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—
§ Mr. John Smith (Monklands, East)
I congratulate the Chancellor on being the first holder of his office to introduce a unified Budget combining the traditional Budget and the public expenditure programme in one. In terms of the material to be covered, it was clearly a greater challenge than that posed to any of his predecessors, and he delivered it with his customary style. He may live to regret saying that he had public borrowing once and for all under control. After all, one of his predecessors as Chancellor, the Prime Minister, told us that there would be tax cuts year on year and that there would be no increases in VAT either upwards or in scope.
In another respect the Chancellor's Budget is unusual because many of the tax decisions that will hit people next April were taken in his predecessor's Budget last March. In 1993 there are two Budgets. As we heard again today, those Budgets are bad news for the taxpayer, they betray Conservative tax and spending pledges, and they are designed to make the British people pay the price of Conservative economic mismanagement.
I remind the House and the country that in March the former Chancellor primed a ticking tax time bomb which will explode in April. VAT on domestic fuel of 8 per cent. rising to 17.5 per cent., a hike in national insurance contributions, a cut in mortgage tax relief, and a real cut in personal tax allowances represent an additional £8.50 per week for a typical family from April.
What did we get today? We got more betrayals of Conservative election promises. I calculate that there are at least three new taxes on income because to freeze personal allowances, not for just one year but for two years in succession, is a devious way of increasing income tax. I calculate that that is another £1 a week extra tax for the basic rate taxpayer. The Government may not change the formal rate, but they wriggle in all sorts of ways to try to increase the income tax bill without the public detecting that they are putting it up.
I warn the Government that when people examine their pay slips in April next year and in the April after that they will see the true tax cost of the Conservatives. Similarly, cutting the married couple's allowance is another way of increasing income tax; and a third way, of course, is by a substantial cut in mortgage tax relief. Those are three ways in which income tax has been increased.
If that was not enough on the suffering people, there is to be a tax on holidays. I notice that it will not apply to 943 executive aircraft because they are small enough to avoid it. I also noticed that the Conservative party is so out of touch with public opinion that Conservative Members cheered a Budget that increased taxes and cut public expenditure. For example, despite all the Chancellor's verbiage about who he would exempt, there is a new tax on car insurance and home insurance. It will be quite expensive because the premiums for both have soared following the boom in crime under this Government.
Those are more costs for ordinary and average families. They will have to pay more in income tax and the Government have paid no attention to the widespread cries that they should abandon their rise in VAT. There will be more taxes on income and a continuation of taxes on expenditure.
The Chancellor argues that he has met the problem of VAT by giving some compensation to pensioners, the disabled and others. At best, he has given them half the extra cost. He meets half of it, but the other half falls upon the poor. It is 50p followed by £1 the year after; and we are aware of the cost of VAT. That is not adequate compensation because there will still be an extra cost falling on everyone as a result of VAT. The Government have totally left out of account the millions of families who are not on any benefit and who struggle every week to make ends meet. They will have to meet the full blast of the vast increases without any Government assistance.
The Government should have thought about their election pledges and taken away the 8 per cent. value added tax in April and the 17.5 per cent. the year after. There is still an opportunity for Conservative Members to pay attention to opinion in their constituencies because we shall table amendments to the Finance Bill, and the vote on those will test whether they are prepared to stand by their election promises.
My stomach turned when I heard about public spending and, in particular, about the continued and vicious assault upon the welfare state. At a time of high unemployment, to cut the time for unemployment benefit from one year to six months is, to borrow a phrase from the Prime Minister, odious, odious in the extreme. As a result, fewer people will register for unemployment. We know that trick because it has been pulled often enough by the Government in the past. They will push more people into income support.
One reality of modern Britain is that a person who moves from unemployment benefit to income support and whose partner is working for 16 hours a week at whatever salary or wage will lose income support and will have no state entitlement. Conservative Members make all sorts of pious statements about how they care for the poor and the unemployed. No Government who cared for the unemployed would do this to them. The Government put such people in difficulty, but they ignore the huge loopholes in our tax system and all the people who did so well during the Tory years. Then to turn, in their search to raise money, to people on invalidity benefit by imposing tighter medical requirements and by subjecting it to taxation is absolutely disgusting.
§ Mr. Smith
Quite right, they say. That is the party which believes that when the Chancellor needs to raise money he should turn to the sick and the unemployed before he calls on anyone else. The Chancellor and the Conservative Government and their philosophy stand condemned by those two public expenditure measures.
But there are other matters. There is the sleight of hand in public expenditure. I have not had an opportunity to go into all the detail of the public expenditure programmes that have been produced, but, as a working rule, I suggest that those who study them should be very very careful about the figures because public expenditure is stated in cash terms, not in real terms.
The Government claim an extra £1.6 billion on health spending in 1994–95. After adjustment for price increases, that drops to £263 million. The Department of Health admits that 1.5 per cent. extra is needed each year to keep pace. After this adjustment there is a shortfall of £175 million and capital spending will fall by £144 million in real terms. Therefore, let us be careful about the Government's boasts.
Let us also be aware of what has happened, and what the Chancellor told us has happened, to public expenditure. There will be a cut in the money available to the Housing Corporation. These were the parts of his speech through which the Chancellor hurried. I noticed that he had a tendency to increase his rate of delivery when he came—[Interruption.] He increased his rate of delivery because of his embarrassment at what he was about to announce.
The Chancellor could have told us that he was cutting the Housing Corporation's budget by £300 million. Instead of cutting it, he should have released the accumulated capital receipts for local authorities in order to allow unemployed building workers to get to work and homes to be built for homeless people.
I suspect that there have been more cuts in training. Despite our recent experience with London Transport, £64 million is to be cut from its budget. It might have been more upright of the Chancellor to have given those figures in his speech rather than leaving them to be dug out. But we shall dig away and get all the truth about the Government's public expenditure programmes.
We heard—and people must take account of what the Chancellor says—that there will be cuts in public expenditure, not this year but next year and the next year and the next year. Everyone who works in the public sector, and those who depend for services upon public provision, will bear in mind that nothing else is coming their way but cut after cut after cut. The astonishing thing was that the Chancellor seemed quite proud of that.
What about the quality of life in Britain? The Chancellor talked about a modern, civilised society. The quality of life in Britain is maintained by public expenditure on our social welfare system and our economic infrastructure and on proper welfare benefits, which the Chancellor has done so much to undermine in the Budget today.
There will clearly be fierce debates about the Budget, and so there should be. I have already said that it will cost the average British family £8.50 per week in April. [Interruption.] That is no joking matter; it is serious for those families. I hope that those watching this debate on television notice that the Conservative party thinks that it is a matter for humour when we talk about the cost to the typical family being £8.50. That cost will now be at least 945 £9 per week and probably more, and probably another £5.40 a week the following April. We have not just had tax increases and public expenditure cuts today; we have more tax increases and more public expenditure cuts to come.
There has been precious little in the Budget to revive British industry, to put us back on the path of sustained economic growth and to bring down unemployment. The Chancellor made little reference to that in his Budget. He had one basic objective and that was to reduce the deficit. But neither he nor his colleagues seem to understand that the deficit is the symptom, not the cause. The fundamental problems are the skills deficit, the investment deficit, the trade deficit and the jobs deficit. Raising taxes and cutting public expenditure, as the Chancellor has done, does nothing to tackle those. They will make some of them worse because they will threaten our economic recovery.
Above all, today we needed a Budget for jobs and for social justice. But, my goodness, we got neither of those. Instead, as I am afraid we have come to expect from the Conservative party, a party now well out of touch not only with the British people but with its own dwindling band of supporters, we had a Budget which was a blatant betrayal of election promises, a Budget which continues to pile taxes on the British people and to reduce the services available to them.
I pick just one example. When we complain about national insurance going up, the Government say, "Ah, but national insurance is not like income tax; it is there to pay for a contributory benefit." Well, here we have national insurance going up by 1 per cent. and the major contributory benefit, unemployment, going down. That is no better nor worse than a fraud on the British people. The Government ignore mass unemployment and economic weakness, the legacy of their period in office. This is not the Budget that Britain needs.
§ 5.6 pm
§ Sir David Knox (Staffordshire, Moorlands)
I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on his first Budget speech. It was a well delivered speech. I was somewhat alarmed beforehand that, as this is a unified Budget, it might be a long speech, but it was commendably brief. My right hon. and learned Friend presented to us this afternoon an ingenious package, and he deserves the thanks of the House and country for the measures that he has introduced.
I welcome the fact that we now have a unified Budget. It was long overdue. It was always absurd to introduce public expenditure proposals in November and the tax-raising proposals later. I see that my right hon. and learned Friend wishes to leave the Chamber and I know that he has a meeting to go to, so I shall be pleased for him to do so.
I was saying that I welcome the unified Budget, bringing together as it does the public expenditure proposals and tax changes at one and the same time. It always seemed to me a strange way to go about things to have them brought in at different times, as has happened in the past.
The Leader of the Opposition made a commendably brief speech this afternoon. I can only imagine that its brevity was due to the fact that there was very little for him to go on about. He managed to work up a lot of synthetic indignation, but, fortunately, it was very concentrated.
946 I welcome the social security proposals in my right hon. and learned Friend's Budget. Obviously, we shall receive fuller details of those tomorrow when my right hon. Friend the Secretary of State for Social Security makes his statement, and when he has done so will be the right time to examine the proposals in greater detail.
I was pleased to hear my right hon. and learned Friend yet again give the firm commitment that the Conservative party has always given about the state retirement pension being fundamental to the protection of old people in Britain. It did not need repeating, but in recent months there have been rumours that the Government might attack the state retirement pension, so it was right that my right hon. and learned Friend should confirm the Government's intentions in that respect.
I was also pleased, as were most people, to hear about the introduction of the new child care allowance. We look forward to receiving full details, but I am sure that it will be welcomed by a large number of ladies throughout the country.
I was glad to hear the measures that my right hon. and learned Friend proposed to help those who will be affected by VAT on fuel. He fulfilled the pledge given by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) earlier in the year to look after especially vulnerable people and went much further because he extended it to cover all state retirement pensioners and others in receipt of benefit.
I have always been in favour of the introduction of VAT on domestic fuel for environmental and economic reasons. It was especially ingenious of my right hon. Friend the Member for Kingston upon Thames to introduce that phased measure as a clear indication that the large public sector borrowing requirement would not continue indefinitely and at the same time ensuring that the PSBR would not be immediately reduced, which might have cut off the recovery that had only just started. The Government have fulfilled their promise to help those least well off, which I welcome.
§ Mr. Dafydd Wigley (Caernarfon)
Does the hon. Gentleman accept that the increase for a single, disabled person by 1995 will be £1 per week, and as many disabled persons have fuel bills of £12 to 15 per week, with 17.5 per cent. VAT on top, £1 a week will not go half way to bridging the gap?
§ Sir David Knox
I shall not become involved in detailed discussions with the hon. Gentleman about such matters having just heard of them; I prefer to examine them in greater detail. My right hon. and learned Friend said that vulnerable people would be covered, and I have no reason not to accept his word.
I am pleased that the Government have grasped the nettle on the issue of the equalisation of the pension age in a sensible and phased manner that will not come into force until 2010 and gives ladies plenty of time to become accustomed to the change.
I welcome the measures that my right hon. and learned Friend announced to help small firms. The VAT ceiling has risen considerably and, if I am correct, his measures will remove 75,000 small firms from paying VAT. When I first arrived in my constituency 23 and a half years ago, employment was predominantly in textiles, mining and agriculture. There has been a substantial reduction in the number of jobs—about 10,000—in those industries, but 947 they have been replaced by a mushrooming of small firms. They need even more encouragement. Despite the loss of 10,000 jobs over 23 years, my constituency has the 15th lowest level of unemployment in a constituency in the UK, according to figures produced by the House of Commons Library. That shows the importance of small firms and their ability to provide employment opportunities.
I am pleased that there has been no general extension of VAT because, over past weeks, hon. Members have been inundated with correspondence from people who were concerned about the introduction of VAT on newspapers, periodicals, books, bus fares and food. It is a great relief to know that we can all reply by saying that those fears were unwarranted.
I welcome the announcement that there will be no increase in excise duty on beer and whisky, but I am not happy about the increase in petrol tax as I represent a large, rural constituency and the increase will cost some of my constituents more, although as country dwellers I think that we were expecting it.
A Budget should be about strengthening the economy and today's Budget was aimed at that. One of the most alarming features of the British economy over the past 23 years and the main reason for its weakness has been the performance of the manufacturing sector. In the 20 years from 1952 to 1972, manufacturing output rose by 88 per cent.; it rose by only 8 per cent. in the period from 1972 to 1992. Thus, while the average annual increase in manufacturing output between 1952 and 1972 was almost 4.5 per cent., between 1972 and 1992 the increase was less than half a per cent. a year.
International comparisons are not available for the whole of the earlier period, but in the 1960s, although the performance of British manufacturing industry left something to be desired, it compared reasonably favourably with the countries in the European Community. However, since 1972, it has compared unfavourably with those countries. While the average increase in manufacturing output in the UK has been less than half a per cent. during that period, it was 6 per cent. in Ireland, 4 per cent. in Portugal, 2 per cent. in Italy and 1.7 per cent. in Germany. That is not a satisfactory record for the UK and must be improved if the British economy is to achieve steady and secure growth and lower unemployment and enable us to pay our way in the world.
My right hon. and learned Friend has introduced a number of useful measures to help manufacturing industry, but most of them will have a marginal effect. If it is to prosper, manufacturing industry needs lower interest rates that fluctuate less, stable exchange rates, greater incentives for capital investment and the creation of a more favourable environment.
Far too many of my right hon. and learned Friend's predecessors as Chancellors of the Exchequer have given the impression that interest rates are the only means of controlling the economy, which has had unfortunate consequences. High interest rates impinge especially severely on manufacturing and place a heavy burden on those who borrow money to invest in new plant and machinery, but reward those who put their money in banks, building societies and other similar forms of savings. That is hardly the way to encourage increased investment and greater efficiency in the manufacturing sector.
948 Consequently, I welcome the falls in interest rates that have taken place over the past three years, including the cut in the past week, and I hope that there will be more of the same to come. In future, I hope that my right hon. and learned Friend will depend less on interest rates as a tool of economic management and will use the other weapons at his disposal. Lower and more stable interest rates would provide a solid foundation on which manufacturing industry could expand and prosper.
Stable exchange rates will also help the manufacturing sector. It is no coincidence that manufacturing output rose by so much more in the 20 years up to 1972, when we had reasonably stable exchange rates under the Bretton Woods agreement, than in the years since 1972, when we mainly had floating exchange rates. Floating exchange rates can cause trouble in the manufacturing sector because sudden, adverse movements can undermine years of hard work in building up confidence among customers.
To strengthen manufacturing, more generous capital allowances should be introduced on a permanent basis. The temporary changes that have been in force in the past year have been helpful—at least they should have been maintained. However, if we are serious about investment, as we must be, we should revert to the arrangements of the years up to the middle 1980s, when capital allowances were more generous. In addition, we need to create a better climate for manufacturing industry, but that goes far beyond the subject of the Budget and the management of the economy—a line that I do not wish to pursue tonight.
Let me emphasise again the importance of the manufacturing sector. It is the basis of our national wealth. It accounts for 60 per cent. of our exports: its export potential is very much greater than that of the service sector. It must therefore be the most important means of dealing with the deficit that causes me most concern—the deficit on the balance of payments. This cannot be allowed to go on indefinitely, and a strong, competitive manufacturing sector is the surest way of eliminating it.
In my view, my right hon. and learned Friend will be judged as Chancellor of the Exchequer on the improvement in manufacturing industry during his tenure of office. As a fellow midlands Member, I know that this is a cause that is very near to his heart to which he will devote great efforts in the years ahead.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
The hon. Member for Staffordshire, Moorlands (Sir D. Knox) gave a more balanced view of the Chancellor's Budget than was evident from the Back-Bench cheering behind him. I never thought to hear so many Tory Back Benchers cheering so many tax rises so loudly; but then I reflected that every year in the Budget debate those behind the Chancellor rise and wave their Order Papers with enthusiasm—only to find that enthusiasm waning as each day goes by in the succeeding debate and as, each month, the implications are absorbed. This year will be no exception.
The Budget will do nothing to aid recovery. It will hold recovery back, through lack of investment and through the huge pile of new taxes and tax increases that it imposes. Ordinary people will be taxed to the hilt, with none of the investment in education or improvement in public services that might have provided some justification for fair and well chosen tax increases. 949 The reduction in the public sector borrowing requirement that the Chancellor has forecast depends entirely on spending cuts to be achieved in future years. He has not yet managed to convince the Cabinet that actual spending cuts should be made; he has merely told his right hon. Friends that the global figure will assume that they will be made in future years. As for sorting out public borrowing once and for all, that simply is not a realistic statement: the Chancellor has not sorted out the Cabinet yet, and experience suggests that he will have some difficulty doing so. This is a soft-shoe shuffle with the figures, which will convince no one that the PSBR is on a clear, substantial downward trend.
What about unemployment benefit? The sickening message to those who lose their jobs in the future is that they will be denied six months of the unemployment benefit to which they believe that they have contributed, and the Government have told them time and again that they have contributed, under a contributory national insurance system. That contributory system has been blown apart by today's decision. Indeed, it is impossible to justify a 1p national insurance increase—which every national insurance payer, every taxpayer, will have to pay in April—when the contributory system is being destroyed. The Government say that they have to increase national insurance contributions to meet the demands on the fund, but what fund? The Government have made off with it—it is not there. Meanwhile, six months of unemployment benefit is being snatched from people who have worked and contributed on the assumption that they are entitled to it.
As for the taxes which now come on top of the previous Chancellor's Budget, this is "Son of Norman" with a vengeance. A whole new series has been added to the tax increases in the last Budget: the freezing of personal allowances, for instance, and the fixing of the married person's allowance at 15 per cent. That 15 per cent. is a new, mythical tax rate; it does not exist, but it is assumed that that is the level at which someone is granted a particular credit. The theory behind the 20p restriction was that there was a 20p tax band, into which we are told that increasingly large proportions of our income will eventually go. However, there is no 15p tax band, so there is no particular logic in attaching allowances to it.
Mortgage interest relief is to be restricted to 15 per cent. How many times did I hear Conservative speeches and read Conservative election literature telling the public, "Don't trust the Liberal Democrats: they might affect your mortgage interest tax relief at some future date"? The Government are cutting everyone's mortgage interest relief next April anyway, by restricting it to 20 per cent., and they intend to restrict it further, to 15 per cent., at a later date.
We proposed that the Government should make some use of the opportunity that had been provided and announce that they would remove mortgage interest tax relief from new mortgages at a date in the future—thereby exercising a good influence on the housing market when it needs it. These measures will not do that. People who were assured that they were voting for a Government who believed in mortgage tax relief, and who would go on providing it, have been duped.
Logically, mortgage interest tax relief is difficult to defend. It transfers money from not terribly well-off taxpayers to large mortgages held by better-off taxpayers. The difficulty lies in how that system can be changed. The logical way, surely, is to try to drive the system out without 950 causing hardship to those who made their mortgage commitments on the assumption that they would continue to receive tax relief. Those are the very people whom the Government are targeting: the people who bought their houses and made their mortgage decisions taking mortgage interest relief into account—not those who have no reason to take it into account because they know in advance that it will not be available in the future.
The Government have raised taxes on petrol and diesel by approximately 13.5p per gallon—more than twice the rate by which petrol prices would be raised by the European carbon tax as currently proposed. There will be no compensation, and none of the relief for rural areas for which my party has argued. How many Conservatives said in their election speeches, "Don't vote for the Liberal Democrats: they might put up the cost of your petrol"? The Government are putting up petrol taxes by more than we ever dreamed of doing, and certainly by more than the European carbon tax would do. The Government really cannot accuse others of "bordering on hypocrisy" when they have increasingly implemented measures against which they have set their own face time and again.
There is also to be an airport tax, and a tax on insurance premiums. The Chancellor seems to have taken to heart the rather unkind description of him in Alan Clark's book as "that walking life insurance risk" as he has exempted life insurance premiums, but just about every other kind of insurance is to be the subject of a new tax.
There is no back door to the tax system that the last two Chancellors between them have not entered. Every possible back-door new tax, or way of freezing a tax allowance, has been found. They have found ways of making significant tax increases without achieving the purpose of increasing investment or increasing the overall fairness of the tax system.
Talking of fairness, let us consider what the Government are doing about VAT. They have been driven to work out a compensation package—driven by the indignation of people throughout the country about what they will have to pay. The package, however, certainly would not have won the Conservatives the Christchurch and Newbury by-elections, which were won so handsomely by my hon. Friends the Members for Christchurch (Mrs. Maddock) and for Newbury (Mr. Rendel), and it would certainly not have appeased those who took part in the many pensioners' rallies and other events in which ordinary people have expressed their concern.
The compensation will be 50 per cent., not the 90 per cent. that the average family is expected to experience by way of extra bills in the first year. Of course, average families and families with incomes well below the average will not receive any compensation. The Government have got the message that they must help not just pensioners on income support, but those above the income support level, because they are the new poor. So many Government measures have helped to turn pensioners with small savings into a new kind of poor. I am glad that the Government have started to get that message; but the people to whom I have referred will not be adequately compensated, and many more people will not be compensated at all.
We have had two Chancellors who have not made the tax system fairer, but have simply sought to extend it. The motto seems to be, "If it moves, tax it". What a battery—what an array—of taxes we have seen. 951 On the provisions involving small business, I want to make an offer to the Government; I wish to be generous to them. In an interesting passage in his speech, the Chancellor said that businesses were troubled, as indeed they are—sorely troubled—by late payment of debt. Some of that late payment, incidentally, is made by Government Departments and other Government bodies. Much improvement could be achieved in that respect. The campaign waged by many small business organisations for statutory interest for late payment of debt has been recognised by the Government, who have issued a statement that Ministers will look at the matter again. I am very pleased to hear that, but looking at it is not enough.
Let me make my offer: I have gained second place in the ballot for private Members' Bills, and if the Government will assure me within the next few days—it must be done within that time because I shall have to announce the subject of my Bill—that they will not oppose a Bill to enforce payment of debts, I shall be prepared to introduce such a Bill. The Government will then have no problem fitting it into their legislative programme and no difficulty with having to push other Bills out of the programme. Their consultations will be speeded up, and their minds will be concentrated wonderfully. Not many Opposition Members have ever made so generous an offer, and I can see the warmth with which it has already been received by the Economic Secretary. I hope that he will be able to intervene in my speech, or consult during the afternoon and report later in the debate—perhaps tomorrow—that the Government will accept that offer, which is quite genuine.
If the Government agree that they will not oppose a Bill to enforce statutory late payment of debt, I will introduce that Bill and it can have the time allocated to me under the private Member's Bill procedure. I will, of course, consult the Government on the detailed terms of the Bill.
§ Mr. Nelson
I was always advised to beware of Liberals bearing gifts. Unfortunately, I am unable to accept the right hon. Gentleman's offer this afternoon.
It is right and proper that the Government should consult on the various options that are open, and there are a number of options open, as the press release following the speech of my right hon. and learned Friend the Chancellor of the Exchequer this afternoon made clear. It is far better that industry generally should be consulted rather than that we should hasten to private Members' legislation on the matter.
§ Mr. Beith
I am sorry that the Minister chose to intervene, because I think that he could have given the Government a little bit more of an opportunity. I hope that that is not the last word in the course of the next few days' debate. Clearly, that offer cannot remain open indefinitely. I am not prepared to introduce so valuable a Bill and simply see it blocked and defeated by the Government. That would be a waste of private Members' time, when there are many other issues contending for it.
I want to see such a Bill through. It would be very harsh on small businesses to have to wait another year for 952 anything to happen, because small businesses are facing the difficulties now. I therefore urge the Minister to have expeditious consultations so that he or his colleagues can come back to me in the next two or three days to give a clear answer, bearing in mind that there will be time—between the day when private Members' Bills have to be announced and the proceedings on the Bill-for quite a lot of further consultations. I do not intend to press him further now, but I ask him to take it away and perhaps come back to me over the next few days.
I want to look briefly at some of the spending aspects of the Budget. I shall start with housing. There is nothing new in the way of housing investment. We could have used housing investment to tackle the housing crisis, the homelessness problem and get the building industry moving. The construction industry is showing none of the signs of recovery that are fleetingly apparent in some other parts of industry. It needs to be set to work and we need the homes. With its social housing problem, the Housing Corporation would have been an urgent priority for greater investment, not restricted investment.
Let me give another example of where the Government could have helped. It was announced this afternoon that the Ministry of Defence can sell housing stock to deal with its budget problems. In other words, it can use the receipts of asset sales—sales of houses—for new investment, or even current spending for all I know. Why cannot local authorities use exactly the same form of income—capital receipts in the public sector—to build more houses and renovate existing houses? Surely the doctrinal admission today that it is all right for the Ministry of Defence must mean that it is all right for the Department of the Environment and local authorities. I suspect that it does not mean that, but we should be told why. Local authorities could be adding to essential social housing.
As to transport, there is still not enough new investment. We were pleased to hear the announcement about the west coast main line, but that is a private sector investment project. I welcome the bringing in of more private sector investment, and I hope that there will be a great deal more of it, but we need more public sector investment in London Underground. People have had to be led out of tunnels in the dark because the system cannot keep going, so old and decrepit is its cabling. We need significant new public investment in London Underground if that job is to be dealt with.
The same applies in other parts of the public transport system. I noticed the press release in which the Secretary of State for the Environment—I do not know why it was him—referred to the fact that there were transport projects among the creation of public assets amounting to many billions of pounds over the next three years. When I looked at it more carefully, I discovered that, sure enough, the Minister had counted the Jubilee line yet again. The Jubilee line has been counted in every one of the past three ministerial statements about public expenditure. Every time it comes up, we have the Jubilee line. We have only just got the announcement that we can go ahead, so sure enough it is counted all over again. It is amazing what one can do with figures, but what one cannot do with figures is regenerate a public transport system that is desperate for real, new investment.
As for health, I do not believe that even the figures that we have address the colossal waste in the national health service which has arisen from the huge expansion of managers, management and administration in the health 953 service. The Government knew from the start that they were devising a system riddled with contracts, purchasers, providers, buyers and a lot of people shuffling paper about. The whole NHS system depends on people shuffling paper about, so it employs people at the highest possible salaries to shuffle it about. There are huge increases in costs in the NHS. They have been generated not by new patient care, better equipment or new highly qualified staff carrying out medical procedures, but by more and more managers and administrators.
Let us look briefly at education. Hidden away in the education proposals are provisions which raid the capital budgets of local authority schools to give money to opted-out schools. Not satisfied with the situation in which so many schools—the vast majority—have decided that they do not want to opt out, the Government intend to raid their budgets to give more capital to opted-out schools. That is a disgraceful piece of bribery at the expense of the people who refused the bribe, and it is outrageous at a time when education investment is so badly needed.
The Chancellor made a comment about student grants and asked why the bus drivers of today should pay through their taxes to finance the lawyers of tomorrow. I have another question for him about student grants. Why should not the lawyers of today be paying through their taxes for the sons and daughters of today's bus drivers to get into higher education? That is the real question. Why should more and more people be disbarred from higher education through fear of high debts and the inadequacy of the grants system and the combined grant and loan system to provide a reasonable basis on which they can go through higher education?
Another departmental area with which I shall deal is the Home Office. The great element in the Home Office budget is building more prisons, not preventing more crimes. The more prisons are built, and the more people are put into them, the more crime one assumes has been committed. We are supposed to be stopping crime in the first place so that people are not mugged or injured and do not have grievous bodily harm inflicted on them. Simply having more people in prison does not solve that problem. It shows that the Home Office has not got its priorities right. The building of prisons is very good for my constituency as it is the biggest expanding industry that we have had in my constituency in modem times, and it plays a role in the local economy, but it is not a good crime prevention policy: it is a way of dealing with the consequences of not having prevented crimes and not an objective of policy in itself.
Various measures in the Budget are welcome, or appear to be at first sight—measures such as the enterprise investment scheme, if it works. Unfortunately, there is a trail littered with disappointment of schemes designed to encourage venture investment. I hope that the venture capital trust will not prove to be another of those. It is well worth the Government's effort to try to find new ways of matching available venture capital to businesses that could use it.
Other welcome measures are the pensioners bond—although we do not know enough about the terms to be sure—and the limited child care provision. Many more working women could benefit from other forms of help with child care—for example, tax relief. Many youngsters would benefit if they had access to nursery education. Those are useful measures and we shall consider them in more detail as the debate proceeds.
954 We have not seen in the Budget a solution to the really big deficits that we face. The public sector deficit is certainly not sorted out once and for all. It will not be sorted out until we get more people back to work and recovery is at a level that ensures that many people are paying taxes instead of receiving benefits. That would require measures that the Budget does not contain.
We have an investment deficit. We are living on the capital that was invested and built up by previous generations, and are not renewing it. The record of decline in our public sector net worth is appalling. The Budget does not solve that problem.
We have a terrible trade deficit, and I was alarmed to hear the Chancellor set such store by the growth in consumer spending. We cannot get out of our economic difficulties in the long term by relying on growth in consumer spending, because it invariably results in a worse trade deficit for this country. Even in the depths of recession we had a bad trade deficit, and we are still not addressing that issue.
We also have a fairness deficit. It has been built up over the years of the Conservative Government, with the benefits to top rate taxpayers and the pressure on lower income people, much augmented by the Budget that 'we had earlier in the year, and not offset sufficiently by the measures in this Budget. It is a fairness deficit which leads people to believe that taxation must be bad and wrong in principle because they are not taxed fairly.
There are justifiable reasons for taxation: there are things that Governments have to do. But taxation has to be fair and people have to see that it is doing the job which justifies levying it in the first place. The Government have added hugely to the tax burden and vastly to the tax system without doing the things which justify taxation in the first place. That is a mark of the Budget's failure.
§ Mr. Michael Spicer (Worcestershire, South)
The difficulty in following the right hon. Member for Berwick-upon-Tweed (Mr. Beith), or, indeed, any member of the Liberal party, is that one is faced with a lot of bits and pieces but no philosophy. So it is extremely difficult even to debate with the right hon. Gentleman. That contrasts sharply with the manner and content of my right hon. and learned Friend the Chancellor's Budget.
The objectives of the Budget were extremely well placed and well set out. They were to achieve sustained economic growth with low inflation and to do so by providing for a flourishing and growing private sector. One of the exciting things that he said was that the Government intended that public expenditure as a percentage of gross national product should be reduced over three years from the current level of 45 per cent. to 42.5 per cent.
Two particular points in my right hon. and learned Friend's speech are important in terms of the objectives that he stated. I agree with the right hon. Member for Berwick-upon-Tweed that economic growth must be central to achieving the Government's objectives. It lies at the very root of the ability to balance greater buoyancy in revenue with the focuses within expenditure which my right hon. and learned Friend identified. That must be particularly true of the objective of reducing ultimately to zero the public sector borrowing requirement and the present £50 billion deficit. 955 The Budget must be measured and judged essentially by what it says about growth. Two particular points about growth have to be considered. The first is the extent to which focusing public expenditure and holding down direct tax rates is plausible and sustainable. Both as a matter of basic philosophy and as a matter of economic efficiency, low taxation is absolutely essential.
I was excited to hear my right hon. and learned Friend the Chancellor say that the Budget involved a long-term tax-cutting agenda. That must be right. In terms of basic philosophy such an agenda means a large private sector, which is the best insurance that we are likely to devise against overwhelming state control and even dictatorship. However, low taxation and a thriving private sector involve something much more immediate than that. Low taxation has to be the best way that Governments can devise of maximising economic endeavour and bringing out the most in the human spirit.
Without a good net wage there will not be incentives to work. Without a good net rate of return there will not be investment. It is as simple as that. Every society that has tried something different has failed. I suppose that the most clear and wonderful example of the failure of an economy while it was heavily taxed and allowed people virtually no net wage was China during the cultural revolution. Anyone who has read Madam Chang's book "Wild Swans" will remember the graphic descriptions of the effect on the economy of wiping out net take-home wages. The policy was reversed in the agricultural sector and more recently in the industrial sector. The spirit of people was lifted by giving them incentives. Net take-home pay rose as a result of work and productivity. As a result, the Chinese economy is being transformed.
It is not simply that high taxes are detrimental to human endeavour. High taxes have their own cumulative effect and create distortions which subsequently have to be put right. In passing, I hope that the new tax on airlines will not result one day in the Government having to compensate local authority airports which are screaming because the traffic is decreasing. My point is that any form of taxation creates distortions.
The question whether we can sustain a policy of low taxation is critical in determining one's approach to the Budget. I hope that the programme of focusing state assistance on those who really need it is firmly established and maintained. There is one area in which we can do more. When I was Minister for Housing I increasingly felt that we were not supporting people who really needed support as against those who did not need it so badly.
In the case of state housing, despite a good move towards privatisation by involvement of housing associations and private capital, £4 billion to £5 billion still goes into bricks and mortar rather than into direct assistance for people who need it. There is still scope for a greater switch in that policy so that rents are raised to a private sector level. The whole housing sector should effectively be privatised. Those who cannot afford to pay the market rents should be supported directly by housing benefit to a greater extent than now. In my ideal world, that would certainly include not only people on current state benefits but those on low incomes. There should be a much smoother tapering of the tax curve in that respect.
956 The second crucial determinant of the economic growth objectives that are central to the Budget and the question whether the Budget will succeed is the way in which the Government proceed with monetary policy. I was encouraged when I heard my right hon. and learned Friend say that monetary policy would be that which was appropriate to sustaining the objectives that he had set himself. That was a crucial statement. In recent memory it was not always the case that monetary policy was fixed by the need to sustain the domestic objectives of the British Government.
When we were in the European exchange rate mechanism—indeed before we entered it—exchange rate policy was more important than monetary policy appropriate to the domestic needs of the economy. Therefore, in the late 1980s, when it was appropriate for our economy to introduce policies that brought down inflation, we had the reverse. The Germans had low interest rates and it was thought appropriate to shadow the deutschmark. Therefore, we had low interest rates when we should have raised interest rates to contain inflation. By the early 1990s the reverse was the case. When we should have had low interest rates, we maintained high interest rates.
In this context I was somewhat more concerned about one of the Chancellor's asides, when he said that the economic recovery occurred well before we left the exchange rate mechanism. That argument is put about by people who think that it is quite proper for us to re-enter the ERM, as is the argument that the downturn problems of the British economy occurred before we went into the ERM. The latter argument is easily dealt with because we were then shadowing the deutschmark. The problems that emerged in the second half of the 1980s were related not specifically to our entry to the ERM but to the general policy of putting exchange rate management above interest rate management.
The Chancellor referred to the fact that things started to get better before we came out of the ERM. That is clearly the case because, at the beginning of 1992, we began to adopt interest rate and monetary policies—belatedly, by about 18 months, in my view—which started to bring down interest rates. That policy started to have its effect in the summer of 1992—before we came out of the ERM—but it finally clashed and conflicted with the policy of being in the ERM. The whole thing blew up and the first reaction was to put up interest rates to 20 or 25 per cent.—which was not sustainable for very long—and then we came out of the ERM.
The recent pronouncement by the CBI that it would like to get back into the ERM worries me. Sometimes the Government look as if they wish to get back into the ERM as part of their policy of moving towards a single European currency, which is a permanent ERM. If it were thought that that might be the policy, it would call into question the statement that the Chancellor made today that our monetary policy would be fixed according and appropriate to the needs of our own economy. I take great comfort from his saying that monetary policy is to be appropriate to sustainable economic growth without inflation; it all adds up to a single package—together with cutting taxes and focusing expenditure on those who really need it and on the functions that should properly be performed by the state.
Sustainable economic growth is central to that policy. If that is attainable, the Budget will be a magnificent Budget. 957 It sets out its objectives of containing the Budget deficit, of controlling expenditure to what it should properly be and of progressively reducing taxation as a percentage of GDP.
With this caveat, if that is to be the policy—and it is certainly the policy on which we went to the country—I welcome the Budget. I hope that during the course of the debate the Government will remove, once and for all, any further conflict or doubt about the priorities of monetary policy.
§ Mr. Jim Cunningham (Coventry, South-East)
The hon. Member for Worcestershire, South (Mr. Spicer) touched on the nub of the problem, that the Budget will be judged by whether it leads to major economic growth. I assume that the hon. Gentleman really meant that that in turn would help reduce unemployment, which is the basic problem. The premise is that a stringent monetary policy will eventually lead to economic growth, and that that will take care of our ills.
The weakness of that argument is that the Chancellor said today that one of the big difficulties—whatever the reasons—is that European economies are currently not doing very well. Approximately 68 per cent. of our trade is with Europe; the remainder is negotiated with the rest of the world. The reality is that we have to trade with Europe. If the European economic situation improves, ours will start to improve.
Unfortunately, that other 32 per cent. of trade centres around the nub of another problem, which is that the United States and its friends in the Pacific region are forming an economic unit. We must bear that in mind and ask the Chancellor and the Government what discussions they have had with the Americans, the Japanese and the Australians about developing markets in those areas. If we are not careful, the expansion that some hon. Members have been talking about could be threatened by the Pacific rim countries on the one hand and Europe on the other. We must be careful about what we say about our allies and partners in Europe and about our trading partners in the Pacific rim countries.
We should also look at who will bear the burden of the tax increases announced in the Budget. No one should shy away from the fact that they are tax increases, despite what the Government say. The people who will bear the burden are at the lower end of the earnings scale. No doubt Conservative Members will argue that they are trying to help pensioners with their problems with value added tax. That help will not be enough, however, and many pensioners will reduce the amount of heating that they use this winter in order to save on fuel bills.
One-parent families will also pay a heavy premium for the problems that the Government have created. There is nothing in the Budget to deal with the homeless.
Those who will be hardest hit account for 12 million people, and they have paid a terrible price for the policies of the Government over the past few years.
Conservative Members heard the Chancellor say that his long-term strategy was tax cuts. Some people would say that it is about time, because for the past 14 years the long-term strategy has been one of tax increases. What we have here is tax increases by stealth.
958 There is nothing being done about the industrial base of the country. There were no measures or initiatives in the Budget to help companies carry out research and development.
§ Mr. Oliver Heald (Hertfordshire, North)
Most commentators agree that one of the problems for the industrial base is that we need to have the best trained young people for technical jobs. Does the hon. Member for Coventry, South-East (Mr. Cunningham) agree that the initiative on apprenticeships that has been announced will provide a credit system through youth training to produce a new raft of apprenticeships? That will be a big contribution to that area, and is something that the trade unions will welcome.
§ Mr. Cunningham
I do not think that the Chancellor spelt out the details of the apprentice training scheme. A wise man would ask to see the details, but it will still not produce the numbers of highly trained young people that the country needs to protect its industrial base. I am sure that the trade unions would agree with me because they have argued for many years about the need to provide the necessary number of quality apprenticeships. The Opposition will consider the scheme once we know about its exact details and the number of people involved.
The Chancellor of the Exchequer has announced that the social security budget will be reduced by £2.5 billion. That cut reveals the true nature of the Government's promise to assist old-age pensioners, who will be hurt by VAT increases and cuts in benefits in the next two years, the homeless and one-parent families.
I notice that the Government have not introduced any new initiative to pump more money into the ailing national health service. The Chancellor merely said that he hoped that the NHS would be more efficient. Depending on what definition of efficiency one chooses to take, however, that could mean that more jobs will be at risk and that redundancies will occur. It does not necessarily follow that that efficiency will increase in relation to patient care.
We also learnt that public sector workers will be subject to a wage freeze, except when there is improvement in efficiency, but once again, that depends on what is meant by the Government's use of the word "efficiency". It may mean that they will receive a small wage increase if they are prepared to sacrifice some jobs. I am certain, however, that their wages will not be increased this year or next year.
The standard spending assessment for local authorities will increase by a marginal 2.3 per cent. We are aware, however, that many local authorities are already wrestling with the problem of providing care in the community out of their limited resources. Those authorities also need extra resources to provide new housing.
The Chancellor also announced that the tax relief for home owners and first-time buyers will be frozen. I have no doubt that the relief offered will be reduced prior to the implementation of that announcement.
When one attempts to judge a Budget, one considers whether the sacrifices have been distributed fairly. Today's Budget has failed to do that. The onus has been placed, once again, on those who are caught in the poverty trap. The Government may say that they will assist one-parent families with childcare. They have failed to recognise that two-parent families also need assistance sometimes, because in our modern society those parents must, reluctantly, both work to make ends meet. 959 This Budget should not be welcomed but greeted with great trepidation. It is difficult to analyse its full implications a mere one and a half hours after the Chancellor has delivered his speech, but I believe that my right hon. and learned Friend the Leader of the Opposition was right when he said that, in the coming months, the British people will become aware of the increased tax burden that has been placed on them. They will realise that it is due to the Government's mismanagement of the economy.
§ 6.3 pm
§ Mr. Richard Page (Hertfordshire, South-West)
I have always been told that, if one wants to take over a company, it should be one at the bottom rather than at the top, because it is a foil to show off one's abilities. If I were the Chancellor, however, I would not be too keen to take over a company with a public sector borrowing requirement deficit of £50 billion, a balance of trade deficit in excess of £12 billion, and 3 million people unemployed. My right hon. and learned Friend has also had to try to find some magic to keep the recovery rolling. The only bright spot on the horizon, as far as I can see, is low inflation.
In the political and media debate before the Budget, I was disappointed to note that the problem that my right hon. and learned Friend faced was treated as a linear equation based on either increasing taxes or cutting expenditure. The commentators ignored one dimension that is known in the commercial world as "growing the business". I shall talk later about the need to produce more in the United Kingdom. I was obviously delighted, however, by the moves announced by my right hon. and learned Friend to promote smaller businesses, because they are the seed corn from which growth and expansion can come.
In the past, in times of a little local difficulty in our economy, interest rates have gone up, unemployment has gone up, but, at a crucial moment—it normally coincided with an election—down came the interest rates. That meant that growth increased, orders went up and we then did rather well, thank you very much.
That oftsen happened because we found that our major customers in the European Community or the United States had also enjoyed economic recovery. Their economic train began to chug uphill and we managed to hitch back on a few coaches further down. As a result, we were able to reduce our costs by between 10 and 15 per cent., and we did well. That gave a little boost to our economy and everything was all right until prices began to rise, inflation went up once again and we were forced, once again, on a down cycle.
This time, it is different. The core financial position of our customers in the European Community is well known, and we no longer enjoy any advantage offered by a potential upturn in its economy. The United States, however, appears to be coming out of its economic depression or down cycle.
The current circumstances have kept prices down and that gives us, for the first time in many years, the chance to build a stable rescovery. My right hon. and learned Friend has performed a superb balancing act between keeping the fragile recovery going—it is fragile because no one should 960 try to make out that things are booming in the marketplace—and making careful decisions to reduce the PSBR and our indebtedness.
The balance of trade deficit is another matter, and I do not believe that it has been given sufficient attention in the Budget. It is extremely worrying that the recovery has begun with such a large trade deficit, because that could make the recovery short-lived. The Institute of Fiscal Studies has pointed out in its "Green Budget" that benign neglect of the current account deficit could sow the seeds of the next recession. If that deficit continues unchecked, either the United Kingdom's competitiveness—that means volume production—must be boosted or growth cut. That would mean an increase in interest rates. The first option is surely more preferable to the second.
There must be a marked shift towards investment that will result in exports and import substitution. My concern—it is not the first time I have raised it in the House—is that the financial institutions are biased against manufacturing investment. Short-termism seems to rule supreme. That has led to a reduction in the investment we need. Investment against the gross domestic product is at its lowest level for some 30 years. That investment is considerably lower than that made by some of our industrial competitors in the world marketplace.
Within Government, an element of schizophrenia seems to be apparent. We laud the car industry because, at last, we have become a net exporter of vehicles. We no longer import more cars than we export. At the same time, however, we seem to have missed out on some of the opportunities offered by the huge investments that have been made by Toyota, Nissan, Honda and Peugeot, which have helped to produce that beneficial change in our exports.
In the short term rather than in the long term, we must focus our minds on providing more investment. I am talking not about blanket investment, but about specific focused investments. For example, we have fewer computerised machine tools per thousand head of population than any country in the industrialised world. In this country, the figure was around 0.9 per thousand. In western Germany—before it was combined with East Germany—the figure was 2.3. I learned a long time ago that I do not care how broad your back is or how big your shovel is, Mr. Deputy Speaker, but you will never beat a man who is driving a JCB if you want to dig a trench. We must compete in the modern world.
§ Mr. Page
I accept what my hon. Friend says.
Nevertheless, we must have investment in computerisation if we are to compete. I welcomed the increase in capital allowances in the last autumn statement, but I felt that the state of British business at that time was that companies had turned their attention away from investment towards short-term survival. After the restoration of corporate viability, companies are more capable of coming forward with investment plans than for some time. I could produce figure after figure to support that point.
I return to the announcements about small businesses, which are some of the more positive and welcome aspects of the Chancellor's speech. My right hon. and learned Friend correctly identified three areas of difficulty—the 961 burdens of regulation, external finance and cash flow. The measures which he announced went a long way to help in all three areas. Moving up the level for exemption against VAT to £45,000 will help many small businesses, and removing the cost of the audit has been asked for by small companies for years.
The message I would send to small businesses is that that must not be used as an excuse not to have proper financial accounting. I have been talking to three of the major clearing banks in this country, and all three came up with the same figure. The banks said that, of small businesses with a turnover of between £250,000 and £1.5 million, only 8 to 10 per cent. carry out monthly profit and loss accounts. As someone with a little knowledge of business, I find it staggering that anybody can try to run a company without knowing every month how it is doing. That is absolutely beyond comprehension.
The Chancellor has moved to allow people to reinvest and put moneys into other companies when they have decided to sell up or move away from their original activity. The raising of that level to £750,000 shows a realistic recognition of the amounts of money needed to be put into industries and businesses today to make them survive.
I will now mention the replacement of the business expansion scheme. The scheme was introduced to give finance to businesses, and, with the benefits to investors, went some way to compensate for the risks in small firm investment. However, as with most fiscal measures during that time, the scheme has lost much of that original aim.
The extension of the BES to rented housing accommodation in 1988 provided a vehicle for relatively low-risk, high-return investment. That was well away from the original aim of the BES. Therefore, I welcome what my right hon. and learned Friend has done with the enterprise investment scheme, and particularly with the block on property.
We must put money into ideas which will produce things for this country, and not just into the bricks and mortar. We must have the basis for growth and development. While the building is a part of that, if we do not put money into machinery and ideas we will fail against our foreign competitors. The idea of the creation of a venture capital trust is bold and imaginative. I would love to see the details before I make any final judgment, but the idea behind it is superb, and if it will encourage investment in smaller businesses, it is to be welcomed.
The payment of debt has been mentioned time and time again. Small companies are worried that their major customer is not paying them on time, and the major customer can use that situation cynically to its advantage. The small company can do nothing about it. If it criticises its main customer or takes action against it, the small company loses, possibly for ever. My right hon. and learned Friend's remarks about the charging of interest and other measures is to be welcomed.
When Ministers assess how to bring that into law, they must ensure that there is as little possible activity as is required by the small business. Otherwise, the business would have to initiate the action, and could lose that customer—the very reason why small businesses do not take action under the existing legislation. The proposal is marvellous, but it must protect the small business man who may be ripped off by a larger company.
With the exception that I have mentioned of the moves to tackle the balance of trade, I think that my right hon. and 962 learned Friend the Chancellor has succeeded magnificently in the difficult balancing act of reducing the PSBR and keeping the recovery rolling. On that, he is to be congratulated.
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
It is with some diffidence that I rise to speak so soon after the Chancellor has sat down. Clearly, I have not had an opportunity to read the lorry-loads of paper which go along with a Budget. I do not have the advantage, as did the Chancellor, of having a glass of amber-coloured liquid in front of me to refresh myself. No doubt the Chancellor was just enjoying a quiet celebration of St. Andrew's day.
After the media flurry about the cost of cigarettes and wine has subsided, the question which people in Scotland, in Wales, in London and particularly in my constituency will ask is, "What will this Budget do about mass unemployment?"
After one has stripped away the gimmicks and the flourishes, we have been presented with yet another Conservative Budget which fails to make bringing down unemployment a priority. Instead of making that the centrepiece of their strategy, we have boasts. One of the Treasury handouts which I have had time to read claims—immodestly, I believe—that the Budget completes the job of sorting out public finances.
The Chancellor himself said—again immodestly, with echoes of Mr. Toad—that the Budget would "sort out" the public sector borrowing requirement "once and for all". I put it to those on the Treasury Bench that those boasts will come back to haunt them. It is not clear from the Chancellor's speech that there are enough concrete measures in the Budget which will deal with the burden of the PSBR.
Unemployment is an issue which haunts every family in the land. Every estimate suggests that this country will still have 2.5 million people unemployed at the end of the century. Who could forget those posters at the time of the 1979 general election featuring the long queues of unemployed people? The posters said that Labour was not working. Who could forget the Tories wringing their hands about unemployment figures of 1 million at the end of the 1970s? Yet we will see out the century with levels of unemployment more than double those which the Government inherited, thanks to more than 14 years of Tory economic mismanagement.
Sadly, my constituency has the sixth highest level of unemployment in the country, with the present rate being 23.2 per cent. More sadly, that is an under-estimate. I know for a fact that women workers and young workers have opted out of the job market altogether, and that they do not register.
The figures for Hackney, North, in common with the figures from all over the country, have undoubtedly been presentationally massaged by more than 30 changes over the lifetime of the Government in the statistical methods of collecting the unemployment figures. If I were a Minister, I should not be so quick to rush on to television to talk about unemployment figures coming down. Any set of figures can come down if they are tinkered with 30 times in 10 years. Hackney, like many other parts of the country, is not following the overall trend and, sadly, unemployment continues to rise. 963 Even when, by jiggery-pokery, the Government fiddle the figures to bring the overall number down, the national picture shows that more than one third of the unemployed people whom even the Government are prepared to admit exist—that is, more than a million people—are long-term unemployed. It also shows that there are 750,000 unemployed young people.
It is worth reminding the Government of the real cost of unemployment, because they seem to forget it. There is a financial cost, in that we spend £350 million on benefits. When the Government talk about public spending, and about taking money away from the disabled to deal with the public sector borrowing requirement, do they understand what the real basis of our spiralling PSBR is? It is the cost of maintaining the unemployed.
The Government sometimes seem to get the argument back to front. They seem to think that the way to cut the PSBR is to cut the money we give the unemployed, whereas the only long-term decent method of cutting the PSBR is to cut the number of people who are unemployed. For as long as I have been in Parliament, the Government have refused to face that issue.
There is also a social cost to unemployment. Nobody believes that one can entirely dissociate the issue of rising crime from that of mass unemployment. No one suggests for a second that, simply because someone has no job, he will go out and commit a crime, but the correlation between areas of high unemployment and areas of rising crime are too obvious to miss.
It is odious—to use one of the Prime Minister's new words—to see the Home Secretary strutting around talking about how he will build more prisons, put more young people in jail for longer and make prison conditions tougher. It is odious to see him playing the law and order card ruthlessly, when he knows that, if one group of people bears the responsibility for rising crime and the mass unemployment that underpins it, it is the Government.
Unemployment also has a cost in terms of the quality of people's lives. Fear of unemployment affects every community in the country. Perhaps during the 1980s people in London and the south-east said, "Unemployment may be affecting coal mining areas, Scotland, Wales and the north-east, but at least we are experiencing a boom." But in the past 18 months, the chickens of Tory policy have come home to roost in the Tory heartland of the commuter belt, of London and of the south-east.
In the London borough elections next spring, the Government will pay a price for the extent to which unemployment has affected London, the south-east and the rest of the commuter belt, as it did not in the roaring Thatcher years during the 1980s.
I believe that no single factor acts to depress the housing market and growth more than the fear of unemployment, yet in the Budget, as in a whole series of Budgets, the Government refuse to make fighting unemployment a priority. Instead, we get gimcrack, gimmicky schemes that take up much time and space in press releases and give the Government something to say, but which do little about unemployment.
Let those of us who were in the Chamber in March cast our minds back to the schemes announced by the dear departed right hon. Member for Kingston upon Thames 964 (Mr. Lamont), which were supposed to reduce unemployment. The right hon. Gentleman was so desperate to have something in his Budget that seemed as if it referred to the unemployed that he dragged in schemes that were really matters for the Department of Employment.
The educational allowance scheme was trumpeted in March. What has happened to the 60,000 places that were promised? Ministers tell me that, so far, only 5,000 people are participating. In the March Budget, we also heard about the new community action programme, and were told that 20,000 places would be handed out. What has happened so far? Only 1,200 people are participating. What has happened to the pilot schemes for the long-term unemployed, about which we heard so much in March? They are only just up and running.
The presentation of those schemes and their value was limited. Shoehorning them into the Budget statement was extremely cynical. The seriousness of the Government's commitment to the unemployed is restricted entirely to window dressing schemes which, six months after the dear departed former Chancellor announced them, are hardly up and running.
This year we have been told about more schemes and more window dressing. There is to be a two-week restart course, and even "extended" community action—although even the places promised in March have not been filled. There are to be higher levels of skills training, career development loans, the job finders grant, and job finders workshops. There is to be caseloading—whatever that means.
Those schemes, like the schemes announced in March, like last year's schemes and the schemes before that, are mere window dressing. They achieve little in terms of affecting long-term unemployment; they are simply a public relations device so that the Government can be seen to be doing something for the unemployed, whereas the reality is that the long-term trend, especially for people who have been unemployed for more than a year, and in relation to the structural unemployment in communities such as mine, the long-term trend continues to rise.
Let us not waste any more time on the schemes that have been exposed as the merest cynical window dressing. What is the Government's real answer to unemployment? They must have given it some thought; I do not want to suggest that they have given the matter no thought. To find the Government's real answer to the problem of unemployment that is haunting every family in the country, we must pluck out a phrase from the Chancellor's speech. The right hon. and learned Gentleman talked about the importance of a flexible and deregulated labour market.
What does that phrase mean? The Economic Secretary to the Treasury and the Government Whip are laughing; they know what it means, and they are fortunate indeed that it does not apply to them. It means a low-skill, low-wage labour market with no security and no job protection. In recent weeks, we have seen the Secretary of State for Employment, that well-known Christian Democrat, fighting off the other 11 European states' modest efforts to offer a level of protection to low-paid workers.
As we approach the year 2000, the Government present the British people with the notion of the British economy competing with Japan, Germany and the economies of the Pacific rim on the basis not of training or skill but of a low-skill, low-wage, insecure, unprotected labour market. 965 That is how they want to get people—or, at least, some people—back to work, at the very bottom of the employment pyramid.
§ Mr. Duncan Smith
If what the hon. Lady says is true, why does 40 per cent. of the inward investment in the EC arrive in this country?
§ Ms Abbott
Precisely for the reason that I have explained. I am grateful to the hon. Gentleman for his intervention; it is precisely because what I am saying is true that we get the inward investment.
Labour costs in Britain are lower. Car workers in Britain cost 40 per cent. of what car workers in west Germany cost. I have never spoken to the hon. Gentleman before, and I do not know his background, but does he really believe that this country has any long-term prospect of competing with Germany, Japan and the Pacific rim on the basis of low wages and low skills? That idea does not present any long-term prospects for this country. The hon. Gentleman should go back to his constituents and tell them, "I have seen the future, and it is a future of low wages, short contracts and unprotected employment." They will thank the hon. Gentleman for that by lowering his majority.
I do not want to be entirely unfair to the Chancellor. There is one thing in the Budget for which I would like to give one cheer—the announcement of the child care allowance—although I have yet to see the details of it. I am a cynic. I dare say that, when those who will benefit from the allowance cut it up, they will have lost money in all sorts of other ways in terms of the value added tax on fuel and so on.
However, the principle of the allowance—it is an important one, and I welcome it—is that the way to get single parents off benefits and into the job market is to offer them some help with child care. But the way in which the allowance is worked out in practice is an entirely different matter.
The Chancellor began his statement by boasting about how he had solved the public sector borrowing requirement once and for all. That cannot be true. That claim places far too much weight on spending cuts which have yet to be specified. The proof of the pudding of the Budget statement will be in the eating. The balance of getting public spending under control relies too heavily on public spending cuts. We will have to see those spending cuts, and we will have to see whether the Government can get them through the House.
High unemployment is a tragedy not simply for those who are unemployed but for the young people leaving school with no prospect of ever getting a job, and skilled men in their 40s and 50s who are being made redundant and know that they will never work again.
Unemployment is not simply a tragedy for those who are enduring it. It is also a tragedy and a serious matter for the economy of this country, because growth and a sustained upturn will never be achieved unless the human capital of this country is maximised. However, that human capital is not maximised by condemning millions of people to long-term unemployment. For many years to come, we will pay the price economically and socially for the mass unemployment of the Thatcher years.
I listened with great interest to the Chancellor's presentation. He must be congratulated on the bravura and flourish with which he made his speech. Nonetheless, when all the fanfares have died down, I am waiting, the 966 people of Hackney are waiting and the people of Britain are waiting for a Government who will finally, after 14 long years, put a return to full employment on the top of the political agenda.
§ Mr. William Powell (Corby)
One of the problems that Tory Members always face in dealing with Labour Members' speeches is that, when we ask them how on earth they would get from here to Edinburgh, they always say, "If I were going to Edinburgh, I would not start from here". The difficulty is that Labour Members are genuinely reluctant to face the main strategic problems of the Chancellor and his predecessors. Indeed, if Labour Members had been lucky enough to win the general election, they would have faced the same problems.
My right hon. and learned Friend the Chancellor presented a Budget which is not the Budget that he would have chosen to present in a perfect world. However, he has to deal with the real world and real circumstances and, as one would expect, he has done so with characteristic courage and integrity. We are fortunate that the Chancellor and, indeed, the Cabinet—I am proud to include Cabinet members and their collective responsibility—faced up to many of the problems which they immediately faced and introduced a package which is creative and is genuinely designed to address many of the short-term difficulties. But it also lays the basis for the longer term and for much more sustainable achievements in our economic fortunes.
I look forward to the day one year hence when my right hon. and learned Friend, as a result of what he has been able to do this afternoon, will be able to present a second Budget which builds on today's Budget and which is smore in keeping with the sort of Budget that it would have been his ambition to deliver in a more perfect world. The hon. Member for Hackney, North and Stoke Newington (Ms Abbott) laid down the yardstick by which she would judge the Budget—what it does for unemployment in this country. I respect the impulses that led her to argue and analyse exactly as she has done.
When I came to the House more than a decade ago, I had the highest level of constituency unemployment. That is no longer the case, or anything like the case. At that time, we had structural unemployment in Corby and east Northamptonshire which meant that, whatever the national unemployment level, unemployment in that area was always significantly higher than the national average. Today, we have reached the point at which unemployment in the area is fairly consistent at 1 per cent. to 1.5 per cent. below the national average. Of course, it is still too high, but I draw comfort from the fact that unemployment has fallen by 6 per cent. in the past year. The way in which I judge the Budget is that more of my constituents are likely to find work next year than has been the case in the past year.
I agreed with my hon. Friend the Member for Worcestershire, South (Mr Spicer) when he emphasised the question whether the Budget would assist in delivering higher sustainable growth in the future than has been the case recently. I think that it will do so. More of my constituents will get jobs as a result of that sustainable growth, and they will benefit correspondingly from it.
Matters that are important to my constituents and those of all hon. Members lie substantially beyond my right hon. and learned Friend's power. Above all else, it is absolutely 967 essential for the sustained revival of economic activity in this country that we have sustained growth in world trade. In the past 250 years of British economic history, there has been no period when the British economy has prospered against a background of decline in world trade. If we are to prosper, it is absolutely essential that there is a robust recovery in world trade because so much of our economic activity is involved in international trade. However, one cannot be too sanguine that that is about to happen.
Resolution of the problem of the general agreement on tariffs and trade is of considerable importance to this country and should never be overlooked. I welcome the measures introduced by my right hon. and learned Friend which will encourage trade with countries in the Pacific rim and with Asia. Of course, European markets are likely to remain the most important markets in the foreseeable future, but there is no doubt whatever that the expanding markets in the world which offer opportunities for our business men, merchants and entrepreneurs are in Asia as well as in Europe. The message needs to go out loudly and clearly that, if businesses wish to prosper, they must prosper not only here but abroad. By "abroad", I mean not only western Europe but the burgeoning dynamic markets in the east.
I welcome many of the measures announced by my right hon. and learned Friend. I strongly support his announcements on local authority expenditure for next year. Even a 2.3 per cent. increase in the money that local authorities can spend next year on this year's planned target—not their actual expenditure—is still on the generous side. Since May last year, a number of large spending authorities have been on a financial binge, and wish to continue that binge. That has been happening in Northamptonshire, and it simply must stop.
I welcome the fact that my right hon. and learned Friend underlined the Government's willingness to use their capping powers to ensure that spending targets for local authorities are not undermined by local authorities that feel that they are entitled to go on a spending binge, spending not only council taxpayers' money but Government taxpayers' money.
The controls exercised by the House of Commons over how centrally collected taxes are spent by local authorities are hopelessly inadequate. A much closer interest needs to be taken in how local authorities spend their money, 50 per cent. of which often comes not from what they raise locally but from what the Treasury gives them. That Cinderella area of public expenditure has been overlooked for far too long.
A scandalous report has been issued in Birmingham saying that taxpayers' money allocated for education through Treasury payments to the city of Birmingham has not been spent on education as most parents, governors and teachers in Birmingham schools would have wished, but has been used to develop exhibition facilities and goodness knows what else. As a result, we now learn that Birmingham has some of the worst academic results of any education authority in the country.
It is wrong that a large authority like Birmingham can receive money from my constituents who believe that it will be spent on education and then discover that it is being spent on something else. That is happening in countless local authorities, including some in Northamptonshire. I 968 hope that the Government will be firm in making it plain to all local authorities that the 2.3 per cent. allowance on this year's planned spending rise is the limit and that capping powers will be used to ensure that it is held.
I welcome the increased contribution to the national health service. All our constituents not only want that but need it. The increased expenditure on education will also be important. I was astonished at what the right hon. Member for Berwick-upon-Tweed (Mr. Beith) said about grant-maintained schools. It is right and appropriate that the Government should seek to make available more and more money to the grant-maintained sector, knowing that it is usually better spent than any money given to local education authorities.
I have many grant-maintained schools in my constituency, most of which have become grant maintained not least because of decades of neglect by the local education authority in Northamptonshire, whether it has been under Labour or Conservative control. They welcome their increased freedom to manage their schools and assets in a much more sensible and practical way. I hope that when the allocation of money to the grant-maintained sector is broken up, the Secretary of State will not overlook the important claims of many junior and infant schools that are now becoming grant maintained for capital allocations over and above those given to the secondary school sector. I hope that successive Budgets will ensure a progressive flow of funds into that sector and that the Opposition will get the message that grant-maintained schools are popular. Not a single grant-maintained school has had reason to regret going grant maintained. I have considerable experience of that sector and know that most of them richly welcome the opportunities given to them.
I very much welcome the schemes for expanding the unquoted companies sector. It is an important measure. Small businesses have taken a serious beating during the past four or five years and everything that can be done to encourage the revival of small businesses should be welcomed, and I welcome the raft of measures put forward by my right hon. and learned Friend. What he said about the late payment of debt is also important, but I wish to underline a good point made by the right hon. Member for Berwick-upon-Tweed. Some of the worst payers in this country are Government Departments. Some of my constituents who work for Government Departments complain week after week about every imaginable excuse made by Government Departments about why they should not pay their bills. The matter will not be taken seriously unless and until the Government are prepared greatly to improve the financial discipline that they exercise and ensure that small businesses in particular receive priority payment rather than endless excuses about why money cannot be paid.
I welcome the schemes to give people an incentive to get back to work. What is needed is a much greater emphasis to encourage people to work. This afternoon some useful steps were taken, most of which have been called for by the Opposition, although the specific detail may not have been what the Opposition Whip, the hon. Member for Wolverhampton, South-East (Mr. Turner), wanted.
The House knows that I am among those who are totally opposed to the extension of the VAT base. I am as angry today as I have been at any stage in the past six or seven months that my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) should have made such a 969 proposal. I welcome the fact that the Chancellor has decided not to go further in extending the VAT base. Any idea that the VAT base can now be extended at the standard rate of 17.5 per cent. is utterly impossible. During the past few months there has been much agitation in the country and the House among my right. hon. and hon. Friends—
§ Mr. Powell
Will my hon. Friend allow me to persist in what I have to say before he intervenes?
There has been much agitation about the amount of compensation that will be allowed. I pay tribute to my right hon. and learned Friend the Chancellor for introducing a package of proposals for compensation which is much more generous than anybody in the House expected and certainly more generous than I expected. At no stage during the past few months have I advocated a compensatory package because I should have preferred VAT not to be levied on heating and cooking. However, I pay tribute to all my right. hon. and hon. Friends who have persistently and vigilantly brought home to my right hon. and learned Friend and other members of the Government the fact that the proposal was not sustainable without handsome and generous compensation.
It is usually estimated that VAT at 8 per cent. would cost an average household 85p a week and, at 17.5 per cent., approximately £2. Although it must be said that, on those figures for an average household—many households are not average—there is not total compensation, there is all but total compensation for those who receive it.
I welcome the fact that compensation has been extended to all pensioners. One of the matters that made me so angry about what was done in the Budget in March was that my right hon. Friend the Member for Kingston upon Thames did not seem to appreciate that those just above the benefit level, many of whom had seen a decline in the income from their investments because of the decline in interest rates, would be the worst affected by the introduction of VAT in that way.
My right hon. and learned Friend has gone almost as far as anybody could ask to compensate pensioners, including those above the social security thresholds, for the introduction of the tax. That is not to say that all those who deserve it will receive compensation. Of course, there will be individuals who will fall outside the package—that is one reason why I have never regarded a compensation package as the best answer to the problem.
There will also be deserving organisations, frequently charities, that will be hard hit by the introduction of the tax. As the House has heard me say on many occasions, organisationswhich raise money in modest circumstances will find the extra tax a heavy burden to bear on top of the many other fiscal burdens of recent years.
It would be wrong of me, in again registering my hostility and anger at the extension of VAT to heating and cooking, not to recognise that my right hon. and learned Friend the Chancellor has introduced a remarkable package that will go a long way towards dealing with immediate difficulties. I hope that my right hon. Friend the Secretary of State for the Environment will ensure that the extra energy conservation measures that have been announced will be directed to houses inhabited by local authority tenants and old houses in the private sector, in which heating costs are above average.
970 We have talked throughout about average heating costs. We should recognise that, although there may be one or two that meet the average, homes will digress substantially from the average. I have seen Graham Gooch score many runs as a batsman at the crease, and he has an average of 44.61, but I have never seen him score that number of runs and I doubt whether anybody else has.
The announcement will go a long way towards meeting the legitimate complaints about the matter of so many people. Although I am unable to award my right hon. and learned Friend the Chancellor the highest accolade, as I would have wished, I am prepared to pay handsome tribute to his Budget. It will be recognised throughout the country as a great help.
The Budget is one of the meatiest that has been presented to the House. It may turn out to be one of the most important Budgets that has been introduced at this stage in our national and economic history. My right hon. and learned Friend the Chancellor deserves the congratulations of the House for his courage and integrity in introducing the proposals. I look forward to supporting him and his Budget proposals in the Division Lobby.
§ Mr. Robert Ainsworth (Coventry, North-East)
When the Government drew up the slogan "back to basics", they gave us a couple of opportunities. The Opposition can use it to judge the Government's lack of aspiration for the country. It also gives us a good handle and measure by which to judge the policies that they introduce in the House, including the Budget. When we use the slogan "back to basics" to judge the Budget and the tax system that is to be introduced, we should ask two questions. First, are they fair and is the overall system in which they will operate fair? Secondly, do they tackle the real issues that face the country?
I was astonished that Conservative Members cheered the Chancellor of the Exchequer when he sat down. There will be a £6 billion increase in the tax burden, to be slid in over a three-year period. If one takes out the concessions to business in the personal sector, there will be a £7 billion increase in the tax burden. It will be slid in over a three-year period, but nonetheless there will be a £7 billion tax hike. That increase follows the increases in VAT and in national insurance contributions that were announced in the spring Budget. Those are the policies of a Government who at the last election promised decreases in tax year on year.
A lot has been said about the compensation that will be applied to the introduction of VAT on fuel. I was confused by what the Chancellor of the Exchequer said on the matter, and I am not still clear about it. He announced some figures that would apply to individuals, and I did not think that those figures were generous or would cover the total cost—
§ Mr. Ainsworth
The hon. Gentleman is a clever chap—he can read the bundle of papers before other hon. Members make a speech. I have not read the whole bundle. The figures are hidden somewhere in the papers, but I have not read them yet, because I have been listening to the debate.
The Chancellor gave us some figures that I did not think amounted to full compensation. He then gave an overall 971 figure for the cost of the measure—£1.25 billion. If that figure is correct, he has almost fully compensated some groups of people for the VAT.
I am still confused about that, and perhaps when he sums up the Minister will clear up the issue. If the second figure is correct, it sends a clear message: that, having heard about the threatened imposition of VAT on fuel, pensioners organised themselves and "frit" the daylights out of some Conservative Members. If they are to be almost fully compensated, as the second figure would suggest, that is the reason. If that is so, perhaps the pensioners have something to teach other people who will suffer as a result of VAT. Families will be on the receiving end of that appalling increase, even if the pensioners will not.
§ Mr. Sweeney
Is it not right that my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) stated as long ago as the spring Budget that help would be given to those in need? Has not the Labour party used its fertile imagination to whip up fears among pensioners, the poor and the weak in society over the past six months?
§ Mr. Ainsworth
I seem to recall that, week on week, Conservative Members were reluctant to respond to questions asked, particularly by the Labour Front-Bench team, about whether or not people would be fully compensated. Conservative Members were not prepared to answer that question during the two by-elections at which the subject was an important issue.
If the Government have now decided to give compensation, and the hon. Member for Vale of Glamorgan (Mr. Sweeney) wants to suggest that they made that decision a long time ago and the fears were all a figment of people's imagination, one wonders why the Conservatives suffered such pains during the two by-elections, and have continued to do so during the past few months.
People should recognise that, if the Government have been obliged fully to compensate one group of people, they have done so as a result of the pressure brought to bear. Even if that is so, the compensation will not solve the problems for many other people. As the hon. Member for Corby (Mr. Powell) said, there is no such thing as the average household. There will be no such thing as the average fuel bill.
People with decent houses and decent insulation, with double glazing and good heating systems—in short, the better heeled—will do all right. But people living in poorer accommodation, with less efficient heating systems, in no fines council houses and the like, will find, even if in general there has been full compensation, that they are pounds out of pocket.
Another worrying issue is that the fuel bill money has now been included in pensions, so it will be steadily eroded as time goes by. The Government have been adept at cutting by stealth. Since they came to power, the basic state pension has become worth less compared with average earnings. I have no doubt that the Government will try to claw back the compensation package as soon as they can.
§ Mr. Heald
Is not the hon. Gentleman's point about energy efficiency dealt with by the expansion of the home energy efficiency scheme, which already helps 200,000 poorer households and which in future will be doubled? I 972 do not know whether the hon. Gentleman saw a recent announcement in answer to a question that I tabled to the effect that in future householders will not have to make any contribution to the scheme. That is a genuine help for all pensioners and poorer families.
§ Mr. Ainsworth
Given the number of deaths in the winter from hypothermia, the scheme will need a tremendous expansion. Let us hope that that takes place—
§ Mr. Ainsworth
Talk of percentage figures in these terms will not be much help. Let us hope that people get the assistance they need.
I come back to the £6 billion tax increases—£7 billion when we discount the reductions offered to the business sector. On whom will the burden fall? I have no doubt that the measures chosen will fall on the middle-earning and lower-earning people of this country, just as they have done time and again before under the Conservative Government. In the 1987 and 1988 Budgets, billions of pounds were dished out to top earners, £2 billion in a single Budget—that of 1988. The balance of tax paid has shifted away from the better-off and towards those on average and below average earnings.
The Government try to tell us that they are a Government of low taxation, but between 1979 and 1991–92, the burden of taxation on an average family rose from 35.2 per cent. to 36.7 per cent. Meanwhile, the burden on the top tenth of the population decreased considerably, while for the bottom tenth it rose considerably. If we— discount the Chancellor's sleights of hand in this Budget, we will find that it means yet another shift away from the top, down to the middle and bottom end of the scale.
I was told that last year's Budget was neutral, as it impinged across the social scale. I said that it was not; I was assured repeatedly that it was. Now research has shown clearly that that Budget was not neutral at all. It imposed a 3 per cent. increase in taxes on bottom earners, a 1.5 per cent. increase on top earners, and a 2 per cent. increase on the average person. So the Government's claims were patently untrue. Those on lower and average earnings paid for those on higher earnings.
§ Mr. Alan Duncan (Rutland and Melton)
Will the hon. Gentleman acknowledge the contents of a leading article in The Sunday Times of 7 November, which clearly stated in great detail that the percentage of income tax revenue paid by top earners has risen in almost every year in the past 15 years, and that top income earners are paying a far larger proportion of income tax revenue than they did before rates were cut?
§ Mr. Ainsworth
People can do wonderful things with statistics, if they choose their words carefully. I note that the hon. Gentleman talked about income tax, not tax. We are talking about a period when these top earners lined their pockets to such a tremendous extent that it is only to be expected that they paid a couple of pounds more in income tax.
But the burden of taxation has irrefutably moved down from top earners to the middle and bottom earners, if we take into account the whole basket of taxation. I can take the hon. Gentleman through the figures afterwards if he wants to challenge that. I am astonished that he should 973 attempt to deny it. Surely he knows deep down that what I say is true—indeed, his reaction to what I am saying seems to show that.
The other problem is whether, in view of the fundamental economic problems that face our country, the Chancellor has done anything to put the economy right. Despite £110 billion of North sea oil revenues during the Government's period in office, in this last recession, 900,000 manufacturing jobs have been lost. The manufacturing sector now provides only one fifth of our income—it was one third when the Government came to power. We have the lowest growth rate of GDP and output of any Organisation for Economic Co-operation and Development country apart from Canada.
This problem needs solving. The Government have implemented some of the measures asked for by the CBI and by business. There are some small forms of encouragement for business in the Budget, but the Government have refused to give the necessary capital allowances on first year investments asked for by the CBI and the Engineering Employers Federation. If there is to be proper investment in manufacturing industry, it is essential to provide such incentives, yet the Government have failed to do so.
There have been announcements of cuts in housing and in infrastructure investment. The west coast main line work has been announced. The hon. Member for Corby (Mr. Powell) said that Opposition Members always say, "If you want to go to Edinburgh, don't start from here." It is a good job that we do not travel to Edinburgh by the west coast main line, because we would never get there.
I make a prediction: this is the last day of November 1993, and I have watched the Government announce infrastructure proposals again and again, but they actually take place after the 10th or 12th time they have been announced. There is thus half a chance, given the Government's record, of getting some investment for the line in about a decade.
What about the fast rail link? The privatisation proposals will deprive the rail system of investment. The Government are effectively ensuring that no one else will invest until we have sorted out the mess. We are also cutting the roads programme. Our manufacturers have to exist on the edge of Europe, and they have to have access to its markets. To solve our economic problems, we must have a good infrastructure and transport links, but the Budget does little to bring those things about.
Cuts in housing will be inevitable. Every evening when we leave this place, people shout at us and try to sell us copies of The Big Issue. Housing is a big issue for those who are affected by the lack of it, but it is not one of the Government's political priorities, because they have effectively announced further housing cuts. That will ensure the continuation of homelessness, which, if anything, will be exacerbated.
There are 7,000 unemployed people in my constituency, and 20,000 people are out of work in Coventry. In the Foleshill ward in my constituency, unemployment is 37.7 per cent. Nothing in the Budget will significantly reduce that complete and absolute waste of human resources or cure the social problems that inevitably flow from it. That is a tragedy.
When we ignore the sleight of hand and look at the figures, we see that, over three years, the Chancellor will slide in a huge tax increase. He proposes real and 974 significant cuts in public expenditure which he has not yet detailed. He spoke about having settled the public sector deficit, but he has not detailed or sorted out those cuts.
The Budget will not tackle our problems. It builds on the sins of the spring Budget. The betrayal of election promises has been furthered by thisBudget, and the failure to settle our underlying economic needs is a betrayal of our national interests.
§ Mr. Iain Duncan Smith (Chingford)
My right hon. and learned Friend the Chancellor performed not only the difficult task of delivering the Budget while surrounded by many people advising him on what or what not to say, but coped with the extra burden of the public expenditure round. I congratulate him on doing that with such style and elegance. It must have seemed a fearsome hill to climb but I understand the Government's desire to move the two areas together. I am slightly concerned that we may not have given ourselves enough time before setting the Budget to see some of the implications of our spending round. However, I am sure that our skilled Front-Bench Treasury team will have considered that.
The Budget must be examined in the context of consistent Conservative policy, the aims of which are security, self-reliance, enterprise, personal responsibility, securing sound public finances, low inflation and sustained economic growth. I was glad to hear the Chancellor stress again low inflation and sustained economic growth. Those themes were clear throughout his speech.
The Chancellor has inherited lower inflation, lower interest rates and falling unemployment, but he has also inherited a PSBR of £50 billion. He has had to perform a delicate balancing act because he must nurture economic growth, which is still delicate, while bearing down on the excessive PSBR. As Conservatives know, failure to control the PSBR will ultimately lead to higher taxation of the wealth-creating sector and, of course, that will lead to the problems that existed under the Labour Government in the 1970s.
The backdrop to all the arguments about taxation and expenditure is that the Chancellor has already been passed from the March Budget some £10.3 billion of tax increases, of which £6.7 billion are due to come into play in April. My right hon. and learned Friend deserves great credit for bearing that in mind throughout his speech. He knows that any great increase in taxation would damage the rather delicate economic growth.
The fact that the economy is becoming stronger has much to do with the fact that we have left the ERM. I do not wish to enter into discussion about whether growth occurred before or after we departed from the ERM, but my view is that growth was greatly assisted by departure. It will not surprise hon. Members to know that I am against exchange rate mechanisms. Events from the time of the gold standard through Bretton Woods into the ERM have demonstrated that such mechanisms end in tears. Government policy post our departure from the ERM has been carefully monitored and gauged, and the Government are to be congratulated on sticking to their original aim of retaining domestic monetary figures as the main focus
This morning's issue of The Financial Times said that we did not really need to worry too much about money in circulation because M0 was showing a growth of some .5.3 per cent. M0 is a bad gauge of money in circulation. A 975 better one is M4, and we should be worried that M4 is still not at the level at which it should be at this stage in the cycle. It could be higher, and in that context it is worth bearing in mind the potential for further cuts in interest rates.
I unreservedly welcome the Chancellor's announcement of the reduction in the PSBR of £5.5 billion in 1994-95, rising to £7 billion in 1995-96 and £10.5 billion in 1996-97. Those are significant reductions on which I congratulate my right hon. and learned Friend. I welcome the fact that income tax allowances are unchanged. Many people were worried about that. I understand the reason for imposing duty on air passengers, which will be £5 within the European Community and £10 for journeys to other areas. Most hon. Members will welcome that because it brings us into line with many other countries, as those who travel will know.
I am slightly concerned about the 3 per cent. levy on insurance premiums because it sends the wrong message to the insurance industry. We are trying to get that private sector industry more involved in providing schemes for people. Perhaps the Government will think further on that in the coming year.
I am also a little concerned about our approach to the married couple's allowance. I know that it is in line with previous changes to the tax policy, but in view of our concern about single parents we should remember that such an allowance could have been retained at a slightly higher level.
I welcome all the business aspects of the Budget. The change in the VAT threshold to £45,000 is an excellent move. I welcome the 1 per cent. reduction in national insurance for those earning under £200 a week and a commitment to extending the 20p band of income tax. I was pleased to see a reform of the requirement for the audit of small businesses. That will remove a great burden from many small businesses in my area which say that the requirement has been excessive. I unreservedly welcome the increased export credits. Those will be well received by some larger companies which rely greatly on exports.
The most important part of the Budget speech was the part that dealt with VAT on fuel. All hon. Members should welcome that announcement.
My right hon. and learned Friend has put together a generous package, more generous than I expected and probably more generous than many Opposition Members anticipated. It may seem like a small gesture but £2.5 billion over three years starting in 1994 before VAT comes in will mean a lot. Income-related benefits will be up by 3.9 per cent. in 1994 and will mean about £4.3 per week for a couple with two children on income support. I am surprised that I have not heard more of a welcome for that from the Opposition today.
Looking through the great tome of information that is available, I am interested to see the areas that my right hon. and learned Friend has covered for people not on income-related benefit. For example, a single pensioner not on income-related benefits in April 1994 will see his benefit increase from £56.10 to £57.60—£1.50 per week. In April 1995 that will rise by a further 50p a week and in April 1996 by 30p a week.
I was particularly interested to see that a pensioner couple, again not on income-related benefit, will see their 976 benefits increased from £89.80 to £92.10. In April 1995 that will rise by 70p per week and in April 1996 by 45p per week.
Given the circumstances, that is generous, and my right hon. and learned Friend is to be applauded for that. I was somewhat concerned about where he would get the money for all that, but the fact that he has allowed himself to go beyond income support is a significant move.
I come now to the spending side of my right hon. and learned Friend's announcements. I am particularly interested to see that the original targets set for public spending are to be reduced. That will send just the right message to the financial markets—that the Government are determined to reduce the PSBR and will do something about it.
The public at large are quite within their rights to ask why, when those running businesses have had to cut their staff and seek to save money in a number of areas, the public sector has continued throughout the recession to take on an ever-growing number of new employees.
I recently made some quick calculations to discover the difference in the number of public sector employees in 1979 compared with 1993. After removing all the companies that have been privatised and the agencies that have left the public sector, there was a significant increase in the public sector of more than 500,000 employees, and that at a time when the private sector has had to reduce its number of employees. Therefore, more needs to be done in this area. It is significant that market testing has been extended, but can it not be applied and extended even further?
I note today that under the spending pledges there are real increases for the Department for Education, the Department of Health and the Home Office. But that should not stop them examining carefully again and again whether they need quite so many people to administer their funds. It is important for them to ensure that the public understand that they too will be examining their budgets in the way that any private company would.
I have one small concern with regard to the defence budget. We did not hear much about that today, but the defence budget has been significantly reduced, due largely to changing international circumstances, and it continues to be reduced. I am anxious that the Government should not treat the defence budget as a milch cow, just because it appears to be the easiest to reduce. We must take into account our international commitments and the way in which we structure our forces. Therefore, I urge my right hon. and hon. Friends to reassess carefully the pressure under which they put the defence budget and to ensure that the cuts do not affect our ability to carry out our duties.
I was interested to hear what the Opposition had to say on the tax changes in the Budget, particularly with regard to loopholes. My right hon. and learned Friend spoke about the need to continue to close loopholes and there is nothing new about that. Every responsible Government of any persuasion talks about closing loopholes. There is no such thing as a taxation system that is free from loopholes and there never will be because as soon as one set of loopholes is closed another is found. The biggest question is whether the cost of the exercise outweighs the saving.
The Opposition talk of taxing businesses by increasing corporation tax by some £20 billion. That is not a loophole; it is an increased tax. They talk of a tax on foreign companies. That is not a loophole, but those companies will be driven out of the country by such a tax. Then they 977 talk about a wonderful windfall tax on utilities, telling us that that was some sort of loophole, but forgetting that some £30 billion is being invested by the water companies to clean up the system. The Opposition intend to close that down as a loophole. What kind of a loophole is that? That is not responsible opposition. That is essentially trying to find money that the Government have not touched, but there is none. Those are not loopholes.
Watching the hon. Member for Dunfermline, East (Mr. Brown) during the past few weeks I have been reminded of that wonderful character Zaphod Beeblebrox in "The Hitch Hiker's Guide to the Galaxy", the strange two-headed figure who wanders around carrying on a perpetual argument with himself, each head putting forward another angle of the argument. On BBC Radio 4 on 17 January, on borrowing, one of the heads of the hon. Member for Dunfermline, East said:I am not talking about increasing current borrowing.Meanwhile, when asked whether he would seek an increase in the PSBR, the hon. Gentleman's other head said:I would be prepared to contemplate that.
On 18 August, on spending, one head said:Mr. Major and Mr. Clarke are spending much of their energy saying that Labour has massive spending debts£there are none.
However, the other head then said:The public sector must now become the engine of growth.
Both heads say something different, facing different directions. One head was also busy talking about a pledge to full employment—a wonderful open-ended commitment.
The two heads went on to argue withach other over taxation. One head said:If you cut taxation—and I hope that we will be able to do so".
But with his other head, when asked whether he believed in a 50 per cent. tax rate, the hon. Gentleman replied:if the Chancellor, to raise money to do things, raised the top level from 40 to 50 per cent. we would not oppose it.
It really is a case of both heads talking in different directions. This socialist Beeblebrox, at one and the same time, on the right and the left of the Labour party, seems to design his speeches to suit his audience.
The Government are now a natural partner for the reforming Government of the 1980s. The great reforms were then to the supply side, now we are looking carefully at the welfare state and a variety of other issues. It is not surprising that unemployment has started to turn down so early in the cycle. That has much to do with the reforms of the 1980s.
However, I was particularly pleased to see that the Government have turned their attention to reforming the concept of the welfare state, something which is long overdue. My right hon. and learned Friend, in line with other of my right hon. Friends, clearly recognises that failure to do that will hamper our desire to reduce the burden on the wealth-creating sector.
Now is the time to look at the Government's role and the division of the two areas—on one side, raising revenue and expenditure and on the other, the delivery of service. It is time to transfer as many services as possible to the private sector which can provide many of them, such as insurance, far better.
I am glad that some of today's changes bear a great similarity to suggestions made recently by my right hon. Friend the Secretary of State for Social Security. Some of the announcements fall well within the areas about which he spoke two or three days ago. The social security budget has increased by some 75 per cent. in real terms since 1979 978 and now accounts for one third of spending. When my right hon. and learned Friend talked about a real increase of 3 per cent., there were guffaws as some hon. Members said that it was something to do with unemployment. It has nothing to do with unemployment. That 3 per cent. takes into account unemployment and is a real year-on-year increase.
The new medical test to attack the abuse of benefit from 1995 should reduce some of the costs. I also note that many doctors have asked for such a measure because they feel under great stress, with their individual knowledge of the patient, having to decide whether or not somebody is eligible. That reform will save money and be well received by the medical profession.
The new job seeker's allowance, which will be integrated with and replace unemployment benefit and income support in 1996, is much in line with the single, means-tested proposal put forward by myself and others in August in a pamphlet, "Who Benefits?". It would be much more simple to administer and a more simple system for those who need the money and need to understand how much money they would receive. I am glad to see that we have begun our journey along that road and welcome it unreservedly.
The change in statutory sick pay is helpful because it is high time that large employers took more of the burden. If they do, there is every chance that they will take a greater interest and concern in the health of their employees and their infrastructure and general employment conditions so as not to end up with long-term sickness among their employees. It is an excellent move to force the larger employers, especially, into that area.
The equalisation of the state pension age at 65—again a change that we proposed in August—is welcome, but the Government should look again at increasing it, in due course, to 67 because the average age is rising.
I welcome the major structural changes that were announced in social security. They will open the door to much of the private sector. In providing services, we should certainly now encourage pension companies to be involved in the provision of pensions and I hope that my right hon. and learned Friend will consider it in the following year as an area that would help us to save money and increase the benefit to those who need to receive the money at that point.
I believe that my right hon. and learned Friend's speech was welcomed unreservedly on this side of the House. He has announced major changes in social security and taxation and his VAT package is generous, perhaps more than many would have expected, and he should be congratulated for finding room within the strictures of the PSBR. It is a good Budget, outlining a good spending programme and I look forward to the reduction in the PSBR and to Britain continuing with low inflation and growth over the next few years.
Mr. Malcolm Chisolm (Edinburgh, Leith)
In some ways, it is difficult to speak some two hours after the Chancellor has sat down, but in others ways it is easy because both his diagnosis and prescription for the economy are utterly predictable and utterly wrong. In the diagnosis section at the beginning of his speech, the 979 Chancellor could have mentioned at least five facts, if he had any degree of honesty or humility£perhaps strange concepts in connection with a Conservative Chancellor.
First, he could have pointed out that we have recently come out of the worst recession of any major, industrial country in the past 25 years, according to the Organisation for Economic Co-operation and Development. Secondly, he could have said that, given that, it would have been utterly amazing if there had not been some slight improvement over the past few months. What has been surprising is that the recovery has been so slight, given the devaluation and consequent cuts in interest rates that the Government did everything they could to avoid.
As the Chancellor said, we have growth this year of 1.75 per cent.—a level that Professor Wynne Godley called a growth recession. Thirdly, he should have pointed out our historically low levels of investment—14.4 per cent. of gross domestic product is 25 per cent. below the levels of our major European competitors and the lowest level of investment in Britain since the 1950s. Fourthly, the Chancellor should have pointed out that we also have historically low levels of public expenditure. Even in the depths of public expenditure cuts in the early 1980s, the Government pitched public expenditure at 47.5 per cent. of GDP. Now it is 45.5 per cent. of GDP. If we consider elements of that spending, we find far worse figures. Public capital spending is now only 1.5 per cent. 9f GDP, whereas it was 9 per cent. under the Labour Government. Even the percentage spent on the welfare state—which the Tories keep telling us is too high—is lower than in any other European country apart from Portugal.
The fifth and most crucial point that the Chancellor could have and should have cited in his opening statement is that the main reason for the PSBR problem is not the amount that we spend on the welfare state or public expenditure or capital expenditure, but because of the recession and because of the resulting unemployment that costs us so much money. That is the problem that he should have been addressing in his Budget, yet he failed.
We should have had a Budget for jobs and for investment. Perhaps the Chancellor was too carried away by his own rhetoric to give us such a Budget. His rhetoric boasted of the way in which unemployment is coming down in Britain, while it is rising everywhere else, so he says, and boasting of the jobs created in the 1980s. He should remember that since the beginning of the decade, we have lost more than 2 million jobs, while the claimant count in the same period has risen by 1.4 million. That shows that the claimant unemployment figures are not the best test of how our economy is doing for jobs. There are lots of hidden unemployed—people who do not go straight on to the claimant count. While unemployment is improving marginally in terms of claimant figures, the reality on the ground is that people are not getting new jobs and today's Budget should have been targeted in that area. I would have liked the Chancellor to say that he and the Government had had a change of heart and that from now on they were to make the creation of jobs the first objective of economic policy. Of course, there is no hope of that from the Government.
The section of the Chancellor's speech about jobs was almost unbelievable to Opposition Members. First, he mentioned a new job seeker's benefit as if that was 980 somehow to do with creating jobs. We know that it is rather about cutting unemployment benefit. People have paid for that benefit through national insurance contributions and to receive it for six months instead of 12 means that some claimants will move on to claim income support and some, if they have a partner in work, on no matter how low a wage, will go from unemployed benefit to no income at all. That was his first job creation measure.
There was one announcement in the Budget that I thought was good news, although I want to make some detailed comments—a child care allowance for families on family credit. That is a tribute to the strength of the campaigns that were waged over the summer. I wrote to the Prime Minister about that matter in June and received the most dismissive reply imaginable, saying that such an allowance was a crazy, unnecessary idea and in no way was to be implemented. I am pleased that there has been a change of heart.
However, there are certain problems with the allowance as announced. First, those who work fewer than 16 hours a week and therefore claim income support should also have child care support. Secondly, I feel that those whose income takes them just above family credit levels should receive some kind of child care support. Connected with all of that is the whole question of the supply of child care. Whatever help is given, if only private child care costing £70 a week is involved, it will still be too expensive for low-income parents to use. The Chancellor should have announced a national child care strategy to tackle the problem of supply as well as helping people with the cost. Opposition Members believe that that is crucial to the welfare of millions of women who want to work, and also to the good of the economy as a whole. Although I welcome that measure on child care, I think that it should be the beginning of something far more.
Child care does not, in itself, create jobs for people eligible for family credit, who may now be more willing to look for jobs because they are receiving help with child care. Its expansion must be accompanied by an economic policy that creates jobs—which is precisely what we hoped for, but were not given, in today's Budget statement. Certain obvious steps could have been taken to create jobs.
First, a boost for house building would have been an obvious way of increasing jobs and meeting a clear need. Last week, in a Scottish survey, Shelter stated that 45,000 Scottish households had reported themselves homeless to their local authorities last year. That, of course, does not reveal the total extent of homelessness last year. There is a crying need for a house-building programme; instead, the Budget statement announced a cut of £300 million for the English Housing Corporation. I have not yet seen the Scottish figures, and I do not know whether they are available, but I suspect that a similar cut is planned. The policy is going in exactly the wrong direction: we need to put money into house building, both to solve a social problem and to get the construction industry moving again, returning building workers to employment.
The Budget made some gestures to infrastructure, but they consisted of far too little, far too late. Infrastructure investment by the public sector is a very effective way of returning demand to the economy and returning people to work; it is also a very effective way of improving the efficiency of the economy. The provisions in the Budget are derisory and inadequate.
Most fundamental of all is the need for help for manufacturing industry. One of the most significant 981 omissions from the Chancellor's statement was his failure to refer to the balance of payments deficit, which now stands at a level which is unprecedented in the current stage of an economic cycle—£17.5 billion. We need manufacturing for jobs; we also need it to deal with that problem. If that problem is not dealt with, any growth that we achieve as a result of the Budget—or, rather, not because of but in spite of the Budget—will soon run into the constraints of the balance of payments deficit. Unfortunately, it seems that the Government will never address the problems of manufacturing investment. Simple measures involving capital allowances could he introduced, but I also believe that the Government should take a more direct role to get the sector moving.
Instead of using the opportunity presented by the Budget to create jobs, the Conservatives have used that opportunity to carry out an agenda that they want to carry out in any event, irrespective of the state of public finances. I refer to the particularly right-wing agenda that involves reducing public expenditure, attacking the welfare state and putting up taxes on low-income families. I have not had time to examine all the details of the public expenditure proposals, but I remember the Chancellor saying that the total would fall by £15 billion over the next three years, and that within the next four or five years it would fall from its present 45.5 per cent. proportion of gross domestic product—which, as I have said, is historically low—to 42.5 per cent. That is bad news for jobs, because public investment is necessary to create them; it is bad news for the welfare state; and it is bad news for our public services.
Let us consider certain specific groups. First, the Chancellor highlighted pensioners, who he said were given a good deal by the Budget. Let us remember what kind of increase is in store for them. Before the Budget, it was to be barely £1 a week for a single pensioner next year: that appalling amount was announced a few weeks ago. The reason was the official rate of inflation at the time—which, of course, bore no relation to the actual cost of items that pensioners must pay for.
Today, we heard that those pensioners would receive a measure of compensation for the imposition of VAT on fuel—not full compensation; it is probably about half what they will have to pay. I have not had time to examine the details. We should have heard an announcement that no VAT would be imposed on fuel: instead, we were told of an inadequate compensation package. Beyond the pensioners' immediate problem lies the distant objective of pension equalisation at the age of 65. Although that does not concern today's pensioners, it will concern younger people. The Government missed the opportunity to equalise pension ages at 60, which should and could be the policy of any Government who believe that they can deliver economic growth. The present Government, of course, have no confidence in their ability to do that, which is why they must resort to public expenditure cuts and unfair tax increases.
The second group I want to mention are those currently receiving invalidity benefit. One of the most shameful aspects of the Budget is the fact that they are being targeted to pay for the mistakes and the economic incompetence of the present Government. We are told that thousands who should not receive invalidity benefit are receiving it. I can tell the House that constituents of mine have recently been taken off it. I am not a doctor, but I can see that those people are not well, and are not fit for work. The Budget 982 proposal is a disgraceful attack on them. Once again, the Government seemed to think that the Government can get away with their actions, as long as they change the name of the benefit involved. They imagine that, if they call it "incapacity benefit", no one will notice. Opposition Members notice, however, and thousands of people in my constituency and throughout the country will notice as well.
The largest group, however, is composed of the millions of ordinary taxpayers who will suffer as a result of the Budget. The Government would like us to forget that many taxes—amounting to £8.50 a week—are already in the pipeline. In that sense, the Chancellor is indebted to his predecessor. Not satisfied with that, however, the present Chancellor has announced the freezing of tax allowances, and various other tax changes that will take the weekly tax increase for an ordinary family to beyond £10 a week after next April—and that from a party that claims to be a party of low taxation, and boasted about it at the last general election. The British people will never trust the Tory party again on taxation, and today's Budget will remind them of that fundamental fact.
We should also remember all the other people who will suffer as a result of the imposition of VAT on fuel, apart from pensioners. Those people did not get much mention in the Chancellor's statement. Some slight help will be provided for those on income support, but it will be in no way adequate to deal with the costs that they will face. Let us remember the state of the houses in which some of the people who will have to pay VAT on fuel will have to live. I remember someone on low pay who came to my surgery recently. She said that, because of the dampness of her house, she had to spend £25 a week on heating. Yet we are told by the Government that she will have to pay more. Because she is on low pay, she will not get one penny to help her with her increased heating bills.
For a moment, I shall give some respite to the Conservative party, although, obviously, my main fire is directed at it. I shall refer to another party with which we must contend in Scotland—the Scottish National party. I must point out this disgraceful leaflet that I was handed in Leith last Saturday. In opposing VAT on fuel, the nationalists contrasted Scotland's chill with southern comfort. It is a highly offensive leaflet, and it gives some idea of the nationalist poison of the SNP that we in Scotland have to put up with.
The concern of the SNP for the poor and the low paid does not seem to extend beyond the Scottish border. It forgets the millions of people who live in poverty in England in constituencies such as that of my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) who are by no means living in southern comfort.
In expressing our opposition to VAT on fuel, let us make it clear that the Opposition do not want VAT on fuel for anybody in the United Kingdom and that we still demand that it is scrapped. We shall continue to campaign for the scrapping of VAT on fuel in the expectation that we shall be successful.
If the worst comes to the worst and VAT is imposed next April, some Opposition Members will continue to campaign to ensure that the EC is challenged and that VAT is taken off fuel when a Labour Government return.
The main thrust of the Budget should have been to create jobs. If jobs are created, the problems of the deficit will go away. But I have to agree that, to create jobs in the short term, we must have public investment, and therefore 983 public expenditure. As the Conservative party always wants to know how the Opposition will raise the money, I shall conclude by saying something about that.
I emphasise that the key to dealing with the budget deficit is to deal with the problem of unemployment. The taxation measures to which I shall refer are not the heart of our budget argument. Jobs will create more income tax and will mean less expenditure on unemployment benefit. That will solve the deficit problem, but in the short term we need expenditure on public investment.
I fully support, as would all Opposition Members, the proposals of my hon. Friend the Member for Dunfermline, East (Mr. Brown) on tax loopholes. I shall refer in particular to the way corporation tax is being evaded, because the previous Chancellor referred to the problem of corporation tax evasion the day before he got the sack. It is not just an idea from the Opposition. There is a problem of corporation tax evasion.
I suggest also that there is a problem with the level of corporation tax, because we are way below the EC average. If corporation tax were increased to 40 per cent., that would bring in £4.5 billion. That has to be combined with a generous system of capital allowances, which the Conservative party will not accept. At the moment, the system of corporation tax encourages high dividend payments and discourages investment. We could put up corporation tax if we had generous capital allowances. That would be in line with the policy of creating jobs through investment.
A second way in which money could be raised, and which would be infinitely preferable to the offensive attacks on the poor through VAT on fuel and invalidity benefit cuts, would be to raise the top rate of taxation. If the top rate for those earning more than £50,000—I shall put it no lower than that—were increased to 60 per cent., that would bring in £4 billion a year, which is more than would be brought in from VAT on fuel.
Who with any conscience can possibly say that it is better to impose VAT on home heating than to impose a top-rate tax increase for those earning more than £50,000? There are not only arguments for that in terms of social justice. There are also strong economic arguments for that, because one of the problems that we have in this country is the extremes in income between poor and rich, which makes the balance of payments problem worse because rich people tend to buy more imported items. Secondly, it tends to make the boom-bust cycle far more extreme than in other countries. There are strong economic arguments as well as strong moral arguments for increasing the top rate of taxation.
I am not totally against VAT increases. The problem that the Government have is that they impose it on the wrong thing. I suggest that, before the next Budget, they look at other ways in which they can raise VAT. I suggest, for example, VAT on private school fees—I suggest a rate of 30 per cent. I suggest a VAT rate of 30 per cent. on people who take out private health insurance. Why do we not have VAT on luxury items, which can be paid by people who can afford them? Those thoughts are totally alien to the Government, who want to help people at that end of the income scale and penalise and punish those at the other end.
984 There are two other ways in which money can be raised. First, I am told that a long-term objective for defence cuts was accepted by no fewer than 72 per cent. in a recent survey of top Scottish directors of industry. It was not mentioned much in the Budget today, but there is a wide spectrum of opinion across right and left which recognises that military expenditure must be cut.
That is an ongoing source of money that can be used to boost manufacturing investment in this country. The Labour party has policies for a defence diversification agency and cuts in military spending could finance the work of that agency in boosting investment and jobs, particularly in manufacturing, because the key thing about defence workers is that they are highly skilled and must be kept in manufacturing employment.
Even to reduce our level of defence expenditure to the French level would release £8 billion. I do not suggest that it is done in one go. If it was reduced to German levels it would release £13 billion. That is a matter that, in the remaining years of the decade, must be addressed and accepted, because it is a very large source of revenue for investment in our economy.
Finally, I shall mention borrowing. I believe that if the measures that I have suggested were introduced, we would not need to increase borrowing. However, if in the short term we had to increase borrowing for investment, that would not worry me, because we know that through public investment we can decrease borrowing in the long term.
The problem with the Conservative party is that it has no strategy to deal with the underlying cause of the public sector borrowing problem, which is the low levels of investment and the high levels of unemployment. The Conservatives have no strategy for that. They are using the excuse of the deficit to whittle away at the welfare state and impose unfair taxes.
At the end of the Chancellor's speech, I noticed that Tory Members behind him were very impressed. That gave the game away. What we had from the Chancellor today was not a Budget for jobs, quite clearly. It was not a Budget for the poor, quite obviously, and we do not expect that from the Conservative party. What we had from the Chancellor today was a Budget for winning the next election. [Interruption.]
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. I hope that the House will not make so much noise that I cannot hear the hon. Gentleman.
§ Mr. Chisholm
What we had from the Chancellor of the Exchequer—I will say it again because it is a long time since I got the first bit in—was a Budget to win the next election. But the election that the Chancellor had in mind was his own election to become leader of the Conservative party. The Budget today was designed to impress and please the right wing of the Conservative party. The Order Papers being waved at the end of the Budget speech made that clear.
The Chancellor may win the election to be leader of the Conservative party, but it is crystal clear that he and his party have no hope of winning the real election. The Conservative party will never be trusted again, not only because of its broken promises on taxation but because after 14 years the people of this country know that the Conservative party is the party of economic incompetence. 985 Any people who want to deny that would need to be referred to a psychiatrist, although they would have great difficulty in finding one on the NHS.
§ 8.1 pm
§ Mr. Walter Sweeney (Vale of Glamorgan)
In these days when we are used to listening to a pasteurised, shrink-wrapped Labour party, it was good to hear the hon. Member for Edinburgh, Leith (Mr. Chisholm) showing that the real Labour party still exists, although it is usually kept more carefully hidden.
It was particularly interesting to hear the hon. Gentleman call for a Budget for jobs. We have a background of low inflation, low interest rates and—in case he has not noticed—steadily falling unemployment. The latest monthly fall in unemployment is the largest for four and a half years; almost half a million people left unemployment in October, which is the highest monthly total ever, and long-term unemployment fell by 10,000 between July and October this year. Against that background, I warmly welcome the Budget introduced by my right hon. and learned Friend the Chancellor. He has recognised the main needs of the British economy.
First, my right hon. and learned Friend has recognised that it is essential to keep inflation down. Secondly, he has recognised the need to reduce the public sector borrowing requirement. If he had failed to grasp that nettle today, we would have won no plaudits from Conservative Members. The last thing we want is to go back to the days of the 1970s, when the fastest growing area of public expenditure was not health, education or social services but servicing the national debt.
The third priority which my right hon. and learned Friend has rightly stressed is the need to reduce the percentage of the gross domestic product which is spent in the public sector. I am pleased that he has set a target for that. I hope that, when we have got public spending down to 42 per cent., we shall press on and get it down well below 40 per cent.
Fourthly, my right hon. and learned Friend has recognised the need to encourage the private sector. It is from the wealth created by the private sector that all the things that we value in our society are financed—such as road building, housing, help for small businesses in general and small companies in particular. I was particularly pleased to hear reference to the possibility of introducing a statutory interest charge on overdue debts. I have been pressing for that for the past two years. It would be a valuable measure and would help small businesses, which are all too often made to wait for months for payment from large customers which enjoy an effective monopoly.
I was also pleased that my right hon. and learned Friend took the opportunity to maintain low direct taxes and to reduce tax relief on mortgages. That would certainly not have been a popular measure if it had been introduced before we left the exchange rate mechanism, when interest rates were extremely high. However, now that interest rates have fallen, there is a good opportunity to reduce the discrimination in favour of house purchasing as a way of spending one's money.
I was worried when my right hon. and learned Friend said that the recovery began before white Wednesday—the day on which Britain was forced to leave the ERM. I hope that that does not mean that my right hon. and learned Friend is contemplating a return to the ERM. It is clear that 986 the recovery got into gear after we left the ERM, when we saw a dramatic fall in interest rates and the simultaneous establishment of a system in which our exports were more competitive.
I now turn to VAT on domestic fuel. I represent the Vale of Glamorgan, a highly marginal constituency, which the Labour party chose to target. It played on the fears of the poor and the old in my constituency by pretending that my right hon. Friend the previous Chancellor did not mean what he said when he said that help would be given to those most in need. The generosity of the package that has been revealed today fully vindicates what has been Conservative policy for the past six months.
§ Mr. Rhodri Morgan (Cardiff, West)
Does the hon. Gentleman believe—I am one of his constituents—that he would have won the seat if he had told the families in the Vale of Glamorgan that, in the first two Budgets after the Conservative Government were returned, they would increase taxes by £16 a week for the average family?
§ Mr. Sweeney
I am pleased to have the hon. Gentleman as a constituent. I trust that he voted for me. I am sure that, at the time of the general election, he was no more aware than I of what would be in this Budget or the last Budget. The Government stated in the run-up to the election that there were no plans then to raise rates of VAT. I am sure that that was correct at the time. Certainly, VAT was not raised at that time.
I have met many constituents who have responded to the Labour campaign of vilification in my constituency against the Conservative party in general and me in particular. They were naturally worried to read the press releases issued by the Labour party, which said that the wicked Conservative Government would not help them to meet their fuel bills.
Like other Conservative Members, I have been pleasantly surprised by the generosity of the package which has been introduced. It provides help for all pensioners. That shows that the Government have gone further than they needed to. Obviously, there are pensioners who do not need help to pay their VAT on fuel. [Interruption.]
§ Madam Deputy Speaker
Order. It would be better without the running commentary, particularly if certain hon. Members wish to speak.
§ Mr. Sweeney
It is difficult to target help to meet all those cases of need. I am sure that my right hon. and learned Friend the Chancellor was aware of the needs of those people whose incomes are just above the level for income support, and wanted to make sure that he caught them in his safety net. It is because of that difficulty that I welcome the decision to help all pensioners, in addition to giving much-needed help to those people on income support and other income-related benefits.
I am glad that the lies put out by Labour supporters in my constituency have been laid to rest. I look forward to meeting constituents in my forthcoming surgeries and reporting to them on the excellent package that has been introduced today.
§ Mr. Peter Hain (Neath)
Today the Chancellor has snubbed Wales. A typical family in Wales will be £10 a week worse off—paying higher income tax, higher value 987 added tax, higher national insurance and higher mortgages as tax relief is cut—in addition to paying higher charges for home and car insurance, and even for holidays.
The VAT compensation measures announced by the Chancellor are a sham. The Budget is a vindictive assault on the disabled, the poor, the unemployed and pensioners, particularly women pensioners, who will have to wait an extra five years to receive their retirement pension in future.
The Budget will do nothing to reverse the long-term industrial and structural decline of the Welsh economy. We have had 14 years of Thatcherite and Majorite miracles, during which living standards have declined, and will decline for the coming generation. That decline will reverse the trend of hundreds of years in which, with a few peaks and troughs, people have been progressively better off. Under the Government, Wales has become a poor relation. It has the lowest GDP per head, the lowest earnings and the highest economically inactive totals.
The south Wales valleys have suffered even more. As a valley community, Neath is virtually at the bottom of the pile of worldly goods and associated wealth, as a survey for HTV's "Wales this Week" recently showed. Professors Wilkinson and Morris of the Cardiff business school have shown that, whether we measure car ownership or consumer white goods, central heating or cavity insulation, or sickness or social class:The Valleys are getting poorer. There is no sign that the valleys initiative has had any real effect.That conclusion was endorsed by official Welsh Office figures released last week, much to the embarrassment of the Secretary of State for Wales.
What has the Chancellor done for a community such as Neath that is already struggling and where regular well-paid and skilled jobs, especially for men, have disappeared, to be replaced by part-time skivvy work for poverty wages? He has kicked Neath in the teeth with his steel-capped Hush Puppies.
The Chancellor is not reversing the long-term decline in training. In Wales, the Budget for training has been reduced by 16 per cent., £27.8 million. The Secretary of State for Unemployment—I am sorry, for Employment; it was a Freudian slip—in a manner redolent of his office when he was Secretary of State for Wales, has indulged in a typical public relations exercise this afternoon. He has produced a Mickey Mouse scheme, with no new money to address the massive skills gap in Wales and the United Kingdom.
The Government should invest money in quality training, and in jobs for the 2,400 in Neath who are officially out of work. To that total must be added another 11,000 men and women, who are not on the official unemployment register but appear in the Department of Employment's economically inactive category, which I regard as the unofficial measure of unemployment.
As to VAT on fuel, our "no-nonsense" Chancellor, as he has called himself, has bottled out. As a result, it will cost the poor, the old and the disabled among my constituents an extra £5 a week in the cold winter months. The 50p a week that is being offered to those people is an insult. It will go nowhere near addressing their plight and the problems of trying to make ends meet after such an extra imposition.
The nearly poor that the Government have identified 988 will get absolutely nothing out of the Budget, unless they happen to be pensioners. What will happen to the others, and those who are just above the benefit level, perhaps with a small miner's or widow's pension that takes them just above the welfare net? The hon. Member for Vale of Glamorgan (Mr Sweeney) seems totally ignorant of the plight of those people, who will face this VAT increase with great fear.
§ Mr. Sweeney
Far from being totally ignorant, I made it clear in my speech, had the hon. Gentleman been listening, that all pensioners will receive help with their fuel bills, and those who are just above the threshold for income support will be among those who will be helped.
§ Mr. Hain
The hon. Gentleman has clearly not understood his own speech. He has not understood my point. I spoke specifically about the nearly poor who are not pensioners. There are thousands of them in my constituency—and probably in the hon. Gentleman's constituency and millions across the country—who will not get any compensation at all when they too have to bear the VAT increases on fuel and heating, which could cost an extra £5 a week in the bitterly cold winter months.
In place of the Chancellor's Budget, I would commend to the Chancellor and the Secretary of State for Wales my own Labour Budget for Neath, which would give the people of Neath and Wales prosperity and hope instead of the miserly offerings of this afternoon. It rests on fair taxation and recognises that public investment is the way to sustained growth and lasting employment. Most importantly, it is a Budget that would restore dignity to those in our community who were asked not only to make sacrifices 50 years or so ago in their youth but, quite unfairly, are being made to pay again for the Government's mistakes and the systematic way that the Government piles tax increases and cuts in public services on those least able to protect themselves.
What we heard from the Chancellor this afternoon could be a matter of life or death for many of the 16,000 pensioners in Neath. Many of them are already living below the breadline; some 18 per cent. of them live in households without central heating; more than 7,000 of them suffer from long-term illnesses; and many cannot currently pay their bills, let alone when VAT is put on their coal, gas and electricity. The valley villages of Seven Sisters, Banwen, Crynant, Cwmllynfell and Rhifawr, for example, have no access to the cheapest fuel—gas. Those villages have a huge concentration of older people, all of whom are worried that the Chancellor will inflict further hardship on their lives. These fears will be proved right.
Mr Lock and 23 other residents of Canolfan and Seven Sisters took the trouble to write to me, voicing their concerns about the consequences of VAT on fuel. Their fears have not been allayed this afternoon. Others, like Mr and Mrs Lewis, are living out their 80s in great hardship, with no mains gas and an enormous works project needed to bring their home up to present-day fitness standards. They live in a draughty place and, because they can ill afford expensive energy conservation measures, they resort to the most basic of energy conservation measures, doing without any heating or fuel. The Budget will do nothing to assist them. 989 The measures announced this afternoon are a drop in the ocean and will go nowhere near addressing the needs of pensioners such as Mr and Mrs Lewis, who are in desperate straits.
§ Mr. Hain
No. I have given way already.
Neither Mr. nor Mrs. Lewis is in great physical shape—30-odd years as a miner in Blaenant colliery made sure of that in Mr. Lewis's case. If they turn off their heat in windy and damp Seven Sisters, it will make them ill. This will have dramatic consequences on the already hard-pressed local health services.
Last year in Wales there were 1,672 "excess winter deaths"—the official Government term for the worrying national trend of higher than average mortality rates in winter. Last year, there were twice as many deaths in the United Kingdom, 34,711, as in other cold countries such as Canada or those of Scandinavia.
Those deaths are caused not just by the weather, but by a failure to invest in proper home insulation and proper protection for some of the most vulnerable in our society. A substantial body of opinion, which includes the Oxford academic Brenda Boardman, is convinced that the causes of those deaths is linked to fuel poverty.
The Budget will do nothing to address that problem; in fact it makes it a great deal worse. It does nothing to help the 5,500 people in Neath who are on invalidity benefit; instead it will make their plight worse. The Budget will do nothing to help the 11,000 or more who are on income support. We have heard much in recent weeks from the Thatcherite right about benefit scroungers.
While the official snoopers chase people on benefit who do what is known in the valleys as "a hobble"—a bit of gardening or labouring in a desperate effort to make ends meet—and recover £558 million, tax loopholes will lose the Inland Revenue ten times as much, a massive £10 billion in the next two years. The Chancellor has only nibbled at the edges of the massive problem posed by those loopholes.
The Budget will do nothing to help those on poverty wages in my constituency. Figures just released in the 1993 new earnings survey reveal that Wales has the lowest pay rates of any region in Great Britain at £281.20 a week for full-time work. That represents a fall from 98 per cent. of the United Kingdom average in 1979 to just 89.2 per cent. in 1992. In Neath many adults work for £1.80 an hour or less. How can they possibly survive on such wages? The Chancellor seems to be totally indifferent to their plight.
The Chancellor should have introduced three immediate steps to ease the unfair burden that has been placed on my constituents. First, he could have introduced an alternative VAT strategy. My hon. Friend the Member for Edinburgh, Leith (Mr. Chisholm) has already referred to some of the detail of that strategy.
Instead of dumping the load imposed by VAT on the likes of Mr. and Mrs. Lewis, it would be possible to extend VAT to private education and private health schemes. That would raise as much as £600 million and £300 million respectively. There is also some scope or putting VAT on financial and insurance services which, if properly targeted on share issues and other company-related transactions, and not on homes and possessions, could raise between £1 billion and £3.3 billion.
Secondly, there is an emerging consensus in Britain that 990 the well-off are undertaxed. They represent some of the beneficiaries of the £10 billion derived from the tax loopholes that were identified by the shadow Chancellor, my hon. Friend the Member for Dunfermline, East (Mr. Brown).
Following the personal tax cuts of the 1987 and 1988 Budgets, the very rich have benefited to the tune of £8 billion a year—nearly three times the amount that VAT on fuel and heating will bring to the Treasury in a full year. If one levelled out to the European average in the top irate band of 55 per cent., that would raise as much as £6 billion for the Exchequer. That is the sort of target at which the Government should aim.
Thirdly, the Budget should have introduced phased relief of capital receipts for council housing. Neath and Lliw valley boroughs have £2.89 million of accumulated housing capital receipts which the Government have banned them from spending. If those receipts were released tomorrow, more than 50 local houses could be built. That would create not only badly needed new homes but even more badly needed jobs in my constituency.
The official unemployment figures do not take into account the economically inactive population, which is a special concern to valley constituencies such as Neath. According to the official figures, unemployment in my constituency stands at just over 10 per cent. If one adds to that the economically inactive, people of working age, below pensionable age, who for one reason or another have been forced off the unemployment register—after the Chancellor's Budget announcement they will be forced off the register six months earlier—or those forced into early retirement following a pit closure, the unemployment figure jumps by a further 30 per cent.
Neath is the 12th worst district of 459 districts in the United Kingdom in terms of its economically inactive total. When one looks at the plight of the south Wales valleys, it is not surprising to discover that, of those 459 districts, eight of the top 10 are valley constituencies. One in three adult men are now unemployed in Neath, if one takes into account the official unemployment figure and the official figure for the number of economically inactive. That makes a total of 6,000 adult men. The Chancellor has betrayed all of them.
The economically inactive total will rise as a result of the Budget because the unemployed will be pushed off the unemployment register after six months, while those in work who are sick or long-term disabled will find it increasingly difficult to maintain their jobs as their employers seek to push them out of their work forces in order to be released from the extra obligations that the Chancellor has imposed on employers.
The Budget does nothing for industry. Many of those who are unemployed in my constituency were previously in the local manufacturing sector—the hub of the local economy. That sector has been savaged by the Conservative Government. For example, between 1989 and 1991, manufacturing employment in Neath collapsed by a half. There is no sign that the Government are doing anything to provide an upturn for the people of Neath.
The Budget is designed to ingratiate the Chancellor with his own Back Benchers. It is not a Budget for an area such as Neath, which has enormous economic potential, enterprising business men and women and a traditionally skilled work force. Neath is crying out for a Budget that 991 will invest in jobs, skills and infrastructure. We have not had that Budget today, and we will not get it tomorrow unless we have a Labour Government.
§ Mr. Peter Thurnham (Bolton, North-East)
We have heard the same old tune from the Opposition. They cry that the Budget does nothing for industry. I am sure that it has set the climate for a further reduction in interest rates, which represents one of the best ways in which the Government can help industry.
I do not believe that the hon. Member for Neath (Mr. Hain) is a great contributor to the industrial scene. I am not sure what he did to help industry before he was elected, but, judging from his comments, I cannot see that he has any understanding of industry.
§ Mr. Hain
Before the hon. Gentleman continues with his ignorant and arrogant remarks, let me invite him to visit local business men and women and industrialists in my constituency. He will then discover that not only am I a close friend of those people, but that they are crying out for a change of Government so that assistance can be given to them.
§ Mr. Thurnham
I cannot accept what the hon. Gentleman has said because I do not hear anything like that from industrialists in my constituency.
The hon. Member for Neath played the same old tune about taxing the rich more. He is obviously ignorant of what happened in the past. Under the Labour Government the top 10 per cent. of taxpayers contributed only 34 per cent. of the total amount of income tax paid. Under this Government, however, the latest figures reveal that the top 10 per cent. of taxpayers contribute 45 per cent. of the total amount of income tax paid. If one raises income tax, as the Labour party did, one collects less money from the richest taxpayers.
§ Mr. Thurnham
I shall not give way again to the hon. Gentleman because we have already heard enough of his distorted view of how industry works.
One of the most enjoyable things about being a Conservative Member is being able to hear a Conservative Budget each year. I look forward to hearing many more Conservative Budgets because each one is designed to increase the nation's prosperity, as they have done in the past 14 years. I am sure that this Budget will achieve the same.
The Budget is courageous and I am sure that it will achieve all its objectives. It is so wide-sweeping, however, that time hardly allows me to pass full judgment on all the measures in it. Its main aim is to put the budget deficit behind us, which tackles our greatest concern. It is encouraging to consider how that has been achieved. It has been done by raising a certain amount of extra money through taxation, but mainly by squeezing public spending. It is not clear what the full extent of that will be. I have looked at page 97 and other pages in the Red Book, and clearly there will be a strong squeeze on wasteful spending in the public sector. That is to be welcomed, but it will be interesting to see how that develops.
992 There will no doubt be squeals from various sources, scares put out and lobbies coming to raise issues. Those issues may not be as bad as will be thought if the scaremongers have their way. There is great deal of waste in Government. We have seen the figures which show that the unit costs in manufacturing are now falling, so let us now see unit costs in delivering public administration falling. We have before us a freeze on the running costs of the civil service and local authorities, and I am sure that we are all convinced that that can be achieved. It will be interesting to see how that works out in practice.
The Budget contains numerous measures to encourage business, all of which are to be welcomed. Jobs can certainly be created in small businesses. Cash flow is the major problem for nearly everybody in business—that is certainly my experience—and has always been a main issue. Payment, of course, is a double-edged sword. Not only does one collect money; one also pays out money. However, the concept of a British standard for prompt payment is encouraging. It may be the best way forward if firms adopt that as a voluntary measure which could be coupled with whatever is proposed in the way of statutory legislation for interest on overdue debts. That has been called for by people such as Mr. Wanless, the chief executive of the National Westminster bank, and it will receive broad support throughout business.
The proposal to reduce employers' national insurance contribution rates, which will cost nearly £1 billion, is a major measure to improve the supply side of the economy. It is clearly designed to help those with lower skills who are on lower rates of pay back into the job market. That measure, combined with the changes which are proposed to the family credit system for lone parents, will help more people get into the job market.
Measures to raise revenue include the reduction of mortgage interest payments to 15 per cent. That has been clearly on the cards. Mortgage interest relief has always been popular, but it has only ended up in the pockets of landowners who can achieve higher prices by selling their land for building. The effect of reducing mortgage interest tax relief will be to reduce the value of land when that land gains planning permission. Perhaps it will reduce the pressure for planning permission.
The Budget measures are aimed at raising revenue of £6 billion, or 0.75 per cent. of GDP, to help to bring down the fiscal deficit, but it is the squeeze on spending which is the most attractive aspect of bringing down that deficit.
The City will pay considerable attention to a tight settlement which is aimed at delivering £10 million. That will build a climate of confidence, as will in particular the projected reduction in the share of GDP which goes on public spending from 45 per cent. to 42.5 per cent. by 1996-97. That was attacked by the hon. Member for Edinburgh, Leith (Mr. Chisholm), who said that it was "bad news". Again, that shows exactly what little understanding Labour Members have of how our economy works. The hon. Gentleman said that it was bad news for jobs, but I have to say that it is good news for jobs. The public sector can in no way create jobs which can help real economic growth. That growth must come from the country being more competitive in world markets which are themselves becoming more competitive.
This country can compete effectively in world markets only by reducing the burden of public spending, and not by increasing that burden. I was amazed to hear the old and unreconstructed Labour party holding forth. Underlying 993 inflation is at its lowest for 25 years, and it is clear that the Budget will maintain the pressure on inflation, although it is bound to fluctuate month by month. I was certainly pleased to hear the Chancellor say that he was confident that inflation will come down over the forecast period of the next three years. That should provide the firmest possible foundation for interest rates to fall further.
Unemployment has been falling for some months to the current figure of 2.86 million and, with unit labour costs in manufacturing coming down, I am confident that that fall in unemployment will continue. If we can combine that with a much lower current account deficit, which for this year has been reduced to £8.5 billion, that will confirm the strength of our economy. Hopefully we can continue to increase our share of world markets, in contrast to the declining share which we had for decades under the policies of the Labour party.
The effect of the measures contained in the Budget is that the economy should grow by 1.75 per cent. this year, and 2.5 per cent. in the year to come. I think that the Chancellor has been conservative with those figures, but he was wise to be so. If I had been giving my right hon. and learned Friend advice as he prepared the Budget, I would have told him to trust his pessimism and doubt his optimism. He has given those figures in a conservative fashion, and I feel confident that there will be better growth in the economy on the strength of the excellent Budget.
I was a little disappointed that the Chancellor did not go further with beer and spirits and introduced a cut in beer tax because of the bootlegging which occursby people who are going across the channel. I think that that would have been highly popular. The freezing of the duty is, in effect, a cut in real terms. I am sure that that will be welcomed by those people who may be taking advantage of that tonight, as will the fact that the extra tax on wine will not take effect until after Christmas.
It is important that there should be increases in the tax on tobacco in the years to come so that cigarette consumption may be cut by the target of 40 per cent. by the year 2000. There is considerable evidence of the bad effect on health of cigarettes, particularly on young people who may not be aware of the risks.
That is also the case with young expectant mothers. There has been an adverse deterioration in the statistics in Bolton, where an increasing number of children have been born with a low birth-weight. I believe that that is linked with the fact that their mothers have been smoking. A study is being carried out on that problem in Bolton. I was particularly concerned that Bolton was targeted by cigarette companies for their advertising on billboards. If a link is proved between that advertising and the adverse statistics of baby deaths, I trust that we will have legislation which will allow more control of cigarette advertising on billboards.
The tax on air passengers had been forecast to some extent. I note that the tax is £5 on a single flight, or a return flight if it is booked as such, so that the effect will be less than would have been the case had the tax applied only to single flights. The profits which accrue to airports are also due to the free duty on drinks, and I would have thought that there might be a measure of recovery there. It seems wrong that airports should profit from their duty-free status to the extent that they do.
In the case of Manchester, the sooner that that city's airport is privatised, the better rather than allowing it to benefit from the duty-free goods which are bought by 994 people from a large surrounding area. If the airport were to be privatised, a capital receipt would come to the local authorities, and they would not be denied the benefits of the increase in investment which has occurred.
The underlying statistic that is one of the strongest features of the British economy now is our enormous increase in productivity. In effect, we are having a revolution, and the latest productivity growth is the fastest for five years. In the 1980s we had the highest productivity growth of any country apart from Japan, and it now looks as though we should be set on another decade of high growth in productivity.
That is certainly needed, because our output per head, is lower than that of many of our competitors, so we need to grow faster in order to catch them up. Having the lowest rate of corporation tax of any of the G7 countries must be one of the most important factors in helping to achieve that higher rate of productivity growth. Again, that shows that the Government are more capable than any Government that could be formed by the Opposition parties of understanding the underlying factors involved in running our economy efficiently.
I especially welcome the lower rate of corporation tax for smaller companies. Companies with profits of £300,000 or less will pay at 20 per cent., and those with profits of between £300,000 and £1.5 million will pay at between 25 per cent. and 30 per cent. That is a way of rewarding—or perhaps we should say of penalising less—companies which are successful and which contribute to the growth of our economy. The measure is welcome.
There has not yet been time to make full judgments about the other proposals to help investment in smaller companies, but the new venture capital trust sounds an interesting idea. Investors will have the liquidity to be able to move their investment in whatever way suits them best, while the unquoted companies will be able to benefit from the funds raised in that way. I look forward to learning more about the proposal, and to seeing the consultation paper when it is issued.
I am somewhat unsure whether any of the proposals will help the private rented sector. I recently produced a pamphlet "Choose Your Landlord", calling for more help to the private rented sector, which is the lowest of any OECD country. It stands at half the average level of those in other OECD countries—at only a quarter of the level of that in west Germany, for instance, and at only about half the level of that in east Germany, after 50 years of communism. That shows how considerable are tine improvements that we need to make to our private rented sector, but the notes that I have read so far do not make clear the extent to which the Budget proposals to help small businesses will assist.
As I understand it, the capital gains reinvestment relief will apply to the sale of any asset, and that would benefit someone selling a privately rented property because he could obtain roll-over relief when investing in another type of business. However, that could encourage people to leave the private rented sector, whereas I hope that we can develop measures to encourage people to move into that sector rather than out of it. Perhaps my right hon. Friend the Paymaster General will be able to make it clear later whether that measure is designed to help the private rented sector or, in some strange way, to encourage people to move out of it. 995 The changes in statutory sick pay have been cleverly constructed, because larger firms can generally get insurance policies to help them to deal with sick pay, and insurance companies have their own, requirements so that people qualify for invalidity payments only subject to satisfactory medical checks. The new arrangements have been well designed, and I hope that they will not hinder very small companies that cannot obtain insurance cover as large companies can. I know from experience of the insurance cover provided for sick pay for larger companies that there is a wide range of premiums quoted, depending on exactly how the benefits are to be assessed. I hope that everyone will be able to benefit from the new arrangements.
As for capital spending, the new private finance initiative is excellent. It is what we have been wanting for many years, and I shall be fascinated to find out the full details of how the west coast main line proposals, for example, are to be funded. There was something in the Sunday press about that, and I understand that about£600 million will be available through a privately financed project to improve the line from London through Birmingham, Manchester and Liverpool to Glasgow. I understand that there may be an announcement tomorrow, so we look forward to learning further details and, of course, to seeing the project in action.
The social security proposals have been covered at some length, and it is clear to me that the Chancellor of the Exchequer has bent over backwards to help pensioners. Of the £2.8 billion being raised from VAT on fuel, £1.2 billion will be repaid in the package of measures that the Chancellor announced today, so that the net amount raised will be £1.6 billion. That £1.6 billion is welcome, but the repayment shows my right hon. and learned Friend's good faith in wishing to protect pensioners and others who may have felt unfairly penalised.
I especially welcome the extension of energy efficiency grants to all pensioners and all people with disabilities. Those grants were previously means tested, and it should be fully understood exactly what is available. Half a million homes have already been improved, and the existing budget provided for another 250,000. Further provision has now been made to extend the benefit to all pensioners and all people with disabilities so that they will all be able to get insulation for their homes. That seems the best way for people to keep warm.
Let us consider what happens in other countries. In Sweden, for instance, the rate of VAT on fuel is 25 per cent., yet there are fewer deaths from hypothermia there because people insulate their homes so well and are not caught out by a cold snap, as people can be here. I understand that the provision announced by the Chancellor will allow more than 200,000 extra pensioner households a year to benefit. That is a valuable way of showing how we can meet our Rio international commitment to reducing the amount of carbon burnt while ensuring that people keep warm. I hope that the scheme is fully taken up. It seems to me ridiculous that people should not take advantage of schemes to provide them with insulation in their homes, but should instead expect to be given more money only to pay for more fuel to be burnt.
I welcome the Budget. It is the 11 th Conservative Budget that I have had the pleasure of hearing in the 996 House, and I am sure that it will lay the foundations for continued prosperity in this country, and for the continued return of Conservative Governments for many years to come. I look forward to hearing many more such excellent Budgets in the future.
§ Ms Ann Coffey (Stockport)
I believe that the effects of the Budget will become clear over the year, because the cuts are contained in the fine print. That seems incredible, because no local authority in the land would be allowed to present a budget that simply said, "We shall cut expenditure next year by capping our budget, but we shall not tell you how we shall do it; we shall just achieve it," and then use that meaningless phrase, "efficiency savings". Those savings involve more than issuing fewer bits of paper; they will often have important consequences for services. As the hon. Member for Bolton, North-East (Mr. Thurnham) said, there will probably be quite a lot of shouting and screaming as Departments implement those fairly savage public expenditure cuts, which have not yet been made plain to the House.
I shall comment on some of the details that have been made known, starting with the child care allowance. Like many Opposition Members, I have campaigned strongly for child care allowances that would give parents access to jobs. When the Chancellor began to make the announcement I started to smile in anticipation that something positive would be announced. It means very little. I am not sure whether the Chancellor is aware of the cost of child care—it is mainly provided through the private sector and child minders—but it is in the region of £80 to £90 a week for a private nursery and perhaps £50 to £60 a week for a child minder. The cost is high because the children's legislation rightly demands a high level of skills and training for the staff who look after small children.
§ Ms Coffey
That is a lot of money to find.
The Chancellor seems to be saying that he will provide an allowance of £28 a week for families that already receive family credit. I wonder what that means. I thought that the aim of the exercise was to take families off benefits by giving them access to the employment market and giving them an allowance for child care. Does that mean that people applying for jobs must ensure that the job must pay a low wage because that is how they qualify for family credit? Does it mean that they cannot look for jobs where the wages are higher than the family credit level because then they would not get the allowance? That is what it seems to mean. If that is so, we are looking at more extremely unfair legislation. It will be similar to what happened with the Child Support Agency—it sounds good but the implementation of it will create a great deal of unfairness. It shows a lack of vision on the part of the Chancellor.
Surely the aim is to attract the maximum number of skilled people into the job market. It may be that many families will not be able to afford access to the employment market because the child care allowance will not be extended to them. I had hoped that the Chancellor would look at the whole problem of the provision of child care in a much more imaginative way. I do not believe that the child care allowance will make a lot of difference 997 except to a small number of people. That is a pity because the Budget provided an opportunity to do something about the matter.
As the Chancellor knows, value added tax on fuel is a profoundly unpopular proposal. Basically, most people understand that it is a tax on the need for warmth, rather than the ability to pay for that warmth. The Chancellor has not been generous. Many Tory Members have discussed the Chancellor's generosity in compensating pensioners for the extra money that they will have to find. Fifty pence a week for a single pensioner and 70p a week for a couple is not generous compensation and is well below the amount of money that they will need to find to pay VAT on fuel.
People cannot be compensated by a flat rate. The need for warmth varies enormously depending on a person's situation, age and medical disability. But that is not taken into account in the flat-rate compensation scheme. Whatever the Chancellor said about compensation, pensioners will still need to pay disproportionately for that tax.
Another interesting point about VAT on fuel is that a vast number of people will be excluded. Families with young children, especially when children are at home during the day with the parent, will be excluded. Some time ago, I asked the Chancellor for his estimate of the cost to the average family of VAT on fuel. He replied that his estimate was £2.9 a week. However, such families will not be compensated for that. In effect, VAT on fuel is a tax of £2.9 on every working family in this country. In view of some of the campaigning that has takeplace, and the vulnerable position of hospices, I wonder whether the Chancellor will exclude hospices from VAT on fuel.
I do not understand why the Chancellor feels that the housing difficulties that are being experienced will be alleviated by more private money going to housing associations. All that has happened as a result of the grants going down and private money going into housing associations is that rents have gone up. In the town that I represent, Stockport, the average rent for a three-bedroom council house is £30, compared to £60 for a housing association house. The figure is double.
If grants continue to go down, and the Chancellor is relying on private investment to provide housing, rents will continue to increase. That is a serious problem because the only people who will be able to afford to live in housing association properties, whose rents will reach the market price of private accommodation, are those on full housing benefit. Those who are living in housing association properties on full housing benefit will never be able to afford to get a job because they will not be able to afford to lose that benefit. The local council in Stockport has £12 million in capital receipts from the sale of council houses. It could provide houses much more cheaply than housing associations. It is much cheaper to subsidise social housing through bricks and mortar than through rent allowances and housing benefit.
I draw the Chancellor's attention to another housing difficulty that has been caused by deregulation. I am sure that it is not specific to my authority. Since rents were deregulated in 1989, private landlords have been allowed to charge rents above the rent assessment level set by the rent officer. That rent has been subsidised through rent allowances. A recent report to Stockport council showed that the council had to provide a contribution of £417 for unsubsidised rents in 1989-90. But the figure for this year is well over £90,000.
998 Effectively, the deregulation of private rents has resulted in a rigged market where private housing has been subsidised through rent allowances. That has resulted in private rents in Stockport rising to a level that most people cannot afford unless they get rent allowances. Nothing in the Budget will help that housing situation. It is a serious problem especially for young people who have no access to private ownership because housing is too expensive.
I was interested in the reference to invalidity benefit in the Budget. There will be a new incapacity benefit. Obviously, the criteria for getting that benefit will be much more strict. I wonder whether that will also apply to the review of people who are presently on invalidity benefit to get that new incapacity benefit. Many people have taken early retirement because of long-term sickness at work on the understanding that they will have an income from invalidity benefit. If that incomes stops suddenly, it will cause direct hardship and poverty for those people, and a feeling that the Government have reneged on their promise about invalidity benefit.
I am not convinced that the figures relating to extra funding for education are right. It is easy to present figures as though extra money is being put into services. The extra money to be spent on education will not be as real as it appears on the papers in which it is presented.
Problems in education concern not only funding but the structure of the education system. A distortion within education has been caused by the better financial deal for grant-maintained schools in an effort to get schools to opt out of local authority control. That is causing great concern among professionals in education, who feel that the aim of education should be equality of opportunity for all children in the borough, irrespective of where they come from or the school to which they go. The Chancellor should deal with that problem as well as funding issues.
More money was promised for health. Serious problems are being created by the market economy in health, particularly in terms of waiting time for aids, such as hearing aids. The money is going to the acute side, with consequences for people waiting for aids or treatment for chronic rather than acute illnesses. That is creating problems and distortions in the community.
The Government have made much play about their support for law and order, yet as a result of their public spending cuts it will be more difficult to spend money on crime prevention. I remind the Chancellor that better security lighting and security locks on doors are among the most effective crime prevention measures, particularly for elderly people. Those measures are usually funded through local councils and if that ability is taken away from councils through public spending cuts, crime will not be prevented. Most people would rather prevent crime than deal with its consequences.
We often hear the word "efficiency" mentioned in Budgets and I sometimes wonder what it means. We talk about efficiency in British industry and efficiency to be competitive. Efficiency has a long track record of leading to job losses. Employees always feel worried when people start talking about efficiency because they know that, ultimately, their jobs are on the line.
The Government should remember that British industry should provide jobs. The fact that it has seriously failed to do so in the past 14 years has much to do with how managers in industry have managed their work force. They 999 have taken a confrontational approach, and disposing of the work force has been too easy a solution to financial difficulties.
Together with the Select Committee on Trade and Industry, I visited the Rover plant at Longbridge. Rover has reorganised the management of its work force and now consults its employees and involves them in what it does. Surprise, surprise, that has led to higher productivity, of which the company is very proud.
The Chancellor should remember that helping British industry involves not only accounting and giving tax advantages but tackling the problem of managing people. The Government have been appalling at managing people and understanding their ordinary day-to-day lives. They have then blamed low productivity on the work force. It is the Government's job to lead and set objectives and to ensure that people achieve those objectives, but not in a confrontational way. Britain is not a company but a nation of people and the Government's responsibility goes beyond making a better business out of Britain—even when it can manage that. This country's recovery depends on the Government increasing people's morale and commitment, and on people's trust in the Government and willingness to work together. The Government have not managed to make that step and the Budget will not encourage people to feel that that is what they are about.
If this country is to get anywhere in the future, the Government must be concerned not only with accounting and balancing the books but must be seen to be fair. They must be seen to be doing their job, which is to mediate between the strong and the weak to ensure that everybody has the opportunity that they deserve. Nothing that has been said today, particularly by the Government, gives me any hope that that is what is the intention of the Government's Budget. The Budget is another sleight of hand.
§ 9.4 pm
§ Dr. John Marek (Wrexham)
I have heard a dismal set of speeches from Conservative Members today. Some hon. Members went through the proposals introduced by the Chancellor of the Exchequer, commenting on them while reading from printed papers. Other hon. Members obviously wanted a job in the Treasury Front Bench team because the words "excellent", "good" or "I support" appeared every second or third minute. The worst speech was made by the hon. Member for Vale of Glamorgan (Mr. Sweeney) who, in his zeal for the Chancellor's proposals, went so far as to say that the compensation package for pensioners was too generous. I want to cut out that piece of his speech from Hansard tomorrow morning.
§ Dr. Marek
My hon. Friend the Member for Cardiff, West (Mr Morgan) and I shall make sure every pensioner in the Vale of Glamorgan learns what the hon. Member who represents them thinks about the Government's proposal this afternoon.
It was a depressing Budget. After 14 years of Tory rule, what is the economic position? The public sector borrowing requirement is £50 billion. That is not the fault of the Labour party when in office, of the Labour party when in opposition or of another country. It was not caused 1000 by the extra expenditure incurred through war. The fault lies fairly and squarely on the present Administration. They caused the public sector borrowing requirement to go up to the staggering figure of £50 billion—perhaps 8 per cent. of gross domestic product. They are entirely responsible for that.
What else do we have? In the middle of a recession, the balance of payments deficit this year is about £17 billion. A deficit of that size was unheard of until the end of the 1980s and the beginning of the 1990s. The Administration have managed to build up a deficit of that size during a recession. In addition, tax as a percentage of GDP is just under 40 per cent. Years ago, when the Labour party was in office, tax as a percentage of GDP was about 33 or 34 per cent. The deficit has been more than 40 per cent., although it might be a little less than that now. However, the Government tell us that it is the Government of low taxation.
If I were honest and did not mince my words, I would use an unparliamentary expression to describe that record, but I cannot do so. Perhaps I can do so if I address my remarks to the Government rather than an individual hon. Member. The Conservatives blatantly lie when they say that they are the party of low taxation. That is clearly not true because taxation as a percentage of GDP in the 1980s and 1990s, if not every year then almost every year, has been higher under this Government than when the Labour party was in power in the late 1960s and 1970s. After 14 years of Conservative rule, average growth is less than that achieved by the Labour party when it was in office. Despite that dismal scenario, there were no explanations or apologies from the Chancellor. He did not explain why the economy is in such a mess after 14 years.
The Opposition and the country wanted the Chancellor to show some leadership on how to get out of the mess that we are in. Unfortunately, we did not get it. As a result of the Chancellor's measures and the Budget, would any householder say, "This the Budget that I have been waiting for. I know that the country's economy has been in a mess and my household's income has been strained, but as a result of the Budget, I am going to buy a new carpet or a new refrigerator or try to do some home improvements or work on the car?" No householder will do that as he will first realise that the married person's allowance will be frozen, not for one year, but for two years. He will also realise that it will attract relief not at 20 per cent. instead of 25 per cent. in 1995, but at a mere 15 per cent. No householder would go out and buy anything. He would realise that tax relief on his mortgage will be at 15 per cent. in 1995, instead of 20 per cent. Personal allowances for working people are being frozen not for one year but for two. People who are working will receive no relief for the imposition of VAT on fuel. To be sure, pensioners will get some relief—exactly how much we do not know. Working people, however, will bear the brunt of the price hike in domestic fuel, from April 1994 and then again in April 1995.
There have been other duty increases. Vehicle excise duty and duties on tobacco and wine have risen. On top of that there will be increases in the form of VAT on insuring cars and homes.
All these increases will amount to at least £10 a week for most households. It is clear, therefore, that householders will not welcome this Budget. It beggars belief to think that the governing party assumes that it can win an election as a result of its economic management. 1001 People know that they have been had. People in Wrexham tell me that they thought that there was something in it when the Prime Minister told them to vote Conservative on 9 April and the recovery would begin on 10 April. They believed him when he said that he had no intention of introducing VAT on domestic fuel. They remember all that; the Government will not be allowed to forget the lies when the next election comes.
No small business man will find much pleasure in the Budget either. Whatever the Government may say, I predict that small businesses will not like it. True, there are one or two small measures in the Budget for them—some of them of doubtful value. For instance, small businesses will no longer be obliged to hire an independent accountant to verify the accounts once a year. That could lead to an increase in fraud. I should have thought that many small business men wanted accountants to check, just to make sure that everything was right.
Most small business men will look at the Budget's effects on the average citizen. If the average citizen feels that he has to tighten his belt and cannot afford to spend, because large increases in taxation are coming, he will do small businesses no favours. I do not believe that the Budget will do anything for small businesses.
The Budget should have been about industry, about jobs and about renewal. It would be nice to have an occasional apology from the Government, to the effect that they have got things wrong and will do their best to get them right in future. But no. Typically, the Secretaq of State for Education did not apologise for leaking part of the Budget statement several hours before it was delivered. An apology would have cost nothing. The Treasury would have sanctioned an apology, but the right hon. Gentleman lacked the guts, the integrity or the decency to come to the Dispatch Box and say, "I am sorry; there was an administrative error. I will do my best to ensure that it doesn't happen again." This was a typical example of the Government's way of proceeding. They have their dogma, and it must be right, regardless of what happens in the country.
What should have been done in the Budget? My hon. Friends have listed most of the salient points, so I will not dwell on them. Obviously, local authority capital receipts could have been released, allowing them to provide low-cost housing for people who need it. If local authorities provided that housing, people would need to fit carpets and put in fridges. Curtains, beds and chairs would be bought, and such purchases would provide a little impetus towards restarting the economy. But not a hit of it. Because of dogma, prejudice and probably ignorance the Government are not the slightest bit interested in doing anything to help industry and create jobs.
They could have announced an urgent programme of training and retraining. Interest rates could have been cut. It is all very well for the Chancellor to say that he is leaving that to the Bank of England, but at the end of the day he decides whether to cut and leaves the detail to the bank. Real interest rates are still high and could be brought down, and I am sure that industry would welcome that.
Capital allowances could have been increased from the 25 per cent. of the past five or six years to 40 per cent. after 31 December. Conservative Members say that we have the lowest corporation tax in the G7 or in Europe, but there is little point in saying that when capital allowances are small 1002 and difficult to come by. Of course, there is a trade-off, because if capital allowances were increased it would be necessary to increase corporation tax.
The companies that do not invest much in machinery are attracted to this country because of its low corporation tax. Companies that invest much of their income in new plant and machinery and capital formation are not attracted here because our capital allowances are so poor. As I have said, through dogma, ignorance or prejudice the Government will not take that on board.
Those measures and others would have increased production and employment and would have helped industry, but the Government failed to announce them. Instead, there is to be VAT on fuel. That need not have been imposed. For example, if duty on share transactions had been kept, VAT on fuel would be unnecessary or could have been limited to the first tranche of 7.5 or 8 per cent. Other ways could have been used to raise money.
I agree with my hon. Friend the Member for Edinburgh, Leith (Mr. Chisholm) that income tax for people earning £1,000 a week or more could be 60 per cent. There is no reason why such a rate should not be levied because those who are earning £1,000 could and should pay a little more. Of course, such people will not be asked to pay more. Pensioners and people on low incomes will be asked to do that through VAT on fuel.
Pensioners will be helped to some extent with their fuel bills. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said that a little more than half the extra cost would be met. If the Government have information to the effect that that is not true and that they will pay more than half, I would like to hear it, but I suspect that I shall wait in vain. VAT on fuel will also affect lone people and those on income support who are not pensioners. There are many low-paid people in my constituency. In Clwyd, women's wages are among the lowest in Great Britain and male wages are below average.
Low-paid families will bear the full brunt of the Government's action in slapping VAT on fuel. Nothing that I have heard in debate will help those people. If family credit is increased in line with the retail prices index, those who claim it will get a little help but, of course, family credit is not claimed by anything like 100 per cent. of those who are entitled to it. Perhaps about two thirds of such people claim it. The Government will not get away with such a tax and then at the next general election pretend that it never happened. One of the biggest mistakes that they have made is to put VAT on fuel. That will take effect in April 1994, just before the European elections, and that will remind the country, clearly and lucidly, that everyone will face an extra charge for VAT on electricity and gas, and presumably on paraffin as well.
That will not be the end of it. There will be an equal and added charge in April 1995. It will go up again. On top of that, every three months when the gas and electricity bills arrive, there will be a little line saying VAT £32.58 or VAT £27.66. That will happen not just once every three months but, because most people have electricity and gas, twice every three months. That is the best advertisement for the Government's inadequacies and their complete disdain of the needs and aspirations of working people.
We are now a country where one company director can be paid an £18 million bonus, not because he has invented some marvellous piece of machinery, or anything like that, which will produce for the country untold wealth in future, or because he has manufactured something. No, all he has 1003 done is take some business from someone else to a different company, and for that he gets £18 million. That, according to the Government, is something that we are supposed to admire.
At the same time, a bankrupt crooked business man who lost £32 million is told that he need not go to gaol. He is told, "Off you go and try to sell vacuum cleaners in future." The Government do not want to institute a system that will stop such an abuse and, once someone is caught, the case will be dropped or there will be some plea bargaining behind the scenes and no prison sentence will be imposed.
It is a disgrace that the Government have done nothing to bring about integrity in the City. Such integrity is lacking, not, I have to say, in many quarters, but in some quarters in the City. I have yet to hear of any Government proposals to tidy that up. I suspect that I shall not because many City friends of Ministers and the Government are the very people who are coining it in, not paying the taxes that they should be paying, and the Government do not want to hurt them.
We have had 14 years of Tory failure but the party is now over. The Government cannot blame the Labour party, only themselves, for the awful state that the economy is in. The pity of it is that they have no social conscience. It will not be the wealthy or those who can afford to pay who will have to make up for it it will be the pensioners, the sick, the disabled and the majority of low-paid people in my constituency. The sooner the Government get out of office the better.
§ Mr. Rhodri Morgan (Cardiff, West)
I want to consider some aspects of the Budget that have been treated less intensely than others and to pick up the theme of the hon. Member for Bolton, North-East (Mr. Thurnham) when he said to the Chancellor, "Trust your pessimism and doubt your optimism".
I want to explore that theme a little by looking at the Government's claims for the Budget. After all, it is an historic Budget. It is the first unified Budget this century, I believe, or for half a century at least. Therefore, not only is it unified, but it is four months earlier than most other Budgets have been.
What are the consequences of producing a unified and early Budget? In the opening statement of the Treasury's press release on the Budget, the Government say:This budget completes the job of sorting out the public finances. Sound public finances are essential for sustained recovery and higher living standards. This has been achieved by a combination of tight public spending control—with planned spending reduced by £3.6 billion in 1994-95 and £1.5 billion in 1995-96".The Budget claims that planned spending is reduced by £3.6 billion for next year. Where are those planned spending reductions? I cannot find them. The planned spending reductions are made entirely by wiping out the contingency reserves. According to page 97 of the Red Book, the departmental spending totals roughly balance—I am not sure whether to believe that—but the planned spending reserves are wiped out. According to page 97, there is a £3.5 billion reduction in planning reserves for 1004 1994–95 and the new controlled total is £3.6 billion. Of the total reduction of £3.6 billion, £3.5 billion appears to come from the wiping out of the contingency reserves.
§ The Chief Secretary to the Treasury (Mr. Michael Portillo)
I want to spare the hon. Gentleman any further embarrassment as he is barking up the wrong tree. The amounts provided for the reserves are £3.5 billion in the first year, £7 billion in the second year and £10.5 million in the third year. In the past year, the sums were £4 billion, £7 billion and £10 billion. There is no difference in the amounts of the reserves over the three years—it is £500 million less in year one and £500 million more in year three.
§ Mr. Morgan
Far from sparing me any embarrassment, the right hon. Gentleman has confirmed the figures in the Red Book. There was an original figure of £3.5 billion for next year that has now disappeared. To remove the contingency reserves from the present year is understandable, as we are approaching the final quarter of the year. That always happens, unless there has been unplanned overspending. But to remove the reserves for next year and claim that public spending has been reduced is completely fictitious. But that is what it says on page 97 of the Red Book.
For 1995-96, what the right hon. Gentleman says may be perfectly true, but next year is the key year. That is where he has not been able to demonstrate anything correct; otherwise, he would be saying that his Red Book is incorrect. The contingency reserve and a £1.3 billion transfer of finances from this country's Treasury to the Treasury of the European Community is the total planned spending reduction. The £1.3 billion change from the past year is the only other change.
If one adds up all the departmental spending changes, they are roughly balanced—less for defence, more for education, less for transport, more for one aspect of environmental expenditure. Public spending has not been reduced, but the figures presenting public spending have been reduced, if we believe them.
The Budget has taken place four months earlier than usual. What does the Red Book say about that? Page 137 says that the impact is to increase the margin of error of forecasts. The average margin of error for PSBR forecasts in a March Budget is £8 billion. By announcing the Budget in November and by using the previous November public expenditure estimates, there is an average margin of error of £10¼ billion. The margin of error has increased by £2¼ billion and the contingency reserve has been decreased by £3.35 billion. So is a unified Budget fictitious? In fact, we shall find that there will be hidden expenditure increases or supplementary borrowing next year. The Budget is intended to massage the market and hide from the public the Departments that will really carry the expenditure cuts next year. All that we have been presented with so far is a netting-out Budget, but the claim will be made that planned public spending is down when it is nothing of the kind so far. If the wiping out of the contingency reserves is eventually found to be a mistake—if North sea oil receipts fall well below expectations next year, for instance—the Government will have to increase the public sector borrowing requirement to cover it.
The Government cannot have it both ways. They must either cut public expenditure in the individual 1005 Departments, as shown on page 97 of the Red Book, or not. If departmental expenditure is not cut, how will the Government close the £50 billion gap and how will it be reduced to £38 billion next year entirely on the tax side? The Government are clearly not doing it entirely on the tax side; the problem is that they are pretending to have achieved a public expenditure cut that they are not willing to attribute to any individual Department. I agree with my hon. Friend the Member for Wrexham (Dr Marek)—it is Government dishonesty on a massive scale. It is no wonder that Roger Levitt was let off with just 180 hours of community service; he could have been a member of the present Government—we have seen a triumph of creative accountancy and market massaging of which he would have been proud.
Normally, when we use the phrase "Clark the conman, who was economical with the actualite", we are taken to be referring to Alan Clark, the former Member of Parliament for Plymouth, Sutton. I fear, however, that the Chancellor of the Exchequer has taken considerable risks with his own reputation today by saying things like "Planned public spending has been reduced", given that it is impossible to find the aggregate of the Departments in which it has been reduced; it can only be seen being switched from one Department to another. That strikes me as being dishonest with the British people—or, alternatively, with the financial markets. I am very much afraid that, by tomorrow morning, they will have woken up to the truth, and will not buy the message that planned public spending has been reduced.
If the Government want to have it both ways, they will be caught out by the reaction of the public to an increased margin of error accompanied by a reduced contingency reserve. Would hon. Members like to run a business in that way? I do not think that they would. To present a unified Budget in November rather than March is to take a risk with sound public finances—despite the Government's claim to be the master of sound public finance, and their claim that they will have eliminated public sector borrowing by the end of the millennium. They do not specify the millennium concerned, but they say that they are now back on the strait and narrow; the £50 billion public sector borrowing requirement is there this year, but give them another seven years and they will have sorted it all out. That is not just Red Book—it is red flannel, and it will give unified Budgets a bad name right from the start.
The reason is, of course, that the Government are in trouble with their reputation as a tax-cutting party. They love that reputation, but today it has been blown to smithereens. It has always been fair to say that the Conservative party is not a tax-cutting but a tax-switching party—a party that prefers to introduce fees, duties, imposts, indirect taxes and any other measures rather than increase the rate of income tax. This year, no one is likely to claim that the Conservative party is a tax-cutting party; people will say that it is a party that freezes allowances, thus increasing taxes indirectly, and puts VAT on goods such as fuel.
People have no choice about spending on fuel, unless they want to go out on their bikes to chop their own wood. VAT has become a compulsory tax on compulsory expenditure, rather than on discretionary expenditure which involves a choice. That is a new principle—imposing VAT on unavoidable expenditure. No one, except perhaps a Yogi monk who might last the winter wearing 1006 only a loin cloth, could manage without fuel expenditure. This is a compulsory tax in exactly the same way as income tax is a compulsory tax.
The Government want to keep headline taxes low, and to try to flannel the British public into believing that the non-headline ways of increasing taxation—freezing or reducing allowances, imposing excise duties and putting new tolls on roads; all those ways of imposing fees, charges, duties and imposts—somehow do not have the same impact as income tax increases. In the end, it is all about headline impact. I know that we are not allowed to read newspapers in the Chamber, but it is fascinating to examine the headlines in the different editions of today's Evening Standard. The early edition—obviously produced with a good deal of heavy briefing from the Chancellor—said:Income Tax: It's A Let-Off'.Wonderful; the British public are really pleased and will be going out to celebrate. A couple of hours later it becomes, "Clarke turns screw on tax and spending". That is getting a bit closer to reality, but who was doing the briefing earlier in the day to say that it was a let-off on the income tax? It is all about headline taxes and headline grabbing by the Chancellor to ensure that he is a popular man.
We are looking, therefore, at what will really happen next year. Has the Chancellor hidden cuts in departmental budgets in today's Budget statement in the hope that something will turn up? If something does not turn up, the Government will bring in real cuts next year, even though they have given a commitment today that a departmental budget will be such and such. They have said that health spending will increase by a certain amount, although not by as much as the increase in health inputs. So it will be a real cut in health spending.
We fear that the position will get worse unless something turns up. We believe that there are hidden departmental cuts and that the Government have not had the guts to put them in the Budget.
The Chancellor claimed that one does not need a contingency allowance because the Treasury has discovered a new method of public expenditure control. The Treasury always says that. I remember that, 15 years ago, the Treasury said that it had discovered a new method of public expenditure control, and that therefore one could manage with a lower level of expenditure controls and contingency reserves than before. We have heard that for 15 years and we are bored with it. It does not work. It is always the same message from a new clever bunch of people at the Treasury who say that they are cleverer than the previous bunch, even if the previous bunch were all in the same party as them, and that includes the Prime Minister himself.
My hon. Friend the Member for Edinburgh, Leith (Mr. Chisholm) said that today's Budget was intended to increase the popularity of the Chancellor. He is absolutely correct. The Chancellor has not had the guts to say what he is really doing. He has not had the guts to say which departmental budgets are going to carry the knock, nor has he said what the total expenditure will be next year.
One cannot simply wipe out the contingency reserve without having some allowance in it in case some of the tax projections do not come through, if the winter weather is far worse, or if North sea oil receipts fall, or whatever. The Chancellor is like the famous American congressman in the 1920s who said that what he believed in was sound money and plenty of it. The Chancellor will have to learn 1007 that if he does the Budget on the basis that he wants to be popular, he will find that he cannot have it both ways and he will go down as a Chancellor who is irresponsible and too imprudent to believe that he needed a contingency reserve. He will not produce a Budget that is for the good long-term government of the country.
§ Dr. Lynne Jones (Birmingham, Selly Oak)
I should like to ask some questions of the Budget. What will it do to increase investment in manufacturing research and development to the level of that in our competitor countries? What will it do to reverse the growing inequality in our society?
What will the Budget do to help those people who will not be affected by the increase in insurance premiums on cars and home contents insurance; first, because they do not have cars; and secondly, because they cannot afford to insure their homes, vulnerable as they are—in many cases more vulnerable than the average—to burglaries? What will the Budget do to reduce substantially unemployment levels over those predicted, even if the Government succeed in sustaining the pathetic levels of growth that are starting to come through?
I shall talk first about manufacturing. There has been some help in the Budget to encourage retention rather than distribution of profits. Let us look at the scale of the problem in our industry. For example, the figures that were recently released by Kleinwort Benson show that the real cost of capital for research and development projects over a long-term 10-year pay-off in the UK was 60 per cent. higher than in Germany, and three times higher than in Japan. That is the scale of the problem that the Government need to address. I am not convinced that the measures announced in the Budget will come anywhere near dealing with the deficit in manufacturing investment. Manufacturing investment is needed to deal with the deficit in our balance of trade.
I listened to the radio today as I drove down to London from Birmingham, where I was attending a Boundary Commission review. I noticed that the hon. Member for Staffordshire, Moorlands (Sir D. Knox) shared my doubt about whether the Budget would provide the boost that manufacturing required.
My second question is about the inequality in our society. We all know that under the Conservative Government the rich have got richer and the poor poorer. In relative terms the poor pay more tax. The taxation policies of the Government have been regressive in the extreme, not least because of the increase and expansion of VAT.
There has been some help for pensioners and those on income support, thank goodness. But what about the people who are just above the income support level such as families with children? A third of the children in Britain are being brought up in poverty. Most of them are from families on income support, but many more are on low incomes. There is nothing in the Budget to help them.
The freezing of tax allowances, the attack on unemployment benefit and the attack on disability benefits are again regressive measures. It would have been far 1008 better to increase the rate of taxation for the better off than once again to freeze the tax allowances because to do so disproportionately affects the low earners.
The Chancellor announced a small amount of extra money for insulation schemes. I should like to comment on those schemes in relation to my two questions about inequality and poverty and about jobs. I do not know whether it has been mentioned so far, but this week is Conserve Energy week. On Monday I helped to insulate the home of a pensioner in my constituency as part of one of the Government schemes which will be expanded. That is welcome, in so far as it goes, but all it does is to reverse the cuts which have taken place in recent years on such schemes.
The elderly lady lived in a Victorian terraced house which she rented from a private landlord. She could not use the upstairs because of her disability, so she lived downstairs. The front room was heated only by a two-bar electric fire—a very inefficient source of heating. She used the middle room as a bedroom, in which she had a gas fire—a slightly more efficient source of heating. The kitchen was very cold and situated in a wing building in the Victorian villa-type house. The lady had to heat it by lighting one of the gas rings. The room was full of condensation as a result of that poor quality heating system.
That lady will benefit from the couple of hundred pounds worth of insulation to draught-strip her doors and windows and insulate her loft. But what she really needs is a much more effective and efficient heating system that is cheap to run. She needs something doing about the fact that, due to the lack of investment in that type of property, she has to go outside every time that she needs to use the toilet. Such improvements would cost far more than the £200 or £300 per household which is provided for under the scheme. Welcome and job creating as such schemes are, just think how much more it would help the poor and the badly off massively to expand such schemes.
Even with the increase in the programme, it will take 25 years to deal with the 6 million homes which have poor insulation. It will take far more than draught-stripping and loft insulation to bring our homes up to the level of those in Sweden, which does not have the level of excess deaths in winter that we have to suffer, even though it has a much colder climate.
Programmes to invest in insulation will not only help people on low incomes; they will create jobs and conserve energy. Those are the very programmes that need to be expanded dramatically—not merely by £35 million. The Government are taking billions out of the economy by placing VAT on fuel. Surely they could put a substantial proportion of that back into energy conservation programmes and improvements in housing. Surely the money gained from the loss of mortgage interest relief could be reinvested in bricks and mortar. That would help not only the people living in unfit houses and the homeless, but create jobs.
The pathetic level of child care provision, £28 a week—welcome as it is—illustrates the Government's attitude towards jobs for women, and the low level of remuneration that they are expected to receive for important jobs such as looking after children. It costs far more than £28 a week to pay somebody a proper rate to look after children. It is time that the Government learnt about the realities of life for ordinary. people. 1009 The Budget goes nowhere near addressing the real problems in our economy. It is designed to appeal to the right-wingers in the Tory party—and to boost the Chancellor's popularity when the time comes perhaps to replace the present Prime Minister—but it contains nothing that will give hope to the unemployed, to those living in poverty or to the 53 per cent. of workers who fear that they might lose their jobs.
I predict that under the Government the recovery will be short-lived and that we will soon be back in a recession. The Government have failed to tackle one of the underlying problems in our economy—the lack of investment in manufacturing. They should help those people who would give a boost to the economy by consuming the type of goods that do not suck in imports. They should generally invest in public sector projects, because those projects will create the jobs that we need.
The recovery will be short-lived. If there is any hope arising out of the Budget, it is that it will ensure that we have a Labour Government after the next general election.
§ Mr. Alan Duncan (Rutland and Melton)
This Budget must have broken all records for the extent to which it has been discussed and fought about so much in advance. People have adopted postures about this Budget—some of them utterly simplistic, some rather more sweetly reasoned—almost since the day that the former Chancellor sat down after delivering his speech in Karch.
I took the view then, and I have had little cause to change my mind, that the then Chancellor could have been more severe more quickly in tackling the deficit, and that the fear of undermining the so-called fragile recovery was misplaced. I prefer the approach in "Macbeth" that'if it were done … then 'twere wellIt were done quickly:
Any suggestion that the recovery should be fuelled by the stoking up of consumer demand would be equally misplaced, because the last thing that we want is a return to the cycle of boom and bust. Anyone can create the illusion of recovery by fuelling inflationary consumer demand, and the test of the Budget is whether the Chancellor has resisted that temptation and looked instead to the long term and to the laying of foundations for sustainable prosperity, which involves a shift away from our obsession with property that is so damaging for investment in business.
One way of looking at our economic predicament is by the immediate indicators that we use to measure our performance. To understand properly the decisions that we needed to take, we must look far beyond our domestic figures, not just across the English channel to our European partners, but far across the ocean to the Americas and to the tiger economies of the east.
Any sensible assessment of our economic well-being is necessarily a study in comparative performance: it is about competitiveness. If all that we do is to perform as we have performed before, and no better, the rest of the world will overtake us. If we are to maintain or improve our international competitiveness, we need to proceed faster than the speed of the escalator moving against us in the opposite direction. Stand still and we would be drawn backwards. Had the Chancellor got the Budget wrong, we would have run the risk of coming perilously close to standing still.
1010 Britain has been traditionally blessed with the disposition to take a world view. That outlook has made us ambivalent about our association with the European Community, not just because we look to our close association with the United States but because we are rightly wary of becoming too closely tied to the habits and practices of the severely under-performing economic chub which is the EC.
That clear picture of our comparative economic performance vindicates, as if it were necessary, the unique stand that Britain took at Maastricht in resisting the social chapter and the imposition of a single currency. It also vindicates the Government's efforts to secure a successful conclusion to the GATT round, which deserves everyone's full support, despite the siren calls of Sir James Goldsmith and Ross Perot to cocoon us in the illusory comfort of protection.
That is the big picture; but what about the immediate indicators? First and foremost, after some roller-coaster years at the end of the 1980s we are back in reality and that is exactly where we must remain. Gone are the days of either boom or bust; gone is the absurd belief, which infected so many who should have known better, that the business cycle had been abolished for ever. Back has come the realisation that any progress that is real and sustainable will be gradual and unremarkable. That is how it should remain.
Within the larger picture the immediate indicators are broadly encouraging. Inflation is at its lowest for 25 years; productivity has shown some remarkable improvement; interest rates, at 5.5 per cent., are the lowest for many years; the stock market is buoyant; and unemployment is falling faster than many predicted and faster than suits the Labour party.
§ Mr. Morgan
The hon. Gentleman will be aware that, just because claimant unemployment has come down, that does not necessarily present an accurate measure of actual unemployment. Reference has been made to the fact that the number of long-term unemployed has fallen, but the hon. Gentleman will be aware that people are disqualified from appearing on the register if they are no longer able to claim. If their wives take a job and those men lose their unemployment benefit after 12 months, they are still unemployed, but they are not claimant unemployed, so they disappear from the figures.
§ Mr. Duncan
What matters most is the genuine opportunity to acquire a real job. I am confident, and all the more so as a result of what has been announced today, that our policies will deliver those jobs, while those of the hon. Gentleman will destroy them.
My only caveat amidst the good news—and it is a large one—is that the PSBR has been far too large and that, even in the midst of a severe recession, our trade balance has continued, stubbornly, to run at a deficit. Here lies the key because absolutely everything points to the need for a significant shift, sizeable and permanent, away from consumption to investment. We have been living on tick and now is the time to stop.
Today's Budget has taken some important steps towards rebalancing the economy to prepare for long-term prosperity. Some themes behind that must not be ignored. For instance, I endorse the discipline of European convergence criteria, because it is a good orthodox discipline, not because it would take us along the road to 1011 monetary union. If a common orthodoxy helps other EC economies to behave similarly, steady exchange rates will follow. If balanced parities are established, the call for a formal mechanism to govern exchange rates simply becomes redundant and should be resisted.
§ Mr. Duncan
That kind of orthodox fiscal discipline will lay the right foundations for the prosperity that will deliver jobs.
As this is the first Budget to consider simultaneously revenue and spending, it highlights certain elementary problems. The main one is unmatched expectations. I have devised my own first law of public spending. It is that anyone's expectation of what the Government should deliver always exceeds the sum total of everyone's contribution to that cause. The Budget needs to be seen as commencing the task of rebalancing people's expectations with the real cost of what they are asking for.
This has been a masterly Budget, and in my view it passes the tests which I have just described. The Budget has introduced discipline in spending, fairness in raising revenue and imagination in encouraging the wealth-creating energies of the economy. In addressing spending, the Chancellor has tackled head on the deficit which has bedevilled us for the past few years.
My right hon. and learned Friend said that the Budget was about sound finance. He deserves recognition for restoring fiscal rectitude on a scale which no one had predicted before he rose to speak this afternoon. Some had spoken of cutting the public sector borrowing requirement by a further £2 billion. Some, rashly, had predicted a cut of £3 billion. None had dared predict an overall reduction of £5.5 billion, followed by £7 billion and then £10.5 billion, as was delivered in the Chancellor's statement today.
I am pleased to see my right hon. Friend the Chief Secretary to the Treasury in the Chamber. Great credit should be given to him for the strict discipline which has been put into public spending decisions. To have no borrowing at the end of the decade is a worthy discipline. I might add that to have surpluses after that is an even worthier discipline. I welcome the fact that spending is due to increase less than growth, and that Government spending as a percentage of national income will fall from 45 per cent. to 42.5 per cent. That is part of the rebalancing that we so desperately need.
The major element of the Chancellor's spending announcement today has been the package of compensation for those poorer people who must pay VAT on fuel. Those who have waged a campaign against the extension of VAT have overplayed their hand. They adopted their stance and wrote their letters before the balancing side of the equation had been announced. Today, a generous and well-directed package has been announced.-It will benefit all those on benefit, and indeed will benefit many who are not on benefit. The compensation will go to all pensioners and thereby will benefit many who have a low income but who are on the cusp and do not qualify for benefits. Furthermore, an element of the package will be paid a year early. In some cases, the package will exceed the cost of VAT on fuel to certain individuals. The package should be welcomed, and the complaints should now stop.
1012 The social security measures also pass the tests which I described in my opening remarks. The Government today displayed the foresight that is properly required of a responsible Government. The equalisation of the pension age is a logical and compelling policy which, at last, has been addressed. In doing so, the Government have put to shame robustly those people who tried to scare people who are on the brink of retirement by saying that they would be adversely affected. The policy will not alter the plans of any woman who is now aged over 44. Indeed, the measure will be phased in over 10 years starting from 2010. The measure will, however, bring pensions expectations into line with what we are able to afford. That is in stark contrast to the deceitful promises of the Opposition.
I welcome the amalgamation of income support and unemployment benefit into a single job seeker's allowance, and I welcome also the replacement of sickness benefit and invalidity benefit by an incapacity benefit. Nothing was more noticeable today than the Opposition's churlish reaction to the introduction of the £28 per week child care allowance for those who are on family credit. For many, that is a lot of money. If £3 a week for VAT on fuel is a lot of money—as all Opposition Members have charged relentlessly since March—then £28 a week for child care is a hell of a lot of money. Opposition Members should express their gratitude for the decision made today in the Budget.
Capital spending has been maintained at £22 billion. Importantly, the measures for small business should be enthusiastically welcomed. Increasing the VAT threshold to £45,000, dropping statutory audit requirements, revising capital gains tax provisions and introducing the venture capital trust and the enterprise investment scheme will turn a lot of new investment towards small business. I welcome the Chancellor's decision to fill that gap in the financing of small business.
Everything that the Chancellor has announced today is in stark contrast to what has been proposed by the Opposition. The hon. Member for Dunfermline, East (Mr. Brown) is the creation of the hon. Member for Hartlepool (Mr. Mandelson), but as he was being assembled at some secret dungeon in Walworth road a bolt of lightning must have hit the building and flashed across the lab. As a result—
§ It being Ten o'clock, the debate stood adjourned. Debate to be resumed tomorrow.