industrial research and development was planned at £152 million, in 1990–91 it was planned at £125 million and now it is planned at only £104 million for the coming year. Equally, when the House of Lords Select Committee says that it wants more support for research and development in small companies, and when Ministers say that with the new spur scheme they are doing far more than ever before, what do the Government's own spending estimates reveal other than that they planned to spend £24 million last year, they plan to spend £12.8 million this year and they plan to spend only £12 million next year?

When the Secretary of State and the Select Committee are agreed on the need for regional technology organisations to be expanded, when the House of Lords wants development agencies for England to be considered—something that the Labour party has long advocated—and when the report says that the activities of the development agencies in Scotland and Wales should be taken as a model for exploiting more effectively the technological and industrial potential of other areas of the United Kingdom, what does the Secretary of State do? He does nothing but cut regional and general industrial support from a planned £309 million last year to a planned £250 million this year to only £157 million for next year—a cut of almost 40 per cent. over two years.

Mr. Jacques Arnold

Will the hon. Gentleman give way?

Mr. Brown

I have given way quite enough.

When the House of Lords calls for new support for innovation, for genuine programmes which are not simply for the sake of gaining political kudos and for a new initiative and demands tax credits for additional research, corporation tax allowances for new investments and what the Labour party has been asking for in its recent document, "Modern Manufacturing Strength", what is the Government's reaction? They propose to cut the industry budget for the coming year by £245 million. They have even cut the consulting initiative in science and technology by 10 per cent. and cut regional innovation grants. The Chancellor's reaction to the House of Lords report on manufacturing industry is to cut support in all those areas—to cut the industry budget as a whole.

One of the few things for which the Budget shows support is bureaucracy and administration in the Exchequer. The Government have no industrial policy worth the name. Their policy is simply to cut and cut. The Labour party stands for industrial opportunity for Britain, whereas the Conservative party stands only for opportunism in the run-up to the next general election.

The centrepiece of the Chancellor's Budget strategy was the retreat from the poll tax via the new surcharge on VAT. That is the sad consequence of the flagship policy, which, unfortunately, not only poisons local government finance but contaminates the whole of public finance. The poll tax has swallowed £175 million in start-up costs, £500 million in additional running costs and £300 million in rebate administration. It will cost £65 million to sort out the chaos of this year's bills. In other words, the first £1 billion will have gone simply on administration of the tax, with not one additional service provided—not one home help, teacher or policeman to show for the first £1 billion. The industry budget has been cut by £350 million, and the training budget has been reduced by £245 million—all to cover up the first £1 billion-worth of the Government's poll tax mistakes.

There are four contradictions at the heart of the Budget. First, Ministers tell us that they will reduce household bills by cutting the poll tax; in fact, the VAT increase—the poll tax surcharge—added to other tax increases, will push household bills up. Secondly, Ministers tell us that the poll tax will be abolished at the earliest opportunity; in fact, it is being kept for two more years, and the Government are determined, even then, to retain a central part of it. Thirdly, the Government tell us that they are helping business; far from stemming the tide of business bankruptcies, the Budget is based on the assumption that more bankruptcies are on the way. The most cruel deception of all is the Government's contention that they are creating a classless society. How will the creation of a classless society be helped when, in their first 100 days in office, the Government have made more than 100,000 men and women unemployed? How can they claim to be encouraging opportunity for all when, for 2 million unemployed people, opportunity does not exist?

The Government now know that the poll tax is wrong, but they have no clear policy to put local government finance right. They now know that they have got training policy wrong, but their ideology prevents them from implementing a programme to put it right. They now know that neglect of industry is wrong, but their crude free market ideology prevents them from adopting any policy that would help.

Trapped between the ideology that they alone support and the fact that the country is now rejecting them, what do they do? When Labour demands a child benefit rise of £2.30 for all children, the Government dispense to most children 25p—the price of a pint of milk. When Labour demands fairness for pensioners 52 weeks of the year—as we did earlier this year—the Government grudgingly give heating allowances, for two weeks only, to those who are lucky. When Labour demands a policy for training in industry, the Government offer a fraction of what is needed, because they have no concept of what could be gained. When Labour demands properly funded, high-quality public services, we get yet more promises. It happened again at the weekend. We have had 12 years of promises.

What will the public remember about the present Government? They will remember them as the Government who brought the chaos of the poll tax; pushed thousands of people into unemployment, and hundreds of thousands more into poverty; made high unemployment, along with high interest rates, the main instrument of economic policy; and, by their neglect of industry over the period of North sea oil revenues, dissipated a unique opportunity to prepare Britain for the 1990s.

What Britain needed was a Budget that would not only take us out of recession but prepare the whole country for the long-term challenges that we face. The Government have given us, instead, a short-term Budget—at best, short-term palliatives from a Government dominated by short-termism and, thank goodness, with only a short term to go.

4.44 pm

Mr. Nigel Lawson (Blaby)

We have just heard from the hon. Member for Dumfermline, East (Mr. Brown) a speech bearing a very close resemblance to other speeches that he has made in this House. Fortunately, as I do not attend frequently nowadays, I am not obliged to hear many of them. The mixture is very well known. The phrases bear the smell of midnight oil, but the hon. Gentleman's figures are made up as he goes along, and collapse as soon as they are challenged. I will give the hon. Gentleman a word of friendly advice. If he were to spend only half as much time checking his figures as he spends polishing his phrases, his speeches might improve.

The other characteristic of the hon. Gentleman's speech was a characteristic of many speeches before he was on the Opposition Front Bench—perhaps before he was even a Member of this House. I refer to the period of the last recession—1980 and 1981. At that time, the Opposition not only pointed out that the country was in recession— something that was well known, and that the Government made no effort to hide—but implied that the recession would go on for ever. As the House and the country now know, that recession was relatively short-lived, and was followed by the most vigorous and longest period of expansion that this country has known in recent years. The same will happen again.

Once more, the hon. Member for Dumfermline, East has tried to suggest that a recession, which will not be so severe as the last one—he himself has said so—will go on for ever. It will not go on for ever, and it is important to demonstrate that fact. It can be demonstrated only by deeds rather than words and, I would add to my right hon. Friends on the Government front bench, it seems to me that that is not wholly ungermane to the timing of the next general election.

I congratulate my right hon. Friend on his Budget. It is not merely because of the very kind words he addressed to me at the beginning of his speech, for which I thank him, that I say that it is a very good Budget.

In the Budget debate last year, I argued the case for early entry into the exchange rate mechanism of the European monetary system—initially within the wider band. Happily, that took place. It seems that I may have more influence as a Back Bencher than I did as Chancellor of the Exchequer. This now provides the framework for the Government's economic policy. But the Chancellor of the day still has to exercise, within that framework, a Budget judgment. To my mind, my right hon. Friend has got the judgment right—a neutral Budget, allowing the economic stabilisers full play, but with no nonsense about some discretionary, counter-cyclical fiscal policy. And this is all in the context of a commitment to a balanced budget over the economic cycle as a whole, which is absolutely right.

Mr. John Maxton (Glasgow, Cathcart)

The right hon. Gentleman, from the Back 13enches, is claiming credit for this country's entry into the ERM. Why did he fail so dismally to persuade his former Cabinet colleagues to go back to the old rating system, which he regarded as so desirable?

Mr. Lawson

All will be revealed when I publish my memoirs.

If I have a concern about the overall fiscal aggregates, it lies not on the tax side but on the public expenditure side. In 1979, we inherited a desperately weak fiscal position. Over the years since then, we have made our fiscal position one of the strongest in the world. We have had a public sector surplus for a number of years. This was not solely, or even chiefly, a cyclical phenomenon. One has only to look at other countries, some of which also had a period of vigorous growth in the 1980s. None of them has achieved the strong fiscal position that we have secured. It was not the result of cyclical movements.

It stemmed in part from tax reform—the switch from high rates of tax, which in many instances were effectively voluntary, to lower rates of tax which companies and individuals had to pay. It stemmed even more from the firm control of public expenditure. Over the whole of the six years from 1983–84 to 1989–90, general Government expenditure, excluding privatisation proceeds, rose by a total of 4 per cent. That was an extremely small increase. Over the next three years, however—only half of the period to which I have just referred—from 1989–90 to 1992–93, general Government expenditure is planned, according to the Red Book, to rise by 5 per cent. It is planned to rise by more over the next three years than over the whole of the six years to 1989–90. And as we all know, public expenditure has a tendency to outrun what is planned for it. I have quoted what was achieved compared with what is now planned.

Again, table 1.2 in the Red Book shows that about two thirds of the deterioration in this year's public sector borrowing requirement, compared with what was envisaged at the time of the Budget, is due to a public expenditure overrun, even though public expenditure is less affected—it is affected to some extent—by the economic cycle than are tax revenues.

I know that my right hon. Friend the Chancellor of the Exchequer is absolutely firm in his resolve to maintain control of public expenditure. It is vital, however, that he enjoys the support of the entire Cabinet, and especially that of the Prime Minister.

As for the economy as a whole, inflation is clearly coming down. That is thanks to the so-called one-club policy of high interest rates, which was so derided in some quarters. I share my right hon. Friend the Chancellor's view that the recession will end and that the economy will start to pick up again later this year. As I said earlier, the recession, although difficult and unpleasant, will prove to be less severe in terms of loss of output than the recession of a decade ago.

I shall not detain the House by going through all the individual measures in the Budget, most of which I applaud. I shall, however, mention one or two things that my right hon. Friend the Chancellor of the Exchequer did not do. First, he did not abolish a tax. I rather regret that. It was a good tradition to abolish a tax in every Budget. I realise, of course, that my right hon. Friend was constrained by the Budget arithmetic. I would, however, gently draw his attention to petroleum revenue tax, of which I have many memories as a former Secretary of State for Energy. Petroleum revenue tax is one of the most complicated and extraordinary taxes on the statute book. An entire division of the Inland Revenue—the oil taxation office—is almost wholly dedicated to looking after it. The Red Book tells us that the expected yield for the coming year is precisely zero. It is a tax that my right hon. Friend could possibly do away with without distorting his Budget judgment.

I realise that there are always those—my right hon. Friend's officials and, even more so, officials in the Department of Energy—who say, "You never know, there might be a sudden explosion of oil prices in future, and then the tax will come into its own again." We have heard predictions of an explosion of oil prices for a long time. For example, in the first debate on the Gulf, the right hon. Member for Leeds, East (Mr. Healey) gave the most extraordinary Cassandra-like warnings. Included among them was the prediction that the price of oil would be $100 a barrel should there be a Gulf war. The price now is about $18 a barrel. An explosion in the price of oil is about as credible as the right hon. Member for Leeds, East. As I have said, PRT is a tax that could be dispensed with.

Secondly, my right hon. Friend the Chancellor of the Exchequer did not yield to the clamour to bring back 100 per cent. first-year capital allowances or other forms of special allowances for business and industry. Instead, he chose to reduce corporation tax. He was absolutely right to do that, and I commend him for it. He has avoided the distortions that would otherwise have been incurred, and the reduction in corporation tax will attract overseas investment into this country far more effectively than anything else.

It is important always to bear in mind—my right hon. Friend the Chancellor of the Exchequer did not make this point in his Budget speech but I know that he did not want to make the speech too long, and I thought that it was just about the right length—the difference between the main corporation tax rate and the basic rate of income tax. That really determines the incentive for debt finance of industry as against equity finance. Ideally there should be no distortion at all—the rates should be the same.

One of the reasons why I reduced the rate of corporation tax from 52 per cent. to 35 per cent.—it was not the main reason—was that corporation tax of 52 per cent. was offsettable against the cost of loan capital or borrowing, whereas only a 30 per cent. deduction was allowed under the imputation system for dividends. That meant that the incentive to engage in debt finance was very strong. It was and is desirable to narrow the gap as much as possible, and I narrowed it substantially. As my right hon. Friend the Chancellor of the Exchequer recalled, the gap then widened somewhat as a result of reductions in the basic rate of income tax. It is right that he should be narrowing it again.

Mr. Sheldon

Is the right hon. Gentleman aware that there is a distortion in the corporation tax capital allowances? Only 25 per cent. is given in tax allowances in the first year. Many items of plant and machinery are worth less than 75 per cent. after the first year. That is the distortion, and capital allowances should be changed to accommodate it.

Mr. Lawson

It was the 100 per cent. first-year write-off which was the distortion. The 25 per cent. reducing balance is close to actual commercial depreciation for the vast majority of capital equipment. It is true that there are some items of capital equipment that depreciate more rapidly and I therefore introduced a special provision in the 1985 Finance Act to take account of short-life assets. The right hon. Gentleman should be reassured that this has already been catered for.

Thirdly, my right hon. Friend the Chancellor of the Exchequer did not yield to the clamour in some quarters for personal allowances to be increased by more than statutory indexation. Indeed, in some respects he did less than that, because he did not increase some allowances at all. My right hon. Friend was right to resist the clamour. The maxim that almost everyone should pay, although not decisive in all contexts, is relevant to income tax. My right hon. Friend is right to place emphasis—when the time comes for reductions in the burden of income tax—on a reduction in the basic rate. I was glad to hear that.

The concept that everyone should pay brings me to the measure which inevitably dominated this year's Budget, and that is the massive switch from local taxation in the shape of the community charge to an extra 2½ per cent. on value added tax. As a result, the yield of local tax—that is to say, the community charge—will fall from 20 per cent. of local authority revenues in the year that has now ended to an estimated 11 per cent. in the year which lies ahead of us. In itself, and judged apart from the background and the context, I believe that it was a retrograde step. If it was politically inescapable, it is yet further evidence of the damage that the poll tax has wrought.

In so far as an ideal system of local government finance exists in this wicked world, it would concentrate on bringing to an end the two muddles that have bedevilled local authority finance for as long as I can recall. The first of the two muddles is presented by the two tiers of local government so that no one is clear about which tier is responsible for which part of the single Bill received by local taxpayers. The second muddle is the confusion between local government and central Government responsibilities.

Mr. Michael Foot (Blaenau Gwent)

We are all fascinated by this part of the right hon. Gentleman's speech. Why, as he felt so strongly about the poll tax, did he not resign over that issue rather than over the much less important issue that he gave as his reason for resigning?

Mr. Lawson

I know that the right hon. Gentleman has held high office in his time and I suspect that he did not agree with all his party's policies, but I do not recall him resigning. At least it cannot be said that I was not prepared to give up my office when I felt it necessary to do so.

If those two muddles could be resolved, we would come as close to accountability as possible. If a single tier of local authority wholly financed the services for which it was responsible, and if central Government financed 100 per cent. of those services for which they are responsible, we would at last achieve clarity and the possibility of more accountability. To achieve that, the Government of the day would have to transfer responsibility for certain functions from local to central Government. I believe that there is a strong case for so doing.

Whereas such a solution was thinkable before the Budget, I fear it is unthinkable now. I say that with some regret. Now that local authorities are to raise only 11 per cent. of their total revenues from local taxation—that is the forecast—it is no longer possible. The figure of 11 per cent. comes from table 6.7 of the Red Book and is clearly correct. The community charge rebates must be deducted to arrive at the true figure of what is being raised by local authority taxation. It is inconceivable that local government responsibilities should be shrunk to that extent.

We must dispose of the misconception that local taxation was carrying too large a share of the burden. That is manifestly absurd, as a moment's reflection will demonstrate. Local taxpayers and central Government taxpayers are the same people. The issue is the nature of the tax. For example, if my right hon. Friend the Chancellor of the Exchequer had decided to reduce the community charge by £140 a head and switch that amount to a central tax in the shape of a new poll tax levied nationally at £140 a head, would everyone have thrown their hats in the air and said, "What a tremendous improvement"? The problem has nothing to do with the balance, but everything to do with the nature of the tax.

Incidentally, there is no truth in the suggestion that, the Government were somehow mean with grants when the community charge was first introduced. The community charge was first introduced in England and Wales in 1990 and the increase in the total central Government grant to local authorities for that year was an unprecedented £2.6 billion—far in excess of the rate of inflation.

It is the nature of the poll tax that makes it unable to bear that burden. Although many people disliked rates, rates could bear such a burden. I recall the Government's Green Paper, published in December 1981, entitled "Alternatives to Domestic Rates", which came to the conclusion that there was no satisfactory alternative to domestic rates. That Green Paper was published and we did not do so badly in the 1983 general election. We continued with the rating system from 1983 to 1987 and did not do so badly in the 1987 general election either. Although we made a pledge in 1987 to go over to the community charge, if anyone believes that that was why we won the election with a large majority, they were not canvassing the same houses and visiting the same factories as I was.

Mr. John Townend (Bridlington)

Was not the reason why we did not suffer badly the fact that we did not have a revaluation for 17 years? When there was a revaluation in Scotland, we were nearly annihilated.

Mr. Lawson

I am glad that my hon. Friend raised that issue because, although it is an absurdity, it is believed by many people besides my hon. Friend, who understandably picks up things that he hears other people say. I do not blame my hon. Friend. The Scottish revaluation was a disaster because it was implemented overnight, from one year to the next. Even the 1983 revaluation, as my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) will recall, was phased in over a period. Everyone knows that any revaluation must be phased in gradually over a considerable period. If the change is made overnight, it is a total disaster. But it is quite unnecessary to do so, and no sensible Government would implement a revaluation in England and Wales on that basis.

Mr. Tim Raison (Aylesbury)

Will my right hon. Friend give way?

Mr. Lawson

Much as I should like to hear what my hon. Friend has to say, I do not wish to take up too much time. Perhaps he will tell me afterwards.

Mr. Wallace

Will the right hon. Gentleman give way?

Mr. Lawson

If I give way to anyone, it will be to my hon. Friend the Member for Aylesbury (Mr. Raison), who asked first.

Clearly, we could not go into the next general election with the poll tax. Any new tax must always be broadly acceptable to the majority of British people. Whatever arguments may be adduced, the poll tax was not broadly acceptable to the British people. There was no way in which it could be sustained in a democracy. That was both predictable and predicted.

Where do we go from here? There is to be a new tax —part property tax, part poll tax. Even the Opposition are intelligent enough to discern that the question now is, which part will predominate? Let us suppose that the basic charge is calculated for a household with three adults and that discounts are applied. For example, if there are two adults there will be a discount and if there is only one adult there will be a double discount. If that is the plan, everything depends on the size of the discount. If the discount is large, the poll tax will reappear and we shall have son of poll tax. It would be absurd to go through such an upheaval merely to change from poll tax to son of poll tax, so the discount must be small.

There should also be—to use the jargon—minimum equalisation. By that I mean that the basis for valuation should be the local area and not, to take the other extreme, the nation as a whole. Those who live in districts where property values are particularly high should not be penalised for so doing. In each district, the relativities should take the strain. Those who live in relatively more expensive houses in one district would pay more and those who live in relatively lower-valued houses would pay less. That would have been the right answer before the switch in my right hon. Friend's Budget, but now, as a result of that switch, there are public expenditure dangers, as well as political difficulties, inherent in the sort of local taxation now envisaged.

One phenomenon that my right hon. Friend the Chancellor mentioned in his Budget speech—it started during the latter period of the Labour party's term of office, so it is a non-partisan point—was that the total grant to local authorities became a steadily smaller percentage of the total money received by local authorities. That happened under both Governments, for precisely the same reason. If one is determined to control public expenditure, no other outcome is possible.

Local authorities will always want to spend more—Labour authorities certainly do and many Conservative-controlled authorities also want to. If one then gives local authorities a grant to finance, for example, 50 per cent. of a reasonable level of expenditure, they always spend more, so the grant becomes less than 50 per cent. If one says the next year, "We shall validate that and give them 50 per cent. again," it simply encourages local authorities to spend ever more, so there is no control of public expenditure.

That is why we had the inevitable process, which started in 1976 when the then Secretary of State for the Environment in the Labour Government said that the party was over and, for the first time, a serious attempt was made to control local authority spending, of a progression of local authority rates taking a higher proportion, and grants to local authorities taking a steadily lower proportion, of total local revenues.

Why has there been such a welcome among local authority spokesmen for the reduction in the amount that they will have to finance themselves? They see it as a wonderful way of starting all over again and overspending all over again. I realise that the Government hope that they can restrain all that by capping. But capping, although essential, is far from perfect. If the Government try to put too great a strain on capping, it will not work.

Another reason for the difficulty is the gearing effect. If local revenues are such a small proportion of total revenues—they are down to 11 per cent. according to the Government's Red Book figures—it means that, if a local authority decides that it will spend 10 per cent. more than the Government think is justifiable and right, local taxes, which are only 11 per cent., will have to rise by 90 per cent. The consequences of that do not need to be spelt out, because they are so clear. Therefore, capping will be asked to bear too great a burden.

As a result of the switch introduced by my right hon. Friend the Chancellor I am driven to the conclusion first drawn by my hon. Friend the Member for Norfolk, North (Mr. Howell). As my right hon. Friend the Chancellor went as far as he did in cutting the amount of revenue that local authorities raise, the Government must now—unless they reverse the policy, and I am sure that they will not do that—go the whole hog and abolish local authority taxation altogether. There is a precedent for that. As hon. Members will recall, when the last Labour Government advanced their proposals for a Scottish Assembly, it was not given any tax-raising powers whatever. I can say with the boldness of one who is not standing at the next general election that a Scottish Assembly would have been even more important than the Blaby district council, and what is good enough for a Scottish Assembly must be good enough for local authorities in England and Wales.

Such a scheme might be financed by changing the zero rate of VAT to 5 per cent. If that is not enough, one year's non-indexation of personal allowances, on top of the zero to 5 per cent. VAT, would achieve the result. There would be great benefit and value in doing that. At present, there is a serious distortion. When Lord Barber introduced the two-rate VAT, the two rates were 10 per cent. and zero; so, although there was a distortion, the gap was only 10 per cent. That has now been widened to 17.5 per cent., which is far too much and economically highly undesirable. Therefore, something closer to the original pattern of the tax, with the same sort of incidence, could be restored by putting the zero rate up to 5 per cent., giving 5 per cent. and 17.5 per cent., so that the gap would be only slightly greater than it was when the tax was introduced.

I am encouraged in my view because the Government appear to be engaged in yet another consultative process, and that is my contribution to it. However, I have to say that the Government are in danger of giving consultation a bad name. Consultation as an aid to government has an important place, but we are now in danger of seeing consultation as a substitute for government. In relation to the shape of local government, the principle of single-tier authorities should be a firm Government decision, with consultation on the way in which it can best and most sensibly be implemented. However, consultation on the nature of the new local tax is nothing less than an infallible recipe for maximising dissent.

I noted that my right hon. Friend the Chancellor wisely did not enter into consultation about his switch from the community charge to 17.5 per cent. VAT. I congratulate him on how well the secret was kept—he would not have dreamed of entering into consultations. During my six years as Chancellor, I introduced a far-reaching programme of tax reform. If I had put the process out for consultation, it would have been impossible to enact a single reform.

I think that it was Pierre Mendes France who said that to govern was to choose. I agree with that. To appear to be unable to choose is to appear to be unable to govern.

5.18 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

We have heard some of the thoughts of the right hon. Member for Blaby (Mr. Lawson) on local government taxation, but the Government's problems with it relate to here and now. They cannot wait for local government reform, which will take at least a year or two, unless they introduce further emergency legislation such as we will be debating tomorrow, which they will presumably pass, so flying in the face of reasonable ways of doing business here.

Under the old rating system, there were people who were losers. By introducing the poll tax, the Government converted a number of those losers to gainers. As a result of further discussions and consultations, they are now about to change the new gainers to losers. So losers have become gainers and then losers again. The Government have a political dilemma here.

Whenever the right hon. Member for Blaby speaks, a soft glow of nostalgia comes over us, and his period of office seems almost pleasant by comparison with what we are going through at present.

The right hon. Member for Blaby talked about the control of public expenditure. He has lost that battle. If the Government are to be a caring Government, they can do so only by spending money. However, there is a dilemma for them. They are still talking about reducing income tax to 20p in the pound. The one thing that they cannot do is spend money in the caring part of their programme and reduce taxation to 20p in the pound. The right hon. Gentleman clearly has it in mind to forgo the first option.

The right hon. Gentleman also talked about inflation coming down. We must remember that the core rate—the rate about which the Government used to make a great deal—is not coming down anything like as fast. Sam Brittan pointed out today something that I had overlooked—that is, that last year's Red Book presented a graph of the core rate. The Government have now left out the core rate, because they know that it is the headline rate that will catch the popular imagination and, they hope, the support of the people at the next election.

On the medium-term financial strategy this year, page 9, paragraph 2.08, of the Red Book states: Like all the other larger countries within the ERM, the Government will continue to set a monetary target, and to take account of a range of other indicators of domestic monetary conditions. This approach helps to ensure that the ERM as a whole has a firm nominal anchor. That is a reminder of the monetarist doctrine that we used to hear. The 1980–81 "Financial Statement and Budget Report" once said of inflation: It is to provide a firm basis for those expectations that the Government has announced its firm commitment to a progressive reducction in money supply growth. The certainties of M3, as a result of the Red Book, are in effect laid to rest.

The Government say that it is the exchange rate that really matters. Of course we all know that, but if monetary targets are overrun, would that actually lead to a change of policy of any kind? If monetary targets are overrun by several per cent. or undershot by several per cent., will it lead to any change? Of course it will not. That is what exposes the nonsense of the monetarist position.

The economy is now run by the position of exchange rates in the ERM. Interest rates are determined, and the level of demand is a critical factor. Again, paragraph 207 on page 9 of the Red Book states: Membership of the ERM sets a new framework for monetary policy. Interest rate decisions must now be set consistently with keeping sterling within its announced bands … Interest rate convergence will follow inflation convergence. Both are likely to take time to achieve. Interest rate convergence will not follow inflation convergence for some years.

The position in France is interesting. There, a level of inflation over several years has still not justified a level of interest rates comparable with those of Germany. Why is that? One can have a low level of inflation and still not have interest rates becoming alike. That is largely because France is still suspect, and the attitudes of investors have a long time lapse. The position is likely to remain the same with us. Convergence in interest rates is a long way ahead, and convergence in living standards is even further away.

Mr. Andrew Hargreaves (Birmingham, Hall Green)

I should have thought that memory of several devaluations gave rise to suspicion about the French currency. Thank goodness this country will not experience that under the new linkage system.

Mr. Sheldon

It is not the future that determines actions, but the past. We may have future hopes and expectations, but it is the past that matters. That is what has bedevilled France, and the same applies here. Because policy is once again being driven by our exchange rate, our economic management is now back to that of the early 1960s. We are back to old familiar territory. That is what we used to have when the old exchange rate determined so much of governmental economic policy.

I am not against fixed exchange rates; I am only against immutable exchange rates. The trouble with variable exchange rates is the uncertainty they offer to international trade. We have seen fluctuations of 10 per cent. in some important currencies in a matter of weeks. Profits can be turned into losses. Allied Lyons lost £150 million as a result of currency fluctuations.

Hedging in the forward markets offers only limited security. It is far better every few years to have a substantial devaluation than to the 10 per cent. movement that we have seen in the dollar over the past few weeks. At any rate, for very long periods, the security of knowing what the exchange rate is can play a part in foreign trade.

When foreign trade was conducted by letters of credit with a fixed time for delivery and fixed and certain conditions, it was a secure way of trading. One could hedge in the forward markets. Now foreign trade shares many of the characteristics of internal trade within this country. Deliveries can be held up because of trading conditions, cancellations can result, and hedging in those conditions becomes very doubtful. I prefer fixed rates. If necessary, we could adjust them every few years. That would offer more stable conditions than we have in the present method of operation. Economic management has returned to exchange rates rather than the monetary nonsense which provided a foolish interlude.

It is likely that demand management will once again come into its own. We cannot have demand management without being able to use fiscal means of achieving it. We must control it in some way By itself, interest is hopelessly inadequate—it is not enough. We need to be able to use several other means, and the obvious one is fiscal adjustments.

We used to have the purchase tax regulator, which was a marvellous instrument for being able to adjust demand management. We now have rather more cumbersome VAT changes, which always cause some concern. We have income tax and other taxes with which we can deal.

The financial memorandum of the Community Charges (General Reduction) Bill, which we shall debate tomorrow, states that the cost of delaying the announcement of the change in the poll tax is £60 million. That is to pay town halls for the nonsensical way in which they produced all their bills only to put them in the shredder. That money was squandered because people wasted their time preparing and sending out bills for no purpose. It is the equivalent of Keynes's paying people to dig holes and fill them up again. I wish that other sectors of the economy had to resort to that.

We well understand that it is rare for a Minister to be selected by any Government for his or her administrative competence let alone for any ability in such matters, but it must have been obvious to everyone that every week that went by was a week in which expenditures were incurred and would prove to be wasted. While discussions were going on, bills were being prepared, to be thrown into the shredder. It is disgraceful that concern did not extend to people who were making decisions. We as taxpayers will pay for the administrative incompetence of the operation. Sixty million pounds—many people say that it is rnuch more—would buy some hospitals, schools and other useful matters. What we are getting is frustration and waste paper. A great burden of responsibility falls on those who failed to take those matters into account.

Of course many Government expenditures are wasted. That is something with which we are all familiar. Fortunately, it is much rarer in our country for Governments to know that expenditures are being clocked up like a taxi cab meter—visible to all—while the Government make up their mind which course to take. A proper and contrite apology is needed.

The sleight of hand which reduced the poll tax, increased VAT. The Government are relying on the fact that VAT is less disliked than the poll tax. However, we can draw another conclusion—that VAT increases are more acceptable than the rundown of our transport systems, our schools and the health service. If that is so, the well publicised trade-off between taxation and expenditure does not have the relevance that the Government thought it had. Services have had to be cut to dangerously low levels in relation to what should be provided. Suddenly, an extra £5 billion has been made available, not for our transport systems, hospitals or schools and colleges, but to save the Government's face.

Years ago, we used to talk about people in eastern countries having to avoid saving face. However, the Government are more guilty than those eastern countries. The Government have been led into a blind alley by the persistence of a dominating personality in the previous Administration, and they are having to reconcile that with the present realities.

The Government will not find the solution. I do not agree with the solution suggested by the right hon. Member for Blaby (Mr. Lawson). The Government are going to have to try to fool the electorate, and I believe that they will be unsuccessful.

5.30 pm

Mr. John Townend (Bridlington)

I was delighted when my right hon. Friend the Chancellor said that he was going to present a Budget for business. I have always taken an interest in business and have particularly supported small businesses. No Government have done as much for small businesses as this Government over the past 10 years. Before 1979, small businesses were being squeezed by taxation and bureaucracy and we had one of the smallest small business sectors in Europe. Over the past 10 years, there has been an explosion of enterprise and initiative. It is clear from my rural, seaside constituency exactly what has been happening.

Of course small businesses are feeling the effects of the recession. That is why we particularly welcome the help that has been given to businesses, particularly with regard to helping cash flows. We also welcome the reductions in corporation tax and the raising of the level by a quarter, below which companies pay the 25 per cent. lower rate. The halving of the waiting period before firms can receive relief from bad debts is most acceptable; in particular, I am pleased that 700,000 small employers will now be able to pay their PAYE and national insurance contributions quarterly.

By persuading the European Community to allow us to raise the VAT threshold to £35,000, the Chancellor has achieved a success which previous Chancellors failed to achieve. A former Treasury Minister in the previous Labour Government told me last Friday that he had tried to persuade the EEC on that matter, and he was most complimentary about the Chancellor's success.

However, we must not become carried away. Those improvements are only costing the Exchequer in the first year some £630 million. Against that, we must offset the cost of NIC on company cars and benefits, which will bring in £550 million. I was a little disappointed that, in a Budget that was supposed to be for business, the Chancellor, in what I can only consider to be a petty act, decided to tax car telephones, and particularly fixed phones.

I have a business, and I do not give car phones to my representatives as a perk. I give them phones to make them more efficient. Car phones are like computers: they are part of the machinery and equipment that one needs in order to be more efficient. We always talk about our industry becoming more efficient. If the Chancellor is worried about portable phones disturbing his dinners in restaurants, perhaps he could compromise and at least exempt phones that are fitted to cars. I am sure that many executives and representatives do not like the fact that their bosses can reach them on a Sunday afternoon.

I was disappointed that the Chancellor did not go a little further to help the cash flow of really small businesses by accepting the proposal by small business organisations to allow the first £5,000 or £10,000 of retained profits in a business to be tax-free. That would have helped new small businesses and their cash flows.

Like my right hon. Friend the Member for Blaby (Mr. Lawson), I thought that the overall Budget judgment was correct. Basically, it was neutral from a tax point of view, but there has been a slackening of the fiscal stance. There has been a move from a small Budget surplus this year to a deficit next year. That is to allow the automatic regulators to work. The deficit will help to allow the economy to recover from recession later this year.

My right hon. Friend the Chancellor was right to resist the temptation, particularly as we are moving towards a general election, of tax giveaways so that he could send a message to the markets that his first priority was to conquer inflation. More than anything else, business needs a reduction in interest rates. Clearly my right hon. Friend the Chancellor has been successful in that regard. There has already been another 0.5 per cent. reduction, and I look forward to another 0.5 per cent. reduction within the next two weeks. However, we are really looking for interest rates to come down to 10 or 11 per cent. in the next two or three months.

It is only when one studies future years in the Red Book that one understands that fundamental changes have occurred in the Government's economic priorities. Only two years ago, the Government were forecasting a Budget surplus and proudly pronouncing that they were systematically paying off the national debt. It was forecast two years ago that, for the three years beginning 1990–91, there would be Budget surpluses amounting to £19 billion. This year's Red Book forecasts a Budget deficit for the same three years of just under £20 billion. That represents a turnround of about £39 billion.

I cannot believe that that enormous change is due simply to the recession and falling revenues. It is partly due to a failure to keep tight control on spending, particularly spending by local authorities, by the health service and by many other Departments. In two successive autumn statements, Government expenditure plans have been raised substantially. Unless we prevent that happening again and rigorously control public expenditure, we will have higher deficits in 1992–93 and 1993–94 than are forecast now in the Red Book, and we will not have a Budget surplus in the foreseeable future.

A rising national debt will be a clear sign of fundamental change in policy between this Administration and its predecessor headed by my right hon. Friend the Member for Finchley (Mrs. Thatcher).

Mr. Campbell-Savours

May I clarify what the hon. Gentleman has just said? Is he advising his constituents that he wants to see cuts in moneys to public services involving cuts in education, and in provision to the elderly and to the national health service? Is he saying that less money should be spent by the taxpayer on those very important services?

Mr. Townend

With respect, the hon. Gentleman seems to be obsessed with cuts. I am suggesting what my right hon. Friend the Member for Blaby suggested. The increase in spending should not rise as quickly as it was rising before. It has been accelerating—

Mr. Campbell-Savours

I heard what the hon. Gentleman said.

Mr. Townend

I am trying to respond to the hon. Gentleman. If he wants to intervene again, I will give way to him.

I believe in a balanced Budget. Obviously, if we believe in Budget deficits, there will be more money to spend in the short term, but in the long term when interest, must be paid on the Budget deficits, less money will be available.

I must say—when I say this, I will probably be in the minority in the House, although not among my constituents—that it sticks in the throat that the Government, with a growing Budget deficit, are giving away £1.5 billion a year in overseas aid, which is contributing not only to the Budget deficit but to our balance of payments deficit as well.

The way in which the Chancellor committed himself to increased child benefit in future years gave me little confidence in the Government's determination to take tough decisions to keep spending down. All my experience of Government forecasting under all Governments in recent years leads me to believe that it will be a miracle if we have a balanced Budget by 1994–95.

If the Government are to have any chance of keeping to their spending targets, they will have to be far more successful than in the past in keeping public sector wage settlements down. The Government are always telling the private sector, "We must get our wage settlements down to the level of our EEC partners." Indeed, in his speech the Chancellor said: and come down they must, eventually, to the levels prevailing in other ERM countries. There is no escape route through devaluation, and firms know this." —[Official Report, 19 March 1991; Vol. 188, c. 166] I hope that the Government accept that. Would it be too much to ask the Government this year to set an example to the private sector in public sector settlements?

Another fundamental change in the Red Book is that, for the first time, there is no item under the heading "Fiscal Adjustments", which, as we all know, is another description for tax cuts. We had fiscal adjustments of £1 billion, £2 billion and £3 billion for the three years from 1990–91. I welcome the Government's aim to reduce the standard rate to 20p, which the Chancellor reiterated, but I cannot see any prospect of that in the next five years. Certainly the tone of the speeches of our new party chairman, my right hon. Friend the Member for Bath (Mr. Patten), makes me believe that increasing spending and benefits will be a greater priority than lowering taxes.

The main change in the Budget is the 2.5 per cent. increase in value added tax to fund the £140 per person reduction in the community charge. I welcome that, because it goes some way towards what I see as the only long-term solution to the problems of financing local government. I agree with my right hon. Friend the Member for Blaby on this.

The problem has dogged the Government since 1979. Although the Government have had considerable success in reducing Government expenditure in general and reducing the proportion of spending as a percentage of GDP, they have failed to control local authority expenditure similarly. About 10 Bills have been passed, changing the rate support grant, capping rates and introducing the community charge. Despite all that, spending has risen relentlessly, and the burden on the public has continued to increase. Labour councils have led the way, but, to be fair, many Conservative councils are not without blame.

Therefore, I have concluded that, with some no table exceptions, local authorities have failed the public in providing cost-effective and efficient services. Over wide areas, they have been profligate, overmanned and inefficient.

I speak as one who, for a considerable time, served in local government, including a spell as chairman of the finance committee of the old county borough of Hull and, subsequently, as leader of Humberside county council, where I managed to prevent rate increases being above the rate of inflation. What was significant in all that time was that never once did a chief officer come to me and say, "Mr. Leader" or "Mr. Chairman, I have found a way of doing the job cheaper, of reducing my budget or of reducing my staff." The only long-term solution is to remove major powers of taxation altogether from local government.

Local government should be responsible for providing services, making choices and fixing priorities within a budget provided by central Government. I differ from my right hon. Friend the Member for Blaby in that I believe that 50 per cent. of the funding should come from VAT and 50 per cent. from income tax. It should be allocated on a simple per capita basis, unlike present Government grants, which are distributed according to dozens of different criteria which no one understands and most authorities claim are unfair.

I accept that, in the early years, additional block grants will have to be made to high-spending, inner-city authorities, but those grants can be phased out while authorities adjust their expenditure to the norm. Within that total, local government would have flexibility. However, so that authorities cannot wreck vital services and start sacking teachers and policemen every February because they run out of money, I would hand over the police, education and the fire service to central Government.

Mr. Eric Martlew (Carlisle)

I, too, have been a long time in local government, but I have come to a different conclusion. I was interested to hear the hon. Gentleman suggest that 50 per cent. of local authority funding should come from VAT and 50 per cent. from income tax. I presume, therefore, that he intends no local contribution and none from the business rate. Does he advocate an increase in income tax?

Mr. Townend

Obviously, if one abolished the community charge and did not replace it with some other form of local taxation, and if one decided to fund local government expenditure from national taxation, one would increase income tax, just as VAT is to increase.

There are significant advantages in my proposal. First, it is simple and, secondly, it is economic. It would save £750 million a year, which is the cost of collecting the community charge. There will be a similar cost if we have a property tax. Moreover, my tax would be collectable and people would pay according to their earnings and expenditure.

I am afraid that, by going only halfway, the Government will have the worst of both worlds. They will continue to have many of the major problems of the community charge system, and the tax will be expensive to collect. If we have a property tax, whether based on capital values or rental values, it will have to be updated frequently, and revaluations will be expensive. Property is not an accurate measure of people's ability to pay. Whatever property tax we dream up, much of the unpopularity and unfairness of rates will apply. We shall have no more control over local government spending than we have now.

The Secretary of State for the Environment seems to believe in the myth that local government is popular, so we cannot remove its powers of taxation. If Ministers consider the experience gained at their surgeries, they will agree that local government is unpopular. People think that it spends too much. Eighty per cent. of my constituents come to my surgery when they should go to see a councillor, but do not know which one to see or even the councillor's name. The Secretary of State's proposals are consultative. I strongly urge the Government to consider the many advantages of going the whole way and solving the problem of local authority spending once and for all.

5.48 pm

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

As a kindly man, I begin by seeking to protect the hon. Member for Bridlington (Mr. Townend). A few moments ago, when the right hon. Member for Blaby (Mr. Lawson), the former Chancellor who is just leaving the Chamber, suggested that the hon. Gentleman was an idiot and an ignoramus, I thought that the right hon. Gentleman was being uncharacteristically offensive. I have long since learnt in this Chamber that in economics the truth is in inverse proportion to what the right hon. Gentleman says. Therefore, any lingering doubts about this being a bad Budget immediately disappeared when the right hon. Gentleman said that it was a good Budget.

In the 19th century, the Conservative party was called the stupid party and to judge from the response of hon. Members to the Budget last Tuesday, it still is. The Chancellor of the Exchequer told us—the figures are in table 3.1 of the "Financial Statement and Budget Report" —that in 1991 domestic demand would fall by 2.75 per cent., fixed investment by 9.75 per cent., GDP by 2 per cent. and manufacturing output by 5 per cent. At that, Conservative Members waved their Order Papers and cheered and cheered and cheered. Do Conservative Members really care so little for their country that they now gloat at catastrophe?

I suspect that the Budget of 1991 will be known as the "red Budget"—red for deficits, red for bankruptcies and red for the danger that it brings to the economy. In truly miraculous fashion, the Chancellor has put the British economy into the red, not only on our balance of payments account in the depth of a recession, but also back into the red on our income and expenditure account. When the Chancellor told us that he intended to move from public sector debt repayment to a public sector borrowing requirement of £8 billion this year and £12 billion next year—the true figures may be double that —it was miraculous to behold that he showed no sense of shame, guilt or contrition and no feelings of betrayal. Clearly, moving from virtue to vice causes no problems for our Chancellor.

But what of the true Tory worshippers, such as the hon. Member for Bridlington? What of the hon. Members who froze with disbelief as the Chancellor stripped aside the ideology of the Conservative party piece by piece and idea by idea? For the hon. Member for Bridlington, the members of the Bruges group and the Conservative Way Forward group, the questions are all too obvious. Whatever happened to the Thatcherite concept of thrift and the notion that a nation should not live beyond its means? Whatever made the Chancellor cast aside the concepts of fiscal integrity, fiduciary probity and financial rectitude? Where now is the concept of the balanced Budget that was resurrected in the 1980s from ancient times and placed on a pedestal by previous Chancellors as the essence of modern Toryism? How can the hon. Members who are now sniggering on the Conservative Back Benches and who told us in the great Tory slump of the early 1980s, "You can't spend your way out of recession," now tell us that that is precisely what they intend to do in the great Tory slump of the early 1990s?

I wonder whether there has ever been a politican to match our slippery Chancellor who, since being elected to the House, has slid easily from being a convinced Keynesian, to a convinced monetarist, to a convinced neo-monetarist, to now being a convinced neo-Keynesian. It is a bit like the Chancellor first assuring us that he believes in God the Father, God the Son and God the Holy Ghost, and then telling us that he also believes in Judaism, Buddhism and Islam. I dare say that I am being naive—

Mr. Irvine Patnick (Sheffield, Hallam)

Yes.

Mr. Sedgemore

I hear a word of assent from the Treasury Bench.

Perhaps at my age I should not be surprised that a Chancellor who has climbed the greasy pole of politics by expressing absolute devotion to all the policies of the former former Prime Minister, the right hon. Member for Old Bexley and Sidcup (Mr. Heath), who then expressed absolute devotion to all the policies of the former Prime Minister, the right hon. Member for Finchley (Mrs. Thatcher), and who now expresses absolute devotion to all the policies of the current Prime Minister, should be feckless, feeble and fickle over the economy.

On one level and in this regard, the Chancellor reminds me of George Borrow, a man for whom expediency was to be preferred to principle, and who wrote: I am invariably of the politics of people at whose table I sit, or beneath whose roof I sleep". On another level, and in respect of the Chancellor's disregard for economic principle and personal loyalty, he reminds me of that creature in "A Midsummer Night's Dream" who was described as a spotted snake with double tongue. Indeed, this morning's edition of The Independent reported: A Cabinet minister close to the Prime Minister said that Mr. Major had to proceed carefully to avoid 'grisly old figures rising up from the snake-pit and biting him'. The Budget will certainly have bitterly disappointed those Conservative Members who had hoped that it might enable the Conservative party to match Labour as the party of low taxation—[ Laughter.] I deliberately paused for the laughter, because this Budget leaves the Conservative party indelibly, if unenviably, the party of high taxation. That point is made not by me or by some Socialist academic in a polytechnic, but most eloquently by the Chancellor of the Exchequer himself in table 2A.2 of the Financial Statement.

I refer the two Conservative Members who sniggered in their ignorance to that table, which is headed "Non-North Sea taxes, social security contributions and the community charge as a per cent. of non-North Sea money GDP". I am sure that they know what that means. The table shows that in 1978–79 under Labour total taxes were 34.75 per cent. of GDP. However, it then shows those two ignorant sniggering Conservative Members that, in this tax year, total taxes will be significantly higher at 37.75 per cent. of GDP.

But it is even worse than that, because the table then shows that, under the Conservatives, total taxation will be significantly higher than under Labour in 1991–92, 1992–93, 1993–94 and 1994–95. Those Conservative Members who are laughing and sniggering can learn from that that it is planned by this Government that taxation should be higher under the Conservatives than under Labour into eternity and, it seems, even beyond—

Mr. Roger King (Birmingham, Northfield)

That is the essence of our taxation policies. We have been trying at great length to persuade the Labour party to agree that when the level of taxation on our population and the rate of income tax are reduced, more income is raised because the entrepreneurs and the enterprise society have been freed. That is the essence of our political beliefs.

Mr. Sedgemore

I knew that it was dangerous to give way to the hon. Gentleman and that he did not understand what I was saying. I was not talking about total taxation as a global figure, but about taxation as a proportion of GDP. The hon. Gentleman has missed the point. The reason the Government are spending so much money on public expenditure is the massive recession and the massive amounts of money that they are having to spend on social security benefits, including benefits for the unemployed who now number more than 2 million and who, according to most of the projections of serious City economists, will have increased by the end of the year to 3 million. I suggest that the hon. Gentleman goes away, picks up a copy of the Red Book and spends his weekend or the Easter holiday reading it so that he will return better informed. If that does not help, I will give him some elementary economics lessons.

The Economic Secretary to the Treasury (Mr. John Maples)

While undertaking that study, perhaps the hon. Gentleman will remind himself that the public sector borrowing requirement for 1978–79 was 5 per cent. of GDP and that, if we were running such an irresponsible policy now, it would be nearly £40 billion.

Mr. Sedgemore

I do not want to go into the theology of the public sector borrowing requirement, but the hon. Gentleman would do well to be careful about whether there is a direct correlation between the public sector borrowing requirement and economic growth. If the hon. Gentleman studies the current figures for Germany, he will find that the public sector borrowing requirement there is roughly 5 per cent. of GDP and that economic growth is also approximately 5 per cent. What is wrong with economic growth in Germay with a public sector borrowing requirement of 5 per cent. of GDP and with economic growth of 5 per cent.?

Mr. Robert Hayward (Kingswood)

rose——

Mr. Sedgemore

I shall not give way, because I must get on. Mr. Speaker has intimated that we must push along a bit.

The Budget will also disappoint those Conservative Members who had hoped to see unemployment falling and manufacturing industry growing. As my hon. Friend the Member for Dunfermline, East (Mr. Brown) has said, one reason why that will not happen is the lack of investment allowances and the paucity of tax incentives to achieve that end. However, another reason is that the Government and the country are still suffering from the serious mistakes that the Government made by entering the exchange rate mechanism at too high a parity. They did that because they used purchasing power parity theory rather than fundamental equilibrium exchange rate theory. The time has come for the Government to move to the narrow band and at the same time devalue to DM2.60 to the pound. If they were prepared to do that, they could not only have a rate of exchange which was sustainable in the longer term but reduce interest rates by 2 to 3 per cent. immediately.

While on the subject of Europe, hon. Members should reflect that, in his Budget speech, the Chancellor carefully avoided any reference to European monetary union or the creation of a single currency. I was not surprised, because 10 days ago I was in Germany and those who know about these things were telling me that the die is now firmly cast and the British Government have made it clear that they will join in European monetary union and agree to the creation of a single currency. I hope that some members of the Way Forward group and the Bruges group will comment on that. Indeed, I hope that the Minister, who is squinting away and perhaps does not know about these things, or whichever of his colleagues replies, will comment on it.

The poll tax has been described as the flagship of the Conservative party. When the flagship of passenger liners —the Titanic—sank, it did so because it hit an iceberg, most of which could not be seen. But when the flagship of the Tory party sank, it did so, not as a result of something that could not be foreseen but because of the damage caused by the mutiny of both the passengers and the crew, leading to the captain being thrown overboard.

Some people in this country do not want to see the poll tax go. In Finchley, Chingford, and Tewkesbury, Members of Parliament hold hands with their constituents in church and pray for the continuance of the poll tax, but my constituents in Hackney do not like the blasphemies of the way-out people of Finchley, Chingford or Tewkesbury. Nor do they like the heresy of the Secretary of State for the Environment, who has decided to replace one tax with three—a property tax, a poll tax, and a poll tax surcharge operated through VAT. Surely to God there should be a maxim in politics that where one tax will do, why have three? The one tax that we want is Labour's alternative. If I had to—[Interruption.] Hon. Members may laugh. I am told that they are stealing our clothes, but I suspect that they may even come up with proposals similar to those of Labour by the autumn.

To sum up the Budget, we now have poll tax disarray, local government disarray, industrial disarray, employment disarray and macro-economic disarray. But we have an election coming shortly. When Labour wins that election, it will once again, as our document says, make us world class and take us into the third millenium with heads held high. Then we can rejoice.

6.3 pm

Mr. Terence L. Higgins (Worthing)

I begin by congratulating my right hon. Friend the Chancellor of the Exchequer on an imaginative and in some respects surprising Budget. The Treasury Select Committee looks forward to taking evidence from the Governor of the Bank of England and Treasury officials tomorrow and from the Chancellor himself on Wednesday. I cannot anticipate what we shall eventually report, but we can endorse his action in not inhibiting the automatic stabilisers because we explicitly mentioned the importance of that in our report on the autumn statement. The level of public sector borrowing requirement that he projects is entirely appropriate against the background of recession that we face. That will assist in the recovery. I believe that at the same time we shall see a falling rate of inflation and possibly a corresponding fall in interest rates. That will also lead to renewed economic growth.

I shall concentrate my remarks on the centrepiece of the Budget, which was the switch in taxation away from local taxation to central Government taxation. I welcome that very much. None of us can envy a Leader of the Opposition who has to reply to a Chancellor's Budget at short notice, especially, as on this occasion and when selective employment tax was introduced, the more radical measures appear in the last few sentences of the Budget statement. Nevertheless, one might have thought that the Leader of the Opposition would have comprehended sufficiently the switch from one tax to another not to describe it as regressive. I found that extraordinary, because there is relief on VAT at the bottom end of the income scale, not least for food, fuel, transport and so on.

The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) said that we should not switch from fewer taxes to more taxes. When I had the somewhat unenviable task of steering the VAT legislation through all its stages in the House, we got rid of two taxes and introduced one We got rid of the dreaded selective employment tax and purchase tax and introduced VAT in a way that was not regressive.

In parenthesis, zero rating is an essential part of the structure of VAT. I understand that the negotiations on the zero rating of VAT within the EC will come to a head around May. I warn my hon. Friend the Economic Secretary to the Treasury and my right hon. Friend the Chancellor of the Exchequer that it would be intolerable if we were compelled to give up zero rating. I hope that, if necessary, the Government will use the veto to avoid that. Zero rating is a fundamental aspect of our tax and our VAT has a much better structure than that of any other country in the EC. Zero rating must be maintained.

Putting the burden of taxation on to VAT will reduce the impact on those on lowest incomes. At the same time it is proposed to abolish the community charge which, except for those at the bottom end of the scale, who still pay nothing, is undoubtedly regressive. Therefore, for the Leader of the Opposition to say that the switch was regressive was extraordinary.

Mr. Eric Martlew (Carlisle)

Did I understand the right hon. Member to say that those at the bottom end of the scale did not pay any poll tax?

Mr. Higgins

It depends on exactly how the adjustments are worked for refunds and so on. If that were not so, the argument of the Leader of the Opposition would be even less valid. In any event, the crucial point is that the changeover is not regressive. It is an advantage for those at the lower end of the income scale.

Some years ago, my right hon. Friend the Member for Henley (Mr. Heseltine) and I, when he was at the Department of the Environment and I was at the Treasury, introduced a Green Paper described as "The Future Shape of Local Government Finance." A draft was presented to us by our officials which was so diabolically bad that I rang my right hon. Friend the Member for Henley and said that we could not issue it. He agreed and we re-wrote the whole thing. I re-read it at lunchtime today and I must say that it is a remarkably good Green Paper.

It was clear from it that the rating system was open to substantial objections. It was said that people paid taxes in sorrow and the rates in anger. There was much to be said for that. We went through the alternatives in the Green Paper. We considered local income tax, local sales tax or value added tax, local employment and payroll taxes, motor fuel duty, super rates, surcharges on the rates, site value rating and so on. It was absolutely clear that there was no satisfactory or ideal alternative to the rating system.

In some respects, the community charge was an improvement on the rates. Many of us on the Conservative Benches have advanced the arguments in favour of it during the past two or three years. I came to the conclusion after the publication of the Green Paper that the only satisfactory answer was to transfer the entire cost of local government to the central Exchequer. I continue to hold that view, for several reasons. I shall give the arguments in favour of such a switch. I welcome the fact that my right hon. Friend the Chancellor went a long way in his Budget towards switching from local to central taxation, but he needs to go still further.

First, there is a substantial saving in collection costs —even more so under the community charge than under the rates—which means a substantial saving in resources. Another aspect of that argument is that there will be a substantial increase in unemployment among local government officials. One might view that with relative equanimity because it will be only a temporary phenomenon.

Secondly, the change could be carried out in a short period of time, not the time scale mentioned by my right hon. Friend the Member for Henley who envisages a change from the community charge in 1993–94. Switching the whole cost to the central Exhequer and abolishing the community charge could be carried out in a short time, as the £140 rebate has shown.

Thirdly, it would have a significant impact, depending on the way in which the money was raised for the central Exchequer, on the retail prices index. That would help wage settlements, which is an important factor. Fourthly, it would give effective control over the totality of public expenditure which, from the point of view of economic management, has been a problem for many years under successive Governments.

I shall now deal with the question of how the money would be spent. I suggest that there should be a block grant so that each local authority would then have to make the difficult decision on what to spend the money and what its priorities should be with regard to expenditure. I leave open the question raised by my hon. Friend the Member for Bridlington (Mr. Townend) about what functions it should cover.

Mr. Nicholas Budgen (Wolverhampton, South-West)

rose——

Mr. Higgins

I should like to finish these points as I am putting forward the arguments in relation to transferring the entire cost.

The counter-arguments include that of accountability, but we must recognise that that has been seriously undermined by capping. In cases where accountability and overspending have been serious, central Government have intervened so that in practice the accountability argument has been significantly weakened.

However, we must recognise that the switch will mean an increase in other forms of central Government taxation, about which I wish to make two points. First, the wording of the statement made by my right hon. Friend on 21 March was overly subtle—I put it no stronger than that. It said: For the coming year locally raised finance will fund 22 per cent. of local government expenditure, compared to 34 per cent. this year. And these figures are before the substantial benefits of rebates and the community charge reduction scheme. It should read: But these figures are before the substantial benefits of rebates and the community charge reduction scheme. In that light, the amount being financed by local government taxation is down to 11 per cent. One reaches the conclusion that at some stage, given the cost of collection and all the other factors that I have mentioned, the game simply is not worth the candle. That is the important issue.

In a paragraph in his statement entitled "Finance" my right hon. Friend argued: A local tax base is essential if there is to be any meaning to the concept of local government. I feel bound to say that I have some doubts about that and I always have. The allocation of resources is every bit as important a democratic function as the determination of the total. At any rate, the current position confirms my view that the statement I have just quoted is not true. In Wandsworth no local taxation is being raised and in a number of other local authorities, the cost of collection is greater than the revenue which may be raised. The argument that a complete switch would mean the end of local democracy does not apply.

Mrs. Margaret Beckett (Derby, South)

rose——

Mr. Higgins

It does not apply to Wandsworth and other districts.

Mrs. Beckett

The hon. Gentleman has made a particularly interesting point. He mentioned the generally reported view that in Wandsworth no one will have o pay anything. If he is correct about the inclusion in those figures of the existing rebate system, the only people to pay something will be those at the bottom of the heap—those who are so well off that they benefit from full rebates. That would be a true irony.

Mr. Higgins

The hon. Lady should look at the true figures in the Red Book. They do, indeed, reflect the true position. The figure is 11 per cent. or, as the Chancellor said, £7½billion.

Mr. Lawson

£7¼ billion.

Mr. Higgins

Seven and a quarter billion pounds—that is the magnitude of which we are talking. I believe that it leaves unanswered the way in which that money might be distributed among a wholy range of taxes that the Government have at their disposal, but the arguments must be considered very seriously.

Mr. Budgen

If a local authority believes that its grant is inadequate to take account of its special needs, how will it have an opportunity to increase its income? However attractive the scheme, it considerably diminishes the rights of local authorities.

Mr. Higgins

I do not deny that. It makes a significant difference.

Mr. Lawson

A lot of dodges would have to be eliminated, such as sale and lease-back schemes, but it would still be possible under this scheme—which, as my right hon. Friend is suggesting, is similar to my conclusion as a result of the shift in the Budget—for local authorities to be able to levy genuine charges and, of course, be able to levy rents on council houses.

Mr. Higgins

My right hon. Friend, who has great experience of these matters, makes a good point. Undoubtedly, the scope for local authorities to follow this or that expenditure plan would be severely curtailed. I do not deny that. I know only too well the difficulties of getting a grant allocation system which can be regarded as fair and which takes into account differing needs across the country. We are already facing that problem.

The overwhelming amount of revenue for local authorities now comes either from central Government or from the business rate. One only has to deduct 11 per cent. from 100 per cent. to realise the extent to which that is already the case. I welcome the suggestion of further consultation. Although I welcome the change outlined in the Budget, we are rapidly approaching the conclusion —which I reached many years ago—that a complete switch is probably the answer to the organisation of local government finance.

Clearly, the switch must be related at some stage to the structure of local government. Further consultations are taking place about whether there should be unitary authorities. In some parts of the country the conflict may be significant, especially if differing parties are in power at county and local level. In other parts of the country—such as in West Sussex, which is the most prudent county —where there is an efficient authority, the current arrangement with local authorities works perfectly well.

I make it clear that I oppose the idea that this issue should be decided by means of a referendum. That is inconsistent with the practice of the House, and the decision should naturally fall to the House. The points that I have made this afternoon deserve serious consideration.

6.18 pm

Mr. James Wallace (Orkney and Shetland)

First, I should like to pick up on some of the points made by the right hon. Member for Worthing (Mr. Higgins). His argument is remarkable coming from a Conservative. He is looking forward to the day when all local government finance is centralised, in the case of England in Whitehall, and for Scotland in St. Andrew's house. What he said about the element of local democracy in distributing the grant given by Government and how it should be divided among services presupposes that the grant will be determined by someone in Whitehall taking a decision about the component parts and analysing the needs of each locality. That represents a denial of local democracy and a frightening degree of centralization—especially coming from a Conservative Member.

I spent the weekend in the Shetland part of my constituency. The House will recall that, in his Budget statement, the Chancellor, referring to his native Shetland, said: The charge in Shetland will fall to under £1."—[Official Report, 19 March 1991; Vol. 188, c. 181.] That was following on from his community charge relief proposals. Given the right hon. Gentleman's great benevolence to his native parts, one might have thought that by the time I got to Shetland this weekend, people would have started putting aside the savings that they will make on the community charge to raise a monument to their native son.

Although there is genuine and natural pride that a son of Shetland has advanced to such high office in the land, I cannot honestly say that the right hon. Gentleman's measure was greeted with great enthusiasm. This week, the local paper—The Shetland Times—carries the headline, Town hall in chaos as Lamont cuts poll tax". According to that newspaper, the acting chief executive of Shetland islands council found it difficult to determine the logic behind the Chancellor's decision. He said: 'At £750,000 it still costs the same to collect. The cost of collection is around £600,000. So whilst it may … have seemed reasonable to spend £600,000 to collect £3.2 million, it starts to get ridiculous when the total income in £750,000.' That underlines the great anomalies that will be found in many parts of the country, where vast sums will be spent to collect relatively small amounts.

It is also right to put on record the fact that, although the Chancellor referred to a poll tax of under £1—£2 in Orkney, the other part of my constituency—he conveniently ignored the water charge, which, in Scotland, is collected with the community charge. That will lead to a charge of £45 in Shetland and £55 in Orkney.

It has been drawn to my attention that, if the Chancellor had not announced the change, a fully rebated poll tax in Orkney would have been £28 plus £53 water charge—in other words, a total of £81. Now the total will be £55 for everyone—except people whose homes are not connected to mains water, who will no doubt be billed for £2. That means that the poorest will benefit from the measure to the tune of £26, while the best-off will benefit to the tune of £140. But rich and poor alike will have to buy their goods in the same place and face the 2.5 per cent. increase in VAT on top of the additional petrol duty incurred in getting there.

In my constituency, as in many other rural areas, the cost of living is already very high. The rural Scotland prices survey published last summer by McKay consultants in Inverness showed that, taking into account food, housing, transport, services and other goods, the cost of living in Lerwick was some 7 per cent. higher than in Aberdeen, which, as I am sure the House will recognise, is not a particularly cheap place anyway. In a rural village in Shetland, the cost of living was 14.1 per cent. higher. Moreover, in remote parts of Shetland, transport costs were found to be 38.5 per cent. higher than in Aberdeen. The 2.5 per cent. increase in VAT and the increased petrol duty will have a considerable impact on those places.

Hon. Members on both sides of the House will accept that there is an environmental argument for increasing duty on petrol, but if we are to take an environmental approach, it must allow for some discretion and for a distinction to be made between casual driving in a city and unnecessary driving in places where public transport is available, and essential driving in rural areas. That distinction has not been made; nor did the Chancellor take the opportunity to show some imagination about vehicle excise duty, which could have been varied to make it more economical to drive cars that consume less petrol. The Chancellor may seem to have shown great benevolence, but in fact people will have to pay considerably higher costs.

The Chancellor did little in terms of investing in the transport infrastructure. Freight charges have recently increased substantially in my constituency. As the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who is Chairman of the Public Accounts Committee, said, £60 million-worth of taxpayers' money—the Government always like to remind us that it is our money, not theirs —is to be spent to write off the administrative costs incurred in destroying poll tax bills that have already been printed and in sending out notices cancelling bills already delivered—such as the bill delivered to my hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) in Westminster. The northern isles need only about £1 milion to make their freight transport costs reasonable this year but we have been told that the money is not available. Yet two months later, the Government can find £60 million to dig themselves out of a hole of their own making.

The Scotch whisky industry is important both in my constituency and in Scotland as a whole. Hon. Members on both sides of the House will recognise the industry's contribution to our economy and, not least, to our foreign earnings.

Mrs. Gorman

Oh, yes.

Mr. Wallace

I am sure that the hon. Member for Billericay (Mrs. Gorman) will appreciate the contribution of the industry in terms not only of domestic consumption but of foreign earnings. If one accepts that there should be duty on products, one must accept the indexation of duty; but in spite of strong representations, an opportunity was missed in the Budget to alter the bias that discriminates against Scotch whisky vis-a-vis other alcoholic beverages and to introduce a maturation allowance. I accept that the main purpose of stock relief was never to benefit the Scotch whisky industry, but it was beneficial none the less, because the product has to mature over many years. The ending of stock relief damaged the industry's finances, and the introduction of a maturation allowance would seem to be a suitable way of doing something about that.

I want to refer to two other matters. On the first, some positive steps were taken in the Budget. On the second, little or nothing was done. The positive steps were in support for small businesses, and it would be remiss of me not to acknowledge what has been done. A number of the steps taken have already been mentioned—particularly by the hon. Member for Bridlington (Mr. Townend). One of the most important developments is that the Chancellor has shown greater sensitivity to the needs of small businesses and a greater understanding of what small businesses are all about than his predecessors.

I well recall, following the Budget in which the 100 per cent. capital allowance was abandoned, drawing to Treasury Ministers' attention the impact that that would have on crofters, farmers and fishermen in my constituency. I was told that what they had lost because of that change, they would gain through the reduction in corporation tax. There was a complete failure to recognise the fact that self-employed people did not pay corporation tax.

There was a basic misunderstanding of what small business was about. I had the impression that the Government thought that small businesses were businesses with as many as 200 employees. In fact, we were talking about businesses employing as few as four or five people. In the present Budget, the Chancellor has shown a greater sensitivity to businesses in that category.

The sizeable increase in the VAT registration threshold, the relaxation of the bad debt provision and the help to cash flow through deferred PAYE and national insurance contributions are all welcome. Nevertheless, all the benefits given to business in the Budget—the changes in corporation tax and the other measures that I have mentioned—amount to less than the additional £1.6 billion which is to go to local authorities from the non-domestic rate.

That figure is in the Red Book, at table 6.7. When I asked the Secretary of State about that, he replied that businesses were now free from the uncertainty of having to deal with "irrational Labour councillors". Now the whole country is having to deal with a Conservative Government who have increased uniform business rates in England and Wales by 10.9 per cent. with effect from 1 April—next week—at a time when the underlying rate of inflation is considerably less. If the Government had had any confidence in their anti-inflationary strategy, they would have known back in November that the rate of inflation would be considerably less than that.

One cannot consider the taxation of business just in terms of what the Chancellor announces on Budget day; one must consider general taxation policy. The local taxation of business is now in the Government's hands; if one considers that together with national taxation, it is clear that business will be taxed more heavily in the forthcoming financial year.

We have often suggested ways in which the Government could improve the uniform business rate through an extension of the transitional relief arrangements and by ensuring that that relief does not terminate if one moves premises. It almost defies rational thought that the Government can discourage a growing business from expanding into bigger premises while deterring a business in difficulty from contracting into smaller premises. The Government have, however, managed to do just that.

The financial position of small businesses will be eased by the reduction in interest rates. On Wednesday, my hon. Friend the Member for Berwick-upon-Tweed stated how our party would ensure that interest rates not only came down, but were kept down through movement into the narrower band of the exchange rate mechanism and greater independence for the central bank.

We should not,however, lose sight of the fact that many businesses have already gone to the wall. In the past 12 months, a record number of companies have gone into liquidation. They are no longer around to benefit from the lower interest rates. Those company collapses, together with the growing number of redundancies referred to by the hon. Member for Dunfermline, East (Mr. Brown) mean that the current level of unemployment is 2 million and rising. Despite that, however, the Chancellor made little reference to unemployment in his Budget statement and, today, the Secretary of State for Trade and Industry did not mention unemployment once.

Unemployment is not just another statistic. I am sure that we all recognise that there is a human dimension to it and that families suffer anxiety because of joblessness or the threat of it. It is regrettable that the Government. have failed to address that.

My party has outlined measures that would reduce interest rates and help in the short term. In the longer term, however, we must recognise that improvements in education and training are vital. If we do not recognise that, we shall once again have important skill shortages at the height of a boom.

There was considerable banter between the Front Bench spokesmen on the validity of each side's statistics. I do not believe that either spokesmen would dare to deny the fact that, compared with our competitors in Europe, Japan and the United States, Britain is a poorly trained country, and in comparison with our competitors, there are fewer people in Britain with worthwhile skills. Despite that shortfall and rising unemployment, the training budget has been cut. I welcomed the modest sum for training that the Chancellor announced in the Budget, but it fades into insignificance compared to the cut of more than £250 million for the training budget.

It is worth while considering the aims and guarantees of the employment training programme. Those unemployed for six to 12 months among the 18-to-24 age group will receive help and that is important. Likewise, those who have been unemployed for more than two years in the 18-to-59 age group will receive help. But what about those who have been unemployed for between 13 and 24 months? What about those women who want to return to the work force? We have always been told that those women represent an important resource, but employment training will do nothing for them in the next 12 months. The Budget will do nothing to enhance child care arrangements, which would give women an opportunity to return to work.

Although the Government may claim that this is a Budget for business—I recognise that some proposals are a step in the right direction—I regret that the overall taxation of business will be heavier than last year. I also regret that there is nothing in the Budget that gives any sign of hope to the unemployed.

6.33 pm

Mr. Robert Hayward (Kingswood)

The hon. Member for Orkney and Shetland (Mr. Wallace) was slightly disingenuous, as I am sure he knows. He referred to the £60 million cost of the alteration to the community charge. I appreciate the hon. Gentleman's concern about that, but he went on to say that Orkney and Shetland needed only £1 million for its transport infrastructure. If one extrapolates that sum on a per capita basis across the country, however, the hon. Gentleman is talking of an overall expenditure of about £1 billion: I should certainly want my constituents to be given equal consideration.

The hon. Member for Orkney and Shetland also referred to uncertainty; I too am concerned that the autumn statement, the Budget and general economic assessments, including adjustments to interest rates and the like, are based upon current economic statistics. The set of statistics published today differs greatly from last month's trade figures, because an extra £500 million has been allowed for invisibles. That adjustment has been made as a result of the revisions recently announced for the last two quarters of 1990. It does not make for sound economic policy when we have so many inaccurate economic statistics that are revised so regularly.

When the Prime Minister was Chancellor, in evidence to the Treasury and Civil Service Select Committee, he said: We have looked at some statistical changes. I am now considering what else we can do, though I have not yet reached conclusions, to improve the general statistical base. He said that he had sought the advice of the director of the Central Statistical Office and that he awaited a paper from him as to what we might do to improve the general quantity and quality, particularly the quality, of economic statistics". Following the then Chancellor's announcement in May, the CSO issued a report in December, the final paragraph of which stated: The programme of work we now have in hand, particularly the measures announced by the Chancellor, should enable us to make further improvements. However, the report went on: The figures may therefore be subject to larger than normal revisions, although the largest changes are likely to be in the capital account. I am not sure whether those two statements are natural sequiturs, and even in December it was clear that there was much work to be done.

On Tuesday the Chancellor said that one of the lessons that he had learnt from years of grappling with economic statistics was that it was difficult to be certain about the past, let alone the future."—[Official Report, 19 March 1991; Vol. 188, c. 165.] If that is so, it makes it almost impossible for a Chancellor to make any sensible judgments about a set of circumstances on which he is trying to come to a conclusion relating to what taxes should be raised and what interest rates should be allocated.

I press the Treasury to come to a rapid decision on the ways in which economic statistics could be more carefully considered, given the great inaccuracy of many of them. We had an example of that just 11 days ago when, according to the Financial Times, Britain's current account deficit for last year was a fifth less than originally estimated". On the basis of such information, we may well keep interest rates too high for too long, or too low for too long. The same error that may overstate a trade imbalance may underestimate it. It is important to do something about those statistics.

"The Lex Column" of the same edition of the Financial Times said that the revision of the current account deficit serves as a reminder of the deplorable quality of a statistical series which has mesmirised the markets on and off for several years. That underlines the fact that it is not just the Treasury that makes judgments that may turn out to be inaccurate but the financial markets that contribute so much to the country.

In terms of the revisions made last week, page 4 of the CSO report referred blandly to Errors and omissions in the fourth quarter, representing unidentified net inflows over the current and capital accounts, were 2.1 billion". In itself, £2.1 billion is a substantial sum of money. That report continued: Errors and omissions in 1990 were £3.4 billion". The CSO casually added in brackets (£15.2 billion in 1989)". We cannot carry on with the Treasury or the City making judgments on the basis of figures that are as inaccurate as those cited in the CSO report appear to be. "Economic Trends" is published annually. However, the last time that the visible trade balance was published was in 1984, but in 1990, that figure was revised, six years after the event, by £587 million. They revised the invisible trade balance six years after the event by £466 million. That makes any attempt to guide the economy virtually impossible.

I have commented on the trade figures, but are other figures any better? Every month, the Department of Employment publishes the underlying increase in average earnings. It is currently given as 9.5 per cent. and the figure has hardly fluctuated in the past three or four years—it is always somewhere between 9 per cent. and 10.5 per cent.

I draw the attention of the House to a subsidiary set of figures within that index—construction earnings. Any hon. Member who talks to anyone in the construction industry will know that the industry is in a deeply depressed state and that thousands of workers in the construction industry have been laid off. Those who can get jobs are accepting pay rates which they would never have accepted during the building boom two years ago. According to the Employment Gazette, construction earnings have gone up by just under 10 per cent. in the past 12 months. What hon. Member can believe that figure if he has talked to construction workers in his constituency?

An article in the Financial Times dealing with CSO statistics stated: The Central Statistical Office said wages and salaries per unit of output rose at an annual rate of 10.7 per cent. in January compared with 11.9 per cent. in December. That encouraging development on inflation comes in the wake of last week's unexpectedly bad producer-price data and ahead of the release of the retail prices index on Friday. That quote made two points. First, one set of figures published at the same time as the Employment Gazette's figures—which reveal virtually no change—showed a marked decrease in wage costs. It also referred to some producer price figures which most people do not believe.

When the community charge was introduced, the Government spent £1.3 billion on a transitional relief scheme, but it had no effect on the retail prices index, which makes no allowance for any rebate that an individual may receive. If people are not paying for something such as the community charge, it is ludicrous that no allowance should be made for that in the RPI. Everyone knows that enormous discounts are offered on air travel and holidays. Does the RPI take account of those discounts? The answer is no. It is ludicrous to have another set of statistics on which economic decisions are made which are so grossly distorted.

Talking of grossly distorted figures, I should like to pick up my earlier intervention about the Opposition's Budget calculations. When I challenged the hon. Member for Dunfermline, East (Mr. Brown), he referred me to the comments last Wednesday by the right hon. and learned Member for Monklands, East (Mr. Smith) about how the Labour party's Budget would be costed. My right hon. and learned Friend the Chief Secretary to the Treasury demolished the Labour party's calculations in great detail. Since then, a series of Opposition spokesmen have come to the Dispatch Box, not one of whom has challenged my right hon. and learned Friend's figures.

Mrs. Beckett

I am happy to tell the hon. Gentleman that I propose to demolish those figures comprehensively in my reply.

Mr. Hayward

I thank the hon. Lady for that clarification. I shall listen to her with interest.

Mr. Martlew

The hon. Gentleman has spent the last 10 minutes telling us that he has demolished the figures on which the Labour party based its economic calculations. If one takes cognisance of the hon. Gentleman's comments, how can one expect any hon. Member to put any weight on the Government's statistics?

Mr. Hayward

The hon. Gentleman has merged two points incorrectly: one was the series of indices on which I was commenting, and the other was the series of costings of Labour proposals. I await with interest the comments of the hon. Member for Derby, South (Mrs. Beckett), and I shall certainly be in my place when she speaks.

I should like to pick up the points made by my right hon. Friend the Member for Worthing (Mr. Higgins) and others in suggesting abolition of certain charges. In the long run, I should like to see removal of two other aspects of the unnecessary masses of paperwork. That would benefit the country. I was disappointed that the Budget did not do away with the road fund licence, although I was pleased that it was frozen. I hope that it will soon be abolished. I should also like the television licence fee to be done away with.

6.45 pm

Mr. Giles Radice (Durham, North)

Before the hon. Member for Kingswood (Mr. Hayward) started on his party political point, I very much agreed with his comments about statistics. As he knows, the Treasury and Civil Service Select Committee has done quite a lot of work on that point, trying to improve the Government's statistics. Part of the problem has been the way in which the economy has changed. With an open economy, it is difficult to collect statistics in the way that they were collected 10 or 15 years ago. There is another problem—in the early 1980s, we cut the resources for our statistical department. We should restore that funding. Perhaps the hon. Gentleman should have mentioned the problem.

This is a highly political Budget. As many hon. Members have said, by far the most important part of the 70-minute speech came in the last four minutes—the cuts in the poll tax and the increase in VAT to pay for them, or what my constituents call the "sting in the tail".

I wish to refer to the Government's efforts to extricate themselves from the poll tax fiasco, but first I shall comment on the Red Book. It is an excellent custom that the Red Book is published when the Chancellor makes his statement. This year there is a marked contrast between the Budget speech and the Red Book. In the Budget speech, there was an upbeat forecast of economic activity and a lot of talk about the recession being partly behind us, but one need only turn to table 3.1 of the Red Book—as my right hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) pointed out—to reveal the devastating figures: the 2 per cent. drop in output, the 5 per cent. drop in manufacturing output and the almost 10 per cent. drop in fixed investment for the coming year. Astonishingly, the decreases in manufacturing output and in investment were not mentioned by the Chancellor although, as even he had to admit, unemployment will continue to rise throughout 1991 and probably into 1992.

We are experiencing a severe recession which affects all parts of the economy and all regions. We do not have a small downturn. Output has been falling for not just two quarters but at least four quarters, and it could well fall in a fifth. By any standard, this is a big recession.

The Treasury and Civil Service Select Committee predicted that the economy would be in recession. When the present Prime Minister was Chancellor and introduced his autumn statement in November, he talked about a period of "weak activity.',! When the Chancellor came to the Select Committee on the Treasury and Civil Service in, I think, December he spoke about the recession being "shallow and short-lived".

Why did the Government get it so wrong? First, there is no evidence that the Gulf war made matters substantially different. The Chief Secretary admitted as much to the Select Committee on the Treasury and Civil Service when he told it about the economic consequences of the Gulf war. Therefore, that cannot be used as an alibi. The Chancellor tries to imply that we are suffering because of a world recession, but that is not so. There is a slowdown in the United States, but it is expected to be short-lived and the Chancellor's expectations of a recovery in the British economy are partly predicated on a recovery in the American economy. He cannot pray that in aid as the reason why our economy is in such a state.

If the Chancellor had looked at page 23 of the Red Book, he would have seen that the Japanese and German economies will grow by 3 per cent. this year and that the economies of France and Italy are growing by 1.5 per cent. Ours is definitely the odd economy out. The recession cannot be said to be the natural effect of the economic cycle. Some Members have already suggested that, and no doubt we shall hear it during the election campaign. A slowdown after an upswing might be part of an economic cycle, but the problem in the United Kingdom is quite different, because it is a four quarters drop in output. That is not a slowdown but a severe and sharp recession.

The reasons for this state of affairs are simple. This is a home-grown recession which arose from the overexpansion of the economy in 1987–88. Before Conservative Members say that the Opposition wanted the economy to expand at that time, perhaps I could quote something that I said, odious though that may seem. In early 1988 I warned the Government about over-expanding the economy and said that they should not cut taxes, which they proceeded to do. The right hon. Member for Worthing (Mr. Higgins) will know that in its Budget report of 1988 the Select Committee on the Treasury and Civil Service warned the Government that they were over-expanding the economy. We were right to issue that warning.

When the economy got out of hand, Government ideology or dogma led them to believe that they could rely on interest rates alone and that there was no other way. They could not increase taxes, because they had promised to reduce them and to go on reducing them. The problem about relying on high interest rates to slow down the economy is that they are slow and rather perverse and in the end have a massive effect. First, they had an impact on the housing market, on the small business sector and on investment. The effect eventually spread to the high street and the consumer, and in the second half of 1990 the economy fell off a cliff. It is unwise to rely on interest rates alone.

Conservative Members may say that all other economies are using high interest rates, but they are not. They use all the weapons at their disposal in a way that the Government have not. Our economy is in massive recession, because, for a long time after over-expanding the economy, the Government relied on a single weapon.

We are in a massive recession and must find a way out of it. The Government say that three things will happen: first, that destocking will come to an end; secondly, that there will be a decline in inflation; and, thirdly, that the American economy will expand and things will get better some time in the second half of the year. So far, their forecasting has not been good and until they have been proved right I prefer to rely on the CBI and the banks, including the National Westminster bank. They expect some shallow recovery, to use the Chancellor's words, but do not expect it to happen quickly and certainly not until the end of 1991, perhaps in the third or fourth quarter.

I looked to the Budget for something to help recovery and assist investment, but I am afraid that, despite some useful minor measures, it contains no meaningful help for business. The hon. Member for Bridlington (Mr. Townend), who, unlike some of his hon. Friends, knows something about business, said that sotto voce to the Government. In yesterday's Sunday Telegraph Mr. Gavin Davis, who is one of our advisers, said that the Government have followed a rather confused strategy.

Mrs. Teresa Gorman (Billericay)

The hon. Gentleman is a covert Tory.

Mr. Radice

I occasionally read the Sunday Torygraph.

Mr. Davis said that there is a bit of a muddle about immediate help to firms with cash problems and boosting the long-term rate of return on successful investment. Insufficient resources do little for either. As the hon. Member for Orkney and Shetland (Mr. Wallace) said, the amount that the Budget gives to industry is dwarfed by the £2.2 billion that will have to be paid out in the uniform business rate and which is three times more than the corporation tax assistance.

The CBI rightly argued for a new incentive for manufacturing, but the Budget contains no such incentive. The CBI and the Labour party asked for major help for training, but the Budget contains no such help. There is no new help for employment, although one would have expected such help because even the Chancellor admits that unemployment will rise. There is no new help for the infrastructure. The Government are relying on small and slow-acting help for business and less overtly on the increase in the public sector borrowing requirement, which partly reflects allowing the automatic stabilisers to work during a recession. I welcome that. Finally, the Government rely on a wing and a prayer and put their trust in the recovery of the American economy, but that is too little and too late.

In reality, the Budget has nothing to do with any of those things. It is designed to get the Government out of the poll tax mess and nobody pretends otherwise. Speeches by Conservative Members have not been about the real economy or what is happening to it, but about how to get out of the poll tax mess. The Budget was the first half of the effort which, in theory, was completed by the statement by the Secretary of State for the Environment two days later. As everybody knows, that did not quite do the trick.

The Budget represents a major U-turn, because it advocates the transfer of local government to central Government fundings. That reverses many years of cuts in central Government subsidy, a policy that was opposed by the Labour party. The right hon. Member for Worthing argues that there should be no local taxation and that all should be financed by national taxation.

Mrs. Gorman

Hear, hear.

Mr. Radice

The hon. Lady says, "Hear, hear," but if she agrees with that, what is the point of having local government? Why not run the whole show from Whitehall, which is the argument advanced by some Conservative Members? If there is to be local government there must be some sort of local government taxation, as is the case in every other country in Europe. No other European country would dare suggest that everything should be financed centrally, because it is understood that that is a recipe for running everything from the centre. That might please the invisible people in the Box, but it should not please Members of Parliament, who should want something better and to take a broader view of democracy.

The increase in value added tax will also have an impact on inflation. When VAT was increased from 8 per cent. to 15 per cent. in 1979, 4 per cent. was added to the retail prices index. This year's increase of 2.5 per cent.—from 15 per cent. to 17.5 per cent.—will add 1–2 per cent. to the RPI, although the Government point out that, if one takes into account the poll tax reduction, the RPI will fall.

The Government should start to look again, as they did all last year, at the underlying rate of inflation. When RPI was high last year, the Government said that mortgages and the poll tax should not be taken into account. However, Samuel Brittan points out in an interesting article in the Financial Times today that the underlying rate of inflation is not falling rapidly but has increased—and it is not predicted that it will fall much. Samuel Brittan is probably right when he says: Don't believe the coming plunge in the inflation rate. Perhaps hon. Members should bear that in mind.

The increase in VAT is the tip of the poll tax iceberg. That tax has helped to undermine the Government's public finances, which have been affected not only by recession. More than £10 billion was spent trying to persuade voters to love the poll tax, but unfortunately—or fortunately—that effort was a complete failure. The Government's attempts to extricate themselves from the poll tax have done them immense political damage, and will continue to do so.

It is a measure of the mess that the Government have made that the only large-scale item in the Budget is the £4.5 billion devoted to the switch from local to central taxation. I wish that those resources had been devoted instead to manufacturing investment, training, and the infrastructure. The fact that at a time of recession, when manufacturing output is contracting and investment is falling, the Government are devoting such massive resources to getting out of a mess of their own making speaks volumes about their priorities. This is not a Budget for business—it is a Budget to save the Government's skin. I predict that it will fail in that intention.

Several Hon. Members

rose——

Madam Deputy Speaker (Miss Betty Boothroyd)

Order. Between now and 9 o'clock, right hon. and hon. Members should limit their speeches to 10 minutes.

7.3 pm

Sir William Clark (Croydon, South)

I congratulate my right hon. Friend the Chancellor of the Exchequer on introducing what is mainly a neutral Budget—and I, like many of my right hon. and hon. Friends, am particularly pleased with the help that he has given to small businesses. I refer in particular to the reduction in corporation tax, the carrying back of losses for three years and the raising of the VAT threshold, which will take 150,000 businesses out of the orbit of VAT. I am delighted also that my right hon. Friend the Chancellor will review VAT penalties, because in many cases they are draconian and should never have been introduced in the form that they were.

The new treatment of bad debts will also be welcomed by small businesses, which frequently suffer from cash flow problems. They may be profitable, but they find it difficult to get in their money. The time is fast approaching when it should be mandatory for debts that remain outstanding after the agreed credit period has expired to be subject to interest. After all, if one has an account with a large store such as Harrods, interest is automatically added if one does not pay one's bill promptly. The imposition of interest would be a salutary lesson to companies that owe money to small businesses—as well as to Government Departments and local authorities, which are often extremely bad payers, waiting until the last minute before settling their accounts.

As to capital allowances, the provision for a 25 per cent. offset on a reducing basis means that a company will have to wait eight or nine years before it recoups its money. If one went for a straight 25 per cent. instead, the money would come back to the company within four years.

There have been four reductions in interest rates over the past few months, from 15 per cent. to 12.5 per cent., and my right hon. Friend the Chancellor is right to exercise caution. If sterling is too low, it is essential to increase the base rate—drastically if need be—to boost its value. On the other side of the coin, if one is trying to produce a fall in interest rates, it is as well to test the water—which my right hon. Friend successfully did. Sterling remains strong against the dollar and the deutschmark.

One feature of the Budget that I regret is the pettifogging nonsense of assessing the value of a mobile telephone at £200—to produce a charge on the user of £50, if he pays tax at the standard rate. I wonder whether my right hon. Friend the Chancellor appreciates the importance of the mobile telephone as a business tool.

I am a director of a company that has representatives on the road who use mobile telephones—but that is not their choice. It is the employer who wants to be able to contact his staff—particularly in service industries, such as washing machine and central heating repairs. Mobile telephones allow employers easily to switch an engineer, for example, from one place to another. It is nonsense to tax the employee, when mobile telephones are really in the interests of employers.

If a mobile phone is used only for business, it is not taxable, but if it is used for only one private call, the tax falls due. Who is to decide the veracity of the representative who says, "I don't use the phone for private purposes"? Who is to monitor its usage? Will the employer have to scrutinise the monthly accounts to determine whether each and every call was made for business purposes? That would be bureaucratic and administrative nonsense.

I am certain that ordinary members of the staff in my office occasionally use the telephone there to make private calls, but they are not surcharged. My right hon. Friend the Chancellor would be well advised to remove that extra burden of a mobile phone tax on what are often one-man bands. We should not even have to move an amendment against that measure. As for mobile telephones in restaurants, if one goes to a decent restaurant, such as the restaurants that I normally go to, they are banned anyway. It is up to the restaurant owner to ban mobile telephones. I repeat that I hope my right hon. Friend the Chancellor will think and cancel the measure.

I accept that after this year child benefit will be indexed. However, consideration should be given to taxing child benefit, particularly as, from 6 April this year, a husband and wife will be assessed separately and consequently wives who have no income apart from child benefit will not have to pay tax. However, it is ludicrous to give tax-free child benefit to rich people who do not need it. My right hon. Friend should look again at that.

I welcome the Government's consistency on the community charge. I remind hon. Members that in his first or second Budget my right hon. and learned Friend the Member for Surrey, East (Sir. G. Howe) undertook a complete switch from direct to indirect taxation and that became Tory philosophy. He did that on the premise that it is better to tax spending than earnings. That is analogous to what has happened this year. My right hon. Friend the Chancellor has put the emphasis on indirect taxation. The necessities of life are zero-rated for VAT. Heating, lighting, public transport and rent are all zero-rated, so the necessities of life are not affected by the increase in VAT. In that sense, VAT is, to a certain extent, a voluntary tax. That is the argument that we used in the 1980s and it holds today.

As I said earlier, my right hon. Friend the Chancellor is to be congratulated on this neutral Budget. He has introduced many changes which I have not had time to discuss in the 10 minutes available to me—for instance, the help that he has given to charities. The Budget is very good, particularly as my right hon. Friend has been restrained this year and did not have much manoeuvrability, but he has stuck to the Government's philosophy. The prudent reductions in interest rates will continue and, as we have all said, as inflation comes down interest rates fall accordingly as night follows day. I hope that my right hon. Friend will continue on the course that he has set himself.

7.12 pm

Mr. Denzil Davies (Llanelli)

Most Budgets are by their very nature short-term affairs, but this Budget takes the prize for short-termism. Indeed, it is little more than an attempt to construct a somewhat flimsy raft to which senior Ministers could cling as they frantically attempt to chart a rather meandering and zig-zag course between the Scylla of the recession and the Charybdis of the poll tax, both of which are monsters of their own creation, and it is a raft held together by nothing other than a collective ministerial fear of losing the general election and a cynical contempt for the good sense of the British electorate.

The other day, the chairman of the Tory party, the right hon. Member for Bath (Mr. Patten)—a member of the Cabinet, although he does not have much of a Cabinet job—was reported to have said that the Tory party had won the economic argument in the 1980s. I had always thought that the right hon. Member for Bath was one of the more intelligent members of the Tory party, but to make a statement like that in view of the Government's economic record must mean either that Tory central office has already spongified his brain or that he did not believe what he was saying.

In 1979 the Tories came to power proclaiming what they saw as three fundamental economic aims—to defeat inflation; to transform the supply side of the economy, thereby increasing the efficient supply of goods and services; and to establish, as they saw it, sound public finances. Certainly inflation has not been defeated; it has hardly been dented. As the Red Book shows, over the 12 years between 1979 and 1991 the inflation rate in the United Kingdom, except for a period of two and a half years, has been consistently higher than the average rate for all the countries in the European exchange rate mechanism. It is higher here than in France or Germany. Last Thursday, the right hon. Member for Bath was reported as having said that inflation would now fall like a stone; he said that—poor fellow—just a few hours before the latest RPI figures were announced, showing a fall of 0.01 per cent. in the retail prices index, and the underlying rate of inflation had actually gone up. Last week was not a good week for the chairman of the Tory party.

The hope now is that inflation, as measured by the RPI, will fall to something like 4 per cent. by the end of this calendar year—that is, by the end of December 1991. That may happen, but I have my doubts, as do professional commentators such as Sam Brittan and others. But even if it falls to 4 per cent. by the end of the year, the fall will owe more to the quirkiness of the RPI than to any real fall in the underlying rate of inflation. The Treasury's own Red Book forcecasts for the financial year to April 1992 an average underlying rate of inflation as measured by the GDP deflator—as good a measurement as any—an average underlying rate of inflation of 7 per cent., and in one of the worst recessions that Britain has faced since the end of the second world war.

The second aim of the Tory party in 1979 was to transform the supply side of the economy. The reality has been a disastrous failure. Between 1979 and 1991 the average annual rate of growth of the British economy was a miserable 1.8 per cent.—the worst record in western Europe and a worse record than that of the ideologically despised 1970s. Despite the reduction in the top rate of income tax to 40 per cent., the amelioration of capital taxes such as inheritance tax and capital gains tax, and despite deregulation and privatisation, all that the Shi'ite fundamentalists of the radical right have to show for the 1980s is high inflation and a disastrously low rate of growth.

In 1979 we had a surplus on our foreign trade in manufactured goods. In 1989, after 10 years of Tory supply side economics, that suplus had become a massive deficit of £17 billion. Last year it was still £11 billion, and the forecast in the Red Book for the coming year is for a deficit of £6 billion. As the Treasury candidly points out on page 33 of the Red Book, however, that fall in the deficit to £6 billion in manufacturing goods is the result of lower domestic demand and has nothing to do with the transformation of the supply side of the economy. If the recession recedes, as it might, and if interest rates start to come down and demand starts to increase, the deficit in our manufacturing trade will go up from £6 billion. I believe that it will go up to levels which will become unsustainable.

Finally, we come to the public finances. Once upon a time, we are told, a terrible dragon roamed the land, devouring the crops and terrorising the people, and it was called the public sector borrowing requirement or PSBR. As the right hon. Member for Blaby (Mr. Lawson) hinted, it was slain in 1984 or 1985—or perhaps it was 1986—much to the jubilation of members of the Institute of Economic Affairs and others. But the people, apparently were indifferent, and the crops were still destroyed. The dragon was changed by the nice PSDR—the public sector debt repayment—and the radical right slept soundly in their beds, but now they are beginning to wake up, as we heard from the hon. Member for Bridlington (Mr. Townend), and to form groups. And they are beginning to get very worried because the dragon is coming back—the PSBR is with us again. It may be said that it is only £8 billion for this year, which is nothing really.

One is reminded of the argument about the balance of payments that we heard from the right hon. Member for Blaby—that it does not matter, and even if it did, it would be all right if it could be funded. If privatisation proceeds for this year were taken out, the £8 billion would become £12 billion. In any case, I do not believe the figure of £8 billion, and I do not think that the Chancellor or anyone else believes it. I do not know about the Financial Secretary to the Treasury. Perhaps he should go into the Chancellor's room one night and look through the secret drawers in his big desk, where the worst-case estimates—perhaps event the middle-case estimates—for the PSBR lie.

Even on the basis of the present public expenditure figures, the general view in the City is that the figure will be about £12 billion. I agree with that view. Even the Red Book points out that there is a margin of error of about £6 billion. But if the public expenditure totals are eroded, as they may very well be, the figure may go above £12 billion. In the following year it will be far higher because, if I may mix my metaphors, one cannot turn around the great tanker of the PSBR in one year. As the balanced Budget fades away, the PSBR will increase.

The old wheel has come full circle. Inflation has not been defeated, the supply side has not been transformed, and the public finances are in deficit. On its economic record alone—never mind its aims and, indeed, its achievements—the Tory party does not deserve to be re-elected, and after the antics of last week it will not be re-elected.

7.23 pm

Sir Hal Miller (Bromsgrove)

The speeches from the Opposition Benches—in this respect, outstandingly introduced by the hon. Member for Dunfermline, East (Mr. Brown)—have demonstrated intellectual arrogance that is absolutely breathtaking and delight in the difficulties of this country that is deeply depressing. Opposition Members have once again demonstrated dramatically that they have learnt nothing and have forgotten nothing. If the country really is in the difficulties that the Opposition attempt to portray, it is certain that the British people will not trust Labour to bring it out of those difficulties. The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) would try to take us back into debt.

When the present Chairman of the Public Accounts Committee—the right hon. Member for Ashton-under-Lyne (Mr. Sheldon)—was in government, his was the one voice of righteousness that I admired, but he has been longingly harking back to the purchase tax as a regulator of businesses. The right hon. Gentleman welcomed fixed exhange rates, but only for an interval until a Labour Government could devalue once again.

I welcome the general thrust of my right hon. Friend's Budget. In particular, I welcome the move from direct taxes to indirect taxes. Like my right hon. Friend the Member for Worthing (Mr. Higgins), I believe that that will provide a more equitable and sensible basis for taxation. Because of lack of time, I shall not go down the road of local government finance, but I have to say that I agree very much with the conclusion of those who say that central Government must do and pay for what it wants at the local level, while local government must raise the money that it wants to spend. That is the way to achieve proper accountability.

The fact that the Labour party has learnt nothing and forgotten nothing is illustrated in the motor industry. I am glad that in recent weeks my right hon. Friend the Prime Minister and the Chancellor have paid tribute to that industry for the investment that it has undertaken. That investment will result in the doubling of this country's production capacity by 1994. My right hon. Friends paid tribute to the industry also for its increased skill levels, for imbalance quality, and for achieving a significant reduction in the imbalance of trade in manufactured goods. Despite the difficulties, to which the Labour party continually draws attention, it is significant that the motor industry has maintained production by increasing exports.

Mr. Radice

Nissan?

Sir Hal Miller

Those are British jobs. It is interesting that the hon. Member for Durham, North (Mr. Radice), who comes from the north-east, should object to inward investment, which has provided jobs and quality and has resulted in exports from the area.

It was interesting to hear my right hon. Friend the Secretary of State for Trade and Industry say that he did not believe in different tax regimes for different industries. In that case, why do we have the special car tax—a tax unique to the motor industry and exacerbated by the increase in VAT? Value added tax is grossed up on the special car tax, making it far more than 17.5 per cent., and resulting in one of the highest rates of taxation on motor vehicles in the Common Market. In view of the tributes that have been paid to the motor industry, I wonder how that can be justified. This industry is the goose that has been laying the golden eggs. If the Government persist in selecting it for increased taxation, they may succeed in killing the goose.

As for taxation on company cars, I must say that there is no justification, in terms of the environment or of equity, for increasing the scale charges above the rate of inflation. The rate proposed by my right hon. Friend the Chancellor is double the rate of inflation. In conversations that I have had with the Treasury over the past four years, it has been established that the scale charges represent the arm's-length cost of providing a car, as measured against contract hire rates. In many firms, the company car is a tool of the trade. The employee will now be taxed at a higher rate than the self-employed person under schedule D. Nor is the proposal environmentally satisfactory. Newer cars are cleaner and lead to an improvement in the environment.

My right hon. Friend could have done more to improve the environment. He could have given teeth to the statement of principle in the White Paper issued by my right hon. Friend the Secretary of State for the Environment by introducing a differential in favour of diesel fuel and of vehicles powered by diesel engines. That might have been done in the scale charges, by the special car tax or by the vehicle excise duty. It should certainly have been done by introducing a differential in the hydrocarbon tax on diesel fuel, which was previously introduced for unleaded fuel.

Nor is there any reason in equity why employment of workers in respect of company cars be penalised by the national insurance contribution provisions for the provision of fuel. I am not aware that that happens in the provision of tools to any other worker or with the provision of free coal for miners. Why is the motor industry being singled out once again as the milch cow of taxation to support the rest of the Government's expenditure plans?

The motor industry has been singled out for increased taxation at a time when it is contributing signally to the reduction of the trade imbalance in manufactured goods. It is demonstrating increased investment, sustained output and increases in skills and quality. These are all the objectives that the Government are trying to achieve, and the motor industry is achieving them. It is doing so despite the Opposition's attacks. Why has it been singled out as I have described? I look forward with interest to the reply of my right hon. Friend the Chancellor of the Exchequer.

7.31 pm

Mr. Doug Hoyle (Warrington, North)

I do not understand how the hon. Member for Bromsgrove (Sir H. Miller) can attack Opposition Members, who have defended the motor industry when it was in need of defence. We have advocated investment in the industry. It is especially difficult to understand how such an attack could have come from someone who was in favour of Jaguar being hived off as a route to its being a world success. Jaguar is now part of a multinational company that is having to plough in a great deal of money to sustain it. It is clear that the hon. Gentleman has not learnt from the bitter experiences of our motor industry under the Government. Indeed, Conservative Members have learnt nothing.

Sir Hal Miller

The industry is a success.

Mr. Hoyle

If it represents success, I should not like to see failure. The industry is experiencing serious difficulties, and the hon. Gentleman knows it. It is doing so because of the difficulties of the market. The hon. Gentleman is right that the Budget will do nothing except add to the industry's difficulties.

We listened this afternoon to another lacklustre performance from the Secretary of State for Trade and Industry, who opened the debate. One wonders for how much longer he will remain in his present position.

Mr. Ian McCartney (Makerfield)

The right hon. Gentleman is unemployable.

Mr. Hoyle

It would be better if he were made unemployed immediately. It will not be long before unemployment comes to him. He is now outside the main stream of his party and the policies that it is following. The right hon. Gentleman spoke about his knowledge and the knowledge of his departmental team, of industry. He would not know a manufacturing plant if he fell over one. He talked about decisions being taken by production directors and marketing managers. When did he last talk to production directors and marketing managers? There are many industrialists and executives who would like to be able to talk to the Secretary of State.

The Budget will only tinker with the problems that face the nation. It will do nothing for the ills that have befallen industry. It will do nothing for investment, output, the balance of payments and jobs. When the Secretary of State was boasting about increased investment, I wondered where he had been. Had he been dreaming about such investment? There has been no net increase in investment since 1980; indeed, there has been a shortfall in investment since 1979. Even the Government's forecasts show that there will be another 10 per cent. fall in investment. That is the way to disaster, not success.

Output has been falling. It reached its low point in April 1990 and it has fallen every month since then. Where is the success story to be found in output?

Last year, the balance of payments was £13 billion in deficit. Despite all the suffering this year from high interest rates, record levels of bankruptcy, rising unemployment and joining the exchange rate mechanism—we joined it at the wrong figure, which makes life difficult for British industry and export markets—the balance of payments is still running at a deficit of £12 billion. The Economic Secretary shakes his head, but the deficit will not improve. Indeed, it will become worse. That is a fact.

Training should be the Government's flagship. Instead of that, 50 per cent. of workers in British industry have never received any training. A third of them have no qualifications. Few firms are planning to introduce any training. The Government rely solely on the training and enterprise councils. They intend to move training from the public to the private sector. In February, an article in theManchester Evening News, which is not well known as a Labour party newspaper, said this: Whether direction from British industry, which has one of the worst training records in the West, will bring new impetus to training is open to doubt. That is an understatement. We can be certain that TECs will be no substitute for the previous approach to training. That form of training has been the backbone of the success of the German and Japanese economies.

The Budget contains no provisions that will create more jobs. Unemployment will continue to rise. Shortly after the Budget statement, and very soon after 5,000 jobs were lost at British Shipbuilders at Barrow, 4,700 jobs were lost in the aerospace industry. That loss was announced on Thursday. It seems that there is no end to the recession. In the north-west, one in three manufacturing jobs has been destroyed since the Government came to office.

The hon. Member for Bromsgrove talked about the success of the motor industry, but the motor car division of Rolls-Royce in Crewe is in serious trouble. The division of DAF that produces trucks at Leyland is in serious trouble. The shipbuilding division at Cammell Laird is also in trouble. I have already mentioned the trouble at Barrow. Under this Government, the textile industry has been in perpetual trouble. If something is not done rapidly for the textile industry, we shall not have one.

The Government have produced no strategy to aid the companies that are engaged in producing defence equipment. There are more redundancies to come, but the Government have introduced no policy to enable the companies to create civilian jobs. As a result, we shall lose design teams and skilled engineers. That will bring misery to the families of those concerned and adversely affect the nation's economy.

We cannot expect any help from the Department of Trade and Industry. What are the Secretary of State and his Ministers? I suppose that the answer is the horsemen of the apocalypse. They are destroying British industry. That is not surprising because the ministerial team of the Department believes totally in free market forces. Those Ministers do not belong to the mainstream of the Tory party. I believe that they are all members of the No Turning Back group. No doubt they have already submitted their applications to the Conservative Way Forward group. I wonder how much longer the Secretary of State and his Ministers will stay in office. The danger is that they fiddle while industry is destroyed. British industry has no future as long as the Tory Government remain in office.

7.49 pm

Mrs. Teresa Gorman (Billericay)

As suggested by the hon. Member for Dunfermline, East (Mr. Brown), I have been in my constituency this weekend talking to the people and finding out what they think about the Budget and the other changes that were proposed last week. I promised that, given the opportunity, I would not tell the House my views on those issues but would report back to the Treasury spokesmen about what the people in Billericay and Thurrock think, and which of the topics that were raised last week they dislike most.

Their comments filled me with trepidation because I thought that, as a Back Bencher, my speech would lose me brownie points. However, having heard my right hon. Friend the Member for Blaby (Mr. Lawson), my hon. Friend the Member for Bridlington (Mr. Townend) and one or two others, state their views on the community charge and its future, I am encouraged to add to that the opinion of most of the people to whom I spoke in Billericay.

My constituents feel that, if we are to have a different system, the Government should change it completely to central taxation. They are fed up to the back teeth with the high-spending Labour councils of Basildon and Thurrock, which keep adding to my constituents' costs in exchange for no real benefits at all. They think that, if central taxation takes over the small proportion still collected locally, central Government will be able to exercise some control over local government spending, which is what is required. Therefore, I am pleased to add my support to the view that has already been expressed several times this afternoon. It also means that I need not waste too much of my precious 10 minutes repeating that view.

My constituents were pleased about the measures for small businesses. Small business is big business in Billericay. It is a testimony to the success of the Government's economic policies in the past 10 years that, in parts of my constituency, jobs still chase people. New enterprises are opening, work is increasing and people are moving into the district simply because there are jobs and houses are still being built. Many new estates are going up and properties are reasonably priced, so people are attracted to the area. In Billericay, one does not have the gloomy view of the economy that is sometimes expressed in the House.

My constituents were, however, exercised by some of the small details in the Budget, particularly the daft idea of taxing portable telephones. They do not regard portable telephones as a luxury but as a tool of the trade which, although irritating to people in posh restaurants, are now a necessity. I sincerely hope that my right hon. Friend the Chancellor will reconsider taxing portable telephones. If we are to tax things that irritate us, perhaps we should tax walkmen, karaoke machines in pubs and one-armed bandits. Personally, I find men with facial hair irritating—to say nothing of social workers, who irritate me enormously—so perhaps we should tax them too.

Mr. Maples

Those are no doubt annoying things, but the difference between them and mobile phones, which we propose to tax, is that they are not provided by employers.

Mrs. Gorman

I thank my hon. Friend. However, employers pay the tax on cars for their employees, which is only £100 a year. The tax on mobile phones is likely to be twice as much. I should not like to be without my little car phone, which is important to help me keep in touch.

My constituents were pleased about the measures to relieve small businesses of many VAT problems. VAT has always been a major bugbear for small businesses. When I was chairman of the Alliance of Small Firms, the Government's report "Burdens of Business" said that VAT was the main problem. I always felt that the Keith committee, which added enormously to the penalty, was a positive disgrace. I am glad that the penalties for late payment are being relaxed, although they will have to be relaxed a great deal more before my constituents are pleased. Nevertheless, the Government have taken some steps in the right direction

Women members of my constituency had interesting views on the measures relating to child care. In addition to going to my constituency at the weekend, I also gave speeches to women audiences in Spalding and Cambridge. They were disappointed that the Budget did not do more to help working women. The Budget discussion today is about work and the success of our economy. One of the great successes of the Conservative Government is that they have not only changed but modernised the economy. We have moved away from the old, heavy industrial occupations to light industry, service industries and information technology, all of which are highly attractive to and make great demands on the labour of women. It is a growth area for which women, with their high level of dextrous manual skills and their ability to handle half a dozen problems at the same time, are very much in demand.

Half the work force now consists of women, but women have a dual responsibility—they are responsible for their families as well as their jobs. They are good at juggling problems, but they have to pay for help in the home while they are out at work. Whether they look after children or elderly relatives. the cost of help is now much higher than it was. Women were hoping that my right hon. Friend the Chancellor would develop the theme in the last Budget and allow tax deduction on the cost of providing nursery provision at the workplace. The majority of working women do not have small children of nursery age, but children of school age. One working woman in two has a child at school and has to cope with the problem of what to do with the children first thing in the morning, what to do if they cannot get home when school closes in the evening, and what to do in the school holidays. They often have to pay to resolve those problems. Many women work part time and, once they have been taxed, the cost of care gobbles up so much of their earnings that they are hardly worth while.

Those women work not to buy lipstick and tights but to supplement the family budget, to help pay the mortgage, and to help keep elderly relatives. They look to the Chancellor in the next Budget—I am getting in my fourpenn'orth now—to assist those women, and I strongly recommend such a change. Today the Labour party threatened us with the idea of a Ministry for women, should Labour ever be elected. Such a Ministry would be the kiss of death for women.

To see whether a Ministry has ever done us any good, we have only to consider existing Ministries. We have a Ministry of education and large numbers of illiterate and innumerate children; we have a Ministry of housing and people sleeping on the streets; we have a Ministry of Agriculture and the farmers are fed up to the back teeth with it; we have a Ministry of Transport, but trains do not run on time and tubes are packed.

All the evidence points to the fact that a Ministry is not the way to proceed. The only people who would be pleased at the Labour party suggestion are misogynists. That does not mean that women's votes are not extremely important to us, and we should include measures in our financial strategy that will appeal to those people—not just because they are women, but because they form a significant part of our work force and play a dual role.

Overall, the Budget has been well received in my constituency. Short of reducing the tax base rate to 10 per cent., which I know is coming in the not too distant future, I am sure that the feeling in my constituency is that the Government are continuing to run a strong, healthy economy and that, in Billericay, things have not only got better throughout the period of the Conservative Government, but continue to do so.

I promised my constituents that I would come back to give that message to the Treasury spokesmen today. We are not the gloom and doom organisation that people would believe us to be if they listened to what Labour Members have to say about our economy and our country, which they are always rubbishing.

Several hon. Members

rose——

Mr. Deputy Speaker (Sir Paul Dean)

Order. The Chair is grateful to hon. Members for observing the 10-minute limit. As a number of hon. Members who were hoping to speak are not now in the Chamber, it is possible for me to relax the limit. However, that does not mean that we should have very long speeches.

7.52 pm

Mr. Eric Martlew (Carlisle)

I am sorry that the hon. Member for Bromsgrove (Sir H. Miller) is not in the Chamber, but I believe that there is still an hon. Member from the west midlands who has a car constituency. The hon. Member for Bromsgrove said that Tories in the west midlands have failed to protect the car industry. The Budget was disastrous for the car industry and the west midlands.

Although cars are not made in Carlisle, we have a large tyre factory and a seat belt factory, both of which are foreign-owned—one American, the other Italian. We are grateful to those countries. We are also grateful that the Japanese have opened a car factory in the north-east and are to open another one in Derbyshire. Ironically, the Japanese have decided to do so in two good Labour districts in Derbyshire and the north-east, not in Essex. As my hon. Friend the Member for Durham, North (Mr. Radice) said, success in the car industry will come when Rover opens a car factory in Japan. I want British industry to be the best in the world, but the problem is that the Tories are content for it to be third-rate, which is what the Budget will make it.

It is only six days ago that the Chancellor made his Budget statement, but it is easy to forget what he said, not because of the way he said it, but because of its content——

Mr. Hoyle

It was also the way he said it.

Mr. Martlew

Yes, but I was trying to be nice.

The Budget speech was irrelevant until the last four minutes out of 70. The rest of it will have been forgotten and put in the dustbin. The fact that the right hon. Gentleman decided to increase VAT to 17.5 per cent. as a means to get rid of the poll tax has ensured that the Budget will be a footnote in history. That is what the Budget was about; it was not about helping industry or women, or improving training standards: it was all about trying to fix the poll tax.

Conservative Members left the Chamber as happy as sandboys last Tuesday. They were whistling and jumping, and on the telephone to the papers telling them how great the Budget was. I did not realise that they were the same people when they came through Central Lobby today. They were as miserable as sin; they must have been back to their constituencies and seen the Daily Express. The Budget was about fixing the poll tax, but the Chancellor blew it; the people of this country cannot be bought that easily. They are not fooled; they saw the reversal of policies that have been going since 1979—discrediting the rates by pulling away what used to be called the rate support grant. In my constituency in the late 1970s, that grant was nearly 70 per cent. of total spend, but recently, until the Budget change, it was only 40 per cent. The Conservative Government pulled away that grant and gave it to people in income tax cuts. One Conservative Budget contained a correlation between the 2p taken off income tax and the amount taken from the rate support grant.

Up and down the country, in Labour and Conservative authorities, people saw services deteriorating, cuts being made and the rates going up. In this Chamber, Conservative Members have made some disgraceful comments about local councillors—one would not think that they were members of the same party. They have not had a good word for them. I have spent 18 years in local government and, believe me, we run the county council better than the Government run the country—they are a shambles, and should resign. We have had a "quick fix" Budget, which was all about trying to fix the poll tax—and it did not work.

We have heard people talk about a Budget for business—what nonsense. The Chancellor decided to take 1 per cent. off corporation tax. The Government have done a grand job of reducing the tax bills of companies. Some of those bills have been reduced by 50 per cent. or even 90 per cent. in the past year. Some companies do not pay any tax. That is not due to fiscal policies, but because of how the Government have run the economy. The recession is reducing the tax bills of companies up and down Britain because they have not made profits due to the way the Government run the economy.

I do not believe that those business men who have gone bankrupt will have thought a great deal about the Budget, which will have been academic for them. People who lost their jobs during the last recession under this Government were conned into the enterprise culture by smart advertising by the Department of Trade and Industry, but then interest rates suddenly went up, the Government abandoned them and they went bankrupt.

Such business men not only lost the business, and often the status that goes with it, but many of them lost their houses. As I mentioned in a previous speech, in the local paper I see births, deaths and bankruptcies. The paper lists a former builder who used to live in a nice district of my constituency, who has been rehoused by the local authority. That is the measure of what the Government's recession is doing.

However, the real blow to business did not come in the Budget, which did not really matter. Business men were looking for a substantial cut in interest rates. What did the Government do? As they had another performance to give on Thursday, they held back on the reduction in interest rates until Friday, when they took them down half a per cent., which had already been discounted. That will not bring down the mortgage rate or save the bankruptcies. That is an absolute disgrace, the Government know it, and this weekend local business men told them that it was a disgrace.

I do not believe that the only thing that they jumped up and down about in Billericay was mobile telephones. The hon. Member for Billericay (Mrs. Gorman) must have talked to strange people if that was the only problem they had with the Budget. That was not what I was hearing from my local business people in Carlisle, who were asking, "When will the penal interest rates come down? When will the Government stop playing cat and mouse with people's jobs?" That is what they are doing; they have brought down interest rates by half a per cent. and will probably bring them down by another half a per cent. before the local elections, just as they brought them down when we entered the ERM. They did so for political reasons that have nothing to do with the economy, and that is a disgrace. [Laughter.]

I hope that the Financial Secretary to the Treasury will stop laughing when I start talking about unemployment. It is not funny, and the sooner he is unemployed, the better for the country. There are 2 million unemployed now, and Government statistics, drawn up by independent experts, show that the number is heading for 3 million next year. The Government have not even introduced any decent training schemes.

I visited a local training scheme on Friday in a company that had come out of the public sector—where it worked for the county council—and was now in the private sector. It is being severely hit by the recession. Employment training is dead in the water. We never appreciated the scheme, because it was compulsory, with only a £10 supplement for those on it. The Government have not raised that £10 in two years, but the present inflation rate means that it must be raised. As I said, employment training is dead in the water. The Government have abandoned it—it is another wasted scheme. Unfortunately, many people will suffer.

The Government's cynical logic is that, if we are to have 3 million unemployed, there will be no jobs anyhow, so we should not waste money on training. The Government should have taken the opportunity to provide real training for real skills. The least we asked for was the reintroduction of a community project to give some hope to some people in the short term until the recession is over. They have been abandoned by the Government in an effort to fix the poll tax.

The Tory Government have abandoned everything. They abandoned their former leader and the poll tax. I now hear rumours that they are not too happy with their present leader; but we are very happy with him.

Mr. Campbell-Savours

We backed the "No Turning Back" group.

Mr. Martlew

It is not the "No Turning Back" group; it is the "Don't Know Which Way to Turn" group. Why do we not have emergency measures to reduce unemployment? The Government promised to build a hospital in my constituency in 1979. The plans were drawn up, and a bypass could have gone around the outskirts of Carlisle and done some major good. However, the Government are not prepared to spend money to achieve a substantial reduction in unemployment.

We all know that the first part of the economy to recover is the construction sector. Hon. Members have heard the hon. Member for Kingswood (Mr. Hayward) talk about unemployment in the construction industry. A commitment to build a better infrastructure and more national health service hospitals would be beneficial. I realise that other hon. Members wish to speak.

Mr. Campbell-Savours

You are doing very well, Eric.

Mr. Martlew

I am grateful to my hon. Friend the Member for Workington (Mr. Campbell-Savours) for asking me to continue. I should not want to get in his way. I know that he has the same problem in his constituency.

In Cumbria, for example, we have problems with Barrow and Vickers. That town exists because 14,000 people were employed in the shipyards. It was obvious that there would be a decline in Barrow when the Trident programme came to an end. The Government did nothing. They did not improve the infrastructure. I discussed the matter with the hon. Member for Barrow and Furness (Mr. Franks) yesterday. He said that they had been waiting for a bypass in Dalton since 1936.

The problem with attracting industry to Barrow and Furness is that communications are difficult. We must improve the infrastructure. The work force in Barrow are second to none—they have built some fine submarines. However, there has been no commitment to spend public money, because the Government do not believe in spending public money. Believe me, the private sector will not build a decent road into Barrow and Furness.

We in Cumbria also have problems with Sellafield. Construction of the thermal oxide reprocessing plant is near completion. Thousands of people in the construction industry will become unemployed because construction of that plant is nearing completion. Becoming unemployed in the middle of the worst recession that the Tories have created will be a major problem for those people. We need public investment and public commitment. The Parliamentary Under-Secretary of State for Industry and Consumer Affairs, the hon.. Member for Gainsborough and Horncastle (Mr. Leigh) will not solve their problems.

What did the Budget do for people in Barrow and for those on THORP who are to be made redundant? They did nothing at all; in fact, they made matters worse. Unless there is a Labour Government, and I am convinced that there will be a Labour Government——

Mr. Campbell-Savours

One of the key issues that have been raised by our constituents is interest rates. In my office, we have been doing some interesting research on these matters, which shows that, if general elections are called when interest rates are high, as happened in 1974 and 1979, the Government lose. The Conservative Government lost in 1974, when interest rates were nearly 13 per cent. The Labour Government lost in 1979, when interest rates were nearly 13 per cent. However, when they fall, as they fell in 1983 and 1987 and were in a trough, the Government of the day won. It is significant that, immediately after those general elections, interest rates soared. Many lessons are to be drawn from that, and one of them may be a sign of when the next general election might be called.

Mr. Martlew

I accept that. Obviously, my hon. Friend has done much deep thinking. It is a pity that Ministers are not capable of such deep thought. [Interruption.] I take a more political view than my hon. Friend. I have looked at the opinion polls, and I have noticed that the June election date has disappeared. [Interruption.] My hon. Friend the Member for Workington will have an opportunity to speak later.

I am convinced that we shall have a June election, but it will be in 1992 and the Conservatives will lose. I was convinced that the Government would lose the election when I heard a senior Conservative Member tell a Lobby correspondent that the Government will fight the next general election on their record. If they do, the Labour party will win by 300 seats.

8.6 pm

Mr. David Atkinson (Bournemouth, East)

I, too, congratulate my right hon. Friend the Chancellor of the Exchequer on his bold and ingenious Budget and, in particular, on the dramatic reduction in the community charge that he has been able to achieve. I have never had any difficulty defending the principle of the community charge—[Interruption.] I said the principle of the community charge, which is that most adults, as opposed to the minority of ratepayers, are asked to make a contribution to the cost of local council services. Very few people oppose that principle. There are certainly no grounds for apologising for seeking to introduce the principle into local government finance. As my right hon. Friend acknowledged in his Budget statement, the main problem was that the community charge was far too high and far higher than we were led to believe during the general election campaign in 1987.

I was one of the 100-odd Conservative Members who advocated the removal of the cost of education to halve the community charge. In so doing, we accepted that it was bound to mean a delay in implementing our long-standing commitment to reduce income tax still further to 20p in the pound. As my right hon. Friend the Chancellor has paid for the reduction of the community charge out of VAT, implementation of that commitment can now take place sooner rather than later, and I congratulate him on that.

I congratulate my right hon. Friend also on the fact that inflation is also to fall faster as a result of shifting the main burden of the community charge on to VAT. However, I appreciate, as several Opposition Members have said, that the underlying rate of inflation will fall more slowly. Hence I welcome recent press reports that the retail prices index is to be reviewed and perhaps reformed. I look forward to receiving confirmation of that when my right hon. Friend the Chancellor replies to the debate. I hope that that will result in an index calculated in line with those in the rest of the European Community. It is clearly unfair for any party in government in this country to be criticised for inflation rates that appear higher than the inflation rates of our European competitors simply because our inflation rates include factors which theirs ignore.

Because VAT has been increased in the Budget, most businesses must decide whether to pass on the rise in the form of higher prices or to absorb the rise in order to encourage the good will of their customers. For tourism in particular, on which so many jobs, livelihoods and businesses depend in my constituency, it is not quite as easy as that. For example, tour and holiday operators will have to reissue invoices and confirmations to their clients who have already booked holidays. That will undoubtedly be a costly exercise for an industry that is already facing a difficult time. In addition, I have been told that the industry's code of conduct recommended by the Association of British Travel Agents discourages those businesses from passing on such an increase on holidays here in the United Kingdom—in anticipation, I understand, of the single European market in 1992.

Similar circumstances apply to hotels and guest houses which have quoted tariffs for this year, and perhaps even next year, upon which advance bookings have been made. Few of them will want to break their contracts on the prices that they have already quoted. They will have no choice but to absorb the 2.5 per cent. increase in VAT unless, of course, the Treasury accepts the price originally agreed including VAT at 15 per cent. in the quarterly VAT returns of those companies. No doubt my right hon. Friend the Chancellor and his colleagues will be receiving representations from the industry on that point.

Mr. Campbell-Savours

The hon. Gentleman said that, if people had already bought their tickets, the tour operator would have to reinvoice them.

Mr. Atkinson

I did not say that. I referred to people who had already booked holidays and paid a deposit. I was referring to the cost of catering and accommodation.

One announcement in my right hon. Friend's Budget which has been warmly welcomed by small businesses in my constituency, particularly in tourism, in the hard-hit building industry and elsewhere, was of the increase in the VAT threshold to £35,000. That will relieve a great many of those businesses from VAT and the burden of its administration.

I have consistently stressed the futility of imposing that burden on smaller businesses, particularly when the cost of collection is more than the amount which is collected from those businesses. That cannot be right. I appreciate that that burden is imposed on us by the Community through the sixth directive on VAT. I have always understood that successive Treasury Ministers have tried to negotiate what my right hon. Friend the Chancellor has now achieved, but they failed while he succeeded. I was delighted at my right hon. Friend's announcement in that regard.

I wish to press for further progress and urge my right hon. Friend to consider a much higher threshold of £100,000 turnover. If he can achieve that, he will be the toast of millions of small businesses throughout the Community, because he will relieve them of the burden of VAT.

I appreciate that my right hon. Friend the Chancellor was under considerable restraint this year with little to give away. He was seeking a broadly neutral Budget. However, I was particularly disappointed that he responded only very marginally to representations made to him for VAT relief on charitable activities supported by voluntary fund raising.

I have a particular case in mind concerning a hospital project in the Wessex region. Thanks to her own initiative and enterprise, a constituent of my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), Mrs. Mahrou Brown, who tragically lost her son through cancer, has, with her colleagues, raised £865,000 for her Pian Brown child cancer fund for a new children's cancer ward and child benefit unit at Southampton general hospital. However, because from last April health authorities ceased to be eligible for refunds on VAT paid on contractors' contracts, an additional £100,000 must now be raised to pay for that VAT. That cannot be right.

Dame Jill Knight (Birmingham, Edgbaston)

I assure my hon. Friend that the pain of that problem is not confined to Bournemouth. The Convent of the Little Sisters of the Poor in my constituency cares for a large number of elderly people on a residential basis. The nuns work selflessly without pay to look after those people. After an enormous amount of effort, they recently raised funds for necessary alterations, but they have told me that they must now find another £50,000. That is a disaster for them. Will my hon. Friend press his point to my right hon. Friend the Chancellor of the Exchequer and his colleagues?

Mr. Atkinson

My hon. Friend the Minister has heard what my hon. Friend the Member for Birmingham, Edgbaston (Dame J. Knight) said. No doubt he will pass on her comments to my right hon. Friend the Chancellor of the Exchequer, so that he can take account of our representations when he replies. I hope that next year my right hon. Friend the Chancellor will be able to respond more positively to the representations made to him this year by the charities' tax relief group even to the extent of negotiating with the European Commission if that were appropriate for VAT relief on charities.

When I and some of my local colleagues, including my hon. Friend the Member for Dorset, North (Mr. Baker), met the Dorset chamber of trade and industry recently to discuss the effects of the recession, we were told that interest rates, inflation and commercial debts represented the principal problems facing its members, together with the uniform business rate and the community charge for those who live over shops.

In his Budget statement, my right hon. Friend the Chancellor responded positively to each of those problems and I am grateful to him for his courage and imagination. The effect, I believe, will be to bring forward that so-called golden scenario of a 5 per cent. or lower inflation rate and a 10 per cent. or lower interest rate which, it is frequently suggested, is essential for a Conservative election victory and which the previous Labour Government did not achieve.

8.18 pm

Mr. Alex Salmond (Banff and Buchan)

I shall not have to obey the 10-minute rule to respect injuctions to be brief. I intend to make only three points: the first about the poll tax battle, the second about the general shape of the Budget and the third on a specific point about privatisation proceeds.

With regard to the £140 "giveaway" planned this week, I do not mind if there is chaos surrounding the Tories' retreat from the poll tax. I would much rather have chaos surrounding a retreat from the poll tax than have the chaos that would inevitably result from its continuation. Nor do I mind the fact that the Tory party is indulging in a quick fix over the poll tax. The Conservatives have certainly chosen the wrong quick fix. It would be infinitely preferable to shift the short-term burden on to income tax, which would have been much fairer and progressive, than to have it shifted on to VAT. Nevertheless, although regressive, VAT is fairer than the poll tax.

I urge the Government even at this late stage to consider a suitable amendment to the Community Charges (General Reduction) Bill and to make the £140 rebate the minimum discount on the poll tax for each person this year. To do that, rather than deduct the sum from the total poll tax bill and then divide it by whatever rebate percentage to which the individual is entitled, would remove at a stroke the iniquitous 20 per cent. rule which hounds the poor, the unemployed, the disabled and students, all of whom have no capacity to earn, in an attempt to make them pay the iniquitous poll tax. Even at this late stage, with the Government performing not so much a U-turn as a zig-zag that varies from spokesperson to spokesperson and from Chancellor of the Exchequer to the Secretary of State for the Environment, I urge members of the Treasury Bench at least to consider an amendment which would at last introduce some sense of parity and justice for the poor who have suffered most from the poll tax.

I say to the few Labour Members present that there is no doubt in my mind, and I think that there is no serious doubt among the Scottish people, that, if the tax had been meekly accepted, particularly in Scotland which was used as the guinea pig and testing ground for it, we would not be witnessing the complete humiliation of the Conservative party which will extend in the next few weeks and months.

I tend to agree with the hon. Member for Glasgow, Hillhead (Mr. Galloway), who said: Now that the poll tax law has been seen to be an ass, can the Secretary of State find it within himself to congratulate the people of Scotland, who showed more wisdom than the politicians? Some of them argued that the only way to get rid of the poll tax was to have a general election, and that nothing could be done until there was a general election. Those Scots who marched, petitioned and protested, and some of whom withheld their tax in an act of civil disobedience, are the people who have destroyed the poll tax mark 1, as has been announced this evening."—[Official Report, 21 March 1991; Vol. 188, c. 474.] The Labour party would do well to heed those words with considerable care. In the light of the events of the past two years the explanation offered by the hon. Member for Hillhead and myself has undoubtedly proved to be better than the advice given by the hon. Members for Glasgow, Garscadden (Mr. Dewar) and for Cunninghame, North (Mr. Wilson). They argued that people should stump up and pay up. We said, "Stand up and fight." It is that persistence which has destroyed the iniquitous poll tax.

Much of the controversy which has surrounded the long retreat from the poll tax has tended to overshadow the fact that this is a deflationary Budget. The Conservative party, having effectively surrendered monetary policy to the Bundesbank, is pursuing a passive approach to fiscal policy. That passive approach is probably preferable to the action of the Chancellor's predecessor but two who, in 1981, committed the ultimate mistake of deflating in the teeth of a severe recession. It is better to have no approach than to pursue the exactly opposite remedy. It would be much better and, certainly, would pull us out of the recession more quickly if, instead of relying on the automatic stabilisers on taxation and fiscal policy, the Government tried to lift the economy out of the recession which they themselves have engendered.

It is bad enough for those who live, often not through choice, in the formerly overheated economy of the south-east of England—the area at which the current economic policy has been solely directed—to take the consequences of the Government's mistakes in 1987 and 1988 in the form of the penal interest rate policies of the past two years. It adds substantial insult to considerable injury for the people of Scotland to have to suffer the medicine of high interest rates without ever having had the economic disease in the first place.

I have found it extraordinary over the past year to be told by successive Secretaries of State for Scotland that we should somehow be glad that the high interest rate policy is not biting on the Scottish economy as severely as it is hurting the people of the south-east of England—as though we should have some perverse satisfaction that suffering is being applied elsewhere. The main point is that the economic policy being pursued has never been appropriate for the Scottish economy.

Moreover, to judge from the figures, rather than the Government's fantasy, the Scottish economy is not weathering the recession. During the past five years, the Scottish figures for industrial production to the latest quarter are up 10.7 per cent. compared with 11.2 per cent. for the United Kingdom as a whole. Even more significantly, when one deducts the substantial surge in activity in North sea oil and gas, the increase in Scotland is a full eight points less than the overall United Kingdom average. For an economy which was never overheated in the first place, it has been intolerable to have to suffer the monetary squeeze of the past two years and now to endure a merely passive fiscal policy which has no relevance whatever to economic conditions in Scotland.

When we consider the severe localised economic problems in Scotland, such as the future of Rosyth naval base and the substantial problems of the steel and fishing industries caused by the Government's policy or lack of policy towards them, which immediately affect 60,000 jobs, we have no reason whatever to be satisfied even with the Government's modest forecast of economic recovery which they hope might come at some stage over the next year. If the forecasts of economic recovery are as accurate as those of the recession, which was not predicted in the first place, it would not be entirely surprising if the economic recovery failed to materialise.

It used to be said of the imbalance in economic policy between Scotland and the rest of the United Kingdom that compensation for this inappropriate macro-economic policy was made through regional policy. For the past 12 years, the Government have destroyed regional policy, and not just in the United Kingdom. They have done their level best to destroy or impede any development in regional policy throughout the European Community. Now we have a regional policy in reverse, as was shown comprehensively by the Scottish Television programme, "Scotching the Myth", broadcast suitable enough on St. Andrew's night in Scotland. It detailed point by point the enormous subsidies that pour into the south-east corner of the United Kingdom—the billions that pour into docklands, the hundreds of millions on civil service weightings and the enormous transport subsidies.

In his four months as Secretary of State for Transport, the present incumbent has spent 10 times what he managed to spend in four years as Secretary of State for Scotland—to mention nothing of the more than £1,000 million of additional relief in house mortgage subsidy which, once again, flows into the south-east corner. The additional relief on house mortgage subsidy to the south-east of England is greater than the regional policy budget for the whole of the rest of the United Kingdom put together. Such is the imbalance when the Tory party looks after its voters in the south of the United Kingdom.

Finally, I turn to yet another scandal which is about to be unleashed upon the Scottish people. Tomorrow, amid considerable fanfare, the Government intend to introduce the flotation of the Scottish electricity companies. That involves a substantial sum—no less than £1.5 billion of the £5.5 billion of privatisation proceeds estimated in the Budget.

I have information that the Scottish Office and the two financial advisers overseeing the flotation, the merchant banks Barclays de Zoete Wedd and British Linen, have agreed, as an official estimate, that the maximum take-up of shares for individual Scottish investors will be 25 per cent. That means that, at the very time of flotation, what has been heralded as an attempt to revive the Scottish private sector will result immediately in two of the largest companies in Scotland falling into the hands of those furth of Scotland. The privatised Scottish electricity companies will be in external ownership from the very point of flotation.

We have had some rare battles in Scotland during the past 10 years, on, for example, the Royal Bank of Scotland, when we were successful, and on other issues such as the Guinness-Distillers affair, when, unfortunately, the campaign to prevent a takeover was not successful; but this must be the first time that we shall have had a takeover by external interests on the very day of the privatisation.

I do not know whether the Financial Secretary to the Treasury is an expert on such matters or whether he has any familiarity with them or with the future of the hydro-electric company and Scottish Power, but perhaps either he or the Chancellor will confirm or deny the official estimates of the Scottish Office and the two merchant banks that are advising on the privatisation and say whether it is true that no more than 25 per cent. of the shares are meant to fall into the hands of individual Scottish investors. No doubt the institutional holdings will quickly reduce that percentage even further.

I understand from The Daily Telegraph, which must be an impeccable source on these matters——

The Financial Secretary to the Treasury (Mr. Francis Maude)

I can tell the hon. Gentleman straight that we should be delighted if a very much larger percentage of the equity of those companies went into the hands of Scottish individuals, and I am confident that it will.

Mr. Salmond

I am glad to hear it, but the Minister carefully avoided answering my question—whether from lack of knowledge or out of habit, I do not know. My question was, is it or is it not the official estimate—the working estimate—of the Scottish Office that no more than 25 per cent. of the shares will remain in Scottish hands? It is a simple question, and I hope that it will be answered this evening.

Incidentally, perhaps the Minister could explain why so much of the advertising of that privatisation has been on TVS and London Weekend television. Are the Government looking to sell as many shares as possible in the south of England?

I was going to say that The Daily Telegraph, that impeccable source, has suggested that there will be a substantial "spin-off" from the privatisation for the Conservatives' fortunes in Scotland. I must advise those Conservative Members who are present that, once the people of Scotland understand that the control and ownership of those companies will be removed from the Scottish people and taken furth of Scotland, there will not be a spin-off from the privatisations; there will be a substantial fallout for the already much diminished fortunes of the Scottish Conservative party.

Perhaps the only excuse for the Budget is that the Chancellor was so preoccupied with trying to fix the poll tax that he forgot entirely about the substantive economic problems facing the country. This is a standstill Budget, which is bad enough for an economy that is deep into recession, as is happening in the United Kingdom as a whole, but it is totally irrelevant for the Scottish economy which needs a substantial economic injection to pull it out of a recession engendered by economic policies designed to counter an inflationary disease in the south-east of England, which Scotland did not even experience in the first place.

8.33 pm

Mr. Andrew Hargreaves (Birmingham, Hall Green)

I add my congratulations to my right hon. Friend the Chancellor on his excellent neutral Budget which is ideal for the times in which we live. I believe that he got the Budget judgment just about right. I particularly support his cautious but none the less relentless downward pressure on interest rates, giving due deference to the foreign exchange markets and to the way in which that will be interpreted there. At the same time, he has given confidence to business and to those markets themselves. The proof of the pudding with regard to this policy is that on each of the past two or three occasions when he has taken a 0.5 per cent. move downwards, the pound has strengthened against the deutschmark. That proves that his policy is giving confidence to the markets. Having spoken recently to some midlands industrialists, I know that he is giving them confidence too. His policy shows that the Government mean business. The policy is working, and I urge him to continue in that line.

I shall be brief, because I know that my hon. Friend the Member for Birmingham, Northfield (Mr. King) hopes to catch your eye later, Mr. Speaker, and as he and I share one particular concern, I shall pass over it briefly because my hon. Friend wishes to say more about it. I refer to the fact that, like my hon. Friend the Member for Bromsgrove (Sir H. Miller), I am a little concerned about the Budget's effect on the motor industry, which is of critical importance to the west midlands. The industry is suffering at present, not merely from the effects of the recession, but also from the way in which we have chosen to raise taxation. I hope that something will be said about the motor industry in the reply to this debate for the benefit of those hon. Members who have raised that subject, but I shall say no more about that because my hon. Friend the Member for Northfield will develop that point further.

I very much welcome the help for small businesses that was announced by my right hon. Friend the Chancellor, which shows a genuine sensitivity to their needs. However, like my hon. Friend the Member for Bridlington (Mr. Townend), who is no longer in his place, I urge my right hon. and hon. Friends at the Treasury to continue their efforts to press our European partners for a meaningful threshold for VAT for small businesses. I totally concur that the figure should now be about £100,000.

The present level is ridiculous. It places a huge burden of responsibility on small businesses and, in most cases, is not worth collecting. It also places undue pressure on small businesses, especially in the difficult times that they are experiencing at present. Raising the VAT threshold would make a major difference to such companies and to our ability to develop and sustain our small businesses so that they become bigger and more profitable businesses for our enterprise economy of the future.

I come now to savings. The hon. Member for Warrington, North (Mr. Hoyle) and most of the Labour Front Bench have dwelt on the question of training. The hon. Gentleman said that the key to the success of the German and Japanese economies was their training. The Germans may well have an excellent training system—mostly financed from private industry rather than from direct Government sources or taxation—but having worked intimately with a well-known Japanese firm for three years, I can advise the hon. Gentleman that the principal success of the Japanese, German and Swiss economies lies in the fact that they are savings-based economies and not spending economies. In trying to grasp that fundamental point, it is a pity that my right hon. Friend the Chancellor did not have room for manoeuvre to continue the work begun by our right hon. Friend the Prime Minister when he was Chancellor in developing tax incentives and fiscal advantages to switch to a savings economy.

I am also concerned about the fiscal stance. Mention has been made of the need to spend a little more during a recession. The merit of the Government's policy over the past five or six years has been sound money, and I congratulate them on that. To have produced a balanced Budget and a Budget surplus from which debt repayment can be made was a masterly achievement, and my right hon. Friend the Member for Blaby (Mr. Lawson) deserves considerable accolades for having achieved that.

Like others of my hon. Friends, however, I am concerned that we now seem to be moving into a Budget deficit. I would not normally be over-concerned about the size of a trade deficit while there was a balancing or countervailing Budget surplus, but I am concerned that we may be moving towards an envisaged public sector borrowing requirement and a Budget deficit at a time when the trade balance is still heftily in the red. We have seen a little improvement this month, but nevertheless it will remain heftily in the red. A trade deficit can be balanced by a Budget surplus, but to have both a trade deficit and a Budget deficit worries me a little. I say no more than that.

I wish to say a few words about increasing VAT. I heartily congratulate my right hon. Friend the Chancellor of the Exchequer on his move to raise VAT by 2.5 per cent., thereby reducing the burden of local taxes. I entirely support the comments made by my hon. Friend the Member for Blaby and, indeed, my right hon. Friend the Member for Worthing (Mr. Higgins), when they suggested that after the continuous review or consultation period, as we are now calling it, we should extend the movement to central taxation and raise a significant portion, if not all of the money for local government services through VAT collected by central Government.

Where I take issue with my right hon. Friend the Member for Blaby, for example, is on the margin. I do not believe that it would be a good idea to change the margin from zero to, say, 5 per cent. It would make much more sense to raise the overall level to a level similar to that levied in some of our principal competitor countries in the European Community, perhaps to an overall rate of 20 per cent. or thereabouts.

A move to increase VAT is extremely sensible, in that it taxes spending rather than earning. If we once again adopt the idea that we tax spending and reduce taxation on saving, we shall make the balance more akin to the successful economies of the world, especially Japan and Germany. Furthermore, I disagree with those who say that VAT is regressive. Zero rating benefits those on the bottom rung of the ladder and those who buy fancy toys, cars, televisions and expensive items pay far more. VAT is a fair way to raise money for local government. I wish that the Government would complete the move and raise all local government finance by that method.

My right hon. Friend's Budget is an excellent Budget for the times. I hope that he will consider ways of extending certain moves that I have already mentioned. I recommend the Budget to the House.

8.42 pm

Mr. Frank Haynes (Ashfield)

What a destructive and wasteful Government we have serving this nation. Some of the things that have been poured out from the Government are absolutely disgusting. All they are trying to do is to save their skins. That is what it is all about. If they think that the people out there, the electorate, do not know what is going on, they have another think coming. People know what is going on, and they know that the Budget is a con trick.

I remember when we had the new Secretary of State for Trade and Industry at the Dispatch Box for the first time to answer questions. I happened to have question 9 on that day. I suggested to the right hon. Gentleman that he had had an easy time in the Treasury. When he came along as Secretary of State for Trade and Industry I told him that he had some work to do. He had to get industry out of the rut and the mess that it was in, which had been created by his own Government. He had to sort out the balance of payments problem. The Government are not going to do that. The balance of payments problem will get worse.

Mr. Julian Brazier (Canterbury)

We shall miss you, Frank.

Mr. Haynes

I shall miss the hon. Member for Canterbury (Mr. Brazier), too. The hon. Member for Birmingham, Northfield (Mr. King) will also be on his way after the next election—there is no need to worry about that lad.

I told the Secretary of State for Trade and Industry that if he did not sort out the problems he would have to buy a concrete suit and jump in the river just outside here. The Secretary of State has definitely failed the nation. I do not think that he knows what the job is about. He is wasting time in Parliament.

The hon. Membe for Hall Green (Mr. Hargreaves) said that the right hon. Member for Blaby (Mr. Lawson) should be given an accolade. I ask you, Mr. Deputy Speaker. I remember when he was the Chancellor of the Exchequer. He took us into the mess that we are in now. But when it got so bad, he ducked out of the job. He did not want it any longer. He blamed the problems on a little blip. Some blip that was! And what a mess we are in now.

The Chancellor of the Exchequer can sit there—I have one or two things to say about him too. [Interruption.] It is no good him ducking out of the Chamber behind the Speaker's Chair. He has ducked out of his responsibilities by nipping out of the Chamber.

In the Budget and at the Dispatch Box, we have heard it all before. Time has gone on and the Government have failed the nation time and again. I get the message loud and clear in my constituency about what people feel about what is in the Budget and how the ordinary working folk will be treated. I get around my constituency and talk to people in the pubs, clubs and elderly peoples' groups—[Interruption.] The Minister may laugh, but the smile will be taken off his face at the next election. The people out there have had enough. They tell me clearly in my constituency what they think about the Budget.

It is shameful that, since 1979, the Government have put more taxes on people than any other Government. It is shameful, shocking and wicked. The Government could not care less about the people at the lower end. They are looking after their own kind, as they do year after year whenever they get into office. The electorate are waking up because of what has happened in the Budget and on the poll tax. It is a real fiddle to knock off £140. Back home, people will still have the poll tax. The Government have not got rid of the poll tax yet, although they say they will.

God forbid that the Conservatives should win the election—I do not believe that they will. We shall win the next election and get rid of the poll tax, because we have said we will. We shall put something fairer in its place. [HON. MEMBERS: "What?"] Hon. Members can bawl and shout from their seats as much as they like, but they are going to sit there and listen. They will listen to my hon. Friend the Member for Derby, South (Mrs. Beckett) when she replies to the debate. They will be told a thing or two, as they were told when my hon. Friend the Member for Dunfermline, East (Mr. Brown) opened the debate. They were given a lesson on how a Government should help industry with a view to investment so that industry can make the profits necessary in the interests of the workers, instead of laying them off, as this lot do. The Conservatives do it all the time. They did it back in the 1930s. I am old enough to remember. I was 65 three weeks ago. I am old enough to know what happened previously and before the war. I know, and the people in my age group know, how the Conservative party treats people when it gets into office.

At long last the people are waking up to what is going on. The hon. Member for Northfield can take the grin off his face because he will be looking for a job elsewhere after the next election and he knows it. I have listened to some of the things that he has said since he has been in the House. There is no doubt that the does not know how ordinary folk go on. He has his head in the clouds like many more in the Conservative party.

We have had it all before and, while the Conservatives are in office, we shall get it again. They talk about a 4 per cent. inflation rate. They have promised it all before, but they have never achieved it. Up it went, and the workers paid out of their pockets to dig the Tories out of a hole, but people are now seeing through that con trick.

I remember the Secretary of State for the Environment when he sat on this side of the House—pre-1979—just before he waved that Mace around the Chamber. He said that under a Labour Administration, there was far too much central control. So what is happening now? The Government are introducing more and more central control which is hitting local authorities and the way they implement their policies. Ordinary folk are getting a real bashing because of the 2.5 per cent. on value added tax to pay for the £140 poll tax reduction. Many people in my constituency get relief on the poll tax, but no one will get relief on the 2.5 per cent. increase in VAT. Everyone has to pay that, so the increase hits people on lower incomes. The hon. Member for Canterbury may well yawn—he will have plenty of time for yawning after the next election. I want to see a Labour Member for Canterbury. We shall be in Government so there will be some fair rations then.

The Government talk about what they have done for the people. They have certainly done something for some people. [interruption.] The hon. Member for Brigg and Cleethorpes (Mr. Brown) should shut up while I am on my feet. I am surprised that you have not stopped him yacking, Mr. Deputy Speaker. I always listen to other hon. Members, so the hon. Gentleman should listen to me. I was rather surprised that, when Brigg town came to play Sutton town in my constituency last Saturday, the hon. Gentleman did not turn up to support his own club. I mentioned it to all the management, so he has lost their votes.

Where has all the money gone? The Government have sold off nearly all public industry. With the proceeds, they could have helped people who are really in need, but they have had to put 2.5 per cent. on VAT to pay for the £140 poll tax reduction. That is a shocking state of affairs but, slowly and surely, the electorate are learning.

The Government have failed miserably with their training programme. When Labour is in office, there will be a proper training programme so that we have skilled workers with jobs at the end of their course. At the moment, people go on some training scheme for a couple

of years because the Government assure them that there will be a job at the end of it, but there are already 2 million unemployed and there will soon be 3 million.

On Saturday night, I spoke to some people from the Confederation of British Industry at a reception during a concert. There was a break of about 20 minutes for a drink. I drank orange juice because I had my car. The people from the CBI said that the Government had failed industry, and indeed they have. They are trying to duck their responsibility by using a con trick on the nation.

David Puttnam and Richard Attenborough went to see the previous Prime Minister, the right hon. Member for Finchley (Mrs. Thatcher) to try to get help for the film industry. She guaranteed them £5 million over about three years. The Conservative party sacked its leader and also the £5 million—the film industry has not seen a penny of it, although the industry is an important exporter. We train the finest actors in the world—there is no doubt about that. They used to make films in this country before the Conservatives came to power in 1979. Since then, the industry has gone down.

The right hon. Member for Finchley recognised that we should pick it up, and she guaranteed the industry £5 million. She set up a commit tee with a view to putting the matter right, but under their new leader and with new Secretaries of State the Government have failed the industry. I am interested in that industry and always have been, like many other hon. Members. We want it to be successful. The Minister is not listening—he is yacking to the Chief Whip—but I want him to listen because I want the Government to do something about that industry, as the right hon. Member for Finchley promised before she was sacked. I want the Minister to tell the Chancellor, who has nipped out of the Chamber, that an appeal has been made on behalf of the film industry.

The Government have been a complete failure for the nation. I am pleased that the Chancellor has now come back. He knows that what I have said is true. The sooner we get rid of this Government, the better.

8.56 pm

Mr. Roger King (Birmingham, Northfield)

It is always a privilege to hear a speech by the hon. Member for Ashfield (Mr. Haynes). I observed that my right hon. Friend the Chancellor made good his escape at the start of the hon. Gentleman's peroration. I have to say that he did not miss very much. I enjoy the hon. Gentleman's neanderthal approach to socialism—he will be sadly missed when he leaves the House at the next election. Those of us who will be back will have to look on the Opposition's serried ranks of grey socialism which, so far during this debate, have failed to come up with any policies to help our economy develop.

I consider the Budget to be rather like a wine that has matured over the weekend as the salient points have been digested. They seem all the better for examination.

We are moving through difficult economic times, for a catalogue of reasons which go back many years before the Conservative Goverment came to power in 1979. Business people in the west midlands in particular want economic stability. They are fed up with brief periods of raging economic growth being followed by periods of recession. If they are to be sure of sustained, programmed growth, businesses—certainly those in the west midlands, and, I believe, those in the rest of the country—need a period of controlled interest rate reduction, fair exchange rates and general financial stability.

I was particularly struck by certain items in the Budget. One was the important but largely unsung incentive provided by profit-related pay, which I hope will be welcomed throughout the country. When the economy picks up, we do not want roaring demand for wages which will not be paid for either by productivity agreements or by the profitability of the business or service concerned. The scheme should be popular not only with businesses but with trade unions, whose objective is to further their members' interests.

The sale of stocks and shares in high street shops is, I think, an excellent way of carrying the torch of capitalism even further than has been managed by our privatisation programme. Lingerie was once sold behind screens in department stores, away from the public gaze—certainly out of the sight of men. Over the past few years, however, there has been a transformation of retailing practice. It is now possible to purchase lingerie from Knickerbox on the concourse at Epsom station. I look forward to the time when there is a Stockbox alongside Knickerbox. The more shares are brought into the public marketplace—the high streets, for instance—the more people will embrace the aims of capitalism, and appreciate the importance of taking a fair share in the value of British industry.

I am sorry that I was not here for the speech of my hon. Friend the Member for Bromsgrove (Sir H. Miller), because I believe that he mentioned the car industry—as did the hon. Member for Carlisle (Mr. Martlew). That industry is especially important to the west midlands, and I hope to say something about it myself.

We have heard a good deal today about the problems of local government finance, about the obvious move towards more central funding, and about a local levy to replace the poll tax. Some hon. Members have spoken of the desirability of transferring all local funding to central Government. There is, of course, some merit in such a system—the money would be raised through income tax, VAT or both—but the cost to the taxpayer would preclude any reduction in income tax in the foreseeable future.

Attractive though that panacea may be, I fear that it would lead us into the quagmire of central funding for all local authority services. I am reminded of the problems that we encounter in seeking a fair and equitable system of funding for the National Health Service. Whenever operations are cancelled or wards are closed, for whatever reason—irrespective of the way in which the local administration conducts its affairs—the finger is always pointed at the Government. They are invariably accused of having underfunded the service, although they can prove that they have financed it more than adequately. When money is short, the Government get the brickbats.

Representing as I do such a great city as Birmingham, I would not like to be faced with a constant procession of people telling me that education, housing and social services are inadequately funded because central Government have not got the formula right. Unless we can devise a block grant formula that is wholly fair—a task that has defied Governments for generations—central funding will not be an acceptable alternative. We need a mixture of the two types of funding.

My right hon. Friend the Chancellor has increased the levy on personal use of company cars. I remind my right hon. Friend that the company car forms the basis of the British motor industry's production requirement: the bedrock of the annual sale of 600,000 has attracted such overseas manufacturers as Toyota, Nissan and Honda to this country, and provided a springboard for entry into the world market. The motor industry is on course to export half a million cars this year; that is an outstanding achievement, on which a substantial home market has been built. If we jeopardise that home market by persuading the company car fleet owner to ask his employees to buy their own cars, there is a danger that they will buy foreign cars. I think that my right hon. Friend may have gone a bit too far.

Having expressed that reservation, however, I congratulate my right hon. Friend on an excellent Budget.

9.3 pm

Mrs. Margaret Beckett (Derby, South)

My hon. Friend the Member for Halifax (Mrs. Mahon) summed up the Budget last week when she said that it would be remembered as the "poll tax Budget".

Midland Montagu, in its analysis of the Budget, said: The budget has been dictated by the over-riding need to cut poll tax bills for the coming year". I agree with my hon; Friend the Member for Durham, North (Mr. Radice) that the Chancellor's speech was almost as striking for what he did not say as for what he did. With forecasts that show the economy to be in an appalling state, but with little indication of how the Government plan to deal with that, I was surprised to see the Chancellor's speech referred to as "bold" and "courageous". He was not courageous enough to mention the two worst indicators found in the Red Book—the fall of 5 per cent. in output and the fall of 10 per cent. in fixed investment. The latter figure is particularly striking when we recall that the fall in economywide fixed investment is the biggest year-on-year fall in such investment since the great depression of 1931 to 1932.

It is no wonder that S. G. Warburg says in its response to the Budget: Not only does the gloomy period come first, but the longer term optimism is rather suspect The Chancellor, however, had the courage to mention rising unemployment. Unfortunately, that was all he did—mention it. He spoke sternly about inflation, although whether it was courage or foolhardiness that he showed by gambling with inflation is another matter. The Chancellor, through the increase in VAT and the increase in prescription charges announced a few days before the Budget, has inflicted yet another inflation own goal. That is just what the Government did all last year, and it has brought us to our present pass.

I know that the increase in VAT will not show in the same way in the headline figures or the retail prices index, but it will show up in prices. That gamble on VAT is a poll tax surcharge, imposed in an attempt to save the Government's neck. The Financial Times called it a tax to save the Conservatives from the just consequences of their own folly. I notice that it was The Times which said that this was the nearest any British Government had come to handing out fivers on the street corner. On the basis of the cut in the poll tax figures, the Financial Times predicted that next year we shall see luncheon vouchers handed out in return for voting Conservative at the next election—[Interruption.] That is not my joke, but that of the Financial Times.

Better forecasts for inflation were made in the Red Book and in the Chancellor's speech, although the gross domestic product deflator, in common with the most recent inflation figures, suggest that there are still problems. We have been given better forecasts for the balance of payments, but we believe that that is the least that we should expect from a flattened economy. Kleinwort Benson has said in its commentary: The Treasury's forecast that inflation falls further in the subsequent year to 3.75 per cent. is too optimistic … there are too many special items … that worked to reduce the rate of the UK RPI in 1991, and are unlikely to be repeated in 1992 We have all along predicted that there will. be improvements in inflation and other indicators because of the way in which the economy has been flattened, but what about the longer-term perspective? Once again, the Budget shows that there is none. The Government seem to be looking not one day further than the day of the next general election.

The predictions of falling interest rates, inflation and balance of payments—at least for a period—is what we used to call the window of opportunity in which the Government were hoping to hold the election. We should now re-identify that anticipated period as the eye of the hurricane. It has long been predicted that there would be some deterioration in the economy when the squeeze was lifted. But what is now crystal clear, just as we feared, is that the Government plan not to learn from the past mistakes but to repeat them—at least partly for electoral reasons.

The signal that the Government gave in 1988—I am pleased to see the right hon. Member for Blaby (Mr. Lawson) in his place, because it was his signal—fostered the credit boom and added to the tax cuts all those words about the economic miracle and our problems being at an end. One mistake that the Government are now threatening to repeat is giving the same signal.

Mr. Lawson

Will the hon. Lady quote the statement to which she referred?

Mrs. Beckett

Does the former Chancellor disown the phrase "economic miracle'?

Mr. Lawson

Yes, I do. Will the hon. Lady quote the statement to which she referred?

Mrs. Beckett

I apologise if I have done the right hon. Gentleman an injustice. I recall the phrase being used. I recall it being used by the present Prime Minister. If the right hon. Gentleman is shifting the blame from himself on to the Prime Minister, that is fine by me.

Mr. Lawson

The hon. Lady will find that I quoted a number of other people who had referred to an "economic miracle".

Mrs. Beckett

I am grateful to the right hon. Gentleman for putting the record straight with such commendable accurancy. I am afraid that I do not recall his strong denials, his dissociation from those words of his suggestion that there might be anything flawed in those remarks.

There is no doubt that the Government are giving a similar signal today. When we went into the exchange rate mechanism, the then Chancellor, now Prime Minister, talked about the adjustment that we would have to make and the sacrifices that would be required. As we feared, the present Chancellor is trying to tell the electorate that those hard times and sacrifices are already behind them. The Government are saying that there is no alternative to their proposals, that no one could run the economy better than them—an example of hubris which no doubt will shortly be followed by nemesis.

Why are the Government facing these problems? The Chancellor said—this is probably just one explanation which he wants to give—that recession in a market economy was "inescapable''. That is a new line in Tory propaganda. Will the right hon. Gentleman put that in the election manifesto? I do not remember it being in the 1987 manifesto. The other usual suspect is, to quote my hon. Friend the Member for Brent, South (Mr. Boateng), that "little mistake" in 1987 to which the Government admit—interest rates cuts. I notice that increasingly, when the Government mention that "little mistake", it seems that even that was our fault, not theirs.

What other slings and arrows have beset the Government? Under what harsh strokes of fate have they reeled? What terrible ill luck has beset them?

Mr. Ian Taylor (Esher)

Will the hon. Lady give way?

Mrs. Beckett

I should like to continue.

Apart from the Government's mistakes and misjudgments, I can see only one piece of ill luck. The tragedy for this country is that the Government have had £100 billion of income from the North sea, money that they used to keep the electorate sweet while they made the economy the test bed for theories which even they have now abandoned. The oil provided a cushion which allowed them to win three elections in a manner that convinced them that they were invincible. Because they were so sure that they could not lose, no matter what they did, they dared not only to run risks with the economy but to introduce the poll tax—an awful warning of the dangers of a fourth term.

Mr. Ian Taylor

Will the hon. Lady give Way?

Mrs. Beckett

I should like to get a little further on, if the hon. Gentleman does not mind.

The same arrogance as the Government displayed then leads them to become increasingly erratic in their own defence. All this week, they have triumphantly announced that they have shot people's foxes and stolen Labour's clothes—I think that they have a little machine in central office that turns out those lines.

The Chancellor of the Duchy of Lancaster, who sadly is not with us this evening, got his lines correct, but evidently he came in on the wrong cue. He was reported this week as saying that inflation was falling "like a stone". If a 0.1 per cent. decrease in the headline rate of inflation is "falling like a stone", what is a 0.1 per cent. increase in the underlying rate of inflation? Is that rising, like the Government's blood pressure? We know what the tight hon. Gentleman probably meant to say—under a Government who claim such sweeping success, it is investment, output and employment that are falling "like a stone".

We had the ill-timed recitation about the Government having stolen the Labour party's clothes. I detect some inconsistency. Until about two or three weeks ago the Government were complaining that the Labour party had no policies. As recently as the autumn statement debate, the Chancellor said of my right hon. and learned Friend the Member for Monklands, East (Mr. Smith): The right hon. and learned Gentleman has no policy."—[Official Report, 13 February 1991; Vol. 185, c. 866] That accusation having failed to serve, the Government decided to steal the policies which they had recently detected. Tragically for the country, they have not stolen our policies. There is nothing in the Budget to assist long-term investment in training, but it contains cuts in real terms of over £200 million.

My hon. Friend the Member for Newham, North-East (Mr. Leighton) quoted the chairman of a group of TECs who gave evidence to his Select Committee on Employment. He said that the TECs had had an overall reduction in their funding and that it has resulted in a major problem. He referred to a draconian average 45 per cent. cut in real terms in their budgets and he called on the Chancellor to reinstate the training and enterprise budgets at last year's level—a call which has gone unheeded.

There was little in the Budget to promote investment in manufacturing, although what was there was welcome. If the CBI's prediction of a 16 per cent. fall in manufacturing investment proves correct, manufacturing fixed investment, including lease assets in the coming year, will be below the level that the Government inherited in 1979. Before the Budget, a House of Lords Select Committee said: The Government no longer has any view of the strategic importance to the nation of certain industries, or indeed of any industries at all. All the evidence shows that the present lack of Government commitment, support and assistance is deeply damaging to industry and to our national interest. The Government's response was to cut the rate of corporation tax. On 7 March the Financial Times said that the cut in the corporation tax rate would merely deliver windfall gains to those companies that manage to survive the recession. In its response to the Budget, the Engineering Employers Federation said that cutting interest rates would have done far more and that what the Chancellor did was not an adequate response to the problems of the UK industry and does not address the problems of UK industry and doesn't address the problems of companies not having enough cash to invest for the future. In its commentary on the Budget, Phillips and Drew observed that the Chancellor's measures amount to no more than a teaspoon with which to hold back the recessionary tide. Those are the measures so highly, praised by Conservative Members.

The other measure to which the Government gave too little was child benefit. I draw a distinction between our proposals for the Budget and the general shape of our public expenditure proposals. We have clearly said that we have clear and specific commitments to pensions. We will increase the pension for a single person by £5 and for a married couple by £8. We have also said that we will restore child benefit to the level that it would be if it have been index-linked since 1987. We have said that we wish to make other proposals, but that they would be made as resources allowed, and that we would give priority to education and training and investment in manufacturing industry. As the election drew nearer and we had a better idea of what we were likely to inherit, we would be more specific about some of our proposals.

Mr. George Walden (Buckingham)

Will the hon. Lady give way?

Mrs. Beckett

I want to put this on the record, but if I have time I shall give way later.

Mr. Walden

I should like to get on to the record.

Mrs. Beckett

As my hon. Friend the Member for Blackburn (Mr. Straw), who is the shadow Secretary of State for Education and Science made clear earlier in the debate, we have committed ourselves to a steady increase in education spending as a proportion of our gross domestic product. That will be done as resources allow, but at present we are not in a position to put a timescale on it. That is more of a commitment than anything that we have heard from the Conservative party. All that we have heard is that education is dear to the Prime Minister's heart, and one cannot get much less specific than that.

The Chief Secretary and the Secretary of State for Social Security get very excited about this, so for their benefit I shall set the record straight. The main proposals made in what has been described as our shadow Budget were meant for the present Chancellor, for the latest Budget, in this year of expenditure. We made that plain from the beginning. I know that the right hon. Gentleman sent someone from Central Office to our press conference, so that person will be able to tell him precisely what was said there—at least someone from Central Office attended it. Who sent him is not my problem.

Those proposals included changes relating to training and revenue. Not hypothecated, of course—perish the thought. On revenue, we presented an illustrative package. I will be open with the House, and admit that it was designed for one purpose only, which it achieved. That package was designed to show clearly that the Chancellor had the capacity and room for manoeuvre to make programme changes of the kind, and on the scale, that we proposed without having to increase the basic rate of income tax.

In a rational world, it should not be necessary to bother making such distinctions, but in this irrational world, in the House, and confronted by an increasingly desperate Government, it is impossible to advance any proposal of any kind that the Government have not themselves advocated without some idiot saying that it will mean an increase in the basic rate of income tax of lop or 20p—as the Financial Secretary claimed the other day. Our central contention has been proved beyond doubt because the Chancellor himself raised sums similar to those that we proposed, although mostly from a different range of sources.

I turn to the specific criticisms that have been made of the figures we gave. The Chief Secretary sought to imply—although, as always with the Government, it is necessary to read the small print—that our figures were in some way incorrect. To be blunt, that is untrue.

I refer to the figure for child benefit and to the Chief Secretary's speech at Southport last weekend. He said: John Smith said that the increase could cost £775 million. And so it would if no changes were made to income support levels. But we did not propose any changes to income support levels. That proposal related to the Government's Budget and concentrated on the minimum that we thought that they should provide. We were confident that the Government would not both reverse the cuts in the value of child benefit and increase the level of income support payments. We were right, because they were not prepared to do so—[Interruption.] The Government fed their increase through to income support—Conservative Members should listen before they try to nit-pick about accuracy. They acted in accordance with our predictions, so we called on them to make a commitment that we thought was important.

There was another reason why the Government did not feed through their increase to income support. The Government froze child benefit from 1987, when the Prime Minister said it would be paid "as now". They gave a £1 increase for the eldest child in April, but that was not added to income support. The Government intend to claw back maintenance payments from the fathers of single parent families, and they will not be fed through to income support. We were perfectly right to expect the Government to be consistent in that respect.

In Southport, the Chief Secretary said that the Government were proposing on this occasion to feed that increase through. Good. It is about time. It is practically the first time in living memory that they have done so. However, not all the money raised from freezing the married couple's allowance is being fed through to income support or child benefit. In the same way, in the past, the Government froze child benefit and claimed that they were giving money to low-income families—but they did not give it all to them.

There is another reason why we prefer the full increase in child benefit to the Government's proposals. Some 25 per cent. of those entitled to income support do not claim it. Half the families entitled to family credit do not claim it. The only way of ensuring that the increase in child benefit goes to the 98 per cent. of families who claim it is to implement the balance of the increase there.

The Chief Secretary spoke of our costing as "a piece of incompetence" when it is correct and mentioned an error of £300 million. It is not our error; it is the Chief Secretary's distortion—a distortion that comes precious near to deceit.

In the case of offshore trusts, until we see the Government's proposals in the Finance Bill we shall not know whether what the Chief Secretary said about that was more accurate than what he said about child benefit. I do not know how many hon. Members saw the story in The Observer yesterday written by a group of tax planners who say that the Chancellor proposes to leave intact many of the tax advantages of trusts established offshore prior to … March 1991. Of course that was not our proposal.

That brings me to the £619 million that the Chancellor could raise from personal pensions. One would never think from all the fuss that the Government are to stop paying for them in a year or two. That particular payment and that source are analagous to the money that the Chancellor will raise from 1992 from national insurance contributions on company cars. There is absolutely no doubt that the cessation of the 2 per cent. incentive, as the Government prefer to call it, will mean extra revenue for the next Government on the scale that we identified. There is no doubt either that the Chancellor could bring that payment forward. Just as they did over child benefit, the Government profess shock that we dare to suggest that they might engage in any element of retrospection, and implied that there had been some breach of contract. In Southport, the Chief Secretary called it a disgraceful suggestion.

Why do we think that the Government would engage in retrospection? Let us look at the Government's record; let us look at the cost. The cost of the benefit was predicted at £60 million a year when it was first proposed, and it now costs more than £600 million. When single payments reached £400 million, the Secretary of State told the House that the expenditure was out of control and single payments were abolished. Incidentally, the biggest losers were the families on income support about whom we were seeing so many crocodile tears a few moments ago. It is not the case that those getting the 2 per cent. extra rebate are in some way paying more arid therefore being deprived of something to which they are contributing. It is the rest of us, all the other national insurance contributors, who are paying for that rebate. The people who signed up initially were promised a rebate for five years, and the Government backdated it to 1987, so by next April those people will have had their full five years' worth of promised rebates.

That brings me to my third point. The Secretary of State, in cahoots with the Prime Minister, has a long track record of removing benefits for which people have paid, despite the fact that their contributions have increased under this Government while the benefits have been removed. The current Secretary of State and the Prime Minister removed from the disabled the right to receive invalidity allowance, as well as earnings-related pensions for which they had paid. They stopped people 'with industrial injuries getting any benefit if they were assessed at less than 14 per cent. They brought in the changes to the reduced earnings allowances., depriving some people of £20 a week, and halved the help to mothers on income support through maternity grants. Their record is littered with examples of retrospective taxation.

Let me now turn to the breach of contract. The occupational pension scheme for the police and the fire service calls for those in the ranks to retire from those occupations at 55 in the public interest. When they do so, most of them take other jobs and have a duty to pay their national insurance contribution. That duty remains, but their right to draw unemployment benefit should the need arise was in effect extinguished by the Government in 1989. So they still have to pay contributions, but they do not get any benefit. What was that about breach of contract?

Let me return to the Government's charge and summarise. The figures that we gave were correct and it is indicative of the Government's desperation that they go to such lengths to seek to discredit us.

This week, there has been a lot of talk about shot foxes. All that I can say is, "Bang." Incidentally, the Government make a great deal of fuss about personal pensions—about the extent to which this 2 per cent. rebate is intended to encourage people; about how wrong it is not to offer choice; about how there should be extra encouragement—[Interruption.] Hon. Members should listen carefully.

I understand from the Fees Office that the choice that Conservatives urge so earnestly on their constituents has been exercised by precisely one Member of this House. I wonder who it is who urges this choice on his constituents and is himself the only Member of the House who is foolish enough to take it out? Is it the hon. Member for Sutton Coldield (Sir N. Fowler), the once begetter of this plan? Is it the Chancellor? Is it the Prime Minister? Is it the Secretary of State for Social Security? It appears that those people have more sense than to take out the benefits that they urge on their constituents. This gamble is for other people, but not for themselves.

Finally, I turn to the Government's fiscal rectitude and their policy stance. It is not our policies, but theirs, that have a gaping hole. We say that one cannot have income tax cuts and increased investment; the Government say that one can. We say that it is an uphill struggle to become competitive within the exchange rate mechanism; the Government say that the struggle is nearly over. We are willing to tell the British people the truth; the Government are not. The Red Book continues to promise income tax cuts; Ministers promise increased investment. Today's Financial Times says: Labour is frank about its intention to increase taxation, and the Liberal Democrats". Of the Conservatives, the newspaper says: You cannot promise better services, raise value added tax to fund local spending, forecast a series of Budget deficits for three years ahead, maintain sterling within the exchange rate mechanism and, at the same time, swear that you will cut the standard rate of income tax to 20p. It does not add up, and the public will perceive that it does not. As in the case of the poll tax, the Government are seeking to be all things to all people. They tell those who like the poll tax that they are keeping it; they tell those who do not like it that they are abolishing it. They tell those who want income tax cuts that they can have them; they tell those who want increased investment that they can have that instead. Confusion reigns. There is a phrase that many people use when they describe confusion. They say that someone does not know whether he is coming or going. The Government are going—and the sooner the better.

9.32 pm

The Chancellor of the Exchequer (Mr. Norman Lamont)

This Budget brought about the biggest switch in taxation for more than a decade. Not surprisingly, that has dominated a very large part of the debate. I agree with the hon. Member for Derby, South (Mrs. Beckett) that the heart of the debate ought to be the economic prospects of the country for the next year. The economy has been in recession since about the middle of last year [HON. MEMBERS: "Oh."] The very moment I became Chancellor I admitted that businesses—particularly many small businesses—were having a difficult time. However, as I predicted at this time last year, the pain has brought gains. Inflation has been falling. It is now down by two percentage points from its peak last autumn, and is set to fall to about 4 per cent. by the end of this year.

Equally dramatic has been the very considerable improvement in the current account. It was noticeable that no Opposition Member chose to mention today's current account figures. Normally the hon. Member for Dunfermline, East (Mr. Brown) is on the box every hour, almost every minute, telling us about the trade figures.

Mr. Rhodri Morgan (Cardiff, West)

Will the right hon. Gentleman give way?

Mr. Lamont

I will give way in a moment.

On this occasion, the silence of the hon. Member for Dunfermline, East was very noticeable. Today's announcement of a £200 million deficit was obviously welcome. I have always said that the figures on the current account ought to be treated with some caution and scepticism. That is not the position that has been adopted by the Opposition; they attach importance to every month's figures.

Of course, the trend in the current account has been clear for some time. The deficit in the latest three months was less than one fifth of the deficit in the third quarter of 1989. Part of the improvement has come from so-called invisible trade—but there has also been a remarkable turn-round in manufacturing trade. Again, manufacturing trade usually concerns Labour Members, but we did not hear very much about it today. The deficit in manufactures has fallen to £1.2 billion in the latest three months. That is less than 1 per cent. of gross domestic product, and the lowest since 1985. Despite the slow growth in demand abroad—we are not the only country facing a slow-down in growth of demand—many industries have expanded their exports. There has been a dramatic rise in car exports in Britain. Indeed, exports have increased by about 45 per cent. in a year.

Mr. Morgan

If we have a trade deficit of about £2 billion a month during a period of boom, and during a period of recession we have a deficit of about £500 million, at what stage in the trade cycle shall we ever have a trade surplus under this Government? That is what puzzles Opposition Members.

Mr. Lamont

As I have said on many occasions, and as my predecessor, the right hon. Member for Blaby (Mr. Lawson) said, the sort of deficit that we are running—about 1 per cent. of GDP—is one that is common to many countries. Only two or three countries have a surplus. There are many countries in deficit, and every surplus has an offsetting deficit. We can easily cope with a deficit of 1 per cent. of GDP.

It is clear that the inflationary pressures and excess demand that appeared in 1988 have been reversed. As they have disappeared and as inflation has come down, so we have been able to reduce interest rates. I know that many Opposition Members and many of my right hon. and hon. Friends want to see further reductions in interest rates, but I shall not take any lectures from Opposition Members about such reductions. We all know that their view is that, whatever the position of the economy, whatever the level of the interest rates and whatever the policy should be, they will be in favour of reducing interest rates from whatever level they may have reached. That is always their policy.

I make no apology for being cautious in policy. Inflation is coming down and the prospect is good. We cannot take risks, however, either with the exchange rate or with inflation at home. Too often in the past we have assumed that we have won the battle against inflation. The very moment that we have let up has been the moment that inflation has been rekindled. The way in which we can retain the confidence of the market is essential to any recovery, and that is why we have been able to reduce interest rates again by 0.5 per cent. in the past week.

I make no apology, either, for continuing the sound approach to Government finances, and especially that of my predecessor, my right hon. Friend the Member for Blaby. I was grateful to my right hon. Friend for saying that it was wholly right and proper that at this stage of the cycle the Government should run a deficit, and the fact that the Government were doing so was no departure from previous policy. He said that, provided the Government aimed, as we do, to balance the Budget over the cycle, that was entirely in keeping with his policies and those of my right hon. and learned Friend the Member for Surrey, East (Sir. G. Howe).

We shall see a return to deficit as a result of the recession. I know of no one who would seriously argue that we should try to hold the Budget to balance at this stage of the cycle. I repeat that we shall aim to balance it over the whole cycle. I agree with my right hon. Friend the Member for Blaby that it is vital that we continue to keep a tight control on public spending. That is at the heart of the Government's economic policy.

Opposition Members have had a lot of fun at the expense of the economic forecasts. I do not begrudge them that, although I believe that it is wrong to attribute to economic forecasts any spurious scientific accuracy. The forecast that I published last week is, in many respects, more cautious about growth than the consensus of outside forecasts. I am not in the business of publishing forecasts that are more optimistic than I think is the case, as that leads us nowhere. It is better to put the facts before Parliament and the country.

As a result of the fall in output that we have already had, output is below the average for 1990. Therefore, the fall of 2 per cent. that I forecast for 1991 does not mean that output will continue to fall for long. There is every reason to expect that growth will start again towards the middle of the year. I cannot be certain about that, but there are a number of persuasive and compelling reasons why it is likely to be so, and I put them to the pseudo-realists in the Opposition who argue that the outlook is more gloomy.

First, the start of the recession was followed quickly by the Gulf war, which had a tremendous dampening influence on confidence and on particular industries. That has ended and is beginning to affect the economy. Secondly, we have been through a period of exceptional weakness in the dollar, which has made life difficult for some export companies. That, too, has changed markedly in the recent past. Thirdly, nobody seriously disputes our forecast that the fall in inflation will continue and there is widespread agreement that RPI inflation will be down to about 4 per cent. by the end of the year. The other side of that fall in inflation will be a rise in real incomes.

Lastly, as usual in a recession, industry has cut back its stocks. We expect that to slow down and contribute to growth as more of the demand for goods is met directly out of production. That view is widely shared. Again, I was grateful to my right hon. Friend the Member for Blaby for confirming that he felt that the recession would not be so bad as the one in 1980–81 and would be relatively shallow and short-lived.

Mr. Paul Flynn (Newport, West)

Does the Chancellor of the Exchequer agree with the right hon. Member for Blaby (Mr. Lawson) that a Government who cannot choose are no longer fit to rule?

Mr. Lamont

The Government have chosen. Of course I agree with my right hon. Friend, although it is rather sad that he did not put the remark in the original French in which it was made. The Government have made their position on the issue crystal clear.

It was against the prospect that I have outlined that I decided that the centrepiece of the Budget should be a package of measures to help businesses to weather the recession and encourage them to invest for the longer term. In total, the Budget will add some £0.75 billion to businesses' cash flow, and that benefit will continue in future years.

In designing that package, I listened carefully to lion. Members and my hon. Friends, and to the representations made by business men. Although the hon. Member for Derby, South (Mrs. Beckett) and the right hon. and learned Member for Monklands, East (Mr. Smith) said that the package is no good for industry or commerce, they did not say what the CBI, the Institute of Directors, the Association of British Chambers of Commerce or the National Federation of Self Employed and Small Businesses said. All those organisation, without qualification or reservation, welcomed the Budget as a Budget for business.

The hon. Member for Derby, South quoted extensively from the Financial Times but not from the two editorials which said that it had been a first-class Budget. She simply quoted odd remarks from articles that she found on page 31 of the newspaper.

It is all too easy, when discussing a Budget for business, to concentrate on the multinational companies, the household names. That is something that the Labour party tends to do, but there are millions of small businesses employing perhaps only two or three people. Those are the businesses that I tried to help with my measures. One such measure, which has been welcomed in the debate by many hon. Members, was to reduce the waiting period for VAT relief on bad debts to one year and raising the VAT threshold by 40 per cent.—the largest increase ever in real terms, so that up to 150,000 more businesses could be taken out of the VAT net.

Mr. John Battle (Leeds, West)

rose——

Mr. Lamont

I shall not give way just now.

I also proposed measures which mean that the very smallest businesses have more time to pay their PAYE payments to the Inland Revenue, which will relieve about 700,000 employers of an administrative burden.

I did two things for the larger companies. First, for what we tend to call the small company but which is, in reality, medium sized, I upped the lower and upper profit limits for the second year running of the small companies' corporation tax, which will help many medium-sized businesses.

Lastly—this has been asked for by some of the business organisations—I not only cut by two percentage points the rate of corporation tax, giving us one of the lowest in the world, but reduced it retrospectively. That means it will help companies immediately in a year when their needs are greatest and they have the greatest difficulty with cash flow. I note that Opposition Members have said on previous occasions that they do not agree with cutting corporation tax and want investment allowances and capital allowances. The House will recall that my right hon. Friend the Member for Blaby got rid of capital allowances, and since he did that, corporation tax has been reduced by 20 percentage points.

We can only bring back significant capital allowances if we raise the rate of corporation tax again. If Opposition Members want to bring back capital allowances, they should tell us, and those in industry who want to know, what rate of company taxation they have in mind. If the right hon. and learned Member for Monklands, East wants to intervene now to tell the House and the country what the rate of corporation tax would be, I will gladly give way to him. He makes no reply. Perhaps the hon. Member for Leeds, West (Mr. Battle) will give me the reply.

Mr. Battle

Will the Chancellor explain why the measures that he is proclaiming in the House are not getting through to industry on the ground? That is so much so that one of the medium-sized firms in Leeds today—GKN, a well-established company—is making 200 people redundant because it says that the recession is biting hard. How will the Chancellor's measures prevent that firm from laying off people, allow it to renew its investment and ensure that it gets orders?

Mr. Lamont

The measures will get through and help British business. That has been recognised by the Confederation of British Industry, chambers of commerce, the Institute of Directors and every business organisation in the country.

The hon. Member for Dunfermline, East made a dour speech. It seems that he is more ready to publicise bad news than to celebrate good news. Normally, he digs out about five press releases a day for each month's trade figures, but this month, when we have good trade figures, incomprehensibly he did not get to the Dispatch Box to tell us about them. I cannot recall seeing a single press release from the hon. Gentleman welcoming some of the events that have happened in recent months. There has been no press release welcoming the fact that inflation has fallen by almost two percentage points since October or that the United Kingdom's inflation differential with the European Community has very much narrowed in recent months. We have had no press release from him celebrating and accepting the fact that our share of world trade in manufactures rose both in 1989 and 1990.

As usual, we had from the hon. Member for Dunfermline, East a cornucopia of obscure statistics from around the world. If Nicaragua increases its exports, the hon. Gentleman is quick to note it. When he finds that there are hundreds of thousands of students in institutions of higher education in Korea, he tells us all about it. He does not tell us what loans or grants they have or what the pupil-teacher ratio is in Korea. He does not tell us about the good news and the good things that are happening in this country. That was epitomised at the point at which I challenged the hon. Gentleman this afternoon—the response of the shadow Chancellor to my Budget broadcast when the Labour party put on a broadcast purporting to make international comparisons in training between this country and other EEC.countries.

The comparison and tables in that broadcast were based on a study from the EEC, but they had no common definition of training, no common definition of skilled or unskilled, and were therefore utterly worthless. That comparison purported to show that Greece had higher standards of training than the United Kingdom, and Germany as well. That is the comparison that Opposition Members were prepared to put before millions of people in this country. What do they think that that does for foreign investment in this country? Is that a good advertisement for this country? Opposition Members should be ashamed of themselves and apologise to the British people for insulting the labour force of this country.

The Budget is very much the logical extension of the policies that have been carried out. A large part of the debate has concentrated on the switch between the community charge and VAT. The reduction in the community charge has been very widely welcomed and people understand that it has to be financed. In assessing the cost of the switch from local to central taxation, we have planned for an increase in grant to local authorities of £5.6 billion, offset by savings on benefits and relief of £1.3 billion, and that will permit some improvements in the community charge reduction scheme. My hon. Friend the Minister for Local Government and Inner Cities will give fuller details of the changes later this evening.

Ms. Joyce Quin (Gateshead, East)

Exactly how much of the VAT increase will go to the poll tax reduction? Of the £4.5 billion that has been mentioned, is it not possible that about £2 billion could be clawed back through reduced benefits and reduced payments under the community charge reduction schemes? Will the Chancellor give the exact figures now?

Mr. Lamont

It is wrong to hypothecate one tax. [Interruption.] Of course it is. Before Opposition Members burst out laughing, they should hear what I am about to say. The increase in VAT by itself in this first year does not pay for the total reduction. That is why other taxes will have to go up as well. Next year the reduction is covered by the increase in VAT.

Mr. Salmond

I am sure that the Chancellor will be relieved when I drag him away from his debacle with the poll tax and ask him the question that was put earlier this evening. Is it the case that the official Scottish Office estimate of the take-up of privatisation proceeds of the Scottish electricity companies is no more than 25 per cent., meaning that 75 per cent. of those companies as at the flotation procedure will immediately be owned externally?

Mr. Lamont

I want lots of Scots to apply for the shares and the privatisation to be a great success. The hon. Gentleman can put his question to my right hon. Friend the Secretary of State for Scotland.

The right hon. and learned Member for Monklands, East is always careful not to commit himself if he can avoid it. He rarely ventures beyond the slogan to give us a specific policy. However, this year he ventured into print with a set of proposals and revealed to everybody why he normally sticks to evasion. The longer the debate has gone on, the less we have heard from the Opposition Benches about Labour's proposals.

Labour's Shadow Budget, as revealed by the Shadow Chief Secretary, was a complete and utter fiasco. As my right hon. and learned Friend the Chief Secretary and my right hon. Friend the Secretary of State for Social Security showed only too clearly on the first day of this debate, the sums set out by the Labour party simply do not begin to add up. The Shadow Chief Secretary did not appear to have the remotest idea what her proposals would involve.

Labour propose to restore child benefit so as to give help to low income households, but the Opposition's costings assumed that the increases in child benefit would be fully offset against income support so that the poorest families would gain nothing at all.

Mrs. Beckett

rose——

Mr. Lamont

The hon. Member for Derby, South made that clear earlier. I will give way to her in a moment. The Opposition's position is not a good basis for criticising our proposals as inadequate and mean, because at least they gave some priority to the poorest families in the country.

Mrs. Beckett

Our proposals were costed at £775 million and the Chancellor's proposals at about £200 million. We are therefore right to call his proposals inadequate. I demonstrated with absolute clarity that our figures were 100 per cent. correct——

The Prime Minister (Mr. John Major)

indicated dissent.

Mrs. Beckett

It is no good the Prime Minister shaking his head—he was not here and he does not know what he is talking about.

The figures that we gave for the increase in child benefit, not fed through to income support, the policy that we urged on the Government, were correct. [Interruption.]The figures came from parliamentary answers, so if they are not correct, that is the Government's problem. The figures that we gave for personal pensions were also completely correct, and so was the justification. The Chancellor can find no holes in our policies or our figures.

Mr. Lamont

The hon. Lady claims that the figures were right. Perhaps they were, but the truth is that she put forward a rotten policy.

We also heard about the savings from the tightening up on offshore trusts. Opposition Members simply plucked the figure of £1 billion out of the air to finance whatever expenditure they thought needed to be made. The best advice of the Inland Revenue is that our measures for countering tax avoidance and evasion in offshore trusts will save about £100 million, and our proposals go much further than Labour's proposals for the Finance Bill.

We then heard the sad and sorry story in which the hon. Member for Derby, South explained the ending of the 2 per cent. personal pension incentive payment. The hon. Lady twisted and turned and gave her explanation this way and that. I give her full marks for trying to justify her point, but she was making it crystal clear that Labour intends to interfere with the contracts that 4 million people have taken out for personal pensions. The Labour party is dashing the hopes, expectations and contracts of millions of people. That is typical of Labour's approach.

Labour always underestimates what it costs to deliver its commitments, and Labour Members over-estimate what they can raise by increasing taxes. That is why, when they were in power, they found that even when they had to increase taxes, and even when they had pushed borrowing to a ruinous level, they still had to rat on their spending promises. That is why Labour will not be in power for a long time to come.

One point in the debate interested me. There has been much debate about local government finance. Does the House know what the right hon. Member for Birmingham, Sparkbrook, (Mr. Hattersley) said the other day? He said that he was against a local income tax because income tax had a disincentive effect. That is what the Labour party thinks about a local income tax. If that is its view on a local income tax, why is it not also its view on a national income tax? Why does the Labour party remain the party of high taxation?

This is a bold Budget, a Budget for business, a reforming Budget and a Budget which responds to the serious concerns about the levels of the community charge. It is a Budget dedicated to the long-term health of the British economy. It is the Budget of a Government dedicated to the prosperity of our people. I commend it to the House.

Mr. Stuart Bell (Middlesbrough)

That must have been the worst speech ever——

Hon. Members

No.

Mr. Speaker

Order.

Question put:

The House divided: Ayes 336, Noes 226.

Division No. 100]	[10 pm
AYES
Adley, Robert	Cash, William
Aitken, Jonathan	Chalker, Rt Hon Mrs Lynda
Alexander, Richard	Channon, Rt Hon Paul
Alison, Rt Hon Michael	Chapman, Sydney
Allason, Rupert	Chope, Christopher
Amery, Rt Hon Julian	Clark, Rt Hon Alan (Plymouth)
Amess, David	Clark, Dr Michael (Rochford)
Amos, Alan	Clark, Rt Hon Sir William
Arbuthnot, James	Clarke, Rt Hon K. (Rushcliffe)
Arnold, Jacques (Gravesham)	Colvin, Michael
Arnold, Sir Thomas	Conway, Derek
Ashby, David	Coombs, Anthony (Wyre F'rest)
Aspinwall, Jack	Coombs, Simon (Swindon)
Atkins, Robert	Cope, Rt Hon John
Atkinson, David	Cormack, Patrick
Baker, Rt Hon K. (Mole Valley)	Couchman, James
Baker, Nicholas (Dorset N)	Cran, James
Baldry, Tony	Currie, Mrs Edwina
Banks, Robert (Harrogate)	Davies, Q. (Stamf'd & Spald'g)
Barnes, Mrs Rosie (Greenwich)	Davis, David (Boothferry)
Batiste, Spencer	Day, Stephen
Beaumont-Dark, Anthony	Devlin, Tim
Bellingham, Henry	Dickens, Geoffrey
Bendall, Vivian	Dicks, Terry
Bennett, Nicholas (Pembroke)	Douglas-Hamilton, Lord James
Benyon, W.	Dover, Den
Bevan, David Gilroy	Dunn, Bob
Biffen, Rt Hon John	Durant, Sir Anthony
Blackburn, Dr John G.	Dykes, Hugh
Blaker, Rt Hon Sir Peter	Eggar, Tim
Body, Sir Richard	Emery, Sir Peter
Bonsor, Sir Nicholas	Evans, David (Welwyn Hatf'd)
Boscawen, Hon Robert	Evennett, David
Boswell, Tim	Fairbairn, Sir Nicholas
Bowden, A. (Brighton K'pto'n)	Fallon, Michael
Bowis, John	Favell, Tony
Boyson, Rt Hon Dr Sir Rhodes	Field, Barry (Isle of Wight)
Braine, Rt Hon Sir Bernard	Fishburn, John Dudley
Brandon-Bravo, Martin	Fookes, Dame Janet
Brazier, Julian	Forman, Nigel
Bright, Graham	Forsyth, Michael (Stirling)
Brown, Michael (Brigg & Cl't's)	Forth, Eric
Bruce, Ian (Dorset South)	Fowler, Rt Hon Sir Norman
Buchanan-Smith, Rt Hon Alick	Fox, Sir Marcus
Buck, Sir Antony	Franks, Cecil
Budgen, Nicholas	Freeman, Roger
Burns, Simon	French, Douglas
Burt, Alistair	Fry, Peter
Butler, Chris	Gale, Roger
Butterfill, John	Gardiner, Sir George
Carlisle, John, (Luton N)	Garel-Jones, Tristan
Carlisle, Kenneth (Lincoln)	Gill, Christopher
Carrington, Matthew	Gilmour, Rt Hon Sir Ian
Carttiss, Michael	Glyn, Dr Sir Alan
Cartwright, John	Goodhart, Sir Philip

Goodlad, Alastair	McCrindle, Sir Robert
Goodson-Wickes, Dr Charles	Macfarlane, Sir Neil
Gorman, Mrs Teresa	MacKay, Andrew (E Berkshire)
Gorst, John	Maclean, David
Grant, Sir Anthony (CambsSW)	McLoughlin, Patrick
Greenway, Harry (Ealing N)	McNair-Wilson, Sir Michael
Greenway, John (Ryedale)	McNair-Wilson, Sir Patrick
Gregory, Conal	Madel, David
Griffiths, Sir Eldon (Bury St E')	Major, Rt Hon John
Griffiths, Peter (Portsmouth N)	Malins, Humfrey
Grist, Ian	Mans, Keith
Ground, Patrick	Maples, John
Hague, William	Marland, Paul
Hamilton, Hon Archie (Epsom)	Marlow, Tony
Hamilton, Neil (Tatton)	Marshall, John (Hendon S)
Hampson, Dr Keith	Marshall, Sir Michael (Arundel)
Hanley, Jeremy	Martin, David (Portsmouth S)
Hannam, John	Mates, Michael
Hargreaves, A. (B'ham H'll Gr')	Maude, Hon Francis
Hargreaves, Ken (Hyndburn)	Mawhinney, Dr Brian
Harris, David	Mayhew, Rt Hon Sir Patrick
Haselhurst, Alan	Mellor, Rt Hon David
Hawkins, Christopher	Meyer, Sir Anthony
Hayes, Jerry	Miller, Sir Hal
Hayhoe, Rt Hon Sir Barney	Mills, lain
Hayward, Robert	Miscampbell, Norman
Heath, Rt Hon Edward	Mitchell, Andrew (Gedling)
Heathcoat-Amory, David	Mitchell, Sir David
Heseltine, Rt Hon Michael	Moate, Roger
Hicks, Mrs Maureen (Wolv' NE)	Montgomery, Sir Fergus
Hicks, Robert (Cornwall SE)	Moore, Rt Hon John
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	Moynihan, Hon Colin
Hordern, Sir Peter	Mudd, David
Howard, Rt Hon Michael	Neale, Sir Gerrard
Howarth, Alan (Strat'd-on-A)	Nelson, Anthony
Howarth, G. (Cannock & B'wd)	Neubert, Sir Michael
Howe, Rt Hon Sir Geoffrey	Newton, Rt Hon Tony
Howell, Rt Hon David (G'dford)	Nicholls, Patrick
Howell, Ralph (North Norfolk)	Nicholson, David (Taunton)
Hughes, Robert G. (Harrow W)	Nicholson, Emma (Devon West)
Hunt, Rt Hon David	Norris, Steve
Hunter, Andrew	Onslow, Rt Hon Cranley
Hurd, Rt Hon Douglas	Oppenheim, Phillip
Irvine, Michael	Owen, Rt Hon Dr David
Irving, Sir Charles	Page, Richard
Jack, Michael	Paice, James
Jackson, Robert	Parkinson, Rt Hon Cecil
Janman, Tim	Patnick, Irvine
Jessel, Toby	Patten, Rt Hon Chris (Bath)
Johnson Smith, Sir Geoffrey	Patten. Rt Hon John
Jones, Robert B (Herts W)	Pawsey, James
Jopling, Rt Hon Michael	Peacock, Mrs Elizabeth
Kellett-Bowman, Dame Elaine	Porter, Barry (Wirral S)
Key, Robert	Portillo, Michael
King, Roger (B'ham N'thfield)	Powell, William (Corby)
King, Rt Hon Tom (Bridgwater)	Price, Sir David
Kirkhope, Timothy	Raffan, Keith
Knapman, Roger	Raison, Rt Hon Sir Timothy
Knight, Greg (Derby North)	Redwood, John
Knight, Dame Jill (Edgbaston)	Renton, Rt Hon Tim
Knowles, Michael	Rhodes James, Robert
Knox, David	Riddick, Graham
Lamont, Rt Hon Norman	Ridley, Rt Hon Nicholas
Latham, Michael	Ridsdale, Sir Julian
Lawrence, Ivan	Rifkind, Rt Hon Malcolm
Lawson, Rt Hon Nigel	Roberts, Sir Wyn (Conwy)
Lee, John (Pendle)	Rossi, Sir Hugh
Leigh, Edward (Gainsbor'gh)	Rost, Peter
Lennox-Boyd, Hon Mark	Rumbold, Rt Hon Mrs Angela
Lester, Jim (Broxtowe)	Ryder, Rt Hon Richard
Lightbown, David	Sainsbury, Hon Tim
Lilley, Rt Hon Peter	Sayeed, Jonathan
Lloyd, Sir Ian (Havant)	Scott, Rt Hon Nicholas
Lloyd, Peter (Fareham)	Shaw, David (Dover)
Luce, Rt Hon Sir Richard	Shaw, Sir Giles (Pudsey)
Lyell, Rt Hon Sir Nicholas	Shaw, Sir Michael (Scarb')

Shepherd, Colin (Hereford)	Trippier, David
Shepherd, Richard (Aldridge)	Trotter, Neville
Shersby, Michael	Twinn, Dr Ian
Sims, Roger	Vaughan, Sir Gerard
Skeet, Sir Trevor	Viggers, Peter
Smith, Tim (Beaconsfield)	Wakeham, Rt Hon John
Soames, Hon Nicholas	Waldegrave, Rt Hon William
Speed, Keith	Walden, George
Speller, Tony	Walker, Bill (T'side North)
Spicer, Sir Jim (Dorset W)	Walker, Rt Hon P. (W'cester)
Spicer, Michael (S Worcs)	Waller, Gary
Squire, Robin	Walters, Sir Dennis
Stanley, Rt Hon Sir John	Ward, John
Steen, Anthony	Wardle, Charles (Bexhill)
Stern, Michael	Warren, Kenneth
Stevens, Lewis	Watts, John
Stewart, Allan (Eastwood)	Wells, Bowen
Stewart, Andy (Sherwood)	Wheeler, Sir John
Stewart, Rt Hon Ian (Herts N)	Whitney, Ray
Stokes, Sir John	Widdecombe, Ann
Summerson, Hugo	Wiggin, Jerry
Tapsell, Sir Peter	Wilkinson, John
Taylor, Ian (Esher)	Wilshire, David
Taylor, Teddy (S'end E)	Winterton, Mrs Ann
Tebbit, Rt Hon Norman	Winterton, Nicholas
Temple-Morris, Peter	Wolfson, Mark
Thatcher, Rt Hon Margaret	Wood, Timothy
Thompson, Patrick (Norwich N)	Woodcock, Dr. Mike
Thorne, Neil	Yeo, Tim
Thornton, Malcolm	Young, Sir George (Acton)
Thurnham, Peter	Younger, Rt Hon George
Townend, John (Bridlington)
Townsend, Cyril D. (B'heath)	Tellers for the Ayes:
Tracey, Richard	Mr. Tom Sackville and Mr. John Mark Taylor.
Tredinnick, David

NOES
Abbott, Ms Diane	Clwyd, Mrs Ann
Adams, Mrs Irene (Paisley, N.)	Cohen, Harry
Allen, Graham	Cook, Robin (Livingston)
Alton, David	Corbett, Robin
Anderson, Donald	Corbyn, Jeremy
Archer, Rt Hon Peter	Crowther, Stan
Armstrong, Hilary	Cryer, Bob
Ashley, Rt Hon Jack	Cummings, John
Ashton, Joe	Cunliffe, Lawrence
Banks, Tony (Newham NW)	Cunningham, Dr John
Barnes, Harry (Derbyshire NE)	Dalyell, Tarn
Barron, Kevin	Darling, Alistair
Battle, John	Davies, Rt Hon Denzil (Llanelli)
Beckett, Margaret	Davies, Ron (Caerphilly)
Beith, A. J.	Davis, Terry (B'ham Hodge H'l)
Bell, Stuart	Dewar, Donald
Benn, Rt Hon Tony	Dixon, Don
Bennett, A. F. (D'nt'n & R'dish)	Doran, Frank
Benton, Joseph	Duffy, A. E. P.
Bermingham, Gerald	Dunnachie, Jimmy
Blair, Tony	Dunwoody, Hon Mrs Gwyneth
Blunkett, David	Eadie, Alexander
Boateng, Paul	Eastham, Ken
Boyes, Roland	Evans, John (St Helens N)
Bradley, Keith	Ewing, Harry (Falkirk E)
Bray, Dr Jeremy	Ewing, Mrs Margaret (Moray)
Brown, Gordon (D'mline E)	Fatchett, Derek
Brown, Nicholas (Newcastle E)	Faulds, Andrew
Brown, Ron (Edinburgh Leith)	Fearn, Ronald
Bruce, Malcolm (Gordon)	Field, Frank (Birkenhead)
Buckley, George J.	Fisher, Mark
Caborn, Richard	Flannery, Martin
Callaghan, Jim	Flynn, Paul
Campbell, Menzies (Fife NE)	Foot, Rt Hon Michael
Campbell, Ron (Blyth Valley)	Foster, Derek
Campbell-Savours, D. N.	Foulkes, George
Canavan, Dennis	Fraser, John
Carlile, Alex (Mont'g)	Fyfe, Maria
Carr, Michael	Galloway, George
Clark, Dr David (S Shields)	Garrett, John (Norwich South)
Clarke, Tom (Monklands W)	Garrett, Ted (Wallsend)
Clay, Bob	George, Bruce
Clelland, David	Godman, Dr Norman A.

Golding, Mrs Llin	Morgan, Rhodri
Gordon, Mildred	Morley, Elliot
Gould, Bryan	Morris, Rt Hon A. (W'shawe)
Graham, Thomas	Mowlam, Marjorie
Grant, Bernie (Tottenham)	Mullin, Chris
Griffiths, Nigel (Edinburgh S)	Murphy, Paul
Griffiths, Win (Bridgend)	Nellist, Dave
Grocott, Bruce	Oakes, Rt Hon Gordon
Hardy, Peter	O'Brien, William
Harman, Ms Harriet	O'Hara, Edward
Haynes, Frank	O'Neill, Martin
Heal, Mrs Sylvia	Orme, Rt Hon Stanley
Healey, Rt Hon Denis	Paisley, Rev Ian
Henderson, Doug	Patchett, Terry
Hinchliffe, David	Pendry, Tom
Hoey, Ms Kate (Vauxhall)	Pike, Peter L.
Hogg, N. (C'nauld & Kilsyth)	Prescott, John
Home Robertson, John	Primarolo, Dawn
Hood, Jimmy	Quin, Ms Joyce
Howarth, George (Knowsley N)	Radice, Giles
Howells, Geraint	Randall, Stuart
Hoyle, Doug	Rees, Rt Hon Merlyn
Hughes, John (Coventry NE)	Reid, Dr John
Hughes, Robert (Aberdeen N)	Richardson, Jo
Hughes, Roy (Newport E)	Robertson, George
Hughes, Simon (Southwark)	Robinson, Geoffrey
Illsley, Eric	Robinson, Peter (Belfast E)
Ingram, Adam	Rogers, Allan
Janner, Greville	Rooker, Jeff
Jones, Barry (Alyn & Deeside)	Rooney, Terence
Jones, Martyn (Clwyd S W)	Ross, Ernie (Dundee W)
Kaufman, Rt Hon Gerald	Ruddock, Joan
Kennedy, Charles	Salmond, Alex
Kilfedder, James	Sedgemore, Brian
Kinnock, Rt Hon Neil	Sheerman, Barry
Kirkwood, Archy	Sheldon. Rt Hon Robert
Lambie, David	Shore, Rt Hon Peter
Lamond, James	Skinner, Dennis
Leadbitter, Ted	Smith, Andrew (Oxford E)
Leighton, Ron	Smith, Rt Hon J. (Monk'ds E)
Lestor, Joan (Eccles)	Smith, J. P. (Vale of Glam)
Lewis, Terry	Snape, Peter
Livingstone, Ken	Soley, Clive
Lloyd, Tony (Stretford)	Spearing, Nigel
Lofthouse, Geoffrey	Steel, Rt Hon Sir David
Loyden, Eddie	Steinberg, Gerry
McAllion, John	Stott, Roger
McCartney, Ian	Strang, Gavin
Macdonald, Calum A.	Straw, Jack
McFall, John	Taylor, Mrs Ann (Dewsbury)
McGrady, Eddie	Taylor, Matthew (Truro)
McKay, Allen (Barnsley West)	Turner, Dennis
McKelvey, William	Vaz, Keith
McLeish, Henry	Wallace, James
Maclennan, Robert	Walley, Joan
McMaster, Gordon	Wareing, Robert N.
McNamara, Kevin	Welsh, Andrew (Angus E)
McWilliam, John	Welsh, Michael (Doncaster N)
Madden, Max	Wigley, Dafydd
Marion, Mrs Alice	Williams, Rt Hon Alan
Marek, Dr John	Williams, Alan W. (Carm'then)
Marshall, David (Shettleston)	Wilson, Brian
Marshall, Jim (Leicester S)	Winnick, David
Martin, Michael J. (Springburn)	Wise, Mrs Audrey
Martlew, Eric	Worthington, Tony
Maxton, John	Wray, Jimmy
Meacher, Michael	Young, David (Bolton SE)
Meale, Alan
Michie, Bill (Sheffield Heeley)	Tellers for the Noes:
Michie, Mrs Ray (Arg'l & Bute)	Mr. Thomas McAvoy and Mr. Ray Powell.
Mitchell, Austin (G't Grimsby)
Moonie, Dr Lewis

Question accordingly agreed to.

MR. SPEAKER then proceeded, pursuant to paragraph (3) of Standing Order No. 50 ( Ways and Means motions), to put forthwith the Questions necessary to dispose of the further motions.

Resolved, That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

1. (a) for zero-rating or exempting any supply;
2. (b) for refunding any amount of tax, otherwise than by virtue of goods or services supplied to one person being treated for the purposes of section 14(3) of the Value Added Tax Act 1983 as supplied to another person;
3. (c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
4. (d) for relief other than relief applying to goods of whatever description or services of whatever description.