Motion made, and Question proposed,
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—
§ [Relevant documents: European Community Document No. 4683/93, the Commission's Annual Economic Report for 1993, and the draft Decision adopting the Report.]5.24 pm
§ Mr. John Smith (Monklands, East)
I am happy to offer the Chancellor the customary congratulations on the style and manner in which he delivered his Budget. As he noted, this will be the last spring Budget and he is the last Chancellor who will deliver the Budget in its traditional form.
I welcome the change to a unified Budget and public expenditure statement, a change which, after all, the Opposition proposed. May I suggest a further reform for the new arrangements later in the autumn? The Chancellor should consider abolishing the increasingly absurd purdah rule. I suggest that he makes an early announcement to that effect, perhaps the earlier the better, so that he and not someone else can take credit for an overdue reform.
Those who have listened to this debate will have been shocked beyond belief at the cynicism of the Conservative party which went into the last general election as the party committed to low taxation. [HON. MEMBERS: "We have done that."] Conservative Members say that they have done that. Some innocents on the Conservative Benches describe the Budget as a Budget of low taxation. Let me remind the House of what the Government said during the last election campaign—[Interruption.] I know that some Conservative Members do not want to hear this, but I think that the public do.
Let me start with VAT. On 28 January 1992, the Prime Minister said:There will be no VAT increase. Unlike the Labour party, we have published our spending plans and there is no need…to raise VAT to meet them.It is difficult to be more categoric than that. During the election campaign, the Conservative campaign guide stated—[Interruption.] I know that that is a matter for humour, but we are entitled to treat it seriously. The guide stated:Following a series of unfounded and irresponsible scares by the Labour party, the Prime Minister has confirmed that the Government has no intention of raising VAT further.To get precisely to the point, during the election campaign, at a press conference, Mr. Tony Bevins of The Independent asked the Prime Minister on 27 March 1993:Can you give the same pledge that Mrs. Thatcher gave in 1987 that you will not extend the scope of VAT to children's shoes and clothing, gas, electricity and food?The Prime Minister replied: 198I've made the pledge in the past, I've made it clear. We have no need and no plans to extend the scope of VAT.I do not know how the right hon. Gentleman can sit there as Prime Minister of a Government who are capable of deceit on such a scale. The Conservative party went into the election and was pressed day after day about increases in VAT and still came back the answer, "Lies and scaremongering from the Labour party. The Conservative party wouldn't do anything like that." Those people make pledges as though they matter not a whit.
It is not just a question of VAT—and I will consider the effect of the VAT increase. The Prime Minister knows perfectly well that commitments were made on national insurance as well. On 28 January 1992, the Prime Minister stated:I have no plans to raise the top rate of tax or the level of national insurance contributions."—[Official Report, 28 January 1992; Vol. 202, c. 808.]However, the Government have proposed today a 1p increase in national insurance contributions. No doubt they will go to the country and say, "We haven't increased income tax. We have marginally increased the 20p band." People are not so foolish. They understand clearly that 1p on national insurance is, if anything, worse than 1p on income tax. Apart from anything else, it bites further down the scale. On tax on income and tax on spending, the Conservative party has cynically and ruthlessly betrayed the pledges which it gave to the people of this country. It will not be forgiven for that.
The Conservative party used to say that VAT was all right because, after all, people could choose whether they bought the goods on which VAT was levied. Will it tell us now that people can choose whether to have gas or electricity in their houses? The Government must know perfectly well that throughout the land a 17.5 per cent. increase in fuel bills will push many families who are just on the edge, wondering whether they will manage, to despair.
It is no good the Government saying that they will adjust income support levels. Millions of people in Britain are poor but do not qualify for income support and will be hit savagely by the 17.5 per cent. increase in the basic cost of living. The Chancellor says, "It is all right: I have extended the 20p band." But what does the extension of his band amount to? This year it amounts to about 25p a week and at best in future years it will amount to £1. How will that help people to meet the extra bills that they will have to pay as a result of all the other tax increases and reductions in allowances? Indeed, taken together, the tax increases announced in this Budget must be one of the highest hikes ever.
We have also seen the freezing of allowances. That means that more people will be brought into both the standard and higher rates of tax. All this from the party which said that it was the party of low taxation and paraded that all over the country during the general election campaign. There are hundreds of examples of that day after day.
The Government have betrayed their pledges and caused unnecessary increases in the cost of living. They should have been busy in this Budget looking for loopholes in taxation. The Chancellor may have discovered a few here and there, but there are massive loopholes in taxation by which people do not pay the proper amount of tax. Here we have the Government putting an even heavier burden on the ordinary people of 199 Britain. The Government must bear in mind that the public's conclusion about the Budget will be simple and clear: the Conservative party is a party without honour and without feeling.
The other question that people will ask about the Budget is whether it will bring down unemployment. [HON. MEMBERS: "It will."] There can surely be no doubt that unemployment is Britain's No. 1 problem. We shall see in the November Budget whether this Budget has brought down unemployment. If Conservative Members want that to be a test, we shall make it a test for the Government. The Government cannot simply wish away unemployment. The Chancellor announced inadequate measures on that front. The Government do not seem to understand how depressing and debilitating it is for our people to suffer unemployment of more than 3 million. It is economic madness as well as a social tragedy.
Ministers should bear it in mind that there is hardly a street in Britain in towns or villages, in the country or elsewhere, which the tentacles of corroding unemployment have not reached. It is also depressing to consider that, each time we plunge into another Tory slump, it gets longer than the one before. The last one lasted five quarters. We have already gone 10 quarters in the slump that we are suffering now—the longest since the 1930s.
What measures does the Budget contain to deal with the problem of unemployment? The Chancellor said that the Secretary of State for Employment would announce a few measures which would potentially affect 100,000 people. But 300,000 people have lost their job since the election alone. So even at his most optimistic, the best that he can touch is one third of the people who have become unemployed since the Conservative party was elected on a pledge to reduce unemployment. The measures are wholly inadequate to deal with the scale of Britain's jobs crisis.
There is some merit in the Chancellor's proposals. For example, he has removed the restriction on people on benefit taking up educational courses. Why do we have to wait so long for a simple and obvious change such as that to be introduced? Why does misery have to become desperately acute before the Government will take even minor measures to deal with it?
As we know, the Government's spending on training—one real way in which we could tackle unemployment—has fallen between 1991 and now by 14 per cent. in real terms. That is a reduction of £300 million. So the amount of training falls by 14 per cent. at the same time as unemployment increases by 87 per cent. That gives a clear idea of the Government's approach to the problem.
The Chancellor's proposals in the Budget hardly fill the hole that has been created by the Government's previous actions. Therefore, the Government cannot claim any credit for action on unemployment. That is hardly surprising because the Chancellor gives such a low priority to the unemployed. Who has been more callous and complacent than him? Both he and the Prime Minister want us to forget that it was the Chancellor who told us in the House that unemployment was a "price well worth paying." He said it; he meant it. He has never apologised for it. If nothing else, he might have done that today.
An apology is also due from the Chancellor for the failure of his last Budget—a failure which makes us, and indeed the whole country, cautious about believing anything that he says to us today. After all, his record undermines his credibility. Let me remind the House what he predicted a year ago. He said that the economy would 200 be growing by 3 per cent. and manufacturing output would be growing by 4 per cent. by this time. Let me remind the House of the sad reality—the outturn.
The economy shrank during the whole of 1992 and, even on the latest figures and giving the Government the benefit of the doubt, an increase of barely 1 per cent. per annum is likely. Manufacturing output, instead of growing at 4 per cent. as predicted last year, is not growing at all according to figures published yesterday. A year ago in the Budget the Chancellor predicted that the PSBR would be moving virtuously back towards balance. We know how absurd that was. We know how the Chancellor's management of the economy has thrown Britain deeper into debt, with a projected PSBR of £50 billion.
If the public had known what would be the outcome of the right hon. Gentleman's Budget last year in terms of constantly rising unemployment, deepening recession, rising bankruptcies and home repossessions, let alone the betrayal of election pledges, how many of them would have given the Tory party the benefit of the doubt on the night of 9 April last year? Precious few. We now know that their trust has been spectacularly betrayed.
The other vital question to which the country wants to know the answer is when action will be taken, in a Budget or otherwise, to halt the long, sad economic decline of Britain. Where are the measures of investment and training that will revive the British economy and, in particular, its vital manufacturing sector? The Government will not publish the report from the Department of Trade and Industry that tells us about our problems of weak investment and our skills problems and shows with chilling reality what is happening to British manufacturing industry.
The most important and worrying factor is that investment in manufacturing industry is 6 per cent. lower than it was in 1979 when the Conservative party took office. It appears that civil servants in the Department of Trade and Industry are guilty of the dreadful crime of talking Britain down. Any criticism of this incompetent and dishonest Government is regarded as talking the country down. People are more worried about who is pulling the country down—the Government. They are unable to face up to the scale of the challenge that Britain faces. We shall run into serious balance of payments deficits. We had another foretaste of that in the Chancellor's predictions today.
From the industrial revolution until 1983 we had a surplus in manufacturing trade. Under this incompetent Government we went into deficit for the first time in 1983 and we have remained there ever since. If we examine Conservative economic policy, we find that it will be extremely difficult for us ever to return to a surplus. We shall be able to set a course of sustainable economic recovery only when we begin to invest in industry, in the skills of our people and in the public infrastructure so crucial to our economic development.
On the infrastructure front, we got one reannounced real project and another one postponed. People are doubtful about this channel tunnel business. It appeared to me that the right hon. Gentleman was postponing it yet again. We may find that we have no proper connections on this side of the English channel, while the other side has excellent connections. As for the railways, the most intelligent step that the Government could take would be 201 to remove the threat of privatisation; that would be sensible, and would do a great deal of good to the morale of a beleaguered industry.
Let me briefly remind the House of the Conservative party's promises. It promised economic recovery following its election. Hon. Members may remember the slogan: "Vote Conservative on Thursday, and recovery will continue on Friday". That was 300,000 unemployed people ago. According to the Conservatives, the public expenditure programme set out for the future would be rigorously maintained. There would be no cuts in public expenditure; that was another scaremongering Labour story. What is happening now? The Chief Secretary to the Treasury is undertaking what may be the biggest review in this country's history to cut public expenditure.
§ Mr. Smith
The hon. Gentleman may say "Very good", but his party did not say that at the time of the general election. I am sure that, when voters asked the hon. Gentleman, "What about spending on schools, hospitals and training?", he replied, "Do not worry; all the programmes that the Conservative party has put in place are costed, and they will be fully maintained if you elect a Conservative Government." Did the hon. Gentleman tell those voters, "The Chief Secretary will slip in a few months later and undo all those promises"? That is yet another example of a blatantly broken promise. Worst of all, the Government promised that there would be no increase in taxes, direct or indirect.
This is a shameful Budget, presented by a cynical party, and I hope that the Conservatives live to regret it.
§ Mr. John Biffen (Shropshire, North)
I note the content of the Budget, and will refer to it in due course. First, however, let me congratulate my right hon. Friend the Chancellor of the Exchequer on the sheer stamina with which he made his powerful case. His was a valedictory speech—a valedictory Budget speech, that is, in the light of the reforms that will be implemented in the autumn, when the Chancellor must deliver a speech covering not only budgetary arrangements but public expenditure.
It occurs to me that the House must seriously consider the form that our proceedings will take. The Chancellor's audience is not confined to the House of Commons; he has an audience outside. He will face the difficult task of making a speech of reasonable duration without reverting to Gladstone's five hours of 1853—I have done a little homework to acquaint myself with the potential limits of such speeches. Determining the appropriate form of our debates once the Budget and public expenditure speeches have been combined will present the House with a serious problem.
I wish to make a few general observations about the speech of the right hon. and learned Member for Monklands, East (Mr. Smith). First, let me say how much I enjoyed it. The right hon. and learned Gentleman spoke from the heart about revenue and public spending issues; he did not touch excessively on the subject of borrowing, but it was there, just beneath the surface. He was speaking of the very matters that brought the House into being, and on which it has asserted its authority for generations. He 202 spoke as though he thought that that arrangement was permanent, but he knows very well that he must fight to ensure that the House remains master of these great areas of economic policy. He must partner his convincing rhetoric with the logic of his hon. Friend the Member for Dagenham (Mr. Gould): I offer him that dream-ticket prospect.
Of course we welcome the approaching debate between the two sides of the House, which will concern the social and economic priorities that we consider appropriate in regard to revenue and public spending and wise in regard to borrowing. That is what this place is all about. At least the words of the right hon. and learned Member for Monklands, East supported that proposition; I hope that his judgment does the same.
Before commenting more directly on the Budget, let me declare my interest. I am a non-executive director of Glynwed International plc and J. Bibby and Sons plc—both manufacturing companies—and I am therefore interested in the Budget's contribution to our manufacturing base. My right hon. Friend the Chancellor has made some valuable proposals for industry, and his advance corporation tax measures—he confessed that they were somewhat technical, which, in my view, showed a moderation of judgment—will be widely welcomed. Equally welcome will be the priority that my right hon. Friend has given, in a difficult time politically, to the industrial sector; that is matched by the proposals in respect of unemployment.
I shall confine my remarks to the central issue of the deficit. In a Times article on 3 March, just a few days before his death, Lord Ridley said:What has happened for years now is that fiscal policy has been too lax and monetary policy too tight.I am very happy to preface my comments with that quotation. I believe that, given his views and the manner in which he conducted his campaigns, Lord Ridley will long be remembered in the House as an example of the grit that provides the pearl in the parliamentary oyster. I have a deep personal affection for his memory, and I welcome this opportunity to place on record my esteem for such a personality.
I fear that the deficit is uncomfortably large. That is an anxiety that I share with my right hon. Friend the Chancellor—and, indeed, with almost every other Member of Parliament; certainly with every Conservative Member. Given that the deficit is perceived to be running at about £50 billion, what measures should be taken? I may be a little more anxious than some of my colleagues, because I do not accept the proposition that it will wind down easily with the recovery in the economy. There is now a discontinuity between output and employment; I think that output can recover, while unemployment will continue to lag behind that recovery. In that event, all the recessional costs of the deficit are likely to remain higher than those resulting from past practice.
My right hon. Friend says that he will try to deal with the deficit by means of substantial measures to increase revenue. I am happy to stand here, shamelessly, as a taxing Tory. I cannot believe that, in the present circumstances, the deficit can be seriously reduced other than by an increase in revenue, which means identifying taxes that can be raised to that end. I am not outraged in the least by the increases in national insurance, or by the increases in VAT in respect of fuel and power. We have a narrow tax base 203 in comparison with our major partners and competitors, and the proposed reforms are welcome. I will leave it at that.
I am not quite so happy about the timing. I understand the deep anxiety that is felt: the recovery from recession is tentative, and must not be subject to undue heavy-footedness on the part of the Government. However, I feel slightly uneasy about leaving the increases in taxation until so far in the future. Therefore, I would welcome it if the matter could be reconsidered in the November Budget.
In politics, there is a most powerful instinct—the Augustinian tendency—to say,Lord, make me perfect—but not yet awhile.I feel that the Budget contains all the right instincts, but the timing is a little cautious and too far into the future. I hope that my modicum of unease will not be validated. I should be delighted to discover that my right hon. Friend has made good judgments on both the measures and their timing. Above all, as my right hon. Friend needs luck, that is exactly what I shall wish him.
§ Mr. Malcolm Bruce (Gordon)
I recall being asked yesterday what I thought that the Chancellor might achieve in the Budget. I said that, if he were sensible, he would recognise that, after the disasters that he had inflicted on us, he could do very little good, but should be careful not to do harm.
Clearly, the Chancellor was not listening to me or anyone else. The Budget will be greeted with disappointment and despair in many quarters of the country. It gives a sharp rap over the knuckles to those who suggested that we were at the bottom of the recession and could expect things to get better. It is clear that the Government expect things to become worse, and we are all going to be dragged down with them next year and the year after.
As to the general background, I find it extraordinary that the Chancellor of the Exchequer can stand at the Dispatch Box and calmly state that the public sector borrowing requirement will be £50 billion next year. He did so having totally lambasted those people who suggested that, if he had taken a little more advice earlier and invested earlier, he might have avoided the situation in which he now finds himself. The Chancellor fails to understand the meaning of investment and the Government's role in ensuring that investment takes place. He is now borrowing to pay for failure, rather than investing to secure success.
The Chancellor's comments on the events of black Wednesday and our leaving the exchange rate mechanism were extraordinary. If one were to believe the right hon. Gentleman, that would have been the first national debacle to be masterminded in advance. He gave himself credit for the achievement, and failed to recognise that he has not left British industry and the British economy in a position to deal with the single market. For a Government who claim to believe in the single market, it is the height of embarrassment to enter that market on 1 January, having just left the mechanism that was designed to make it work with some stability and confidence.
As the right hon. and learned Member for Monklands, East (Mr. Smith), the Leader of the Opposition, powerfully and eloquently made clear, the reality is that the Government have been found to be political cheats who reached a position of power by sheer dishonesty and 204 defrauding the electorate. 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.
What a cheek for the Government to pretend that theirs is the tax-cutting party. They have consistently increased taxes year after year, but so far the public have believed them. One can only hope that today's Budget will finally make the public realise that the Tories can never be trusted to tell the truth, even about history, never mind about promises for the future.
The Budget contains taxes—not just income tax. As the right hon. and learned Member for Monklands, East said, the extension of the 20 per cent. band amounts to a difference of 50p a week. For most people on middle incomes, that money will be clawed back by the Budget's failure to index the general allowance. Therefore, most people will be £1.50 a month worse off as a result of those two measures.
The Budget increases excise duties by double the rate of inflation. The increases in tobacco prices are mischievous and malicious. I believe that increases in tobacco tax are desirable for the health of the nation, but why target people on lowest incomes, who buy the cheapest cigarettes? That seemed to be a vindictive little measure. The increase in car tax will be particularly condemned in rural regions, where there are no other means of getting about and the Government have not introduced measures to try to improve the existing means.
My right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) asked me what we could welcome in the Budget, as we should try to be even-handed as we are Liberal Democrats. I find precious little to welcome. I welcome one aspect: the Chancellor has listened to the arguments and recognised the importance of the Scotch whisky industry. As three distilleries in my constituency have recently had to reduce their labour, I hope that that proposal will at least prevent further job losses in that important industry.
There are some welcome measures for the small business sector, such as those relating to the loan guarantee scheme and to value added tax on cash accounting, although the increase could have been much more. I have no doubt that the voters of Newbury will be expected to welcome the changes in the bloodstock regime, but I doubt that they will be very much impressed by them when they look at the consequences for their electricity bills.
By freezing the increase in business rates, the Government have acknowledged the burden that the rates create. However, they have also acknowledged their total failure to create a viable system of business rates that does not require an annual fix.
The Budget will be desperately disappointing for the unemployed. The Chancellor referred to worries about the rise in unemployment and the difficulties that the unemployed face, but he showed little willingness to grasp the nettle. With respect to the community action programme, I suppose that it is refreshing to bring back something which worked, but which was abolished by the Government. However, that measure will help only a relatively small number of people.
The requirement for special measures for the long-term unemployed are welcome in principle. However, by limiting the measures to people who have been unemployed for two years, the Government have drawn 205 them far too tightly. I only hope that the pilot schemes will prove successful and the measure will be extended to people who have not been unemployed for that long.
When we look at the list of bad news we see a 1 per cent. increase in national insurance—a tax increase by any other name. We see the restriction on mortgage tax relief, which constitutes a real cost increase for domestic home owners. We see the freezing of tax thresholds and the appalling prospect of the introduction of full VAT on fuel in two years. That is the one measure for which the Chancellor will be universally condemned. It is breathtaking that the Chancellor can introduce such a measure in such a way without acknowledging the poverty and hardship that it will cause millions of people who are on low incomes but do not quality for benefit. Few people in the country will not find the 17.5 per cent. increase in fuel bills in two years anything other than a substantial burden.
The Budget is, effectively, a Budget of despair and a Budget of desperation which contains little for the unemployed and nothing for those struggling to cope with the recession. In it, the Chancellor merely exhorts those looking for hope and encouragement to hang on now. By God they will have to pay later.
§ Mr. David Howell (Guildford)
As my right hon. Friend said in his marathon Budget speech, of course recovery is coming. We know that from seeing what is happening in the United States, where the growth figures and indicators are rapidly improving. I see no reason why the progress should be aborted unless, having been started by George Bush—who received precious little thanks for it—President Clinton becomes too enthusiastic in his protectionist tendencies. If President Clinton does so, recovery will be damaged and improvements here will be correspondingly damaged. However, I do not believe that will necessarily happen. As long as we keep a maximum pressure on the Americans and everyone else to avoid protectionist measures, the recovery will come. My right hon. Friend was right to set the measures that he has announced in the context of that coming recovery, to ensure that it goes ahead and is not aborted and undermined by over-hasty measures or allowing the economy to overheat too soon.
Budget occasions—of which this will, mercifully, be the last—generate expectations that are far too high. Everyone looks to my right hon. Friend, or the Chancellor of the day, to achieve miracles when they cannot be achieved at any time, certainly not today. One forgets the European context in which my right hon. Friend is operating. Anyone who thinks that we have problems should look at the rest of Europe. Italy is going down into a black hole; France is about to experience a political earthquake, rather belatedly having the vestiges of socialism—all but President Mitterrand himself—swept away and finding itself in a completely new phase; the Swedish economy is drowning altogether; and the German economy is shrinking.
In those circumstances, it is indeed miraculous that my right hon. Friend has been able to produce a Budget of balance and prudence and to develop so many interesting, if not necessarily very dramatic, proposals to carry us forward into the recovery process—a process that the 206 United Kingdom will be the first European Community country to enjoy. We shall certainly have a higher rate of growth than Germany and many other continental European countries.
Like the very best Budgets, this one will mature. It will not result in immediate flag-waving and cheering, but neither does it justify rather splendid ranting such as we heard from the right hon. and learned Gentleman the Leader of the Opposition, who seems to have a basically erroneous concept of what my right hon. Friend is doing. My right hon. Friend says that he has gone this year for a Budget that is broadly neutral. That is a sensible but difficult stance. My right hon. Friend is building in, for coming years, a wedge of changes in the fiscal and monetary balance which will make sense against the background of rising economic activity. I recognise the skill of that approach, which I think is right.
I greatly enjoyed the speech of my right hon. Friend the Member for Shropshire, North (Mr. Biffen). Indeed, I always enjoy his speeches. I am a little less worried than he is about the timing of the Chancellor's proposals. Incidentally, I should like to associate myself most closely with my right hon. Friend's remarks about the late Lord Ridley—a marvellously non-conformist character who sometimes drove his friends, and certainly his opponents, to distraction, but who contributed mightily to the thinking part of our affairs. He will be sadly missed. My right hon. Friend the Member for Shropshire, North has said that Lord Ridley was the grit that generated the pearls in the parliamentary oyster. Indeed, my right hon. Friend himself is not a bad piece of grit. In any case, we shall certainly miss Nicholas Ridley very much indeed.
It is too soon to go into the minutiae of this very complex and interesting Budget, so I shall refer to three major issues. The first is the purdah that is associated with Budgets. I agree with the right hon. and learned Gentleman the Member for Monklands, East (Mr. Smith) that it is a very good thing that we may now be moving—I hope that we shall indeed move—away from this ridiculous convention, which guarantees that tax reforms are ill considered, ill prepared and dumped on an unsuspecting world in ways that have to be heavily revised, at great cost, afterwards.
I shall be very glad indeed if my right hon. Friend's bold reform—bringing the revenue and expenditure sides of the Budget together, starting this November—results in opening up the discussion of tax reforms, which we could have done with years ago. It is absolutely ridiculous that, at present, the Treasury policy-makers have to go into purdah, whereas many of their advisers, including the seven wise men, have no purdah at all. Indeed, they fill every column with contradictory views, and these are added to by a variety of people—assorted ex-Chancellors and other commentators of every kind.
In the case of this Budget, when there has been a vast surplus of advice, all we have lacked is additional comment from the Archbishop of Canterbury or the Chief Rabbi. We have had a swirl of outside advice, but the Treasury has been held in purdah, unable to participate in policy-making.
The House of Commons ought to be able to take a little more initiative, perhaps by organising hearings before the Select Committee on Treasury and Civil Service in advance of the Budget. There is nothing to prevent us from doing so. We might have difficulty in getting Treasury Ministers to answer, but we could certainly set the debate 207 going far more vigorously than happens at present. In this regard, the House has a role to play, in addition to my right hon. Friend's initiative of changing the whole timing of the Budget cycle—a move that my right hon. Friend will be remembered for being bold enough to make. Others will have to sit back and say that the officials never told them they could do that—as was said in the 1930s, when the Conservatives decided to go off the gold standard.
The second point on which I want to comment relates to capital and infrastructure. This is one area in which constant weakness has raised costs and accelerated the rate at which, in each cycle, the economy becomes overheated, increasing the volatility and management difficulty of the British economy. I want to see a very much greater impact from investment in the infrastructure of this nation. to cut costs and make us more competitive and to help to accelerate employment, as undoubtedly will happen.
I welcomed in the autumn statement, and I welcome now, the final sweeping away of the old Ryrie rules, which prevented adequate harnessing of private capital to the public sector. It is very exciting that new projects are coming forward and that we shall be able to do what the great cities of Asia have long since been doing: mobilise massive flows of private capital to bring infrastructure, particularly transport, into the 21st century—in our case, even into the 20th century. In expressing that welcome, I gladly declare my own interest as a non-executive director of Trafalgar House, which has a major interest and has had some success in developing privately financed public-sector projects.
Easing the advance corporation tax rules and improving the Export Credits Guarantee Department cover will also help very much in that direction. But that is not enough, so I must ask my right hon. Friend and his advisers in the Treasury to consider going further and starting to develop in this country what has been developed in many other countries—a separate capital budget for that part of the total budget which relates to public sector asset creation. The figures appear in the expenditure papers and, no doubt, in the Budget papers that are now being circulated, which I have not yet had time to examine.
We are told that, of the total Budget spend, about £30 billion is designated for public-sector asset creation. Our friends in Japan say that a Government deficit should be financed by operating on the basis of market psychology and bringing home the fact that much of the deficit arises precisely from capital spending. The Japanese therefore have infrastructure bonds and normal deficit bonds, which they put before the market.
That would not get round the problem of the market's attitude that this is all Government expenditure and should all be treated with the same scepticism when it comes to financing. However, we could make a major start in changing the psychology of the funding problem if it were possible to designate much more carefully and clearly the part of total Budget expenditure and the part of the total deficit to be funded that represented capital expenditure and public sector asset creation.
I ask my right hon. Friends in the Treasury to consider that idea much more carefully in the future. I believe that it would help us to get out of the bind that we have been in. Throughout the 1980s, we enjoyed great success in achieving rapid growth in the economy, but we did not see adequate growth in support and infrastructure—the true supply side of the economy—that many of us, from the 208 early 1980s, urged was necessary. We said that, if that course were not pursued, there would be serious bottlenecks, considerable cost increases and a slow-down in the general performance of the economy.
That is a very important area, and I was very glad to hear what my right hon. Friend the Chancellor had to say about it. However, more thinking, better presentation and a little more radicalism in respect of funding the capital side of the Budget are required.
I am glad that we are now thinking radically about proposals to give people the opportunity and the dignity of working part-time or doing voluntary work, or of going into full-time education or training without forfeiting the state payments—perhaps "benefit" is the wrong word.
I understand the joy for the Opposition of taking the figure of 3 million, or wherever we have got to, and using it as a rolling pin with which to hit the Government on the head. There are experienced Members on the Opposition Benches who have made proposals over the years for changing the nature of unemployment. They know that 3 million is a good figure with which to bash the Government but that it is not a real representation of the problem.
We have to unravel the larger figure, and understand that within it there is a vast variety of different conditions which require sensitive and varied remedies in order to remove the whole concept of the scrap heap of unemployment. We must create in every individual who wants work, and in some who may have given up hope of getting work, the feeling that they have a function and a dignity in society.
It is right to start with small schemes, and my right hon. Friend announced a few small schemes; indeed, some are not so small. They are interesting, and I hope that they will grow and develop, and that it will be possible, even in the adversarial politics which we operate in the House, to begin to do away for all time with the idea of the "scrap heap" of unemployment and the self-inflicted misery and undermining of confidence that that language creates. It should be made clear that everyone has a function, and the dignity which goes with that function.
On the monetary side, what my right hon. Friend is trying to do—again this is not the stuff of headlines—is achieve some rebalancing between the monetary and fiscal stances in the economy. We have had the welcome descent in interest rates which has been amazingly rapid, and monetary conditions are reasonably easy. If the Bundesbank cut interest rates again, it might be possible for us to go a point or two lower, although it would be unwise for my right hon. Friend to change the relative short-term interest rate posture of the British economy vis-a-vis the German economy.
Whenever we talk about monetary policy in the House, and whenever I hear my right hon. Friend talk about his plans for short-term interest rates, I feel that he is taking too much on his shoulders. The responsibility for short-term interest rate policy should be spread more widely and should be given more publicly to a central monetary authority, a reformed Bank of England, rather than left solely to the action and discretion of the Treasury, the Chancellor of the Exchequer and other Ministers.
People will say that monetary policy should not become unaccountable in the hands of bankers, but one does not need to go all that way. A sensible compromise would 209 ensure that day-to-day responsibility for setting short-term interest rates and handling short-term monetary policy could be in the hands of a central monetary authority, while there was appropriate consultation with the political masters and those accountable to the House. That is possible—it happens in other countries. The Bundesbank is not totally separate from the political influences in Bonn. It pays attention to them, but it controls monetary policy short term, and that gives monetary policy and the setting of short-term interest rates additional credibility, which our system lacks.
I should like to see a more independent Bank of England, without a total separation between the monetary authority and the Treasury. That would avoid the over-politicisation of interest rates and would enable that whole side of the budgetary balance to be managed in a more sophisticated way. It would give additional credibility to the currency and to the monetary judgments about short-term interest rates in relation to the currency. It would strengthen monetary policy generally. I hope to hear more constructive thoughts on that from my right hon. Friend in future; I believe that they will come.
Generally, this is obviously a Budget of consolidation for this year, but it also makes an important point and breaks with a restrictive stance of the past. The Treasury was a "one year only" organisation—it could think only one year ahead. All parties in the House have urged that Treasury policy should begin to evolve one, two or three years ahead, both on the revenue and on the expenditure sides. One day, it might be possible to get Treasury officials to agree to something that cost more in year one because it would produce savings in years two and three. I can think of many projects which fell at that hurdle when I was a Minister; if a project cost more in year one, it was dismissed out of hand.
With courage, which is his characteristic, and boldness, my right hon. Friend has started to raise our eyes to the length of the true budgetary cycle, which stretches over two or three years. It has taken courage, particularly at present, to do that and to drag the House into the modern world when not everything can be compressed within a one-year timetable.
So we have consolidation now, and radical change lying further ahead. Given that recovery is coming, and given that it has to be sensitively handled, not by the elephantine assaults of the right hon. and learned Member for Monklands, East but by the subtlety and patience of my right hon. Friend the Chancellor, I believe that we are on the right path, and that we should stay on that path and give him full support.
§ Mr. Roy Hughes (Newport, East)
It is customary to contratulate the Chancellor on the delivery of his Budget. That I readily do. I note that his two senior colleagues, the right hon. Members for Shropshire, North (Mr. Biffen) and for Guildford (Mr. Howell), have rallied to his support, but it has been one of the least inspiring Budgets that I have had the privilege of listening to in my years in the House. One could recognise the reluctance to pour weedkiller on those lingering green shoots; nevertheless, much damage has been done by the Budget and an opportunity has been missed.
210 We have heard the Chancellor's first Budget in 1993. There may be a second bite at the cherry in the late autumn, but there is wide speculation that the right hon. Gentleman will not be in office then. Indeed, as I see things, the future of the Government is in question. No party can remain in office unless it can command a majority in the House, particularly on the main plank of its programme—Maastricht.
In speaking in Budget debates in recent years I have repeatedly emphasised the terrible problem of heavy unemployment. I have indicated what a waste it is and the damage that it is doing to the very fabric of society. The Government never appeared to accept that concept. Even now, they seem to be paying only lip service to it.
Officially unemployment has topped the 3 million mark, but the real jobless figure is more than 4 million. Therefore, the complacency of the right hon. Member for Guildford amazed me. To illustrate the severity of the position, let me point out that there are 27 people chasing every vacancy. For people under 25 years of age, unemployment in January was nearly 900,000, and that figure is rising. What chance have those young people got? Their lives are stunted from the word go. As to the long-term unemployed, those out of work for one year or more total more than 1 million. What a tragedy for so many people; they are thoroughly demoralised.
The Government moan about their borrowing requirement, but do Ministers ever stop to consider that it costs £9,000 a year to keep an unemployed person, which, in turn, means that unemployment is costing the taxpayer £27 billion a year?
Unemployment has social effects. It creates poverty, breaks up families, creates homelessness and ill health and leads to suicide. We are all vividly conscious of the ever-escalating crime rate, which is a constant worry to all decent citizens. Much of that crime is directly due to unemployment. The devil has certainly found work for idle hands and we now have a large alienated underclass.
Another major factor in that increase in crime is the breakdown in family life. Government policies should aim to strengthen the family unit, which is the basis of an orderly society. Putting people back to work would certainly help, but now we have the lethal combination of mass unemployment and a soaring crime rate. No wonder the morale of the nation has never been at such a low ebb.
In that context, the Chancellor delivered his Budget today. All he did was to hand out a few breadcrumbs. I appreciate that he does not have a magic wand. We did not expect him to cure all our major evils overnight and he has a huge deficit to contend with. Nevertheless, he has great powers and he had a great opportunity. The question is whether he rose to the occasion. The answer must be no.
Imposing VAT on fuel, gas and electricity is simply criminal. It will have a highly detrimental effect on the poorest section of community—old people. The announcement was a complete negation of the Government's election and many other promises.
One of the Chancellor's measures seems to be to cane the motorist. We are essentially a road-based economy and one does not need to be a Cambridge economist to realise that increasing the cost of transport increases the cost of almost everything. Not many months ago, the Chancellor assisted the motor industry by getting rid of car tax. The industry has responded magnificently. The principal redeeming feature of the economy in recent months has been the resurgence of the motor industry. February's 211 figures show that sales are up 16 per cent. on the equivalent month last year. The industry needs encouragement, particularly to develop its export trade, which can be so advantageous to our present adverse balance of payments.
We do not have car assembly plants in Wales. Nevertheless, the Welsh economy is now heavily reliant on the components sector, and to penalise the industry only aggravates and increases unemployment in Wales and elsewhere. I say to the Government, back the car industry because it can do so much to stimulate the economy and build a sound trading base, as those two industrial giants, Germany and Japan, realised long ago.
The building industry could do much to rejuvenate the economy and put people back to work. In the past month, there has been, admittedly, a marginal improvement in this sector but, overall, the building and construction industry is in dire straits. Building employers reckon that a further 100,000 jobs are at risk. Last autumn, the Chancellor released the receipts from the new sales of council houses, but only for a limited period. Much more is required. I am sorry that he did not introduce such a measure this afternoon. We urgently need a phased release of all capital receipts from the sale of council houses and land. Such a measure to help increase housebuilding, besides putting people back to work, would help to meet the pent-up need for social housing. Providing bed-and-breakfast accommodation for homeless families is far more costly, and only political dogma prevents the necessary action from being taken.
Likewise, so many empty council housing association properties need renovation. Many school buildings are urgently in need of repair. We need to regenerate local areas affected by the decline in manufacturing and in the coal and defence industries. Such measures would be a boost for the building and construction industry. We did not, I am afraid, hear any such proposals from the Chancellor this afternoon.
Another important aspect is training. Skill, after all, is the key to national competitiveness, and as a nation we are being left behind. Training opportunities for all who need them should be given a high priority. The British people are resourceful and, with the necessary skill training, a start could be made in rebuilding our manufacturing industry, which has been neglected for so long. A report that was leaked in recent days revealed that our manufacturing industry is in a parlous condition.
My hon. Friend the shadow Chancellor has set out clearly how such measures as I have briefly mentioned could be paid for—by imposing a public dividend on the excess profits of the privatised utilities, by closing tax loopholes, which are costing the Exchequer millions, and by maintaining tax on share transactions. To achieve recovery, we need emergency investment in the industrial and manufacturing sectors of our economy. That could increase exports, reduce imports and help to provide for a lasting recovery. Even the CBI's pre-Budget message recognised that recovery should be given the highest possible priority. The Chancellor has not met the nation's needs in that sense. He should go without further delay before he does so much more damage.
§ Mr. David Knox (Staffordshire, Moorlands)
I join my right hon. Friends the Members for Shropshire, North (Mr. Biffen) and for Guildford (Mr. Howell) in 212 congratulating my right hon. Friend the Chancellor on his third Budget speech. His first two Budget speeches were well constructed and to the point and today he maintained the high standards that he established on those two previous occasions. His speech was rather longer today and I join my right hon. Friend the Member for Shropshire, North in paying tribute to the stamina that he showed.
The House is indebted to my right hon. Friend the Chancellor for the style with which he presented his Budget. It was a difficult Budget, but he produced a skilful Budget in extraordinarily difficult and tight circumstances. I congratulate him warmly on doing so and look forward to his fourth Budget towards the end of the year.
I enjoyed the speech of the Leader of the Opposition very much. I think that it could be best described, in the word that Mr. Matthew Parris frequently uses, as a rant.
For many years the debate on the first day of the Budget was marked by speeches from Sir John Stokes and Sir Alan Glyn. Both of those gentlemen retired at the last general election and I am afraid that this occasion will never be quite the same for me now that they are gone. Nevertheless, the hon. Member for Newport, East (Mr. Hughes) is—as indeed I am—a veteran of these occasions. Indeed, Mr. Deputy Speaker, I believe that in a former incarnation you were as well. No doubt the hon. Gentleman and I will continue the tradition and be joined by others, including my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant), who has recently been joining us.
I welcome most of the proposals in the Budget. The measures which my right hon. Friend has introduced concerning industry, insurance and the environment will undoubtedly bring considerable benefits to this country. They are, however, very complicated and it would be wise to refrain from comment at this stage until one has had time to study them in rather more detail.
I welcome the further move towards the 20 per cent. basic income tax rate. Clearly, it was not possible to go very far in this respect today, but I am glad that my right hon. Friend was able to take another step in this direction. Whatever anyone may think, there is no doubt at all, as recent election results have shown, that a reduction in the basic rate of taxation is something that the people of this country want—and it is, after all, our task to respond to the wishes of our masters.
Despite the size of the public sector borrowing requirement, I am glad that my right hon. Friend introduced a neutral Budget today. It would have been very dangerous had he not done so, because it might have cut off expansion. I shall have more to say about this in a minute or two. It was rather ingenious the way in which my right hon. Friend managed to maintain a neutral Budget but nevertheless took steps which will ensure that the PSBR will be reduced in future years, by which time, we hope, economic growth will have restarted and the economy will be moving forward again. My right hon. Friend deserves considerable congratulations on the ingenuity which he showed in this respect.
I am glad that my right hon. Friend found it possible to introduce further measures to help the unemployed. As growth takes off, as my right hon. Friend very rightly pointed out, unemployment will continue to rise, and it is only right that measures should be taken, albeit of a 213 short-term nature, to try to ease the lot of those people who will be out of work over the next few months, and perhaps over the next year or two as well.
I was very glad that my right hon. Friend did not introduce value added tax on books and newspapers. Like most hon. Members, I have had considerable correspondence on this matter during the past few weeks. I am glad that at least in this respect I shall be moderately popular with my constituents for the next week or two.
I was rather less happy about the increase in the tax on petrol. I have a widespread rural constituency and my constituents rely on their motor cars. They will not be terribly happy, therefore, about having to pay an additional amount in petrol tax. On the other hand, I am pleased that my right hon. Friend has maintained the discrimination in favour of unleaded petrol as I feel that this makes a real contribution to improving the environment in which we live.
I was rather interested in my right hon. Friend's proposal concerning the self-assessment of income tax. This is an idea that was floated by the late Lain Macleod in the late 1960s. At that time there was a young man working in the Conservative research department. He later went on to become the Member for Kingston upon Thames and today is the Chancellor of the Exchequer. I wonder whether he got that particular idea from his days working with lain Macleod over a quarter of a century ago.
This Budget will not be judged in the medium or the long term by the specific measures that it contains, because they will be forgotten very soon. The Budget will be judged on the contribution that it makes to getting the economy out of a recession that has lasted for far too long and to reducing a level of unemployment that is far too high.
I thought that the measures that my right hon. Friend introduced in his 1991 Budget and again in his Budget last year were more than enough to generate growth and get us out of recession. Indeed, in the spring and summer of last year there was quite a lot of evidence, admittedly mainly anecdotal, that this was happening. Then everything came shuddering to a halt. The trouble was, and still is, a lack of confidence and I suspect that that owes a great deal to the uncertainty about the ratification of the Maastricht treaty.
Although I have no doubt that the European Communities (Amendment) Bill will eventually reach the statute book later this year, the delaying tactics of the Europhobes and others whose motives are purely party political are having a very damaging effect on the British economy. Their behaviour is creating grave doubts in the minds of our European partners and in other countries about our intentions and is undermining economic confidence and holding back our economic recovery. The early ratification of the Maastricht treaty would do more than anything else to restore economic confidence and enable us to move out of recession. And, of course, it would make my right hon. Friend the Chancellor's job much easier.
However, the ratification of the Maastricht treaty will not be enough on its own. If confidence is to be restored, there must be a certainty that the demand for goods and 214 services will increase and so lead to an increase in the demand for the labour to produce those goods and services.
That is why I was delighted that my right hon. Friend ignored the advice from some sources to increase taxation significantly in his Budget and to cut public expenditure. In the depths of a recession nothing would have been more foolish. Tax increases and public expenditure cuts would inevitably have resulted in a reduction in demand, which would have cut off the green shoots, pushed back the start of the recovery and made recovery much more difficult. The right time to increase taxes and cut public expenditure is when the economy is booming and looks like overheating. The wrong time is in the depths of a recession. Then, taxes should be cut, as the Chancellor cut them last year, and public expenditure should be increased, as it has been in the past two years.
The level of demand will be boosted over the next few years as a result of the devaluation of the pound during the past six months. British goods and services are now cheaper in export markets and foreign goods and services are now dearer in the British domestic market. This provides British industry and commerce with greater opportunities to export more and sell more at home and I hope that they are exploiting to the full the advantage that they now enjoy.
It will be some time before the beneficial effects of devaluation are reflected in the balance of payments figures; perhaps it may be as long as two years. But the effects on the level of demand in the United Kingdom should be apparent much sooner. I feel that the level of demand generated by my right hon. Friend's recent policies, including the Budget, should be sufficient to generate the necessary level of growth to enable us to move out of recession and to start growing once again.
I have already welcomed the measures announced by my right hon. Friend to tackle unemployment. They will help to ease the worst effects in the short term, but they will not deal with the fundamental problem. The long-term solution to the problem of unemployment lies in the demand management policies about which I have been speaking. Between February 1985 and January 1987, unemployment in this country exceeded 3 million. It then fell quite sharply, so that by 1990 it was slightly in excess of 1.5 million. Over the past three years, alas, it has risen again, and it is now just over 3 million. From 1945 until 1974 we had full employment. The level fluctuated a little, but unemployment exceeded I million only twice, and then only briefly. In 1955 and 1965, also very briefly, unemployment fell to the very low level of 1.1 per cent. of the working population, about one tenth of what it is today.
Unemployment did not start to rise when the present Government came into office. It began to rise in 1974, under the previous Labour Government, and has been at an unacceptably high level ever since. I do not think that the Labour Government or the present Government can be proud of their records on unemployment over the past 19 years.
In recent years, there has been a feeling that high unemployment is inevitable. It does no harm, therefore, to remind ourselves that for most of the post-war period the situation was very much better than it is now. The current level of unemployment shows how far we have moved from the high level of achievement of the 30 years 215 immediately after 1945. Nor does it do any harm to remind ourselves of the effects of unemployment, socially and economically.
Unemployment is socially divisive. It is difficult to have one nation, which is, after all, the principal domestic aim of my party, if 3 million people are out of work and if 1 million of those are long-term unemployed and have been out of work for more than a year. Lord Callaghan once said that the real division in our society is between those in work and those who cannot find work. Unemployment is also economically wasteful. If we are not using all the available labour, we are not maximising national output. It means that, as a nation, we are forgoing wealth which we could enjoy.
It is nonsense to suggest that demand has peaked and that there is no work available. We all know that we could consume more goods and services if we had the opportunity to do so. We also know that we could spend much more on social and public services. Potentially, there is plenty of additional demand for goods and services, public and private. The task facing us is to ensure that the level of demand is sufficient to utilise the potential supply of labour, capital and enterprise. That is the way back to full employment.
If a much lower level of unemployment is to be achieved and maintained, there must be pay restraint. In the past, there has been a strong tendency for the British economy to generate increases in earnings in excess of the increases in output, causing wage and salary cost inflation. The tendency has been especially powerful when the economy has been booming.
Until 1979, successive Governments tried to control excessive wage and salary increases by incomes policies. Since then, the determination of pay has been left to employers and employees and when the increases got out of hand and inflation rose the Government tried to brake those increases by demand deflationary policies.
Recently, although still too high, wage and salary settlements have fallen back sharply, almost certainly as a result of the recession. The Government rightly want a 1.5 per cent. limit on public sector pay this year and they hope that increases in the private sector will be of the same order. Few doubt that pay restraint is necessary at present but, if it is necessary now when increases are likely to be modest because of market conditions, surely it will be even more necessary when pay increases start to rise again as we move out of recession, as unemployment falls and as labour shortages reappear.
If we are to avoid having to brake back the recovery before full employment is reached, because wage and salary increases are out of control, consideration should be given to extending the attempts to restrain pay settlements to longer-term arrangements. If the Government are right to believe that low pay settlements in the public sector protect jobs—and they are—surely low pay settlements elsewhere in the economy will also protect jobs. Is not there a case for thinking again about incomes policies? Is not the right time now—in the depths of the recession—when the pressures for pay increases are at their weakest?
§ Mr. Bill Michie (Sheffield, Heeley)
I know that it is traditional to congratulate the Chancellor of the Exchequer. I shall do so because it is the tradition rather than because I believe that I should appreciate, or congratulate him on, what he has presented to the House.
The Chancellor made a very long speech—far too long. I was always told, in engineering research and certainly when I was a local government councillor, that if one did not have a good argument, one should make a long report. That is fair enough when dealing with reports: the way to get out of that is to do a fast reading course, get rid of all the rubbish and read only the facts. Unfortunately, a fast reading course does not help me when I listen to a long speech such as that which we heard this afternoon.
I shall not dwell on the speech for too long because much has already been said about it, but I am bitterly disappointed that there is to be value added tax on fuel, a fuel tax. That is perhaps the most cruel thing that the Government could do. I do not believe that everyone will be compensated through their benefits, as the Chancellor claimed. He knows very well that thousands of families will not qualify for such help with the fuel tax. In the past, we have discussed old people suffering from hypothermia and worried about whether they could keep warm and how we could help them. Now a dreadful tax burden is being placed on them, which will make matters even worse. I am very disappointed about that.
I am also disappointed about the fact that, despite some of the issues that the Chancellor raised, the message did not get across as to exactly why the country has been going downhill. The hon. Member for Staffordshire, Moorlands (Mr. Knox) said that it was due to the world recession, among other things. That is true, but it seems that it is never anyone's fault. I believe that it is partly the fault of the Government and partly the fault of the philosophy by which they live.
I do not believe that one can stand aside and let things happen; nor do I believe that high wages are the reason for depression and unemployment. There is a theory that high wages bring a nation to its knees, but I should like someone to explain to me why the countries of the third world, where people are paid peanuts for hard work, are not the richest nations in the world. It does not work that way. The problem is that we do not understand the difficulties that face us.
I started this week by visiting schools in my constituency and discussing further school closures, which are to take place because of a supposed lack of money or the standard spending assessment. The Government say that we must have training and a skilled work force. Schools are being closed, but the Government still expect to have a more skilled work force. Again, I do not understand the logic of that.
Local authority spending is being greatly reduced. The infrastructure around our towns and cities is falling apart, family life is disintegrating and crime is rising. What is the answer? The Government take more money out of the local economy, but I do not see the logic behind that.
More and more people are homeless, but, like many hon. Members, I receive letters from building companies who write to Back Benchers in sheer desperation asking us, for goodness sake, to ask the Government to do something because the industry is going to the wall. I did not hear much in the Budget which will help those people. The 217 Budget was a big disappointment on the local authority, education and housing fronts and, perhaps even worse, on the job front, which has already been mentioned. The Chancellor said that short-term prospects were not the answer. I fully understand what that means. One cannot throw money at a project and hope that jobs will be provided sooner or later and that new skills will suddenly appear. That has never been the case. I accept one or two points that the Chancellor made, including the fact that employers will get a subsidy if they employ someone who has been out of work for two years; in other words, one buys oneself a job with one's dole money. I welcome the proposal to help 100,000 people who are unemployed to start small businesses. That will be nice for the 100,000, but pretty poor for the 300,000 who have lost their jobs since the last election.
I welcome the proposal for 30,000 long-term unemployed people who may be able to go back into some form of education, but I am still worried about what sort of education they will get and what sort of training skills they will achieve.
I had a wry smile at another of the Chancellor's proposals, for a new community action programme for the voluntary sector which should help to provide jobs or opportunities for at least 60,000 people. I seem to remember that there was a very good community programme, created by this Government many years ago. It was so good that it was popular. It was not only popular but it created permanent jobs and good wages, but once it got to that level the Government scrapped it altogether because people were getting decent wages and decent training. I hope that the Government have learnt some lessons from the past and will create a community action programme that is beneficial, not just to the community but to the unemployed.
I come to the business of action for jobs and the reasons why our industry is in dire trouble. I echo the query raised by my right hon. and learned Friend the Leader of the Opposition: if there is such good news, why is it not published? Why have not the Government come out with a fanfare of trumpets to say that the whole of manufacturing industry is on the up? It has not been published and I assume that we have to suspect the worst: that the situation is not as good as the Government are claiming.
Skills cannot be introduced overnight. One problem that I have had over the past few years has been to explain to the Government and other hon. Members that one can shut a factory any day very quickly and disperse the skilled labour force on to the dole queues or elsewhere, but one cannot recreate a factory overnight. Once those skills have been lost they cannot be found among those standing on street corners. That is not the way in which engineering skill and technology work. Surely this Government must have got that message by now. We are talking about a 14 per cent. reduction in real training for jobs. Statistics that I have here show that Government spending on training, at constant prices, was £2.4 billion in 1990–91. It fell to £2.1 billion in 1991–92 and remains at the same level this year. It is planned to remain at £2.1 billion for 1993–94, but will fall to £2 billion in the two years after that. In real terms, spending this year has therefore been reduced by £300 million on 1990–91 levels, a reduction of 14 per cent., yet 218 the Goverment are still claiming in this Budget to be increasing training and education for the country's future prospects. While we have had this reduction in training, unemployment has risen by about 87 per cent.
I said at the beginning of my speech that I feel no enthusiasm about the Chancellor's speech. It strikes me that the Government are still slow in learning that, in order to have a nation that is wealthy, it has to be a nation that is working and is competing in the world in technology and new sciences. The only way in which the Government or the nation can achieve that is by long-term investment and long-term planning.
Our industrial base is in tatters. I walk through some parts of my constituency and see the places where I used to work and where my father used to work where there is nothing but dereliction. There is nothing in the Budget which will cure that either overnight or in the long term.
As a plug, Mr. Deputy Speaker, I draw the attention of the House to my early-day motion No. 1540 entitled "Technical and Engineering Capability and the Vulcan Bomber". Basically this expresses the hope that the last of the Vulcan bombers should stay in this country because it is a demonstration of the engineering and design skill of this nation in the past. Many of those designers and engineers are still alive today and some are still fairly active. I say that as one who had the privilege of being near a Vulcan bomber for many years, many years ago, and as one who has a soft spot for it. We should keep it, as I said in this early-day motion, to demonstrate to our future generations what skills we had in this nation and to inspire them and, I hope, this Government to invest in a proper diversification programme in order to retain and retrain skills for peaceful products.
It is no good saying that we have no cold war at present and therefore we cannot afford to invest in defence and that we have no idea of how to invest in peace.
It reminds me of the story I heard once about creating jobs in shipbuilding. An old man suggested that we should build luxury liners so that 4,000 old-age pensioners could be put on those luxury liners in the winter months—especially now that we are going to have a fuel tax—with 2,000 or 3,000 staff to look after them and let them go floating around to warm climates. The shock horror is that no nation can afford that sort of logic, but when one looks at it we have the Ark Royal and other large warships with thousands of highly paid, highly skilled and highly trained personnel floating around the world and we feel that to be a necessity. It may be a necessity, but if the will is there to do it for time of war, which we hope never comes, many of those ships would be lost in the first year. Surely with the right will we can create products for peace and protect our skills and our jobs for the future.
I must make one point on a subject on which I thought the Chancellor did not dwell: putting pressure on the banks. Many small businesses, as most hon. Members will know, have complained about the way in which banks have treated them in the past two or three years. I hope that sooner or later we shall have a Government who will get a grip on the banks and protect some of our small companies.
There is plenty of money in this nation and I hope there always will be. If one asks where one finds all this money, it is amazing how the Government can find money for their pet projects like defence; how they could find money on black Wednesday when billions of pounds went down the 219 pan because of the stupid ERM fiasco and also when billions were spent trying to prop up the poll tax system created by this Government and scrapped by them.
No one will convince the Opposition that there is not enough money to invest in the nation and bring it back to the top of the industrial nations ladder, where it rightly belongs. We should stop frittering away our taxpayers' money on stupid projects proposed by the Government which are built on bias and prejudice. We should instead invest in this nation, which I believe will once again be one of the best industrial nations in the world.
§ 7 pm
§ Sir Anthony Grant (Cambridgeshire, South-West)
The hon. Members for Sheffield, Heeley (Mr. Michie) and for Newport, East (Mr. Hughes) made what were from their point of view sincere speeches, even if they contained an excessive degree of gloom. I have no doubt that we shall hear persistently from the Opposition Benches tales of gloom and woe.
I am extremely fond of the hon. Member for Newport, East, with whom I have often crossed swords in debate. He is a splendid constituency Member who reminds me of another great Welshman, Lord Tonypandy, who once told me about a report that appeared in a local Welsh newspaper of a funeral. The noble Lord recalled that the report read, "As the coffin was being lowered, the vicar, the Reverend Eli Jones, slipped, fell into the grave and broke his leg. That cast a gloom over the whole proceedings." That reminds me of the gloom that can be spread by the speeches of Opposition Members, even though it is wholly inappropriate to our economic recovery.
The Chancellor has for a long time been unjustly maligned. I have no hesitation in congratulating him on the way in which he has resisted much unnecessary abuse and has introduced a skilful and relevant Budget. Let us not forget some of the difficulties that he faced when he took on the task, including a world recession and the need to deal with some mistakes in monetary policy that had been made since 1987.
§ Sir Anthony Grant
I hear what the hon. Gentleman says. I assure him that I admit my mistakes. The mistakes of which I speak were egged on and connived at by the Opposition parties, which encouraged the sort of action which led to the difficulties that my right hon. Friend had to face. That in turn led to our needing an over-rigid monetary policy which resulted in great suffering among, in particular, two sections that were least able to deal with it. I refer to the construction industry and the housing market and small firms, about which I shall say more shortly.
I am particulary glad that, in terms of political correctness, it is now recognised that the economy cannot be dealt with purely by monetary means and that we must also adopt fiscal policies. I am glad that we have returned to that more sensible and flexible system. As a result of the severe problems that the Chancellor faced on taking office, there was a total lack of confidence in business.
§ Mr. Michael Spicer (Worcestershire, South)
My hon. Friend said that the Government's mistakes had resulted from monetary policy being too rigid.
§ Mr. Spicer
I must have misunderstood my hon. Friend. The problem was that they abandoned monetary policy in favour of fixed interest rates. That was the mistake to which my hon. Friend should allude.
§ Sir Anthony Grant
Immediately after black Wednesday, when stock markets throughout the world seemed to collapse, there was over-reaction everywhere, particularly in this country. A few Conservatives of great financial rectitude—including perhaps my hon. Friend—did not take the same view, but the Opposition parties were in favour of interest rates being lowered unnecessarily. I, too, was guilty of favouring such a policy and I accept blame in that respect. We were obliged later to have an over-rigid, over-intense interest rate policy which reached as high as 15 per cent. before we entered the exchange rate mechanism.
I will not pursue that now, though I am sure that my hon. Friend the Member for Worcestershire, South (Mr. Spicer) will do so if he has an opportunity to speak in the debate. We now recognise that not just monetary policy but a mixture of monetary and fiscal policy is essential to run an economy such as ours. So I welcome the thrust of the Chancellor's strategy.
I am sufficiently long in the tooth to remember the time when, in 1967, the then Labour Government had to devalue. In the following Budget, introduced by the present Lord Jenkins of Hillhead, we had the biggest increase in taxation anybody could remember. He was cheered to the echo—I was in the Chamber at the time—for taking that action. So the Labour party cannot teach us anything about increases in taxation.
At that time, Lord Jenkins emphasised that recovery following devaluation should be export led. The principle holds good today. The difficulty is that, at a time when we require an export-led recovery, the countries of Europe and Japan are suffering from recession. That makes our export effort more difficult but even more vital.
I welcome the Chancellor's measures on export credit guarantees. I recall from the days when I had some responsibility for that issue how the credit game was played by other countries and we were easily deceived. I am glad that the Chancellor is aware of that and is introducing measures to improve credits for our exporting industries.
As Opposition Members are wholly committed to the Rio environmental decisions, perhaps they will explain how they would implement them. What measures would they introduce? We await with interest their answer in due course. They must not dodge the question. If they try to do so, my hon. Friends and I will persist in repeating it.
I agree with my hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox) that unemployment is the gravest problem we face. It also represents a major burden on the public sector borrowing requirement. In the 1970s, about which my hon. Friend spoke, I had some humble responsibility in the then Government, when the unemployment total reached I million. The hon. Member for Bolsover (Mr. Skinner) thumped the Dispatch Box hysterically and created a disturbance of monumental levels.
My responsibility at the time was for the regions. When we were unceremoniously thrown out of office in 1974 by an ungrateful electorate, unemployment had come down 221 to about 700,000. Immediately Labour took over, it went up, and within a year it reached 1 million. There was then not a peep from the hon. Member for Bolsover and his hon. Friends. So we need no lessons from the Opposition about unemployment. Even so, it is a grave problem and I welcome the measures that have been announced to deal with it.
Only the revival of the small firms sector will have a true long-term impact. Large firms have already shed labour during the recession, and I fear that their labour forces will never return to their previous levels. Small firms have the resilience and flexibility, especially in the county of Cambridgeshire, to respond to the measures that the Chancellor has wisely introduced.
I was almost the first Minister to be responsible for small firms. The late lamented Lord Ridley had had that responsibility for about three weeks before I came to that office. In those days we clearly recognised that the future of the economy in a free market society lay with a healthy small firms sector. After we left office, the whole thing declined under Labour rule, and nothing was done to help small firms. The hon. Member for Bradford, South (Mr. Cryer) was the Minister responsible, and small firms languished under that regime. Later, when the Conservatives took office again, they were rediscovered, as it were, and I hope that we will retain that attitude.
It is essential to small firms—indeed, for the whole nation—that inflation is kept under control. The Chancellor and the Government can take pride in the way in which they have handled the problem of inflation. Small firms also want low interest rates. I have always wanted lower interest rates because I detest a high interest rate policy. Although I want pressure on them continually to be downwards, we have probably reached the stage when a degree of stability is justified. Small firms would now welcome stable inflation and stable interest rates. They wanted, and have now obtained, help with investment, and assistance with the corporation tax and VAT thresholds. They sought assistance with capital gains tax and inheritance tax and, above all, with the wretched uniform business rate. My right hon. Friend the Chancellor noted all that, and I congratulate him on his sensitivity in recognising the needs of the vital small business sector.
In particular, I am glad that he recognised the difficulties of small businesses in grappling with VAT and Customs and Excise. I have received endless numbers of letters about the ferocity with which the Customs and Excise administer their task. Small firms have described them as the Gestapo and the KGB. That is probably an exaggeration as they are worthy and honourable civil servants, but they have been over-zealous and draconian. I am pleased to see the changes that my right hon. Friend has announced.
One problem that has not been addressed is that small firms are greatly affected by the credit game—or indeed the credit racket. Large firms abuse smaller suppliers and contractors by taking their credit to the limit, causing considerabe cash flow problems. When I was in office I said that it was disgraceful, but larger firms were not prepared to admit anything until we found evidence that it was true. I was then thrown out of office and that was the 222 end of that. However, the problem still exists. It should be possible to find a legislative format to bring some sanctions to bear.
§ Mr. Mark Wolfson (Sevenoaks)
Does my hon. Friend agree that there can be a damaging and dangerous domino effect when large, principal contractors are slow to pay so that three or four sub-contractors down the line are all dependent on the money coming through?
§ Sir Anthony Grant
My hon. Friend is absolutely right. In the absence of legislation, will Treasury Ministers and my right hon. Friend the President of the Board of Trade think carefully about the problem and emphasise to the large industries with which they are always dealing that it is in the nation's interest that they should pay their bills on time and ensure that small firms, which they were once, have a reasonable cash flow?
Manufacturing industry has made remarkable strides since 1979 when we were bottom of the productivity league of G7 countries. We are now at the top. Output and investment have increased and are increasing. Progress in industrial relations has been quite remarkable. As my right hon. Friend the Chancellor pointed out, not since Victorian times or thereabouts have there been so few strikes. We can be justifiably proud of that. However, my right hon. Friend the Prime Minister was right to point out that industry requires more attention in the present economic climate and in future.
Compared with our partners in Europe and elsewhere, we have not paid much attention to manufacturing as we should. It is a matter of national culture rather than Government policy. If we were to ask anyone in the street in Britain what we meant by an engineer, most people would think of a grubby chap in overalls who repaired cars. However, the same term in Germany, Japan and elsewhere means someone who is held in high esteem and occupies an important position in industry and in the company. We have to move towards that attitude.
In the days when we were trying to encourage regional policy, I sought to encourage brighter people to run manufacturing industry in the north-east and the north-west. The difficulty was that the rewards, the prestige and the ease of work were greater for the brightest people if they went to the City of London to do no doubt very important paperwork in the service sector. We have to address that problem, and I would like to see the manufacturing sector in general and engineering in particular given a much higher profile.
My right hon. Friend the Chancellor has set the correct course for the future. He has tiptoed delicately between financial rectitude and the need not to damage the delicate flower of recovery. The small business sector will respond most vigorously, especially in East Anglia and Cambridgeshire.
§ Sir Anthony Grant
And the north-west, as my hon. Friend says.
All that is needed now is that mythical word, confidence. Confidence can be achieved only by stability and, with great respect to my hon. Friend the Member for Worcestershire, South, small businesses want certainty. Therefore, I echo the remarks of my hon. Friend the Member for Staffordshire, Moorlands. The sooner we get 223 over the uncertainty about Maastricht and our situation in Europe, the better it will be for everyone. The CBI, the chambers of commerce and all the industrialists with whom I have spoken want it over and done with so that there is certainty for the future. I hope that that will soon be the case. If it is, I look forward with great confidence to the future of our economy, thanks to the wise management of my right hon. Friend the Chancellor.
§ Dr. Jeremy Bray (Motherwell, South)
The hon. Member for Cambridgeshire, South-West (Sir A. Grant) asked what the Opposition would do about the undertaking under the Rio convention to reduce carbon dioxide emissions. I offer one simple device off the cuff. If VAT on domestic fuel and power is considered the appropriate solution, it would be perfectly possible to make that revenue-neutral on VAT by reducing the average rate, so that there was no net increase in cost to the consumer but there was a switch in taxation to discourage people from using so much fuel and power. However, the Treasury do not think that way. They are concerned not with Rio but with the biggest single Budget measure—the £2,300 million that they are taking out of households by levying VAT on fuel and power.
The Chancellor faces a difficult situation, but he has only himself to blame. First, he is simply not believed by the market, by his colleagues in Government or by the House. We have seen a public facade building up in his defence, behind which his hon. Friends will be able quietly to knife him in the back. There were and still are good reasons why a Chancellor who trimmed his sails, changed course and abandoned his policies on the scale of black Wednesday should feel he had to go. The job has to be held by someone who is believed. No amount of special pleading about being overwhelmed by speculators will do—that is always the story. In any case, the Chancellor was maintaining that the economy was not vulnerable to the speculators.
Secondly, the Chancellor represents a Government who made the most colossal errors of judgment by unleashing the credit boom of the late 1980s. There were plenty of warnings, not least from within the Treasury, and even from that much maligned Treasury model, as I showed at the time, but they were ignored.
Thirdly, having suffered such wounds, the Chancellor is devoid of all principles. I mean principles not in any moral or high-minded sense, but simply in the sense of relating one day's improvisations to the next to avoid them cancelling each other out.
The Government used to have a medium-term financial strategy. It survives as monitoring ranges on a number of variables which do not include the most important one, which is the exchange rate. A target for the increase in tax yields three years ahead is offered up as a fetish to the markets of £10.5 billion, but elsewhere in the financial statement is the estimate that the error in forecasting the PSBR for the coming year is some £6.5 billion. For the error three years ahead, there is no estimate, but it must be far more than anything like the £10.5 billion that the Chancellor is offering up.
The Chancellor is unlikely to argue that no strategy is preferable to a wrong strategy, but others not saddled with the Chancellor's mistakes can stress the importance of having a workable strategy, and that is what I shall try to 224 set out. A workable strategy is a political necessity. People need some sense of where the economy is and where it is going if they are to behave sensibly in their personal interest and that of their families. People do not believe the Chancellor, so they are not prepared to train for the long-term, to invest or to plan for the future. Still less are they told by the Chancellor that their real incomes today have grown faster, and are now some 10 per cent. higher, than the economy can afford. We also need a strategy to get us out of the difficulties we are in and to keep us out.
I say to my right hon. and hon. Friends that there is no easy way out for us. The popular ideas of Keynesian demand management provided a workable rule for correcting small excursions from full employment in situations where there was a sheet anchor against inflation in the shape of Bretton Woods and a stable valued dollar. With the extreme imbalances that we have today of unemployment and the current account and public borrowing, we have to look deeper.
Nor, I say to my hon. Friend the shadow Chancellor through my hon. Friends on the Front Bench, is it sufficient for us simply to advocate the supply side measures of more investment and training, vital though they are. The arguments about the imbalances are not part of the detail that can be worked out only in the circumstances as we find them as we approach the next election. While politically it is right for us to point out that we are suffering from Tory errors and that it is a Tory responsibility to deal with them, we have to show that we know what the imbalances are and realise their full seriousness, and show ourselves more competent to deal with them when it comes to be our job to deal with them.
What, then, of the design of a viable strategy? What does it mean in terms of immediate policies? In general terms, the answer is obvious: it has to be aimed at restoring and maintaining the balances—unemployment, the current balance and public borrowing. It should be prepared to use all available instruments, down and up—direct and indirect taxes, interest rates, funding and public expenditure—recognising that they all have an economic and political cost. The strategy may express the policy priorities of the Government, but even with all the instruments, the freedom of movement for a Government to express their priorities is severely circumscribed, and the greater the imbalances, the less scope there is for indulging those Government priorities.
All that is so much waffle for politicians and economists educated in a purely verbal tradition, who have never been taught to add up, never mind multiply. What happens is that one verbal simplification is pitched against another, the one adopted inevitably meeting disaster, leaving the sponsors of the unadopted simplification claiming that they had the right answer and believing that they were right.
Despite the all-too-obvious weaknesses and failures of economics and economists, a great deal of progress has been made in technical analysis of economic management in the past 20 years. Technical analysis is a good servant but a poor master. It is in the interests of Ministers, journalists and gurus to rubbish it, because they find it difficult to master. It is difficult to master, but that is part of their job. What matters is whether it works. Does it point to practical policies that impress politically?
It is a measure of the Chancellor's stupidity that he has allowed the Treasury's capability for technical economic analysis to degenerate in recent years. Any half-sensible 225 Chancellor makes sure that he is as well equipped as anyone else in the game. I welcome the panel of independent forecasters, but behind the scenes it only shows up the increasing weakness of capability within the Treasury.
Of the three principal instruments that the Treasury should have, the main one is the characterisation of the national economy and its behaviour—the Treasury model. That model has been stagnant now for five years. It has grave, well-known errors within it, and nothing is done to correct them from year to year. There is no treatment within the Treasury of the global economy. The work that was once done there has now been farmed out to the National Institute of Economic and Social Research and to the London business school, and they run the international model used by the Treasury. Therefore, the Treasury inevitably does not fully understand all its characteristics.
Finally, when it comes to characterising the efficiency and performance of industry, the DTI may bleat until the cows come home and officials in its innovation unit may produce a report—only a few weeks ago, those officials told me that they expected it to be published—but it is useless them bleating in that way if they cannot characterise the impact of the dire situation of manufacting industry on the economy as a whole. The Treasury has no means of listening to such arguments.
Modern economics treats economic management as a game between different players, with different interests and capabilities. Monetarist doctrine was built around ideas of expectations. That gave way to concepts of commitment, learning and credibility. My favourite is a recent Federal Reserve Board working paper on "Rational Addiction with Learning and Regret". I am not too sure about the rational bit for the Government, but otherwise it is a strategy that I should have thought would appeal to them.
It is not necessary to go into the technical arguments. What is necessary and possible is to point to the broad nature of the conclusions. The imbalances are so large that, if they are not corrected, they will get worse. They are also so large that it is irrelevant to argue whether unemployment should be 2 or 4 per cent.: it should be a great deal less than 10 per cent. It is irrelevant to argue whether the current balance should be allowed to stray over 2 per cent. of GDP: it should be in surplus in the depths of the recession. It is irrelevant to argue whether public borrowing should exceed the 3 per cent. Maastricht criterion: it should not be heading over 8 per cent., even in the depths of a recession. Inflation is a scourge, and if it is not kept low, it runs the danger of becoming south American. However, low inflation has no virtue on its own if it is achieved at the cost of wrecking the other essential balances.
The trouble with arguing that we must deal with those structural imbalances, but not yet, is that they will get more difficult and painful to deal with later. They cannot be corrected overnight, nor even within five years. We can make a start now and, by being seen to make a serious start, set going the virtuous circles of increasing investment, confidence and stability.
For each instrument, we must ask how much it can contribute to improving one balance without damaging the others more. It is a matter of analysis. Let there be 226 argument about that, and let us hear the argument. The panel of independent forecasters could provide such material, and the Treasury could match it. However, having looked at the evidence, my judgment is that an increase in income tax on those in work would help public borrowing more than it would harm unemployment. A further reduction in interest rates would weaken the exchange rate, and the sheet anchor against south American inflation, more than it would help investment and employment. An increase in Government investment would help employment and competitiveness more than it would harm public borrowing.
Then the argument moves on to the detail of the instruments—whether they be tax rates or allowances, and what conjuncture of relative interest and inflation rates, and what kind of public investment, we should have. The dynamics of policy must be set out, showing how policies will adapt to changing circumstances while pursuing consistent objectives in a consistently maintained strategy. No such thinking goes on in the Treasury today. Treasury people do not even attend the conferences at which such policies are argued out.
At the same time, of course, vigorous supply side measures are needed—in the sense not of lower taxes but of greater skills, better quality, greater appeal and enhanced capacity. That is a matter not of subsidy and second-guessing, but of looking for the features of company finance, corporate control and competition that have so weakened British manufacturing, or have never allowed it fully to develop.
None of the tax measures that the Chancellor today announced to bolster the corporate sector, especially small firms, addresses the differences that are so inescapable when we compare the position of small and medium-sized manufacturing enterprises in this country with those in Germany.
The Select Committee on Science and Technology has just returned from an examination of industrial competitiveness in Germany—talking to the Government, and visiting firms and research institutions. The remarkable fact is that in Germany firms bearing names such as Bosch, Diesel, Zeppelin and so on are all still there today, but they are booming. They maintain high research budgets, and increase them when profits fall. In contrast, the Chancellor was trying to make it easier for the entrepreneur to sell out of his company. That is the last thing that a German industrialist would do; yet here we are facilitating precisely that weakening of control and commitment that underpins the strength of the German engineering industry.
§ Mr. Alan Duncan (Rutland and Melton)
Is the hon. Gentleman not taking an over-rosy view of the German economy at the moment? Mercedes Benz has just announced that it intends to lay off 30,000 people, Porsche has suffered a reduction of about 80 per cent. in its exports, and the German machine tool industry is all but in a state of collapse. The rosy picture that the hon. Gentleman paints is rather inaccurate.
§ Dr. Bray
The German unemployment level is about half that of the United Kingdom, and the average income in Germany is a great deal higher than it is here. The hon. Gentleman is confusing the short-term situation with the underlying strengths of the German economy. The same 227 goes for the Japanese economy. The hon. Gentleman really ought to go and look at those economies at first hand.
Judged by the criteria of what a strategy should be like, the Chancellor's Budget lacks perspective on the severity of our problems, and any sense of strategy. It is a rag-bag of expediency, put together in a futile bid to save his own political skin.
§ Mr. Michael Spicer (Worcestershire, South)
I have been in the House for almost 20 years, and one of the coincidences over that time is that when I have been on the Back Benches., more often than not I have followed the hon. Member for Motherwell, South (Dr. Bray) in such debates.
I do not know whether I should reveal this, but the hon. Gentleman and I share what could be called a professional interest and experience in the rather tricky, if not dreary, business of econometric forecasting. I was involved with that many years ago, and I know that the hon. Gentleman was, too. Indeed, it was out of that experience that he created the requirement for the Treasury to publish forecasts, as it now does.
I admit that I have moments of enormous gloom about this forecasting business, but I have to accept what partly lay behind what the hon. Gentleman said—that it is still necessary to bash on with the forecasts, if only because it is self-evident that changes in monetary policy and interest rates have their full impact two years out. So, whether one likes it or not, one has to anticipate what the effect of a particular policy change will be two years out.
I begin what I want to say by agreeing—perhaps surprisingly—with the opening remarks of my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant) in praise and support of the Chancellor of the Exchequer. My right hon. Friend has not only comported himself with great stamina today, but has dealt extremely courageously with the enormous torrent of criticism and personal abuse that he has suffered over the past few months. I put on record my personal respect for the dignified way in which he has responded.
I say that despite the fact that I am someone whom I believe the Chancellor has in the past called a "moaning minnie" and a "siren voice", for advocating lower interest rates, for reasons that I have mentioned, two and a half years ago. At that point it seemed to me that, two years out, high interest rates would have the effects that we see now. The hon. Member for Motherwell, South, too, said that interest rates should have been lower then, and I believe that my hon. Friend the Member for Cambridgeshire, South-West said the same. However, I do not believe that either of them gave any reason why interest rates were kept high.
The reason, self-evidently, was a policy of giving priority to exchange rate management, as opposed to the management of monetary policy in the interests of this country. That is the exact opposite of what my hon. Friend the Member for Cambridgeshire, South-West said. The problem was not too rigid a monetary policy but exactly the opposite—an abandonment of monetary policy.
§ Mr. Spicer
I have prompted two hon. Gentlemen to intervene. I shall give way first to my hon. Friend, and then to the hon. Member for Motherwell, South.
§ Sir Anthony Grant
I remind my hon. Friend that interest rates reached their highest level before we entered the exchange rate mechanism. They then went solidly down, whatever other criticisms one may have.
§ Mr. Spicer
I am glad that my hon. Friend has raised that point. The process of informally shadowing the deutschmark and having an informal fixed exchange rate started two or three years before we finally formalised the situation by going into the exchange rate mechanism. We should have learnt by the mistakes of the previous two or three years where the problem lay.
For a while, interest rates were too low and we had inflation, which was caused by the fact that we were gearing up to the German economy and giving greater priority to our exchange rate policy than to monetary policy. That was a continuum of what had been going on for three or four years, and I am glad that my hon. Friend has reminded us that the process goes further back than our entry into the ERM.
§ Dr. Bray
I do not believe that I advocated lower interest rates two years ago. When the economy has been put into a grossly unstable situation, one has to take action to correct that. The mistake was made in 1987. Lord Lawson well describes in his book how the crash on the stock exchange led him to reduce interest rates at a time when all the signs were that both interest rates and taxes should have been increased.
§ Mr. Spicer
That may be one interpretation of events. Another—which has the merit of following the way in which the policy was pursued after 1987, through 1988 and 1989—relates that monetary policy, in so far as it existed, was determined to maintain a certain parity within exchange rates, especially against the deutschmark. I believe that that is how most commentators and historians now view that policy, which was maintained until white Wednesday last September, when we came out of it. I shall deal with that in a moment, if I may.
The Budget deals with two issues that I believe are interrelated—the deficit, and growing unemployment. Those two issues are related because they share the same derivative—low growth over the past two or three years. Indeed, so low has growth been that it has been negative by 4 per cent. over the past 30 months.
As I have said, that low growth rate has been caused by excessively high interest rates, which in turn were caused by a policy that placed greater priority on exchange rate manipulations for many reasons relating to Maastricht and the policy in Europe. Replying to what my hon. Friend the Member for Cambridgeshire, South-West said about confidence, one of the essential requirements now is continuity of policy.
We must learn the lesson of the past six years, of putting an exchange rate policy and a determination to move towards a single currency in Europe above the direct monetary interests of this country. We should perhaps have learnt that lesson by the 1930s, when we tried to link our currency to the United States' economy through the gold standard. That did not work. In fact, it was a disaster. However, we tried it again, although we have now stopped 229 for a while. The greatest boost to confidence would be to state quite clearly that we are now going to manage our economy in terms of its own requirements.
At present, the British economy requires sustained economic growth. That growth, as my right hon. Friend the Chancellor of the Exchequer said, requires a relaxed and easy monetary policy. He said that his narrow money target was zero to 4 per cent., and that the target for M4 was 3 to 9 per cent. Most people would say that the narrow money target is within the band, although, as my right hon. Friend the Chancellor said, at the higher end. However, in respect of broad money, which many people believe is the crucial factor in getting the economy moving again, most analyses show that it is still very low, if not still negative. It certainly was negative until very recently.
It is clear that the basic policy parameter and confidence factor to which my hon. Friend the Member for Cambridgeshire, South-West alluded requires an easing of monetary policy. The objective is also clear: to create such substantial, steady and progressive growth that unemployment will fall, causing the totality of benefits to reduce, the tax take to rise and the deficit to be addressed.
My right hon. Friend the Member for Shropshire, North (Mr. Biffen) made a very interesting point earlier in that context. Indeed, the hon. Member for Motherwell, South may have alluded to the same point. My right hon. Friend said that one of the problems with trying to generate employment at the moment is that there is a discontinuity between output and its effect on employment. We may be going through a new industrial revolution, particularly affecting the services sector. Investment seems to be causing unemployment rather than employment. We need at least 2 per cent. growth simply to keep steady in terms of employment levels.
We are experiencing enormous strides in productivity at the moment. It may be argued whether that is because we are at the back end of a recession or because there are substantive industrial revolutionary effects, and that we are entering a new phase. However, it seems that we need about 2 per cent. growth just to stay steady in respect of employment levels. In order to bring down unemployment, we will have to generate growth levels that we have not been able to sustain in the past. The task is rather enormous. We must aim for above 2 per cent. simply to reduce unemployment from its present rate.
That requires an investment culture and a substantive investment procedure from now to the distant future which will create and expand jobs as opposed to just replacing labour for capital. I believe that such an investment culture has three ingredients. My hon. Friend the Member for Cambridge, South-West and my right hon. Friend the Chancellor of the Exchequer have already alluded to the first of those ingredients. The first ingredient is good labour relations.
Undoubtedly, one of the great gifts of the Conservative Administrations of the 1980s was to provide for stable, sound and good labour relations. The figures that my right hon. Friend the Chancellor referred to earlier are remarkable. We had a better strike record in the last year than we have had for 100 years. That is a tremendous contribution and of enormous importance to investors, particularly those considering investing from abroad.
230 Foreign investment must be added to the massive investment that will be required to keep pace with the rate of unemployment.
The second ingredient is the continuation of a liberal trading policy, and this is where I become so concerned about our obsession with trading with Europe. Of course it is important that we trade with Europe. It is important that we have open trading relationships with Europe. However, as has been said several times today, Europe will, into the foreseeable future, be a rather slow growth place with which to trade.
Leaving aside the fact that we trade typically £10 billion per annum in deficit with Europe, the fundamental point is that, unless we are very careful, we will lock ourselves into a political union governed by a protectionist philosophy.
The great thing about Britain, our enormous advantage and the reason why we have had such investment in this country over the past 10 years is not that we were going to join a political union; in fact, quite the reverse. Our advantage has been that we stood on a bridge between Europe and the rest of the world, because we had a liberal trading policy. Companies could come here in the knowledge that they could trade both with Europe and with the growth areas of the world, which in the next few years may be the United States, and which will certainly include the Pacific basin.
We have the largest and the third largest international airports in the world because we happen to be at the crossroads of much international trade. The fact that this country is a bridge between continental Europe and the other great trading sectors of the world is an enormous advantage.
If we are to maintain in future the kind of investment from abroad that we have enjoyed in the past, we must maintain open trading policies and our relationships with the rest of the world. We must continue to act as a bridge between Europe and the rest of the world.
It is wrong, and the converse of the truth, to say that we encourage jobs by joining a protectionist, political union in Europe. Quite the reverse: the jobs come because we are a bridge between Europe and, outwith Europe, hopefully with the rest of the world.
§ Mr. William Cash (Stafford)
Did my hon. Friend notice the quite extraordinary and outrageous survey by the CBI which it sent to Members of Parliament and to peers, which stated that inward investment to this country from the top Japanese and American companies would be adversely affected if we failed to ratify the Maastricht treaty? All the points that my hon. Friend has made so validly were completely undermined by the extraordinary parliamentary briefing, which bore very little relationship to the report actually submitted to the CBI. The CBI put its own spin on it and gave the impression that, by failing to ratify the Maastricht treaty, we would jeopardise inward investment. Those companies quite clearly stated in the report that that was not the case, and that it would make no difference at all.
§ Mr. Spicer
I am glad that my hon. Friend makes that important point. I saw the press reports at the weekend. Many canards have been spread about all this, not only in Britain. We are told that, through political union, every country will get more jobs. The Danish Government are 231 using the argument that political union will create more jobs. It is suggested that every country in Europe will have more jobs as a result of political union.
Britain will get the jobs if we are part of a wider trading movement which pervades the world.
§ The Economic Secretary to the Treasury (Mr. Anthony Nelson)
I endorse my hon. Friend's point about the importance of trade with countries outside the European Community. Of the £1.3 billion of extra Export Credits Guarantee Department cover announced by my right hon. Friend the Chancellor today, a great majority will be in developing countries, in which we are up to our limits in terms of cover. Many major projects and export development opportunities lie in those countries. I am sure that my hon. Friend will join me in welcoming that.
§ Mr. Spicer
I certainly welcome the concept of putting ECGD on a par with other countries. I also welcome the proposal to make it cover other countries. However, unless I misheard him, my hon. Friend made a specific point about developing countries. Our relationship with developing countries is important, but I was referring to linking in to fast-growth parts of the world. I take my hon. Friend's point.
My third point is the real guts of what I want to say. The third and most important characteristic of a country which wishes to attract the massive investment which I have said we shall require merely to keep pace with the present rate of unemployment is low taxation. It is on taxation that I have some comments to make about the Budget.
I am pleased that my right hon. Friend the Chancellor of the Exchequer has found it possible to focus more on indirect taxation than direct taxation. It is magnificent that he has set the target of reducing the base rate ultimately to 20 per cent. That has to be right. He is right to maintain the rate of direct taxation and to have various measures around it which relate to business.
I am worried about one danger. I do not say that the Government have fallen into it yet, but I have a lingering worry. It will be made clear when we relate expenditure and revenue in one Budget. Of course the Government are right to have combined the Budget and the autumn statement. Until we have one Budget, it will be difficult to say clearly whether we have allowed expenditure to get out of control.
I am concerned that, in our fiscal policy, we ensure that our expenditure meets the revenue that we have available and not the other way round. I want to see the revenue determined first; we should then fit the expenditure into what we can afford. If revenue starts to chase up expenditure—that is the danger—a dangerous ratchet effect can be created. Then more expenditure is chased by higher taxation in the interests of sound finance.
We reach a point that my right hon. Friend the Chancellor rightly said he wanted to avoid, at which the wealth-creating private sector is squeezed out. He was right to say that not Whitehall but the private sector ultimately creates new jobs. In order to allow the maximum private sector investment from which growth must occur, we must ensure that public expenditure is brought into line with what we can afford as a nation. That means that it must be brought into line with low taxation.
Once we have growth, of course, the tax take increases, and we enter a benign cycle. We have more money for 232 hospitals and public expenditure. However, it must be that way round. We shall not know until the autumn whether public expenditure is properly under control, but it must be that way round. Therefore, the broad policy must be one of public expenditure related to what we can afford and in current circumstances an easing of monetary policy.
Above all, we must have a monetary policy which reflects the future requirements of the country, not a monetary policy which fits the requirements of other countries through a fixed exchange rate. We are now, at last, on the right track. There is the hope of recovery, but a massive and daunting task lies ahead.
§ Mr. George Howarth (Knowsley, North)
I am following the hon. Gentleman's arguments on his third point closely. Does he accept that there is an alternative way of looking at public expenditure? If it is focused carefully on capital projects which generate demand in the private sector, it can be offset by the increased yield of taxation, which feeds back into public finances. There is a careful balancing act to be performed. Public expenditure can work in the reverse of the way he describes, provided that it is properly focused on areas of public expenditure which create demand from the private sector.
§ Mr. Spicer
Of course there is a relationship between public spending and private investment on occasions—I could not agree more. One wants to make sure that the mesh is correct.
I listened to what my right hon. Friend the Member for Guildford (Mr. Howell) said about distinguishing more clearly between capital and current expenditure. I have a little more difficulty than my right hon. Friend on that, because in the public sector there is a much closer connection between current and capital expenditure. If one spends money on roads, there is a blurring of money for repairs and so on, which is current expenditure, and capital expenditure. Of course I accept that there is a relationship between the public sector and the private sector in that context. It is important to get that relationship right and to establish proper contracting procedures and so on.
However, if we are to achieve the growth we require—for the reasons that I gave earlier, we require enormous and sustained growth—it must ultimately come through the private sector. That is what the Budget is all about. In that context, I wish it well. As my right hon. Friend the Chancellor and others have said, we shall look at it again when we come to match expenditure with revenue in the autumn.
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
In Hackney we have the 11th highest level of unemployment in the country. So the test of the Budget for ordinary people in Hackney, as for ordinary people everywhere, is what it will do for unemployment. We are told that by this summer the total number of people unemployed in the country as a whole will be the highest since records began 100 years ago.
So if the Budget does not meet the test of addressing unemployment, it will have failed. Of course, the Chancellor did not ignore the subject. He revealed with a flourish a package of new schemes which are supposed to be what the Budget will do for the unemployed. So I wish 233 to examine those schemes to determine to what extent they offer substantial help for the unemployed and to what extent they are merely window dressing.
Five main schemes—some of them new, some beefed up versions of old schemes—were revealed this afternoon: learning for work, community action, an increase in the business start-up scheme, a new scheme called TEC challenge and a proposal to give subsidies to employers on a pilot basis to employ the long-term unemployed.
The Chancellor tells us, with enormous pride, that the learning for work scheme will provide 30,000 places for the long-term unemployed to undertake a year's vocational training. First, 30,000 is not a huge figure; it represents a handful of places per constituency. Secondly, and more important, the provision of 30,000 places for a year's vocational training does not begin to meet a demand that has become increasingly loud in the months preceding the Budget—that the Government re-examine the rule that prevents people from studying for more than 21 hours without losing benefits.
It is heartless of the Government to puff up the provision of 30,000 places when hundreds of thousands of unemployed people who would benefit from the range of training and education opportunities that are available in our institutes of learning will continue to be thwarted. They will still have to face the fact that, if they return to educational training for more than 21 hours, they will lose their entitlement to benefit.
The rule is particularly heartless in the current circumstances. Whatever Conservative Members say, we shall face high unemployment rates for some time. For weeks, the Government have hinted and teased about the possibility of flexibility on the 21-hour rule; the learning for work scheme that they have offered in its place is a derisory response to our objections to a rule which continues to be unfair, and continues to penalise unemployed people who genuinely want to retrain and to improve their education.
We are told that the community action scheme will offer 60,000 places for unemployed people to work in the community. That figure, too, is not very high, compared with the unemployment figure of 3 million. More important, however, the scheme offers people a mere £10 on top of their benefits to engage in voluntary work. Ministers ought to stop and think. Ten pounds a week will not even pay for travel and lunch, and it certainly will not help unemployed women to pay child-care and creche costs.
Community action is crippled from the start. It will not meet the needs of unemployed women with children; and, certainly in London and the south-east, that extra £10 will not make it practical or feasible for people to consider voluntary work. Many of them will be unable to pay for travel, meals or the new clothes that they may need to do such work. I note, moreover, that community action is supposed to be delivered through the voluntary sector—the self-same sector that the Government have decimated for many years by cutting local authority funds.
The other part of this glorious package is the business start-up scheme. We were told that there would be 10,000 more places on that scheme. Ministers do not mention, 234 however, that after three years only 58 per cent. of the businesses started under it are still going. I dare say that, after four years, the proportion will be even lower.
The Government's other brand-new scheme is the training and enterprise council challenge scheme, under which TECs across the country will bid for money from a central pool for job creation schemes. The schemes will be judged according to the extent to which they involve the private sector. The Government seem to have no idea about the reality of life in our inner cities. In areas such as Hackney and other parts of inner London, and Manchester and Birmingham, the private sector is virtually atrophied: in Hackney, the largest single employer is the local authority, followed by the health service. [Interruption.] Conservative Members may sneer, but schemes that depend too heavily on the involvement of the private sector necessarily discriminate against residents of the inner cities.
§ Mr. Peter L. Pike (Burnley)
Does my hon. Friend agree that, in constituencies such as hers, the slashing of the urban programme will have a bigger impact on jobs—or, rather, on the loss of jobs—than the Budget?
§ Ms Abbott
That is an important point.
Conservative Members jeered at the notion that local authorities were major employers in areas such as Hackney. It is not the fault of people in Hackney that traditional areas of employment—small businesses related to the docks, for instance—have declined since the war. The structural changes that have taken place in inner-city employment are not the fault of the inhabitants; they should be able to trust the Government to understand those changes and tailor job-creation schemes accordingly, rather than sneering in a way that suggests that the preponderance of local authority employment results from choice.
§ Mr. Duncan
Will the hon. Lady outline the measures taken by the glorious council in Hackney to attract private enterprise back into her constituency—if any such measures exist?
§ Ms Abbott
I know that the hon. Gentleman is not familiar with the problems of the impoverished inner city, so I shall forgive his ignorance. Let me tell him, however, that the Government have chosen Hackney council to participate in the city challenge scheme. It is working closely not with the private sector, because the private sector in Hackney is atrophied, but with housing associations and other voluntary organisations to help to improve and renovate housing in Hackney.
Hackney council is keen to work with the private sector in 1993. I invite the hon. Gentleman to accompany me any day of the week and to walk up Kingsland high street and Stoke Newington high street, to visit the industrial estates on the edge of the Lea valley and to see what has happened to industry and business in Hackney under the present Government. Hackney's last major employer closed down four or five years ago. It does not suit a Government who have done so much to smash manufacturing in areas such as London and the south-east to sneer at the people of Hackney because they rely on the local authority as an employer more than they would like to do.
Let me return to the Government's much-touted package of schemes. We shall have to see how the final scheme works—the scheme that will subsidise employers 235 to take on the long-term unemployed. I do not wish to knock it before it has got off the ground, but such schemes are particularly heartless, in that they are promoted as a realistic answer to the problems of unemployment. We hear today that, even in the borough of Hackney, 58 people are chasing every job vacancy. That figure is not particularly high: in other London boroughs, particularly the outer boroughs, the figure is even higher. Surely it is heartless to promote and publicise such schemes, suggesting that only a lack of will or ability on the part of the unemployed prevents them from working. In fact, if the jobs are not there—and, for 57 out of every 58 of my constituents, they are not there—the most wonderful schemes in the world cannot return people to employment.
Listening to the Chancellor's annual speech is always interesting, but those who wish to know the truth must look at the Red Book. Given the amount that will go into the Government's schemes in the coming year, the package of schemes to which I refer will receive the equivalent of only £55 million in 1993–94. That is a derisory amount to spend on employment. I realise that it does not represent the entirety of Government spending, but it is the entirety of spending on the schemes that I have mentioned. It is particularly derisory and heartless given that we are approaching the summer, when unemployment will be at its highest since records began.
These schemes are simply window dressing. They are Mickey Mouse schemes, which offer a shadow of hope to the unemployed but do not begin to meet the reality of the unemployment crisis that faces people in [...] in other parts of London, in the south-east and internationally.
I am afraid that it is hard to escape the conclusion that the Government are interested in forcing people back into the labour market at the lowest possible wages. At least the Government now talk about putting people back to work, but they promote a low-wage economy. If I were a member of the Government, I would not be so enthusiastic about boasting about the amount of inward investment to this country, as the Government have been reduced to doing.
Part of the reason for the inward investment to this country is the fact that we speak English, which has nothing to do with Government policy. Another reason for that investment is that wages in this country are 44 per cent. of those in Germany. I do not believe that growth and a return to full employment in this country can be sustained by basing our competitive edge on low wages rather than skills, training and education. In the long term, it cannot be a viable course for this country to seek to compete on low wages and poor conditions rather than education and training. That is why it was regrettable that the Government did not see fit to re-examine the 21-hour rule for people on benefit as it stops them entering full-time education and training.
If one wants to find the truth of any Chancellor's Budget statement, one has to look at the Red Book. We should forget about the window dressing and see what the Red Book says about unemployment. It says that it will be "some time" before unemployment starts to fall again. What does the Government's panel of advisers—the seven wise men—say about unemployment? The panel prophesy that unemployment will continue to rise and that, by the end of the year, it will be between 3.1 million and 3.4 million.
The Budget offers nothing for the unemployed in the short term apart from window dressing. The Government 236 know that, and the presentation and content of the Budget are heartless. The Budget does not begin to meet the concerns of ordinary people in Hackney and the country as a whole.
One aspect of unemployment which, sadly, will probably not be raised during the entire five-day debate is black unemployment. Recent research has shown that black unemployment in this country is twice as high as white unemployment. In my constituency, the unemployment rate among young black males is as high as one in two. Those frightening figures for black unemployment are a tragedy for the black community because the generation of black people who came here from the Indian sub-continent, the Caribbean and across the old Commonwealth in the 1950s and 1960s came specifically to work. It is a tragedy for those in the black community that their children and grandchildren are being thrown on the economic scrap heap.
Specific factors affect black unemployment in this country. They include the shake-out of labour in public services, health and transport, which have traditionally been high employers of black and ethnic minority people. Black people are affected by discrimination and by what Americans call the "last to be hired, first to be fired" philosophy. The loss of jobs in local government affects black people, who had a choice of fair employment opportunities in local government, certainly in big cities.
What are the Government doing about unemployment in general and black unemployment in particular? They are doing nothing. The Government talk about employer-based training schemes. Statistics prove that such schemes discriminate against black and ethnic minority trainees. It is cruel for the Prime Minister to talk about a nation that is at ease with itself when the Government are prepared to let unemployment rip and bear most heavily on some of the most vulnerable sections of the community.
What the black community—and, indeed, the rest of the community—demand from the Government is action on unemployment and policies to generate full employment. The black community want the Government to take the lead as an equal opportunity employer and to ensure that their training schemes are not discriminatory and are equally accessible to white and black trainees. They want the Government to show some concern, and support and devise specific schemes to address the problem of black youth unemployment in inner cities. I know that not many people are concerned, but black workers from all over the Commonwealth helped to rebuild this country after the second world war. I believe that their children and grandchildren deserve better from the Government than the studied indifference that they have encountered in previous years.
Unemployment has affected the housing market in the south-east. There can be no return to business confidence in London and the south-east without a revival in the housing market. I cannot talk about conditions in the north, Wales or Scotland, but I know that the rise in the housing market helped to promote a feeling of boom conditions in the late 1980s in London and the south-east. That feeling may have been unrealistic, but there was a feeling that we were experiencing a boom. We will not have a revival of confidence unless the Government do something about the housing market.
Today the bankers Morgan Grenfell have issued a report showing what those of us who are home owners 237 living in London already know—house prices in London have fallen 25 per cent. in the past four years and the council tax will further depress house prices in London. There are more people in London living in houses worth less than their mortgage than anywhere else in the country. The stamp duty changes will do little to help home owners in London and the south-east. One cannot get much in inner London for £60,000, which is the top limit for those who will be helped by the stamp duty changes. Unless there is a revival of confidence in London and the south-east so that people believe that they have a chance of obtaining and retaining jobs, the housing market in London will not start to move again.
Even on the Government's own figures—which, as we know, have been adjusted and massaged to put the best possible face on reality—there are more than 10,000 unemployed people in Hackney. One in four males is unemployed and almost one in five women is unemployed. What is worse is the fall in the number of unskilled people in the labour market because they are not even bothering to register as unemployed. The cuts in local authorities and health authorities that will take place this year as a direct result of Government policy will make the unemployment rate in Hackney even worse. Local authorities and health authorities are the major employers in inner city areas. People in Hackney, and, I suspect, all over the country, want a return to full employment.
When I was a sixth-former almost 20 years ago, my contemporaries—young people of 16 and 17 who were thinking of leaving school or going on to further education—and I had discussions and thought about what jobs we would do. It never occurred to people leaving school in the late 1960s and early 1970s that they would not work at all. One of the harshest results of the Government's mismanagement of the economy over the past decade has been that a generation of children have left school in Hackney and elswhere who feel that they will never work. They believe that it is not worthwhile getting an education or training because the jobs are not there. To blight the hopes of a generation in that way is one of the cruellest things that the Government have done.
It is all very well for Conservative Members to weep crococile tears now—
§ Ms Abbott
Yes, they are indeed sniggering, which shows how little the problem concerns them. It is all very well now—in the 1990s—for Conservative Members to weep crocodile tears about the unemployed and to wring their hands in anguish over the issue, but Labour Members and people in the country know that throughout the 1980s the Government deliberately used high unemployment as a weapon to smash the trade unions and keep down wages. Nobody takes those crocodile tears seriously now.
The test of the Budget for ordinary people—not journalists and political professionals—is what it will do about the central tragedy in economic life: the unemployed. The unemployed are offered Mickey Mouse schemes, window dressing. This is an exercise in public relations. The statistical and economic data behind the Chancellor's speech indicate that the Budget is based on the assumption that unemployment will continue to rise in the foreseeable future.
238 What has been presented to us today is failure. The Budget fails my constituents. It fails the unemployed people of Hackney and in the rest of the country. It will be seen for what it is. When, in a few years, the Government go to the electorate, the way in which they have cheated, deceived and failed the unemployed will not be forgotten or forgiven.
§ Mr. Ian Taylor (Esher)
If there is anyone who has failed, it is the hon. Member for Hackney, North and Stoke Newington (Ms Abbott), who has not addressed the question of how to reduce unemployment. All hon. Members would very much like to see full employment. On that question, there is no difference between us. The differences between us relate to the means of achieving and maintaining full employment. That is the aspect of the matter which the hon. Lady and, indeed, the rest of her party need to address. We heard a short, jolly, churlish and negative speech from the right hon. and learned Member for Monklands, East (Mr. Smith).
I simply do not understand why Opposition Member after Opposition Member failed to welcome the strategy behind the Budget. The purpose is to create a medium-term and long-term framework for industry and the rest of the economy—the only way to achieve sustained growth and high levels of employment.What we need is a framework within which to stabilise the economy and encourage and strengthen businesses that invest in Britain's future. That is what we heard from the Chancellor of the Exchequer this afternoon and what the country wanted to hear.
The words that I quoted a moment ago are from a document issued by the Labour party last week. It is described as Labour's budget for jobs and I have scanned it with great interest. Having looked at the strategy, I am puzzled by the fact that Labour Members have not welcomed the Chancellor's speech. What is the great difference between that speech and the speeches of Opposition Members? The Chancellor has dealt with the practical reality of how the objectives are to be achieved and how the framework strategy is to be met. This Labour document does not put forward one idea about how to raise the money to tackle the problems that we all know are to be found in the economy. It is a false prospectus of the worst sort.
I welcome the strategy that has been set out by the Chancellor, whose speech almost enters the record books as perhaps one of the longest Budget speeches this century. I am not very strong on the history of Budget speeches, so I cannnot be certain about that. In any case, the two-hour speech that we heard today contained a great deal of meat, which will be considered in detail during the Committee stage of the Finance Bill. My right hon. Friend addressed several key issues at the macro-economic level, some of which I wish to refer to.
I was delighted to hear my right hon. Friend emphasise why membership of the exchange rate mechanism had been very important. Hon. Members differ as to whether the day of our departure was black Wednesday or golden Wednesday or white Wednesday. I regard it as black Wednesday, but let us not be pedantic. There can be no doubt that the Government's attempt to adjust the inflation expectations of people in this country once and for all was worth while. My hon. Friend the Member for 239 Worcestershire, South (Mr. Spicer), who is not in the House at the moment, attached too little importance to the effect of our entry into and membership of the ERM in breaking the traditional British habit of inflating our way out of difficulties, of preferring high levels of inflation to the tough decisions that are necesary to proper management of the economy. Given that there were high levels of inflation under the last Labour Government and that, by and large, high levels of inflation are associated in the long run with high unemployment, I am perplexed by the Opposition's attitude. The ERM did indeed reduce inflation expectations. At some point we shall have to look again at the whole question of managed exchange rates within the open capital market of the European Communities. However, that is not a matter for this speech, although it will undoubtedly come up at the Committee stage of the European Communities (Amendment) Bill.
We should be cautious about the effect of our leaving the ERM on black Wednesday. That event provoked a fall in the value of sterling. The fall appeared to be very welcome in that it made our exports more competitive. However, we rely rather heavily on trad—particularly on imports, which make up one quarter of final demand. The potential danger is inflation of imports and, therefore, the return of inflationary pressures to the economy. That has yet to be seen, partly because United Kingdom manufacturers have not increased their prices. They realise that demand is still rather flat and, as overall inflation expectations are still low, wage settlements have been very modest. However, hon. Members should not believe that we have conquered the dragon of inflation. It is still there, writhing on the floor. A weak pound is not something that any Government want to see. Even if we are not in the ERM, economic policy must take into account the position of the pound vis-a-vis the currencies of our competitors.
Nevertheless, we have witnessed an ability to adjust, to weaken monetary policy. Interest rates have fallen and the fall in the value of sterling itself has weakened monetary policy further. I am very pleased that this has given us an opportunity to tackle the problems of asset deflation. It is an opportunity that we must grasp. But the way in which some of us regard the montary aggregates as already indicating the return of a good degree of buoyancy to the economy should not be underestimated. MO is pushing at the upper end of its set range and there is quite a hidden impetus, which will be revealed in the months ahead. I know that M4 has been criticised as being rather flat on its back. I suspect that one of the Chancellor's reasons for giving slightly more buoyant figures for M4 is that he is adjusting the full funding rule by allowing the banks' and the building societies' purchases of gilts to be taken into account. If that is the case, we are witnessing an overall loosening of monetary policy. That will be welcome on one condition—that we tighten up on the fiscal side.
On the question of balance in the economy, there is no doubt that, as we have had significantly weakened monetary policy in recent months, we should pay attention to the fiscal side of the equation. The Chancellor has very graciously set forth a long-term strategy to that end. Too seldom do Chancellors set out their intentions with regard to taxation over a number of fiscal years. My right hon. Friend is to be commended on that score. My caveat is that the incidence of tax biting has been delayed to the beginning of 1994–95. In effect, there will be a generally 240 neutral effect next year. I will not be critical of the Chancellor's endeavours because he has moved in the right direction, but I put down a marker: given that the medicine has been dangled before us, it would be better that we took it quickly. I make that point to my hon. Friend the Financial Secretary.
§ Mr. Wolfson
My hon. Friend has given a balanced view, but does not he agree that if action such as he suggests had been taken sooner rather than later, it could have had a dampening effect on recovery? That is the key.
§ Mr. Taylor
It is a complex argument. I do not wish to prolong my speech, but there are many factors which impinge upon confidence. If it were felt that the Government would have difficulty funding the deficit at any reasonable level of long-term interest rates and that the debt-to-GDP ratio would get out of hand, that would be damaging for confidence, in the widest sense of the word, and might snuff out a revival which, in other circumstances, monetary conditions might already have safeguarded.
The issue is complicated. My point is that the funding of the deficit and the belief that the Government have a credible long-term strategy, including an early move to increasing taxation, would have been on balance a better judgment. Far be it from me to know whether that is likely to be the case. Time will tell. The great point about making speeches in the House is that, although very few listen at the time, plenty of people are prepared in a year's time to check on what one said. So Hansard has my fate in its hands, so to speak.
Even the excellent recent survey on inflation by the Bank of England—the report which the Chancellor instructed it to make—indicated clearly that fiscal policy is important in influencing expectations of future monetary policy and for that reason may affect current long-term interest rates. We cannot disentangle the relationship between fiscal and monetary policy in those circumstances. Those who would like low interest rates at the short end and lower interest at the long end have to face up to the fact that they may achieve that only by a much more aggressive fiscal policy than Conservatives have been accustomed to.
Fiscal policy covers spending and tax raising. I would welcome cuts in spending plans, and I am delighted that the Chief Secretary is studying that closely. I am not sure where I stand on that in the Conservative party; it is always confusing, but as someone who believes that there is a role for public exenditure in important parts of the economy, I must point out that 56 per cent. of all Government expenditure is represented by education, social service payments and healt—areas in which it is difficult to make dramatic cuts in the short term.
With a public sector borrowing requirement of £50 billion, cuts would need to be dramatic. Therefore, I hesitate slightly on taking the view, "It will be all right on the night because we will cut public expenditure." I suspect that we will restrain public expenditure. One way in which we might force ourselves to do that is to take away the GDP deflator from the calculations on spending plans; in other words, we should remove the concept of increasing public expenditure for the incidence of inflation. That would be a welcome change in the way in which the 241 Government address the figures in the Red Book. I commend it to the Treasury team, but it will not save us from addressing the incidence of taxation at some point.
It is misguided of the Labour party to criticise the introduction of VAT on domestic fuels. That is a significant fund raiser. Zero rates have always been an anomaly and would be better tackled in other ways. The Chancellor rightly mentioned that the Secretary of State for Social Services will need to review these matters in subsequent statements because of the impact particularly on the lowest paid and those in receipt of social service benefits.
About 24 per cent. of all our goods are zero-rated or are exempt; that is an imbalanced VAT network. I have already said in the House that I favour the removal of zero rating, possibly with the introduction of a lower rate than the standard rate, which would be consistent with the rules of the European Community. I welcome the two-stage introduction of the standard rate on domestic fuels, with 8 per cent. to begin with, followed by 17.5 per cent.
If all zero-rated items were subject to a standard rate of VAT, the standard rate might be reduced. That might be a simpler way of dealing with the matter and it would yield £5 billion or £6 billion extra to the Exchequer in a full year. I do not want to go further into such matters. I am happy to put it on the record that if we need to raise taxation, I am uncomfortable with the zero rating of VAT.
The Chancellor hinted at something that I should like to examine more carefully. He did not imply, because no Treasury Minister would do so, that there would be hypothecated taxes, but in his comments on road fund licences, fuel taxes and road pricing there was a hint of hypothecation. I welcome that because it would give greater accountability to the Treasury. Perhaps it would not give much flexibility, but the Treasury has always been known to be as flexible as it wants. From the point of view of the public, I am happy that we get a better understanding of why taxes are being raised.
The Budget contained welcome measures. I should disclose, because it is in the Register of Members' Interests, that I advise Commercial Union and Barclays de Zoete Wedd Investment Management. Therefore, I take particular interest in some of the measures. Perhaps in a strange order, I welcome the measures in regard to Lloyd's names. I am not a name at Lloyd's, but I attempted to raise the subject in the debate on the Finance Act 1991. The Financial Secretary is to be commended for examining the whole system of the reserving of Lloyd's. That will be welcome to an important institution in the City, regardless of the comments of Opposition Members about individual names. As an institution, Lloyd's is important to the stability of the City and to invisible earnings at the time of a balance of payments deficit.
I also welcome the freezing in real terms of the increase in the uniform business rate. That will go down well with businesses in the south-east and elsewhere.
The Chancellor has been clever in making more use of the 20 per cent. band in taxation. I also welcome the fact that we appear to be moving towards using the 20 per cent. rate only as an allowance. That is sensible. It will give greater justification for that rate ultimately to become the standard rate. That does not necessarily mean that I think that taxation should be reduced; I merely believe that it is 242 a better balance of the tax structure. It will benefit the Treasury if allowances are set off at the 20 per cent. rate rather than 25 per cent. So people will benefit from the level of taxation and the Treasury will benefit from the fact that allowances are not as generous.
Many of the Budget's measures should be welcomed. Britain has a considerable problem. Our balance of trade deficit is worrying at this stage of the cycle, given our propensity to import. Our European export markets are going into or are already in recession, at a time when we are most likely to be selling to them. That has an adverse effect on us, because British manufacturers are more likely to believe that they can increase prices in the domestic market rather than in export markets. Again, we shall have to watch that from a domestic inflationary point of view.
Although we have relaxed full funding to a small extent, our PSBR will lead to high long-term interest rates and the Government will have to fund the deficit. That is why I am concerned about the revenue-raising side of the Budget. If the PSBR for a full year is £50 billion, with interest rates on gilts at 8 per cent., the Government will accumulate an additional £4 billion debt and debts are cumulative. The net effect, therefore, of postponing revenue raising for a year means that it starts at a higher level than otherwise would apply. We must keep a close check on that.
I hope that the Budget restores confidence in the Government's long-term strategy. I hope that it encourages unemployed people to believe that we are endeavouring to help them, and a large portion of the Budget offers assistance to industry. [HON. MEMBERS: "Where?"] Opposition Members should not shout "Where?" when they know that Governments do not create jobs out of a hat. Governments create jobs by giving other people the opportunity to expand. Unless industry flourishes, there is no long-term hope for those who are unemployed.
That is why one of the longest sections of the Budget speech targeted help on industry, which I welcome. I may have said that the Budget was wrong to be neutral, but it is neutral because tax raising is being retargeted on industry. I hope that industry realises that it has been highlighted for particular assistance this year and I hope that the CBI, the Association of British Chambers of Commerce and the Institute of Directors will pay tribute to the Chancellor for listening to some of their requests. It is up to British industry to create the job opportunities to which we aspire and, if my judgment of the effects of monetary policy is right, the economy will probably recover slightly faster than some of the pessimistic forecasts suggest.
I would not have raised our involvement with the European Community if it had not been mentioned by my hon. Friends the Members for Worcestershire, South and for Stafford (Mr. Cash). This is a very serious matter because all our efforts to get our economy going and to emphasise the competitive instincts of British industry and the British economy could be put out of joint if we do not make further progress on the Maastricht treaty. I have a copy of a letter dated 15 March from the Association of British Chambers of Commerce to the Prime Minister, which was released to the press. Its chairman states that it represents 240,000 businesses and thatthose who suggest that we have gone far enough with the Single European Act are making a mistake that British businesses cannot afford… Any continuing uncertainty or delay as regards UK ratification can only undermine business 243 confidence, which will in turn endanger economic recovery… Against this background we urge you to press ahead with the ratification process which has our full support.The association represents the 240,000 businesses that were targeted today in the Budget. Through their national chairman, they have addressed the problem that will arise if Britain appears to isolate itself within the European Community, appears to downgrade the importance of inward investment and appears to leave other people to determine the rules of the club to which we belong and of the single market, of which we are important members.
I appeal to Opposition Members to join the vast majority in the House, as was shown on Second Reading, who understand the importance of creating jobs and assisting British industry to damn well get on with ratifying the Maastricht treaty as soon as possible.
§ Mr. John Gunnell (Morley and Leeds, South)
I understand the comments of the hon. Member for Esher (Mr. Taylor) about the need for a strategy, on which I shall comment myself, although I am not sure that I will agree with him on some aspects.
I agree with the hon. Gentleman about inward investment. I have visited Japan several times seeking inward investment on behalf of a number of companies in the Yorkshire and Humberside region, and I have never met a company that did not see us in the context of the European Community. Our active membership of the Community is undoubtedly important to them.
The working conditions of most Japanese companies are far better than those proposed in the social chapter. I find it hard to believe that companies that have been attracted to Yorkshire would have been put off by the social chapter. One of the unions that negotiated an agreement with Pioneer in Wakefield said that, if it could secure the same agreement for each of the companies with which it is involved, workers in almost every British firm would be a good deal better off. Conservative Members make many false points about the dangers of the social chapter to inward investment. I therefore agree with the hon. Member for Esher about the significance of our membership of the Community.
I found the strategy employed in the Budget, so far as we got a glimpse of it, very threatening. It threatens many low-paid workers. It will increase their taxes now, in April 1994 and in April 1995. I listened to the Chancellor for 112 minutes, waiting for ideas to deal with the scale of our unemployment and with the real fear about the future of our economy. Labour Members are not anxious to see a continual decline in the economy. We are anxious to see recovery and to ensure that measures are being taken to bring about recovery. I saw some ideas which will have some effect, but I did not see those ideas that I believe will get the economy moving forward. I do not see this, I am afraid, as a Budget for jobs, even though it was boosted as such in advance.
I was in some agreement with the hon. Member for Esher on the very curious way in which the Chancellor, in an oblique—sometimes, indeed, in a direct—fashion, referred to black Wednesday. He did not label it with an adjective, but he was referring to that day. One had the impression that he was very much on the side of those who believed that it was golden Wednesday, because he gave all sorts of illustrations of its benefits to the Government and 244 the Government's financial planning. He did not refer, as did the hon. Member for Esher, to the downside of that day.
I remember the way that we moved up to that Wednesday, the statements made in advance and the statements made immediately afterwards when the House met on 24 September, and I contrast them with the way in which the Chancellor today used those events as having enabled him to turn around aspects of the economy. I felt that we were talking about Government by accident, and that is a matter of considerable concern.
One aspect of the Budget is not an accident; that is the way in which, in terms of its strategy and the need to raise money, the Budget is focused. I believe that it is focused on raising funds from ordinary families in this country, and that can be illustrated very easily.
There is in this Budget a tax reduction in terms of the 20 per cent. band that is in reality a tax increase. None of us would pretend that national insurance contributions are not a form of direct taxation. One of the points made by many hon. Members before the general election was that national insurance contributions were a form of taxation, and they wished then to treat them as such. We are right to treat them as such now.
What benefits do people get from the 20 per cent. band changes? They are described as 50p a week and, by April 1994, £1 a week. However, allowing for the fact that people might have expected allowances in line with inflation, I believe that they will be worth only 84p a week in April 1994 to the average family. The increase in national insurance contributions, on the other hand, will cost the average family £3 a week. That is a staggering difference between what is presented to us as a benefit and what is, in reality, a penalty. There is no doubt that the increase of 1 per cent. is in effect a 1 per cent. tax increase and will have the effect on the average family of an increase of £3 a week.
The hon. Member for Esher said that he was quite happy about the imposition of value added tax on domestic fuel. I think that it is an appalling decision. Interestingly, none of the letters that I received from constituents before the Budget referred to that, although they referred to many other aspects. For instance, there was much lobbying mail on the subject of VAT on newspapers and books, and I am very glad that there is not to be that tax on information. We also had a great deal of propaganda and pleas about VAT on public transport, and I am glad that that is not to be imposed; it would clearly be nonsense.
Why did we not get a great deal of correspondence on the subject of VAT on domestic fuel and power? It was because people were not looking for it, and they were not looking for it because, as my right hon. and learned Friend the Leader of the Opposition made quite clear, it was a matter on which the Government had been absolutely specific prior to the general election. They said specifically that fuel would not be subject to VAT and that there would not be changes to VAT. That is why we were not lobbied on this issue. This shows that people placed completely unjustified trust in the Government. They believed what the Government said before the election about VAT on domestic fuel, but VAT has been applied; and the cost to the average family, when the full 17.5 per cent. VAT is applied to domestic fuel, will be over £2 a week.
245 Then we have to take into account the mortgage changes. The Chancellor made it clear that we are talking about £10 a month, or £120 a year, which is another £2.31 a week for the average family. We also have to take into account the freezing of the married couple's allowance and the fact that it is not to go up with inflation as has been traditional for much of the past. That amounts to another about £1.80 per family per week.
If we add all these figures together, we find that the average family in this country will be ££8, or a bit more, worse off as a result of this Budget.
So who will be paying for the fact that the Chancellor is rightly concerned about the £50 billion of debt? It seems to me that it will be principally ordinary families in this country. Therefore we should be very concerned about these taxes.
I will put a question to the hon. Member for Loughborough (Mr. Dorrell), since he is here, about VAT on fuel. There has been a lot of controversy about standing charges and whether they benefit or disadvantage pensioners. I have sent pensioners in my constituency the erudite letters which the Library has on this, stating that it can be argued that standing charges are no handicap to the worse off, but help them. But people still feel that they should not be paying standing charges. I should like to know whether VAT will have to be paid not only on the cost of the fuel that is used but also on the standing charges. We are entitled to an answer to that question.
I have been, and am, involved a lot in Yorkshire Enterprise, which is a regional venture capital company. We work with financial institutions which operate the loan guarantee scheme. I have said in the past that I would like to see changes to that scheme. Some of the changes that are made are to be welcomed, but the job has not been completed; it has been half done. It is right to extend the small firms loan guarantee scheme over a larger range and to make it possible for the borrowings to be higher than £100,000, and I am glad to see that limit extended to £250,000. I am glad to see the changes with regard to interest rates, making it possible for a smaller margin to exist between the base rate and the rate at which these loans are made.
I am glad that there has been an increase in the guarantee, because we found that institutions do not want to operate the scheme, as their position is so uncertain at the moment. They do not want to take the 30 per cent. risk, so I am glad that it has been reduced to 15 per cent. and that 85 per cent. of the amount is to be underwritten. Will there be takers as a result of the changes? Will a small firms loan guarantee scheme have a better effect?
To carry out investment appraisal properly—whether we are talking about lending a company £100,000 or far more—one must employ the same due diligence to ensure that the management of the company involved are capable of managing the company successfully, that the business plan is sound and that there is a market for its goods and services. In other words, one must ensure that the company is viable and that it is safe to lend it the money. The amount of work involved is not directly proportional to the size of the loan. An enormous amount of due diligence is involved even when dealing with small loans of £100,000.
246 One of the proposals by David McMeekin of the Midland bank, who has taken some responsibility for the Midland enterprise fund which operates in Yorkshire and Humberside, is that, if we want investment appraisal, which enables the small firms loan guarantee scheme to work, to take place, the companies carrying out the investigations should get tax relief on the costs of those investigations. The costs are usually extremely high in relation to the amount of the loan. That change has not been made. One can give a partial welcome to some of these loan guarantee scheme changes in the Budget, but I wish that the job had been done more thoroughly.
It is unusual for the Chancellor's speech to be the occasion for a major announcement on the channel tunnel. Many of us have followed the progress of the tunnel for many years, and have been concerned to ensure that its benefits are national and not confined to London and the south-east. Those of us who have been concerned about northern links to the tunnel expected any announcements about the tunnel to be made in a national context. It should be made clear that any decisions about routeing, stations and termini in London are enormously important for links to the north.
We wish to ensure that there are through passenger and freight trains on the west coast main line and the east coast main line direct to the channel tunnel. The decision announced today clearly means that there has been a change of plan. We are forced to ask what will happen to the King's Cross Railways (No. 2) Bill. We have been promised links to the north. I have received promises from successive Secretaries of State for Transport and from successive Ministers for Public Transport, including the right hon. Member for Enfield, Southgate (Mr. Portillo), who is now the Chief Secretary to the Treasury. The right hon. Gentleman and I appeared on so many platforms together talking about the channel tunnel that he called us part of a travelling circus. In answer to our questions, he always said that there would be links to the north. It is the Government's responsibility to ensure that there are. It is very disturbing to hear about changes to the King's Cross scheme, for which we have planned for a long time, being announced in anything other than the full context.
Investment matters to the north for the regeneration of industry. All the Japanese companies interested in investing in Yorkshire ask questions about our links with the channel tunnel. They may prefer to use the Humber ports, but they still ask about the tunnel. We need to be assured that, in any transport changes announced, curiously, in the Budget, the interests of the north are taken care of. It is important that the announcement is clarified.
We must recognise that the Budget means choosing where the money is coming from because of this country's enormous debt. In my view, the costs have been imposed to an inordinate extent on ordinary families, in the same callous way that the 13⅓ per cent. increase in prescription charges was announced last night. There have been mistakes in the Budget, which will cost families in my constituency dear, and which will, in the end, cost the Government dear.
§ 9.4 pm
§ Mr. Mark Wolfson (Sevenoaks)
I am happy to follow the hon. Member for Morley and Leeds, South (Mr. Gunnel), and I should like to focus on two points on which 247 I directly agree with him. The first is his earlier reference to the experience he had had in Japan of finding all those companies and other organisations that were interested in development in Britain, linking us with their expectation of our being full members of the European Community. That was a practical example, for the benefit of the House, of the importance of getting on with Maastricht and continuing to play a full role in Europe.
The second point is on the hon. Gentleman's final remarks about the channel tunnel. I have an interest in the tunnel from the point of view of the south-east, but I have argued from the beginning that it was of key importance that the tunnel and the rail link should bring benefits, not just to London and the south-east but also to the north of England. I agree with the argument advanced by the hon. Member for Morley and Leeds, South that planning on the tunnel, which has been seriously delayed, should continue to take account of the importance of the north of England and the links to the north right through Europe via the tunnel.
The hon. Member referred to the iniquities of the increased charges for national insurance, but if one accepts that national insurance is a fund and that it is currently in deficit it seems to me not to be wrong for the Chancellor to take steps to try to correct that.
The Budget speech was long, detailed and highly technical. I pay tribute to the consultation which the Chancellor and his team of Ministers has carried out with hon. Members of his party. That was well done. One of the reasons that the Budget has been well received by our party is that prior consultation. That has not always happened. It is happening more effectively now, and that is beneficial.
The Chancellor had a difficult task, both in personal terms and in dealing with the economic problems of the country in this Budget. The Budget is being well received because it addresses the two key issues of the economy: first, the essential need for growth now; and, secondly, in the medium term, the need to minimise the Budget deficit. It was those two factors which the Chancellor had to try to keep in balance, and he has done that effectively.
I welcome the focus on industry, just as I welcome the Prime Minister's recent emphasis on the importance of manufacturing. That is not before time. I welcome the measures to help business because there is a positive story to tell on the record of British business which has not always been getting the headlines that it should. I welcome the measures that have been taken on employment, and I say yet again that the level of unemployment is unacceptable to me as it is to many other hon. Members on these Benches. We in no way play down the human and family cost, and the cost to the country, of unemployment, but, as other speakers have said, the argument is about how, in the longer term, one can overcome that problem.
I welcome the measures on infrastructure projects and joint ventures. I will say something later about that and about my views on the imposition of VAT on road fuel duty and on fuel and power.
I want to say something more about the background of this Budget and the help it gives to business. The Budget assists recovery by not increasing taxes overall on business in 1993–94. It makes recovery sustainable by laying out a strategy to reduce Government borrowing over the next three years. It increases revenue without raising income tax 248 rates. To have done otherwise would have dampened incentive, and I am relieved that such dampening has not occurred.
The Budget raises revenue and, by increasing taxes on fuel and power, takes the Government two-thirds of the way forward on Britain's Rio commitments on the environment. That is essential because sooner or later we would have had to move on that front. We have been unreasonably criticised for not giving enough priority to environmental issues. If Labour Members claim that we have been wrong to take those measures, what steps would they have taken, bearing in mind their support for the Rio agreement?
The Chancellor has been right to address the problem of excessive borrowing because we could not in the long term allow large borrowings to continue without action being taken. Being something of a Keynesian, I have always accepted that during a recession it is permissible to allow the PSBR to rise. It is, in any event, inevitable because much of the deficit goes to support the unemployed and those in greatest difficulty as a result of the recession.
In trying to take a balanced approach, the Chancellor has given advance warning of the revenue increases that are to be made. It is important to keep the money markets satisfied that the Government have a medium and longer-term strategy to bring fiscal rectitude back into the Budget. We have seen the benefits of doing that, and I do not want them to be lost. Equally, in contrast to my hon. Friend the Member for Esher (Mr. Taylor), I believe that it would have been wrong to move on personal income tax at this stage in the recovery.
The industrial picture is good. Retail price inflation has been below the EC average since August 1991, putting us in a better competitive position. Interest rates are the lowest in the EC and the lowest in Britain for 15 years. Productivity growth at the end of last year was the fastest for five years. The transformation of industrial relations is history, but it has made a significant difference to what British industrial managers can now achieve. They can concentrate on design and marketing without always having to look over their shoulders, fearing the need to put out a bush fire, as it were, in their factories.
We would like to see more being done in the Budget about employment, but we cannot spend our way into full employment by way of Government expenditure. We must set the framework for business to create new jobs. With the continuing trend of increased technology in large industry, increased employment will come from smaller businesses, not just service businesses but smaller companies springing up to meet the demands of a buoyant economy. The new community action programme is welcome, as is the business start-up scheme and the pilot schemes to encourage employers to engage the long-term unemployed.
This Budget provides a clear strategy. After black Wednesday, and for the weeks until the autumn statement, the Government were continually under fire for having no replacement for their strategy of membership of the ERM. I was not one of those who foresaw the damage that membership of the ERM could do when our economy was unable effectively to compete with the high interest rates of Germany, but I am now wise after the event. I do not believe that we should return to that arrangement in the foreseeable future as it would be highly dangerous.
249 British business has felt the benefit of the freedom in which we have been able to operate since we left the ERM. The turning point for me was the focus in the autumn statement on growth rather than on merely keeping down inflation.
I was exremely glad that the Chancellor made clear his priorities after the autumn statement. He is now following through the autumn statement with further measures focusing strongly on help to business, particularly small business. He has also demonstrated that he has a policy to ensure that Government borrowing will not spin out of control. I hope that we shall have lower interest rates as soon as possible, but I understand the difficulties and the necessity of balancing various Government measures on taxation and budget deficit while still paying some attention to the standing of the pound. We should not lightly throw away the benefits that followed the freeing of the restraints of the ERM which had become extremely damaging.
My final point concerns the infrastructure projects, in particular the channel tunnel high-speed rail link. I take some satisfaction from the fact that I have argued from the beginning, when very few hon. Members in my party argued that way, that it would be necessary for Government money to be invested in the high-speed rail link. The Chancellor told us that today for the first time. He did not give us details of the route. The fact that the route would be announced shortly was no news for those of us who have been involved in channel tunnel discussions for the past four or five years and who have gone through hell in our constituencies because of that worrying problem. The news today was the Government's clear commitment to put up some of the money in a joint venture. That is right, and I welcome it.
§ Mr. Peter L. Pike (Burnley)
I shall make my speech in the first day's debate on the Budget in a slightly different order from the one I had originally intended because I want to question the Minister on one or two issues on which I did not fully understand the Government's position.
I do not necessarily agree that mortgage tax relief needs to be abolished, but I accept that it needs to be addressed and considered. I hope that the Minister can assure us that today's announcement of its reduction to 20 per cent. is not the first step to phasing it out completely.
The Government must be prepared to consider in a positive way whether the present tax relief on mortgages is the best way to use the considerable amount of money involved. I am not arguing that the money should be used to help people who are renting property, but I am not certain that the way in which tax relief is given to people buying property is the most appropriate method as the people who are most in need do not necessarily get the tax relief. We all know that the present M IRAS system was an extension of the option mortgage scheme that was introduced by the 1964–70 Labour Government.
I welcome the increase in charitable giving through the payroll system which should be encouraged. The Minister will be aware that there has been overwhelming pressure from both sides of the House in favour of changing the system of charging VAT on charities. Outside the House, 250 there is widespread concern over the way that certain moneys are drawn off charities through the VAT system. Among all the announcements that the Chancellor made about VAT, I did not hear anything to address that problem.
Another aspect is important to football supporters. I have a vested interest here as I support Burnley, and have done for many years, and am anxious to learn whether it has won tonight's game; I should have been at Turf Moor watching the team play. Under a concession, money from the football pools went to the Football Trust to allow ground improvements to be made to meet the Taylor report recommendations on safety. Many clubs that want to make those improvements—Burnley is one of them—are dependent on getting sufficient grant to enable them to do so. We want to know whether those arrangements will be extended so that the Football Trust can receive that money for a further period.
The Budget speech lasted for an hour and 50 minutes. The Chancellor called it neutral, but in my view it was a long-drawn-out tinkering Budget that will achieve little or nothing. With, on the Government's figures, 3 million unemployed, and probably in reality 4 million, it is a scandal for the Government to introduce a neutral Budget. Many people will feel that the Government have failed them. With 14 years in office, the Government have had time to lay the foundations for industrial and economic recovery. I am glad that, at least, it was not called a Budget for jobs. We have had several of those over the past 14 years, but unemployment has remained unacceptably high.
In many other Budget debates, I have spoken about the north-south divide, which is a major problem. Tonight, the Government are narrowing that divide, but are narrowing it in the wrong direction. Rather than improving the situation in the north, they are making the situation in the south worse and increasing unemployment there.
I visited Aldershot a couple of weeks ago and went around the town centre. I was amazed to see the number of shops that have closed as a result of the recession. A new town centre has been developed, with a new precinct and a second phase in the Wellington centre. Not a single unit has been let; all are boarded up. Next to it, there is a new shopping arcade, which has been built for a fair while, with only two units let. People do not realise that because the shop fronts have been painted and it looks as though there is a florist, a hairdressers and other shops. Tory economic policy is failing, and that is a sad reflection of it.
It took the Chancellor an hour and 37 minutes to get around to announcing any measures to tackle unemployment. He spoke of 100,000 jobs. He said that he wanted to get 10,000 people into businesses and job-start schemes at a time when we have the highest-ever rate of bankruptcies and people going out of business. We all support the objective, but it only scratches the surface of that major problem. He wants 60,000 to go into the community action programme with a scheme of payment of benefit plus £10 a week. My hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) highlighted the problem for such people, who will have to pay for fares and meals out. Who will be attracted by benefit plus £10 to go into community action? What nonsense that is.
The voluntary sector is being asked to launch the scheme, yet in the deprived areas—the 57 urban programme authorities—urban programme money has been axed and the voluntary sector has been squeezed. 251 Difficulties are increasing. In my constituency, not only have we lost £;2 million in urban programme money, but we bid for one urban partnership scheme—that is the new scheme for which the Government are asking councils to bid—the Government turned it down, although it would have created 500 jobs. Four of our seven schemes were successful, but one that would have created 500 jobs was turned down, not because it was a bad scheme but because there was a ceiling of £20 million for all the authorities in the country.
The Chancellor highlighted at the outset the type of speech that he intended to make when he said that the Government would never sign the social chapter. The Government's failure to accept the social chapter shows that they believe that we are a second-class nation. They are not prepared to have wage councils or a national minimum wage, and they say that the other 11 countries can have the social chapter but it will never apply to this country. That is an absolute disgrace.
In so many places in this country manufacturing industry is hanging on by its fingertips. There was nothing in the Budget to encourage sufficient investment in training. What a waste of assets, when so many people are not contributing to the economy because they are unemployed. There were no tax incentives for industry to invest more in new equipment and machinery, or in research and development on a bigger scale. Research and development is going away from this country. It is no good simply having Japanese and other investment in this country—although we all welcome it. We want research and development to be carried out in this country, because we want to be at the sharp end, at the forefront of high technology and new industries.
Several tax increases were announced in the Budget. There was a tax on domestic heating and other energy—first 8 per cent. and then 17.5 per cent. I have constituents who cannot afford to run their heating or to put the gas fire on at weekends, because they do not have enough money. The Government fail to recognise how many people suffer from real poverty in Britain after 14 years of Tory rule. It is a sad reflection. Let them go round London—and all our other cities—now and see the people begging on the streets. That is the scandal and disgrace of Britain after 14 years of Tory rule.
The personal tax allowance is being frozen. That is another tax increase. National insurance contributions are to rise by 1 per cent. from April 1994. That is yet another tax increase—and it comes from a Government who were pledged not to increase taxes.
Towards the end of his speech the Chancellor referred to the fast rail link to Heathrow as if it were something new. But it is a regurgitated scheme. Yes, we need it badly—we should have had it years ago. Anyone who travels to Heathrow realises that the Piccadilly line is totally insufficient to cope with the number of people who use the airport. The crossrail link, too, has been regurgitated after 14 years. We are not against it; it is much needed—but it is long overdue.
As the hon. Member for Sevenoaks (Mr. Wolfson) said, at last the Government have realised that they must invest in the channel tunnel rail link to St. Pancras, and that it cannot be built by the private sector alone. But on the other side of the channel, in Calais, the rail link is nearly open and the new motorways are there. After 14 years of Tory rule we are still not ready for the channel tunnel.
252 The Tory Government have created a trade deficit of £17.5 billion this year. The public sector borrowing requirement is £35 billion this year and will be £50 billion next year. As the hon. Member for Esher (Mr. Taylor) said, the Government intend to review spending. We know what spending reviews and "better targeting" mean. They always mean cuts—and it is always the deprived and poorer sections of the community who suffer from the cuts.
We want the Government to say that councils can use their capital receipts in a sensible and phased manner to build council houses. That would get the economy moving in the right direction. It would get construction workers back to work; people would be making windows, doors and other such things; people moving house would buy curtains and carpets. That would start things moving in the right direction. The Government's dogma will not allow them to recognise the way in which they could tackle the housing problem and the economy at the same time.
Today's Budget was the last Budget to he presented separate from the announcement of the Government's expenditure plans. The two will be combined later this year. Time after time, the Government have revealed in their expenditure plans the sums from the sale of assets that they will use to supplement their spending. What will the Government do when there are no more assets to sell?
We know that the Government propose to bring forward the sale of the final part of British Telecom and to sell it this year. The Government can also sell sections of National Power and PowerGen. In theory, they can sell Nuclear Electric. However, once those assets have gone, the Government will be in a cleft stick. They will either have to savage their expenditure or raise taxes. The only other route is to get the economy moving in the right direction and so achieve growth. After 14 years of Tory government, I do not believe that we will ever see that.
§ Mr. Alan Duncan (Rutland and Melton)
At such a crucial stage in our economic fortunes, the most important judgment that my right hon. Friend the Chancellor and his team had to make in drawing up today's announcement was to assess the macro-economic context in which today's Budget has been set. At the end of several years of recession, my right hon. Friend the Chancellor had to ask himself whether it was right to stimulate demand further or whether, in anticipation of a recovery that may already be under way, it was more prudent to claw back some of the borrowing that he had already undertaken.
To appreciate the importance of that judgment, we must appreciate the historic structural problems that have beset the United Kingdom economy since the war. Since 1946, we seem to have failed to escape from the stop-go cycle of economic activity. Whenever it has moved from stop to go, all our economic activity contained a bias towards housing and property rather than towards long-term investment in industry. We have lacked long-term finance in industry and those structural problems have for ever drawn us downwards.
I hope that the House will allow me to flash back in history and refer to the late 1980s. As a new, green and perhaps naive young Member of Parliament, I am still able to admit that the Government are capable of making an occasional mistake. In the time available to me, I want to analyse that mistake.
253 At a crucial stage in the economy's cycle, we needed to raise interest rates. However, because that crucial decision was about to be made in the aftermath of the 1987 stock market crash, we did not take the necessary steps to raise interest rates then for fear of the slump that some predicted might follow. Indeed, that coincided with a complete surreptitious change of policy which many people did not realise was taking place: we shadowed the deutschmark and forsook monetary indicators as our guide and discipline in favour of an exchange rate regime.
When it dawned on her that it was happening, the then Prime Minister, now Baroness Thatcher, wanted to increase interest rates. However, she did not do that because the political circumstances then raging in the House made it almost impossible for her to work with her then Chancellor and take the necessary steps.
We are now paying the price for Baroness Thatcher's failure to take that decision. What followed was an enormous expansion of credit. For the benefit of some our critics on the Opposition Benches, I should add that that was not caused by the decision to lower the rate of personal income tax. It occurred because monetary discipline was allowed to slip. The banks wantonly allowed people to borrow something like four times their incomes. People mortgaged up. Businesses borrowed. We built a mountain of debt which individuals and companies alike are still paying off now. We were also consumed by an infectious mood which suggested that the boom would go on for ever and perhaps even that the business cycle had once and for all been abolished. But, of course, it did not.
Something else happened, too. We joined the exchange rate mechnism of the European monetary system in October 1990. In my view, the rate at which we joined did not particularly matter. A one-off adjustment could have amended that. Indeed, I am not pathologically opposed to the exchange rate mechanism so long as it remains an adjustable system. We faced the unfortunate coincidence that Germany was reunited. Instead of showing the fiscal discipline which had dominated European economies in the decades before, Germany dramatically increased its borrowing as a result of that unification and had to adopt a high interest regime within its domestic economic management.
When we later wanted our rate of interest to fall, our links within the exchange rate mechanism kept it high. Something else happened too. We converted an adjustable exchange rate mechanism into a fixed parity system. We believed that if we were courageous we could vest in the pound sterling the qualities, discipline and strength of the deutschmark. But it was ill-judged to believe that we had the economic muscle to sustain such a fixed parity against the deutschmark. Therefore, I fear, we created our fault lines in the exchange rate mechanism and treated it in a way which invariably led to its collapse.
Some claim that the exchange rate mechanism brought down inflation. In many ways it did, but I contend that any regime of ultra high interest rates would have brought down inflation and that the exchange rate mechanism also contained some dramatic qualities which were to the detriment of our economic management and exacerbated our economic ills at the time. The ERM is not an independent discipline, as people hoped that it would be. It repoliticised, and we made it do so even more, every 254 movement in the exchange rate and put the focus of attention on the Chancellor of the Exchequer. An independent discipline would have removed such attention if it had been working properly.
Our short experience of the fixed parity system, with the divergent economies which were evident at the time, showed how domestic economic management can become a perverted exercise in regional policy. It showed how economic and political control is sacrificed when there is a single currency. As you may have rumbled by now, Mr. Deputy Speaker, I am against a single currency. Indeed, I believe that the imposition, although not necessarily the evolution, of a single currency is the ultimate socialist measure.
So where are we now? I share the view of my hon. Friend the Member for Esher (Mr. Taylor), who has left the Chamber for a moment, that we are emerging from the recession at long last. Indeed, in the same way as we thought that the boom would last for ever, we are perhaps too prone to the feeling that the recession might last for ever, too.
The challenge which my right hon. Friend the Chancellor addressed in today's Budget is not to repeat yesterday's errors. Instead he has taken a long-term view, as I would have wished him to do. If the cycle has not been abolished, as indeed it has not, the recovery will come inevitably, but it is as well to nurture it in the best interests of everyone in Britain.
I judge the PSBR to be dangerously high. The risks that we face in keeping it that high over several years are that we shall go straight back to the cycle of stop and go and go and stop. What we do not want is the creation of artificial demand, leading to an artificial recovery. If we were tempted to adopt such a course, we would merely suck in imports, creating illusory jobs that would soon disappear. We would return to the stop-go cycle: whenever we stopped again, the recession would become even worse and we would build an even larger deficit on our balance of trade.
The overriding guidance offered by today's Budget is that fiscal rectitude is of the utmost importance. If we borrowed excessively over a number of years, we would succeed only in increasing the interest rate; that, I think, would be the most disastrous possible event in regard to recovery. If we are to create long-term jobs rather than jobs built on yet another burden of Government debt, we must take long-term advantage of low inflation nurtured by the present Government and of the competitive exchange rate that now allows us to export. As well as reducing the public sector borrowing requirement, we must reduce expectations. Promises of excessive growth will not be met; they will simply provide an artificial path leading to the return of economic collapse.
At dawn today, I was in favour of reducing the PSBR—immediately, even, and by billions of pounds. My right hon. Friend the Chancellor, however, has before him many facts and figures that I do not possess. I note that my right hon. Friend has decided to allow the PSBR to remain more or less neutral this year. He has the figures and I accept what he has done. He also announced that, in 1994–95, the PSBR will be reduced by £6.5 billion and that it will be reduced by a further £10.5 billion in 1995–96. We should bear it in mind that, by then, the Treasury will be enjoying improved revenues from the tax take. Furthermore, my right hon. Friend has committed himself to putting the PSBR back into balance in the medium 255 term. I believe that we should applaud that schedule for restoring fiscal rectitude: my right hon. Friend has made the responsible decision that we need.
I am delighted that my right hon. Friend has clarified the workings of petroleum revenue tax. Contrary to the opinion of many Opposition Members, the money that we have gained from the remarkable enterprise displayed by those who found oil in the North sea has not been squandered. If Opposition Members wish to say that spending on schools, hospitals and the needy is squandering our oil revenues, let them say it as loudly as they wish; the fact is, however, that the use of those revenues, and the stewardship of the economy, has been thoroughly responsible. The regime announced by my right hon. Friend the Chancellor will ensure that further investment takes place in the North sea and that we continue to experience flows of oil—and, indeed, tax—to the benefit of the Exchequer.
I am pleased that my right hon. Friend has improved the conditions relating to export credit guarantees, which he improved once before in the autumn statement. I am also pleased that he has tightened the little loopholes in the business expansion scheme, which enabled it to be used to provide loans; that is long overdue.
The hon. Member for Burnley (Mr. Pike) criticised my right hon. Friend for doing nothing about research and development. The reforms announced by my right hon. Friend in relation to advance corporation tax, however, are crucial to ensuring that large companies choose the United Kingdom for their headquarters and opt to carry out research and development here. The hon. Gentleman cannot claim that my right hon. Friend has done nothing for research and development.
I am pleased that my right hon. Friend the Chancellor has said that companies should no longer purchase other companies in order to cash in on their recorded capital loss. That announcement marks the long-overdue closure of a loophole. For those business men at present eligible to pay VAT, my right hon. Friend has raised the threshold to £37,600, which will be of particular advantage to small businesses up and down the land. It will remove the necessity for such businesses to have to fill in a quarterly VAT form.
One Opposition Member has today criticised my right hon. Friend the Chancellor for alleviating some of the capital gains tax provisions for those who want to sell a company. What could be more beneficial to the economy now than for someone who has been successful in one enterprise to be able to dispose of that on a fair basis of his taxable obligations, start again in another company and make a success out of that? How on earth can anyone see fit to denigrate that sensible measure?
I was also particularly pleased that my right hon. Friend the Chancellor announced that those who conduct a business in the purchase and sale of bloodstock may now register for VAT. It is a tribute to the energy of many hon. Members, notably my hon. Friends the Members for Cambridgeshire, South-East (Mr. Paice) and for Bury St. Edmunds (Mr. Spring), and to my right hon. Friend the Paymaster General, that such a sensible agreement has now been reached to alter the tax regime for that industry, which would otherwise be facing blight.
I am sure that everyone in the House would also want to pay tribute to the late Judith Chaplin, who quietly but diligently worked behind the scenes with great energy to ensure that the issue was properly understood in the 256 Treasury. My right hon. Friend the Paymaster General can attest to that by citing many examples of when she went to see him to argue the case for those affected by the VAT provision. Her death was sad and she will be sorely missed in the House. Those who knew her well in Newbury will not forget the work that she did on their behalf.
To return to my original theme of the structural deficiencies in the economy, I welcome what my right hon. Friend the Chancellor has done to improve some of the structural distortions. I am pleased that he has changed the regime of mortgage interest relief so that it is given only at the 20 per cent. rate. I was also pleased that he improved both the scope and the size of the small company loan guarantee scheme for fixed rate finance. I think that that will turn out to be a major step to ensure that long-term finance is available for small and medium-sized businesses. He announced an export guarantee scheme and today announced a domestic credit guarantee scheme, which is to be applauded.
All those proposals sit in dramatic contrast to everything that we heard from the Opposition. We have heard the incantation of platitudes about creating jobs, making promises and the insufficient support given to the constituency of Hackney, but we have not heard from the Opposition a single positive detailed policy for economic recovery which they think that they could run with and present to the electorate. Nothing that the Opposition have said has been costed—it was all words, words and no detail. In addition, they even promised not to raise taxes. They make promises that add up to billions of pounds, but somehow believe that those billions will appear from thin air. They are not prepared to show any integrity and state by what means they intend to raise those billions from the economy.
§ Mr. David Shaw (Dover)
No doubt, like me, my hon. Friend has been to the Library to see the Labour party proposals on the subject. No doubt, like me, he was shocked to find that nowhere in those proposals—which are designed to advise constituencies on what they should be doing to help employment—is it suggested that the workers in Labour party constituencies might start a business. Nowhere do they suggest that they might take advantage of the extension of the Government's loan guarantee scheme, which my hon. Friend the Member for Rutland and Melton (Mr. Duncan) so eloquently supported tonight.
§ Mr. Duncan
I am grateful to my hon. Friend. Opposition Members do much intoning about business, but it turns out that every step they take destroys business. The hon. Member for Hackney, North and Stoke Newington (Ms Abbott) has complained that there are no businesses in Hackney. With the local authority that Hackney has, it is not surprising that business men do not wish to go there. I openly and readily accept the hon. Lady's kind invitation to visit Hackney with her. She is not present at the moment, but I can assure the House that, when I go, I shall tell her a thing or two. I hope that she will learn what could be done in Hackney to improve employment prospects and restore the economy of that sad constituency.
Labour Members have criticised the decision to levy VAT in a staged manner on domestic fuel. This attitude sits ill with the Opposition's repeated contention that there should be a carbon tax and that the Government should 257 adopt policies that Labour Members would describe as green. They say that they want green policies, yet they do not want to pay the cost of environmental improvements. They must unravel their inconsistency. I await an announcement from them of measures to link green policies with tax policies to secure their implementation.
In conclusion, I offer my congratulations to my right hon. Friend the Chancellor of the Exchequer and his team. My right hon. Friend continues to have my vigorous support. Indeed, I look forward to his stepping out of No. 11 Downing street on his way to the House to present his fourth Budget in November.
§ Mr. Derek Enright (Hemsworth)
The hon. Member for Rutland and Melton (Mr. Duncan) is all heart. My withers were wrung by his speech about financial rectitude and structural efficiency. He really is all passion for England. It is a shame that his speech developed as it did, as he started off quite well. Having dealt with 1946, he embarked upon the story of the decline of the economy. The trouble is that he jumped from 1946 to 1988–89—a very swift transition. I should like, in the few minutes available to me, to fill in some of the history.
Let us look first at what happened in the 1970s. Under successive Governments, including those of the right hon. Member for Old Bexley and Sidcup (Sir Edward Heath), Lord Wilson of Rievaulx and Lord Callaghan, oil prices gave rise to tremendous difficulties. Lord Wilson and Lord Callaghan had to deal also with the Barber boom—a mistake which, as has just been said by the hon. Member for Rutland and Melton, was repeated by Lord Lawson. Let us take into account the real world difficulties that existed at that time and the fact that there were none of the advantages of the tax from oil that the current Government have enjoyed and the huge sums of money that were generated by privatisation—illegal gains, in my view, but, none the less, moneys that came to the Government. I use the plural "moneys" advisedly, in its true Oxford English Dictionary sense.
What use have the Government made of those moneys from the point of view of long-term employment? The record of 14 years of Conservative rule is one of constantly rising unemployment. The north has always been hit because the Government care very little about what happens outside the south-east. The south-east is where the strength is, where the power comes from and where the snouts are.
I would not sit complacently on the Government Front Bench after today's Budget. If a private company had gone for a contract, had put forward a prospectus and had spoken about that prospectus in the way the Government spoke about their manifesto at the general election and then produced today's Budget, they would have been called fraudsters and hucksters. That is what the Government are.
No matter what claims they make about VAT on energy, the Conservatives said clearly during the election campaign that there would be no rise in those taxes, "Trust us," they said; we heard from a soapbox the equivalent of 258 "Read my lips." The majority of the people did not trust them, but enough trusted them to put them in power. They trusted the statement that there would not be an increase in taxes. Yet today we have a record increase. The Government have turned round the old saying, "Jam tomorrow but no jam today." It is a case of, "You will not suffer today but, by God, you will suffer tomorrow and even more the year after."
There are other ways of controlling pollution, as Conservative Members know if they have an atom of sense. To put VAT on fuel bills in the way proposed by the Government is outrageous. It will hit the poorest section of the community. The tragedy is that this passes for the Government's energy policy. We have been beseeching them for a long time to produce an energy policy. Suddenly they come up with one—to slap 17.5 per cent. VAT on energy costs.
The Government have challenged us. While they have been clinging to strange little ring-o'-roses arguments about the ERM and all the factions in the Conservative party have been giving different interpretations, I will tell them what they should have been doing. They should have been putting forward in the European Community a policy for energy. The Commission has produced a paper and the subject has been talked about in the European Parliament. There is no parliamentary report on it. What response has been made by our Government? Their only response is to try to put 31 pits out of existence. That is a disgrace.
In the short time left, I should like to refer to a gross failure of the Government in the case of Grimethorpe colliery. As we have been telling the President of the Board of Trade since last October, that colliery was making a considerable profit up to the time that it was closed. On closure the industrial firms that it supplied were nearly put out of business. They had to find alternative supplies and pay more for imported coal.
A report was published yesterday; actually, it came out a considerable time ago but, as with everything with the Government, it was kept secret until the last minute. In clear, unequivocal terms the Government's own specialist said that Grimethorpe has a long-term future and can make a profit because there are customers for it. Why do not the Government reopen it instantly? What is the grand strategy that means that pits like Grimethorpe should close? The Government's only strategy is laissez-faire. That is no strategy in these days. It is not the sort of strategy adopted by the Japanese. The Government are fond of talking about the Japanese, so we should see how they conduct their capitalist system. They have a partnership between the capitalist institutions, the trade unions and the state under which they proceed sensibly in the long term.
My final point is about the heedless way in which the King's Cross announcement was made. For my part of Yorkshire, the rejection of King's Cross was an absolute disaster. For Port Wakefield, to which the Government have given their permission and backing, it was appalling. The Government must reconsider their decision, otherwise it will lead not to sudden death but to strangulation by degrees.
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.