§ 5 pm
§ Mr. Gordon Brown (Dunfermline, East)
Today we are discussing the imposition of tax rises from April next year, which now amount to the biggest tax demand in history.
Tax rises have been imposed not just through VAT and national insurance but three changes in income tax push people's income tax bills up. The Chancellor announced three new taxes: on home insurance; car insurance; and holidays.
Those tax rises are the result of promises that have been broken unfairly and without regret, shame or apology. Promises on taxes have now been broken side by side with promises on public spending. Tragically, those promises have been broken merely to pay for the mistakes of the past, in a Budget that has no clear strategy, direction or leadership for our future.
With private investment still falling this year, the Budget now leaves public investment falling next year. The Chancellor now accepts that growth has been lower than forecast and will be lower than forecast next year, as inflation starts to rise again. Despite all his boasts yesterday, the Budget does nothing about the central revelation, admitted by the Secretary of State for Trade only few days ago, that our productivity is 25 per cent. below that of our competitors. But contained in the statement was the Chancellor's admission that 3 per cent. growth in our economy was well above the sustainable growth rate that we can expect.
Let us look at exactly what the Chancellor has done. First, income tax rises will come in March, April and the following April. But let us recall for a minute the promise that the Prime Minister made during the election campaign. He said:I have no doubt that we will be able to make further reductions in the rate of taxation. We will make further reductions in the rate of taxation but perhaps not at the rate of a penny per year but we will be able to make reductions year on year at a smaller rate.1065 Yet what do we have in the Budget? We have three separate increases in our income tax bills from April next year and from April 1995.
First, personal allowances have been frozen for two years at a cost of 34p. Secondly, married couples' allowance has been cut, at a cost of £1.85 this year and another £1.65 thereafter. Thirdly, mortgage tax relief will be cut in 1994 and again in 1995, representing a further £2.24 in the first year and nearly £5 by the end of the second rise, despite the promise in the Conservative manifesto that mortgage tax relief would be maintained.
In total, the income tax bill for a typical family will be £5 a week higher next year, with another £1.65 on top the year after. That is from a Prime Minister who said at a press conference: "All mine, all mine." In his election manifesto he said that lower taxes were necessary to encourage people and create a more productive economy. He said that lower taxes would transfer power from the state to the people and that high taxes kill the goose that lays the golden egg.
That is why the country will never trust the Conservatives on tax again. The Budget finally broke any residual trust that even the most ardent Tory could have in the Government over taxation policy.
Some 500,000 new taxpayers will be drawn into the income tax net, 300,000 of whom will be women. Some 95 per cent. of British households will lose money as a result of the Budget's cumulative effects. So Conservative Members must explain why they went to the country on election manifestos promising not just no tax rises but tax cuts, whereas the Budget Red Book says that taxes will rise next year from £220 billion, eventually reaching £271 billion in the next few years. I want them to explain their promises of tax cuts year on year, given that taxes will rise from 35 per cent. of national income to 37, 37.5, 38 and then 38.5 per cent.—the biggest share of national income, and higher than under any Labour Government.
§ Mr. Townend
I am obliged to the hon. Gentleman. I understand his opposition to tax increases. If the Labour party disapproves of the tax increases introduced by the Government, how would it deal with the budget deficit? Would the hon. Gentleman deal with it all on the spending side? Would that not mean savage cuts? Will he specify in which areas he would introduce cuts?
§ Mr. Brown
The hon. Gentleman forgets that his party went to the electorate and promised no tax rises. I recall an exchange between my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) and the hon. Gentleman in a previous debate, when the hon. Gentleman stood up and boldly said that he had not promised that there would be income tax cuts in his manifesto. So he did not even believe the Prime Minister's comments at the last election.
Let us be absolutely clear about what the Budget means for home owners. Mortgage tax relief will be cut as people pay more for their homes; VAT on fuel will be imposed so that people pay more to heat their homes; a new tax on 1066 home insurance will mean that people pay more to protect their homes. None of those taxes were ever mentioned in the Conservative party manifesto.
For car owners, the Budget means more tax on licences, petrol and car insurance, and motorists will soon pay to travel along motorways as a result of the imposition of tolls.
Is it not amazing that even rising crime becomes a tax-raising opportunity for the Government? Home insurance premiums have risen by 500 per cent. because of the rising cost of crime under the Government and now they impose a tax on it as a revenue-raising opportunity. Because of crime, car insurance premiums have risen by 260 per cent. and taxes will put those up a further 3 per cent. as a result of the Chancellor's announcement.
Not only income tax will rise. As a result of the two Budgets this year, we are now being asked to pay more for less because of the rise in national insurance. Let us remember—it should be recorded in Hansard so that people can see it—that on 28 January 1992, before the election, the Prime Minister stated clearly:I have no plans to raise…the level of national insurance contributions".
During the election campaign, when it became an issue, the then chairman of the Conservative party issued a statement saying that a rise in national insurance would be a "back door stealth tax". Who has implemented a back door stealth tax?
People are being asked to pay more national insurance, but they are to receive less. I can think of no bigger blow to the unemployed than that people in work must now pay more in national insurance contributions knowing that, if they lose their job in future years, the unemployment benefit available to them will be halved.
§ Mr. Patrick Nicholls (Teignbridge)
As the hon. Gentleman does not even approve of those modest tax increases, what public services would be cut if his party were in office? The public need that information to make sense of his attack.
§ Mr. Nicholls
On a point of order, Mr. Deputy Speaker. The hon. Gentleman said that he could not hear what I was saying because he was trying to find out from his leader what the answer was. He is now inviting me to apologise. Surely he should give way to see if I am willing to do so.
§ Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)
That is not a point of order for the Chair. It is for the hon. Member for Dunfermline, East (Mr. Brown) to decide whether he will give way.
§ Mr. Brown
The hon. Gentleman, as I understand it, asked about what he called modest tax increases, which will mean £10 a week more for the typical family. We will again vote against the imposition of VAT on fuel. We will bring the matter to the House and give the hon. Gentleman a chance to support us. If he is to honour his promise to the electorate, he should vote with us.
§ Mr. Deputy Speaker
Order. I have heard the hon. Gentleman say very clearly that he is not giving way again. I am sure that hon. Members also heard him say that.
§ Mr. Jenkin
Do we understand that the opening section of the economic policy that will be expounded in the next Labour manifesto will start with the sentence "We will not start from here"?
§ Mr. Brown
The hon. Gentleman is absolutely right: we will not start from here. We warned the Government about the impact of recession and about failing to take action on unemployment. The hon. Gentleman should warn his Front-Bench colleagues that he made a promise when he stood at the general election for Colchester, North. He said:There are 10 good reasons to vote Conservative.
And what was reason number four? "Low taxes". We can see what has happened to his promise.
Let us recall what was said about VAT:We have no plans and no need to extend the scope of VAT.
What about the council tax? The Chief Secretary admitted on "Newsnight" last night that council tax bills were likely to rise as a result of yesterday's announcement. There will be rent rises as a result of the cuts in housing that were announced yesterday.
What about all the promises that the Conservatives made about taxes and charges during the election campaign? The Chancellor, in his own personal manifesto, said in Rushcliffe:Only the Conservatives believe in keeping tax down to give incentives to enterprise and investment.
The Chief Secretary said in Enfield:The Conservatives want to cut your taxes.
People would not know that from what has been done in the last few months.
The Chief Secretary is nodding because he obviously believes it. He also said:Higher tax and national insurance would hit those who work harder and do overtime.
So why is he imposing rises in national insurance and breaking all the promises that have been made? [HON. MEMBERS: "Tell us why."] When the Chief Secretary goes back to his constituents in Enfield to answer their questions about his failure to keep his promises, will he remain seated there?
The promises that have been broken by the Government are not only on income tax, VAT, and national insurance, but on public services. We are witnessing, in the public spending announcement that came with the Chancellor's budget yesterday, some of the biggest cuts that we have seen in our public investment and public spending budgets.
What did the Prime Minister say about that at the general election campaign? I have gone through the transcripts of the Prime Minister's many press conferences during the election campaign. I have no doubt that Conservative Members will want to discuss with the Prime Minister the views that he put to the electorate on the question of public services. Cutting public spending, he said, would not be "economically right":If we were going to cut public expenditure we would have done it before and I don't believe it's economically right. I have said that in the past, and there is no need to do it whatsoever. So you can rule out any prospect of that.
1068 He said that it was not possible that public spending might rise or fall, and that there was no prospect of the public spending cuts that we now have as a result of Government decisions.
Is it any wonder that the country will never again believe the Conservatives? Those are broken promises, not only on tax but on the fabric of our social services.
At another press conference during the election campaign, the Prime Minister said:We will stand by the figures in the Red Book. I see no reason why we should not meet our promises as we have allocated our reserves. We have seen these concerns in the past, and it will not be necessary to change plans.I do not think the Prime Minister will easily forget that, if he survives for another general election campaign. Either the Government were incompetent on a massive scale that beggars belief, or they were deliberately misleading us throughout the general election campaign.
The Government could plead guilty to broken promises and ask for their incompetence to be taken into consideration, but how could they make the commitments in the election manifesto that have now been overridden by yesterday's statement?
In 1992 the Government said:Over the next three years we are committed to the biggest investment in Britain's infrastructure in our history.Why was that commitment followed by an 8.3 per cent. cut in the transport budget? They said:We believe that the railways can play a bigger part, and are investing accordingly.Why has the external financing limit of the railways been cut?
The Government said:The Conservative party's commitment to the environment is beyond doubt.Why was the environment budget reduced by 13 per cent. yesterday? Why is it that local government is down 1.8 per cent., employment down 3 per cent. and housing down 8 per cent., with the accompanying risk to many homes and construction jobs?
It is not only the promises made during the election campaign that have been broken. At the time of the last autumn statement debate, the Chief Secretary said:I believe the protection of investment within the public spending round is the best way to boost private investment, the best way to create growth in the short term and in the long term as well.Why has public investment been cut from £23 billion to less than £22 billion as a result of the announcement made today?
What about compensation for VAT? When the country realises that a family of four on income support will receive only 45p per week to make up for a fuel bill that every expert estimates will be more than £1.20 a week, and when single pensioners understand that they will get only 50p a week although their fuel bills will be much higher than that, no pensioner or family will accept that they have not been short-changed by the Government as a result of yet another broken promise.
§ Mr. Michael Bates (Langbaurgh)
Does the hon. Gentleman agree with the remarks made 11 days ago by the Opposition's social security spokesman, who said that 50p per week on top of the pension would be adequate compensation? Does he agree that 70p per week, which is what we have put forward for single pensioners, will be more than adequate?
§ Mr. Deputy Speaker
Order. It is no use hon. Members shouting "Answer the question" if nobody can hear the hon. Gentleman attempting to do so.
§ Mr. Brown
We should also be clear about what has happened to invalidity benefit. The country and a wider audience should know that invalidity benefit will be cut. A faxed document issued by mistake by the Department of Social Security to the Press Association a few months ago said that the assessment—that is, of the people who would lose benefit—would include a retired builder with heart disease and angina, who gets pain in the chest after excessive bending, is unable to walk on the flat for more than 200 yards before he has to stop and cannot climb stairs. These are the types of people who will lose their invalidity benefit.
If the Chancellor announced today that the business expansion scheme was to be closed, and no more tax shelters created for people to make money out of the miseries of repossessed homes, he would save £100 million before Christmas.
What is the choice that the Government must make? Is their priority to close the tax loopholes that I have identified, or to hit people on invalidity benefit?
What is the Chancellor's record? At the Department of Health he picked a fight with the ambulance workers: at the Department for Education he picked a fight with the teachers; and at the Home Office he picked a fight with the prison officers. But when he was a Minister at the Department of Trade and Industry, did he pick a fight with the City establishment and tax avoiders? Now that he is at the Treasury, is he more likely to be toughest with the weak—strongest with the least able to defend themselves—or will he stand up to people who have been avoiding tax systematically for a long period?
§ Mr. Deputy Speaker
Order. The hon. Member for Dunfermline, East (Mr. Brown) is clearly not going to give way. I will ensure that both Front Benchers and Back Benchers on both sides of the House are given a fair hearing in reasonable quietness.
§ Mr. Brown
Let us examine the Chief Secretary's record. He now tells us that he supported the Prime 1070 Minister in the leadership election, not necessarily because the right hon. Gentleman was his personal choice. In a Sunday newspaper, he commented:The recommendation of Mrs. Thatcher was very clear"—moving away somewhat from the idea that a decision was made very quickly.
What happens when the Chief Secretary makes statements on tax?
§ Mr. Brown
I will not give way again. I have given way a number of times, and were I to do so again I would have to remind the hon. Gentleman of his own election manifesto commitments.
What did the Chief Secretary say in his Enfield manifesto? He not only said that national insurance payments should not rise; he said:I offer you a vision for the 1990s. It is a society prosperous enough to provide for those in need and invest in public services.That is the Chief Secretary who has made some of the biggest cuts in public services that we have seen.
What has the Chief Secretary said about tax in the past? He is the man who told us that the poll tax would be an election winner for the Conservative party. Let us remind ourselves of what he said:Far from being a vote loser, with your help the poll tax will be a vote winner.A few months after the tax was introduced, he said in a speech:If this is what the community charge can do for the Conservative party after just one month, think what it can do for us after one year.The Chief Secretary is a man of few words on tax, almost all of them wrong.
I consider, however, that the Chief Secretary's highest point on the question of tax was reached when he published a pamphlet—only a few months ago, before he became Chief Secretary. It was entitled "A Vision for the 1990s", and one of the main chapters was entitled "Towards an Ultra-Low Tax Economy"—not a low-tax economy, or a very low-tax economy; an ultra-low-tax economy. [Interruption.] The hon. Member for Rutland and Melton (Mr. Duncan) cheers the idea of a low-tax economy. I assume that he will be voting against the Budget on Tuesday.
The Chief Secretary said that lower taxes were "a total political commitment". It might be thought that, if that political commitment was not being met by the Government in which the right hon. Gentleman served—given that it was a total commitment—he would give up, saying that he could not be part of that Government any longer. He said:Our European competitors lack the political willpower to introduce low-tax policies.What about the Prime Minister, the Chancellor of the Exchequer and the Chief Secretary himself? Do they not lack the political will power to deliver low-tax policies now?
The right hon. Gentleman also said—I believe that this will resonate throughout the country as we move towards election time—There is no point in going through a Parliament delivering every little promise you made and failing on the big promises.What are those little promises? Promises about income tax, about national insurance, about VAT on fuel, about public services and about the social security budget? Those are 1071 not little promises; they are promises that affect the lives of millions of people. The right hon. Gentleman should be ashamed of himself.
Conservative Front Benchers are virtually incapable of keeping their promises, whether those promises relate to tax, spending, recovery or youth employment—or, indeed, to the supposed end of the recession the day after the general election. I believe that they are incapable of telling the difference between truth and falsehood—incapable of telling the truth, or even recognising it; incapable, perhaps, of distinguishing between right and wrong.
How can the Front Bench explain this astonishing record of personal irresponsibility? Recently, the Prime Minister and the Home Secretary have spoken out on moral decline and personal responsibility. Like them, I would resist any tendency to place the blame for breaking promises and being unable to tell the truth elsewhere. As the Home Secretary said:We should have no truck with trendy theories that try to explain things away by saying someone else is to blame.That is the view that the electorate will take.
Will the Government now blame the Church of England for the breaking of promises following what they said during the election? Was it the absence of a father figure during the war that prevented their promises from being kept, or is it the tragic loss of a mother figure as recently as 1990 that prevents them from telling the difference between right and wrong? Let us be absolutely clear: the Government are repeated offenders in the business of making and breaking promises. They went joyriding with the British economy, they crashed out of the exchange rate mechanism and they left a trail of destruction and chaos behind them.
The Chancellor began his term of office by admitting that the country was in a dreadful hole. His Budget, however, fails to understand that our problems relate not to too high a quality of services, but to insufficient growth during the period of Conservative government. It fails to recognise that the root of our problem is the smallness and the diminished capacity of our economy. It fails even to appreciate that the problems of trade deficits, unemployment and inflation will return again and again as long as the Government do not tackle these basic and fundamental issues.
This Budget cannot even begin to recognise the importance of the Government's role in helping to secure the investment in people, industry and our social and economic fabric that we need if we are to have a high, sustainable rate of growth. As a result of this Budget, we are worse off today without the slightest prospect of being a great deal better off as a nation tomorrow. It is a Budget without a strategy for jobs, industry and long-term growth, because it cannot begin to address the foundations of the Government's failure.
We wanted a Budget for employment, and the Government cut the employment budget. We wanted a Budget for industry, and the Government cut the industry budget. We wanted a Budget for investment, and the Government cut public investment in our economy. We wanted a Budget for fairness, and the Government ended up penalising 95 per cent. of the population.
This Budget does nothing for fairness, jobs, industry and investment in the way that the country needs. For that reason, it will not commend itself to the country.
§ The Chief Secretary to the Treasury (Mr. Michael Portillo)
Towards the end of his speech, the hon. Member for Dunfermline, East (Mr. Brown) threw down a challenge. He asked whether Conservative Members had political will power. He asked whether my right hon. Friend the Prime Minister had it; whether my right hon. and learned Friend the Chancellor of the Exchequer had it; whether I had it; and whether our party had it. The answer to those questions is yes, yes, yes, yes and yes. Yesterday's Budget demonstrated the existence of that political will power.
Did the hon. Gentleman have the political courage, in a speech lasting half an hour, to mention even one of the Labour party's policies? It was a policy-free zone of a speech, in which the hon. Gentleman did not dare to offer a single thought about what his party would do. This is an unserious shadow Chancellor of the Exchequer, trying to address himself to serious problems that Conservative Members are considering seriously. The hon. Gentleman—who sits practising his smile, because he has been told that that is what he ought to practise—is a man who does not allow a single serious thought to enter his mind, or a single serious comment to pass his lips.
While the hon. Gentleman sits there practising his smile, my hon. Friends have been asking him whether he believes that the deficit is too high. Does he believe that spending is too high? Does he believe that we should put up taxes? What is his party's monetary policy? How will he create all the jobs that he is always going on about? What is his answer to all those questions? When it is not evasion, his answer is to say that it is all being referred to the Commission on Social Justice. That commission is the greatest example of contracting out there has ever been, of which any Conservative council would be proud because all Labour party policy has been subsumed by the Commission on Social Justice.
The commission has now been in operation for a year and in the past few days it has produced its second report on the important subject of social security. What does the commission say after a year of deliberation? It says:Over the next 6 months we will publish a series of papers explaining some of the tough questions which we believe the country faces: setting out the advantages and disadvantages of different options.My God. What courage the Labour party shows. What determination it is showing to address our problems. What extraordinary bravery is being shown by the hon. Member for Dunfermline, East and his party, and I shall tell the House why.
It is because the hon. Gentleman knows that his predecessor, the former shadow Chancellor, devised an economic policy and it was a disaster. It was the policy that cost the Labour party the general election. The hon. Member for Dunfermline, East now lives in cowering terror of developing a single strand of policy.
§ Mr. Portillo
I shall give way in a moment when I have given the hon. and learned Gentleman something to which he can reply.
The hon. Member for Dunfermline, East has learnt the wrong lesson. The lesson is that if he devises policies that blow the election for his party, he will take over and become the leader of the Labour party.
§ Mr. Portillo
We are keeping the most fundamental promise of all—[Interruption.] That is to deliver sound public finances, on which the Labour party has not a clue, because—
§ Mr. Deputy Speaker
Order. I recently pointed out to the House that right hon. and hon. Members on both sides of the House will get a fair hearing. The Opposition spokesman got a reasonable hearing; the Chief Secretary will get that same fair hearing.
§ Mr. Nigel Griffiths (Edinburgh, South)
Is the fundamental commitment to which the right hon. Gentleman refers not just a fundamental commitment of the Conservative party to lie its way into power and a fundamental commitment to cling to power at all possible cost?
§ Mr. Portillo
The hon. Gentleman clearly wants to get into the headlines by being thrown out of the House of Commons for using the word "lie". I shall treat his question with the contempt that that word deserves.
The Budget which my right hon. and learned Friend produced what was he rightly describes as a "no nonsense" Budget, because we face serious problems and the Conservative party put forward a serious solution. I am pleased that my right hon. and learned Friend has delivered a Budget which, after all, had to be tough. He was not able to deliver a lollipop Budget but had to present a lollipop-free zone at a time when we had to tighten the fiscal position. My right hon. and hon. Friends were strongly supportive of my right hon. and learned Friend the Chancellor because the Conservative party is serious about dealing with the problems of the deficit. That is the major contrast between the Conservative party and the Labour party which the electorate will not fail to see when we next face them.
Of course, the problem that we face is a deficit of £50 billion.
§ Mr. Portillo
I shall give way later. I want to make some progress. The House will be aware that we have a national debt of £200 billion. The public sector borrowing requirement of £50 billion is serious because it represents one quarter of the national debt. If my right hon. and learned Friend and his predecessor the right hon. Member for Kingston upon Thames (Mr. Lamont) had not taken steps to deal with that, obviously there would have been a danger of doubling the national debt over a short period.
§ Mr. Portillo
I must tell the hon. Lady some of the areas in which the Government have spent money. In the three years up to 1992-93, the Government have increased spending on the health service by 5.5 per cent. in real terms every year. Over the past five years, they have increased spending on education by a quarter in real terms; they have increased spending on national roads by 60 per cent. in real terms; and they have trebled investment in British Rail in real terms.
1074 On each of those occasions, the Labour party said that we were underspending, that we should spend more, that the health service was underfunded, that we were not investing enough in roads or education and that we ought to invest more in British Rail. Now the Labour party asks why we have such a large PSBR. It says that the Government are to blame and that we should spend more money.
The hon. Member for Peckham (Ms Harman) was at it again on "Newsnight" last night, advocating that the solution to our problems was to spend more money. It is some sort of rich joke that the Labour party appoints the hon. Member for Peckham as its shadow Chief Secretary. It is rather like—
§ Mr. Deputy Speaker
Order. The Chief Secretary has made it clear that he will not give way and hon. Members should take note.
§ Mr. Portillo
The irony of putting the hon. Lady in charge as the shadow Chief Secretary is like appointing Joan Collins to buy costumes for an impoverished amateur dramatic club. Tackling the deficit is important for restoring confidence in the economy and ensures that the Government are able to provide the conditions for recovery.
§ Mr. Portillo
I shall give way to the hon. Lady in a moment.
During the past year, when the Government have had to borrow £1 billion a week, we had stable short-term interest rates and, in the past week, we saw them fall. We have also seen long-term interest rates falling. The textbooks on economics say that a large PSBR puts upward pressure on interest rates. That has not materialised, because the Government have established medium-term economic policies for dealing with the deficit, on spending and taxation.
When my right hon. Friend the Member for Kingston upon Thames announced the extension of VAT to fuel and power, many Conservative Members were worried about the timing of that announcement and believed that the delay in its introduction would make lobbying against: that proposition more intense. I say to my right hon. Friend and hon. Friends that it was extremely important when the recovery was still delicate and when many were rightly arguing that the economy was not in a state to bear higher rates of taxation, that the Government should give an assurance that over the medium term they would tackle the deficit. It was necessary to offer that reassurance. The funding crisis of 1993 is the funding crisis that did not occur because there was confidence in the Government's medium-term policies in the markets. It was the dog that did not bark.
§ Ms Armstrong
The Chief Secretary gave a list of spending increases as the reason for the deficit. Was he not aware of that at the last general election? Why did he and his Prime Minister promise that there was need neither to cut expenditure nor to raise any taxes?
§ Mr. Portillo
I am perfectly happy to answer that question. We thought that the recession was coming to an end in early 1992. But the question that cannot be answered 1075 by the Labour party is why, in any circumstances, it believes that we should spend more on all those things. Why does the Labour party always urge that we should spend more and that interest rates should be lower than whatever the Government set? Why did it promise high taxes at the last election but now it says that it has no plans for high taxes? Why does the Labour party refuse to answer a single question about its economic policy?
§ Mr. Portillo
I shall give way in a moment.
In devising their policy, the Government have faced along the way an escapist tendency. It comes in various forms, but the great mottoes of the escapist tendencies are, "Why do today what you can put off until tomorrow?" and "Even if it's broke, don't fix it." There are various types of escapist. There are those who say that there is no need for the Government to take action because the recovery will cure all. The recovery will not cure all. Even those elements of spending that are driven up by the cycle during the recession do not necessarily unwind themselves at the end of the recession when the recovery comes.
For example, if the Government build up a higher level of indebtedness, that indebtedness is not swept away by the very fact of recovery. Other escapists say that we should, indeed, take action, but that the time is not ripe. But then the people who say that the time is not ripe are the people who believe that there never is a ripe time for taking firm action.
Then there are those who say that we should take effective action, but that there are spending cuts that can be made and tax rises that can be imposed which carry no pain and no difficulty with them. I have to tell those people that they are wrong. It is not possible to address the problem without facing tough decisions. My right hon. and learned Friend the Chancellor has faced them. The Government are not a member of the escapist tendency. Despite my ethnic origins, I am not in favour of "mañana". I am in favour of taking action today—timely action to put right the deficit that the Government face.
§ Mr. Turner
Does the right hon. Gentleman accept that his credibility among the Opposition is mightily stretched in as much as he is here today telling us about tax increases when he has always argued for tax cuts? How does he square that with the public outside, who have read his speeches, not over many months but over many years?
§ Mr. Portillo
I am realistic enough to know that unless we control the deficit and make sure that the burden of debt does not rise and unless we control the amount of interest that we pay on our debt, it will not be possible for us to reduce taxes. I believe in reducing taxes. I believe in the policies of my right hon. and learned Friend the Chancellor of the Exchequer. I believe that they will lead us to lower taxes in due course.
What is stretched on the other side of the House is not my credibility; it is comprehension. Yesterday, the Labour party was in deep disarray. The Leader of the Opposition was attacking us for our savage cuts. Yet I had the fortune to wander in late in the day to discover the hon. Member for Cardiff, West (Mr. Morgan) saying that there had been no reductions in public spending and that the whole thing 1076 had been done by smoke and mirrors and an adjustment to the reserve. I intervened in the hope that he would not make a speech that was so embarrassing to his Front-Bench team or one that was so foolish.
I want to make the position perfectly clear because I have to be fair to the hon. Member for Cardiff, West and say that he was not the only person in confusion. There has been some misunderstanding of the position with regard to the reserves. My hon. Friends will understand that we set reserves for the three years ahead. The reserves in the second and third years of the public spending period are sums of money that the Government fully intend to spend within their plans but that have not yet been allocated to any specific programme. As the third year becomes the second year of a new survey and the second year becomes the first, the portion of the reserves allocated for that year —a third of the total reserve—is drawn down and allocated to programmes.
In this year's Budget and public spending round, we ensured that as the second year became the first year we did not allocate that reserve to programmes. We allocated it in such a way that we could reduce public spending. What we saw in operation was not smoke and mirrors or fiddles but the exercise of resolution by the Cabinet and the Government. It was the exercise of absolute discipline on public spending.
We have allocated as reserves for the next three years £3.5 billion in the first year, £7 billion in the second year and £10.5 billion in the third year. The previous plans included reserves of £4 billion, £7 billion and £10 billion. The House will recognise that the total for the three years is exactly the same. So the hon. Member for Cardiff, West was wrong. I am not surprised that members of the Labour party are not able to recognise discipline when they see it and are not able to recognise resolution and collective action by the Cabinet in making sure that the public spending is under control.
§ Mr. Portillo
Last year, when we reviewed our plans for 1994–95, we took £4.75 billion off the new control total —the plans for 1994–95. This year, in revisiting those plans, we took another £3.6 billion off the plans for what we were going to spend in 1994–95. The plans for the new control total over the next three years are reduced by a total of £8 billion. That means—I know that my hon. Friends will be pleased with this—that we have The new control total so firmly under control that in the next three years its average rate of growth will be 0.25 per cent. in real terms each year. The House will recognise that that is a good distance below the maximum target that the Government set themselves of 1.5 per cent. growth in the new control total year by year.
Not only spending within the so-called new control total is under control and is being reduced; a virtuous circle is being established because we are seeing that debt interest will be reduced by £1 billion a year from 1996–97.
§ Mr. Portillo
In a moment.
Cyclical social security will also be lower as the recovery comes through. That means that, in the figure of total public spending—the grand total of public spending 1077 known as general government expenditure—we are seeing a reduction over the next three years of £15 billion of public spending. That is what has enabled us to reduce the proportion of our national income which is taken and spent by the Government from 45 per cent. to 42.5 per cent. over the period of the public expenditure survey.
That is the way in which we shall meet the important promise that we gave in the Conservative manifesto that the Government would reduce over time the proportion of national income that was taken and spent by the Government. That is a fundamental Conservative pledge and one which my right hon. and learned Friend the Chancellor succeeded in delivering in his Budget yesterday.
§ Mr. Peter Mandelson (Hartlepool)
Before the Chief Secretary embarks any further on his virtuous circle, does he recall the commitment which the former Chancellor made in the autumn statement last year to 78 public/private finance projects? How many of those are currently under construction?
§ Mr. Portillo
We have seen some good progress, but as my right hon. and learned Friend the Chancellor said, it has fallen short of what we hoped for. That is why my right hon. and learned Friend yesterday moved in with some radical new proposals to ensure that the private finance initiative delivered good results. We have seen bridges built, important projects in the national health service and an important contribution to the Jubilee line.
My right hon. and learned Friend put great impetus into his initiative yesterday by announcing, for example, that the west coast main line would be a subject of the private finance initiative. That statement is welcome to Conservative Member, even if the very mention of private finance is anathema to the hon. Member for Hartlepool (Mr. Mandelson).
§ Mr. Campbell
The Chief Secretary talks about the deficit. How was it created? If my memory is right, I remember the £100 billion from North sea oil which went down the drain. I remember the money from the nationalised industries. It was an enormous amount. We had billions from there. I remember the poll tax fiasco—nearly £4 billion. I remember Black Friday, where we lost £5 billion in one day. The Chief Secretary is the one who has caused the mess-up in the finances of the country, not us.
§ Mr. Portillo
The hon. Gentleman has inadvertently, I am sure, stumbled into quite a good point. During the 1980s, North sea oil revenue was contributing about 4 per cent. of gross domestic product in tax receipts to the Government. Today, it produces only half of 1 per cent. of GDP. That is an important difference. That is one of the reasons why my right hon. and learned Friend thought it appropriate yesterday to build new elements into the tax base—to broaden it—by introducing two new taxes: an insurance premium tax and an air passenger duty.
§ Mr. Gordon Brown
Will the Chief Secretary confirm that the typical family will have to pay almost £10 a week 1078 more in taxes from April? Will he now apologise for breaking the promises made by himself and the Conservative party over taxation at the election?
§ Mr. Portillo
I do not know what a typical family would be described as, but I must say this to the hon. Gentleman, and then the contrast between our seriousness and his flippancy will be evident: it is not possible to cure a public sector deficit of £50 billion without some restriction on public spending and some increases in taxation.
It is banal of the hon. Gentleman to get up all the time and so glibly tell us that taxes have gone up. Of course they have gone up, because we are serious about putting right public finances. The hon. Gentleman is not serious about anything and the contrast shows. He is under-performing for somebody in his position.
§ Mr. Portillo
The hon. Lady may say that, but she is held inside the shadow Cabinet by the safety net of political correctness; otherwise, she would not be there at all. That is not my judgment about who is underperforming, but that of the Labour party.
§ Mr. Portillo
Different families pay different amounts, and I am not disguising the fact that people will pay more in taxes. Does that satisfy the hon. Gentleman? We are taking serious action to put right the problem. He continues to pretend that no serious action needs to be taken. His is a position of profound irresponsibility.
§ Mr. Clive Betts (Sheffield, Attercliffe)
The Chief Secretary has just said that everyone knows that it is not possible to deal with a £50 billion deficit without increasing taxes or cutting public expenditure. Why did he not say that at the time of the general election? In his previous answers, he said that he thought that the end of the recession would come earlier and that that would provide the revenues. In answer to my hon. Friend a few minutes ago, he said that only people of an escapist tendency believe that growth could cure the £50 billion deficit. Where is the consistency in that argument?
§ Mr. Portillo
I was talking about views taken at different times. At the beginning of 1992, it appeared not just to the Government but to all major commentators, and the Labour party, that the recession was about to end. In late 1993, it is not possible to take the view, with the deficit having risen to where it is, that recovery on its own will be sufficient to deal with the problem.
I should like to deal with the way that the Government will approach the cost of running the Government. At a time when people in the private sector have had to go through severe restraint, when they have seen their incomes under great pressure during the recession, it must make sense for the Government to ensure first that their running costs are firmly under control.
That is why there will be no increase in the cost of running the Government between this year and next year. I do not mean no increase in real terms; I mean no increase 1079 in cash terms. We shall have to fund any pay increases that there are in the public sector from efficiency gains and savings that we make inside the public sector.
That will be possible because we set demanding efficiency targets for the public sector and public bodies. We normally expect them to be achieving a 2 or 3 per cent. improvement in efficiency each year. Out of those improvements in efficiency must come any pay settlements that are made in the public sector.
As a result of that, over a period, we shall see a reduction in the proportion of public spending that the Government spend on running themselves from 8.2 per cent. down to 7.4 per cent. That is an important reduction in the amount that the Government are taking away from taxpayers to spend simply on running themselves.
§ Mr. William Cash (Stafford)
Is not one of the most important features of the Budget the emphasis on enterprise in small businesses, and is not that the means whereby we can regenerate the economy to pay for so much of the public expenditure that is required? Is not another essential part of the budget the rejection of the Delors package and of the movement towards the policies advocated by the hon. Member for Dunfermline, East (Mr. Brown) and others—to increase public expenditure as a means of getting out of the problems that it merely precipitates?
§ Mr. Portillo
My hon. Friend is right. All we have to do is look at what happened as we recovered during the 1980s. The engine of our recovery was the small business sector. It was able to expand in that way because of the flexibilities that existed, particularly within the British labour market. I believe that it will be the same during recovery this time around.
My right hon. and learned Friend has taken a series of important measures to help the small business sector. As a Government, collectively, we have taken a united stand against all those who would wish to impose on the British economy the rigidities and extra costs that would be the death of that effort to ensure that small businesses can again be the engine of our recovery, as they were during the 1980s.
§ Mrs. Angela Browning (Tiverton)
My right hon. Friend has received may challenges from the Opposition Benches tonight about election promises. Is he familiar with my election address in the 1992 election in which I stated categorically to my electorate that we would build on the 20 per cent. tax band, which is enormously important to low-paid workers in my constituency, and that we would maintain sound money? It would be difficult for me to go back to my constituency and hold my head up under that promise if we were to implement some of the suggestions that have come from the Opposition Benches tonight.
§ Mr. Portillo
I have read my hon. Friend's election address less frequently than I would wish, but equally I have read "War and Peace" only once in my life, so she must not be offended. My hon. Friend is absolutely right. There will be further progress with the 20 per cent. tax band from April 1994.
1080 My right hon. and learned Friend has set out clearly what his monetary policy is. He has made it perfectly clear that he will not follow the policies advocated by the Opposition.
§ Mr. Portillo
No. I am going to finish.
For the Conservative party, sound public finances are the predominant economic policy that we must follow. It is the policy that takes precedence. I remind my right hon. and hon. Friends that, in 1981, in pursuit of sound public finances, we faced a Budget from Lord Howe that required us to take heavy tax increases. As a party we accepted that because, for us, sound public finances were the most important of all our economic objectives.
I share my right hon. and learned Friend's judgment that he made yesterday about the speed at which he reduces the PSBR. I congratulate him profoundly on being able to achieve the reduction that he seeks with so much emphasis on the control of public spending and with so little raising of taxes, particularly in the year ahead.
The Conservative party believes in low taxation and keeping down the rates of taxation, because we believe that high rates of taxation have a profound effect on incentives. As rates of direct taxation are raised, they tend to drive out of the country those people who create wealth.
The search for extra revenue by raising the rates of direct tax usually proves elusive, because the people who create the wealth up sticks and go somewhere else to do their business and take their wealth creation with them. We are a country that is profoundly concerned about competitiveness. I echo what my hon. Friend the Member for Tiverton (Mrs. Browning) said a moment ago: we are profoundly concerned about competitiveness. The country attracts one third of all inward investment from outside the Europen Union, yet 45 per cent. of our national income is spent through the Government. In the United States, the figure is only 38 per cent., and in Japan only 32 per cent.
To be an internationally competitive nation, we must keep public spending as a ratio of national income down to an internationally competitive level so that we can enjoy internationally competitive rates of taxation. Thanks to the policies of my right hon. and learned Friend, we are enjoying internationally competitive rates of taxation for both personal and corporation tax, but we must still reduce the proportion of our national income that is spent by the Government.
My right hon. and learned Friend has pointed the way in which that will be achieved and charted the steady progress that we shall make in reducing the proportion of national income taken by the Government. Not least for that reason, I commend his Budget to the House with great enthusiasm.
§ 6 pm
Mr. David Rendal (Newbury)
It is a great honour for one who has come to the House comparatively recently to be able to speak so early in the Budget debate. I imagine that a number of hon. Members who have been here longer than me will feel envious of my opportunity. I have some advice for them, which I have given to many other people: they should join the Liberal Democrats because that gives one a better chance.
We are in danger of going into great detail about the Budget when there are one or two critical points about it 1081 that should be brought to the attention of the House and public. As a result of a combination of the Budget in March and yesterday's Budget, next April we are due to have the largest tax hike in history. The Government cannot get away from that. Nobody expected it after their promises in the election and they should be deeply ashamed of it.
The Government would no doubt like to believe that the taxes are mainly indirect, and there are indeed a number of indirect tax increases in line. They have always said that, as long as tax was taken indirectly, it would not matter and that the important thing was to reduce direct taxation.
I shall begin by reminding the House of some of the indirect taxes that will be put into effect. First, there is the obnoxious imposition of VAT on domestic fuel. We have all heard a great deal about that over the past year, and, sadly, it was clear from the Chancellor's statement yesterday that he failed to listen to the pleas of electors who told him what should have been done—cancellation of that tax. The reaction of the electorate has been shown in Newbury, in the council elections, in Christchurch and in council by-elections ever since the imposition of the tax was first announced.
§ Mr. Jacques Arnold
Is it not true that at the last general election the Liberal Democrats fought a campaign based on an energy tax? Can the hon. Gentleman explain what that energy tax would have been?
§ Mr. Rendel
I shall come to that point later.
The important point is that the imposition of VAT has been rejected wholesale by the people. As I was saying before I was interrupted, people have made that rejection clear in the council by-elections since May, in which the Conservative party has succeeded in losing two thirds of all the seats that it fought. That is an unbelieveable and unprecedented record of electoral failure.
It is true—we have said it plainly and we have been extremely honest about it—that we believe that there should be fuel tax increases; but they should be introduced in the right way. Time and again, the Liberal Democrats have made it plain that they are prepared to support energy taxes when they are aimed at reducing pollution and not simply at cutting the Government's deficit. Such taxes should be introduced in a way that would help those who are worst hit by them.
The second of the indirect tax increases is that on petrol tax, which was introduced yesterday. That was the second huge increase in nine months. I well remember at the last general election the Conservatives in my constituency, and no doubt elsewhere, putting on the frighteners and saying that people should not vote Liberal Democrat because we would increase petrol tax by as much as 10p a year.
We had honestly and openly said that we believed that there should be a petrol tax increase of 10p a year. We did not believe in an increase of 30p in a year, which is what we have had from the Conservatives. That is a huge increase, which will bear most heavily on those in rural communities, who have suffered from bus deregulation and who have now lost all public transport services and are totally dependent on the use of their private cars for transport.
§ Mr. Rendel
I have already given way once, and that should be sufficient for the hon. Gentleman.
1082 Those who have lost their public transport services in rural areas will be those most hard hit by the increase in petrol tax. In the last general election campaign, the Liberal Democrats made it plain that we would introduce a scheme to help such people before any petrol increases were introduced by our Government. Such a promise was notably absent from the Chancellor's statement in spite of the fact that he must know, as we all do, how hard people in the rural communities will be hit.
Thirdly, the Budget introduced an indirect tax on insurance premiums. One would have thought that insurance premiums were close to the heart of the Conservative party. Have not the Tories said that people should stand on their own two feet and look after themselves? Surely one way in which members of the public can look after themselves and make sure that they do not rely on the state to finance them when disaster strikes is through insurance policies, but here are the Government discouraging people from insuring themselves.
Fourthly, there is the tax on air passengers, with all the disadvantages that that will bring to those who are trying to export and those who wish to travel abroad to get more sales for our goods in foreign parts. Again, one would have thought that the Government would do their best to encourage rather than discourage exporters.
It is important to add that, in the past, the Liberal Democrats have said—I come here to the intervention of the hon. Member for Gravesham (Mr. Arnold)—that we support a carbon tax. Recent figures on the European proposals for a carbon tax show that, as they now stand, they would cause a petrol tax increase of about 6p a gallon —a great deal less than the increase that the Conservatives introduced yesterday.
§ Mr. Rendel
I have already allowed the hon. Gentleman to intervene, and I have now answered his question.
Let me now deal with direct taxes. While the Conservatives have always claimed that the one thing they would not do was increase direct taxes, whatever happened to indirect taxes, that is what they have done. Not only did the last Budget effectively introduce a 1 per cent. increase in tax on everybody's wage packet through the increase in national insurance contributions—an increase that hits all except the super-rich who do not pay national insurance on the top slice of their earnings—but personal allowances have been frozen. In real terms, even if not in cash terms, that effectively means an increase in the income tax take.
There will also be the reductions in mortgage interest relief, which will take place both next April and the following April, and a similar decrease in the married couple's allowance and in all the allowances that go with that. Those will mean real cash losses for many families. All the direct tax increases—which the Government promised they would never introduce—will hit hardest, the public sector employees who have no extra money with which to pay them because of their zero increase in pay next year. Is the Conservative party a tax-cutting party, as it has suggested? Frankly, what hypocrisy. The Conservative party has raised tax more quickly than has ever been done before.
1083 For what are all the tax increases intended? First, of course, they are intended to reduce the Government's debt which has resulted from their gross mismanagement of the economy. We have heard a lot about the Government getting public sector finances right. Are the Government really going to pretend that they were aiming at sound public finances when they ran up a public sector debt of £50 billion? Again, what hypocrisy.
The Government, despite their tax-raising measures, are not investing in our future by investing in education. We heard nothing about investment in nursery schools, despite the fact that we have been told time and again that, for every £1 which is invested in nursery schools, the state will eventually reap £7 in terms of reductions in crime and social security pay-outs and the increased profitability of our economy. That £1 would release £7, yet we heard nothing about investment in nursery education in the Budget.
§ Mr. Iain Duncan Smith (Chingford)
The hon. Gentleman has made clear his opposition to the £50 billion deficit. Given that at the previous general election his party said that it would put one penny on income tax to pay for education—therefore, that must be taken out of the equation—will he tell the House exactly what other taxes he would levy to get rid of the deficit?
§ Mr. Rendel
My party said at the election and has said recently that we would raise income tax by one penny to make sure that the educational needs of the country were met. We have produced also a number of further proposals to put people back into employment. That is the most important way in which we can reduce the deficit in future, as I shall show later in my speech.
There are other areas of expenditure where the Government have failed to make the necessary investment. We are seriously under-investing in our infrastructure, our public transport, our roads and our housing.
It is also highly significant to examine the public sector net worth. Figures produced recently by Gavyn Davies, one of the Government's advisers, show that the public sector net worth increased year after year until the early 1980s. By that time, it had reached—depending on how one calculated the figures—between 70 per cent. and 100 per cent. of GDP. The net worth increased consistently under both the Conservatives and Labour until that time. Since then, it has fallen consistently, until it is now only 10 per cent. of GDP and is still falling. Indeed, in a few years the net worth is likely to become negative. In practice, we would then have a Government sector with a net worth of zero — effectively bankrupt.
A result of that can be seen in a survey by the World Economic Forum of 22 modern industrialised countries. Britain comes 22nd in infrastructure investment, 20th in quality of education, 21st in commitment to research and development, and 22nd in number of qualified engineers.
There was some good news in yesterday's Budget statement. I commend the Chancellor for his promise to study the matter of interest on late payments. That excellent idea was produced in the Liberal Democrat manifesto at the election and has, like so many of our good ideas, been pinched. Sometimes it takes the other two 1084 parties some time to pinch our best ideas. On this occasion, it has taken the Government two years even to get around to thinking about it.
It is a pity, perhaps, that the idea was not in the Government's manifesto at the election. Come to think of it, that might have been the kiss of death, as they have turned over most of the other things which were in their election manifesto.
I will now talk about housing. The Budget statement contained a cut in the housing budget of over £500 million, or about 10,000 new homes between the Housing Corporation and the local authorities. Of course, the construction industry has been particularly hard pressed during the recession. There are few better ways of bringing us out of recession and into recovery than by investing in housing to get the construction industry off its knees.
There is another important reason for investing in housing. The Conservatives claim to be the party of the family, in spite of the Chief Secretary's admission just now that he did not know what an average family was. Housing is one of the main causes of family break-ups. A lack of housing and poor housing are two of the main reasons why parents do not stay together.
I should like to tell the House about one family in my constituency, and perhaps theirs is the saddest case I have yet to come across. The family has six children. The parents and the youngest daughter were living in one of the three bedrooms. Four children lived in the second bedroom. I was told that the four children shared a couple of bunk beds. I assumed that there were two pairs of bunk beds, so each child could have one bed, but that was not so. When I went upstairs, I discovered that the four children shared one pair of bunk beds.
In a third room, another daughter who was married lived with her husband and their one son. Needless to say, the family was under considerable stress. I fought to get them rehoused, or at least the eldest daughter and her husband and child. Sadly, I was not successful and eventually the parents had to evict them. [HON. MEMBERS: "Was it a Liberal council?"] At that time, the Liberal Democrats were not in charge of Newbury district council. We have been since, perhaps as a result of the incident about which I am talking.
The young couple were evicted by the parents. The couple were, of course, temporarily housed as an emergency priority case by the council and they eventually moved into other accommodation. Sadly, that was not before the family had broken up. The husband could stand it no more, and moved out. The Conservatives call themselves the party of the family. Yet they refuse to put money into housing which is needed to make sure that such terrible cases of family break-up do not continue.
Local government is the other area for which I have special responsibility for my party. Standard spending assessments have increased this year by 2.3 per cent., a level far too low to allow local government policies to remain even at the levels they are at now. Services will have to be cut again next year. The services which will be cut will be especially those which councils are not statutorily required to provide, because it is those that the councils will find easiest to cut.
One of the services which I suspect will be cut first is crime prevention. That is not at present a statutory requirement, but it is a service on which the best local councils are trying to concentrate. That service will be almost certainly cut and, as a result, we can expect crime 1085 to increase. The Government have claimed that they want to do something about the rising crime rate. Why will they not give local government money to invest in crime prevention?
Another interesting point about local government which came out of the Budget is the question of capital receipts. For a long time we have known that local government capital receipts have not for the most part been fully used. Certainly many are in the hands of local government but cannot be used for further investment or revenue spending. What a contrast, then, between what local government is allowed to do with capital receipts and what the Government allow their Departments to do with them. Yesterday we heard that the Ministry of Defence will sell a lot of its housing. The money will go directly into reducing the amount of net revenue spending. That is not something that it will be allowed to do; it is something that it will be forced to do—in complete contrast to what happens in local authorities.
It is not just that there will be a huge hike in taxation; there are also huge cuts in spending. How will that help us to recover from the recession? What should the Chancellor have done? He should have cut unemployment, not unemployment pay. That, surely, is the main answer to his problems. Unemployment costs nearly £10,000 per head per year. Instead of cutting unemployment by means of the investment measures necessary, he attempted to balance his figures—just as, he told us, he did at the general election—by some fanciful forecasting, instead of getting the figures right, and by cutting other parts of the social fabric.
This country needs a Government who are prepared to invest in our future, our children's edcucation, in housing, infrastructure, public transport and all the other areas of Government spending where investment has been so low in the past. This Government have consistently disinvested. That is why the Chancellor's Budget is a failure and why the House should reject it.
§ Mr. Alan Howarth (Stratford-on-Avon)
My right hon. and learned Friend the Chancellor of the Exchequer has mapped out the path to restore balance to our public finances and, of course, he had to do so. Otherwise, our public indebtedness would have driven us back into high inflation and high interest rates, which would have meant a harsh future of worse unemployment and poverty.
My right hon. and learned Friend has sought to be fair in his tax increases. He has recognised that the strong should help the weak. Substantial tax increases are to be laid on the better-off. The thresholds for higher rate income tax, inheritance tax and capital gains tax have been held. The measures against avoidance, against people who get paid in gold bars or pretend that a sale is an exchange to avoid stamp duty, are right, particularly when the Government are also, rightly, tackling social security abuse. The insurance premium tax will fall progressively on the better-off.
Although the Government have had to announce spending cuts that we would not ideally have wished, notably in the housing programme, my right hon. and learned Friend has found substantial savings in planned expenditure while protecting the welfare state. He has been able to reduce the contingency reserve because of the fall in inflation, which means that a smaller cash sum is needed 1086 to purchase a given volume of activity and enables the cost of debt service to be reduced. These are rewards of the disciplined approach to economic management that the Government have pursued and that the shadow Chancellor of the Exchequer and, these days, even the Tribune Group know to be necessary.
I am pleased that my right hon. and learned Friend ignored some of the more draconian counsel offered to him. He has not cut spending programmes massively. He has increased taxes, but he has also somewhat eased monetary policy, and he is strongly placed to ease it further if growth should falter. I hope that he will be disposed to do so. He has stressed his commitment to growth. That is the only way to restore balance without pushing us back into recession and all the social damage that goes with it.
Above all, we need to generate jobs, more jobs and better jobs. My right hon. and learned Friend's macro-economic strategy is well designed to enable that. There is also a series of micro-economic measures which will support job creation.
My right hon. and learned Friend stressed the crucial role of small businesses in generating new jobs. I welcome his raising of the profits limit for small businesses paying corporation tax, his significant increase in the turnover threshold for VAT registration, his measures to encourage venture capital, and his help for small businesses on late payments.
I also welcome the reduction in national insurance contributions for employers in respect of lower-paid employees. Although our objective should be not low pay but high pay well earned, above all, it is important to help people to get jobs. The human as well as the economic waste of unemployment is a basic challenge to our society and to the Government.
My right hon. Friends are right to be troubled by the size of the social security budget, not because we should not support people in poverty as generously as we can, but because high spending on social security is an indicator of systemic failure.
A large proportion of social security expenditure derives from unemployment. A decent society and a properly functioning economy aim to involve everyone —all our people—and not to leave some of our people isolated on the margins of society, eking out a meager existence on benefits. Moreover, the more we spend on the relief of poverty, the less we have available to spend on other decencies and necessities—better health care and better education.
I am pleased, therefore, that my right hon. Friends are seeking to tackle the roots of the problem of high social security spending by setting out to remove the obstacles to employment. I am very pleased that my right hon. and learned Friend the Chancellor yesterday declared unequivocally his commitment to the welfare state and reassured us that the Government do not intend to dismantle it.
He has found extra resources for training and education. I welcome the new apprenticeship scheme and the Government's commitment to extending opportunities in further education. The French, too, have responded to economic difficulties by increasing their investment in education. If we are to be competitive, we can do no less.
I particularly welcome the disregard for child care costs of up to £40 a week that is being introduced into family credit, disability working allowance, housing benefit and council tax benefit. The Government have already made 1087 significant advances in reducing the poverty and unemployment traps. We need to go considerably further still.
However, for many people the costs of child care have been the final and decisive obstacle to getting into paid employment, thereby achieving the release that they want from dependence on benefits. My right hon. Friends have done the right thing here, and I am glad that they dismissed, as of course they must, the harsh fantasies with which some toyed, about cutting benefit for children of lone parents.
With this measure of support for child care costs, my right hon. and learned Friend has shown that he is willing to spend more money in the short term to recoup public expenditure in the medium and long term. He is fully justified in that approach. There is no reason to think that the markets will not tolerate borrowing to finance public expenditure, which is part of a convincing programme of investment.
I welcome the new presentation of figures in the Red Book, which separates borrowing for purposes of current expenditure and borrowing for investment. The figures presented as borrowing for investment represent sums intended to be spent on physical capital investment.
For me, the most interesting section of the Red Book is contained in paragraphs 5A.15 to 5A.19 on page 111. In paragraph 5A.15 it is acknowledged thatsome spending that is conventionally considered as current, such as that on education and training, research and development, or health care, can be considered to produce a stream of future benefits in much the same way as purchase of physical assets.Very fairly, the Red Book continues in paragraph 5A.17:assessing the investment element of such spending raises some extremely difficult measurement questions.However, the conclusion which so much encourages me is in paragraph 5A.18, which states:it is important to bear in mind that future productive capacity in the economy is supported and developed by spending that is not covered by the normal capital spending definitions.
My right hon. and learned Friend is right to pursue with determination a policy which eliminates borrowing for current expenditure, which is just that, particularly if it is wasteful expenditure. He should also be prepared, however, to increase investment in human capital. As rapidly as, in his judgment, the understanding and tolerance of the markets will allow, he should invest not only in child care, but in high-quality play facilities and well-trained play workers.
Recent terrible events have underlined the horrors of what children's play can mean in circumstances of trauma and neglect. Conversely, good play facilities and guidance offer enormous benefits to early learning and to the development of personality. I hope that the Government and local authorities will provide more support for such provision, particularly in areas of social deprivation.
We should also invest on a larger scale in nursery education. I was encouraged to gather that my right hon. Friend the Prime Minister personally attaches importance to that. We should invest more fully in the whole of our education system, building on the progress that we have made. In particular, we need a proper system of support for part-time students. The Government are right also to maintain their support for civil science and technology.
My right hon. and learned Friend the Chancellor should maintain a sizeable programme of investment in so-called 1088 human capital. The Government are justified in borrowing to invest in that programme, in the same way as a private enterprise borrows to strengthen the capacity of its work force and its ability to create wealth. Investors will support investment of that type in the public sector in the same way as they support private sector investment.
I do not like the term "human capital", any more than I like the term "consumer". Those economist's metaphors suggest a limited view of humanity. I prefer to think in terms of us acting together to support our fellow human beings to develop their strengths and to enable them to contribute more to our society.
In that spirit, I hope that my right hon. Friends, as they consider the future of the welfare state, will not feel constrained, either by economic imperatives or by their social vision, to place further emphasis on means testing. In a year in which employees' national insurance contributions are to rise, I am sony that contributory benefits will be cut with the proposed introduction of the job seeker's allowance and incapacity benefit.
I hope that my right hon. Friends will proceed cautiously and sensitively on the issue of invalidity benefit. I know that they have commissioned research into the operation of invalidity benefit, and I believe that they have yet to receive its findings. Therefore, I am not clear on what basis my right hon. Friends contend with confidence that significant sums are being paid in invalidity benefit to people who are not genuine invalids. In eight out of 10 claims referred to the Benefits Agency medical service, I understand that the general practitioner's decision to certify eligibility has been upheld.
The Department of Social Security commissioned research by Erens and Ghate, which makes it clear that the reason for the growth in the numbers of invalidity benefit claimants is not that more people are coming on to the benefit, and it finds no evidence of extensive abuse. It shows that it is difficult for people to get off invalidity benefit.
The rational policy response is then to help employers to keep chronically sick and disabled people in work, and to encourage employers, particularly previous employers, who are the most likely to do so, to recruit them back to work. I fear, however, that the measures on statutory sick pay and the previously announced requirement that employers should pay 50 per cent. of the cost of specialist equipment for disabled people, will tend in the opposite direction.
I fear that they will frustrate the Government's intention to reduce their spending on invalidity benefit and incapacity benefit. Will the Government also consider carefully the case for legislation to outlaw discrimination against disabled people in employment?
Against the background of plans to reduce expenditure on invalidity benefit, I am glad that my right hon. Friends have considered other ways to help disabled people into work. They have removed disincentives—the loss of free prescriptions and help with dental care—which have prevented take-up of disability working allowance. They have also applied the child care disregard to disability working allowance recipients. That is good.
At no extra cost, the Government could also allow social services departments to make direct cash payments to severely disabled people instead of providing help in services. In that way, disabled people, through their added inde pendence, would have a better chance of entering employment.
1089 I urge my right hon. Friends to reconsider the virtues of universal benefits as against targeting. The arguments have been rehearsed many times. Means-tested benefits are complex for recipients and administrators; they create unemployment and poverty traps; their take-up is poor; and they fail to provide security. The uncertainty that attends them means that they discourage efforts at self-help. Unhappily, a stigma goes with them. With little constituency of support among the better-off for improving means-tested benefits, those benefits are less than generous.
By contrast, universal benefits are secure. They provide incentives to work, since there is no penalty of withdrawal. They are easy and cheap to administer, and take-up is high. Contrary to what is often said, they are also targeted, as they effectively redistribute income from better-off taxpayers to people on middling and low incomes, and redistribute income over the life cycle to help people in times of greater need. Some 75 per cent. of expenditure on child benefit goes to families on incomes of less than —200 per week. Most importantly, universal benefits give all of us a stake in a shared system.
For the same reason, we should not erode the contributory system, which is the most effective way to commit us all to support each other through decent benefits.
The welfare state is affordable. As Mr. John Hills recently explained in "The Future of Welfare":even if benefit levels kept up with overall living standards, the total net effects on public finances over the next fifty years would add up to an addition of about 5 per cent. of GDP—no more than the increase (mainly due to the recession) over the past three years.We cannot, indeed, afford not to sustain and strengthen the bonds of our society.
I do not, of course, argue that everything must be provided directly by public expenditure. I do not argue at all against reform of the welfare state. I congratulate my right hon. Friend the Secretary of State for Social Security on his willingness to promote a rational debate on the future of the welfare state. I agree with him that welfare provision should not be monopolised by the state, and that we should think, as Beveridge did, in terms of a welfare society. We should promote the generous virtues, not only through the agency of the state.
I welcome the sensible and overdue decision to encourage the participation of private capital in public works—not only roads, but hospitals and schools. I want the Government to develop this philosophy of mutual support and cohesion.
Their vision of the role of the voluntary sector remains to be developed. I welcome the new provision that a person on incapacity benefit will be able to do 16 hours of voluntary work without losing the benefit. Could the Government bring that provision forward ahead of 1995? Are the Government applying a similar concession in relation to unemployment benefit and the job seeker's allowance?
I was sorry, however, that my right hon. and learned Friend the Chancellor did not have something to say in his Budget speech about the role of the voluntary sector. While I appreciate that this is not an easy time for the Government to provide more fiscal relief for the voluntary and charitable sector, if the Government want that sector to work in partnership with statutory services—sharing responsibility for programmes in the public interest—they 1090 must develop a clear and consistent set of principles for enlisting it. They must not load an extra tax burden on that sector, as both this year's Budgets have done.
I offer these thoughts in a constructive spirit, which I hope matches the generosity of spirit of my right hon. and learned Friend the Chancellor. He balances intolerance of what he characteristically calls "nonsense" with a recognition that the Government exist to help us all achieve the good purposes that we cannot achieve either individually or in private groups.
Wealth does not simply trickle down: we have learnt that, I take it. The rebalancing of our public finances should also be the rebalancing of our society, between public and private, and between rich and poor. To balance competition with mutuality, discipline with compassion, and the individual with society, is the true Tory tradition.
§ Mr. John Hutton (Barrow and Furness)
It is a pleasure to follow the hon. Member for Stratford-on-Avon (Mr. Howarth), who made a sensitive and—I do not want to embarrass him—thoughtful speech. I was sorry to hear that he intends to support his right hon. and learned Friend the Chancellor of the Exchequer in the Division Lobby. I was unable to detect much by way of support from the hon. Gentleman for the proposals from the Government Front-Bench team. Of course, that is a matter for the hon. Gentleman. He made some thoughtful and enlightened comments, especially about the need for public sector welfare provision.
I shall not pursue the hon. Gentleman's line in support of the Budget, because I and my hon. Friends intend to oppose it. It does not provide a strategy for future economic growth; the Budget is about paying for previous Government mistakes.
Some aspects of the Budget can be given a modest welcome. For example, the efforts to close tax loopholes are welcome, although the Government could have gone significantly further. We also welcome the increase in tobacco duty, but the Government's credentials on health issues would have been substantially advanced if they had also proposed a ban on tobacco advertising.
The new child care allowances are a welcome step, and I was intrigued to hear that the Government are to introduce proposals to boost investment in the west coast main line. That issue directly concerns everyone in the north-west, and we look forward to hearing from the Secretary of State for Transport about a specific timetable for that investment. We have heard many promises and we have pressed the Government on previously publicised private-public sector investment programmes, but we are still waiting for progress on many of them.
The Government's overall strategy is fundamentally flawed, and the Budget strategy reflects that fact. I doubt whether it could be said that the Budget has any overall strategy, other than short-term and immediate political imperatives. The proposal about compensation for VAT on fuel bills has caused considerable concern. Careful news management has created the impression of great generosity towards pensioners and those on benefit, but it is undeniable that the measures still will not cover the full increase in electricity and gas bills. People should be aware of that reality.
The hon. Member for Stratford-on-Avon said that: the imposition of a tax on insurance premiums was 1091 progressive. It is regressive, and will have a bad impact on families and householders on fixed incomes. It will be a serious penalty on families who have the misfortune to live in high-crime areas, and particularly in inner cities.
It could be described as a tax on the victims of crime, because people who live in high-crime areas constantly worry about their insurance on home contents. As people who live in inner cities will testify, through no fault of theirs, the cost of that insurance is extremely high, and a tax on the premiums is a tax on the innocent victims of crime. That is extraordinary when viewed against the background of the Government's much-trumpeted policy on tackling law and order and, in particular, the Home Secretary's claim to put the victims of crime at the centre of that policy.
The Opposition have welcomed a limited number of measures in the Budget, but, as I have said, the Budget is not a comprehensive strategy for growth, investment and jobs. The limited measures that we have welcomed are helpful but, sadly, they lack any overall shape or strategy. The Government do not have a policy to boost investment in the public and private sectors, and it is not clear which part of the Budget will stimulate economic growth. Such growth seems merely to be assumed rather than underpinned by any specific, concrete measures.
According to estimates from the National Institute for Economic and Social Research, capital spending by the public sector has slumped from over 9 per cent. of GDP in 1975 to an unbelievable 1.5 per cent. in each of the past two years. Nothing in the Budget addresses that fundamental decline in investment.
The Chancellor said much about the merits of public and private sector collaboration. That is a welcome development: we have been pressing for such schemes for many years. However, we need to recognise the valuable contribution that the public sector can make in that field. Sadly, the Government are intent on pursuing their familiar prejudices against all things public.
Business investment is also in a bad way. There should be further capital allowances to bring forward new private sector investment decisions. The Budget should have built on and advanced some of the measures in the previous Budget. The Engineering Employers Federation called for that. I noted the comments of Graham McKenzie, the president of the federation, who said today that he regretted that the Government had wasted an opportunity to improve on the measures in the last Finance Act.
The proposed new measures to help businesses are strictly limited. The proposed enterprise investment scheme and the venture capital trusts will have to be carefully monitored if they are not to become devices for tax evasion. The budgets for key Departments such as Trade and Industry and Employment, contain further evidence of the Budget's contradictions.
According to the Red Book and the other literature that accompanied the Budget, the budget for the Department of Employment is to rise by £145 million next year, and £117 million of that is accounted for by transferring the careers service to the Department. On my figures, that means an increase for the Department of only £28 million, which represents a real-terms cut in the Department's budget for the next financial year of 3 per cent.
1092 How will the new and much-heralded apprenticeship training scheme be financed from that dwindling budget? Have consultations started on implementing it, when will it start, and what will the trainees be paid?
I have a particular interest in that issue because of the collapse of apprentice training in my constituency. The VSEL shipyard used to employ 400 16-year-old apprentice trainees every year to learn vital engineering skills. The shipyard has not done that for nearly three years, and that is a ruinous waste of skills and talent. I hope to have some assurance from the Government that they will start to replace those lost skills. I hope that the Government's proposal is not another bogus trailing of a scheme that will fail to materialise.
If I am right, and the Department of Employment's budget is to fall by 3 per cent. next year while at the same time we are promised 30,000 additional engineering apprentices, where is the money to come from? The scheme needs to be properly supported, and there is no evidence whatever in the Government's documentation that proper financing will be provided.
Many hon. Members have expressed concern about the attack on social provision that is at the heart of the Budget. The hon. Member for Stratford-on-Avon reflected some of the concern among Conservative Members. Some of the Budget measures will have an extremely serious effect on the social fabric of our society.
The hon. Member for Stratford-on-Avon spoke about the reduction in the value of unemployment benefit. People have been paying into a national insurance scheme for many years, and their contributions are soon to rise. It is extraordinary that those people have now been told by a Government who have always prided themselves on their handling of public sector finances, that because they are in such a hole, the pay-out from the scheme is to be halved. That is a betrayal; there is no other word for it.
I understand that nearly £1 billion will be cut from the grant to the Housing Corporation over the next three years. That is bound to have a dramatic impact on the provision of social housing, and it is an appalling and cynical measure. If the Government are able to maintain the delivery of social housing to the extent that they have promised, that cut in grant is at least bound to affect rents, and that is greatly to be regretted.
The taxing of invalidity benefit is incomprehensible. It is an unfair extension of the tax base, and I agree with the hon. Member for Stratford-on-Avon that the Government have not made any credible case for saying that there is irregularity or fraud at the heart of the scheme. That case has never been made.
For years and years, GPs have been applying the regulations that the Government have laid out for access to the invalidity benefit scheme. There is no suggestion, I hope, that local doctors and consultants are somehow conniving in a conspiracy to defraud the taxpayer, which is what, ultimately, the Chancellor of the Exchequer implied yesterday. There is nothing irregular about access to the invalidity benefit scheme; in fact, many of us would argue that the eligibility criteria are far too strict.
The increase of the state retirement age for women to 65 is another significant and serious issue. It is estimated that that will save the Exchequer nearly £5 billion. Perhaps it should have been a priority for the Government to use that £5 billion to improve the range of pension benefits that are 1093 available to our senior citizens, and not to regard the harmonisation of the pension age as an excuse to cut public spending.
An opportunity was wasted on increasing the state retirement age. It would have been far preferable to discuss a more flexible approach to retirement, which would have reduced the age at which there was access to the state pension to 60. It is a mistake, and it will be shown to be so in the years to come.
It has been said—the hon. Member for Newbury (Mr. Rendel) drew attention to it, rightly in my opinion—that the Budget conceals a significant cut in grants of nearly £1 billion to local authorities, which will clearly have an impact on a range of important social services, including education, housing and social services. That is another matter of serious concern, and it should be to Conservative Members.
Today, the Association of Metropolitan Authorities, the Association of District Councils and the Association of County Councils have all predicted serious consequences of that cut in support to local authorities. I shall return to that subject when I discuss the new child care allowance, because it will have an impact on that provision as well.
The Budget also proposes further changes to the student loans scheme. That is a sneaky way for the Government to raise extra financial resources. That too will hang, around the necks of Treasury Ministers in the run-up to the next general election.
I wonder how we can take seriously the Chancellor's assertion that he will not dismantle the welfare state against the background of evidence such as that. Why does he allow the Chief Secretary to continue his tirade against public welfare provision, unless he shares the same basic agenda and is quite prepared for someone else to make the running? There is a particular risk that those wider cuts will also negate the effects of other measures in the Budget.
I now return briefly to the subject of the proposed child care allowance. There must be a worry, because nursery education is a non-statutory provision, that it will bear the brunt of any reduction in local authority spending. There can be little doubt about that. There is no doubt, at the same time, that nursery education, properly planned and properly delivered, can form a coherent part of an overall strategy for child care provision. If there is, as a result of those cuts in local authority grant aid, a reduction in the availability of nursery places in our communities, what then are we supposed to make of that £28-a-week allowance for child care?
I wonder whether anyone has properly advised the Chancellor about the true cost of child care for many families. Of course £28 a week is better than no provision at all, but it will not meet the realistic cost of child care provision for many working parents. If we add that to the possibility of a decline in the number of nursery places, we get a better flavour of the Government's commitment in that area.
In essence, it is once again the sick and those who are£ out of work and on benefit who will ultimately pay the price for the Government's economic mismanagement. Some things never change.
There must also be concern throughout the country—because of the enormous tax hike that those two budgets represent when they are added together—about the combined effect of the last two Budgets on consumer confidence. We are told that, during the next three years, 1094 £23 billion will be taken out of circulation. That is an enormous tax hike£the biggest in British fiscal history. No one can predict its effect on consumer confidence.
My hon. Friend the Member for Dunfermline, East (Mr. Brown) has already starkly drawn attention to the details of those figures. A typical family will be £16 a week worse off as a result. That is bound to have an effect on consumer confidence and consumer spending. If we are talking about growth in the economy, it is difficult to see where else that growth is likely to come from in future.
It certainly will not come from public spending on vital new capital investment projects, because we are witnessing an overall reduction in public spending. That economic growth is not likely to come from an export-led regeneration of British manufacturing, given the problems of the wider European economy. The Government are proposing, therefore, effectively to take £23 billion-worth of consumer spending out of the economy. I would like to hear some assessment from Treasury Ministers of the impact on consumer confidence of such a measure.
While we are discussing export-led growth, it has struck me, and, I am sure, many of my hon. and right hon. Friends on the Opposition Benches, that, throughout the Chancellor's lengthy Budget speech, we did not hear a reference to the trade deficit. We did not hear anything from the Chancellor of the Exchequer about the appalling imbalance of trade that has grown up, not just between Britain and the European Community but between Britain and the rest of the world.
Those are serious economic issues, and the problem with the Budget is that, instead of the serious analysis of them which we were led to believe that the Government would give us, we have had a ritual chanting of mantras that ultimately mean nothing. When we consider the evidence—the experience of 14 years of Conservative government—we are entitled to say that those mantras mean nothing.
Now I shall mention one aspect of the Government's public expenditure round which has not been mentioned so far in the debate—the reduction in defence spending. Once again, I have to say that that issue is of direct relevance to my constituents. In Barrow-in-Furness we have the highest dependency on defence-related contracting of any travel-to-work area in the United Kingdom.
The announcement of a further £800 million-worth of defence cuts was received, and is being received, by my constituents very badly. We have already suffered a loss of 8,000 jobs in the shipyard in less than three years. That is an unsustainable loss of skills and jobs—and employment opportunities—for any single community to expect to deal with on its own. There is no end in sight to that.
We need some information—and we need it quickly —from the Secretary of State about what the Government are now planning in terms of future procurement decisions. I fully support the idea, and the proposal, that the Government should conduct a review of the country's defence policies. That is long overdue.
I am also interested to hear the Secretary of State say, as I understand that he did to the Defence Select Committee today, that the bulk of that £800 million can be saved by means of efficiency measures. If that is the case, why were not those defence cuts proposed before? Are the Government simply saying that they have been overspending in terms of the running costs of that Department to the tune of £800 million? What a scandalous waste of taxpayers' money that would be.
1095 I think that the reality is that there will be significant procurement cuts, especially in the budgets of the armed services. I very much hope that that is not the case, and I hope espėcially that the Government will announce that they still intend to procure replacements for HMS Fearless and HMS Intrepid in the very near future. We need those ships, not just to maintain the ability to deploy the armed forces safely and securely around the world, but to secure vital employment in the shipbuilding industry.
When all the hype and froth is stripped away, the Budget will be seen for what it is—a giant confidence trick. We are all being asked to pay more for less. The fundamental weaknesses of the British economy have not been tackled by this, or any other Tory Budget for the past 14 years. The sick and the unemployed are being hit once more.
Perhaps the right hon. Member for Shropshire, North (Mr. Biffen) had it about right when he commented in the Evening Standard today:It could be cheers today, but tears tomorrowfor the Tories. I agree with that assessment.
§ Mr. Richard Spring (Bury St. Edmunds)
I listened with interest to the speech of the hon. Member for Barrow and Furness (Mr. Hutton). He talked about the need to stimulate growth, but the fact is that growth is in revival in the country, and it is in revival because we have a combination of low corporation tax, low inflation and low interest rates. That sets our record apart from those of the other countries of Europe, and the economy is certainly in revival.
I also listened with interest to the speech of the hon. Member for Newbury (Mr. Rendel). Coming from the county of Suffolk, which is now experiencing a combination of the Liberals and Labour in government at a county level, I can see the wish list of goodies very much in evidence.
§ Mr. Spring
I see that my hon. Friend agrees with me.
Sometimes, those who are practitioners of economics or politics can lose sight of what economic policy is all about. It is, of course, to provide a framework in which sustained economic growth can lead to decent living standards and secure employment prospects for our people.
As always, every Budget is a balancing act, but this historic Budget has succeeded very well in bringing together all the disparate elements which make up a coherent budgetary package. The result yesterday, for the whole House to see, was the floundering performance of the Leader of the Opposition. I have to say that the hon. Member for Dunfermline, East (Mr. Brown) did not even reach the beach.
The hon. Member for Dagenham (Mr. Gould) summed up the predicament of both the Leader of the Opposition and the Labour party in a press release some months ago:We have nothing to say across the whole range of macro-economic policy, on exchange rates, on interest rates, fiscal policy, demand management and public spending".As one looks back at the long history of the House, there can be no time in history when the Government have been 1096 faced with an Opposition more ineffective and economically illiterate. Yesterday and today, they had nothing to say. They know it, and we know it too.
During the summer, I visited Japan and Taiwan with the Employment Select Committee. Japan may have its difficulties, but Taiwan regards itself as in recession with a growth rate of some 6 per cent. Our much-improved export performance is due to the substantial increase in exports to the Pacific rim countries. All that is good for jobs and economic growth.
We have been the major beneficiary of Japanese and other foreign investments in Europe. The effect has been profound. Rover now outsells Mercedes Benz in Europe; Toyota is moving its local content in the United Kingdom from 60 to 80 per cent.; the productivity of the work force in Britain is identical to that of Japan; the days of Friday afternoon cars and Monday morning cars are clearly in the past.
When we visited the Ex-Im bank in Tokyo, which monitors investment flows, it was disappointing to hear that investments from Japan into Europe are very small compared with those to other parts of the globe. Why is that so? Time and again, we heard about the adverse cost structures in Europe and of employment costs that are simply pricing Europe's goods and services out of the world's markets.
There is no point in talking about education, NHS, transport or defence spending if we cannot produce what the world wants. The consequence is that Europe is paying a bitter price. There are 17 million people unemployed in the European Union, potentially rising further in the years to come.
In that gloomy European picture, Britain stands out, with falling unemployment, low inflation and low interest rates. Each and every other EU country has a minimum wage policy— either statutory or collective—and it is no coincidence that, where there is a statutory wage provision in the larger EU countries, there is chronic unemployment, among young people in particular. In France, it is 23 per cent. and rising; in Spain, it is 33 per cent. and also rising. The inflexibility of their labour markets has caused real economic destruction and personal misery.
Britain, like other industrialised countries, has to grapple with a sizeable budget deficit. I am glad that my right hon. and learned Friend has not shied away from it, and I applaud him for tackling it with his characteristic panache. I believe that the unified Budget will be seen to be as important as the Budget of 1979[...] which brought down confiscatory taxation and abolished foreign exchange controls; and the tough 1981 Budget, which set the scene for a sustained period of economic growth unparalleled since the war.
One reason why the Budget is so important is that it addresses important aspects of welfare spending. It is not a party political issue—nor, indeed, is it confined only to this country. Some 25 million Britons out of 55 million are in receipt of benefit. In each of my surgeries, I try to help people, often with limited resources, because, all too frequently, the system benefits those who do not need it.
The Budget is especially important because it has put down markers for dealing with these problems, while retaining the essential integrity of the welfare state. My right hon. Friend the Secretary of State for Social Security took the matter up so well this afternoon.
I was in my twenties in 1976, when the country went bankrupt. I remember feeling anger that I was going to be 1097 bequeathed a country which had become a byword for industrial anarchy, and the laughing stock of the world. Today, I have children of my own. It would be fundamentally wrong to bequeath them an economy laden down with a debt which would be difficult for them to service and pay off, and we should never be forgiven if we did not rise to the challenge.
The key element of the Budget is the disappearance of the budget deficit by the end of the decade. It is the most critical component of macro-economic policy.
During the boom years of the late 1980s, the vast majority of new jobs came from small businesses. It is important to remember that 96 per cent. of our enterprises in Britain employ 20 people or fewer. I therefore greatly welcome my right hon. and learned Friend's measures to help small businesses.
In rural communities such as my constituency, dozens of businesses exist which are the lifeblood of the west Suffolk economy. Many have been hard hit during the recession, but there are now clear signs of recovery. My right hon. and learned Friend's announcements will be a considerable boost to them. Only yesterday, I was talking to a number of my constituents involved in small businesses, and how pleased they were that they would now no longer have to register for VAT due to the increase in the threshold.
Businesses in that category will no longer suffer the costs and irritation of a statutory audit. Many of my constituents will benefit from a welcome measure for which the Small Business Bureau has been campaigning for many years. We should look carefully at what the attempts will be to cut red tape and help small business.
The audit requirement for small businesses has been significantly relaxed. The requirement will be abolished for most companies with a turnover of below £90,000. For companies with a turnover of between that figure and £350,000, the audit will be replaced with a simplified process which will help some 500,000 businesses, all potentially involved in job creation.
I greatly welcome the immediate lifting of the VAT registration threshold to £45,000. Some 70,000 traders will be able to opt out of VAT—greatly to their benefit. The Budget is of great help to the small business community and therefore to job creation.
There are many reasons why we seem since the war to have been bedevilled by a rollercoaster ride of interest rates. One has been the distortions flowing from our national propensity to put money into bricks and mortar rather than other economic activities. The restriction in mortgage tax relief is welcome, and I personaly hope that, over a period, my right hon. and learned Friend will consider phasing out altogether that distorting relief.
In particular, I applaud my right hon. and learned Friend for initiating the new enterprise investment scheme and a new venture capital trust, and I am personally gratified that any investments potentially will not be property-related. In looking at measures for enterprise, and therefore job creation, the enterprise investment scheme will provide income tax for individual investors of 20 per cent. on up to £100,000 of qualifying investment per year.
Companies will be able to raise up to £1 million per year under the scheme. That is greatly to the advantage of entrepreneurial activity in our country.
The new venture capital trusts will pool savings for investment. That means that investors will receive dividends and capital gains free of tax. That is a useful way 1098 of spreading risk and encouraging entrepreneurial revival and activity, and therefore further job creation. In that context, I greatly welcome my right hon. and learned Friend's efforts to reduce red tape and bureaucracy.
As our public finances get into better balance, I hope that my right hon. and learned Friend will begin to re-examine certain income tax cuts. I hope that in due course he will take more people out of taxation altogether and continue to broaden the 20p tax band. We have seen the fruits of low corporation and income taxes being good for growth and inward investment. However, too many people in Britain are still paying tax too soon—there are too many people in the grey area that overlaps with welfare payments. I urge my right hon. and learned Friend never to lose sight of the benefits of a 20p basic tax rate.
I am glad that my right hon. Friend the Paymaster General is on the Front Bench this evening. In the drama of a Budget, the avalanche of figures and their enormity, the impact of it on distinct groups can be overlooked. Ten days ago, my right hon. Friend the Secretary of State for Employment visited my constituency, notably Newmarket, the racing capital of the world.
The racing industry generates considerable employment in my constituency. The industry had been in catastrophic decline. However, as a result of the spring Budget, the number of owners coming back to the industry has started substantially to increase, and the number of horses in training has increased as well.
There has been a quantum leap in confidence in Newmarket in the western part of my constituency. We are now seeking to upgrade the quality of training for young people in the industry. With the benefit of hindsight, nine months on I express the gratitude of my constituents to my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) and my right hon. Friend the Paymaster General for effecting those changes, which have dramatically changed the fortunes of many of my constituents.
Yesterday's Budget will put the seal on the recovery that is now in place—a recovery that will ensure in due course that we will win the next general election. The winter of recession is now over—or, to use an expression that I learned at an early age:If winter comes, can spring be far behind?
§ Mrs. Audrey Wise (Preston)
I want to consider the interaction between health and the Budget. In particular, I want to look at the direct damage that is caused to people's health by the Government's deliberate actions. Earlier the Secretary of State for Social Security bewailed the doubling of the number of people on sickness benefit and invalidity benefit since 1979. He said that that had happened although "the nation is getting healthier". Clearly he accuses a large number of people of malingering.
The Secretary of State's answer is to look for devices to disallow benefits and claims. Not only does he think that people are malingering—apparently he thinks that doctors are conniving at it. On the contrary, the number of people on sickness benefit reflects a real increase in illness. The nation cannot be said to be getting healthier when the number of people claiming sickness benefit has doubled in 14 years. Certainly the nation is getting more polarised so that the rich and the fortunate become even more rich and fortunate, and the poor get poorer.
1099 Fourteen years of Tory government are making people sick in the literal as well as the metaphorical sense. But what if the Secretary of State were right? Why does he not ask himself why 14 years of Tory government should produce a nation of malingerers? Surely there is something wrong with that as well. Why were people not so sick or so given to malingering in 1979 as they are after 14 years of Tory government? Could it possibly have something to do with bad housing, a lack of jobs, insecurity and casualisation of work, more money worries and more stress, and a culture of cruelty deliberately induced by the Government which encourages the weak and the vulnerable to be pushed to one side and enshrines greed and selfishness? Could that have produced the situation that the Secretary of State bewails?
Government supporters sometimes say that the national health service is a sort of bottomless bucket which will require limitless resources. That will be true if we continue to have a Government who damage people's health with their savage social policies. Bad housing is a major cause of bad health, especially respiratory diseases which are increasing, stress-related illnesses and mental breakdowns. In Preston, I see many children suffering directly from inadequate housing. I see many babies and toddlers who never seem to have been properly well.
What is the Chancellor's response to the housing crisis? He has looked at housing as an area in which to make what he calls savings. He has even cut the resources that go to his chosen instrument, the housing associations. Housing associations were supposed to be able to provide social housing so much better than local authorities. The Chancellor cut local authority housing, and he has now cut resources for housing associations. He says that that will produce savings. However, it is the most crass and cruel false economy. The cut in housing finance epitomises the Budget. We will need to continue spending more on picking up the casualties which the Government have created.
What are the Government doing to the national health service? With a twin-track strategy, they are creating a situation in which there is no boundary between the public health sector and the private health sector. We have gone far beyond the simple contracting out of health jobs. Public money is being used to buy treatment in private hospitals, and people are driven to private insurance to get treatment in public hospitals. In both those cases, public health suffers, and public facilities are abused by the process. I regard it as contrary to the philosophy of the national health service.
On the one hand, the Government are making people more ill by making their social conditions worse and, on the other hand, they are making it harder for people to get the treatment that they need when inevitably they become casualties. When the Government look at the number of people who are claiming benefits and the doctors who are signing the sick claims, they say, "There are too many of them." They ask not how they will correct the situation, but how they will push people to one side. What new scrap heap will be created for those people to inhabit?
The Budget, for which we are all supposed to be so grateful, is a disgrace. In 1993, it is a disgrace that the biggest boast of the Government who have been in power for 14 years is that they have not increased taxes on food 1100 or children's clothes. Their claim to fame is that we were all trembling that they might tax books, clothes or food. We are supposed to be overcome with gratitude that those things have not happened and that families' conditions will not be worsened in that way. I noticed today that one tabloid even spoke of "Santa Clarke". Santa Claus's mantle sits ill on the figure of the Chancellor of the Exchequer.
§ Mrs. Wise
Yes, he has the girth, but no other attribute.
It is a redefinition of "gratitude" to suggest that we. should be grateful for the Budget. I am amazed that pensioners are supposed to be overcome with glee that they will be given back half the loaf that is being stolen from them through the imposition of VAT on fuel. People will not be overcome with glee. They can recognise when they are being robbed, even if the thief gives back to them some of the proceeds. Their gratitude will be distinctly limited.
Although I despair of the problems that the Budget will continue to cause people, the only silver lining or hope that I can derive from it is that it will further expose the hollowness of the Government's claim to have a right to govern the country.
§ Mrs. Angela Knight (Erewash)
The hon. Member for Preston (Mrs. Wise) obviously feels strongly about her constituency. She advocated spending but did not say how she would raise the money. I disagreed strongly with her remarks about the health service, which is doing an excellent job. Her description sounded like the decay that existed in the 1970s rather than the vibrant country that we have now.
I welcome the Budget. It is tough but fair and it shows a genuine commitment to the welfare state. I listened with interest to the wholly negative speech of the hon. Member for Dunfermline, East (Mr. Brown). Opposition Members are evidently not prepared to take tough decisions. The sum total of their policies can be described as a decision to defer a decision, in a Micawber-like hope that something will turn up, and a policy to hunt for the phantom loophole. It would be pleasant if difficult choices never had to be made. It would be pleasant if the sun shone all day and it rained at night. But that is the stuff that fairy tales are made of, and this is reality.
My right hon. Friend the Chief Secretary reminded the House that sound finance was the Budget's underlying theme, and the continuing recovery is already helping to reduce the deficit. But I welcome his decision to tackle expenditure and the deficit so positively. If left unchecked, they would result in an increasing debt burden in future years for the next generation to pay. I believe in passing on to the next generation not liabilities but sound finances and a strong economy.
The hon. Member for Barrow and Furness (Mr. Hutton) said that the combination of this Budget and the last one was detrimental and would affect confidence. I remind him that the United Kingdom is the only European country with falling unemployment and rising output. We are moving steadily out of recession, unlike our European partners. A recent survey of 1,000 companies in the east midlands, published at the beginning of this month, showed that more 1101 than two thirds were expecting sales to increase, and strong signs were reported of improving trends in employment, profitability and confidence.
In the past few days I received a letter from the managing director of a company, Guy Birkin, in my constituency, which is the oldest registered lace company in the world. He wrote:During the last five years the company has more than doubled in size; a strong sales drive into Europe has been highly successful … A major investment programme has been undertaken with over £20m spent on the latest technology … The push forward by the company has been supported by a very flexible and enthusiastic staff … All this has led to international recognition of the company, increased employment, improved opportunities and working conditions for our employees, a good return for our investors, and increased business for the companies who supply us with goods and services.That is one of many examples of a highly competitive British company that is succeeding in world markets. It is prospering because of low interest rates, low inflation and the economic conditions in this country.
The Budget will be judged not just by the specific measures that it contains, or by the instant comment that has resulted, but by the contribution that it makes to keeping the economy moving out of recession, reducing unemployment, which is still too high, and reducing the deficit.
The Budget is a strategy for long-term growth and it helps business, jobs and recovery in a number of ways that are widely supported by the business community. In my constituency of Erewash, nearly 45 per cent. of the work force is employed in industry, which outstrips the average for the country, the east midlands and the county of Derbyshire. The measures relating to industry are therefore particularly relevant to my constituency. After all, it is industry which creates wealth and jobs. Big companies are the engine of the economy and small companies are the spark plugs. Some 35 per cent. of all jobs are in small companies, and growth in employment com[...]s from them.
The past two Budgets have held the increase in business rates to the rate of inflation, which has been widely supported by business in my constituency. This year, the maximum increase in business rates will be halved and my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) referred to some of the benefits of that. Coupled with that are the changes to corporation tax. These measures will assist successful companies that are contributing to the growth of the economy.
The reduction in audit requirements has been mentioned. Small companies have wanted such a measure for some time. Audit requirements have often been out of proportion with the size and profit of the business and there is a heart-felt welcome for this deregulation.
Raising the VAT threshold benefits sole traders in particular and will drop many out of the VAT requirement altogether. But late payment of debt is a significant problem that adversely affects small companies and I have had most complaints about this problem. It has often been highlighted in the House and, in his speech yesterday, my right hon. and learned Friend the Chancellor proposed two options: either a payment performance standard or a statutory right of interest. I urge the latter course, with responsibility to a high level in the company, and continuing measures to strengthen the small claims court.
Finance for small companies is yet another continuing problem. Although I appreciate that the banks have been looking more favourably at ways of financing small 1102 businesses, based on their prospects and business plans rather than simply on the amount of collateral that the owner can put up, it is still common for a small company to operate with its cash flow financed by an overdraft and its expansion by a second mortgage on the home. That is not a long-term way for small businesses to operate.
I therefore welcome the venture capital trust and the enterprise investment scheme proposals. I trust that attention will be paid to detail, to ensure that small businesses, which often seek modest loans, are helped by these two proposals.
Assistance to business and the need for good infrastructure go hand in hand. The public-private sector partnership that the Treasury is promoting will bring forward schemes that otherwise might not have been introduced so quickly. It was extraordinary that Opposition Members appeared to shrug off the proposals when the Chief Secretary mentioned them today.
Many of my hon. Friends were delighted yesterday at the announcement of the improvement to the west coast line and I look forward to the day when my right hon. and learned Friend can announce a partnership that will bring about the electrification of the midland main line, which is another important railway link that connects the manufacturing heartlands of Leicester, Nottingham, Derby and Sheffield. Like other hon. Members, I have a further list of projects which I look forward to seeing come to fruition as a consequence of that partnership.
Let me turn to some of the other issues in the Budget and to the concerns that have been expressed about the continuing rise in the social security budget and the need to control it. Currently that budget is spending £13 per person for every working day, which is an extraordinary amount.
There is clearly a pressing requirement to prevent fraud and to spend where spending is necessary, but not indiscriminately. Realistic changes have to be made to ensure that we have a system that is affordable, that helps people to find work, and that properly helps people in need.
I join with my hon. Friends in welcoming the measures to assist those on low incomes and pensions in paying the increases in their bills when VAT is added to domestic heating. I am surprised that those proposals have not been welcomed by the Opposition.
A few days ago the Opposition's social security spokesman said that the Government must add some something to pensions to take account of VAT, and that they should add an extra 50p to pensions. Not only have the Government proposed an extra 50p; they have proposed more for future years. It is an excellent measure.
The hon. Member for Newbury (Mr. Rendel) poured scorn on the proposal to put VAT on fuel and power, but the Liberal Democrats' document entitled "Costing the Earth", advocated as a first priority the imposition of a tax on energy. It continued:for example, by ending the anomalous zero rate of VAT on fuel.It is strange that the hon. Member for Newbury did not comment on that tonight.
The Government believe in helping those on low incomes and pensioners. I welcome their proposals.
The addition to social security will be of considerable assistance. Gas and electricity prices have been falling—down by 3.5 per cent. in the east midlands this year—and that will also have an important impact.
1103 I expect that the granny bond will have a widespread appeal. I also welcome the extension of the home energy efficiency scheme, particularly to pensioners. It is a low profile scheme, somewhat unsung, bat it gives grants to insulate homes, which results in lower fuel bills. This Friday, I am helping to publicise the scheme by helping a pensioner in my constituency who has received a grant and is insulating the property accordingly.
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. I am getting a little tired of seated interventions. The rule of the House is quite clear: if Members wish to intervene, they must seek to do so. Muttered commentaries are not acceptable.
§ Mrs. Knight
Yesterday my right hon. and learned Friend the Chancellor of the Exchequer ann0ounced that the pension age for men and women will be equalised at 65 by the year 2020, but that it would affect only women under the age of 44. Further details were given by my right ho[...]n. Friend the Secretary of State for Social Security this afternoon. I must declare an interest in this matter because I am not yet 44. I suspect that I am one of an exceedingly small minority of hon. Members who will be affected by this measure.
The demographic changes in the country are well known, and by the year 2020 there will be many more people than now who are over retirement age, and far fewer of employment age. If no change is made, the financial burden on those in work would substantially increase. Just as I believe that it is not right to pass on a deficit to the next generation, so it is not right to pass on a heavy financial burden to my children.
The measure will have a long phasing-in period—and rightly so—and changes are proposed to the state pension scheme which will particularly help women. I hope that further attention will be paid to occupational pensions, particularly for women, who go in and out of work more regularly than men as a consequence of their family commitments. Occupational pensions provide not only additional financial security but give individuals a flexible choice of when to retire.
The announcement on the retirement age reflects the changes in our society. More women now choose to work, and with the encouragement given by the child care proposal in the Budget, even more women will come into the work force.
The Budget has put the Government's finances on a sound footing and clearly helps both businesses and jobs. It decisively tackles head on the difficult economic problems that must be solved in order to ensure a long-lasting recovery.
§ Mrs. Helen Jackson (Sheffield, Hillsborough)
As the Chancellor was making his speech yesterday, I was looking for two things in the Budget. First, I was looking for a commitment to help the major manufacturing plants in my constituency to maintain employment in the steel industry. Secondly, I was looking to see exactly how the Government were going to translate their oft-quoted phrase "traditional family values" into the preparation and presentation of their Budget.
1104 I came straight to the debate from a meeting with the Sheffield branch of the Engineering Employers Federation, where, as a South Yorkshire Member of Parliament, I heard a very worrying description from the major employers in our region about the extreme fragility of the recovery in their economic fortunes, if any.
When I talk about the steel industry, I am not talking about a frothy, "easy come, easy go" manufacturing sector, but about a core industry of special steel manufacture. The representatives were complaining about their competitiveness with other European steel industries. They said that they were at a disadvantage—that there was an uneven playing field—because they had evidence that other European Governments were giving their steel industries incentives and assistance in the form of help for capital investment, for environmental issues, for training, for easy finance and for land deals.
It is more sensible for us to say to our Government, "It is not fair that you are not helping our basic industry to compete in a very competitive world," than to say to a European Community country, "It is not fair that you are helping your basic industries to compete."
One issue that members of that federation feared, when the Chancellor presented his Budget, was that they would have to carry extra costs such as sick pay. So I was very disappointed that sick pay was included as an extra cost for these core industries. That is not to say that the federation does not welcome many of the incentives and issues that the Budget gives for small business investment and expansion, but we cannot use that expansion to invest in a basic steel industry, as that does not come within the scope of a small business. Some 75 per cent. of the Sheffield engineering employers would be outwith that kind of help.
While I fully support many of the proposals to assist small businesses, I have a nagging worry, which the Government should address urgently. They make great play of having closed a couple of tax avoidance loopholes, but I fear that in doing so they may have opened the door to 22 more. I believe that they have done that in a range of ways, when relaxing requirements for accounting and auditing procedures in smaller unquoted companies.
I was particularly interested to learn how the Government intended to translate their oft-quoted insistence on traditional family values into the Budget. Over the past few weeks, I have observed an underlying assumption every time that phrase has been used—the assumption that such values include a substantial amount of unpaid work on the part of women at home. When the phrase "traditional family values" is linked with the phrase "back to basics", there is a specific reference to the role of women 40 years ago.
The hon. Member for Erewash (Mrs. Knight) mentioned one obvious implication of the Budget in that regard: the equalisation of pension ages at 65. It should be admitted that the £5 billion that that will save is £5 billion taken out of women's benefit. That will not be very popular among women of 40, 44 or, indeed, any other age, who will lose their entitlement to many other benefits at the age of 60, as well as their pensions.
I should have preferred the Government to make really significant strides by extending equalisation of pension entitlement to part-timers and short-term contract workers. That is crucial to giving women real equality with men when they reach retirement age. At present, female pensioners are substantially less well-off than men in terms of income.
1105 I welcome the Government's admission in the Budget that it is very difficult for a single parent to become involved in the job market without easier access to child care. The provision of a child care allowance for single parents was certainly a start. However, another oft-quoted phrase was fundamental to traditional family values in the context of the Budget—the Government's frequently stated intention of moving from a system in which income is taxed to one in which spending is taxed.
I believe that the real burden of the Budget will be experienced sharply at the household spending level. Who takes the responsibility for such spending? The figures are interesting. In households in which the men work, who does the household shopping? Four per cent. of men do it; in 42 per cent., it is done mainly by the women. In households in which women are not in paid work, the shopping is done by 57 per cent. of women and only 5 per cent. of men. In households as a whole, only 8 per cent. of the men do most of the household shopping, which is done by 45 per cent. of the women.
The role of women, however, is not simply to go out with the shopping basket. Who organises the household money and bills? That is a more significant question. Again, it is mainly women who take on the responsibility: in 45 per cent. of households, they are chiefly responsible for such organisation. The effects of the Budget will be felt most markedly in that regard. The imposition of VAT on heating bills, for instance, will affect a central aspect of household budgeting.
Although welcome help has been given to households receiving income support, the Government should not imagine that that will be sufficient, given that the imposition of an 8 per cent. and then a 15 per cent. levy on heating—a crucial household commodity—will be felt next year and the year after. They will have to think again, as the spending power of households is increasingly eaten away.
Insurance of homes and household goods represents another crucial spending element, especially—as has been pointed out—during the current period of rising crime. The cut in Housing Corporation grant will result not only in fewer houses being built for rent, but, inevitably, in substantial rent increases, which will have a major effect on household bills. Those moves follow other increases —for instance, the 26 per cent. increase in water costs over and above inflation since privatisation in 1985, and the extra cost of car licences and insurance.
Yesterday, the Chancellor said:people should be allowed to keep as much of their own money as possible."—[Official Report, 30 November 1993; Vol. 233, c. 936.].That, it seems, is the reason for shifting the burden of taxation from income to spending. I do not believe that households with tight budgets will have the freedom to spend their own money in the way they want; the basic household bills will have removed all their spending power.
In the past few weeks, we have heard a good deal about another element of "traditional family values"; the importance of the head of the family in spending terms —usually the woman—in taking in single parents or students back home. Increasingly, they are young people studying at university, who have been caught by the massive cuts imposed on students in yesterday's Budget. 1106 The cuts in maintenance grants may not affect the numbers, but they will certainly change the type of student who can enter higher education.
There has been a shift in class structure among university students. It is very difficult for young people —and even more difficult for mature students—to go into higher education at a time when grants are being cut, and local authorities are being squeezed so that discretionary grants are almost a thing of the past.
In describing the reason for the cuts in student grants, the Chancellor of the Exchequer said yesterday:Why should the bus driver …pay higher taxes to finance all the living costs of tomorrow's lawyers?"—[Official Report, 30 November 1993; Vol. 233, c. 929.]Why should not today's lawyers, and for that matter, today's trust managers and quango directors, pay through income tax to finance, help and invest in the skills of tomorrow's generation?
As well as the extra burdens on the household budget, we heard in the Secretary of State for Social Security's statement that the shift is not merely from taxing income to taxing spending. It was a remarkable effort in combining hefty increases in tax and spending with hefty increases in taxing income.
There is no doubt that taking £10 billion out of total public spending over the next three years will have a disastrous effect on many areas of our quality of life. The opening remarks of the Secretary of State, in which he placed great emphasis on targeting welfare benefits, were interesting. He mentioned that hon. Members such as himself would be concerned withthose for whom the welfare state was designedI am not as young as the hon. Member for Erewash, but I have always believed that the welfare state was designed for every one of us who may want to use the library or who may want to send our children to state school, who may want to use the state health service, or who is concerned about the cleanliness of the environment.
As soon as the welfare state becomes something that is available to that mythical "those", who are not all of us, it will decline in quality and will not operate in the best interests of all the British people. That is a central element of the irresponsibility with which the Government approach the whole issue of public finance for the future welfare of us all.
The Budget did nothing for jobs and manufacturing in my constituency, and it points to the worrying way in which the Government intends to serve the British people, in whose interests they were supposed to design the Budget.
§ Mr. Bernard Jenkin (Colchester, North)
I feel sorry that the hon. Member for Sheffield, Hillsborough (Mrs. Jackson) does not feel that the Budget will do anything to improve manufacturing in her constituency. I may follow up those comments later.
The hon. Lady also mentioned family values. Anybody who starts to talk about family values should be heard because we need more of a consensus in the House about what family values should be and how we should sustain them. But it is a little churlish to lead family values against VAT on fuel after the announcement of such an incredibly generous package of measures that is certain to protect poor families, not only because of the special measures that 1107 will be announced, but because all possible commodity price rises are already reflected in the retail prices index. That index affects the annual uprating of all social benefits.
The hon. Lady also mentioned the impact on higher education of reducing student grants and converting them to loans. There is no evidence whatever that since the Government have introduced loans, people have been discouraged from entering higher education. On the contrary, we are ahead of the Government's target of getting more people into higher education. We hope to get one in three into higher education by the end of the century and we shall easily beat that target.
Speaking as an hon. Member who represents a university constituency, I realise that our system requires more generous provision for student maintenance, whether through parents, state grants or loans. It is more expensive for the average British student to attend university because the average student lives away from home. That is not the norm in most other European countries and often not the norm in the United States, but the introduction of loans has not discouraged people from taking on the liability of higher education because they know that it will improve their earning power in the long term.
I declare an interest in the debate as an adviser to the Legal and General Group plc and congratulate my right hon. and learned Friend on the presentation of the Budget. I choose to call it the hush puppy Budget—not that the hush puppies and the softness of their step should deceive us of the weight and stature of the man that fills the shoes, or conceal the heaviness of the task that he has borne or the toughness of the decisions that he has had to make. I wish to comment on two general areas: the steps that the Government appear to be taking towards a comprehensive reform of our welfare system and the lessons that we can draw from the extraordinarily successful anti-inflation policy pursued by the Government that has created excellent prospects for the United Kingdom economy.
There are several aspects of the Budget that I have always considered most important for Britain's economic health. I am delighted with my right hon. and learned Friend's plans to eliminate the PSBR by the end of the decade. That is the dividing line between the Conservative party and the Opposition parties. There has been absolutely no evidence in any of the debates from either the Opposition Front Benches or Back Benches that there is any strategy whatever to deal with the deficit.
It is no good merely throwing around false charges about election pledges. I am perfectly happy to stand by any pledges that I made about the Conservative party being a party of low taxation. Compared with any of the Opposition parties, that is certain. It is rich of those on the Opposition Front Bench to pretend that somehow they will not raise taxes as high as the Conservative party.
Even better in the short term is the Government's plan to end borrowing for current spending, which is wholly unproductive and merely robbing tomorrow to pay for today.
Contrary to the out-dated fears of the few remaining monetarist commentators, those steps will provide a powerful boost to the economy that will increase employment and create wealth. From the rises in the gilt market and the stock market we have already seen that the financial markets have every confidence in that statement. 1108 The Government have successfully demonstrated their determination to manage their finances prudently and live within their means.
We should pay tribute to the tough decisions made in the March Budget because they laid the foundations for yesterday's announcements and my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) should not be forgotten or dismissed for his role. However, the March Budget left a question mark over the determination to deal with the deficit—one with which I am sure that my right hon. Friend the Member for Kingston upon Thames would have dealt.
The figures were serious. I refer briefly to a written answer given by the former Chancellor to a question tabled by my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling) in which the projected out turn of the national debt as a proportion of gross domestic product was described. The answer said:This ratio fell from 49½ per cent. at the end of 1978–79"—when we were first elected—to 27¼ per cent. at end 1990–91, but has since risen to an estimated 33½ per cent. at end 1992–93. The PSBR projections in table 1 of 'The Budget in Brief' imply a ratio of 49¾ per cent. at end 1997–98."—[Official Report, 29 March 1993; Vol. 222, c. 17.]That was an indebtedness in excess of what we had inherited from the last Labour Government. It was clearly unacceptable. That Budget was clearly an interim arrangement, pending strengthening economic performance, before my right hon. and learned Friend the new Chancellor had a chance to put his stamp on the proceedings.
We now have a much improved scenario. The consequence of mounting up less debt is much less debt interest. It is a virtuous circle. The less debt, the less debt interest and the lower the public sector borrowing that ensues the following year. So we have reduced debt interest by a billion and more in all the forward years.
Conservative Governments are nothing if they cannot live within their means. Amid all the manifesto pledges that we made at the last general election, one of the most pre-eminent surely was and remains that we should see the budget return towards balance as the economy recovererd. I am extremely pleased to see that the manifesto pledge will be fulfilled. No matter how many manifestos the Labour party signs up to, it is business that creates wealth while Governments' efforts to redistribute wealth tend to undermine the wealth-creating process.
I welcome the tight cap kept on public spending. My right hon. and learned Friend is to modest when he talks ofa real terms freeze in the new control total over the next two years".—[Official Report, 30 November 1993; Vol. 233, c. 924.]By insisting that next year's reserve should not be sprinkled around the various Departments, the Government have ensured that the control total for 1994–95 represents a real terms reduction against the expected outturn for the current year. Over the summer, while Parliament was in recess, a few of us put ourselves into the line of fire by insisting that that would be possible. We gained much criticism from the "Today" programme and the Labour party and all the other people who said that it would not be possible. I am extremely pleased that it has been possible without inflicting great pain on our public services.
Simply because we are in a less inflationary environment, it is easier to manage the public finances, and 1109 it is right that the Government should seek to take advantage of lower than expected inflation by lessening the burden of public expenditure. The control totals in the March Budget were already tight, but the futher reductions are entirely reasonable, given that inflation and public sector wage costs have turned out lower than expected.
The Government still take too great a share of national income. Those countries in which public spending is a lower proportion of national income are best placed for economic recovery. We ought to take more active steps to reduce our public spending. The public sector pay freeze is a good start. I welcome the comments made by my right hon. Friend the Chief Secretary today about the administrative cash limits that have been put on Government Departments.
There are plenty of instances in the folklore of Whitehall and Westminster of vast waste and extraordinary Byzantine practices around the corridors of power. One special adviser—a little while ago, I have to say—working in the Department that one would imagine would be the most cost-conscious of all Departments, the Treasury, told me that, if he was preparing a document, it first had to be sent down to the typing pool. If it was sent back, he could make up to seven corrections on his computer on his desk. If it needed more than seven corrections, he was required by civil service rules to send it back to the typing pool to have the corrections made.
I know a similar story from the Department of the Environment. A trainee was sent off to do some jobs which included some photocopying. She asked where the photocopier was. The reply came, "Oh no, you don't do the photocopying. That goes down to the fourth floor. Len does the photocopying." She asked when she would get her work back. She was told that Len was on holiday and would not be back for two days. I can give chapter and verse on a personal basis, but perhaps I should do so off the record. I am sure that the competitive testing programme is designed to take heed of such practices.
Perhaps some of the best news in the Budget is what did not happen. Income tax rates did not rise. While we see the benefits to the Conservative party of a 20 per cent. basic rate of income tax—increased incentives to work hard and encouragement for those with the lowest earnings—we are right to increase national insurance contributions to fund the deficiency grant of the national insurance fund.
Another move that was clearly needed was the first step towards abolishing the remnants of mortgage interest tax relief. That will remove a distortion in the economy, which was ably described by my hon. Friend the Member for Bury St. Edmunds (Mr. Spring), and help prevent another property-based boom like the one in the late 1980s. People will be less encouraged to invest in non-wealth-creating residential property and more encouraged to invest in productive assets.
Furthermore, by effectively raising the cost of money to domestic borrowers, we make it easier for reductions in the base rate to take place, which benefits industry as a whole. We must still encourage home ownership and make it easier for young couples to buy their first home by means of first-time reliefs. But we do not need to subsidise the rest of the economy. With interest rates at a 16-year low, the typical mortgage payer is some £170 better off already. Now is clearly the time to start the long-needed abolition.
As secretary of the Conservative Back-Bench smaller businesses committee, I welcome the measures to help 1110 small businesses. Along with the forthcoming deregulation, simplifying the paperwork that the Government require is a great step forward. Not only will taxation forms be simplified, but some 45,000 businesses will be freed from VAT. Many more will no longer be subject to audits. All those measures will allow small and medium-sized businesses to get on with making money rather than enriching accountants.
I particularly welcome the ideas to tackle late payment of small company debts. We look forward to the development of those ideas. Also welcome are the measures to encourage investment in small businesses. The new enterprise investment scheme and venture capital trusts will bring in capital. Allowing angels to take paid directorships will bring in valuable expertise.
While the changes to capital gains tax are welcome, I believe that the Government are missing a trick here. We successfully raise far more revenue from top-rate taxpayers by abolishing special reliefs and cutting the rate from the previously punitive levels. Yet we have set CGT at a relatively punitive level. We find ourselves compelled to introduce an ever-evolving set of special reliefs to ameliorate its damaging effects. There is a better way.
If the Laffer curve, as it has become known, applies to income tax rates, why does it not apply to capital gains tax rates? Two interesting papers have been produced on capital gains tax, which I recommend to interested Members. One is by the Centre for Policy Studies and the other by the Adam Smith Institute. I shall precis the latter document.
The United Kingdom rate of capital gains tax is 40 per cent., although it is adjusted for indexation. It is among the highest in the world. It is far beyond the point of maximum revenue yield. Several academic studies in the United States provide empirical support for the argument that the present 28 per cent. rate of capital gains tax is above the maximum revenue rate. Estimates of the latter vary from 9 to 21 per cent., with 15 per cent. the mid-point of the range.
There is no reason to believe that the revenue maximising rate of capital gains tax is higher in the United Kingdom than in the United States. There is good reason to believe that it may even be lower. The revenue maximising rate of capital gains tax is not necessarily the optimum rate, in that the maximum revenue-raising rate would be damaging to the infrastructure of the economy.
The taxpayer loses from the current system of capital gains tax. The available evidence suggests that the revenue maximising rate of CGT in the United Kingdom is possibly about 15 per cent. Further benefits could be realised if the tax rate were reduced below 10 per cent., and ultimately to zero, as in many other countries, such as Hong Kong.
In the current period of fiscal stringency, I do not recommend abolition, but a substantial cut in the current 40 per cent. rate would release assets, currently imprisoned by the 40 per cent. rate, for more productive uses, there would be a substantial increase in capital gains tax revenue for the Treasury to go towards reducing the PSBR further, and it would substantially improve general business incentives without resorting to the expensive profession-subsidising mechanisms that have been announced in the Budget, welcome as they are.
I particularly welcome the measures to protect those on low incomes from the imposition of VAT on domestic fuel. The Conservative party has made clear its commitment to preserve a functioning welfare state and to helping those in 1111 need, which the package does. It will benefit 15 million people—one fourth of the population—and we are starting the relief measures before the taxes kick in.
One measure of particular merit is the pensioners income bond, which will provide a guaranteed monthly income, alowing those on fixed incomes to plan their budgets more easily—those reliant on their savings.
I shall now deal with social security. As well as the comprehensive VAT compensation package, there are other items such as the reform of invalidity benefit—the introduction of incapacity benefit, changes to statutory sickness pay, the reform of unemployment benefit, the introduction of the job seeker's allowance and equalisation of the state pension age.
All those measures are part of a clear programme that the Government are developing to improve work incentives and reduce reliance on the state. I shall talk in detail about the job seeker's allowance, which is intended to be, and will be, a single, simple and comprehensive benefit for unemployed people. It will require that the recipient completes a job seeker's agreement, which will set about the conditions to be fulfilled to receive benefits. People who do not look for work will be penalised. That is better than workfare, because it encourages people to find a productive job rather than be stucck in a non-productive job.
There is a strong case for change. At the moment, there are two benefits: unemployment benefit and income support. They do not fit will together and there are inconsistencies between them. The two benefits have different rules, offices and systems. It is too easy for people who are not genuinely looking for work to claim for an indefinite period.
Under the current system, there is no effective penalty for people on unemployment benefit who fail to participate in training schemes. Under the job seeker's allowance, income support will remain unchanged for pensioners, carers and their families. Benefit will be paid weekly with two possible routes of entry: the contributory route or the means-tested route. The new benefit simplifies procedure and will reduce fraud by targeting the help on those who are genuinely seeking a job. The vast majority of my constituents will be delighted that there will be less shirking under the arrangement.
I mentioned that that is part of an ongoing plan for reform. I would point out that two of the proposals that appeared yesterday in the Budget: equalisation of the state pension aged at 65 and the reform of unemployment benefit, are broadly explored in a pamphlet that a group of us published over the summer.
I do not take any personal credit for the proposals that were introduced. If the Labour party is honest, it knows that its so-called social justice commission is forced very much to the same conclusions and to explore the same arguments. It is difficult. Anybody studying the problems that we face on the ever-growing burden of social security, is forced to the same conclusions that we have been forced to draw.
§ Mr. Barry Legg (Milton Keynes, South-West)
My hon. Friend does not do himself justice when he refers to the publication that he has before him. Out of the measures that are advocated in it, four were introduced: the equalisation of the retirement age; reforms to the earnings 1112 related element of invalidity benefit; the fact that the new benefit that will be introduced in respect of invalidity benefit; and also the new job seeker's scheme, which will be available for six months.
My hon. Friend should also note the support that the Prime Minister gave to another—
§ Mr. Deputy Speaker
Order. The hon. Gentleman is, I believe, seeking to catch my eye, but he seems to be making a speech rather than a short intervention.
§ Mr. Jenkin
I am grateful to my hon. Friend for his intervention, as he makes a valuable point about the influence that we may have had, but I do not claim to have been that influence. Those are natural conclusions to be drawn from the arguments once one explores them.
Another point that I wish to emphasise to the Opposition is one made by Beveridge in his original report. We quote it in our document. He said:The danger of providing benefits, which are both adequate in amount and indefinite in duration … [is] …that men as creatures who adapt to circumstances may settle down to them.That is something to which the welfare state that we have inherited today does not pay sufficient heed. No doubt Labour's Social Justice Commission will have to grapple with that as well.
I shall now move to the second area that I wish to cover to say a few words about our economic prospects with particular regard to the Government's outstanding inflation record. The anti-inflation policies have been remarkably successful in view of the shocks and dislocation to public policy just a short time ago, particularly after the devaluation of sterling, which many commentators—the Treasury, the CBI and the Bank of England—said would lead to higher inflation than has been produced. Last March the Red Book showed a reduction in the forecast that was previously forecast. This week's Red Book shows a further reduction.
Since the pound left the exchange rate mechanism, we have proved; first, that we can have lower interest rates than the Germans—we are not necessarily inexorably tied to them; secondly, that a substantial depreciation in the rate of sterling does not necessarily lead to uncontrollable inflationary pressures; thirdly, that the exchange rate is far more useful as an indicator than as a target. I am pleased to say that the Red Book uses the exchange rate as an indicator and not as a target.
The success of our policy since we left the ERM and the prospects outlined in the Red Book—startlingly high growth prospects rising to a steady 3 per cent. annual growth in GDP—represent the coming of a new golden era, perhaps a second "golden age" for the Conservatives. I shall draw attention to one or two ratios and indicators, which are woefully ignored by hon. Members on the Opposition Front Bench.
Central Government fixed investment is far higher now and will remain far higher than ever it was in the 1970s. Let us look at unit labour costs and manufacturing. Unit labour costs have fallen recently, making us more competitive. All the indications on cost competitiveness show that we are gaining competitiveness at the current time, which leads me finally to a brief comment about monetary policy.
We have succeeded in re-establishing a more orthodox monetarist policy that enables such success to take place. Some commentators have been consistently monetarist and I shall draw the attention of the House to one in particular. Tim Congdon wrote on 26 September 1985: 1113It would be particularly foolish to reject the PSBR and sterling M3 because the figures have generated problems of interpretation. Sterling M3 cannot be 'meaningless'. It consists of bank deposits and notes and coin, and no one in his right mind can believe that their holdings of these assets do not affect the behaviour of individuals, companies and financial institutions.On 17 October 1985, he wrote in The Times an article that described how sterling M3 growth accelerated rapidly in the preceding six months. In The Times of 22 November 1985, he was warning that the EMS was no easy option. By 27 June 1987, he was writing in The Spectator:Much has gone wrong with the management of the British economy in the last two years. The growth of credit and money is too high, the economy is expanding too quickly and interest rates are too low to prevent the return of inflationary pressures.If only the Conservatives then had heeded those warnings, we might not have had such a serious recession to contend with, and certainly not such serious inflation.
What is perhaps more interesting is what Professor Congdon is saying now. He was reported in The Daily Telegraph on Friday 26 November as saying:We'll be clearly into a proper recovery next year, and we can then look forward to several years of above-trend growth without inflation. There is a real possibility that the underlying growth rate has improved.In his November review, he recommended:There is no doubt that public sector borrowing is unsustainably high and that measures must be taken to reduce it … large and early tax increases to reduce the PSBR, accompanied by an offsetting relaxation in monetary policyThat was his prescription. That is what the Government duly delivered. What did he say about yesterday's Budget? I shall quote from The Daily Telegraph today, in which he said:The two budgets of 1993 may well be seen by future economic historians as paving the way for the better phase of Mr. Major's government in much the same way that the 1981 Budget laid the foundations for the good years of the Thatcher administration.We may see a second golden era.
I shall end with a question. If we can achieve the Maastricht convergence criteria as set out in the Maastricht treaty—the Red Book shows that we shall probably achieve them—one wonders why we need to think about re-entering the exchange rate mechanism. What do we need a fixed exchange rate for if we can manage all that with a floating exchange rate? If we can achieve the economic convergence criteria—they are laudable criteria intrinsically, although there is no target for overall public expenditure, and include low inflation, low interest rates and high levels of investment—with a floating currency, why do we need a single currency? I shall leave that one hanging in the air.
§ Mrs. Anne Campbell (Cambridge)
As I have listened to the speeches of the past couple of days I have attempted to work out what the Budget is aimed at doing for the Conservative party. Much has been said about reducing public sector debt and something has been said, although not something explicit, about preventing the recovery from faltering, as it seems to be doing in many parts of the economy. I have concluded that the overriding aim behind the Budget is to keep Tory Back Benchers happy, and in that the Chancellor seems to have succeeded.
I should have liked to see a Budget that got people back to work, that boosted investment in industry and that built up Britain's manufacturing base, which has been sadly depleted over the past 14 years of Conservative rule. I should have liked to see a Budget that produced a fairer 1114 society. I sometimes wonder what sort of society will emerge in the long term if Conservative policies continue. I have a little news for the hon. Member for Colchester, North (Mr. Jenkin). He seems to think that the Conservative party is a tax-cutting party but, under the Conservative Government, taxes will have increased from 34.75 per cent. of GDP in 1979 to 35.25 per cent. in 1994. The Government have also increased the percentage of the average family budget taken by taxes.
More serious than that, over the past 14 years society has become sharply divided. Today, the bottom one tenth is 14 per cent. worse off in real terms and the top one tenth is 62 per cent. better off in real terms. We can see the effects of that throughout our society. People are homeless and unemployed and pensioners and students live in poverty. There are great inequalities. The bottom one tenth of the population is paying 43 per cent. of its income in taxes while the top one tenth is paying 32 per cent. of its income in taxes.
The March Budget will make that division in society worse. The micro simulation unit of Cambridge university has estimated that the March Budget will hit the poorest one tenth by a further 3 per cent. while taking only 1.5 per cent. from the richest one tenth. More people at the top end will do extremely well for themselves and benefit from the Chancellor's largesse, while at the bottom end more and more people live in dire poverty. I do not want to live in such a divided society.
Yesterday, the Chancellor announced a package of help towards paying for VAT on fuel—a package obviously intended to keep Tory Back Benchers quiet—that will cost £1.25 billion, while the imposition of VAT on fuel will raise only £2.3 billion. Does the Chancellor really think that it is worth it, in view of the political backlash? I am glad that pensioners will have some protection, although I do not believe that the package will fully compensate the worse-off for the imposition of VAT on fuel. We have heard today that young families on income support will get 45p a week to cover an average £1.20 of extra cost. That will result in great hardship.
One group of people on extremely low incomes will get no help on the imposition of VAT on fuel. Students will not benefit one iota from the package of help.
§ Mr. Michael Fabricant (Mid-Staffordshire)
I have been listening with great interest to the hon. Lady. Does she not think that the 18 per cent. fall in the cost of fuel, primarily as a result of privatisation—that figure goes back to 1983, and the midlands has seen a cut of 5 per cent. in a year—will benefit students as well as older people?
§ Mrs. Campbell
I am sorry to say that it will not benefit students. Over the past 14 years, the spending power of students' grants has been reduced by 120 per cent. of today's spending power. We have to balance any fall in costs against increases in other living expenses and the general reduction in grants. Students often live in private sector rented accommodation that is badly insulated, with draughty windows and insufficient heating systems. Often, they are in no position to do anything about that. The coins in the meter by which they keep warm will be consumed at an unsustainable rate, throwing more students into debt and poverty.
Students are already badly hit by the fall in the value of the student grant, and an increasing reliance on loans means that students are leaving university many thousands 1115 of pounds in debt. That will increase sharply over the next three years. I know that it will be viewed with alarm by those students starting their courses this year, and I declare an interest in that I have a son who has started a degree at Imperial college, here in London. Because London living costs are higher than costs in the rest of the country, students in London on a full grant will receive £2,845.
That is due to fall to £2,067 by 1996–97. That is a reduction of £778 during the next three years, and the Government are expecting students to borrow £778 to make up the shortfall. I hope that the Government have appreciated that that is not a one-for-one exchange. Those students whose parents will be able to make a full contribution—they include my son—will be able to borrow £778, as will those students who receive their grant from the state.
As many more students will take out the full loan than students who will draw a full grant, expenditure will increase. I will benefit from that, if I choose to reduce my son's grant to the same extent that the Government are reducing the grant to students who depend on grants. That is not a fair way of financing students and, although I shall benefit from it, I shall vote against the measure if I get the opportunity to do so in Committee.
Students will also suffer under the Budget from the increase in the council tax. Government Members will say that students do not pay the council tax, but that is not exactly true. I have received a letter from a constituent of mine, Mark Goodrich, who is the welfare officer of the Cambridge university students union. He points out that, in a household consisting of five students, no council tax is payable; similarly, in a house where five people are unemployed, no council tax has to be paid.
However, let us consider a household in which there are four students and one unemployed person. That household becomes eligible for the single adult rebate, so that 75 per cent. of the council tax is payable. The unemployed person, it is true, can claim back 20 per cent. of his share of the bill. That is one fifth of 75 per cent. which, I can tell Government Members, is 15 per cent. of the full council tax bill. That still leaves 60 per cent. of the bill to be paid by the four students.
It seems desperately unfair that households consisting of either all students or all unemployed people pay nothing, while those live in mixed households pay a high proportion of the bill. I am sure that the Government did not expect that to happen, and although it does not affect many people, it hits some people hard. Some of my constituents who are mature students and who live with non-students —their partners—are badly hit by that anomaly.
I have mentioned that matter twice before in the House, and both times I received the brush-off from Ministers. I hope that, on this occasion, I will get a more sensible answer, because this issue makes a great difference to the students who are affected by it. One way in which Ministers could remove the anomaly would be to make students eligible for council tax benefits. The issue affects very few students, but that measure would wipe out the serious problem cases.
I wish to talk briefly about women. The equalisation of the state pension age will lead to a deterioration in benefits for women aged under 44. Those women have been led to expect that they would receive those benefits from the 1116 state. All hon. Members are aware that the equalisation at 65 has happened because of the £5 billion savings which it will create in the national insurance fund. It is a further reduction in benefits for women, in addition to those which have been already announced.
I remind the House that the pension was based originally on 25 per cent. of a person's earnings over the 20 best years of a career. It has been now reduced to 20 per cent. of earnings based on average earnings over an entire career. Periods of low pay are taken into account along with periods of high pay, and that will drag down the value of the pension. That will affect women primarily since, because of family commitments, they spend significant periods in low-paid, part-time employment. Women who have been penalised already by changes in the rules are to be further penalised by having to work until the age of 65 before they draw their pension.
All hon. Members will welcome the £28 a week which has been made available as a concession for child care expenses. I should like to draw the attention of hon. Members to the case of one of my constituents, who wrote to the Prime Minister. As is normally the case, the Prime Minister sent the letter on to me for a reply.
My constituent explained that she was a single mother, although she was not alone by choice. Her boy friend became violent and threw her out. She had a good job as a researcher and statistician, but she could not afford child care on her own. She was in a difficult position. She dared not sue her boyfriend for maintenance because she was afraid of his violence, so she gave up her job and claimed income support. That single mother costs the state more than £600 a month. However, she wants to work and does not want to stay at home and depend on state benefits.
My constituent explained that, when she was working, she took home £800 a month after tax, national insurance contributions, and so on. The largest expense by far was child care, for which she paid £450 a month, which reduced her income to £350 a month. She got no tax relief on her child care expenses. She explained that she would now need an extra £200 a month to bring her back to the low standard of living which she experiences at present while living on state benefits.
I am afraid that the £28 a week—welcome though it is —will not be sufficient to help my constituent and many women who are in her position.
§ Mrs. Campbell
I have given way once, and I will not do so again because my time is fairly limited.
The concession is too little, too late, and will not help many women who have professional skills and who could make a contribution to the national economy, let alone those women who are able to earn smaller amounts of earnings. Another problem with the Budget is that 300,000 women have been brought into the income tax net, and women can also be affected by cuts in public expenditure.
There are 1,000 small businesses in my constituency which employ 15,000 people, so they are an important part of the local economy. Many of those small businesses are high-tech and are involved in leading edge technology, but I am concerned that they are not growing as fast as they should. There are various reasons for that, one of which is the lack of available finance.
I welcome the enterprise investment scheme to encourage direct equity investment. We must watch 1117 carefully to see how that scheme works. The business expansion scheme started well and helped small businesses a great deal in its early stages. However, during the past few years the BES has been hijacked by property developers. Although the scheme has demonstrated that there is a lot of money around for investment, it has not had the effect that was intended when it was introduced.
Another measure relates to statutory interest payments for late debt, and the consultation paper that the Government are introducing on that subject. If a measure is produced to introduce statutory interest payments, it is important that it should be payable for several years after it becomes due.
Businesses often blackmail their customers by threatening not to provide further orders if their customers press for payment of debts that are due. It is important that we should avoid that situation.
The Budget has not extended the capital allowances that were introduced temporarily in the March Budget. I know that that would have been a popular measure with my small businesses. There are no further tax allowances for research and development and no proper schemes to improve training and education. Many small businesses in my area will see that as a sustained attack on people who are trying to run small businesses and compete directly with companies abroad.
Several measures in the Budget disturb me and I shall vote against some of those that I have talked about tonight.
§ Mr. Barry Legg (Milton Keynes, South-West)
Lord Wilson said that a week was a long time in politics. Less than a week ago, in the debate on the Loyal Address, I spoke about the economy. I am grateful to you, Mr. Deputy Speaker, for calling me again this evening.
When I spoke last week, I urged a reduction in the control totals, action on the Budget deficit and a more confident stance by the Government on economic policy. Yesterday, when my right hon. and learned Friend the Chancellor of the Exchequer presented his Budget we made significant progress in all those areas. The control totals for next year were reduced by some £3 billion. As my hon. Friend the Member for Colchester, North (Mr. Jenkin) said, many Conservative Members had argued for that throughout the summer months right up to the Budget. The reduction is sensible in that it takes into account the lower inflation which has been achieved and brings greater discipline to the Government's finances. That is particularly important, but the Government have made only a beginning.
I am sure that my right hon. Friend the Chief Secretary to the Treasury has struggled long and hard to reduce the contingency reserve and to ensure that it is not consumed in the main estimates of departmental spending. With a sensible budgetary framework in place for the coming 12 months, it is up to Ministers to ensure that those targets are achieved.
The overall increase in the control total allows for an increase in cash spending of 2.7 per cent. That is a not insignificant sum when inflation is at such a low level. However, it will require a cultural change for Ministers and civil servants. The Times today published photographs of Ministers who had supposedly won and those who had supposedly lost in the spending round. As usual, the press regarded those who had contained their budget and 1118 achieved savings as losers. There needs to be a fresh philosophy in the Government so that those who play a. part in achieving more cost-effective public services are recognised and rewarded.
There also needs to be a change in attitude among civil servants. Tight budgetary targets have been set. Now they must be achieved. This afternoon, my right hon. Friend the Chief Secretary referred to Lord Howe's Budget of 1981 and drew comparisons between it and my right hon. and learned Friend's Budget yesterday. It should be remembered that the 1981 Budget provided for public spending to fall by 4 per cent. in real terms over the subsequent three years. Today, my right hon. Friend presented public spending projections for real increases of .25 per cent. per annum. Despite Lord Howe's good intentions, he could not achieve the 4 per cent. reductions over the following three years and public spending increased in real terms by some 5.7 per cent.
§ Mr. Legg
That was coming out of recession and into a period of sustained growth.
With a firm Budget set for next year, Ministers will have to work extremely hard to ensure that those spending plans are adhered to. Comments about efficiency and lower overheads must be made into realities.
The other welcome changes in the spending figures for next year are reflected in reductions in debt charges and in cyclical spending. That shows the merits of our overall policies. By getting down the overall level of borrowing we are driving down debt charges, and by coming out of recession we are getting a reduction in cyclical spending.
The Budget is being well received in the markets. Today, both the equity market—[Interruption.]—and the gilt-edged market responded positively to my right hon. and learned Friend's measures. Opposition Members may not care about the equity market or the gilt market, but I am afraid that they are living in the 1970s. The gilt market is important to the Government and to every business.
Today, long-term interest rates fell and the gilt market rose. That is good news for Government finances and for every business. Whether in the service sector or in the manufacturing sector. The long-term interest rates set by the markets determine the price at which businesses can borrow and plan for the medium and long term. That lies at the heart of our policies and is an aspect of economic policy that the Opposition choose to ignore completely.
The strategy of balancing the books in the medium term has now been established by my right hon. and learned Friend. When I spoke in the Queen's Speech debate, I said that the concept of reducing the public sector borrowing requirement towards balance over the medium term was too vague a policy objective. Yesterday, that changed. My right hon. and learned Friend introduced plans in the Red Book to balance the books. [Interruption.] Opposition Members may not like that, but if they open the Red Book and look at the figures, they will see plans to reduce the PSBR to zero. That will be good for the country, for the Government's finances and for business throughout the country.
Yesterday, my right hon. and learned Friend did not spend much time talking about monetary policy. Previous Chancellors have tinkered with monetary indicators, such as MO and M4. My right hon. Friend the Member for 1119 Kingston upon Thames (Mr. Lamont) widened the bands for both those indicators to such an extent that they had little meaning as instruments for determining monetary policy. Yesterday's statement about underfunding the deficit next year by £7 billion was, however, significant and a welcome development in terms of monetary policy. It will help the liquidity of many businesses, which is vital to their expansion.
My right hon. and learned Friend rightly made disparaging remarks about forecasts. Many of our forecasting institutions and economists run forecasts based on models that do not reflect the matters that drive the British economy in the 1990s.
The adjustment of £7 billion to monetary policy—that is, 1.25 per cent. of gross domestic product—will be an important stimulus to the economy, which counters any suggestion from hon. Members that this is a contractionary Budget.
Spending plans have been reduced, but they do not result in an overall cut in expenditure—spending has been brought into better balance.
Confidence will flow from the Budget. I mentioned the reaction of the markets today, which the Labour party seemed to pooh-pooh. Unemployment will continue to fall and my right hon. and learned Friend's estimates for GDP growth in the Red Book have been modestly set. The output gap in the United Kingdom economy is probably at a significant level. Unused facilities, resources and people exist to take up the slack in the economy. I believe that we shall see above-trend growth over the next few years.
The overall success of the measures will not depend purely on monetary policy or on the Government being able to manage their machine more efficiently. Success will also depend on having a coherent long-term strategy for reducing the state's role, in step with people's aspirations. I was pleased that my right hon. and learned Friend yesterday reinforced our commitment, as a Government and a party, to reducing public spending as a proportion of GDP. That is one of our main priorities over the remaining period of the Parliament and in the run up to the end of the century.
My hon. Friend the Member for Colchester, North drew attention to the fact that many of the most successful economies in the world today have much smaller lower public sectors than the United Kingdom. I believe that my right hon. Friend the Chief Secretary also drew some parallels in his opening speech. Japan has a much smaller public sector as a proportion of national wealth—32 per cent. of annual GDP. The United States' public sector is about 35 per cent. of its GDP.
Opposition Members will be interested to learn that the hon. Member for Dunfermline, East (Mr. Brown) seems to be a convert to the concept. In his speech on the Gracious Address last Thursday—it appears in Hansard at column 602—the hon. Gentleman gave Taiwan as an example to be followed by Britain. He said that a larger proportion of young people went into higher education in Taiwan than in the United Kingdom. He seemed to suggest that we should follow the example of Taiwan. His suggestion probably reflects his usual intellectual laziness. Taiwan has a much smaller public sector, which has something to do with its economic vitality.
1120 What is more, if the hon. Gentleman had bothered to do any homework, he would have found that all further education in Taiwan is financed by private loans—there is no state help for higher education students in Taiwan. I look forward to seeing the hon. Gentleman in the Lobby when we vote on issues relating to student grants. It is important to have a long-term strategy to reduce the size of the public sector as a proportion of national wealth if we want to have a successful economy.
I welcome the changes announced in the Budget on social security payments. My right hon. and learned Friend the Chancellor presented a generous and significant package to help with VAT compensation. The package was much more generous than any of the estimates that I saw in the press or from the Labour party. The total package is worth £1.25 billion, which is a success for grey power.
My right hon. and learned Friend the Chancellor announced changes in the level of retirement pensions over and above the inflation rate. He gave the House an assurance that that was a one-off measure and could not be repeated in later years, which was a wise and sensible assurance for him to give the House. Politicians must take fully into account the changing demography of British society. Demography has certainly changed enormously since Beveridge established the welfare state in 1945. At that time, those over 65 represented one in every seven of the population of working age. As we heard this afternoon from my right hon. Friend the Secretary of State for Social Security, there is now one person over the age of 65 for every three people in the working population. Therefore, the demography has changed.
The economics are also changing fundamentally—Opposition Members would do well to recognise that. Many elderly people retire on substantial occupational pensions which have grown significantly during the 14 years of Conservative rule. Those pensioners will have been pleased to see the developments in the markets today. They have become more wealthy and will have an opportunity to receive higher occupational pensions in future. In considering policies for the elderly and the social security budget overall, we must take into account demographic and economic changes that have occurred over the past 50 years.
I welcome the introduction of the job seeker's allowance and the new incapacity benefits. The aim of seeking to concentrate help on those most in need is the appropriate policy for any responsible Government. As my hon. Friend the Member for Colchester, North said, spreading universal benefits widely across the whole population weakens the amount of resources available to direct to those most in need. A high priority for Conservatives is to ensure that those in need receive proper allowances.
I support the proposals to equalise retirement ages announced yesterday, which was a common-sense solution to the European Court rulings. Hon. Members may be interested to know that the private sector has already taken the step of equalising retirement ages, and more than 90 per cent. of occupational pension schemes have equalised retirement ages at 65. The social security budget still shows substantial increases over the coming years. Opposition Members who suggest that Ministers are undermining the welfare state should turn to the Red Book and look at the spending figures on social security, education and health—all of which are increasing in real terms.
1121 The renewed commitment that we have heard from my right hon. and learned Friend the Chancellor to reduce public spending overall as a proportion of GDP is vital. A sound financial foundation and a sound financial example set by the Government will heighten the prospects for enterprise and initiative within the economy as a whole in coming years and produce substantial economic benefits for Britain and its people.
§ Mr. John Garrett (Norwich, South)
The Chancellor's Budget judgment is that the economy needs a huge deflationary increase in taxation and an unprecedented cut in public expenditure just as we are coming out of recession. I assume that that is known as the new economics, but it is not an economic formula known to me in other circumstances.
The tax increases that will hit the ordinary taxpayer in the spring can only be called a tax bombshell, which will fall not only when the economy is slowly recovering when it should be gathering pace, but just before the local and European elections, which will bring just retribution to the Conservative party.
A family on average earnings will lose no less than £30 a month as a result of the action of a Government who are pledged to reduce the tax burden. By 1995-96, a married person earning £25,000 a year will lose £74 a month—£900 a year. That is also a formula for delaying recovery. But the full weight of the new tax-benefit regime will fall on invalidity beneficiaries, the unemployed and the nearly poor, who will, for example, have to pay VAT on domestic fuel without compensation.
I welcome the £28-a-week child care allowance, although it will not go very far. It is a useful antidote to the hysterical speech on the social cleansing of single mothers and scroungers that the Secretary of State for Social Security made at the Conservative part conference. Some 200,000 low-paid workers will be pulled into taxation for the first time as a result of freezing allowances, so that the weakest will again get it in the neck.
The increase of £1.6 billion in health spending is quite inadequate to cope with growing waiting lists and increased demand. The Secretary of State for Health said that she expects 2.25 per cent. in efficiency savings. I hope that she will tell us where those efficiency savings will come from. She really means that savings are coming from the standard of living of health workers.
Costs in the health service are driven by new technology and drugs, which far outstrip a 1.6 per cent. funding increase. Our health service is phenomenally efficient by international standards, and it cannnot be squeezed any more. Frozen pay in the health service and other public services simply means redundancies.
In my constituency advice surgeries, the biggest and most intractable problem is housing. In what was once an exceptionally well-housed city, there is now real housing stress and hardship. We can look forward to a substantial worsening of the situation. The cut of £300 million to the Housing Corporation, followed by another reduction of the same amount in the following year, will lead to a fall in the number of completions of some 13,000 dwellings and the loss of 30,000 improvements. It will lead to increases in housing associaton rents and a fall in work for the building industry.
1122 The effect on local authority housing will be worse. Local authorities will take a £860 million cut next year, and that will mean more redundancies and substantial cuts in services that have a direct impact on the less well-off. New starts by housing authorities and housing associations in the last year of a Labour Government were more than 100,000. Today, new starts are 36,000. Public investment in housing has fallen by more than 20 per cent. in real terms since the end of the 1980s, and it is now lower than for the past 30 years.
I have never understood why the funds received from council house sales could not be used to build more rented housing. That would create jobs and provide homes. There has been a huge growth in poverty, noticeably in my formerly prosperous constituency where unemployment is now some 15 per cent., while 140,000 taxpayers on incomes of more than £80,000 a year have had an unbelievable bonanza of income tax cuts. We are heading for an American-type society, in which there is a vast gap between rich and poor. The differentials between the well-off and the poor are greater now than at any time since records were started in 1886.
There has been a steady weakening of our productive capacity. Investment is a smaller share of national income than at any time for nearly 40 years. Britain is 23rd out of the 24 OECD countries in terms of the share of national income devoted to investment. We are not investing for the future of our industry. Investment for each manufacturing worker is half that of Germany and Japan, and a third of that in America. With private and public investment still falling, that is a recipe for continuing depression in our economy.
All the policies embodied in the unified Budget depend for success on the eventuality of a recovery from recession over the next three years which is capable of offsetting rises in taxation and cuts in public services and infrastructure.
I am one of the few people who take an interest in the form of national accounts. The Budget is much less unified than one might think. It is really a standard Budget with less detail than usual, and simply a presentation of public spending heads. It will be followed by departmental spending reports which set out costs but never set out the outputs or objectives of spending, and estimates which are more or less meaningless for management purposes.
I am pleased about the shift to an accrusals basis of public spending. I remember proposing it to a Procedure Committee in 1969, but the Treasury then opposed it as impractical.
Much more work has to be done on our national accounts, given that, as Robin Butler said in an answer to a question by me in the Treasury Committee a week or so ago; we are moving from a central Government of 30 main Departments to a Government of 30 ministerial headquarters, 150 agencies, more than 1,000 quangos, trusts and boards and countless thousands of contracts that are all managed by companies that are out to make a profit.
Those changes make nonesense of Government accounts and wreck the accountability of Departments to, for example, the House and its Select Committees. That is worth mentioning. Public expenditure planning is simply becoming impossible as a result of those changes in the machinery of government. Unfortunately, the machinery of government has changed much faster than the machinery of scrutiny that Select Committees can bring to bear.
1123 To return to the Budget judgment, as I started, it seems to me to be an exceptional gamble on recovery. It is a Budget that hits the poorest hardest. It depends on massive cuts in public expenditure, which were hidden in the Budget statement and will become apparent only when the settlement with local authorities is made. It imposes taxation on the greater part of our fellow citizens, and I very much doubt that that gamble will come off.
§ 9.5 pm
§ Mr. Tony Banks (Newham, North-West)
It is always a pleasure to follow my hon. Friend the Member for Norwich, South (Mr. Garrett). I agree with every word that he said.
May I say, for the record, that I was absent from the debate earlier because I was attending a meeting of the Procedure Committee and I returned immediately after the meeting finished. One of the papers that we considered there was about the impact of a unified Budget. Although the Committee is naturally very supportive of a unified Budget, as we all are, we need to monitor the date carefully and to observe its impact, because there have been some complaints, especially by retailers, that in the run-up to Christmas it is not especially good for business to have to try to second-guess a Chancellor of the Exchequer, and consumers have the same problem. We ought to consider that carefully and perhaps think about another date if we feel that there has been some adverse impact on commerce and consumer patterns.
In recent weeks and months we have got used to hearing the phrase about getting "back to basics". The Prime Minister is very fond of using it. Two points occurred to me about that phrase. First, the Conservatives have been in power since 1979, which is 14 years. If we are to get back to basics, therefore, we need to ask who took us away from basics in the first place. Secondly, what on earth does the phrase mean? What are basics? When did basics begin, when did they end, and when was the golden age of basics?
I must admit that it is a very evocative phrase but, rather like its author, the Prime Minister, it defies objective definition. It can mean totally different things to different people. That is precisely the trick. Everyone can agree with it without contemplating the problem of ever having to agree with anyone else, because no one really knows what it means. It is a phrase that says it all but, at the same time, says nothing. It is vintage John Major.
I decided to try to get into the mind of the Prime Minister, a task that some people may say does not require the abilities of a Harry Houdini, but I am a little more charitable about the Prime Minister because, in my opinion, if the Prime Minister has in mind a golden age it must mean Brixton and getting back to the basics of the 1950s.
I can connect easily with that sort of image because I was also brought up in Brixton in the 1950s. We lived in a London county council home. The Majors, of course, lived in a privately rented mansion flat, as I understand, and we always used to envy them greatly. They were well-known nobs in the area, Mr. Deputy Speaker, I can tell you. It was, however, a time of great security, I am sure, for both of us although, mercifully, we were blissfully unaware of each other's existence.
1124 There was little or no street crime in Brixton at the time. As kids we were able to play in the streets—I am sure that the Majors did not, because that was a working-class practice only. If anyone was unfortunate enough to be knocked over when we were playing in the streets, you could bet your bottom dollar that he would be knocked over by a car that was designed and built in Britain. It would be an Austin or a Morris Oxford; or, if he was very lucky, or perhaps unlucky, he could be knocked over by a Jowett Javelin. How I longed to be run over by a Jowett Javelin.
There were no beggars in the streets of Brixton in the 1950s, there was no one pushing drugs. Truancy was almost inconceivable and anyone who did it found that the school inspectors or the educational welfare officers would soon come round to talk with his parents.
To own a television in Brixton in the 1950s was a big deal. Anyone owning a black and white television was thought of as either being on the fiddle or a bit of a flash git, as my granny used to say. There was no real violence portrayed on the screen, nor were the minds of the young polluted by the obscenity of the violent sick videos and computer games that we have today.
To complete the idyllic picture of the Prime Minister's golden age of basics, this is the clincher. During the 1950s Surrey won the cricket county championship every year for six successive years; and Chelsea recorded its only league championship in 1954-55. It must have been the golden age of basics for the Prime Minister. I was lucky; I saw every match that Chelsea played in the great year of 1954–55.
However, when the Prime Minister recalls those times, he always manages to forget two things. First, unemployment in 1953 was 356,000 nationally—1.7 per cent. of the working population. London now has more unemployment—about 500,000—than we had nationally in the 1950s. There are now 2.8 million unemployed people in Britain—and that is the fiddled figure. If we take the 29 changes or fiddles into account, probably about 4 million people are unemployed.
There was no homelessness in Brixton in the 1950s. Local authorities at that time were building 239,000 homes. In 1992, local authorities built just 4,600 homes. It does not take a PhD in housing administration to work out why Britain has a housing problem.
In Brixton in the 1950s, in the Prime Minister's golden age of basics, security was based on employment. People had security, and jobs and a stake in society. When people have employment, they have something worth keeping. They have something that gives them a stake in our society. It is not surprising that street crime, truancy, single-parent families—all the things that are pointed out as problems in our society—did not exist in the same measure because people had the security of jobs.
The Chancellor's Budget speech contained little or nothing that really addressed the problem of unemployment. The only job that the Budget addressed was the job of the Prime Minister, which the Chancellor clearly covets. There he stood, all beer belly and hush puppy shoes, playing to the one electorate that really matters, the only one he needs for the future—the electorate behind him of Tory Members of Parliament who will be voting for a new leader of the Conservative party probably some time next year, and he obviously wants to be in the frame when that happens.
1125 The Chancellor could have done a great deal for jobs in Britain and for London in particular. He could have done it by expanding the budget of the Department of Transport instead of reducing it by one fifth between now and 1996–97.
Last week in London we suffered one of the worst breakdowns in the Underground system that any city in the world has experienced. It was the worst one I can ever recall in London. It led to headlines such as "Enough is enough" in the Evening Standard. On Wednesday 24 November, about 20,000 people were trapped in the tunnels in trains and people were stuck in lifts. Millions of people failed to get to work or arrived at work late.
The Secretary of State for the Environment said that Londoners should stop whingeing. Instead of whingeing, they should storm No. 10 Downing street to do something about the calamitous state of London transport. How dare the Secretary of State tell Londoners that they should stop whingeing when we have such a crappy, clapped-out Underground system as we have today? He is lucky. If he thinks that we are whingeing, if he comes anywhere near my part of town in the east end of London, where we were without the Central line until Monday this week, Londoners are more likely to string him up than to start listening to his admonitions about whingeing.
It is all right for Ministers in their chauffeur-driven cars, with their red boxes and their civil servants brushing dandruff off their shoulders, moving around in the luxury that surrounds them while millions of Londoners struggle every day to make sense of an Underground system or a public transport system that is palpably breaking down. It ill behoves Ministers such as the Secretary of State for the Environment to say that Londoners should stop whingeing.
The Monopolies and Mergers Commission said that £700 million to £750 million a year is needed to produce an acceptable modern metro system. The previous Secretary of State for Transport promised £700 million a year for London Underground by 1993–94. However, one year later, that funding was cut by about 30 per cent. in the Budget. We are talking about cutting a budget that was estimated only to be able to keep things going and then make some improvements. To cut the budget by 30 per cent. means that so much work cannot be done now.
That is why London Underground broke down so badly. It turned out that the electrical fault lay in cabling that was 70 years old in some cases. We should not have a system that has 70-year-old cabling. We have rolling stock which badly needs replacing—
§ Mr. Banks
I will not give way to the hon. Gentleman because he spoke for ages and bored hon. Members rigid, especially me. I know the hon. Gentleman's father well. To show family values, the old man goes to the House of Lords and the son comes to the House of Commons. The Tories know all about family values. [Interruption.] The hon. Gentleman should sit there and take it because I can tell him about this place. There is no more unreceptive an audience than when it is made up of people who are simply waiting for the hon. Gentleman to shut up and sit down so that they can get up and speak. I have three minutes and I shall relish them, and the hon. Gentleman will sit there and listen.
The Chancellor could have said something about the Northern line. It is called the misery line [Interruption.] If 1126 the Chief Secretary, with the bouffant hair, travelled on the Northern line instead of in his swish car, he might push forward the proposals to modernise the Northern line. Crossrail is now uncertain in London, and the Jubilee line extension is not the highest priority.
It is nothing to do with the transportation needs of Londoners—it is all to do with saving the bacon of Canary wharf and the developments of the London Docklands development corporation. It is developer-led; it is not consumer-led in terms of the transport needs of London. When will we get the channel tunnel rail link? The Chancellor could have talked about that. That has been pushed back.
Transport investment means jobs in the construction industry and in rolling stock manufacturing outside London. It saves billions of pounds in terms of congestion. If we had a modern metro system, people would use it instead of private cars. The Confederation of British Industry estimates that congestion costs London £10 billion a year.
A good public transport system brings environmental improvements. No economy can prosper without an efficient transportation system. Investing in London and national transport systems makes a great deal of economic, social and business sense. Anyone in the House who travels on London transport knows that its infrastructure is a disgrace.
The Government had a wonderful opportunity to say something positive in the Budget about investment in London transport's infrastructure and they failed. They have betrayed Londoners, and Londoners will get an opportunity to show what they think about the Conservative party and the Government when we get round to smashing the Conservative party in the local elections in May.
§ Mr. David Blunkett (Sheffield, Brightside)
I had a fleeting hope that the elusive Secretary of State for Health would turn up this evening to give us the benefit of her wisdom.
§ Mr. Blunkett
No, she is not out partying. She will be out doing a bit of late-night Christmas shopping, taking advantage of especially late opening hours in the build-up to Christmas. Instead, we have the Paymaster General and my old sparring partner, the bouffant boy, the Chief Secretary to the Treasury. I am delighted that the Chief Secretary is here tonight because his hand is on the tiller in terms of the ideology that is being followed.
§ Mr. Blunkett
Yes, his hand is on the tiller as the "Portiller" and potentate of what is likely to happen to this country. A clear ideological thrust is hidden by how the "beer-swilling Chancellor" manages to freeze duty on beer and spirits, but places the duty on others to meet the Budget deficit.
Those who are unemployed through no fault of their own now find that their benefits and the time in which they can expect to receive back their own money are reduced. Six months is a poor return for people who have paid for years, through national insurance contributions, for the benefit to which they are entitled.
1127 Conservative Members have undermined the Beveridge principle that people who pay in should have a right to benefits—not a benevolence, something handed down by others or something passed across because they happen to be in distress. They have undermined the key principle of full employment and the ability of those who have a job to contribute back into the Exchequer as well as look after themselves and their families. They have undermined individuals' responsibility for themselves and their families to earn a living through hard, rewarding work in order to contribute to themselves and their loved ones, but also to put back into the community, through contributing to tax and national insurance, money that can then sustain decent public services.
The crunch of the ideological difference between us is that Conservative Members, led by the Chief Secretary, believe that public expenditure is bad and undermines the fabric and backbone of society. They believe that a free-for-all, free-market economy in which people "do it yourself' in terms of gaining benefits and buying insurance is the direction in which this country should go. That mirrors in part the United States' experience, with insecure work, insecure prospects and a lack of stake in a community that values itself—a society in which people are threatened and their stability is undermined to ensure that they are willing to take lower and lower wages to manage to survive on the breadline.
If that is the sort of society we want, we shall continue with the policies that were enunciated yesterday. But if we want to build a society that believes in itself and can use its intelligence, rational thinking and experience of history to build up public services, the community and a sense of belonging so that people value those around them and understand their interdependence with others, we shall turn instead to the policies enunciated by the leader of the Labour party and the shadow Chancellor today.
The Budget deficit is entirely of the Government's making. It is their policy that has deliberately thrown away the receipts from North sea oil, the gains that were made through the hard work of the people in the pits, the steelworks and the engineering industry. The engineering industry is clinging on by its fingertips in the city part of which I have the proud pleasure to represent.
When reporters from the BBC ask people for their opinion on the Budget, do they ask the engineering industrialists of the north and Scotland; or the people who produce wealth by manufacturing products that can be sold overseas; or the people whose livelihoods depend on key public expenditure on essential services; or the people who produce equipment and materials—not rubber ducks, plastic gnomes or somebody else's champagne corks, but real things that people want to buy and can be sold abroad? Of course they do not. They ask what the City of London thinks about it, what happened to the index and whether people are confident. They do not ask the people who produce the real wealth of the country. We have lost touch with the reality of what is taking place on the ground.
The Government's claim yesterday that the health service had received a boost from the Budget was fraudulent. The Government knew perfectly well that what they were expecting from those working in the service, and those receiving its services, was a sacrifice to keep it going. If we take out the inflation figure, using the GDP deflator, 1128 the actual increase is 0.9 per cent. If we take from that the amount that is being asked for in savings, £450 million —the same amount that was asked for in the current financial year, and mirrored savings of a similar amount that were requested in the previous financial year—we get a totally different picture.
§ Mr. Blunkett
The Chief Secretary says that savings produce more. In other words, it is necessary to cut the service to reinvest in it. The Government produce saving targets, which the service can have back if it makes the savings.
The savings are not on senior managers' salaries, which have gone up by 211 per cent., or on those who have awarded themselves an average pay increase of 9 per cent. this year—ranging up to 137 per cent. in the case of one very favoured Conservative friend, who was the chief executive of Guy's hospital until it was merged.
It is not the people at the top who are being asked to save, but the people who will have their pay frozen in the coming year. It is those people who will be asked to save to fund the service. If the Chief Secretary strongly believes in what his right hon. Friend the Secretary of State for Health is doing, perhaps he will do us the honour of telling us so tonight.
What will be the increased charges and tax on the sick, through increased charges for prescriptions and dental treatment, and the withdrawal of exemption for certain groups in those categories? Perhaps the Chief Secretary or the Paymaster General will stand up and tell us when the announcement about the increased charges to those using the health service will be made, and how much the increase will be.
§ Mr. Portillo
We are not standing. We are listening to the hon. Gentleman's speech; we will be talking about Labour's policy later.
§ Mr. Blunkett
The Chief Secretary wants to talk about Labour party policies. He wants to talk about anything except Conservative party policies. He does not want to talk about the fact that there will be a reduction of £175 million in real spending on the health service in the coming year. By the Government's own statistical records, 1.5 per cent. of the health budget will be taken up by demographic change and changes in medical technology.
We are talking about a £175 million cut in the amount available for spending on the health service. That is not counting the £290 million for every 1 per cent. saved by freezing pay for the average nurse or doctor, and not counting the fact that the Government are virtually doing away with the pay review bodies. Evidence given to the Department of Health suggests that national pay bargaining should be replaced by local productivity agreements based not on what we understand to be fair remuneration for the average decent day's work by a nurse or doctor, but on what the evidence now describes as performance-related pay.
§ Mr. Portillo
I am driven to intervene in the hon. Gentleman's speech by the old relationship between us. I know that he wishes to conclude this part of his speech and to deal with Labour party policy. Before he does so, however, let me tell him that the amounts that we have added to the health service budget for the coming year will enable the service to treat 4 per cent. more patients. That 1129 is in addition to a 60 per cent. increase in the number of acute patients receiving treatment since 1979, when the Conservatives came to power. Those are the facts. The hon. Gentleman should be concerned with the treatment of patients£with output rather than input.
§ Mr. Blunkett
I agree that it is a scandal that the Conservatives have lengthened the waiting list by 100,000 since the general election alone; that it has exceeded the 1 million mark in England alone for the first time; that waiting times went up by 25 per cent. in the first six months of the current financial year; and that the number of complaints rose by 37 per cent. last year.
The Secretary of State for Wales would take issue with the Chief Secretary on whether the Government could judge whether there would be a 4 per cent. increase in the number of patients treated. He rightly pointed out that the Government do not refer to patients as patients nowadays; they call them "episodes of care". They do not count patients. An "episode of care" may mean someone changing from one ward to another, or returning from theatre to a different bed in the same ward. The Government do not know whether there will be a 4 per cent. increase in the number of patients treated, because there are no indicators to provide the information.
The Government speak of "episodes of care", and of "provider units" rather than hospitals. They speak of "job seekers" rather than the unemployed. We are given everything except the truth. As the Secretary of State for Wales rightly pointed out in Monday's Times, we hear of "down-sizing" rather than mass redundancy. The Government engage in doublespeak; they speak with forked tongue; they say one thing and mean another.
The Government are cutting public spending, having promised that they would increase it. They have increased taxes, having promised that they would cut them. 'They are fraudulent, they mislead, and they have bamboozled the electorate; but they will do so no more. The electorate are wised up: they understand what is happening. A £1,000 million cut in housing provision will take its toll. That 8 per cent. cut will have an impact not only on those who are poorly housed or have no homes, but on all who want others to be decently treated£who believe in a health service which, as well as merely treating patients, prevents ill health from occurring in the first place.
We are against the Government's Budget because it imposes spending reductions on those least able to bear them. That is why we have continued to oppose the imposition of VAT on domestic fuel bills. The low-paid families—mothers at home with their children, for instance —will be hit by it, and there is no compensation for those who are just above the benefit level. They are earning and struggling: they get up at 6 am to go and do a lousy job that they would rather not be doing.
Those are the people to whom we shall be appealing. They are our natural constituents now. They are the people whom the Government have targeted with a tax on insuring their homes and their futures, and with a tax demanding that they should not expect—through national insurance—the comfort and security of the surrounding community when things go wrong. They should not expect support when the Government's policies make them unemployed; instead, they should take out private insurance. They should have to look after number one, if they can. That is 1130 the united state vision of the future from a Chief Secretary to the Treasury who is obsessed with cutting public spending.
The Chief Secretary said that he would ring me on election day and he did. He was confident while he sat in an Italian restaurant. Next time, I shall ring him and I shall have a different message—that £16 a week on the budget of every family in the country will have spelt doom for the Conservative party's election chances. The cuts in education at school level—not what was announced yesterday, but what will be in the revenue support grant—the reductions in real spending, in real people's lives, in libraries, in schools, in care of the elderly, in social services and, as I have already mentioned, in housing will have spelt doom. The cuts will have to fall in local government. The cuts will fall in the day-to-day budget of every man and woman who know that the increase in taxes will bear on them.
The Labour party was honest and said that it would take from the national insurance contributions that the very rich avoid once their incomes exceed £22,000. The Government said that they would not raise national insurance contributions and instead levied them on those below the £22,000 level and thereby protected those above. Mr. Deputy Speaker, the Government have done it on every occasion—
§ Madam Deputy Speaker
Order. Perhaps I ought to tell the hon. Gentleman that it is now Madam Deputy Speaker in the Chair.
§ Mr. Blunkett
I only wish that I could tell the difference, Madam Deputy Speaker, as I wish that I could tell the difference between the Chief Secretary and the Secretary of State for Health, but I do not get close enough to either of them to be able to do so. In fact, it is now almost a year since the Secretary of State for Health had the temerity to debate with me over the Dispatch Box. Considering the catalogue of disaster that is hitting the health service, it is no wonder that she has been afraid to come to the Chamber since 26 January.
Take the announcement yesterday of a private sector investment in the Fazakerley hospital in Liverpool by SAS, the Scandinavian airline. It was fitted up by the previous regional chairman, who told the local trust to get ready for a £15 million investment through the health service, and, at the last minute, pulled the plug. He then came along with, guess what, a scheme, not a tender or a contract or an open bid for a 100-bed hospital, but a private deal—just like the appointment of the chairman of the Scarborough trust.
Nepotism, corruption, fiddling and fixing are rife—from the west midlands, where £10 million was squandered on a golden handshake and a "thank you" letter to the chairman of the region, to the squandering of £63 million in Wessex, to the £600,000 squandered by St. Thomas's hospital, whose director of finance and business manager flew to America to investigate the First Response company run by Richard Saig—since arrested—and failed to discover that the company was simply an answerphone. It is funny that he managed to travel first class to Grand Rapids, but never managed to discover that the company was an answerphone only. No action was taken. Nor was action taken when the estates division of the South 'West Thames region was sold off and one man made a £900,000 killing.
1131 It is not the patients, the citizens, the low-paid or those who struggle to pay taxes who are the benefactors of yesterday's announcements in the Budget; it is the fixers, the friends of the Conservative party, the better-off, the people who do not need the health or education services or public housing or decent public transport, because they can buy their way out of the public squalor with the temporary and narrow private affluence that some people have gained from the past few years of Conservative government.
We have a different vision of the future, which is fairness in tax, fairness in the distribution of wealth and investment in public services. It is restoring confidence in people's right to a job and to decent treatment at work. It is ensuring that those who are unemployed do not have national insurance snatched away from them and that they do not have their rights taken away by a Budget that targets those who can ill afford to pay and protects those who can best afford to pay.
§ The Paymaster General (Sir John Cope)
It hardly seems fair to intervene in the dialogue between my right hon. Friend the Chief Secretary and the hon. Member for Sheffield, Brightside, (Mr. Blunkett), but that is what I am supposed to do. I am sorry that the hon. Gentleman has not been able to secure an Opposition day for so long to raise the matters that he wanted to discuss with my right hon. Friend the Secretary of State for Health. I shall come back to what he said later in my remarks.
I want first to respond to some of the comments made earlier in the debate yesterday and today, especially about the matters for which I have responsibility under my right hon. and learned Friend the Chancellor of the Exchequer. My hon. Friend the Member for Bolton, North-East (Mr. Thurnham), who spoke yesterday, was disappointed that there was not a cut in beer duty to compensate for the cross-border effects. I noticed that the hon. Member for Brightside had the opposite opinion and believed that beer duty should be increased, but never mind.
Others also said that the effect of excise duties on the cross-border price of alcohol and tobacco in the single market was something that we ought to take into account. It is, indeed, something that my right hon. and learned Friend the Chancellor took into account in the Budget for the first time in a major way. He will have to give consideration to it in every future Budget.
There is a considerable difference in duty between the United Kingdom and some of our neighbours on the continent. The issue tends to be seen only in terms of our continental neighbours across the channel. Yet we also have quite a long land border with the Irish Republic. Land borders are, by their nature, much more susceptible to cross-border shopping than sea borders. Irish excise duties are basically higher than ours and the problem there is one for the Irish Republic rather than us. It is part of the whole picture of alcohol and tobacco duties, and our traders in Northern Ireland benefit from the present position.
The main attention has been on the opportunities for buying alcohol and tobacco across the channel. As the House will have realised, that is and will be a feature of Budgets, as my right hon. and learned Friend said in his Budget speech. There have been well-publicised stories in the press about firms just across the channel selling drink 1132 and tobacco to British visitors. Of course we understand the attraction of that, but it is important to keep the whole thing in perspective.
In many cases, the goods can be purchased at considerably lower commercial prices, irrespective of the duty across the channel. That has been reognised and has been acted on by some firms in Britain to improve their position. That trade was to be expected. My right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) said in 1992 that the Exchequer might lose a total of about £250 million a year in revenue as a result of the single market. There have been claims that the volume of cross-border shopping has been dramatically greater than that which is implied by that estimated revenue loss. However, I have monitored the receipts of duty extremely carefully month by month, as the House would expect me to do. The fact remains that, if anything, those estimates look as if they were on the high side rather than the low side.
Various surveys suggest different increases in the legitimate trade but there is nothing to suggest that the loss is anything like as drmatic as some of the newspapers have suggested. It is nothing like enough to justify people saying, as they occasionally do in the newspapers, that we need to reduce the rate of duty in order to preserve the revenue. Even if the revenue loss from increased cross-border shopping were more than £250 million, if one considers that we get £5 billion on alcohol and £7 billion on tobacco from those duties, the House will realise that it is not something that enters into the calculations much.
There have also been references during the debate to the proposed air passenger duty that the Chancellor introduced in his Budget. That fits the Government's strategy of shifting at least some of the burden from direct taxation by broadening the indirect tax base, and it makes a contribution to tackling the budget deficit, which has been discussed so much in the past two days.
The tax addresses a sector where expenditure is currently subject to very little indirect taxation because of the VAT zero-rating and the use of duty free fuel by international aircraft and most domestic services. If that is compared with some of the areas of expenditure that we tax already, it can be seen that my right hon. and learned Friend was correct to say that that sector is lightly taxed.
Such a tax has therefore been suggested to us from time to time. People do not always understand why some other countries have had such a tax for so long while we have not. The fact that others have similar taxes means that we can organise the duty in such a way that there will not be a major compliance burdens on the businesses involved.
The new tax will be raised through the ticketing system and we attach particular importance to designing the mechanism that will account for the duty to fit in with the airlines' existing systems as closely as possible. It is proposed that the tax will apply to passengers departing from United Kingdom airports from 1 October onwards. It includes domestic flights and flights to the European Community, on which the duty will be £5. That covers rather than more than 60 per cent. of all passengers who fly from United Kingdom airports.
To protect the position of the United Kingdom's international hub airports, there will be an exemption for transfer and transit passengers. There is also a provision that those coming from, for example, Edinburgh through 1133 Heathrow to another destination will pay only a single charge, which will depend on the final destination to which they are heading.
§ Mr. Blunkett
The Chancellor of the Exchequer told us all that yesterday afternoon. I remember him specifically talking about internal flights. Will the Paymaster General tell us instead why the Government have clearly broken their promise not to increase taxes?
§ Sir John Cope
I shall come to Labour's policies, our own policies and the election in a few moments. I was asked about details of the tax, and I think that it is important to put them on the record.
The other new tax that was proposed—insurance premium tax—goes on a sector that has been lightly taxed because of the exemption from VAT that it enjoys. My right hon. and learned Friend also spelt out some of the particulars of that yesterday, but the impact on households and industry of the insurance premium tax is important.
My right hon. and learned Friend mentioned some of the ways in which it would affect people. It would be about £35 a week for the average household. I can give more particulars to the House. The average tax on contents insurance, which about three quarters of households have, will come to about 6p a week, although obviously it depends on how large is the house and how elaborate are the contents.
§ Mrs. Helen Jackson
Did I hear the Minister correctly? Did he say that the cost per household of the tax on insurance was to be £35 a week?
§ Sir John Cope
No, it will be 35p a week. I hope that that is what I said. It is what I intended to say and it is what my right hon. and learned Friend the Chancellor told us yesterday. [Interruption]
§ Madam Deputy Speaker
Order. People might hear better if there were not private conversations going on.
§ Sir John Cope
Thank you, Madam Deputy Speaker. The tax will be due on all payments made on or after 1 October 1994. For policies that span that date, the tax will not be due if the premium has been fully paid before 1 October but will be due on any payments made after that date. The Finance Bill will also include specific measures to combat forestalling. It will not be possible to avoid the tax by making payments in advance of 1 October 1994 if insurance commences on or after that date. We also attach considerable importance to ensuring that the implementation of the tax is done in a way that gives rise to the minimum compliance costs either for the industry or for the Government.
§ Mr. McCartney
Will the principle that the right hon. Gentleman has just enunciated, that advance payments will still be subject to VAT, also be true about advance payments for gas and electricity? In other words, will advance payments for fuel made before the date of the introduction of VAT on fuel be exempt from VAT? If that is the position, people who can afford to pay a year in advance will get a tax rebate at the expense of others who have to pay quarterly bills in the normal way.
§ Sir John Cope
It is not on precisely the same lines as the insurance premium tax, but nevertheless the hon. Gentleman is right in principle. The normal VAT rules 1134 apply. The tax point is when somebody pays, if they pay in advance, and that applies to VAT on fuel as well as to other matters in the VAT—
§ Sir John Cope
On the contrary, it is similar to what I have just outlined with regard to the insurance premium tax. The tax point is when one pays but one cannot pay in advance for insurance that does not commence until after 1 October.
§ Mr. McCartney
Will the right hon. Gentleman clarify the matter precisely? Is it right that one cannot pay in advance to avoid VAT, whether on fuel or on anything else?
§ Sir John Cope
Yes, if one pays in advance for VAT for any purpose, and that includes for fuel, the rate of VAT that applies is the rate that applies at the time that one pays, as opposed to when the service is delivered. That is the normal VAT rule and it applies equally to fuel as to other matters eligible for VAT.
We are anxious to ensure that the compliance arrangements for the insurance premium tax are of the minimum possible cost and are designed with the fullest co-operation of the industry, to ensure that the burden is as small as possible. That is part of another of the themes of the Budget and of the Government—to ensure, through deregulation, that all taxation provisions are as user-friendly as we can make them. That includes VAT, and we have several proposals on that.
§ Mrs. Wise
Does the right hon. Gentleman understand that to impose a tax on people insuring their homes and the contents of them is oppressive? He said that three quarters of the population have insurance policies. Should not the Government, especially this Government who are always talking about people standing on their own feet, do something to encourage those who have not been able to insure their homes and the contents of them rather than penalising those who have?
§ Sir John Cope
The hon. Lady must make her own judgment about whether it is right that a large amount of expenditure for all people should be left out of the tax system in the way that insurance is. She knows that our philosophy has been to extend, and to some degree accelerate, taxation on indirect tax rather than taxation on income. The hon. Lady knows that, and the proposal is in line with that. I understand all that she says, and I understand also those who say that we should never extend taxes of any sort. At the same time, it is the duty of the Chancellor to look across the board and to see areas where taxation can be best raised. He must make his judgment on that, and whether that judgment is the same as the hon. Lady's is a matter for her also.
I was talking about deregulation, and the House knows that we have increased the registation threshold of VAT. We are also making proposals in connection with those businesses which are struggling to survive, and which have difficulties in paying their VAT. At the moment, those businesses which are in administrative receivership or are heading for being wound up have not been able to set off any of the VAT refund which they were due to receive against their VAT bills. We propose in future that they should be able to do so, as is the case under an ordinary voluntary arrangement under bankruptcy or liquidation.
1135 Businesses which trade in that way but which are in difficulty have been able to offset the VAT under the extra statutory concession. We propose to write that into law to extend it as I have described. We are also proposing to complete the package of VAT reforms in the March Budget which deal with repayment supplement. I announced the other day some further improvements which will make it easier for businesses to qualify for the cash accounting scheme.
In the excise field, we have made a series of proposals. The first of those concerns gaming machine licence duty, a matter of considerable interest to some hon. Members. As those hon. Members will know, we are proposing to improve the administration of the tax and we published a consultation document about that earlier in the year.
There were some reservations about the proposals to abolish seasonal licences and the facility to surrender licences and to obtain a refund. Seasonal licences were introduced in the early 1980s. In fact, we have taken note of the reservations and we propose to continue both seasonal licences and the surrender provisions.
We propose also to reform excise law to make tax enforcement more effective. At the same time, some safeguards will be introduced in the form of the decriminalisation of minor breaches of the excise rules. The trader will be given the right of an appeal to a tribunal in the case of both excise and customs law. We are extending the power of the VAT tribunals to allow them to take on appeals from those areas as well. That is part of the modernisation of the customs procedure to bring it more in line with modern business methods.
I was interested in what the hon. Member for Norwich, South (Mr. Garrett) had to say about resource accounting and accruals. Speaking as a chartered accountant— 1136 although one who has not practised in a long time—I believe that that is a most important sea change in Government finances, and that it has profound long-term significance.
My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) seemed to touch on a similar point in his speech when he drew attention to the references to human capital in the Red Book. We propose to publish a document about resource accounting next year. In the meantime, studies have been set in hand on the matter under the new chief accountancy adviser. One important aspect of that—to which the House will have to pay great attention in due course—is the interaction with voting and the way in which accounts are presented to Parliament. We are drawing both the Public Accounts Committee and the Treasury Select Committee into the discussion on that subject.
Much else has been said, but I should return to the main theme of today's debate and, indeed, of the days of debate on the Budget. Yesterday was devoted to spelling out the Government's view of what should be done and the plans for doing it. The day following the Budget is usually the opportunity for Opposition parties to set out their alternatives. Neither the hon. Member for Newbury (Mr. Rendel) who spoke for the Liberal Democratic party nor the hon. Member for Dunfermline, East (Mr. Brown) who spoke for the Labour party took that opportunity. [Interruption.] The hon. Member for Newbury said that the Liberal Democrats would abolish mortgage interest tax relief. [Interruption.]
§ Madam Deputy Speaker
Order. I have spoken before about seated interventions. I expect the Front Bench at least to set some sort of example.
§ It being Ten o'clock the debate stood adjourned. Debate to be resumed tomorrow.