§ Madam Speaker
I have to limit speeches between the hours of 7 and 9 o'clock this evening to 10 minutes for each hon. Member.
§ The Secretary of State for Employment (Mr. Michael Portillo)
As Chief Secretary to the Treasury, I believed that the best way to create prosperity and jobs was for the Government to control their spending, borrowing and inflation, but times change and I am now Secretary of State for Employment. From my new perspective, I have come to the conclusion that the best way to create jobs is for the Government to control spending, borrowing and inflation because those are the only conditions for sustainable, economic growth.
Interestingly, the hon. Member for Peckham (Ms Harman) believes that the only way to create jobs is for the Government to spend, to tax, to borrow and to inflate. In her previous job, her opinion was that the only way was to spend, to tax, to borrow and to inflate. The funny thing is that that was when she was shadow Chief Secretary. There is an inevitable symmetry between any object and its shadow.
I am delighted today to congratulate my right hon. and learned Friend the Chancellor of the Exchequer on his Budget. It underlines the Government's absolute commitment to the fight against inflation. It ensures that the constraints on public spending are maintained and it charts the route to reduce the public spending borrowing requirement to zero before the end of the century. It is the reliability of those policies that gives Britain the prospect of a sustained recovery. We have created the framework within which prosperity and wealth are being generated by business and it is that framework that is attracting foreign investment to this country. It is by those means that jobs are created.
1359 The Government believe in making it easy for one person to provide a job for another. We avoid imposing unnecessary regulations and restrictions. We do not deter employers from taking on extra people as their businesses grow. The Government do not believe in imposing on businesses in Britain costs that competitor firms elsewhere in the world do not have to carry. Costs must be contained if our firms are to compete, because the newly emerging tiger economies of Asia and south America increasingly have well educated and well trained work forces as well as a much lower cost structure.
However, the Government believe in helping those who would otherwise stand the least chance of getting a job, such as disabled people and people who have been unemployed for a long time. We must ensure that no one is denied the chance of getting a job simply because of prejudice among employers.
During the 1980s, the Government transformed Britain's employment laws. We brought the trade unions within the rule of law, we cut Labour's taxes on jobs and we swept away the unnecessary restrictions that made businesses unwilling to offer people jobs. As a result, Britain today has a flexible labour market, which means that, when the economy grows, unemployment falls quickly.
Within a few months of the recovery starting, unemployment began to fall. That is in contrast with the much longer time taken during the last recovery, when it was a full five years before the fall began. In this recovery there has already been a reduction of 450,000 in the number of people out of work, so that the total today is just above 2.5 million.
Recovery has reached other countries in Europe, too, but in most of those countries unemployment is steady or still rising. In Britain, it is falling because of the supply side reforms implemented by the Government, and consistently opposed by the Labour party, which has opposed everything that could give our people a better chance of work.
We recognised the need to give young people a better start in life, better education and better training. We did not think it good enough to have just 7,000 youngsters in training. But Labour did, because that was the number in 1979. We have increased that number to 277,000. We did not think it right to let young people start out on a life on benefit at the age of 16. But Labour did. We thought it necessary to improve educational achievement, so we introduced the national curriculum, testing and league tables in schools. Labour opposed us every inch of the way.
In 1979, Labour thought it good enough that fewer than 25 per cent. of our young people got five good GCSEs or the equivalent. We did not agree, so now the figure is 40 per cent. The proportion of young people getting A-levels has just about doubled, and Britain now produces, proportionately, more graduates than any other country in Europe.
§ Mrs. Anne Campbell (Cambridge)
If the Secretary of State thinks that education and training are so important, why has he cut the training for work programme by £200 million?
§ Mr. Portillo
I shall deal with that later in my speech, but I will give the hon. Lady a preview now. I am interested not in what we spend but in the results we get. 1360 I want to get people into jobs, and I measure Government programmes by what they do for people, not by how much they cost taxpayers. It is indicative of the mentality of the hon. Lady and her colleagues that all that they are interested in is what is spent, not what help is provided for people.
We have introduced modern apprenticeships. In the White Paper on competitiveness we set out a programme amounting to £325 million of investment in people, to boost training in small firms and to make our vocational qualifications rigorous and up to date, and to provide better careers education and guidance and at least one week's work experience for all young people before they leave full-time education.
We have started accelerated modern apprenticeships for 18 and 19-year-olds so that they can achieve the technical and supervisory skills crucial to Britain's economic success.
In the modern flexible labour market we also need to encourage individuals to take responsibility for managing their own training and development. To help individuals to make informed choices, I am making arrangements with the training and enterprise councils so that they can spend up to £40 million over two years on pump-priming adult information and guidance services.
It is business that knows what business needs. Most training must be conducted by business; and it is—business spends £20 billion a year. But even in areas where the Government need to contribute taxpayers' money, business still knows best how that money should be spent. That is why the TECs are run by business people.
Increasingly, the TEC budgets are being detennined by outputs—by what is achieved—rather than by what is spent. The output that matters to most people on most of our programmes is that they actually get a job. Only about one third of the participants in the training for work programme get a job at present, even after some months' training. We can do better than that. We shall increase the proportion of people on that programme getting jobs to 50 per cent. That means that we can increase the numbers going into jobs but spend less on the programme.
The Labour party may portray that as a cut, but Conservatives recognise it as better value for money, better value for my Department and for taxpayers, and better for trainees, too. I want to deliver more jobs for less money. So should the Labour party, if it were not trapped in the spend, spend, spend mentality so well exemplified by its Front-Bench spokesmen. None the less, we have committed ourselves to modern apprenticeships and a range of other programmes under the competitiveness White Paper, which, as I have already said, amount to about £325 million.
Our spending next year on training, education and enterprise will be almost £2.2 billion, as it is this year. That is twice as much in real terms as what was spent under the Labour Government. Most significantly, the number of opportunities in the coming year will be 1.5 million, the same as this year.
The most effective opportunities for unemployed people are often not training but other help in getting them into jobs. There will be more money for those other programmes, such as 1-2-1, workwise, workstart, work trial, job match and jobfinders grants. There will also be new money for Community Action. For people on the 1361 longer programmes, we shall switch some of the money so as to enable them to search more effectively for a job while still members of programmes.
The Budget continues to reduce the costs of employing people. It makes further changes to family credit to help people to return to work, and builds on the various successful pilot programmes that we have run over the past two years.
The Budget also focuses on the problems that people who have been unemployed for a long time face when they are offered a job. They often fear that they will be worse off in work, either permanently or at least for a while, so we have decided to give them the same help with rent and council tax for their first four weeks in a job, and to speed up the payment of housing benefit and family credit so that they can get quickly the benefits due to them when they are in work.
As a national programme, we shall also provide grants for people who have been unemployed for more than two years if they need help with work expenses such as clothes or tools.
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
The Secretary of State says that the payment of housing benefit will be speeded up. As housing benefit is paid by local authorities, how can he guarantee that that will be done?
§ Mr. Portillo
My right hon. Friend the Secretary of State for Social Security will make arrangements with the local authorities to ensure that that can be accomplished. That will mean some changes in procedures.
We also want to encourage employers to take on those who have been out of work for a long time. We recognise that people who have been out of work for a long time undoubtedly face prejudice. We shall give them a chance to improve themselves. After April 1996, employers who take on a person who has been unemployed for more than two years will enjoy a 12-month national insurance contribution holiday. That will cut the average cost of employing such a person by more than £300. That provides a real incentive.
§ Ms Angela Eagle (Wallasey)
Everyone in the House shares the concern about the long-term unemployed. I feel that the Government have allowed long-term unemployment to go too high for too long. If the Secretary of State has suddenly acquired a concern for the long-term unemployed, will he explain to the House why none of the schemes will start until April 1996?
§ Mr. Portillo
The hon. Lady is misinformed. I should say, incidentally, that if she has any concern for the long-term unemployed I hope that she feels a deep sense of shame at being a member of the party which imposed the national insurance surcharge, thus destroying millions of jobs in Britain. The hon. Lady is wrong. I have told her about the jobfinders grant, jobmatch, workstart and work trials. All those programmes will begin within that period. The hon. Lady refers to only one scheme—the national insurance contributions holiday. That will come in with the job seeker's allowance. It will be part of the Bill. It will be introduced in a timely way in April 1996.
1362 We understand that employers may need to be convinced that people who have been unemployed for a long time can work properly. We are giving them the incentive to try people who have been unemployed for more than six months in a job at no cost to employers. Such a three-week trial gives employees the opportunity to prove themselves in a job of work. In the pilot programmes that we have run, six out of 10 people in work trials have been kept on in jobs.
We must also improve the motivation and self-confidence of people who have been out of work for a long time, especially the young. People aged under 25 who have been out of work for more than a year will be offered interviews and short courses. In the pilot programmes that we have run, the interviews and courses have produced good results. They help young people to improve their employability. For that reason, they will be made compulsory.
We must ensure that people with disabilities and illnesses who are capable of work have a good opportunity of getting a job, and we shall protect their opportunities under the training for work programme. We recognise that when we introduce incapacity benefit some people will switch from benefit and become jobseekers again. We will give them special help to find work.
I am delighted that some of the ideas that I have talked about have found their way into Labour party policy or, should I say more exactly, into the report of the Social Justice Commission. The House will recognise that the Social Justice Commission does not represent Labour policy. Labour accepts the kudos for anything that is suggested in the commission's report, but refuses to say how those ideas would be paid for.
None the less, the Social Justice Commission has looked at our pilot schemes and what we have done with national insurance contributions and adopted our ideas. For example, it suggested that there should be work trials for employers with long-term unemployed people. It forgot to say that we already had such work trials up and running as a pilot scheme. We welcome the conversion of the Labour party, but I hope that it will now take the next logical step.
If it is true that employers can be encouraged to take on extra staff by reducing employment costs such as national insurance contributions, they would obviously also be deterred from taking on extra people if we added to their costs by introducing a training levy, a national minimum wage or the social chapter. One cannot admit that reducing NICs helps create jobs and then pretend that adding costs does not destroy jobs.
§ Mr. Denis MacShane (Rotherham)
The Secretary of State is a doughty opponent of a statutory minimum wage. Is he aware that one country which has boasted record employment creation in the past 20 years—the United States of America—has a statutory minimum wage, variable from state to state, and that the states with the highest statutory minimum wage have some of the best job creation records? If the Secretary of State is so proud about the Social Justice Commission taking up ideas that he says are Government policy, does he accept that almost every measure that he has just mentioned has been put 1363 into practice in France since the late 1980s? As leader of the Tory party's Europhobe wing in the Cabinet, is he not ashamed—
§ Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)
Order. Interventions are supposed to be brief and to the point, and not speeches. I make it clear before we go further that many hon. Members wish to speak in the debate and that interventions must be brief or I shall intervene in them.
§ Mr. Portillo
I had the honour of meeting my French colleague the other day. I found him in a slightly depressed state because unemployment in France was still rising despite—or rather, because of—many years of socialist presidency. The reference to the United States is interesting. For a decade, it failed to uprate its minimum wages, and the current Secretary of State, Secretary Reich, has recognised that raising the minimum wage could have adverse consequences for employment. So most of us are in agreement around the world, but as usual the Labour party is not.
Excessive employment costs of any sort destroy jobs. That is why we must keep our costs down. It does not mean that we must have low wages. Indeed, the opposite is true. If we keep down the non-wage costs we can be more competitive. That means that businesses will prosper, productivity will improve and wages will rise. That has already happened.
In the past 15 years, take-home pay for a married couple with one worker on male average earnings has risen by 46 per cent. more than inflation. By contrast, between 1973 and 1979, take-home pay for the same couple fell by 2 per cent. after taking into account inflation.
§ Mr. Doug Henderson (Newcastle upon Tyne, North)
How does the Secretary of State think that market forces will lift the real wages of people such as laundry workers and contract cleaners in the private sector in Britain?
§ Mr. Portillo
The massive programme that I have described to improve educational standards, which the hon. Gentleman's party has opposed, and to create youth training opportunities will raise the value of what people can offer.
§ Mr. Portillo
The hon. Gentleman talks about ordinary workers. He has the patronising attitude that ordinary workers cannot be upskilled or enabled to achieve more. That is a typical patronising socialist attitude—the idea that people can be levelled down and that they cannot be achievers. We believe that they can; we want to raise the skills level in Britain so that people can make a higher contribution and earn a higher wage.
§ Mr. Bernard Jenkin (Colchester, North)
Is it not a bit rich to hear all this advice about youth unemployment from the Labour party when it advocates the very policies practised elsewhere in Europe which have resulted in significantly higher youth unemployment there?
§ Mr. Portillo
My hon. Friend will know that in Spain, tragically, youth unemployment is three times as high as in Britain. That is in a country with a minimum wage. Returning to Britain, pay here is now as high as almost anywhere in Europe. Take-home pay for a manufacturing 1364 worker in Britain in 1993 was higher than in Italy and France and pretty much the same as in Germany. That is because Britain's economic performance has been transformed. We have set out on the road to sustained prosperity. We are creating a high-productivity, high-wage, high-tech, highly competitive economy.
§ Mr. Portillo
I give way to the hon. Lady, who recently described me as a fellow immigrant on the make.
§ Mr. Portillo
No. This economy is creating every sort of job—full-time jobs, jobs with overtime, and part-time jobs. The hon. Lady's intervention is odd, for her. I do not know much about it, but I take it that the hon. Lady is a feminist. Recently, we have witnessed a tremendous return of women to work—women who are able to work at the same time as fulfilling their family responsibilities and who are looking for part-time work—and we have an economy that is flexible enough to respond to that sort of demand. I am surprised to hear the hon. Lady laying about her and denigrating part-time work, when that is what so many women need and want.
The economic revival that I have just described would be ruined by the social chapter. The Prime Minister refused to sign up to it at Maastricht because it gave the Community significant new powers to legislate on employment and social matters, mostly on the basis of qualified majority voting.
The social chapter would lay the United Kingdom open to new and damaging Community-level interference. It would threaten the Government's achievements in restoring a fair balance in industrial relations and freeing up the labour market. It would jeopardise existing jobs and inhibit the creation of new ones. Authoritative commentators, such as the Organisation for Economic Co-operation and Development, have repeatedly pointed out that the European Community needs fewer regulations and not more, if it is ever to match the job creation performance of our competitors.
The Community can deal with its unemployment problems, but only by deregulating its labour markets and cutting employment costs. That was recognised by a gentleman who will be well known to you, Mr. Deputy Speaker—Herr Gunther Rexrodt, the German Economics Minister. He said that Britain's achievements in deregulation, privatisation and reducing the burdens on business are "outstanding" and that Britain hasachieved exceptional results in breaking down bureaucratic obstacles to starting up new businesses".I thank Herr Rexrodt for that generous compliment.
Unfortunately, the Labour party is rather less objective: its beguiling, but dishonest, argument is that, instead of paying money to the unemployed we should spend it paying them to work. Obviously, that idea is superficially attractive, but it does not work. It cannot create real jobs. If there were such a simple socialist answer, France and Spain would have full employment today; instead, their unemployment figures are far higher than ours.
§ Mr. Roger Knapman (Stroud)
Is my right hon. Friend aware that no Labour Government have ever left office 1365 with a smaller number of unemployed people than when they came to office? Would he not be more inclined to take advice from the Opposition if there were such an Administration, or is that most unlikely?
§ Mr. Portillo
I can reassure my hon. Friend on that point. There never will be such an Administration. Were there to be, I imagine—I know something of the Opposition's so-called policies—that they would again drive up unemployment because such policies have always done so when applied elsewhere in the world.
The idea of spending one's way out of unemployment has always attracted the Labour party. At Employment Question Time on Tuesday, the hon. Member for Bow and Poplar (Ms Gordon) urged us to allow local authorities to push up the level of public borrowing. During the Budget statement, when my right hon. and learned Friend the Chancellor reached that excellent passage in his speech in which he looked forward to very much reduced levels of public spending borrowing requirement in future years, the hon. Member for Bolsover (Mr. Skinner) immediately said,"We will soon get those up."
§ Mr. Stephen Byers (Wallsend)
It would be informative if the right hon. Gentleman could give us some of his personal views on these matters. Does he agree that taxpayers' money should be given to employers to take people off the register of long-term unemployed?
§ Mr. Portillo
In the next paragraph or two—that is not long to wait.
If it were so easy, why did unemployment double when Labour was in power? It was because, as at least the left-wing Members of the Labour party admit—I pay tribute to their honesty—higher public spending requires higher taxes or borrowing, higher interest rates and probably higher inflation, all of which destroy jobs. New public sector jobs would be created at the expense of jobs lost in the private sector. As the private sector tends to be more efficient, high productivity jobs would be replaced by lower productivity jobs. Indeed, that seems to be a central part of Labour economic policy.
The right hon. Member for Kingston upon Hull, East (Mr. Prescott)—the deputy leader of the Labour party, no less—urged that public services be run inefficiently to create jobs. Such a policy would destroy jobs. The economy would suffer as the wealth-creating sector would bear the burden of public sector inefficiency and the economy would be less able to generate new jobs. The net effect is that unemployment would rise.
One cannot increase demand in the economy by increasing public spending. One can do so by providing the conditions for sustained economic recovery, which is what my right hon. and learned Friend the Chancellor of the Exchequer has done.
Job subsidies can play a part in helping some people, such as those who have been out of work for a long time, to compete in the labour market, but that is not a cost-free option. Usually, one is paying employers to take on people when they could have taken on extra people anyway. One merely encourages them to take on 1366 subsidised workers in the place of the unsubsidised. Companies who get subsidised workers get an advantage over those who do not, which damages job prospects in competitor firms.
Let us be honest. One cannot spend one's way out of unemployment. Subsidies have to be paid for by someone else's taxes and, unless the economy is growing, subsidising one person's job is likely to lead to someone else having to wait longer to find work.
§ Mr. Jenkin
Is not the really important feature of this Government the fact that we have achieved the three-card trick in the social security uprating? We have reduced the overall burden of social security, continued to target help on those who most need it and had money available to help people back to work, to get rid of some of the poverty traps. All that the Social Justice Commission advocates is higher public expenditure, which would damage the economy in the long run.
§ Mr. Portillo
My hon. Friend is absolutely right, although I prefer to think of it as the triple crown rather than a three-card trick.
Despite the Opposition's dishonesty on that issue, they are ever-mindful of Conservative successes at general elections and like to pretend that their policies are similar to ours, but while we build the economic foundations for job creation, they are in the demolition business. Their job demolition policy number one is a minimum wage. Attempts to increase wages through legislation do not work. We know from those countries that have a national minimum wage what happens and we know that the young are the worst affected, as they are prevented from beginning work.
The right hon. Member for Kingston upon Hull, East, being uncharacteristically coy at the time, admitted that a minimum wage would cause a "shakeout". In plain speaking that means job losses and jobs destroyed. For the victims, avoiding the hard words would not soften the blow.
A minimum wage would bring the Labour party's trade union friends scurrying out of the woodwork to tell us that pay differentials had to be restored. It would make the cost of employing people more expensive at every level. The better-paid would gain the most and the low-paid the least. As those pay rises would not be justified by higher output, jobs would be lost. Those who would suffer most would be those who were thrown out of work and, even more, those who are already out of work, with the lowest level of skills.
The minimum wage is a ban on job creation. It forbids companies to create jobs for those who would like to work and have something to contribute to a company, but not enough to justify being paid the minimum wage. Labour's espousal of that policy is deeply cynical. As the words of the right hon. Member for Kingston upon Hull, East demonstrate, the Opposition know that it would destroy jobs. It is a sell-out to the unions—a despicable deal to boost the wages of those who have jobs by smashing the chances of those who do not.
Labour's job demolition policy number two is the social chapter, which Opposition Members try to pretend would not cost jobs. It has cost jobs in Germany. Black and Decker is closing its manufacturing unit at Limburg, and moving production to the United Kingdom. The hon. 1367 Member for Peckham ought to ask them why, but I shall save her the trouble. They moved because costs there were too high. In the words of one of the Limburg workers,industry is flexible … the social chapter is not".Where have Black and Decker moved those jobs to? They have moved the jobs to Spennymoor, county Durham in the constituency of Sedgefield—the constituency of the Leader of the Opposition, who would sign up to the social chapter tomorrow if he were given the chance. Let the Labour party tell the people of Spennymoor—the extra 300 people who have a permanent job, the shopkeepers in whose shops the workers will spend their money and the house builders who will build homes for the workers—exactly how they would be better off with the social chapter and without jobs. Labour's rhetoric is full of promises about full employment, but the reality is that its policies destroy jobs—a cruel deception from a party more interested in appearing to care than in actually helping people.
Let us have honest answers from the hon. Member for Peckham in her new position. I will ask her five straight questions, but I am sure that I shall not get one straight answer. At what level would she set a minimum wage? How many jobs would be destroyed by the minimum wage that she would introduce? Would she include young people in a minimum wage? If so, we can look forward to 35 per cent. youth unemployment in this country. What would she do to reduce unemployment that the Government have not done? What does she mean by full employment—500,000 people unemployed, 1 million, 1.5 million? I suggest that the House should award points to the hon. Lady for her answers, and that we should mark her answers on the basis of three categories: candour, economic coherence and arithmetical accuracy.
§ Mr. Portillo
I shall certainly be on the panel.
The route to more jobs and fewer people out of work is clear: it consists of sound economic policies based on permanently low inflation, a deregulated and flexible labour market and help for those who need it most, such as young people and the long-term unemployed. Those policies are in place today, and they are working. Output is growing by about 4 per cent., inflation is steady at 2 per cent., unit wage costs are falling—enabling British business to compete in world markets—and exports are up by 10 per cent. We have achieved export-led growth. Britain's recovery is generating growth with jobs, in stark contrast to the jobless growth which has been a feature in Europe over the past three decades.
Britain has 70 per cent. people in work, one of the highest proportions in Europe and well above Germany, France and Italy. Across Europe, some Governments have chosen Labour's route of high spending, subsidies, adherence to the social chapter and a minimum wage. Those countries today have high unemployment. In Britain we have pursued educational improvements, sound public finances and targeting help at special groups, and our unemployment is falling. The Budget continues those consistent policies, and makes sustained growth possible and probable. I therefore look forward to a sustained fall in the number of our people out of work.
§ Ms Harriet Harman (Peckham)
The Budget should have addressed the central employment issues that are facing this country. Some 2.5 million people are without work, and those who are in work feel insecure about falling living standards. It should have dealt with investment in skills and industry and with the lack of investment in the economic infrastructure, but it failed to do so.
The Government are out of touch and are failing to recognise and address the central concerns of employers and employees. They wonder why there is no "feel-good factor", but it is obvious to everyone else. People feel not good but fearful, insecure and worse off.
The true position was spelt out clearly two weeks ago and was in sharp contrast to the rosy picture painted by the Secretary of State for Employment. While the Government trumpet the recovery, people do not think that the recession has ended and they still fear unemployment. People still feel powerless and insecure about jobs, housing and the health service, and they have no vision of where the Tory party is heading. Tax increases mean that real take-home pay is falling.
Before the Secretary of State disagrees, and says that I am "talking Britain down", I must ask whether he agrees with the views that I have just expressed, because they are not my views but those of the Tory deputy chairman, John Maples, who was reporting the view of the British people—a view that the Secretary of State does not want to hear.
Cabinet Ministers say publicly—as the right hon. Gentleman has just done—that everything is rosy, but their own deputy chairman tells them privately that Labour has been right all along. It has been right about the fear of unemployment, about insecurity and about falling living standards.
§ Mr. Jenkin
Before the hon. Lady reminds me of my election address, as Opposition Front Bench Members usually do, I remind her that I stood on a platform of urging lower taxation, which, in due course, I am sure we will achieve. Does she agree with the Leader of the Opposition, the right hon. Member for Sedgefield (Mr. Blair), who told the House recently that the recession has ended?
§ Ms Harman
We hope that the recession has ended, and there are signs that growth is picking up, but what we and the people of this country are concerned about is that yet another recession will be just around the corner as the Government pursue boom-and-bust policies.
The hon. Gentleman asked whether I would quote his election address. He well remembers that he promised his constituents that the Government would cut taxes, whereas in fact their taxes have gone up by the equivalent of 7p in the pound. Since this is a debate about employment and unemployment, I remind him that unemployment in his constituency has risen by 156 per cent. in the past five years. Those are the Government's own figures.
§ Mr. MacShane
If we are out of the recession, why does page 17 of the Red Book forecast lower growth and higher inflation for next year? Every other Finance 1369 Ministry in Europe is forecasting increased growth for 1995–1996, yet the Red Book says that our growth will decrease.
§ Ms Harman
My hon. Friend is right, and the Government's uncertainty about the future of the economy is evidenced by their need to put up interest rates. Interestingly, the hon. Member for Colchester, North (Mr. Jenkin) did not know about the increase in unemployment in his own constituency.
With the benefit of the Conservative party deputy chairman's insight, how have the Government responded? The Chancellor of the Exchequer introduced what he describes as a "Budget for jobs". Unemployment is no longer to be "a price worth paying". How can anyone believe in the Government's determination to lead a crusade against unemployment when it is to be led by the Secretary of State for Employment? He does not believe in Government action to get unemployed people back to work, because he believes that everything should be left to the market. He made that quite clear when he said that any action by Government undermines personal responsibility.
The right hon. Gentleman, more than anyone else, is the heir to the Thatcherite legacy. The Chancellor wants to bury Thatcherism, but the Employment Secretary continues to praise it. That is why this so-called Budget for jobs is a sham. How can it achieve its aim when the Employment Secretary does not even believe in the principle that the Government have a responsibility for the unemployed?
The Budget has been billed as the Budget for jobs, but it will cut the budget of the Department of Employment by 14 per cent. over the next three years. It has been boasted that the Budget will help unemployed people, but it will cut help with mortgage payments for people who become unemployed. The Budget purports to recognise the particular difficulties faced by those who have been unemployed for a long time, but, at the same time, the training budget for the unemployed will be cut.
If the Government were serious about tackling unemployment, they could take immediate action, because we have 350,000 unemployed building workers, 128,000 homeless families and many council houses in need of improvement. The £5 billion held in capital receipts lies idle, however, in local authority accounts. A Labour Budget would have phased in the release of those capital receipts so that local authorities could put building workers back to work to build houses for the homeless. Everyone recognises that that would be common sense—everyone except the Government.
§ Mr. Phil Gallie (Ayr)
If the Opposition pursued such a policy, Labour councils would have to increase their council tax rates. Surely that is typical of the Opposition, who are always talking about raising taxes.
§ Ms Harman
I am glad of that intervention, because I hope that the hon. Gentleman, at least, will stand by his constituents when we vote against the extension of VAT to fuel bills. I believe, however, that he missed the point about capital receipts, which are being held by councils as a result of the sale of council housing. That money 1370 could be used to put building workers back into work, but Tory dogma of the 1980s dictated that it was not the role of local or central Government to invest in housing.
Have the Government buried Thatcherism in their Budget for jobs? Far from it, because, instead of releasing capital receipts, they have cut 25 per cent. from the funds for investment in social housing and have imposed harsher rules for those on housing benefit.
The so-called Budget for jobs has two defining characteristics of the old Thatcherite dogma—the refusal to take action to put people back into work and benefit cuts, which make life even harder for the victims of the Government's failure.
§ Mr. Portillo
Is the hon. Lady aware that, if a council is debt-free, it is free to spend its receipts? Does she not realise that the reason why councils are not free to spend their receipts when they have debts is that the money is set aside and stands alongside their current debts? Such councils do not choose to pay off those debts directly because they get a higher rate of interest on the money in the bank, the original debts having been taken out years ago at a lower rate of interest. The hon. Lady must realise that, if councils are debt-free, they may spend the capital receipts, but, if not, what she proposes represents an increase in borrowing. That is why the Government think that she and her party are irresponsible.
§ Ms Harman
The problem for the Employment Secretary is that the Government recognised that it could be acceptable to allow councils to spend their capital receipts and they allowed councils to have an 18-month holiday to spend. If they accepted that principle, albeit for a short time, why were they not prepared to phase in the release of all capital receipts? The right hon. Gentleman's argument simply does not hold water in the light of the Government's previous decision, which they deemed acceptable, to allow councils to spend their receipts.
Although the Government's rhetoric on the long-term unemployed has changed, it is not matched by action. The Chancellor admitted that the Government had to intervene in order—I quote him approvingly—toencourage employers to look more favourably on people who have been out of work for some time"—[Official Report, 29 November 1994; Vol.250, c.1090.]The right hon. and learned Gentleman is right: long-term unemployment is a tragedy and a waste. It breaks up families, tears communities apart and holds our economy back.
Many employers are reluctant to take on people who have been out of work for years, and the Government's new proposals are inadequate. Although the Conservatives say that they have recognised the problem of the long-term unemployed, the presence of the Secretary of State for Employment prevents them from tackling it.
What a contrast there is between the Government's central proposal to help those who have been unemployed for two years and the Labour party's plans. A Labour Budget would provide a £75 a week tax rebate for employers, which is designed to end long-term unemployment. The Chancellor's central proposal is based on a national insurance rebate that, according to the Government's figures, which were repeated today, would offer an employer just £6 a week to take on someone who has been out of work for two years or more. British business has already said that the Government's proposals 1371 are not enough and will not work; the Institute of Personnel Management and the Institute of Directors have already made that clear.
Our scheme is ambitious. It would put the 300,000 people who become long-term unemployed each year back to work. We have costed our scheme, and our figures have been examined by the Institute of Fiscal Studies. I accept that it would cost money in the first year—about £100 million net—but by the second year public money would be saved because we would not have to pay to keep people unemployed. We would also save money by not having to pay income support and housing benefit. The Government have never understood that lesson. They are prepared to see the unemployment bill to the public purse go up and remain high.
I challenge the Employment Secretary to tell us why the Government do not accept our proposal. I suggest that the reason is the same as the one that will prevent any effective Government action on unemployment while that right hon. Gentleman stays in office—that he does not believe that it is the job of the Government to help. He has said in his speeches that action by Government confiscates personal responsibility.
The Chancellor has proposed a complex array of other measures. In truth, a snowstorm of small proposals may blind people on Budget day, but they are not enough to make a difference.
§ The Chancellor of the Exchequer (Mr. Kenneth Clarke)
The hon. Lady is the first Opposition spokesman—
§ Mr. Clarke
If the hon. Gentleman would like to see me with a prop, I am happy to move to the Dispatch Box. I have been in the House for a long time and I can assure the hon. Gentleman that I can speak without that prop, but I am not proposing to do so for a very long time in the future.
As the hon. Lady is the first Opposition spokesman to cost any Labour proposal, does she accept that when she talks about a net cost she is presumably making great assumptions about the savings and benefits that will reduce the gross cost to that net cost? We have costed our policy honestly, without anticipating behavioural consequences. I do not know the gross cost of her proposal, but it must be far bigger than the cost she quoted to the House. Perhaps she will give its true cost.
My proposal is meant to reduce the cost on employers for the first year when they take on an unemployed person. Her proposal sounds like an expensive competitor to mine, but how is it logical to combine her proposal with a minimum wage, which would increase the cost of moving people from benefit into employment? Why cannot the Opposition get rid of that inherent and ridiculous contradiction in their policies to reduce unemployment?
§ Ms Harman
It is interesting to note that, when I criticised the proposal to put the long-term unemployed back to work, the person who jumped to his feet to defend it was not the Employment Secretary, who clearly has mixed feelings about it, but the Chancellor. We have done our costings and they have been examined by the Institute 1372 of Fiscal Studies. We say that there would be a net cost, taking into account the expenditure on the £75 tax break and the savings in income support and housing benefit.
The point about the scheme is not that it is complicated, not that it is not straightforward and obvious and not that it is not affordable; the point about the scheme is that a Labour Government would implement it, whereas the Tories, racked by division, are not prepared to take serious action on unemployment.
The Chancellor made several small proposals. With much fanfare, he announced that he will pilot workstart, but that has been piloted before. First, it was piloted in the March 1993 Budget. It was piloted again in the March 1994 Budget. Now it is to be piloted yet again. The scheme has three pilots, and still no take-off.
The Government have also proposed a pilot of jobmatch, a scheme that offers a job subsidy for part-tune workers. That, too, has already been piloted. If it was successful, why has it not been tried on a larger scale? The answer is that pilot projects are used by the Conservatives as an excuse for inaction.
Real action to combat unemployment needs an Employment Secretary who believes that Government must act to help the unemployed; it needs an Employment Secretary who is prepared to argue with the Treasury for programmes that make good economic sense; and it needs an Employment Secretary who believes in the Department of Employment. In short, it needs a different Employment Secretary.
The Government are tentative about measures to help the unemployed, but they do not bother with pilots of measures that hit the unemployed. Help with mortgage interest payments is to be cut—no pilots there. For some people, that will mean that the loss of their job means the loss of their home. Unemployment benefit is to be cut. Two hundred and fifty thousand unemployed people will be worse off because of the new jobseekers allowance.
We see the old Thatcherite Conservative party, unable to shake off the habit of punishing the unemployed for the Government's economic mistakes. The Chancellor says that he wants to attack unemployment, but the Employment Secretary is obviously much happier when he is attacking unemployed people.
The Employment Secretary does not believe that his Department has a role in training, either. Many unemployed people, especially long-term unemployed people, lack the skills they need to obtain a job. The Government's own figures show that unemployment continues to rise among the unskilled. The unskilled and the unemployed need training.
The Confederation of British Industry emphasised that businesses, too, want the Government to take a strong lead on training. The Government's own survey shows that a growing number of companies are complaining that skills shortages prevent them from expanding.
This year, the Government are already spending 40 per cent. less on training every unemployed person than Labour did in 1979, when there was nothing like the demand for technological skills that there is today.
Against that background, only a madman or a demagogue would cut the training budget—and that is where the Employment Secretary comes in. He will cut training for work, the major adult training programme, by one quarter in the next two years. The number of places on the scheme is to be cut by 40,000. He thinks—he said 1373 it again clearly in the debate, and he said it this morning—that if businesses want trained people, they will train them, and if businesses are not prepared to train people, it is because businesses do not want them, so why should the Government do it?
The Employment Secretary believes that training is not the job of Government. He seeks to justify cuts on the grounds that the scheme needs to be better targeted—he said that again today. Of course help must be targeted effectively and money must be well spent. [HON. MEMBERS: "Oh."] I ask the Employment Secretary two questions. First, if training for work is as inefficient as the Employment Secretary says, whose fault is it? It must be the fault of the Government, which introduced the scheme as recently as last year.
Secondly, if he is worried about efficiency, why was the money not diverted instead to other training schemes? We know that it was not because the overall employment budget was also cut, which means that other training programmes will face cuts in their budgets too. The Employment Secretary's claims about efficiency are a cover for his dogmatic determination to slash the training budget.
Everyone who recognises the central importance of training for unemployed people, for people in work who want to upgrade their skills, for companies, and for our economy, will be dismayed that the Employment Secretary does not believe in his own Department's role in training. If he will not stand up for training in Government, who will?
As recently as a few weeks ago, the Employment Secretary professed his belief in a high-wage, high-skill economy. [HON. MEMBERS: "Hear, hear."] Yet he has cut his own training budget. The truth is that he is not committed to a high-skill economy and we have had countless briefings—presumably, and helpfully, from his own Department—in advance of the cut.
David Wastell in the Sunday Telegraph explains the reasons behind the Employment Secretary's decision to cut the training budget. It was partly based on being impressedby research in the United States, which found unemployed people who were given extensive training became less willing to take low skilled jobs.The Employment Secretary protests his new-found belief in high skills and high wages, but he remains wedded to his vision of low skills and low wages. He believes that the only future for whole swathes of British people is in low-skill, low-wage jobs, and that is why he opposes a minimum wage. His claim to be worried about the job effects of a minimum wage is bogus.
The very essence, the hallmark, of the Government is indifference to mass unemployment. Most of the recent research on the effects of the minimum wage, as my hon. Friends have said, suggests that it does not cost jobs—quite the opposite. The Ministry of Agriculture, Fisheries and Food admitted, in its analysis of the effects of the wages council in agriculture, that it did not have adverse effects on employment.
The Employment Secretary opposes the minimum wage because of dogma, not economic analysis. It is the same dogma that said in 1975, "You cannot have an Equal Pay Act; you cannot pay women the same rate as men. If you 1374 do, you would harm women's prospects in the Labour party"—[Laughter.] "It would harm women's opportunities in the labour market, and at one stroke they would all be driven home." The Equal Pay Act 1970 did not have that effect, and more women are now in the labour market than before.
The Employment Secretary does not offer a high-skill, high-investment, high productivity vision for Britain. He offers people the choice: no job or low pay, but topped up increasingly by the public purse.
The Employment Secretary does not believe either in Government ensuring that there is training for people in work. That is important. Today's unskilled and low-skilled people in work will be tomorrow's unemployed people. That is not simply the result of the decline of old industries. The demand for people with low or no skills declines relentlessly. Those workers feel insecure because they know that they are vulnerable.
Even when employers do invest in training—the Secretary of State quoted the figures—they concentrate on their white collar workers and neglect low-skilled workers. The CBI highlighted that issue in its Budget submission.
The Government should have recognised that the voluntary approach to employer training has failed. Labour would have used the Budget to ensure that employers make a fair contribution to the training of their own work force.
The Government's failure to act on training is obviously more of the Employment Secretary's handiwork. We should not be surprised that there is no effort to help people in work obtain the skills that they need, for the Employment Secretary is actually refusing £60 million that the European Commission offered to help retrain workers in declining industries. The reason is—I quote from the Financial Times—that he believes it to bepart of a French-inspired"—need I continue?—Commission effort to build up an industrial policy by subterfuge.There we have it. When the right hon. Gentleman is offered the chance to help those who are threatened by unemployment, he falls back on the dogma that adequate training for those who are in work is not the business of the Government and the dogma of anti-Europeanism. His posturing on Europe damages employers, employees and the economy. Proposals that would help Britain are rejected because they come from Europe. His stance on Europe is not about winning for Britain in Europe but about political positioning in the faction-riven Tory party.
§ Mr. Portillo
The hon. Lady alludes to objective 3 and objective 4 funding. The United Kingdom has not lost any money because of our stance of arranging to take objective 3 and not objective 4 funding. I do not want to dent the hon. Lady's argument, but I must tell her that all the decisions in that matter were taken before I became Secretary of State.
§ Ms Harman
The Commission seemed to take a different view, and it still says that £60 million could be available under objective 4. That is not being taken up because of the right hon. Gentleman's dogma.
British business will wait in vain for the Secretary of State to establish a European agenda that helps business because that will not happen. His European arguments are not about business or jobs but solely about the divisions 1375 at the heart of the Tory party. The Secretary of State has proved himself to be the enemy of any real Budget for jobs. He is the enemy of training, of measures to put people back to work, of the unemployed and of his own Department. He is the enemy within.
In the past few weeks, there have been momentous events in the Tory political calendar. There was the Queen's Speech, the European Communities (Finance) Bill and the Budget, and they all led to the most important event in the Tory calendar—the right hon. Gentleman's celebration of 10 years as a Member of Parliament. It is to be held at Alexandra palace tomorrow night. At last he is to have what he always wanted—his very own party.
But some of the guests have refused to join in the fun. The right hon. Gentleman must be asking himself, "Where are the glitterati of the Tory right wing?" Will Lord Tebbit be there? No, he will not. He had the date in his diary but he now discovers that he has a more pressing engagement. Lord Parkinson, too, has suddenly found another pressing engagement. Most hurtful of all, Lady Thatcher will not be there, because she too regrets that she has a prior engagement with a group of American business men. We in the Opposition are asking ourselves whether she could be declining the company of one favourite son to pursue the interests of the other.
The Secretary of State's party will, in every sense, reflect his style and substance, because it will be an occasion for balloons and fireworks. There will be a film about the life and times of Michael Portillo, and it will be set to music. Those who are present will be able once again to relive those glorious golden moments in his glittering career of service to the British people. It will feature his term as a social services Minister when he withdrew benefits from 16 and 17-year-olds and introduced the social fund.
It will feature the right hon. Gentleman's time in the Department of the Environment, which was memorably marked by his assertion that the poll tax was a vote-winner for the Tory party. It will also detail his tenure as Chief Secretary to the Treasury where, since the election, he spoke about his instinct for tax cuts while the Government introduced the biggest tax rises in history. In his current office he is cutting training and reducing help for the unemployed.
The Budget fails to tackle unemployment, it does not address insecurity at work, it fails to stop falling living standards and presses ahead with VAT on fuel—the unfairest tax of all. On Tuesday, the House will have the chance to reopen the issue of VAT on fuel, and in the vote Conservative Members will have a choice between honouring their election promises to constituents or siding with the Government. They all know the anger that their constituents feel about VAT on fuel. They should stand up for those constituents and vote with Labour.
In case they somehow feel moved by the Chancellor's claim that he is providing extra compensation, I must tell them that that is yet another fraud. The compensation scheme is a sham and Conservative Members cannot use it as an excuse for abandoning their constituents' interests. At the conclusion of the Budget debate they must join Labour in voting against the second stage of VAT on fuel.
As I have said, the Budget is a fraud. It is not a Budget for jobs, for economic prosperity or for fairness. It is the Budget of an exhausted regime, which is ideologically bankrupt and politically divided. That is why we shall vote against it on Tuesday.
§ 6.5 pm
§ Sir Mark Lennox-Boyd (Morecambe and Lunesdale)
I congratulate my right hon. Friend the Secretary of State for Employment on his powerful speech, which was one of the best expositions of its kind that I have ever heard. It is not easy to create a climate in which employers can provide more jobs, and perhaps the most difficult task for policy makers is to engage in the hard and clear thinking that is needed. My right hon. Friend did think clearly and firmly, and that is in stark contrast to the thinking of the hon. Member for Peckham (Ms Harman), much of whose thinking has been around for a long time.
In about 1985, local authorities raised the issue of capital receipts being released, and it was clearly explained to me at that time that one must consider local authority borrowing. I beg the hon. Lady or someone in her team to find out the figures for local authority borrowing. The arguments have been well addressed and what the hon. Lady advocates is on other occasions claimed not to be Labour party policy. She advocates an increase in public borrowing because that would be the result of releasing local government capital receipts.
I have not been able to speak as a Back Bencher for about 10 years, although I am glad to say that this is not a maiden speech. An ex-Minister's first speech from the Back Benches is perhaps best described as akin to a bridegroom's speech at his second marriage after a first marriage which has been immensely happy but which, sadly, came to an end because of bereavement. I shall deliver an unashamed constituency speech, because that is what my constituents deserve after 10 long years.
Morecambe needs help. It has difficulties, but we are successfully fighting them and I hope that we shall win the battle for Morecambe's economic regeneration. Indirectly, I wish to speak about the creation of jobs in Morecambe, but I shall also cover some aspects of regional and industrial policy that are raised by concerned constituents after any Budget.
Morecambe receives Government assistance in various areas, but it does not receive any of the large sums that go to other areas in the north-west. My constituency is not in an assisted area, and is ineligible for assistance from any European Union structural fund. Earlier this year we fought hard to get objective 2 status under Interreg 2 funds, but we failed. Areas in the north-west that have industries in direct competition with my constituency often receive very substantial amounts of state and European aid under those headings.
I fear that I must speak about the Mersey Docks and Harbour Company, which is in direct competition with Heysham port in my constituency. In February this year, my hon. Friend the Member for Ribble Valley (Mr. Evans) asked the Secretary of State for Transport what help the Mersey Docks and Harbour Company had received from the European Community and the Government over the past four years. He was told that, between 1990 and 1994, European regional development fund sums that the Mersey Docks and Harbour Company was entitled to claim amounted to more than £6 million.
Such facts and figures are distressing and unfair. Heysham, a small harbour trading across the Irish sea, is just a short distance away from and in direct competition with the Mersey Docks and Harbour Company. To rub salt in Heysham's wounds, we failed to get objective 2 1377 status, but Merseyside achieved objective 1 status in July and will receive some £630 million over the next five years—some of which, it is anticipated, will go to the Mersey Docks and Harbour Company. Heysham has received and will receive nothing under any of those headings.
There is clearly no level playing field, but despite those disadvantages Heysham is very successful.
§ Ms Eagle
Surely the hon. Gentleman agrees that the deplorable, high and persistent levels of unemployment in the Merseyside area meet objective 1 criteria. Surely he is not suggesting that the real deprivation in that area should be dismissed because of a competition problem between two port authorities.
§ Sir Mark Lennox-Boyd
The hon. Lady should listen carefully to what I am saying. Indeed, if she reads my speech tomorrow, she will realise that I am not advocating anything that will disappoint her. I am simply pointing out the manifest unfairness in the nature of the funding when two commercial enterprises are in direct competition.
Heysham port was acquired by Sea Containers in 1984, when the company purchased the Sealink interests of British Rail. It is a thriving small port, and over the past 10 years, more than £8 million has been invested in its infrastructure. In the mid-1980s, it benefited from the fact that it was not registered under the dock labour scheme.
The division of Sea Containers that handles the ferries and ports operation is the world's leading fast ferry operator and the United Kingdom's third major ferry company. It handles more than 8 million passengers and 1.6 million vehicles a year. It pioneered the introduction of high-speed ferries in 1990 and has revolutionised ferry travel with fast and top-quality customer service. Over the past six years, Heysham's tonnage throughput has doubled.
I mentioned earlier that Heysham was never a registered port under the dock labour scheme.
§ Mrs. Anne Campbell
Can the hon. Gentleman attribute to any Government policy the fact that in his constituency unemployment has increased by 26 per cent. during the past five years?
§ Sir Mark Lennox-Boyd
I will not cross swords with the hon. Lady on that point, because I am developing a wholly different point.
The port of Liverpool suffered considerably from the fact that it was burdened by the absurd provisions of the dock labour scheme—something created out of the lunacies imposed upon the nation by Labour Governments before 1979. Perhaps the hon. Lady would like to think about that. It is all history, but I mention in passing that employers at the port of Liverpool received more than £7.5 million from the Department of Transport to assist with dock labour severance payments.
I do not object to the fact that Liverpool is now unshackled; I am most pleased that it is so. However, I hope that the Government will reconsider their industrial policies during this Session to determine whether the manifest unfairnesses that I have described can be eliminated or relieved. It cannot be right that one industry 1378 in one area of the north-west has such a tremendous advantage over another industry located nearby, which is a direct competitor.
The port of Liverpool certainly does not need all that assistance to generate jobs in Liverpool. It is expanding its interests rapidly, and earlier this year it acquired the Medway port and shipping interests. Such takeover bids for interests miles outside the assisted area and at the other end of the country are being facilitated by receipts of large sums of European and national Government grant.
We all know that at the end of the day the Treasury is the Government. I hope that my hon. Friend the Minister will listen to my comments and, in his discussions with his colleagues at the Department of Trade and Industry, will bear in mind the inequities that result from our method of dispensing national and European assistance.
§ Mr. John Garrett (Norwich, South)
The Chancellor of the Exchequer said the other day that this was the Budget of the great prize of sustainable growth, and he referred to the wise use of the recovery from recession. Last year, he referred to the recovery under way. In 1993, his predecessor commended to us his Budget for sustained recovery; in 1992, he referred to an unparalleled growth in the living standards of the British people; and in 1991 he promised recovery from recession. We have had all those promises of recovery, yet the Red Book shows that next year's economic growth will be lower than this year's.
For the city that I represent, the Chancellor's words are cruel and hollow. During the past few months, the formerly relatively prosperous city of Norwich has been struck by economic catastrophe. Far from recovery, it has fallen into a trough of recession, the like of which we have never seen before. Our major employers have been struck by economic conditions that have led them to terminate the employment of literally thousands of workers. Norwich Union, our great insurance company, has, after years of growth, declared 1,200 redundancies over the next few years—an unprecedented experience for that company.
Nestlé-Rowntree proposes to close its factory in Norwich, which has been there for more than 100 years, over the next two years, with the loss of 900 irreplaceable jobs. Those are deadly blows to the city's economy. For Nestlé-Rowntree, it involves the closure of a very successful and profitable company. Norwich people who have worked there over generations heard the news with disbelief.
Anglia Television has made scores of people redundant. Colman's, a name synonymous with Norwich industry, is now up for sale, and nobody knows the future for that major employer. British Gas has announced the closure of its headquarters in Norwich, with the loss of 200 jobs. British Telecom has declared 130 redundancies with the closure of its telephone operators' office in the city.
During the past few weeks, we must have heard the announcement of more than 2,500 job losses in a city which, according to the House of Commons Library statistics section, in October 1994 had an unemployment rate of 12.5 per cent., with no less than a 17.9 per cent. male unemployment rate—a 70 per cent. increase since 1989. It is as if, having suffered not only the recession of the early 1980s and the late 1980s, Norwich has a new and exceptionally deep recession of its own.
1379 What struck me most about the Chancellor's Budget speech was the throwaway line at the very end announcing £24 billion off public expenditure during the next three years. That will lead to enormous public service redundancies. The best estimate is that 250,000 public service jobs will be lost, 100,000 of which will be in the civil service.
There will be heavy public service redundancies in Norwich—we can see them coming already—in the city council, in the county council and in Government Departments located there, including large local offices and national offices, such as Her Majesty's Stationery Office and the Central Computer and Telecommunications Agency. I fear that hundreds more will be added to the dole queue. The loss of the spending power of 2,000 or 3,000 new unemployed will lead to the loss of perhaps another 1,000 jobs in the economy.
Then we have the macro-economic effect of last year's Budget added to this year's Budget—a tax increase of £7 billion, which will again reduce economic growth and further dent the Chancellor's recovery. I should like to know what development assistance can be given to areas such as Norwich, which are suddenly plunged into recession in that way. We cannot wait for the boom that is to be engineered for the next election. Too many of my constituents will be tossed on to the scrap heap long before then.
I gather that housing is likely to be particularly hard hit be cuts in public expenditure and that homelessness will increase. The city that I represent was once exceptionally well housed, with a massive council house building programme now long since gone. If the Chancellor had wanted to promote recovery, he could have allowed the city council to use some of the receipts from the 6,000 council houses that have already been sold, in order to build new ones in a city that now has substantial and thoroughly miserable housing stress.
Nothing was done in the Budget to redress the problem noted by the previous Financial Secretary to the Treasury, now the Secretary of State for National Heritage, described as socialist by Lord Hanson, that the tax system holds back industrial investment by encouraging companies to pay out excessive dividends. The Budget will not encourage or induce companies in my constituency to invest in training or in new plant and equipment.
As to the social consequences of the Budget, the personal tax measures will make 84 per cent. of households worse off from April by an average of £2.40 a week, taking together the announcements for 1995 made in this Budget and the previous one. Immediately, the poorest will be the worst hit, particularly by the increase in VAT on domestic fuel from 8 per cent. to 17.5 per cent.
The increase in assistance for pensioners is nothing like compensation for the increase in the cost of fuel. As a result of that and other measures, such as cuts in public services on which the retired depend disproportionately, their living standards will fall. At the same time, they see the salaries of directors and top executives, particularly those in privatised utilities, rocketing upwards. Fairness in taxation and economic matters means a great deal to the British people, and what the Government are doing is palpably unfair.
The Budget for jobs' measures are too small to have any great effect on unemployment, yet there is work to be done everywhere in Britain. Our schools need to be 1380 repaired and refitted, and we need better railways and urban transit systems, new hospitals and thousands of new houses.
What should have been done? Surely the way to reinforce a recovery is through public investment, particularly in infrastructure—in the hospital that Norwrch needs and has needed for the past 20 years—and in public transport. Instead, we get a 12 per cent. reduction in public capital spending during the next three years, the equivalent of £3.6 billion in cuts, with the best calculation being the loss of 160,000 jobs across the economy.
The Budget is an irrelevance, and nowhere is it more irrelevant than in my constituency.
§ Mr. Nicholas Winterton (Macclesfield)
My contribution, I hope, will be fairly brief, it will be pertinent and, in parts, it will be critical of the Government. I did not get much encouragement from the Budget until the last paragraph of my right hon. and learned Friend the Chancellor's speech, just before the conclusion, where he says:Taking into account the tax and public spending measures, I now expect to be able to reduce borrowing from £30 billion to £21½ billion in 1995–96, from the previously forecast £21 billion to £13 billion in 1996–97, and from £12 billion to £5 billion the year after that."—[Official Report, 29 November 1994; Vol. 250, c. 1103.]My right hon. and learned Friend is to be congratulated on that because it clearly holds out immense hope and potential for the future. But at the same time, my right hon. and learned Friend has a duty to the country and the electorate at large, particularly, because we are talking about unemployment today, to the 2.5 million people who find themselves out of work.
Of course, I warmly welcome the measures, modest though they are in real terms, to assist the long-term unemployed, and the various schemes that my right hon. and learned Friend put forward to help them get back to work and, as it were, to cover the transition between unemployment and a return to work which, often for those on low incomes and the unskilled, is difficult because they lose more benefit than they receive in wages. Therefore, the transitional arrangements announced by my right hon. and learned Friend are welcome.
So too—we must put the measures in context and in perspective—is the modest assistance to employers to take on the long-term unemployed as employees. I welcome those measures, but we do not want to over-emphasise them or overstate the benefit that they will have. We have already heard from the hon. Member for Peckham (Ms Harman) that the employers do not count them for a great deal and do not believe that they will be particularly effective. I only express the hope from the Conservative Benches that they will be more effective than perhaps employers believe at this time, particularly the Institute of Directors and the Confederation of British Industry.
But I must confess to my colleagues on the Treasury Bench that there was little to celebrate in the Budget delivered by the Chancellor. My right hon. and learned Friend missed a golden opportunity to improve the perception of the Government in the minds of the electorate, although I accept that he hopes to have much greater room for manoeuvre by the next Budget, which will be nearer to the date of the next general election.
1381 However, I must put down a marker to my right hon. and hon. Friends. I fear that the British electorate are now a little more sophisticated and cynical than many politicians appreciate. They will see through the antics of any tax-cutting Chancellor who gives away money for short-term electoral advantage close to a general election.
My right hon. and learned Friend had the chance, which he took, not to act imprudently or to buy favours, but rather to present the Government as having learnt from the lessons of the past. But has he listened to the British people? Has he learnt to respond to their wishes? How, from his Budget, will he meet the concerns of the people who write to Members in all parts of the House about the problems that they are facing today?
I shall tackle straight on the main issue of the Budget, which will be called the Budget of VAT on domestic heat and light. The decision to proceed, bull-headed, with the imposition of the second tranche of VAT on domestic fuel bills will be widely resented, and will reopen wounds that had been festering already for about 18 months. By the time all the admittedly modestly generous compensatory arrangements are added up, I simply do not believe that the revenue generated by that tax increase on a vital essential of life can possibly be justified, given the opposition that it has created.
My view, as a Conservative Member of Parliament, is that VAT on domestic fuel is fundamentally iniquitous as a tax on an essential part of life. To the elderly, the young and those with young families, heat and light are essential. The tax will hit hardest low-income families—not only pensioners, but the disabled and those who are in work but struggling to make ends meet on a limited income. They are not covered by any of the compensation packages that my right hon. and learned Friend announced this year or last year.
VAT on domestic fuel is widely perceived as unfair by a number of Conservative Members. I must tell my right hon. and hon. Friends on the Treasury Bench that no amount of compensation will eradicate the perception that the Government acted unjustly and unreasonably, and failed to respond to clearly expressed opposition from the public. Many of them wrote to me, not only my constituents, saying that they would gladly have borne an increase in income tax as a means-tested alternative to an across-the-board measure. When Ministers ask how I would raise the money another way, that is the answer I give. I should have preferred the money to be provided from direct taxation, which is means-tested and therefore paid in accordance with people's ability to pay.
People do not have any choice whether to heat their homes in winter, because, if they do not, they die. Many elderly people need rather more light than younger people. Elderly people also leave lights on at night, particularly if they live alone, for security and peace of mind. Many will feel that they can no longer do so because of higher bills.
The Budget missed an opportunity to give a real boost to manufacturing industry. Despite my repeated lobbying, my right hon. and learned Friend failed to give manufacturers the kick-start they still need, with the introduction of 100 per cent. capital allowances to encourage investment in the new plant and products that would enable this nation to remain a major player in an increasingly competitive international market.
1382 Capital allowances would encourage investment, stimulate employment and provide particular help to small and medium businesses. They will provide employment in the months and years ahead, not big businesses. The hon. Member for Norwich, South (Mr. Garrett) said that large companies in the service or manufacturing sector are shedding labour even at a time when unemployment has dropped by just under half a million. The Confederation of British Industry, the Engineering Employers Federation, and chambers of commerce and industry all believe that a 100 per cent. capital allowance would be immensely beneficial. It is a shame that that opportunity was missed.
Some people describe the film industry as a service industry, and others describe it as a manufacturing industry. I wish that my right hon. and hon. Friends would accept that if the film industry was granted 100 per cent. production cost write-offs in the first year, Britain would attract massive investment in that industry, bringing thousands of jobs. We should look at other countries within the European Union. Only recently, we lost a massive influx of film production, with all the jobs that that would have brought with it, to the Republic of Ireland because of the package which that country offers to encourage film production.
§ Mr. MacShane
As a result of the Budget, the grant to the British Film Institute has been cut by £600,000 in real terms. That will have a serious impact on one of the major institutions supporting the indigenous film industry.
§ Mr. Winterton
I share the hon. Gentleman's concern and disappointment. I know well just how hard Mr. Sydney Samuelson of the British Film Commission works for this country's film industry. He is a tireless man, with a pedigree of knowledge that is second to none. If everyone was as committed to the industry as he and his family have been for several generations, this country would be more prosperous, and would have a sounder and larger economy.
The hon. Member for Norwich, South mentioned also the infrastructure. It is unfortunate that cuts have been made in our roads programme, because that will destroy jobs in the construction and civil engineering sectors. If we sought to improve our infrastructure, jobs could quickly be provided. Another result of cutting road construction will be an increase in transport costs borne by manufacturers, who will not then be as competitive. My right hon. and learned Friend's continuing obsession with inflation lies at the heart of that and a number of other problems.
Cutting public spending and raising interest rates to force inflation down is not the only answer to finding satisfactory economic solutions. Taking that action costs jobs and has only a limited impact on the public sector borrowing requirement. I share the view of the hon. Member for Norwich, South that the country needs a well targeted boost for economic growth and infrastructure expenditure. That would create more jobs and wealth, from which the Government would enjoy a greater tax take.
There needs to be an understanding also that high inflation was historically rooted in social and economic conditions that no longer exist. Inflation is not the danger that the Governor of the Bank of England likes to pretend. Recently, in a television programme on which I appeared with a Labour Member, I said that the person whom I 1383 should most like to see on the unemployment register was Mr. Eddie George, Governor of the Bank of England. His obsession with increasing interest rates when there is no real inflation in the economy is a danger to our economic recovery.
The economy's problems result from matters over which we have no control, such as the cost of imported raw materials—the prices of which we do not dictate. Given the recovery of our economy, exporters of such materials will seek to improve their profitability by increasing prices, and those increased costs will be passed on to consumers.
In our own manufacturing sector, there is little room for more squeezing and tightening. If there is more cost-squeezing, any further chances for our manufacturing base will disappear.
My hon. Friend the Paymaster General was kind enough to see me and colleagues before the Budget, when I put some of those points to him directly and forcefully. I did not mince my words, and I am not doing so now. I do not believe that one should mince one's words in this place.
The current economic recovery is export-led, and the Government should be congratulated on that. If there are price rises in the system, they relate to imported raw materials over which we have no control—and on which interest rate rises have no effect. May I tell my hon. Friend the Minister: please counsel Eddie George to stop talking about any further interest rate rises? If one wants to kill off the economy and the improvements in it, increase interest rates again. But if one does that, one will have a lot to answer for, and the chances of the Conservatives winning the next general election will be nil.
I make a plea. Let us have no more talk about rises in interest rates; manufacturing industry wants them like it wants a hole in the head. But having said that, I commend my right hon. and learned Friend the Chancellor on the reduction in the Export Credits Guarantee Department insurance premiums. They should never have been as high as they were. I welcome the reduction, as I also welcome the additional resources to do business with important developing countries. I think that an additional £300 million is being provided. I warmly welcome that.
The Budget was a little dull. It missed a number of golden opportunities to show the electorate that the Government were listening. They should have pegged VAT on domestic heat and light at 8 per cent. I give due notice that next Tuesday I shall most certainly support the enabling amendment to provide the opportunity for a vote on that subject. I hope that my hon. Friends who have the courage of their own convictions—I am looking at my hon. Friend the Member for Ayr (Mr. Gallie)—and who sincerely believe that the tax is pernicious and wrong and should not be raised from 8 per cent., will do likewise. We are not voting for Labour in doing that. We are voting from our own conviction and principle, believing that what the Government are doing is wrong.
The golden opportunity to help and give a kick-start to manufacturing industry was also missed. It was, perhaps, as my hon. Friend the Minister would say, a Budget that is "Steady as you go; we are recovering."
Let me finish, as I have on one or two other occasions, with an optimistic comment for the Government. Of course inflation is at a 27-year low. Wonderful. Of course 1384 unemployment is coming down, but it is not coming down enough. Yes, we have substantial economic growth—4 per cent. Super. It is higher, I believe, than in any other country in the European Community, and the Government can take proper and full credit for that.
But I ask my hon. Friends to listen to the grass roots of the Conservative party. Listen to the people outside. Listen to small and medium-sized businesses. If they had done that, the Budget could have had a number of real rabbits to come out of the hat, and we could look to the future rather more optimistically than we can now.
§ Mr. David Chidgey (Eastleigh)
In the Budget, the Chancellor of the Exchequer had a window of opportunity to announce measures to attack the root cause of this country's economic decline—mass, long-term unemployment, fuelled by persistent, low skills in our work force. The gap between the low skills of our work force and the high skills of other western nations is continuing to widen, and the hill that we must climb to achieve sustainable growth in our economy is getting higher and higher.
Throughout the country, traditional industries, in manufacturing and engineering, have suffered decades of decline. In my constituency of Eastleigh—a community created from employment in heavy engineering—some 25,000 people were employed in its factories, workshops and railway yards until recent times. It was a community that, generation after generation, had applied its skills and earned its living in manufacturing industry, creating the wealth that underpinned our economic strength.
Today, fewer than 5,000 people work in what remains of Eastleigh's manufacturing industry. A third of unemployed people in Eastleigh have been unemployed for more than a year—a pattern that, as hon. Members will know, is repeated in towns and cities throughout the country. The lack of investment in modern technology and in creating a highly skilled work force has meant that our industry has been unable to remain competitive in the global market place. As company after company has closed, men and women who have given years of good value to their employers, building up skills, experience and loyalty, have been thrown out of work in their hundreds and thousands. Many of those people are redundant for the very first time in their lives, with no prospect of finding a worthwhile job and no opportunity to retrain to develop new, high-level skills.
For those who are over 50, the future is bleak indeed. Many are self-motivated, eager to build on their existing skills and to study and acquire recognised qualifications as a new route to a new and worthwhile career.
§ Mr. Chidgey
I agree, and I shall continue on the same point.
A motivated, eager person over 50 who is trying to pursue third-level education and training at a college or university in order to begin a new, worthwhile career will find that no help is available towards his living costs.
1385 People over 50 do not qualify for a student loan. The Government have decreed that a student loan is not a worthwhile investment.
For thousands of young people, the prospects have been equally bleak. The training for work schemes available to them have not been designed to develop high skills, leading to productive employment. The initiatives are aimed at providing the minimum skills necessary to get a job—not training that will lead to worthwhile careers, but minimalist training to get any old job, just as long as it leads to one fewer being on the unemployment statistics. The Government's training programmes aim to provide the least, when they should aim to provide the most.
Given those circumstances, it is hardly surprising that nearly 1 million people in this country have been out of work for more than a year—some 40 per cent. of the unemployed total. Despite some 18 months of apparent economic recovery, the number of long-term unemployed has hardly fallen at all. The Government's training for work schemes are not succeeding in reducing long-term unemployment. Fewer than one third of those who have been out of work between one and two years and who enter a scheme end up with a stable job.
Of those out of work for more than two years, fewer than one in five find and remain in work. Fewer than half of all scheme entrants complete their agreed training. Only just over a half of those who complete a training for work scheme end up with a qualification or even a credit towards one.
There is a desperate need to create high-quality training programmes for the unemployed and to create additional intensive schemes targeted at the long-term unemployed. Long-term unemployment is a major barrier to re-employment. For those who have been out of work for more than two years, the chances of getting back into work rapidly approach zero. At the same time, the average cost to the Exchequer of each unemployed person is £9,000 per year, or more. The cost of supporting people who are unemployed for six months or longer is currently running at £11 billion per year in benefits alone.
In his speech to the House at the beginning of the Budget debate, the Chancellor recognised the crisis of the long-term unemployed. He spoke of the dangers of creating an underclass, excluded from economic activity—sentiments that I am sure we all share. He has seen the window of opportunity in the economy of getting people off benefit and back to work.
The Secretary of State for Employment, too, has spoken of his overriding objectives of encouraging job creation and getting more people into work. In his reply to me earlier in the week, he said:I share the hon. Gentleman's dissatisfaction with the present level of training for work. If we are going to spend that much money from taxpayers' sources on training for work, we should be able to ensure that more people get jobs."—[Official Report, 29 November 1994; Vol. 250, c. 1066–7.]The right hon. Gentleman is right: getting people off benefit and support from the state and into productive work—thus creating tax revenue—is not so much a free lunch for the economy as a veritable banquet.
For that reason, I welcome the Chancellor'sinitiatives in cutting national insurance contribution rates for the low-paid, offering an NIC holiday to employers who take on the long-term unemployed and proposing benefit 1386 reforms. I also welcome the expansion of workstart and other such schemes. But why so little? With existing training for work schemes failing to make any impact on long-term unemployment, and with long-term unemployment costing the Exchequer £11 billion a year in benefit alone, why does the Secretary of State for Employment propose to provide only £680 million for schemes to target a major failure in our economy?
It seems to me that the Secretary of State's objectives of encouraging job creation and returning more people to work have been crushed by a Chancellor who is working to a different agenda—an agenda the prime concern of which is to hoard tax revenues to provide giveaway tax cuts before the next general election. That becomes blatantly clear when we examine the detail of the employment proposals. The benefit reforms are far too modest. Tinkering with the system is not the way to improve work incentives; the pilot scheme that is now being recommended—which is equivalent to the Liberal Democrat proposal for a low-income benefit—should be adopted as a national programme.
Why does the adoption of an employer's NIC holiday apply only to those who have been unemployed for more than two years before being taken on? Why will the unemployed have to work for a further 18 months, until April 1996, before they can benefit from the scheme? Again, they are being given too little too late.
The Budget proposed to extend the community action programme, providing a modest 40,000 opportunities for each of the next three years. Why so few opportunities? The proposals for a citizens service in our alternative Budget created opportunities for up to a quarter of a million people, to use the skills of the unemployed and provide training for the young.
With the total of those who have been unemployed for more than a year still nearly 1 million, the Workstart pilot scheme is to be marginally expanded, with yet another pilot scheme that will provide incentives for just 5,000 people who have been unemployed for more than two years. Even that inadequate scheme will run for only one year, from April 1995.
The Budget presented a major opportunity to grasp the initiative, and to introduce a working benefits scheme in line with our proposals. Under our scheme, social security benefits paid to people who had been unemployed for more than six months would be converted to vouchers payable to employers to subsidise training. The value of the vouchers would fall steadily in each week of employment, avoiding an open-ended commitment; the cost to the state would be negligible, and always less than the total cost of benefit and tax revenue forgone. To benefit from the scheme, employers would have to pay wages at least equal to the value of the vouchers. They would be eligible only if the new employees were genuine additions to the work force.
A crucial difference between the working benefits scheme and Workstart is that employers would be required to provide extended quality training for new employees. By re-establishing working habits and acquiring new skills, long-term unemployed people would become capable, productive members of the work force. Instead of providing a bonus for the employer, the scheme would provide an investment in the employee—an investment in skills and "employability".
1387 The Budget has not only failed to grasp the initiative by providing training schemes that would help significantly to return the long-term unemployed to work but has cut existing training funds for training and enterprise councils. The need for high-quality training is now crucial if we are to rebuild our skills base, but instead of securing support for their schemes TECs will now have to lower the quality of the training that they provide.
While there is little of substance in the Budget to provide improved training for the unemployed, job creation opportunities have been slashed. By cutting public-sector capital expenditure—that was mentioned earlier—the Budget puts at risk thousands of jobs in the construction industry, which has already been severely damaged by the recession. The proposed £400 million cuts in the roads programme should have been transferred to investment in the public transport system—particularly rail—to provide modern, efficient networks and ease the burdens on business. That, too, has already been mentioned. Reliance on private finance for public infrastructure has failed in the past, and there is no reason to believe that it will succeed in the future.
For the unemployed, the unskilled and those trying to retrain to improve their qualifications and secure a worth-while job, this Budget offers little. There are no plans to invest in our infrastructure and the railways to create jobs; no plans to invest in education or quality training to improve our skills base; and no plans to invest in modernising industry to give our manufacturing firms a competitive edge. In fact, the only plan to emerge from the Budget is the Government's attempt at self-preservation.
§ Mr. John Townend (Bridlington)
Every politician needs a bit of good luck. Certainly good fortune has shone on the Chancellor over the past 12 months, with the economy performing better than at any time in living memory. Who would have thought two and a half years ago, when we were swept out of the exchange rate mechanism and the pound fell, that we would now have the lowest inflation for 25 years? Who would have thought that we would have an export-led recovery, and that—as growth was secured—we would not suck in imports that would worsen the balance of trade? In fact, our trade deficit is falling dramatically, and will halve in the next year. That, combined with low interest rates and unemployment falling more rapidly than it is anywhere else in the western world, was certainly a good basis for the Budget.
The Chancellor's greatest achievement this year, however, has been his success in bringing the budget deficit under control. As recently as 1993–94, that deficit was rising at a rate of £1 billion a week, and was expected to peak at £50 billion a year—an appalling figure. This year—as my hon. Friend the Member for Macclesfield (Mr. Winterton) pointed out—the Chancellor has got it down to £21.5 billion, and within three years it will be nil: we will have a balanced budget. As my hon. Friend said, that is a wonderful achievement.
The achievement, however, has not been devoid of pain. Initially, the Government were not prepared to grasp the nettle sufficiently to deal with public spending; the country has had to accept some swingeing tax increases, the last of which will be implemented this year. Last year, thankfully, the Chancellor began to put pressure on 1388 spending Ministers by not allowing them to spend the contingency reserve; this year he has reduced the planned public sector borrowing requirement by no less than £8.5 billion, of which £6.9 billion has come from the control total.
If any hon. Members have gained the impression that the Chancellor has become "Ken, the mad axeman of spending", let me reassure them. The hon. Member for Norwich, South (Mr. Garrett) is entirely wrong: the real cuts in the control total next year amount to only 0.8 per cent. in real terms, which is more than covered by the £3.5 billion reduction.
Whatever anyone says, overall there is no cut in Departments' volume of expenditure in real terms. Indeed, in priority areas the Chancellor has increased expenditure, with an extra real-terms increase of 1 per cent. in education spending, an extra £1.3 billion in health service spending and an extra £150 million to be spent on law and order.
How has "Ken the magician" done it? He has secured most of the savings from lower inflation, which is undoubtedly the Government's major achievement. In the past, when a control total was included in an estimate of inflation, and inflation subsequently turned out to be lower, Departments have rubbed their hands and spent more. I pay tribute not only to the Chancellor but to the Chief Secretary to the Treasury: for this year, most of that windfall has been clawed back and has helped to reduce the PSBR.
I am delighted that the Chancellor has listened to those of us who have said, for some years now, that the Government should follow the example of the private sector. During the recession, every firm in the country had to cut its overheads to survive. We have said that we should follow the example of the privatised industries which, once they were privatised, rapidly got rid of the enormous overmanning. We have made it clear that we consider that there is a great deal of overmanning in the public sector. I was delighted when my right hon. and learned Friend the Chancellor said that he intended to freeze the cash spent on running costs for four years. That will be equivalent to a real-terms reduction of 10 per cent.
Despite all the accusations from the Opposition that we are the party that is always cutting public expenditure, we are still a high-spending Government. General Government expenditure, excluding privatisation, is still 42.5 per cent. of GDP. If the Opposition were in office, it would be about 50 per cent. of GDP. The current level is still too high and on present plans it will be the turn of the century before we get it back to the 1988–89 level.
As a result of my right hon. and learned Friend's successful management of the economy I suggest that my right hon. and hon. Friends on the Front Bench have only one major task left and that is to reduce the overall burden of taxation back to or below the level it was at the last election. That will be no easy task, because tax and national insurance have risen from 33.75 per cent. of GDP in 1993–94 to, according to page 84 of the Red Book, 37.25 per cent. in 1996–97.
I should like to give my right hon. and hon. Friends on the Front Bench the benefit of some ideas about where they might make some cuts next year. I think that they will have to intensify the pressure on public spending over the next 18 months if they are to deliver the tax cuts that we expect.
1389 I want to look at one or two areas that, for some surprising reason, seem to have been sacrosanct. First, we are now spending £2.36 billion on overseas aid. Most people accept that a great deal of overseas aid is wasted. The west has poured billions of pounds into Africa for over 40 years, but has not solved any of the problems. We all know about the amount going into Swiss bank accounts, the money that is wasted and the amount spent on arms.
I have some sympathy with the view expressed by my hon. Friend the Member for Macclesfield. Now that we are imposing the second tranche of VAT on fuel, my pensioners say to me, "If the Government are so hard-up that they have to tax fuel, how can they afford to give so much away to foreigners, particularly when so much of it is wasted?" I think that they have a point, and we could well cut half a billion from that budget next year.
I shall loyally support my right hon. Friend the Prime Minister in the Lobby on the VAT vote, and I urge all my colleagues to do the same, whatever their views. We have made the decision, and if we had to go back on it at this stage—I hesitate to say this in the House—it could adversely affect the financial markets. If the markets took it badly, it could force up interest rates and that is the last thing that we would want. However, having given 44 per cent. of the tax back in relief, for which we do not receive any credit, I believe that it would have been wiser to put VAT on newspapers instead of on fuel. I think that we will pay a heavy political price for that tax.
We should also look at the arts budget. This year, the National Heritage Department budget tops £1 billion for the first time. In view of the amount that will be received from the national lottery which is to be spent on arts and sport, perhaps we should look at that next year.
The biggest spender is the social security budget, which goes up inexorably year after year. It is now £73 billion—28.5 per cent. of our total spending. We spend more on social security than we do on health, education and defence combined. That is why I am delighted to welcome my right hon. and learned Friend's proposals to try to get the long-term unemployed back into work. They are first-class proposals. However, I was not convinced by the reply given by my right hon. Friend the Secretary of State for Employment about the reasons why we have to wait until 1996 for the national insurance holiday. I should have thought that, if it was a good scheme, the Departments could act a little more quickly.
We must intensify our attempts to stamp out fraud. There is a great deal of fraud and we all know about the people in the black economy, earning money in the real world and still claiming benefits. If it will help to have a national identity card, let us get on and deal with it.
I welcome the help for small businesses, in particular the venture capital trust and the transitional rate relief of £600 million with regard to the business rating revaluation. I hope that the proposals on venture capital will deal with an omission in the market. At present, most venture capital wishes to have a guaranteed exit after seven or eight years either by the outright sale of the company or by a flotation. Many of our most successful businesses are in their third or fourth generation and those involved do not want to sell them. However, they are often short of capital, and we should look at new sources.
1390 We should also look at excise duties and cross-border shopping. I declare an interest, since, as everybody in the House knows, 100 per cent. of my working life has been spent in the drinks business. Therefore, I am speaking with a knowledge of the industry. I am pleased that my business is in the north of England rather than on the south coast. I must tell my right hon. and hon. Friends on the Front Bench that the problem is growing. It will not go away, but will get worse every year. The Treasury has underestimated the effect on the Revenue. There was a change in the method of assessing duty on beer last year and we should have been looking for a considerable increase in beer duty when we did away with the waste allowance for brewers.
We must take into account the results of this cross-border trade—not only the personal buying, but the bootlegging and smuggling, which is getting worse. There are signs that criminal elements are becoming involved and we all know what happened in America when criminal elements became involved during prohibition. It is not only the loss of revenue from the excise duty that is costing us money. There is the loss of VAT, the effect of corporation tax on the profits of the companies involved, the loss of jobs for the people in the businesses closing down. It is said that the amount of beer coming in is equivalent to the production of four provincial-sized breweries.
I was delighted that my right hon. and learned Friend the Chancellor said that he now accepts the problem, but his solution was not to reduce duty butto work with our European partners to bring duties more in line."— [Official Report, 29 November 1994; Vol.250, c.1096.]Does my right hon. and learned Friend really think that the French will co-operate and put up duties on alcohol, particularly on wine, which they consider to be an agricultural product, in order to stop British shoppers pouring over the channel to Calais, putting money into the pockets of French shopkeepers and, more importantly, putting VAT in the pockets of the French Government?
The only solution to the problem is to cut our duties progressively. I accept that financial constraints prevented us from having a major cut this year, but I would have liked to have seen a start. We must move progressively over a number of years until the differential is no more than 50 per cent. I hope that my right hon. and learned Friend listens to what I have said, and that we will see some action next year.
This is a safe but unspectacular Budget in which the Chancellor has, quite rightly, given overwhelming priority to fiscal rectitude and reducing the budget deficit. I applaud that warmly. This year he has achieved more than anyone expected. I hope that the Budget will give us the platform to continue the economic recovery so that we will be able to fulfil our final pledge to bring taxes down at the next election. The help to small businesses and to the long-term unemployed is welcome. With steady Eddie at the Bank of England and careful Kenneth at the Treasury, we can sleep soundly at night, knowing that the country's finances are in safe hands.
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. Before I call the next hon. Member, I remind the House that there is a 10-minute limit on speeches between now and 9 o'clock.
§ 7.9 pm
§ Mr. Robert Litherland (Manchester, Central)
I shall not follow the hon. Member for Bridlington (Mr. Townend) down that line, but I noted that the hon. Member for Macclesfield (Mr. Winterton) gave an honest and passionate speech in which he highlighted the essential need of the young and elderly for heat and light.
I should like to discuss another need in life: housing. I am of the firm opinion, as are local authority representatives and construction industry workers with whom I have discussed the Budget, that the Chancellor of the Exchequer has missed a golden opportunity to meet the housing needs of the citizens of this country and to blend those needs into economic growth and regeneration, especially of inner-city areas.
The need and demand for affordable rented housing is shown in the figure that various organisations have bandied about for a long time. They say that 100,000 new homes are required every year to meet housing needs, to give real choice and to achieve stability in housing.
The pool of affordable rented housing is diminishing day by day. As every hon. Member knows from attending advice bureaux and surgeries, housing is the issue in the vast majority of constituency cases. I am becoming despondent that I have no answers, and I experience sheer frustration when people seek my help.
According to the Chartered Institute of Housing, since 1981, the social rented sector has shrunk by more than 1 million homes and, under the right-to-buy scheme, council houses are being bought twice as fast as houses are being built by housing associations. The new build by local councils is so insignificant that it has no effect on ever-growing waiting lists. In most authorities, new build is non-existent. The institute argues that the Government's housing and economic policies must be brought into line or both will fail.
Action must be taken to increase the supply and to keep down the cost of rented housing. The Chancellor of the Exchequer has failed miserably in the autumn Budget. What will be the cost of that failure to boost house building, repair and renewal? The cost will be that more and more people will languish on housing waiting lists, more homeless people will be on the streets and more houses will fall into disrepair. That is happening while 500,000 construction workers remain on the dole when they could be employed in the building, repair and improvement of houses.
The construction sector has always acted as a barometer, indicating the economy's strength. In housing, the needs indicator should be the measure by which resource requirements are measured. Research emanating from the Housing Corporation clearly demonstrates that the Government are under-investing in social rented houses.
When I was a local councillor, local authorities were the main providers of low-cost, affordable housing until the Government, with their distaste, almost bordering on hatred, for local councils sought to introduce a new system. Housing associations were no longer to have a complementary role in supporting local authority housing. They were, however, given the prime role of providing housing financed by the Housing Corporation.
Housing associations' building programmes are suffering the same fate as those of local authorities. The Government have cut the Housing Corporation's finance 1392 to the tune of about £300 million since its inception, and it is £6 million down from last year's autumn Budget. That has meant that there is more reliance on the private money market. The outcome of that is a cut in building starts, high interest rates, rent rises, staff sackings and offers of inferior-quality housing. Those are the alternatives that face housing associations.
For local authorities like mine in Manchester, the basic credit approval was reduced by 35 per cent. in 1994–95, which has already severely limited the city council's ability to invest in mainstream programmes outside targeted initiatives, such as estate action schemes and city challenge. Manchester's good performance in securing estate action schemes has enabled the authority to maintain a programme of improvement, reorganisation and remodelling of poorly designed estates. The discontinuation of the estate action programme will be a severe blow to housing authorities such as Manchester.
The single regeneration budget will not provide sufficient levels of support for investment in public housing in the years to come. With mainstream funding, Manchester's estate action investment will amount to £29.5 million in 1995–96. A city officer told me that, by 1998, it will have plummeted to zero. Local authorities will face severe difficulty in presenting any coherent investment programmes. The single regeneration budget will not be an adequate replacement. It is estimated that it will provide only 20 per cent. of investment by 1998. The move away from estate action is a significant blow in housing terms. In that context, any significant reduction in capital allocations will have a serious impact on the planned programmes of housing activity.
In Manchester, the private sector renovation programmes have fallen into disarray. Housing associations have not had the finance to rehabilitate older terraced housing stock, repossessions and absentee landlords. We have the worst private sector housing stock conditions in the north-west of England. In some private property areas, tenants have vacated housing that could not be rescued. They left because of vandalism and break-ins, and they liken their area to streets in Beirut. One husband and wife that I know cannot go out together because one has to keep guard on their house. Sometimes when they go shopping, they call in the neighbours to act as sentries.
Programmes to tackle derelict housing rely on a special capital grant for 60 per cent. of the costs and on support from housing investment programmes. Any reduction in either of those two elements will cause irretrievable damage to the programme to rid Manchester of an ever-increasing cancer in its midst.
It should be noted that, in Manchester, more than five times as many empty houses exist in the private sector than in the public sector. Many of those homes belong to housing associations. The city council is attempting to set up a partnership with housing associations, private landlords and lending institutions to put together the largest empty property initiative in the country, but Government co-operation is essential. The Budget has failed to provide that co-operation.
Because of the limited time, I cannot expose the many failures involving housing in Manchester that have arisen since I was a councillor there. To maximise the potential for investment, Manchester is working in a partnership which, if supported by central Government, may enable the city council to generate investment in housing estates, 1393 which need fundamental and basic improvements. Manchester city council has worked closely with the Government and made every effort to collaborate, and it should receive recognition for the part that it has played. Regrettably, however, in the climate of continuing restrictions on public spending, the outcome will be longer waiting lists, estates and all the private sector houses falling into dereliction—
§ Mr. Tim Smith (Beaconsfield)
I was proud to be a Minister in Her Majesty's Government, and especially pleased to have had responsibility for economic development, as well as the environment, in Northern Ireland. There is no doubt in my mind that there is more cause for real hope in the Province today than there has been for a whole generation.
The Northern Ireland economy weathered the recession well, and should benefit substantially from peace. Trade, tourism and inward investment will all be gainers, and I welcome the details on the inward investment conference that the Secretary of State announced earlier today. However, unemployment in the Province remains the highest in the United Kingdom, at about 13 per cent., although the differential has narrowed significantly in recent years.
Long-term unemployment is a particular problem in the Province, as in many other parts of the United Kingdom. About half the people out of work are long-term unemployed, so I welcome all the measures in the Budget designed to help such people. Some hon. Members have criticised those measures as inadequate, but I think it right that schemes should start as pilot schemes and then, if they are shown to work effectively and to offer value for money, we can build on them later on the basis of experience.
The British economy is in remarkably good shape. We have low inflation, rising output, falling unemployment and rapid export growth. Perhaps it is the rapid export growth—8 per cent. this year, and 7.5 per cent. forecast for next year—that comes as the greatest surprise to some commentators. A shrinking balance of payments deficit when the economy is growing rapidly is not something that most people would have forecast. Instead, they would have forecast rapidly increasing consumer expenditure, sucking in extra imports.
That welcome change has come about partly because of the competitiveness resulting from the devaluation of sterling in 1992, but also because of the more general measures adopted by the Government to increase the competitiveness of the United Kingdom economy. That is what the debate is really about. Jobs will be created only if the economy is more competitive.
I was interested to read about the 1994 World Competitiveness Report, details of which were published recently by the Confederation of British Industry. That report, which was compiled by the World Economic Forum and the International Institute for Management, shows that in terms of domestic economic strength, the United Kingdom moved up between 1993 and 1994 from 19th to 12th in the rankings for competitiveness within the OECD countries.
1394 The United Kingdom ranked sixth in terms of Government policies conducive to competitiveness. According to the CBI, the report says:We are considered to have a relatively low level of state interference in business, distortion of competition, direction of investment, or pricing policies. Also, fiscal policies treat enterprises in an equitable manner and we have relatively flexible labour markets.We need to build on those achievements if we are to create more jobs. A minimum wage cannot be the answer. The answer must be for the Government to get off the backs of businesses and make it easier for them to create jobs. I welcome all the measures in the Budget that seek to do that.
Given that we now have an economy in such good shape, the big question now is how to sustain the recovery. I think that the Budget judgment is about right. We must continue to adopt a tight monetary and fiscal stance, so long as the economy is growing rapidly, as it is now, at 4 per cent. Even next year it is forecast to grow at 3.25 per cent., which appears to be above its trend rate.
We often tend to exaggerate the influence that the Government can have over the economy as a whole, but there can be no argument about the fact that public finances constitute an area in which the Government have a clear responsibility. I welcome the fact that we have public finances under control. Table 6A.1, on page 131 of the Red Book, shows that public expenditure is now falling as a proportion of gross domestic product. However, we still have a long way to go before we return to the levels of 1988–89.
I should like to think that we might set ourselves the target of what was achieved only 30 years ago in 1964, when public spending represented only 36 or 37 per cent. of GDP. At least we should aim to bring public spending below 40 per cent. of GDP and then keep it there.
Another interesting chart in the Red Book is chart 6.6, on page 115, which shows the trend in direct running costs of Departments. The measures that the Chancellor has announced—to cut the direct running costs of the civil service by 10 per cent. in real terms—are tough, but they represent the right approach. I am sure that it is right to try to protect services while cutting the cost of administering them.
That will result in a radical review of the way in which many Departments conduct themselves. The Treasury has given a lead by reducing its number of senior civil servants, and that example could usefully be followed elsewhere in Whitehall. Under the proposed arrangement, it will not be an option to go in for salami slicing, cutting bits here and bits there. Departments will have to carry out fundamental reviews of their operations. They will have to set up more executive agencies to deliver their services, while maintaining a slim administration.
I was interested to hear that although the Chancellor had felt able to increase spending on health and on the police service, which I welcome, he had cut the roads programme. I have mixed feelings about that, because clearly the United Kingdom needs a substantial roads programme, although the programme has already been substantially increased in the past few years. I ask the Minister of State whether he thinks that, in view of the reductions, the Government will still go ahead with the M25 link roads or the proposal to widen the M4 through Slough to 12 lanes, six in each direction. I do not believe 1395 that we need those developments, and I hope that, as a result of the cuts, they will be either deferred or abandoned altogether.
Two years ago, when the public sector borrowing requirement was approaching £50 billion, who would have thought that today we would have had such firm control over public finances? The fact that next year the PSBR is to fall to £21.5 billion is most welcome. Soon we shall comply with the Maastricht conditions on total borrowing, which is forecast to peak at 49.25 per cent. of gross domestic product, compared with the 60 per cent. reference level specified by the Maastricht treaty.
That is the principal achievement of the Budget. We now have sound public finances on which to build in the future. That has meant that there was no great scope for tax cuts or tax reform in the Budget, but I welcome the measures to encourage investment in small businesses, especially the measures to improve the attraction of venture capital trusts and the enterprise investment scheme. I believe that those will be successful in encouraging risk equity investment into new technology and manufacturing.
I also welcome the fact that more small businesses will be able to pay their PAYE and national insurance contributions to the Revenue quarterly rather than monthly. That will achieve a useful reduction in the burden on business.
As I have said, there was not much scope for tax reform, but I should have liked to see more tax simplification. I suspect that we shall have another highly complex Finance Bill, following last year's massive Bill, and I am pleased to hear that Lord Howe is now chairing a committee to consider how we can try to simplify our tax regime. I hope that, when the committee makes its recommendations to reform the law, the Treasury will consider them seriously. If we consider the income and corporation taxes Acts as a whole, there can be no doubt that the legislation is far too complex.
There is not much time left. I should like to mention one omission from the Budget. I should have liked to see some help for charities along the lines proposed by the Charities Tax Reform Group. Charities are carrying an extra burden of VAT. I hope that my right hon. and hon. Friends will be able to consider that in the future. Subject to that, I welcome the Budget, because it establishes sound public finances.
§ Mrs. Anne Campbell (Cambridge)
This is the first time that the Budget speech has been available on Internet, but the people who read it will have been disappointed. I checked what else the Government were doing on Internet, hoping to get hold of some information which might be of some use in this evening's debate.
I looked at the page on the worldwide web, which is put out by the Department of Trade and Industry and it turned out to be a large file. It took several minutes to download, and while I was waiting I wondered what on earth the information could be. Would it be useful information that would help my constituents, such as a list of which banks were actively promoting the loans guarantee scheme or details of the job seeker's allowance—something of real use?
1396 When the information arrived, it was extremely disappointing. It turned out to be a colour picture of the hon. Member for Esher (Mr. Taylor). Nothing daunted, I surfed a little further on this wave of information and downloaded another large file. When that turned out to be a colour picture of the hon. Member for Harrow, West (Mr. Hughes), I am afraid that I just gave up.
That illustrates the attitude of the Government extremely well. On a facility with the capability of providing useful information, we found pictures of Ministers and copies of their speeches. It was more like an extended election address.The Government are driven in one direction only—to try to con the British public into giving the Conservatives a fifth term. They will be disappointed, I am sure. It is obvious that all the penny pinching and cuts this year are to allow the Chancellor to put in place the bribe package before the next election. But the British people will not be conned.
The British people have realised that the Tories cannot be trusted with tax. They will remember their local Conservative candidates saying before the last election, "There is no need to extend VAT," "There are no plans to raise VAT," and, even more dishonestly, "We are the party of low taxation." What a joke. Can anyone believe anything said by a Tory candidate at the next election when the Tories have raised taxes by the equivalent of 7p in the pound? It is obvious that the elderly and the poor are being made to pay for the Government's dishonesty. They are paying for the Government's ineptitude and the encouragement for fat cats to become even fatter.
While we see around us the stress and pain of poor housing, unemployment, low pay and inadequate pensions, the chief executive of British Gas basks in the luxury brought by a £500,000 a year salary. He then has the cheek to put up gas prices, adding to the agony of VAT on fuel, and then to offer discounts to those sufficiently well-heeled to be able to pay by direct debit. One of my constituents who normally pays his bill by direct debit is so outraged by the iniquity of this that he has written to me to say that he intends to cancel his direct debit forthwith and to do everything possible to ensure that British Gas gets as little of his money as possible this winter, even if it means living in freezing conditions.
It is now clear that the people of Britain are fed up with Tory injustice, tired of Tory sleaze and want a better, brighter, fairer future, which the Tory Government are incapable of providing.
My constituency has a large private rented housing sector. I wish to talk a little about that and about the effects of the cuts in housing benefit announced earlier this week by the Chancellor. I have to declare an interest because part of my house in Cambridge is let--much below the market rent, I have to say. More than 3,000 tenants in the private rented sector in Cambridge receive housing benefit, and market rents in Cambridge are high. A basic bedsit averages about £45 a week and a two-bedroom flat about £108 a week. In many cases, rents are as high as in London.
The use of private rented accommodation is feasible only if it is either poor quality and therefore cheap, or if the tenant earns a high salary. Most tenants receive housing benefit, of course. That is what makes it possible for them to use the private rented sector. I learned from my council housing department today that the rent allowance threshold in Cambridge is likely to be about £71 a week. Many tenants in the city will receive housing 1397 benefit for property that is more expensive than that. I wonder what will happen to those tenants when their housing benefit is reduced to finance the Government's electicn bribe. Some will get into debt, some will fall into arrears, landlords will serve eviction orders and some tenants will be thrown on to the street.
The reduction in housing benefit is an admission that the Housing Act 1988 has failed. That Act deregulated rents and permitted landlords to charge whatever they thought they could get. Opposition Members warned the Government of the day that that would have a disastrous effect on the provision of private rented accommodation, and so it has. The number of properties in that sector has fallen dramatically as a percentage of the total provision, and homelessness has rocketed as a result.
The Conservative Government pledged to make Britain the best housed nation in Europe. They pledged to protect tenants from high rents by means of housing benefit. All those pledges are now revealed to be as empty and dishonest as the promises to cut taxes at the last general election. There is good evidence that the people of Britain are seeing through the Conservative Government. One of my constituents was reported in my local evening paper the Cambridge Evening News as saying:I wish the Government would think more about the general well-being of people. I don't like living in a society where you see people having to beg on the street and hear of old people dying of hypothermia. It is so depressing thinking that everyone has to be out for themselves all the time and that if you fall down no one is going to care.There is another item of expenditure which badly affects many people throughout the country and I was sorry not to see it dealt with in the Budget. I refer to the cash available for community care. The Secretary of State for Health is already aware of the enormous difficulties created by the underestimate of spending by social services departments in implementing Government policy—estimates, I have to say, which were forced down by the Government.
We have heard recently about social services departments which have already spent their cash allocations for the whole year. My authority in Cambridgeshire has a projected overspend of more than £1 million and has taken drastic action to reduce spending. When the Secretary of State for Health received a delegation from my Labour colleagues in Cambridgeshire county council recently, she waved aside the protests and simply told them to get their act together. That has aroused resentment and deep anger. Dedicated carers who rely on help for their elderly and disabled relatives are in despair. Hours of care have been cut, respite care is disappearing and we shall see more family breakdowns and more stress-induced illness in people who already carry an intolerable burden.
The hon. Member for Macclesfield (Mr. Winterton) repeated the message of the Labour Front Bench and called this the "VAT Budget". Yes, it is the VAT Budget, and that is how it will be known. It is not just that, however, as there are another seven tax increases still to come as a result of the tax increases announced last year. This is the Budget that failed to redress the evils of last year's Budget. This is not a Budget for people, but a Budget for a failing Tory Government to prepare the way for tax bribes nearer the general election.
§ Mr. Phil Gallie (Ayr)
May I commence by complimenting my right hon. Friends and colleagues on the production of what is, in the main, an excellent Budget? It is prudent, realistic and practical and based on the long-term interests of our nation. It is good for business, the long-term unemployed and those taxpayers at the bottom of the income tax scale. Without a doubt, it creates optimism for the future, but it is not perfect—few Budgets ever are.
I would have liked to have concentrated more on the Budget's positive aspects, but given the 10-minute rule I feel that I must concentrate on the imperfection, which is the introduction of full-scale value added tax on domestic fuel. We will suffer a lot of pain because the tax comes in five doses: a statement of intent in March 1993; approval in November last year; implementation in April; more pain at present; and implementation next year. The introduction of VAT on fuel is a bad move.
The measure is bad on several counts, including temperature gradients, and it does nothing for people in the north of Scotland. On that basis, it is unfair. It hits the elderly and the vulnerable and it certainly hits families with mortgages and young children. It also hits the lower to middle-income groups, who always seem to suffer from tax changes.
The use of domestic fuel is a matter not of choice, but of necessity. That is the factor underlying my disappointment that we have gone ahead with the second phase rise.
I wrote to my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) in March 1993, saying that I would support the 8 per cent. tranche, given the financial circumstances that the country then faced during an exceptionally long and continuing world recession. I underlined, however, that my support would not be extended to the 17.5 per cent. lift. I made that point last year, when I went into the Lobby to support the introduction of VAT at 8 per cent.
I accept that good provision has been made for pensioners and people on income support. Every time reference is made to his stated expectations of the appropriate compensation and what the Government actually provided, evidence of discomfort crosses the face of the hon. Member for Glasgow, Garscadden (Mr. Dewar).
I welcome the moves on energy insulation and draught proofing, as well as the improvements in the cold weather allowances that were announced. I can point to constituents—pensioners in single-fuel houses—who are better off with the 70p addition, which compensated for the 8 per cent. lift. That knowledge is based on an examination of their fuel bills. On that basis, however, I still suggest that VAT on domestic fuel is a bad tax. In principle, it is bad when Governments are obliged to give with one hand and take back with the other.
I have had a sombre thought. Let us remember the community charge. I, for one, mourn its passing. People on social security were compensated for the 20 per cent. of the charge that they had to pay, but that was soon forgotten. The generous payments that are being made to pensioners and those on income support now will also soon be forgotten. They will be there in April, but then it will be summer and fuel bills will be low. By next winter, extra payments to help with VAT will have been 1399 forgotten. People will see the 17.5 per cent. VAT on their fuel bills and will not switch on their fires and heating systems. That fills me with concern.
Another aspect is the considerable amount of hype when my right hon. and hon. Friends have pointed out that past reductions in fuel costs, following privatisation of the energy industry, probably compensate for the additional costs resulting from the imposition of VAT. I was involved in the electricity supply industry in the run-up to privatisation. I was not terribly popular among my colleagues because I advocated privatisation. I pointed out to them the benefits that would follow for the consumer. I advocated privatisation because I thought that there would be benefits, but now those are being taken back by the Inland Revenue. I cannot support that and I will not support it when we go into the Lobby on Tuesday night.
Having said that, I have spent some considerable time in the Chamber during the debate and have listened to Opposition Members' comments. The hon. Member for Dunfermline, East (Mr. Brown) condemned the Government's tax takes in recent times. He stands against every element of public expenditure reduction. He has even pledged to increase public expenditure. Even the most elementary primary school arithmetic suggests that his sums do not add up. I could not possibly go into the Lobby with someone advocating those policies.
I also listened to hon. Members on the Liberal Benches who mentioned a carbon tax. Let us think back to the difficulties we had with coal only 18 months ago, when people suggested that we should do everything that we could to preserve the coal industry. A carbon tax is a tax on coal. It is a tax on fuel, the same as VAT, but more selective. Who in their right mind could go into the Lobby with individuals who advocate such a tax?
Yesterday, the hon. Member for Falkirk, East (Mr. Connarty) spoke for 40 minutes, yet he did not turn up for the winding-up speeches. He said:I personally look forward to the day when there is no mortgage tax relief, because I believe that it should be replaced by a housing benefit for everyone. Those in the private and public sectors should gain some support for the principle of having a roof over people's heads."—[official Report, 30 November 1994; Vol. 250, c. 1281.]How can such a person advocate tax cuts and yet be prepared to put in place new taxes and levels of expenditure that are uncosted and totally unnecessary?
I will have no truck with Opposition Members on tax-related matters and I certainly will not be in the Lobby with them on Tuesday evening. [HON. MEMBERS: "What about VAT?"] I will not be in the Government Lobby or in the Opposition Lobby because, in the words of one Opposition Member—I think that it was the hon. Member for Garscadden—many Members will be "less than honest" if they consider the issue of raising taxes and go into the latter Lobby on Tuesday night.
My right hon. Friend the Member for Thanet, South (Mr. Aitken) suggested that he was a "chief rebel" on the Back Benches. I have no intention of becoming a rebel. I was elected as a Conservative Member of Parliament and I will support all Conservative manifesto pledges. I do not believe that the increase in VAT was a manifesto pledge. At the last election, I argued against such taxes and feel that I cannot go the whole hog and support the Government on that issue.
1400 My right hon. and learned Friend the Chancellor asked hon. Members who stood against the tax to come up with alternative solutions. There could be an immediate £600 million saving from the £1.5 billion VAT requirement with the removal of the requirement for plus payments.
Another option which I would suggest would be to bring the tax on wine into line with those on beer and spirits, and people in the distilling and brewing trades would certainly welcome that. We could have slowed down on our stated objectives regarding the PSBR, and there are other aspects which could also have been brought in.
I go along with my hon. Friend the Member for Bridlington (Mr. Townend), who said that one level of VAT which could have been introduced was VAT on national newspapers of 8 per cent. That perhaps would have been acceptable, given—
§ Mr. Harry Barnes (Derbyshire, North-East)
The speech of the hon. Member for Ayr (Mr. Gallie) was of some interest, in that we saw him struggle with his conscience and finish up with a very boring goalless draw. He said that he would, in the end, do nothing in connection with VAT. Perhaps he will not need to be here for the debate which is to deal with it.
The hon. Member for Beaconsfield (Mr. Smith) referred to the situation in Northern Ireland, where he was previously a Minister. There are points from the Budget about Northern Ireland which need to be referred to. There is a great possibility of a peace dividend arising in Northern Ireland, and we must be sure that that dividend goes to Northern Ireland itself so that the problems about which the hon. Gentleman talked, including high unemployment and social deprivation, are dealt with.
I recognise that, within the public spending provisions, the adjustments downward for Northern Ireland are marginal compared with other areas. I hope that that suggests that expenditure is liable to be roughly maintained, and that that is something which will continue in the future.
Another matter regarding Northern Ireland is that hon. Members who represent constituencies in Northern Ireland—whatever their political complexion—will vote against VAT on domestic fuel. Some will not be doing that because of any great political conviction or analysis, which may not be very different from some of the views of the Conservative party. They will be doing it because of the overwhelming feeling which exists in Protestant and Catholic working-class communities throughout Northern Ireland. People live in bad conditions of high unemployment and deprivation, and hon. Members representing those people must respond to the pressure that is being put on them. When the vote takes place in the House, I hope that the Government will be obliged to respond to that pressure.
A major characteristic of the Budget which was praised by the hon. Member for Bridlington—and which I would want to attack strongly—is public spending cuts, and the economic and social impact which those cuts will have. There will be a £24 billion cut in the planned projections during the next three years, and the cut from 44 per cent. to 41 per cent. of national output will be covered by public spending provisions.
1401 The hon. Member for Bridlington commented on things to attack, such as overseas development. That seemed to me to be disgraceful. Some things must be done about the overseas development budget regarding the aid-trade provision, and especially the trade-arms arrangements, which exist. In overseas development, Britain falls way behind the figures which we should be aiming for, and that budget, for which hon. Members have no form of responsibility, should not be attacked in developments in the future. The overseas development budget should be increased.
The public spending cuts are in the contingency reserve, as are the provisions for local government, transport, housing and education. Scotland is added to that, but, according to the Red Book, Scotland is reflected within those other areas. How we can have such a massive reduction in the contingency reserves is of great interest, because it means that we are not prepared to move and adjust as circumstances become difficult in the future.
The major area that is attacked in the list is local government. Earlier today, we heard the statement on local government finance for England and provisions in connection with the standard spending assessment. The House may remember that, when the poll tax was initially floated and propaganda about it was simplistically put over on television in Conservative party broadcasts, we were told that 50 per cent. of moneys in different areas would come from the rate support grant, while the remainder would be divided between money raised by the poll tax—now the council tax—and money raised by the national business rate. Nothing like that exists at the moment.
In my area—North-East Derbyshire—the rate support grant is 27.5 per cent., down from the projected 50 per cent. figure. That means that the difference must be picked up considerably elsewhere, and it will be picked up considerably by the national business rate. There is supposed to be concern among Government Members about burdens on industry, but the burden of the national business rate needs careful examination. There is also a tremendous burden which comes in terms of council tax payments.
North-East Derbyshire is by no means an area of easy employment or of a massive development of middle-class culture and provisions. It includes areas such as Clay Cross, Holmewood, Barrow Hill and Renishaw, which have very high levels of unemployment, but the council finishes up—in terms of money which it gets per head of population or per council tax payer—way down at the bottom of the list of grants provided. In fact, two years before last year's adjustment in the methodology of the SSA, North-East Derbyshire was ranked at 295 out of 296 councils in England and Wales. There can be no justification for that.
The only council beneath us was East Dorset, which is a well-heeled area in comparison with North-East Derbyshire. We know what was wrong with the methodology, including some things which were wrong in terms of the ages and social mix. A slight improvement took place last year, and North-East Derbyshire moved up from 295 to 275—it felt like the relief of Mafeking—although no money came back for the money that had been lost in the past. The council was still in a disastrous position when compared with many others.
1402 There are massive problems in local government finance, which requires redistribution. Until the figures are analysed, we cannot be sure whether the new provision changes the position of North-East Derbyshire. As there is to be no change in the methodology of SSAs—apart from the police, which is outside the control of the district council—it looks as if we will finish up very much in the same position.
The fiddle essentially operates in terms of the enhanced population figure which is to used calculate grants, and which is then multiplied into every other grant that councils can get. In North-East Derbyshire, the enhanced population is in fact a reduced population, because its daytime population is much smaller than the population who live there and who need services and provisions. People who are lucky enough to have jobs go to Sheffield and Chesterfield. When the pits were there, people used to go to Markham and Bolsover in neighbouring areas and, because of this, our area faces massive problems.
The points which I have illustrated merely in terms of local government could be added to if we talked about other areas which have been cut from the projected figures. Education is to be cut. How on earth will we ever get a society in which people have potential and the skills they need to take upon themselves the opportunities and jobs which should grow in the hi-tech economy if we are scraping around in connection with educational provision?
If I had more time, I would mention the other expenditure headings. I wanted to mention the other side of the coin to public spending, public finance. The details contained on page 11 of the Red Book reveal where the resources come from to meet the declining commitments of the Government. One of the interesting comparisons is that between the sums raised by income tax, VAT and excise duty. For the first time, the money raised through VAT and excise duties is greater than that raised through income tax. That reveals the unjust and unfair nature of our society.
§ Sir Peter Fry (Wellingborough)
I will not pursue the arguments of the hon. Member for Derbyshire, North-East (Mr. Barnes), but I too have great reservations about the way in which local government finance is calculated.
Although many aspects of this year's Budget deserve applause, it should be judged by other criteria besides its effects upon the economy. As I am not an economist, accountant or merchant banker, it is the social and political background against which the Budget has been presented which is of the greatest interest to me.
The further progress towards economic recovery is welcome. The Chancellor, apart from putting a further dent in consumer confidence, particularly in the housing market, has done what he can to ensure that that recovery continues. The diversion of resources to help the long-term unemployed into jobs and out of long-term dependency on state benefits must make sense. The introduction of transitional relief, which will help many businesses that face rate increases as a result of the latest revaluation, is of considerable help. I must strike a discordant note from the Conservative Benches, however, by saying that, frankly, a number of other aspects of the Budget lead me to understand that many in the country are not as enthusiastic about it as some of my parliamentary colleagues are.
1403 I can understand people who say that, if our economic recovery is so marked and the forecasts for the future are as good as is claimed, why is it that they, too, cannot share in that national recovery. After all, they are the ones who have suffered most in the past couple of years.
Let me make it clear that I am not asking for any massive tax handouts, or even for tax cuts. If we are doing so well after the tax increases imposed at last year's levels of taxation, why is it so necessary to impose further tax increases in 1995 and 1996? Is it absolutely necessary to turn the screw of direct taxation even further this April? That is the question that my constituents ask. No one is claiming that there is a feel-good factor. If it ever is produced, it will probably be due to the fact that the economy is overheating, so we will have to put the brakes on it again. People are entitled, however, to ask, at long last, whether we cannot have a not-feel-so-bad factor.
There is little in the Budget to encourage most people to believe that the next 12 months will be any easier for them than the preceding ones. I do not believe in massive handouts, but my party, which prides itself on being the party of the family and home ownership, could have avoided further reductions in the value of the married man's allowance and in mortgage relief. In the latter case, that new policy, which will reduce the help to those who become unemployed and who have a mortgage, will hurt a number of people. If we expect them to pay for extra insurance, surely we could have left them some of their tax relief so that they could afford to take out that insurance.
Last year, I withheld my vote on VAT on fuel until I was assured that a package of help would be available to pensioners and those on income support. When that was provided, I promised to support the Government. I shall keep my word next Tuesday. I am conscious, however, of the many people who are just above the income support level, who would find it much easier to bear the full 17.5 per cent. VAT rate if their tax allowances were not cut in April.
One of the most disturbing features of the past year has been the activities of the over-greedy directors, particularly those of former public utilities, such as the water companies and British Gas. Many people, particularly supporters of the Conservative party, are absolutely sick and tired of having to put up with annual pay increases of 2 or 3 per cent. when all that the Government seem to be able to do is wring their hands when some companies pay their directors enormously more.
I believe that my right hon. and learned Friend the Chancellor lost an opportunity in the Budget at least to put down a marker that the Government would act if such payments continued. Those pay increases give the wrong message to the vast majority of people. I have yet to see that queue of American or foreign companies which is supposedly waiting to recruit those directors at such highly inflated salaries. We should have imposed a higher rate of tax on those high salaries or done something to the share option schemes, which have enabled many directors to become millionaires in a short time.
Another element of the Budget is its part in the continuing and disappointing attack on the road user. Despite the report of the Royal Commission on environmental pollution, it is clear that petrol duty would have to be increased massively to make much difference to car ownership. The extra duty is merely extra income for the Treasury. That duty will not deter people from using 1404 their cars, but will just make it more expensive for most people to get to work, to take their children to school and to make other essential journeys.
It is equally important to consider the effect of that increased duty on the road haulage industry. Its costs will go up by 1.5 per cent. as a result, while its overall profit levels have dropped to just 3 per cent. The only consequence of that increased duty is that its cost will be fed straight through into industrial costs, which will be paid for by the consumer.
This year's increase in duty comes on top of last year's increase, which made our duty on DERV the highest in the European Union. As a result of Budget changes, we also have the highest rate of vehicle excise duty for the heaviest lorries. I must point out to my right hon. and learned Friend that our industry depends upon road transport to get its goods into markets. Other countries in the Union have realised that and have adjusted some of their tax rates accordingly.
The further burdens on the road user and the cuts in the road building programme are not helpful towards the more efficient running of our economy. Even if we succeeded in applying all the recommendations contained in the report by the royal commission, traffic levels would still increased massively, as would road congestion; the cost of travelling by road would go through the roof.
This afternoon's statement on local government finance is another area where an opportunity has been lost. I do not want to talk too much about that now, because I hope to catch your eye, Mr. Deputy Speaker, during our debates on that subject later in the year. Suffice it to say that I believe that my county will be adversely affected. I give due warning that at the moment I can see no way in which I could go through the Lobby in support of the grant when it comes before the House for approval later in the Session.
Looking at the Budget as a whole, I have a feeling that an opportunity has been lost, because although the economy is recovering and we have been told that the news is good, the evidence provided by Opposition Members and in the columns in the newspapers suggests that the Government's confidence and happiness is certainly not being shared by our fellow citizens.
I will vote for the Budget resolutions because I believe that the Government have acted correctly in concentrating on economic considerations. I will not do so with a great feeling of happiness or satisfaction. I detect that my reaction to the Budget is shared by many people. After coming out of a deep and distressing recession, we need something to lift our spirits. The people who support our party need their spirits lifted; dare I say it, there are moments when I need my own lifted, in the present circumstances.
I very much regret that the Chancellor was unable to provide the type of help that we would like. I end on this note: there is a danger that, if we continue effectively to hurt people by taxation that is too high, with a promise of jam tomorrow, first we are not sure—one never can be sure—that the jam will arrive, and, secondly, I do not believe that people will necessarily agree that it is better for teachers to be made redundant in 1995 than to have a slightly bigger tax cut in 1996 or 1997.
My hon. Friends must address themselves to that issue. I hope that they have got it right, but, if they have got it wrong, the results will be disastrous.
§ 8.9 pm
§ Mr. Tom Cox (Tooting)
Many of us in the House have seen Budgets come and go. The Chancellor of the day makes his speech to wild cries of "Hear, hear" amid the waving of Order Papers, but, once the small print has been read, what a different story it all becomes.
Give this Budget a month, and the only thing that people will remember is the disgraceful increase in VAT on fuel to 17.5 per cent. I attended a public meeting in my constituency last evening, and everyone wanted to ask about that increase on fuel. It will cause many problems for the Government, and rightly so.
The Government have not listened. They have shown no sympathy, no understanding of the opinions of the general public. However, all hon. Members know, on whatever side of the House we sit, how difficult it will be for people if we have a hard winter. We know what the needs will be of the elderly and disabled and of those with young children, who need to keep their homes warm.
I have to tell the Minister that the supposed extra payment is already being laughed at. Help the Aged has already said:The compensation does not make up for the VAT rise. Old people often find themselves choosing between eating and heating.What an appalling indictment of a Government who have been in power for 15 years that, according to an organisation represented by Members on both sides of the House, elderly people must choose between keeping warm or keeping fed.
At the meeting that I attended last evening—a public meeting, not a party meeting—the utter contempt for the Government and their policies was quickly and clearly shown. The Government will pay dearly for their action on VAT, as they will soon learn at the forthcoming Dudley, West by-election.
Throughout the country, housing is a major problem, be it in large cities, smaller towns or rural areas. Alongside unemployment it is the No. 1 issue but, as other hon. Members have said, nothing in the Budget encourages a house-building programme. No one can dispute the need for it. No one can say, "Yes, we would like to do it, but where will we get the money?" We know that billions of pounds are being held by local authorities throughout the country, as a result of the sale of council properties, which could be used in such a programme; and we all know—whatever may be the supposed rules that govern the spending of that money—that, if the Government wanted it to be spent on that aspect, those rules could be changed in a matter of days. Every single one of us knows that, and we know how widely supported such a change of policy would be.
Hon. Members, whatever party we belong to, receive report after report from housing associations and from groups involved with housing, which clearly outline the need for major house-building and major house improvements throughout the country. Why do the Government ignore those reports? I ask the Minister: how many properties will be built this year by local authorities or housing associations and how many by private developers? What will the yearly figures be for housing construction?
We all know that the housing construction sector of the United Kingdom should be playing a major overall role in the economic life of the country, and the number of workers that it could employ, who now have to be paid 1406 benefit because of their false unemployment. Vast sums could be saved. Many sectors that supply materials have an automatic spin-off in creating other jobs that would take people out of the unemployment problems that, sadly, confront so many people throughout the country.
As the previous speaker, the hon. Member for Wellingborough (Sir P. Fry), said, the Budget and the Government have ignored many of the key issues that they had an opportunity to tackle. They could and should have been tackled but, sadly, they were not. Against the background of what the Budget could have done, but did not do, and what, sadly, it did do—the disgraceful increase of VAT to 17.5 per cent.—no wonder the Government are so scared of facing the electorate.
§ Mr. Richard Spring (Bury St. Edmunds)
This morning, when I looked at my mail, I found a Budget commentary from the Trustee Savings bank. It summed up its opinion of the Budget as follows:On reflection, this was probably a good Budget and entirely appropriate for the current economic circumstances. It should create a climate of stability which is necessary for long-term sustainable recovery.I entirely agree with those sentiments, and I very much welcome the Budget as announced by my right hon. and learned Friend the Chancellor of the Exchequer.
The background is truly remarkable. We have low inflation, we have manufacturing growth and productivity at record levels and of course we have an export boom. However, in the past few weeks, in what has been something of a feeding frenzy by the media, everything has been concentrated on the negative. Unless, in the Budget, something fresh and exciting in their terms was produced, they tended to dismiss it.
I shall therefore examine what is happening in the real world, in my constituency. My constituency is still substantially agriculture-based. It is one of the prime cereal-producing areas of the country. When I went to the Royal Smithfield show a few days ago, the transformation in that sector was obvious for all to see. Skill and innovation in agricultural machinery is making that entire sector of the British economy dynamic. Britain exports more tractors, for example, than any other country in the European Union.
In Newmarket, the bloodstock industry is in very considerable recovery. It is one of the main employers in East Anglia. Prices of bloodstock are increasing and employment is returning to that vital part of the employment picture in my constituency.
Small family businesses are the lifeblood of west Suffolk. We are witnessing considerable improvement and optimism, as manifested in the fact that there are many new shops in the towns of Newmarket and Bury St. Edmunds—the main two towns in my constituency. Over the past 18 months, unemployment in my constituency has fallen by a third, and in Bury St. Edmunds it is under 5 per cent.
Budgets address great macro-economic cycles and look at the big picture. But of course economics is about real people and employment and decent living standards. Such conditions are manifestly coming to pass in my constituency. I applaud the aim at the heart of the Budget, which is to continue to reduce debt. That is being done in a way that makes us unique among our European competitors.
1407 An extraordinary feature of the economic recovery and one of its main elements is the exceptional export performance. The Budget reinforces what is essentially an export-led recovery. Low corporate taxation and the low social cost of employment give Britain a unique competitive position compared with the rest of Europe. We are a trading nation par excellence, and we export more per capita than even the Japanese.
Every time since the war that Britain has had an economic recovery as powerful as the current one, there has been a balance of payments crisis, but this time precisely the reverse is the case. Like a record that is stuck in a groove, the Opposition launch totally misplaced attacks on manufacturing industry. It is true that some old industries have disappeared, but new ones are developing and many of them are based on high technology. Britain is in a virtuous circle brought about by low interest rates, moderate wage settlements and cost control. All that has been helped by the Budget.
In the past three months, export volumes have risen by nearly 3 per cent. This year, exports to the Pacific rim countries and Latin America have gone up by a third. It is significant that much of that export success and employment is being created by the former nationalised industries. Those industries, which were once such a huge drain on the British taxpayer, are now at the forefront of teaching the rest of the world how to privatise and are role models of how to operate. People from many countries visit Britain to see those ptivatised companies whose export success is extremely noteworthy. While Labour continues to thrash around looking at and debating clause 4, we are getting on with an export drive that is based on new technologies developed in Britain.
In the past, recoveries have been based on a soufflé-like property boom. That is no more, because the current recovery is based on exports and investment, and everything flows, from that. Britain is a world leader in industries such as telecommunications, pharmaceuticals and chemicals. The business-friendly environment that the Budget has projected opens further export possibilities, and business success and employment will flow from that. By cutting the PSBR, the Budget ensures that interest rates will remain low. Sound money and stable finances are the routes to business success and continuing employment.
I welcome the additional boost to exports provided by the cut of some 10 per cent. in the export credits guarantee insurance scheme. That is a logical extension of our trade promotion efforts. In countries such as India and South Africa, where we have strong and historic commercial ties, the cut will give our business men the chance to create welcome export opportunities. I hope that, instead of what has gone on so remorselessly in the past, our balance of payments in future will be permanently in the black, and will be based on the competitiveness that the Budget will effectively help to bring about.
I am privileged to be the vice-chairman of the Small Business Bureau. For many years, we have tried to put ideas to the Chancellor about how to improve the lot of small businesses. Therefore, I wholeheartedly welcome my right hon. and learned Friend's proposals to raise the VAT registration threshold, the transitional business rates relief scheme and quarterly VAT payments.
Another helpful feature is the review of procedures for insolvent companies. Every hon. Member knows of constituents who have had their businesses taken away 1408 from them during the recession, perhaps by the too quick action of the banks. The Budget proposes a 28-day period during which banks, creditors and business men can sit down together to try to work out a scheme to ensure that small businesses under threat can survive. That will prove to be one of the most significant and constructive innovations in the Budget.
I spoke about our propensity in the past to go for bricks and mortar. I welcome the fact that next year the tax concession on mortgage relief will be reduced to 15 per cent. I hope that that concession will eventually be phased out. I should like to fly a kite for the future. In his reforms, Lord Lawson of Blaby introduced a capital gains tax rate of 40 per cent. In an era of low inflation, that needs to be looked at again. Although indexation has proved helpful, Britain is now in a different inflation scenario. I hope that capital gains tax will be phased out and that people in private companies will not have to pay any capital gains tax on their shares in unquoted stock.
The Budget is a watershed. Every Chancellor is tempted to court short-term popularity. There have been a number of important policy innovations—
§ Ms Angela Eagle (Wallasey)
Much has been made by the Government and Conservative Members of Britain's improving economy. The Chancellor wallows in self-congratulation about that, but no credit whatever is due to the Government for our present situation. It came about because of the utter destruction on 16 September 1992 of the Government's centrepiece of economic policy. On that date, the pound was forced out of the ERM and there was an enforced and humiliating devaluation.
It is even more annoying that the Government persist in claiming credit for our economy when we realise that they spent approximately £15 billion of our contingency reserves in an afternoon to try to avoid the situation that preceded the recovery.
There are two Conservative parties in the House, and we are debating two Budgets. This is not the package of broadly neutral measures that has been reported in the newspapers, because the Budget contains the second tranche of tax increases, of which the increase in VAT on fuel from 8 to 17.5 per cent. is but one example. Those measures were put in place by the last Budget, and over the past two years taxation has increased by 7p in the pound. That increase has been made by a Government whose election pledge was to cut taxes. We shall keep reminding them of that.
The Secretary of State for Employment cuts an interesting figure at the Dispatch Box. I am sorry that he is not in his place. We all know that he has leadership ambitions. I recently looked at a book in which Oliver Cromwell described leadership. He wrote:None climbs so high as he who knows not whither he is going.That is bad news for the right hon. Gentleman, who has made it all too clear whither he thinks he should be going. He has probably planned it on the back of an envelope in the same way as his rival, the President of the Board of Trade.
We all know that the only job-creation scheme in which the right hon. Gentleman is interested is one that will put him into No. 10. He glories in being the darling of the Thatcherites. We are told that he is the heir apparent and 1409 that stalking horses are having to wait in the stables until next year when he has a little more experience. We look forward to seeing what happens when the time comes.
I was intrigued with the Cabinet reshuffle that landed the right hon. Gentleman with his current responsibilities. To put him in charge of a spending Department is rather like putting the wolf in charge of grandmother's community care programme. We know that it will devour the poor woman before Little Red Riding Hood even has the chance to rescue her. The expenditure plans outlined in the Red Book for the right hon. Gentleman's Department show us how true that is. He tells us that he can deliver better help for the unemployed and better training with reduced resources.
The right hon. Gentleman has enthusiastically taken an axe to his own Department because he does not believe in government. So anti-interventionist is he that, had he been present at the creation, he would have instructed God not to disturb the chaos. I expect that one day he will tell us that he was indeed present at the creation, and I look forward to that announcement.
We are left with a Secretary of State for Employment who is happy to hand over half of his Department's responsibilities to the Secretary of State for Social Security and to deny that the Government have any responsibility for the remainder. He will have to be careful or he will talk himself out of a job. I have to tell him that millions of his fellow citizens who are unemployed would enjoy that joke at his expense. They certainly do not expect any meaningful support from him.
We must look in detail at the measures in the Budget to help the unemployed. After all, that was one of the three priorities that the Chancellor set out. The proposals are pathetically inadequate. The package of work incentives will Cost £680 million, but the incentive to employers to take on the long-term unemployed will cost only £45 million—and it does not start until April 1996.
Extended workstart pilots, the third tranche of pilots in this scheme, will cost a mere £8 million. Set against either the £25 billion annual cost of keeping the unemployed on the dole or the £10 billion extra gross domestic product growth that we have had this year, such minuscule resources show not priority, but the cruel neglect and indifference that has always characterised the Government's attitude to unemployment and those who become the victims of it. Why wait until 1996 to start those schemes? Why not extend them to those who have been unemployed for a year rather than two years? Why not have more generous subsidies?
On the one side there are to be cuts in capital spending that could lose up to 250,000 jobs from both the civil service and the public sector, but on the other there is a raft of supply side tinkering at the edges to compensate. It is not good enough to say that that characterises a Budget for jobs.
Particularly worrying is the aspect of the Budget that caps housing benefit and puts new restrictions on home owners who become unemployed. Both those cuts are extremely cruel and will lead to people in my constituency being made homeless, to increased indebtedness and to increased repossessions. We are storing up a position of difficulty, misery and insecurity in our economy that does not reflect the changes in the labour market, where we 1410 want to move to more flexible jobs and a more flexible attitude. How can we do that when we are threatening the unemployed with losing their homes as well as their jobs? It is draconian, inhuman and cruel, and the policy will have to be re-examined.
There has been much talk about the lack of the feel-good factor. The Maples memorandum contained some interesting titbits for us and some advice for the Government. Did the Chancellor follow that advice in his Budget? The memorandum punctured the virtual reality world that is inhabited by the Cabinet and most of the Tory party. It talked ofa feeling of powerlessness and insecurity about jobs, housing and the NHS.Did the Chancellor do anything about that? No, instead he increased job insecurity and the fear of people losing their homes if they lose their jobs.
The memorandum said:The reality is that the rich are getting richer on the backs of the rest who are getting poorer.Again, that is true, but what did the Chancellor do about it? He did very little. There has been no taxation of executive share options to deal with the obscenely huge pay increases that the chairmen of public utilities are paying themselves. There has been no postponement of the second rise in VAT from 8 to 17.5 per cent. Both of those measures were suggested in the Maples memorandum but ignored by the Chancellor.
The memorandum also said:Few people think we are out of recession.That is true, yet this Budget cuts living standards by £2.40 a week through tax increases. It said, "Privatisation is unpopular". The Government have speeded up the sale of Railtrack so that they can store up tax cuts.
The Budget is far more about jostling for the Tory party leadership and saving up money for pre-election bribes than about tackling the real and serious problems in our economy.
§ Mr. Denis MacShane (Rotherham)
This is a cynical Budget from a highly cynical Chancellor. Instead of robbing the Peter of public services to pay the Paul of future election tax cut bribes, it would have been better had he launched a national debate on public revenue and public expenditure. Our taxation system is very much out of kilter with modern economies. We have had the absurd sight of the Chancellor making three major speeches in as many days, and I expect that we will not see him again for another six or seven months—unless, of course, he succeeds in his ambition to move sideways from No. 11 Downing street.
Ideas need to be raised in a Budget debate beyond the individual proposals that will be debated strenuously in the Finance Bill Committee. With Gosplan dead, the Treasury remains the most centralised finance and planning Ministry in the world. Perhaps it was suited to running an empire in the days of a sterling area protected from any other trade, but it is not suited to running a modern European economy. That is especially true when the briefing that it gives the Chancellor is so wholly inaccurate.
The Chancellor was in remarkably Panglossian mode on Tuesday—all is well in the best of all possible worlds, he smugly implied. He boasted that our growth was the 1411 highest in the world, while at the same time announcing on page 17 of the Red Book that growth would actually decline next year. He is right to do so, because the mantras about British growth are about to turn into dirges. Gross domestic product growth figures for the latest three months show that it has been stronger in France, Germany, Italy, Sweden and Austria, just to name European Union countries.
The Financial Times informed us today that Australia, now benefiting from its 12th year under a Labour Government, has an annual growth of 6.4 per cent., so Britain is the record breaker neither on growth nor on unemployment, which is lower in West Germany, the Netherlands, Sweden and Austria. It is higher in France and Italy, both of which are under right-wing Governments, and in Spain, where Mr. Gonzalez proudly proclaims himself a Thatcherist.
In one area the United Kingdom does outstrip Europe—in wages and earnings, which have risen in the past 12 months at a higher rate than in all our competitor countries of a roughly equivalent size. The Chancellor has a policy for pay—to him that hath much shall be given; to him that hath less shall be taken away. Although the rate of pay rises outstrips our European competitors—leading to, as was suggested in the Red Book, a rising level of inflation next year and the interest rate rise the Chancellor will have to impose in consequence—the actual take-home pay of British workers remains among the lowest in advanced countries.
That was acknowledged by the Secretary of State for Social Security who, in a lecture some two weeks ago, said:probably the single most significant social change affecting the UK … is not the ageing of the population. Nor the breakdown of the family. Nor the increasing proportion of women at work. Rather, it is a phenomenon which is still largely unrecognised: the growing dispersion of earnings power.That is extraordinary language from a Minister who has loyally backed measure after measure to increase the earnings gap.
Again today, as in Employment questions on Tuesday, the Secretary of State for Employment said that the UK has the highest take-home pay in Europe—higher than France, Italy and Denmark. I gather that parliamentary convention does not allow one to refer to lies, whoppers or "Portillo porkies" so, to remain within the rules, I shall describe that as a statistical inexactitude. Who does the Secretary of State think that he is kidding? It is certainly not other Government agencies which place adverts around Europe offering Britain as a low-wage country. The time has come to nail this untruth—not a killer fact, but a killer fib.
Here are the facts from that well-known repository of socialist information, the Union Bank of Switzerland. Its 1994 survey of prices and earnings around the globe shows net hourly wages in London to be £4.70, in Copenhagen, £7.80, in Paris, £5.60, in Milan, £4.80 and in Taipei, £8.20.
It is necessary to nail the lie that Britain is on its way to becoming a high-pay nation. I am grateful to the Under-Secretary of State for Employment for the tables that he placed in the Library this week in response to a question of mine. In particular, they show how badly my constituents in Rotherham and in South Yorkshire generally suffer.
1412 According to those tables, one third of all men in full-time work in Yorkshire and Humberside earn no more than £208 a week, which is below the European level of a decent living wage. Unbelievably, nearly 10 per cent. earn only £150 a week—not enough to pay for a case of champagne at the Alexandra palace gathering of Europhobes, right-wing nutters and Sunday Telegraph leader writers called to celebrate the 10 years in Parliament of the right hon. Member for Enfield, Southgate (Mr. Portillo), the Secretary of State for unemployment. Those are gross, not take-home, earnings.
The situation is even worse for part-time workers. The tables placed in the Library this week show that four out of five part-time employees in South Yorkshire earn £5.50 an hour or less. More than one third earn £3.50 or less an hour, giving them take-home pay of about one tenth the going rate for a Tory parliamentary question.
This is the low-wage, poverty Britain that has been created as a matter of deliberate policy by the new two-nation Conservative party. More than 100 years ago, Benjamin Disraeli legislated for the 56-hour week. Two or three weeks ago in the last Session I heard the Minister for Energy and Industry boasting about visiting a factory where people worked 60 hours a week. One of the reasons for that is the massive cut in training and skills investment, not one bit of which has been put right in the Budget. Training has been cut in real terms by 35 per cent. in the past four years, leading, within what is a mini-boom, to inevitable skills shortages and skills bottlenecks.
In January 1994, the CBI reported that the lack of skilled labour affected only 5 per cent. of its firms. By October this year, nearly three times as many firms were reporting skills shortages. The firms reporting the biggest concerns about the shortage of skilled labour were those employing up to 500 employees—the crucial family firms which have been ignored in the Government's hostility to effective regional and industrial policy that could support such companies. That lack of regional policy means that since 1985 less than 7 per cent. of inward investment in Britain has gone to Yorkshire compared with 30 per cent. that has gone to the south-east and the west midlands, home of Tory Members of Parliament and the margin als that they must win.
The Budget lacks any real help for industry and rejects most of the proposals put forward by the CBI, which is why Howard Davies, the director general, is unhappy about it. It rejects everything put forward by the TUC. Again, it is a Budget for the rich drawn up at the Ritz. It does not address the need to overcome the two-nation Britain in which we live in order to forge again a one-nation country with effective regions with a share of resources and with the ability to grow together.
§ Ms Margaret Hodge (Barking)
The Chancellor of the Exchequer introduced his Budget by stating that he intended to pursue three priorities. He wished to promote sustainable growth, strengthen the economy in the long term and prevent the emergence of a deprived underclass. One of the many indictments of the Chancellor's proposals is that much of his Budget runs completely counter to his stated objectives.
When historians reflect on the Chancellor's record, they will see that he has simply followed in the footsteps of his predecessors. Once again, we see political expediency 1413 put before the public interest. A Budget that should have been about nurturing the fortunes of the British economy was in fact about reviving the fortunes of the Conservative party.
The Budget does little to encourage sustained growth. It seeks instead to encourage a pre-election consumer boom with 5p off income tax in a year's time—pure, traditional, orthodox Tory boom and bust economics; boom in the hope that they can con the voters and then bust for the rest of us when the election is over. But this time it is one con too far and it is doomed to fail.
The British people will not forget the dismal record of broken promises and broken confidences that are now the hallmark of the Conservative party. The Budget will be remembered not just for the broken promises but for its failure to grasp the opportunities available to us—an opportunity lost to build sustained growth and strengthen the economy.
As we finally come out of the long years of recession, employers are already complaining about skill shortages. Britain lies 18th out of 23 in the world skills league. The Government's response is to slash still further the training budget. Of course we are interested in output, but we cannot achieve output without any input. That is short-sighted nonsense. How on earth can the Chancellor claim that this is a Budget for the long term when he is cutting the essential investment in skills and training for our future? We need increased investment in training the work force. The Chancellor is following the example set by his predecessors—total neglect of our training needs.
The Chancellor's rhetoric suggests that he has learnt from past errors. However, his actions tell a different story. Until the words and deeds match, the verdict of the British people will remain the same.
Government have a responsibility to create an environment in which enterprise can flourish. Yet one area facing massive cuts is the capital investment budget. Current levels of capital spending are already too low to keep pace with the need to maintain and renew our existing assets. I invite right hon. and hon. Members to look at the crumbling and decaying state of social housing, schools and transport in their own constituencies. Where is the investment just to conserve that which exists, let alone to build for the future?
I am told that a little extra money for capital spending on schools is hidden in the education budget, but even £100 million will make hardly a dent in the problem after 15 years of neglect. At current spending of about £1 billion on capital and education, it will take 60 years just to renew, maintain and repair those assets. The sum of £100 million is a drop in the ocean.
Capital investment would provide not only a modern, strong infrastructure but ensure jobs for the thousands of construction workers abandoned by the Government, who know that their plans for capital investment are grossly inadequate. That is why they set such store by reviving the private finance initiative. Although we require the resources of the whole community—public, private and voluntary—to deal with the problems and we want to encourage private investment for public good, experience of the PFI so far has not been good. Only £500 million has been raised, and even successful initiatives have been slow and costly.
1414 The private sector is not the alternative state. The Government should not and cannot pass the buck for its responsibilities to the private sector. The public sector must lead the partnership and facilitate private investment. The Government are driven by dogma—for them, all that is public is bad, and all that is private is good. That dogma prevents the development of effective partnerships which could deliver essential capital investment in the infrastructure. If the Government were less dogmatic and more pragmatic, they would examine afresh definitions of the nature of capital investment, which should be counted against the PSBR. A positive approach is needed to ensure more capital investment in state schools.
Britain has the smallest social housing programme since the second world war, with £5 billion locked up in housing capital receipts. That money could be used to build more homes, repair existing properties and get thousands of building workers back to work. Those resources were unlocked last year, but not this year. The failure to act demonstrates the triumph of political dogma over common sense. The victims of that dogma are the homeless and the unemployed.
Cutting housing benefit is one of the Budget's most insidious aspects. The exploding cost of that benefit is the inevitable result of Government action in deregulating the private sector and forcing up council and housing association rents—a 79 per cent. increase in the past five years. The Chancellor intends to regulate by the back door, by capping housing benefit—a dishonest, inefficient and unfair mechanism. The homeless will again be made the scapegoats of Government failure.
Has the Chancellor met his stated priority of preventing the emergence of a deprived underclass? The Government's deliberate actions and policies led to the emergence of that underclass. Of course we welcome proposals to bring some long-term unemployed back to work, and we are delighted that the Chancellor has adopted ideas developed by Opposition Members—but that is too little, too late, to undo the effects of 16 years of deliberate Government policy.
Taking housing costs, taxes, benefits and wages together, the poorest 30 per cent. of the population have suffered a cut in real income of 2.5 per cent. since 1979, while the richest 10 per cent. have seen a rise in real income of 62 per cent. According to the Institute for Fiscal Studies, under Government tax plans of the last decade, the richest 10 per cent. of the population are £30 a week better off, while the poorest 10 per cent. are £3 a week worse off. That is why there is an underclass.
This year's Budget proposes cuts in housing and incapacity benefits, a job seeker's allowance, less good quality housing, a two-tier health service, and a lack of training and education services. It also reflects growing crime and fear of crime. Action is needed in the Budget to restore social cohesion and to undo the social divisions that the Government have created.
In 1972, the former Prime Minister promised a nursery place for every three and four-year-old. A generation later, the current Prime Minister pledged at this year's Tory party conference that there will be education for all four-year-olds—but there was no mention of that pledge in the Budget. It is not a question of more money, but of choices and of how money should be used. The Government are spending £780 million on consultants to privatise British Rail. That money could meet the cost of the proposals that the Prime Minister put to the 1415 Conservative party conference. It could have been spent on our children, which would have strengthened the economy in the long term and prevented the emergence of an underclass.
The Chancellor has failed his own test. He has failed to meet the priorities that he set himself, and he will fail also with his real priority—that of saving this wretched, divided Government. The British people's first opportunity to give their verdict on the Budget will come in Dudley, West in a fortnight, and I have every confidence that Labour will win.
§ Mr. Thomas McAvoy (Glasgow, Rutherglen)
I compliment my hon. Friend the Member for Rotherham (Mr. MacShane) on his excellent speech. We share the honour of having been born in the same town of Rutherglen. I admit to disagreeing with one of his comments about the Secretary of State for Employment. I happen to like Sunday Telegraph editorials. They do an excellent demolition job on the Government—the more so because they both come from the same camp.
The landfill tax is a small step by the Government to making sure that industry and local authorities face up to the fact that landfill is not the only answer to waste disposal. There is another side to that coin. Glasgow district council is proposing to implement a large landfill site just beyond my constituency, across the East Kilbride boundary. Part of the pressure on the council stems from cuts in Government support grants to local authorities in Scotland.
Although I welcome the landfill tax as a disincentive for local authorities to continue using landfill ad infinitum, they are pressured by lack of grants. I hope that Glasgow district council realises that with the landfill tax it will cost the public more in the long run to go ahead with such sites. In the light of the Budget, I shall be calling on Glasgow district council to withdraw its proposal for a landfill site at South Cathkin.
I resent the continual attack on the motorist and the attempts by the Conservative party to portray the Labour party as the enemy of the car and the car user. That is certainly not the case. I recall many of the points made by the hon. Member for Wellingborough (Mr. Fry). It is not enough to have the continual increases on petrol, fuel, DERV and the road tax in isolation from other measures to make road traffic flow more smoothly and to prevent traffic jams and without alternative policies. It is clearly a tax-raising move by the Government.
The same applies to the arbitrary cutting off of the amount of money for road-building schemes. I am not particularly in favour of roads all over the place, but there is a reasonable case for considering them where they are necessary. In my constituency, again, a motorway has been planned and most of it has been built except the last section—the proposed M24 extension. If that section is not completed, Cambuslang and Rutherglen main streets will continue to suffer traffic jams, with all the safety and health risks inherent in them. If there is a sensible road plan, it is common sense to go ahead with it. I have no dogma one way or the other for or against roads, but common sense must come into it.
The same applies to the Government's attitude to rail travel. Although they are maintaining the level of support for the railways in the next financial year at £975 million, they intend to reduce it to £740 million. That will start a 1416 downward curve in support for the railways, not only for Scotland but for the whole west coast main line, which needs investment and Government support to ensure that railways operate as an incentive and alternative to road travel.
I regret that the Chancellor failed to address one of the most serious problems facing small businesses—the late payment of debt. Small businesses have lobbied long and hard. That problem is particularly hard for them to bear, yet the Government continue to ignore their pleas for help. I received a communication from the Minister for Consumer Affairs and Small Firms, Earl Ferrers, indicating that it would be too complicated to introduce a scheme to deal solely with small businesses and the problems that they face of late payment of debt. I take the point of view that, if there is a will, there is a way. If one were to contrast the sort of "giving up before you start" attitude to the Government's complicated measures to "encourage" people who are unemployed to seek work, one would see that the same ingenuity applied to the late payment of debt could achieve a solution.
I come now to the Secretary of State's comments about the lack of a social chapter in Britain being an incentive for companies to come into the United Kingdom. The Hoover company has a factory in Cambuslang in my constituency. An investment programme resulted in the transfer of work from a factory in France to the Cambuslang factory. I specifically asked for, and was given, public assurances from the company that the lack of a social chapter in Britain played absolutely no part in its decision to bring those extra jobs to Cambuslang. It was purely and simply because of the good industrial relations, the good investment record of the factory and the investment prospects in the west of Scotland—and, to be fair, the support from the Scottish Office. That shows that the lack of a social chapter did not encourage Hoover to bring those jobs to Cambuslang.
Although the Secretary of State for Employment is not here—I am sure that he will be told about or read about this—I will remind him of what he says about the Tory urge to cut taxes. I remember being on the Committee which considered the council tax, where the Secretary of State was piloting the Bill. One of his ideas, if I recall correctly, was about evaluators surveying properties to ensure that they had got the assessments right. He floated—that is the correct word—the idea of hot air balloons, which would float over the back gardens of the terraced houses so that the evaluators could see whether any improvements had been made. So the Secretary of State's credibility has quite a long way to go.
I make no apology for dealing now with VAT, because Labour Members have rightly mentioned it. Some hon. Members on the Conservative Benches have mentioned at, too. The Paymaster General said that we are the only country in Europe without some kind of similar tax. I think that he quoted Norway. To make such a comparison without taking into account the whole taxation and social security system in that country is invalid.
My constituency, which includes Cambuslang, Rutherglen and Toryglen, has a large elderly population. One council ward in particular, Bankhead, has a high proportion of elderly people, and also many mothers with young children, who will use electricity and gas more than the average. Those people will suffer as a result of the Government's insistence on imposing the full rate of VAT in April.
1417 That, in my view, completely destroys the Government's pretence to be the party of low taxation. Over the past few years their record has been a disgrace, and they know it. They are shaking in their boots, and come the general election—indeed, come the by-election at Dudley, West—they will pay the price.
§ 9.4 pm
§ Mr. Doug Henderson (Newcastle upon Tyne, North)
I wish to discuss the cross-channel movement of alcohol. Let me declare an interest, as a sponsored member of the GMB union: I believe that many of its members' jobs are threatened by that trade, in breweries, clubs, pubs and other parts of the industry.
When the single market was introduced on 1 January 1993, it was acknowledged that various countries in the European Union could set their own levels of duty. It was also acknowledged by those who were involved in discussions at the time that it would consequently be possible to transfer certain commodities from one country to another when it was advantageous to do so. There is, indeed, a regular trade among the mainland European Union countries in a number of items: the Danish Government, for instance, were at one point concerned about some of the movement between Germany and Denmark, and took steps to bring their taxation regime more into line with Germany's.
In Britain, it has been recognised that there are dramatic differences between the duty paid on alcohol and cigarettes here and that paid in many other European Union countries. At the time of the discussions to which I referred, it was acknowledged that some seepage was inevitable and that people would take advantage of the lower duty levels in, for example, France. They would be able to shop in France and, when it was possible to transport the products that they bought, they would bring them back to the United Kingdom.
Cross-channel movement of alcohol now presents a serious problem, however. Now we are dealing not merely with Mr. and Mrs. Smith from Melton Mowbray, who go on a day bus trip to Calais and bring back a few cans of beer and a bottle of wine—although that possibly constitutes up to half the cross-channel traffic in alcohol on which duty is paid in France. That picture will no longer be typical; there has now been a move into organised smuggling, which will seriously threaten many business men whose livelihoods depend on their business.
In 1993, the Brewers and Licensed Retailers Association appointed independent consultants—including private detectives, who followed the movement of some of the items. As a result, it made an estimate. I do not think that the Treasury and Civil Service Select Committee, which examined the issue, disagreed with that estimate; I do not think that the Minister of State and his colleagues did, either. The estimate was that, in 1993, at least £1 billion-worth of alcohol was purchased in France and brought back to the United Kingdom. That means that our Treasury has lost £470 million in revenue—£315 million in loss of duty and £154 million in lost VAT.
My concern results from representations made to me by members of my union and others. About two weeks ago, I went to Calais to see for myself. That was quite enlightening. I wanted to know what effect was being 1418 produced in the north-east of England, the area that I represent. I had been told that a number of organised gangs in my area were involved in smuggling alcohol, and I went to Calais to see whether I could identify any of those gangs.
One of the colleagues who accompanied me asked how I would identify the gangs from the north-east. I said, "If I put on a Sunderland scarf, I shall quickly find out which are from Newcastle, and if I put on a Newcastle scarf, I shall quickly find out which are from Sunderland." In fact, that was not necessary: I could have put on a Manchester City scarf and found the gangs from Manchester, put on a Sheffield United scarf and found the ones from Sheffield or put on a Celtic or Rangers scarf and found the ones from Glasgow. The gangs come from all over the country. However, I found that there was a preponderance from London, the south-east and the north-east of England where a large amount of trafficking was taking place. It is a serious threat.
During the week before I went to Calais, in just one day private detectives identified 300 transit vans from the United Kingdom going on and off the boat. I was there for one morning a week last Monday and I saw dozens of vans queuing up at all the outlets.
Mr. and Mrs. Smith from Melton Mowbray go to a legitimate superstore in Calais and buy small amounts for their own consumption. The smuggling trade takes place in the back yards and peripheral industrial estates in Calais. There is usually a typical warehouse with the hamburger stall, the muddy forecourt, a fork-lift truck and all the pallets of beer. Most transit vans can take two pallets of beer. There are 96 cases in one pallet and 24 bottles in a case. So, the lads with one transit van have over 2,000 pints of beer in the back. If one approaches them to ask whether it is for their personal consumption, they say, "Why aye, man. It's for us." No doubt some of my good friends in the city of Newcastle could consume 2,000 pints of beer in a fairly short time. Some hon. Members may even be able to help them without too much difficulty. However, the average people involved in smuggling are not bringing back what is effectively contraband for their own use; they are bringing it back to sell it. In doing so, they are threatening the jobs of many people involved in the manufacturing and distribution of beer, and they must be threatening six northern breweries. A further threat that has not been identified so far is that from mail order roll-on/roll-off smuggling of alcohol.
I wish to draw the House's attention to the details of a legal arrangement involving the importation of cigarettes from Belgium. In Belgium, the duty on cigarettes is much lower than in most other European countries, and it is substantially lower than in Britain. A new company trying to break into the cigarette market is called the Enlightened Tobacco Company. The House will be pleased to know that its product is not called Anchor, Senior Service or Weights, but is called Death.
The Enlightened Tobacco Company has tried to break into the United Kingdom cigarette market, but the distributors have said that, if that product is put on the shelves, all the other tobacco companies will take theirs off. So the corner shop is effectively prevented from buying from the normal distributors. The Enlightened Tobacco Company has said, "We can get round this. We can get the cigarettes for your corner shop in Belgium."
1419 Article 6 of the single market agreement says that duty becomes chargeable atthe time of release for consumption".The corner shop retailer appoints the agent of the Enlightened Tobacco Company to purchase the tobacco and the duty becomes payable when the tobacco is released for consumption—that is, when it is given to the agent. So duty is paid under Belgian law, not British law. Also, the retailer does not have to go to Belgium to collect the tobacco, because the agent delivers it anywhere in the United Kingdom.
Imagine if that were to be extended to alcohol. If it is legal for cigarettes, it is legal for alcohol and there may be court cases about that in the future. In Calais I spoke to a number of lads driving vans who had already cottoned on to that. They would not even have to risk hiring the van or buying the petrol. They would simply act as a distributor in whatever part of the United Kingdom they came from. They would appoint someone else to be their agent in France, who would buy the alcohol and pay the low French duty—one seventh of the level in the United Kingdom. They would then sell it to the corner shop.
It would not end at the corner shop. It would be a bit like dial-a-pint. One would not even have to go to the corner shop. One would be able to find a distributor's telephone number from the telephone directory or on the newsagent's window. A few cases of beer, with French duty placed on it, would then arrive at the doorstep. One would not have to go to an off-sales outlet to buy takeaway beer.
That would constitute a major threat to the British brewing industry. The transport of £1 billion of alcohol from France to Britain is equivalent to 15 per cent. of the legal takeaway trade in Britain. It is already making a dent in the business of many breweries that supply off-sales outlets throughout the United Kingdom. If that scam is allowed, it will lead to the destruction of a number of breweries, and provincial breweries in north-east England will be particularly vulnerable to the threat.
Action must to be taken now. The problem will not go away. In his speech, the Chancellor of the Exchequer was right to acknowledge that there is a problem. He has not, however, taken action that will be effective. Freezing duties on alcohol is, to some extent, a concession to brewers and to the workers who make the beer, but it will not protect their business or their jobs. It makes only a marginal difference to the gap between alcohol duties in France and those in the UK.
We must face up to the problem. Step one should be to set up an official inquiry so that it is not only hon. Members who explain their experiences or the Treasury and Civil Service Select Committee, which I believe did not visit Calais—it certainly did not make an official visit—that makes statements. The brewers and trade unions that represent brewery workers say that there is a problem. I think—in fact, I know—that there is a problem. I hope that the Government will recognise that and set up an inquiry.
The problem will not be easily resolved. It was not clever this week to reduce the number of customs officers involved in attempting to track down illegal trade, when the Chancellor of the Exchequer acknowledged to the House that a major problem existed. We must tighten our customs procedures. I want far more undercover activity by customs officers chasing the vans. Illegal trade 1420 involves not only small transit vans, but large articulated lorries. One can get a lot more than two pallets of beer on a large artic.
In the northern economic region of England, there have been only two prosecutions since January 1993, and only one of them has been successful. That is not satisfactory. The prosecution level should be higher. I do not claim that that will be easy. It is difficult to find the people who are reselling the alcohol. Under current law, it is not illegal if one does not find them reselling the alcohol.
Some of the comments that I am about to make might not be popular with certain Labour Members.
§ Mr. Henderson
My comments will certainly not be popular with Conservative Members.
As the European economies become more convergent, we should not ignore the fact that duties are substantially different from one European country to another. We must start to think about how to close the gap to take away the incentive for smuggling.
We should not be talking about reducing tobacco duties, but insisting that other European countries increase their tobacco duties so that they are more in line with ours. Britain needs to take unilateral action on beer duties as an example to other European countries and to protect our industry. Over a period, we need to consider how we can properly introduce moves towards greater harmonisation of some of our taxes, including VAT and duty.
There is a major problem, which will not go away. In the past 10 years, it has got worse because, while other European countries have frozen indirect taxes in real terms, Britain has increased them. The problem is much worse than it would have been if the single market had been introduced in 1981 instead of 1993. But there is a problem, and we have to face it. I hope that the Minister of State will at least acknowledge the fact that there is a case for a proper formal inquiry, with representation from the different parts of the industry and others, which could provide a basis for firm action in next year's Budget. I do not believe that the action taken this year is sufficiently strong to tackle the issue.
§ Ms Dawn Primarolo (Bristol, South)
The House RS grateful to my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) for his eloquent and detailed illustration of the problems being experienced with the substantial traffic of alcohol into Britain, and the threat that that poses to the brewing industry. The issue is complex, and I hope that the Minister will agree that we need to investigate the situation and to establish a consensus—dare I use that word?—on how to proceed.
This has been an interesting and excellent debate. We have heard substantial disagreement among Conservative Members, and at one stage I thought that some of them were practising making speeches from the Opposition Benches—something that I hope that they will be able to do very soon.
Output has risen and unemployment is lower, but that is the end of the good news. The economy is still weak—2.5 million people are out of work, investment is low, the public services are under stress. The Chancellor set 1421 himself three priorities for the Budget—sustainable growth, job creation and strengthening the economy in the long term. Those are welcome priorities, and represent a marked change from the monetarist rhetoric of the 1980s. However, the Budget fails to measure up to the Chancellor's aims, especially on jobs. The measures to create jobs and to give long-term strength to the economy fall far short of what is needed.
The Government's support for training will be cut, as the Department of Employment's three-year virtual cash freeze continues. The national insurance holiday to encourage employers to take on the long-term unemployed will be held back for 18 months. Any new jobs created will be more than offset by public capital spending cuts, which will lead to the loss of thousands of jobs across the economy in the next three years. The four-year freeze on cash spending for Departments could lead to further job losses.
The 1994 Budget is bad news for living standards and for jobs in Britain. Any minor cuts in tax this year are also more than offset by the extra taxes announced in last year's Budget and confirmed in this Budget, especially the rise in VAT.
With cuts in public spending jeopardising jobs in the public and private sectors alike, British workers feel less secure. The prospect of tax cuts in two years' time, if they materialise at all, is cold comfort now. There will be no feel-good factor from the Budget. Higher growth rates in 1994 and 1995 should not obscure the fact that many people will face the immediate consequences of cuts in the public sector and in investment. Benefit changes and special employment measures will have to wait.
Nothing in the Chancellor's statement deals with the long-term need to increase investment in the infrastructure and in quality training, or with the urgent problem of excessive dividend payments. Instead, resources are being cut in all sectors and help for industry is conspicuous by its paucity.
The Chancellor announced that his package of work incentives would cost £680 million, although it is not clear whether that represents a per annum cost—I am sure that it does not. However, the incentive to employers to take on the long-term unemployed will cost only £45 million, less than 7 per cent. of the total, and even that is not due to start until April 1996.
The workstart pilots are to be extended, but at a cost of £8 million. When set against the £10 billion improvement in the GDP this year and the £8.5 billion improvement in the PSBR in the next financial year, those sums are trivial, given the scale of the problem that they need to attack. Moreover, the figures show that there was no need to go ahead with the increase in VAT. The Government are taxing people now in the hope that they will be able to give some money back at a later stage and be congratulated for the exercise.
Workers in companies in the skilled sector, such as British Aerospace, who have recently been told that they are to lose their jobs, found little comfort in any of the Government's schemes for the future. They are highly skilled workers soon to be unemployed. They do not want three-week work trials or fiddle schemes. Ninety-five per cent. of the most highly skilled work force are in aerospace industries and they are losing their jobs. The 1422 Government do nothing except offer gimmicks and schemes which do not materialise into real jobs. That is against a background in which the Confederation of British Industry has identified a lower level of skills in Britain than in our main competitor countries and persistent trade deficits in manufactured goods. In the CBI manufacturing bulletin of November 1994, skill levels were identified as the likely significant contributor to the United Kingdom's low productivity. That is continuing.
Changing patterns of employment mean that as well as a strategy to keep people in work, we need a strategy to get people back to work. During the Government's reign we have seen a growth in insecurity in the labour market. Most of the new jobs created in Britain between 1993 and 1994 were white collar, insecure jobs. Many were low-paid. Drawing on unpublished figures from the Department of Employment's labour force survey, a new Trades Union Congress report shows that, in the same period, 130,000 new temporary jobs were created, while permanent jobs declined by 26,000. Many of the new jobs are in low-paid industries such as the hotel and catering industry. The situation requires a response which recognises that job security and full employment go together.
The Chancellor said that his second priority for the Budget was job creation, particularly for the long-term unemployed. He said:We must combine greater prosperity for the majority of our people with measures to prevent the emergence of a deprived underclass, excluded from the opportunity to work and dependent on welfare."—[Official Report, 29 November 1994; Vol. 250, c. 1079.]Where has the Chancellor been? What does he mean by "prevent the emergence" of an underclass? Has he not discovered the people who are caught in the unbreakable circle of high rent, poverty, benefits and work?
The Government have not discovered a way to break into the interlocking system of personal disaster—a system that relies on housing benefit for its survival. Quite the contrary, they intend to kick away housing benefit. That will plunge that section of our community into isolation and despair. The Budget is long on schemes for April 1996 and short on jobs. It marks a decisive shift in favour of the creation of low-paid employment. Many will find themselves even less able to escape reliance on benefit. Measures designed to encourage employers to take on the unemployed are less likely to result in new jobs than to result in a general lowering of pay in existing jobs. There is more encouragement to follow the low-wage, low-skill strategy than ever before in Britain.
Every economic measure has a different effect on men and on women because of women's different marital status, entitlement to benefits and lower earnings. The Government claim to have understood the changes in the labour market and to be designing policies that will tackle them, but they have not. Women are over-represented among the low-paid and have to bear a disproportionate burden of previous budgets.
The gap between women's and men's earnings is gradually closing, but the divide between people at the top and people at the bottom of the earnings scale remains as wide as ever. Despite the narrowing of the pay gap, women have a long time to wait before they can celebrate real equality. At the present rate of progress, it will take another 33 years for the gap between men's and women's earnings to close completely, and there are potentially worrying signs that the pace of change has noticeably 1423 slowed in the past two years. That is not only important for women but crucial in understanding the changing nature of work and of household budgets and in understanding how to tackle that change in making strides to create work.
Recent research by the Joseph Rowntree Foundation shows that the average male contribution to household budgets fell from 75 per cent. in the early 1980s to 60 per cent. by 1991. Families headed by a single male breadwinner are now outnumbered nearly three to one by homes where both parents work.
Women work to provide financial security for their families, but the Government have not understood the implications for women's ability to work of the proposals in the Budget. Any increase in living standards that has occurred among dual-earner households has not been matched among one-parent families. The full-time employment rate in the latter households fell to 37 per cent.
In the Budget, measures to help people back to work were concentrated on three policies—relief during the transitional period from benefits to paid work, help for the long-term unemployed and help when moving from part-time to full-time work. Those measures are welcome, although we must recognise that they are very poor and will not assist many people to move out of the poverty trap. The second and third measures, however, do not deal with the problems that many unemployed women face, especially those with caring responsibilities.
Let us consider the proposals for helping the long-term unemployed.
§ Ms Primarolo
I am grateful to my hon. Friend for that intervention. As she pointed out in her contribution to the debate, the Government's promises to create nursery places and assist working parents have not materialised. Although child care is identified as one of the major barriers to women taking up full or part-time employment, the Government still refuse to deal with it. Indeed, in their proposals for the long-term unemployed, they have not taken on board the argument about child care and care responsibilities.
To qualify for the schemes, a person must have been continuously registered as unemployed for two years, but many women with children cannot register. The rules require them to show that they are available for work and they must demonstrate that they already have in place adequate child care—an impossibility for most mothers. That clearly demonstrates the Government's hypocrisy in claiming to represent all our community, saying that there have been changes in employment patterns, recognising the contribution that women could and should be able to make to employment, but making no changes in their legislation to assist. That is echoed when we look at the proposals for assisting individuals who are moving from part-time to full-time work. Several measures are designed to help people in full-time work, but no such assistance is given to those in part-time work.
1424 It is known that most women need part-time work because they feel that that allows them to balance their care responsibilities. The greatest barrier for mothers who want to work is the lack of affordable care for children and for the elderly, and the Government refuse to address that when they consider how to assist people into paid work. They consider how they can assist men and women without children into the labour market, but women with children are unacceptable.
The Budget has not helped the low-paid individually, and it has done nothing to attack the over-reliance in our economy on low-skilled, low-wage labour. As a result, women will continue to suffer. Their potential will remain unused in the economy, and that will brings poverty wages.
Little has been done to compensate for the increased tax burden on the low-paid from freezing their allowances and increasing national insurance contributions in 1993. Improving women's opportunities to get out of the low-wage ghetto has not been helped by encouraging employers to take on more low-paid workers.
Labour's policy for a national insurance holiday for employers taking on the long-term unemployed has been stolen by the Tories, but with the proviso that their policy does not include adequate wage levels and a provision for training. In the absence of those features, there is no encouragement to shift the character of the UK labour market away from a low-wage, low-skill economy to a high-wage, high-skill economy. That is necessary both for our future economic security and for reducing the size of the low-paid sector in which women are disproportionately concentrated.
If more women were Members of this House, those are the issues which would be debated on both sides of the House, and that would ensure that women had fair game in the House. It has been noticeable that, so far in the Budget debate, contributions from Conservative women Members have been absent.
There has been no closing of the poverty trap. Benefit penalties on earnings which act as a disincentive to take up work have been marginally reformed, but those reforms are not radical enough to have any effect on the majority of women lone parents who want to work, but cannot afford it. Mothers earn on average 22 per cent. less than women without children. The average lifetime income for women has reduced by £11,000, while the average for men has increased by the same amount.
The conditions under which the Beveridge welfare state were created half a century ago no longer exist. Beveridge's assumption that women would not work outside the home and that the nuclear family would exist are no longer the norm. Mothers deserve incentives to return to work, rather than having shattered their hopes that they can afford to work and still care for their children. The Government are in a position to provide those incentives with policies aimed at the elimination of the crucial problems which face women.
Jobs and pay segregation stem from inadequate maternity benefits and a fear that women will take time off to look after their children. There is a lack of adequate child care and wage security, and encouraging employers to address those issues is an important step to eliminating the inequality and low pay which faces women in our society.
1425 The challenge to the Government is to pursue policies that speed up job creation by offering more skilled and attractive jobs, while enabling the unskilled and the non-employed to update their skills and to get paid work. After the Budget, the Conservative Government will continue to be held in almost universal contempt and treated with almost universal derision.
The Government have produced a fix-it Budget, to rake money in now in order to give it back, perhaps, in the vain hope that that will assist them to cling on to power. The Budget is an attempt to try to fix it for the Government rather than to fix it for the country. We shall ensure that the Government are fixed at the next general election—fixed to the Opposition Benches—and thrown out of power.
§ The Minister of State, Treasury (Mr. Anthony Nelson)
Despite the somewhat unpleasant sting in the tail of the speech of the hon. Member for Bristol, South (Ms Primarolo), I congratulate her on what I think is her debut performance from the Opposition Treasury Bench, on which I hope she will spend many years successfully deliberating and contributing on Treasury matters.
The hon. Lady made a considered and thoughtful speech and I acknowledge what she said about the rights and opportunities of women. I shared some of her sentiments, although not all of her premises and certainly not many of her conclusions. The hon. Lady's speech was thoughtful, however, and I welcome her contribution to what has undoubtedly been a lively and forthright debate on the Budget.
I do not think the same can be said of the speech of the hon. Member for Peckham (Ms Harman), who is by no means a debutante at Treasury debates. On numerous occasions she has appeared opposite my right hon. Friend the Secretary of State for Employment, when she has been consistently intellectually mauled or politically trounced by him across the Dispatch Box. I am afraid that today was no exception.
As I observed how the hon. Lady became more bitter as her speech progressed, I tried to work out why. It certainly could not have been in reaction to the unassailable reasonableness and effectiveness of my right hon. Friend's arguments. I came to the conclusion that it was because she had not been invited to my right hon. Friend's party to celebrate his 10 years as a Member of Parliament. Perhaps no one gave the hon. Lady a party on her 10th anniversary, I do not know. I feel sorry for the hon. Lady, and I hope that she will not be a Cinderella on future occasions.
I should like to follow the convention and courtesy displayed yesterday by my hon. Friend the Paymaster General and acknowledge briefly the speeches that have been made today. I assure all hon. Members who contributed to this useful debate that their comments will be carefully considered, even though we cannot obviously agree with all of them.
The debate started with a speech from my hon. Friend the Member for Morecambe and Lunesdale (Sir M. Lennox-Boyd), who spoke of the unfair competition 1426 between Heysham and Liverpool and asked about the European grants that are available for competing cities and installations.
§ Mr. Nelson
My hon. Friend explained to me why he could not be here for the winding-up speeches.
Although European Community grants are considered carefully on the basis regional gross national product and regional employment, Heysham is covered by the European social fund. We will bear in mind my hon. Friend's comments and the wider issues that he raised.
The hon. Member for Norwich, South (Mr. Garrett), who also kindly informed me that he could not be 'here for the conclusion of the debate, condemned the Budget as irrelevant. I obviously do not agree with that. I come from the great city of Norwich and I was concerned and interested to hear his reports of unemployment and his concern about the future level of economic and industrial activity in Norwich. I firmly assert that prospects for Norwich and other cities will be well served by the Budget judgment of my right hon. and learned Friend the Chancellor. The economic recovery is reflected in Norwich, as it is elsewhere, and therein lies the best prospects for sustained employment.
My hon. Friends the Members for Macclesfield (Mr. Winterton) and for Ayr (Mr.Gallie), along with the hon. Member for Tooting (Mr. Cox), raised the important and controversial issue of VAT on fuel and power. Even though they made their positions clear, I hope that they are not non-negotiable but subject to influence. We acknowledge that the tax is not popular—no tax is—but it is an essential part of the arithmetic in making the books balance and redressing the state of public finances. As I shall tell the House later, the bottom line, objective and issue of principal concern must be the amount that we borrow to finance our public expenditure. That would be an issue, whichever party happened to be in government, and the present Government have the difficult but important principal task of measuring up to it.
Through a tax that will raise a considerable amount of money in gross and net terms, we have sought to contribute to meeting that challenge. The tax will raise slightly less than £3 billion in a full year. However, a substantial package of compensation, targeted to assist the people in most need, will reduce it to about £1.6 billion. A considerable programme of help for pensioners and other people on the lowest means, and help reflecting cold weather or exceptional circumstances, has been built on by my right hon. and learned friend the Chancellor in the Budget.
We cannot afford to run away from the problem of deficit redress, and of the need to tackle that, which will not be met by taxes which will raise fairly minor sums against the amount involved. My hon. Friend the Member for Macclesfield said clearly that he would favour an income tax supplement as an alternative. I hear what he says, but that would directly reverse our trends and intentions on direct taxation.
Other people have not come clean about whether they would favour greater borrowing, other reductions in the expenditure programme, or alternative taxes. It behoves those who seek not to go ahead with or to condemn the second stage of VAT to confront the consequences. I say that not simply for the fiscal judgment, but for monetary 1427 policy, because the connection between monetary and fiscal policy is direct and the markets will read clearly and carefully our determination to face up to our responsibilities in government.
§ Mr. Nelson
If my hon. Friend will forgive me, I will try to give way later, but I am anxious to make a little progress.
The hon. Members for Tooting and for Cambridge (Mrs. Campbell) mentioned the important issue of housing in their constituencies. Housing problems are a subject of direct concern to all hon. Members in our surgeries and our mailbags. Although changes have been announced and proposed in the programmes for housing and in local authority support announced today by my right hon. Friend the Secretary of State for the Environment, it is worth noting some of the changes and improvements that are being made in that sector which will add considerably to the quantity of social lettings. We estimate that the combination of Housing Corporation, local authority and private finance will add about 185,000 new social lettings in the next three years.
In addition, there is help in the form of the revised real guidelines on rent setting, which will taper rent increases to a reduced extent; that will assist many people with their council housing costs. We are doubling the amount that is made available for the cash incentive scheme, to encourage people to move out of the public sector into the private sector and so release resources. The Housing Corporation will spend an extra £6 billion in the next three years, adding to the considerable achievement of not only meeting our manifesto target of 153,000 properties, but exceeding it by 26,000.
We shall spend about £30 million on an empties programme to ensure that we release, use and occupy more empty local authority properties. That will affect the quantity of new lettings and their price, at a time when properties are a good deal more affordable and rents much more comparable with the costs of purchasing. Those actions will give hope to many of the people whose interests were rightly represented today.
My hon. Friend the Member for Macclesfield also mentioned in passing the problems of the film industry. I hear what he says. That is a matter not for this Budget, but perhaps for future ones. I am bound to observe that the film industry is a great success. Julia Roberts and Arnold Schwarzenegger are coming to this country. The amount being spent is exciting. The film industry is one of the great success stories—mainly, I have to say, because of the restrictive union policies in the United States, which have driven out employment. [HON. MEMBERS: "Oh."] That is undoubtedly true, and much of that money and employment is coming to the United Kingdom. My hon. Friend called for no rises in interest rates. It is not for me to speculate about future rates but I have mentioned the need for a responsible fiscal policy to keep them as low as possible.
The hon. Member for Eastleigh (Mr. Chidgey) spoke about his constituency. As I represent a constituency not far from his, I am conscious of the problems that the recession has caused, especially in the south where such unemployment, particularly of professional executives, has not occurred before. But matters are improving in his constituency and mine. The hon. Gentleman sees the employment figure for this year in his local job centre and 1428 he knows the extent of the recovery in economic activity and new employment. Not only that, but there has been an increase in the number of people who find employment soon after becoming unemployed.
The hon. Gentleman spoke of the need for a working benefit scheme, but I imagine that such a scheme would go well beyond the Chancellor's proposals. The hon. Gentleman suggested somewhat mischievously that my right hon. and learned Friend the Chancellor was not totally behind my right hon. Friend the Secretary of Slate for Employment. I can think of no more united and harmonious relationship of intellect and resources on these matters. [Interruption.] Surely that is incontrovertible.
My hon. Friend the Member for Bridlington (Mr. Townend) welcomed the reductions in public expenditure as showing that we were cutting our cloth and economising. He referred to the Chancellor as a madman wielding an axe—Ken the magician or Ken the axeman. I took it that those were compliments.
§ Mr. Nelson
He is Ken the magician. The extent to which my right hon. and learned Friend has cut expenditure and is delivering a substantial recovery in our economic fortunes beyond anything prophesied by the Opposition or outside economists is a considerable personal and political achievement.
My hon. Friend the Member for Bridlington and other hon. Members spoke about the aid budget, which has been increased a little this year. I received representations from the aid lobbies and from the Council of Churches, and again this year we decided to improve the aid budget in real terms. That is supported in all parts of the House.
My hon. Friend the Member for Bridlington and the hon. Member for Newcastle upon Tyne, North (Mr. Henderson), who made a colourful and interesting speech which I shall read and reflect upon, spoke about cross-border shopping. The hon. Member for Newcastle upon Tyne, North unveiled some interesting tricks about how that is done, and they will be of direct concern to my hon. Friend the Paymaster General.
Considerable amounts of duty—some £4 billion on alcoholic beverages and £3 billion on tobacco—are involved, and in paying for the public services that we all cherish, we cannot afford to ignore such flows of funds. Total resources from those duties have risen since the implementation of the single market. For the second year running, the Chancellor has been able to freeze those, and that is a reflection of the fact that the disparity has been taken into account. I hope that that will have an impact. This will be a long-term issue and there are no easy resolutions in a single market which, although it confers benefits, presents difficulties because of different systems of indirect taxation on beverages and tobacco.
The hon. Member for Manchester, Central (Mr. Litherland) spoke about housing and clearly spelled out the problems in his constituency. I have said a little about that. I congratulate my hon. Friend the Member for Beaconsfield (Mr. Smith) on his achievements in the Northern Ireland Office where he was responsible for economic and other matters. He spoke about competitiveness and its key importance to British industry. That was the subject of a major White Paper and a Government action programme earlier this year. He 1429 asked about the M25 links and the widening at Slough in his constituency. He will know that all those road schemes are subject to reconsideration following the announcement on the roads programme.
The hon. Member for Derbyshire, North-East (Mr. Barnes) spoke about standard spending assessments in his constituency and their impact. I understand that his constituency's position in the league table has risen somewhat, but he made an impassioned plea—as we all do in our constituency capacity from time to time—for a better share of the allocation.
I take careful note of what the hon. Gentleman said about expenditure priorities. It will not surprise him to learn that we have different priorities, which were borne out by his comments on indirect and direct taxation. We have a popular mandate for moving the balance away from direct to indirect taxation. That is not easy, but the benefits will become increasingly apparent as the incentives of a lower burden of taxation on earnings and income result in reinvestment, the propensity to save and higher economic activity.
My hon. Friend the Member for Wellingborough (Sir P. Fry) asked for his spirits to be raised. He wondered why it was necessary to raise taxes when the economy was doing so well. Obviously, it is good that the economy is doing well and it is regrettable that we have to raise taxes, but I must repeat that it is of central importance to reduce the public sector borrowing requirement and, over the years, get our debts back into balance.
My hon. Friend the Member for Bury St. Edmunds (Mr. Spring) accurately reflected the success of our policies in his constituency. He said quite a bit about exports and the Export Credits Guarantee Department and the extent to which that would fuel industry and trade abroad. He also welcomed the proposed changes on insolvency and made a plea about capital gains tax which we shall bear in mind for the future.
The hon. Member for Wallasey (Ms Eagle) spoke of the need for more generous subsidies and more jobs. As my right hon. Friend the Secretary of State for Employment said, we reject the case for throwing more money at those issues. The quality as well as the quantity of public finance is important. She referred, not for the first time, to the Maples memorandum. There were some ribald comments about that. John Maples was my predecessor as Economic Secretary. The moral must be to keep one's memos to oneself. My right hon. and learned Friend the Chancellor will be pleased to hear that it is not my habit to draft many memorandums.
The hon. Member for Rotherham (Mr. MacShane) said that it was a Budget for the rich and that training had been cut. We reject that, because we believe that our proposals, measured as they are, will sustain the recovery and will, as all forecasts—not just from the Treasury, but from outside bodies—suggest, lead to further reductions in the level of unemployment.
The hon. Member for Barking (Ms Hodge) referred to capital investment, especially in education. I am sure that she would be the first to welcome the fact that another £60 million is being spent on schools' capital programmes.
The hon. Member for Glasgow, Rutherglen (Mr. McAvoy) welcomed the landfill tax. He made a plea for the M74, which we shall take into account. He also said 1430 that he wanted action on late payment of debt, which is currently the subject of a Confederation of British Industry working party.
My right hon. and learned Friend's safe and sound Budget had the prime objective of keeping the economic recovery on track, but in so doing he was also able to find substantial resources for a small business programme and for ensuring that the long-term jobless are helped to get back into employment. [Interruption.] However, the central objective remains the necessity to reduce the public sector borrowing requirement. [Interruption.] I remind the House that the national debt stands at £285 billion, of which £238 billion is in gilts and about £51 billion in national savings. The interest costs on our borrowings amount to £22.6 billion a year—[Interruption.]
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. If hon. Members wish to intervene, they should do so in the time-honoured way and not by sedentary interventions.
§ Mr. Nelson
Interest costs amount to more than the whole of our defence programme, more than the whole of our education programme and more than the whole of our law and order programme. If we allow them to build up, we shall not just carry forward a heritage of borrowing—we shall be saddling ourselves with ever higher recurrent costs at the expense of other public expenditure priorities.
Eventually, if we again reach a point at which we can repay debt and ensure that we can maintain low interest rates, reducing the cost of bearing debt, that will be good. But there are other technical ways of trying to improve the market and the cost of our gilts. One is the announcement of the introduction of a repo market, the other is a debt management review which is currently going on. We are also considering the introduction of certain new types of bond. We do not want anything too bizarre, but certain exotic bonds might be on the menu as we look for ways of supplying the market to ensure that we do not have a scatter gun across the yield curve and that we finance our borrowing requirement at the least cost to the taxpayer.
It is in the business package, however, that my right hon. and learned Friend the Chancellor has done most for the economy, not just a substantial amount to assist those small businesses in the north of England who would otherwise be faced with substantial rate increases and some three quarters—
It being Ten o'clock, the debate stood adjourned.
Debate to be resumed on Monday 5 December.