Budget Resolutions and Economic Situation

HC Deb 07 December 1993 vol 234 cc145-277

Madam Speaker

I must inform the House that I have seen fit to limit speeches between the hours of 6 and 8 pm to 10 minutes.

It may also be convenient if I announce that I have selected the amendment in the name of the Leader of the Opposition to the motion on public expenditure which is being debated together with the Budget resolutions.

3.34 pm

The President of the Board of Trade and Secretary of State for Trade and Industry (Mr. Michael Heseltine)

I am sure that the whole House is grateful to my hon. Friend the Member for Colne Valley (Mr. Riddick) for pointing out that the Opposition could tonight have voted on the compensation package that my right hon. and learned Friend the Chancellor has provided. Of course, that would have meant that they would have to surmount a hurdle that their own spokesman had placed in their way. The fact is that he had quantified the amount of compensation required as 50p a week, whereas my right hon. and learned Friend announced a substantially higher figure than that. So, once again, the Opposition would have had to end up voting against what one of their own spokesmen had said was necessary.

Mr. Robin Cook (Livingston)

I am sure that the right hon. Gentleman would not want to be any more out of touch at this point than the rest of his speech will demonstrate. He is obviously unaware that the Sunday People printed a retraction on Sunday of the statement by the Opposition social security spokesman, and admitted that he never put forward such a figure. My hon. Friend's criticism stands—[Interruption.] The statement was not clarified; it was retracted. No such figure was ever given by my hon. Friend.

The Opposition will continue to press the Government for a compensation package that measures up to the total cost of VAT on fuel, not just half the cost.

Mr. Heseltine

The hon. Gentleman should press his hon. Friend not to get himself quoted in the Sunday People in the first place as having given a figure that he did not believe in.

The Prime Minister has already brought the House up to date on the position of the general agreement on tariffs and trade negotiations. Over the nine days that remain we shall continue to play an active part wherever possible and especially in the internal European debate. The case, in terms of world trade, growth and employment, for concluding the GATT round urgently remains as strong as ever; and I wholly endorse what the Chancellor said in his impressive speech on the Budget a few days ago.

As discussion of the Budget has proceeded it has emerged that my right hon. and learned Friend had to face two challenges: the borrowing requirement, and the incipient risk of inflationary pressures as the recovery developed.

Nothing would have been more calculated to throw away the competitive edge that we now enjoy than a failure to take the difficult decisions about the deficit—and to take them now. I remind the House of what we included in our manifesto. We said that our aims in the 1990s must be to achieve price stability and to keep firm control over public spending. We went on to say: We will reduce the share of national income taken by the public sector … We will see the Budget return towards balance as the economy recovers. Well, we are less than two years into this Parliament. Headline inflation, at below 2 per cent., is the best since 1959. Since October 1990, interest rate cuts have saved business nearly £12 billion a year. Productivity in the third quarter of 1993 was almost 5 per cent. higher than a year earlier. Industrial production is rising in the United Kingdom but falling in Germany, Japan, France and Italy.

Unemployment has fallen by 137,200 since January. Exports are 3.5 per cent. higher than a year earlier. We have reduced our spending plans by £10 billion compared with those of the March Budget. Public expenditure is expected to fall as a share of national income, with the Budget returning to balance in the second half of the decade.

At the next election we shall defend our management of the economy against this clearly emerging background. We shall certainly honour our manifesto policies, which claimed that we would reduce taxes as fast as we prudently could.

My right hon. Friend the Secretary of State for Social Security revealed our willingness to face some of the most testing decisions confronting all democratic Governments. The hon. Member for Glasgow, Garscadden (Mr. Dewar) took longer to ask his questions than my right hon. Friend took to make his statement. It was abundantly clear to all in the Chamber that my right hon. Friend had actually answered all the hon. Gentleman's questions before they were asked, and that the Labour party had no answer to any of the questions in the first place.

It is worse and more cynical than that. The Labour party knows that there is a need to find answers to these questions. It knows that so clearly that it has set up a commission — the Commission on Social Justice. The question in the minds of the observers of that commission is whether it exists to find answers or merely to delay the need for any answers that would reveal what the Labour party would do. The Labour party knows that there is a problem. It knows, too, something of the nature of the only answers that exist to the problems. It knows, also, what left-wing Governments in Europe are having to do when they face up to these particular answers.

I remind the House that Holland has ended the link between social security benefits and the average wage. Spain has reduced unemployment benefit. Greece, Portugal and Spain are encouraging private pensions. As for the ultimate society in the minds of many Labour Members, the cradle-to-grave welfare state of Sweden, in facing up to the same sort of question that we in this Government have to face, it has frozen at 1992 levels the base amount used to calculate most social security benefits. The state old-age pension has been reduced by 2 per cent. The pension age for Swedish men and women is to be raised from 65 to 66 in just three years' time.

The Labour party is up to its old tricks in trying to give the impression that there are alternative answers to these difficult issues. No one does that better than the hon. Member for Livingston (Mr. Cook), who argues the case, as he always does, with the exaggerations for which he has become well known. His arguments are so over the top that he has become the little boy who cried "wolf" once too often. He has lost all credibility. Indeed, one could say that he has converted the science of the terminological inexactitude into a near-terminal disease for the Labour party.

Mr. David Winnick (Walsall, North)

What would the President of the Board of Trade say to someone in his age group who worked for 20 or 25 years in one firm and was made redundant through no fault of his own, but finds, from 1996 onwards, that as a result of the redundancy package that one hopes he gets he will receive unemployment benefit under its new name for only six months.? Thereafter, it is likely that he will not receive any income from the state because of the sums involved in his redundancy package. Despite the examples from abroad that the right hon. Gentleman has cited, does he not recognise how unjust that is, particularly bearing in mind the national insurance contributions that that person has made over the years? That person feels cheated, and with every possible justification.

Mr. Heseltine

The key to that long intervention is the sub clause, because of the sums involved". The hon. Gentleman is telling the House that the person concerned has a sufficiently large redundancy sum, paid for presumably by a scheme to which he subscribed, to make it reasonable that he should make some contribution to his personal position. One could go a great deal further than the hon. Gentleman did. Some redundancy packages are extremely generous. The sums involved enable people to provide for their circumstances. The fact is that it is reasonable and will become unavoidable in left-wing as well as right-wing societies to consider the means of the person who is receiving benefits of that sort.

The underlying strength of our economy has helped our companies to win in the international market place. We are now predicting a current account deficit of £9.5 billion for the year, compared with £17.5 billion in March. Our cost competitiveness is now some 20 per cent. better than it was prior to our withdrawal from the exchange rate mechanism and is expected to remain close to that level throughout 1994. Consequently, export volumes are growing strongly and they are forecast to grow by a further 5 per cent. in 1994.

Our non-EC export volumes rose by no less than 14 per cent. in the year to October and that figure includes some remarkable and spectacular performances in difficult markets. In 1993, our exports to China have more than doubled, those to Korea are up by nearly one third, and those to Japan are up by one fifth.

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

Is the President of the Board of Trade aware that one of the United Kingdom's most cost-competitive products is the Jetstream aircraft? Is he also aware that in the past week a number of hon. Members from Ayrshire met with the Minister of Industry, who is supposed to be responsible for the aerospace industry, and gave him a large number of examples of unfair competition in Brazil, France, Sweden and elsewhere where the aircraft that compete with Jetstream have been subsidised? Is the Secretary of State aware that the Minister has done nothing about that, he has not raised it with the European Union, he has not raised it through GATT, he showed no interest in raising the matter and showed little knowledge about the Jetstream operation? That is why hon. Members from Ayrshire are frustrated, as you, Madam Speaker, saw earlier.

Mr. Heseltine

The hon. Gentleman does his constituents no service by misrepresenting the situation. We are waiting for further details of the suggestions from Jetstream. The hon. Gentleman knows, as does the whole House, that the exports from the aerospace industry are one of our most successful sectors due in no small part to the role that the Government play across the world in helping British Aerospace and the other companies that sell in times of tough markets.

On behalf of not only British Aerospace but of all our companies, the Government are determined to help them to win in the market. My right hon. and learned Friend the Chancellor indicated that clearly when he announced £200 million in increased cover for the Export Credits Guarantee Department in addition to the £3 billion already being provided. It is interesting to note that that increase is higher than the anticipated growth in world trade, again reflecting the United Kingdom's improved export performance. In the programme of the ECGD, we have cut premiums generally, and, specifically in the Budget, we cut them in key markets such as Mexico, India and Turkey. ECGD credits will be exempt from the proposed insurance premium tax.

Across the board, the Chancellor set out in a remarkable speech the scale and breadth of the Government's priorities. The Opposition amendment characteristically talks of cutting key public services. The Department of Health has received a real terms increase of 1.4 per cent. and the new total is a massive 64 per cent. higher in real terms than in 1979. In education, a crucial area for our future competitiveness, our plans allow for a 19.per cent. increase in the number of students in further education and sixth form colleges from 1993–94 to 1996–97.

We intend to maintain the proportion of young people in higher education at its current record level of almost one in three. The House will remember that the figure was one in eight in 1979. Spending on higher and further education is set to rise by 3 per cent. and 3.5 per cent. respectively in real terms over the period 1993–94 to 1996–97.

The Chancellor announced a new apprenticeship scheme that will enable about 40,000 young people a year to achieve NVQ3, the vocational A-level. The £40 a week [...]llowance for childcare expenses for families on a variety of benefits will enable many more people, especially women, to take advantage of numerous training and employment opportunities that are now available. The introduction of a job seeker's allowance, the reduction in employer's national insurance contributions and the introduction of help for low-paid families needing child care will all help people who are seeking jobs.

The recent White Paper on science, engineering and technology produced by my right hon. Friend the Chancellor of the Duchy of Lancaster placed great stress on wealth creation and on developing a strong partnership between industry, academia and Government. I can now make two further announcements that will build on that.

First, my right hon. Friend the Secretary of State for the Environment and I have decided to introduce a new £16 million joint environmental technology best practice programme. The five-year programme will make the best environmental technology and techniques more widely known to potential users and suppliers. Within a strong emphasis on reducing and eliminating waste and pollution at source, it will show that improved environmental performance can go hand in hand with improved industrial competitiveness.

Mr. Andrew Miller (Ellesmere Port and Neston)

Can the right hon. Gentleman confirm that the money is new money and not simply an exchange for the closure of Warren Springs?

Mr. Heseltine

The closure of Warren Springs saved a considerable amount, and I am glad to have been able to save that money because it has enabled us to build a stronger organisation out of the former Warren Springs and Atomic Energy Authority. The closure has saved us needing to construct a new building and it has enabled us to dispose of the site. That is a classic example of the prudent husbandry of taxpayers' resources.

Secondly, I am glad to announce that my Department and the Science and Engineering Research Council are launching a new £10 million LINK programme on surface engineering, an important manufacturing technology which underpins virtually all industrial sectors.

The Opposition's amendment suggests that the Government have betrayed their election pledges on transport. Here again, I am afraid, the breadth of my right hon. and learned Friend's Budget has eluded the Opposition. Spending on trunk roads and motorways in England will average more than £2 billion a year over the next three financial years. For Great Britain as a whole, we plan to invest £6.7 billion. That is an increase of almost £500 million over the figure included in our manifesto.

British Rail investment will be more than £1 billion next year, which is 20 per cent. more than the 1980s average. In addition, almost £250 million will be invested by the private sector in the Heathrow Express and in preparing for the £500 million renewal of the west coast main line.

Mr. David Ashby (Leicestershire, North-West)

Three pence was added to the cost of a litre of petrol. Can my right hon. Friend tell us whether our right hon. and learned Friend the Chancellor expected fuel companies to raise the price of petrol by 5p or more a litre? Does my right hon. Friend believe that there may be a cartel in operation? Is there not a case for investigation by the Monopolies and Mergers Commission?

Mr. Heseltine

My hon. Friend should realise two things. First, the companies have moved the price of petrol one way or another in the light of market forces. That is a decision that must rest with them. Secondly, my hon. Friend cannot expect me, in view of my particular responsibilities, to comment on the prospect of an inquiry into those particular companies.

Mr. Michael Connarty (Falkirk, East)

Will the right hon. Gentleman comment on the fact that when I went to Lille two years ago, I saw the beginning of the construction of Euro-Lille and that when I went back a few days ago, I saw that the £5 billion investment was almost completed. This year, when I went past Ashford where it was said, two years ago, we would have an international station, I saw nothing but a couple of dump trucks.

Mr. Heseltine

I cannot answer for the hon. Gentleman's journeys, wherever they may take him. All I know, in terms that I have made clear to the House, is that British Rail investment will be more than £1 billion next year, which is 20 per cent. more than the 1980s average. That sounds like a considerable increase, which the Opposition should welcome.

The fact is that public sector capital spending is now 20 per cent. higher in real terms than the 1980s average. In addition, the privatised industries are investing more than £10 billion a year. The water industry is playing a key role with a forecast spend of £29 billion over the next 10 years. That is in marked contrast, as the House will remember, to the massive cut of 20 per cent. under the previous Labour Government.

Nothing more clearly illustrates the difference between the Government's policies and those of the Opposition. The Government have set the nationalised industries free of the dead hand of the state and given them the confidence to undertake massive investment outside public sector constraints. The moment that that happens the Opposition lose interest in what is happening to those industries. If an industry is not in the public sector, to them it is of little consequence.

Mr. Phil Gallie (Ayr)

Does my right hon. Friend agree that, when the hon. Member for Falkirk, East (Mr. Connarty) visited Lille in France, he found that unemployment was rising there, whereas here it is falling? Perhaps that fact reflects the different levels of the respective Governments' attitudes towards public expenditure.

Mr. Heseltine

It would have been too much to expect the hon. Member for Falkirk, East to have learned a lesson from what has happened under a Labour Government in France. It would have been inconvenient for him to come back here and see the problems that a Conservative Government have to sort out, just as the Conservative Government in France is having to sort out the problems as a result of what a Labour Government did there.

No Conservative Member argues that the effects of public expenditure increases or programmes are conclusive in themselves. To the Labour party, public service tends to equate only with spending money. To the Government, it is about providing a quality service and identifying responsibility. That is why the Prime Minister has given such attention to the new deal for British people enshrined in their rights under the citizens charter. The charter is increasingly recognised by the British public and business as a vehicle for real improvements.

The sneer on the faces of Opposition Members is fascinating. Once again, they are out of touch. If the charter mark does not matter, why on earth was the Labour-controlled Leicester city council spending its local taxes to bring its employees to London in October to receive their charter mark award from the Prime Minister? Why did Labour-controlled Ipswich enter its homes department for an award? Why on earth was the London borough of Lewisham—not exactly a card-carrying member of the Centre for Policy Studies—proudly displaying its charter mark at the office of its refuse and cleaning services? Once again, our ideas, our formulation and our determination have Labour authorities queuing up to join the club.

If there is a theme to link our agenda—in social services, education, the health service and capital investment—it is that it is an agenda for change. It is an agenda for change dominated by the political party elected in 1979. Let us be clear: there is a continuing debate about the way forward, new challenges and new opportunities. But whether one looks at this country or across the entire democratic world, the debate about the way forward for our societies is conducted within the right wing of politics. That is where the ideas of tomorrow are being found.

We hear a great deal about the problem for the Tories of 14 years in government. That is not the problem. The problem is what 14 years in opposition have done to the Labour party.

Mr. Peter Hain (Neath)

Will the right hon. Gentleman give way?

Mr. Heseltine

I was about to say that we have to ask the old question about whether one would buy a second-hand motor car from such a lot. Then the hon. Member for Neath (Mr. Hain) rose to his feet and the answer came readily to mind.

Mr. Hain

Will the right hon. Gentleman give way?

Mr. Heseltine

I will now.

Mr. Hain

Does the right hon. Gentleman consider it a triumph for his presidency that his budget in three years' time will be a third of what it is this year?

Mr. Heseltine

Absolutely. My budget has been going down because we have been cutting out the losses of the subsidised nationalised industries.

I was tempted to ask the question whether one would buy a second-hand motor car from that lot. That is the wrong question. The right question is whether one would buy a brand-new motor car from the Labour party, even if it had a five-year warranty. We know the answer that the electorate always gives: not under any circumstances, especially if it had a five-year warranty.

Another sector that is critical to the health of our economy is that of small businesses. Small businesses are not just important in terms of employment. A healthy and profitable small business sector will be investing, it will be exporting, it will be contributing revenue to the Exchequer. It will also be stimulating innovation and competition throughout the economy.

Mr. Heseltine

I am waiting for the interruptions, because the House will have already recognised those words of the Leader of the Opposition. [Interruption.] I am mildly surprised that the cheers of approval for those words came from the Conservative Benches.

The Leader of the Opposition recently said those words at a Labour conference for small businesses. The right hon. and learned Gentleman, having devoted some three years to an attempt to soften up the City of London, without any sort of success, has now decided to turn his attention to pastures new.

The conference was organised, in common with the great rally of the election, with all the flourish of the modern Labour party. All the apparatus of modern communications was brought to bear: a conference was organised, handouts were given and press releases were issued.

The Leader of the Opposition was anxious to hear from small business people anywhere; so anxious was he that people were given a telephone number to ring. If any problems were encountered in getting through on the telephone, the right hon. and learned Gentleman gave people a fax number. In this modern telecommunications world one might call that belt-and-braces socialism.

Hon. Members should picture the scene. The right hon. and learned Gentleman is slumped in his armchair at Walworth road surrounded by his shadow Cabinet, waiting for the telephone to ring. At last there is a phone call and the caller's inquiry is relayed by a secretary, who says, "There's a bloke on the phone who wants to know what we are going to do about the deficit." The Leader of the Opposition turns to the shadow Chancellor and says, "What's the answer to that, shadow Chancellor?" The hon. Gentleman says, "Tell him what I said in the House of Commons last week—we won't start from here."

The next caller wants to know what the modern Labour party really thinks of business men. The hon. Member for Holborn and St. Pancras (Mr. Dobson) has been quoted with the answer, when he said that they are stinking, lousy, thieving, incompetent scum. I was tempted to believe that that was an exaggeration, but I read it in The Sunso it cannot be a lie.

Then the next caller asks what the Labour party, following its leader's extensive exposure to the City of London, now thinks about those who work there. According to the hon. Member for Kingston upon Hull, East (Mr. Prescott), they are champagne drinkers living at the expense of many people who can ill afford it. Nothing so reveals the gap between the Labour party's prejudices and today's reality.

In 1991, nearly 4 million private-sector pensions were being paid for from investments managed in the City. Countless citizens insure their lives, homes, pensions and health through the City. There are now more than 9 million shareholders, three times the number in 1979, who are able to trade their investments through the City. The City produces £19 billion in invisible earnings, and yet all that the Labour party can do is to dismiss Europe's largest financial market as one made up of champagne drinkers living at the expense of many people who can ill afford it."—[Official Report, 2 December 1993; Vol. 233, c. 1201.] There are some facts about small businesses on which we can all agree.

Mr. Connarty

The right hon. Gentleman will recall that when he came to my constituency in December last year I wrote to ask him to meet small business men who had suffered badly from the collapse of Lilley and he refused to meet them. Those business men turned up to talk to him at the Inchyra Grange hotel at Grangemouth about the £200,000 loss that they had suffered. Why have the Government done nothing about bankruptcies and the fact that sub-contracting small businesses lose out every time when a large firm goes to the wall? I wrote to the hon. Gentleman to ask why the Government did nothing to protect people so vital to our economy.

Mr. Heseltine

The hon. Gentleman should welcome the fact that there are nearly 1 million more small businesses today than there were in 1979. There has been a tremendous explosion in small businesses, as the House knows. There are now some 2.7 million small firms, 96 per cent. of which employ fewer than 20 people. For those firms, the Budget contained an excellent package of measures.

The enterprise investment scheme will allow eligible investors to take an active interest in the firms in which they invest, and to be paid for their time. The prospect of venture capital trusts and the extension of capital gains tax roll-over relief for gains invested in unquoted companies will help the search for equity.

The relaxation of audit requirements will help to lift the administrative burden. The agreement to look at the recommendations of the pay-as-you-earn and national insurance working party promises to help reduce further the administrative complexities that bedevil smaller businesses.

The increase in the threshold of VAT to £45,000 will enable about 75,000 more traders to choose whether they register for VAT. Smaller employers will be entitled to full reimbursement of statutory sick pay after four weeks instead of the current six. Thresholds will be raised to allow even more smaller employers to benefit. They will also benefit from the reductions announced in employers' national insurance contributions.

The threshold for smaller companies' rates of corporation tax will be raised by 20 per cent. to £300,000 a year. Eighy five of the 118 winners of this year's Queen's award for exports were smaller firms. The changes to export credit guarantees will help small as well as larger exporters. The business rate poundage will rise next year by only 1.8 per cent. thanks to our success in the battle against inflation.

Mr. William Cash (Stafford)

Will my right hon. Friend accept that Conservative Members very much approve of everything that is being done for small businesses? But will he also give as much encouragement, and ask the Chancellor of the Exchequer to help as well, to improvements in research and development, because it is by new technologies that we will be able to compete effectively in the global markets and ensure that we manage to improve the balance of payments, which has come as a result of the recovery since, as my right hon. Friend has said, we left the exchange rate mechanism?

Mr. Heseltine

My hon. Friend will be well aware of the recent White Paper of our right hon. Friend the Chancellor of the Duchy of Lancaster in which he made clear the Government's view that the £6 billion public sector research and development programme had to have a considerable pressure to look after the interests of the wealth-creating community. That is something that I very much welcome.

All the changes that I have listed come on top of the increase announced in the March Budget to the loan guarantee scheme. The number of loans guaranteed was about 40 per cent. higher in the first six months of 1993 than was forecast before the changes were announced, and the value in lending in that period, at £55 million, was higher than for the whole of 1992–93.

I can tell the House today that I have decided to increase my Department's budget for smaller businesses by £8 million. The House is familiar with our plans to bring together training and enterprise councils, chambers of commerce, local authorities, enterprise agencies, central Government Departments and private sector organisations in the business link organisation.

To enable the TECs to continue to play a key strategic role in organising the provision of business support services, I am pleased to announce that I have increased their budgets to nearly £33 million. The first business links have opened in Birmingham, Leicester and Congleton. My aim is a national network within two to three years. I am increasing start-up funding by £14 million.

I intend to trial a new consultancy brokerage service from January for introduction nationwide early in 1995. That will open up to public access the considerable wealth of data and project management experience that has been accumulated on United Kingdom business consultants for the enterprise initiative consultancy scheme.

Increased funding will ensure that consultancy support for small and medium-sized firms will continue beyond the life of the present consultancy scheme in the form of a flexible consultancy and diagnostic service. I shall be publishing a prospectus and guidelines for the service in January.

My Department will provide extra funding to business links to support the appointment of innovation and technology counsellors who will work with firms and help them to identify local, national and international sources of technical help. We also intend to restructure the design services that we provide to industry to bring them closer to companies. That package of new services will further enhance the business link movement, providing businesses with high-quality support tailored to their individual requirements.

The House will know of the warm welcome for the Chancellor's announcement that my Department is producing a consultative document setting out options to address the problem of late payment—including legislation and a national standard.

We have heard the views of the hon. Member for Dunfermline, East (Mr. Brown), who has told us that this is not a Budget for business, not a Budget for industry and not a Budget for employment. A month ago the Labour party held a conference on Helping Small Businesses to Succeed". The conference was further entitled "Into the Growth Corridor". Labour invited three organisations to set out their views—the CBI, the Forum of Private Business and the Federation of Small Businesses. Having heard the hon. Member for Dunfermline, East give his view on the relevance of the Budget for industry, it seemed to me that it would not be unreasonable to examine those self-same organisations' views on the Budget. After all, if they were good enough in the eyes of the Labour party to advise it on its entire strategy for small businesses, they ought to be able to form a reasonable judgment about a Budget. The CBI had this to say: The Budget should provide a sound basis for continued non-inflationary recovery". The Federation of Small Businesses said: We could not have expected more". The Forum of Small Businesses said: This Budget is a great encouragement to us all". It is, indeed, a great encouragement to us all. So far from entering the "growth corridor", the Labour party is once again in the slow lane, overtaken by events and overwhelmed by the arguments.

The hon. Member for Dunfermline, East set out his alternative approach in the Daily Mirror: I'd scrap VAT on fuel, go for jobs, stop tax cheats and invest to rebuild Britain.

That, he claims, is his economic strategy. I think that my right hon. and hon. Friends will prefer the words of the right hon. Member for Chesterfield (Mr. Benn): I do not think that members of Labour's Front Bench would have even two ideas about what to do with the economy if they came to power… a series of soundbites glued together and called an economic policy is not an economic policy."—[Official Report, 20 May 1993; Vol. 225, c. 420.] I never thought to hear myself say it, but the right hon. Member for Chesterfield was right. He is welcome in our Lobby tonight.

I commend the Budget to the House.

4.12 pm

Mr. Robin Cook (Livingston)

Before turning to the Budget, let me echo the earlier satement of the President of the Board of Trade in relation to the importance of GATT. I entirely endorse the right hon. Gentleman's argument about the importance of ensuring that, over the next seven days, everything possible is done to meet the deadline. There should be no illusion that on this occasion a fresh deadline can be set. GATT is an issue of importance not only to Europe and to America but to the third world which requires access to their markets. If there is something offensive about the spectacle of the past 48 days, it is 100 nations gathered in Geneva while the two big blocs slog it out in Brussels without the participation of the third world. I very much hope that, if the United States chooses to make a sticking point of airbus, there will be no concessions from Europe that will put in jeopardy any part of the production of that project or detract from its importance.

The President of the Board of Trade has just opened the last day of the Budget debate. I must say that I preferred to today's reading of the brief the rather more lively speech that he made in our debate a fortnight ago, when he gave us one of his diverting impressions of a conference speech—half Winter Gardens, half old-time music hall; nothing at all to do with the running of Government. The high point of that act—because "act" is a more appropriate word than "speech"—was the tearing up of a socialist manifesto. I had hoped for a sequel today. He has disappointed me. After Tuesday's Budget, I should have thought the most appropriate highlight to conclude the Budget debate would have been tearing up the Conservative manifesto, but the Chancellor did that last Tuesday.

I heard the Chancellor being interviewed on Sunday. He was asked whether, by the end of the Parliament, income tax and other taxes would have gone up or down. He replied, I do not have a clue". I congratulate the Chancellor on his candour and express my appreciation that he has served so long at the Treasury without allowing his forecast to be affected in any way by Treasury jargon. However, that is not what members of his party said at the last election when they were asked about tax.

When the Prime Minister was asked whether national insurance would go up he did not say, I do not have a clue. He did not say what the President of the Board of Trade has just said—that they would reduce taxes as rapidly as was prudent to do so. He said, I have no plans to raise the level of national insurance". When he was asked whether he would extend the scope of VAT, he did not say, I do not have a clue. He said, We have no plans and no need to extend the scope of VAT.". When, only a few days before polling day, he was asked whether public spending would go down if they were elected, he did not say, I do not have a clue. Ask me after polling day. He said, You can rule out any prospect of that". I find it strange that the Minister at the Department of Trade and Industry responsible for deregulation should have complained that sales of Tipp-Ex have been constrained by some local authorities cataloguing it as a dangerous fluid. Smith square must be ankle deep in Tipp-Ex by now, as the Conservatives blank out the promises that they made before the last election. The Red Book tries another tactic to blank out the DTI Budget; it is not so much Tipp-Ex as heavy overprint.

At first glance, I was much impressed by the President's skills as a negotiator with his colleagues at the Treasury. The Budget of his Department over the previous Red Book shot up by £1 billion. Then I noticed footnote 4. Under the present Government, I have learnt that it always pays to read the footnotes. Footnote 4 tells me that the figures for his Department now include the nuclear levy collected by the electricity companies and paid direct to Nuclear Electric without passing through his bank account. Strip away that nuclear levy and we strip away the entire £1 billion increase.

In real terms, the spending on industry of the Department of Trade and Industry will not increase, but will fall over the next three years by 12 per cent. in real terms. I have to say frankly and generously to the President that I have not had time to adjust the calculations for the extra £16 million over five years that he has just announced for energy conservation, but they will not materially alter the figures that I have just given the House. That does not include the total elimination of support for public sector industries for which the President is the nominal sponsor, such as the Post Office. The Red Book sets a new profit target for the Post Office for 1994–95. That profit target is now three times larger than when it was first announced in 1991. Let us not pretend that the new profit target set by the Chancellor last Tuesday—it was not mentioned in the Budget speech, but it is in the Red Book—is the result of careful research on the business plan of the Post Office.

We rang up the Post Office on the day of the Budget when we saw the Red Book and asked about the increase in the profit target. At the other end of the line there was á silence followed by the reply, "I have a brief on the impact of the Budget on the Post Office, but it says nothing about an increase in the profit targets. I shall have to get back to you." It was Thursday before they got back to us. There can be only one conclusion: nobody at the Post Office knew about the increase until Tuesday's Budget. That increase reflects not the ability of the Post Office to pay an increased profit, but the need of the Chancellor for the extra cash from that industry. In considering the Budget let us leave aside that increased profit from the Post Office. We might as well leave it aside, because, obviously, the President has agreed to the demand for an increase in the profit level; without an agreement he would not get a penny.

If we compare the President's budget with that of the other Departments on the same page in the Red Book, we find that next year, out of 18 Whitehall Departments, the Department of Trade and Industry will come in at 17th in the spending league. It is saved from bottom place in the Government's spending priorities only by the Department of National Heritage. Given the Government's propensity to close factories and to reopen them as museums of industrial archaeology, not even that placing may be safe.

There is a simple way to demonstrate the Government's relative priorities for industry. Fifteen years ago, for every £1 spent by the Government backing industry, 43p was spent supporting farmers. Next year, for every £1 spent backing industry, £2 will be spent to support farmers. That is a candid statement of the relative priorities of the Conservative party.

Mr. Heseltine

The hon. Gentleman totally ignores the very large increases in export credit guarantees. He totally ignores the fact that British Steel is now profitable in the private sector while it was loss making in the public sector.

Mr. Cook

I do not ignore the point about that industry in the private sector. The figures that I am quoting are about departmental ministerial spend and not about public corporations. Nor do I ignore the Export Credits Guarantee Department changes. If the President cares to consult the Red Book, he will discover that even after the changes in the ECGD, the Red Book sets a higher profit level for the whole of the ECGD. Even in the Budget, the Government propose to make more profit from export credit while Governments in the rest of Europe use export credit to support exports rather than to support their own finances.

The President has helpfully brought us to the point that the real competition is not with other Whitehall Departments, but with other countries in Europe. In that respect, the President finds himself at the bottom of the league again. The President provides less support per head to industry than any other European country. Italy provides three times as much while France and Holland provide twice as much. Germany and Spain provide half as much again.

Why do we provide the weakest support for industry? Is it because we have the strongest industry? Why is it that every one of the countries that I have mentioned runs a surplus in manufactured trade with us? Every one of them has seen a large increase in manufacturing output during the lifetime of this Government. Every one of them has seen bigger growth in manufacturing investment over the same period.

We have the weakest industrial base, but it receives less help from our Government. If it is not going to receive any help from the President, what help will it receive from the Chancellor? What industry wanted from the Chancellor was help with investment. That was the single major preoccupation of the submissions made by industry to the Chancellor before his Budget. Those submissions were made by the Confederation of British Industry, the Engineering Employers Federation and the Machine Tool Technologies Association. They all urged the Chancellor to extend capital allowances to encourage investment. They all got the problem right.

The real reason why we should worry about the future of our industry is that we are not investing in that future. If we compare investment in Britain with the other advanced nations of the world, Britain comes in sixth out of the seven members of G7 and 23rd out of the 24 members of the Organisation for Economic Co-operation and Development. We can forget Japan where investment is double our level. On the latest figures, Britain is investing less than Turkey, Portugal and Ireland.

The Conservatives used to boast about an economic miracle. They are a little more coy about referring to it now. The illusion of that economic miracle was always very simple. Over the Conservatives' period in office, they have increased the proportion of the economy going into consumption by 5 per cent., mainly at the expense of investment which, over the same period, has decreased by 3 per cent. The objective of any economic strategy for Britain to recover must be to reverse the trend that the Conservatives have encouraged of people consuming now rather than investing for the future. That must be the test of a Budget.

Mr. Rod Richards (Clwyd, North-West)

In the light of what the hon. Gentleman has said, does he agree with the hon. Member for Caerphilly (Mr. Davies), who said last Wednesday that he was proud of the economic achievements of the last Labour Government?

Mr. Cook

The hon. Gentleman merely underlines my point. Manufacturing investment under the previous Labour Government was 10 per cent. higher in absolute terms and it was actually 50 per cent. higher than the proportion of GDP, and that in circumstances of great economic difficulty. If the Government had maintained the level of investment in manufacturing under the previous Labour Government, manufacturing capacity would now be 30 per cent. greater. That is the point that the hon. Gentleman can find as the best intervention to make in defence of the Government.

Mr. Richards

Will the hon. Gentleman give way?

Mr. Cook

No. The hon. Gentleman has had his chance.

On that test, reinforced by the hon. Gentleman's intervention, the Government get nil points for their Budget. There is nothing in the Budget to help industry to invest. Industry did not receive capital allowances to support spending investment. Instead it received a £700 million bill for sick pay. That is how the Budget went about helping industry. Not only do the Government offer no help to industry to invest; they do not even lead by example. How can they expect industry to take a long-term view and invest in the future when they see the Government taking the short-term view and cutting public investment in the short term? I know—the President of the Board of Trade reminded us —that the Chancellor announced some projects that will go ahead with private finance. We know them well—we have heard their go-ahead announced in every Budget over the past five years. The extension of the docklands light railway was first announced in 1989. I have no doubt that we will hear it announced again next year, when Tory Back-Bench Members will cheer. But the cheering on Tuesday masked the fact that, in the meantime, the investment programmes for which the Government are directly responsible were being cut.

Spending on housing investment is down £500 million as a result of the Budget. As a public spending decision, it is spectacularly inept. We must consider its context. It is a cut in the context of a record number of construction workers who are unemployed. My apologies, Madam Deputy Speaker, it just slipped out—a record number of construction workers who are job-seeking, and a record number of homeless families, no doubt shortly to be given a respray by the copywriters and be renamed "home seekers".

On top of that, the Chancellor himself, in the very speech in which he goes ahead and cuts his construction contracts, tells us that construction prices have fallen by a quarter. In this context, one does not have to be a Keynesian to recognise that this is the time to boost recovery by putting people back into jobs building the homes that people need; one just needs to be mean. All that one needs to do is recognise that a housing programme at present would be at a bargain-basement price. Surely, whatever other failings the Government have, they are mean enough to see that that makes common sense when construction prices are cheap.

It is not as though Government investment is running out of control. General Government investment has never been lower as a percentage of GDP. It is half the level it was when the Government came to office and it is a third of the level of the peak in the mid-1970s. For a decade and a half Britain has been saddled with a Government who have neglected the public assets of Britain. That is why tens of thousands of commuters had to get out of their tube trains last week and stumble along the tunnel, because of a fault in cabling that is so old that it should be in an industrial museum. That is why at the weekend we had the national humiliation of learning that modern and sophisticated French locomotives cannot run comfortably on British railways because the track has not been modernised for 70 years. Yet the Government cut the transport budget because they want to cut the deficit.

The Chancellor and his colleagues are right to be preoccupied by the deficit. The Government have the best possible reason to be preoccupied by the deficit—the best possible reason being that they created the deficit. That is an impressive achievement: the biggest Government deficit in history. It is bigger than it was when the previous Labour Government had to call in the IMF and bigger even than in 1941, when half the GDP was being channelled through the Government's war effort. That is the Government's achievement.

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

As the hon. Gentleman is the first Opposition Front-Bench spokesman to mention the deficit during this Budget debate, I have tried to keep a running total of the spending claims that he has made in the past 10 minutes. How many billion pounds would he propose to add to the spending plans that I announced in the Budget?

Mr. Cook

I should be interested to hear the Chancellor's estimate of my spending commitments because I am not aware that I have made a spending commitment in the past 20 minutes—(Interruption.] The right hon. and learned Gentleman cannot evade the fact that he has cut the housing budget by pretending that it is opposed by a Labour commitment to increase spending. Why, when he could be getting those houses cheaper and putting people into houses, is he not prepared to put people back into work?

Mr. Richards

Will the hon. Gentleman give way?

Mr. Cook

No. Let me finish responding to the Chancellor first, because the Chancellor and the Chief Secretary deserve some attention being paid to the deficit, now that they have commenced this exchange.

The Government achieved the deficit. Indeed, we have it from the fascinating, interesting information of Mr. Bill Robinson, adviser to the Chancellor's predecessor, where the deficit came from. He sets out entertainingly in a pamphlet how the deficit mushroomed under the Government's policies: £22 billion from the extra costs of unemployment as a result of their economic strategy; £20 billion as a result of the tax cuts of 1988, which they now find that they cannot afford; and £4 billion as a result of the introduction of the poll tax, which has left us with a permanently lower level of income from taxation.

The Government must explain how they have managed the nation's finances and policies so incompetently that they have given Britain a record deficit. Last week, they announced that they wanted to introduce an objective test of capacity to work. With such a record, they should be thankful that they are not subject to an objective test for capacity to work; otherwise, their Benches would be empty.

Mr. Cash

Does the hon. Gentleman accept that, however much some Conservative Members have criticised the Government for their economic policies on the exchange rate mechanism, we utterly condemn the manner in which he and all Opposition Members supported those policies and the move towards economic and monetary union? Should not he, too, accept some of the blame?

Mr. Cook

The Opposition are sufficiently grateful for the hon. Gentleman's interventions over the past year to allow him that attempt to work his passage back to the Front Bench.

Having given us the worst deficit on record in the past half a century, the Treasury's stroke of genius now is to propose the record reduction in demand in the past half a century: £8.5 billion taken out in tax; and £3.5 billion taken out in reduced spending. That is a total annual deflation of £12 billion, and more the year after. The theory—or what passes for an economic theory on the part of the Government—is that the animal spirits of the business men will be so released when they are freed from the oppressive weight of public spending that they will bound forward eagerly and expand the output of spin dryers, video recorders and CD players to fill up the hole that the Chancellor has blown in the economy.

However, one awkward fact does not fit that theory: who will buy all that extra output? It will not be those who work in the public sector, because they will receive no net increase in their purchasing power for three years. A fifth of the total work force who, for the rest of the Parliament, will not have an extra pound to add to demand in the economy, will not buy many spin dryers, video recorders or CD players. Nor will they be bought by people surviving on invalidity benefit. Having listened to Ministers in the past seven days, I have noticed a curious mental block in their speeches when they discuss invalidity benefit. For the past seven days, they have described cuts in invalidity benefit as cuts in Government spending. The end effect on the economy of the impact of a cut in invalidity benefit is not a cut in Government spending but a cut in the private spending of people who must subsist on invalidity benefit. They never did buy many CD players, but now they will be unable to replace the washing machine or renew the kettle if it has a dangerous flex.

Taxpayers will not block up the hole in that purchasing power. I must warn Conservative Back Benchers that something has gone terribly wrong with their Government. Opposition Members are accustomed to seeing the people whom we represent being clobbered to give tax handouts to the very rich. What distinguishes this Budget from others is that the people whom Conservative Members represent have been clobbered just as much this time. For once, the married, mortgaged, motoring middle classes must face the biggest burden of this century's biggest tax bill. From next April they will need every penny they have to spare to pay the equivalent of 5p on the standard rate of income tax. Their problem is that there will not be enough pennies to go round. They will face a reduction in their net disposable income. Yet the Red Book predicts an increase in consumer expenditure of 2¼per cent.

That is the economics of Paul Daniels. It beggars belief that a nation that has seen its income cut will respond by increasing its spending. After all, it need only look at the Government. The Government have just said that nothing is more important than eliminating the Government deficit and then they have the nerve to expect everybody else to expand their private deficit in order to keep the economy afloat. If they do not do that, where will British industry sell all that extra output?

When the Chancellor was telling the Cabinet about the Budget arithmetic last Tuesday, did the President tell the Chancellor that if he went to any meeting of industrialists he would find that their main complaint about managing a company in Britain is that demand goes up and down far faster and farther than any manufacturing process can adjust to cope with it? Did he remind the Chancellor that the Confederation of British Industry industrial trends survey revealed that for three years uncertainty over demand has been the chief constraint on investment? Did he even ask the Chancellor whether engineering the biggest drop in demand for half a century was a smart move?

Mr. John Townend (Bridlington)

Will the hon. Gentleman accept that over the past year there have been large reductions in interest rates and, consequently, large reductions in mortgage repayments? Will he accept that, therefore, a large section of the community have had large increases in their disposable income because the monthly outgoing on their mortgage has dropped dramatically?

Mr. Cook

I shall give the hon. Gentleman three figures to take away and think about. The Red Book predicts that inflation next year will be about 3¼ per cent. It also predicts that the increase in earnings will be 4 per cent. The hon. Gentleman will see that there is less than 1 per cent. of disposable income left between income increases and inflation increases. If he looks at the Government's proposals for tax increases, he will see that from next April the people in middle-income groups who vote for him face an increased tax bill of 3 to 4 per cent. of their income. They face a serious drop in disposable income.

The hon. Member for Bridlington (Mr. Townend) has anticipated a point that I was coming to. I am hardly surprised that many commentators, peering down the hole that the Chancellor has just quarried in the economy, have concluded that there is another cut in interest rates coming. There had better be another cut in interest rates to boost demand. If the Chancellor cannot produce one, when the tax increases bite next April, there will be a serious danger of the economy tumbling down a black hole.

Mr. Heseltine

I am listening carefully to the hon. Gentleman. It is apparent that he has taken no account of the point behind the question of my hon. Friend the Member for Bridlington that there have been substantial reductions in the costs of interest to ordinary home owners, which, of course, have an effect on the availability of their real disposable income. In industrial terms alone, interest rate cuts have reduced industrial costs by £12 billion in a year. Patently, none of that has had any effect on the mind of the hon. Gentleman.

Mr. Cook

I am astonished that the President should refer to the benefits to the housing market in this week, which began only yesterday with a declaration in a new survey by building societies that the number of home owners stuck in the negative equity trap has increased by one fifth. If the President seriously imagines that those extra people caught in negative equity will rush out and increase their spending to make good the loss of demand, he is not living in the real world.

I do not have the slightest doubt that, if we fail to obtain interest rate cuts and we find the economy tumbling down that black hole in April, we will hear the Chief Secretary congratulating the Government on having had the courage to take the painful decision to jump into that hole. The Government have shown courage and I remind my hon. Friends of the courage that they have shown.

Mr. Kenneth Clarke

The hon. Gentleman has set out the first economic policy that we have heard from the Opposition Front Bench. Plainly, he is in favour of increasing public spending. Plainly, he would make no increases in taxation. Plainly, he would agree with the hon. Member for Dunfermline, East (Mr. Brown) that big reductions should be made in interest rates to boost demand.

If the hon. Gentleman held my position, what would he say to the gentleman from the International Monetary Fund when he turned up and berated the hon. Gentleman for following the type of economic policies which used to get Latin American banana republics into trouble?

Mr. Cook

The Chancellor presides over a bigger Government deficit than there was when the IMF came in under Labour. [HON. MEMBERS: "That is not true"] It is true. The Government's financial deficit as a proportion of GDP is bigger than it was in 1975. Members of the Treasury team cannot distinguish between the Government's financial deficit and the public sector borrowing requirement. The financial deficit as a proportion of GDP is higher than it was in 1975. If hon. Gentlemen have not grasped that elementary distinction, they should go back to the Treasury and learn more of the job.

I will now speak about the courage that the Government have shown.

Mr. Graham Riddick (Colne Valley)

Will the hon. Gentleman give way?

Mr. Cook

I am not giving way again—I have given way repeatedly.

The Government have shown courage to take the painful decision to take on the unemployed, who will be now given only half the time to seek a job before they lose benefit. That is at a time when in towns which are represented by Opposition Members there are 25, 30 or 40 people seeking a job for every vacancy.

We all know of constituents who have applied over 100 times for a job. No Opposition Member would not have welcomed a Budget that gave those people hope of a job in place of benefit. None of us will not greet with anger a Budget that cuts their benefit without offering that job.

The Government have shown courage to take on people who are on low wages. Some 180,000 will enter into taxation for the first time because the Government have failed to increase the tax threshold. By definition, people on the lowest incomes—incomes of £100 a week—will now be carried over the tax threshold because the Government would rather tax them than have the courage to impose higher taxes on the well-off.

Mr. Riddick

rose—

Mr. Cook

The Government have also had the courage to take on the hospital porter and the school janitor.

Mr. Riddick

Will the hon. Gentleman give way?

Madam Deputy Speaker (Dame Janet Fookes)

Order. Is the hon. Member for Livingston (Mr. Cook) inclined to give way or not?

Mr. Cook

I have given way a number of times, and I have made it clear that I am moving to the conclusion of my speech.

Madam Deputy Speaker

In that case, the hon. Member for Colne Valley (Mr. Riddick) must remain quiet.

Mr. Riddick

The hon. Gentleman is afraid of me.

Madam Deputy Speaker

Order.

Mr. Cook

The hon. Gentleman's suggestion that I am afraid of him makes almost credible the statements which we have heard from the Chancellor during the debate.

The Government have shown the courage to take on the hospital porter and the school janitor, whose pay will be frozen for three years. Of course, they tell us that the pay of some people in the public sector will go up. They say that not everyone will have their pay frozen, and that it is just the overall total which has been frozen.

The problem is that we all know who will find a way round the freeze. People such as the chief executives of trust hospitals have seen their pay rise by 9 per cent. The problem with a pay freeze is that the powerful and the well paid will most likely get round it, while the powerless and the poor run up against it. That is the courage that the Chancellor showed on Tuesday.

However, if one group of people last week showed more courage than the Chancellor, it was the Government Back Benchers who had the courage to cheer the right hon. and learned Gentleman's speech. When the right hon. and learned Gentleman produced a fall in the disposable income next year, they cheered it. When he produced a public spending plan which would leave their local authorities with less to spend for every pupil at school, they cheered it. When he produced a tax bill which will take £10 a week from each of their constituents who are on an average income, they cheered it.

When the right hon. and learned Gentleman graded the tax bill so that from next April anyone on a Member of Parliament's pay will lose over £70 a month, Conservative Members still cheered it. I warn them that their constituents will not cheer next April when the bills fail to be paid. They will want to know why their Member of Parliament cheered. Their constituents may remember that that was not what was promised at the general election, and they may not forget that at the next election. They may decide to borrow one of the stirring phrases used by the Chancellor, and say that "the time has come" to sort out the Conservative Government once and for all, and to do it by throwing out the Tory party which they can never trust again.

4.46 pm

Mr. David Shaw (Dover)

The Budget must be regarded as one of the most difficult in recent years. The Chancellor was beset by suggestions and requests for more expenditure, lower taxes and to correct the deficit—none of which was reconcilable.

However, the Budget produced by my right hon. and learned Friend has much to commend it to my constituents in Dover. Undoubtedly the most significant feature of the Budget was the relief for pensioners and others in relation to VAT on fuel. To help some 15 million people was beyond the wildest dreams of any hon. Member. No one went on radio or television, and no one suggested in the House that 15 million people would be helped by proposals which amount to £1,200 million. The most that anyone suggested was around £500 million to £700 million.

That generosity caught out the hon. Member for Glasgow, Garscadden (Mr. Dewar) who suggested that 50p a week would do the business and would help pensioners. [HON. MEMBERS: "No, he did not."] Oh yes he did. Even Mr. Nelson's retraction, or half-retraction, in The People last Sunday admitted that the hon. Gentleman said that 50p a week would do the business. The hon. Gentleman was caught by a question that suggested that the figure of 50p a week came from a leak. In fact, the whole basis of Mr. Nelson's article is incorrect.

Mr. Gordon Brown (Dunfermline, East)

Has the hon. Gentleman read the article?

Mr. Shaw

I have read it, and it is quite clear that Mr. Nelson's article is based on an incorrect leak—[Interruption.]

Madam Deputy Speaker

Order. There are too many seated interventions.

Mr. Shaw

The article was based on an incorrect leak which suggested that 50p a week was the Government's proposal, when 50p a week went only to one group. Other groups are receiving 70p a week, and even more in some cases. In total, the help amounts to over £1 for all groups eventually.

Dr. Tony Wright (Cannock and Burntwood)

Will the hon. Gentleman give way?

Mr. Shaw

I am afraid that I am a bit short of time, and other hon. Members want to speak.

Mr. Nelson tried to help the hon. Member for Garscadden, but sadly the hon. Gentleman is stuck with an article in The People which has him clearly listed as supporting 50p a week. The Government have taken that to task.

Mr. Donald Dewar (Glasgow, Garscadden)

I am glad that I have come in at this point. I will make it clear to the hon. Gentleman that at no time did I suggest that 50p was acceptable compensation for the VAT package. Mr. Nelson, while running past me a number of possibilities, suggested that 50p might be put on in the Budget. He has agreed with me that at no time did I suggest that that was adequate or acceptable.

The hon. Gentleman may not want to believe me, and he may not want to believe the rather robust words of Mr. Nelson in the cutting that the hon. Gentleman has. I would suggest to him that that merely reflects on the hon. Gentleman's integrity if that is his position.

Mr. Shaw

I respect the attempt of the hon. Gentleman, but nowhere do I find a suggestion that a range of alternatives was discussed or that the hon. Gentleman came up with a figure other than 50p. The hon. Gentleman stuck to 50p, and not even Mr. Nelson suggested last week that the hon. Gentleman talked of 70p or £1. Only the figure of 50p is admitted.

Mr. Dewar

I will try to stay within parliamentary order. The hon. Gentleman is being disingenuous. The article makes clear that at no time did I suggest that 50p would be acceptable. We know that the Chancellor was told that by Mr. Nelson, and the hon. Gentleman has my word for it that no such suggestion was made. If the hon. Gentleman refuses to accept that, he is making some unpleasant assumptions about my honesty which I resent greatly.

Mr. Shaw

The article by Mr. Nelson which sought to correct or amplify the previous week's article did not in any place suggest that the hon. Gentleman suggested that 70p a week should go on. Nowhere does the document suggest that the hon. Gentleman advanced a figure higher than 50p a week. That confirms that the hon. Gentleman proposed a figure of 50p a week—

Mr. Connarty

Will the hon. Gentleman give way?

Mr. Shaw

No, I must move on because others want to speak. I have already given way twice to a Front-Bench spokesman, and Back Benchers cannot give way more than that. The fact is that the article clearly mentions only one figure: 50p a week.

The Government have come through the recession and have restored economic growth. Our expenditure on welfare has come through intact as well. We have maintained social security expenditure—many would argue almost too generously, because it is alleged that some benefits go to those who are abusing the system. We have maintained health and education expenditure. Those are major achievements which are not mirrored in other countries.

More importantly, to help the long-term unemployed we have introduced a job seeker's allowance to assist people back into work. We have produced proposals for child care to help lower-paid families get into work. We have also produced a number of small business measures which, I hope, will result in more job creation as economic growth returns.

The Chancellor has also avoided a rate increase in income tax—again, a major achievement at a difficult time. The structure of the income tax system ensures that there is still a strong incentive to work under it.

Capital gains tax has been tightened up in a number of ways, but I am saddened by the fact that this opportunity was not taken to look again at its rate with a view to reducing it. Many of us believe that the 40 per cent. rate acts as a disincentive to risk investment. I believe that when the economy has recovered to the extent it is likely to under this Government, future Budgets should reduce capital gains tax rates further. That will help more risk investment and risk taking in the economy.

I am pleased that the Budget anticipates that public expenditure will fall from 45 per cent. of GDP to 42.5 per cent. in the years ahead. That is possible only because economic growth has returned to a considerable degree, and all the tough policies carried out by this Government in recent years are beginning to pay off. We are beginning to earn the dividend due to those who husband their resources carefully through difficult periods£and we have certainly gone through a difficult time, not just because of our recession but because of a serious and deep worldwide recession.

Let us nail the myth of cuts in public expenditure. Our opponents love to make great play of alleged cuts; the reality is quite different. In cash terms, public expenditure is increasing, and even in real terms many Departments will enjoy an increase next year. That is a tribute to the way in which the Government have managed the economy, and it is not mirrored in other countries.

An area of public expenditure that has been increasing in recent years is public sector pay. The public sector payroll now costs about £85 billion a year. This enormous amount has gone on increasing relentlessly because the terms and conditions of service of our public sector employees are among the best in the country. They have good pensions, good hours of work, and consequently public sector costs have been vast and rapidly increasing. Average pay in the public sector, at £321 a week, is higher than average pay in the private sector, at £316 a week. This situation contradicts most people's impressions, and we cannot go on with it. We often read about company directors allegedly receiving large pay increases, but even taking them into account public sector pay is higher than private sector pay.

We need restraint in the next few years, which is why it is only right to support the Government's policy of restraining the total public sector pay bill so that it exhibits no real growth.

The social security uprating will mean that by the end of the century our social security expenditure will be close to, or at, £100 billion a year. That is an enormous bill: about one third of all public expenditure. This uprating has been one of the best ever for pensioners and others, but it could not be afforded if we did not tighten up on certain benefits and on fraud and abuse. It is only right that unemployment benefit should be replaced by a job seeker's allowance. It is only right, too, to make the new unemployment benefit more focused and more liable to encourage people back into work.

It is also right that invalidity benefit—everyone accepts that it is misused by small or possibly larger numbers of people—should be replaced by a much more tightly focused benefit. I have been told about a man working on a building site in Spain who claims invalidity benefit in this country, for instance. Hence, the current system must be improved so that we can stop similar examples recurring in future.

I commend the adoption of resource-based accounting for expenditure. All too often Members of Parliament complain that school buildings or health service buildings are not being properly maintained. That is because Governments of all political persuasions have failed to make proper provision in the accounts for depreciation and for the replacement of these assets. I am pleased that the Government have finally grasped the nettle and adopted a proper accounting system. As a chartered accountant, I find it all the more remarkable that it is a lawyer in the Treasury who has at long last adopted this system.

I have been saddened not to hear any serious policies advanced by the Opposition during the Budget debate. Indeed, the Labour party seems short on ideas of a serious nature. We have heard plenty of ideas for new taxes, but none that would raise a sensible amount of money—[HON. MEMBERS: "Nonsense."] To be sure, the Labour party has come out with lots of ideas in recent weeks, proposing numerous taxes in various documents—a transport tax, a green fuel tax, and so on. There was also a travel tax involving aircraft.

I heard the hon. Member for Dunfermline, East (Mr. Brown) interviewed on the "Today" programme the other day, when he came up with three ideas for raising more revenue. Even the BBC, without necessarily having the Treasury figures to hand, was able to put it to the hon. Gentleman that those three ideas would raise no more than £1 billion, and probably no more than a few hundred million pounds. Suddenly, the hon. Gentleman was lost for a sound bite.

The fact is that Labour has not come up with any proposals for dealing with a £50 billion deficit. We have, and the Red Book shows how to get rid of the deficit by the end of the decade.

In conclusion, there is much in the Budget to commend it to my constituents. It will benefit not only my constituents in Dover and Deal, but the whole country and it will help us move successfully towards the new millennium.

4.59 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

I am sorry that the hon. Member for Dover (Mr. Shaw) repeated the story about my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar). My hon. Friend has explained the matter several times during these debates, and his explanation has been believed by hon. Members. It is a reflection on the hon. Gentleman that he did not follow them, rather than anything else.

The President of the Board of Trade spoke about new legislation to deal with late payments. We look forward to that with great interest, as this is a serious matter for many small and large businesses. However, when I think of late payments, I am reminded that the Public Accounts Committee took the Property Services Agency to task, not because the PSA was not paying promptly, but because it was not paying at all until it was paid itself, even if that meant a delay of 90 or 120 days, or even longer. That was outside Treasury rules for payment. I hope that the Treasury will ensure that Departments at least retain their respect for legislation when it is introduced, and that they will conform with Acts of Parliament.

The Chancellor of the Exchequer said in his Budget statement: This Government will never take part in any attempt to dismantle the welfare state."—[Official Report, 30 November 1993; Vol. 233, c. 927.] It all depends on what is meant by "the welfare state". Some provisions go back to the early years of this century.

In the 1930s we had old-age pensions, the dole and children's tax allowances, but all were grossly inadequate. Some people wish to return to such levels of provision—I do not say that that is the Chancellor's view. Some people think of the welfare state as the 1930s provision, plus a watered-down version of the national health service.

Beveridge realised that the basis of the welfare state was essentially low levels of unemployment. That is the foundation of a welfare state. Achieve that and we have a civilised nation. That was the kernel of his idea. Therefore, the major problem of our time is not the Budget deficit—that is just a symptom—but the idle 4 million people who are ready and willing to work. I am speaking not of the 2.8 million who qualify for benefit, but of the 4 million who are ready and willing to work.

What work is available? There is work if we convince lenders that investment is worth while. When I talk about investment, I am thinking of investment that produces a return within a measurable period. We have a number of opportunities. Many businesses have serious cash flow difficulties but nevertheless can convince a bank manager or other lender that they present a sensible investment opportunity. We can borrow, if we consider such investments—for example, roads. Some roads are crumbling because they are not being repaired in time. When a road is allowed to crumble, it eventually reaches such a state that it must be remade. That costs many times the cost of repairing it. The Government do not understand that our roads are reaching that state, so they fail to get investment to repair them.

If our roads were surveyed and the investment sought, it could produce a saving against which we could borrow sensibly. A number of our hospitals are decaying. Roofs have fallen in, and from time to time other dilapidation occurs. Everybody knows about the condition of London Underground. All these provide possibilities for initiating work. Construction firms have workers available and the ability to undertake that sort of effort. A worthwhile return can be achieved.

Industrial incentives are most important. Last year, the former Chancellor rightly introduced 40 per cent. investment allowances, for one year only. I praised that at the time. I hoped that the figure would be raised to 60 per cent. this year. Even 70 per cent. or 100 per cent. would not be out of the question. They merely defer the sum that the Chancellor will get in subsequent payments. Meanwhile, plant and machinery are put in place which enable production—the essential basis for an economy which has insufficient opportunities to produce the goods to reduce our balance of payments in the long term.

Even if it means making a gift in order to get that investment, let it be reinvested in plant and machinery. I called for that then, and I call for it now. Unfortunately, far from moving in that direction, the Government are doing the opposite and moving from 40 per cent. to 25 per cent. investment allowances. That is no incentive. Please let us never use the term "investment allowance" to mean investment incentive. There is no investment incentive at the rate of 25 per cent., because plant and machinery are not worth 75 per cent. at the end of the year. They are worth rather less, so that rate is an investment disincentive.

Several problems and opportunities face the Chancellor. The Government have been calling on the private sector to redress the balance of the public sector. Sometimes that has not worked out too well—for example, in the West Midlands health authority, the Welsh Development Agency and the Development Board for Rural Wales.

The private sector was brought in because of its understanding of certain techniques. I welcomed that. It is right to bring in such people, but most important of all is to give them the understanding that they are dealing with public money and are responsible for its expenditure. To employ model girls on a Sunday afternoon to investigate whether they will be suitable, as the WDA did, is no way to bring private sector expertise into public life.

The Chancellor talked about joint ventures with public capital and private capital working happily together. He mentioned the docklands light railway. It has been mentioned in almost every one of the last half-dozen Budgets. It seems to be a constant theme. Bring in the private sector to redress the balance of the public sector. Bring in an air traffic control centre for Scotland. Bring in the west coast main line. Bring in six new prisons.

This is just dreaming and hoping for something in future. Now we hear of electronic motorway charging to be introduced some time next century. That is not part of a Budget, even an expanded Budget that includes income and expenditure. We should remove these layers of dreams and deal with the practical realities facing us at all times. There has been a bit of a mockery of some spending proposals—dreamed up, I suggest, by some advertising agency.

All that fits in with the nonsense about the attempt to examine the Budget deficit to the end of this century. The Budget deficit at the end of the century will interest many of my constituents, but I have little confidence in the Budget judgments for the year ahead, let alone in talk about Budget judgments to 1998–99. I prefer a more realistic approach to what is happening here and now to the unemployed and to our production capacity, which is further decreasing because of our failure to invest properly and to bring about the necessary investment incentives.

We have a public sector pay freeze. There is not to be a private sector pay freeze. The House must understand that. The public sector pay freeze will take place at the same time as the private sector increases pay year by year. Therefore, we shall see one of two things, or perhaps a mixture of both. Unemployment in the public sector and cuts in services will lead not only to especial dangers of unemployment in the public sector, to a fall in standards of provision of services in the way we are used to and cuts in those services, but to further demoralisation in the public sector.

The public service used to describe just what it was: service to the public. When I was a little younger, some people were idealistic enough to devote their lives to serving the public and felt that they were doing something valuable. They were not out to make fortunes for themselves but looked on the public good as one of the main aims of their lives. That led to real advantages for us all, because of the consequent standards of public service, which in turn created advantages to the whole community.

Plenty of overseas visitors ask how we are able to achieve high standards of public service apparently without fraud and corruption, which are their major problems. I tell them that that was achieved over 140 years, and that it is crucial that we do not accept any changes that may lead to a reduction in our standards in public service.

Those who seek efficiency in the public service, as I do, must remember that the greatest cause of inefficiency is fraud and corruption. The morale of our public service employees is the cause of that efficiency and we must not underestimate that. We must have a high respect for the public service, as it is important.

There are 180 countries in the world community, and 150 years ago we had our position roughly right—that standards in the public service were to be maintained, to which I owe my position. The Chairman of the Public Accounts Committee is a member of the Opposition. That could never have been done today. Nobody devising the constitution would dream of appointing a member of the Opposition as Chairman of the Public Accounts Committee with a right to investigate the Government. Those standards have been maintained for 150 years, and I hope that they will be maintained for many centuries to come.

It is important that we understand that such standards can be rapidly eroded. There are already signs of erosion, such as the Welsh Development Agency, the Wessex health authority in two days' time, and a number of other areas in which people have not taken the trouble to work out what is expected from the public services. There are 1,500 quangos of one kind or another to which people are appointed and not assessed for what they are.

The Opposition have no say in who is appointed—a practice that I deeply deplore. Somebody should consider some of those appointments, drawing attention to the rights of the public to ensure that public service is understood and recognised. One does not behave with public service money in the same way as one would deal with money in a private company. There are different standards that are vital to efficiency as well as morality on which the public service depends.

The right hon. Member for Kingston upon Thames (Mr. Lamont) began the idea of taxation in advance. The whole point of it is that it is limiting. Spending must be determined a long time in advance and devised, because plans must be made, contracts have to be put out and so on. The only way to control the economy is through taxation, because some parts can take effect as soon as the Chancellor sits down after his Budget speech. If one begins to pre-empt decisions on taxation, it limits the rights of the Chancellor.

The Government used to boast in the 1980s about eliminating taxes and about reducing taxation. Now we are to have two new taxes at once—air passenger tax and insurance premium tax, and nobody doubts that those will be raised in due course. There was an opportunity to take into account what the previous Chancellor of the Exchequer, Lord Lawson, used to talk about—truth in taxation. He used to bore us stiff night after night, but he was really talking about the personal allowances that must always be increased in line with inflation. He was so convinced of that, that when the Rooker-Wise amendment was moved, he supported it, and it was enshrined in legislation. We accepted it, because at least it in assured the establishment of a sensible way in which to proceed. Nobody doubts that.

Mr. Kenneth Clarke

The right hon. Gentleman opposed it at the time.

Mr. Sheldon

I opposed it at the time for obvious Treasury reasons, as everyone knows. Nevertheless, it was a sensible way in which to proceed, and it was proven to be so, because it was continued.

As my hon. Friend the Member for Livingston (Mr. Cook) pointed out in his usual brilliant speech, the cheers came from the Tory Benches when the Rooker-Wise amendment was denied. Cheers at the Budget would never have happened previously. The lain Macleod dictum was that cheers for the Budget led to misery by the summer, but many others made that point long before him, as I did. I am happy to see it called the Macleod dictum because it gives it a greater respectability. He would have been a great Chancellor. He was a man for whom I had enormous respect, and I was honoured to be one of the three Opposition Members able to put my name on the plate that was presented to his widow.

We are dependent on a sufficient number of people in the House who understand taxation policies and who are able to convince the Chancellor of them. It was the Chancellor's first Budget, from which I hope that he will learn and perhaps remedy some of its aspects that are wrong.

5.16 pm

Mr. John Townend (Bridlington)

I was one of those hon. Members who cheered the Budget, as the hon. Member for Livingston (Mr. Cook) said, and I shall explain why.

I think that the Budget will go down as the most important of this Parliament. I have spoken in every Budget debate since I was elected to the House, and the problems that the Chancellor faced in making this year's Budget judgment were the most difficult. On the one hand, it was imperative to take further action to deal with the debt, which was rising by about £1 billion a month and which, even after the former Chancellor's tax package, was to be £30 billion a year by 1997–98. That would have increased the total borrowing in that six-year period by no less than £233 billion. Even at the current low interest rates, that would cost about £16 billion a year in additional debt charges.

Mr. Alex Salmond (Banff and Buchan)

The hon. Gentleman welcomes the Budget, as he has said in the past week, but will he cast his mind back to the previous Parliament and remind the House whether he cheered the 1988 Budget?

Mr. Townend

I certainly cheered during the 1981 Budget, and as I develop my argument I shall explain that the Budget is more comparable to that of 1981 than that of 1988.

The other task that was facing the Chancellor was to be careful not to tighten the fiscal stance to such an extent as to weaken the recovery, which in many parts of the country and in many industries is still fragile.

Apart from the effect of the recovery, there are only two ways to reduce a deficit—to cut spending or put up taxes. In the previous Budget, the Government introduced a package of tax increases and in that debate I criticised them for not cutting expenditure. As a result of that Budget, public spending will rise this year by 5.34 per cent. while inflation, excluding mortgage interest, is 3 per cent.

In the previous Budget debate, on March 17, I suggested that the debt be dealt with by a balanced package of tax increases and spending cuts. As the summer progressed, reports from Downing street made it look as though the Government did not have the stomach to cut spending. All the indicators given then were that the best that we could expect was for the Government to stick to the control totals. I was therefore naturally delighted when my right hon. and learned Friend announced his plans progressively to eliminate the deficit by the end of the decade, and to balance that by a package.

Under the Budget, there will be expenditure cuts over the next three years of £10.3 billion, and tax increases of £12.7 billion. If we add those sums to the package proposed by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), we see that the tax increases are at least double the spending cuts. The taxpayer is still shouldering the major burden of reducing the deficit, although the Government have at least now made a start in cutting expenditure.

Clearly the Government have listened to the Confederation of British Industry, to the Institute of Directors, to private industry and to Conservative Members; we have a balanced package.

I was delighted when my right hon. Friend the Chief Secretary said last Wednesday that we were the party of low taxes. The Government's overriding priority should now be progressively to reverse the tax increases as and when we can. That would kill the accusations peddled rather unconvincingly by the Labour party that Labour is now the party of low taxation and that we are now the party of high taxes.

To achieve that aim, the attack on public spending, which has now started relatively modestly, must be intensified. The Government should first concentrate on eliminating waste and inefficiency, and on cutting costs. There is enormous scope for that throughout the public sector, especially in local government. I strongly welcome the freezing at current cash levels of running costs, which now amount to no less than £20 billion a year, until 1996–97.

The public sector has not benefited from the productivity explosion in manufacturing and financial services. The manpower savings from the information technology revolution have never been achieved as fully in the public sector as elsewhere. Manpower levels always seem to be more bloated in the public sector than they are in the private sector.

If one needs an illustration of that, one need only look at the industries that we have privatised. British Telecom now has 37,000 fewer people, it is producing a more efficient service, and it has become one of the leading telecommunications companies in the world. Only last year, the British Airports Authority, another leading international player which has been asked to operate airports overseas, cut its work force by 19.5 per cent. Our energy industry is making equal advances. Last year, PowerGen cut its work force by almost 20 per cent. Compared with that, the Government's squeeze on running costs is modest.

I suggest that, over the next few years, the Government should progressively increase the squeeze on overheads. Surely we do not need as many civil servants as soldiers. Just as private industry has successfully taken out whole layers of management, so should the public civil service. During the recession, every company, whether large, medium or small, has had to cut its overheads to survive. That has been painful but necessary, and I believe that the public sector must now accept the same pain. The Government should set manpower targets for reductions in every area.

I often think that the whole culture of Government is against reducing expenditure. What civil servant would ever come forward with suggestions to reduce the size of his empire, the size of his budget or his manpower? Indeed, what Minister would ever come forward with such suggestions?

One point that has always intrigued me as a mere Back Bencher concerns the many people elected to Parliament who come from local government and who are committed to reducing expenditure. When they are promoted to the Treasury, they do an absolutely first-class job as junior Ministers, and are convinced of the need to control spending. They are then promoted to large-spending Departments as Secretaries of State and we all say, "Jolly good. Harry will really squeeze spending." Within three months, those same people are back at the Treasury asking for more money.

Market testing, if pursued with vigour, will undoubtedly save many millions of pounds, provided that we can overcome the resistance. There is enormous scope for savings in local government, as we all know. I strongly welcome the Government applying pressure by increasing the grant this year by only 1.5 per cent.

However, no Department—even Departments that are politically sensitive—is exempt from the need to be efficient and to avoid waste. There is scope for increasing efficiency in the Department of Health just as there is in the Ministry of Defence, and in the Home Office just as there is in the Department for Education.

What is important is that, when we identify savings and then achieve those savings, the bulk of money saved should not stay within the Department to increase the service and thus push up expenditure again. It should go back to the Treasury, to help to reduce the deficit and enable us to return more quickly to our policy of reducing taxes.

I strongly support the social security reforms and the efforts of my right hon. Friend the Secretary of State for Social Security to reduce fraud, waste and abuse, and to bring the Department's ever—expanding budget under control. As my hon. Friend the Member for Dover (Mr. Shaw) said, it will be impossible to finance such growth year after year.

There are a couple of other areas at which the Government have not looked, but at which they should look next year. One is overseas aid. In view of the problems with our deficit, I am surprised that we are again increasing our spending on overseas aid.

There is nothing wrong with overseas aid in principle, but I believe that, when we have a large budget deficit and a large balance of payments problem, it is strange economics to borrow from the foreigner—whom we have to repay with interest—and then to give money to the foreigner. We spend £2.3 billion a year, and I believe that we could save about £500 million of that until the budget is balanced.

For historical reasons, we spend far more per head on health, on education and on law and order in Scotland, in Wales and in Northern Ireland. I accept that there is a good argument for spending more on law and order in Northern Ireland, but I believe that it is an anachronism that we spend 30 per cent. more per person on health in Scotland than is the case in England. That is not only anachronistic, but illogical and unfair. We should progressively bring spending down to the level of the rest of the United Kingdom.

I have one small point in support of the Government's policy of deregulation. A cut of 10 per cent. in the total number of inspectors would show that we were at last beginning to accept that, if we are to survive in the European Union, we must develop a European attitude to implementing regulations.

Having listened to several days of debate on the Budget, I am amazed by the Labour party's policy. Labour Members attacked us for increasing taxes and for reducing spending. If we do not reduce spending, and if we do not put up taxes, the budget deficit will inexorably rise year after year to such a level that our whole economy will be in a state of collapse.

Is that what the Labour party wants? I know that Labour's answer is that it would not start from here, but we are here, and Labour's arguments will not wash with the general public. Labour is suggesting the economics of the illiterate.

I congratulate my right hon. and learned Friend on his package to help people, especially old-age pensioners, with the VAT on domestic fuel. I find it incredible that Opposition Members can criticise the package for its size. At £1.25 billion, the Chancellor is repaying 44 per cent. of what he expects the total income to be. Indeed, it could be argued that, if we are giving back such a high proportion, we should never have introduced the tax in the first place, but should have raised the money in another way.

My right hon. and learned Friend cannot be criticised for not being generous. I am especially pleased that the help will not be restricted to pensioners on income support. I represent a constituency with a higher than average number of old people, who will very much welcome my right hon. and learned Friend's proposals.

Every Conservative Chancellor, if he wishes to get the cheers of his hon. Friends, should include a package to help industry and business. The Chancellor has not failed us this year. I am delighted that we have a wide package that encourages the flow of capital into small firms, reduces the burden of corporation tax on small firms, gives capital gains tax relief to retiring entrepreneurs, gives help with the uniform business rate, and gives help to exporters.

I am glad that, at long last, the Government will look at the problem that has increasingly hit many small firms over recent years—the late payment of debt. I will be interested to hear his proposals. I hope that they will include some form of statutory interest. Like my colleague and fellow accountant, the hon. Member for Dover, I strongly support the move to resource accounting.

If I may, I wish to give the Chancellor a little advice for the future. As the House knows, for many years I have been chairman of my family's company in the drinks industry. I am pleased that the Chancellor has accepted the problems facing the industry as a result of the enormous rise in cross-channel imports of alcoholic liquors since the implementation of the single market. Those liquors are purchased on the continent, where duty levels are much lower than in this country, particularly on wine. The duty on wine in France is practically non-existent.

I welcome the Chancellor's decision not to increase the duty on spirits and beer. Having accepted that argument, it seems illogical to increase the duty on wine, however small the increase, because that will increase the differential. That cross-channel trade, both legal and, regrettably, increasingly illegal, is building up rapidly. There have been many incidents in my own town of people selling alcohol from vans outside factories. If nothing is done, thousands of jobs will be lost in retailing, wholesaling and distribution, and many businesses will close.

We are in the European Union, and it is the Government's duty to ensure that British commerce and industry have a level playing field. In this case, we clearly do not have one. The problem will not go away; the Government must look seriously at the problem over the next year, and come up with a long-term policy to deal with it.

To solve the problem will cost a lot of money. It is already a problem because of the very low rate of duties in France. If we take into account the loss of duty and the loss of corporation tax on the loss of profits—next year, we will also have to take into account the cost of the increase in unemployment—the present cost to the Treasury is estimated at £500 million. That figure will increase in the next year when we take into account the cost of the increase in unemployment.

The solution will be expensive. We will have to move towards harmonisation of duties over the long term. The money will have to be found elsewhere, perhaps by an increase in the general rate of value-added tax or a tax on cross-channel ferries similar to the new airport tax. I know that my hon. Friend the Member for Dover will not support me on the latter suggestion. I was disappointed with the ending of indexation for losses on capital gains. I do not understand the rationale for ending indexation on losses while keeping indexation for profits. Indexation is fair, but it certainly complicates the filling in of tax returns. In a future Budget, the Chancellor might look at a way of simplifying capital gains tax—if he cannot find the money to abolish it—by doing away with all indexation, but reducing the rate to 15 or 20 per cent.

I would chide my right hon. and learned Friend on one small point. He quite strongly made the point that the recovery started in 1992, before we were blown out of the exchange rate mechanism. I see the hon. Member for Durham, North (Mr. Radice) nodding his head. Those of us in the big wide world outside in business realised in the summer of 1992—whatever the situation at the beginning of 1992—that the excessively high interest rates and the uncompetitive pound were beginning to crucify British industry. If we had not come out of the ERM, I am sure not only that our fragile recovery would have ground to a halt but that we would have faced a serious slump.

If proof is needed, we have only to look at what has happened in Europe, where the recession has got deeper—especially in France, which maintained relatively high interest rates in order to keep the franc in line with the deutschmark. I hope that the Chancellor is not trying to re-write history as a prelude to taking us back into the ERM.

It is a tough and brave Budget, which has been welcomed by industry, small business and the market as the level of long-term interest rates has declined. The Chancellor has identified the most urgent problem—the deficit—and has set out a programme which will see us through to clear water if we stick to it. I congratulate and compliment him on his revenue raising. It is innovative, elegant and, at times, hardly able to be seen—particularly the airport tax, which is an absolute winner. I am amazed that it will raise so much money with so little pain.

The Chancellor has given help to pensioners and single mothers. He has started to cut spending, and he has helped business. In future years, the Budget will be compared to the 1981 Budget brought in by the noble Lord Howe. That was also a tough Budget. It was highly criticised by the Opposition at the time, but it laid the foundation for our 1983 election victory. This Budget will have the same impact.

Once the deficit is down, we can return to cutting taxes and fulfilling our election pledges and our Conservative philosophy. I congratulate the Chancellor and the Chief Secretary on their efforts and courage. I am sure that I speak for all my Back-Bench colleagues when I say that we will give 100 per cent. support to get the Budget and Finance Bill through the House. It will signal the start of our party's recovery.

5.35 pm

Mr. Malcolm Bruce (Gordon)

The hon. Member for Bridlington (Mr. Townend) has taken the gloss of the Chancellor's boast. He has told us that he is an enthusiast of the Budget because of its high taxes and its boost to unemployment. That is not what the Chancellor hoped would be the overall comment on the Budget, but it may be the consequence of it.

It was interesting that the Chancellor was praised for the introduction of new taxes. I have sat through Budget speeches during the past few years and heard his predecessors announcing with pride that they have abolished another tax. The Chancellor has not only stopped abolishing taxes but has introduced two at a time, which suggests a sharp U-turn in the Government's policy and approach to taxes.

I do not often quote my own speeches, but in the Budget debate on 16 March I said: The Budget is a tax-raising Budget designed to tax, tax and tax again—it will tax this year, tax next year and tax even more the year after."—[Official Report, 16 March 1993; Vol. 221, c. 204.] That referred to the previous Budget, not this one, but it seems to me that the Chancellor has adopted the trend with enthusiasm. He says that he has not a clue whether he will follow it through in subsequent Budgets.

With the two Budgets together, the Chancellor has completed the biggest tax increase in a single year in British history, and has introduced a raft of new taxes. That is astonishing for a Government re-elected on a pledge to cut taxes. I understand that the total package is the equivalent of 9p on the standard rate of income tax in a single year.

The Chancellor has also sought to re-establish a classic Conservative economic policy that has led to disasters in the past. The intellectual base of that policy is highly suspect. We may have the beginning of a recovery—I hope we do and that it is sustainable—but I make no apology for being a Keynesian. I am not convinced that it makes good sense to cut spending and increase taxes when economic activity is depressed. I am sure that the Chancellor will acknowledge that the signs of recovery that we have do not suggest that we are out of the woods.

Mr. John Townend

If the hon. Gentleman's party would not increase taxes and would not cut spending, it would not reduce the deficit. What would it do when the markets decided that £50 billion a year was too much to absorb? It would have to put up interest rates, and if it did that, it would reduce economic activity.

Mr. Bruce

The hon. Gentleman's intervention is premature. I will deal with that matter during my speech.

The Chancellor specifically excused the tax increases in the Budget on the ground that lower interest rates increase consumer purchasing power. That may be true for some, although the tax changes will reduce that power. I suggest, however, that many will not spend the money released but will save it because they are so worried about negative equity. The right hon. and learned Gentleman did not address that problem.

The Government and their Back Benchers also always ignore the fact that a cut in interest rates leads to a substantial cut in income for many millions of people, especially retired people who rely on the yield from their savings to live. The Chancellor acknowledged that with the introduction of the pensioners bond, but we know that it is limited to a sum of £5,000 and we are not yet aware of the interest rate to be set. It represents a modest contribution towards cushioning those people from the effects of lower and potentially even lower interest rates. I agree with the hon. Member for Livingston (Mr. Cook) that the Chancellor has gambled on the fact that he will be able to lower interest rates further as a condition for enabling the Budget not to be so deflationary as to knock recovery on the head.

The Chancellor has not addressed the problem of investment or our trade deficit. With much of our industry working at capacity but without clear confidence, the economy is fragile and a time lag is operating against whatever consumer spending comes back into the economy to feed United Kingdom production. We know from the past that reduced capacity sucks in imports, which aggravates our trade deficit.

I believe that there is a strong case for cutting taxes in a recession and directing investment into infrastructure projects, which would directly stimulate the economy, lower unemployment, and consequent social security spending, and improve competitiveness rather than reduce our balance of trade. I am afraid that the hon. Member for Bridlington did not acknowledge the costs of unemployment and its contribution to the public deficit.

The trouble is that the Government have restricted their options. We are still paying for the cost of sorting out the poll tax and for Nigel Lawson's unjustified tax cuts. I would be interested to know how many hon. Members have met people who spontaneously tell them that the country is suffering as a direct result of Nigel Lawson. That is said to me every day, mostly by people who voted for the Government. They appreciate that those tax cuts were unjustified and that now we are all having to pay for them.

The Budget is designed to sort out the mess of the Government's own creation and it does nothing to meet the long-term needs of the British economy. I welcome the measures for small businesses, such as they are. I also hope that the Chancellor will address the problems caused by late payment. I am sorry that the Government have rejected out of hand the offer of my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) to provide his slot for a private Member's Bill to introduce one to deal with that problem. Such a Bill must, ultimately, be introduced.

Given that retail sales are weak—in November they increased by 0.1 per cent.—once consumers confront the full impact of the tax increases, it is likely that current spending expectations will be halted or even reversed. To what extent has the Chancellor taken that into account?

The increase of 1 per cent. in national insurance contributions will take money from people at source as will the freezing of personal allowances and the reduction in mortgage relief. When people come to spend their money, however, the imposition of VAT on fuel will cut their spending power as will tax on petrol and insurance. All those measures are likely to dampen consumer activity and could lead to the recovery being snuffed out before it has got going.

I want to set the record straight on the green taxes of the Liberal Democrats. We have advocated a shift from taxes on wealth creation to taxes on pollution. The essential importance of that shift is that the revenue from taxes on pollution would be simultaneously reinvested in tackling poverty, hardship and investing in anti-pollution and recycling technology. Any surplus would be given back in tax reductions. We have suggested that we could reduce the overall rate of VAT by 1 per cent.

Were a carbon tax to be introduced, it should coincide with compensation for rural areas. The revenue gained should also be spent on measures designed to tackle fuel poverty, promote fuel efficiency and on developments to reduce carbon dioxide ouputs. No such package has been offered by the Government. On the contrary, as a result of their VAT proposals, they have been forced to give back half of the yield to head off a political revolt. That money has been given back because of the political protest that followed the Budget in March. I suggest to the Chancellor that a penny on income tax would have been much more efficient in yield terms.

Where are the Government's green initiatives, which they have tried to use as a justification for the imposition of VAT on fuel? Is the betrayal of Warren Spring Laboratory a green initiative? Is going ahead with THORP a green initiative? Is failing to invest anything like enough in public transport a green initiative? The Government cannot try to justify simply creaming off taxes for revenue purposes without a cultural shift. They have not achieved that and what they have done is neither politically justified nor honest.

I represent a constituency in the north-east of Scotland and the extra tax on petrol represents an unavoidable cost for many people. Higher fuel bills will be avoidable only at the risk of ill health or hypothermia. If we were provided with assistance to increase fuel efficiency—I am not talking about the small details that the President of the Board of Trade has announced—and to improve public transport links at lower cost, the tax increases might be acceptable. Those increases are, however, already far greater than the total package of taxes that we proposed should be introduced over five years. The Government have ignored the balanced approach. They have offered no package of environmental measures and, therefore, we will not support that extra tax burden.

Mrs. Ray Michie (Argyll and Bute)

Another part of Scotland that will suffer greatly is the highlands and islands, which is equivalent to the size of Belgium and is one of the most sparsely populated areas of Europe. The local people will now face huge increased costs as a result of the tax on petrol and the imposition of VAT. The Chancellor said that the take-off tax at airports would benefit the islands, but I believe that it will only benefit planes with fewer than 20 passengers. Out of 1 million passengers, only 20,000 will benefit.

Mr. Bruce

My hon. Friend has made a potent intervention on behalf of her community and others in the highlands and islands. What my hon. Friend has said is a reason not for not introducing certain measures, but for ensuring that proper account is taken of the needs of such communities. The Chancellor said that the airport tax would not cover inter-island services, but it will affect the much more vital link between the islands and the mainland. That tax will represent an extra cost for living on an island, which is expensive enough as it is. It demonstrates the Government's inability to adopt a balanced approach and to show some sensitivity and understanding for people in the highlands and islands.

In March, I vigorously opposed the abolition of allowances for exploration wells, which was introduced by the previous Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont). I was part of a delegation that the Financial Secretary received which argued against that and which suggested what the consequences might be, particularly because the transitional relief was inadequate.

This time last year, the oil price was nearly $20 a barrel; recently it dropped below $14. That has put intense pressure on North sea production. The Government's timing could not have been worse, because, as we face the pressure that their decision has caused, the exploration side of the industry has taken a beating. I told the Financial Secretary that job losses would be widespread. In my own constituency Vetco-Gray has announced the redundancies, before the year end, of more than 100 long-serving engineers as a direct result of the downturn in exploration activity. The downturn in exploration threatens future investment and the overall production potential of the North sea. In the first three quarters of 1992, 63 exploration wells were started. In the first three quarters of this year, that number was down to 30. That is a direct consequence of the Government's policy. It is an extremely damaging development, which we warned that the Government would follow—

Mr. Dorrell

I am grateful to the hon. Gentleman for giving way. I am sure that he would not want to mislead the House on what has been happening on ENA wells this year. Will he confirm that, although the figures that he has quoted for the total number of wells this year are broadly right, the pattern has been of a figure of roughly 10 per cent. in the first quarter, that it fell away sharply during the summer and that the most recent figures for September and October show that that level of activity has increased sharply?

Mr. Bruce

I have no problem. I want to see activity in the North sea. But the reality is that at the moment the year-on-year total shows a sharp reduction. It is too early to say what the net effect is. One must never take one or two months as an indication of a long-term trend. I can tell the Financial Secretary what I am told by people in the industry: there is a real anxiety that the combined effect of the tax changes and the fall in the oil price has serious implications for the North sea.

On behalf of my area and the city of Aberdeen, I have to say that there is some masking of that effect by an ironic twist of restructuring. Many of the oil companies faced with a squeeze on their costs are reducing their total number of employees but increasing the number of people located in Aberdeen, because it is cheaper for them to do so. I welcome that as a development, but am not led into a false sense of security that that does not conceal the underlying anxiety and weakening of confidence in North sea investment.

Mr. Salmond

I reinforce what the hon. Gentleman has just said and draw attention to the fact that the only petroleum revenue tax concession announced in the Budget is a concession specifically designed for one pipeline system—the CATS system—which takes gas from the central North sea and deposits it in Tayside. Many of the other pipeline infrastructures such as the Forties system will not be entitled to the new taxation relief. Does not that quite remarkably illustrate that, in virtually everything that the Financial Secretary has done, he has shown a determination to be as anti-Scottish as possible?

Mr. Bruce

The hon. Gentleman has made his own point. My point of concern is that the Government have not helped by creating a more unfriendly tax regime towards the industry at a time when the industry needs some recognition of the difficulties that it has to face. Many of us are worried at the implications of that. I know that there is a compensating benefit from exchange rates, but the net yield of oil production from the North sea is more than $4 billion a year down on the current year compared with last year.

I shall draw my remarks to a close by saying that the Budget lacks any indication of a long-term strategy that will achieve what Britain needs: an ability to pay our way in the world. I wholly accept and agree with the need to secure a GATT agreement. Because of the net effect of increased trade, the GATT agreement is absolutely vital for all sectors of the world. Although it has many complications, and not every side of it is wholly beneficial, I hope that I can at least reinforce the all-party agreement that we are wholly supporting the Government and Sir Leon Brittan in his efforts to ensure that we get an agreement in time.

I believe that the Government have not addressed our long-term needs. Only if the country can pay its way in the world can we pay for what I describe as social justice in the broadest sense to ensure that all our citizens can participate in the benefits of being a successful economy. In my view, it is intolerable that the Government should widen social divisions by using their failure and the failure of their economic policy as an excuse to cut essential benefits.

If the economy performs well but offers fewer well-paid jobs, we must find other ways of distributing wealth. The Government show no strategy for achieving that necessary economy performance. They simply believe in eliminating budget deficits by cutting benefits and hoping that reduced Government activity will automatically be replaced by private activity. That has not worked in the past and there is no evidence to suggest that it will in the future.

Far from laying the foundations for success, there is a real danger that we are launched on a spiral of diminishing returns, punctuated, I regret to say, only by periodic tax cuts and spending sprees that we cannot afford, to kid people into re-electing a Tory Government. Britain needs vision, not blind ideology. I am afraid that we have blindness from the Government, and the Liberal Democrat party is determined to ensure that more imaginative policies are put before the electorate at the next election than either of the two other parties have yet come forward with.

5.54 pm

Mr. Edward Garnier (Harborough)

It is traditinal for Government Back-Benchers to shout "hooray" and for the Opposition to shout "yah-boo" when the Chancellor sits down having made his Budget speech. My right hon. and learned Friend received the traditional reception when he sat down last Tuesday.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) who is to my left—I use the sense geographically—is correct to say that I bow to no one in my support for tradition, and whether supported with "hoorahs" and "hoorays", or with words, I wish to add my congratulations to my right hon. and learned Friend the Chancellor.

I do not wish to commend only his performance last Tuesday, but those of our Front Bench colleagues who have led for the Government during the course of the Budget debate. The way that they have addressed the economic issues contrasts markedly with that which we have seen presented by the Opposition Front Bench spokesmen. My right hon. and hon. Friends have tackled the matters before us with clarity and intellectual rigour. My hon. Friend the Financial Secretary, in his winding-up speech last night, most aptly described the Opposition's sorry performances.

I shall refer to a few parts of the Chancellor's Budget speech to demonstrate why I can support the Budget wholeheartedly and why my constituents in Harborough—and, I dare say, others in Leicestershire—find this Budget of assistance to them. I refer now to the section dealing with business taxation.

First, I welcome the new benefits to be provided for export credit. It is to be noted that my right hon. and learned Friend is making an extra £200 million-worth of export credit cover available for 1996–97 and to cut export credit premiums for certain important developing markets. That is very welcome. Perhaps more important for my constituency are the measures that are being introduced to smooth the way for small businesses and their development. You, Madam Speaker, will have noticed that, at column 934 of Hansard for 30 November 1993, my right hon. and learned Friend sets out those measures designed to assist small businesses.

One of the major complaints that I have received from business men and business women in my constituency is about the excessive regulation of their businesses. I am delighted to see that my right hon. and learned Friend is increasing the battle to deregulate. I hope that my right hon. Friend the President of the Board of Trade will encourage his Ministers, particularly my hon. Friend the Member for Tatton (Mr. Hamilton), who is his Under-Secretary, to get on and do that job as quickly as possible and introduce regulations for destruction, because over-regulation has been crushing the growth of small businesses, particularly those in my constituency.

I am also pleased to see the introduction of simplified assessment proposals for personal tax. I am sure that that will be of great assistance to the small business men and business women in my constituency. I welcome the VAT threshold increase. It was raised to —45,000 with effect from last Wednesday and that will allow, we are told, up to 75,000 more traders to opt out of VAT altogether. I know that a fair proportion of those will be in my constituency.

Another measure that I welcome is the relaxation of the statutory audit rules for my business constituents. It is proposed that there will be a relaxation for the smallest companies to present audited accounts. That, too, will greatly assist those in commerce and industry in my constituency.

There are proposals, too, in connection with capital gains tax—a subject to which I shall return. In so far as we have a capital gains tax regime, what my right hon. and learned Friend the Chancellor has done in his proposals at column 935 is to be welcomed. Again, in so far as we have a capital gains tax regime, I welcome the proposals for the venture capital trust and for the enterprise investment scheme.

Finally, I welcome my right hon. and learned Friend's remarks about late payment at columns 933 to 936. Perhaps I am a late convert to the need for the statutory introduction of interest on late payments. I have always been a supporter of encouragement rather than statutory regulation in these matters. I should therefore have hoped that the business community would use moral pressure and publicity to make it unacceptable for big purchasers from small suppliers to be late in paying their bills. I trust that the announcement that legislative measures are to be introduced will of itself encourage big businesses to pay their debts to small businesses that much more quickly.

I hope, too, that we shall see a move away from another habit that seems to be developing whereby large businesses call for an order of particular goods—textiles, say—but invite, even require, the manufacturer to warehouse them, drawing on the order only when it suits them. Thus the small manufacturer has to act not only as the big customer's banker but as his warehouseman, storing goods free of charge. I hope that the late payment announcement in the Budget will go some way to encourage the larger businesses to behave more responsibly to their smaller brethren.

All the measures that my right hon. and learned Friend has introduced, together with the low interest rates and low inflation that we are enjoying, will do much to encourage business—especially small business—in Leicestershire and in my constituency. I was pleased to hear my right hon. Friend the President of the Board of Trade say just a few moments ago that one of the first business links offices is to be in Leicester. That, too, will be of great assistance to my constituents.

I should not wish the House simply to accept my word as a loyal Back Bencher supporting the Government: the Budget has been accepted as good by people other than those who sit on the Conservative Benches. Let me refer the House to what was written by the leader writer of the Leicester Mercury on Wednesday 1 December, the day after the Budget: Leicestershire, with its thousands of smaller businesses, stands to gain more than most counties from the Budget proposals. Raising the VAT threshold and allowing many companies to avoid the expense of a formal audit will help smaller firms stay alive. More help with export credits and an enterprise investment scheme is likely to boost external private investment in small companies. All that is good news for local firms and good news for the local economy. There is now even more reason to be optimistic about the way this area is pulling out of the recession. The Leicester Mercury is not noted for its slavish support of the Government and I find it especially encouraging that the leader writer of that august journal has found it in himself to congratulate my right hon. and learned Friend the Chancellor on his Budget proposals as they affect our county—although I am sure that it is not to be inferred from the leader writer's remark that Leicestershire, with its thousands of smaller businesses, stands to gain more than most counties that my hon. Friend the Financial Secretary played an undue part in the construction of the Budget speech simply because he represents a Leicestershire constituency.

Let me refer to the Budget proposals which my right hon. and learned Friend did not make, and which I should have liked him to make, in connection with the reform of the capital gains tax system. In my view, the capital gains tax system should ideally be removed in its entirety. If that is too much to ask for, the rate of capital gains tax should be drastically reduced.

I say that for three reasons. First, capital gains tax is a voluntary tax. It is easy to avoid. It is also easy to evade—although I must admit that I have never tried it myself. It is also extremely difficult for the Treasury to manage flows from capital gains as they depend on the whim of the investor. I do not need to lecture the House about the lessons of the Laffer curve. We all know that, with a zero rate of tax, receivables will be nil—not surprisingly—and that, with a rate of tax of 100 per cent., receivables will also be nil—again, not surprisingly. The maximum tax received arises at a rate nearer to zero than to 100 per cent. That must be especially true of a voluntary tax. At 40 per cent., there is a major incentive to avoid paying tax, and also to evade. A cut to 25 per cent. or even lower would actually result in an increase in receipts for the Treasury.

Secondly, the current system, whereby the capital gains tax rate is high but is compensated for by a whole lot of tax schemes such as personal equity plans and the business expansion scheme—I appreciate that the latter is to be phased out—creates many distortions in the economy. A 40 per cent. tax rate creates a major disincentive to investors to change their investment. They get locked in. That makes the economy less efficient and investments less mobile. After 10 years of comparatively low income tax rates, there is a much wider distribution of capital, and that lack of mobility is therefore an increasing problem for the economy as a whole.

I suggest that tax reasons are seldom good reasons for making an investment but such schemes are driving investments. I am thinking particularly of the BES—although that is being phased out—but also of PEPs, because they, too, drive people towards the equity market. That may be good, but they should not be driven there simply for tax reasons.

Another problem is the increasing amount of capital being tied up in PEPs, TESSAs and tax-free national savings. If a married couple had made the full investment allowed in all those schemes, they would now have in excess of £100,000. If they continued to make the full investment and there was reasonable performance—say, 10 per cent. a year—from the PEP, that household would have some £400,000 tied up in such schemes in five years' time. That is a large amount of capital, which will be free of both capital gains and income tax.

Such schemes also create a major distortion in the economy. PEPs have to be managed by professional managers. The individual investor is severely limited in the way in which he can influence investment decisions. The investment managers may become rich as a result but the Government are denied tax receipts and that inhibits the efficiency of the economy. I appreciate that it is now politically difficult to get rid of PEPs, and I freely admit that I have benefited from the scheme myself. A decrease in the marginal rate of capital gains tax—to, say, 25 per cent.—would result in investors not bothering with PEPs in the future. It would also result in greater revenue receipts for the Treasury.

Thirdly, proceeds from capital gains tax are at present very small. The figures on page 128 of the Red Book show that the outturn for 1992–93 was £1 billion—half what it was in 1989. If I heard my right hon. Friend the Member for Horsham (Sir P. Hordern) correctly yesterday evening, he suggested that the figure was something over £2 billion not so long ago. Perhaps my right hon. Friend said 1979, in which case I stand corrected. The Government's capital gains tax receipts have gone down markedly in the past few years and they are not expected to increase at all in 1993–94—the forecast in the Red Book is £1 billion—and the forecast for 1994–95 is only £1.3 billion.

Those are three reasons for suggesting that the Government should look closely at capital gains tax in the near future. I am reinforced in my suggestions by the fact that some of my right hon. Friends have made similar remarks during the debate, and I trust that, in due course, the Government will review the matter. Having said that, am very pleased with the Budget that my right hon. and learned Friend the Chancellor produced last Tuesday. The Budget is, as my right hon. and learned Friend said, a no-nonsense Budget which deals directly and firmly with the main challenges facing the country today.—[Official Report, 30 November 1993; Vol. 223, c. 938.] I trust that it is, and I shall be joining those of my hon. Friends who welcomed it with cheers in translating those cheers into action in the Lobby.

Madam Deputy Speaker (Dame Janet Fookes)

Before I call the next Member to speak, may I remind the House that Madam Speaker has ordained that between the hours of 6 pm and 8 pm there should be a limit of 10 minutes on speeches.

6.9 pm

Mr. Giles Radice (Durham, North)

The Chancellor came to the Budget with a number of advantages. He was not the previous Chancellor, who, as we all know, became discredited because he did not resign when Britain left the ERM. He was not, and is not, burdened with ideological fixations or with any great economic track record or expertise. Above all, he had a clear political strategy. The first element was to get the Tories elected, and the second was, if possible, to get himself made Prime Minister.

It was a political Budget which was cleverly and skilfully presented. It temporarily united the Conservative party, although I never expected to see the Conservatives vote for tax increases on the scale that we had last Tuesday. It temporarily satisfied the markets. I suspect, however, that it will not play so well with the British people.

The problem with the Budget was that it was a memory-free zone. The £50 billion PSBR deficit was mentioned as though it were an act of God, a problem from which all decent major countries are suffering, but in reality it is a consequence of economic mismanagement over a decade.

The Lawson-Thatcher boom of 1986–88, with its monetary splurge and tax cuts, put the economy out of control.

Mr. Nicholas Budgen (Wolverhampton, South-West)

The hon. Gentleman supported Lawson's boom.

Mr. Radice

No, I did not. If the hon. Gentleman remembers, the Treasury Select Committee said that the 1988 Budget was a dangerous Budget. Both the hon. Gentleman and I signed that report.

It was followed by the Major-Lamont squeeze of 1989–90 which pursued a one-club policy of high interest rates which clobbered business and the housing market. It was followed by a recession with 10 quarters of falling manufacturing output. Of course that had a direct impact on the PSBR because it increased unemployment and therefore produced an increased social security budget and a reduced tax take. Lastly, we had the fiscal irresponsibility of the Government in 1991–92 when they went in for tax bribes and spending promises in the run-up to the general election. So the Government were responsible for the £50 billion PSBR which the country is now having to tackle.

The second interesting feature of the Budget was that the Chancellor never mentioned the size of the tax increase. It is the biggest tax increase since the war. We have had two Budgets in 1993, as my right hon. and learned Friend the Leader of the Opposition reminded us, and it has been estimated by Goldman Sachs that the tax increase over a three-year period will amount to something approaching £17 billion—that is based on the two Red Books. That figure was confirmed to me by Treasury officials this morning in our Treasury Select Committee hearing. It will have a major impact on the public.

The Institute of Fiscal Studies has estimated that, on average, every household will pay —9 extra a week, or £460 a year, in taxation. That does not take into account local taxes which are likely to rise as a result of local authority spending cuts and the impact of some of the benefit changes and cuts in benefits.

I turn now to the long-term prospects for the economy. The danger of the Budget is that, by hitting consumers with tax increases, it could choke off the fragile recovery. That is why most of the panel of independent forecasters were not in favour of further tax increases.

One could argue that taxing consumption will switch output into investments and exports. That is the most respectable argument for the course that the Chancellor has taken, but the problem is that markets in Europe and elsewhere are depressed. If we clobber consumption with tax hikes, the danger is that consumer confidence will be undermined and therefore the recovery will be choked off.

If we are to achieve a sustained growth, not only must we keep up demand, but we have to improve supply. That is not simply a question of deregulation, as the Government sometimes suggest. The real commanding heights of the economy are the application of new ideas and knowledge to production and products, the level of investment behind every employee, and the skills of employees through education and training. However, those are long-term issues which give the Government no short-term political advantages. We have a short-term Government with a short-term ideology and political judgment.

Unfortunately for Britain, the 1980s are the years which the locusts ate. North sea oil revenues could have gone into manufacturing investment, research and development and education and training, but unfortunately they did not. There is little to suggest from the Budget or the Red Book that the Government are now giving priority to those areas.

Treasury officials have confirmed to me the real cuts in the money going to training and to infrastructure projects. It is true that there is a short-term, one-year increase in the money to science, but there is a decline in subsequent years. I welcome, as everyone must, the increased money for higher education, but the increases in the education budget are devoted entirely to higher education; there are no increases for other aspects of education which are so vital to the economy.

I should like to sum up my very short speech by saying that the Chancellor's Budget is socially repugnant for what it has done to benefits, particularly unemployment benefit. It ignores, or largely ignores, the long-term problems of the economy, and I believe and predict that it will prove politically disastrous for the Chancellor and his party as the British people come to understand that, contrary to the Government's promises of the last election, they are being asked to pay through the nose for the appalling failure of the Administration over a number of years.

6.16 pm

Mr. George Walden (Buckingham)

Heaping more praise on my right hon. and learned Friend the Chancellor for his Budget at this stage in the proceedings is rather like throwing fivers on a bonfire to keep it alight. We do not have many fivers left after the Budget, so that my right hon. and learned Friend will have to take for granted my praise for what he has done.

Many elderly people in my constituency will be grateful for what my right hon. and learned Friend has done to relieve VAT on fuel. That leads me straight into the issue on which I would like to concentrate. I am sure that the Government are under no illusion that the Budget has done away with the problem of VAT.

Let us take a quick survey of the idiosyncrasies of our national position on VAT over the past few years. First, for reasons best not discussed now, we have VAT on some things and not on others. As far as I can see, the reasons are broadly sentimental, but I shall leave that aside. I shall not go on too long about the poll tax but will simply say that with one stroke of the hand the rate of VAT has increased from 15 to 17.5 per cent.—a volatile tax.

The other week we found ourselves in the Lobby late at night voting on VAT on orange juice. One begins to ask what sort of regime we have. Then we have the entirely spurious defence of VAT on printed matter under inflated slogans such as, "This is a tax on knowledge." That is absolute rubbish. Education dictates the quality of what people read, and the other argument is crude and materialistic. In countries such as France where there is VAT on printed matter, there is no noticeable difference in the quality and volume of reading. It is cultural rubbish and a distorted argument.

Finally, there is the problem with heating. Let us not go over all that again. However, what has happened? As we do not have a rational system on VAT with a lower rate on everything, we end up with 17.5 per cent. which is too much for old people who are near the poverty line. That is partly due to the deviousness of such things as the poll tax.

As we are in this ridiculous situation, we have to throw in massive sums. We throw massive sums into the system indiscriminately to rich and poor alike. Thereby we build yet another contradiction into a situation which Members on both sides of the House secretly accept is unsustainable. That situation relates to universal benefits. We have added to the universal benefit anomaly by trying to salvage the damaging impact of VAT on heating which has arisen from our ridiculous system of VAT. This problem will not go away. One of these days, this country will have to mature into a rational system of VAT on everything, but at a lower level.

One of the difficulties lies in our political system. We have a rather simplistic adversarial system. At each election, we are forced up against a wall and the Government and the Opposition claim that they will not do certain things. I hope that the debate will continue in public because we must try to confront the public with the truth in respect not only of VAT, but of universal benefits. I suspect that, given a free hand and in a politically neutral atmosphere—if such a thing could be said to exist—the Opposition and the Government would do all sorts of things to concentrate benefits where they were most needed.

I hope that it is clear to most right hon. and hon. Members that our policy—by that I mean the policy of this House—on the NHS is unsustainable. That policy is the same in all parties, and it is that every person in this country, no matter what their income or wealth, will receive totally free of charge all the treatment that they require, no matter what the cost of that treatment. That is my understanding of the Government's and the Opposition's policy, and that policy is totally unsustainable in these demographic and technological times. We are all aware of that, but no one says it publicly.

However, the public are beginning to understand. Doctors and consultants are also beginning to understand. The citizens charter states that doctors and consultants should carry out certain operations within certain time limits. Some of those people have told me that they understand what the Government are doing in their reforms which they believe are necessary but that they cannot deliver. They believe that no Government will ever be able to give them the money to deliver. Doctors and consultants are aware of the demographic problems.

Such debates must be kept going because the public are aware of things about which no one in this House is prepared to speak. For example, it is ridiculous that my children receive free meals under the NHS. That is unsustainable and it cannot and will not continue. It is only a matter of time before it ends. My right hon. Friend the President of the Board of Trade referred to the Commission for Social Justice. That is a good thing, provided that it comes up with honest rather than tired political solutions.

There has also been a de facto conspiracy of silence on mortgage tax relief. I am glad to say that that conspiracy of silence has now been broken. The Chancellor has done the right and obvious thing. Clearly, we cannot drop the whole thing tomorrow, although that should be done, as that would force the housing market down in this country which is far too over-dependent on the state of the housing market. As a result of that over-dependency, the situation becomes more fragile and my right hon. and learned Friend the Chancellor cannot do what he, I and the Treasury would like to do, which is to scrap the whole thing tomorrow.

My right hon. and learned Friend the Chancellor has done the sensible thing. However, I stress that the problem will not go away. We have a deformed culture and the press simply states, "Goody, goody. It looks as though house prices will go up." What an extraordinary thing to say. I am not sure whether there are such headlines in other countries. However, the respectable press in this country states that the trend in house prices is up once more. That means bigger mortgages and bigger commitments for everyone, involving a bigger slice of people's budgets. That is another deformation of national investment patterns.

Mr. Budgen

Will my hon. Friend give way?

Mr. Walden

I will give way in a moment.

It is extraordinary that more than 90 per cent. of business expansion schemes were devoted to property. That illustrates beautifully the profound cultural deformations in our economy.

Mr. Budgen

It is all very well for my hon. Friend to attack the hand that feeds him, but does not he agree that the newspapers reflect the view of a large section of the population in this country that nothing is better than rising house prices? It is politically fashionable now to be rather rude about Lord Lawson, but when he was booming up the housing market, the Conservatives and Lord Lawson were extremely popular.

Mr. Walden

I will let my hon. Friend's remarks stand by themselves. I normally regard him as a highly responsible commentator on economic matters. His remarks owe more to his impish side than to his responsible side.

Another problem to which I want to draw attention and which will not go away relates to hypothecation. That term arises among people who know more about economics than I do and it is arising in a positive sense when explaining where the money is going. I would like to see that term used in another sense. We should say, "Look folks, we're going to be hard up for many years to come and we all know the cuts that the Budget predicates. Therefore, we are going to have to make choices."

Among those choices, we must confront the problem of universal benefits. However, it is so difficult, so sensitive and so raw simply to take away from people what they have been falsely promised for all these years that we must give them something in return. I hope that we shall reach the stage at which our politics will have so evolved that we can say to people, "Look, this cannot go on. We have to cut it, and probably for the middle and upper income brackets. This or that—perhaps child benefit—will have to go, but in return we are going to do something useful with the money."

I was glad to hear that the Commission for Social Justice is talking about taxing child benefit and also setting up nurseries. I suggested that years ago. I am glad to see that the Labour party—

Madam Deputy Speaker

Order. I am sorry, but there has been a slight technical hitch with the clock. However, I inform the hon. Gentleman that his time is up.

6.27 pm

Mr. Calum Macdonald (Western Isles)

The hon. Member for Argyll and Bute (Mrs. Michie) mentioned the air passenger duty which is to be introduced towards the end of 1994. It may be a relatively small part of the Budget—just a detail—which we will be tackling at greater length in Standing Committee, but I refer to the point now because of its importance to my constituents, and because the Chancellor made special play of it in his Budget speech.

When the Chancellor introduced the air passenger duty, he went out of his way to say: most flights between the Scottish islands will not bear tax."—[Official Report. 30 November 1993; Vol. 233, c. 932.] At the time, I thought that it was a thoughtful touch on the Chancellor's part to remember the special needs and circumstances of the Scottish islands. After all, air travel to the Scottish islands is not a luxury like holiday travel. It is not a business man's perk. Instead, it is an essential lifeline which connects remote communities on the far peripheries of the European land mass with the facilities and services which only urban centres can provide. Medical facilities are a good example, because, at some time, many islanders will have to be flown to mainland hospitals to receive the acute medical care which island medical facilities cannot provide.

Those air connections among the islands—and, more important, between the islands and the mainland—are not luxuries for tourists: they are a social and economic necessity, and a crucial communication link with the outside world. That is why it was welcome that the Chancellor mentioned the special case of the islands, and apparently went out of his way to adjust the tax to exclude the Scottish islands.

But we know what the Chancellor has said about promises made on a rainy night in Dudley, so it is always worth checking the small print. That is when one finds that the exemption has nothing to do with the Scottish islands per se, but rather is to do with small passenger aircraft—coincidentally, I am sure, aircraft used for executive travel, and carrying fewer than 20 passengers. That means that most flights to and from the Scottish islands will not be exempt, and that the overwhelming majority of passengers who use aircraft within, and to and from, the Scottish islands will have to pay the £5 tax.

Moreover, the structure of the exemption means that the permitted exemptions within Scottish island air travel are so anomalous or so absurd that it is hard to believe that the Treasury has really thought the matter through. For example, there are some flights between Shetland and Edinburgh, and between Orkney and Glasgow, for which different planes are used on different days. On some days, if one takes the flight that uses a Jetstream 31, which carries fewer than 20 passengers, one will not pay the tax. However, if one happens to be on the plane on the wrong day, when an ATP or a Shorts aircraft is used which carries more than 20 passengers, one will end up paying the tax. So much for fiscal neutrality, when one is encouraged by the tax system to take a certain flight on a certain day.

There are more serious absurdities than that. For example, the Loganair flight from the island of Barra, in my constituency, to Glasgow will be changed from a twin-engined aircraft, which is presently employed, to a Shorts aircraft next year, not because the route has become more economically viable or because it is carrying more passengers but simply for technical reasons to do with the company. That means that that flight will be subject to the tax.

It must be remembered that the island of Barra is five to six hours' ferry sailing time from the mainland. The population is only a couple of thousand. Barra does not even have an airfield or a landing strip. Planes actually land on the beach—on the sand. But passengers are going to have to pay the same £5 tax as holidaymakers going to Majorca or business men using the Manchester-to-London shuttle.

The anomalies are endless. For example, a foreign millionaire flying on a chartered Jetstream to his Hebridean estate for a weekend's salmon fishing will be exempt, but an islander taking a regular scheduled flight to Glasgow to visit, say, an elderly parent in hospital will have to pay the tax.

That tax and its effects upon the Scottish islands are not fair or logical. I urge the Chancellor, to whom I have already written on the matter, to review the exemption and amend it during proceedings on the Finance Bill, so that it exempts all regular scheduled flights going to, from and within the remote Scottish islands. It would cost him considerably less than £1 million to do that. That is a large sum for island communities to have to give the Treasury, but it is surely not a difficult sum for a Government who are budgeting for expenditure of about £290 billion next year. I hope that, during proceedings on the Finance Bill, the Chancellor will be able to take that point on board and fulfil the spirit of the promise that he apparently made during his Budget speech.

6.35 pm

Mr. Hartley Booth (Finchley)

I am grateful to be called, Mr. Deputy Speaker. I understand that it is some years since Finchley contributed on Treasury matters in the House.

Like many of my right hon. and hon. Friends, I welcome the Budget, because it is good for business and good for pensioners, and looks to the future. What a contrast between the long-term policies for the future that we have been enunciating and the long-term decline of socialism.

The Opposition have been trying to find major criticisms of our Budget throughout the past week. We heard from the hon. Member for Livingston (Mr. Cook) this afternoon that it is not a Budget for investment. The Opposition have even called it a Budget for non-investment. That is wrong. We have heard that it is a Budget for £22 billion of capital spending—for example, £1.25 billion on apprenticeships, as announced by my right hon. Friend the Secretary of State for Employment.

The underlying point about investment that the Labour party never picks up is that, in these difficult times, we have been able to maintain the low corporate taxes that have made our country the mecca for international investment. Of course we will attract investment through the Budget. The Budget is as close to non-investment as my hon. Friend the much-loved Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food is to Weight Watchers.

As for fair criticism, Opposition Members cynically say in front of the media that there is only 50p for the elderly. As a fair man, I waited and waited to hear the other points— about the extra pension, the fact that the 50p was on top of inflation this year and next year, how cold weather payments would rise above inflation, about energy saving and the guaranteed income proposal. Did I hear any of that? Not at all.

Nothing comes from Opposition Members when they describe our taxation proposals and our help for the elderly. At Walworth road, a group of chiefs sit around during the day and lie awake at night worrying how they can next cause anxiety for the elderly. They say that we have not done enough in the Budget. Of course it is not enough. Have any Government in the world ever done enough? No Government at this stage of their life could have done enough. We have a duty to the public to go on doing enough for another three years. When we seek generosity from the Opposition, we have a mortuary of silence.

The key to this excellent Budget is not just the way in which it looks ahead to 1999, when we balance the books, and to 2020, when some of the social security proposals will have an effect. It is not only a Budget for looking ahead but a Budget for initiatives. Post Office employees have been encouraged to spot fraud, employers have been encouraged to look after their employees' health, and job seekers have been encouraged to use extra initiative in seeking jobs.

There is scope for much more work, and I encourage the Government to do more under their name of initiative. They could take a leaf out of the book of Nissan, Unilever or some local authorities to motivate staff. We still employ 4 million people on the public payroll, and they should be motivated to spot fraud, abuse, good ideas and waste. I do not suggest that the Cabinet Office be taken over by works councils, nor that permanent secretaries should dress in boiler suits, but all public sector workers should come forward with ideas and be given an incentive to do so.

To better use the nation's inheritance and reduce the cost of housing, we could use some of the 750,000 empty homes. Ministers have already heard my suggestions and may be tired of them, but we could use the unused stock of homes, particularly for the homeless. That idea would also assist the Budget deficit.

The efficiency that has been the hallmark of much of the Budget should work through to savings in the Ministry of Defence, where civil servants now number 147,000 to run an Army only two thirds that size. I am assured that that matter is under review and will be dealt with, and the Budget has been the precursor.

On health, I hope that we shall hear how regional bureaucracy will be cut dramatically. It will be no bad thing if some of the regions are removed.

Although the Red Book says little about privatisation—the first page suggests that receipts from privatisation will be reduced dramatically—I hope that the Adam Smith Institute forecast that receipts from privatisation can total £5 billion a year will continue.

I also hope that the Treasury will go forward in its fight in Europe against too much expenditure by the Goliath across the channel. The Chancellor should consider the £5 billion fraud by the European Community, to which we contribute, and use that fact as a lever against other waste.

The European Community currently spends £4 billion on tobacco subsidy, much of which is for black tobacco that nobody wants to smoke. The European Community is supporting high-nicotine tobacco, much of which is stored and then wasted. I hope that the Government will use that fact as a tactic to reduce the amount that we spend on the European Community.

The Law Society revenue committee has approached me about a technicality on capital allowance rules and, as the Minister knows, I am making representations on its behalf.

Business men from Finchley came 50-strong to see me the other day. They said that the late payment of debt was one of their principal problems. They were glad that we were grappling with the problem, but they said that small businesses were weak and could not attack the big debtors. They said that it was no good simply putting up their hands and saying, "Please, we have the law on our side" against big debtors. But they need automatic assistance and arbitration after an agreed period of 90 days. I hope that that will result from the consultation paper.

All that is for the future. The Budget lays a foundation for sustainable economic growth by harnessing the aspirations, initiatives and talents of the British people.

6.44 pm

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

In the week before the Budget two significant events happened. First, Mr. Roger Levitt, founder of the Levitt group that crashed in 1990, was found guilty of a fraud involving £20 million. Sentencing him, Mr. Justice Laws—a decent sort of chappie, so I am reliably informed—told Mr. Levitt to go home, have a good night's sleep and, when he woke up in the morning, to be nice to his wife and kind to animals. The judge said that the upsetting incident was best forgotten. After all, had not Mr. Levitt given some of the funds that he had misappropriated to charity?

Mr. Levitt was a product of the insatiable greed of the 1980s—greed that was fostered by successive Tory Chancellors and eventually epitomised in the Gadarene swine Budget of 1988 presented by Lord Lawson. I shall show later that the 1993 Budget is the bitter price that the nation has had to pay for the obscene, hideous mistakes of the 1988 Budget. I merely observe here that the asinine economic ignoramuses on the Tory Benches cheered the fraudulent 1988 Budget to the echo.

The second event to which I referred took place on the Wednesday before the Budget, when London's underground system collapsed, leaving 20,000 passengers crawling through tunnels wondering whether they would ever see the light of God or day again. That incident, too, arose out of the philosophy behind the 1988 Budget.

Lord Lawson may have been—indeed, certainly was—a putrid Tory economist, but he understood only too well Bertrand Russell's philosophical theory of the "undistributed middle". That says that if one has £2 billion to give away and one devotes it all to tax cuts, the same £2 billion cannot be used at the same time for investment in London's underground system.

The second Budget of 1993 was predicated on three simple economic fallacies. The first is the notion that there is merit in seeking to balance the budget although, to be fair, the concept of a balanced budget now takes into account what is termed the golden rule of public finance", which means net public sector capital spending. Even so, that is not so much back to basics as back to the 19th century, with the Chancellor playing the unlikely role of Gladstone in Hush Puppies. However, perhaps one should not fret too much over that. A promise by the Chancellor to produce a balanced Budget in 1999 is clearly not a promise at all but rather an expression of the wish fulfilment economics of his Freudian dreams.

The second fallacy for which the Chancellor has fallen is the idea, sedulously spread by the forces of Hades, that welfare spending in Britain is out of control. An examination of the facts by John Hills and his team from the London School of Economics shows that to be not so much a big idea as the latest big Tory lie. The study that the LSE team carried out for the Rowntree Trust concluded: Over the medium term Britain's welfare spending has been a stable share of national income, below its equivalent in most European countries. The authors of the study added: The 'demographic time bomb' has been exaggerated. Upward pressures on spending from the ageing population, SERPS, and higher basic pension entitlements will continue. But even if benefit levels become income-linked, the total net effects on public finances over the next 50 years would add up to about 5 per cent. of GDP—no more than the increase mainly due to the recession over the past three years. The third fallacy lies in the Chancellor's naive belief that the fragile recovery of a deeply depressed economy will benefit from huge tax increases and public expenditure cuts.

Until he presented this Budget the Chancellor seemed like a genial sort of bloke, who liked nothing better than to have a pint of beer and get as far away as he could from his dreadful colleagues who drank gin and tonics in the Smoking Room. However, I noticed that there was no smile and no mercy on his face as he stood at the Dispatch Box on Tuesday, hammering the British public with tax after tax.

If we move through the forecast period from this year to year three, the total increase in tax announced in the two Budgets of 1993 amounts to £17 billion, or the equivalent of a staggering 11p in the pound on income tax. Such increases suggest that the Conservative manifesto at the previous election was written by that well-known firm of Westminster and City accountants, now under investigation by the Serious Fraud Office, called Levitt, Major, Nadir, Clarke and Co.

If psychologists studying the species homo sapiens had been present in the Chamber when the Budget was presented, they would have witnessed an amazing spectacle. When the Chancellor announced that he had no intention of scrapping VAT on fuel, Tory Members smiled, and one of them is smiling now. When he said that everyone who insures his car will be taxed, they applauded. When he added that tomorrow anyone who insures their house will be taxed, they cheered. When he declared that every owner-occupier would pay more tax and that mortgage relief would be reduced, Tory Members, who hitherto had been property-owning democrats, jumped up from their seats and excitedly waved their Order Papers. Apparently, the tension was rising in the Chamber. When the Chancellor announced that everyone would pay more income tax as allowances were frozen and that 500,000 people who had not paid any income tax at all would now do so, Tory Members stamped and shouted, designating the Chancellor as the greatest tax collector since Napoleon. The imposition of taxes on holidays, wine, petrol and cigarettes had them on their feet, their faces wreathed in smiles with tears coursing down their cheeks as they chanted, "Tax, tax, tax. Tax the working class. Tax the middle class. Tax them all."

On reflection, perhaps even the Chancellor and the smug, smiling hon. Member for Ribble Valley (Mr. Evans), sitting behind the Minister, can see that the pain for the majority of people in this Budget is inversely proportionate to the pleasure for the privileged few who benefited from the Tory Budgets of the 1980s.

From 1986 to 1989 we had tax reductions of £20 billion. That has now been offset by £20 billion increases in tax over the next three years. However, we have not gone back to square one. We have moved to more indirect taxation, a wider tax base and lower marginal rates. The overall tax burden has increased and, because of the lower marginal rates, since 1986 the tax burden has shifted from the rich to the poor—perhaps that is another reason for a smile from the hon. Member for Ribble Valley.

Nevertheless, the two Budgets this year marked a significant change in policy. Data provided by Chris Giles and Steven Webb of the Institute for Fiscal Studies shows that by far the biggest burden of the tax changes falls on the middle class. All the commentators and pundits seem to have missed the fact that the targeting of the middle class by the Chancellor, using his Armalite rifle, represents a fundamental shift in British politics. In the post-war years, government in Britain under all political parties has been a compact, an agreement between the establishment and the middle classes. While expressing sympathy for the poor, the middle classes, particularly if they were readers of The Guardian, have been content to see a redistribution of income from the working classes to themselves through mortgage tax relief, pension schemes, student grants and other aspects of the second welfare state.

Now that the overpowering voice of the middle class has been silenced by a Tory Chancellor, there will have to be a new political settlement. The politics of the 1990s will be about the nature of that new settlement. In any other advanced western country an assault such as this on the middle classes by a Chancellor would produce a revolution. It will be interesting to see if there is more to the middle classes in Britain than chatter.

Some of the cuts in public expenditure were real. Those affecting the unemployed and the sick can be described, fairly, as vicious, and of a type that could have come only from a Chancellor who is blue in tooth and claw. Overall, the public expenditure plans, like the balanced budget, are a figment of the Chancellor's imagination. In future years the cuts will be brought about simply by not topping up departmental expenditure from the reserve. They are misleading because of the scale of the reserve set aside to supplement departmental budgets in recent years.

The plans have been presented in such a way as to make parliamentary scrutiny impossible. More than anything else, the public expenditure plans show that this was a Budget presented by a huckster who perhaps fits the mediocrity of our times and the paucity of thought among Conservative Members, who made fools of themselves by cheering what, in time, will be seen as a Budget to perdition.

6.55 pm

Mr. Nicholas Budgen (Wolverhampton, South-West)

It was a perfectly legitimate, if somewhat exaggerated exercise, for the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) to concentrate on the impact of the increased taxation. It is true that there has been a considerable increase in taxation, albeit that the pain is delayed and that the increases have taken place largely by the freezing of allowances and the reductions in various forms of tax relief to which the hon. Gentleman referred. The hon. Member made taxation the theme of his speech, but I wish to make interest rates the theme of my speech. In 10 minutes one can deal with only one subject.

Much of the cause of our present state relates to interest rates. Sadly, at the end of 1985 the most important, most intelligent and most successful Tory economist and politician changed his mind. In 1985, Lord Lawson, as he now is, decided that the highly successful policy that had been worked out by the Tories between 1975 and 1985 was to be abandoned. He ceased to be a monetarist in any sense and he successfully used his reputation to engineer an extremely popular boom. It was so popular that it was not politically correct at the time even to mention that it was happening.

The money supply expanded substantially, as can be seen from page 11 of the Red Book from last March. It went up from about 11 per cent. to about 18 per cent. Interest rates have an important part to play in the catastrophically excessive squeeze that was imposed by those who wished to give our economic sovereignty to the Bundesbank between 1990 and 1992. Again, that can be seen clearly from the graph in the Red Book because broad money fell from about 17 per cent. to about 4 per cent. during that period.

I suggest that interest rates provide much of the key to how the Chancellor hopes to revive Tory fortunes and the economy. It is true that the middle class, in the not so distant future, will find that taxation has gone up. How will that be balanced? The Chancellor hopes that he is in for a long period of low interest rates. He hopes that the savings ratio will fall and that growth rates will continue at a high level. On page 35 of the recent Red Book it says, significantly—and I agree with this—that a stronger housing market would help underpin consumer recovery. So it would. Those who were caught in the squeeze of the ERM now find themselves in the terrible difficulty of negative equity. Two million people are caught in negative equity. That is disturbing for them, but they are also less efficient economically because they cannot move from one house to another when they are caught in such a bind.

It is plain that low interest rates will be important to the Chancellor's strategy during the next couple of years. Low interest rates are always popular. If low interest rates balance higher taxation, and cause a reduction in the savings ratio, if they are also useful in reducing the Government's debt burden, and if they stimulate greater activity, they will also stimulate house prices. The Chancellor would then become as popular as Lord Lawson was between 1986 and 1988.

It would then be difficult, when it became necessary to increase interest rates, for the Chancellor to say that he is the man who will increase interest rates. That is why my right hon. and learned Friend should not be so dismissive of those—including Lord Lawson, with a voice of some repentance—who say that it is necessary now to give some further status and enhanced power to the Bank of England.

Two things have been done in recent months. First, the Bank has taken to issuing its own inflation report. That is not very important, because it tells the country only what has been done in the past because of the time-lag in monetary policy.

I commend the Chancellor on the second point. It is a long way from the arrogance of Lord Lawson, who told the country crudely that he was the man who put up interest rates and the man who takes them down, and that the Governor of the Bank of England was no more than a mechanic pulling his forelock to Lord Lawson. I commend the present Chancellor for allowing the Governor of the Bank of England to announce the last reduction in interest rates. I hope that that trend will continue, although probably it does not matter much whether it is done by greater transparency or by some change in the statute which governs the Bank of England.

We have had three Tory booms, including those of Mr. Barber and Mr. Lawson. Each has been applauded by all persons who are politically correct. Each has been supported by those who say that they are vehemently against inflation. It is plain that another boom would be equally applauded by large sections of the middle class.

When the time comes for the next major increase in interest rates, it would be better if responsibility was seen not to devolve entirely upon the Chancellor of the Exchequer. We can never have a completely independent Bank of England. There is much to be said for making it plain that the Bank of England has a special status and is not merely the dogsbody of the Treasury. The Bank should have some independent status and perhaps even some right of independent action.

7.4 pm

Mr. William Ross (Londonderry, East)

The Chancellor of the Exchequer was applauded when he finished his speech, not only from the Government Back Benches but by the business world. I take the view that, when a Chancellor who presides over a budget deficit of £50 billion is applauded, there is something wrong. A little more thought convinced me rapidly that a lot of the applause was due to his presentation and that, since that was the case, the applause would not last long. The right hon. and learned Gentleman should take some comfort from that, because it would mean that at least he was doing something about the deficit.

As the Chancellor knows, I dislike large public deficits and the happiest Budgets which I have experienced were those in which we were repaying public debt rather than borrowing a lot more. I am only sorry that it was not possible for that to be continued. The Chancellor set himself the target of a nil deficit by the end of the century. I do not believe that that can be done much quicker, and I presume that he is looking beyond that. We could return to the happy days when we were repaying the public sector debt. If we were to manage that, the interest which would be saved would leave rich benefits, not so much to the present generation of politicians, but to their successors and to their children and grandchildren.

A departure from balanced budgets has occurred, with the excuse being that money is going into capital infrastructure which will pay rich dividends. That is not something that I favour. I take the sharper view that we should be trying always to balance one year with another, or certainly balance the budget over a small number of years.

If the Chancellor does what he has said, he will be engaged in long-term thinking with a vengeance. He stated in the Budget that he was looking to restructure pensions, and to bring the retirement age of everyone up to 65 years. That serves the feminists right, because it is the inevitable result of trying to demand equality in all things.

The alternative to bringing our high deficits under control is to have the horrifying spectacle of high interest rates and high inflation which would shackle industry and erode the savings of our people and the incentive of those people to work. I do not believe that the twin monsters of high interest rates and inflation will ever be slain. However, the Chancellor's vision, if fulfilled, may keep them on a very short chain and that is to be welcomed.

The Chancellor has a difficult road from here to there because the demands of the public purse will not diminish, although they will increase at a slower rate than formerly. To finance those demands, we must increase revenue which, at the same time, must be diminished as a percentage of GDP. It is very difficult to do that, for it can be done only if the economy expands rapidly.

In common with much of the industrialised world, we have the ticking time-bomb of the aging population which will place heavy demands on our resources in the coming years. Anything that can be done to ensure a prosperous economy is to be welcomed. The effort to ensure the prompt payment of bills to small firms is particularly welcome. Small firms suffer grievously from slow payment, not only from equally small firms but from larger firms.

We will have prosperity only if there is greater investment in this country—especially in manufacturing industry—and greater emphasis is placed on exports. Given the present malaise in Europe, we should build on our success in overseas markets rather than concentrating too much on the stagnant European market. The Chancellor highlighted the success of our exports outside Europe which he said have risen by 14 per cent. That is too good a chance to miss.

The Chancellor did not extend the scope of VAT in the Budget. I presume that he will avoid a vote on the fuel tax in the Finance Bill, although there is no doubt that Opposition Members will do their best to ensure that a vote is forced. I am glad that the Chancellor did not extend VAT. I would far sooner see him increase the rate on the items to which VAT applies at present. Those rates could be reduced more easily when the situation permitted, rather than removing VAT from another class of expenditure completely.

The Chancellor made clear his views on taxing spending rather than income. Taxing spending is only right up to a point. I believe that there comes a time when the total sums raised and the rates charged become so oppressive that they are seen as unjust and harsh, bearing too heavily on people with low incomes. Reaching that point means taking away with one hand and giving back with the other, not to mention losing out on the bureaucracy and the process of transferring the money. Clearly that should be avoided.

I was also disappointed that the Chancellor did not restore the 40 per cent. capital allowance that we enjoyed for a short time earlier this year. It is necessary if we are to have increased investment, which is what we really need.

One must admit that mortgage interest tax relief is likely to have distorted the economy to some extent, but its good effect was that it helped many people to buy their own homes instead of renting. The change will bring into the Exchequer £970 million in a full year. Moreover, the changes to the married couple's allowance, adding up to another £1 billion in a full year, will make life extremely difficult for young couples buying a house. They will find their pockets hit hard in future. The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore), who pointed out that the middle classes were being hit hard by this Budget, was correct.

Our party has made it clear on a number of occasions that we are disappointed by the failure to give the shipping industry, not least the shipbuilding industry, a boost. The latter has many spin-offs in many directions—especially engineering, and especially in our Province.

Motor vehicle duties have been mentioned by many hon. Members and we are likely to hear more about them before this evening is over. They hit rural dwellers hard because in such areas a motor car is not a luxury; it is a necessity. Some families have several motor vehicles because the whole working population of a rural area simply has to get to work, and the only way to do so is by car. The increases will be a heavy burden on the budgets of such households.

It is nonsensical to claim that there have been no income tax rises. In three successive Budgets tax allowances have been frozen, costing people a great deal of money and representing a real increase in tax. But the increase is carefully concealed. I would be far happier if the Government were more honest and if the Chancellor bunged a few pence on income tax. Then at least folk would know where they were and they would be spared the annoyance. It is impossible to hide these things. Many people outside this place can count as well as those inside it can and they know perfectly well that they are being clobbered right across the board. If people knew how much they had to pay and the reasons for it, they might be more willing to swallow their bitter medicine.

The whole Budget adds up to a massive increase in taxation. It may get the deficit down, but the Chancellor will become increasingly unpopular over the next few months. I only hope that he has left himself enough room to reduce interest rates when the recovery starts to flag in the spring or early summer.

7.13 pm

Mr. Peter Luff (Worcester)

I apologise to the House, because certain commitments elsewhere kept me from hearing much of today's debate and will take me away again after I finish speaking. I did, however, have the privilege—if that is the word—of sitting through yesterday's debate in its entirety. Perhaps I am naive, but it would be nice to hear something to the effect that the Labour party had some vague grasp of what is happening in the real world. The world of gloom and doom that its members inhabit is certainly not the same as mine.

Unemployment, for instance, has fallen in most months this year. In my constituency it fell last month by 9.4 per cent.—the biggest fall in the west midlands. I know that my press release about that received unusually little attention in the local media, which may have contributed to the Opposition's ignorance, but then good news is always less welcome than bad.

It would also be nice to see some sign of Labour's future economic policy and strategy. It is not often that I find myself agreeing with the right hon. Member for Chesterfield (Mr. Benn), but I did agree with what he said on 20 May in this House: I do not think that members of Labour's Front Bench would have even two ideas of what to do with the economy if they came to power … a series of soundbites glued together and called an economic policy is not an economic policy."—[Official Report, 20 May 1993; Vol. 225, c. 420.] Like all my colleagues who have spoken thus far, I have no hesitation in giving a warm welcome to the well-structured package that my right hon. and learned Friend announced last week. I derive particular pleasure from the many measures designed to help small businesses which, as Conservative Members well know, are vital to our strategy of reducing unemployment and for future economic prosperity. The long-term impact of many of these measures cannot be overestimated.

I would, however, like to raise certain issues with my right hon. and learned Friend. For example, I urge him to assure himself that the continued increase in VAT thresholds for small businesses is the universal benefit that it is often claimed to be. I know that many builders in my constituency are deeply worried about the ability of smaller builders—one-man bands—to undercut them on price because they are not registered for VAT. The Chancellor will need to look at that carefully. Are we confident that this recurring measure is bringing in the benefits that we believe it does?

My right hon. and learned Friend will not be surprised to hear me say, speaking as one who has the privilege voluntarily to advise the Small Independent Brewers Association, that I am disappointed that he has not seen fit to introduce a sliding scale of duty for the products of the smaller brewers, who bring so much pleasure and delight to our palates and our social lives. I hope that he will look at that, too, in future Budgets. The Chancellor will also know that I have had the privilege for a number of years of advising the Chamber of Shipping, and I share the disappointment expressed by the hon. Member for Londonderry, East (Mr. Ross) at the lack of any treatment to assist the British shipping industry to achieve the parity that it deserves with its European competitors.

We can unreservedly welcome many of the expenditure measures in this Budget. Many Conservative Members will know of my enthusiasm for the railways, so I particularly welcome the funding by the Department of National Heritage for the new motive power depot of the national railway museum at York. More seriously, I am delighted that it has proved possible to persuade the Treasury to look more favourably on private funding for the west coast main line upgrading, which is so essential to the economic prosperity of the west midlands.

I must add a word of gratitude for the protection of the overseas aid budget. I hope that in years to come we will be able to move further towards our 0.7 per cent. commitment, but in a difficult year I am just grateful for what has been achieved.

There is indeed a great deal of good news lurking in the Budget bundle, as it is called. The predicted horrors, maliciously nurtured by the Labour party, have been comprehensively disproved. We should recognise, though, the alarm, despair and despondency that the scare stories caused among many of my elderly and vulnerable constituents. For that reason alone we should deplore Labour's tactics in nurturing people's fears.

I am pleased that the Budget compensated all pensioners for the VAT on fuel. I am also pleased about the childcare allowance for families and single parents on family credit. I am delighted that we have maintained our commitment to increase in real terms expenditure on the national health service. These are all the hallmarks of a Government who, contrary to Labour's jibes, understand that effective welfare is the litmus test of a decent society.

This does not mean that we can avoid thinking about the future of the welfare state. Yearly increases of the order of 3 per cent. in the social security budget are clearly not affordable. But here I find myself in agreement with the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore): I do not think that we need to panic. The Joseph Rowntree Foundation study to which the hon. Gentleman referred pointed out that there is a degree of exaggeration about demographic effects to come: Over the medium term, Britain's welfare spending has been a stable share of national income". It is a shame that the hon. Gentleman read only the summary of the report; there is often other interesting information in a report's main body. Had he turned to page 6, he would have seen the same report refer to making the welfare state capable of responding to challenges posed by massive changes to labour markets and family structures which are leading in turn to greatly raised demands on the welfare state. The hon. Gentleman would also have found on page 21 of the same report a warm endorsement of the welfare state's redistributive effect in our society. It states: The welfare state does much more than redistribute between rich and poor in a single year, although it clearly does this relatively successfully once one takes into account the taxes which pay for it. We are all clear, or should be, of the need to address the future structure of the welfare state. My proposition is that we have time to consider how we can improve the system and make it work better. I suggest two vital considerations that my right hon. Friends should bear in mind as they consider what future structure the welfare state, or the welfare society as we should now call it, should have.

First, it is essential that we pay full consideration to the impact on pensioners, particularly single pensioners with modest savings or private pensions. I know of the resentment felt by many pensioners in my constituency of Worcester about the impact those modest savings or private pension schemes can have on their eligibility for benefits. They ask me whether this is a reward for the thrift that the Government so often seem to encourage them to practise. They are concerned about lower interest rates which are good for business and mortgage holders, but not always good for them. They have been adversely affected by the move to the council tax. They have been concerned about the rumours spread by the Opposition about sub-post office closures and the removal of other benefits. They are unnerved.

The Budget has made an excellent start on reassuring precisely that group of pensioners that they need have no such fears. I welcome the VAT compensation package, the extension of the home insulation scheme, the new investment vehicle for pensioners and the Chancellor's ringing declaration on the future of the basic pension that it is, and will remain, a cornerstone of the welfare state. The Government are committed to it and to retaining its value."—[Official Report, 30 November 1993; Vol. 233, c. 927.] Future Budgets must ensure that the excellent progress made in this Budget is continued.

The second criterion that I should like to see applied to future Budgets is the continuing simplification of and improvement in the welfare state. This Budget has made a good start by merging four benefits into two. Simplification is always welcome. Apart from anything else, there is the reduction in running costs that that is likely to imply for the Departments concerned. On the question of incapacity benefit, speaking as patron of my local myalgic encephalomyelitis support group, I hope that the objective medical test will make full allowance for those whose illness takes a fluctuating pattern, so may be able to pass the test one day, but fail it the next. This is an important consideration in the future of that benefit.

We have made progress with simplification, but we should go further. In our 1970 manifesto, "A Better Tomorrow", we pledged to investigate the possibility of negative income tax. We said that Governments had overestimated the difficulty of this idea. Yesterday my right hon. Friend the Member for Worthing (Sir T. Higgins) made a strong plea for the Government again to consider this possibility, and I believe that he was right to do so.

At present four agencies assess income and pay benefits: the Inland Revenue, the Contributions Agency, the Benefits Agency and local authorities. It is possible for a family to be on the books of all four at the same time. That does not seem to make much sense. There are several possible ways forward. Negative income tax, basic income schemes or partial basic income schemes would all bring three real benefits: administrative simplicity, an elimination of or a reduction in poverty traps, and a guarantee—I attach great importance to this point—that benefits to which people are often entitled but are too proud to claim will be paid to them without them having to apply for those benefits. I am convinced that such an approach would bring great relief to pensioners. I shall look at it in detail over the coming year. I hope that the Government, too, will give it serious consideration and possibly even consider setting up a royal commission on the subject.

My judgment on the Budget is the same as that of a former adviser to the Labour party, Gavyn Davies. He described the Budget as "brave and sensible". I agree with that judgment.

7.23 pm

Mr. Geoffrey Robinson (Coventry, North-West)

I shall be brief as I know that many hon. Members, particularly on the Labour Benches, wish to speak.

I start by reiterating the importance of the GATT round. As the House knows, I am chairman of a public company, TransTec, which is heavily engaged in exports around the world. I assure the Chancellor of the Exchequer and all those engaged in these negotiations that it is vital that they succeed if Britain is to continue to have the access that we need on the terms that we need to expanding world markets. That is all the more important given, regrettably, the bad prospects for the United Kingdom economy following this Budget.

I welcome the Chancellor's presence tonight. The Export Credits Guarantee Department is vital to exporters. Although the increases were welcome—I imagine that it was not easy to get them and I congratulate the Chancellor on doing so—they are not enough. I know from direct experience of selling in export markets against Italy and other countries that are big exporters—the success of the Italians following their devaluation is even bigger than our own—that their terms and the amounts available to them are considerably greater. We have to do more.

The President of the Board of Trade in his remarks today challenged us to say anything good about the City of London. As the chairman of a public limited company that is quoted on the stock exchange, I am delighted to do so. I shall shortly take the opportunity of quoting some City stockbrokers' interesting remarks on the Budget, with which I largely agree.

When I attend meetings in the City I am struck by the huge investment to keep it the financial capital of Europe. I am pleased to see that. Offices are palatial and communications systems fantastic. It would knock Frankfurt and other centres into a cocked hat.

The problem is the marked contradistinction in which that stands to our manufacturing industries, let us say, in the midlands, which the Chancellor knows so well. That is why in our briefing before the Budget and after the Budget we have urged the Government to move on capital allowances. They have done nothing about it. Cash flow impacts much more importantly on industry than on the Government—the Government will get the money anyway. We are talking of a cash flow effect. That is an important consideration if one is serious about incentives to invest.

I welcome in particular the joint ventures project and the appointment of Sir Alastair Morton to be the private sector representative. I welcome it, not least because I had the pleasure of working with Alastair Morton, as he then was, for a number of years in the late 1960s in what was then the Industrial Reorganisation Corporation. If the Chancellor does not know already he will soon learn that Alastair Morton strongly believes in Government-industry co-operation. He does not believe that they have to be at each other's throats, as was encouraged unnecessarily through the 1980s. It will be necessary for the Chancellor to stump up some money, if the venture is to work and Sir Alastair is to have any chance at all. He is unquestionably the man for the job and an excellent choice. I commend him to the Chancellor. I am not clear whether this money is to be within the external financing limits or outside the normal Government guarantee that is implicit in any Government funding. Whichever it is, the money must be available on sensible terms. There is the old concept of public dividend capital and there is the possibility of longer-term loans. The size of the financial package is vital if the venture is to succeed.

What does industry need? Above all, it needs lower interest rates—the Chancellor is still being too cautious on that—and a continuing competitive exchange rate. The two are closely linked. The Chancellor must keep those at the front of his mind as the overriding priorities for next year.

The Kleinwort Benson research group—the City merchant bank to which I referred earlier—has produced an excellent note, which makes three points about the Budget with which I fully agree. It states that the Chancellor has unveiled a far tougher unified Budget than the fiscal retrenchment of the early 1980s. If that does not send a shiver down the spine of all hon. Members present, it should do. The two further points concern public spending. The note states: In real terms, underlying public spending is forecast to fall by 1.3 per cent. next fiscal year. More importantly, it states that public sector capital expenditure is forecast to fall by 18.5 per cent. in real terms, in sharp contrast to what is happening in Japan. I shall take up that reference later.

Those are enormous sums and, as the Treasury inflicts them on the country, it should be aware of what happened in the early 1980s. I know that it is all part of tawdry folklore that that Budget laid the foundation for success through the 1980s. That is rubbish. What gave us success was a cheap pound, the tremendous growth in world markets and some movement in commodity prices. All that that Budget did was to get us to such a low level we had nowhere else to go apart from disappear down a vortex of total despair. For those hon. Members who were not in the House during those years and for the Chancellor who was, I shall remind the House that in the west midlands we lost one third of our manufacturing capacity and we have not got it back. That is what shows in the balance of trade in manufacturing goods now. Much of that capacity was perfectly viable, manufacturing capacity. It was not lost because of inefficient plants or management, trade union activity or other such nonsense. Every day that I woke up in Coventry a new factory had gone under and if that is where we are again heading, action must be taken to avoid it.

Clearly, there are no signs of many important world markets recovering. It is well known that the upsurge of the American economy pulled the world economy with it during the 1980s, but there is no sign of that happening now. Europe is in deep depression and Japan is in recession, so the only way for the United Kingdom to come out of recession is through the manufacturing sector and the benefits, if we can secure them, from lower interest rates and a commensurately low and competitive sterling exchange rate.

The other route out of recession concerns public spending, which, far from being boosted as is happening in Japan, is being cut dramatically by 18.5 per cent. I shall quote a paragraph of the Kleinwort Benson research headed "The madness of cutting public sector investment", which directly applies to the Chancellor. It states that the Chancellor has clearly not learnt anything from the Japanese. In sharp contrast to what is happening here, public sector investment in Japan is forecast to grow by over 11 per cent. in real terms in calendar year 1994, after 11 per cent. this year. According to … our Japanese economist, public sector investment is being relied upon to be the engine for the recovery and next year could contribute 2 per cent. to overall growth in Japan. The Chancellor has ruled out that option. It brings me to my final point—the question of unemployment.

The Chancellor has clobbered the middle classes, he has taken inadequate measures for industry and unfairly penalised—in an opportunist fashion—the unemployed when it is least required. Whatever aspirations he may have or however much he feels that he has to keep in with his own right wing, will he take it from me that the jobs are not there. Cutting the period in which one can claim benefit from one year to six months will not reduce unemployment, but merely increase the misery of those on the dole. Let the Chancellor come to the west midlands and see the low level in manufacturing. Where are the people who are looking for jobs going to find them in the present circumstances? That was the unkindest cut of all and not worthy of the Chancellor as a person.

I hesitate to take issue with my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore), but it seems that we have a problem in the nation's finances. On present terms, I do not see how the present level of taxation, with the current and growing levels of social benefit payments—

Mr. Deputy Speaker

Order.

7.33 pm

Mr. Michael Bates (Langbaurgh)

Many have already referred to the recovery in Britain that forms the backdrop to the Budget. The Government have forecast growth at 1.75 per cent. this year and 2.5 per cent. next year. Inflation is well down and is at its lowest level for 30 years, industrial production is well up, retail sales are up and unemployment is down. Interest rates are at their lowest level since 1977 and the Organisation for Economic Co-operation and Development, the European Union and the International Monetary Fund have predicted that Britain will be the fastest-growing major economy in Europe this year and next. The shrewdest of all economic watchers, the markets, tend to agree. Not only has the market in London risen significantly over the past week, it has also risen consistently over the past year and now stands at some 20 per cent. higher than a year ago.

Before anybody on the Opposition Benches casts a sneer in that direction, they should remember that we live in the 1990s when there are more shareholders in Britain than there are trade union members—10 million shareholders will benefit from that growth. Eleven million people who participate in occupational pension schemes will benefit because they have £200 billion invested on the United Kingdom stock market. The 1.5 million people who participate in share option schemes and the 6 million people who have private pension schemes will also benefit.

In contrast to the positive way in which the Budget has been received by the markets because of the benefits that I have outlined is the response of the Opposition. During the debate on the Loyal Address, I had the temerity to ask the hon. Member for Dunfermline, East (Mr. Brown), as he was castigating policy after policy of the Chancellor that was announced in the Queen's Speech, whether he still stood by his pledge made at the past election to abolish the upper earnings limit on national insurance contributions. The hon. Gentleman replied: Our policies are going before the Commission on Social Justice,"—[Official Report, 25 November 1993; Vol. 233, c. 597.] What a staggering response. I wonder if the same applies to the other policies such as increasing child benefit to £9.95 a week, increasing the basic retirement pension by £5 a week, abolishing the 2 per cent. national insurance contribution for earnings under £54 per week or increasing the top rate of tax to 50 per cent.? Those so-called election winners last year are embarrassingly locked in the cupboard of the Commission on Social Justice this year.

The Commission is comprised of members from a broad and average cross-section of the British public. I have a list of them. There are some six professors, the provost of Sheffield cathedral, the vice-chair of the Low Pay Unit, the national officer of the Confederation of Health Service Employees and, out of 16, there is one business man—the chairman of Northern Foods plc.

What have that broad, cross-section of the British public made up of Mr, Mrs and Ms Average come up with after a year? The Commission has just published an important report on the vital issue of social security, which states: Over the next six 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 the different options. It displays a degree of forthrightness that makes the Liberal Democrats look decisive. It is no wonder that in exasperation the Leader of the Opposition dashed off to Brussels to sign the socialist manifesto. It may be a bad policy, but at least it is a policy.

The hon. Member for Dagenham (Mr. Gould) said in his own press release on 3 July: We"— the Labour party— have nothing to say across a whole range of Macro economic policy, on exchange rates on interest rates, fiscal policy, demand management and public spending. The Opposition are so bereft of ideas, as to make their last manifesto seem original.

I shall now talk about a matter that may gain some cross-party support—late payment of debt.

I brought the issue before the House when I presented the Commercial Debt Settlement Bill on 2 December 1992. It called for statutory payment terms of 30 days from the date of invoice on commercial debt in the United Kingdom. In the United Kingdom, it takes 81 days for the average business debt to be settled; that is 51 days after normal payment terms. We have the worst record in Europe. The figure for Germany is 18 days and for France it is 28 days. Ireland is the only country to come anywhere near us with 34 days. When one considers that it is only the United Kingdom and Ireland that do not have any statutory protection for businesses in that area, the figures are not surprising.

The choice is between a code of practice and legislation. I am normally against increasing the legislative burden at a time of deregulation, but I believe that the only opportunity to offer protection is through statutory requirements. The CBI introduced a prompt payers charter three years ago. Since then, it has managed to get only 600 firms, out of some 3 million in the United Kingdom, to sign up to the charter. That demonstrates the problems we face.

The problem affects not only small business, but big business. Now that we are in the single market, people from countries that have protection against late payment look to the United Kingdom as an opportune market in which to get cheap credit. On 11 May 1993, the Financial Times reported the findings of a survey carried out by NCM, the credit insurance company. The article said: One in five UK companies lost money as a result of late payment by an EC customer in the year ended March 1993 compared to one in eight in the year ended March 1989. In the year ended March 1993, delayed payments from Germany rose by 136 per cent. and from Italy by 115 per cent. It is vital that our exporters, who are the lifeblood of our economy and who are leading the country out of recession, are afforded the fullest protection possible when they trade with their European competitors. The only way to do that is through legislation and I shall feed that view into the current DTI consultation.

In the north-east, Manufacturing Challenge, a private, self-help initiative, has been set up. It is run by business men and entrepreneurs for business men and entrepreneurs. They have set themselves a target of doubling output and tripling exports over the next 10 years. Already, almost 1,000 north-east manufacturing businesses have signed up to the challenge. We must do everything possible to ensure that the challenge is achieved.

The export credit guarantee premiums reduction will be especially welcome. However, business will focus, as the hon. Member for Coventry, North-West (Mr. Robinson) rightly did, on an agreement on the general agreement on tariffs and trade, especially at this important juncture. Some 116 countries are participating in the Uruguay round of GATT. The success of the negotiations in liberalising world trade in the past has been dramatic. The average tariff has fallen from almost 40 per cent. when GATT was established in 1947 to about 4.7 per cent. now. If the final negotiations are successful this week, the figure will be reduced still further to 3 per cent.

The negotiations have been going on for seven years and they will have a dramatic effect on trade. Between 1959 and 1975, world trade expanded fivefold and the world economy doubled in size. The Prime Minister has rightly placed the settlement of the GATT round at the top of his agenda. Its conclusion could do much to release the rest of Europe from the grip of recession. That, together with the Budget, will leave British business in an extremely good position to take full advantage of the recovery.

The Budget is a courageous and strategic one. It has succeeded at a stroke in boosting recovery in the United Kingdom, in reforming the nation's finances for the next century and in exposing the paucity of ideas and alternatives among Opposition Members.

7.42 pm

Mr. Alex Salmond (Banff and Buchan)

A couple of hours ago, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) reminded us of the Macleod dictum—cheers for the Budget, but tears in the summer. With the change in the timetable, we should amend that to cheers for the Budget, but tears before Christmas. I suspect that given the tax rise of £10 a week for average families, it will not be long before the gloss is knocked off this particular Budget.

I shall proceed on the basis that what the Chancellor did not say last Tuesday may be more important than what he did say. I was struck by the fact that only one sentence in the Budget statement was allocated to the balance of payments. Indeed, when the President of the Board of Trade spoke earlier today, he argued that the balance of payments was improving because the Treasury forecast for last year's deficit had been revised downwards. That is true. The Treasury forecast for the 1992 balance of payments deficit has been revised downwards in the Red Book from £12.5 billion to £8.5 billion. However, that is merely the revision of a forecast. The real underlying position is a deterioration from a £8.5 billion deficit last year to a £9.5 billion deficit being forecast this year. It strikes me that if the Treasury could not this year forecast last year's deficit correctly, it is hardly likely to be able to forecast the future correctly. The underlying position is deteriorating. Six out of seven of the Chancellor's wise men forecast a further deterioration in the balance of payments deficit over coming years, despite of and after the correction in the value of sterling.

The basic constraint on the United Kingdom economy is not the Budget deficit, which we have been debating for the past week, but the balance of payments deficit. If it were not for a deficit of such magnitude, it would be possible to expand the economy out of recession and to recoup Budget revenues in that fashion. The basic problem is that the British balance of payments is already in deep water. If we had a recovery of any scale, the balance of payments would go right down the plughole. I also believe that the anticipated recovery will not be, in the Chancellor's jargon, "sustainable". It will be a recovery that is "poor, solitary and short".

The recovery will also be "nasty" and "brutish" as a result of the taxation changes that the Budget entails. Whenever the Chancellor has made key taxation decisions, he has chosen the regressive route. There has been a reduction in benefits, a shift to indirect taxation, a freezing of allowances and the beginnings of the opt-out of the middle classes from welfare provision. All that suggests a regressive attitude towards basic welfare and taxation provision.

It is true that, as the hon. Member for Livingston (Mr. Cook) suggested earlier, many people who are more comfortably off will feel the chill wind of taxation from this Budget. I suspect that it is part of the Government's political strategy that such people will be compensated in the short term by the reduction in mortgatge payments and that, as we near the election, the Government will reverse the sacrifices of the middle classes.

Therefore, the Budget is anti-poor. It is also anti-Scottish in many of its components, and I shall examine three of those this evening. First, there is no recognition in the compensation scheme for VAT on domestic fuel of the fact that within colder areas, such as Scotland, it costs more for people to heat their homes. Even when the compensation package operates to its full extent, £150 million to £200 million will be taken out of the Scottish economy by the imposition of VAT on domestic fuel. That is £30 to £40 a head.

That imposition comes on top of the real problem, which is widely recognised. Some 750,000 people in Scotland currently have trouble with their heating. There is no way in which the Chancellor's compensation package will fully compensate people who already have problems with their domestic heating in a cold climate. It is to the shame of the House that when the issue was put to the test on 28 October, only 33 hon. Members bothered to go into the Division Lobbies to vote for a cold climate allowance which would have tackled head on the question of fuel poverty.

A second example of the anti-Scottish nature of the Budget is the imposition of increases in petrol duties. They will fall hardest in the rural areas and in areas where there are already high petrol prices. I have here the Automobile Association's current fuel price report. It shows that with an average price of £2.35 a gallon in Aberdeen, it is now 24p dearer to buy a gallon of unleaded petrol there than it is to buy a gallon in Portsmouth, where it costs £2.11. Clearly, an imposition of further duties, with the threat of much more to come, will hit hardest the areas where fuel prices are now highest.

As has been mentioned, private cars are not a luxury but a necessity in many rural areas. The fuel tax increase of 3p a litre as the Chancellor described it—I was surprised because if there was ever a gallon man, it was the Chancellor—which is the equivalent of 14p or more per gallon, will increase the price of just about every item on shop and supermarket counters throughout Scotland. We have the irony of fuel tax increases that will hit hardest the energy-producing areas of the country.

Thirdly, the Budget offered a rather strange petroleum revenue tax concession to pipeline networks in the North sea. I am in favour of PRT concessions because I believe that the PRT changes last year did a great deal of damage in the North sea. However, the one concession in the Budget has been drawn so specifically that the only pipeline consortium that can possibly benefit is the central area transmission system—the CATS consortium—which takes gas from the central North sea and lands it on Teesside. It is a concession that has been drawn in such a way that it can benefit only one consortium of oil and gas companies. It would be like having a concession on income tax that said in its subtext that the concession would be given only to someone named Clarke, whose first name is Kenneth, who happens to be the Chancellor of the Exchequer, who dresses in a dishevelled manner and wears Hush Puppies. The oil tax concession has been drawn in such a way as to benefit British Gas and Amoco; those companies are suctioning gas out of the North sea and taking it to Teesside.

In those three areas, the Budget ensures that the Scottish people will suffer the remarkable paradox of fuel poverty among energy plenty.

I was struck not only by the foolish cheers of Conservative Members that greeted the Budget but by the lack of genuine outrage on the Labour Benches. Some hon. Members will be familiar with The Sunday Post, a remarkably successful Scottish newspaper that even its friends would not call a left-wing organ of the radical side of politics. On Sunday, its political commentary about the Budget said: There was cold comfort for the poorest, oldest and weakest among us—the very people Labour claim to be protecting … a lean and hungry Opposition would have eaten the Tories for breakfast, but John Smith's toothless tigers let them off with barely a scratch. Nye Bevan must be spinning in his grave. If we have reached a situation when even The Sunday Post believes that the Labour party has lost its radical cutting edge, it suggests that it is not only the Tory Chancellor of the Exchequer who has lost his way in politics.

7.51 pm

Mr. David Willetts (Havant)

I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on a Budget that has struck an ingenious balance between fiscal probity on the one hand and political sensitivity on the other. The Government's borrowing requirement needed to be reduced for the simple reason—setting aside all the fancy economic arguments—that it is very expensive to borrow £50 billion a year. That means that taxpayers' money is used for interest payments when it should be use for better things.

The Chancellor has managed to combine a reduction in the borrowing requirement with taking account of the sensitivities of important groups of the population. Pensioners will have the benefit of the very generous package of compensation for VAT on fuel. Small business men in my constituency will welcome the tightening up on the late payment of bills.

The Chancellor has struck another balance, the one between fiscal policy and monetary policy. As well as cutting the Budget deficit, there was a very welcome reduction in interest rates announced the week before the Budget.

We have heard the arguments about the conduct of monetary policy and the arguments for and against an independent central bank, particularly from my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen). There are arguments for giving the Bank of England greater independence. When I think back to my days as an official in the Treasury's monetary policy division 10 years ago, I am embarrassed about the way that articles appearing in the Bank of England's Quarterly Bulletin were sent to us for detailed textual scrutiny; every paragraph had to be checked and suggestions made so that it was identical to the Treasury view. The fact that the Bank of England now has its own independent role in commenting on the Government's performance in attaining its inflation objectives is clearly an improvement.

One of the achievements of the Budget is that it has tightened fiscal policy and, at the same time, made some loosening of monetary policy possible. Have we reached the position where we have to be coy about a reduction in interest rates? If the Chancellor has reached an overall macro-economic judgment, I do not see why we should feel that an announcement of a cut in interest rates should be made at a different time by a different body. It is acceptable that the announcements of tax increases and interest rate cuts should go together.

Some people say that the problem of the credibility of financial policy requires an independent central bank. My hon. Friend the Member for Wolverhampton, South-West moved towards the conventional wisdom on this subject, which was unusual for him. We rarely associate him with the conventional wisdom.

If 10-year gilt rates are down to 7 per cent., that suggests that the City has no doubt about the Government's ability to hold down the rate of inflation in the long term. Some of the more radical arguments for an independent central bank are not borne out by the evidence.

My second point on the Budget concerns a subject that is rather shrouded in esoteric mystery—the announcement in the Budget about improved resource accounting in the public sector. One of my right hon. and learned Friend's great gifts is the ability to talk about the economy and controlling the public finances in language that is understood by the everyday citizen. I am sure that we will not hear much from the Chancellor about the esoteric mysteries of resource accounting. That is sensible and understandable.

There is buried within the Treasury's proposals about improved accounting for the cost of capital and sensible recognition—and here I disagree with the hon. Member for Coventry, North-West (Mr. Robinson)—that within the public sector the assumption that capital is virtuous and that current spending is somehow evil does not make much sense. The hon. Member for Coventry, North-West quoted figures from Kleinwort Benson's investment bulletin. I must reveal that I am a consultant to Kleinwort Benson. Even so, I disagree with what the hon. Gentleman said using those quotations.

In the public sector paying science teachers more may be a better long-term investment for the British economy than building new schools. One of the problems of the public sector is that we have too often engaged in funding new capital projects when it would have been more sensible better to maintain our current plant and equipment. More money should have been spent on refurbishment and proper maintenance.

In a world where capital is free but rationed, there is a temptation for people in the public sector to bid for more of that free capital because they have never had to think about long-term depreciation costs and the real cost of capital. In the public sector, we are biased towards capital spending, which I hope the Treasury's new guidelines will correct.

My third comment concerns the balance of the burden of taxation. The argument that has been debated in the media during the past few months is whether the way to deal with the Budget deficit is by increasing taxes or cutting expenditure. That either/or dilemma seems to me to be bogus. We can see from the Budget that tight public expenditure control and tax increases complement each other.

The best way to achieving tight public expenditure control is for people to see that the taxpayers who can afford it are making their contribution to bringing the deficit down. Taxpayers will be prepared to pay higher taxes only if they are confident that the public sector is subject to the same stringency and discipline that the private sector has been experiencing for the past few years. The tax increases and tight expenditure control announced in the Budget are stronger and more credible because they are set alongside each other.

After the March Budget, there was an argument that because of VAT on fuel the Budget was regressive. But VAT on fuel was only approximately a third of the tax increases announced in the Budget. There was also an increase in national insurance contributions, from which pensioners are exempt. Moreover, most pensioners are not paying mortgages and are unaffected by the reduction in mortgage interest relief. The overall impact of the first Budget this year was, if anything, to shift the burden of taxation away from pensioners.

This Budget is equally progressive. The Library provided me with some figures concerning the long-term trends in the proportion of taxpayers paying income tax. In 1978–79, the top 1 per cent. of taxpayers bore 11 per cent. of all income tax liabilities. In 1993–94 it is provisionally estimated that the top 1 per cent. of income taxpayers will bear 17 per cent. of all income tax liabilities. In 1978–79, the top 10 per cent. of income taxpayers were bearing 34 per cent. of all income tax liabilities; that is now up to 45 per cent. In other words, the more affluent taxpayers are paying a higher proportion of the total burden of income tax than at the beginning of the Government's term in office. That suggests that the picture of tax increases is very different from what we have been led to believe.

The debate on the future of the welfare state has now begun. On Sunday, I read with great interest a story on the front page of The Sunday Times which said that we should now have a debate about the integration of taxes and benefits. My hon. Friend the Member for Worcester (Mr. Luff) spoke on that subject.

We need continuing reform of the welfare state because it cannot be allowed to remain unchanged, but, equally, some ideas about the integration of taxes and benefits are classic examples of yesterday's ideas for tomorrow. They are largely unworkable because people pay taxes on their annual income while benefits are paid to them according to weekly or fortnightly needs. People are also taxed on the basis of where they are employed, whereas benefits are paid on the basis of where they live.

Moreover, as a Conservative, I believe that there is a crucial difference between paying into the system through taxes and national insurance contributions and taking out of the system through social security payments. We need continuing reform of the welfare state, but it needs to take the form of encouraging private insurance, wherever that is possible. We should also ensure that entitlement to benefit is targeted on greatest need, which means ensuring that the conditions for that entitlement are properly met.

I hope that the Labour party's Social Justice Commission will address some of those questions, but as my right hon. Friend the President of the Board of Trade has already said, so far it seems to be more concerned with raising questions than delivering answers. My overall judgment of the Chancellor's Budget is that it strikes the right balance between fiscal probity and political sensitivity and I warmly welcome it.

8.1 pm

Mr. Mike O'Brien (Warwickshire, North)

It is important that the Opposition should not be seen to be wholly negative, so may I begin by welcoming some parts of the Budget. For example, the assistance for child care, although underfunded, is a start. I also welcome the plans for apprenticeships and the proposals to close certain tax loopholes as well as the proposals to tackle late payments for small businesses. I understand, however, that the business community is not united on that issue, so caution must be exercised before any legislation is introduced.

I also welcome the upgrading of the west coast main line, which will benefit the west midlands. I should remind the Chancellor, however, that the Minister for Public Transport said on the Monday before the Budget that failure to upgrade the west coast main line was not an option and that if private finance did not come forward, the public sector must invest.

Budgets are judged on the economic future that they create for Britain. On that key issue the Chancellor delivered the Budget with all the style and panache of a second-hand car dealer selling a dodgy motor—the bigger the defects, the wider the grin and the faster the patter.

The Chancellor originally got the franchise to sell his vehicle by advertising at the general election that the Conservative Government would cost less and deliver more. Instead, with the cheeky assurance that we had all got off lightly because he had not extended VAT, the Chancellor delivered one of the biggest tax hikes in British history at the same time as imposing some of the worst cuts in public provision.

The Government say that their new policy is "back to basics", but we now know that a "back to basics" economic policy means that people pay more and get less. "Back to basics" does not just mean that the usual victims of Conservatism will be punished. Yes, the unemployed will be battered because their benefits will be reduced to six months and invalids may face six months of worry about whether they will qualify for the equivalent of invalidity benefit. This time, however, middle income families will also pay more and get less. They will lose because of the cuts in the married couple's allowance and mortgage interest relief. They will lose due to the burglary tax, because of VAT on home insurance, and they will lose due to the new car tax, because of VAT on car insurance. The new airport tax will hit any holidays taken by families from October 1994. Taken together, this year's Tory Budget will cost middle income families in my constituency £10 a week next year and £16 a week from April 1995. Half of the total collected will come from direct taxation.

Tory broken promises will mean that 19 out of 20 households will be worse off and the total tax burden will rise to 38.5 per cent. in the next few years—it was 34 per cent. under Labour in 1979. People will receive less provision for the extra money that they must spend.

The Chancellor told the House that the aim of his first Budget was to sustain economic recovery, but that is precisely the central flaw in his Budget. Taking so much out of the economy at a time of such tentative recovery is an extremely risky strategy. According to business men in the west midlands and north Warwickshire, the recovery is at best very weak and could easily stall. If so, we would be dependent upon the recovery of the European economies. That could take some years. This is the wrong time to take risks with the recovery, but the Chancellor has decided to take them for short-term party political gains—three days of good headlines. He said that the recovery was the priority, but the real aim of the Budget was just to reduce the deficit. I do not deny that the two are interlinked, but effectively tackling the deficit depends on economic recovery. The Chancellor seems to think, however, that economic recovery depends on tackling the deficit.

In my view, the Government have overplayed the dangers of the deficit at this stage in the economic cycle for two reasons. First, it is an excuse for cuts in social security payments and the welfare state. Secondly, because of the Government's current lack of economic direction, they are still dependent on the old nostrums of monetarism to act as some kind of guide even on the zig-zag economic course on which they have now embarked.

The deficit was the creation of economic mismanagement by the Government in the late 1980s and early 1990s. In particular, we entered the ERM at a rate that many of us—even those of us who favoured the ERM in principle—said at the time was unsustainable. By trying to sustain the unsustainable, through high interest rates, appalling damage was done to the British economy. That policy drove us into recession and unemployment, which created the deficit. It was the Government's bad judgment that created the deficit.

It was only the failure of Government policy in September 1992 that allowed the recovery to start as the value of the pound fell and interest rates also began to fall. To take money out of the economy now through taxation and social security cuts will reduce demand and damage the many businesses that rely on spending power. That decision displays the same bad judgment that we have seen all too often from the Government.

The Government's concern that the deficit would crowd out investment and damage recovery is not completely unfounded, but we do not live in a closed economy. The crowding out of investment is a theory that lacks resonance day by day as our economy becomes more international and investment is an international decision for capital.

It is difficult to be sure how much of the deficit is structural, but the OECD has suggested that at least two thirds of the PSBR is cyclical—mainly unemployment related. If £27 billion goes on keeping people out of work, the Government have two choices: they could cut benefits or invest in putting the unemployed back to productive work. The Chancellor chose the first option. Labour would choose the second.

The Chancellor risks a £12 billion deflationary Budget in the hope that it will not damage recovery. I hope that he is right, but I suspect that he is wrong. He has taken a risky course and a lot will depend on lowering interest rates soon to reduce the deflationary impact of the Budget.

In an internationally competitive market, the central role of Government is to use their resources, their ability to plan and direct, to create the basis for effective competition for Britain. That means creating physical infrastructures such as good quality railways, roads and communications. It means creating an intellectual base for research and development opportunities and a skilled and educated work force. It means creating the basis for a high skill, high wage, productive, competitive economy.

The Budget does not have that vision for Britain. It has all the hallmarks of the fag-end of the Thatcherite agenda. The old sweat shop mentality still drips from every pore of the Budget. Thatcherism failed economically because it tried to build policy on an intellectual argument that did not recognise the realities of the modern international economies. This Budget will therefore fail. It does not create an effective economic base for Britain's future.

The effects of the failure of the Chancellor's policies will be felt disproportionately by the unemployed and by the sick. In the Budget, the vulnerable pay the price of their vulnerability.

Last weekend, several people who were seeking invalidity benefit were at my surgery. They expressed real concern about their future. There is little evidence of abuse of invalidity benefit. The DSS commissioned research by Ehrens and Gate and, as the hon. Member for Stratford-on-Avon (Mr. Howarth) pointed out in his speech last Wednesday, the DSS has not yet received the findings of that research, and there is little evidence that dishonest people are receiving invalidity benefit on a large scale. Eight out of 10 claims referred to the Benefits Agency medical service have seen the GP's decision upheld.

Although the Government's proposals will not remove most of the present recipients from benefit, they will cause massive worry to a most vulnerable group. They will ensure that a number of current marginal cases do not get the benefit, and that a section who are now clearly within the present criteria are moved to a marginal position where they may or may not get the benefit.

The Budget has been about punishing victims: the victims of invalidity, of unemployment and, beyond that, of all the taxpayers of Britain, who are the victims of a Tory Government whose incompetence over the past 14 years has been continued in the Budget.

8.11 pm

Mr. Gary Streeter (Plymouth, Sutton)

The hon. Member for Warwickshire, North (Mr. O'Brien) was clearly not in the Chamber last Tuesday to hear the Budget that I heard. I wonder whether he has confused last Tuesday's Budget with the Labour party shadow Budget of last year, because the Budget that my right hon. and learned Friend the Chancellor introduced last Tuesday has received a resounding welcome up and down the country.

I want to speak in support of the Budget, particularly on behalf of the west country, which is the region that I am proud to represent. In the west country, we have a high proportion of retired people. Therefore, I am particularly pleased that, in anybody's language, the Budget can be described as a Budget for pensioners. I was delighted with the compensation package for VAT on fuel. It is an excellent package, and I am sure that it will alleviate—and already has alleviated—many of the anxieties of pensioners living in the west country.

Of course, many of those anxieties have been whipped up by Opposition Members, who I am sure spend every night lying awake thinking up ways of getting up in the morning and frightening elderly people. Now that my right hon. and learned Friend the Chancellor has delivered such an excellent compensation package, I wonder what the active minds of Opposition Members will be dreaming up tonight to frighten elderly people tomorrow.

I welcome the support that we have given, not just to pensioners on income support and the most vulnerable, but to all pensioners. The reason why I welcome it so strongly is that I believe that we should encourage responsible behaviour. We should encourage those who have been thrifty, and have put a little by for a rainy day. So often we exclude them from any benefit and compensation, but they can be just as elderly, as concerned and anxious as the next person.

I would encourage us to go further down the line of setting up our tax and welfare systems to encourage responsible behaviour and discourage irresponsible behaviour. I particularly welcome the fact that the compensation is to be received by pensioners in advance of the higher bills. That will enable them to see that they no longer have to worry about turning on the gas and electricity for fear of not being able to afford to pay their bills, because the compensation will be there before their very eyes before those days arrive.

I welcome also the fact that, on average, the compensation package will broadly cover all changes in fuel bills. I note that the Labour party must be happy about the compensation package, because it has not tabled any amendments to today's debate to amend it in any way.

I welcome the guaranteed income bond, which is another initiative of my right hon. and learned Friend. Another anxiety that pensioners have is that, as interest rates decline, and while those of us with large mortgages —in my case, I mean large—welcome interest rate reductions, pensioners see their incomes shrink.

We can argue until we are blue in the face that, with very low inflation, the real value of their capital and their monthly income is being preserved, but it does not feel that way to them. That is why I so warmly welcome the guaranteed income bond, which, when established, will give a guaranteed monthly return for a fixed period of five years. That is something for elderly people to plan on. If there is one thing that pensioners like to do more than anything else, it is to be able to look forward with a sense of certainty and comfort.

Those new bonds, which I am sure will quickly be called granny bonds, are to be warmly welcomed; they are an excellent part of the Budget.

Mr. Nigel Waterson (Eastbourne)

Does my hon. Friend agree that something else for which pensioners have the Government to thank in planning their finances is the very low rate of inflation, which was not something that they enjoyed under the past Labour Government?

Mr. Streeter

I am grateful to my hon. Friend for making that excellent point. The bedrock of our policies is to help elderly people with savings. Low inflation is the key: that is something that Opposition Members could never achieve in the past, and of course will never have the opportunity to achieve in the future. I welcome the Budget as a Budget for pensioners, and therefore a Budget for the west country.

The second aspect of the Budget which is a super boost for the west country is the help for small businesses. We know that the west country is full of many excellent small and medium-sized businesses. Until I was elected to this place, I spent my career advising small and medium-sized businesses on legal and other general commercial matters as a solicitor specialising in company and commercial law. I feel that I have a sense of what businesses require. When business people in Plymouth speak to me about what they want from the Government, they say that, first and foremost, they want a stable economic environment.

Secondly, they want a minimum of expensive bureaucracy. Thirdly, they want the ability to obtain working capital at a price they can afford. I shall examine the Budget against that benchmark: first, the right economic environment. With inflation at 1.4 per cent., with interest rates currently at 5.5 per cent.—we hope that they will go lower yet—and with a competitive pound, that is the right framework that our businesses are looking for.

The managing director of the Barden Corporation, which is an excellent company in Plymouth, employs 250 people, makes high-precision ball bearings and exports them all over the world, told me only a week ago that it was now enjoying the best year that it had had for 10 years. He puts it down primarily to two things: first, the competitive pound, which makes his products competitive for overseas markets; secondly, the fact that our non-wage labour costs are lower than those of our European competitors.

He drew my attention to the fact that his sister company in Germany has non-wage labour costs roughly 30 per cent. higher than the costs in the United Kingdom, because of the implications of German employment legislation reflecting the social chapter. The recipe that Opposition Members wish to prescribe for this country is non-competitive labour rates, which would price our goods out of the market.

When I think about what Opposition Members want us to enter into—a minimum wage, the social chapter and the 35-hour working week—I can only describe it as a charter for job losses. It is to be rejected by all right-thinking people.

We have the right framework for economic growth, and business people in the west country are grateful for that. The Budget has introduced a variety of excellent measures to help the small business man. Again, my right hon. and learned Friend has referred to deregulation, a boost that is to come in the months that lie ahead. In that deregulation, can we also deal with those over-zealous officials who, no matter what regulations we might have, seek to enforce them in a way that does not take into account the requirements of small businesses?

Perhaps it should be made an absolute requirement for enforcement officers to have greater experience of small business, so that they know what it is like for business men to worry that they may not have enough money to pay the wages at the end of the week or to buy food for their families at the weekend unless they get their bills paid and can produce the goods that week. We need to look at the way in which we enforce our regulations.

The deregulation move is important, as are the reform of the current regime for assessing personal tax, the lifting of the VAT threshold and the reduction of audit requirements. All those measures are welcome.

I want to make one final point about small business before I sit down and allow others to have their say. I have been advising small and medium-sized companies for the past 12 years. In my experience, one of the pressing requirements is working capital, in particular the ability to attract equity investment. I welcome the venture capital trust and enterprise investment schemes warmly, because they will be an important factor in helping to bridge the gap in the market.

Unlike some of their European competitors, our business people find it difficult to attract equity capital in relatively small amounts. When I was in private practice, I used to say to clients, "I can find you £3 million, but it will be a struggle to find £100,000." It is that sort of amount that makes the difference between standing still or growth, enabling businesses to build a new extension, find extra markets or take on a new sales director. That is the sort of equity investment for which small and medium-sized businesses are looking.

I welcome the change from the old BES rules, which will allow investors to take up a paid directorship with the company in which they are investing. Many people with money to invest are looking to become actively involved in small companies for interest's sake. They have not just cash but a wealth of experience and expertise to offer, and can be tremendously helpful to young growing companies. I believe that the measures to help small businesses are an enormous asset to it. They will be a boost for jobs, and will be warmly welcomed throughout the west country.

In my opinion, the most important aspect of the Budget is the way in which it has been received. Its first goal was that it should not damage the recovery. That is why the reception of ordinary men and women up and down the country has been so important. I am one of many Conservative Members who—unlike Opposition Members, I suspect—are in touch with real people outside this place. [HON. MEMBERS: "Come off it."] Opposition Members, who spend their time with trade unionists and full-time officials, are not in touch with real people. Real people welcome the Budget. It will not be a brake on the recovery. It will keep tills ringing in Plymouth high street, and I look forward to retail sales in December and January significantly higher than in the same period last year. This has been a successful Budget, and it is an important milestone on the road towards our great goal of sustainable economic growth.

8.24 pm

Mr. Peter Mandelson (Hartlepool)

Last week, in one of the jolly radio interviews that have become the Chancellor's hallmark, the right hon. and learned Gentleman revealed that he was amazed at the positive reception that his Budget elicited. I am not surprised that he was amazed. No one knows better than the right hon. and learned Gentleman just how much of a gamble his Budget was; how deeply and possibly deadly deflationary it will turn out to be; and how savage will be its effect on living standards of people throughout the country, as the right hon. and learned Gentleman has been the first to boast. That is why many of the economic judgments that have followed the Budget are rather more cautious than the enthusiastic response of political journalists—a more impressionable bunch, in my experience—not to mention the premature excitement shown by Tory Members as illustrated by the hon. Member for Plymouth, Sutton (Mr. Streeter).

What the hon. Gentleman and other Tory Members need to remember is that the people who have not yet spoken about the Budget are those most directly affected by it—the public. They have yet to give their verdict about the combined effect of tax increases and spending cuts equivalent to almost 8p on the basic rate of income tax. They have not yet said what they think about the implications for services of public sector wage increases having to be paid for out of patient care, school books and social services, or about the additional financial burden on families, as sick pay, invalidity benefit and unemployment benefit are cut. They have not said what they think about the fact that council tax will be pushed through the roof as the inevitable consequence of the measures in the Budget. The public's reaction will be justifiable fear, then anger made all the fiercer because of the Government's duplicity and their betrayal of election promises.

The longer-term economic judgment of the Budget—and of the Chancellor's claim that the Budget has delivered sound finance at last—depends on a number of assumptions that are by no means certain to be fulfilled: first, that recovery is not damaged by the deflationary effect of the measures; secondly, that the Chancellor's spending targets are met; thirdly, that the Chancellor is prepared to put up taxes even further if the totals do not hold; and, fourthly, that world economic developments promote growth rather than undermine it—a dangerous assumption given conditions in Europe, and particularly in Germany, as well as in Japan.

A great risk is being taken with the recovery, which is very fragile, as Ministers acknowledge in their more candid—or their more cornered—moments. The recovery is being held back above all by the sheer scale and fear of unemployment, which is still depressing confidence and spending in the economy. That is why the recovery should have been nurtured much more actively, by greater rather than less public investment in housing, infrastructure and other supply side components to strengthen, the capacity and performance of the economy.

The Red Book reveals that net capital public sector spending will fall from 2.25 per cent. of GDP in 1993–94 to just 1.5 per cent. by 1995–96 and in each successive year. That is exactly the opposite of what not just the Labour party but the CBI, and now Europe's top industrialists, led by Sir Denys Henderson, have urged. There is no evidence that that huge cut will be made up by the private sector, however much we might welcome that in principle and however hopeful the Government and their supporters might be as a result of the work of the task force led by Sir Alastair Morton.

The issue is not only that fewer jobs will be created as a result of the loss of investment, causing unemployment to remain higher than it need, but that recovery is being directly endangered by the Budget, and that opportunities to stimulate growth and strengthen the economy in the long term are being sacrificed as a result of the Chancellor's shortsightedness. Moreover, to realise their admittedly modest and unambitious growth target of 2.5 per cent. in the next year, the Government will be relying heavily on cuts in interest rates by next spring and summer to stimulate growth in manufacturing output and employment. Desperation over interest rates in the next six months may add further interesting spice to the Chancellor's relationship with the Prime Minister, as they vie with each other over when and by how much to reduce interest rates and compete to catch and influence the ear of the Governor of the Bank of England.

It can hardly be sensible for the Government to depend so exclusively on the uncertain weapon of interest rates, that one-club policy to secure growth, when it is also the only weapon open to the Chancellor to control inflation. If there is a conflict between the need to stimulate growth by reducing interest rates and to control inflation by having to increase them, it will be interesting to see which way the Chancellor jumps. It will be an invidious choice. That is why he is wrong to rely exclusively on rate cuts and to ignore other supply-side, investment and employment measures which all in industry and the Opposition have called for to ensure growth is strong and sustained. On the Chancellor's public spending assumptions, I echo the views of the Institute of Fiscal Studies that were reflected in the speech of my hon. Friend the Member for Coventry, North-West (Mr. Robinson). The Chancellor's plans are not just a squeeze, they are a huge contraction, and only remotely reasonable when contrasted with what the Chief Secretary would like to do if he were given half a chance.

The plans are absolutely unprecedented in their severity; they are more draconian than anything achieved by Mrs. Thatcher and Nigel Lawson at the height of their power in office. We must question their desirability—they are certainly inconsistent with the pledges made in the Conservative manifesto at the last general election—but also their feasibility.

The new spending total suggests a real-term, non-cyclical increase of 3.8 per cent. to 1999. That contrasts with the comparable rise of 12.5 per cent. in real terms between 1980–81 and 1986–87. To meet his spending total, I wonder how far the Chancellor is prepared to go in further decimating public services, driving down their standards, contracting out whatever the sense or benefit in doing so, and pushing up charges to individual users of the services, thereby putting them out of reach for so many. It means the wholesale abandonment of many Tory election promises and I believe that many Conservative Members have yet to wake up to that.

The other assumption underlying the Budget is that the Chancellor would put up taxes even further if his spending plans are not met. Is the Chancellor prepared to own up to that? Certainly on television this weekend he simply said that he did not have a clue. I wonder about that. I suspect that the Chancellor knows now that his arithmetic will not add up and that further tax rises have been planned to pay for past mistakes and the cost of future low growth and continuing mass unemployment.

He hinted as much in his Budget speech when he said: I have never disguised my personal view that the coverage of VAT in this country is too narrow.". He went on: The Government's clear policy has always been to shift the burden of taxation, over time from income to spending.".—[Official Report, 30 November 1993; Vol. 233, c. 932–6.] The Chancellor is putting that cover in place in order further to increase the tax burden in future years. The growth in VAT and indirect taxes is the uncompleted, glossed over, yet-to-explode part of the Budget story as the Chancellor's perilously balanced equations start to unravel, as Conservative Members will soon discover.

The Budget managed to combine savage deflationary content with overly optimistic rose-tinted presentation. It does not begin to address Britain's core economic problems: our lack of industrial capacity and competitiveness, the waste of unemployment and our declining share of world trade.

It begins—as it needs to—to deal with the unsustainable financial deficit but is less than honest both in its prescriptions and in its predictions about how the deficit will be conquered. The consequences of the Budget will be tax, tax and yet more tax, however thinly it may be disguised and camouflaged. That is why the Tories' election promises will never be trusted again.

8.34 pm

Mr. Nigel Waterson (Eastbourne)

I am particularly pleased to have the opportunity to welcome the Budget, which is both clever and compassionate, and to follow a characteristically churlish contribution from the Labour Benches.

In company with other hon. Members, I should like to take the opportunity to single out a particular aspect of the Budget—the package for dealing with VAT on fuel and its effect on the more vulnerable in our society.

It is a strange issue in many ways because of the emotion it arouses in Opposition Members. The prime emotion it tends to arouse is hypocrisy in many quarters. We saw a classic example from the right hon. and learned Member for Monklands, East (Mr. Smith) when he had the audacity earlier today to claim that the Government were trying to avoid a vote on VAT on fuel.

Even the newest hon. Member of the 1992 intake would know that that vote has already taken place and, as was pointed out earlier, it was perfectly open to the official Opposition to table an amendment on the package, but not on the principle of VAT on fuel, and they have signally and dismally failed to do so. The matter was dealt with following the March Budget and today we are talking about the package for dealing with the less well-off.

It is particularly rewarding to know that, in advance of my right hon. and learned Friend the Chancellor's Budget statement, the Labour social security spokesman, the hon. Member for Glasgow, Garscadden (Mr. Dewar), said that he was looking for 50p extra on pensions. I know that the quotation will appear several times in the debate, but it certainly bears repetition. I know that Opposition Members do not like to hear it, so let them hear it again. I predict that they will hear it many more times in the coming months. The hon. Gentleman said The Government has to add something on to take account of that —the introduction of VAT on fuel— and they could do it with an extra 50p on pensions.

Mr. Alistair Darling (Edinburgh, Central)

Is the hon. Gentleman not aware that the publication in which that quote appeared subsequently admitted that my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) said no such thing and that he was misquoted? That has been made perfectly clear, not least by my hon. Friend today to the Prime Minister.

Mr. Waterson

I was unaware that had been the case. I seem to remember that, when the point was made on the first day of the Budget debate, the hon. Gentleman did not leap to his feet to make the point on his own behalf. That is a quotation from The People on 21 November 1993.

Mr. Rhodri Morgan (Cardiff, West)

Will the hon. Gentleman withdraw that quotation?

Mr. Waterson

I will not withdraw it. I am quoting from The People newspaper of 21 November.

Mr. Darling

Will the hon. Gentleman give way?

Mr. Waterson

No. I have a speech to make and I will make it. It is worth commenting that the Government are providing what the right hon. Gentleman was calling for even before VAT is imposed at its standard rate.

Let us move on. I have already dealt with the hypocrisy of Labour Members; let me now deal with the hypocrisy of the Liberal Democrats. I notice that they have not chosen to grace us with their presence in the Chamber this evening.

I represent the constituency of Eastbourne, a place reasonably well known in recent political history because of the famous by-election. We have heard a great deal from the Liberal Democrats on the issue in Eastbourne. We have seen endless leaflets and statements in the papers. They have made a great deal of political mileage out of it. As we all know, the Liberal Democrats are political chameleons who change their colour depending on the background in a particular part of the country. In my part of the country, which is predominantly Conservative, they pretend to be just like the Conservatives. Elsewhere, they do the opposite and pretend that they are a more pleasant alternative to the Labour party. However, as we all know, in truth they are Labour's country cousins. If one needs evidence of that, one need only look at the alacrity with which they leapt into a pact with Labour to run East Sussex county council after the elections a little earlier this year.

As I have quoted the Labour party's spokesman on the issue, it is only fair that I should quote the Liberal Democrats. As recently as the Liberal Democrats 1992 election manifesto, they said: We will support a Community-wide Energy Tax on all energy sources. In a policy document entitled "Taxing Pollution, not People" which was endorsed by their 1993 party conference, the Liberal Democrats stated: We support the European Community proposals for an energy/carbon tax, and would press for its immediate implementation at national level". Perhaps the most damning quotation, and the one which they can wriggle and squirm about, but from which the Liberal Democrats cannot get away, is set out in their 1990 policy document entitled "Costing the Earth" in which they say that they advocate as a first priority the imposition of a tax on energy … The UK is unusual amongst EC members in not applying even standard rates of VAT to domestic fuels … If it proved completely impossible to persuade our international partners to adopt energy taxes, we would nevertheless press forward, but phase them in at lower levels than otherwise—for example, by ending the anomalous zero-rate of VAT on fuel". As that quotation rightly recognises, most other countries in the industrialised world, and certainly in the European Community, already have VAT or its equivalent on fuel. It is and always has been a political inevitability that one day, sooner or later, VAT would be imposed on domestic fuel. That must of course be admitted, if only behind closed doors, by Opposition parties.

What matters, and what has always mattered, is the package to be introduced to look after those less able to pay the extra VAT. It is also important to address the feelings of other people in my constituency, the better-off pensioners who have, none the less, expressed their concern about the ability of the less well-off in my constituency to bear the tax.

That is why, since the March Budget, many of us have made representations to my right hon. and learned Friend the Chancellor and his colleagues about this subject. That is why I am so pleased today to welcome, with my colleagues, the extra help and the package which involves £2.5 billion over three years and will benefit 15 million people. All pensioners, widows, the long-term sick on invalidity benefit and those on low incomes will benefit.

I need not spell out once more the details of the proposals. However, as if that package were not enough, in addition we have an extra £35 million a year for the home energy efficiency scheme. We all know that the elderly and retired often live in large relatively uninsulated and not very energy-efficient properties. They will benefit more than any other group in society from that extra spending. In addition, there is a 25 per cent. increase in the cold weather payments over two years. There is no good reason for anyone who is vulnerable in our society to be worried about paying the extra VAT on fuel despite all the propaganda and worry caused by Labour and Liberal Democrat Members.

Another issue that is particularly good news for my retired constituents is the guaranteed income bond, or "granny bond". The Chancellor has rightly recognised that whenever interest rates are cut, although that may be good news for those in business and those paying a mortgage, it has a significant effect on pensioners' incomes in places like Eastbourne and on their spending power. Potentially, that has a knock-on effect on the local economy. We should not underestimate the effect of such cuts on the standard of living of pensioners.

Mr. Bates

Will my hon. Friend confirm that many pensioners are very fearful about inflation because many of them are living on fixed incomes from occupational pension schemes? The last thing that they can afford to suffer is high inflation. Therefore, low inflation is very much the pensioners' friend.

Mr. Waterson

I am delighted to agree with my hon. Friend. One of the Government's most tremendous achievements is that they have brought inflation down to such a very low level—and they are keeping it at that level. We all know that the most important thing that any Government in this country can do for the pensioner is to do precisely that. When I recall the raging inflation prior to 1979, I dread to think of what the effect would be on my constituents if we were still suffering under a Labour Government.

The Budget has done three major things: it has restated the importance of sound public finances; it has done a great deal to protect and encourage the recovery; and, at the same time, it has protected the more vulnerable in our society. In that way, it has tackled an issue which was, until the Budget, being cynically exploited by our political opponents.

I am delighted that the Budget has been welcomed so widely by pensioners' organisations, including Age Concern in my constituency. The Liberal Democrats will no longer be able to gain votes by issuing propaganda on that issue. The Chancellor has tackled the problem and has produced a package which no one could have foreseen in its generosity and its comprehensive nature. As far as the Liberal Democrats are concerned, my right hon. and learned Friend the Chancellor has shot their fox.

8.46 pm

Mr. Alan Milburn (Darlington)

As I listened to the Chancellor's first Budget last week, I was overcome by an overwhelming sense of deja vu. I had seen that devil-may-care self-confidence somewhere before. For a moment, I could not recall where, but the cheering from the Tory Back Benches and the waving of Order Papers reminded me that, precisely seven months before, the Budget of the previous Chancellor of the Exchequer, the right hon. Member for Kingston upon Thames (Mr. Lamont), was greeted in exactly the same way. He also managed to produce a flurry of Order Papers, and he too was hailed as a financial wizard and conjuror who had saved the Government's bacon. Alas, just a few weeks later, Norman's miracle had turned into a mirage. There he was, back on the Back Benches, sacked because his Budget had been recognised for what it was—a disaster for the country.

A week on, and the new Chancellor's Budget is also beginning to unravel. All the representational panache in the world cannot disguise the reality of the Budget—the most deflationary in recent history. How on earth will taking £20 million from the pockets of Darlington families in tax rises next year and £32 million the year after be good for the local economy? That is more than £50 million less to spend on products and services in an area in which more than 5,000 people are out of work and where more, not less, investment is needed.

The Budget, like the 1992 general election, will not produce the promised results because it is built on a series of confidence tricks. The con is that the welfare state is somehow safe in the Government's hands and that the Budget changes merely amount to prudent saving at a time of high public sector debt. The reality is rather different. Even people who are sick and who are disabled face a tax on their benefits. The jobless are to have salt rubbed into the wound of unemployment by slashing their entitlement to benefits.

That is just the start. By the time the Prime Minister's B team—the Chief Secretary to the Treasury and the Secretary of State for Social Security—have their way, we really will be back to basics, back to the time when the disabled, the poor, the elderly and the ill simply had to fend for themselves. However, as the self-same Secretary of State for Social Security acknowledges, growth and jobs will actually bring down social security expenditure by the end of the century.

Social security spending is high not because Ministers have suddenly discovered that there are too many elderly people or too many single mothers in our society but because Conservative economic policies have failed. That failure is now to claim yet another victim—the dismantling of the welfare state in favour of an inadequate privatised system of provision.

The Budget is a con for another reason: it promises a new dawn but it represents business as usual. The old dicta remain firmly locked in place—public is bad, private is good, the best role for Government is to do as little as possible, and the market still rules okay. That means no place for Government incentives to encourage investment, no continuation of the capital allowance scheme for industry, no extra resources for skills training to ensure that Britain rises to the top of the international skills league instead of languishing at the bottom.

The Budget offers no industrial strategy to take Britain into the next century because it is based on the false premise that the best role for the Government is to have no role at all. That promises no future for my constituents. Darlington is a place of vast economic potential. It has a range of high-quality greenfield industrial sites ready to attract the next Nissan or Fujitsu, it has a highly skilled and trained labour force, and it has a proud history of manufacturing production carried on by first-class companies. But it is disadvantaged by virtue of its place on the periphery of the single European market. That means that it is crying out for more infrastructure investment and for more industrial incentives. It means, above all else, that it is crying out for measures that will instil confidence.

We heard not a word—not a peep—from the Chancellor of the Exchequer as he delivered his Budget last week about any prospects for economic growth in my constituency. Instead, the Budget perpetuates the con that public spending cuts will somehow encourage more private sector investment. Over the next two years, after allowing for depreciation, capital investment will fall by about £3 billion. The £500 million cuts in public housing finance will not mean a rush of new developments for the construction industry; it will mean more redundancies and more closures. It certainly will not mean more homes being built; it will mean fewer. It will not mean fewer people waiting for a home; it will mean more homeless people on our streets.

The Budget seeks to con Britain by gambling on a self-initiating growth. That flies in the face of reality. Customers and consumers are so overcome with debt and uncertainty that prospects for an old-fashioned consumer-led boom simply do not exist. Such a view takes no account of reality. The housing market is in tatters, and the big boys in the British corporate sector are planning, not more investment to create jobs, but further redundancies and job losses.

At best, as the Red Book acknowledges, the Budget will bring only low growth and high unemployment because it does nothing to tackle the lack of productive capacity in the British economy that is at the root of our present economic woes.

The Chancellor managed to skip over our trade balance in his Budget presentation, and for good reason. Rising imports in the midst of a deep and damaging recession tell a story of fundamental economic weakness.

The biggest con of all about the Budget is the Chancellor's claim that there is no other way and that the only way of tackling the mess into which the Government have plunged us all is by cutting and taxing. TINA is back in town with a vengeance. We are continually told by Conservative Members that there is no alternative—there is no other way. Nothing could be further from the truth.

Why did the Chancellor not close all the £10 billion of tax loopholes identified by Labour? Why did he not free local authority capital receipts to put backbone into Britain's building industry and to tackle the obscenity of homelessness? Above all, why did he not put talents to use by making it a Budget for recovery, a Budget that put people back to work, rather than lost to public finances £9,000 for each unemployed person each year? The answer is simple enough: it was a political Budget, designed in a desperate attempt to get the Government off a hook of their own making and to further the Chancellor's own desperate attempt to climb the political ladder. Now we are all to bear the price in higher taxes and savage public spending cuts.

The Budget will do untold damage to the fabric of British society and to our prospects for a durable economic recovery into the next century. For those reasons, it deserves to be rejected by the House.

8.56 pm

Mr. John Denham (Southampton, Itchen)

Given the time, instead of issuing a press release which summarises my speech, I have been forced to make a speech which summarises my press release.

I wish to draw attention to one long-term aspect of the Budget which is of great concern. In his Budget statement, the Chancellor made it clear that the upgrading of pensions was a one-off event and that he expected to see the real value of the state pension relative to average earnings continue to decline as it has done over the past 10 to 15 years.

It is widely accepted that that means that the basic state pension in the second decade of the next century will be worth less than perhaps 10 per cent. of average earnings. Given the inadequacies of the state earnings-related pension scheme, that means that those who are currently on low incomes and who by then will have retired, and even those on average incomes, will have retirement pensions which are well below the average earnings which are being enjoyed at that time in the next century. Therefore, the Budget and the Budget strategy build inadequate pensions into the next century for many of those who are about to retire and for many of those who are currently at work.

But worse still is the fact that the Budget strategy implicitly emphasises that the Government will continue to encourage opting out of SERPS and into the private pension plan industry. Given the current state of that industry, that is an extraordinary and dangerous strategy which poses a great threat to the future security of far too many people. In the past few years, the Government have fostered a badly regulated personal pension plan industry, which has exposed millions of people to high charges and the risk of erratic market performance and has already wasted hundreds of millions of pounds of the public's hard-won savings.

People who cancel their pension policies early are penalised by the high cost of early cancellation. They may have to cancel because of unemployment or because the policy turned out to be too expensive. The Securities and Investments Board estimates that just under a third of personal pension plans are cancelled within the first two years, leading to the loss of virtually all the premiums paid by people who have been encouraged to opt out of SERPS. A rough survey of the calculations available suggests that the total amount of hard-won taxpayers' money lost through early cancellation is some £200 million a year.

That means that the failure of the personal pension plan industry repeats, every 18 months or so, a loss of public money on the scale of the Maxwell scandal because of bad regulation of the industry and poor protection available to the public. If the Government are to encourage people to rely on private pensions for all or part of their future retirement income, they have a general duty of stewardship over the use of those moneys. Their failure to monitor and regulate the industry effectively is a disgrace that threatens the pensions of millions of people in the next century.

9 pm

Ms Harriet Harman (Peckham)

The Budget breaks election promises on spending as well as taxation. It will make British people pay more and get less. It makes those who can least afford it pay the price of Tory mismanagement and it will deepen Britain's economic problems. Above all, the Budget fails three key tests: on jobs, investment, and fairness.

According to the Government's own figures, the recovery is faltering. In the Budget, the growth forecast for the second half of the year and the forecast for manufacturing growth next year have both been downgraded. The Budget is testimony to 14 years of economic mismanagement. The United Kingdom's growth has been lower than in any period since the war. Manufacturing output has risen by just 5 per cent. in Britain in the past 10 years, whereas it has grown by 25 per cent. in America, 35 per cent. in Germany, and 50 per cent. in Japan.

There is and continues to be [...] mass unemployment. A third of the United Kingdom's manufacturing employment has been lost and, for the first time ever, Britain has a deficit in manufacturing trade. For the first time, we are importing more manufactured goods than we are exporting.

Against that background, a sensible Budget would have taken immediate action to promote jobs and growth and medium-term measures to step up investment. It would have begun to release the £4 billion of capital receipts from council house sales to revive the ailing construction industry, as Labour called for before the Budget. It would have given incentives to firms to hire the long-term unemployed by rebating national insurance contributions for a year, as Labour called for before the Budget. It would have extended capital allowances to industry to stimulate much-needed investment, as Labour and the Confederation of British Industry called for. It would have ensured that all employers contributed towards vital training of the nation's work force, as we proposed before the Budget. It would have taken measures to modernise our infrastructure through both public and private sector investment working together.

However, the Budget did none of that and the reasons go to the heart of the Government's approach. Stimulating recovery? It has nothing to do with the Government. Investing in the economy? That has nothing to do with them either. It can all be left to the market.

We also needed a Budget for fairness. Instead, we got a Budget that made everyone pay tax on their gas and electricity but left tax relief on private health insurance. It put 1p on everyone's national insurance contributions but left completely untaxed the thousands of pounds received by top-paid executives in executive share option schemes. That is the Government's sense of priorities.

Before the Budget, Labour called for tax reforms. First, the Chancellor said that the tax abuses that we had identified did not exist. He then closed some of them, but only £2 billion worth. In the Budget he has now opened up another one.

The Budget breaks promises on public spending. The Conservative manifesto said: Lower taxes and a prudent approach to borrowing do not mean public spending must fall; quite the reverse. The Prime Minister said: If we were going to cut public expenditure we would have done it before and I don't believe it is economically right … so you can rule out any prospect of that.

Mr. Richards

The hon. Lady referred to public spending. Does she believe that the national health service is underfunded? If so, will she say by how much? If the Labour party was in office, how much would it spend in addition to the current budget?

Ms Harman

We believe that there is a lack of investment, particularly capital investment, in the national health service. That has been charted by the all-party Select Committee. We think that since capital investment in the health service has fallen, now is not the time to cut it. The Government are cutting capital investment on health, education and transport because they have messed up the economy and they are now telling us that we cannot afford that expenditure.

The Government said in their election manifesto that no cuts would be necessary. The Chief Secretary to the Treasury said that his vision was of a society prosperous enough to provide for those in need and invest in public services. That was before the election. They were all clear promises which have now been broken. The Budget cuts public spending below present levels next year and the year after, despite those election promises. The Budget reduces public sector investment.

The cuts in investment announced in the Budget last week will further undermine our economic infrastructure and further weaken the already weak economy. On transport, in the 1992 election manifesto, the Conservative party said: Over the next three years we are committed to the biggest investment in Britain's transport infrastructure in our history. Those are bold words. They have now cut the transport budget by 8.3 per cent. in real terms. The Tories said: We believe that the railways can play a bigger part in responding to Britian's growing transport needs and we are investing accordingly. In the Budget they have cut British Rail's external financing limit by 20 per cent. next year, 24 per cent. the year after and 25 per cent. the year after that.

What about London Underground? As my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) reminded us, two weeks ago 20,000 people were trapped for hours in dark tunnels underground when ancient cabling failed. Millions of pounds worth of business in London was lost as a result. Two days earlier, the Secretary of State for the Environment had issued a questionnaire to all of us who live and work in London. He asked us what we most appreciate about London and he gave a list of suggestions. One of his suggestions for what we most appreciate about London was the London Underground. The Government's role is not to issue barmy questionnaires, but to modernise the London Underground.

Before the election the Government promised that London Transport would be allowed to invest £1.2 billion. We are now told that the figure is to be cut to £900 million —a cut of a quarter. According to the chairman of London Underground, the Government are providing only half what it needs to create what he calls, "a decently modern metro."

In its Budget submission to the Chancellor the CBI said that public investment must be maintained and that a substantial increase in UK investment is needed to provide the basis for sustained growth. We agree with the CBI, yet the Budget makes the investment deficit worse. Public investment in housing has fallen dramatically during the past 10 years, yet it is to be cut again next year by £500 million, with £300 million being cut from housing associations. That will mean more jobs lost in the ailing construction industry and fewer homes for the homeless.

Capital spending on the health service is falling. In the Budget it is to be cut again by £144 million, at a time when the NHS faces an outstanding repairs and maintenance bill of £2.2 billion.

The Government's support for local authorities has been cut by 1.8 per cent. in real terms. That will cut services, particularly schools. The Secretary of State for the Environment has confirmed that council tax bills are set to rise by 7 per cent. or more. The hallmark of the Budget and of the Government is that one pays more and one gets less.

Mr. John Townend

The hon. Lady is giving us a great list of the items on which she objects to the Government trying to save money. Throughout the debate, the Opposition have opposed cuts in public spending and increases in taxation. How would the hon. Lady's party deal with the deficit?

Ms Harman

We want the Government to cut spending on unemployment and on income support. We want a nation that is at work and is not on benefits.

The story of the public sector borrowing requirement is one of low growth and of high unemployment. Despite that, the employment budget has been cut by 3 per cent. at a time when improved training for the whole work force is more necessary than ever. All those cuts will worsen public services and will undermine our economy.

Mr. Richards

Will the hon. Lady give way?

Ms Harman

I have given way to the hon. Gentleman already.

Mr. Stephen Milligan (Eastleigh)

The hon. Lady has made it clear many times that her policy is to reduce unemployment. Will she explain how she would do that, other than by higher public borrowing?

Ms Harman

We have set out measures, many of which have been supported by the CBI and by other employers' organisations, which would deal with the fundamental problems of high unemployment and of low growth in the economy.

The problem with the Government is not that they do not know what the solutions are. The problem is that they think that they have no role in the economy and that they can leave it to the markets. The tragedy is that that has flattened the economy. That is why we have high public spending on unemployment and why manufacturing industry has suffered.

Mr. Richards

Will the hon. Lady give way?

Ms Harman

I am not giving way to the hon. Gentleman—I have given way to him once.

The Government have once again signalled that their vision of Britain is limited to a low-investment, low-growth, low-wage and low-skilled economy. There is nothing in the Budget to improve the prospect of the public-private partnership, which could play a part in modernising our infrastructure. My right hon. Friend the Member for Ashton-under-Lyme (Mr. Sheldon) said that, at the previous autumn statement, the Government boasted about the public-private finance initiative, yet the record since then has been one of ignominious failure. The CBI has said, politely, that progress has been painfully slow. Even the Chancellor had to admit that the flow of projects had been "disappointingly small". This is not some unfortunate accident, as the Government would have us believe. It is a direct result of the Government's prejudice against any kind of public sector investment, even when it involves private investment working together with it.

The Chancellor gave the game away in his recent speech to the CBI, when he said that the public-private finance initiative was a way of privatising the process of capital investment in our key public services. It is clear that that initiative is not about partnership. It is about the Government abandoning their responsibility to modernise our economy and our infrastructure and it is about them passing the buck to the private sector.

Mr. Bates

The Labour party manifesto of last year says on page 10: We will allow British Rail to proceed with a leasing scheme of 188 new Networker trains on the North Kent line-the first step in securing private investment to help modernise Britain's railways". Is that still the hon. Lady's policy?

Ms Harman

We believe that public and private capital working together can have a role to play in improving our infrastructure. The problem is that it will not work unless there is a partnership, and this Government will not be involved in a partnership. They just pass the buck to the private sector-that is why it will not work.

In his Budget the Chancellor proudly told us that the Government were giving the go-ahead to three substantial new transport projects, under the private finance initiative. He cited the extension of the docklands light railway to Lewisham—[Interruption.] It might have been the first time that the right hon. and learned Gentleman mentioned it, but the project was first proposed eight years ago. The legislation passed its Second Reading as long ago as 1991, but there is still no commitment of public or private sector investment. Tendering will begin only next year and there is still no firm start date for the project. So it is not new and it certainly does not have the go-ahead.

The Chancellor's second announcement was the go-ahead for the modernisation of the west coast main line. BR has been calling for this investment for years, but the competition for the franchise will take place only late next year and there is no firm start date. Once again, it is not new and there is no go-ahead.

The Chancellor's third announcement was the go-ahead for a new air traffic control centre for Scotland. There has been no public sector commitment to invest in it and the Treasury will not even hazard a guess at what the start date might be. This project, I concede, might be new, but it certainly does not have the go-ahead—

Mr. Riddick

rose—

Ms Harman

The truth is that the Government's private finance initiative is just an excuse for their refusal to invest in our infrastructure. We have heard announcements and reannouncements, but no action. The problem has been described very well by the Chief Secretary, whose philosophy is that if business wants something, business will pay for it; and if business does not want something, it will not pay for it, so it does not matter. That is why we have no channel tunnel rail link. It is why in France, where the French understand about investment in infrastructure, their industry has the opportunity of a modern rail link taking goods to the rest of Europe. It is why, when the channel tunnel opens next year, British industry will find that it is serviced only by ageing Network SouthEast trains.

Mr. Riddick

rose—

Ms Harman

This was not just a Budget that undermined our economy and made everyone pay the price of Conservative economic failure. No; the Tories are cynically using the crisis in our public finances as an excuse for their ideological mission to end the welfare state. Unemployment benefit is to be cut; so is invalidity benefit. Sick pay is to be pushed on to employers and we know only too well that that is just the start.

The contrast between Labour and the Tories could not be clearer: we engage in an open debate about the future of the welfare state; Tory Ministers plot its destruction behind closed doors. We look at analysis and at facts; the Tories refer only to bigotry and prejudice. We look at how Government can enable people to help themselves; the Tories think that any action—in particular, the Chief Secretary thinks that any action—by Government can only diminish individual responsibility. We ask what is fairest, what is the best way of meeting the need. The Tories reply: public bad, private good. We want to modernise and improve the welfare state; the Tories want to end it. It is because the welfare state needs to change to meet changes in society that we need a Labour Government. The Tories cannot be trusted with the welfare state. They will not change it for the better; they will just destroy it. That is the real story of this unified Budget. It is designed to unify the Tory party, but to deepen divisions in the country.

Mr. Riddick

Will the hon. Lady give way?

Ms Harman

I will give way because I have reached my points on taxation. I hope that the Government will give us answers on taxation.

Mr. Riddick

My question is, indeed, about taxation. From the comments made by the Leader of the Opposition at Question Time today it appears that the Labour party would like an opportunity to vote tonight on VAT on fuel. Can the hon. Lady tell the House why the Opposition did not table an amendment to the Budget resolution on the Order Paper, as the House would allow?

Ms Harman

The first vote at the conclusion of tonight's debate will give us the chance to vote down VAT on gas and electricity.

Mr. Riddick

rose—

Ms Harman

If the hon. Gentleman wants to—

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)

Order. I expect the Front Bench to set an example. I am having great difficulty hearing the hon. Lady, as I am sure is the rest of the House. We will hear the rest of the debate in reasonable quietness.

Ms Harman

The hon. Gentleman's constituents will not be interested in his procedural nit-picking. They will want him to vote consistently with his promises to end VAT on gas and electricity.

Mr. Riddick

On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker

I hope that it is a point of order.

Mr. Riddick

You have just heard the hon. Lady say that the first vote tonight will be on VAT on domestic fuel, Mr. Deputy Speaker. At Question Time the Leader of the Opposition said that we were not being allowed an opportunity—

Mr. Deputy Speaker

Order. That is not a point of order for me.

Mr. Riddick

Surely—

Mr. Deputy Speaker

Order. Obviously, my appeal of a few seconds ago fell on deaf ears. I expect the debate to be heard in reasonable quietness, so that Members of all parties have a chance to be heard.

Ms Harman

On taxation, too, the ground is littered with broken promises. The Conservative manifesto said that the Conservative party was the only party that understands the need for low taxation. Yet, as my hon. Friend the Member for Durham, North (Mr. Radice) pointed out, in this Budget we have the largest tax rise in history. Some £24 billion will be taken in tax over the next three years. From next year, the typical family will pay an extra £10 a week and from 1995 an extra £16 a week.

On income tax, the Prime Minister told us: we will make further reductions in the rate of taxation … we will be able to make reductions year on year. Yet this Budget imposes three separate increases in income tax this year and next. Personal allowances are to be frozen for two years running. The married couple's allowance will be reduced in 1994 and again in 1995. Mortgage interest tax relief will be reduced in 1994 and again in 1995.

On national insurance, the Prime Minister said: I have no plans to raise … the level of national insurance contributions. Yet from April next year, national insurance will be increased by 1 per cent.

On VAT, the Prime Minister said: I've made the pledge in the past … I have made it clear we have no plans and no need to extend the scope of VAT. We have not been able to believe any of those promises. We all know what happened to them. Despite the compensation scheme, everyone, even the poorest, will have to pay some of this tax. What nauseating hypocrisy we have heard from the Tories about helping people with their fuel bills. They are not helping people with their fuel bills; they are putting tax on people's fuel bills and for some people they are rebating some of it. Everyone is being taxed on their fuel bills.

The Budget imposed three new taxes. For two of them, the Chancellor targeted the one area in which growth has been at record levels under the Conservatives. He has targeted the one area where the figures have risen constantly and the one area where the United Kingdom is near the very top of the league. What area is that? Crime. Crime has more than doubled since 1979 and now there is an attack on its victims. There is also a tax on holidays.

Any group of villains know that when they are up to no good the most important thing to do is to get the story straight, use the same alibi, to spin the same yarn and perhaps they will get away with it. Treasury Ministers have failed to learn that lesson. When interviewed separately about broken promises, they have all given different alibis. The Financial Secretary to the Treasury—I hope that he is listening because he may wish to retract it—has protested his innocence about broken promises. On the BBC programme "Question Time" on 11 November, he was asked by my hon. Friend the Member for Durham North-West (Ms Armstrong): Why did you say that you would not raise or have to extend VAT? The Financial Secretary replied: "We didn't". My hon. Friend said: Well the Prime Minister did", and the Financial Secretary replied: The Prime Minister didn't either. Labour have been saying this since the March Budget, but have failed to produce any single piece of written evidence to support the assertion. The Financial Secretary knows that the Prime Minister's promises on VAT are a matter of record in the Official Report and also in the newspapers. He knows that there is written evidence of those promises. I will give way to the Financial Secretary so that he can retract his statement that there was never any policy to put VAT on gas and electricity. That particular villain is claiming the right to silence. He has nothing to say. The Financial Secretary is guilty and the British people know it.

The Chief Secretary to the Treasury tells a different story. He is more artful and admits that the Government broke the promise on taxes, but he says that they were only little promises and that the really big promise was to deliver sound public finance. In his election address, the Chief Secretary mentioned that little promise on tax not once, not twice, but 10 times. However, the big promise of sound public finance was not mentioned once. He has only told us now.

As for the Chancellor, he is the leader of the gang and the most hardened of all those offenders. He did not deny it. He admits that he did it, but said that it did not matter. Who cares? Promises do not count if they are made "on a wet night in Dudley".

Those promises matter. The British people believed them. In the case of those offenders, it is time to understand a little less and to condemn a little more.

We have a Budget for low investment. We have a Budget for low growth, which will make our economic problems worse. We have seen an unfair Budget which fails to end tax abuses by the richest and which makes ordinary families pay the price of the Government's economic mismanagement. Above all, we have seen a Budget that breaks election promises and demonstrates contempt for democracy.

The promise on public spending has been broken. The promise on transport investment—broken. The promise on protecting those in need—broken. The promise on taxation —broken. [Laughter.] Conservative Members may laugh. The people in the country do not think that it is funny to have a Government who have no integrity. The promise on income tax—broken. The promise on national insurance —broken. The promise on VAT—broken.

The Budget marks the conclusive failure of the Conservative economic experiment. The Conservatives told us that their economics could deliver low taxation, sound finance, a competitive economy and good public services. They have destroyed our manufacturing base. They have created mass unemployment. They have run down our public services. They have created a record trade deficit and a record level of Government borrowing.

The record of the total failure of the Conservatives' economic policy has now forced them to claw back all the tax cuts of the 1980s. The central Conservative claim has collapsed; the promise of low taxes now lies in tatters. All the excuses have run out. All the promises are broken and the country will never trust the Conservatives again. We will vote against the Budget tonight.

9.30 pm

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

I believe that if the hon. Member for Peckham (Ms Harman) is really to be the left's answer to my right hon. Friend the Chief Secretary, she will need something better than the hon. Member for Knowsley, North (Mr. Howarth) trying to lead a clapping ovation for her at the end. The Labour party showed itself to be still so disunited that it could not clap or shout in unison at the right points in the hon. Lady's speech.

The hon. Member for Peckham sat down on the one clear note of intention that I got from her speech. She said that she would vote against the Budget. I shall begin by exploring precisely why we are not having a vote against VAT on fuel after the scandalous campaign that was run throughout the summer.

I have been puzzled, because I had expected a vote on VAT on fuel. I thought that the Labour party, the Liberal Democrats or others of our critics would raise the matter. At various times, I have discussed with my hon. Friend the Member for Berkshire, East (Mr. MacKay) and with my right hon. Friend the Chief Whip the position on that vote. I am glad to say that I satisfied myself that just as we won the vote in the previous Session, we would win it comfortably again.

But no vote has been called. We have reached the end of the argument about VAT on fuel after an extremely irresponsible campaign, which has caused genuine fear and alarm for many poor and elderly people.

I thought that we should have some explanation of why there would not be a vote. We had an explanation this afternoon from the Leader of the Opposition, who rather puzzled my right hon. Friend the Prime Minister—he certainly puzzled me—by saying that we had so tabled the Budget resolutions that we had robbed the Labour party of an opportunity to vote. He obviously realised that his hon. Friends had chosen not to table the usual amendment to the Budget resolutions which would have paved the way for the discussion of the Finance Bill, which we all thought would happen.

There can be no doubt about the matter. I cannot believe that a mistake has been made by the shadow Treasury team. I believe that there was a conscious decision that this issue, having been given a whirl in the autumn, should now be withdrawn, as it has in effect been withdrawn by the decision this evening.

I wrote to the shadow Chancellor, so it is no good his looking embarrassed. He knows the position perfectly well. I wrote to him the usual explanatory note on the Ways and Means resolutions, which made the position quite clear. He had only to get to paragraph 2 to see that he had to table an amendment to the first resolution if he was to pave the way for the discussion of the Finance Bill which he wanted.

Mr. Gordon Brown

Will the Chancellor, with his expertise in detail, tell us the effect of voting against the first resolution this evening, as we are pledged to do?

Mr. Clarke

What exactly did the Leader of the Opposition have in mind when he said that we had obscured the resolution? The amendment, as he knows, has no practical effect on the law. It is the paving amendment for the whole general debate on the Budget.

The hon. Gentleman has taken part in many Budget debates, and he knows that whenever a resolution of this kind is tabled—which seeks to exclude further amendments on VAT—amendments have been tabled to pave the way for VAT discussions in the Finance Bill that the Opposition told us that we were not going to have. They have not tabled such a resolution this time—possibly because they know that we would win, as we did in the previous Parliament. They sought to pretend that there was some procedural reason why they could not do that, when the truth is that they are embarrassed by the public statements of their colleagues, not least the hon. Member for Glasgow, Garscadden (Mr. Dewar).

Mr. Dewar

Will the right hon. and learned Gentleman give way?

Mr. Clarke

I will give way in a moment.

Let us not exclude all discussion. The hon. Member for Garscadden comes forward with a tortured look. We have had a number of tortuous discussions about this throughout the debate. I am not questioning the hon. Gentleman's honour—I have never known him to be untruthful in his dealings with me. I have received his letter, and I accept his explanation of what occurred.

If the hon. Gentleman is also fair, there is absolutely no doubt that he found himself grossly misquoted, if his account is true—as I accept it is—by Mr. Nigel Nelson in The People. There is no doubt what the original cutting means. The colour put on it by Mr. Nelson a fortnight later does not bear the slightest examination. There is a picture of the hon. Member for Garscadden, with the heading "Cash Call" underneath. It refers to VAT on fuel, and says: 'The Government has to add something on to take account of that and they could do it with an extra 50p on pensions.' The hon. Gentleman now comes forward with his explanation of how he came to say that, which he did not volunteer until after the Budget. He left that explanation as it was.

There is no doubt what readers of The People believed, including several of my hon. Friends—I almost said, the more eclectic and eccentric of my hon. Friends. There is no doubt what any reader of The People would believe, because the term "cash call" is quoted alongside the article. Because the hon. Gentleman believed other newspaper reports, he did not believe that we would come forward with compensation on such a scale, and he has been trying to get out of it ever since.

The hon. Member for Garscadden knows that the package that we have come forward with is worth far more than 50p a week to pensioners. In the first year, certainly, the package will be worth 50p a week to a single pensioner and 70p a week to a couple. The same again on top will be offered the year after that, and the year after that.

The uprating, which includes the VAT on fuel, will be almost £2 a week for a pensioner by 1996, by which time large numbers of pensioners will be fully compensated for any change in their fuel bills, including VAT. That is why Labour's great campaign is fizzling out in such ignominious confusion.

Mr. Dewar

The essence of the charge that the Conservative party has made against me—[HON. MEMBERS: "Guilty."] No. The charge against me is that I indicated to The People that 50p for pensioners would be adequate compensation for the imposition of VAT on fuel. I am grateful to the Chancellor for what I think I detect, among all the verbiage, is an acceptance that I never said that.

The Chancellor knows that, since the matter was brought to my attention, I have maintained that position, as has the journalist concerned. The journalist has told the Chancellor that, and has said in his copy that the Prime Minister's and Chancellor's attempts to put their interpretation on my words was a load of cobblers. I recognise that many people are used to hearing a load of cobblers from the Government. I am grateful to the Chancellor for accepting my word. I have been totally and maliciously misinterpreted during the past few days.

Mr. Clarke

If one puts the explanation of the journalist, Mr. Nigel Nelson—[HON. MEMBERS: "Apologise."] No. The hon. Gentleman raised this matter, which seems to be important to him. He has intervened, but it seems to be of importance to those on the Opposition Front Bench not to dwell on the matter.

If one puts the two columns together, the explanation offered by the journalist Mr. Nigel Nelson does not bear a moment's examination. The fact that Mr. Nelson suggests that the way in which the Government read his column must be the work of "snakes and vipers" merely shows that he is somewhat partisan on this issue. If the hon. Member for Garscadden has been scandalously misrepresented, he has been misrepresented by seeing his picture above the headline "Cash call", alongside the quotation I gave.

Mr. Dewar

What I find objectionable is that the right hon. and learned Gentleman, having been offered an explanation not only from me but backed up by the journalist concerned, is not gentleman enough to accept it. He says in one sentence that he accepts my word, but then tries to wriggle out of that acceptance. Does he confirm that he now accepts that at no time did I say that 50p was enough compensation for VAT on domestic fuel? All that happened was that it was put to me that there might be a 50p increase, and I said that that was a possibility.

Mr. Clarke

I am prepared to accept the hon. Gentleman's word when he speaks of his honour, and I am therefore prepared to accept that he was scandalously misquoted. [HON. MEMBERS: "Withdraw."] I am not expecting the hon. Gentleman to bounce up again, but I could not stop him if he chose to do so. I want to know why he did nothing to withdraw the misquotation, until he discovered we offered a lot more.

I should also like to know why, at the election, the Labour party declined to commit itself to the zero rate on domestic fuel when it committed itself to the zero rate on every other commodity then zero-rated. I should also like to know how much the Labour party would pay in compensation or what taxation it would impose instead.

I should like to know, on one of the great issues of principle that the Labour party has raised, whether a figure is attached to anything. I believe that the Labour party's campaign has been without substance. It has been answered, as the Government said, with generous help to pensioners and the poor. That is why the Labour party will not vote with us tonight. That is also why we will have no vote from the Liberal party-the party that first canvassed the idea of VAT on fuel in its thesis on environmental policy. The Liberals felt themselves free to campaign just as ruthlessly as the Labour party by telling people that they would have to pay large amounts on their fuel bills. They are committed to a European Community carbon energy tax, which they say is preferable—

Mr. Malcolm Bruce

indicated assent.

Mr. Clarke

I am glad to note that the hon. Gentleman agrees.

The Liberals have not explained the consequences of the EC carbon tax for the pensioners, the poor and, and most important, British industry. The country does not require the EC carbon energy tax, because we are the only member of the European Union that already meets the Rio targets through the taxes we have imposed.

The EC carbon energy tax, as proposed by the Commission, would—

Mr. Malcolm Bruce

rose—

Mr. Clarke

I shall give way in a second, once I have confronted the hon. Gentleman with a policy to which I shall try to nail the Liberal party.

The Commission's proposal is for a $10 rate on the price of fuels, both domestic and industrial. The effect of the Liberal proposal on domestic bills would lead to an increase in the price of gas by 17 per cent., domestic coal by 27 per cent.—[HON., MEMBERS: "Oh!"]—electricity by 14 per cent.—[HON. MEMBERS: "Oh!"]—fuel oils by 27 per cent and petrol by 8 per cent. In his speech a few moments ago, the hon. Member for Gordon (Mr. Bruce) was eloquent against taxes on petrol.

Mr. Malcolm Bruce

rose—

Mr. Clarke

I shall give way later. There is more to come.

What will be the effect on industry of the Liberal Democrats' policy on Rio targets—the EC carbon energy tax—and on industrial fuels? The figures are: industrial gas, up 41 per cent.; coal—a subject on which the Liberal Democrats are eloquent whenever they are near a coal seam—up 71 per cent.; electricity, up 28 per cent.; fuel oils, up 64 per cent.; and petrol, up 9 per cent.

That is why the Liberal Democrats are not pursuing their heroic battle against VAT on domestic fuel in the House this evening. They have been escaping from the position that they once took on the argument by solemnly supporting a tax which they believe no one understands but which, when one looks at it, will put up most domestic and industrial fuel prices vastly beyond the needs of the country and vastly beyond the capacity of either domestic or industrial users to pay.

Mr. Malcolm Bruce

I am grateful to the Chancellor for giving way. The figures that he has expressed are a load of rubbish, as the European Commission will testify.

However, specifically on the issue of petrol tax, is he prepared to explain to the House why in the Budget the Government are putting more on petrol—by twice as much as an energy tax, or carbon tax, would achieve over five years? How can he accuse us of increasing prices when he is doing five times more than any carbon tax?

Mr. Clarke

I was quite open in the Budget about the increase in petrol taxation required to meet our Rio targets. The Liberal Democrats are committed to the Rio targets but are not committed to any figure. They are not committed to any structure of the tax—or they are, but they will not face up to the consequences of what they propose. They campaign against the tax that we impose here, and then support something far more damaging to British industry and the poor outside.

Let me move on to the Budget.

Mr. Salmond

rose—

Mr. Clarke

I have given way quite a lot.

The fact is that, from the beginning of the Budget debate, the only clarity about intentions on tax, on spending or borrowing—and, above all, on the recovery of our economy—have come from the Budget speech and from my right hon. Friends.

The Liberal Democrats produced a shadow Budget outside, but we have heard precious little of it in the House. I have never heard a Front-Bench Treasury team go through an entire Budget debate with nobody producing any views at all on the great issues facing the country. In almost every speech, without exception, the word "inflation" was never mentioned, no spending figure was ever totalled, no tax proposal was ever put forward—vacuous emptiness, as typified by the speeches from the Opposition.

I must admit that the reception for the Budget took me by surprise—a favourable surprise. I have always in the past believed the maxim that a Budget well received on the day is by no means likely to be believed some months later. The fact that there is no answer to any of it—or no alternative to any of it from the Opposition—persuades me that there is a first time for everything.

What has been clear is that not just the business community but ordinary, sensible men and women have responded favourably to a Budget set forward frankly and candidly, explaining how we are going to tackle the country's problems.

There has been a suggestion—I do not find it too worrying, as I have been accused of many things in my time—that I had been some sort of magician in concealing what I had presented. I think that that was because a well-known pundit outside, who normally does better, did not understand how the public spending reductions had been arrived at. We had a red herring for a couple of days, until the press sorted out that indeed we had made a balanced contribution to cutting the deficit from taxation to spending.

There is absolutely no doubt in the minds of those who recall the Budget speech that I explained the strategy to get sustained growth based on low inflation and healthy public finances. I was quite clear about the taxation that we were raising on top of the March taxation, and quite clear about the reductions in public spending that we were making.

I believe that the public accepted that. Mr. and Mrs. Average accepted that it was incredible that the Labour party could proceed without addressing any of those subjects, and that the necessary action now would make our recovery stronger and sustained, would create jobs and would make us one of the stronger economies in Europe in the years to come.

Mr. Salmond

Will the Chancellor give way?

Mr. Clarke

I will give way to Scotland.

Mr. Salmond

If the Chancellor feels that the fuel tax issue is dead, he is wrong. There are 750,000 households in Scotland that already have problems with their heating bills. How many of those households will be fully compensated by the package that the Chancellor announced in the Budget?

Mr. Clarke

What we have announced is that, by 1996, the great bulk of people will find that increases in their fuel bills have been met by a lasting increase in the real value of their retirement pensions. What we cannot do is compensate exactly people living in a whole variety of households of different sizes all over the country. But what we can do is to show that £1.2 billion helping 15 million people will mean that all those pensioners—all those poor people who have been alarmed by the Labour party's campaigns—will find that their bills have almost been met in full.

Several hon. Members

rose—

Madam Speaker

Order. Hon. Members should not persist in rising. It is clear that the Chancellor does not propose to give way at this stage.

Mr. Clarke

I have given way generously, even to an Opposition Front-Bench spokesman whose colleagues would wish that I did not keep allowing him to intervene.

Our spending proposals have shown for the first time that we are capable of getting a firm grip on spending—above all, by reducing the cost of government—and reflect spending priorities that we believe the bulk of the public will support.

With 1.5 per cent. growth in real terms, it is absurd for the hon. Member for Peckham to suggest that the health service has not been protected, and that we have not lived up to our manifesto commitment. We have increased spending on supply side measures—in higher education; in training, with the new apprentice scheme; and by protecting our spending on law and order.

It is nonsense for Labour Members to try to detract even from those parts of the spending package that they should welcome. The child allowance for those claiming family credit is an extremely valuable measure, but as the debate went on, several Labour Members tried to knock even that. The hon. Member for Blackburn (Mr. Straw), for example, tried to suggest that it would not help those at the maximum level of family credit. Of course it will not: they have all the family credit they require already.

The point of the measure, clearly explained in the Budget, was to pave the way to work and family credit for those who are at home, unable to go to work and qualify for the benefit, and for part-time workers who cannot increase the hours they work because of difficulties with looking after the children. Anything up to 150,000 working mothers are capable of benefiting from help with child care and returning to work. Those measures have been better received by organisations such as Gingerbread than by the Labour party.

Labour then attempts to claim that we are damaging investment. The hon. Member for Peckham has done that, and the hon. Member for Holborn and St. Pancras (Mr. Dobson) laboured the point. Those claims do not stand up to examination, either. The hon. Member for Peckham continued to insist that we had made cuts in investment in London Transport, despite the plain retraction by London Transport's leaders of the remarks mistakenly made by people in that organisation when the Budget was first announced.

Investment in London Transport next year will be running 50 per cent. higher than the level of investment in London Transport in the 1980s. Before that, there was a Labour Government in power. Investment in London Transport will now be 80 per cent. higher in real terms than it was when Labour were in power in the 1970s.

If there is a huge backlog in the work in the London Transport underground system to be caught up on by the levels of investment the Government are now bringing forward, that is because, in the days of the Labour-controlled GLC, London Transport was neglected, year in year out.

British Rail investment is also sustained at much higher levels than in recent years. The figures quoted by the hon. Member for Peckham discounted the fact that some of the international investment will fall out of the picture in future years. Investment in core business is being sustained at much higher levels than in recent years.

I was astonished by the reaction of the hon. Member for Peckham to the private finance initiative. When pressed, the hon. Lady will concede that she agrees that private finance should combine with public sector finance in the public services. That really is a sinner come to repentance, because the hon. Lady would never have agreed to that five years ago, when she was dealing with health matters and health capital.

The hon. Lady was saying that things have not come to fruition, so let us look at London. The Jubilee line is being built with private sector participation—the first underground line built in London since the Victoria line. Heathrow Express is being constructed. She says that the other projects that I have announced, including the critically important west coast main line—[Interruption.]

Mr. Morgan

On a point of order, Madam Speaker. The Chancellor may have just said something that could have inadvertently misled the House. I am sure that he believes what he has said to be correct. He said that the Jubilee line is proceeding with the assistance of private finance, when he is referring to the European Investment Bank, which is public sector finance and Government-guaranteed.

Madam Speaker

That is not a point of order; it is a point of argument.

Mr. Clarke

The European Investment Bank raises its money on the private market. [Interruption.] It is only one participant in the banks that are investing in the Jubilee line. [Interruption.] The hon. Member for Cardiff, West (Mr. Morgan) will be less excited when I reveal to him the shocking news that the European Investment Bank contribution contains not a penny of public money.

The hon. Gentleman and his hon. Friends would no doubt cancel the project if they thought that the money going into it was not public money raised from the taxpayer. Like the hon. Lady, the hon. Gentleman does not understand the management of large infrastructure projects. He has nothing except an idée fixe that public investment is preferable to private investment. We are making progress with a combination.

We are making progress in the Budget towards getting on top of the public sector borrowing requirement, which, if it were not tackled, would lead first to increased taxation for later generations as the interest piled up and, more importantly, short-term pressure on interest rates if people felt we were not tackling it.

We will build on the success of British industry, which is already increasing its output, increasing employment in Britain and leading the way to recovery in Europe.

Throughout the debate, the Labour Opposition have advocated increased public spending. They have opposed any increase in taxation. They have talked of the expansion of demand, but they have not explained how on earth that would avoid returning to the 1976 position into which they took the country. They are devoid of policies. They are abandoning their opposition to specific measures. They know that this Budget has set Britain on the road to recovery and them on the road to many more years of much-deserved opposition.

Question put:—

The House divided: Ayes 326, Noes 291.

Division No. 9]	[9.59 pm
AYES
Ainsworth, Peter (East Surrey)	Clappison, James
Aitken, Jonathan	Clark, Dr Michael (Rochford)
Alexander, Richard	Clarke, Rt Hon Kenneth (Ruclif)
Alison, Rt Hon Michael (Selby)	Clifton-Brown, Geoffrey
Allason, Rupert (Torbay)	Coe, Sebastian
Amess, David	Colvin, Michael
Ancram, Michael	Congdon, David
Arbuthnot, James	Conway, Derek
Arnold, Jacques (Gravesham)	Coombs, Anthony (Wyre For'st)
Arnold, Sir Thomas (Hazel Grv)	Coombs, Simon (Swindon)
Ashby, David	Cope, Rt Hon Sir John
Aspinwall, Jack	Cormack, Patrick
Atkins, Robert	Couchman, James
Atkinson, David (Bour'mouth E)	Cran, James
Atkinson, Peter (Hexham)	Currie, Mrs Edwina (S D'by'ire)
Baker, Nicholas (Dorset North)	Curry, David (Skipton & Ripon)
Baldry, Tony	Davies, Quentin (Stamford)
Banks, Matthew (Southport)	Davis, David (Boothferry)
Banks, Robert (Harrogate)	Day, Stephen
Bates, Michael	Deva, Nirj Joseph
Batiste, Spencer	Devlin, Tim
Bellingham, Henry	Dickens, Geoffrey
Bendall, Vivian	Dicks, Terry
Beresford, Sir Paul	Dorrell, Stephen
Biffen, Rt Hon John	Douglas-Hamilton, Lord James
Blackburn, Dr John G.	Dover, Den
Bonsor, Sir Nicholas	Duncan, Alan
Booth, Hartley	Duncan-Smith, Iain
Boswell, Tim	Dunn, Bob
Bottomley, Peter (Eltham)	Durant, Sir Anthony
Bottomley, Rt Hon Virginia	Dykes, Hugh
Bowden, Andrew	Eggar, Tim
Bowls, John	Elletson, Harold
Boyson, Rt Hon Sir Rhodes	Emery, Rt Hon Sir Peter
Brandreth, Gyles	Evans, David (Welwyn Hatfield)
Brazier, Julian	Evans, Jonathan (Brecon)
Bright, Graham	Evans, Nigel (Ribble Valley)
Brooke, Rt Hon Peter	Evans, Roger (Monmouth)
Brown, M. (Brigg & Cl'thorpes)	Evennett, David
Browning, Mrs. Angela	Faber, David
Bruce, Ian (S Dorset)	Fabricant, Michael
Budgen, Nicholas	Fairbairn, Sir Nicholas
Burns, Simon	Fenner, Dame Peggy
Burt, Alistair	Field, Barry (Isle of Wight)
Butcher, John	Fishburn, Dudley
Butler, Peter	Forman, Nigel
Butterfill, John	Forsyth, Michael (Stirling)
Carlisle, John (Luton North)	Forth, Eric
Carlisle, Kenneth (Lincoln)	Fowler, Rt Hon Sir Norman
Carrington, Matthew	Fox, Dr Liam (Woodspring)
Carttiss, Michael	Fox, Sir Marcus (Shipley)
Cash, William	Freeman, Rt Hon Roger
Channon, Rt Hon Paul	French, Douglas
Churchill, Mr	Fry, Peter

Gale, Roger	Lyell, Rt Hon Sir Nicholas
Gallie, Phil	MacGregor, Rt Hon John
Gardiner, Sir George	MacKay, Andrew
Garel-Jones, Rt Hon Tristan	Maclean, David
Garnier, Edward	McLoughlin, Patrick
Gill, Christopher	McNair-Wilson, Sir Patrick
Gillan, Cheryl	Madel, David
Goodlad, Rt Hon Alastair	Maitland, Lady Olga
Goodson-Wickes, Dr Charles	Major, Rt Hon John
Gorman, Mrs Teresa	Malone, Gerald
Gorst, John	Mans, Keith
Grant, Sir A. (Cambs SW)	Marland, Paul
Greenway, Harry (Ealing N)	Marlow, Tony
Greenway, John (Ryedale)	Marshall, John (Hendon S)
Griffiths, Peter (Portsmouth, N)	Marshall, Sir Michael (Arundel)
Grylls, Sir Michael	Martin, David (Portsmouth S)
Gummer, Rt Hon John Selwyn	Mates, Michael
Hague, William	Mawhinney, Dr Brian
Hamilton, Rt Hon Archie (Epsom)	Mayhew, Rt Hon Sir Patrick
Hamilton, Neil (Tatton)	Mellor, Rt Hon David
Hampson, Dr Keith	Merchant, Piers
Hanley, Jeremy	Milligan, Stephen
Hannam, Sir John	Mills, Iain
Hargreaves, Andrew	Mitchell, Andrew (Gedling)
Harris, David	Mitchell, Sir David (Hants NW)
Haselhurst, Alan	Moate, Sir Roger
Hawkins, Nick	Monro, Sir Hector
Hawksley, Warren	Montgomery, Sir Fergus
Hayes, Jerry	Moss, Malcolm
Heald, Oliver	Needham, Richard
Heathcoat-Amory, David	Nelson, Anthony
Hendry, Charles	Neubert, Sir Michael
Heseltine, Rt Hon Michael	Newton, Rt Hon Tony
Hicks, Robert	Nicholls, Patrick
Higgins, Rt Hon Sir Terence L.	Nicholson, David (Taunton)
Hill, James (Southampton Test)	Nicholson, Emma (Devon West)
Hogg, Rt Hon Douglas (G'tham)	Norris, Steve
Horam, John	Onslow, Rt Hon Sir Cranley
Hordern, Rt Hon Sir Peter	Oppenheim, Phillip
Howard, Rt Hon Michael	Ottaway, Richard
Howarth, Alan (Strat'rd-on-A)	Page, Richard
Howell, Rt Hon David (G'dford)	Paice, James
Howell, Sir Ralph (N Norfolk)	Patnick, Irvine
Hughes, Robert (Aberdeen N)	Patten, Rt Hon John
Hunt, Rt Hon David (Wirral W)	Pattie, Rt Hon Sir Geoffrey
Hunt, Sir John (Ravensbourne)	Pawsey, James
Hunter, Andrew	Peacock, Mrs Elizabeth
Hurd, Rt Hon Douglas	Pickles, Eric
Jack, Michael	Porter, Barry (Wirral S)
Jackson, Robert (Wantage)	Porter, David (Waveney)
Jenkin, Bernard	Portillo, Rt Hon Michael
Jessel, Toby	Powell, William (Corby)
Johnson Smith, Sir Geoffrey	Rathbone, Tim
Jones, Gwilym (Cardiff N)	Redwood, Rt Hon John
Jones, Robert B. (W Hertfdshr)	Renton, Rt Hon Tim
Jopling, Rt Hon Michael	Richards, Rod
Kellett-Bowman, Dame Elaine	Riddick, Graham
Key, Robert	RifKind, Rt Hon. Malcolm
Kilfedder, Sir James	Robathan, Andrew
King, Rt Hon Tom	Roberts, Rt Hon Sir Wyn
Kirkhope, Timothy	Robertson, Raymond (Ab'd'n S)
Knapman, Roger	Robinson, Mark (Somerton)
Knight, Mrs Angela (Erewash)	Roe, Mrs Marion (Broxbourne)
Knight, Greg (Derby N)	Rowe, Andrew (Mid Kent)
Knight, Dame Jill (Bir'm E'st'n)	Rumbold, Rt Hon Dame Angela
Knox, Sir David	Ryder, Rt Hon Richard
Kynoch, George (Kincardine)	Sackville, Tom
Lait, Mrs Jacqui	Sainsbury, Rt Hon Tim
Lamont, Rt Hon Norman	Scott, Rt Hon Nicholas
Lang, Rt Hon Ian	Shaw, David (Dover)
Lawrence, Sir Ivan	Shaw, Sir Giles (Pudsey)
Legg, Barry	Shephard, Rt Hon Gillian
Leigh, Edward	Shepherd, Colin (Hereford)
Lennox-Boyd, Mark	Shepherd, Richard (Aldridge)
Lester, Jim (Broxtowe)	Shersby, Michael
Lidington, David	Sims, Roger
Lilley, Rt Hon Peter	Skeet, Sir Trevor
Lloyd, Peter (Fareham)	Smith, Sir Dudley (Warwick)
Lord, Michael	Smith, Tim (Beaconsfield)
Luff, Peter	Soames, Nicholas

Speed, Sir Keith	Trend, Michael
Spencer, Sir Derek	Trotter, Neville
Spicer, Sir James (W Dorset)	Twinn, Dr Ian
Spicer, Michael (S Worcs)	Vaughan, Sir Gerard
Spink, Dr Robert	Viggers, Peter
Spring, Richard	Waldegrave, Rt Hon William
Sproat, Iain	Walden, George
Squire, Robin (Hornchurch)	Walker, Bill (N Tayside)
Stanley, Rt Hon Sir John	Waller, Gary
Steen, Anthony	Ward, John
Stephen, Michael	Wardle, Charles (Bexhill)
Stern, Michael	Waterson, Nigel
Stewart, Allan	Watts, John
Streeter, Gary	Wells, Bowen
Sumberg, David	Wheeler, Rt Hon Sir John
Sweeney, Walter	Whitney, Ray
Sykes, John	Whittingdale, John
Tapsell Sir Peter	Widdecombe, Ann
Taylor, Ian (Esher)	Wiggin, Sir Jerry
Taylor, John M. (Solihull)	Willetts, David
Taylor, Sir Teddy (Southend, E)	Wilshire, David
Temple-Morris, Peter	Winterton, Mrs Ann (Congleton)
Thomason, Roy	Winterton, Nicholas (Macc'f'ld)
Thompson, Sir Donald (C'er V)	Wolfson, Mark
Thompson, Patrick (Norwich N)	Wood, Timothy
Thornton, Sir Malcolm	Yeo, Tim
Thurnham, Peter	Young, Rt Hon Sir George
Townend, John (Bridlington)
Townsend, Cyril D. (Bexl'yh'th)	Tellers for the Ayes:
Tracey, Richard	Mr. David Lightbown and
Tredinnick, David	Mr. Sydney Chapman.

NOES
Abbott, Ms Diane	Clarke, Tom (Monklands W)
Adams, Mrs Irene	Clelland, David
Ainger, Nick	Coffey, Ann
Allen, Graham	Cohen, Harry
Alton, David	Connarty, Michael
Anderson, Donald (Swansea E)	Cook, Frank (Stockton N)
Anderson, Ms Janet (Ros'dale)	Cook, Robin (Livingston)
Armstrong, Hilary	Corbett, Robin
Ashdown, Rt Hon Paddy	Corbyn, Jeremy
Ashton, Joe	Corston, Ms Jean
Austin-Walker, John	Cousins, Jim
Barnes, Harry	Cox, Tom
Barron, Kevin	Cryer, Bob
Battle, John	Cummings, John
Bayley, Hugh	Cunliffe, Lawrence
Beckett, Rt Hon Margaret	Cunningham, Jim (Covy SE)
Beith, Rt Hon A. J.	Cunningham, Rt Hon Dr John
Bell, Stuart	Dafis, Cynog
Benn, Rt Hon Tony	Darling, Alistair
Bennett, Andrew F.	Davies, Bryan (Oldham C'tral)
Benton, Joe	Davies, Rt Hon Denzil (Llanelli)
Bermingham, Gerald	Davies, Ron (Caerphilly)
Berry, Dr. Roger	Davis, Terry (B'ham, H'dge H'l)
Betts, Clive	Denham, John
Blair, Tony	Dewar, Donald
Blunkett, David	Dixon, Don
Boateng, Paul	Dobson, Frank
Boyes, Roland	Donohoe, Brian H.
Bradley, Keith	Dowd, Jim
Bray, Dr Jeremy	Dunnachie, Jimmy
Brown, Gordon (Dunfermline E)	Dunwoody, Mrs Gwyneth
Brown, N. (N'c'tle upon Tyne E)	Eagle, Ms Angela
Bruce, Malcolm (Gordon)	Eastham, Kan
Burden, Richard	Enright, Derek
Byers, Stephen	Etherington, Bill
Caborn, Richard	Evans, John (St Helens N)
Callaghan, Jim	Ewing, Mrs Margaret
Campbell, Mrs Anne (C'bridge)	Fatchett, Derek
Campbell, Menzies (Fife NE)	Faulds, Andrew
Campbell, Ronnie (Blyth V)	Field, Frank (Birkenhead)
Canavan, Dennis	Fisher, Mark
Cann, Jamie	Flynn, Paul
Carlile, Alexander (Montgomry)	Foster, Rt Hon Derek
Chisholm, Malcolm	Foster, Don (Bath)
Clapham, Michael	Foulkes, George
Clark, Dr David (South Shields)	Fraser, John
Clarke, Eric (Midlothian)	Fyfe, Maria

Galbraith, Sam	Litherland, Robert
Galloway, George	Livingstone, Ken
Gapes, Mike	Lloyd, Tony (Stretford)
Garrett, John	Llwyd, Elfyn
George, Bruce	Loyden, Eddie
Gerrard, Neil	Lynne, Ms Liz
Godman, Dr Norman A.	McAllion, John
Godsiff, Roger	McAvoy, Thomas
Golding, Mrs Llin	McCrea, Rev William
Gordon, Mildred	Macdonald, Calum
Gould, Bryan	McFall, John
Graham, Thomas	McGrady, Eddie
Grant, Bernie (Tottenham)	McKelvey, William
Griffiths, Nigel (Edinburgh S)	Mackinlay, Andrew
Griffiths, Win (Bridgend)	McLeish, Henry
Grocott, Bruce	Maclennan, Robert
Gunnell, John	McMaster, Gordon
Hain, Peter	McNamara, Kelvin
Hall, Mike	McWilliam, John
Hanson, David	Madden, Max
Hardy, Peter	Maddock, Mrs Diana
Harman, Ms Harriet	Mahon, Alice
Harvey, Nick	Mallon, Seamus
Hattersley, Rt Hon Roy	Mandelson, Peter
Henderson, Doug	Marek, Dr John
Hendron, Dr Joe	Marshall, David (Shettleston)
Heppell, John	Marshall, Jim (Leicester, S)
Hill, Keith (Streatham)	Martin, Michael J. (Springburn)
Hinchliffe, David	Martlew, Eric
Hoey, Kate	Maxton, John
Hogg, Norman (Cumbernauld)	Meacher, Michael
Home Robertson, John	Michael, Alun
Hood, Jimmy	Michie, Bill (Sheffield Heeley)
Hoon, Geoffrey	Michie, Mrs Ray (Argyll Bute)
Howarth, George (Knowsley N)	Milburn, Alan
Howells, Dr. Kim (Pontypridd)	Miller, Andrew
Hughes, Kevin (Doncaster N)	Mitchell, Austin (Gt Grimsby)
Hughes, Robert (Aberdeen N)	Moonie, Dr Lewis
Hughes, Roy (Newport E)	Morley, Rhodri
Hughes, Simon (Southwark)	Morley, Elliot
Hume, John	Morris, Rt Hon A. (Wy'nshawe)
Hutton, John	Morris, Estelle (B'Ham Yardley)
Illsley, Eric	Morris, Rt Hon J. (Aberavon)
Ingram, Adam	Mowlam, Marjorie
Jackson, Glenda (H'stead)	Mudie, George
Jackson, Helen (Shef'ld, H)	Mullin, Chris
Jamieson, David	Murphy, Paul
Janner, Greville	Oakes, Rt Hon Gordon
Johnston, Sir Russell	O'Brien, Michael (N W'kshire)
Jones, Barry (Alyn and D'side)	O'Brien, William (Normanton)
Jones, Ieuan Wyn (Ynys Môn)	O'Hara, Edward
Jones, Lynne (B'ham S O)	Olner, William
Jones, Martyn (Clwyd, SW)	O'Neill, Martin
Jones, Nigel (Cheltenham)	Orme, Rt Hon Stanley
Jowell, Tessa	Paisley, Rev Ian
Kaufman, Rt Hon Gerald	Parry, Robert
Keen, Alan	Patchett, Terry
Kennedy, Jane (Lpool Brdgn)	Pendry, Tom
Khabra, Piara S.	Pickthall, Collin
Kilfoyle, Peter	Pike, Peter L.
Kinnock, Rt Hon Neil (Islwyn)	Pope, Greg
Kirkwood, Archy	Powell, Ray (Ogmore)
Leighton, Ron	Prentice, Ms Bridget (Lew'm E)
Lestor, Joan (Eccles)	Prentice, Gordon (Pendle)
Lewis, Terry	Prescott, John

"TABLE OF RATES OF DUTY ON WINE AND MADE-WINE
PART I
WINE OR MADE-WINE OF A STRENGTH NOT EXCEEDING 22 PER CENT.
Description of wine or made-wine	Rates of duty per hectolitre
	£
Wine or made-wine of a strength not exceeding 2 per cent.	13.48
Wine or made-wine of a strength exceeding 2 per cent. but not exceeding 3 per cent.	22.46
Wine or made-wine of a strength exceeding 3 per cent. but not exceeding 4 per cent.	31.45

Question accordingly agreed to.

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

1. (a) for zero-rating or exempting any supply, acquisition or importation;
2. (b) for refunding any amount of tax;
3. (c) for varying the rate of that tax otherwise than in relation to all supplies, acquisitions and importations; or
4. (d) for relief other than relief applying to goods of whatever description or services of whatever description.

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

cc244-5
1. 2. WINE AND MADE-WINE (RATES) 260 words
cc245-8
2. 3. CIDER (RATE) 4,066 words, 2 divisions
c248
3. 4. TOBACCO PRODUCTS (RATES) 122 words
cc248-52
4. 5. HYDROCARBON OIL (RATES) 1,890 words, 1 division
c252
5. 6. GAMING MACHINE LICENCE DUTY (SURRENDER, ETC.) 20 words
cc252-4
6. 7. GAMING MACHINE LICENCE DUTY (NEW LICENCES) 8 words
c252
1. Licences for periods beginning on or after 1st May 1994 73 words
c252
2. Amount of duty 252 words
c253
3. Special licences 30 words
c253
4. Seasonal licences 23 words
c253
5. Seasonal licences 431 words
c253
6. 9. VEHICLES EXCISE DUTY (GENERAL) 10 words
c253
7. 10. AIR PASSENGER DUTY 28 words
cc253-4
8. 11. VALUE ADDED TAX (REPAYMENT SUPPLEMENT) 237 words
c254
9. Provisional statutory effect 31 words
c254
7. 8. VEHICLES EXCISE DUTY (RATES) 95 words
cc254-8
8. 12. INSURANCE PREMIUM TAX 2,449 words, 1 division
c258
9. 13. INCOME TAX (CHARGE AND RATES FOR 1994–95) 129 words
c259
10. 14. INCOME TAX (PERSONAL ALLOWANCE) 93 words
cc259-61
11. 15. MARRIED COUPLE'S ALLOWANCE ETC. 1,617 words
c261
12. 16. AMOUNT BY REFERENCE TO WHICH MCA IS REDUCED 93 words
cc261-2
13. 17. RELIEF FOR MAINTENANCE PAYMENTS ETC. 773 words
c262
14. 18. RELIEF FOR BLIND PERSONS 60 words
c262
15. 19. RELIEF FOR INTEREST (LIMIT FOR 1994–95) 55 words
cc263-6
16. 20. RELIEF FOR INTEREST (NEW BASIS) 2,197 words
c266
17. 21. CORPORATION TAX (CHARGE AND RATE FOR FINANCIAL YEAR 1994) 19 words
c266
18. 22. CORPORATION TAX (SMALL COMPANIES: 1994) 36 words
cc266-7
19. 23. BENEFITS IN KIND (CAR FUEL) 93 words
c267
20. 24. BENEFITS IN KIND (BENEFICIAL LOAN ARRANGEMENTS) 20 words
c267
21. 25. NON-CASH VOUCHERS, CREDIT-TOKENS AND CASH VOUCHERS 13 words
c267
22. 26. PAYE (EXTENSION OF SCOPE) 33 words
c267
23. 27. PRIVATE MEDICAL INSURANCE 10 words
cc267-8
24. 28. MEDICAL INSURANCE (REDUCTION OF RELIEF) 450 words
c268
25. 29. MEDICAL INSURANCE (SURVIVING SPOUSE) 211 words
cc268-9
26. 30. PROFIT SHARING SCHEMES 251 words
cc269-70
27. 31. PROFIT-RELATED PAY (THE DISTRIBUTABLE POOL) 951 words
cc270-2
28. 32. PROFIT-RELATED PAY (PARTS OF UNDERTAKINGS) 946 words
c272
29. 33. VOCATIONAL TRAINING 174 words
c272
30. 34. RETIREMENT BENEFITS SCHEMES (GENERAL) 24 words
c272
31. 35. RETIREMENT BENEFITS SCHEMES (ANNUITIES) 19 words
c272
32. 36. ASSESSMENT UNDER SCHEDULE D 34 words
c273
33. 37. PARTNERSHIPS AND SUCCESSIONS 23 words
c273
34. 38. DIVIDENDS 8 words
c273
35. 39. MANUFACTURED PAYMENTS 13 words
c273
36. 40. SALE AND REPURCHASE OF SECURITIES 13 words
c273
37. 41. PREMIUMS REFERRED TO PENSION BUSINESS 14 words
c273
38. 42. AUTHORISED UNIT TRUSTS 20 words
c273
39. 43. DOUBLE TAXATION RELIEF (REGULATIONS) 26 words
c273
40. 44. RESTRICTION ON DEDUCTION FROM INCOME 15 words
c273
41. 45. NON-RESIDENT COMPANIES 23 words
c273
42. 46. CONTROLLED FOREIGN COMPANIES 17 words
c273
43. 47. EXCHANGE GAINS AND LOSSES 17 words
c273
44. 48. INTEREST RATE AND CURRENCY CONTRACTS AND OPTIONS 40 words
c273
45. 49. LLOYD'S UNDERWRITERS 14 words
c274
46. 50. CORPORATION TAX (NON-PAYMENT) 46 words
c274
47. 51. CHARGEABLE GAINS (ANNUAL EXEMPT AMOUNT) 25 words
c274
48. 52. CHARGEABLE GAINS (INDEXATION ALLOWANCE) 18 words
c274
49. 53. CHARGEABLE GAINS (OPTIONS AND FUTURES) 16 words
c274
50. 54. CAPITAL ALLOWANCES (MACHINERY AND PLANT) 20 words
c274
51. 55. CAPITAL ALLOWANCES (CHANGE OF PERIODS AND METHODS) 44 words
c274
52. 56. LOSS RELIEF 34 words
c274
53. 57. RAILWAYS 22 words
c274
54. 58. EXPENDITURE INVOLVING CRIME 27 words
c274
55. 59. PETROLEUM REVENUE TAX (ABORTIVE EXPLORATION EXPENDITURE) 28 words
c274
56. 60. PETROLEUM REVENUE TAX (TRANSFER OF ASSETS) 55 words
c275
57. 61. VALUATION OF OIL, INCLUDING GAS 25 words
c275
58. 62. INHERITANCE TAX (INDEXATION OF RATE BANDS) 31 words
c275
59. 63. STAMP DUTY (EXECUTION OF DEEDS) 225 words
cc275-6
60. 64. STAMP DUTY (EXCHANGE, PARTITION, ETC.) 391 words
c276
61. 65. STAMP DUTY (UNASCERTAINABLE CONSIDERATION) 378 words
c276
62. 66. STAMP DUTY (SURRENDER OF LEASES) 136 words
c276
63. 67. RELIEF FROM TAX (INCIDENTAL AND CONSEQUENTIAL CHARGES) 34 words
cc276-7
64. PROCEDURE (FUTURE TAXATION) 104 words