§ [Relevant document: European Community Document No. 10212/91 and COR2, the Commission's Annual Economic Report 1991–92.]3.39 pm
§ Mr. Speaker
Order. I am sorry to interrupt the right hon. and learned Gentleman, but I was taken aback by all this noise. In view of the large number of right hon. and hon. Members who want to participate today, I propose to put a precautionary 10-minute limit on speeches between 7 pm and 9 pm, but I hope that it will not be necessary if Members called to speak before then are brief.
§ Mr. Smith
The most notable omission from yesterday's Budget was that not a word of apology was uttered by the Chancellor in this Government, a Government who have caused the longest recession since the war. There was not a word of apology to the 1 million people who have lost their jobs since March 1990; not a word of apology to the 47,800 businesses which failed last year; not a hint of contrition for the families who lived in the 75,500 homes that were repossessed last year.
Nineteen ninety-one was the year in which the economy shrank by 2.5 per cent.; it was the worst calendar year of recession since the 1930s. Last night, in his Budget broadcast, the Chancellor described 1991 as a year of achievement. Some achievement—record-breaking levels, certainly, but record-breaking levels of business failures, of house repossessions, of homelessness and of economic decline. If that is a year of achievement, what on earth would the Chancellor describe as a year of failure?
855 Not only is there no apology from the Chancellor or the Prime Minister—[HON. MEMBERS: "Where are they?"] I confess that I am slightly surprised that the Chancellor is not here to take part in this debate—
§ Mr. Smith
I am quite prepared to get on with it; the Chancellor might have done us the courtesy of attending the debate to hear what I have to get on with. Perhaps the hon. Gentleman will go and see him and ask him if he will trot along.
Indeed, it was the Chancellor who told us in this House at Treasury questions:Rising unemployment and the recession have been the price that we have had to pay to get inflation down. That price is well worth paying."—[0fficial Report, 16 May 1991; Vol. 191, c. 413.]It was the Prime Minister who told us when he was Chancellor: "If it isn't hurting, it isn't working." We see on the Government Front Bench for a few days more some of the guilty men who told us first that there would be no recession, then that there would be a soft landing for the British economy and that the recession would be shallow and short-lived, that recovery was around the corner, that the green shoots of recovery were sprouting, that the housing and construction industry would exhibit the first signs of the vague stirrings of the recovery, and that all we needed to do was to wait in patient expectation for Conservative economic policies to bring a triumphant end to the dark days of decline. I note that the Chancellor is so worried about justifying all that that he did not bother to turn up in the House this afternoon.
It has been the hallmark of Majorism to promise that good times are just around the corner. Unfortunately, we never seem to turn the corner. The technique is deployed again in the economic forecast in the Budget. The economy is in a much worse condition than was predicted in the autumn statement only a few months ago. Last November, the Chancellor told us that growth in 1992 would be 2.25 per cent. Yesterday, he had to scale that down to just 1 per cent. Manufacturing output was forecast last November to grow by as much as 3.25 per cent. this year. Yesterday, he revealed that it is expected to grow by just 0.5 per cent. Investment, forecast to grow by 1.25 per cent., is now expected to decline again this year and, alarmingly, the balance of payments is forecast to deteriorate sharply once again to a £9 billion deficit in 1993. Of course, borrowing has doubled from £14 billion to £28 billion. Clearly, we are heading for yet another year of what the Conservatives choose to call achievement.
As the Chancellor told us yesterday:unemployment is likely to go on rising for some time."—[Official Report, 10 March 1992; Vol. 205, c. 747.]What is perhaps even more revealing is that that prediction of rising unemployment was made on the explicit assumption that growth will resume in the course of the year. So much for the Budget for jobs forecast by the Secretary of State for Employment. But perhaps we should not pay too much attention to him because, like the Secretary of State for Trade and Industry—[Interruption.]
§ Mr. Smith
I am glad to see the Chancellor of the Exchequer. Perhaps I should start at the beginning again. 856 [Interruption.] I can understand why Conservative Members do not want to hear it twice. They do not want the double whammy of the Conservative party's measures. It was too painful even for the Chancellor to listen to, so he lurked outside until he thought that I was about to come to another part of my speech, and then he sneaked in.
I was referring to the Secretary of State for Employment, who promised a Budget for jobs, and I was observing that we should not worry too much about him, because, like some others, he is not in the election A team. But we had a glimpse of how the A team deals with the problem of Conservative economic failure in the interview given last Sunday by that tyro of the casual knockabout, the Secretary of State for Education and Science. He was asked by Mr. Walden last Sunday what he would say to a viewer—
§ Mr. Robert G. Hughes (Harrow, West)
Does not the right hon. and learned Gentleman mean the hon. Member for Livingston (Mr. Cook) being roasted?
§ Mr. Smith
The other one.
The Secretary of State for Education and Science was asked what he would say to a viewer who blamed the Conservatives for hundreds of thousands of people having lost their jobs, for 100,000 people having lost their homes, and for some having lost both. The Secretary of State replied:It's been a bad recession through which most people actually have not suffered any of the consequences you have described.What country is that member of the A team living in? It is simply not good enough to dismiss the unemployed and those who have lost their homes as a minority of the population. [Interruption.] I see that there are some who agree with the Secretary of State.
§ Mr. Ian Bruce (South Dorset)
The right hon. and learned Gentleman is right to point out that we all have to be concerned about unemployment, but, as he is talking about loss of jobs and unemployment, and so that we can consider the figures that he will be coming up with in a week's time, will he tell the House today what the pledge of a half median wage amounts to? Is it £4 per hour now, rather than the £3.40 that it was two years ago?
§ Mr. Smith
The hon. Gentleman should read the newspapers. It is £3.40 per hour. That is the figure that the Labour party is committed to.
The Secretary of State for Education and Science said that most people had not suffered the consequences of the recession, and that basically that was all right. The depressing facts are that, in 22 months, 1 million people have lost their jobs; if we take 1990 and 1991 together, almost 130,000 homes were repossessed; and in 1991 alone, 275,000 households were six months or more in arrears with mortgage payments.
The latest study by the Policy Studies Institute, published only last week—the most detailed study yet undertaken of the problem of debt—showed that 2.5 million households in Britain are struggling with a combination of household debt and unpaid consumer credit. I can tell the Conservative party that there is no way in which it will be able to ignore these facts, or to minimise their significance, in the course of the forthcoming election.
§ Mr. Nicholls
The right hon. and learned Gentleman said yesterday that now was not the right time to reduce taxes on the lower paid. When does he think is the right time to do that?
§ The Chancellor of the Exchequer (Mr. Norman Lamont)
If the right hon. and learned Gentleman thinks that it is wrong to borrow for tax cuts, why was it right for the Government of which he was a member to do so in 1978? The public sector borrowing requirement was high then, too.
§ Mr. Smith
I should like to know whether the Chancellor stands by what he said on 28 November last year. Then, he said:He asked how we are going to pay for the borrowing. We shall pay for the borrowing by borrowing—that is the normal way in which one pays for it."—[Official Report, 28 November 1991; Vol. 199, c. 1062.]If the right hon. Gentleman disagrees with that, or wishes to explain his statement, I shall be happy to give way to him. [HON. MEMBERS: "Answer"] I fear that the Chancellor does not have a typed response to that question. There it stands, unamended: Conservative economic policy—borrowing should be paid for by more borrowing.
The other device that will be used by the A team—and by all the other apologists for this discredited and incompetent Government—is that, even if things are bad, it is not the Government's fault; it is the fault of the nasty foreigners from whom we contracted the infection of recession. That comes in two forms. First, we got the recession from abroad, and nothing much could have been done about it; secondly, other people's recessions are worse than ours, and for that we should be grateful to our Government.
The Secretary of State for Education and Science was running the Saatchi-approved line in the Walden interview. He said:it's not been a catastrophic recession of the kind that we had in the past or even the Americans are suffering now.Let us look at the facts. In 1991, the United States economy declined by 0.5 per cent. In Britain, the figure was 2.5 per cent.
858 However, facts do not deter a member of the A team. The Secretary of State went on to make the following international comparison—again, I quote from his interview—I mean, the Germans and Japanese looking at Britain under the Conservatives must say, boy they've got good, actually being able to get themselves into a steady competitive state, when they faced difficulties, certainly in the States, they'd like to have a government which was so competent in actually restoring good conditions for economic recovery.I must say, I have not met a single Japanese—I doubt whether any other Member of Parliament has either—whom I have heard say, "Boy, they've got good," let alone express any wish to emulate Britain's economic condition.
The Chancellor himself, in a bid to retain his uncertain position in the A team, tried the same trick in his Budget broadcast last night. He displayed a graph which tried to show that, of all countries, Japan was suffering more in terms of industrial decline than Britain. I have to tell the Chancellor that my considered view is that that was an error of judgment, scarcely forgiveable in a member of the A team. In the past three years, Japan's investment has risen by 41 per cent., whereas Britain's is down by 4.2 per cent. Over the past three years, Japan's GDP has risen by 15.5 per cent., while Britain's grew by only 1.1 per cent. That is a background against which it is imagined that the Japanese whisper to each other, "Boy, in Britain they've got good."
§ Mr. Oppenheim
The right hon. and learned Gentleman, rightly, mentioned the need to boost investment. He will know that investment and saving rates are closely linked. How will his policy of clobbering savers with higher taxes boost investment?
§ Mr. Smith
Our proposals are designed to create fair treatment between those who receive unearned and those receiving earned income, and that is what they will achieve.
Against the background of such depressing economic failure, the Budget was a missed opportunity. There was nothing in the Budget for investment, nothing for jobs, training or skills development, nothing for the construction industry and nothing for sustained recovery from recession. Once again, the Chancellor rejected the plea for increased capital allowances for investment in manufacturing. Once again, he failed to restore the tragic cuts in the training budget. He failed once again to realise the seriousness of rising unemployment, and he took no action to permit the release of local authority capital receipts to help fund much-needed house building and modernisation programmes.
Why do the Government not comprehend the plain common sense of enabling unemployed building workers to earn a living by providing houses for families who lack them, thereby helping to regenerate confidence and growth in the construction industry, which, on present trends, sees no prospect of recovery in the whole of 1992? From the vantage point of prudent financial management, why do the Government not realise that it costs the Exchequer £8,000 a year in benefits and forgone taxation for every person who becomes unemployed?
859 We needed a Budget for investment and recovery and for industry and employment. Instead, we got a Budget the only purpose of which was to seek to rescue the Conservative party from its imminent election defeat.
§ Mr. Roger King (Birmingham, Northfield)
Would the right hon. and learned Gentleman care to cast his mind back to early January, when he and the shadow spokesman on trade and industry came to Longbridge in my constituency to visit the Rover car factory as part of a "buy British" campaign? Does he recollect standing on the shop floor of Rover and being asked whether Labour would reduce the special car tax? He replied, "No, we would not reduce the special car tax." That was a clear indicaation that Labour would not back the British car industry. Has he changed his mind?
§ Mr. Smith
I bear the hon. Gentleman no ill will, because his remaining period in this House is very short. In the few days that remain, I should not want to fall out too sharply with him. But he is simply wrong. We made it clear that we could not afford to abolish the car tax—and nor have the Government done so: they have reduced it. Let me make it clear that our car industry is in such a dire state as a result of the Conservative party's policies that it needs the relief that has been given on this occasion. [Interruption.] Hon. Members can shout if they like, but we shall press on with the debate.
As is now being increasingly realised, the public will not be fooled by the Chancellor's Budget. The Government are borrowing money that they do not have to buy votes that they do not deserve. In the context of the doubling of the Government's financial deficit, voters ask, "How can it make sense to borrow money for tax cuts?" They do so particularly because they have repeatedly been told by the Conservative party under its former leader, as well as, from time to time, its present head, that borrowing now means higher taxes later.
If I may say so, the co-ordination and management of the Government's presentation of their Budget, particularly through the Tory tabloids, have not reached their usual skill. Those who opened the Daily Mail today and turned to the political column would read the ex-editor of New Statesman and Society, Mr. Paul Johnson, who wrote:Now Major's on the road to victory"—[HON. MEMBERS: "Hear, hear."] Let me repeat what he said:Now Major's on the road to victory".860 There follows a glowing account of all the virtues contained in this Budget. Indeed, there never was a Budget of such all-consuming virtue as the one to which Mr. Paul Johnson had his attention drawn yesterday by the spin doctor from the Conservative party.
Unfortunately, the spin doctor from the Conservative party failed to call on the City desk, where Mr. Andrew Alexander has as his headline, "Lamont misses his chance". There follows a gloomy account of Britain's parlous economic condition, stressing how serious our condition is and making statements such as this:It also makes it hard to take seriously the Chancellor's pledge that the Government will successively reduce income tax in the years ahead.The distinguished writer of the City column continues — [Interruption.] Conservative Members do not like listening, but I shall tell them any way. He continues:Thatcherites, viewing the prospects of six years of budget deficits stretching all the way to 1997 (and suspecting that they are understated anyway) may well feel that the Government is simply squandering its inheritance of fiscal prudence.That is quite different from the account of the Budget that appears in the political column.
§ Mr. Butterfill
Would the right hon. and learned Gentleman compare the PSBR of 4 per cent. that we are running with the 6 per cent. average of the previous Labour Government and the 9 per cent. peak that they reached?
§ Mr. Smith
During the years to which the hon. Gentleman refers, most deficits were higher in most countries because we were suffering the oil price shock throughout the western world. The proper comparison would be a comparative one, not a historical one, which the Conservative party would not want to make.
However, I cannot confess that I am dismayed at the lack of co-ordination. My only worry about drawing it to the attention of a wider audience is that it might go on the agenda of the A team and the spin doctor from the Conservative party will have to widen his round to the square mile and elsewhere.
On the question of the Conservative party borrowing, which is one of the interesting features of our present political debate, my right hon. Friend the Leader of the Opposition challenged the Prime Minister on just this point last month during Prime Minister's Question Time. He quoted from a Conservative party publication called "Towards 2000", which was issued last year and which says that it was written by the Prime Minister himself. That might be stretching credulity, but that is what it says on the document—that it was written by the Prime Minister himself, the right hon. Member for Huntingdon (Mr. Major). The document states thatif borrowing takes the strain, taxes—not just our taxes but the next generation's too—have to go up.That was the Conservative view just a few months ago.
The Prime Minister, clearly irritated by my right hon. Friend's question and even more irritated by the fact that very recent Conservative party propaganda stated the position so clearly, challenged the Leader of the Opposition to do some more research. On 25 February—last month—he told the House: 861If he"—my right hon. Friend—had done a little more research and had seen the evidence that I gave to the Treasury and Civil Service Select Committee in 1987, he would have seen then—when we had a fiscal surplus of many billions—that I indicated that it would be right, in a downturn, to borrow money in a recession."—[Official Report, 25 February 1992; Vol. 204, c. 808.]Apparently, that is a complete defence to the charge against them.
Of course, taking the Prime Minister at his word, a number of interested parties—including BBC's "On the Record" programme and my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore), who is a member of the Treasury and Civil Service Select Committee—decided to do some research. They looked for the evidence of the former Chief Secretary, the right hon. Member for Huntingdon. They searched right through the Select Committee's evidence for 1987, but they searched in vain, because the right hon. Member for Huntingdon did not give evidence to the Select Committee in 1987 at all. Not a word did he utter to the Select Committee.
Undaunted, our intrepid researchers kept working, and discovered some evidence given in 1988 by the then Chief Secretary after that year's autumn statement. Perhaps that had got confused in the right hon. Gentleman's mind. On these matters, given the stresses and strains of the House of Commons, one should take an indulgent attitude but, unfortunately for the Prime Minister—[Interruption.] I think that I am entitled to be reasonably patronising about this kind of thing. Unfortunately for the Prime Minister, his 1988 evidence is not so helpful after all. He was wrong about the year—
§ Mr. Smith
Well, I would not say that I had given evidence to a Select Committee if I had not.
The right hon. Gentleman was wrong about the year, but he was also wrong about the contents of the evidence that he revealed to the Select Committee on 23 November 1988. He did not say anything at all about running deficits in recessions. What he said was far more revealing. As reported on page 18 of the Select Committee's report on the 1988 autumn statement, he said:Over a run of years it remains our policy to reduce public expenditure proportionately to national income and we plan to achieve that. If we found that our projections were that growth in the economy would level off quite significantly, clearly we would have to look at the impact on public expenditure and whether we had to take a very clear, fresh and draconian look at the levels of public expenditure that were appropriate.Note the wordsclear, fresh and draconian".We know—it cannot be a matter of doubt—that unfortunately growth has not only levelled off but disappeared. According to the Prime Minister's own rules, he should be taking aclear, fresh and draconian lookat public spending, but of course he is not, because he has just called an election.
If he were to win the election, we could expect "clear, fresh and draconian" action. That would come in one of two ways: either through increases in taxation in the favourite Conservative manner—by raising the level of VAT or extending its range of application, or both—or by cutting public expenditure sharply. The Conservative party is engaged—
§ Mr. Smith
Will the right hon. Gentleman allow me to finish the sentence? It is not bad my giving way twice to him when he did not have the courtesy even to turn up for the debate, but I shall do so.
The Conservative party is engaged on a three-card trick. It is promising to maintain levels of public expenditure, to cut the basic rate of income tax to 20 per cent. and to balance the budget. In our economic situation, they cannot do all three things at once.
§ Mr. Lamont
I am afraid that what the right hon. and learned Gentleman says about borrowing is totally unconvincing. He should remember the lectures that the Leader of the Opposition used to give my right hon. Friend the Member for Finchley (Mrs. Thatcher) when she was Prime Minister, urging her to borrow ever more money. A few years ago, the Leader of the Opposition said:The vitality of the US economy has been initiated by Government … borrowing. To renovate our economy we have to generate expansion in much the same way.The question that the right hon. and learned Gentleman must answer is—
§ Mr. Speaker
Order. The right hon. and learned Member for Monklands, East (Mr. Smith) has given way.
§ Mr. Lamont
The right hon. and learned Gentleman must answer this question: is the present level of borrowing too high, or is it about right? If it is too high, will he tell us which taxes he will put up, or which spending programmes he will drop from his manifesto?
§ Mr. Smith
The right hon. Gentleman took some time to put his question—some people will think that he wants to have another run at presenting his unsuccessful Budget to the House. It is a bit rich to be asked questions about borrowing by the right hon. Gentleman, but I shall answer his question directly, and I shall be obliged if he will do me the courtesy of answering me, and explaining the quotation from him that I cited.
I shall fulfil the first part of that bargain by saying that I shall accept the public sector borrowing requirement which exists after we win the election. I shall have no choice, because it will be there, and we shall operate on that basis. Having given that answer, I shall give way to the Chancellor if he will explain to us what he meant by saying:We shall pay for borrowing by borrowing—that is the normal way in which one pays for it.I shall give way to the right hon. Gentleman now if he wants to explain that.
§ Mr. Lamont
The right hon. and learned Gentleman has not answered the question that I put to him—[HON. MEMBERS: "Answer."] The right hon. and learned Gentleman says that he accepts the borrowing requirement, yet he also makes promises that would cost some £37 billion. Which promises is he prepared to drop?
§ Mr. Smith
The right hon. Gentleman did not behave terribly honourably there. I gave way to him on the basis that he would answer a specific question. However, he will now have to live with the fact that the quotation will go into the record uncontradicted. He said: 863We shall pay for borrowing by borrowing—that is the normal way in which one pays for it."—[Official Report, 28 November 1991; Vol. 199, c. 1062.]That is not the normal way at all; it is the Conservative way.
The Government cannot do all three things at once. Most people will therefore conclude that in this context reductions in income tax are a cynical pre-election device, which, as the history of the Conservative party shows, could be equally cynically overturned if the Government were to achieve their purpose at the polls.
The Conservative party's professed concern for lower-paid people is equally cynical. The proposed income tax cut is designed to reduce everyone's tax bill by just under £2 a week—I do not think that the Government could deny that. The reduction is not £2.64 per week—the figure which appeared in newspapers and, I believe, in Government statements— because 72p of that sum results from the annual indexation of allowances in line with inflation, and should not be regarded as a genuine reduction. Of course, the gain is less for the 250,000 people in taxpaying families on family credit. They will lose 70p in benefit for every pound that they gain in tax cuts.
It was revealing that, in his Budget broadcast last night, the Chancellor, on his own initiative, took as the example of a lower-paid person a taxpayer earning £70 per week. He asked whether we could charge so much tax to a person earning £70 a week.
§ Mr. Smith
Yes. It is a sad state of affairs that the hon. Member for Tatton (Mr. Hamilton) is a Whip. I did not know that the Conservative party had descended to a condition in which the hon. Gentleman had been made a Whip. I see that it has now happened. Perhaps the hon. Gentleman will become the Government Chief Whip as well. He certainly looks as if he aspires to that office.
I return to the subject of the taxpayer on £70 a week, whom the Chancellor told us he had in mind when he made his tax change. The tax reduction offered to that taxpayer is just under 19p per week. That is the price of a box of matches, which may be why the Chancellor referred to the tax on matches.
If the Conservative party truly cared for the interests of the lower-paid, the Government would increase retirement pensions for all pensioners—by £5 for a single person and £8 for a married couple—instead of £2 and £3 only for pensioners on income support, and they would uprate child benefit to £9.95 for every child in the family. That would have been its level if the Conservatives had updated it in line with inflation, as is customarily done with tax allowances. That neglect may not be surprising in a Cabinet that does not have a single woman member.
864 The money that the Conservatives have borrowed for tax cuts should be used for investment in our public services and in the improvement of our economy. That is the preferred choice, and the better choice which will be made by families throughout the country who depend on our national health service for all their health care needs and who look to our education system to provide the opportunity for their children.
Over the past 13 years, Britain has been subjected to the rollercoaster economics of boom and bust—of stop, go and stop again. We have had to suffer two recessions. The one at the beginning of the decade was the deepest since the war, and the one that we now endure is the longest since the war. Separating those two recessions were the years of an inflationary boom. During the Conservatives' period of office, economic growth has averaged 1.7 per cent., which is the worst record for economic growth of any Government of any political colour since the end of the second world war.
Despite all the benefits of North sea oil, with those revenues alone worth more than £100 billion, and despite selling off the family silver, our public finances are now in debt and in disorder. Fortunately for our country, time has run out for a party living on borrowed money and on borrowed time. The time for choice is now; it is time for Labour. [Interruption.]
§ Mr. Speaker
Order. I hope that we shall now proceed in good order. Will hon. Members please leave quietly if they are not remaining in the Chamber?
§ The Chief Secretary to the Treasury (Mr. David Mellor)
I am glad that Labour Members enjoyed the speech by the next Leader of the Opposition. To those of us who attend these events more regularly than some of those who were cheering, it was yet another of the "green" speeches of the right hon. and learned Member for Monk lands, East (Mr. Smith)—endlessly recycled. He chanced his arm in a number of respects—for instance, the mention of Japan, and the "Boy, they've got good" remark. I wonder whether the right hon. and learned Gentleman has studied the figures that I gave in a parliamentary answer to his hon. Friend the Member for Leeds, West (Mr. Battle). They actually tell us something about the Japanese attitude to Britain.
In 1978, the last full year of a Labour Government, when the right hon. and learned Gentleman held quite high office, Japanease investment in this country was minus £10 million. In other words, there was disinvestment. The Opposition were not saying, "Boy, they've got good." In 1989, there was Japanese investment in this country of £1.12 billion. Whether or not the Opposition were saying, "Boy, they've got good," that is what the investment is actually telling us they felt. They are doing that in the teeth of nonsensical opposition to overseas investment by the Labour party, including the Trades Union Congress speech from the rostrum denouncing it as alien—something never repudiated by the Opposition Front Bench.
The right hon. and learned Gentleman trailed his coat by making reference to the Frost programme last Sunday. I am astonished that the Opposition wish to be reminded of the performance of the hon. Member for Livingston (Mr. Cook), unless the byzantine complexity of the politics of the Labour party at the moment mean that the right 865 hon. and learned Member for Monklands, East was quite happy that his colleague should remember what a fool the hon. Gentleman made of himself.
§ Mr. David Howell (Guildford)
Is my right hon. and learned Friend aware that, last weekend, Japan's second biggest investor in the United Kingdom, the president of the Toyota motor company, was here and that he made it crystal clear that he regards Britain as one of the most successful countries in the entire European Community?
§ Mr. Howell
He intends to build on his investment here, and he has undiminished faith in the economic success and dynamism of this country. Does my right hon. and learned Friend agree that the right hon. and learned Member for Monklands, East (Mr. Smith), by bad-mouthing Britain in the eyes of the Japanese and undermining our reputation and success, is doing no good whatsoever to this nation?
§ Mr. Mellor
It is interesting that, even this early in the debate, we have revealed the two faces of the Labour party —on the one hand the attempts at moderation and understanding of a market economy by Front-Bench Members, and on the other hand the real voice of the guts of the Labour party. The hon. Member for Rhondda (Mr. Rogers) shouted out "Cheap labour" when my right hon. Friend the Member for Guildford (Mr. Howell) referred to Japanese investment. Even more extraordinary is that he from south Wales should shout "Cheap labour" when the economy of south Wales has been transformed by inward investment from countries such as Japan. [Interruption.] If the hon. Gentleman wishes to withdraw "Cheap labour", I shall give way to him. After all, in four weeks he could be a Defence Minister, so we should hear a bit more. He is laughing. He does not think that that is very likely.
§ Mr. Mellor
I shall push on for a bit now. [Interruption.] I shall give way to the devolutionist tendency a bit later.
This is a Budget for recovery, and I warmly congratulate my right hon. Friend the Chancellor on it. But, as it happens, I do not need to add a single word of commendation of my own; I can let the business men and industrialists of Britain do that for me. Contrary to the picture that has been portrayed by the Opposition, what has been said by business and industry is a tremendous vote of confidence in this Budget, my right hon. Friend the Chancellor and the Government. The Confederation of British Industry said:This is a prudent and positive Budget—reflecting the prime importance of keeping inflation under control. Business welcomes, particularly, bringing forward the benefits of the Uniform Business Rate reforms, and the measures to help small firms and the car industry.The Institute of Directors said that the Budget wasprudent, sound and correct and producing a realistic base for business recovery.[Interruption.] Opposition Members do not like it, but they will have to deal with the business community in Britain. They do not understand for a moment— [Interruption.] During the election they will have to deal with what the business community of Britain thinks of them. It is better that they prepare now by knowing what the business community has said about the Budget.
§ Mr. Mellor
I shall come to the hon. Member for Norwich, South (Mr. Garrett) in a moment, if he will contain himself. I wish to remind him of a comment of his.
§ Mr. Mellor
The president of the Association of British Chambers of Commerce, Mr. Miles Middleton, said:The combined effect of these measures will provide considerable assistance for businesses fighting their way out of the recession. UK business believe that the Chancellor is wholly justified in his continuing priority of defeating inflation. The Chancellor has the full support of British firms, who had not asked for nor expected cuts in corporation tax." He went on to commend the uniform business rate.
§ Mr. Mellor
I hear the hon. Gentleman say, "He would, wouldn't he?" One scratches the surface of the Labour party and that is its attitude to business men in Britain.
§ Mr. Mellor
No. I am not giving way for the moment. The hon. Gentleman is an experienced parliamentarian. I shall give way to him when I have finished telling him what the business community says about the Budget.
The Society of Motor Manufacturers and Traders said:The Motor Industry is pleased with this year's budget. We are delighted Car Tax has been reduced to 5 per cent.… We believe that about 70,000 extra sales should result, with all the implications this has for employment.The Federation of Small Businesses has sent a letter to my right hon. Friend the Chancellor this morning from its chairman of financial affairs. It says:Dear Mr. Lamont,I am writing to congratulate you on your budget statement, which contained many proposals which will be of benefit to many small businesses … It has been most refreshing to see that you have listened to the recommendations put to you and have been able to act upon a number of them.The Road Haulage Association said:It was a very clever Budget.The secretary of the National Farmers Union's taxation committee said:This is a substantial help for the farming industry and something we will welcome.[Interruption.] The childish attitude of Opposition Members shows that they are not remotely interested in dealing with the central issue. If they wish to take issue with the suggestion that the Budget is a Budget for recovery, they ought to weigh in the balance what all the business men and industrialists of Britain are saying about it. Their unwillingness to do so reflects no credit on them. Perhaps they might listen to this—
§ Mr. Speaker
Order. Let us settle down. Several of the hon. Members who are rising to put questions seek to participate in the debate. It will make it difficult if they take time now.
§ Mr. Mellor
Peugeot Talbot, which manufactures at Ryton in Coventry, said:Reports coming in from dealers are of increased retail sales and fleet enquiries. I would estimate that we have taken over £3 million worth of additional sales in the first morning of post-Budget trading.
§ Sir Patrick Duffy
The Minister challenged my hon. Friends to listen to what the business community was saying. May I remind him of the views published only last week of the regional secretary of the Yorkshire and Humberside Association of Chambers of Commerce? He called on the Government to rescue the sinking economy in Yorkshire and Humberside and went on to say that sitting there and doing nothing was no longer an option.
§ Mr. Mellor
The essence of what is being said is that, far from doing nothing, the Government have produced a Budget which has been welcomed by the Association of British Chambers of Commerce in the quotations that I employed. The Association of British Chambers of Commerce has welcomed the Budget in unequivocal terms.
§ Mr. Colin Shepherd (Hereford)
Before my right hon. and learned Friend leaves the subject of what the business community has said, will he accept that the cider industry is delighted at the Government's robust attitude? The many people whose jobs depend on that industry will look with great gratitude upon the Government's robust approach.
§ Mr. Mellor
I had many more quotes, including one from the cider industry. It is simply that, after a while, the barracking from the Opposition gets to the point where it may be sensible to move on. There is a proliferation of quotes from many of the affected industries, making clear how much they welcome the measures introduced by my right hon. Friend.
Also, it was a Budget for people—21 million taxpayers gain £140 a year, there will be a 20 per cent. cut in the marginal rate of tax for 4 million taxpayers, including 570,000 single people and 1.3 million pensioners, and 5 million poorer pensioners will see increases of £2 or £3 per week from October.
Again, the House should not just hear that from me. Let us hear what Help the Aged had to say:All too often we find ourselves grumbling after Budgets but this time we have something to cheer about … It is a positive Budget that will make a positive difference to older people.We also heard a contribution—
§ Mr. Mellor
If the hon. Gentleman, who is a Whip—although Whips are not subject to vows of silence—
§ Mr. Battle
I am grateful to the right hon. and learned Gentleman. What will he say to my constituent who is on £120 a week and has worked out that, with what he will 868 lose in family credit, he will gain 19p a week as a result of the tax changes? When the tax changes are put together with the loss in family credit, is it not a fact that many people will not gain the sort of money that the right hon. and learned Gentleman is trying to con them that they will?
§ Mr. Mellor
That sounds like a desperate plea in mitigation for the Opposition's foolish decision to oppose that change. I shall give the hon. Gentleman the figures.
§ Mr. Mellor
I am about to deal with that—it is not true. Of the £1.8 billion in tax reductions due to that 20p move, only £18 million is taken back under the family credit arrangements, which is less than 1 per cent.
I am sorry that I accused the hon. Member for Leeds, West of still being a Whip. I appreciate that he was one of those who was honourable enough to resign from the Front Bench because he disagreed with policy.
§ Mr. Mellor
No. I shall push on—[Interruption.] I do not think that the Labour party wants to listen to this speech, Madam Deputy Speaker—[Interruption.]
§ Mr. Mellor
The Leader of the Opposition delivered the wrong speech about the wrong Budget yesterday. Notwithstanding the fact that the shadow Chancellor, the right hon. and learned Member for Monklands, East, had supplied him with the wrong speech for the wrong Budget —whether deliberately we do not know—astonishingly the Leader of the Opposition decided to plough on anyway. I wondered what was going on. Was this the first human brain to be affected by the Michelangelo virus? In case that may be thought to be unfair, let us consider what Mr. Matthew Parris of The Times had to say about the performance of the Leader of the Opposition. He said:Mr. Kinnock decided to read the speech anyway. Who can blame him! We have all experienced moments of intellectual panic and at such times there is comfort in having in one's hands a speech, even if it isn't the right speech.But it wasn't the right speech, and, on the faces of his party around and behind him, it showed. John Smith, tight-lipped and (in Richard Page's phrase) 'knee-deep in shot foxes', looked as though his mouth was full of live spiders.It was not that much different last year. In a sense it is a shame that the Leader of the Opposition was not away from the House yesterday, as he was from Twickenham on Saturday when, perhaps, he was the only Welsh penalty that was not missed.
During his speech, the right hon. Gentleman said that it was alla panic-stricken pre-election political sweetener.The only thing that was panic-stricken was the look on the right hon. Gentleman's face when he realised what the Chancellor of the Exchequer was saying, matched only by the even more panic-stricken look on the face of the right hon. and learned Member for Monklands, East, the shadow Chancellor, when the Leader of the Opposition chose to give way half way through his speech. The right hon. and learned Gentleman knew that a question would be asked that his right hon. Friend would be unable to answer.
§ Mr. Mellor
The hon. Gentleman seems very frisky. Let us see if he has got something worth saying that matches the smug look on his face.
§ Mr. Boateng
The chairman of the Conservative party has said that debt is deferred taxation. Which taxes have been deferred and by how much will they be increased?
§ Mr. Mellor
I do not think that that has anything to do with the point. [Interruption.] At least it is one thing in life if one can satisfy oneself and the hon. Gentleman is satisfied that he made a very clever intervention, but it was not.
I want to know why the Leader of the Opposition was unable to tell us straightaway the attitude of the Labour party to the 20p tax reduction. Instead, the right hon. Gentleman came out with a feeble excuse. When the history of feeble excuses comes to be written, it must appear as one of the feeblest and also one of the longest ever uttered. He said:We have been treated for months with teases about the Budget. We have been treated to the sight of the Chancellor of the Exchequer and other members of the Treasury team saying that they could not disclose anything. I think that, in the name of reasonability—that word is a good argument for more expenditure on adult education—they could at least give us another six days to produce our own statement in opposition to, an alternative to, what we have heard this afternoon." [Official Report, 10 March 1992; Vol. 205, c. 763–65.]That is what the Budget debate is for and that is why the right hon. Gentleman was supposed to make his speech. After all, one could say that they have had 13 years to get their attitude straight on such matters. Why the delay of six days? The answer is that the launch of the shadow Budget was designed to happen the morning after the Budget debate was due to finish, in order, of course, to avoid proper scrutiny.
Why have neither the Leader of the Opposition nor the shadow Chancellor been able to produce for us now, at this historic moment when the election has been announced, what they intend to do? Why can we not know now? I have got the back of an envelope here and the shadow Chancellor could do that for us now. After all, most of the calculations that the Labour party has made and has had to move away from, had to apologise for and give contrary explanations for in the past eight weeks, all seem to have been worked out on the back of an envelope. [Interruption.] The hon. Member for Workington (Mr. Campbell-Savours) is being extremely noisy, particularly about my electoral prospects in Putney. He might ask the Labour party why it has not targeted it as a seat that it expects to win, because it knows a bit more about Putney than he does. I shall give way to the hon. Gentleman and then, I hope, he will shut up for the rest of my speech. What has he got to say for himself? [HON. MEMBERS: "Up, up."] The hon. Gentleman has one of the most remarkable bodies that I have ever seen. His mouth works when his bum is on a seat but not when he is standing on his feet.
§ Sir Donald Thompson (Calder Valley)
Will my right hon. and learned Friend explain why, after 13 years of Conservative rule, my constituency and most constituencies are spending 30 or 40 per cent. per pupil more in real terms than in 1979? Why is Calderdale the best area health authority, universally accepted by people of all sides, not 870 just in Great Britain but in Europe? Why do we have massive land grants from the Government in a non-selected area? How have the motorways, railways and roads been improved after 13 years' Conservative rule?
§ Mr. Mellor
My hon. Friend points to the Government's remarkable achievement of making substantial increases in public expenditure, while bringing down the taxation rate for so many people. That is what happens when an economy works successfully, as the British economy worked for most of the 1980s, when we had eight years of continuous growth.
§ Madam Deputy Speaker
Order. The Minister has made it clear that he will not give way. The hon. Gentleman should not persist.
§ Mr. Mellor
The right hon. and learned Member for Monklands, East told us last night that he intends to oppose the reduction of the basic rate to 20p for the first £2,000 of earnings. That was said at about the same time as the hon. Member for Great Grimsby (Mr. Mitchell) was telling me on Sky that he intended to vote for it, and the same time as the hon. Member for Norwich, South, who has unfortunately now left us, had obviously been telling a Lobby correspondent—it was reported in this morning's press—that it was a good idea because it would help the poor.
The truth is now out about the right hon. and learned Gentleman's plans—Labour would soak not only the rich but also the poor.
§ Mr. Michael Brown (Brigg and Cleethorpes)
I am appalled and amazed at what my right hon. and learned Friend has just said. The hon. Member for Great Grimsby (Mr. Mitchell), in a radio interview on Radio Humberside just before I was interviewed, told the people of south Humberside that of course the Labour party would support the Government's proposals for a 20p tax plan and of course the Labour party would not reverse it. I cannot understand how the shadow Chancellor could oppose what the hon. Member for Great Grimsby said.
§ Mr. Mellor
We shall come to the explanation for that. We have an absurd spectacle of the Labour party proposing a minimum wage as an imperative to help low earners, while proposing to fund the cost of that minimum wage by increasing the marginal rate of tax on those same low earners back to 25 per cent.
§ Dame Elaine Kellett-Bowman (Lancaster)
Is my right hon. and learned Friend aware that 4,600 people are employed in the hospital service in Lancaster, the vast majority of whom will gain immensely from the 20p rate of tax? They will be incensed beyond measure if the Labour party undoes that reduction in their taxation.
§ Mr. Mellor
Obviously. I cannot think of a more ludicrous position for Labour Members to get themselves into. Over the years, they have got themselves into more ludicrous positions than those in a Jane Fonda workout, but to propose a minimum wage and express compassion for the low paid and then propose to claw back 25 per cent. in taxation must be the most ludicrous of all.
§ Mr. Campbell-Savours
Who will gain most out of the 20 per cent. concession—a Member of Parliament or someone earning £70 a week? Will the Minister give an honest answer?
§ Mr. Mellor
The hon. Member for Workington is abusive beyond reason. The answer is that everyone who is within the tax bracket gains. The impact of the 20p band means that those who gain more are those within that bracket and anyone who is outside the tax system gains because of the increase in social security benefit, income support, family credit and so on. That has been announced.
§ Mr. Patrick Thompson (Norwich, North)
The hon. Member for Norwich, South (Mr. Garrett) was reported in the Eastern Daily Press this morning as welcoming the 20p tax band that we have introduced. What does my right hon. and learned Friend say to the hon. Gentleman and the Opposition Front Bench?
§ Mr. Mellor
The Labour party is in a muddle and a mess, and I think that I know why. Is this a pamphlet that I see before me? Was it not published in February 1992, which is quite recent, even for the Labour party? Is it not a Labour party publication entitled "Pocket Policy Guide"?—[Interruption.] As the hon. Member for Workington will rely on it to mislead the citizens of Workington, he should at least open his ears and close his mouth.
Do I not see a section marked "Fair Taxes", and does it not say:Labour's plans—a move towards a starting income tax rate of 20 per cent."?We have already moved there, so perhaps the right hon. and learned Member for Monklands, East will tell us what the problem is—[HON. MEMBERS: "Answer."] What is the problem? It is interesting to see that the Opposition Front-Bench Members, who are supposed to represent the party, sit mute while the Opposition Back Benchers shout their heads off from a sedentary position.
§ Mr. John Smith
The Minister will have heard my speech earlier. He may not have comprehended it, but he must have heard it. I made it clear that we oppose any tax cuts that are financed by borrowing. Will the Minister explain what the Chancellor had in mind last night when he drew our attention to people on £70 a week who will receive 19p out of that great concession?
§ Mr. Mellor
I shall not deal with that evasion, as I have already said.
872 Is the right hon. and learned Gentleman's excuse the fact that he does not think that we should reduce tax through borrowing? May I remind him of what happened when he was a Minister in 1977? After the International Monetary Fund had intervened, the public sector borrowing requirement was down to 4 per cent.—
§ Mr. Mellor
Indeed, here we go again. Notwithstanding an improvement in the economy, the Government of which the right hon. and learned Gentleman was a member drove up borrowing to 5.5 per cent. to finance tax cuts of tuppence off income tax and reductions in VAT. The right hon. and learned Gentleman was in no danger of resigning, so what is the difference? There was no difference whatsoever.
§ Mr. Mellor
No, not yet.
The Labour party was enthusiastic about a 20p tax band. Not long ago, the Leader of the Opposition said on television:I'd like to introduce a lower rate band so that people don't leap immediately into what's called standard rate.I think that the 20p band is a bit like the exchange rate mechanism—it is advocated by the Labour party only when it thinks that we are not going to implement it.
Many Labour candidates now have lots of words to eat. They have no need to go to Luigis, but can have a satisfying meal eating their own words about the 20p band.
§ Mr. Beith
Why did the right hon. and learned Member for Surrey, East (Sir G. Howe) speak so clearly against the reduced rate band when he led Conservative Members to oppose it? Why did the present Minister of State, Department of Education and Science, the hon. Member for Enfield, North (Mr. Eggar), say that the reduced rate band was not the way to help the low paid and wasa measure … forced upon a reluctant Labour Treasury team by the TUC as part of the pay-off for an incomes policy … a price that was too high when it was introduced, and … too high now?"—[Official Report, 2 June 1980; Vol. 985, c. 1161–62.]
§ Mr. Mellor
The reason is that this band is intended ultimately to remove the 25p band. That is a good reason, and another is that we had to endure criticism from the hon. Member for Berwick-upon-Tweed, (Mr. Beith) and others that we were not serious about the 20p income tax. Our proposal is the best way to demonstrate just how serious we are so that people are offered a real choice between this Government who cut taxation and, among other options, the Liberal Democrats who say that they will put up the basic rate. At least they are honest in saying that they will increase that rate; the Labour party seems to think that it can increase spending and it will not have any impact on taxation.
§ Mr. Mellor
No, I must push on—I think that my hon. Friend has intervened a couple of times.
The Leader of the Opposition talked about bribes. He should learn one lesson: taxation is a takeaway, not a giveaway. He seems to assume that the state has some moral right over everything that anyone earns, and that it 873 is an act of magnanimity by the state to allow people to keep some of their earnings as pocket money. That is not how it is.
The right hon. Gentleman came out with a remarkably ill-judged comment that I do not think that he will be allowed to forget, when he likened the reduction toborrowing to go away for a day at the races."—[Official Report, 10 March 1992; Vol. 205, c. 766.]What about the improved standard of living that the money will buy for many hundreds of thousands of people? The right hon. Gentleman believes that he knows how to spend people's money better than they do, which is patronising and inappropriate, and calls into question all aspects of Labour and tax.
If the Labour party is prepared to claw back from the least-well-off taxpayer, what else might it do to feed its spending ambitions and what price the sanctity of the 25p basic rate, which Labour opposed through thick and thin as it came down to 25p? Why should we expect the Labour party to honour its commitment when it is prepared to increase taxation for those just within the tax bracket?
The reason that the right hon. Gentleman thinks that the clawback is acceptable is that he said that it would be spent on public services. He thinks that £1.8 billion is available. One can see how far that would go, given the ambitions of the hon. Member for Oldham, West (Mr. Meacher), the greatest serial spender at liberty, or the hon. Member for Livingston or the hon. Member for Kingston upon Hull, East (Mr. Prescott). That money will be spent more times than even Bob Maxwell would have managed.
The Leader of the Opposition mentioned the health service, and here we come to an interesting fact about the Labour party and the health service. By the time vie take account of the money that it will have to spend to honour the minimum wage, which the hon. Member for Livingston recognises to be between £400 million and £500 million, the £365 million cost of abolishing the charges, getting rid of competitive tendering and introducing no-fault compensation, we reach a total of more than £1 billion of public money that is to be spent on the health service without one penny of it going on patient care.
Therefore, the assumption that the Government would spend money more wisely than the individuals who have it in their pockets is unsustainable. I expect that a Labour Government would spend the money as wisely as the Labour-controlled councils of Lambeth, Haringey, Hackney and Liverpool. If people want to know the difference between the parties, it is that the Conservatives believe that the public have a right to retain as much as possible of their income and spend it. We do not believe in state direction that penalises everyone, rich and poor alike.
The nonsense is that the Opposition's critique of the Budget proceeds on the assumption that money is not being spent on crucial public services, and that tax reductions are being preferred. Nothing is further from the truth. Capital spending on hospitals next year is up 76 per cent. since 1978–79 in real terms. More than £2 billion will be spent in the next 12 months. The Government have completed 600 major building schemes costing more than £1 million, and there are currently 435 major building schemes in progress, each worth more than £1 million. That is the record of a Government who need no lessons in how to provide for public expenditure on sensitive services from a Labour Government of which the right hon. and learned Member for Monklands, East was then a complacent member, with none of the sparky, critical 874 tongue of which we hear so much, enjoy so much and look forward to enjoying from the Opposition Benches in whatever office he is called on to serve. The Government of which the right hon. and learned Gentleman was a Member cut capital funding by 30 per cent.—22 per cent. in real terms—in 1977–78 alone, despite driving up the public sector borrowing requirement during that period.
§ Mr. Mellor
No, I shall carry on for a bit.
The Labour party condemns a PSBR of £28 billion, but only £1.8 billion of that is tax cuts. The rest reflects our determination to sustain our public expenditure commitments across the cycle and the fall in revenue. The Labour party criticises us for borrowing, and fails to recognise that that reflects the consequences of public expenditure plans that Labour spokesmen have persistently denounced as inadequate. They think that they do not have to square that circle—
§ Mr. Mellor
Labour Members think that they do not have to square that circle. The deficit is nothing like—
§ Mr. Mellor
The hon. Gentleman can catch Mr. Deputy Speaker's eye later.
The deficit is nothing like that of the Labour Government. We have already given the figures. They were running a persistent deficit, which was not due to cyclical factors, but increased as the economy came out of the 1975–76 recession.
§ Mr. Mellor
The reality on borrowing is that the Labour party offers no path back to a balanced budget. In The Mail on Sunday, the right hon. and learned Member for Monklands, East did not even claim to try—
§ Mr. Douglas
On a point of order, Madam Deputy Speaker. The right hon. and learned Gentleman has been lecturing everyone on public sector borrowing requirements. In the heat of the debate I may be in danger of misquoting him, for which I apologise, but I think that he said that it was right to have a £28 billion—
§ Madam Deputy Speaker
Order. I simply want to know what the hon. Gentleman's point of order for me is, as I must deal with it.
§ Mr. Douglas
It is a matter of putting the record straight. I think that I am correct in saying that the Chief Secretary to the Treasury has been lecturing the House—
§ Madam Deputy Speaker
Order. I am trying to be helpful. This is an excitable day, and if the hon. Gentleman seeks to catch my eye later, I shall certainly look his way. If he has a point of order with which I can deal, I must do so, but I cannot involve myself in an argument.
§ Mr. Douglas
I am asking you, Madam Deputy Speaker, to assist the House in setting the record straight. The Chief Secretary to the Treasury made a statement about the public sector borrowing requirement, and said that it was because the Government had to finance certain expenditure, but the reason for the £28 billion rise in PSBR is—as everyone knows—that the right hon. and learned Gentleman miscalculated the depth of the recession—
§ Madam Deputy Speaker
Order. That was the most bogus point of order that I have taken in the past 48 hours.
§ Mr. Mellor
The right hon. and learned Member for Monklands, East knows that the Labour party offers no path back to a balanced Budget. In an extraordinary article in The Mail on Sunday, as well as criticising the Government's level of borrowing, he sought by means of intellectual evasion to claim that additional borrowing would be all right as it was to be used on policies that the Labour party believed to be in the public interest. He cannot even agree with his hon. Friend the Member for Derby, South (Mrs. Beckett), who said on "Newsnight" last night that Labour accepted the level of the PSBR and would not increase it. I wonder whether she realises the implications of what she has said: it means that there is no room for any of Labour's spending plans unless Labour puts up taxes.
We know why the right hon. and learned Gentleman is producing his shadow Budget. He did not want to produce one at all. He is doing it because of protests from Labour Back Benchers about the implications of the limited tax increases that Labour is prepared to consider. We know all about the pressure on the right hon. and learned Gentleman to tone down his tax increases, thereby making it even more difficult for the Labour party to be responsible with the PSBR.
§ Mr. Mellor
As it happens, the right hon. Gentleman is a constituent of mine, being wise enough to live in my constituency while representing another, so I give way to him.
§ Mr. Shore
The right hon. and learned Gentleman has been justifying the size of the PSBR at 4.5 per cent. this year and, according to the Red Book, probably more than 5 per cent. next year. I do not quarrel with that, but does he agree with me that we should say "Thank God" that we are not members of economic and monetary union stage three? If we were to sign the Maastricht treaty as it stands, when it came into force we would all be compelled to limit our public sector borrowing requirements to 3 per cent. In the light of the telling experience of a full-scale recession, does the Chief Secretary draw from that the obvious lesson: that we should on no account subject ourselves to such foreign intervention?
§ Mr. Mellor
The right hon. Gentleman might more pertinently ask Labour Front-Bench spokesmen that question. EMU restrictions do not preclude moving above 3 per cent. in certain instances. The restriction applies across a period of years. How would the Labour party deal with this, given its determination to drive up spending, with the inevitable consequence of having to drive up borrowing above what we have disclosed, or of having to put up taxes to which it is not prepared to admit? As was recognised in the leader in The Independent and in many 876 other parts of Fleet street yesterday, we offer the opportunity to go back to a balanced Budget across the cycle and to be well within the 3 per cent. limit.
§ Mr. Chris Smith (Islington, South and Finsbury)
I am pleased that the Chief Secretary has touched on this matter, because looking at page 17 of the Red Book the question that occurs to me is: what does the right hon. and learned Gentleman mean by "across the cycle"? Five years' worth of PSBR is laid out in the Red Book; every single one of them shows a substantial deficit.
§ Mr. Mellor
The hon. Gentleman should have asked me two years ago to help him with the questions that he had left on the photocopier about how Labour would handle these matters. None of them has yet been answered. To answer the question, the problem will be resolved when the economy returns to trend growth. The hon. Gentleman knows that we moved into balance in 1987. Everything turns on how quickly the economy grows; but there is nothing for the Labour party in this, because it would not be able to stimulate growth over and above what we have achieved. It will not be able to manage the PSBR given its expenditure plans, either.
We have produced a Budget that allows us to restate our commitment in three crucial areas. We believe in low personal taxation—brought down by 3p in our first term, by another 3p in our second term and by 2p by the introduction of the 20p band in our third term. That is a steady record of achievement, of returning spending power to the people. Real take-home pay for the typical family has increased by £78 a week since 1978–79. My right hon. and hon. Friends and I are proud of that. The money has been used to good effect. Millions of people have bought their homes and improved them. Millions more now own shares or have bought equipment that would have been beyond the dreams of families years ago. They have travelled abroad more; foreign holidays have doubled in number since 1981.
This is a Budget for people which allows us to reaffirm our determination that the living standards of the British people should rise. It is also a Budget for proper public provision. That provision has been a hallmark of this Government, which shows that, with growth in a successfully managed economy, it is perfectly possible substantially to increase public expenditure in priority areas while reducing taxation.
§ Miss Joan Lestor (Eccles)
If the right hon. and learned Gentleman is so concerned about public provision and helping families, why was there nothing in the Budget to help women back to work by helping with child care? Single families and people living in poverty will receive nothing. Child benefit, which would have helped people in need, was not increased either.
§ Mr. Mellor
Most of those assisted by this measure are working women, because they predominantly constitute the category of people most helped by the 20p band. What the hon. Lady has said in her well-intentioned way is exactly the sort of stuff that we will be hearing from the Labour party. The shadow Chief Secretary does not propose any increase in the PSBR; on the other hand, when the hon. Member for Eccles (Miss Lestor) gets on the hustings, she will offer all sorts of inducements to working women, outlining what Labour will do even though what she says is not part of Labour's spending programme.
877 Will Labour put up taxes or will it put up borrowing? Or will it repudiate the priorities that the hon. Member for Eccles and so many other Opposition Members are peddling?
§ Madam Deputy Speaker
Order. I cannot help that, but it would be helpful to the Chair if the hon. Gentleman would resume his seat, as the Minister is not giving way.
§ Mr. Mellor
I can outline some matters to the hon. Gentleman later in private; he might like to follow them up.
The conditions for the recovery of the British economy exist: low inflation, competitive interest rates, improving productivity, the best industrial relations since records began a century ago, a good export record and money in the pockets of consumers.
§ Mr. Mellor
The hon. Gentleman is just trying to be disruptive. Although he takes advantage of the rights of Parliament, he does not like others to do so.
The response of the business community to the Budget showed that its members feel the wind in their sails. What is needed now is a return to confidence. And what is the single greatest obstacle to confidence? The prospect of the election of a Labour Government. Today, we embark on the great and necessary task of removing that obstacle.
Yesterday, the Leader of the Opposition said:They are hollow men—and the Tory Government ends not with a recovery bang but with a bribery whimper."— [Official Report, 10 March 1992; Vol. 205, c. 768.]I beg to remind Opposition Members of how the last Labour Government ended. The following are some headlines from the last six months of that Labour Government:999 cover only by ambulances …1,100 hospitals under siege …Ambulance strikers ignore emergencies"—
§ Madam Deputy Speaker
Order. The hon. Gentleman must resume his seat. The Minister has made it clear to me and to the House that he is not giving way.
§ Mr. Mellor
The Opposition do not want to know, Madam Deputy Speaker. Other headlines read:Cancer ward sent home …Rees ready to use troops to move medical suppliesCallaghan says: I see no chaos".Many people in this country remember what the last Labour Government were like. Those who fail to learn the lessons of history are doomed to repeat them. Judging by their performance this afternoon, the right hon. and learned Member for Monklands, East and his colleagues have learnt nothing except—and this only with partial success—the art of evasion.
Some say that everything has changed about the Labour party. Its members have certainly been willing to change inconvenient attitudes. The right hon. and learned Gentleman says, "These are my principles; if you don't like them, I have others." In that sense everything has changed, 878 but nothing has really changed. The Labour party is as incompetent as ever, as unready to listen to reason as ever, and that is why it must be defeated.
§ 5.9 pm
§ Mr. Merlyn Rees (Morley and Leeds, South)
This will be my last speech in the House of Commons. If it were not, I would have been tempted to take up the point made by the Chief Secretary to the Treasury when he chided the Welsh rugby team for being so bad at Twickenham. That I agree with, but I found his nasty anti-Welshism nauseating. When I speak in Cardiff next week in a marginal Tory seat, the constituents will not be highly amused at the sage of Putney who hates the Leader of the Opposition largely because he is Welsh and from the mining valleys. I am prepared to give way to the right hon. and learned Gentleman but he does not seem to wish to intervene. He would be anti-Welsh to the nth degree, and he always is when it comes to the Leader of the Opposition.
§ Mr. Mellor
I am sure that the right hon. Gentleman is capable of recognising the difference between being anti the Leader of the Opposition and being anti-Welsh. He has made a thoroughly unworthy point.
§ Mr. Rees
I would repeat it because I feel it, even if it were the last thing that I said in the House. I would join the right hon. and learned Gentleman in having a go at the Welsh rugby team, but not in having a go in the way that he does in the snobby phoney accent of outer London against a decent man whose only crime is that he has a Welsh valley accent.
In most of my parliamentary career, I have not spoken on economic affairs, even though it was my academic interest for a number of years. Therefore, I finish in a way that I should have started 30 years ago, when my first speech was on education and its implications for technology. Today I want to talk about the Budget. I shall be brief, but it will be sufficient to bring out the issue that dominated my formative years. I was born in a village with 80 per cent. unemployment. My father walked to London during the depression. Therefore, I cannot shake off an abiding hatred of unemployment in any form.
In the south Leeds part of my constituency and in the area represented by my hon. Friend the Member for Leeds, Central (Mr. Fatchett), unemployment is still more than 20 per cent. I cannot glory in that. People say that we must grin and bear it, but many of those 20 per cent. have been unemployed for years. Nothing in the Budget will help them. In The Independent today, a research fellow from the London School of Economics makes it clear that the majority of non-taxpayers will not be helped by yesterday's Budget. That is the group I am talking about.
In his Budget speech yesterday, the Chancellor said:Even with a resumption of growth, unemployment is likely to go on rising for some time. But while the increase will moderate over the months ahead, a sustained reduction in unemployment over the longer term will depend crucially on our success in keeping inflation down".—[Official Report 10 March 1992; Vol. 205, c. 747.]In the 1930s, inflation was low because of high employment. The moment one moves to full employment, one has inflation. Unemployment is one of the reasons —not the only reason—why the Government have been able to bring down inflation.
§ The Financial Secretary to the Treasury (Mr. Francis Maude)
If unemployment is so easy to solve, why have every Labour Government left office with unemployment higher than when they started?
§ Mr. Rees
If the Minister looks at the figures for 1951 and 1979 he will see that the relative increase is right, but the figures overall were falling. I shall come to that point in a moment.
In no way will unemployment in my constituency be reduced by the upturn. That is not how the upturn works. It works in that way in the city, the suburbs and in the affluent middle of Leeds where there is a boom at the moment, but it has no effect on the sort of people whom I and my hon. Friends from Leeds represent. That is one of the gaps in the Government's thinking.
§ Mr. Rogers
Earlier in the debate, despite having mentioned me, the Chief Secretary to the Treasury would not give way. I said that Japanese investment was coming to Britain because of our cheap labour. The Chief Secretary, in his usual reptilian way, is still not listening. As well as the levels of unemployment that exist in many of our communities that the Chief Secretary is not prepared to accept, he is also not prepared to accept the low wage levels of the economy surrounding those levels of high unemployment. One reason why the Japanese are investing in Britain is that our wage levels are so much lower than those of France, Germany, Holland and Belgium. Until the Government recognise that, our communities will continue to suffer.
§ Mr. Rees
My hon. Friend knows that in south Wales, which I left many years ago, the work of the Japanese firms is to the credit of the area. They have brought in better management and they make a product. They are in manufacturing. I approve of that.
The unemployment that I am concerned about is the unemployment in my constituency and that of my hon. Friend the Member for Leeds, Central. The reason for it is the decline of manufacturing industry. My constituency —I have always said that I do not like that phrase—the constituency that I represent was a manufacturing area with engineering and clothing industries. Those industries have gone. Manufacturing there has been decimated. It is no longer a proud manufacturing area. Sometimes I think that one of the things that is wrong with the Government is that they have never understood the value of manufacturing, because their Members come from areas where manufacturing is not the norm. It was the norm in my area.
I am the last person to want a return to the smokestack industries and the old collieries with the 1ft 6in and 2ft 6in seams—which, thank heavens, were shut down in the 1960s; no one wants to go back to those—but we need a Government who are concerned with a return to manufacturing, with training and education. As my hon. Friends know, we talk in the House about the great changes in education, but we see nothing of those in my constituency. The number of people who stay on at school after 16 is remarkably small. I often used to meet my young constituents in Northern Ireland. They were in the infantry battalions, in the KOYLIs and the Duke of Wellingtons and so on. There is much talk about picking out one or two to go to independent and direct grant schools. That might be a good idea in some respects, but it has no effect on my area in the sense in which I am 880 talking. The Budget played little part in what I want to see in my area in training, educational changes and investment.
I have a memory of the day when people began to be concerned about full employment. They were not so concerned in the inter-war years, when the heavy unemployment was largely due to the decline in manufacturing and there were the hunger marches and so on. Seeing the films of that time, one would have thought that the majority of people in Britain cared. They did not. Otherwise, the election results would have been different, but, as a result of the war, people began to be concerned.
I was doing other things at the time, but some years later the speech of Ernest Bevin introducing command paper 6527 on employment was brought to my notice. Before I came here today, I had it looked up in the Library. He introduced it in June 1944, just after D-day. That saw a resumption of the years when we tried to do something about unemployment with employment exchanges; when we tried to get labour mobility with schemes for bringing people from the depressed areas. He said:It is now and universally accepted the primary responsibility of Government to maintain a high and stable level of employment. We are turning our back on class doctrine.I was gald to be able to find one section that was at the back of my mind. Mr. Bevin said:The Government"—the coalition Government, that is—welcome the fact that Parliament is—I hope irrespective of party, and with widespread agreement—at last facing this problem as a fundamental issue. We are … grappling with the problem which is uppermost in the minds of those who are defending the country to-day, at home, overseas".Mr. Bevin described a visit, with the Prime Minister, to the 50th Division, who were in boats off Portsmouth. They leaned over the side of the boats and asked:'Ernie, when we have done this job for you, are we going back to the dole?'A clever dick who was in the House when I was in the House many years later—Mr. Pickthorn, representing Cambridge University—sneered, and said, "For you?" Mr. Bevin replied:Yes … they knew me personally. They were members of my own union."—[Official Report, 21 June 1944; Vol. 401, c. 212–3.]He was referring to the 50th Northumbrian.
In those days, people were concerned about unemployment. In one way, I regret leaving the south Leeds part of my constituency. I know that things have been done over the years. The back-to-backs have been cleared; only one section is left in the area represented by my hon. Friend the Member for Leeds, Central. But there are people there who will never find jobs, and nothing is done about it.
The situation is viewed through the eyes of writers on The Times, The Guardian and The Independent—people who are mobile. Those people in Leeds, however, are not mobile, and they will not find jobs. They are brought up to go into unemployment, and nothing is done about it. The training programme in Leeds has been cut in half: that was announced only the other day.
For a while, following Beveridge and the work of the coalition and then the Labour Governments, full employment mattered. It is not enough to get out of a slump—call it what you will. In the 1930s, when I was first active in politics, we heard all the arguments that were advanced in the old days of Keynesian economics—was it deflation? Was it reflation? My hon. Friend the Member 881 for Sheffield, Attercliffe (Sir P. Duffy) and I attended the London School of Economics together as ex-service men. Such questions did not matter very much; it just meant that a lot of people were out of work.
Even reflating the economy is not enough: it will not have any effect. People in areas such as "up the tops", in the constituency of my hon. Friend the Member for Rhondda (Mr. Rogers) and in my village, represented by my hon. Friend the Member for Pontypridd (Dr. Howells), will be affected. They will not vote for any party other than Labour. No one cares. We see the odd programme on television about how dreadful the situation is, but nothing is really done. If it happened in the south of England, something would he done, but it is happening in the wrong place.
The Chancellor seems to be querying that statement. Why is nothing done? If this were happening even in the northern part of Leeds, something would be done. The position is accepted, and the community as a whole does not really care. That is what it boils down to; it is not just about political parties.
§ Mrs. Gwyneth Dunwoody (Crewe and Nantwich)
Has it occurred to my right hon. Friend during his long and distinguished service in the House why we have benefited from men of his calibre? His Welsh heritage has made it very clear to him that we must never again treat people with the disrespect with which his parents and mine were treated.
§ Mr. Rees
I am grateful for that comment. Although he belonged to a slightly older generation than mine, my hon. Friend's father was of the same generation as my father, and came from the village round the corner. I have been away from that area for a long time, and I am proud to be a northern Member of Parliament, but I have never forgotten living in a home where we had very little. As I leave this place, I want others not to forget that: indeed, it was part of what brought me here. I am aware that nothing is being done about it.
There is a cycle of boom and slump. We shall return to the previous position at some time or other, but it is not enough to provide extra demand. Perhaps my hon. Friend the Member for Attercliffe remembers the arguments advanced by President Hoover. The change to Roosevelt was an attempt to do something more fundamental. It will all come back. We always get out of a slump; we always experience the drop—the quick drop that we experienced between 1929 and 1931—and then the slow movement along the bottom, followed by the pick-up. In this country, that will happen the year after next. It is all annotated: the eight-year cycle can be traced all the way back to 1793. It is as clear as a bell.
§ Sir Patrick Duffy
I am grateful to my right hon. Friend. He has been gracious enough to refer to me on two occasions, and he is right—we have shared much together. We are almost lifelong friends, having shared wartime service and post-war studies at the London School of Economics.
More important, our formative years were shaped by the great slump of the 1930s. Does not my right hon. Friend agree that the present developing recession—perhaps almost a slump, in terms of its configuration, certainly in terms of its length and perhaps soon in terms of its depth—will come as near to the great slump of the 1930s as anything that we have known since?
§ Mr. Rees
The Chancellor mentioned in his speech yesterday the fact that some people hold that view. I felt a strong pang when he said it. Nowadays, people say that the failure of the Austrian banks in 1929–31 need not have happened if only the world banks had acted together, and I imagine that that is true. There is a danger that a similar position could arise now. The Secretary of State for Education and Science is a political ruffian—I say that with a smile on my face—but he speaks up occasionally. He has said that the country's problems are to do with the present Government—and of course they are—but there is also a world recession. Of course that is true. There is a danger that the situation will not pick up as much as before. My point is that we have learnt that investment is required.
I am speaking off the top of my head—perhaps the Chancellor will check the figures—but I believe that we moved slowly out of the big slump of 1931, and that by 1937 the economy was not as high as it had been in 1929. Then it began to drop again. At the beginning of rearmament, the activities of the shadow factories masked the position to an extent, but we did not return to full employment until 1942. By then, millions of people were in the armed services, and Barnbow in Leeds was making guns and tanks. It takes a long time to get out of such situations, and the economy does not necessarily rise to its former level. Therefore, investment is required: members of all political parties in the House should consider that.
Schools in my constituency were badly built in the 1960s—it does not matter whether they were built under a Labour or a Conservative Government. Corporation houses were badly built as well. They need to be knocked down or repaired. Old people's homes are to close because it costs too much to rebuild them; the same applies in the constituency of my hon. Friend the Member for Leeds, Central. Building work could be done on schools and houses. We are short of houses. I shall continue to interview my constituents until polling day. Currently, families of owner-occupiers are telling me that their houses have been repossessed and that they are being put into hostels because there are no houses for them to go to.
Now is the time to go in for capital investment and to build houses. Let me tell the Financial Secretary to the Treasury, in regard to taxes for current spending, that it is wrong to have a deficit on current spending. It is wrong to use receipts from privatisation for current matters. Borrowing must be for investment. Unless this country goes in for investment in the same way as the Japanese and the Germans, we shall have a problem. We may not enter a world slump, but we may always remain a third-class nation, never able to pull out of the recession.
The poverty that exists in some cities of the western world shows that the position is not peculiar to this country, but I want to stress the problem of unemployment in my area. I would be exaggerating if I referred to sub-standard living, but the point is that people are not going to move out of their present circumstances. Their houses often contain a photograph of the grandfather of the family in uniform, taken during the war, and perhaps one of a grandmother who may have been in the WAAF. Those people are citizens of this country, yet we do very little for them. I do not think that the Budget meets the needs of the moment.
§ Mr. Martin Flannery (Sheffield, Hillsborough)
I lived through the same period as my right hon. Friend. The 883 Conservatives are now taking refuge in what they describe as a world recession. The fact is that it is a slump here and a recession there. Figures can be obtained from the Library to show that, last year, new unemployment throughout Europe amounted to 972,000. Of those people, 777,000 were British—80 per cent. That is four times as large as the figure for all the rest of Europe put together.
§ Mr. Rees
It is my last go at this, and I am not just being wet, silly and soggy. Unless the whole House puts its mind to these problems, we will not get out of them. The Budget was a little like the Budgets of the 1930s. The first Budget that put its mind to accounting in the sense of savings and investment was that of 1941. I believe that there will be another Budget in a few weeks' time, whoever wins the election—I have my views about who will win. Unless we become involved in investment and think about the structure of the country and the problems in certain areas such as those that I have tried to represent over the years, I believe that we will fail.
The Chancellor referred to the danger of a world recession. With a bit of luck, we will not get into that. The Budget is too near the election to have any real sense of the country's needs.
I often wonder—it happened this afternoon—what in heaven's name I do in this place. One can think of the problems of the world and then the office-boy humour that comes from both sides of the House. Never again will I —well, I will for a while—have the antidote of travelling on the sleeper and arriving in an area that makes one feel that it is worth it because at least one might be able to do something.
The House will do itself a disservice if it ignores the real problems facing the country. I went to the funerals of two Popes during the time I was a Minister. I remember going into a room at the Vatican and looking at who mattered. I realised that I did not. We have been bit players since Ernie Bevin's speech. Since that time, the Americans and the Russians have mattered, and look what has happened to them. If we are to count in the world and in foreign affairs, and if the words that we speak are to matter, we have to produce; we have to produce modern manufactured goods. Only in that way will we provide the schools and education that we need. My grandchildren will receive such an education, have no fear about that. What about the others? What about the kids in my village, represented by my hon. Friend the Member for Pontypridd?
I have said it, and I have done it. Parliament is a good place. One can speak one's mind. There are people on both sides who have done that and that is what makes it worth while. That is why it is here.
§ Mr. Terence Higgins (Worthing)
There is a tradition in the House that, after a maiden speech, the next speaker makes complimentary remarks about the person who has just spoken. I do not know if there is a tradition that one should act similarly after a valedictory speech, but if there is not, I shall try to start one. I should like to pay tribute to the right hon. Member for Morley and Leeds, South (Mr. Rees). I do not believe that I have ever followed him in a debate speech before. In my experience in the House 884 over many years, he has been a fine parliamentarian and he was a brave Secretary of State. The House will be a poorer place for his departure.
I share the view expressed by the right hon. Gentleman about unemployment. For whomever it affects, unemployment is a great personal tragedy. The Budget presented by my right hon. Friend the Chancellor will help to reduce the level of unemployment. It has been recognised as a balanced Budget that is imaginative in many ways. It will create a situation with which the Conservative Government will be able to live on their return. So, in that sense, it is not an electioneering Budget.
I pay tribute to my right hon. Friend the Chancellor for effectively announcing the demise of Budget day as we know it. His proposals for transferring the arrangements to December, when one takes into account both public expenditure and taxation, are a long overdue reform. It will enable the actions that the Chancellor takes to regulate the economy—an immensely difficult task for whoever is in office—to operate in a more effective way.
On this occasion, however, one should look at both sides of the equation. The Budget deals only with raising money, not spending money. We know that decisions on spending are taken in the autumn. Therefore, on this occasion, we need to look at expenditure and taxation. The argument is sometimes used that the money used for cuts in income tax, such as those announced by my right hon. Friend yesterday, could be spent on the national health service. We must consider the enormous increase that was announced in the autumn statement in the amount expended and planned to be expended on the NHS. One could say that tax cuts and increases in spending on the NHS are election bribes. That enormous increase in spending on the NHS went on last year, the year before and the year before that. If it is an election bribe, it has been going on for a long time. The same is true of income tax cuts.
The Budget contains a number of aspects that I welcome, not least for Worthing, which I represent. I welcome the help for pensioners on income support, the proposals for the uniform business rate which will certainly help small businesses at a difficult time, and the provisions for charities. I should have thought that those measures would have support on both sides of the House.
I had grave doubts about the proposal for reducing the standard rate of income tax, despite the fact that the Conservative party is committed to reducing the standard rate to 20p. My right hon. Friend's proposal is a much better way of working towards that objective than simply leaving the standard rate at 25p and reducing it salami-like until we reach 20p. It is much better to have a reduced rate of 20p and gradually to raise the level at which that becomes applicable until, perhaps over the life of a Parliament, we eliminate the 25p rate. I welcome that. It is of considerable help to those on low incomes, not least working women, many of whom fall into that category. The basic approach is imaginative and correct.
I shall deal now with the public sector borrowing requirement and the question whether tax cuts are being paid for by borrowing. I find the arguments of the Opposition Front Bench spokesmen extraordinary. There have been very few years in the past century when the situation has been such that the Government have not borrowed in one way or another. It is almost true to say that whenever taxes have been cut the Government, certainly in recent times, have done that against a 885 background of borrowing. There is nothing unusual about that. I cannot recall any year when a Labour Government cut taxes without borrowing, so it is a strange argument for Opposition Front Bench spokesmen to use. Perhaps there will be some comment about that in the reply to the debate.
§ Mr. Higgins
No. I should like to deploy some rather complex arguments.
Another question is whether the PSBR is excessive as a percentage of gross national product. One should compare the present level—4.5 per cent. of GDP—with the percentage when the right hon. Member for Leeds, East (Mr. Healey) was Chancellor of the Exchequer. I believe that the figure was double the current rate. That puts the matter into perspective. At all events, the level of borrowing in the Budget is entirely appropriate against a recessionary background, about which the right hon. Member for Morley and Leeds, South rightly expressed concern. I believe that that borrowing will help to get the economy out of recession. A large percentage of it has been caused by the recession—by the reduction in Government revenue from taxation and the increase in public expenditure on unemployment benefit.
The Treasury and Civil Service Select Committee made it clear that the use of automatic stabilisers is entirely appropriate in a recession.
§ Mr. Campbell-Savours
The right hon. Gentleman is a distinguished Member and Chairman of the Treasury and Civil Service Select Committee. The Red Book refers to borrowing of £110,000 million—£110 billion—over the next five years. Does he find that excessive? Is he saying that even when we borrow £6 billion in year five or £19 billion in year four we shall still be borrowing to gel out of this recession? How long will it take?
§ Mr. Higgins
I make two points. First, the economic effect of borrowing depends on the extent to which it is funded. That is what affects the money supply. Secondly, on every occasion since the war the Treasury has underestimated turning points—both going down and coming up. I therefore treat with much scepticism the figures to which the hon. Member for Workington (Mr. Campbell-Savours) refers. As the recovery continues, borrowing will reduce substantially below the estimated figure. If someone says, "That is the official forecast", I shall be happy to express my views on forecasts in greater detail, as I have in the past.
Against that background, it is appropriate not only to use automatic stabilisers, but to do more. My right hon. Friend the Chancellor has been modest, and the foreign exchange markets have recognised that. That is an important point, because we are constrained by those markets. None the less, the further stimulus that he has given the economy is appropriate.
It has been said that this is a massive reversal of policy, that suddenly the Government are borrowing when they said that they would not do so. There has indeed been a change in policy: we have joined the exchange rate mechanism of the European monetary system, which has resulted in a rapid reduction in inflation. It has been possible to combine that with a welcome reduction in interest rates. As the Treasury and Civil Service Select 886 Committee pointed out, when we are constrained by the ERM from acting in the way that we are now acting, it is all the more important to have active fiscal policy in order to manage the economy efficiently.
In that context, to answer the point made by the right hon. Member for Bethnal Green and Stepney (Mr. Shore), I am glad that the Government have resisted Mr. Delors' attempts to force us into a fiscal deficits straitjacket.
I share many of the concerns that have been expressed, but I still believe that the Budget is prudent and appropriate. It will provide a firm basis for the Conservative Government when they return to power in a few weeks' time. I regret that the Treasury and Civil Service Select Committee will not be able to take evidence from the Chancellor, when we could have gone into greater depth and at a more sophisticated level. None the less, my overall feeling is that this is the right Budget at the right time and I believe that it will help to improve the economy, to the benefit of my constituents and those in the country as a whole.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
It is always a pleasure to follow the right hon. Member for Worthing (Mr. Higgins), who is Chairman of the Treasury and Civil Service Select Committee. I work with him on that Committee and have much respect for his fairness and objectivity. However, I cannot remember a single occasion during the period of the Conservative Government when he has not felt that, broadly speaking, the Chancellor's Budget judgment was sound and that it was the right Budget at the right time—even the 1988 Budget introduced by the right hon. Member for Blaby (Mr. Lawson), which helped to get us into this recessionary mess. Perhaps I can excuse the right hon. Member for Worthing on the grounds that he will shortly be off to Worthing to fight an intense election campaign, but his analytical and objective skills are not brought so obviously to bear in debates on the Budget.
It is a pleasure to begin a speech on the Budget by welcoming the inclusion, in virtually the first sentence of the statement, of Liberal Democrat policy—the sensible proposal to integrate the Budget in a single revenue and expenditure statement. I wonder why it has taken the entire life of the Government to persuade the Treasury that that is feasible. Even at this late stage, I am glad that the conversion has been made. No party will want to go back on that proposal. I assume that it will proceed with general support.
There are other measures in the Budget that I can welcome and support. It was obviously right to index alcohol duties and obviously sensible—we had argued for it—to take steps to deal with the business rate. We argued for the cancellation of this year's 4.1 per cent. increase. The Government chose a slightly more complicated method which amounts to something short of, but on the way to, the same level of relief as we propose. It will be appreciated that that will be helpful, especially after the enormous increases in the business rate last year. Its main benefit may be stopping some small businesses going to the wall, but it is none the worse for that and 1 am glad that it was included in the Budget.
It was useful to have some first steps on the problem of small and large business debts. That issue may have to be reconsidered in the context of the charging of interest.
887 I broadly accept that there was a strong argument for some measures to be taken for the car industry, although the Government did not choose to do so in an environmentally helpful way. They halved the special car tax, so a high fuel-consuming Rolls-Royce Corniche will have £12,400 knocked off its sales price while a much more fuel-efficient Metro City with an 1,100 cc engine will be cheaper by only £482. In changing car tax, it might have been possible to send a signal in favour of more energy-efficient cars and greater fuel efficiency. The Chancellor could have taken the opportunity to use more effective environmental measures as part of such a substantial change.
The Government are increasing petrol prices through petrol tax by an average of 5.4p per gallon for unleaded and 10.4p per gallon for leaded petrol on the pump price. That means that since 1979 the Conservatives have increased petrol tax by more than 50 per cent. in real terms. According to the Automobile Association, the petrol tax will cost the average rural household more than £60 extra per year.
Conservatives often accuse Liberal Democrats of being ready to increase petrol prices; indeed, they think that we are almost keen to do so. They now find that senior Ministers are pointing out that energy prices will have to rise to deal with the environmental consequences of the way in which we use energy. The Secretaries of State for the Environment and for Energy and the Chancellor of the Duchy of Lancaster have argued publicly for higher energy prices. As that is the way things are going, it is important to consider the problems of rural areas and to look for ways of compensating rural motorists—who are not the main contributors to the pollution problem and who do not contribute at all to urban congestion—and also disabled drivers. The Government must address that issue if they are going to make steady increases in petrol prices, of which the Budget is an example.
There are disappointments in the Budget for various groups of people. It contains nothing on tax relief for child care. Many campaigners thought that, after we had pressed for that in one Finance Bill after another, we were reaching the point where it would be accepted by the Government. That has not happened this year.
The Budget contains nothing for merchant shipping. All hon. Members will be aware of the concern about the state of the merchant shipping industry and its apparently disadvantageous position compared with the shipping industries of other countries. That will cause considerable disappointment.
The real shock of the Budget was the scale of the public sector borrowing needed merely to fund the recession. The Chancellor's announcement of the figure of £28 billion was greeted with gasps from all parts of the Chamber. There were gasps from behind the Chancellor from the seat in which the right hon. Member for Finchley (Mrs. Thatcher) sits and gasps from the Opposition parties.
We sat through the speech, waiting to find out how the Chancellor was going to spend the largesse. Would there be a 3p giveaway, with some additional investment spending? As the Chancellor reached the end of his speech, we realised that there was no giveaway because the £28 888 billion public sector borrowing requirement was necessary as a direct consequence of the recession and the resulting higher cost of benefits and lower tax revenues.
When we received a copy of the Red Book, we found that the PSBR will be £32 billion next year, all without any significant tax giveaway—or one of only 1p on income tax, or £2 billion—and without any additional investment. That was a genuine shock to most hon. Members. It was an admission by the Government that the recession is much worse and that its effects will last longer than they had previously forecast. That means that the Government have moved from forecasting that they would repay £19 billion of debt to telling us that we would be borrowing £28 billion—a pretty wide margin of error by any standard.
We must act to get out of the recession, but the Budget offers no hope of that. It is not a Budget for recovery. Perhaps it was not intended to be a Budget for recovery. There are three possible objectives for the Budget. First, it could have been intended to make voters feel better off, thus putting them in a better mood to support the Government at the election. Secondly, it could have aimed to kick-start recovery. Of course, the Chancellor said early on in his speech that he was not going to do that.
Thirdly, it could have been designed to wrong-foot the Labour party. If that is so, it is ingenious in one sense because it includes the lower rate band proposal, which is an expensive way to try to bring relief to the low-paid. I quoted the hon. Member for Enfield, North (Mr. Eggar), the Minister of State, Department of Education and Science and who clearly ridiculed such a proposal last time round.
The lower rate band proposal is an issue on which every party has changed its mind. The Conservative party is different because it changed its mind twice during its term in office. The Conservatives abolished the band, but have now decided to restore it. It is an expensive way of helping the low paid, as the Government themselves argued previously. If there is no spare revenue for investment, now is not the time to introduce such a proposal.
The Government's image of the voter after the Budget is clearly that of the happy citizen, making his or her way to the polling station in a newly purchased British-made car, stopping on the way to buy some British-made goods from a major department store and going to vote Conservative. All that is based on a £100 tax cut, which is not even enough to buy a copy of the Daily Mail every day for a year. Of course, the Daily Mail and The Sun believe that this is a wonderful Budget. One could just about manage to buy a copy of The Sun every day for a year with the tax cut, but one could not afford the News of the World on Sundays as well. That would be no loss for anyone, but it reveals the limited scale of the cut.
§ Mr. Hind
The point that the hon. Gentleman is making shows clearly that it is nonsense to suggest that the cut is a bribe because clearly it is not. The hon. Gentleman is showing that the amount that the Chancellor has pumped into the economy is fairly small. The Budget is well targeted and very prudent, which perhaps undermines some of the hon. Gentleman's arguments.
§ Mr. Beith
If I was Tammany hall boss and I wanted to engage someone to bribe the voters, I would not engage the Chancellor of the Exchequer because he is not very good at it although he thinks that he is. He has fallen between the devil and the deep blue sea.
The Budget will not engender recovery or make people feel that they are substantially better off. Rather than the enthusiastic driver on his way to the polling station having bought extra goods leading to a consumer recovery, the likely voter will be someone who is already unemployed, or who fears the loss of his job or who fears that someone in his family will not get a job, whose children will not receive an adequate education because of school cuts or will not get adequate training because of training cuts. People are very aware of those deficiencies in our system, just as they are aware how little they can do with £100. Indeed, the voter may not be driving a new, British-made car to the polling station but wasting hours struggling to work on an inadequate public transport system, or a pensioner just above the income support level. When Conservative hon. Members return to their constituencies to fight the election, they will meet an awful lot of pensioners just above the income support level who receive neither income support nor any of the other benefits which automatically go with it. They will tell hon. Members how hard the going is.
Investment is clearly a more appropriate subject for whatever resources can be gathered, and the Treasury model shows that. If one runs the alternatives of tax cuts and investment measures through the Treasury model, one finds that investment measures have a much more rapid effect on the economy. In addition, investment does not create a public sector borrowing requirement in subsequent years. Any tax cut must be paid for the following year and the year after. If recovery is slow, one must continue borrowing to pay current expenditure, which is no way to run the country.
If the Government invest and get a return on that investment, they can pay debts in the future. That is the Government's objective. The idea is to have a balanced Budget over the cycle, but this is the longest cycle I have ever heard of. Even if one believed the optimistic forecasts in the Red Book about the PSBR for later years, by the end of the next Government's tenure of office we would still not be at the end of this amazing cycle. We have to spend quite a few years making up for the PSBR level of the preceding years. I have heard of a stretched Mercedes, but this is the longest cycle anyone has ever attempted to describe.
Investment is best made when the construction industry is in its weakest condition—that is how one gets the most favourable prices for repairing schools and hospitals and for railway construction and work on rolling stock—not when the economy starts to heat up, which is when public expenditure has to be reined in because at that point the economy may begin to overheat and generate inflation.
We need a programme of investment in an economy that is firmly anchored with a proper anti-inflation policy, including an independent central bank, a proper commitment to Europe and entry into the single currency, a real commitment to free enterprise and the promotion of competition—not the rigged market of massive privatised monopolies that the Government have created—a Government stimulus to research and development in industry, a savings target to ensure that we rein in public expenditure when its effect would be damaging, and social 890 justice in the tax and benefits system. Neither the voters nor I will take promises or lectures about lower taxation from the Government who gave us the poll tax and who increased VAT to 17.5 per cent. Their days are numbered.
§ Mr. Robert Boscawen (Somerset and Frome)
I thank you, Madam Deputy Speaker, for calling me at this early hour. The only thing that I can say about the previous speech is that the Liberal Democrats seem to be united only about one idea, and that is that they would greatly increase the public sector borrowing requirement.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) could say only that we should spend more. When he and the other Opposition parties talk about investment they should realise that what matters is the investment made five years ago, four years ago or three years ago. Investments made now, next year and the year after will not assist recovery now—it will assist the post-recovery period.
My right hon. Friend, our Chancellor, faced the most difficult and daunting task that any Chancellor has faced for a long time—a serious recession, with an election on top of it—and he has come out of it extremely skilfully and prudently.
The Budget was carefully constructive. My right hon. Friend has not given away too much; in fact he has given away far less than anybody expected. As for the public sector borrowing requirement, in my time I have listened to Labour Chancellors of the Exchequer, Labour Prime Ministers and other Labour Ministers telling us time and again their Keynesian theory that in times of high unemployment it is right to borrow, and that if one does not borrow unemployment will increase. I find it strange that the Labour party has reversed all that it tried to teach years ago.
We shall not take lessons in deficit financing from the Labour party. Labour Governments used deficit financing to purchase all the nationalised industries, and year after year those industries ran on immense deficits, which had to be taken on as part of the public sector borrowing requirement. It was not until the Conservative Government came to power in 1979 that we changed that, got to grips with the nationalised industries and started selling them off, making them into profitable companies and corporations in the private sector. So it is pretty rich to get lessons from the Labour party on high public sector borrowing requirements.
The Budget was good because it helped where the shoe pinches. Unfortunately, we have high rates of inflation, and in those circumstances the shoe pinches hard on certain groups of people. Those people have been helped by the 20 per cent. income tax band, and also by increases in income support. I find it surprising that the Labour party wants to vote against that, after all that it used to tell us about trying to increase help for those very people—the people who come to our surgeries and tell us how difficult life is. For the Labour party to oppose those measures is quite wrong, and out of character.
The Government have helped the industries in the sort of area that I represent, in southern England, where unusually—unemployment is higher than it has been in the past. In many cases the reasons for that are not really clue to the recession. Let us take the defence industry as an example. Who could have foreseen the climatic change in 891 the world order that has taken place in the past five years? Although we shall not need so much highly sophisticated defence equipment, I am glad to say that in the past two or three years my right hon. Friend the Secretary of State for Defence has been helping the defence industries in our part of the world—those industries are concentrated in southern England—by giving sensible orders for re-equipping our forces so that, although they may be smaller in the future, they will be very good, right into the next century.
That is the other side of the Budget—the public expenditure side, which I am glad to say that my right hon. Friend the Chancellor now intends to merge with the raising of the money. In future we shall be able to see at the same time how much money will have to be raised, and how it is to be spent. That change has long been needed, and I am delighted that the Chancellor has suggested it.
My right hon. Friend has helped farmers in my constituency. That is a difficult thing to do in the present uncertain times. It has been wrong to take so much capital out of farming through inheritance tax over the years—but we know that the Labour party has always hated the idea of private ownership of property. My right hon. Friend will help many owner-occupiers and tenant farmers by keeping that capital there, to enable farmers' sons and families to restock the farms—that is, perhaps, their most expensive necessity.
Many measures to help small businesses were announced in the Budget—not least the fact that money, albeit a small amount, will be put into the hands of those who need it most. Those people will spend that money quickly in local shops and businesses, where it means so much to have a little more trade. Too many shops are empty at present, and we want to see them filled.
This will certainly be the last time that I shall speak in the House. Since I have been in Parliament there have been two enormous changes. I come from the generation born within five years of the first world war; we were just old enough to be cannon fodder almost throughout the second world war. In those days, when we could find time to think about serious things, we used to ask each other, "How the devil can we ever stop this damn stupid thing from happening again?" I have always remembered those conversations. Many thousands of my contemporaries did not survive that war, and I believe that those of us who were fortunate enough to have lived happy and long lives since then owed something to them. We owed it to them to do something about trying to stop those stupid things from happening again.
The first step was that the European nations came together and realised that they had to co-operate, and trade together to improve each other's economies. During the time that I have been in Parliament we have entered the European Community, which cements the relationship between France and Germany, whose past hatred of each other was the basis for those two terrible wars.
The second thing that has happened is that while my right hon. Friend the Member for Finchley (Mrs. Thatcher) was Prime Minister the Governments of this country and of the United States demonstrated to the Soviet Union that it could never win. By their firm resolve 892 in demonstrating that, those Governments helped to bring about the most enormous change for the future better peace and prosperity of the world. Let us not forget that.
It would be churlish to say that the whole of the Labour party has been slow to come round both to Europe and to standing up to the Soviet Union, because many individual Labour Members whom I have known have taken a strong stand on both those issues. But on the whole the Labour party does not have a good record either on Europe or on standing up for the defence of the western world against the Soviet threat. Now that that threat is a thing of the past, let us be sure that it never happens again.
I thank you, Madam Deputy Speaker, and Mr. Speaker and your two fellow Deputy Speakers for all the courtesy and kindness that you have shown me. It is greatly appreciated.
I also thank my constituents in Somerset—the lovely part of the country which I represent. I have represented two constituencies, and I thank all my constituents for having sent me here for such a long time. I am very grateful indeed to them.
§ 6.9 pm
§ Mr. Denzil Davies (Llanelli)
I am sorry that the hon. Member for Somerton and Frome (Mr. Boscawen) made some pejorative remarks about the Labour party towards the end of his speech. Despite that, it is a pleasure to follow him and to record his distinguished service, about which we all know, both to his country and to the House. My right hon. Friend the Member for Morley and Leeds, South (Mr. Rees) has also given distinguished service to his country and to the House.
The hon. Member for Somerton and Frome mentioned Europe and I have no intention of following him on that. My right hon. Friend the Member for Morley and Leeds, South mentioned the problems of the world slump. He may be a gloomy Celt and perhaps the Chief Secretary would endorse the view that here is another gloomy Celt speaking. However, I believe that my right hon. Friend expressed a fear that the slump, or depression, may not disappear as quickly as we think.
When I consider the Maastricht treaty, for example, I am concerned that we are enshrining or codifying certain economic principles, such as price stability, and that we may find ourselves in difficulties. It may have been Hoover or William Jennings Brian who said that we must not crucify mankind on a crock of gold. Perhaps we should not do things that may crucify mankind on price stability, as codified in the neo-European Bundesbank if it ever comes about.
My object is to consider the Budget resolutions. As we have been reminded, this debate comes almost 13 years since the forerunner of the Government came to power in 1979. I remind the House and the Financial Secretary—I am sure that he does not need reminding—that the Government were elected in 1979 preaching the virtues of sound money, of monetarism and even of a balanced budget. The image was given of the grocer from Grantham —I mean no personal disrespect—who demanded cash on the nail and who gave credit to no one. There was the image of the housewife from Grantham who managed the household finances and who looked after the pennies so that the pounds would look after themselves. It has not worked out.
893 Thirteen years and many Budgets later, the ideology is in tatters and with it the British economy which suffered from that ideology. The finances of the public sector are heavily in debt and the finances of the private sector, both individuals and companies, are heavily in debt. The balance of payments is heavily in the red even at a time of recession. Unemployment is rising and, if its growth next year is 1 per cent., will continue to rise. Our manufacturing base has been decimated by 30 to 35 per cent. over he past 13 years. Some £100 billion of oil money has been dissipated, swept away in a sea of imports and crushed under the mountain of debt.
The Chancellor announced yesterday a public sector borrowing requirement of £28 billion, twice what it was last year. For next year, it will be £32 billion. I should have thought that it was extremely difficult to prophesy what the PSBR would be from one month to the next. Next year's PSBR is apparently to be £32 billion on the basis of a growth in gross domestic product, for the first half of next year, of 3 per cent. I do not know whether we can go from 1 per cent. growth in the coming year to 3 per cent. growth in the first half of next year. If we cannot, the PSBR for next year will be higher than £32 billion. Such is the order of borrowing on which the Government have now embarked.
The requirement of £28 billion this year and £32 billion or more next year is the epitaph on the ideology with which the Government's predecessors were elected in 1979. Ministers are doing their best to distance themselves from that ideology and they are desperately trying to justify the claim that they are all Keynesians once more. Despite the seriousness of the economic situation, I have derived a certain amusement from the build-up to the Budget when I have listened to Ministers and especially to their apologists in the City and in the media trying to justify the massive change. It is not a U-turn but a gyration of 360 degrees in Government policy and ideology.
Some ideologists have prayed in aid Europe and the exchange rate mechanism. Others have resorted to cliches —or to clich after clich, as Ernest Bevin would have said. I will deal first with the Europe excuse. The other day, I was listening to the "Today" programme, the fount of all wisdom and knowledge. A rather teenaged pundit from one of the right-wing think tanks argued that borrowing was all right now because, as we were in the ERM, there was a bigger pool of savings from which to draw. He implied that that meant that we could borrow money without interest rates going up. The trouble is that there are piranhas in the pool which are quite as big as the British Government—one or two are bigger, believe it or not. Those piranhas will also look for some goodies out of the pool. The idea that because we are in Europe or in the ERM we can now borrow without interest rates going up is ridiculous, and the Government know it. I believe that we shall win the election. However, whichever party come to government, the cost in interest rates of borrowing for a £28 billion or more PSBR is certain to go up.
With the ERM, the poor monetarists cannot practise monetarism. The great Satan of ERM now stalks the land, so the monetarists cannot practise the old religion. I heard one argue the other day that the only thing that the monetarists could do would be to become Keynesians and to borrow money because they could not reduce interest rates. The monetarists have all gone to the Keynesian chapel next door because they cannot worship at the shrine of monetarism as a result of the terrible ERM. I suspect 894 that, for most Conservative Members, the reason for borrowing is not to save the economy or the country, but to try to save their seats at the forthcoming general election.
Others have resorted to cliches. We heard one from the Chancellor yesterday, from the Chief Secretary today and from other hon. Members in the debate. They have found the old economic cycle. I suppose that it was somewhere in the Treasury basement in Great George street and that it has now been brought out again. It is an endearing—if one can use the word "endearing" in respect of the Chief Secretary—image to think of the Chancellor of the Exchequer practising before the Budget along the long corridors in the Treasury with the Financial Secretary watching and an officious permanent secretary ensuring that the Chancellor does not fall over. One can imagine him practising on the old economic cycle with the ghost of John Maynard Keynes keeping an eye on everything.
As has been said, the problem is that we do not know how long the life of the economic cycle is. We are told that everything will be all right over the economic cycle. What is its life? There was an economist with an unpronounceable name—
§ Mr. Davies
My right hon. Friend, who went to the London School of Economics, knows the name. Kondratieff thought that the economic cycle was 250 years—
§ Mr. Davies
I thank my right hon. Friend. I did not go to the LSE. I am the product of a Welsh Sunday school and I am a great authority on the Bible, if not on Kondratieff. The bible talks about seven lean years and seven fat years, which is a kind of economic cycle. Perhaps we should settle for that. I do not know what the length of this economic cycle will be. It certainly looks more like a Tour de France than a 100m sprint. I have no idea when the balanced Budget will be balanced, and neither have the Government.
Let us move on to the next cliché, which is the automatic stabiliser, about which we have heard again today. I thought that it was something to do with motor cars, but apparently the automatic stabiliser is a higher being or higher spirit which looks over Treasury Ministers and Chancellors, keeps an eye on them and makes sure that the free market operates smoothly along the byways and the freeways. The automatic stabiliser is looking over everything.
There is nothing stabilising about a £28 billion or £32 billion PSBR. I should have thought that that would be destabilising rather than stabilising. There is nothing very automatic, either, about items of public expenditure that cause a £28 billion or £32 billion PSBR. Most of the items are as a result of Government decisions on public expenditure and taxation. I suppose that there was an element of automaticity. It is the Pavlovian automaticity which makes the Tory Chancellor instantly reach for the printing presses when the Tories look like losing an election.
The Government's ideology is in tatters. What went wrong? It is not for politicians to answer such questions; they are matters for political philosophers, historians, and perhaps even for theologians. However, I make one brief 895 suggestion. There was always an inherent—perhaps Marxian—contradiction in their ideology. In 1979, the Government came to power preaching a desire to control the money supply. However, they wanted a free market in money. I could not see how the control of money and the deregulation of money could march hand in hand for very long. To his credit, the right hon. Member for Blaby (Mr. Lawson) recognised that fact, because he gave up that practice. He left the monetarist chapel, shut the door, went off and listened to false prophets, followed false gods and started to shadow the deutschmark, and we ended up in the ERM, because the system could not work. A system that wants to control money on the one hand and wants to free everything on the other hand and treat it as any other commodity is inherently contradictory. In fact, it destroyed the Government's ideology.
All that is history. Unfortunately, the people of Britain will have to live with the consequences of much of the nonsense that occurred. At least there is one consolation. The children of the ideology of 1979—no doubt the Financial Secretary is one of them—will also have to suffer some of the consequences. Many of them will not be in the next Parliament, and those who are in the next Parliament will have the pleasure of sitting on the Opposition side of the House and watching my right hon. and hon. Friends clearing up the mess that they have created.
§ Sir Ian Stewart (Hertfordshire, North)
I compliment my hon. Friend the Member for Somerton and Frome (Mr. Boscawen) and the right hon. Member for Morley and Leeds, South (Mr. Rees) on their speeches. They have both been Members of the House for many years longer than I have. It is sad for me that I, too, am probably making one of my last contributions to the proceedings of the House. I am profoundly grateful to the constituents of Hertfordshire, North for having returned me in five elections. I had much hoped that I should be in a position to ask them to continue to do so for at least another Parliament or two, but that was not to be. I was impressed and moved by the contributions by my hon. Friend and the right hon. Gentleman about their many years in this place.
I mention one oddity in passing, and that is the difficulty which we put in the way of retiring Members in maintaining even the most tenuous connections with this place. I am not a nostalgic person—I would not want to hang about the Lobbies and look over the shoulder of my successor—but it is an oddity that, although I have the privilege of being a Privy Councillor and have automatic right of access to listen to debates in another place, I have no such automatic right of access to the Palace of Westminster to listen to debates in this House. That seems anomalous. Not long ago, when we passed a resolution whereby right hon. and hon. Members who had been here for 15 years or more could enter the Palace of Westminster or certain parts of it as a matter of right, we attached a strange condition that they had also to be in receipt of a pension. Unfortunately, because I injured myself before I reached pensionable age, that will not apply to me. I do not want to make a personal point, but I use those examples to illustrate the strange way in which, although many of us may spend many years in the House, we find 896 those odd and perhaps irrational obstacles to our maintaining even a tenuous connection, as we might wish to do.
My constituents will have looked at the Budget, in particular for the way in which it deals with the problem of economic recovery, and indeed the matters of unemployment which were mentioned by the right hon. Member for Morley and Leeds, South. I assure him that many hon. Members have great concern about the situation in different parts of the country and the uneven distribution of jobs and prosperity. That is something which all Governments find it difficult to deal with, but it does not mean that we are not conscious of them. My grandfather's brother was commissioner for the distressed areas in the 1930s. It has always been a point in my family to be acutely conscious of those matters—certainly such matters have been in my mind since I have been in the House and have had to consider economic and related matters.
The most important point that the constituents in Hertfordshire, North and elsewhere will look for from the Budget and its aftermath will be a return to confidence. There is no doubt that after a period of recession there are widespread anxieties as to how the process of recovery will be generated and how the measures that Governments can take through Budgets and so on can assist the process. The measures in the Budget dealing with the uniform business rate, VAT, and inheritance tax for family businesses will contribute significantly to restoring the necessary confidence.
I do not wish to make a particularly partisan speech, but I must say that one of the factors which are retarding the recovery of confidence is the inherent belief of most people in the business community that the return of a Labour Government would mean higher taxation and higher borrowing costs. Neither of those things is needed at present. I shall leave it at that because other right hon. and hon. Members have already made those points, and no doubt many others will also do so. However, I do not underestimate the nervousness in the business community about what a Labour Government might bring, because in the past year or two Opposition Members have been expressing commitment to a substantially increased range of public expenditure without giving any clear idea of how they would finance them. The difficulty with their proposals may be made clear next Tuesday when the Budget debate is over—that is a pity—but, so far, nothing has been made clear about how that finance would be provided. Inevitably, the business community has held back on investment and increasing activity for that reason.
I am sorry that I shall not be here in the next Parliament to debate economic matters with the right hon. Member for Llanelli (Mr. Davies). As he and I have often faced each other on the subject, on a personal basis I sincerely hope that he will find himself on one or other of the Front Benches. His speech this afternoon was typical in that it was penetrating, witty, showed insight on several matters and was more powerful than we sometimes hear from the Opposition Front Bench.
The public sector borrowing requirement and the level of borrowing proposed in the Budget is one of the matters that has attracted the greatest attention. I shall make only two main comments because there is no point in repeating what others have said. First, the structural changes in the tax system which were introduced in the 1980s have had the practical consequence of tending to increase revenue 897 when the economy is growing above its trend and to decrease revenue more substantially when the economy is below that trend.
I instance two factors. The first is the switch to some extent from taxes on income to taxes on spending. That tends to exaggerate the revenue in times of economic boom because of higher expenditure in the high street and so on and the greater level of activity in industry. As we now see, with retail sales depressed until the past few months, it tends to create a sharp reduction in the level of the economy as a whole.
The other factor is perhaps even stronger. The change in the structure of corporation tax from a high basic rate with a large number of allowances to a much lower basic rate with significantly fewer allowances means that the profitability of the companies sector is reflected more substantially and directly in the levels of corporation tax revenue than under the previous structure. There is a time lag of perhaps two years between the performance of a company and the time when that performance shows up in dividends and corporation tax payments. That is because a company pays tax on a basis which is calculated historically. That time lag led to an overemphasis of the amount of revenue available to the Government at the end of the 1980s. It leads now to an underestimate of the level of revenue available to the Government as the economy recovers in the next few years. The time lag factor has exaggerated the swing.
I suspect that five or 10 years ago not many people in the House or elsewhere expected that the Government would go into substantial surplus two or three years ago. We had double figure billions of pounds of surplus and a substantial level of repayment of debt. In the same way, the scale of the PSBR has caused some surprise. But I believe that those wide swings are caused by structural changes in taxation which are likely to continue to operate in the future and must therefore be taken into account in the formulation of economic and budgetary policy.
On this occasion, I cannot avoid saying something about interest rates and the exchange rate mechanism. A few years ago, I was invited by my right hon. Friend the Member for Blaby (Mr. Lawson) to speak in a debate on the European monetary system and to make my speech as boring as possible. Not long ago, I looked back at that speech. It was marvellously boring. I obviously carried out my instructions with great efficiency. At that time, my right hon. Friend was anxious that the subject should not be given too much prominence. I believe that I managed to soothe the House into a mood of almost complete disinterest in the subject. Given the attempts of some other hon. Members to do the opposite, I felt that my speech was one of the more important, if less dramatic, achievements of my time in Parliament.
As a result, I became extremely interested in the exchange rate mechanism and its interaction with monetary policy. I caution the Goverment about being over-hasty in going into the narrow band of the exchange rate mechanism. I am not one of those who are absolutely opposed to economic and monetary union, but I have a greater degree of scepticism than many others—purely because the lessons of history are not strongly supportive of monetary union when not accompanied by political union. I am far from believing that the states of Europe are prepared and ready to undertake the degree of political commitment that would be necessary to make monetary union effective in practice. I hope that we shall not take 898 any particular further steps in that direction unless and until we are satisfied that there is the greater degree of cohesion, and political cohesion, which is necessary if the thing is not to end in serious tears.
I have once before quoted an historical example in the House to illustrate my point. I repeat it only because so many colleagues in the House have mentioned it to me as being of interest. When the Crowns of Scotland and England were united in the person of James VI at the beginning of the 17th century, the coinages of the two countries had previously been entirely separate. They were united and put on a standardised basis under James VI in 1603. Although for the most part the coinages managed to keep approximately together during the next half century, increasing strains were felt. By the end of the 17th century the currencies had significantly diverged. They were brought back together only when political union was achieved in 1707. That illustrates the fact that before the countries of Europe make any commitment to monetary union they must understand all the democratic implications of it and that it would not work, certainly in the medium and longer term, unless it was part and parcel of a much greater degree of political union than the leaders of most of the countries of Europe have yet contemplated.
§ Mr. William Ross (Londonderry, East)
Would the right hon. Gentleman care to carry that analogy further by considering the situation that arose when the Irish Republic separated from the United Kingdom? The Republic tried to keep the currencies on a par, and for many years succeeded, but eventually it had to break and the currencies diverged.
§ Sir Ian Stewart
The hon. Gentleman makes an important point. I could draw several other analogies. The only occasions when a common currency has been applied successfully throughout Europe were under the Roman Empire, when the currency was backed by the legions of the Roman army, and 200 years later under Charlemagne when the currency was imposed by military force. No other protracted period of monetary union in Europe has worked. I offer that as a cautionary tale.
I am not absolutely opposed to proceeding in the direction of monetary union, but it is necessary for the future health of democracy and Parliament—and, indeed, of other countries in Europe—that before such steps are taken the full implications are understood. It is essential that we do not take steps in the dark, only to realise afterwards what they involved.
Clearly, membership of the ERM imposes a substantial discipline on the Government's flexibility to alter interest rates. In the past year, my right hon. Friend the Chancellor has come in for considerable criticism for not having reduced interest rates more rapidly. He deserves a word of congratulation on having been cautious and responsible and not being rushed into that process. I hope that he will be able to reduce interest rates further in due course. However, given the commitment in the exchange rate mechanism, I am sure that it would do far more damage to reduce interest rates and find that they had to be raised again—the damage to confidence would be considerable —than to be more cautious in taking that step in the first place. That is my parting word to my right hon. Friend on that subject.
I must declare an interest as a director of an investment trust. I am pleased that the whole of personal equity plans 899 can now be invested in investment or unit trusts. I have always believed that people beginning to invest in equities can best do so by the collective mechanism of such trusts, where expert management is available and risk is not concentrated in a small number of shares. Perhaps I may now reveal that when we were contemplating the introduction of PEPs a few Budgets ago I suggested that policy. Although it did not prevail at the time, I am delighted that it has been introduced.
Finally, on income tax, I strongly support the proposal to introduce a 20p band. I do support it not merely as a band, but because it is the first stage in moving to a substantial range of income to be taxed at 20p. There are a number of ways of moving from 25p to 20p. One way is to take 1p or 2p off across the whole band. We adopted that method to get down from 33p to 25p. In recent years, I have been of the view that the starting rate of tax—even at 25p, let alone 33p or anything in between—is too high. However, I do not consider 25p to be too high on a taxable income of £15,000. By having a wide basic rate band, the starting rate of tax is bound to be higher than it ought to be for those people at the bottom of the income tax paying scale. Therefore, I especially welcome the introduction of the 20p rate for those on the lowest levels of taxable earnings, particularly as I understand that my right hon. Friend the Chancellor intends that that band should be expanded, so that a broader range of income could be taxed at 20p rather than at 25p. That gives him greater flexibility. Whereas one needs £2 billion to take one penny off the basic rate, once one has established a 20p band, one can increase it by a greater or a lesser amount, according to available revenue. That is an important reform and I hope that it will be carried forward. I hope to be able to applaud that, albeit from a distance, in future Budgets.
§ Sir Patrick Duffy (Sheffield, Attercliffe)
It is a personal pleasure for me to follow the right hon. Member for Hertfordshire, North (Sir I. Stewart). When he was a Defence Minister, I shadowed him from the Opposition Front Bench and I always found him to be effective, impressive and, in other small ways, pleasant and entirely admirable. I have no doubt that the House will be the poorer for his premature departure.
Also, it would have given me the greatest possible personal pleasure to follow the hon. Member for Somerton and Frome (Mr. Boscawen), who will know that there are between 30 and 36 hon. Members who served in world war two. As far as I can estimate, there will only be five in the next Parliament. The hon. Gentleman and I were subject to the most prolonged post-war medical treatment. Although my condition was by no means as grievous as his, for as long as seven years after the war, I was classified as 100 per cent. disabled and my classification has never dropped below 30 per cent. That did not prevent me from contesting my first two parliamentary elections as early as 1950 and 1951.
I listened with interest to the hon. Gentleman's recollection of his wartime reflections. I believe that I shared them and I feel privileged—along with my hon. Friend the Member for Walsall, South (Mr. George)—to 900 have been able to play a small part in recent years in ending confrontation in Europe, in strengthening security generally and in making new structures possible.
I feel that the hon. Member for Somerton and Frome and I have shared a special brand of comradeship through all those years, although we have never talked about it. The House will not be the same without him, and there is no one for whom I have entertained, at a distance, more respect and concern.
This time last year, the Government thought that they would be going to the polls against a background of economic recovery. Some financial gurus in the City were sitting back anticipating another five years of Tory rule. Although the recession is now an enormous embarrassment, the official line put out by No. 10 Downing street is that Britain is the victim of international recession. However, we all know, do we not, on both sides of the House that, in its origins and its severity, it is a home-grown recession, caused by the Government's mismanagement of the economy?
Policy mistakes, especially those made in 1987–88, have been the major cause of the recession. The latest figures show that the output of the British economy has been declining for six successive quarters. The latest gross domestic product figures confirm that the recession is the longest in post-war history. Last year's decline of 2.5 per cent. was the biggest annual fall since the 1930s. There has not yet been a slowdown in that decline.
For all the House knows, we may be in free fall, for economic recovery continues to be elusive. From time to time, one gets a fleeting glimpse of a speck of light trying to pierce the gloom, but then it disappears, just as hope begins to rise. The same is true in the United States of America.
Weighed down by prolonged recession, Britain's ailing economy seems unable to find that pathway to growth. Yet, in his Budget statement, the Chancellor made a virtue of not wishing to kick-start the economy. He expects growth to pick up gradually as the year goes on and to be reasonably strong by 1993, but his Treasury advisers have been disastrously wrong in recent forecasting and weighty authorities see continued depression, unless policy is changed radically.
One problem with recessions is that they do not start and finish on a particular date. The recovery is never tidy, and we are likely to get confused signals for several months after the upturn has begun.
In the United States, there have been two upturns, but they are back in a state of recession. Given previous experience, including that of post-1931—it is salutary to look at the figures—recovery from a slump of this magnitude will be delayed and prolonged and unlikely to achieve anything like full utilisation of capacity. As my right hon. Friend the Member for Morley and Leeds, South (Mr. Rees) reminded us, we were pulled out of the depression of the 1930s only by rearmament and the onset of war. He and I were brought up in mining communities which were plunged into debt as a result of the general strike. We knew many households that were only rescued from that debt, after many years, by the fuller employment that war produced.
Unemployment, inevitably, is still going up. Figures published yesterday show that the Government are continuing, although not maliciously, to underestimate it. An unemployment level of 3 million people is already in 901 sight. There is little prospect of an export-led recovery, given the latest trade figures. A consumer-led alternative would risk making the trade deficit even worse.
Against that unpromising background, the Chancellor was expected to deliver not merely the Budget, but the ballot. It is too late for that. The Budget will not act as a significant stimulus to the economy—all that should have been provided for last year. The deficit is almost certainly out of control, and the prospective borrowing requirement is significantly worse than expected. The Chancellor will be lucky to see growth at half the rates he has forecast, given the form. It will be a case of hard times rather than great expectations. Companies need help as cash flow and complicated reliefs to the uniform business rate are not enough. However, that is all that the Chief Secretary to the Treasury could offer when I challenged him earlier.
It is a disappointing Budget, and the Chancellor has failed to produce the election-winning trick that everyone thought he had up his sleeve. There must be a question mark over whether the measures taken are even affordable and sustainable. We all know that the City is cautious—the PSBR has undoubtedly prompted a sense of disappointment. The evidence is there and plain to see. The policy of borrowing to finance tax cuts has already come in for much discussion in the debate, but surely that can make sense only if the borrowing Government are prepared to raise taxes later with a view to restoring the balance—assuming the economy moves on.
Borrowing to finance sound and necessary long-term public sector investment is preferable, for it should pay for itself over time. That is Labour's preference. The obvious areas for such investment are our preferred ones of infrastructure—roads and railways—and, above all, industrial efficiency, with a view to improving productivity.
The latest issue of the National Institute Economic Review puts the lingering adverse productivity gap between Britain and Germany down to the fact that Germany has constantly made a greater investment in its workers and factories. I can properly apply that test to the Budget, and I naturally wish to apply it first to my city of Sheffield.
Sheffield council's employment department now finds unemployment to be as high as 17 per cent., whereas the Government figure is less than 12 per cent. I am in touch with Ministers at the Department of Employment about that.
In Sheffield, the engineering industry is a mirror of the health of the city's economy. In the past year, the Engineering Employers Sheffield Association has seen its members fighting hard to survive in a hostile trading environment. It has called for all genuine investment to be made fully and immediately tax-deductible. It has pointed out that many foreign Governments provide their manufacturing industries with support for research and development. It also believes that there is ground for greater incentives to export. It believes that perhaps the most important and far-reaching area in which the Government can encourage the manufacturing industry is by providing a better education system and raising the attainment and quality of school leavers. That is another preferred Labour objective.
This is not a Budget of recovery for Sheffield; nor is it a Budget for recovery for the Yorkshire and Humberside region. Of the many complex issues and problems facing that region, three stand out as far as the regional and local 902 authorities are concerned. One is the environment, in particular the redevelopment of the older industrial areas, which have been identified as the key to the region's future. Interestingly enough, that was the subject of my maiden speech in this place 29 years ago. I recall that my right hon. Friend the Member for Morley and Leeds, South was kind and gracious enough to join me for that occasion.
Secondly, training is critical to the region if it is to catch up with foreign competitors' skill levels as the single market approaches and to make the best use of the declining numbers of young people who will be seeking work in the next few years. Thirdly, good communications will also be vital to the region, because they are undoubtedly a prerequisite to success as the momentum of the single market builds up.
The final judgment on the Budget must turn on competence and on how far the Government can be trusted to steer the country out of a recession, which domestic misjudgments have made uniquely severe. The Government must be found wanting in three crucial aspects. First, after 13 years of administrative responsibility, many of Britain's fundamental economic problems remain—the level of structural unemployment, especially in the Yorkshire and Humberside region, a deficiency of investment, an inadequate manufacturing base, a shrunken one in Yorkshire and Humberside, and a poorly educated work force.
Secondly, no one recalling the 1980–81 recession could really have expected that the country would ever again be called upon to go through all that. Yet we are now doing it all over again and no one can say that, as yet, it is working.
Thirdly, the cost of money is too high for an economy in recession—the single biggest factor holding back recovery. Sterling stays weak and in its turn denies the opportunity for any adjustment of interest rates, because traders believe that Britain is still prone to slipping back into the bad old days of demand management. One suspects that yesterday's Budget has confirmed their fears. A PSBR of £28 billion, rising next year to £32 billion—it will be surprising if those figures are maintained and not adjusted upwards—has wrecked the Conservative Government's claim to be the party of fiscal prudence and thereby hopes of much lower interest rates.
We not only have a deeper recession than foreseen, but a worse fiscal state than the pessimists feared.
§ Mr. John Townend (Bridlington)
I accept what the hon. Gentleman says about the need for lower interest rates, but I am surprised that he makes that point while extolling the virtues of ERM. Does he not agree that the Government are constrained by membership of ERM? If we had not been members, it would have been possible to reduce interest rates much earlier.
§ Sir Patrick Duffy
If we were within the narrow band, I would find it difficult not to agree, but there is much room for movement. The truth is that we are too low down —we are only just off the bottom. One need only look at what happened to sterling after the Budget. It made earlier gains, but lost most of them after the Budget. That was not coincidence.
We need an interest rate cut and a firm grip on public finances. What we have got, however, is a Conservative Government. That is why we are likely to have sustained 903 high interest rates and a burgeoning public sector deficit. The Chancellor has not delivered a relevant Budget, and he will not deliver the ballot.
I recall, as did my right hon. Friend the Member for Morley and Leeds, South, that the experience of the great slump in the 1930s provided the first impulse towards political interest, political involvement and political activity. We both come from similar backgrounds with similar families. Our fathers were miners. They were the same kind of men—both Celts. In appearance, they could have been brothers. They had the same kind of background of bitter industrial experience, but they were never bitter men.
It was that early impulse that eventually led both of us to gain privileged membership of the House of Commons. It is poignant—perhaps worse, it is ironic—that in our final speeches we should both recall the slump of the 1930s and wonder whether we are now in a similar slump. As I said in an intervention which my right hon. Friend kindly made possible in his speech, in its present configuration and perhaps soon in its length and breadth, this recession more closely resembles the great slump of the 1930s than any recession in the past 50 years.
My right hon. Friend the Member for Morley and Leeds, South and I arrived in the House at the same time. We arrived in good company, through by-elections, just after Guy Barnett as a result of a by-election in Dorset, Neil McBride as a result of a by-election in Swansea, East, John Silkin as a result of a by-election in Deptford, Brian O'Malley as a result of a by-election in Rotherham, and Gregor Mackenzie as a result of a by-election in Rutherglen. With the exception of Gregor, all the others —who were good Members of the House and became Ministers and good friends—died prematurely. I have never doubted that they were casualties of the parliamentary warfare of the 1970s. My right hon. Friend and I still grieve for them.
My right hon. Friend and I have spent most of our membership of this House on the Opposition Benches, but we feel deeply privileged to have trodden the flagstones of this historic Palace. To have moved within walls that have nurtured and inspired the history of all the peoples of these islands is the greatest privilege that the people of this country can confer on any individual.
My last words to you, Mr. Deputy Speaker, are that you were my Member of Parliament and my Deputy Speaker and I could not have been better served. We have both been fortunate and I thank you for all your courtesies and your friendship.
§ Mr. Deputy Speaker (Mr. Harold Walker)
I am grateful for the hon. Gentleman's kind remarks.
Mr. Speaker originally announced that he was imposing a cautionary limit on speeches between 7 o'clock and 9 o'clock. In view of the small number of hon. Members seeking to catch my eye, I shall withdraw Mr. Speaker's imposition of a 10-minute limit, accompanied by the request that hon. Members show restraint in the length of their speeches, to ensure that all those who wish to take part have an opportunity to do so.
§ 7.4 pm
§ Mr. James Hill (Southampton, Test)
I am pleased to follow the hon. Member for Sheffield, Attercliffe (Sir P. Duffy). He has had a most distinguished career here, having been president of the North Atlantic Alliance, which was a close-knit reason why we were able to communicate—I was in the Council of Europe at that time. We also had a thin wall between our two offices, so he could hear my singing and I could hear his dictating to the rest of Europe. It will be a sad day when we lose so many able people at the election.
There is not much left to say on the Budget except to point out that inflation has fallen from II per cent. to about 4 per cent. We have brought interest rates down from 15 per cent. to the present 10.5 per cent. and I hope, despite the exchange rate mechanism and the doom and gloom that we heard today, that there will be a decrease of at least 0.5 or even I per cent. to encourage everyone who has had to borrow money during these difficult times. I hope that that will be announced before the general election. The convention is that that cannot be announced during the election campaign.
One of the great lessons that I have learnt is that strikes have always been the most dangerous aspect of industrial progress. I think particularly of the port of Southampton, where a whole year passed without a single ship entering or leaving the port. There was a series of strikes, almost one after the other, by British Rail workers, crane drivers, the dock labour force and so on. Ultimately, although I love the port of Southampton, it was not pleasant to see the absolute desolation, so I was pleased when we privatised Associated British Ports. After that, there could be only one conclusion—the Government had to do away with the national dock labour scheme and all that that entailed. We were then able to compete with the new giant port of Felixstowe on the level playing field on which we all insist when dealing with Europe.
The Southampton port's growth denies Opposition claims that people are not investing. The port has just agreed to invest £15 million on improvements and business has been and is extremely buoyant. Last year, more than 400,000 container units went in and out of the port. Considering that the port has only three container-ship jetties, that is an enormous number.
We have a tremendously buoyant business in car exports and imports. In 1991, the throughput in cars amounted to 300,000 and two thirds of those were new cars leaving this country, so the port of Southampton proves conclusively that there is still life in the United Kingdom. I sometimes wonder whether those who do not look at the minutiae of industry and its problems realise the effect that their doom and gloom have on business throughout the world.
The 5 per cent. reduction in car tax means that more cars will pass through the port of Southampton. Let us hope that British and British-Japanese manufacturers in this country can still compete with all other marques of cars being imported from other parts of the world. All established dock workers, whether crane drivers, office workers or stevedores, will welcome that reduction. When the national dock labour scheme was done away with and the stevedores received their redundancy payments of about £20,000 to £25,000 if they had served a fair amount of time, 450 of them sensibly invested that money in a 905 co-operative stevedoring business. They had the good sense to take on one of the dock managers to help and guide them, and it is now a flourishing business.
The old disputes are forgotten—even the old salaries are forgotten. Most of those in the industry are doing extremely well because they now work in partnership. They will welcome the 20p rate, even though it applies only to the first £2,000. I was wondering whether, if the other political parties had stated their polices here today, they would have kept the 25p and the 40p rates intact. I very much doubt whether they would. It is a happy Budget in that, although it does not give back a great deal, it does it in such a way that there is no increase in taxation.
If we are to go down memory lane, I point out that I am a former president of the Motor Schools Association of Great Britain. That does not seem of great rank in these illustrious circles, especially when compared to the role of president of the North Atlantic Alliance, but I felt that it was a way of involving myself in that industry's problems. For a long time, one of its problems was that when a new driving school car was purchased, the VAT could not be deducted. Now, in one fell swoop, taxi and car hire firms, and driving schools can recover the VAT on their cars. That policy will operate from 1 August, and will cost £50 million, spread over 1992–93. That is a welcome aspect of the Budget, which I do not think has yet been mentioned, and as a former president of the Motor Schools Association I am pleased to be able to state it clearly to anyone with a small business involving taxis, hire cars and so on.
Another small item in the Budget that people will tend not to mention is inheritance tax. Now, the old guvnor of a small business or small farm can sign over the business before he dies. We have long waited for that, and I am sure that no one here would wish that, every time the owner of a small business died, everything had to be sold up to pay the inheritance tax on the business. I am grateful for that aspect of the Budget. One of my constituents is a newsagent—the policy is not aimed too high—and he is worried about leaving the business to his family. Now he will have the freedom to do so.
The proposal on car tax was helpful. I had lunch with the Ford Motor Company only about three or four weeks ago—it was not a bribe. Its representatives were in the doldrums, as are those of General Motors and many other car giants in the world. We are suffering not merely a British recession, but a world recession. Suddenly, overnight, due to the imaginative 5 per cent. cut in new car tax, those businesses are beginning to take advantage of that proposal by reducing their prices, which can only be good. After a home, a car is probably the second biggest item for a family—and why not? Why should it be only Ministers who drive around in new Montegos? Why should not the average family man do so? The concession will be extremely useful.
I have talked about the port and the car industry in my constituency, and the difficulties of the system. We cannot do everything at once, but we have done a little to help many of my constituents. We have provided extra help for pensioners on income supplement. It does not involve a great deal of money—many hon. Members would think that they could not buy a meal with it, but the money must be seen in the context of those who receive it. The amounts involved are £2 for a single person and £3 for a couple, which will be welcomed by all my constituents in that 906 category. For the over-65s, the income tax allowances have been lifted in line with inflation, which will also be welcomed.
When talking about one's own constituency, the difficulty is that one tends to become emotional. That is especially true if, like me, the Member was born in the constituency and, like me, had a grandfather who was, unfortunately, killed in the boiler room of the Titanic. I have links with my constituency, as we all do. My mother, who lived there, died only a couple of years ago. We do not normally like the carpetbaggers, but we sometimes have to put up with them. I believe that, if one is a Member of a home constituency—born, bred and educated there—one almost becomes part of it; it is a living thing.
§ Mr. Roy Beggs (Antrim, East)
I share the hon. Gentleman's sentiments in respect of his port arid constituency in Southampton, as I have a similar constituency in Antrim, East with the second busiest ferry port at Lame. Does the hon. Gentleman agree that those who are deeply interested in the future of British shipping would have liked the Budget to contain measures to encourage British shipping and get British crews back on to British ships? Perhaps we should continue to press Governments so that, next time round, such action will be taken.
§ Mr. Hill
That is an interesting point. Like the hon. Gentleman, I have been to the London General Chamber of Shipping and received its information packs. I know that flagging out has depleted the British fleet. I know that, sometimes, ships are flagged out so that cheap, overseas labour can be employed. Years ago, when I was in the European Parliament, I was very much for the scrap and build policy. That was thought almost revolutionary in those days, but it would have meant that ships that did not measure up to the highest safety standards and were perhaps not governed by fuel economy could be scrapped and rebuilt. Whether it comes from Europe or the British Government, there must be more understanding of the problems of running a merchant ship.
When we consider Taiwan—soon China, too, will have one of the great fleets in the world—we can see the competition which will be difficult to beat. Those countries pay less and have new ships—some of those countries have been in the shipbuilding business for only 15 or 20 years, so they have good, modern fleets. Something must be done, whether in future by the European Commission — which we may object to—or by Governments getting together. In this country we cannot buy a ship off the rack; there is no prebuilding. We have to place an order and might receive it in three of four years. Very few can survive in that way.
If a future, successful Conservative Government are in office, perhaps we shall be able to look deeper into this matter. Flagging out brings with it many evils. I am not being sentimental; in the port of Southampton it was always the "red duster". There are evils in all our fleets, dispersed throughout the world. There are ships owned by British companies that we never see. They are flagged out, they go to Florida or on cruises in the Mediterranean, and they have their repairs done in places like Athens. All this is a problem for Governments of the future.
The day of Government intervention in shipping is over. Governments never seem to get it quite right. Keen European though I am, I would be against too much 907 intervention by the European Commission in this delicate matter. Sometimes the Commission plays a ducks and drakes game—there is not always complete fairness.
I would like to think that a successful Conservative Government of the future, well supported, I hope, by Northern Ireland Members, will examine the problem raised by the hon. Member for Antrim, East (Mr. Beggs).
I still remember my maiden speech, although I do not suppose that anyone else does. I described everything happening around the port. Were I to make the same speech now, I would have to explain that everything has grown. The university has grown; the general hospital has grown to be the second largest in the United Kingdom. We have a first-class medical school. There are exciting high technology developments, and we have a science park. There are new marinas in the docks and—unheard of before—shopping parades in the port.
Southampton is a prosperous city which just needs a kick-start. Opposition Members do not believe that this Budget offers that kick-start. They will have to wait and see. I think that it is the beginning of the way out of the recession. Someone told me that we were last into the recession and would be first out. Actually, we were the first into it and it looks as though, with the United States, we may emerge from it last—
§ Mr. Hill
Let me finish what I was saying—good heavens alive, what is happening to the House?
Not all businesses go into a recession at the same time and not all of them come out of it at the same time. Some businesses are already beginning to flourish. First-time buyers of property are beginning to be active; there are "sold" boards in my constituency. As with cars, so with properties—the recovery is beginning.
§ Mr. Martlew
If the hon. Gentleman said, as I believe that he did, that we were first into the recession and we were going to be the last out, does he not accept some of the blame for that as a member of the Conservative party?
§ Mr. Hill
Recessions are a law unto themselves. Anyone who has been in business will know that everyone wants to buy certain goods but not others. I remember that I took up a Parliamentary Fellowship Trust position with a large conglomerate that owned 200 companies throughout the United Kingdom. One of those companies made giant presses. As an ordinary business man I asked about break-even figures for the company. I was told that it could sell nine presses a year. I asked about the figure for the world market, and was told that it was 17. The position was clearly impossible. People have to be alive to changes in the business world, whatever business they are in.
I am an investment manager. I know exactly what is going on in business—if I did not, I would not make any money. Investment is the right way forward, but that does not necessarily mean Government investment. It means private sector investment, and that can come from any country.
I do not know whether there was resistance in northern and southern Ireland to foreign capital arriving in years past. The Republic was given a jolly good kick-start by it. It enabled the Republic to get its accounts together so that 908 it could join the EC. Over here, there was terrific resistance to foreign capital. The unions held talks about whether we could allow one union for one factory. I wish that we had had one union in the port of Southampton all those years ago; instead, we had about a dozen. We resisted foreign investment for as long as we could. Now, people are building on green-field sites in some parts of the country in highly successful ventures—[Interruption.] I do not know whether you were signalling to me, Mr. Deputy Speaker, or just wanting to know the time. Of course one must be obedient to Deputy Speakers, so I conclude by saying that this has been an extremely good debate so far. I am happy with the Budget. It has certainly done a power of good for my more poorly paid constituents, and I hope that when I go back to my constituency to do canvassing they will be appreciative.
§ Mr. Deputy Speaker
Order. May I re-emphasise my earlier appeal for brief speeches? I had hoped that the hon. Gentleman, given the 10-minute limit that was to have been imposed, had a 10-minute speech in his hand.
§ Mr. Bruce George (Walsall, South)
I come to the debate with a curious mixture of happiness and sadness: happiness because the call to arms has at long last arrived; sadness because I see colleagues departing and making valedictory speeches. My right hon. Friend the Member for Morley and Leeds, South (Mr. Rees) and my hon. Friend the Member for Sheffield, Attercliffe (Sir P. Duffy) both have enormous experience in the House but are retiring. It will be sad to see them go, and sad to see colleagues departing who have no intention of departing. Whether this is to be my own valedictory speech, only the good people of Walsall, South will be able to determine. I hope that they will show the same good sense this time as they did on five previous occasions.
I was fortunate enough to have the last Adjournment debate of the 1974–79 Parliament. The Minister who replied was the late Guy Barnett. The debate was about what had happened in the previous five years in my constituency. I am pleased to be able to speak again now at what I hope will prove to be the fag end of the Conservative Government. That provides me with a good perspective from which to look back on the past 13 years, and to compare the policies of those 13 years with those of the previous five—all against the background of this Budget.
When I spoke at the end of the 1974–79 Parliament I was able to mention unemployment in my constituency of 5 per cent. and council house starts at 1,000 per year. There were 12,000 crimes per year. I mentioned big companies in my constituency such as GKN, Rubery Owen and Charles Richards, which I said had fine prospects. I said that Eaton Axles and F. H. Lloyd had high investment programmes. That 1974–79 period was wrongly assessed by contemporaries and historians. It was hardly an idyllic period for government but, according to many people, Labour's defeat in 1979 ushered in a new dawn. Few Governments came into office with such advantages as the next one—the bonanza of £100 billion worth of North sea oil, the sale of much of the public sector to the private sector and higher taxation—but they blew it. I now look back 13 years later and see unemployment in my constituency not 5 per cent. 909 but 12 per cent. officially and, in reality, probably half as high again. In the west midlands, 40 people are chasing every job. Council house starts stand not at 1,000, but at zero, and there are 12,000 unmodernised houses with no chance of being modernised because the council has only enough money to modernise between 50 and 75 a year. The companies about which I spoke—GKN, Rubery Owen, Charles Richards, Eaton Axles, F. H. Lloyd, and many others—have all gone. Of those companies which remain, some are now in receivership, some have been rationalised and reorganised, and some are hanging on by their fingertips.
In the country, there are record bankruptcies, cripplingly high interest rates—for companies in my constituency and elsewhere, these interest rates have been killers—prices have doubled and the pound in our pocket in 1979 is now worth about 40p. There have been two recessions and growth is the lowest since the war, lower than under the 1974–79 Labour Government and much lower than under the 1964–70 Government. My constituency and elsewhere have seen manufacturing output plummet, great divisions between regions, enormous disparities of income and the creation and consolidation of a large underclass. We have seen sleaze and corruption and now a PSBR requirement of a staggering £28 billion and rising—add to that the huge trade gap, and one sees the enormous consequences of the past 13 years.
At the turn of the century, one politician called my town of Walsall the town of 100 trades. The number is now probably far less than that as a result of Conservative Governments, history and the decline of the region's fortunes. Many industries are in decline. What we have left are leather goods, metal manufacture, machine tools, iron castings, motor components and, in Willenhall, locks. It is amazing that so many industries are in severe decline. We need to sustain existing industries and to attract newer and high-tech industries to the town. I do not want the town to become nothing more than a town of warehouses, superstores, leisure complexes and what is left of the smokestack industries which have survived the crises of the past 13 years. I want to see increased investment in manufacturing industry, in equipment, in training and in marketing. We do not want simply to neglect manufacturing industry as has happened during the past 13 years.
It is essential that we have better training. It is important that local authorities are used in creating and sustaining industry, providing guidelines, investing in housing programmes and providing better and more relevant education. Those are some of the things that are needed, but above all we need the election that is about to come, which will give us a new Government, a new Budget and a new set of policies.
The industrial revolution began in the west midlands two centuries ago. Until about 20 years ago, the region was the engine of the British economy, but now we are in deep decline. We have seen two major recessions and manufacturing output has plummeted. During the past 13 years, employment in manufacturing has declined by 372,000 and an even sharper decline has taken place recently.
John Owen, president of the Engineering Employers West Midlands Association, has published his presidential review of the previous 12 months. When that gentleman's company in my constituency was desperately seeking 910 assistance in 1980 to prevent its collapse, which eventually took place, I went with him to see the then Minister of State at the Department of Industry, the right hon. Member for Chingford (Mr. Tebbit). We asked for assistance, but we were simply told that the derelict land clearance scheme could be used to grass over the site when the factory eventually closed.
John Owen, in his report, which is worth quoting, said:Now, at the end of 1991, as my Presidential term draws to a close, it is even more disappointing to record that engineering industry in the West Midlands has experienced perhaps its worse recession ever; and, significantly, there is no convincing evidence that the recession is over nor indications of impending recovery. It would be accurate to state that for many companies manufacturing output has stabilised at a very low and unacceptable level; that would account for five companies out of ten. Four out of ten continue to report a deterioration in their business trends; and only one out of ten reports an improving trend or more buoyant circumstances. Expectations for recovery extend into the second half of 1992; confidence is low and employment prospects are not good.The Budget will not reverse that decline, nor was it intended to—it was intended as a recovery Budget for the Government rather than for the country. I note from today's Financial Times that the average score for the Budget from six experts was five out of 10.
I welcome some aspects of the Budget, but I warn the electorate to beware of Normans bearing gifts. The Chancellor told us yesterday that responsibility for the economy belonged to industry. It would be wrong and unfair to put all the blame for the failures of industry on the Government, but one must remember that the Government have been in office for two thirds of the past 60 years—all of the 1930s, I exclude the 1940s because of exceptional circumstances, almost all the 1950s, almost half the 1960s, just about half the 1970s and all the 1980s. During that period of tenure, our economy has declined. We have gone from being a powerful economy to being the 13th largest economy in the western world and our position is dropping.
The Conservatives have much to feel responsible for. The Budget was less than a spectacular success. The Prime Minister said that the Budget was well received and that it was a popular Budget throughout the country. That proves that life in the bunker can distort one's view of what is happening outside.
I was greatly amused yesterday to be told that interest rates might go down if interest rates go down in Spain. It is one thing to have to kow-tow to Germany, but now we are looking for straws in the wind in Madrid. That is a sign of how we have declined as a nation. We heard this afternoon the argument that it was wrong to attack Japanese investment, and I welcome Japanese investment, but it is unfortunate that there is not enough indigenous investment. The reasons for Japanese investment in Britain are complicated. One is clearly the desire to slip into a country so as to circumvent the restrictions of 1992. Secondly, the Government are receptive to inward investment. Thirdly, the Japanese are attracted by low wages. That is why there is so much inward investment. I do not want to take the argument to an extreme, but in the same way one would invest in a third world country where labour costs are relatively low. Fourthly, the Japanese are keen to invest in this country because, like us, they know about suicidal tendencies, and perhaps they recognise the same tendencies in us.
As a west midlands Member, I welcome the limited assistance that has been provided for the motor vehicle 911 industry—although, as a certain rugby commentator would say, they must be ringing the bells in Paris, Milan, Tokyo, Taipei, Seoul and almost everywhere else tonight. Clearly, the boost to the British motor vehicle industry will give a boost to the motor vehicle industry of every other country.
My constituency contains much small industry, and I feel that some benefits have been conferred on small manufacturers; but I do not believe that the Budget will increase confidence. The economic advantage is marginal, and what is really crushing is the unacceptably high level of interest rates.
Over the past 13 years, a number of myths have been destroyed. One is the myth that the Conservative party is the party of fiscal responsibility, efficiency, competence, law and order, and defence. This is not the occasion on which to discuss the way in which the Government have perceived issues affecting defence and national security, and have acted on those perceptions; but I should like an opportunity to discuss that with any hon. Member who argues that the present Government are fiscally responsible, efficient, competent or preservers of law and order—and I hope that I shall have such an opportunity.
As for my colleagues who are going their separate ways after the general election, I wish them well. Whatever happens, the new Parliament will be very different from the one that I entered in the early 1970s. I know that, as with the world of football and the theatre, the old guys who were around when one first arrived are always more significant than the present generation, but I see in the departure of many of my colleagues the departure of men and women who are highly competent. We can only hope that a future generation of politicians will be able to perform as ethically and, to an extent, as honestly and competently as some of their predecessors.
We now depart for the pre-election campaign. The judgment of the Budget will be set against judgments about the competence of Government and Opposition, and I trust that the people will see that the time for change has come.
§ Mr. John Townend (Bridlington)
This is a rather sad debate, because we are losing a number of right hon. and hon. Members at the election. Four or five have spoken today. I pay special tribute to two Opposition Members —the right hon. Member for Morley and Leeds, South (Mr. Rees) and the hon. Member for Sheffield, Attercliffe (Sir P. Duffy), two fellow Yorkshire Members. They have been highly respected by Conservative Members, and I, as a Yorkshire Member, have always been shown personal kindness and consideration by them. They were particularly helpful when I first entered the House. In my opinion, those two Members epitomise the best in the Houses of Parliament: Members on opposite sides treating each other with respect. Although we disagree about politics, I thank them both for the help that they have given me. They will be a loss to the House.
I am also sad that my right hon. Friend the Member for Hertfordshire, North (Sir I. Stewart) is leaving. He was a Treasury Minister in the golden era of monetarism, between 1983 and 1987, when he played a distinguished 912 role. He will be sadly missed, as will my hon. Friend the Member for Somerton and Frome (Mr. Boscawen): he, too, has played a significant part in the House.
In reply to the hon. Member for Walsall, South (Mr. George), let me say that it is not really the Opposition's place to criticise the decline of manufacturing industry when referring to the automobile industry, or to express regret about Japanese investment. The British car industry was in a very strong position at the end of the war; it later destroyed itself with inferior management, militant trade unions, restrictive practices, too many unions, go-slows and a refusal to accept new technology and new machinery. If the British car manufacturers had been able to secure the same deals from the trade unions that the unions, in desperation, gave the Japanese, we would have a much stronger car industry today.
One of the Government's great achievements was their introduction of a new industrial environment. They did that by reforming the trade unions and encouraging investment, and as a result most Japanese investment in Europe came to this country. Over the next few years, we shall be able to re-conquer the motor car markets of Europe through those Japanese companies.
Let me say to those who criticise Japanese companies that, in my view, they are no different from the American Ford and General Motors, or from the French Peugeot. We all regret the fact that they are not British companies, but it is better to have 80 per cent. of the cake than no cake at all. It is interesting to note that the Italians and the French are petrified by the onslaught on their car markets that they envisage over the next four or five years. That is why they have gone to such lengths to ensure that cars produced in the Japanese-owned British factories are not classed as Common Market cars.
I support what was said by my hon. Friend the Member for Southampton, Test (Mr. Hill) about the Government's great achievements in the industrial resuscitation of our great ports. My constituency borders Hull, which, when I was a boy, was the third port of this country. The dockers went on strike, and engaged in go-slows and demarcation disputes; the port went from third to fourth and, eventually, to 15th. Along with my hon. Friend the Member for Test and others, I urged the Government to grasp the nettle and abolish the national dock labour scheme. After many years, they did so, and the port has now begun to prosper again. My hon. Friend the Member for Boothferry (Mr. Davis), who is now sitting on the Front Bench, also played his part. Trade to the port is now up by 40 per cent. A container terminal that was lying idle because a decent manning agreement could not be secured has reopened, as has Alexandra dock, which has been shut for three or four years.
I strongly welcome the move in the Budget to bring together decisions on public spending, Government borrowing and taxation. The Treasury Select Committee, on which I am privileged to serve, has urged such a move for some time. I believe that that will prove a real advantage, and that it will help the Treasury to control spending Ministers. Throughout my time in the House, I have felt that one of our great problems is controlling spending Ministers, whichever party is in government.
That move will bring the Government much more into line with industry. Our way of hanging on to traditions really is archaic. Who in industry would consider 913 producing an annual financial budget for the expenditure side of a profit-and-loss account, and then deal with the sales side six months later?
We face a world recession, whatever anyone says. America is in a deeper recession than we are; Australia is worse off than us; France is heading for a worse position than us, and has probably already got there. Even the great economic powers—Japan and Germany—are moving into recession.
In my northern constituency, male unemployment is at 21.5 per cent.: I know what recession means. Our economy needs a stimulus. My first choice, of course, would be a monetary stimulus, but I accept that the Chancellor's hands have been shackled by membership of the exchange rate mechanism, and that he cannot drop interest rates by 2.5 per cent. None the less, it ill behoves Opposition Members to criticise the Government for the level of interest rates, given that, month after month, they called for us to join the ERM. In view of those restrictions, the Chancellor has produced a very well drafted Budget. As he could not give a monetary stimulus, his only alternative was to give a fiscal stimulus to help the recovery, and he has done that to the extent of £2 billion.
It has been said today that that is not enough to provide a stimulus. It must be considered in the context of the increases in public expenditure announced in the autumn statement. Spending in the coming year will increase by no less than £22 billion—10 per cent.—which is double the rate of inflation. Expenditure on the health service in the past two years—from last year to next year—will increase by no less than £5.2 billion.
We are all seeing the benefit of that in our constituencies. In my constituency, there was a very old hospital. Government after Government have promised since way before the war to rebuild it. This Government have done that, and it is now one of the finest community hospitals in the country. It does not end there. There was another old hospital, the Alfred Bean hospital, in Driffield in my constituency. That has been completely renovated and had many new additions. Now we have two of the finest community hospitals in the country, with dedicated staff providing a service that is better than ever.
§ Mr. William O'Brien (Normanton)
I am interested in the hon. Gentleman's contribution, and I am following his speech carefully. He said that some of the money that has been spent on the health service has been used in his constituency to provide two new hospitals. Imagine what we could have done with the £14.5 billion that the Government used to prop up the poll tax. Surely the hon. Gentleman should take into account the money that was wasted on the poll tax and the way in which that could have been channelled into building hospitals, schools and so on. Will he comment on that?
§ Mr. Townend
I find that incredible. Every year, Opposition Members call for more support for local government. Local government spending, financed by the Government, has increased by about £14 billion. If we suggested taking that away from local government and spending it on the health service, Opposition Mernbers would complain bitterly. Our increase in expenditure on the health service has been massive, and everybody knows it.
I find it strange that Opposition Members should criticise the level of the PSBR this year. It has increased 914 partly because of all the extra expenditure. If the Opposition did not want it to increase, they should have opposed the expenditure. Far from opposing it, they have proposals to spend more. Whenever Labour representatives appear on the television, whether they are dealing with education, pensions, health, overseas aid or whatever, they have one answer—more expenditure. That expenditure totals £37.5 billion. Opposition Members cannot get away from that. They have either lied to the public or they will have to borrow that money or put up the standard rate of tax by 10p.
§ Mr. O'Brien
The hon. Gentleman is misguided, particularly when he refers to local government. I remind him that, in 1979, rate support grant to local government was 67 per cent. This year, it is 25 per cent. The reduction in the amount that has been pumped into local government is substantial. The £14.5 billion had to be used for the poll tax because so much money has been taken from local government previously. Will the hon. Gentleman accept that, under this Government, local government has had a rough time and that there is no future for it if they are re-elected?
§ Mr. Townend
I have probably had far more experience of local government than the hon. Gentleman. I was leader of a county council. As always, the Labour party never gets its figures right. The correct figures, on page 61 of the public expenditure White Paper, show that Government support for local authorities in 1991 was £42.5 billion; in 1991–92, it was £53.3 billion, an increase of 40 per cent; and in 1992–93, it will be £58.5 billion. We have lavished money on local authorities. Unfortunately, many Labour authorities have wasted that money.
I want to look at the proposals for small businesses, as I have the honour to be the chairman of our Back-Bench committee for small businesses. The Government have done more than any other in history to help small businesses. As a result, more small businesses have been created since 1979 than at any other time. We accept that small businesses have suffered under the recession. I made representations to the Treasury on behalf of small businesses, and I am delighted that my right hon. and hon. Friends have listened. Perhaps the most significant proposal for small businesses in the long term—I have heard no comment on this from the Opposition, and I am interested to know whether they would implement it—is to exempt most business assets from inheritance tax. That will be of enormous help to family farms and businesses and will affect the regions tremendously.
We need more control over the destiny of our businesses in the regions. That is what family firms do. In the past, because of excessively high rates of inheritance tax, and before that of capital transfer tax or death duties, when somebody died, particularly if they died out of turn, many good local firms had to sell. They always sold to a bigger firm or a national or multinational firm. The decision making and reinvestment go from the area and, as soon as there is a slump, it is the branch factory that is closed.
I have faced that in my constituency over the past three weeks. In my constitutency is a firm called Bridport Engineering. It was bought out years ago and is now a subsidiary of an American company with another factory in Leicester. The machine tool business is bad, and the Bridlington factory has been closed down, and all the 915 production transferred to Leicester. If that had been a locally-owned company with the management living in the town, I accept that there would have been redundancies, but the factory would have been kept open, and after the recovery the men would have been taken back. My right hon. Friend's proposals are the most historically significant help that small businesses have had this century. I challenge Opposition Front-Bench spokesmen to say whether they will oppose them.
I am delighted with the other measures taken to reduce VAT penalties, particularly for minor mistakes. The level of penalties for what were often arithmetical mistakes was farcical. I strongly welcome the requirement for contractors to pay their bill from suppliers promptly and for larger companies to state in their annual report how quickly they pay their bills.
I hope that my right hon. and hon. Friends on the Front Bench will take note of the fact that I do not think that that will be as effective as they hope. The large suppliers of large companies are equally powerful, and they will probably have to be paid on time. If small suppliers are not paid on time, it will probably show in the figures, because the figure in the annual accounts will be an average.
I am delighted with the easing of the burden of the uniform business rate. For my constituency, I am particularly pleased that the transitional relief can be transferred to a new occupier. The fact that the transitional relief stopped on change of ownership meant that many shops and warehouses were left empty. That is bad for an area: it gives it a dilapidated appearance, and people will not look at those properties. That will no longer be the case. Does the Labour party support those proposals?
I strongly support the 20 per cent. rate of income tax. It helps the low paid and is a signal of the Government's intention progressively to bring down the standard rate to 20p. I find it strange that the Labour party is so paranoid about tax cuts. It seems to hate the idea of giving the people a little more of their own money to spend as they wish. The Labour party likes bureaucracy. It thinks that the man in Whitehall knows best. Is there anybody in the country who really believes that, if we had had a Labour Government since 1979, the standard rate would now be 25p? Most people believe that it would still be 33p or more.
I represent a constituency with many old-age pensioners. The £3 a week for married couples on low incomes will be welcomed.
We need to reduce interest rates, even within the ERM. As soon as the election is over and the fear of a Labour Government has disappeared, there might be scope to reduce interest rates. It is highly important that we do so.
I strongly support the Government's policy of a balanced budget. I accept what table 5.1 says, but I have been a member of the Treasury and Civil Service Committee for many years and have seen slippage year after year. A balance will not be achieved by 1994, but when Treasury Ministers are re-elected they will have to keep a tight control on public sector spending, especially public sector wages. One reason why our public sector borrowing requirement is so high is that many public sector wage settlements have been higher than inflation, and considerably higher than those in the private sector.
916 I believe that this first-class Budget will win us the election and that I shall again be here, with my 17,000 majority, chivvying Treasury Ministers to continue good, sound monetary policies.
§ 8 pm
§ Mr. William Ross (Londonderry, East)
At times, this has been a rather noisy day in the House. It then became sleepy, but the hon. Member for Bridlington (Mr. Townend) livened things up somewhat.
It has been a day of some sadness. At least four speeches have been made by right hon. and hon. Members who will leave the House after the election, two of whom served in the Northern Ireland Office. The right hon. Member for Morley and Leeds, South (Mr. Rees) made a most powerful and moving speech about the conditions in his constituency, which he became a Member of Parliament to correct. I have no doubt that when the right hon. Gentleman became a Northern Ireland Minister he discovered that, although political divisions in Ulster ran rather differently from those in Leeds, South, many of the same problems existed in many parts of the Province. As his career in the Northern Ireland Office progressed, I know that, being a Celt, he became steadily more Unionist in his view, no doubt believing that that was the best way to protect the interests of the people of Ulster.
The debate has been interesting in a number of ways. We are discussing the last Budget before the general election—the launching pad for the election—and it would be difficult to think of a Chancellor who had been handed a worse hand of cards to play. However, he made the most of that poor hand. We could debate at length whose fault it was that he had a hard hand but I shall try to express my view on that before I sit down.
The new Budget date seems sensible. All hon. Members will welcome that because at least we shall know where we are at the beginning of the year. I regret that more was not done to increase industrial output, because although service industry is valuable, real wealth is created by manufacturing industry. The hon. Member for Bridlington was happy about Japanese investment, but I am not happy about the ownership of industry not being in the hands of citizens of the United Kingdom because our own people should reap the benefit of the brains and skills that they bring to bear on any industrial problem. That is a sore point with me, so I regret that more help was not given to increasing industrial production and bringing new products to market.
The new tax band may complicate matters. It will certainly ease the burden on many of the most poorly paid people but, like all tax changes to the lower end of the scale, to some extent it will be self-financing because there will be a change from social security benefits to earned income. Therefore, many people will not be much better off. None the less, it is welcome. I hope that we shall widen the 20 per cent. band and drop the start point of the 40 per cent. tax band to a lower level.
We welcome the halving of car tax, which will help many workers in the car industry. But against that we must set another burden that is inadvertently placed on the poorer section of community who buy second-hand cars which cannot be converted to run on unleaded petrol. They must now bear the extra cost of leaded petrol. The help with rates for business will be welcome.
917 As a farmer in Northern Ireland, where farmers are owner-occupiers, I give a particular welcome to the inheritance tax changes. They offer real relief to everyone in small business and the farming community. The Government are to be praised for making that change, especially as in the 1970s we had to live with the capital transfer tax introduced by the previous Labour Administration, to which many hon. Members objected. This is one of the best things that has happened to the farming industry in many years. It is welcome and the Chancellor is to be congratulated on that aspect of the Budget.
What causes everyone who thinks for a moment the deepest concern, however, is a PSBR of £28 billion, or 4.5 per cent. of gross domestic product. We are returning to the situation that prevailed in the dying years of the Labour Administration. I well understand that some Government expenditure is not easily reduced, especially social expenditure. In the past, it was possible for a Chancellor to cut capital expenditure, not least on construction works. As unemployment is so bad, it has been decided that that is not possible.
The deficit also reveals another sad tale. Not only will revenues fall but unemployment will continue to rise for quite a long time. Huge sums must be hidden in those figures to cover the cost of that unemployment. The Government will undoubtedly be hoping for recovery and for the business cycle to turn upwards yet again. There are signs that that is happening in the United States, which has experienced a W-type recession rather than a U-type. We hope that there will not be a third dip before the recession finishes.
In 1980–81, the PSBR was 5.3 per cent. of gross domestic product—13.2 per cent. of revenue. We shall return to those levels next year or the year after. We went from a PSBR of 5.3 per cent. of GDP in 1980–81 to a surplus of £14.5 billion in 1988–89. That shows what good housekeeping can do, albeit at some cost. In the coming year, the deficit will be £28.5 billion. According to the Revenue, by the end of 1995–96 we shall have accumulated an extra debt of £104 billion, and in the year after that it will rise to £110 billion. A debt of that magnitude is very serious and is bound to have the most dreadful consequences for the years in which the debt is run up to those astronomical levels, but it will also influence what the country can do in the years after that.
Time and again, we have heard the Prime Minister and the Chancellor talk about the balance in the business cycle, but it has already been drawn to the House's attention that no one can judge the length of that cycle in years. I suppose that it is as long as a piece of string, and can vary as much as the lengths of various pieces of string. At best, the Government expect an improvement by the late 1990s, but that is a very long cycle from the previous peak in 1988. Whenever the business cycle turns, with the best will in the world it will be a lot harder to climb the financial stairs down which the Government tripped so eagerly in the past few months and getting back on level ground will be a very painful operation. And even when we get there, how long will it take us to repay the £104 billion?
The lower inflation is, the more real that £104 billion becomes. I hope that we are not going to get out of this situation by using inflation. Surely, whatever Government are in power, we shall make an effort to keep sound 918 money. Therefore, we are talking about a real £104 billion, not a £104 billion which is halved or quartered by allowing inflation to soar.
In an intervention, the right hon. Member for Bethnal Green and Stepney (Mr. Shore) drew attention to the straitjacket of the 3 per cent. of gross domestic product contained in the Maastricht agreement. Only one hon. Member said, "Hear, hear" to his conclusion, and that Member was me. The right hon. Gentleman did not get much support from his colleagues or from Conservative hon. Members, for the good and simple reason that he spoke of something about which neither Front Bench wanted to hear. He uttered words which both Front Benches want to sweep under the carpet until the election is safely over and until the country has been sold out arid is so deeply enmeshed in the Common Market that it will never have any freedom of action.
In recent weeks, the Chancellor has made it clear—this was thrown at him across the Dispatch Box yesterday—that, even if he had known the exact course of the recession, he would not have behaved any differently. As we are in the exchange rate mechanism, surely he should have said that he could not have behaved any differently and that he merely had to defend the value of sterling within its band, come what may. We are now back where we were a long time ago—a point that I had hoped that we had finally left behind us—and constantly trying to rig the exchange rate to buck the market. It did not work before and I cannot see it working this time.
If the Chancellor had thought about it—I am sure that he has because he is a fairly canny lad—I am sure that he now wishes that he had had the power to lower interest rates in the past 18 months for the benefit of British industry, for the recovery, and for the Conservative's electoral prospects. If we could go back a year or so, would there still be a cry to go into the ERM if the Government could have accurately forecast how the recession would develop? Would not that reduction of interest rates have been a far wiser way to spend the time, rather than wrestling in these past weeks with how to rig the exchange rate? The Chancellor could have dropped interest rates and we would not have been in such a deep recession because the recovery would have started a great deal earlier.
Would the Chancellor have introduced this Budget if the election were a month behind him rather than a month ahead? The answer must be no, absolutely not. He would have behaved very differently. Would he not have taken the type of action taken by the right hon. and learned Member for Surrey, East (Sir G. Howe) whenever he found himself in the same circumstances in the early 1980s?
If the Labour party wins the election, when will it introduce its Budget proposals? What will its different and extra expenditure be? I cannot see any means by which it can easily cut that which has already been decided. If the Government win the election, will we have another Budget before the year's end which will be more in keeping with the canny Scot who gave us the Budget yesterday, or at any rate the canny Scot standing behind him like a shadow as he uttered his words? I believe that that prudent man will have to tax or cut to balance the books. He will have to find where he can tax and cut because, come what may, the books must be balanced at some time.
Whichever party wins—whether the hon. Member for Derby, South (Mrs. Beckett) changes place with the hon. 919 Member for Norfolk, South-West (Mrs. Shephard) after 9 April—one group of people will still be in the House, and they are those who sit here. Nobody will be able to call "Labour gain" as we walk out to supper this evening because there ain't going to be any Labour gains from the Ulster Unionist party or any gains for any other party from the Ulster Unionist party.
§ Mr. Alan Haselhurst (Saffron Walden)
There have been so many metaphorical handkerchiefs on display this afternoon that one almost feels that one must apologise to the House if one is seeking to be a Member of the next Parliament. However, I associate myself with the comments already made about right hon. and hon. Members who are leaving us after distinguished service. Without being unduly discriminatory, may I remark especially on my right hon. Friend the Member for Hertfordshire, North (Sir I. Stewart), who is a neighbour of mine and who, during his time here, has been a model of the efficient, courteous, effective and highly capable Minister and Member of the House. He will be missed, especially as he is leaving prematurely because of ill health. He has been a very good Member of Parliament and a good neighbour.
Most of us can feel at ease with the general tone of the Budget. It seems to have hit the right spot in terms of national needs. I begin by commenting favourably on the Budget's green tinges. I follow in part what the hon. Member for Londonderry, East (Mr. Ross) said. I was pleased that the Chancellor widened the gap between the duty on leaded and unleaded petrol. It was entirely right to give a further push to unleaded petrol, although I know that that causes problems for some people. However, if people are encouraged by the difference in duty and by the reduction in the car tax to buy new cars, most of which are now fitted with catalytic converters—in parenthesis, I declare an interest—that must be good for the environment.
Although it did not please everyone, I also welcome the extra duty on cigarettes. I listened to a number of people commenting on the radio last night about how that would offset any gains from the cut in taxation. One must emphasise that it is their choice to smoke. The evidence is now conclusive that they are not doing themselves any good. They do not have to spend that money and should make more of an effort not to spend it in that way.
There is a whole raft of measures that are helpful to business. I am delighted that many people in the business community have expressed their satisfaction at what the Chancellor has done. It seems that the totality of those measures will sustain and create jobs in the business and commercial sector. Taken with the boost to consumer spending, they should also help the economy.
An especially welcome feature of the tax changes was that they have been tilted to those on low incomes. Surely the rationale is that people on low incomes are more likely to spend any extra money that comes their way. I therefore found it strange—for two reasons—that the Leader of the Opposition said that much of what he is pleased to call the borrowing giveaway would be spent on imports.
One reason is that the Opposition have already justified their intention to increase pensions and child benefit on the 920 precise ground that they believe that the money would be recycled in the economy, through extra purchasing power, and would therefore be used. Do they think that that money would be used on imports? It is rather improbable, is it not?
My second comment on the Leader of the Opposition's criticism is that it seems rather fanciful to say that lots of grey-haired members of our community, when extra money is available to them, will be responsible for a surge in imports of video recorders, CD players or karaoke machines. The fact is that, as any sensible person must recognise, extra money in the hands of the elderly and low paid is likely to be spent on many of the routine, ordinary necessities of life, providing a helpful boost to the economy.
The debate is a tale of two Budgets—the actual Budget so capably placed before us by my right hon. Friend yesterday, and the shadow Budget, which is haunting the debate. We occasionally see glimpses of the shadow Budget, but it has never materialised before us. As my right hon. and learned Friend the Chief Secretary said, it is not here to be debated and scrutinised.
Because of the evanescent nature of the alternative Budget, I cannot help feeling that the right hon. and learned Member for Monklands, East (Mr. Smith) may be termed not so much the shadow Chancellor as the phantom of the Treasury, in whose mouth the words of the theme song, "All I ask of you", might take on a note of menace rather than endearment, if he ever got the chance to control our finances.
The Leader of the Opposition told us yesterday that the shadow Budget—or the alternative Budget, or the phantom Budget—has not appeared because the Opposition need more time. They have had every bit as long to prepare their measures as my right hon. Friend the Chancellor has had to prepare his. The Leader of the Opposition says that they need another six days. As far as I am concerned—I am sure that my right hon. and hon. Friends would agree—they can have another six years, if they want, to mull over what they might do.
§ Mr. Haselhurst
As my hon. Friend says, they can have as long as they need.
The Leader of the Opposition majored heavily—no pun intended—on the size of the public sector borrowing requirement. Apparently £28 billion was too much for him. He held it up as an example of irresponsible finances. If he deprecates the tax reduction, which amounts to about £2 billion, and would cancel it, the PSBR would come down to £26 billion. We should like to know whether £26 billion would be acceptable to him, or whether he considers it too high. If he thinks that the PSBR should be lower, what does he think should happen? Should there be a commensurate increase in tax to bring the PSBR down to the level that he finds acceptable? Yesterday he said:if there is to be borrowed money available, it must be invested in industry, construction, capital works, transport and other essential services.What on earth does the right hon. Gentleman think that the bulk of the PSBR is being spent on? It is being spent on precisely such developments as those for which he calls.
If the Leader of the Opposition says that the PSBR should be reduced, there could certainly be no tax cuts. There would have to be either substantial tax increases or substantial cuts in the very public services which he says 921 should be expanded. What he says does not make sense. Yesterday the right hon. Gentleman sought to contrast the "borrowed giveaway", which he said might be spent on imports, with borrowing for investment.
The right hon. and learned Member for Monklands, East also referred, in a critical tone, to the fact that the trade deficit next year might be as much as £9 billion. We should all recognise that if there is to be a recovery in this country, with a recovery in investment, that, too, would have implications for imports. If substantial extra investments are made, more raw materials will come into the country, and so will more machine tools and capital goods. That will be a necessary part of a recovery in investment. Whatever course we take, be it further investment or an increase in consumer spending, there will be balance of payments implications.
The Leader of the Opposition said that all that would have to be paid for in the end, and that it was abasic truth that money borrowed for tax cutting would soon have to be repaid by tax raising".—[Official Report, 10 March 1992; Vol. 205, c. 767.]He insisted that that must be true, and Hansard records that my right hon. Friend the Chancellor shook his head. Well he might. The Leader of the Opposition continually makes the mistake of failing to understand that there is a difference between tax rates and tax revenues. As was repeatedly demonstrated in the 1980s, lower tax rates can, in the right conditions, succeed in producing higher revenue. In the end, the way in which the budget will be balanced is that if the policies are right the economy will expand, and that is how the extra resources will be produced.
There is a much greater chance of that happening under the formula employed by my right hon. Friend than by using some of the Opposition's strategy and those of their ideas that we have glimpsed. The mechanism for recovery is now largely in place. The question is whether that recovery will be assisted more by my right hon. Friend's Budget or by the Opposition's phantom Budget, which has not yet been fully substantiated before us. For all that we can tell, that will be a cocktail of high borrowing and high taxes. If the Opposition wish to deny that, it is incumbent on them to be much more specific about their spending promises, both explicit and implicit.
The Labour party has placed an advertisement about the NHS in the national press today, in which they imply the tragic death of one child would not have happened if they were in power. That would have huge cost implications, and if they say that they will fund the NHS so that not one single person's life will ever be lost unnecessarily they should tell us how much that would cost, and how they would fund it. If they cannot put up the funds and tell us how they would raise them, they should give up that nauseating line in tear-jerking advertising, which seems wholly hypocritical.
I believe that Labour's plans would snuff out rather than encourage recovery. Probably the only blockage to recovery, now that the right mechanistic steps have been taken to enable it to take place, is the worry that a Labour Government might be elected. On 9 April the electorate can remove that doubt from everyone's mind. For their own sake, and for the sake of the country, I hope that the electorate will clearly do their duty.
§ Mr. Deputy Speaker
Order. Unless speeches are briefer I am afraid that one or two hon. Members who wish to speak may be disappointed.
§ Mr. Michael J. Martin (Glasgow, Springburn)
I shall try to be brief, Mr. Deputy Speaker.
The hon. Member for Saffron Walden (Mr. Haselhurst) talked about how the Government had helped the health service. I do not know how they can have done that, when they have put up prescription charges. Yesterday, in the Budget debate, the Minister of State and her right hon. Friend the Chancellor of the Exchequer claimed that they were giving working people and the lower-paid a better deal. How can they say that when, only a few weeks ago, they increased prescription charges? Conservative Members know that nowadays a doctor may specify not one but several items on a prescription, and they all have to be paid for separately.
No one in my community or in my hon. Friends' communities will be kidded by the Budget yesterday.
I was concerned by the talk at Question Time today about Britain being a trading nation. I am the son of a merchant seaman who, like my hon. Friend the Member for Liverpool, Garston (Mr. Loyden), had a career in the merchant navy during the war. Many of his friends were lost in shipwrecks then. My late father always hoped that there would always be work for seafarers in the fleet. As a result of the taxation system and the lack of incentive, shipowners have been forced to go abroad to find foreign seamen to man our navy, and they are sometimes badly trained.
Hon. Members have referred to our bad industrial relations and strikes. My father was a seaman all his life, as were many men in the community in Glasgow in which I was brought up. There were few strikes by the National Union of Seamen. A strike was planned in 1938, but because war was imminent, the seafarers did not go on strike for better conditions. They put aside their demands on conditions and wages because they knew that the country needed them. It is a pity that the Budget did nothing for our seafarers.
Something could have been done about the building industry. Any hon. Member who was served in local government knows that, the minute a housing contract goes into the system, bricklayers, plumbers and joiners are taken off the dole. I know that the Government say that bricklayers, plumbers, joiners and electricians should be self-employed. Many of them are. They have severe difficulties when big companies do not pay them for six or seven months after the contracts are completed. A self-employed journeyman cannot stand that, because it means that he has to go to the banks, which charge rates that could put him out of business.
The Chancellor said yesterday that the increase in duty on beer was small and was in line with inflation. The Minister knows that the brewing industry is an excellent employer of labour. The Tennants Caledonian brewery is in my constituency. The men and women employed in the industry enjoy reasonable rates of pay and a good pension scheme. If we keep putting up the price and the duty on such commodities, we are in danger of losing. The Treasury gets a great deal of money. The Minister must know that people are moving away from beer to wine because of the duty. We are in danger of overkill.
We could have done more for the whisky industry. The hon. Member for Londonderry, East (Mr. Ross), who has now left the Chamber, talked about farming. It is not widely appreciated that farmers in the north-east of 923 Scotland depend greatly on the whisky industry because they sell barley to that industry. It takes good farmers to produce barley for the whisky industry. If the industry is damaged, there is a knock-on effect, not only for people in constituencies such as mine, but for farmers in the rural areas. Farming communities in England also depend on the whisky industry. The industry buys at home rather than abroad.
We face the prospect of harmonisation. The French do not care too much about cognac, because the cognac owners also own the vineyards. As long as they do all right in terms of taxation on wine, they are prepared to throw the cognac industry away. We cannot do that in Scotland, because we produce a distilled product. Other Community countries, such as Spain, Italy and France, will gang up against the whisky industry if the Minister of State does not watch out. I think that she is well aware of that.
I have been in the House for almost 13 years. I have served in opposition, so I hope that after 9 April I will sit on the Government Benches as a Back-Bench Member supporting Labour Ministers. It looks good. I have seen many sad faces among Conservative Members. I do not mean hon. Members who are retiring, some of whom I am sorry to see going because I have had a good relationship with them through the British-Italian group and through the Christian Parliamentary group. There are some long faces: Tory Members know that they will lose because they have taken the people of Britain for granted for too long. Many issues will come home to roost on 9 April. I shall be pleased to sit on the other side of the Chamber next month; it will make a change.
§ Mr. Martin
Despite what the hon. Gentleman says, I am willing to put a bet on it, although I am not a gambling man.
In 13 years of Tory Government, I have seen terrible unemployment in my constituency. I cannot remember the great depression, but I was brought up in a home in which my father was forced to be a seaman because he could not get work in Glasgow. My mother brought us up to appreciate what happened with the means test during the great depression. In my constituency, I see men and women who are now married and have never had decent jobs. The Chancellor could have done something for them.
The Chancellor could have given incentives to employers to take on adult apprentices. I have never heard Tory Members mention adult apprenticeships. A young man who has missed out because he has never been able to get an apprenticeship as a carpenter or as an electrician must still want an apprenticeship. They must want a trade. I had the chance of a trade when I left school in 1960. Why did not the Government bring in incentives and say to employers, "Take on a man or woman of 30 or 32 as well as a youngster—give them a decent wage and we will subsidise you to get skilled labour into the market"?
One problem is that, if we ever have an upturn in the economy, the scream will go up that there are no skilled workers. I was a trained sheet metal worker. Many of my colleagues who have jobs tell me that the average age of those skilled men is getting higher, because no youngsters 924 are coming in to take their place. I could not do heavy plating or climb as high as I did when I was 22. No incentive has been given.
I watched the Kilroy-Silk programme this morning and saw that the Minister had a rough time. It is all credit to her that she handled herself well. She must have done it for Lent; her penance must have been to go on "Kilroy". Hardly a friendly voice spoke in favour of the Budget—
§ Mr. Martin
The hon. Gentleman talks about BBC bias. The BBC is not noted for being friendly towards the Labour party.
There has been much tub thumping about how the extra money will help the poor. The Minister knows that there are many hidden costs that people in our communities must bear. Scotland has had an extra year of the poll tax. VAT is up to 17 per cent. The hon. Lady says, "You cannot have it every way. We have cut the poll tax, and that is why VAT had to go up to 17 per cent." But it was her fault that we had the poll tax. She went into the Division Lobby to vote for the poll tax, which, in the end, brought down the right hon. Member for Finchley (Mrs. Thatcher). Conservative Members blamed her, yet they cheered her when she brought the poll tax into Scotland.
Now there are rent rises. The Government will say that Labour-controlled authorities are bringing in rent rises. They cannot say that about Scottish Homes. One of my constituents is to pay £25 a month extra in rent. By the way, she lives in a tenement. Seven of her neighbours will not suffer that rise because of special legislation. Those who came late into local housing associations are in the same situation as the previous deregulated tenants. Is the Minister telling me that that lady is better off with this Budget when she gets a bit of a tax cut working in a local hospital but will be hit for £25 a month more than her neighbours?
It will not stop there. The housing association has told her that her rent will go up another £25 a month next year. That is Tory control. Hand-picked Tory lackeys have been put into Scottish Homes. I hope that I receive a commitment from the Government that the placemen and women who have been put into quangos will be dumped.
§ Mr. Bob Cryer (Bradford, South)
I heard the Minister's rather quiet remark about the BBC packing the "Kilroy" show this morning. That is entirely mistaken. The "PM" radio programme has not had a single letter or telephone message of support for the Budget. If Ministers try to get around that, they are saying that the BBC is trying to pack the nation, which is hardly the case—the nation rejects the Budget.
§ Mr. Martin
I agree with my hon. Friend.
What about the hidden costs for the elderly? Conservative Members have tears in their eyes when they talk about the elderly. One could not find a more responsible local authority than Strathclyde regional council. It is not packed with lunatic left nutcases—it has traditional Labour party men and women such as those who are present this evening. They have been screwed into the ground so hard that they have been forced to take away warden schemes and the sheltered housing complex. The Secretary of State for Scotland has done nothing to . ease the situation. Those are the hidden costs that nobody beats a drum about when we talk about the Budget.
925 When there was a decline in traditional Scottish industries, Tory Ministers said, "We cannot interfere in business." However, they give ammunition to the nationalists to say to the people of Scotland, "Break away." That is the last thing that I want. 1 want constitutional change, but 1 do not want to break away from the men and women—my brothers and sisters—in England and in Wales. Scottish nationalist Members appear to be respectable men and women, but there is a fascist element within the nationalist movement. I have seen them at polling stations during by-elections bullying old men and women who arc handing out leaflets for other parties. I have seen them let down tyres. I have heard of them putting bricks through shop windows and those of opposition parties.
I am proud of my heritage and of my roots in Scotland, and I am ashamed when people behave in that manner. The Conservatives give them ammunition when they denude our railway industry and places such as Ravenscraig, acting like Pontius Pilate and washing their hands of them.
I look forward to a Labour victory and to a more caring society than we have had in the past 13 years. I want to be on the Government side of the Chamber.
§ Mr. Phillip Oppenheim (Amber Valley)
It is always a pleasure to follow the hon. Member for Glasgow, Springburn (Mr. Martin). He mentioned that Conservative Members do not have a policy of intervening to save old and dying industries. He should address his remarks to his own Front Bench because Opposition Front-Bench Members have had many opportunities in the past two months to commit themselves unequivocally to save Ravenscraig if Labour comes to power, but they have never once committed themselves to doing that.
It saddens me that two of my colleagues from Derbyshire have decided to stand down at the election. One is my hon. Friend the Member for Erewash (Mr. Rost). He has always been a very kind and decent neighbour. I inherited part of his previous constituency. The other is my hon. Friend the Member for High Peak (Mr. Hawkins) whose trenchant economic views in the Tea Room and Smoking Room I have enjoyed over the past nine years. Over that period, my hon. Friend has moved from what has sometimes misleadingly been called the wet wing of the party to the rather drier wing of the party. I welcome that move. Perhaps it is a good thing that he is standing down because he might be tempted to go the full circle in the next Parliament. I regret that he is standing down. I shall miss his company and his fine economic mind.
Over the past day or so, there has been much comment that somehow the Budget signals the end of monetarism or Thatcherism. Some pundits and journalists sometimes confuse monetary policy with fiscal policy. There can seldom have been any time in recent history when monetary policy, which controls the supply of money—which, of course, is monetarism—has been so tight. In fact, supposedly in the heyday of Thatcherism or monetarism between 1983 and 1989, broad money in Britain rose by a massive 150 per cent. At the same time, the rise in broad money in France was only a third of that. There is a little irony there. Under the nominally socialist Government of President Mitterrand, monetary policy 926 was far tighter in France in the mid-1980s than it was under the nominally monetarist Government of my right hon. Friend the Member for Finchley (Mrs. Thatcher) in Britain. As a leader in the Financial Times pointed out a couple of years ago, Mitterrandism was perhaps more Thatcherite than Thatcherism. I do not accept that the Budget represents a retreat from monetarism, for the very reason that monetary policy is extremely tight at the moment. Of course, fiscal policy is looser.
Once again, let us cast our minds back to 1981, to the previous recession, and consider the PSBR then. Public borrowing in 1981 was higher as a proportion of GDP than it is projected to be next year. Certainly, next year's projected PSBR is far lower than it ever was on average under Labour in the 1970s. Another important point to remember is that public sector debt has been halved over the past 13 years, which puts us in a far stronger position to borrow when necessary during a recession, which we are doing at the moment.
However, we must remind ourselves of the disadvantages of too much dependence on state borrowing. For one thing, the state is competing with private industry in the capital market and has a tendency to push up interest rates at the expense of private industry in raising capital. That is the crowding-out effect. It is important that my hon. Friends should remember that. So long as we have a firm commitment to bringing the budget back into balance over the economic cycle, state borrowing should not be detrimental to the economy. It is obviously right and proper that we should borrow during a recession.
Opposition Members have a cheek to criticise the Government for the public sector borrowing requirement, not only because their record in government was one of massively greater PSBRs in real terms than we have now or will have under the projected PSBR next year, but because every time in the past few years a Labour spokesman has gone on tour around the country and has been asked what might be the spending commitments of a future Labour Government, he or she has committed the party to extra spending, whether on overseas aid, education, health, the railways, or whatever, and, when pressed, have stated that that extra spending would be the priority of a future Labour Government. So Opposition Members have no right whatever to criticise the PSBR projected for next year by the Government.
As my hon. Friend the Member for Saffron Walden (Mr. Haselhurst) said, there is a deep dishonesty in Labour's current advertising campaign. It says that a child died as a result of lack of funding in the national health service. Under no Government ever has the NHS been able to guarantee immediate help or medical aid on the spot for everyone who has ever required it. If Opposition Members suggest that a future Labour Government could guarantee that, they are leading the electorate up the garden path in an unpleasant and irresponsible way. They are taking advantage of the sick and vulnerable for political ends.
In their heart of hearts, Opposition Members know that no Government can fund the NHS up to the level where it can guarantee immediate and full medical treatment for any condition that anyone might have. They should admit it. If any Opposition Member wants to challenge that and say that a future Labour Government would commit themselves to a policy of treating everyone absolutely on demand, regardless, I will happily give way. Will the Front 927 Bench spokesman commit himself to that? If not, the Labour party should drop its demeaning and sick advertising campaign.
I also find Labour's position on tax somewhat odd and unsatisfactory. For one thing, Labour was in favour of a low base rate. It originally had a lower base rate. All its policy documents speak of the need for a lower 20p band for the low paid. In the past 24 hours, several Opposition Members of Parliament have expressed their support for a lower tax band. Yet the Opposition Front Bench spokesman said today that the Labour party would vote against that in the Lobby.
The Labour party's argument for voting against the lower tax band is that public spending is more important than tax cuts and we must use public borrowing to fund improvements in the infrastructure. To an extent, I agree. But what do Labour Members think the autumn statement last year was all about? It signalled massive increases in public investment and public spending. That was part of a long line of significant increases in public spending under the Conservative Government. We have seen huge rises in funding for the NHS, education and, particularly in the past year, the railways.
The amount of money that has gone into public investment as a result of the autumn statement outweighs by a factor of about 10 to one the amount of money that has gone into tax cuts. It is astonishing that Opposition Members should begrudge tax cuts to the lower paid. It shows a strange attitude. Labour Members seem to believe that somehow people owe their money to the state and if the state allows them to keep a little, that is very nice. Tax cuts for the lower paid and increases in support for pensioners have been widely welcomed in my constituency.
Time and again, Opposition Members call for investment in industry. I agree with them. We need more investment in industry. But they know that savings and investment are closely linked. To have people saving large amounts of money in an economy not only makes a pool of capital available to industry but tends to bear down on both inflation and interest rates. Everyone knows that savings rates and investment are closely linked.
So the best that one can do is to lower taxes for savers. That is what the Government have done. The worst that one can do is to clobber savers with an investment income surcharge. Above all, Labour's proposal to return to the investment income surcharge of the 1970s shows how little it has learnt in the past 13 years and how shallow is its commitment to getting investment going in Britain.
It is worth reminding Labour Members that, under the Conservative Government in the past 13 years, investment in manufacturing industry has been significantly higher in real terms. Manufacturing output is significantly higher. It fell under the last Labour Government. Productivity in manufacturing industry is 50 per cent. higher that it was in 1979—it rose faster than in any other major economy during the 1980s—and our exports of manufactures have increased by about a quarter during the past three years.
I would be the first to admit that we have pi Jblems in my constituency of Amber Valley. Certainly, the recession has caused problems. But it is worth hon. Members casting their minds back to the 1970s, when areas such as mine were dependent on largely low-paid jobs in the coal industry. Now the constituency enjoys a diverse 928 manufacturing base. There are many companies in my constituency, covering a wide range of manufacturing activities from repairing turbine blades and making chemicals used in the manufacture of semi-conductors to making carpets, making chocolates and engineering. Many of those companies are flourishing despite the recession, and many have done very well indeed.
To flourish further, however, the companies in my constituency need, first, steady non-inflationary conditions. Our monetary policy is delivering and will deliver that. Secondly, they need ready availability of capital. The economy is going through a fundamental shift from over-consumption as a result of a reduction in tax breaks on consumption. Less tax on savings will also increase the availability of capital for industry.
Thirdly, companies need pro-business attitudes. Conservative Members have such attitudes, but I am afraid that great hostility to business, enterprise and industry still manifests itself among Opposition Members.
Fourthly—and perhaps most importantly—industry needs a well-educated population to provide the skilled, sophisticated work force required in a modern economy. Our reforms are delivering that.
Fifthly, industry needs incentives in the form of lower taxation. Labour would tax savings, it would tax business, it would tax individuals, and it would end our education reforms. All those policies would do tremendous harm to business and would mean that our industry would be less likely to create the wealth required to pay for the higher living standards and improved public services that we all want, regardless of party.
At a time when socialism is being rejected all over the world, in virtually every country except Cuba and North Korea, I find it extraordinary that Opposition Members are proposing the policies of renationalisation and higher taxation which have been so resoundingly rejected. I admit that mistakes have been made, but they should not obscure the significant progress made by our economy since 1979. In my area industry, and especially manufacturing, is far better off than it was in 1979. The Budget will help the lower-paid, it will help business and it will help us to resume the growth that we enjoyed in the 1980s.
§ Mr. William O'Brien (Normanton)
I noted the length of time that the hon. Member for Amber Valley (Mr. Oppenheim) took over his speech. He has denied his hon. Friend the Member for Lancashire, West (Mr. Hind) the opportunity to make a contribution. If I spoke for the same amount of time as the hon. Member for Amber Valley, we would be into the winding-up speeches. He has demonstrated the way in which the Conservative party works and the selfishness in its make-up.
The hon. Member for Amber Valley referred to income tax reductions. Someone has already asked, "Who gains most from the reduction to a 20p tax band, a Member of Parliament or a person earning £70 a week?" That is the crux of the issue of tax reductions. It is not the poorest members of society who will gain most from the Budget, but the wealthiest. That is typical of what Tory Chancellors do at Budget time, but it is significant because this is a Budget for the general election and not for the general well-being of the country.
Neither the Chancellor nor any Conservative Member has referred to the need for housing. The housing situation 929 has created a social problem and further resources must be used to build affordable houses for people to rent, especially in rural areas where there is a massive shortage of such housing, yet little has been done in the Budget to provide facilities for building those houses.
If local authorities were given the opportunity to use their resources to provide council houses, it would resolve a social need and generate employment in areas where there is massive unemployment in the construction industry. If the Chancellor had made any suggestions in the Budget to help areas with housing shortages, it would have helped those communities in many other ways. No provision is made in the Budget to solve that social problem—the housing problem.
When I hear Conservative Members talking about the necessity of resolving the economic problem facing this country, I wonder who created that problem. For 13 years we have been hearing about what the Government intend to do to put the country right. Yet tonight we are being told of the necessity for certain action to arrest the decline in the economy. That decline has been brought about by Conservative Members pursuing and voting for policies which have created the slump and the decline of manufacturing and other major industries in this country. Those problems have been created by the Conservatives.
When Conservatives talk about what the Labour party is offering to the nation, they should hang their heads in shame because they have made such a mess of the economy. They have created greater hardship for people. The policies of the Government and of Conservative Members have created 3 million unemployed.
We have been advised that there will be a reduction in car tax, and that that will help to stimulate the car industry. I welcome the fact that there has been some suggestion that manufacturing industry should be helped, but it stops there. That reduction will not do a great deal for other industries that depend upon the car industry to generate employment. It will not do much for a factory in my constituency, Woodhead, which manufactures hydraulics for the car industry. A great deal of money and energy have been spent trying to defend jobs at the factory and to keep it together. The reduction will not offer much help to those workers. The Government could have announced greater investment and more schemes designed to help industries, such as Woodhead, in my constituency. In turn, that would generate further wealth for the local community in particular as well as for the country.
The Chancellor would prefer to give money in tax handouts to Members of Parliament and other wealthy earners than to channel available national resources into the provision of employment in engineering and other manufacturing industries. That demonstrates the difference between the Labour party and the Conservative party. We want resources to be channeled into generating wealth, which, in turn, could generate more resources to provide better facilities to help people.
The VAT increases imposed by the Government have not helped engineering industries and factories such as Woodhead. The constant increases in VAT have not helped to generate employment. Yesterday the Chancellor said that the Government had no plans to increase VAT. He was asked for how long we could be assured of no such increase—he refused to answer.
I put the same question to the Financial Secretary to the Treasury, because there is a fear and suspicion that a further increase in VAT will soon be announced. We all 930 remember how, in 1982, the right hon. and learned Member for Surrey, East (Sir G. Howe) said that the Government had no plans to increase VAT. However, it was then increased from 8 to 15 per cent. Therefore, the people cannot trust the Tories when they make such promises. Perhaps we can have some suggestion about what the Chancellor means when he says that the Government have no plans to increase VAT.
I welcome the fact that the uniform business rate has been frozen. After all, for the past 18 months the Labour party has said that something must be done to help businesses, particularly small ones. The Chancellor has taken some action, but it is too little, too late. If the general election had not been arranged for 9 April I wonder whether such a freeze would have been introduced.
The local authorities have already set their budgets for next year. They have set the uniform business rate and the bills have been sent out. If changes have to be made as a result of the Chancellor's announcement, will local authorities be reimbursed the full cost of those changes? Will the Minister assure me that there will be no loss to local authorities because of the Government's lame declaration that action had to be taken to help small businesses? I welcome such action. Indeed, I wrote to the Prime Minister saying that something should be done in the interest of small businesses. But I want an assurance that local authorities that have notified businesses of their charges for rates under the uniform business rate for the coming year will be reimbursed fully. I am afraid that local authorities will have to find additional resources to meet the late changes which the Government have made.
Other people also rely on local services and many people want their local authorities to provide a better quality service, but the Budget gives no assistance for that. Why did not the Chancellor take the opportunity to abolish the 20 per cent. contribution paid by old-age pensioners, people on income support and those on low incomes? Opposition Members have often pushed for action to be taken to reduce the problems faced by local authorities in collecting the poll tax from people who are charged that 20 per cent. Will the Minister think about that matter carefully, because it has a bearing on local authorities' activities and work?
Had the decision on the uniform business rate been taken a year ago, 50,000 businesses that have gone bankrupt in the past year would have had an opportunity to take advantage of the proposals. Some of them might have been in business today if the Government had heeded our request that more should be done to help small businesses. Had action been taken a year ago, some 100,000 families who have now lost their homes because of the Government's policies would still be in their homes. Conservative Members say that something must be done to get the country out of that mess, but they created the mess.
A further issue that is causing great concern, in Yorkshire and Humberside in particular but in the country in general, is the increase in crime, yet the Budget provides nothing to help stop that increase and the suffering that it causes to communities. The resources for preventing and combating crime—funding to the police authorities—have been capped, but the means for committing crime are left to free market forces, which is the Government's philosophy. Again, the Government have missed an opportunity.
931 West Yorkshire police have made it abundantly clear what they want in their area to combat crime. All they need are the resources to be able to do that. But Conservative Members and Ministers restrict police forces' ability to combat crime. There is the issue of reducing taxes to be considered before they allow those services to be provided.
With reference to the increase in pensions of people on income support, can we be assured that, as income support is means tested, people who receive housing benefit or poll tax refunds, or people from the mining districts of West Yorkshire who receive fuel allowances because they or their husbands have worked in the mining industry, will not lose out? When the Minister winds up, will he address that issue, as it means a great deal to many people in coal mining districts? Housing benefit and poll tax rebate apply to every community in the country. Therefore, we make a plea for some assurance that those people will not lose out due to the hidden agenda within the Budget.
The Budget contains no provision for new housing, new hospitals, new schools, new sheltered schemes and all the facilities that people need. Consequently, people cannot wait for 9 April, when they can change the Government and ensure that some of the social provisions necessary to sustain a reasonable standard of life are introduced.
§ Mr. Chris Smith (Islington, South and Finsbury)
Today's debate has been marked by a number of speeches from retiring Members. My hon. Friend the Member for Sheffield, Attercliffe (Sir P. Duffy), the right hon. Member for Hertfordshire, North (Sir I. Stewart) and the hon. Member for Somerton and Frome (Mr. Boscawen) gave gentle and considered speeches, and we shall miss them greatly.
The most abiding memory that I shall take away from this debate is that of the moving contribution of my right hon. Friend the Member for Morley and Leeds, South (Mr. Rees), who spoke of the impact of unemployment on his constituency. He described how his district had been devastated and was no longer a proud manufacturing area. The concern with which he spoke rang true to many Labour Members. He has had a distinguished career in the House, and has contributed greatly to the business, both of the House and of the Government. We shall sorely miss his wise counsels.
Speaking as he did about the scale of manufacturing decline in his constituency, my right hon. Friend the Member for Morley and Leeds, South highlighted the background against which we must examine the Budget. When the Chancellor stood up on 19 March last year to deliver his Budget speech, he said:To sum up, the prospect for the year ahead is for an end to the recession, growth of about 2 per cent. in the 12 months to the first half of 1992 … This does not seem to me an unpromising outlook."—[Official Report, 19 March 1991; Vol. 188, c. 166.]What has happened since? We now know—the Chancellor confirmed it in his speech yesterday—that in the past calendar year, growth fell by 2.5 percentage points. We are still deeply enmeshed in the recession. Indeed, the hon. Member for Southampton, Test (Mr. Hill) gave the game away. In recent weeks and months, we have heard a great deal from the Government about how we are in a world 932 recession and about why the Government should not be blamed for it. The hon. Member for Test gave the lie to that when he said—when challenged, he repeated it—that we had been the first country into recession and were likely to be the last country out.
Unemployment is still rising steeply, and it has risen for 22 consecutive months, during which there has been a cumulative increase of 1 million people out of jobs. Growth has been poor. Not only did our economy shrink last year by 2.5 percentage points, but between 1979 and 1991 the average annual growth rate was 1.7 per cent., the lowest achieved by any post-war Government.
Britain is the only European Community country in which manufacturing investment is lower than it was in 1979. The average interest rate under the Tories has been 12.4 per cent.; under Labour in the 1970s, it was 10.7 per cent. We have the highest number of business failures on record. In 1991, there were 47,800 of them. There were 75,000 house reposssessions in 1991. Those figures show the scale of the difficulties facing our economy.
§ Miss Emma Nicholson (Torridge and Devon, West)
Does the hon. Gentleman agree that only 2.3 per cent. of all mortgagees are over six months in arrears and therefore liable to repossession; and that the additional measures for the business expansion scheme announced in the Budget will go a long way towards remedying that? The problem is much smaller than he would have us believe.
§ Mr. Smith
I am surprised to hear the hon. Lady write off the problems of 270,000 home owners so lightly. Thousands of families are falling victim to repossession or are struggling to make their mortgage payments—as a direct result of the interest rate decisions taken by the Government.
Every working day in Britain, 3,000 people lose their jobs, 200 businesses go bust and 300 homes are repossessed. That is what life is like in Conservative Britain after 13 years.
The Budget revealed the extent of the difficulty that our economy is in. What emerged eventually from what the Chancellor said in giving that £28 billion PSBR figure and then revealing that he was only giving a stimulus of about £1.5 billion within that figure was that the underlying PSBR, the one that existed even before he got to his feet yesterday, was £26.5 billion. That was a much worse figure than any commentator, anyone in the City, any of the analysts, had been expecting, and it revealed the sheer extent of the difficulty that faces us in our economy.
In such circumstances the overwhelming, overriding priority should have been a Budget for recovery, a Budget to build our way out of recession. My hon. Friend the Member for Sheffield, Attercliffe (Sir P. Duffy) in his fine speech focused on the issue of what the Budget should have done. When he introduced it, the Chancellor said that it was a Budget for recovery, and the Chief Secretary repeated that this afternoon, but, of course, it was not a Budget for recovery. Against the test of whether the Budget will help to provide an engine for economic recovery, it fails miserably to live up to the task.
§ Mr. John Garrett
Is my hon. Friend aware that, after I left the Chamber this afternoon, the Chief Secretary to the Treasury implied—said, I believe—that I was partial to a 20p tax band? He was joined in that contention by the hon. Member for Norwich, North (Mr. Thompson), whose sole purpose in the House, as far as I can tell, is to 933 make his colleagues feel dynamic. I have since checked with the journalist to whom I gave the interview, and what I said was that a lower tax band was a good idea. Who would disagree with that? It was a good idea in principle, but my constituents will not benefit from the palliative, given the depth of the recession that has hit my constituency for the last 18 months, the prospect of which is never ending.
§ Mr. Smith
My hon. Friend makes a valid point and usefully puts on the record a correction of the misinterpretation which has been placed on his supposed remarks by some Conservative Members.
The Budget will not be of any real help to the 3,000 people who will have lost their jobs today. I doubt whether many of them will find that their jobs have been saved by what the Chancellor did yesterday. Of course the Budget offered a little help to business. The measures on the uniform business rate, for example—deferring increases which will none the less subsequently be levied, so it is a deferral rather than a cancellation of uniform business rate levies—are welcome. But we must point out that it was the Government who invented the uniform business rate in the first place and who forced it in along with the poll tax, and now they expect us to cheer because they have had to sweep up some of the debris that has resulted from it.
The car tax measure is also welcome for the motor industry. It is not particularly well targeted, because it applies to foreign-made cars every bit as much as it applies to British-made cars. None the less, it is a welcome measure, as the car industry has been suffering grievously over recent months. Apart, however, from those measures and a few bits and pieces relating to value added tax—most of which are indeed welcome—the Budget contained little for business, industry, investment and recovery.
Many things that should have been done in the Budget were totally ignored, or in some cases rejected, by the Chancellor. He could have used it to provide improved first-year capital allowances for investment in manufacturing industry. Many people up and down the country have called for such an improvement, and a Labour Government will wish to provide it. The Government could have used the business expansion scheme, rather than cancelling it completely, as they have now decided to do in two years' time: they could have switched it into support for growing businesses, especially in manufacturing industry.
I must say that it was a bit rich for the Chancellor to say that nowadays only a small part of the total invested in the business expansion scheme goes to small businesses. Who is responsible for that? It was the present Government who brought in provision for BES investment in private rented housing; it was the present Government who gave it a £5 million limit, as opposed to the general limit of £500,000 for BES investment. It was the present Government who threw the direction of BES completely out of kilter. Now, having realised some of their mistakes—about which we have been telling them for years—they say that they will cancel the scheme completely.
The Budget could have included incentives for investment in research and development. It could have made real provision for the imposition of penalties for late payment of bills by firms to other firms. It could have set out a national programme of training and work experience 934 to get some of our young people back to work and to give them the skills that they need to compete in the modern industrial world.
The Budget could have provided a real deal for pensioners, rather than a restricted deal aimed only at those receiving income support, and ignoring the genuine difficulties experienced by pensioners who are just above the income support level and who are suffering very much at present. It could have included a programme of phased release of capital receipts, as my hon. Friend the Member for Normanton (Mr. O'Brien) suggested. Such a programme would not only provide the construction industry with a much needed boost: it would help to house some of our homeless families. All that would have been a real agenda for a Budget for recovery, but none of it was done.
My hon. Friend the Member for Walsall, South (Mr. George) said that the Budget would not reverse the decline of our economy. He was absolutely right: the Budget represents a savagely wasted opportunity. Some measures in it, most of them small, are welcome none the less, the first and most important being the combining of tax and spending decisions in a single exercise. We have called for that for years, but the Government have hitherto rejected it totally; now they have seen the light.
There is also some welcome help for the film industry. Although I note that the comments this morning by some people in the industry have not been ecstatic, they welcome the fact that their position has been eased somewhat.
The Budget rightly recognises the need to use a scale other than engine size for company car scales of benefit. There is also a welcome indication of a preference for diesel over leaded petrol, along with the introduction of a wider differential between leaded and unleaded petrol, and the welcome removal of the VAT that is levied when a choice is offered between a company car and salary.
There is the removal of the £3,000 limit on the amount that can be invested in a personal equity plan via unit trusts and investment trusts.
We have been advocating all those measures for a substantial time, and we are pleased that the Government recognise the need for them.
§ Mr. Smith
I will not give way, because time is short.
An element of choice is introduced into the distribution of the married couple's allowance. We have been asking for that change ever since the allowance was invented by the previous Chancellor in 1988. Every year we have advocated it, and every year the Government have said that it was impossible. Now, they say that they will do it, and that is welcome.
We need to lay to rest a few Government myths about the Budget. First, the Conservatives claim that theirs is the party of low taxation. It is not. The Red Book gives it away. It shows that the overall tax burden as a percentage of GDP has increased from 34.75 per cent. in 1979 to 37.25 per cent. last year and 36.75 per cent. this year. We have known that for some time.
The Red Book also reveals that, in 1996–97, the proportion of national wealth taken by the tax burden is scheduled to increase to 38 per cent. The Government have not only put up the overall tax burden, but it is scheduled to go up even further during the next few years if they remain in office.
935 Secondly, the Government claim that they are giving special help to the low-paid by the tax measures in the Budget. The 20 per cent. band will apply to everyone, not just to the low-paid. For people at the very bottom of the income scale, there is a real and devastating tax and benefit trap. Those on family credit, housing benefit and poll tax benefit and those facing rent rises such as those described by my hon. Friend the Member for Glasgow, Springburn (Mr. Martin) will find that virtually all the trumpeted tax reduction will be gobbled up by their loss of benefit entitlement.
Hundreds of thousands of people will be cruelly deceived by the Government saying that the tax change will be an enormous benefit to them. It will not. Some people are likely to be worse off after the change than they are now. Taking account of the spending tax increase that the Government are introducing, 250,000 taxpayers could be up to 76p a week worse off after the Budget.
Thirdly, the Government claim that they will balance the budget over the cycle. I shall repeat the question that I asked the Chief Secretary earlier: what precisely do the Government mean by "the cycle"? The Red Book shows that public sector finances are scheduled to be in deficit by £28 billion this year, by £32 billion next year, by £25 billion the year after, by £19 billion the year after that, and by £6 billion the year after that. All that assumes a 3 per cent. rate of growth, and I shall be surprised if the Government achieve that. Where does the cycle end? It is off the scale. The Government predict that, in five years, the public sector will still be in deficit.
Perhaps that is what the Chief Secretary meant in evidence before the Select Committee on 25 November, when he said:If you are asking me to say how long the next cycle is, I am not being perverse when I say I do not know, because we do not know.That is revealed by the borrowing figures in the Red Book.
The essential priority of the Budget should have been the building of economic recovery from recession. It should have been the restoration of our public services. It should have been investment in industry. It should have been ensuring that our young people can get the training and jobs that they need. It should have been the ending of the nightmare of repossession and homelessness. It should have been paying attention, just for once and just for a change, to the needs of manufacturing industry, which were so eloquently identified by my right hon. Friend the Member for Morley and Leeds, South.
Those are the choices that should have been made. Instead, the Chancellor chose the route of tax cuts, and of borrowing to finance them. That is not sensible economics and it will prove not to be sensible politics.
The Budget was best summed up this morning by a business man on Radio 4, who said that theeconomy was in a mess before the Budget. It's still in a mess after the Budget.That will be the verdict of the voters in four weeks' time. A Labour Government will then take over and begin to sort out the mess and set us firmly on the road to recovery.
§ The Financial Secretary to the Treasury (Mr. Francis Maude)
This has been a fascinating day's debate, not always perhaps at fever pitch, but one has sensed that much of the drama has been going on elsewhere than in the Chamber.
It has been notable for a number of splendid speeches. My hon. Friends the Members for Bridlington (Mr. Townend) and for Amber Valley (Mr. Oppenheim) and many others made fine fighting speeches. It has been notable also, as the hon. Member for Islington, South and Finsbury (Mr. Smith) said, because a number of right hon. and hon. Members made what they predicted were their final speeches in the Chamber. I join the hon. Member for Islington, South and Finsbury in paying tribute to them, particularly to my right hon. Friend the Member for Hertfordshire, North (Sir I. Stewart) and to my hon. Friend the Member for Somerton and Frome (Mr. Boscawen). I had the privilege of serving in the Whips' Office with my hon. Friend the Member for Somerton and Frome, and I count it a great honour to have had him as a colleague and friend. The House will miss him, my right hon. Friend the Member for Hertfordshire, North and the other right hon. and hon. Members who are leaving the House at the election.
It may be helpful briefly to set out how the Government propose to handle the Finance Bill in the light of today's announcement. We propose to introduce a short Finance Bill with 11 clauses containing the Budget measures that we judge essential to become law before Parliament is dissolved. Principally, they are the Chancellor's proposals for excise duties, most of which were implemented at 6 pm yesterday, and for income tax, including the provision of a lower rate of 20p. In any case, income tax requires renewal before 5 May each year.
§ Mr. Maude
I am sure that my right hon. Friend the Leader of the House will make a further business statement to set out the arrangements.
The Budget contains a number of measures to help business. It has rightly been described as a Budget for the recovery not only by my right hon. Friends but by many others. Rather than rely on the words of politicians, perhaps we should consider what business people have said. For example, the chief executive of the Weir Group said:I think the general conditions of the economy are absolutely right for recovery. Perhaps the thing we need most is to get the election out of the way.The chairman of Williams Holdings said of the Chancellor:He was right not to attempt to stimulate the economy too much, because I think we are coming out of the recession anyway.Of course, there are a number of measures already in the pipeline which will have substantial benefits for business in the coming year: the reductions and changes to corporation tax in last year's Budget will come through this year in the shape of reductions worth in the region of £1 billion to businesses, which is a substantial benefit; the changes to the uniform business rate, which have been widely welcomed, will benefit no fewer than 900,000 business properties and that, again, has been widely welcomed; allowing more businesses to make quarterly 937 payments of tax deducted under the pay-as-you-earn scheme so that now 750,000 businesses are able to do that; the four measures that we announced to encourage prompt payment of debts, another long-running problem to which we are bringing the possibility of a solution; and the changes to inheritance tax will enable those who work hard to create businesses to feel able to hand them down to their families. We have heard very little from the Opposition about that, and it would be interesting to hear whether they propose to support the measure which has been widely welcomed by the business community as one that would be of great benefit. I do not know whether any Opposition spokesman wishes to say whether the Opposition support that measure. [HON. MEMBERS: "Answer."] Perhaps they are dithering on that as on so many of the important economic issues that face us.
Let me say a word about the motor industry in this country. It has made many substantial advances in recent years. There has been a lot of inward investment, and Nissan recently announced that it is to begin exporting engines from its car factory in Sunderland for the first time this year, in addition to exporting cars.
A lot of the changes that have occurred are revealed in the fact that our motor industry became a net exporter in the last quarter of 1991. Last year, exports of cars went up by 20 per cent. and imports went down by 29 per cent. That shows a very good story, but we recognise that, due to the recession, the car industry has been under pressure so we have taken some measures to assist which have been widely welcomed: the changes in car tax and in capital allowances and some VAT changes add up to a major boost, as the car industry has recognised.
The chief executive of Peugeot said:The car industry employs 1 million people in this country and they will benefit one way or another from this cut in car tax. It is going to be a real boom for the whole economy. This Budget is good for our industry.The Society of Motor Manufacturers and Traders said:We believe that about 70,000 extra sales should result, with all the implications this has for employment.Therefore, we have introduced a worthwhile package of measures which will be of substantial benefit.
The same is true for the film industry, which has many merits. We have one of the finest film industries in the world but it has been going through a difficult period. Clearly, the long-term future of the industry depends on the industry's talents being fully and productively used, but there is one issue where the Government have decided that it is right to act. Therefore, we have announced a substantial package to boost incentives for the United Kingdom film industry: relief for all pre-production expenditure and the writing off over three years of production expenditure from the time of completion of a film. Those measures offer substantial assistance, especially to smaller companies but also to the British film industry, and the film industry in general has warmly welcomed them overall.
The Budget has been good for business, and that has been recognised by what businesses have said rather than the self-styled experts in the Opposition—people who actually run businesses have said how much they welcome the Budget. The president of the Association of British Chambers of Commerce—never an organisation to support the Government slavishly, but ready to be critical when it thinks right—said:The combined effect of these measures will provide considerable assistance for businesses fighting their way out of 938 recession. United Kingdom business believe the Chancellor is wholly justified in his continuing priority of defeating inflation. The Chancellor has the full support of British firms".The country is entitled to place some reliance on words such as those. The truth is that Britain is now a very good place in which to do business—in particular, it has increasingly become a good place in which to manufacture.
Let us look at the figures for inward investment. In 1988–89 the United Kingdom accounted for 39 per cent. of total inward investment by OECD countries in the European Community. Much of that investment came from Japan. We welcome that. Not for us is the knee-jerk reaction of the TUC, which describes such investment as "alien". We have constantly and continually invited Labour Front-Bench spokesmen to dissociate themselves from those extraordinarily offensive and damaging remarks, but on every occasion they have chosen to remain silent—craven in the face of those disgraceful remarks; craven and afraid to dissociate themselves from the words of their paymasters.
The benefits of that inward investment can be seen, for example, in the fact that we are now a net exporter of television sets. The trade balance in cars is set to be in surplus by the mid-1990s.
What do investors see? They have a free choice to go wherever they choose. What do they see that makes it so worth while to come to Britain? First, they see the transformation of Britain as a workplace. It used to be a country riddled with ailments, restrictive practices, red tape and market distortions. But it has now transformed itself.
The twin symptoms that most people saw were the strike record and the poor productivity. Now we have a record on both which is the envy of the world. In the past 10 years, productivity has grown by more than half. In the 1980s, our growth in productivity was the fastest of all the G7 countries, whereas in the previous two decades Britain had the slowest growth. That, and our natural skills base, explains why people who have to make choices about where to manufacture goods choose to do so in Britain.
What would happen under Labour? Would those who have that choice still freely elect to manufacture in Britain? What would they face? They would face a strikers charter, which would blow away our new record in industrial relations which is, as I have said, the envy of the world. They would face a minimum wage, adding endlessly to business costs, and a Government committed to the social chapter of the Maastricht treaty, which would impose on businesses huge additional costs about which businesses in Europe are just beginning to become alarmed. They would face all the red tape of the 283 quangos that the Labour party proposes to set up—and all those disadvantages come well before we have even considered the question of taxation.
What does business think of that? It is worth finding out what those who make the decisions say. Not the Government, but a City firm—no doubt one that has had the benefit of the attentions of the Labour Front-Bench spokesmen—asked 105 people who take decisions in large and important businesses what they thought. One of the questions was:Do you think a victory by Labour would be good for the economy?I have to give credit where credit is due, and admit that 5 per cent. thought that it would be good, and that 9 per 939 cent. had no view. However, 86 per cent. thought that a Labour victory would be bad for the economy. The next question was:Do you think a victory by Labour would be good for your business?Again, to give all due credit, the results there were better for the Labour party. Sixteen per cent. thought that a Labour victory would be good for their business, and 21 per cent. had no view. Only 63 per cent. thought that it would be bad for their business.
The respondents were than asked:under a Labour Government…would you be more or less optimistic on the outlook fora number of matters. Labour came closest to getting a positive result in the area on which the party majors—on the question whether people would be more or less optimistic about the outlook for investment spending. But even there, more people thought that a Labour Government would be bad for investment spending.
§ Mr. Michael J. Martin
Would the Minister be prepared to do a survey on all the companies that have gone bust in 13 years of Tory Government? Would he ask them what they think about the Tory Government?
§ Mr. Maude
The number of businesses is, after all, at an all-time record. The hon. Member for Islington, South and Finsbury, with his notorious gloom, talked about the record number of business failures. He failed to talk about the record number of business successes. There are one third more businesses in existence and flourishing today than has ever been the case—certainly more than was the case when we came to office. There is a good record.
Those surveyed were also asked what they thought about Labour's plans to introduce tax incentives to encourage investment spending. They were asked whether that would encourage them to invest more. Some 17 per cent. said yes and 68 per cent. said no. We know that a case has been made for additional capital allowances and for speeded-up capital allowances. The system is already generous. Obviously, many people want to be enabled to pay less tax, but all the evidence shows that faster write-off of investment and capital allowances would not generate significant extra investment.
If one is talking about ways in which to encourage investment, one cannot think of a better way in which to discourage it than to introduce extra taxes on savings, because savings are needed to provide investment. What is Labour's answer? It is to increase the tax on savings. That is the worst discouragement to investment of which one can think.
Labour talks as if investment is its own property and its own strong suit. It talks as if it is the party of investment. Incredibly, Labour claims to be the party of private investment as well as of public investment. A brief look at the facts is worthwhile.
In the three years to 1989, business investment rose by 45 per cent., the fastest ever such rise over such a period. Even last year, a recession year for investment, we still devoted more than 14 per cent. of our total resources to business investment, compared with under 13 per cent. in the best year under the previous Labour Government. Even in a poor recession year, investment was higher as a proportion of GDP than it was in the best year that 940 Labour could manage. The case is clearly proven. There is more investment under a Conservative Government than there ever was under a Labour Government.
One might think that public sector spending should be good ground for Labour, but when one studies the matter it begins to look a bit different. General Government capital spending fell by 45 per cent. under the previous Labour Government—an average of 11 per cent. a year. The hon. Member for Islington, South and Finsbury is avid for news. I tell him that general Government capital spending fell under this Government—by less than 1 per cent. a year compared with Labour's average of 11 per cent. The reason is that privatisation has transferred much previous public sector investment into the private sector. Investment in public services is up under this Government compared with the record under Labour, when it was slashed.
It is revealing to consider one or two specific areas. In education, real capital spending per pupil fell by 60 per cent. under the Labour Government. It has risen by a total of 13 per cent.—1 per cent. a year—under this Government. There is the same story in the health service. We see the same story in infrastructure, roads and transport. There were falls under Labour and rises under the Conservatives. On virtually every measure, investment has been down under Labour and up under the Conservative Government.
The Labour party says that it is okay to borrow for investment. Let us consider Labour's investment plans. What Labour means by investment is not investment at all; it is spending. It means spending other people's money. It does not mean spending money on building the future, as Labour claims. Let us not buy that rubbish. It means spending taxpayers' money on swelling the pay packets of the public sector trade unions. Labour speaks about £1 billion extra on the health service, yet not a penny would go to extra patient care because of the effects of introducing the minimum wage, of scrapping competitive tendering and of scrapping charges. Some £1 billion extra would be spent on the health service before a single pound would be spent on improving patient care.
Let us consider income tax. The Leader of the Opposition dithered yesterday about what stance the party would take on our new lower rate band of 20p. There has been disarray today.
The hon. Member for Norwich, South (Mr. Garrett), who has prudently left the Chamber, made a valiant attempt to safeguard his position. It is clear that many members of the Labour party support what we are doing—indeed, the Labour party's own policy document supports it. Pride of place in its pocket guide is a move towards a starting income tax rate of 20 per cent. What will we see? Will it be an erratum slip inserting "not", or an apology stating, "We may have inadvertently given the impression that we thought that this was a good idea. It is a jolly good idea, but we are going to vote against it. This is a really respectable position"? If they think that it is a good idea, when will they do it? Will they do it when a Labour Government have the Budget in balance, as if that could ever happen under a Labour Government? If they do not mean it, they are conducting a deliberate fraud on the British people, and they should apologise for it.
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.