§ Madam Speaker
Before I call the Minister, I have to announce that I have imposed a 10-minute limit on speeches between 6 and 8 o'clock this evening.
§ The Secretary of State for National Heritage (Mr. Stephen Dorrell)
Last Tuesday my right hon. and learned Friend the Chancellor of the Exchequer delivered a Budget that was good for Britain and good for the national heritage. I applaud it on both grounds. I should like to begin by examining its direct effect on the national heritage. I shall then examine its broader effect on the economy. The one cannot be entirely divorced from the other because it is important to see the heritage in its full economic perspective.
Let me begin by looking at the national heritage as a narrow aspect of our wider economy. Since my appointment as Heritage Secretary, I have sought to make two things clear about the way in which I intend to discharge my responsibilities. First, I want to see the national heritage sector for which I am responsible expand. It is a huge sector. It includes everything from ballet to boxing. I want to see all those different sectors grow and derive greater strength and possibilities of expansion by securing greater public support. That is true of the theatre sector, of our film studios, of sporting activity throughout the country, of art galleries and museums and of broadcasting companies; I believe that we have in Britain the opportunity to exploit the growth of broadcasting opportunities throughout the world.
I regard all those different sectors as important. They are important in themselves because they create job opportunities. They create growth within the wider economy. They are also important because they express our identity as a nation. They express our aspirations as a nation and they express our confidence in our future as a nation.
24 I believe that the national heritage in all those different characteristics and forms should express a commitment that we should all feel in all parts of the country, to excellence, to seeing standards rise and to seeing our aspirations for the future fulfilled. That is why I disagree so fundamentally with the views attributed at the weekend to the hon. Member for Blackburn (Mr. Straw).
I have no disagreement with the hon. Member for Blackburn about the desirability of having a debate, if he wants to have one, on the future role of the royal family. Indeed, I am sure that all my hon. Friends would welcome such a debate with the hon. Member for Blackburn. I have no doubt that, in the court of public opinion, it is a debate that we shall win hands down.
However, I disagree profoundly with what Labour Members have said in the course of the debate. It is not only the hon. Member for Blackburn. The debate started in the summer with the hon. Member for Redcar (Ms Mowlam), who wanted to move the royal family out of its present palaces and put it in a designer palace designed, as she saw it, to represent her political viewpoint for the next century.
At the time, the Labour leadership sought to distance itself from that idea and said that it was merely an aberration—something dreamt up in fevered imagination in the heat of the summer. It was something for which the wider party was not responsible. That defence was blown to smithereens at the weekend.
§ Mr. Dorrell
No, that was not in the Budget and nor was any cash provided in the Budget—nor should there be—to build a new designer palace of the type that the hon. Member for Redcar envisaged. The budgetary implications of putting the royal family in a different sort of palace are not the least of the reasons why the House should reject that idea unanimously. It would seem to be an absurd use of resources. The Opposition Front Bench and the hon. Member for Redcar, however, support the use of resources for taking the royal family out of its traditional palaces and putting it in designer palaces.
§ Mr. Skinner
Why does not the Minister understand that when hon. Members talk about the royal family and the future of the monarchy, they do so against a background of people talking about that subject outside this place? The truth is that the veneers of mystery that have been stripped away from the royal family were stripped away by its members. They became engaged in their self-destruction course. It is no wonder that people out there want to talk about their future and it is therefore likely that others will want to take part in the argument. People want to discuss the matter and there is probably a majority in favour of this monarch being the last. That is not because of the growth of republicanism per se—I wish 25 it was—but because of the shenanigans that have been taking place in Buckingham palace which, incidentally, is a council house.
§ Mr. Dorrell
I started off by saying that I have no difficulties with having such a debate, and the hon. Gentleman has just illustrated why I am so keen to have one—
§ Madam Speaker
Order. I have great difficulty in having a debate on the matter as it is not at all relevant to the Budget. I hope that the Minister will now revert to his speech on the Budget.
§ Mr. Dorrell
As I was seeking to demonstrate, the Labour party argues that we should include in the Budget an expenditure line to provide a new people's palace for the royal family. [HON. MEMBERS: "No."] Labour Members say no, but that is what the Opposition Front-Bench spokesman argued for in the summer, and the shadow Home Secretary reinforced that argument over the weekend, so I hope that Opposition Members will not try to distance themselves from their Front Bench.
The hon. Member for Islington, South and Finsbury (Mr. Smith) was in some difficulties with the subject on the radio this morning. He was put up to defend the views of the shadow Home Secretary, but he did not do so. He defended a different view—that the Opposition espouse the abolition of the royal prerogative. It was pretty unclear what he meant by that.
Conservative Members believe that the monarchy works well and that it is a vital part of our constitutional stability. We deplore Opposition attempts to distort economic priorities to change the monarchy in a way that they find politically correct. They are the high priests of political correctness and they want to impose that straitjacket on the royal family.
When I became Secretary of State for National Heritage, I said that I wanted a heritage and respect for our traditions that expressed this country's identity and its commitment to and confidence in its future. That is something to which I attach great importance.
§ Mr. Toby Jessel (Twickenham)
On the budgetary aspects of royal palaces, as my right hon. Friend's Department is responsible for the maintenance of Hampton Court palace in my constituency, will he ensure that it goes from strength to strength? It is being improved, doing extremely well and attracting more visitors, and is a precious national asset. As it is not fully occupied, however, does not it make it all the more absurd for foolish Labour Members to suggest building any new royal palaces?
§ Mr. Dorrell
I agree with every word and can give my hon. Friend the assurance that he seeks. The Government will continue to provide the resources that are necessary to ensure that our monarchy and the palaces in which they live reflect the confidence that this country and its people have in their future and in their capacity to excel.
§ Mr. Dorrell
I shall make a little more progress.
When I became Heritage Secretary, I set out two objectives. The first was a heritage sector that expressed our commitment to excel and confidence in our future. 26 The second was to make it clear that the growth of that sector should not, and could not, be solely or primarily a function of growing public expenditure programmes.
Culture, heritage and all the different activities for which my Department is responsible are not things that are done to people, or things from which the nation derives strength if they are the creation of an official committee divorced from its support within the community. Culture and heritage derive their strength and legitimacy from the direct support of individual citizens supporting those activities, and paying when they get there for the cultural excellence that they witness. Culture and heritage also derive strength from the support of the business community and the voluntary sector.
In short, culture and heritage draw support from a wide network of sources throughout the community, and it is right that the resources available to the national heritage in the broadest sense should be linked to the capacity of that sector to generate direct support in the community at large. That is why I unambiguously embrace the principle of plural funding; the principle that the sectors for which I am responsible should secure some revenue from the Exchequer certainly, but should also be encouraged to look for a wide range of cash support from a wide range of different sources throughout the community that they are there to serve.
§ Mr. Enright
Will the Secretary of State explain therefore why Heritage plc—the company run by his hon. Friend the Member for City of Chester (Mr. Brandreth) —received huge subventions from the Treasury when it went bust at a time when it was showing a royal fashion display?
§ Mr. Dorrell
That is an example, as my hon. Friend the Member for City of Chester (Mr. Brandreth) would be the first to say, of the dangers that the public sector gets into when it seeks to make judgments better made by the private sector. That is a view that my hon. Friend has himself put on record.
The key to the success of the Department of National Heritage is to recognise that public expenditure has an important role to play in the sectors for which it is responsible, but that the Department is about a lot more than simply disbursing public expenditure. The policy of the Department, and my objective as Secretary of State, is to create a framework that will allow the heritage sector in the broadest sense to grow in the way in which I have described, by drawing support directly from the community in its various forms.
The Budget that we announced last week gives several examples of how I intend to carry that process forward. In the first place, my right hon. and learned Friend the Chancellor announced last week the extension of the reduction of pools betting duty, which is a means by which the public sector catalyses private sector support into the sports and arts sectors. Each £1 of tax revenue forgone has generated an extra £2 from the pools companies, so for every £1 of extra PSBR cost, £3 of benefit is going into the sports and arts sectors. The total value of that to those sectors last year was £68 million, but the public finance cost was little more than £20 million. That is one example of using the state as a catalyst to gather more support into the heritage sector.
Another example announced last week was the extra resources that I have provided for the different business sponsorship schemes that operate within the Department. 27 I announced last week an increase of £750,000 in public funding to the business sponsorship incentive scheme, which generates support for the arts sector. Experience has shown that £1 of public money used in that way once again will generate £2 of private money from the business community, so £750,000 of public money should catalyse over £2 million into the arts sector.
Exactly the same principle works behind the sportsmatch scheme, which has secured an extra £400,000 of funding. Exactly the same principle will also work in the new business sponsorship incentive scheme that I have announced for the heritage sector. Once again, the public sector—in the form of the Department of National Heritage—is using public money to catalyse private support for a growing heritage sector. All that is in addition to the direct expenditure increases that I announced last week of £5 million for the Arts Council and £1.6 million for English Heritage. Those are all important policy developments. It is important that we are increasing money for the Arts Council and English Heritage and using public money to encourage those sectors to generate a broader base of public support throughout the community.
However, those policy commitments are dwarfed by the two key priorities that the Department of National Heritage has been following up in the past few months. The first is our commitment successfully to bring on stream the national lottery, an imaginative initiative that is the personal responsibility and success of my right hon. Friend the Prime Minister. The national lottery fills gaps in traditional funding arrangements for the heritage sector. It is important because it is a new source of funds for the sector on a scale that could not have been envisaged from any other source under a Government of any other complexion.
§ Mrs. Jacqui Lait (Hastings and Rye)
I share many of my right hon. Friend's thoughts about the success of the national lottery. However, my constituents in Rye and surrounding villages do not have the same feelings about it because they still cannot buy tickets. Will my right hon. Friend put further pressure on the national lottery to cover the whole country as soon as possible?
§ Mr. Dorrell
I assure my hon. Friend that Camelot is committed to covering the whole country as quickly as possible. It has made a commitment to expand the total number of outlets to 40,000. My hon. Friend will agree that it is a considerable achievement for a business that did not exist more than some six months ago to have opened on the first day of trading with more than 10,000 outlets, and now to be adding outlets to its chain at a rate of 1,000 a month. I shall ensure that my hon. Friend's concern is brought to the attention of Camelot and I hope that the 1,000 outlets to be opened in the near future will include outlets in her constituency.
My hon. Friend's concern to ensure that her constituents participate in the lottery serves to underline the lottery's success in generating public support and enthusiasm and in generating a substantial increase in 28 funds available for sport, heritage, the arts community and arts buildings, the Millennium Commission and the charity sector.
§ Mr. Miller
Does the Minister now agree that the prediction made by some hon. Members, particularly those from the north-west, that the introduction of the national lottery could result in a loss of pools jobs, has proven to be the case? What is the estimated cost of the loss of those jobs as a result of the added burden on social security payments?
§ Mr. Dorrell
I do not accept the direct cause and effect described by the hon. Gentleman. A product that is typically sold in a supermarket or newsagent is more likely to be in direct competition with the purchase of cigarettes or confectionary than with money spent on football pools or charities, which is the other sector that has alleged a direct competitive effect.
§ Dame Elaine Kellett-Bowman (Lancaster)
Does my right hon. Friend accept that many shopkeepers and post offices in the north-west are delighted at the increase in revenue, which has enabled them either to maintain their staff or to increase it?
§ Mr. Dorrell
My hon. Friend makes an important point in her own way. [Interruption.] I entirely agree with it. I simply did not want to bore the House by repeating less well the important point that my hon. Friend made.
I said that there were two key priorities. The national lottery is one; the other, as the House may be aware, is the responsibility that lies at the heart of the DNH to develop the tourism sector. I make no apology for stressing the importance of tourism in the discharge of DNH responsibilities. The reason why I place so much stress on it is twofold. First, it is an important economic sector in its own right, which has been growing fast and has, in the process, created more than 30 per cent. more jobs than existed in the sector 10 years ago. It now accounts for 5 per cent. of gross domestic product and employs 1.5 million of our fellow countrymen. It is, by any definition, a key British industry. That is the first reason why I attach so much importance to it. The second reason is that it is a growing sector, which attracts support specifically into the national heritage sector.
Why do tourists come to this country? What do tourists do when they stay in this country? Overwhelmingly, when one asks them, the answer is given that they come and stay here in large part because they want to participate in, and derive benefit from, our heritage sector. Therefore, growing tourism not only creates jobs in the economy at large, but creates the opportunity for expansion, specifically in the heritage sector. It is, in a direct sense, an investment in the audience for our national heritage.
§ Mr. Jacques Arnold (Gravesham)
Does my right hon. Friend agree that one of the reasons why tourists come to the United Kingdom from overseas is to see our royal family, its palaces and all the pageantry for which it is well known? Would not the Labour party policy on the royal family, if carried through, damage that tourist trade? [Interruption.]
§ Mr. Dorrell
My hon. Friend has hit the nail on the head, and he is absolutely right. If I may pick up the point that predictably came from the Labour Benches, that is not to present the royal family as a tourist attraction. The 29 royal family has an importance in our national life that goes far beyond that, but my hon. Friend is right to say that, if the pageantry were scaled down, as the hon. Member for Blackburn argues that it should be, among the first things to be hit would be our tourist earnings—never mind our self-respect and our respect for our past.
Therefore, the Budget is important because it advances the interests of the tourist industry alongside the rest of the economy. It advances them specifically and it advances them because tourism is a key pan: of our wider economy.
Let me discuss the specific aspect first. Last week, I was able to announce a new initiative to promote tourism in London. We shall provide £4 million of public money during the next two years, to be matched, once again, by £4 million originating from the private sector. That money will be used to develop a tourist promotion initiative centred around London as a key destination, to compete with cities elsewhere in Europe and the world.
It is one of the facts of our national tourist life at the moment that London's share of the big city tourist market is declining. I want that decline to be reversed, partly because that is important to London, where it will create jobs, and partly because extra visitors to London will create an audience from which, in turn, the rest of the country can recruit tourists. London will benefit, and the rest of the country will benefit as London is turned into a gateway through which more tourism enters the rest of the United Kingdom.
Tourism is best promoted by regarding it in the context of the wider economy. The Budget should be welcomed as the right way forward for the whole economy for three key reasons. The first is the continued drive, which the Budget represents, in the direction of more flexible markets, and of ensuring that the responsibility for creating growth, for creating jobs and for improving living standards in the British economy rests firmly with the people best able to discharge that responsibility—the managers of British business.
There is no better illustration of that principle in practice than the package that my right hon. and learned Friend the Chancellor announced on work incentives. That was an imaginative package, which will create jobs throughout the economy, improve living standards and demonstrate in practice the capacity and the commitment of the Government to continue the decline in unemployment which our policies have put in train, and which is jeopardised by the stance of the Labour party.
Let us look at the elements of that package. We are committed to reducing the cost of recruiting unskilled workers. That comes next April when, as my right hon. and learned Friend the Chancellor announced, there will be a reduction in employers' national insurance contributions—substantial assistance targeted at that part of the labour market where recruitment prospects are most difficult. That is the first element.
The second element is an incentive that my right hon. and learned Friend the Chancellor plans for employers to take on people who have been unemployed for a long period. I believe that the holiday on national insurance contributions for people who have been unemployed for more than two years is an imaginative step forward in generating movement in the part of the labour market that we all know is the most difficult to target, and for which it is most difficult to create jobs.
30 Thirdly, my right hon. and learned Friend rightly emphasised the need to ease the transfer from benefit to work, announcing important steps to speed payment and ease the move from family credit, housing benefit and council tax benefit. That is not the kind of headline-grabbing, multi-billion-pound scheme that commends itself to the Labour party, but it is a practical scheme that will address the real concerns of people who are considering moving from benefit into work: it deals with their practical problems in a practical way, and is therefore very welcome.
The new scheme announced by my right hon. Friend the Secretary of State for Social Security, allowing people to build up credits to create bonuses for themselves when they move from part-time to full-time work, is another example of an accurately targeted measure that will have a practical effect, encouraging people off benefit and into full-time work. It is a real measure targeted on a real problem, rather than a headline measure that looks good in the shop window and uses a lot of taxpayers' money, but delivers no serious policy gain.
The purpose of the package announced by my right hon. Friend last week is to reduce the costs of unemployment and to ease the path of the unemployed back into work. It contrasts starkly with the stance of the Labour party, which is committed to a minimum wage—committed to not reducing but increasing the cost of employment. How can Labour Members believe that we can increase the prospect of employment and the number of jobs in the economy by raising the cost of employing people? That is a "cause and effect" that defies every law of economics that I have ever read.
The minimum wage, however, is not the only job-destroying policy to which Labour Members are committed. They are also committed, through the social chapter, to the labour market practices that have been so successful elsewhere in Europe—in France, which has an unemployment rate of 12.7 per cent.; in Italy, which has an unemployment rate of more than 10 per cent.; and in Spain, whose unemployment rate is over 24 per cent. Our unemployment rate is less than 9 per cent., and falling.
My right hon. and learned Friend's Budget demonstrates that the Conservative Government will return people to work, because they pursue accurately targeted policies that will deliver such a result rather than slogans that impede it—which is the commitment of the Labour party.
§ Mr. David Shaw (Dover)
Will my right hon. Friend confirm that the Budget allows his Department enough money to provide a plaque for the London Oratory school in west London, featuring the names of sons of famous parents? Will the plaque also have enough room to include the statements that those parents made about education policy?
§ Mr. Dorrell
That is an interesting idea, but I think that the school's capacity to recruit pupils from wherever it pleases is more important than my hon. Friend implies. I do not want that aspect to be confined to a plaque; let me encourage my hon. Friend to draw the attention of a wider national audience to the school, its success in recruiting pupils and the arguments advanced to explain that success. We shall then be able to ask the Leader of the Opposition why his party wants to deny other parents the right to choose that he has exercised.
31 I said that there were three key reasons for my view that the Budget is a success. I have mentioned one—
§ Mr. Dorrell
I am not ashamed of my Department; I am demonstrating how it takes its place in the national economy. I have shown how it will generate extra support for a growing national heritage sector in the context of a growing economy. I shall now deal with the other two reasons why the Budget will deliver a growing economy.
The second reason is that the Budget maintains an uncompromising commitment to the three key principles of public finance to which the Government are committed. The first is that today's public services must be paid for by today's taxpayers.
We all know that borrowing fluctuates according to the economic cycle and that it rose during the recession. The Government absolutely accept the priority that stares us in the face, which is to ensure that the borrowing total is reduced as the economy pulls out of recession. The Red Book shows how that borrowing is being reduced, and shows the stark contrast between our record in office and that of Labour. During five years of Labour in office, the PSBR as a percentage of gross domestic product was 7 per cent. Under this Government, it is 2 per cent. and the Red Book shows how it is to be eliminated before the end of the decade.
A Conservative Government will not mortgage future tax revenues to pay for an unrealistically large public expenditure programme today. That is the first principle of public finance.
§ Mr. Peter L. Pike (Burnley)
Is not it true that the public sector borrowing requirement has been reduced every year since 1979 by means of the sale of nationalised industries, and that that is shown in the accounts? What will the Government do when there are no more public assets to sell?
§ Mr. Dorrell
Public spending plans and PSBR plans are set out in the Red Book. Privatisation proceeds are a small element of that in the later years. The Government are committed to reducing public borrowing, because to fail to do that would be to mortgage the nation's future to try to sustain insupportable public expenditure today.
§ Mr. Chris Smith (Islington, South and Finsbury)
Why are the Government the first in history who have borrowed to fund revenue expenditure?
§ Mr. Dorrell
I will not accept any lectures on borrowing from a party which, during five years in office, delivered an average PSBR of 7 per cent. of national income. That was the rate at the bottom of the recession under this Government, and we accepted that it was too high. Presumably the Labour Government did not because they did not reduce it. We plan to eliminate it over the rest of this decade.
Our second principle on public finances is that not only are we determined that today's public services should be paid for by today's taxpayers, but that we should return to our tax-cutting agenda. In one of the interesting debates this year, it emerged that there are apparently some 32 latter-day Opposition converts on that subject. The House would do well to remember where we have come from in terms of cutting taxes.
In 1979 when the Government took office, the top rate of income tax on savings was 98 per cent., and on earnings the top rate was 83 per cent. We have more than halved both those figures to 40 per cent. The Opposition say that they are interested in investment, but there was scant evidence of that during their period in office. In 1979, corporation tax was 52 per cent. We have cut it to 33 per cent.
Our record speaks for itself. We are committed to delivering reduced tax rates. Needless to say, we gladly accept Opposition pressure to improve even more on our record as a tax-cutting party. That brings me neatly to the third element of public finance policy. The Opposition like to push us towards being even more ambitious in reducing tax. A commitment to reducing tax and to responsible borrowing policies requires discipline on public expenditure. It requires Ministers to face up to choices about which public expenditure programmes are important and which can be afforded. That is why in the previous Budget the Chancellor announced total public expenditure reductions over the plan then in prospect of £15 billion, and why my right hon. Friend the Chief Secretary is to be applauded for securing a further reduction on top of that £15 billion of £28 billion. That public expenditure has been avoided because he encouraged the Government to make the choices that were necessary to avoid it. That is set out in the document.
The contrast between this Government's record and that of the Labour party when it was in office could not be more stark. Public expenditure, as a share of national income, averaged 46.5 per cent. during Labour's years in office. Under this Government, even in the depths of recession, it peaked at 44.5 per cent. The Labour party dresses itself in the clothes of a tax-cutting or tax-limiting party, but it has a huge burden of history and a huge credibility gap to overcome. Until the Opposition can demonstrate that they will deliver disciplined public expenditure, choices between priorities and a limit on the total, nobody will believe that they can succeed in limiting the tax burden.
That brings me to the most important reason why the Budget is good for Britain and therefore for the national heritage as part of Britain. It reaffirms this Government's commitment to sound money. That is good news for households, for savers, for wage earners, for businesses and for all of us. The fact that inflation is now under better control than it has been for 30 years is not an arcane statistic of interest to some economics professor and calculated on some abstruse formula; it goes to the heart of why the economic outlook for Britain is better than it has been since the 1960s.
In Britain today, shoppers know that they do not have to accept price rises. They have not been educated to accept price rises week by week, month by month. They know that they can choose. That is why we hear a great deal about retail competition—stories that I warmly welcome. Secondly, and perhaps even more important, savers know that their capital will retain its value in Tory Britain. Inflation under the Labour party was a pernicious tax on the unsophisticated for the benefit of the sophisticated. The fixed-interest saver lost out while the wide boys gained. It was Robin Hood in reverse. This 33 Government have re-established a commitment to sound money—no more back-door taxes on the unsophisticated, organised by the wide boys on the Labour Benches.
Thirdly, wage earners know that in Tory Britain pay increases must be earned; they must be paid for by productivity. I remember putting that proposition on a radio programme about 12 months ago. I had considerable correspondence asking when it would end. It is not going to end because the proposition that pay increases must be paid for by productivity is no more than the truth. It is fair and right.
Fourthly, businesses know that they now have a stable background against which to plan their affairs. [Interruption.] We hear a great deal about short-termism—the tendency of British business to plan for short-term horizons. A major cause of that over the past 30 years has been the exaggerated boom-bust cycle, which resulted from our incapacity to deliver proper, sound money and proper inflation control. Businesses need stability so that they can plan their affairs for proper long-term horizons. The Government and the Budget give that commitment.
The message of the Budget is that the outlook for Britain is better than it has been for 30 years—[Interruption.]
§ Madam Speaker
Order. I am becoming exasperated by the comments from sedentary positions. Such constant barracking does not improve the quality of debate in the Chamber.
§ Mr. Dorrell
At last, Britain has a Government who have secured honest money. It has a Government who have put their own finances in order. The public have the assurance that public expenditure will be restrained in order to allow the tax burden to fall. Britain has a Government who have committed themselves to ensuring that business will be allowed to deliver growth and improving living standards. The results are there for all to see. Manufacturing output has risen by 5 per cent. a year; and growth by 4 per cent. a year; and unemployment has fallen by 350,000 in the past 12 months. Living standards have improved also for the family on average earnings—£80 a week higher in today's money than in 1979.
That is the shape of Tory Britain, and this Government and this Budget will safeguard that shape for the future.
§ Mr. Chris Smith (Islington, South and Finsbury)
When the Chancellor sat down last Tuesday, there was a muted waving of Order Papers by Conservative Back Benchers, many of whom had been asleep the previous 84 minutes—but there were few cheers anywhere else. I was astonished that the Secretary of State for National Heritage had the effrontery to talk about the end of boom-bust economics—that from a Government who in the course of the past 15 years produced the two biggest busts and the largest unsustainable boom since the war.
This is a tinkering Budget. It attempts to trumpet a success that no one in the country really feels. It does practically nothing about low levels of investment and little about high levels of unemployment. It leaves in place seven imminent tax rises, stubbornly there for the people of Britain to put up with. The Budget looks more to the fortunes of the Tory party in 18 months' time than to the needs of the British economy now.
34 Of more significance than that which the Chancellor said last Tuesday is that which he did not say. He said nothing at all about tax rises already built into the system. He left firmly in place the reduction in mortgage interest tax relief, new taxes on insurance that are about to be implemented, air travel tax and, above all, the rise to 17.5 per cent. in value added tax on domestic fuel.
The Chancellor himself has stopped trying to claim, as other Ministers have tried in the past year and a half, that VAT on domestic fuel is necessary for environmental reasons. The Prime Minister was not so circumspect. In Prime Minister's questions last Thursday, he was at it again. He said that VAT at 17.5 per cent. was needed to meet our Rio commitments. That is patent nonsense. Even on the Government's own figures, the carbon dioxide that will be saved by imposing VAT on domestic fuel will total less than 1 per cent. of Britain's overall output. There will be minimal environmental gain for maximum social pain.
Those who can afford the imposition of VAT on domestic fuel will continue using the same amount of energy. Those who cannot afford it will save energy. They will not instal condensing boilers, extra lagging or home insulation—they will go cold. The Government will achieve a tiny reduction in overall energy production and will put the entire burden on the backs of those least able to bear it. That is why we will seek tomorrow night to take the first step towards rolling back the Government's retrograde action.
The real story behind the Budget is not what it will achieve this year but what it puts in place for next year. The Government's Budget agenda is wholly and utterly driven by the Tory party's electoral needs. The Tories believe that income tax cuts in November 1995 will bring them electoral victory in 1996 or 1997. They are wrong, because the people have rumbled them.
People know that taxes were brought down with a great flourish immediately before the 1992 election and that, 11 months later, after the Government had been safely voted back into office again, taxes went back up. Election bribes are never permanent. People know that, over the past two years, they have had the biggest tax rise in history. Last year and this year, there was the equivalent of 7p in the pound on income tax, yet the Government have the gall to think that 2p, 3p or even 5p off income tax in an election year will somehow compensate in people's minds for the tax-rising story that the Government have imposed on us all in the past couple of years. That will not take VAT off domestic fuel and it will not make our pensioners any warmer; voters will not be fooled again.
§ Mr. Alan Duncan (Rutland and Melton)
The hon. Gentleman has been clear and open in saying that he wishes the second stage, at least, and probably the first stage of VAT on fuel to be removed. Will he, therefore, be equally open with the House by telling us exactly how the revenue from that tax would be replaced? Would he take the money from the extra £1.3 billion that has been given to the national health service? Would he raise the tax by some other means or would he add to borrowing? Which of those three choices would he make?
§ Mr. Smith
None of them. As we have spelt out on many occasions in the past few months, I would look first to tax loopholes which the Government, only two weeks ago, told us did not exist. They said that tax loopholes were entirely a figment of the Labour party's imagination. 35 At least they have had the decency in their Budget to admit that there is £1.5 billion of tax loopholes, and there is more of that to come.
The second part of the answer to the hon. Gentleman is that we should look at some of the windfall profits that the privatised utilities have made. The third part of the answer is that we should look at the executive share options from which the people who now run the privatised utilities are gaining benefit, which are undertaxed at the moment. People would rather that we looked fairly at taxing those who can well afford to pay—those who are evading and escaping tax at the moment—than looked at taxing pensioners by putting VAT on domestic fuel.
§ The Chief Secretary to the Treasury (Mr. Jonathan Aitken)
The hon. Gentleman sounds positively loopy and windy about the completely phoney taxes which he suggests can be introduced. Surely he is aware that all Governments, of whatever political colour, always endeavour to close loopholes, just as my right hon. and learned Friend the Chancellor of the Exchequer did this year. There is no possibility of gaining from closing loopholes the sort of bonanza that the Labour party suggests. As for share options, surely the hon. Gentleman is aware that they are taxed already.
§ Mr. Smith
This is a remarkably different tune from the one that the right hon. Gentleman was playing just a couple of weeks ago. He told us then that there were no more tax loopholes left. He now tells us the same, yet the Government have found £1.5 billion of tax loopholes in the meantime. Share options are taxed at their value when they are given. When they are taken up, a substantial additional profit is often made by the person who holds them and that needs to be looked at.
§ Mr. Dorrell
I have the advantage over the hon. Gentleman of having been a member of last year's Finance Bill Committee. It introduced proposals to close a number of tax loopholes, the most important of which roused some controversy among my hon. Friends and which Labour voted against. I refer to the decision we took, which was unpopular in some parts, to close the tax loophole that was attached to capital gains tax loss indexation relief. If Labour wants to be taken seriously on tax loopholes, it should vote with us when we close them.
§ Mr. Smith
My colleagues, who were members of the Standing Committee which considered the Finance Bill, debated that matter very fully. They argued clearly that their opposition on that matter related not to the principle of what the Government were doing but to the way in which they were doing it.
I must tell the Chief Secretary to the Treasury and the Secretary of State for National Heritage that if the idea of taxing share options rather more fully than they are taxed at the moment is such a lunatic idea, why is the vice-chairman of the Tory party now recommending precisely that course of action in the famous Maples memorandum? I am surprised that they are not leaping to their feet to defend the Maples memorandum.
In his Budget statement, the Chancellor of the Exchequer had the effrontery to refer to what he called the danger ofthe emergence of a deprived underclass".—[Official Report, 29 November 1994; Vol. 250, c. 1079.]36 Where has the Chancellor been living for the past 15 years? Deprivation is not in danger of emerging; it has emerged. Indeed, it has been created by the policies put in place by this Government. It is prevalent up and down the country and it hurts.
Has the Chancellor not seen the evidence? Thousands of homeless families have been deprived of the most basic of human requirements while unused capital receipts, which could be used, lie idle and thousands of building workers are on the dole. We have a stockpile of bricks sufficient to build a town the size of Derby. The measures in this Budget, cuts in housing association funds and crude market capping of housing benefit payments are simply going to make the problem of homelessness worse.
Not content with hampering local authority efforts to tackle the issue of homelessness, we now know from the announcement by the Secretary of State for the Environment on Thursday that the Government are intent on clobbering local authorities across the board. Let me give the Secretary of State for National Heritage one example of the impact of that from his own area of responsibility—the future of our public library service.
The public library service is essential. It is valued and cherished and it is regarded by people as a vital public service. However, as a result of year after year of council cuts, forced on local authorities by the Government and now redoubled in this year's settlement, libraries around the country are suffering grievously.
Fewer than 40 libraries in the entire country are now open for 60 hours a week. Most of those are in Edinburgh and Aberdeen. We are now told that a consultant's report has arrived on the Secretary of State's desk which states that the library service is ripe for privatisation. Well, I give the Secretary of State a clear warning today: the Opposition will resist root and branch any attempt by him or by anyone else to sell off our public libraries into private, unaccountable and undemocratic commercial hands.
Instead of spending money on consultants, the Secretary of State should be ensuring that there are enough books, that the roofs are not leaking and that the opening hours are convenient for the public. While we are at it, perhaps he can tell us where libraries go, if anywhere at all, if they want to bid for national lottery funds. Unless they are in an historic building, what category can libraries qualify for, or are libraries just going to be told that it is hard luck and they have fallen between five different stools?
Let us consider for a moment what has happened to the Department of National Heritage in the Budget decisions. On the day of the Budget statement, the Secretary of State for National Heritage proclaimed that the Budget was a triumph for his Department. In fact, it is nothing of the sort. If we take out the extra amount for the British library over the next two years, the Department of National Heritage is the second-biggest loser among Departments.
Yes, the Arts Council has a £5 million increase, and that is better than was intended a year ago, but it still has not made up last year's cut in real terms and this year's inflation. The Arts Council is still worse off than it was two years ago, and the implications for orchestras and regional theatres in particular, which are struggling to survive at the moment, are severe. Perhaps the Secretary of State will tell us also what on earth the British museum has done to deserve a £1 million cut in cash terms next year.
37 What about the Sports Council? It was noticeable that the Secretary of State mentioned sport only briefly. The Sports Council is on a standstill cash budget. That is particularly hard to fathom, given the Prime Minister's ringing declarations about the importance of sport in his speech to the Conservative party conference. Is the standstill cash budget for the Sports Council by any chance connected with the Government's intention to reduce the Sports Council's purview to a core list—a restricted list—of sports, leaving a vast range of sporting activity, from rambling to dance, out in the cold? Opposition Members regard any such limitation on Sports Council activity as wholly unacceptable.
§ Mr. Pike
Is it not true also that, in addition to the cuts affecting the Sports Council and the Arts Council nationally, the decisions that were announced on Thursday with regard to standard spending assessments will mean that many local authorities will have to attack their recreation, sports and arts budgets?
§ Mr. Smith
My hon. Friend is absolutely right. It is not just the library service, which I outlined earlier, that will suffer when local authorities are forced to cut their budgets. It is noticeable that even Lord Gowrie, a former Conservative Minister who now chairs the Arts Council, has said strongly that he regards the best public support for the arts over the past few years as having come from Labour-controlled local authorities, especially in the north of England. He is absolutely right. That work is now at risk because of the settlement which was made on Thursday.
§ Mr. Oliver Heald (Hertfordshire, North)
Does the hon. Gentleman say that public spending must increase and that, if there is any scope for tax cuts next year, rather than do that, the Labour party would spend the money on heritage, local government and the other issues which he raises?
§ Mr. Smith
No. We have a series of cuts in real terms in the budgets for essential sections of Government expenditure. If the Government's agenda is to make cuts in sectors of vital Government spending this year to sweeten the way for tax-cutting bribes to the electorate next year, that is a disreputable political activity.
§ Mr. Dorrell
That was not the question of my hon. Friend the Member for Hertfordshire, North (Mr. Heald). The hon. Gentleman seeks to argue that we should spend more on different aspects of public expenditure, from local authority capital receipts to individual bits of the heritage budget. Does he argue that we should spend more, in which case how should it be financed, or does he accept those budgets and the tax consequences that go with them?
§ Mr. Smith
I am not accepting the budgets that have been put in place by the Government, because they involve a series of cuts in expenditure on vital aspects of Government spending. The Secretary of State mentions capital receipts. He is clearly unaware that capital receipts exist and that they are not being used at the moment. Our argument is that they should be released.
§ Mr. Smith
No. I must make progress. I have already given way to the hon. Gentleman.
38 Let us consider what is happening to the British Tourist Authority. The Secretary of State rightly said that tourism was extremely important. He said, "I want to place so much stress on the importance of tourism." A special £2 million a year initiative for London was announced, which is all well and good, but the English tourist board is financially far worse off than it was two years ago. It has seen the steady erosion of its funding year by year—this Ministry is not the first to reduce its funding— and the substantial cuts have not yet been made good.
This funding cut occurs at a time when the British tourism market is declining as a share of the growing global market in tourism. We could, and should, be making enormous progress in the industry, but we are falling behind the rest of the world. Our position will not be helped by the Chancellor's decision—little noticed until now—in the Budget that the zero rating of passenger transport will be confined to public passenger transport in the generally accepted sense.
At face value, that may seem fine and reasonable, but one should consider the consequences of the decision, especially for the tourist industry. The Budget's exclusion of non-passenger public transport will mean that the foreign visitors who come to enjoy our heritage—the people about whom the Secretary of State spoke so warmly—and who travel on preserved steam railways and take canal and river trips, the schools taking coaches to sports matches and the pensioners on days out to the seaside will have to pay value added tax on their trips. That will hit some crucial areas of the British tourist industry very hard.
Before the Secretary of State starts trumpeting the Budget's willingness to help tourism, he ought to look very seriously at what that VAT decision will mean for the industry. He should have a word with the Chancellor of the Exchequer because we will want to do something about the situation in Committee.
Overall, the Department of National Heritage faces a spending decline year by year. That is not all due to British library funding finally concluding in 1996; real funding cuts are in store and the figures prove it. The Department's budget will fall from £957 million this year to £837 million in 1997. I do not think that the Secretary of State should be proud of that.
The Government are already betraying their lottery promises. They said that the introduction of the national lottery would not lead to cuts in core funding of the arts, sport and heritage, yet that is precisely what we face in coming years. We also remind the Chancellor that the lottery has provided him with substantial benefits. In the past three weeks, the Chancellor has made about £18 million from the lottery. Where is that money going? In light of that fact, it is even more inexcusable for him to take an axe to the Departments that are at the heart of the national lottery's appeal.
It is claimed that the Budget will be good for the environment. Spending on the home energy efficiency scheme has increased. Of course that is welcome, but it is a paltry increase of £10 million which will bring the scheme's budget to a total of £80 million. There is a long waiting list of people who need work done, and the Government have allocated an extra £10 million for insulation work. But the Chancellor will receive an extra £1.5 billion from VAT on domestic fuel and the energy utilities are making substantial profits from advance bill payments that people have made in order to avoid VAT. 39 In light of that, £10 million is a tiny sum. Let us not forget that all that the home energy efficiency scheme is allowed to do is insulate doors and windows and lag roofs—no cavity wall fill, no condensing boilers, no secondary glazing. People would be hard put to save 17.5 per cent. of their heating bills by doing only home energy efficiency scheme work.
Above all, the Budget was a Budget of missed opportunities. There was an opportunity to abandon the rise in VAT on fuel. The Government did not take it. We shall offer the House that opportunity tomorrow night. The Government had the chance to do something of major significance to tackle unemployment, but a scheme that will be introduced only in a year and a half and that is a pale shadow of what Labour proposed is hardly up to the task.
The Government had a chance to launch a real national programme of energy conservation work. All we got was a miserly £10 million, trumpeted as a grand advance. There could have been a chance to make strides in the work of the National Heritage Department. One supremely important example is the future potential development of a nationwide information superhighway—a world of new interactive communication that could revolutionise the way in which we work, do business, learn, shop or relax. A surgeon in Aberdeen could carry out an operation under the step-by-step guidance of the world's leading expert in New York. A schoolboy in Dudley could tap into the entire resources of the British library from his schoolroom. In order to achieve it, we ought to aim at a truly nationwide network reaching every part of the country, going into every school, every public library, every hospital and every GP's surgery. It could be done at no cost to the taxpayer, provided that the Government put the right framework in place. They have not done so.
The President of the Board of Trade last week simply continued the uncertainty for both British Telecom and Mercury, ensuring that ultimately Britain will lose out on some of the benefits that could flow. Another wasted opportunity. The Budget, like the Government, is a catalogue of wasted opportunities. The Budget is exactly the same as the Queen's Speech. There is nothing in it. It does as little as possible. What there is is not worth it. The Government are a do-nothing Government paralysed by their own divisions and lack of direction.
If the Government do not want to govern, they should make way for someone who does. If they cannot see the problems, they should make way for someone who can. If they cannot hear what the people are saying, they should make way for people who do. Britain cannot wait for two years of a won't-look, won't-listen, won't-govern Tory Government. We need a Labour Government to put it right.
§ Sir Norman Fowler (Sutton Coldfield)
I welcome many features of the Budget and the public spending round that has gone with it.
I congratulate my right hon. Friend the Secretary of State for National Heritage on his excellent speech. It demonstrated at the outset the clear embarrassment of the Labour party on the issue of the monarchy, which it properly raised. We look forward to a much fuller debate 40 on that issue, and in particular to hearing the views of the hon. Member for Bolsover (Mr. Skinner), which he has already given in an intervention today. All that I should say is that in no sense or shape does the hon. Gentleman speak for the people of Britain.
I agree with my right hon. Friend the Secretary of State about tourism. As Secretary of State for Employment, I was the sponsoring Minister for tourism, responsibility for which has moved around Whitehall from the Department of Trade and Industry to the Department of Employment. I hope that it will now remain with the National Heritage Department.
I particularly welcome the extension of family credit, which my right hon. Friend mentioned today. When we examined the matter in the mid-1980s, we faced a familiar problem: should we try to deal with the problem of people with children in relatively low-paid work by means of the general benefit of child benefit or by directing resources to those most in need of benefit? We decided to introduce the new benefit of family credit, and I am delighted that more than half a million people now benefit from it. I am sure that directing resources is the right way of tackling the issue of employment and creating employment.
Before going further into the challenge of the Budget, I should say that, apart from an Adjournment debate in July, this is the first debate in the House in which I have spoken since standing down as chairman of the Conservative party. There are certain re-entry problems when one ceases to be a paid spokesman of the Government or, as in my case, an unpaid spokesman.
Let us take an entirely hypothetical case. No one would be impressed by an ex-Minister if he suddenly started to advocate policies that were the exact opposite of what he had proposed in Government. He would lack all credibility, because there would always be that unworthy suspicion that his views had more to do with the nature of his departure than the issue itself. His undoubtedly well-publicised statements might be regarded not so much as a cry for help as a scream for attention.
Fortunately, that is an entirely hypothetical case. I know that in the Conservative party all ex-Ministers—I see a distinguished one behind me—and certainly all ex-party chairmen remain sturdy supporters of the Government's policies and their previous statements. It would be less than honest, however, if I did not acknowledge that there were certain re-entry difficulties. One has to find the ground between being a creature of the Whips and not having a Whip at all. I do not think that textual analysis of my statements will be required to find out where I stand.
I remain a firm supporter of Government policies. I believe that my right hon. Friend the Prime Minister deserves much more credit than he has received for the undoubted strength of the economy, which we are debating in this Budget debate, and a series of other policy initiatives, in particular the initiative on Northern Ireland. I also believe that other policies can be developed further. I was one of those who was disappointed that the Government did not proceed with the privatisation of the Royal Mail. As I shall make clear in a moment, I believe that there is further potential for reform of both the tax and the welfare systems.
In this spirit of—how shall I put it? —friendly frankness, let me say one thing to my right hon. Friend the Financial Secretary to the Treasury, who will reply to 41 the debate. In my last weeks as party chairman, I was asked to sum up the results of the European elections. They were not good, although they were not as bad as some had predicted: they were certainly nothing for the Liberal Democrats to crow over. One part of my explanation was that, although economic recovery was strong, there was an absence of a feelgood factor because taxes had taken a toll on public support. I should have thought that that was a reasonably uncontroversial diagnosis of where we were.
Extraordinarily, the Treasury press office took my remark as a call for immediate tax reductions and ran round—how can I put it?—briefing against me. Let me make it clear that I never called for a reduction in tax irrespective of the strength of the economy. That would be absurd. The Treasury, which complains readily enough, as I remember from my ministerial experience, about other Departments' leaky habits, should take care not to follow that same path. If it is in any doubt, it should do what 0rdinary mortals do and use a telephone and check.
So let me set out my views in a way that even the most obtuse member of the Treasury press office can understand. The Budget is good because my right hon. and learned Friend the Chancellor has wisely made the goal of sound public finances the first priority. That must be the first aim. The economy is strong, we have low inflation and low interest rates and exports are increasing. The Chancellor has repeated his aim of achieving a balanced Budget, which I very much welcome.
With hindsight, it would have been better to have introduced the increase in value added tax on fuel at the same time rather than in two instalments. That fact is generally recognised, although many economic commentators at the time advocated the two-part policy. At this stage, we cannot do a U-turn on that policy and I found that part of the speech of the hon. Member for Islington, South and Finsbury (Mr. Smith) totally unconvincing.
I agree entirely with what Lord Lawson said in the Evening Standard on Friday:This is not an optional extra. Its loss would hole the Government's entire fiscal strategy below the waterline, undermining the credibility of the Chancellor's resolve to hold the line on public spending and putting into serious doubt the Government's ability to govern. The reaction on the world's financial markets would be immediate and dire.Those words of an ex-Chancellor of the Exchequer should be heeded.
I do not believe that we should simply leave it at that. The time has come for us to reconsider income in retirement and to find out what options are open to improve the economic position of pensioners. Fortunately, the position of those retiring has improved steadily as more and more people retire with some form of pension in addition to the basic state pension. That is an extremely good trend and 60 per cent. of pensioners now have some form of occupational pension, which is to be welcomed and developed.
Pensioner policy is, by definition, a slow burner; it takes time for policies to work their way through. We should not exaggerate the effect that any policies introduced in the past few years can have on the present generation of retired people. Many people are still without occupational pensions and the average income of pensioners—even those with such pensions—is modest. For example, after the Budget a widow will receive a 42 pension of £59 a week. If she is covered by an occupational pension of, on average, an extra £53 a week, she will have about £5,800 a year. By most standards, that is a modest income, given the problems that may be faced in retirement, yet that modest income is still subject to tax.
In spite of the fact that age-related allowances have increased over and above statutory indexation, which I welcome, we must grasp the fact that modest incomes are still made subject to income tax. To my mind, that, almost more than anything else, emphasises the importance of the Government returning to their aim of reducing the burden of direct taxation. I very much welcome what my right hon. and learned Friend the Chancellor said on that subject.
I have no quarrel with the Chancellor's judgment. The strength of the economy must undoubtedly and unquestionably come first. Obviously, when that has been achieved, the Chancellor will have an opportunity to consider improving the tax position, which must include the position of retired people. The reduction of income tax must remain a priority for the Government. We said that in our manifesto at the last election: we took pride in what we had achieved and promised more. The case for further income tax reductions remains overwhelming. Too many people pay too much tax, and too many people still pay tax.
Another group of pensioners pay no tax at all, or, if they do, it is very little. Those are the pensioners who rely on the basic pension, which brings me to my second argument. No reform of the tax system will help them; help will have to come in some other way. One option is to increase the basic pension for everyone. For example, we could increase pensions in line with earnings, which has been the expressed policy of the Labour party for the past two or three elections. One has only to read the report by Sir Gordon Borne and his colleagues, however, to understand that that flagship Labour policy is being quietly scuttled. If the commission's report is adopted, as I believe it will be, there will be no chance of that being Labour party policy at the next general election. Even if it were, I am not at all sure that it would deal with the group of people with whom I am most concerned.
The problem is that, through no fault of their own, a group of retired people have been unable to build up an occupational pension. That might be due to a variety of reasons—perhaps their firm had no occupational pension and there were no alternatives. They might have been members of a scheme, but were deprived of the true value of the pension because of the scandalous early-leaver rules that used to exist. We should not forget the toll that those provisions had on occupational pensions. They may have been caught by historic employment practices, such as the pre-war rule in some local education authorities that married women teachers had to give up work. Whatever the reason, they have ended up depending absolutely on the basic pension, with little or nothing more.
Here, my argument comes full circle. We introduced family credit because we were unable to help the families we wanted to help through the general child benefit. We can now help pensioners through a pension credit system—in other words, by adding to the basic pension of those whose income most urgently needs supplementing. Rather than relying on general increases in the basic pension, we should direct resources where they are needed, although, clearly, the basic pension would remain price protected. For those who do not have the benefit of 43 other retirement income, or who have a limited amount only, pension credit would come in as an additional weekly payment, in a similar way to family credit.
I freely concede that we examined that plan closely when carrying out my review of social security. We took the view then that family credit was the financial priority and I could not be more pleased that that view is now so well accepted by the Treasury. I am not sure that that was always so, but I am delighted that it is so well accepted now that the Treasury is advocating its extension. I hope that it will go to the next stage.
What we need most is fresh consideration of the incomes of retired people. A combination of tax reductions and the pension changes that I have advocated would create an enormous advantage for pensioners.
I welcome the strong economy and the improvements that the Government have achieved. I welcome low inflation, low interest rates and growth in the economy and I certainly agree that we must not put any of those at risk, but we have a duty to guard the interests of retired people and to ensure that they too share in the general improvement in the economy.
§ Mr. Peter L. Pike (Burnley)
I am happy to be able to take part in this debate. First, I must comment on a meeting that I had last Friday in my constituency with the North West Society of Chartered Accountants. Unlike the right hon. Member for Sutton Coldfield (Sir N. Fowler), the society was not convinced that we are seeing positive signs of an economic recovery that is here to last. Its members spelt out two messages that they wanted me to convey to the Government and to Eddie George at the Bank of England.
First, the society thought that an increase in interest rates would destroy any economic recovery that was beginning to start. Its members said that it would clearly be a great folly for the Government to move in that direction. The society also believes that the Government and the Bank of England have failed to recognise the importance of small industries. The Government will say that that is not true, but the society believes that the Government have failed to have proper consultations with people such as chartered accountants on the changes that they are making and on the implications of those changes.
The problem with the Government is that they always say that they are going to have consultations, but they take note only of those that yield the result that they want. If people do not come forward with the conclusions that the Government want, they just disregard them. They take note only of those people who respond to consultations along the lines that the Government want to underline, and they do not have anything like a genuine consultation at all.
One of the points that I made in an intervention to the Secretary of State was about the proceeds from the sale of nationalised industries, proceeds that, since 1979, have totalled £77 billion. I accept what the right hon. Gentleman said about all of that being shown in the Red Book, but those proceeds have nearly always been used for revenue expenditure, not capital expenditure. We have disposed of assets to prop up the accounts of the nation.
44 The Government originally estimated that the total proceeds from the sale of nationalised industries this year would be £5.5 billion, but that figure has increased to £6.3 billion. The original Government forecast for next year was £1 billion, but the total will now be £3 billion. What will happen when they have no more assets to sell? There can be only two conclusions—the Government will have either to put up taxes to replace the income from the sale of nationalised industries or to reduce expenditure. The Government are caught in a cleft stick in the matter, as the number of assets left to sell reduces year by year. I am totally opposed to that policy, but that is the policy with which they are proceeding and it will get more difficult for them every year.
Since the former Chancellor—the right hon. Member for Kingston upon Thames (Mr. Lamont)—introduced VAT on fuel, concern about that has been the item that has featured most consistently in my mail, week after week. One must recognise that it is a problem, whatever the Government may say about the compensation that they have given to the most vulnerable and to the poor. The fact is that the compensation is not sufficient.
The Government must take into account the fact that their use of an average amount means that there will be some losers and some gainers. I do not believe that the compensation is sufficient, but if one accepted that on average it was sufficient, some people would still lose. My constituency, which goes into the Pennines, is colder than average, and it will certainly lose.
My hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) referred to the people whom this tax would hit hardest—the people who must decide at what time they put on their heating or when they can have a gas fire. People in my constituency must decide whether they are going to have a hot meal every day or have the heating on. That is the stage we have reached after 15 years of Conservative rule.
In its briefing, Shelter deplores the measure, which it sayscan only lead to increased fuel poverty for everyone on a low income—poor households spend a greater share of their budget on fuel.That is absolutely true, and the briefing goes on to say:increased benefit rates will not compensate people on low incomes for the losses this will cause".I hope that those Conservative Members who are expressing concern about the issue will choose not to abstain tomorrow, but will seize the opportunity that has been given by the Opposition to vote to have a rethink on the issue and to axe the next phase of the VAT increase.
My constituents who have written about the issue feel that, at this juncture, it is particularly obscene that the chairman of British Gas has received a pay increase of over 70 per cent. We all know that many of the chairmen of privatised industries have, through pay increases and share options, done extremely well out of privatisation, but that does not go well with the Government saying that it is not a matter for them and that they will not intervene in the matter. The Government must show concern, because such pay increases are not acceptable, and they do not go well with those on low pay. Since the abolition of wage councils, levels of pay have fallen and the number of people on low pay has increased. What a scandal it is that, in 1994, we see people on low pay.
45 The Budget imposes a 14 per cent. cut in training and in help in finding the unemployed jobs. The right hon. Member for Sutton Coldfield referred to the extension of family credit to those without children, but that will help only about 20,000 people. I do not begrudge those people who have children and who are getting help through family credit, nor do I decry those people who will get help as a result of the new move, but the fact is that family credit will be paid for, not only by income tax payers, but by industries which are already giving their workers fair pay. It is nonsense that we should ask them to subsidise those industries which are low payers. There is no doubt that low pay is not an incentive for people to work well and to produce well. Therefore, it is time that we had a national minimum wage and did away with the scandal of low pay and poverty pay.
The Budget also imposes a £1 billion cut in housing for next year, half of which will come in housing investment. At the same time, local authorities are once again not allowed to use their capital receipts. What a welcome there would have been if the Chancellor had provided another year—as was done in 1992—in which capital receipts could be used. Local authorities are not able to build any houses, and they cannot even meet their statutory commitments for mandatory grants. The Financial Secretary to the Treasury, who is sitting on the Front Bench, is a former housing Minister, and he knows that many councils now have a queuing system for people waiting for grants because they do not have the money available.
The Chancellor said that he was going to cap housing benefit for the private rented sector. It has been said many times that the private rented sector would, if left to market forces, collapse and wither away. It would obviously not die, but the sector is underpinned by the benefit system, because it depends on the benefits which enable people to go into the sector.
People do not choose to go into high-rent homes—they go because they have no alternative. As a result of the Government's policies since 1979, we do not build council housing. It is true—in Burnley, in every other local authority in Lancashire and throughout most of the country—that, if council houses were available and councils were able to build houses, people would go into council housing. The Government would therefore not even have to contemplate capping housing benefit, a move that will solve no problems and will create additional problems for them.
I have mentioned using capital receipts. What nonsense it is that the Government will not allow councils to use their capital receipts when doing so would not only help to solve the housing crisis which exists throughout the country but would help to get people back to work and to improve the economy. Not only would the building industry improve but, as people who move home buy carpets and curtains, other markets would be encouraged.
§ Mr. William Ross (Londonderry, East)
The hon. Gentleman will recall the Financial Secretary to the Treasury telling the House last week that any council that had paid off its debts could use its capital income as it pleased. Would the hon. Gentleman's objections to the Government's privatisation policy have been lessened if the Government had applied exactly the same policy to 46 the sums which they received from privatisation, and paid off the national debt rather than used them for revenue purposes?
§ Mr. Pike
The hon. Gentleman makes a valid point. The point that I was making earlier was about the difference in how the Government had used those sums for revenue purposes. There may have been some merit in using them for capital investment because it would have solved some of the country's long-term problems. As I have said many times before, I could have a good holiday by selling my house and going on a world cruise but when I returned I would have no house in which to live. By selling nationalised industries and using the money for revenue purposes, the Government have got rid of their assets. So the hon. Member for Londonderry, East (Mr. Ross) makes an extremely valid point.
§ Mr. Pike
I shall make one further point before giving way.
Housing associations are always pointing out that they cannot build affordable housing to rent. Last week's Housing Associations Weekly said:A cut of £300m for the second year running in the approved development programme announced in the budget will lead to a 40 per cent. slump in new starts … New rented starts will fall from 25,000 to 15,000 next year … while low-cost home ownership/ shared ownership plunges from 20,000 to 12,500.The number of construction jobs lost.….will be 4,000 next year and 7,900 the following year".
§ Mr. Marshall
The hon. Gentleman was discussing the revenue impact of privatisation. Does he accept that, in 1979, British Steel, British Airways and Rover were a substantial charge on the Exchequer but that, today, they all contribute to the Exchequer through corporation tax?
§ Mr. Pike
I could answer that in many different ways. Had many of the industries that have been privatised been free of some of the shackles imposed on them, they could have been run profitably and viably. The problem with the water industry, for example, was not its ownership but lack of investment. Had the Government opened it up and allowed private investment and different controls, the industry could have overcome some of the problems to which the hon. Gentleman referred.
I shall make two final points, the first of which refers again to what the Association of Metropolitan Authorities said on housing capital. The Local Government Chronicle of 2 December said:hundreds of thousands of council homes would become unfit to live in because of the cuts.That underlines the problem of housing grants to which I referred.
In its bulletin, the Trades Union Congress refers to the Chancellor's stated priority of creating jobs. He said that his second priority—the right hon. Member for Sutton Coldfield referred to his first priority—was a Budget to cut unemployment. The TUC says:there is no overall assessment of his measures on employment or on the level of employment. As shown above, the jobs package is minimal and many of the measures are delayed until 1996 even on a pilot basis. The TUC's analysis is that any favourable impact of these measures will be more than offset by the cuts in capital spending and the cuts in general government expenditure.47 What we saw last week and shall vote on tomorrow is a bad Budget for jobs and for tackling the country's problems. It is another good reason why the Government will go when we get a chance to remove them at the next election.
§ Mr. Michael Jopling (Westmorland and Lonsdale)
I hope that the hon. Member for Burnley (Mr. Pike) will forgive me if I do not follow him. In many ways, I should have liked to follow the hon. Member for Islington, South and Finsbury (Mr. Smith). I did not catch your eye, Mr. Deputy Speaker, at that time but I was aghast when I heard him make a speech that seemed to add up to his solution to the problems of the British economy. He wanted to do something about tax loopholes but also about the salaries of people in top positions in public utilities. With respect to him—he knows that I have a great deal of admiration for much of what he says and does—he needs to spend a little more time studying the problems of the economy before coming to the House with solutions of that sort.
I wish to make a few comments on the Budget based on comments that I made in March 1993 during the debate on the Budget of my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the then Chancellor. At that time, I was horrified at reading how the prospective British economy was likely to go in the years ahead, particularly up to 1997–98. I was immensely anxious about the high levels of public borrowing proposed over the five years to that date. I ended my speech by pointing out that the cost of servicing the national debt on the figures produced 18 months earlier in the Red Book was scheduled to rise from about £17 billion a year in 1992–93 to some £30 billion in 1997–98. I said that we could not leave such an inheritance to future generations and that something had to be done to reduce public borrowing and hence the massive sum paid out each year in servicing the public debt. I estimated that the increase in debt servicing alone was equivalent to putting about 4 per cent. on VAT or 5 per cent. on income tax.
I urged the Government to work on three separate fronts: first—I was prompted by my hon. Friend the Member for Bridlington (Mr. Townend) on this—to look closely at public spending; secondly, to be prepared to increase taxes; and, thirdly, to be prepared to do everything possible to stimulate the economy. Those are the only three means available to Governments to try to cut back on increases in the national debt, which were envisaged at that time. So that is the background from which I approach this year's Budget.
The problem of public spending, as any Chief Secretary would agree, is the most difficult task of all. The Chief Secretary has one of the most difficult jobs in the Cabinet. When I was Minister of Agriculture, Fisheries and Food, my most uncomfortable times, apart from facing the farmers, were facing my colleagues in the Star Chamber to explain why I should resist massive cuts in my Department's budget. I found defending my Department's budget extremely difficult and seemed to find myself in the Star Chamber virtually every year at the time of the Public Expenditure Survey Committee round.
48 For Governments, it is difficult enough to get Departments to accept cuts in public spending, but for Government managers it is also extremely difficult. I remember my days as Chief Whip and the fact that one nearly always had a small group, some of whom—I stress the words "some of whom"—were mere populists who absolutely refused to support the Government when they were forced to take harsh but essential steps to cut Government spending or impose new taxes. Every party always has those.
I have enormous sympathy with the current Chief Whip in the task that he seeks to fulfil. I have always said that it is a great deal easier to be Chief Whip during the first four years of an Administration, with a majority of 45, than it is to be Chief Whip after an Administration has been in power for 15 years, with a majority of 14 or whatever it is.
Against that background, I very much want to congratulate the Chief Secretary to the Treasury on the result of the Public Expenditure Survey Committee round—on cutting public spending by £24 billion in three years, as the Chancellor announced in the Budget. I know how difficult that has been. I guess that it will cause a good many difficulties in the House, but it has to be right. It is a courageous decision, which has my support.
I spoke about the three things that the Government must do. Being prepared to increase taxes was one of those things. In that respect, I think that the.Chancellor has been enormously courageous in doing what any Conservative Chancellor absolutely hates to do—to increase taxation. In my view, it was essential, given the massive increase in public debt that was foreshadowed. I am enormously pleased that it has been reduced, and the fact that the Chancellor has been prepared to put up taxes has contributed to the good news that we had about borrowing in the process of the publication of the Red Book and the Chancellor's Budget speech. I think that it is fair to pay tribute to the Chancellor for the progress that has been made in the past 18 months in controlling public borrowing, which I regard as the biggest economic problem that has confronted the Government in the past two years.
Of course, it was right for the Government to do what virtually all Governments throughout the world have done in the midst of a worldwide recession—increase public spending. One could say that Keynes still lives. That policy has been entirely correct. We are not entirely through that phase of heavy and excessive public borrowing. Looking at the Red Book, one sees the rather daunting figure that the public sector borrowing requirement for the years 1993–94 to 1997–98 is likely to increase by no less than £120 billion, but the really good news is that, in the years after that, the prospects are that it will go from a negative situation to a positive one as we approach the end of the century, which is excellent news indeed.
I return to the central issue, to which I drew attention at the beginning of my remarks. Eighteen months ago, when I last spoke in a Budget debate, it was possible that in 1997–98 the cost of servicing the public debt would be about £30 billion a year. It is a great credit to the Chancellor that that figure has now dropped, in that same year, to £26 billion. Although that increase is serious, it was inevitable that the cost of servicing the public debt would increase, in view of the world recession and the amount of money that we have had to put into the 49 economy to try to get ourselves out of recession. I hope that the Treasury will continue, in the next year and beyond, to do more to reduce the public debt. That is good news. According to the forecasts, it is possible that borrowing will not be necessary after 1997–98.
However, the really good news in the Budget was the progress of the economy, largely as a result of the steps that I mentioned. The news of the growth of the economy and its prosperity is even better news—that is only just possible—than the blessed relief from the intenminable major structural realignments of the tax system with which we seem to have been burdened almost every year in recent years. I heard what my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) said, and that was one of the few things that I questioned in what he said, because I thought that he was hell-bent on yet another major change in taxation. I thought that he was moving back in the direction of the tax credit system, which was proposed at the end of the Heath Government. I have always thought that it was rather a pity that we dropped that suggestion a good many years ago.
The Chancellor's policy has given us as sound a prospect for the economy as I have known for a long time. The prospects of expansion with minimum inflation are immensely encouraging and, as unemployment continues to fall, as exports show such healthy growth and as interest rates run at a historically low level, we are correct to have the confidence that the Chancellor expressed last week.
If someone had told me 18 months ago, when I last spoke in a Budget debate, that there would be such excellent progress on all the three priorities that I asked for, I confess that I should have been very glad indeed to take a substantial bet against it. However, I am delighted to have been proved wrong and I hope that the Treasury, and the Chancellor especially, will continue the good work.
§ Mr. Don Foster (Bath)
The right hon. Member for Westmorland and Lonsdale (Mr. Jopling) said in his early remarks that the cut in public spending may cause difficulties in the House. I am not especially concerned about difficulties that may arise for members of the Conservative party, but I am very worried about the effects that some of the public spending cuts will have on the people.
I was interested to listen to the remarks of the right hon. Member for Sutton Coldfield (Sir N. Fowler). It was especially interesting, given the number of his hon. Friends who seemed to be queueing up to have the Whip removed from them, to hear at least one Back-Bench Conservative Member who was obviously very keen indeed to have the Whip. Given what he said about the re-entry problems that confront him, perhaps he is desperately seeking to get back into his old job. He demonstrated today that, if he does so, he will at least bring something new to it—the ability to produce catchy slogans for the Budget. I am sure that all hon. Members were incredibly impressed with his totally open and honest statement about the Budget—that catchy slogan, "The Budget is good." At least there was no room for misinterpretation or misunderstanding of that. It means that it is easy for me to say that I fundamentally disagree with what he had to say about it.
50 I was also interested in the way in which the middle part of the Secretary of State's remarks was reserved for repeating the now oft-heard mantra that we hear from so many members of the Government when they stand at the Dispatch Box and speak about the economy. We hear the standard list of improvements that have taken place. Many hon. Members on both sides of the House welcome some of those improvements in our economy, not least the reduction in the number of people who are unemployed. Many people in my constituency welcome the reduction in unemployment there, although they continue to be worried that it remains true that approximately 15 per cent. of adult males are unemployed there.
The problem with the mantra is that we hear only one side of the story. We hear only part of the description of the economy. For example, Ministers standing at the Dispatch Box never mention the gap between the rich and the poor. There is clear evidence that, during the past four years, the gap between the rich and the poor has continued to grow. In fact, during that four years, the average income of the top 5 per cent. of the country has increased by 4 per cent., whereas for the bottom 10 per cent. it has decreased by 7 per cent.
There is also clear evidence that, although there is a drop in unemployment, fewer people are in employment. If one uses seasonally adjusted figures, it can be clearly demonstrated that the number of people in employment has decreased by 640,000 since the spring of 1991. Equally, we are all worried about the problem of long-term unemployment and welcome some of the modest measures that have been proposed to try to resolve the problem. We should not forget, however, that there is clear evidence over the past four years that those who are out of work remain unemployed for longer. Those who have been unemployed for six months and longer are a significantly larger group as a percentage of the unemployed. The nation needs to be told that when jobs are created, they are more likely than ever before to be temporary. They are also likely to be part time. The past four years have provided clear evidence that temporary and part-time employment has increased.
As I said, I fundamentally disagree with the description of the Budget that was presented by the right hon. Member for Sutton Coldfield. It is not a good Budget. It can be said, however, that the Chancellor of the Exchequer was entirely honest in his presentation this year. Last year, I described the right hon. and learned Gentleman as being rather like a magician, with many of the cards hidden up his sleeve. At least all the cards were laid out on the table this year for all of us to see.
It was clear from what the Chancellor of the Exchequer said that we have a paving Budget for Tory tax bribes before the next general election. Seven new taxes have been introduced this year in the desperate hope that before the next election the Government will be able to introduce tax cuts. The Budget is putting party before country. It is tax today for tax cuts tomorrow.
The Chancellor of the Exchequer should have introduced a Budget for the longer term. It should have contained proposals for investment in jobs, infrastructure and industry. Most important of all, we need investment in the skills and talents of the people. If we are to survive in an increasingly global economy, it is crucial that we invest in our resources. Coal, oil and natural gas, and mineral wealth generally, are, of course, crucial resources, but our most important resource is the people. Investment 51 in the people is something that we should have seen in the Budget. It is disappointing that no such provision has been made. We do not see the increased investment that is so desperately needed. Indeed, we see exactly the opposite.
Some of the measures that are set out in the Budget are welcome, but they are often too little, too late. An example is the employers' national insurance contribution holiday, but mat will not take effect for 18 months. It will be of little help to the long-term unemployed—for example, those who have been out of work for longer than two years. The minimal expansion of the workstart scheme is welcome, but it will help only about one in 200 of the long-term unemployed. In any event, it will run for only one year.
There are other areas of concern. For example, it cannot make sense to cut the road-building programme without using the money so saved to invest directly in improvement in public transport.
I would be failing in my duty to represent my constituents if I did not express my concern about the Government's proposal for value added tax on fuel. Thousands of my constituents have signed petitions against the Government's plan. Despite the increased compensation that was announced by the Chancellor of the Exchequer, it is clear to me, to my constituents and to many others that the package is inadequate and that many people will lose out.
Only today, Help the Aged announced that it estimates that many pensioners will face a significant increased cost as a result of VAT on fuel. If they cannot meet the increased cost, they will have up to 19 days without fuel. Given the way in which the Government have chosen to raise money—they could have adopted other means—it is becoming increasingly clear that we are engaging in a political debate, not an economic one. I urge Conservative Members seriously to consider the way in which they vote tomorrow night. To vote against the Government tomorrow would lead to far greater popularity than any that might be gained by pre-election tax cuts and bribes. I hope that some Conservative Members will oppose the Government's proposals tomorrow.
The Chancellor of the Exchequer likes to pretend that VAT on fuel is an environment tax. The evidence demonstrates clearly that it is not. Instead, it is another attempt to rake in additional moneys at the expense of some of the poorest in our society to help pay for the tax bribes that will come later.
Too many people will lose out as a result of the Budget. The long-term unemployed will suffer because of the failure to take decisive action to help them. The poor and the elderly will lose out because of the Government's proposal on VAT on fuel. The homeless will lose out because of cuts in the housing budget. The greatest losers will undoubtedly be young people, who constitute future generations. That is the result of the failure of the Chancellor of the Exchequer and the Government generally significantly to boost investment in education and training, which is desperately needed.
The Budget offers us interesting reading when it comes to education, especially if we compare it with what the Chancellor of the Exchequer said last year. We are spending £100 million less on education than the sum that 52 the right hon. and learned Gentleman predicted in his Budget last year. I accept that that spending represents a 1 per cent. increase in real terms, but the Chancellor has said that over the two subsequent years there will be real cuts in the education budget. That means that in two years' time, the budget will be less in real terms than it is this year. So much for long-term investment in education.
The headline figure of an increase in the education budget of 1 per cent. belies some worrying trends. For example, there was the recent announcement of the revenue support grant settlement. It is clear from that settlement that education's share of gross total standard spending for next year will be £600 million less than the gross total of local education authority budgets for this year. Nothing could be clearer. It is obvious that there will be real cuts in the education service in both schools and colleges. No account has been taken of the known increases in pupil numbers and the likely teachers' pay award.
The Secretary of State for Education is aware of the problems. In a letter dated 1 December to the chairman of the pay review body that represents schoolteachers, the right hon. Lady makes it clear that the proposals within the settlement will mean that most local education authorities will be able to increase expenditure on services as a whole by 0.5 per cent. as set against their adjusted base budgets for 1994-95. In other words, they will be facing cuts in real terms.
Was that a problem for the Secretary of State for Education? Apparently not. Later in her letter she explains how the problem can be solved. She refers to new pressures and thescope that local education authorities have for making efficiency gains.The right hon. Lady clearly believes that a real-terms cut in spending can be offset by efficiency gains. Every hon. Member knows, however, that following the year-on-year squeezes on local authority budgets, those efficiency gains are nothing short of cuts in both budget and services. Undoubtedly, pupil-teacher ratios will worsen and class sizes will continue to grow; books and equipment will be in even shorter supply; and support for children with special educational needs will diminish.
Hon. Members need not take my word for that. Many organisations are now making similar predictions, and many schools are already beginning to write to Members of Parliament explaining their anxieties. Just one of the many letters that I have received came from Darland high school in Wrexham. The chairman and vice-chairman of the governors wrote to many hon. Members as follows:As you can see the impact of the cuts over the past two years has been to put at risk the education of a whole generation of our pupils. We are reliably informed"—now, of course, they know—that further cuts are being planned for next year. Any further reduction in our budget will bring about a massive reduction in our staffing levels, both teaching and ancillary … We cannot see how we could possibly absorb any more cuts and still produce a curriculum of any kind, let alone deliver the new National Curriculum.That reflects concern felt throughout the country about the impact of the Budget on education and schools.
Many other parts of the education service have experienced the same problems. There has been a modest increase in the capital programme, but it will barely scratch the surface of the estimated £4.3 billion backlog 53 of repair and maintenance in our schools, the £1.3 billion backlog of repair and maintenance in our further education colleges and the estimated £2 billion backlog of repair and maintenance in our higher education institutions. Those backlogs take no account of the desperate need for new building to accommodate the significantly increased but underfunded expansion of both further and higher education.
Only one feature of the education budget was welcome—next year's £110 million cut in planned recurrent expenditure on grant-maintained schools, a 57 per cent. cut from the levels predicted in last year's Budget. That cut constitutes the Government's first clear public admission that their grant-maintained schools policy has failed and is—as many of us predicted—a busted flush.
I have demonstrated that the Budget fails to invest in our most important resource, our young people; but it fails in many other ways. It is a Budget that fails the nation, from a Government who deserve to fail in tomorrow's vote and beyond.
§ Sir Rhodes Boyson (Brent, North)
I am pleased about a number of aspects of the Budget. First, provided that we can keep it up, the growth rate of between 4 and 5 per cent. will inevitably raise standards of living for all our people. Secondly, we have low inflation. Under the Labour Government of 1974 to 1979, inflation ate up half people's savings. We are all concerned about the implications of the tax on fuel, but I remind the House that in those five years inflation burnt away half of old people's money.
Thirdly, there is the decline in unemployment. Unemployment destroys the people's mind and spirit. Finally, there is the reduction in borrowing, which was mentioned by my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling). It will be very nice if we can reach the point at which we can stop borrowing and build up money, rather than living on our forebears on one hand and our successors on the other: we want to be able to leave something to those successors, as a tribute.
I am concerned about the size of Government expenditure, and how that money is raised. I consider that a state in which more than 40 per cent. of income goes to Government—whatever party is in power—is a socialist state. Between 40 per cent. and 50 per cent. is the break point. We are still a socialist state, irrespective of which party is in government and which in opposition.
§ Sir Rhodes Boyson
Even the Liberal Democrats agree. Obviously, I must not mention the hon. Gentleman who has just spoken. It is clear, in any case, that we are a socialist state: nearly half what we produce is controlled by the state.
Let me give some rough historical figures. In Gladstone's time, 9 per cent. of production went to government; exactly the same amount is going to government in Hong Kong now, and that probably has much to do with an actual rise in productivity and living standards there. In 1914, the figure was 15 per cent; in the 1930s it was 25 per cent; in 1979 it was 44 per cent. 54 In 1990, it fell to 39 per cent., but it then returned to 44 per cent. I consider that far too much has been going to government, and that government is too big.
Even the number of people in government is too big. In 1900, the great Lord Salisbury—who was Prime Minister and Foreign Minister—had only one Under-Secretary, at a time when we controlled a quarter of the world. Now we have six Foreign Office Ministers, and we can hardly control the Isle of Wight. We now have 60 Ministers outside the Cabinet; there were 17 then. Obviously, the increase in the size of government costs money. As The Economist said last week, the increases of last year and this year have added £6 billion to the burden of the people.
How should tax be raised? On that point I disagree to some extent with my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler), with whom I served as a social security Minister. I believe that basic commodities should not be taxed at all. That was the philosophy of the mid-19th century; perhaps I am a throwback. At the time of the abolition of the Corn Laws, one of the great arguments was that there should be no tax on basic foods. Now, because of Europe and so forth, we have turned our backs on that, but I do not believe that food, housing, basic clothing, light, water or heat should be taxed. Taxes should be raised when we achieve a higher standard of living.
What will happen if we tax all those commodities and we then try to put the money back in different ways, as we are doing this year? A convoluted Government, with more civil servants, are taking the money in a tin and then spending it on another tin. I should like to return to the days when basic necessities were not taxed. Tax should be raised through income tax and spending on higher-value items, as was originally envisaged.
I consider VAT on fuel a bad tax—a tax on basic living standards. I know that a good deal has been put in—much more has been put in this time and I am thankful for that—but it hurts the old, single people and mothers at home. I fear that, whatever we do, it will be resented. Eventually, the 17.5 per cent. fuel tax may be the equivalent of the community charge. The charge became unpopular; we poured money in. It became more unpopular, and we poured money in again. I warn the Government that they are on dangerous territory.
To exempt old people from the tax, which we should always do, there must be a simpler system. I was told this morning that all NHS trusts have VAT exemption certificates which they quote on ordering supplies and do not have to pay VAT. Why should not an old person be able to put his pension number on his gas bill and pay just the cost of the fuel? Perhaps that is too simple and I live in a different world. No doubt the brains on the Treasury Bench will say why such a simple method could not be used. If six people were locked in a room and told that they had to stay there until they had devised a simpler method, they would be able to do so. Perhaps the Minister will answer that and destroy my argument for future debates.
I am also concerned about the removal of part of the married couple's allowance. We either believe in the family or we do not. There is no point in engaging in slogans, because it is reality that matters and once again we are taking money from the wife who stays at home to look after the children. If we are supposed to believe in the family, how can we legislate in that way?
55 I have already spoken about high taxes. The Conservative party, of which I am proud to be a member, fought the last election on low taxes, but the Government have put taxes up. It is not surprising that people do not like that, and we do not need media consultants to tell us that. We have been promised lower taxes next year, but next year never really comes. Those reductions will be close to the general election and the party and the Government will have to make some very fine speeches if they want people to believe that taxes will not be raised again later. If we intend to reduce taxes they should be reduced now. Instead of reducing them this year, we should simply get rid of the 17.5 per cent. tax on fuel to show that the promised land is coming. That would be the first item in the bonanza which I have no doubt will arrive before the next general election.
The Government have to be careful in their attitude to middle-class people in my constituency and those of other hon. Members who will now have to take out insurance against unemployment so that their mortgage payments can be covered for a number of weeks. That will certainly be unpopular and I suggest that it could be as unpopular as the Child Support Agency. The Government had better watch that as well.
My last points before I make a brief resumé so that I may remember what I have said, because that is always difficult and I need help from time to time, are about London. I am a London Member. I have lived more than half my life in London away from my native Lancashire and I am proud of London, which is one of the six great capitals of the world. Too much money is taken out of London and given to the rest of the country. A first-class underground system is needed if London is to remain one of the world's six great capitals. The Government should think about that. If London were allowed to keep the money that its people have paid out instead of that money being moved elsewhere, the capital could have one of the best transport systems in the world.
I shall sum up what I am saying, or what I believe I am saying. It is difficult to speak and listen at the same time, however interesting the topic. I welcome the fact that we have reduced unemployment and that inflation is down, because that eats up the savings of our people. Similarly, we are not taking on more debt but will be able to pay off existing debt in future. I hope that something can be done to simplify VAT along the lines that I have suggested in my simple way. Whatever happens it will continue to be resented. If the Government can overcome that while continuing their policy, and provided that we get tax cuts in good time—that is important—we can without doubt look forward to victory at the next general election.
We must also have a stable economy and a 5 per cent. growth rate so that at the next election our people will not look back at a plateau or a depression but forward to an increase in the standard of living.
§ Dr. Jeremy Bray (Motherwell, South)
The right hon. Member for Brent, North (Sir R. Boyson) gives the impression of a man torn between his undoubted high principles and his realistic view of performance. I shall deal later with some of the aspirations that he held out.
56 The Chancellor set himself three priorities in the Budget: to keep the economy on track, to create more jobs and to strengthen the economy in the long term. We shall have to judge how well he has aimed his measures at those priorities. First, while the economy may be returning to the track of sustainable growth, it is not yet on it. Unemployment is 8.9 per cent. and the borrowing requirement is 5 per cent. of national income. Inflation has certainly fallen to 2 per cent. and the current balance has fallen to a deficit of only 0.5 per cent. of national income in 1994. Those figures are not expected to deteriorate significantly next year. The borrowing requirement is expected to fall to 3 per cent. next year.
Chicken counting is a dangerous occupation for Chancellors and Governments, but certainly the prospects are such as to require no further tightening of fiscal policy beyond that previously announced this year. The projected growth of national income of 3.25 per cent. in 1995 after the growth of 4 per cent. this year need not cause alarm.
Judged by the test of the short-term prospects for economic constraints and forgetting about unemployment, the economy can be said to be getting back on track. Furthermore, looking two years beyond 1995 and beyond the end of the published Treasury forecasts, the panel of independent forecasters sees growth continuing on average at more than 2.5 per cent. a year, unemployment falling to 7 per cent. and inflation giving the Government cause for concern as it edges up close to the top end of the Government's target range of 4 per cent.
To judge the wisdom of Government measures, it is necessary to look at the longer-term considerations and to balance them against the short term. Is the economy heading for an impossible balance of payments or income distribution? Will debt income ratios go to unsustainable extremes, and so on? Such questions are asked on the various national economy models such as the National Institute, the London business school, Oxford Economic Forecasting and the Treasury models in what is becoming a useful annual exercise in which the Treasury should participate. Without Treasury participation, I have to operate the Treasury model myself and, as I well know, that is no substitute for the Treasury participating publicly.
This year, no immediate changes of plan are called for, but the question is asked, what are the Government after in the longer term and how do they see the economy achieving that? Can an electioneering reduction of the standard rate of income tax to 20 per cent. in next year's Budget be justified by any credible budgetary arithmetic? Objectively speaking, it is on the margin. It would take the borrowing requirement to near the 3 per cent. Maastricht condition in 1996–97. Can and will Britain then seek to adopt the single European currency at the same time as Germany, France and the Benelux countries, if they try to stick to the Maastricht timetable? The Chancellor said nothing about that, given the state of war in the Conservative party. My view is that Britain can and should adopt the single European currency, but that to do so it needs further to strengthen the economy and to build up a sufficiently strong position, which on present prospects would not allow major tax cuts next year.
We must consider the Chancellor's other two priorities—reducing unemployment and strengthening the economy in the longer term. To create jobs, the Government are offering modest carrots to employers and carrots and sticks to employees. Some of the measures are 57 welcome in so far as they go. However, by concentrating only on the incentive side, they fail to deal with the underlying causes of long-term structural unemployment and the measures needed to deal with them. The causes lie in changing technology, work organisation and international trade. The Government, because of their doctrinal position, are precluded from examining the problems. They believe that the market will deal with the problems and that any attempt to improve its working can only make matters worse.
It is not necessary to be a Luddite protectionist to believe that the market can be helped along. The problems will not be solved merely by improving competitiveness. There is a strong argument for doing so, but for job creation the benefits of improved competitiveness lie in what it enables one to do rather than in what it does in itself. For example, a more competitive manufacturing industry may or may not employ more people. What is needed is a more efficient labour market better matching demand and supply. For better or worse, there has been a change to more contracted-out services, temporary ad hoc teams formed for a particular task, changing demands for skills, varying work loads and varying order books.
We have a vast and expensive market machinery of wholesaling, distribution and retailing for matching the supply and demand of goods, but we have only horses and carts for the labour market. What would happen in a supermarket if the only cornflakes on offer were either a year's supply or a single packet of a brand never seen before and with no guarantee of its being available next week? Yet that is the nature of the job market. Professions and firms existed to package and regulate the supply of work and while they did so it was possible to maintain full employment. Now that they have ceased to do so, we have a problem.
The Chancellor was inconsistent on the question of market intervention. I welcome his landfill tax proposal, for example, if it will help to deter sharks such as Paterson's at Greenhead Moss in my constituency., which has repeatedly breached mere planning conditions and keeps coming back asking for more. It must be hit in its pocket and better waste disposal methods must be found. However, the legislation will need careful drafting if it is not to handicap the reclamation and redevelopment of derelict industrial sites.
British Steel is in the process of demolishing its Ravenscraig works in my constituency. It has 1 million cu m of contaminated materials to dispose of—somewhat larger than a cube with Big Ben as one edge. That waste cannot be dumped at sea and there is no landfill site in Europe large enough to take it. The only practical solution is to store it in a sealed and capped landfill storage site, and to blend it permanently into the landscape and land use of the local community. British Steel must pay the full cost, but that money must go into the redevelopment of a community that has lost its livelihood—not into the Exchequer through a grossly unfair tax on industrial regeneration.
The Chancellor said that in some cases taxes do some good by helping markets work better and by discouraging harmful or wasteful activities. I agree. Yet he said nothing about the conclusion reached by the Royal Commission on environmental pollution—that motor fuel duty should increase by 9 per cent., not just the 5 per cent. a year that was the Government's previous target and to which the Chancellor stuck in his Budget.
58 On the long-term strength of the economy, it is necessary to see Britain within the global economy. We are in a period of world development with immense potential as rapidly developing countries demonstrate their capacity to produce the highest-technology goods at a fraction of the labour cost of industrial countries while still needing immense infrastructure developments, thus creating the possibility of balanced trade throughout the world. However, that requires enormous adaptability in the developing and industrial countries alike.
The reduction in ECGD premiums is welcome, but action is called for on a very broad front, from an untrammelled overseas aid budget to a secure science base in Britain. On the question of the science budget, which is the deepest foundation of Britain's competitiveness, the Government have still not woken up to the fact that level funding in real terms means a decline in the share of national income, in the quality of Britain's contribution, in the importance of its role in world science and in industrial competitiveness.
The Budget does not make any contribution to the changes in business culture needed to sustain a high level of industrial competitiveness. The measures needed are relatively low in cost, but high in the understanding required. The Government, in their successive Secretaries of State for Trade and Industry, show no signs of achieving that.
The Government cannot take Britain into a single European currency against the background of solid strength in the economy, while at the same time fulfilling the electioneering hopes of the Tory party. No doubt the Government's position as the 1996 intergovernmental conference approaches will be, "We shall not go in unless", but Britain's interest is to go in if the system is managed in the interests of Europe as a whole and Britain's economy is strong enough to sustain it. Therefore, Labour should say, "We shall go in if". I do not envisage the Tory Government being able to go into the 1996 intergovernmental conference with a majority in the House of Commons, so the signs are that there will be a 1996 general election, triggered as a single-issue campaign effectively for or against Europe, but, like the 1974 election campaign, soon broadening out into all the issues concerning the British people. Roll on 1996.
§ 6.8 pm
§ Mr. Toby Jessel (Twickenham)
I listened to the speech of the hon. Member for Motherwell, South (Dr. Bray) with great interest. Half way through it, he referred to the need to reduce unemployment. In fact, unemployment has fallen by almost 500,000 during the past two years and the fall is now faster than it was last year. I understand that in October alone the number dropped by 45,000. That is one reason why I support the Budget strategy in general, which will bring about real growth in our economy, an increase in employment and a fall in unemployment, coupled with holding down inflation.
I served in the Royal Navy for several years, as did my right hon. Friend the Member for Brent, North (Sir R. Boyson). You, Madam Deputy Speaker, have close traditional links in your constituency with the Royal Navy. The Navy has a saying, "Steady as she goes." That means that there is no need to change the speed or direction of a ship. If the ship is our national economy, I say, "Steady as she goes."
59 I welcome the £5.5 million increase in the Arts Council grant announced by my right hon. Friend the Secretary of State for National Heritage. Of course, the value of the arts is not just financial—they enrich and fulfil people's lives. Nevertheless, they have a financial and commercial value and, as my right hon. Friend said, visitors come to Britain to experience our heritage, our arts and our traditions. They do not come for the British weather.
Our traditions include the monarchy. It is without doubt a principal tourist attraction. It entails having a grand, splendid and majestic monarchy—not, as proposed by Labour Members, a bicycle-riding Scandinavian monarchy or even the abolition of the monarchy. That would damage not only our cherished institutions but our budgetary position. If one belittles the monarchy, one damages the tourist trade; employment in hotels, restaurants, shops and internal travel; the tax yields to the Government from those activities; and the Budget. I should be obliged if Labour Members would be kind enough to listen. May I wait, Deputy Madam Speaker, until those hon. Gentlemen start to listen?
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. The Chair cannot guarantee that they will listen. As the hon. Gentleman has only 10 minutes, I suggest that he pursue his arguments.
§ Mr. Jessel
I am prepared to sacrifice one minute out of 10 so that Labour Members may extend the courtesy of listening to me. Their policy would damage the monarchy and destroy the Government's tax yield from the tourist trade, which is largely dependent on the success and importance of the monarchy. The Opposition would kill the goose that lays the golden egg, and they would be unutterably stupid and foolish to do so. I am sure that the British people would never allow Labour to attain power, to do any such thing.
I wish that the tax on tobacco products had been made much higher. Three different taxes apply, but the net effect of the proposed increase will be to raise the tax on tobacco by 5.5 per cent. A larger increase in tax would reduce the number of horrible premature deaths from lung cancer and other appalling diseases.
Some people view the purpose of the Budget as only financial, but there is no reason why it should not have other aims. That happens when differential rates of duty are imposed on leaded and unleaded petrol for environmental purposes or when mortgage tax relief is given to promote home ownership. There is no reason why fiscal laws should not be used to promote health.
The Royal College of Physicians states that, since 1962, 4 million people in the UK have died from smoking-related illnesses—mainly lung cancer, heart disease, strokes and emphysema. Currently, 110,000 deaths a year, or one in six, are from smoking-related diseases. Although the incidence of smoking has fallen in the past 10 years from 35 per cent. to 28 per cent. of the population, among 15-year-olds the figure has dropped only from 25 per cent. to 24 per cent., which is hardly significant.
A typical constituency has 1,300 15-year-olds. If one quarter of them smoke, on present trends 100 of those 300 youngsters will die from smoking sooner or later. I wish that we could use the Budget to increase tax on tobacco 60 steeply, to deter with much greater force the number of young people who start smoking. If anyone proposes an amendment to impose a higher rate of tobacco tax, I, for one, will support it.
Finally, London art auction houses such as Christie's and Sotheby's comprise an internationally famous and important market for the United Kingdom. If anything is done to damage that market or to make it less attractive, it will be tilted away from London towards New York. That would be bad for London, Britain and the European Union.
The Budget proposes the adoption of the EU's seventh value added tax directive, which will for the first time impose VAT on works of art imported into this country for auction. If a Japanese or American person sent an object to London to auction, VAT would be imposed—although it could be reclaimed if the object were resold to someone outside the European Union.
The tax is expected to start at 2.5 per cent. Complicated negotiations on the subject went on for years. It is not clear how the new scheme will work, when it will be introduced or whether the 2.5 per cent. will be imposed only on the auction price or on that plus the auctioneer's premium. More importantly, the tax must not be increased in a future year, such as 1999, so that it tilts the market from London to New York. There is a grey area as to how the tax will work. It is introduced at the behest of the European Union—the British Government did not really want it. We ought not to give into the Union, and I hope that Treasury Ministers will have something to say and that the tax can be stopped.
§ Mr. Mike O'Brien (Warwickshire, North)
Today, the Secretary of State for National Heritage predicted that everything will be rosy in the economic garden in the run-up to the general election. Why should we believe him, when he comes from the same Government who ruled out any recession, entered the exchange rate mechanism at an unsustainable level and ignominiously exited from it, damaged the economy with high interest rates and pledged that there would be no tax rises? More than that, the Government said that there would be no need for tax rises after the 1992 general election.
The Government now predict a self-sustaining, non-inflationary recovery with tax cuts. They have some brass neck if they expect British people to believe them. Their credibility has been irrevocably damaged by their economic record. I have never before known the deep anger that has been expressed over the imposition of value added tax on domestic fuel. When a petition was circulated in towns and villages in my constituency, people queued to sign. The impact of that tax on ordinary families will be most damaging. Considerable fear surrounds it. Public anger was exacerbated by news that the chief executive of British Gas is to give himself a big pay rise, and that a new regime for paying gas bills will prejudice customers who do not have a bank account.
All those issues have created deep anger, which the Government and every Conservative Member will feel in rich measure at the next general election. I hope that the Government will be defeated in tomorrow's vote and that increased VAT on domestic fuel will be stopped.
The Chancellor is right to say that the economy has entered a new phase. The country is emerging from recession as part of the economic cycle, but that itself 61 produces problems. The recovery is the product of Government failures, not successes. The UK's withdrawal from the ERM, which the Government resisted, allowed our exporters to become more competitive.
The purpose of the present Chancellor's Budget is twofold: he seeks to prepare the ground for pre-election income tax cuts and to create sustained non-inflationary growth. I contend that the two are inconsistent. The economy is rushing out: of recession, helped by a low and perhaps undervalued exchange rate and by recovery in other economies. Growth is running at 3 per cent. and may reach 4 per cent. or 5 per cent. in the coming year.
The problem is capacity. Tremendous damage was done to the industrial base in the first Tory recession of 1980—81, as we know in the west midlands. Without North sea oil, the nation would have been devastated. It enabled a recovery to occur in the late 1980s. The second Tory recession of the early 1990s inflicted further severe damage. Although capacity limits in this recovery have not been hit yet, if growth continues they may begin to be hit next year.
The extent of the damage done to the British economy in the 1980s can be shown by, for example, the output gap. Professor Christopher Johnson has shown that taking 1977 as the base year and suggesting 2.2 per cent. a year as the potential average growth rate which the economy should be able to achieve, Labour sustained that growth rate easily in office. The Conservative record has been erratic and generally well below par, and it remains below par. Today's output gap in gross domestic product is an overall 4.1 per cent. this year, although falling from 5.7 per cent. last year. It is well below what we should have been able to achieve.
Professor Johnson shows that from 1983 to 1993, increased investment in capital stock in manufacturing was among the worst. Only mining showed a worse performance. The investment change in manufacturing is only 20 per cent. compared with 45 per cent. in finance, 33 per cent. in trade and tourism and 40 per cent. in other services. The weakness of the British economy remains its manufacturing capacity, or lack of it.
The recovery so far has created little full-time employment. All the economic advisers to the Treasury and Civil Service Select Committee agreed on one thing when we spoke to them the other day—that there is no evidence so far that the recovery has created any net increase in full-time jobs. Indeed, there is some evidence that less full-time male employment is generated than is lost. That is why it feels like a jobless recovery. The records of the Department of Employment show that there is no real pick-up in employment, especially in male employment. The Department has turned to the labour force survey, but that also has its deficiencies as an instrument of measurement.
If the recovery is to survive, we need either to slow growth or to boost investment substantially. Growth of 4 per cent. is sustainable only if there is substantial spare capacity in the economy and, as the Chancellor would claim, a genuine supply-side improvement in recent years, or if there is massive new investment which can create new capacity quickly. If that does not happen, the capacity buffers will be hit and inflation will follow. Treasury complacency about inflation and about the problems of capacity is worrying. Tax cuts next year by the Government will have exactly the same effect as they did during the Lawson boom. Tax cuts may look affordable 62 in public sector borrowing requirement terms, but they would be appallingly damaging to the whole concept of sustainable, non-inflationary recovery.
I have one point about the PSBR to which I hope the Minister will reply. Table 4.9 on page 73 of the Red Book suggests that the PSBR is to be part-funded by —10.2 billion from sales of commercial bills by the Bank of England. Can the Minister confirm when he replies that that is to happen? If that is the way in which the PSBR is to be part-funded, it will be an interesting development.
Tax cuts in the next year would create a further stimulus to the economy which, I suspect, would leave the economy struggling; the key failure of the economy—lack of manufacturing investment—would then become apparent. The markets knew that after the Budget. In the week following the Budget, the Financial Times 100-share index fell 16 points, and gilts and sterling showed little response to the Budget. The very markets that were supposed to be reassured by the anti-inflation package know that the Budget has placed a great and dangerous temptation in front of the Government. They know that any hard-won economic gains could easily be frittered away by a whopping tax cut from a Government terrified of losing the next general election.
The markets do not believe paragraph 3.34 of the Red Book which predicts that investment will be at 2 per cent. this year, but will surge to 11 per cent. next year. Such a rise in investment is not credible. Even if there were an 11 per cent. surge in investment, the likelihood would be that the financial institutions would look to the Pacific rim for a higher return rather than to the United Kingdom.
How can the Government predict that investment can fill the capacity gap when they are cutting their own fixed investment, with a 10.8 per cent. cut in public investment, a 17 per cent. cut in general Government investment and a 16.6 per cent. cut in local authority investment? The Government have no clear, long-term investment programme. There is no investment in skills and no investment in industry. The Government claim that they will get —5 billion from the private sector to make up for their public investment cuts, but they have got only about £0.5 billion over the past two years. In the Chancellor's previous Budget, even he admitted:the flow of private finance projects to date has … been disappointingly small".—[Official Report, 30 November 1994; Vol. 233, c. 932.]The City knows the reality of recovery. The industrial base is weak, a surge in investment is not available to remedy that and large-scale tax cuts would slam us into the buffers of lack of capacity. The result would be higher inflation, higher interest rates, higher sterling exchange rates, reduced exports and a bust to follow any pre-election boom. The economy does not have the scope for large tax cuts. The recovery would be like the previous Tory one. The economic cycle is playing in the Government's favour. The basic problems of the economy are being ignored and a lot of fanciful and wishful thinking is being indulged in by the Chancellor. The Tory record of economic failure will continue to leave our economy even further behind. This Budget is not really about Britain's future—
§ Sir Thomas Arnold (Hazel Grove)
It is always a pleasure to follow the hon. Member for Warwickshire, North (Mr. O'Brien) as we serve together on the Treasury and Civil Service Select Committee. I am sure that he will not be surprised, however, that I take issue with the general thrust of his remarks.
This Budget builds on the excellent work of the two 1993 Budgets in paving the way for the sustained recovery towards which the Government and the Chancellor are working. The hon. Member for Warwickshire, North, to put it mildly, overstated his case.
The medium-term financial strategy set out on page 14 of the Red Book is clear. I believe that the Government have struck the right balance between monetary policy and fiscal policy. I said in the debate on the Gracious Speech that I was impressed by the transparency with which our economic policy was now made. That transparency is reflected in this year's Red Book and, indeed, in the Treasury's briefings.
In our modern world, with transparency should also come accountability. I invite the Government to consider one or two matters concerning the arrangements for debating the Budget. My right hon. Friend the Financial Secretary may prefer not to deal with these points this evening, and I quite understand that, but I urge him to pass my remarks to the Chancellor so that he and other Ministers can consider the import of my speech.
Is the timing of the Budget, just before Christmas, right, or should we take a fresh look at the new arrangements? For the second year running, we have had a bunching of economic debates. It is unrealistic to believe that the Opposition will ever forgo the opportunity of a full day's debate on the economy during our discussions on the Queen's Speech, notwithstanding the fact that that debate is likely to be followed soon by the Budget debate.
Some more serious issues arise from the present timing. As I understand it, there is little time for representations to be made, either by individuals and other interested parties or by organisations, between the Budget statement and the start of the Finance Bill. That point needs to be looked at carefully. Perhaps ways can be found to deal with the problem; it is a real problem of which the Government should take note.
The Government are perfectly entitled to take a robust—almost authoritarian—view of their own responsibilities and they are entitled to ask their own supporters and, indeed, the House to back them up in the new arrangements for a unified Budget. I make it clear to the Government that I am not opposed to bringing together in one statement both public spending and the revenue-raising side of economic policy—far from it; I always felt that it needed to be done—but the Government's view needs to be set alongside the view of the House. Hon. Members on both sides of the House should take an interest in what are likely to prove to be rather truncated arrangements for the future debate on economic policy. It is slightly odd that last year—and I believe that I am right about this—seven months passed without the Chancellor taking part in a major economic debate. That is puzzling and it has meant that the regular appearances of the Chancellor and the Treasury team before the Treasury and Civil Service Select Committee 64 have been altered somewhat in character. We must consider that and take account of it in planning for the future.
I welcome the arrangements that have been made in recent years for debates on the estimates because they allow for certain specific items of public spending to be considered very closely. However, I should like to register my support for the proposals of my right hon. Friend the Member for Worthing (Sir T. Higgins), one of my predecessors as Chairman of the Treasury and Civil Service Select Committee, a former Treasury Minister and now Chairman of the Liaison Committee, for time to be set aside during the parliamentary year for debates on the annual reports of individual Departments.
Those reports are a new feature of government and are a result of many other changes that have taken place in the House and in the Treasury in recent years. They provide us with an opportunity, Department by Department, to debate and perhaps amend—at any rate, to consider in great detail and, I hope, constructively—the spending plans of individual Departments.
My right hon. Friend the Member for Worthing has proposed that four days should be set aside, with half days given to individual Departments. That would enable the annual spending plans of eight Departments to be examined in one full parliamentary year and would represent an excellent compromise in respect of what I fear at the moment is an unsatisfactory situation.
I should like the Government to consider those points very carefully. As I said at the outset, I welcome the transparency with which policy is now being made but the House must reconsider accountability, on which I hope the Government will recognise that the views of the House are important and that they can help, not hinder, the Government in the formulation and execution of public policy.
§ Mr. William Ross (Londonderry, East)
The hon. Member for Hazel Grove (Sir T. Arnold) illustrated for us very vividly how dangerous it is to change the long-established procedures of the House, because when we do so it usually ends in tears. Not many voices were raised in objection when we decided to change the Budget from spring to autumn, but it was not long before voices began to question that change.
Given the time at my disposal, I regret that I cannot refer to many of the points that have been made today. Instead, I will have to gallop through what I have prepared because some of the things that I want to say I really just want to get on the record.
The Budget contains a long list of items that are helpful to small businesses and they are welcomed by my party. The Chancellor is well aware of the hopes that we in Northern Ireland have for an expansion of business activity over the coming months and years. We have a lot of catching up to do after the quarter of a century that we have just spent fighting terrorism and we need all the help we can get. We would hope to see investment as a result of the Prime Minister's initiative in calling an investment conference in Belfast next week and we are particularly interested in investment in manufacturing industry.
We have a problem, however, as our electricity prices are higher than elsewhere, mainly because so much of our generation is provided by oil-fired stations. That problem 65 may be relieved in future with the gas pipeline, but that is some years away. The Chancellor will be aware that Northern Ireland burns just over 1 million tonnes of heavy fuel oil each year. I am told that that means that Northern Ireland pays about 25 to 30 per cent. of the heavy oil excise duty in the United Kingdom. That duty amounts to some £11 million to £12 million a year and it is a heavy impost on the Northern Ireland consumer.
It will be argued that this is special pleading, and it is, but it is special pleading in a special circumstance. This problem must be dealt with, and the sooner the better. It can be dealt with satisfactorily only by the removal of the tax on that fuel. I echo the call made by my party leader, my right hon. Friend the Member for Lagan Valley (Mr. Molyneaux), in the debate on 23 November vvhen he asked for all of Northern Ireland to be made an enterprise zone. The line on the map defining such zones has created many anomalies which can be easily removed in respect of that small economy and territory only by the policy that he advocated.
Much has been said about the Government's decision to go ahead with their proposal to impose VAT on domestic fuel. My colleagues are, as has so often been the case, in the very happy position of being able to take a rather more dispassionate view of the Government's proposal than supporters of the main Opposition parties. Those right hon. and hon. Members feel duty-bound to voice the most strident attacks on the proposal and, in turn, to repel those attacks with whatever verbal weapon comes to mind and tongue.
We, like most hon. Members, recognise the need to raise revenue to meet Government obligations. We also believe in a balanced Budget, and I will return to that point if I have time. We well understand that VAT on domestic fuel is a tax on spending, which is, I am told, a tax beloved by Conservatives in particular. I suspect that taxes on spending are popular with all Chancellors since, once imposed, folk pay without really questioning where the money is going. Therefore, they grumble less about Government impositions in the long run.
However, VAT on domestic fuel falls into the category of taxes that have been from their inception almost universally disliked, not least because in this case it has been very successfully portrayed by its opponents as a tax that bears more heavily on the aged and the poor. That is as true of that tax as of all universal taxes.
The Government's recognition of the unpopularity of the tax is confirmed by the cushioning measures they have introduced, which would not be needed if the proposal had that measure of acquiesence that most taxes enjoy and which means that the citizen simply pays up after a few grumbles.
Sadly for the Government on this occasion, our view of the tax has not changed. However, will the cushioning measures announced survive a defeat for the Government on the issue? How does the Chancellor intend to raise the deficit in his revenue which will result from a Government defeat? If the Chancellor is to maintain confidence in the City, he will have to give that information to the House and to the country.
Our view on the issue is slightly different from that of the main body of Conservative opinion in the United Kingdom. We have that different opinion because we were not counted as members of the Conservative grouping by the then leader of the Conservative party in 66 the first election in 1974, whereas previously we had been so counted. Since then, we have developed a number of basic principles about how the nation's finances should be managed.
Not least among those principles is that one should never try to fix the exchange rate. One should not tax the basic essentials of the ordinary man or woman. I was very happy to hear the right hon. Member for Brent, North (Sir R. Boyson) go back to the last century in order to find a Conservative justification for that. We also believe that one should continue to seek a balanced budget and if one seeks long enough and hard enough, no doubt one will find it.
The spotlight of press publicity has been directed on the issue of VAT on domestic fuel, but another tax increase is of greater importance and it has passed largely unnoticed in our debates so far. The one redeeming feature of VAT on domestic energy is that it is levied on the ultimate consumer and therefore the consequences are evident and they finish at that point. That does not apply to the tax on vehicle fuel.
It is said that the only people who suffer as a result of tax on vehicle fuel are car owners, but that is a very misleading perception. In fact, hon. Members know that increases in the price of transport fuel feed through to every single item that we purchase. For producers, that places pressure on their profits, because they are expected to fund some of the tax.
Car ownership is treated by some sections of the population as a bad thing because of its environmental consequences. We are told that we should not use cars as much as we do and that we should use public transport or bicycles, or walk. That aim might be praiseworthy and possible for urban and suburban dwellers who have access to a comprehensive, high-frequency and cheap—that is, highly subsidized—transport system. Such a system might exist somewhere, but hon. Members have not discovered it.
When it is realised that many millions of our citizens simply do not have a transport system that is worthy of the name, the green agenda hits a blank wall of harsh reality. That simple harsh reality is that, for many millions of people, there is no alternative to a car for personal transport and that, without a car, social activity would vanish for every age group. It is also a fact that increasing the cost of travel to work would limit job opportunities for many people. Time does not permit me to pursue that point.
In the light of those facts, the concept of doubling the real price of vehicle fuel within a few years can only be nonsense that no sensible Government could long pursue. The Chancellor has committed himself this year, but will he have the good sense to reconsider the matter before his next Budget?
The Chancellor and the Treasury team will no doubt recall that the consistent position of the Ulster Unionist party has been that the public sector borrowing requirement should be eliminated as soon as possible. As was evident when the deficit took off for the clouds a few years ago, the PSBR could be diminished only by increased taxation and reduced public expenditure. Those two aspects have advanced over the past two or three years, and the resultant pain is evident and vocal, but so are the rewards, about which people are less vocal. Part of the reward is, of course, to be attributed to the fact that, 67 at the moment, we have a competitive pound, which is a result of the market restoring the pound's true worth in September 1992. We also have low interest rates and low inflation. I cannot see very much change in the policy since September 1992, despite the change of personnel at No. 11.
Lord Lawson was the first Chancellor for a long time to reduce the burden of debt that he inherited. Regrettably, that false spring has vanished, but his successor is on the way to achieving that happy position once again. I hope that the Treasury team will succeed, for it is a very worthwhile objective. It will take time, but I hope that it will involve a shorter time scale than that envisaged a year or two ago. We should temper our hope with caution, for the increase in employment, the consequent saving in Government expenditure and the fall in inflation have done much to improve the PSBR this year.
I must put it again to the Treasury team that the best way to deal with a sudden and drastic rise in the Budget deficit is to be honest enough to increase income tax. The effect on revenue is instant, the pain is immediately felt—
§ Mr. James Cran (Beverley)
I am grateful to be called. Making this speech is inevitably a dispiriting affair, because my hon. Friends usually make exactly the speech that one would have wished to make. That is my position this evening, because my right hon. Friend the Member for Brent, North (Sir R. Boyson) did exactly that. I did not agree with everything he said, but I agreed with much of it. Therefore, against that background, I welcome the Budget, not entirely without reservations, but my reservations are well outweighed by my support for what is contained in this set of measures.
I particularly support the fact that the Government are taking the long view. Throughout my lifetime, I have found that politicians—I do not regard myself as a politician particularly—always take the short view. The Government are rightly attempting to put public finances back into order again. In the past year or two, I wondered whether that would happen. I am delighted that public finances will be back in order a few years hence. Of course, that will not yield immediate benefits—nor should it—but benefits will undoubtedly come. That is why some Opposition speeches have been made in sorrow—because in 1994, we had 4 per cent. growth, which, historically, is very difficult to achieve in this country, and there will be 3.25 per cent. growth in 1995.
It is fascinating that all that has been achieved without those magical letters, which kept being flung at me a few years ago, ERM. No more than three years ago, every Government and Opposition Treasury spokesman spoke about the ERM, and every Confederation of British Industry publication which I read flung those letters and what they meant down my throat. The ERM was proffered as the universal panacea for every economic ill in the country. By contrast, everyone is now embarrassed to mention ERM. Those letters seem to have been expunged from the vocabulary of many of my colleagues and from that of Opposition Members who used to believe in them. "CBI News" never talks of them these days, and, happily, 68 nor do Ministers. The lesson has been learnt that we do not require artificial devices to substitute for the internal discipline which Ministers and, indeed, politicians of all parties must show in economic management. That is what the Budget and its two predecessors are all about.
I was going to say that I am relatively pleased with the Budget, but I must say more than that. I am delighted with it from two points of view. First, the key to the economic policy of any Government, which is shown by the Budget, is that there is a need to control public expenditure within that which the country can afford. Secondly, the Government have a prime responsibility to control inflation. They are doing both.
I mention ERM not to embarrass those who originally supported it but merely to allow me to refer to EMU—full economic and monetary union. It is unworkable. I do not want it. I am not closed-minded enough to say that some countries in the European Union may not band together and pursue it. I say to them "bon voyage." Let them get on with it if that is what they want to do, but I hope that EMU is off the Government's agenda. It probably is, because I have listened carefully to what my right hon. Friend the Prime Minister has said. I read his Leiden speech containing references to the subject, and I could not disagree with much of it. I heard him, in particular, a few weeks ago, in answer to a question about EMU from my hon. Friend the Member for Hazel Grove (Sir T. Arnold), say that there was no appetite for such a development. That is exactly what I believe. Therefore, I am relatively sanguine at the minute.
Without ERM, we now have what I regard as the beginning—perhaps it is more than that—of a successful economic policy. As I have said, fundamental to that is controlling public expenditure. All Governments spend far too much, but Conservative Governments spend less. Labour Governments tend to spend much more. We have seen the statistics. I refer back only to the turn of the century, but my right hon. Friend the Member for Brent, North referred back to Gladstone. We both agree that Governments spend too much.
We cannot insulate every citizen from every eventuality. Of course, the Government must provide services that citizens cannot provide for themselves, such as roads, education, defence and so on, but, by definition, there must be a limit because resources are limited. Clearly, social security must have a safety net, but it is a big spender and must attract the attention of those of us who want cuts. When I was elected to the House in 1987 the social security budget was about £37 billion. I have discovered that it will be not far short of £100 billion next year, and clearly the taxpayer cannot bear that financial burden. I support the Government and my right hon. Friend the Secretary of State for Social Security in their examination of housing benefit, for example. I am no expert on the subject, but I have talked to those who are and they tell me that it simply forces up rents.
I support the Secretary of State in his efforts to limit support for mortgage interest. I am very happy to report that I no longer have a mortgage, but when I had one I did not look to my neighbour to bail me out if I got into difficulties. I took out mortgage insurance and the Secretary of State suggests that everyone should have that cover.
My right hon. Friend is also correct to intensify the Department's efforts to combat fraud. I know, as everyone else does, that the majority of people are absolutely 69 honest; there is no doubt about that. But, human nature being what it is, some people are dishonest. Therefore, I am delighted that the Government are urging us to rethink the social contract—the relationship between the individual on the one hand and the Government on the other.
I am very pleased that the Government have recognised that bureaucracy is too big. The decision to cut spending by about £24 billion in the next three years is a painful one, but it is the correct decision and not before time.
The Government recognise that they must not spend very much beyond their tax revenues—although occasionally Governments will do so, especially during recessions.
I believe that high taxation is intrinsically wrong. I think that we should leave as much money as possible for the individual and he should decide what to do with it. I am not entirely happy with the Government's decision to impose VAT on fuel and other services. I wish the Government had applied a sharper knife to public expenditure before now, but because of the deficit problem I am forced, kicking and screaming, to face the fact that I must support the Government in the vote tomorrow evening. I see no other alternative.
I look to the Chancellor to use the revenue that I believe he will have to cut taxation next year. I leave him with one thought: of course we would all be delighted to see a cut in direct taxation, but in my constituency I am finding resistance to indirect taxation and the amount of money that is collected from it. Perhaps we should have future cuts in indirect taxation—
§ Mr. Richard Burden (Birmingham, Northfield)
I was interested to hear the hon. Member for Beverley (Mr. Cran) conclude his remarks by referring to the imposition of VAT on domestic fuel. It is hardly surprising that that issue, more than any other, has dominated the debate about the Budget both in the community and in this place. VAT on fuel is certainly the Government's most unpopular budgetary measure—which takes some doing because there is a lot of competition. My constituents queued up to sign a petition opposing 17.5 per cent. VAT on fuel, and pensioners took the petition around the neighbourhoods to demonstrate how they felt about the issue.
However, I do not wish to address my remarks to VAT today. Instead, I turn to the subject of housing and how it will be affected by the Budget. As we approach a new century, one might have thought that there would be a consensus among the major political parties about the importance of everyone having, as of right, a roof over his head and a decent home. All hon. Members would say that they agree with that aim in theory. However, that objective has not been translated into Government policy and the problem was certainly not addressed by last week's Budget.
The scale of the housing problem is frightening. The right hon. Member for Ealing, Acton (Sir G. Young) and I attended meetings with Birmingham council in his former role as Minister for Housing and he has praised the city council's record on housing and housing 70 management. Despite Birmingham city council's good record and the councillors' best efforts, they face frightening problems.
There are 17,000 people on Birmingham council's housing waiting list. There are 24,000 people on the transfer list and 10,000 of the households on the list are overcrowded. Even though 6,000 tenants a year achieve a housing move, the wait for decent accommodation is far too long.
In Birmingham—just one city, albeit a large one—48,000 private homes have been considered unfit for families to live in and 80,000 are borderline cases. Some 40 per cent. of the private housing stock needs urgent repair and 24 per cent. of private rented stock is considered unfit for human habitation. The council needs an investment of £1.3 billion to bring its housing stock up to scratch.
That is the scale of the problem that we face. There are 15,000 inter-war council homes awaiting modernisation and 4,500 homes still have outside toilets. Against that background, Birmingham city council has lost 27,000 homes in the past 10 years—most of them family homes which are in greatest demand.
The city council has put in a bid for —71 million under its housing investment programme for the next financial year—not because that is all the money it needs, but because that is all it is allowed to ask for under the rules imposed by the Government. People in my constituency think that it is crazy that in Birmingham we need housing investment of £200 million, but we are allowed to ask to spend— not actually receive— under £100 million. Last year the council's allocation was £49 million, which was less than the year before.
What impact will the Budget have on those terrifying figures? The Department of the Environment's housing budget will be down by £770 million next year and £700 million the year after. Housing investment was cut by £500 million in 1994—95. According to figures published by the National Federation of Housing Associations, there will be a £300 million cut in housing association investment next year and a £320 million cut the year after.
How will those cuts impact on real families who are homeless or who are living in unmodernised, overcrowded, damp, cold conditions in Birmingham and elsewhere? The Government's 1992 autumn statement included plans for some 34,000 new rented home starts. This year's Budget has reduced the figure to 15,000—a reduction of 55 per cent. According to figures produced by the National Federation of Housing Associations, 124,000 affordable rented homes are needed each year—that is more than 300 a day—just to keep pace with demographic and labour market changes. Those new homes will not come from the figures projected by this Budget or from the policies pursued by the Government. It makes no sense from an economic point of view and it makes no sense for families who are in need of rehousing.
Budget cuts to housing will result in the loss of about 4,000 construction jobs next year and about 7,900 by 1996—97. Lost tax revenues and high benefit payments will cost the Exchequer £35 million next year and £70 million the year after.
There have been some new housing policies. The Government have said that they will act to address problems with housing benefit. Hon. Members on both sides of the House have drawn attention to the spiralling 71 housing benefit bill. But the Government have responded by blaming and attacking low-income families who often have no choice but to put up with the housing market that the Government created through their deregulation of rent and rent controls. We need investment in bricks and mortar. We need the new homes that people require and deserve. It is utterly appalling to blame and attack in the way that the Budget proposes those people least able to afford to pay.
Just last weekend a gentleman came to see me at my constituency advice desk. He is a housing association tenant. Housing associations are supposed to provide low-cost homes for people who need them. He had already faced in the past two years a 25 per cent. increase in his rent. He has now been told that there will be another 25 per cent. increase. According to the usual definitions of affordability of housing, people should not be expected to spend more than about 20 per cent., perhaps 22 per cent., of their income on housing costs. Yet that pensioner will pay roughly 50 per cent. of his income simply to keep a roof over his head. That is in the rented sector.
Things do not look much better for owner-occupiers with the changes to assistance with mortgages for those on income support. Perhaps the construction worker who will lose his job next year as a result of the housing cuts will have difficulty paying his mortgage. What will be the consequence of that? He will not even receive assistance with his mortgage for the first nine months. He could end up with his home repossessed and becoming yet another appalling statistic.
The Budget is a disaster for housing. It is a disaster for the homeless—the 160,000 households quoted in the statistics. It is a disaster for people living with their families in tower blocks who want to get out and should be able to do so. It is a disaster for people who are forced to pay rents that are far too high following the deregulation of the rented sector. The Budget is a disaster for the economy because it will cut the number of home starts. Although we talk about the recovery in the Chamber, if one asks people in the construction industry about the recovery they will say, "What recovery?" It is not happening in the construction industry or in housing.
The Budget will mean thousands of lost construction jobs. It will mean lost revenue to the Exchequer. The Budget is a disaster, but it could have been so different. It could have allowed local authorities to use their capital receipts to invest in housing. It could have allowed housing associations to do what they can do best and what they are meant to do best, which is to provide low-cost housing to people who need it.
§ 7.2 pm
§ Mr. William Powell (Corby)
As I have only 10 minutes available to me, I shall have to truncate what I wanted to say. It is my strong belief that my constituents are over-taxed at present and that the sooner my right hon. and learned Friend the Chancellor is able to reduce the general burden of tax on my constituents the better. One detects a note of fear beginning to creep into members of the Opposition parties when they tackle the subject of lower taxes. They are obviously beginning to become a little nervous about the potential consequences.
72 Of course, my constituents would welcome lower taxes. Many of them would be divided as to precisely which taxes they would wish to have lowered. The general burden must be lowered. I hope that my right hon. and hon. Friends will bear it in mind that low interest rates are also in the interests of my constituents. I should hate us to be in a position in which lower taxes brought higher interest rates. There is no question but that we need both low interest rates and low tax rates, not low interest rates with high taxes or low taxes with high interest rates.
Today's debate has inevitably come to be dominated by the issue of VAT. I shall direct the remainder of my remarks to that issue. I have never made any secret of my anger that my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) introduced in his Budget of March 1993 proposals to extend the VAT base in the way in which he did. To my mind, that was a breach of principle and a breach of promise. The principle was that when VAT was introduced in 1972 it was agreed, as my right hon. Friend the Member for Brent, North (Sir R. Boyson) said, that it should not be extended to essential items. Clearly, heating and fuels are essential items. I resent and regret the fact that some of those who were in the House in 1972 did not defend in March 1993 the agreed settlement of the VAT base, under which essential items such as food, housing, transport and fuel should be left outside the scope of VAT.
The extension of VAT was a breach of an election promise. There is no escaping that fact. Sometimes it is necessary to do that. Sometimes one has to have the courage to recognise that there are higher considerations. Pledges given in good faith—I believe that ours was given in good faith—sometimes have to be broken. Clearly, that can be the case. The consequence for the Tory party of the Budget of March 1993 has been disastrous, as hardly one of my right hon. and hon. Friends would not concede in private; To introduce a tax delayed and in two stages was surely a tactical error of the first dimension. We have already paid a high price for that decision in by-elections, European elections and council elections. I fear that that will continue. I have never for one moment sought to disguise that.
However, I must also recognise some other important factors. I do not regard VAT at 8 per cent. as acceptable. The only rate of VAT on fuel that I regard as acceptable is 0 per cent. That is no longer possible. To restrict VAT to 8 per cent. is wrong in principle. Then we would have three rates of VAT rather than two.
The original settlement was zero VAT and standard rate VAT–now 17.5 per cent. As soon as one introduces a third rate, what other items must be subject to that third rate? If one has a third rate, why not a fourth, fifth and sixth rate, as so many other countries of the European Union have? If we restrict VAT on fuel to 8 per cent., we will breach some fundamental principles.
I regard any tax that is implicitly accepted as one which some of our fellow citizens are unable to pay and requires us to compensate them so that they can pay it as highly undesirable in principle. Therefore, the compensation package has never been of the greatest interest to me, although I pay tribute to my right hon. and hon. Friends who have campaigned so tirelessly to ensure that a compensation package was provided for the elderly and those on social security. Inevitably, it is a leaky colander.
73 I pay tribute to my right hon. and learned Friend the Chancellor for drawing the sting of VAT on fuel to some extent. It was to raise £2.3 billion, not £2.3 billion net, and it is now to raise only about half that sum. That shows how generous he has been with the compensation package. I must recognise that if the Government lose the vote it will put in peril the arrangements that have been put in place.
I hate the tax. It was profoundly misguided to introduce it. I shall never be reconciled to it, but I do not set out from there. I set out from where we are now. I would not have wished to be in this position, but I recognise that if the Government lost the vote tomorrow they would find themselves in a fairly chaotic position.
Tomorrow's vote is procedural and there is no disguising that fact. The vote would not alter the rate of value added tax, but merely allow the issue to be discussed further, which would prolong much of the uncertainty. Although I recognise that my constituents hate the tax as I do, do I regard further uncertainty as being in their interests? I do not. Therefore, this :is a real mess and there is no escaping that fact.
Where does that leave us? It leaves me having to ask where the Conservative party is going. There is no doubt that in recent months it has been badly off the rails. I think that it is still off the rails and I want some corrections to be made. Is that more likely if I make a heroic gesture, which I know to be a piece of personal self-indulgence, which would not necessarily be in the best interests of the country and, if it were, in the best interests of my constituents? I have not yet resolved that question.
I bitterly regret the fact that I am here for this purpose. We should never have landed ourselves in this situation and we must never do so again. My right hon. Friend the Prime Minister will have to pull the Conservative party together, if he is to complete the work that he has been elected to do, some of which is of the utmost importance, not least in Northern Ireland, as the hon. Member for Londonderry, East (Mr. Ross), among others, suggested.
My goodness, how on earth did we get here? How on earth can people who supposedly have experience have got us into this mess? I have to do my best to get us out of it and I will do so tomorrow.
§ Mr. Jim Dowd (Lewisham, West)
The House listened with care to the hon. Member for Corby (Mr. Powell). He has made himself the target of much attention from the Conservative Whips tomorrow. Regardless of the intellectual inconsistency of his argument-most of us would accept the careful way in which he put it together-I doubt whether people would agree that it would be an immutable transgression of the laws of taxation for value added tax on domestic fuel to remain at 8 per cent., rather than be extended to 17.5 per cent., and I have little doubt what advice they would give him.
This is the third time that I have spoken in a Budget debate and the third time that I have been caught by the 10-minute limit. I am sure that the rest of the House will be delighted to learn that, but I will push ahead none the less.
The Budget was a carefully crafted piece of work and was presented in a crafted way—I have got my praise out of the way first. Although hidden, its objective was clear. The fair sprinkling of soporific tedium that it induced in 74 the House was simply an artistic embellishment on the Chancellor's part. Since the final statement by the right hon. Member for Kingston upon Thames (Mr. Lamont), Budget statements have been about the next Budget rather than the present one and this one was constructed in a similar vein. As I said, the objective, although hidden, was pretty obvious. It was a gamble on what next year's Budget will contain and do to contribute to Tory party fortunes at the general election thereafter.
Much of the language of the Budget seemed to have absorbed the advice that my predecessor, Mr. John Maples, offered in his infamous memorandum. This is the first time that I have had the chance to mention Mr. Maples since that memorandum, which has been quoted several times this evening. The Conservative party may rest assured that it will be quoted copiously between now and the next election. Although the language of the Budget statement made some genuflections to the way in which Mr. Maples was trying to encourage the Conservative party to go, the impact was different. The Chancellor used some of the phraseology in a plea to the country for understanding. He was saying, "We understand that things are not good for you, but we have got it all on track and, if you just bear with us, everything will come right." Although the Conservatives seemed to promise a classless society of opportunity in the 1980s, the reality now is that the rich are getting richer on the backs of the rest of us—who are getting poorer—and the Budget does nothing to change that. While we trumpet the recovery, the voters do not think that the recession has ended. They still fear unemployment and have no more money in their pockets, so what we are saying is completely at odds with their experience. The good citizens of Lewisham, West—wise and perspicacious as they are—worked that out two years ago. That, in part, is why I am in the House rather than Mr. Maples. That is also the crux of the Government's dilemma. People do not believe them. That is not out of simple bloody-mindedness, but because the truth of their lives on the streets in which they live does not accord with the myopic technicalities of Tory protestations about growth and prosperity and nothing in the Budget has done anything to assuage people's fears. The recovery simply has not reached them.
Why should the people believe the Government when they tell them that everything is going so well? If there has been an improvement in recent years, it is due to the failure of Government economic policy, not their successes. The hon. Member for Beverley (Mr. Cran), who is not in his place now, spoke the magic words: he mentioned the exchange rate mechanism and the debacle over that. At the time, the Prime Minister said that the Government would not pull out and that to do so would be a betrayal of our future. He said that he and the right hon. Member for Kingston upon Thames would stick to it, through thick or thin. That was within a few days of the humiliation of our rejection, when we were thrown out of the ERM.
At first, the Government said that there would be no recession. When that proved not to be the case, they said that it would be shallow, but it was not. When they were finally forced to admit that we were in the middle of the deepest recession since the war, they said that it was due to international forces over which they had no control. Then, they magically rescued the nation from the recession, but the people did not believe them. They still 75 do not believe the Government and they do not believe that anything that has improved since devaluation has been anything to do with Government policy.
We know what the Government were prepared to do to save our position in the ERM. They were prepared to jack up interest rates alarmingly, twice in one day. The real Tory nightmare would be what would have happened if interest rates had succeeded in stabilising the exchange rate of the pound within the ERM. Where would the recovery that has been built on the back of that devaluation have been then?
The strategy in the Budget was clear—to buy time to bribe voters with their own money before the next election. That action is consistent with Tory practice during the past 15 years. They frittered away North sea oil and the proceeds of privatisation. That was a golden opportunity, and it has been wasted. The full import of that decision will stay with this country and its citizens for many years.
The confusion of using the proceeds of capital sales to fund revenue is economic illiteracy of staggering proportions. We have heard that the proceeds of the intended privatisation of Railtrack are pursued simply as part of the "Budget arithmetic". Any organisation, whether in the public or private sector, will look at its capital portfolio to ensure that it is meeting the needs of the business, but one will not find it liquidating those assets simply to cover revenue. No householder would do so and no Government with an interest in the long-term future of the country would believe in doing so, but that is precisely what the Government have done for the past 15 years.
There have been many criticisms of the details of the Budget and I shall add a couple more. The ending of relief on mortgage interest payments for people who become unemployed is probably one of the most sinister attacks on the unemployed and those who become unemployed, as so many people will continue to do under the Government. The period for which the Government are now insisting that people must take out their own insurance cover is the time at which they are most vulnerable and most likely to need assistance in meeting their mortgage interest payments. The costs will be borne, as the building societies have made plain, by the borrower and loans will be unavailable to those at the margins, including first-time buyers and the least well-off. They will not be able to afford the money—anywhere up to —20 a month—to fund their insurance during the most dangerous period of unemployment.
On housing benefit, we have now seen the clear aim of the Government: they want, in effect, to introduce a contribution to rent by everybody on housing benefit. They tried that previously with the poll tax, and the 20 per cent. payment which everybody had to make, regardless of income. Everyone knows what happened to the poll tax.
On VAT on fuel, the much-trumpeted extra pound from next April is, we now realise, worth only 30p. Even if one were to take that pound at face value, the calculation is that the average pensioner household will have to pay £1.69 in additional payments.
76 The hon. Member for Colchester, North (Mr. Jenkin), in an intervention to the Secretary of State for Employment last Thursday, caught the mood of the Budget very well. He asked his right hon. Friend whether the Government had not achieved a "three-card trick" with the Budget. The Secretary of State, to give him his due, immediately recognised a trap when he saw one, and said that he preferred to think of it as a "triple crown".
A three-card trick—as anybody who has been to East street or Petticoat lane knows—is a con trick. To check that out, I went to the Library and looked up a dictionary, which defined the expression three-card trick as a card game much used by "street confidence tricksters". The Budget falls very much into the category of the three-card trick.
I shall go back to my friend, Mr. Maples. His memorandum states:The Conservatives have let voters down, they have been in government too long, are complacent and have lost a sense of direction. They fail to fulfil promises, are clumsy at implementing policy and 'shoot themselves in the foot'.Nothing in the Budget has done anything to change that, and the British public know it.
§ Mr. Alan Duncan (Rutland and Melton)
I am grateful for the opportunity to comment on a Budget which can be fairly described as workmanlike. I am deeply suspicious about any Budget that is ever described as a "giveaway" Budget because, in my view, there is no such thing. If a Chancellor is giving something away, all he is doing is returning to people their own money.
The Budget has taken place at a crucial moment in the management of this country's post-war economy, because so many drastic mistakes have been made since the war. After the initial recovery of the 1950s, we saw a regime of stop-go, go-stop during the 1960s, a failure to invest and adapt large traditional industries which were living on subsidies, and no more than the management of decline.
Following the election to office of the previous Prime Minister in 1979, we saw a remarkable and significant departure from the post-war decline. Baroness Thatcher took steps to denationalise and liberalise, but unfortunately boom and bust discredited the excellent policies which she put into place.
I was very critical of the amplitude of the cycle and the causes which gave rise to it. I argued in my own book that there were important ways to show how the British economy, as it emerges from recession, can steer a surer path between boom and bust in the 1990s and beyond. I am pleased to say that almost everything in that little booklet is now Government policy, so I am hardly in a position to criticise what my right hon. and learned Friend the Chancellor has done.
My right hon. and learned Friend faces a severe challenge in the climate in which his regime must be put into place, and that is to sell the virtues of the long-term stability at which his measures are aimed to an unsettled and suspicious electorate. We have a climate in which people can plan, invest and borrow for the long term in a greater mood of certainty than has existed in about 50 years. That the Government have resisted the temptation to seek popularity in the short term by debasing the coinage is to be welcomed.
77 My right hon. and learned Friend and his team of Ministers should be selling the Budget to the country on the ground that it is reality, and it works. The reality is good news, because almost all the figures—investment, inflation, output and employment—are now pointing in the right direction. I certainly welcome the accelerated reduction in the PSBR which was announced, combined with the other side of the equation, which is the reduction in the spending total and in the planned control total. To see nearly £8 billion taken off the latter is welcome indeed. Anything less than that would have been ground for criticism; anything more would have been doubly welcome. But £8 billion was a respectable amount, and I congratulate my right hon. Friend the Chief Secretary on his negotiations to bring that about. I completely agree with my right hon. Friend the Member for Brent, North (Sir R. Boyson) who said that, none the less, Government spending as a percentage of GDP remains too high, and that it must be reduced further when prudent economic management allows.
I also regret the need to levy VAT on fuel. None of us, however orthodox our financial beliefs, would like that to happen, but it has been judged right to do it. I have a large measure of sympathy with my hon. Friend the Member for Corby (Mr. Powell), who a few moments ago gave the most cogent—yet remarkable—short speech I have heard in the House since I was elected. I hope that my hon. Friend will join the Government in the Lobby tomorrow night, because the consequences of interrupting the planned financial schemes of my right hon. and learned Friend the Chancellor of the Exchequer could be dire.
As the hon. Member for Londonderry, East (Mr. Ross) asked, are we to remove all the help that had been announced for pensioners? Is there to be a sudden and dramatic increase in interest rates as the City expresses its judgment on the loss of such a vote? I fear that we could be thrown into disarray if we do not hold the line tomorrow night.
There are two problems with which my right hon. and learned Friend the Chancellor has to grapple. The first is that an unexciting recovery is not necessarily a popular one. Anyone can inflate the economy, borrow more and manufacture a boom which, in the short term,:is very popular. There is a grave danger to democracy that a worthy, decent and steady long-term economic recovery cannot get support within the democratic process, because too few people are prepared to forgo immediate consumption and admit that the Chancellor of the Exchequer is doing the right thing. Our challenge has to be to make a virtue out of the progress which has been set in train by the previous two Budgets.
The second matter with which the Government and my right hon. and learned Friend must contend is that people feel unsettled. It is not often that I agree with something that has been argued in the House by my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath), and I am normally tempted to interrupt him when he is on his feet. However, he pointed out the other day that an increasing number of people do feel unsettled. We are seeing the clash of two important strains of Conservative thought. There is the need to privatise and to put into private hands those commercial enterprises that have no reason to be in the public sector but, in our search for economics and market testing, we are pressing against an equal and decent belief in institutions.
78 We cannot subject military bands to economic analysis, as one can a commercial enterprise. Nor can we do so with the workings of certain charities, such as the Women's Royal Volunteer Service or even the royal parks. We are now beginning to ask whether everything at which we are looking is a suitable candidate for the sharp nib of an accountant's pen.
The Opposition have offered a single policy in response to this Budget, as they have to others: it is simply to accumulate grievance and play on any grievance that they can identify. I also lay at their feet the charge of designing slogans that not only play on fear but deliberately implant mistaken economic concepts in people's minds. For instance, the right hon. Member for Kingston upon Hull, East (Mr. Prescott) said on the BBC's "On the Record" that we are paying £25 billion a year to keep people unemployed. We are not. We are paying that sum because they are unemployed. Like the hon. Member for Lewisham, Deptford (Ms Ruddock), he said that he wishes to release —6 billion-worth of housing capital receipt funds, but he failed to admit that that is further borrowing. To argue that it is just a pile of money ready to be spent is deceitful.
Labour Members also argue that the real unemployment figures are higher. Will they pledge now that if they ever came to office they would immediately raise the published unemployment figure and work through their own economic policies from that figure? I doubt it.
Another small matter that I want to raise is that of war widows-not service widows but widows whose husbands have been killed in active service. At present, they get an attributable pension as well as a social security pension, but as soon as they remarry, they lose both. If they could keep the attributable pension and forgo the social security pension, because at the moment they are not remarrying, the Government would save money. That matter is important to those widows, so some tired old objections in the Treasury should be shredded and this small matter looked at afresh.
I welcome the Budget and congratulate the Treasury team. In the years left before the next election, I am determined to ensure that an economy that is in the best condition since the war is not handed over to a potential Labour Government.
§ Mr. John Denham (Southampton, Itchen)
In one proposal in the Budget, the Government announced a new tax on home buyers, a measure to damage the housing market, a measure to increase the number of repossessions and a huge tax penalty on those who are now vulnerable because of changes in the jobs market. That was quite an achievement for one measure, which was the decision to withdraw for a longer period of time income support for mortgage interest payments.
Many principled arguments can be advanced against that change. The Government's argument for reducing that support could be applied to many other sectors of social insurance. If one must insure oneself against the possibility of losing one's job and being unable to meet interest payments, why not insure against ill health, invalidity or disability? Once that break in the social insurance system has been made, the slippery slope has begun and we shall see a gradual unravelling of the social insurance system. On those grounds alone, the move should be resisted.
79 I wish to concentrate on the practical consequences of the Government's proposal. Many problems can be anticipated with the withdrawal of income support for mortgage interest payments. The first and most obvious one that the House can predict with certainty is that the cost of providing the cover will rise and be higher than the cost of providing cover through the current social security system. Although I have been unable to trace it in the Official Report, I understand that Ministers have suggested that the savings from that policy will be some £200 million a year. According to recent press reports, current policies work out at £7 per £100 of mortgage repayment, which means an average cost to new home buyers of £20 to £30 a month—£27.60 for an average £50,000 mortgage.
Given that some 10 million people have mortgages, it is clear that payments of that size mean that the amount that people are paying towards insurance cover will far outweigh the sum which the Government hope to save through that mean move. Even if, as is likely, some more specialised and somewhat cheaper policies are produced, I am certain that home owners will ultimately pay far more for the provision of that insurance than they do through the tax system.
Will the Financial Secretary assure us that, if the new system is ultimately more expensive to run than the existing system, it will be withdrawn immediately? It is a tax on home buyers. I understand that it is also a tax on mortgages taken out to improve people's properties. It will hit many thousands of home buyers, first-time buyers and people who want to move house.
As a Labour Member, I suppose that I should take comfort in the Government's unique ability to identify new ways of hitting their own supporters. The Government should be aware that the move will be deeply unpopular among people who have previously voted Conservative or might consider voting Conservative at the next election. A Conservative Government who are imposing a tax on buying homes and removing protection from home buyers will be deeply unpopular and I hope that that message will be put across over the coming months. It will be more expensive collectively on society to provide that cover than it is to provide it under the current system.
The second major problem is that the insurance system will not be equally available to all. That move cannot be seen in isolation from other changes which the Government have deliberately created. One such change is the creation of a labour market in which more people than ever before are in insecure employment, or forced self-employment—people have become self-employed because no other work has been available—or are dependent on part-time work, temporary work or short-term contracts. As many people have pointed out, the cost of insuring mortgage repayment for people in part-time work, running their own business, working on their own account or on short-term temporary contracts is extremely high or is simply not available. Many people who are in insecure work will be unable to obtain that cover at a reasonable price.
80 According to Malcolm Tarling of the Association of British Insurers, people on fixed-term contracts and the self-employed are often refused cover. Mr. Derek Roberts, chief executive of the Yorkshire building society, said that the proposals were a disaster. He also said:Insurers will become more selective if everyone starts taking out insurance against unemployment and premiums are likely to go up.I understand from a press note that General Accident has said that insurers would not be prepared to provide a come-all policy.
So what is to happen to people in insecure employment, who cannot provide the income cover? They will be in a desperate position, and more people are in that position than ever before because of the policies deliberately pursued by the Government. What will be the position of those with a record of short-term employment? As each period of employment comes to an end, they will find it increasingly difficult to renew their insurance cover.
The third problem is that of regulating the market. The Secretary of State for Social Security said that he is confident that a new market will be created for those products. We have been here before. When personal pensions were encouraged, no effective regulation was in place and the net result was that millions of people were ripped off by the insurance industry. Today, the sale of those insurance products is not regulated by statute and I am confident that exactly the same thing will happen again. Large numbers of people will be sold inappropriate and ineffective policies at a high price, because I have heard nothing from the Government to show that they intend to regulate the market by statute.
The National Association of Citizens Advice Bureaux produced a report on that matter a year or so ago. The evidence in that report is indeed that the mis-selling of expensive and inappropriate policies is rife. People find that claims in the first few months are excluded. People find that, when it becomes known to an insurance company that they may be confronted with redundancy, their policies are unilaterally withdrawn and they are offered policies that are not as good.
Policies are often invalidated by people taking short-term employment. What will happen to people who have a period of unemployment and claim on their policy, who go on to the jobseeker's allowance and are told to go back and take whatever temporary job is available? They will find that their insurance policy is invalidated, and obtaining a new one will be impossible or extremely expensive. Policies have also been invalidated by minor, unrelated and unreported sickness.
Unless those policies are regulated, the Government will invite that problem to continue and to worsen. I believe that the National Association of Citizens Advice Bureaux is right to say that, in any case and even without the change, that market needs proper regulation. That has not been offered.
The change will lead to an increase in the number of repossessions. We should be aware that, according to the latest announcement, not only people who take out new mortgages but other people should be insured, because the period when all mortgage holders' interest payments are not paid will be extended. The Government seem to assume that mortgage lenders will simply continue to carry the costs of a long and growing period of arrears from mortgage borrowers. I do not believe that that is the case. I believe that the Government, by the change, threaten the whole of the deal that was allegedly done 81 with mortgage lenders a year or so ago, and far more people will have their homes taken away when they get into arrears.
Finally, the change will have a serious economic impact. People will no longer be able to move from one part of the country to another if they have had a period of unemployment, because they will not be able to obtain insurance protection. The labour market will become clogged up. Of course, as we have seen—
§ Mr. David Sumberg (Bury, South)
I warmly welcome three specific measures in the Budget. The first is the decision by my right hon. and learned Friend the Chancellor to remove the disincentive to move from the benefit system to employment. My constituents in the north-west of England, who have suffered from unemployment for many decades, will value and appreciate that.
The second measure in the Budget that will have widespread support is that on the revaluation of business premises. Had the Chancellor done nothing, that would have had serious consequences for many small businesses in the north-west of England.
Thirdly, I warmly welcome my right hon. and learned Friend's decision to reduce the amount of money available for the road programme. I hope that that will mean the end of the disastrous M62 relief road, which has caused such hardship and difficulty for many of my constituents.
However, one part of the Budget will not be so popular or acceptable to my constituents, many of whom have loyally supported me in three general elections. That part is the increase in VAT on domestic fuel from 8 to 17.5 per cent.
When VAT was first introduced on that service about two years ago, I voted for it with the greatest possible reluctance. It seemed to me that, for an indirect tax, it suffered from two fatal flaws. The first was that it contained no real element of choice. One can choose whether to buy a motor car; one can choose whether to have a meal in a restaurant; one can choose whether to go on a holiday. One cannot choose whether to keep warm in winter—and VAT follows the choice that one makes.
The second fatal flaw, unique in an indirect tax, is that in order to make it politically acceptable—I do not think that we ever have—we have to throw so much money at it that we then reduce dramatically the amount of revenue that it produces. We went through all of that with the poll tax.
Two years ago, the nation's finances were precarious. We were deep in recession, public borrowing and public spending were escalating out of control and any Government who failed to take measures to correct the situation would have been regarded, rightly, as profligate and irresponsible. I concluded that the Government had no choice but to take the tough remedial action that they did, and I supported the imposition of VAT in the Lobby.
However, two years after that first decision to introduce VAT on domestic fuel, a new and different scene has emerged. The Government's measures are working. Inflationis is at its lowest for nearly 25 years. The economy 82 is reviving. Unemployment is falling, day by day, month by month. Exports are increasing and investment is growing. The prospects for the British economy are better than they have been for years. They have changed dramatically in two years, and the Government deserve a great deal of the credit for that.
It is true that we cannot afford to relax, but I believe that we can afford to review our earlier measures. Indeed, my right hon. and learned Friend the Chancellor seems to take that view himself. In this Budget, in contrast to previous Budgets, he has fully indexed the personal tax allowances because, as he rightly put it in his Budget statement:we can at last begin to benefit from our steady return to healthy public finances."—[Official Report, 29 November 1994; Vol. 250, c. 1102.]Therefore, in my opinion, a political choice can be made. There is scope—limited scope, I accept, but scope nevertheless—to revisit the VAT on fuel issue and, I believe, to limit it to 8 per cent. We could forgo some of the tax reductions, or forgo in part some future income tax cut. We could introduce new tax measures, which are there if we want to seize them, or perhaps have a slightly less ambitious target for reducing public borrowing, for the Chancellor's targets were far better than any of the experts expected them to be, or we could combine all or some of those measures.
I am acutely conscious that if my right hon. and learned Friend has been a little harsh on income tax payers in this year's or previous years' Budgets, he can come back next year and the year after to correct that injustice in future Budgets. That is not, in practical terms, the case with VAT on fuel for domestic heating. Once that additional rate is imposed, there really is no going back—no going back for the Government and, by the Opposition's silence, no going back for any future Labour Government.
The burdens of correcting the nation's finances in the past two years have been properly and rightly shared between indirect and direct taxpayers. The benefits of those measures in future Budgets will accrue only to direct taxpayers, and that, in my view, is not right. Many, many loyal Conservatives throughout the country are not direct taxpayers or, if they are, pay very little direct tax. I think that they deserve to be heard. It is undoubtedly their last chance.
The Opposition amendment is purely technical. Of itself, it does not alter the Budget or the tax rates one iota. It does not allow the Opposition to reopen every aspect of previous taxation and fiscal policy. It simply permits a rethink, a reconsideration, a review, of whether we proceed with that additional amount of VAT on domestic fuel. That is all it allows—nothing more, nothing less.
After a great deal of thought—for I have supported the Government through thick and thin almost since the day that I came into the House—I do not believe that we can allow that final opportunity to pass us by. We owe it to our constituents, to our party, to our friends outside, and most of all to ourselves, to give everyone the chance to consider whether we are doing the right thing. I shall vote tomorrow so as to give the country, the House and, most important, the Government the chance to think again.
§ Mr. Andrew Mackinlay (Thurrock)
First, I congratulate the hon. Member for Bury, South (Mr. 83 Sumberg) on demonstrating some political bottle. He has told us that he is prepared to vote to enable the House to rethink the terrible imposition of value added tax on fuel, which will bear most heavily on the poorest and most disadvantaged in our society. I give the hon. Gentleman full marks for that. At the same time, I wonder whether his stance has anything to do with the fact that Conservative Members who represent marginal seats will have difficulty obtaining mortgage insurance protection over the next few months, bearing in mind the fact that many of them will be facing redundancy. It will be difficult for people such as the hon. Member for Bury, South to arrange for mortgage insurance protection. He is vulnerable, and no doubt insurers are aware of that.
Many things have been said about the Budget, and perhaps the least important comment is that it is dull. The Tory press used that description, and perhaps its coded message is that the Government are leaderless, lack direction and do not know how to regenerate the economy and to get people back to work in real jobs that provide stimulation and the opportunity for them to develop their skills.
The Tory press is aware of the cynicism that lies behind the Budget. It is designed to buy time so as to maximise the diminishing chances of the Conservative party being returned to office after the next general election. That is not in the interests of the economy and the nation. Provision has been made for cynical tax bribes before the next election, but that will not fool anybody this time round. There is the old maxim that it is possible to fool some of the people some of the time. The other side of the coin is that it is not possible to fool all the people all the time. That stage has been reached and the Tory party has been rumbled. The people will not buy again the Tory tax bribes that have been offered in previous general elections.
An interesting comment—it was lost in the acres of newsprint about the Budget—was made by Nick Goulding, who is at the sharp end when it comes to policy. He was speaking on behalf of the Forum of Private Business. He is not someone who would automatically support and sustain the Labour party. He referred to the Budget asjam tomorrow when what we needed was jam today.I understand that. The Government claim to be the pal of small business, but they have let down the small business sector. Small businesses need demand in the economy. They need people to be in work so that they have incomes to enable them to purchase products and services from the small business sector. Unfortunately, small businesses have had a harrowing time over the past few years. The Government's economic policy has deprived them of customers. It is tragic that so many small businesses have gone to the wall. I put out my hand to those people of courage who have tried to run and sustain small private businesses. In some instances they have been family businesses, which were built up over many years. The individual families were proud of those businesses, which were the result of sacrifices and long hours of work. In many instances the businesses have been lost because of the Government's callousness, not because of fecklessness or their owners' inadequate business skills.
84 The Government demonstrate their callousness by their determination to impose further taxation on ordinary families, especially working-class people. Some of the poorest in our society will be worse off, some by more than £300 a year, because of the tax measures that are set out in the Budget. The Government's last-minute attempts to minimise the cruel effects of imposing value added tax on heating bills will not be sufficient to ensure that the elderly and the poorest families are able to keep warm during this and subsequent winters. It seems that the Government do not recognise that for a single pensioner to keep his or her home warm, the cost is the same as has to be met by two people. That fact has not been recognised in the Government's palliatives.
The Budget was presented against a backdrop of growing greed and division in our society. The hon. Member for Bury, South produced a litany of "full marks" for the Government. Needless to say, I did not agree with it. What he did not say was that during the Thatcher years and those of the current Prime Minister the divisions between the haves and have nots have become much wider. Selfishness and greed have flourished.
I am irritated when Conservative Members try to distance themselves—they do so for local consumption in their constituencies—from some of the worst effects of the Government's policies. There was an example of that on the evening of 1 December. I was in the Chamber during an Adjournment debate—one of my many sins is that I never go home. Present in the Chamber were the hon. Members for Surrey, East (Mr. Ainsworth) and for Croydon, South (Mr. Ottaway). The dentist Minister—the Parliamentary Under-Secretary of State for the Environment—was at the Dispatch Box. I rumbled them. The hon. Member for Croydon, South was bleating about the excessive profits of the East Surrey water company. He talked also about excessive dividends. His comments were obviously for consumption in his constituency.
At the same time the hon. Member for Croydon, South is supporting and sustaining a situation in which considerable profits are allowed to be amassed by a few directors when his constituents are paying more and more for a basic need—water. The hon. Gentleman reporteda profit increase last year of more than 45 per cent.—some £8.2 million on a turnover of only £25.5 million—and as such should be prepared to submit to competition.He added thatin 1991, two directors, who held almost half the shares, were paid a dividend of £1.17 million at a time when consumers faced an increase of 24 per cent.I am recounting what the hon. Member for Croydon, South was saying in the Chamber late at night last week. Only three Members, apart from Mr. Deputy Speaker, were in the Chamber. It is hypocritical of hon. Members to express such views when they are not prepared to support the measures that are suggested by my right hon. and hon. Friends, including the taxation of windfall profits of privatised companies. It is outrageous.
The hon. Member for Croydon, South said that Ofwat, that toothless consumer protection body,in a letter dated 12 July 1991",expressed concernabout the levels of prices, profits and dividends. Regrettably, it took no further action."—[Official Report, 1 December 1994; Vol. 250, c. 1433.]85 That is what is happening. It is time that the truth was told. Conservative Members are supporting and sustaining a Government whose policies are designed to make the rich richer and to depress the living standards and quality of life of the poor.
The Budget has been introduced for a year when we can mark the 50th anniversary of the victory over fascism as well as the 50th anniversary of the election of the post-war Labour Government. I hope that we shall celebrate the fact that that Government introduced the national health service, which was much valued and appreciated by ordinary working people. We now see the NHS under constant attack by the Government, and especially in the Budget.
The financial allocation for the coming year marks a reduction for NHS provision. The Minister shakes his head, but he knows that the additional moneys that will be made available will be wiped out by inflation. There is an increasing demand for services because as a consequence of the policies pursued by the Labour Government from 1945 to 1950 people are living longer. As a result, there is now a greater burden on the national health service—an increased demand. I am proud of that increased demand, but the Government are failing to shift enough national resources to provide for the service that is needed.
I could go on much longer about the anniversary of the Labour Government, because it is particularly pertinent, but we shall have other opportunities to mention it this coming year. The fact is that the Budget will cut many services that were introduced in 1945 by our fathers and grandfathers—and, of course, our grandmothers—who were proud of having instituted a welfare state of which the country should also be proud, and which my party is proud to defend and protect. We shall do so this year, campaigning on the Floor of the House, and when we take office in two years' time.
§ Mr. John Marshall (Hendon, South)
It is always a pleasure to follow the hon. Member for Thurrock (Mr. Mackinlay), but I considered his remarks about my hon. Friend the Member for Bury, South (Mr. Sumberg) particularly snide. As the hon. Gentleman should know, my hon. Friend is a solicitor, and I cannot believe that any solicitor would make less money than a Member of Parliament; I should have thought that any insurance company would regard my hon. Friend as a very good risk.
The hon. Gentleman displayed considerable ignorance of the water industry. It is absurd for him to regard Ofwat as a toothless body, given that Ofwat has reviewed the K factor and told the privatised companies that the rate of price increase will have to decline substantially—and that, in some cases, prices must be reduced. It is scarcely a toothless body; it is a very effective body.
The hon. Member for Thurrock does not understand that one reason for the necessity to privatise the water industry was the fact that. so long as it remained in the public sector, investment in sewerage and new water facilities had to compete with investment in schools, hospitals, housing, railways and roads, and always came off very badly. The hon. Gentleman knows, and the House knows, that there has been a dramatic increase in investment in the water industry since its privatisation. It 86 is surely the height of hypocrisy to call for more investment in water and then to complain about the consequences.
In a previous incarnation, I used to have to write an annual article about the Budget for Scottish chartered accountants. I frequently began my article with this quotation:To tax and to please no more than to love and be wise is not given to man.Those words have come back to haunt many of us over the past few months as we have listened to what our constituents have said about the proposal to increase the rate of value added tax on electricity and gas.
I do not wish to oppose that increase tomorrow. I challenge my hon. Friends who propose to do so by abstaining, or by voting with the Opposition, to answer two questions. First, how would they replace the revenue that they will vote to go without? Secondly, if they cannot tell us which tax they wish to increase, they should at least tell the House which form of public expenditure they would reduce. Would they favour less spending on the health service, less spending on schools or less spending on housing? It is for them to tell the House what they would cut, or which tax they would increase; to do neither would be an act of irresponsible populism. Anyone who votes with the Opposition tomorrow must recognise that his or her action will lead to a degree of uncertainty in the gilt-edged market on Wednesday, to weaker sterling and, perhaps, to higher interest rates. That is the price that some people are willing to pay tomorrow.
The decision taken by some of my hon. Friends, however, pales into insignificance when compared to the irresponsibility of the Opposition. The Labour party is never knowingly underbid when it comes to public expenditure. It wants to spend more on the health service and overseas aid; we are told that it wants to invest more in the infrastructure. It wants to spend more on schools, and—since last week—it even wants to spend more on grant-maintained schools. But Labour never tells us how it will pay for that increased spending. Tomorrow it will vote for a tax reduction: it is trying to fool the British public into believing that it is possible to vote for a tax reduction and increased public expenditure at the same time. Labour Members are the first people to try to follow Ronald Reagan into supply-side economics, which caused remarkable problems in the United States; it seems that they seek similar problems in the United Kingdom.
I welcome the Budget's proposals on housing benefit. Some 12 months ago, a constituent of mine moved from the London borough of Hackney to the London borough of Barnet. The constituent wrote to me saying that Barnet was a nicer place in which to live, but did not say that Barnet's Member of Parliament was any better! The constituent then complained that Barnet would provide only £250 a week in housing benefit, which would not meet the full cost of the rent: the full cost of the rent had been met in Hackney.
That sum of £250 a week, however, amounted to no less than £13,000 a year. I do not think that people should expect to receive such sums from the taxpayer week in, week out: once they start receiving £13,000 a year in housing benefit, there will be precious little incentive for them to get out of the housing benefit trap.
We have certainly found that there is no incentive for people to haggle about rent levels. If people know that their rent will be underwritten by the local authority and 87 the taxpayer, why bother arguing with the landlord? The landlord knows that the level of rent that the local authority will agree is reasonable, so he charges up to that level. The tenant knows that he will get it all back, so there is no incentive for any discussion to take place. As a result, the other body—the body of taxpayers who are paying something towards other people's housing benefit—must also pay the consequence of housing benefit, in the shape of higher rents.
I am sorry that the Budget did nothing about capital gains tax. This country has the highest CGT rate in western Europe, and I believe that the 40 per cent. tax on long-term gains is too high. I understand why Lord Lawson decided to harmonise capital gains tax and income tax rates in 1988, so that there would be no fiscal incentive to take income as capital rather than as income; I also understand why the artificial barrier between short-term and long-term gains was abolished. There was a nonsense which said that a stock held for 364 days represented a short-term gain, while one held for 367 days was a long-term gain and attracted a significantly lower tax rate: that was a distortion of the operation of the market. I see some merit in saying that people who held shares for five, six, seven, eight or 10 years should pay a lower rate of CGT than the current 40 per cent.
I must be true to the principle that I enunciated earlier this evening, when I criticised those who wanted to leave VAT on fuel at 8 per cent. and asked how they would pay for it. I must say how I would pay for a reduction in the long-term rate of capital gains tax. I would do that by re-examining the two tax advantages associated with personal equity plans and tax-exempt special savings accounts—PEPs and TESSAs. I believe that those accounts have affected the pattern of savings, rather than the total level. They have constituted a significant cost to the Revenue.
PEPs are of no value to the standard-rate taxpayer, because the money paid to the fund manager is broadly equal to the income tax savings that he generates. We see the financially sophisticated taking advantage of such benefits. They have not increased the level of savings; they have merely altered the way in which people save.
I welcome the Budget's increased emphasis on the private finance initiative. The Chancellor announced that we were close to signing £5 billion worth of contracts. I was particularly interested in his statement that there would soon be another statement about the Northern line—he used the words "very soon"—which was a remarkably positive thing for a Treasury Minister ever to say about any future contract.
Those of us who live in north London must put up with trains that are 35 years old. They are well past their sell-by date and we look forward to having new trains.
§ Mr. Marshall
I do not think that anyone will buy them, but we need new trains. I was chairman of the all-party friends of the Northern line group which pressurised Ministers earlier this year. I am glad to say that because of that pressure there is the probability of an announcement before the Christmas recess. That will be warmly welcomed by the people of north London who 88 would look on it as their best Christmas present for a long time. Of course, the private finance initiative will do much more than improve the quality of the Northern line. It will improve the quality of the health service, public transport in general and, of course, education.
The different philosophies of Conservative and Labour were demonstrated over the weekend. In The Mail on Sunday the hon. Member for Cunninghame, North (Mr. Wilson) said that the Labour party would impose restrictions on British Telecom dividends. He gave the impression that that was fine because it would affect only a few millionaire toffs, perhaps from Mayfair. He did not realise that such a restriction would affect all the recipients of occupational pensions because there cannot be an occupational pension fund company that has not invested in BT. Even the managers of the Maxwell pension fund would have invested in BT.
Such a restriction would also affect the holders of with-profits and life insurance policies because every insurance company has invested in BT. The proposal affects not just a few millionaires but millions of common people. The hon. Member for Cunninghame, North underlined the economic illiteracy that often afflicts Labour party spokesmen. They call for windfall taxes on public utilities and forget that such taxes will affect investment by those utilities. They propose dividend controls without realising that they would hit many millions of people. They fail to recognise the major changes that have occurred since privatisation of our major industries and ignore the fact that privatisation has led to a huge increase in investment and a massive improvement in the quality of service.
At one time industries such as British Telecom, British Airways and British Steel cost the taxpayer a great deal of money, but they now contribute massive amounts in corporation tax and give a much better service to the customer. Those are the accolades for the policy that the Conservative Government have pursued for a long time.
The Budget is one of the most fortunate that has ever been bestowed on the country. Britain now has the most soundly based economic growth since the war and for the first time economic growth is export led. The Chancellor was able to forecast a £6 billion improvement in the balance of trade this year. Historically, Britain has had periods of expansion that were fuelled by consumer demand, but this time the expansion is fuelled by increased exports by our great midlands industries. The prosperity of the midlands will percolate down to the south-east and be drawn up to Scotland. It provides the greatest opportunity that Britain has had since the war.
The one move that would defeat the prospect of sustained economic recovery would be the election of a Labour Government committed to a massive increase in expenditure and no increase in taxation to compensate for it. That would lead to higher interest rates and higher inflation and would destroy many hundreds of thousands of jobs.
§ Mr. Matthew Carrington (Fulham)
I welcome the Budget not so much because of what it does, although what it does is good in terms of helping the long-term unemployed to get back to work and assisting small businesses, but because it is modest. It does not do much, and that is entirely right. More significant is what it does 89 not do, and those omissions were dictated by previous Budgets because most of the corrections that were needed to improve the budget deficit had already been made.
The problem is that the economy is coming out of recession and growing fast. The growth rate is over 4 per cent. and the last thing that the economy needs is further stimulus. A Budget that did not reverse the earlier tax increases and did not decrease taxes is precisely what the economy needs. The Red Book predicts that economic growth will slow next year, largely because of changes in North sea oil production but also because tax increases are slowing the economy. On the whole that is welcome, because a growth rate of about 4 per cent. is unsustainable and would eventually lead to bottlenecks in the economy. That would give rise to inflation and the problems that have occurred too often in the past.
If the economy does not slow down in the way that has been suggested, other measures will need to be taken. The Treasury's record on forecasting economic growth has not been good. Over the past two years, the projections were for a much slower growth rate than has occurred. It is entirely possible that over the next few years growth may still be far higher than the Government predict in the Red Book. There must be flexibility in the response to economic recovery and in the various mechanisms that are used to slow it down.
No one likes tax rises or VAT on fuel, although in this case tax rises are perhaps more acceptable than the alternative, which would be a rise in interest rates. We need to take some of the excess growth out of the economy, and that must be done either by tax rises or by interest rate rises. VAT on fuel is a peculiar tax in that although it will raise about £3 billion, about half that amount will be given back in various benefits. Consequently, it is a rather inefficient tax and if it were not for the broader picture of the use of VAT, many people would find it even more objectionable than most tax rises. However, as the VAT base needs to be broadened and as fuel is one of the most obvious areas in which to raise tax—
§ Mr. Mackinlay
Truly, I am at a loss. As if it is an authoritative statement, the hon. Gentleman says that the VAT base has to be broadened. Who says? That is clearly divisive. Where did the hon. Gentleman get that great wisdom?
§ Mr. Carrington
The hon. Gentleman should look at statements by his party on the need to increase VAT to meet European objectives. VAT is one of the major revenue raisers upon which the tax system relies. If the VAT base was too narrow and it was levied on too few goods, it would have to be levied at too high a rate to be effective.
Widening the VAT base is right; the difficulty comes when it is levied on people who cannot afford it. That is precisely where the help for old-age pensioners comes in and makes VAT on fuel a more acceptable tax. The rebates are at about the right level to ensure that those who end up paying VAT on fuel will, for the most part, afford it, whether or not they want to afford it. The tax needs to bed down and in the end it will be accepted.
There is one other way of bringing Government revenues into balance, which is to cut public spending. I would strongly support any such measures and I am glad that the Budget outlined some moves in that direction. However, as has been said in our Budget debates on other 90 days, the reality of the cuts being made is to do more with inflation, a reduction in unemployment and the growth of the economy than with Government spending. That was probably inevitable because any easy cuts in Government spending have already been made. Any cuts in current Government spending would be difficult to make without causing serious hardship and lasting damage.
The changes that have occurred have been in long-term Government spending—for example, to the rising trend in social security payments and pension entitlements. They have been necessary to bring the long-term structure into balance. They are to be welcomed, but they do not really affect what is happening currently in the economy.
The Budget's overall picture of the economy is strong. It appears that within two years it will return to fairly robust health; certainly by the turn of the century it will be very strong indeed. That will provide the opportunity for jam tomorrow, which many of us would welcome. However, it raises problems because as the economy grows stronger, the amount of savings will begin to decline. That has already happened. The savings ratio—an imprecise measure, but the best that we have—has declined from 12.25 per cent. to 10 per cent. this year and is likely to continue to decline, possibly to as low as 8 per cent., in subsequent years. Therefore, I was pleased with the provisions in the Budget to liberalise the PEPs and TESSA regimes in order to encourage savings.
More will need to be done as the opportunity presents itself. In particular, we must encourage people to make their own investments. One of the principal obstacles to investment is capital gains tax. I strongly urge that the whole structure of capital gains tax be reconsidered. To have it set at a figure of 40 per cent. is punitive in the long term, even if it is justified in the short term.
As I understand it, the reason for setting capital gains tax at the same level as the top rate of income tax is purely to stop anti-avoidance—people converting income streams into capital gains tax opportunities. I can understand that and it may be a good reason for having a short-term rate of capital gains tax at a fairly high level; perhaps not as high as 40 per cent.—there are transaction costs in making such a conversion—but at a realistic level that still deters anti-avoidance.
Having long-term capital gains tax means that people do not retain investment for a lengthy period and therefore do not make the necessary long-term planning decisions to invest in the economy. We should consider incentives to encourage investment, of which the major one has to be the restructuring of the capital gains tax system.
I would like a cut in direct taxes when the right circumstances prevail. Far too many people are paying income tax. One of the facts that will emerge with the self-assessment system is that far too many people are required to submit income tax returns. There should be reform of the system to take more people out of paying income tax. We should also think again about the present income threshold of £8,500, above which everyone has to submit a return. That figure was initially set at a level that reflected the income of directors and higher-paid employees, but now it is about half the average wage. It is a ludicrous threshold and in effect is just a job creation programme for Inland Revenue officers.
91 We should consider carefully whether the tax benefit from large numbers of people on low incomes submitting returns is offset by giving the Revenue the means to catch people on low incomes who might otherwise avoid tax. That measure should be re-examined.
Taken overall, the Budget is extremely good. It will lead to stability, which is vital as Britain comes out of recession. It will enable industry to plan, people to save and a climate of certainty to prevail, which in turn will enable our economy to gather a strength that it has not had since the second world war. We will not be able wholly to eliminate the busts and booms in our economic cycle. It is too much to assume that we can get away from peaks and troughs because no Government have that sort of power. However, stability in fiscal matters will smooth the peaks and the troughs and enable the economy to continue to grow steadily over the years to come.
For that reason I welcome the Budget and I hope that it successfully overcomes its hurdles tomorrow night.
§ Dr. John Reid (Motherwell, North)
I am grateful for the opportunity to address this great assembly this evening. I always feel that the House is at its best when it is jam-packed.
Having listened to the Chancellor last week, I am a little concerned about his health. I know that he looks the picture of robust health and cultivates an image of bonhomie and strength, but he is beginning to suffer from an affliction which, unfortunately, has struck down so many Conservative Chancellors—chronic economic amnesia. The right hon. and learned Gentleman and his colleagues speak as though the Government have just taken office and compare this year's figures with those for two or three years ago. It is a contagious disease. The hon. Member for Fulham (Mr. Carrington) said—and it was a choice quotation—that he believed that within two years the economy would be robust. Within two years? The Government have already been in power for 15 years. He is effectively saying that within 17 years of the Conservatives coming to power, they may be able to speak of a robust economy.
§ Dr. Reid
There is a parallel with Moses' 40 years in the desert.
In two years' time, Conservative Members may find themselves talking about turning the corner some 17 years after coming to power. Indeed, the Prime Minister has made that allusion during the past few weeks. I have heard so often that the Government are turning the corner that I have a grave suspicion that we are on a roundabout. The Government's 15-year economic record is plain for all to see, and the Budget must be viewed against that background. The story so far is a sorry one of low growth, low investment, high unemployment and high deficits.
The Chancellor has not achieved that single-handed. No one person could have done that alone. Since the Government first came to power, there have been nine Chief Secretaries to the Treasury, five Chancellors of the Exchequer, and two Prime Ministers—soon, no doubt, three. That sustained team effort over 15 years has left the country in its present sorry plight. Only one right hon. 92 Member has the distinction of failing in all three offices, having served as Chief Secretary, Chancellor and Prime Minister.
Due to the Chancellor's efforts and those of his predecessors, this country has suffered lower growth than any other major industrial nation over 15 years of Conservative Government. The UK has achieved a growth rate of 1.7 per cent.—14 per cent. lower than the rest of the European Union, which had a growth rate of 2 per cent., 25 per cent. lower than the rest of the Organisation for Economic Co-operation and Development, which enjoyed annual growth over the same period of 2.3 per cent., and 30 per cent. lower than G7 countries, excluding the UK, with a growth rate of 2.7 per cent.
The Chancellor says that we can look forward to growth over the next year. Let us remember that we are in nearly the 16th year of Conservative Government. The country has suffered the lowest growth rate over the past 15 years of any major industrial nation. The only thing as consistently low is the Government's popularity rating over the same period.
§ Dr. Reid
The Government Whip protests. I can see that that may be a wrong comparison. The only thing much lower than Britain's growth rate is the Government's popularity over the same period.
Conservative Members have spoken at length about investment, but that is the same sorry story. The private business sector now has lower investment than—not this time last year or in the 1980s—but, as a proportion of gross domestic product, than in 1979: 15 years ago, when a Conservative Government first came to power promising that such would be confidence in British industry under them that investment rates would rocket. The figure is now 12 per cent. compared with 13 per cent. for 15 years ago. It is unlikely that any of the Chancellor's actions will remedy that.
Government investment is less than half that of Japan throughout the 1980s, and at a miserable 2 per cent. of GDP it is less than the G7 rate, excluding the United States. It is getting worse. The Government intend by their measures to have even lower investment in the public sector than over the past 15 years, which itself had lower investment than previously.
The Government almost abandoned manufacturing for almost a decade. We remember the time of the supposed technological and industrial revolution under Mrs. Thatcher, with everyone working in hairdressing and other service industries or in the City of London. Manufacturing investment fell by 28 per cent. from the start of 1990 to mid-1994. Over the past four and a half years alone, manufacturing investment has fallen by over 25 per cent. Total investment is still 8 per cent. below the level before the recession. In terms of both growth and investment, the Chancellor's task is not to achieve something that has arrived from nowhere but to overcome the deficits and disadvantages of 15 years of Conservative Government.
I have not said much about unemployment because when historians look back on this Government, they will remembered above all as the Government of unemployment. Despite some 30 manipulations of the figures, unemployment has more than doubled in the 15 93 years since the Government took power. Tragically, long-term unemployment has almost trebled, from 340,000 in 1979 to more than 1 million today.
The Conservatives say that we should consider not unemployment but the figures of those in work. They are just as illuminating. The UK is the only European Union or G7 nation to have suffered a fall in civilian employment between 1979 and 1993. The total number employed has been falling at an even faster rate recently. The much-vaunted fall in unemployment is often paraded by Conservatives, but there has been a fall in employment itself. When the Government say that unemployment has fallen—due mainly to rigging the statistics—and that unemployment has in fact fallen by 400,000 since the end of 1992, we must realise that employment has fallen by an even greater number. If anything illustrates the Government's ability to create not jobs but statistics to cover unemployment levels, it is that the number of people in work has fallen by a greater amount than the supposed fall in unemployment—by 440,000 since the bottom of the recession in mid-1992.
Conservative Members said that the country was emerging from recession, led by massive trade exports. For the first time—not since 1979, the second world war, the first world war or the Boer war, but since the industrial revolution, since 1780, when statistics were first created—the Government have created the unenviable record—
§ Dr. Reid
The hon. Gentleman dislikes me repeating this point, but we should shout it from the rooftops. For the first time since the industrial revolution, the Government have managed to produce a deficit in our balance of trade in manufactured goods. Over the past 15 years, manufacturing output has fallen from 30 per cent. to 20 per cent. of gross domestic product—a drop of 33 per cent. in manufacturing products over one Tory generation. There is a current account deficit of more than £10,000 million per annum stretching to the horizon.
Nothing short of the collective genius of a Tory Cabinet could have taken a nation of makers and traders, underpinned by two centuries of trading surplus, fortified by North sea oil and boosted by sterling depreciation, and turned it into a nation of trading debtors. That is the record that the Chancellor had to defend last week. I do not blame him alone. It has been a team effort, and only one member of that team has held all three Treasury posts—the present Prime Minister.
What of the effects on our constituents? I refer to a specific item in the Budget that affects my own constituents. I support the introduction of a landfill tax; it is only right that polluters should pay. I have a warning for the Chancellor, however. I have in mind the fact that we have to reclaim the great Ravenscraig site. Landfill is not only a pollution issue, because landfill can be used for reclamation and development. It would be bizarre if the tax was applied in the same fashion to landfill that was being carried out for a positive purpose, such as overcoming toxicity or enhancing redevelopment. I hope, therefore, that the Chancellor and his Ministers will be careful when drafting that tax provision.
Little positive is done in the Budget for the people of this country. Indeed, almost everything done in the Budget will affect our constituents for the worse. Three issues are relevant. The first is tax, which has concentrated most minds. I was interested when the hon. 94 Member for Hendon, South (Mr. Marshall), who is, understandably, not in his place at present, and his hon. Friend the Member for Fulham spoke about tax. I often ask myself why it is that when taxes are raised in the company sector, Conservatives describe them as "punitive". Whenever taxes are raised from ordinary individuals, it is because of some necessity to broaden the tax base. That is asserted as a requirement without any evidence to back up the assertion. It is taken as an a priori argument that it is a good thing to increase the tax on individuals, especially through VAT, but a bad and punitive thing to do the same to companies.
The Conservatives have created a minor poll tax for themselves through VAT on fuel. That tax has, with some justification, received the most attention in the press. However the Government tackle the problem, people out there realise that they will be hit. Despite the rebates, the most vulnerable in our society will be hit even harder. It will be a sorry epitaph if the Prime Minister has to enter the Tory conference not to the strains of "Land of hope and glory", but to the strains of "Keep the home fires burning, but only at low peep". That is precisely what the Conservatives have inflicted on millions of people. The imposition of VAT on fuel is another breach of a personal pledge by the Prime Minister. The Prime Minister has broken pledge after pledge; this one will not be forgotten.
It is not only a question of VAT on fuel. After this Budget, the average family will be almost £6 a week better off. Does it not show the level to which the Chancellor has stooped that he parades—I think that I slipped up. It was a Freudian slip; I was thinking of the next Labour Government. People will, of course, as you well know, Mr. Deputy Speaker—
§ Mr. Deputy Speaker
Order. The Deputy Speaker does not wish to be involved at all in this argument.
§ Dr. Reid
As anyone with the objectivity that some of our colleagues have—the objectivity that you are reputed to have, Mr. Deputy Speaker—would know, after this Budget, the average family will be worse off. Before the Budget and before a number of handouts, they were £860 worse off per annum. When we are told by the Conservatives that there is no way in which we can reject VAT on fuel because it is an essential element of running the country, no one is fooled. The poor and the vulnerable are being taxed this year so that a war chest, a sleaze fund, a tax cuts fund can be set up by the Conservatives in the naive belief that, yet again, they can go back to the British people 12 months before an election, cut taxes and say, "There you are. We have put taxes down again. Now vote us in so that we can put them up within weeks of the next election."
Under the Conservatives, people are taxed not only from the cradle to the grave, but when they sit in front of the fire, when they insure their cars, when they go on holiday and when they take out insurance. The Conservatives have extended the tax base far more comprehensively than did any of their predecessors. There is nothing but woe in terms of tax for the average family.
What is there in the Budget for the homeless or for those who seek to become part of the great property-owning democracy that the Conservatives are supposed to encourage? Once again, there is nothing. Indeed, impediments are now being placed in people's way. Such is the collective wisdom of the Conservative party that the reason why housing benefit has gone up 95 never strikes it. It has been explained to us in the Budget, and subsequently, that we must cut housing benefit because we are spending too much on it. Let us ask the Conservatives why we are spending too much on housing benefit.
First, the Conservative Government reduced the subsidy for council houses by slashing the central Exchequer fund for council housing for the rational economic reason that Mrs. Thatcher, the Prime Minister of the time, hated council housing and thought that council housing equalled Labour politicians elected locally. If the subsidy on council houses is reduced, it does not take an economic genius to work out that council house rents will rise. In the social sector, the Conservatives created the rise in rents.
Secondly, the Conservatives deregulated rents in the private sector. Thirdly, there was the decimation of the construction industry. If there is deregulation of the private sector, the withdrawal of subsidies in the council sector and a shortage of housing, according to the law of supply and demand, rents automatically rise. The Conservatives are now reaping what they sowed against the advice of the Opposition. There is nothing in terms of tax, nothing for the homeless and nothing for those on unemployment benefit.
There is nothing beneficial in this Budget. As the hon. Member for Fulham said, this is basically a sit-still Budget; the hon. Gentleman praised that. I prefer to think that the Conservatives have run out of ideas. They are now coming round to the third recession of their period in government. Like a rabbit in the glare of headlights, they sit transfixed. They are sitting waiting. The Foreign Secretary sits and waits for a blessed retirement. The Secretary of State for Employment sits and waits for his opportunity. The President of the Board of Trade sits and waits for his call. The Prime Minister, presumably, sits and waits for the men in grey suits. According to the speeches that I have heard, some of his Back Benchers are sitting waiting for the men in white coats.
Unfortunately, the people who suffer from that waiting are our constituents. They have waited long enough. It cannot be too soon until the Chancellor, his Prime Minister and his Government are thrown out and until a Labour Chancellor can introduce a Budget that will start our country's recovery.
§ Mr. Jacques Arnold (Gravesham)
I listened intently to the hon. Member for Motherwell, North (Dr. Reid), who told us that we are heading for a third recession. The fact is that we are coming quite fast out of the second recession. Perhaps the hon. Gentleman is giving away a natural lack of confidence. Perhaps he believes that in, say, 10 years' time, when we run into yet another recession, this Conservative Government will still be caring for the interests of the nation. Let us see what happens.
The hon. Member for Motherwell, North also dwelt lovingly on the past four years and on the impact that they have had on the average family—a period of recession and difficult times for that family. I admit that during the 15 years of Conservative government to which the hon. Gentleman referred, there has been some undulation in the economy. We had good recovery, then the first recession, 96 another good recovery and then the second recession We are now going into another recovery The hon. Gentleman failed to mention, however, that the average family is about £80 a week better off in real terms than it was when the Conservative Government came to power after the previous Labour Government.
The hon. Member for Motherwell, North referred to a "sleaze fund" and a "war chest" for the election. A Conservative Government ripping off less of taxpayers' money is not a war chest. That is leaving money with the people who earned it, and any Government should be working in that direction.
I have been present for most of the debates on the Budget statement. I have been most struck by the unanimous and strident line taken by most Opposition Front-Bench spokesmen in their speeches. On the first day of the Budget debate, the right hon. Member for Sedgefield (Mr. Blair) said:this Budget will go down in history as the VAT-on-fuel Budget"—[Official Report, 29 November 1994; Vol. 250, c. 1104.]One can understand the right hon. Gentleman's inability rapidly to absorb and comment on the Budget's considerable detail and therefore his reliance on a pre-prepared speech, but why take that line on a decision that was taken two years ago?
On the second day of the Budget debate, the first words of the hon. Member for Dunfermline, East (Mr. Brown) were:Yesterday, in what has become known as the VAT-on-fuel Budget".—[Official Report, 30 November 1994; Vol. 250, c. 1225.]I hardly think that this is a "VAT-on-fuel" Budget. On the second day of the Budget debate some two years ago, the hon. Member for Dunfermline, East made great play of the introduction of VAT on fuel. That was a Budget in which he gloated:For people paying VAT, there will be 'tax rises before breakfast, before lunch and before dinner.'I cannot help thinking that Labour Members condemning tax increases is rather like the devil renouncing sin. They have traditionally taxed and spent. They now propose to knock £3 billion out of the Government's finances by voting, yet again, against VAT on fuel. However, they do not say what taxes they would increase or what spending programmes they would cut.
Such fiscal irresponsibility would cause chaos in the financial markets on Wednesday morning and turbulence until March next year when the detail of taxation would finally have to be settled. The immediate chaos that would occur this week, which would destabilise sterling, would lead rapidly to damaging interest rate rises. That opportunism and irresponsibility from a Labour party that includes a carbon tax in its own party policy is particularly significant.
In the Budget debate two years ago, the hon. Member for Dunfermline, East said:I say that there is no recovery that we will call a recovery when it assumes that 3 million people stay out of work. There is no recovery that is worth its name which does not begin to put Britain back to work."—[Official Report, 17 March 1993; Vol. 221, c. 290–94.]He went on to predict that unemployment would rise for months thereafter.
97 As we all know, unemployment is down to 2.5 million and is falling. There was no acknowledgement of that welcome trend from the hon. Member for Dunfermline, East. For a more objective assessment we should note that Anatole Kaletsky in The Times on 30 November said:the economy and the public finances really are healthier than they have been for at least 25 years.Therein lies the explanation for the stridency of Opposition Members. A big enough barrage might drown out the clear message of this Budget: that this country is rapidly coming clear of the recession and is powering ahead. That will become progressively clearer to the electorate, and the bankruptcy of Labour economic policy will become clear too. The Opposition know that a trend—economic and then electoral—is clearly set and a succession of Opposition speeches today showed clearly that they had worked that out and that they are becoming windy.
Growth is 4 per cent. this year and manufacturing output is up 5 per cent. Industrial production is up nearly 6 per cent. Unemployment is down nearly 500,000 from its peak and it is falling faster. The current account deficit, to which reference was made, is down sharply and the public sector borrowing requirement is at last plummeting. Inflation is at a 27-year low, which is a tribute to firm monetary policy.
I draw the attention of my right hon. Friend the Financial Secretary to the Treasury, however, to the pressures on input prices of commodities and other raw materials. Important raw materials for factories in my constituency, such as lead for batteries, pulp for paper and plastic ingredients for containers, are priced internationally and they have all seen sharp increases due to world supply limitations. How the Chancellor reacts to the effects of that cost push will be important for further progress of the British economy.
I welcome the return in this Budget to the indexation of income tax basic allowances and in particular the priority given to the less well-off through the exceptional widening of the 20 per cent. tax band and to pensioners by the increase in their personal allowances ahead of inflation.
I also welcome the measures for small businesses and the assistance for new employment. I particularly welcome safeguards in respect of business rate revaluation. The small retail sector in Kent was very badly hit by the exceptionally high valuations that were made five years ago. I suspect that those valuations, which will come into effect next April, will be significantly less, thus reducing rate bills. Thanks to the Government's introduction of the unified business rate five years ago, the rate can go up only with inflation and therefore business rate payers are protected from profligate Labour councils.
Representing a Kent constituency, I am of course aware of the impact of the single European market on the off-licences, brewers and publicans in the county. The decision not to increase alcohol duties this year to diminish the differential between prices across the channel and in Kent is very much appreciated.
The House will be aware of my interest in Latin America, a region now growing rapidly with historically low inflation rates thanks to it following policies pioneered by the Conservative Government of free enterprise, privatisation and monetary discipline. There 98 are great opportunities in the region for British exporters and investors, but to achieve even greater success British exporters need to enjoy at least competitive terms for export finance. That is why I welcome the 10 per cent. cut in Export Credits Guarantee Department premium rates, which put them below the average charged by other G7 export credit agencies. The large increase of ECGD cover available for developing markets, such as those in Latin America, will also be welcomed.
I should like to consider a serious criticism. I want to draw the attention of the House to an aspect of fiscal and social security policy perpetuated and extended in this Budget which is doing progressive damage to the very fabric of our society and the families that make it up. There was a time when fiscal policies showed a strong bias in favour of the family unit. Over the past few years, we have split the taxation of the family. When a mother gives up paid work to care for her children, she forfeits not only her income but her tax allowance, which is worth at least £880 to the family and which is not transferable to her husband.
The married couple's allowance has been frozen and, therefore, eroded in value for the past four years. Its value is being further eroded by down-banding from standard rate to the 20 per cent. band this year and to the notional 15 per cent. band next year. The benefit to families has been reduced from £430 last year to £258 next year, a loss of £172. Furthermore, if the married couple's allowance had kept up with inflation and had continued to be applied to the standard rate, it would be worth £200 more next year.
Mortgage interest tax relief, of greatest value in the early years of a loan, tends to be of greatest benefit to families when they have purchased the family home, which they tend to do when the children are young. We have not only failed to upgrade it for inflation but we are down-banding its effect. In the south-east, where most families utilise the entire £30,000, the value of the relief has fallen from £1,200 at standard rate on 15 per cent. interest rates two years ago to £360 next year on the notional 15 per cent. tax band at reduced interest rates of 8 per cent. That loss of £840 is considerably offset by lower mortgage interest payments, but we should not underestimate the impact on families if interest rates rise in the years ahead.
For the average family with a full-time mother caring for the children, the impact of the loss of her income and tax allowance benefit, combined with the devaluing of the married couple's allowance and mortgage interest tax relief, is a severe squeeze on family net income.
We should contrast that squeeze with conditions for so-called one-parent families. Their finances have gone in the other direction. Wholly dependent on the state, or even with earned income comparable to that of two-parent families, lone parents today gain a favoured position through state benefits such as social security and housing benefits, all of which are not taxable.
Paradoxically, the Child Support Agency only accentuates that position. The role of a father as breadwinner for a young family is being economically undermined. The state is becoming a surrogate financial provider, with considerable social detriment, particularly to the development of children.
99 The Budget also increases pressures on mothers to go out to work. The personal tax allowance of a mother, which is otherwise useless, can be harnessed. The state reimburses lone mothers for child care costs when they go out to work. Mothers are being encouraged to switch from part-time to full-time work, not least by the announcement in the Budget of a £10 weekly premium on family credit for those who do so.
Social pressures are also building for women to go out to work, to the detriment of their young children. How often do we hear in the media denigration of the so-called non-working mother and praise of professional women who "manage their families"? We are seeing a growth in the number of latch-key children who get into trouble, delinquency or even crime. The growth in juvenile crime is surely not unrelated. I hardly think that the increase in creches and child minding is an improvement on mothers' care for their children.
A generation ago, the overwhelming majority of mothers stayed at home to care for their children. Financial and social pressures are forcing an increasing number of mothers out to work. Even so, 40 per cent. of women with children under 10 remain at home and an additional 35 per cent. work only part time. Even higher percentages do so among the C, D and E economic groupings. The irony is that they are a silent majority, putting their children first in their personal scale of priorities. The minority of full-time working mothers, particularly professional women, tend to be the most vociferous in the media and, I fear, are listened to disproportionately by Ministers.
All those pressures on mothers to go out to work are having unforeseen side-effects in addition to their effect on child care. In a rapidly changing economy, jobs are decreasing in mass-manufacturing and mining, to the detriment of young low-skilled males, and are increasing in high-tech and service industries, where they are increasingly being taken by women. That is leading to increasing unemployment among young men, who become more vulnerable to crime and who do not have the financial means to become worthy husbands and fathers. That leads to increasing single-parent families. We seem to be encouraging a vicious downward spiral. Our current fiscal, employment and social security policies are putting growing destructive pressures on the family.
I urge my right hon. and learned Friend the Chancellor of the Exchequer, as his economic policies produce more fiscal room for manoeuvre, carefully to consider the tax and benefit treatment of families. Should we not only enhance the married couple's allowance but authorise the full transferability of a full-time mother's tax allowance to her husband? Those issues are vital to our future as a nation. The Opposition do not even appear to have grasped the problems. The Labour party's social justice commission ducked them.
Benjamin Disraeli identified the Conservative working man as the chap who led a decent working life and cared for his family and its well-being and its future. We in the Conservative party should take up the challenge of our inheritance and back the Conservative working man.
§ 9.4 pm
§ Mr. Alistair Darling (Edinburgh, Central)
I sometimes wish that more members of the public could hear the hon. Member for Gravesham (Mr. Arnold) speak, not for the reasons that he would like, but because when I hear his onslaught against single parents, I believe that he speaks for a number of those on the Government Benches who characterise single parents as scroungers, as undeserving and as people who should somehow be reviled. That is most unfortunate and we hear it time and again from Government Members.
§ Mr. Darling
No, I will not give way now, but I may do so later. The hon. Gentleman is one of the people whom Mr. Maples had in mind when he wrote his memorandum.
§ Mr. Darling
No, I will not give way to the hon. Gentleman.
I shall refer to one non-controversial point that was raised by the hon. Member for Hazel Grove (Sir T. Arnold)—who I see is now in his place—about the scrutiny of the Budget. He said that there had been fewer economic debates than is desirable and he talked particularly about the Select Committee.
I remind the House that a year ago the Finance Bill was subject to a guillotine for the first time in recent memory. I understand why the Government guillotined the Bill. They did it for the curious reason that they did not want proceedings on the Finance Bill to conclude before the end of March because of a little difficulty with VAT—which has come back to haunt the Government this year.
One result of the guillotine was that a large amount of technical detail in the Bill was never scrutinised properly. Committee members were in the absurd position of finding that we had time on our hands, having exhausted the subjects listed for discussion, but we could not begin to discuss the necessary technical detail—probably in a non-partisan manner.
I should declare a vested interest in the debate in that I am a member of the Institute of Fiscal Studies tax reform committee which was set up partly in response to the fact that the Government are not looking—
§ Mr. Darling
I may give way to the hon. Gentleman, but not yet. I have made my position clear, and if the hon. Gentleman behaves himself I may give way to him later.
Any Finance Bill contains large sections that are non-controversial in party political terms, and if we are to do our duty as a House, and as a Committee which scrutinises the Finance Bill, we need proper time to review the proceedings. I hope that the Government are not, even now, thinking of some spurious reason for guillotining the Finance Bill yet again.
Listening to Tory Members' speeches, one might assume that the Conservative party had been in power for only the past two or three years. In fact, we are entitled to judge the Government on their performance over the past 15 years. In that time, we have seen low growth and high unemployment, there have been two 101 recessions and one unsustainable boom. Yet the Secretary of State for National Heritage, who introduced the debate this afternoon, said that the Government believe in stability. Stability is one of the things that we do not have under this Government and there is no sign that we shall attain it.
Despite the good news that they set out in their speeches, Government Members could not explain why no one believes what they say and why none of them responded to the memorandum prepared by Mr. Maples, who was a respected Member of the House and a respected member of the Government's Treasury team. He identified a major problem with Tory instincts: not the instinct for reducing taxation that we are constantly told about, but the Tory instinct for making the rich appear to be getting richer on the backs of the rest of the population.
§ Mr. Darling
For the sake of peace and because the hon. Member for Gravesham is referred to in the Maples memorandum, at least by implication, I shall give way.
§ Mr. Arnold
Will the hon. Gentleman face the fact that the scurrilous attack that he made on my motives, which he interpreted as an attack on single-parent families, exactly encapsulates the problem I spoke of? We are not facing the fact that, nine times out of 10, a two-parent family is better for children's development. A personal attack on me and the implication that I am attacking those mothers who, for one reason or another, have to bring up their children on their own is no way to deal with a very serious and growing problem.
§ Mr. Darling
The hon. Gentleman flatters himself. It was not a personal attack on him, as he well knows. I know from observing the hon. Gentleman during the past two years that he is no stranger to making attacks. I was attacking not his motives but what he said.
The 1994 Budget has been subjected to a deal of criticism, some of it perhaps unfair. "Workmanlike" was the best that I read, but other people were unkind enough to say that it was boring or even to suggest that some right hon. and hon. Members might have nodded off during its delivery. Others have said that it was remarkable only because it was the Budget after 1993 and the one before 1995. The 1995 Budget will be the interesting one because 1996 is down for election year.
I believe that some of the criticisms of the Budget are misplaced. At the risk of being controversial, let me say that I believe that it was fascinating and remarkable for two reasons. First, it tells us that the Tory party is deeply divided in what remains of its philosophy, between the right-wing members, some of whom were celebrating at Alexandra palace on Friday night, and those who want to occupy the middle ground of British politics—Labour's ground.
We saw signs of that right-wing legacy last week with the housing benefit measures. The Tories believe in rent control, but they want to use the tenant—a blunt and usually vulnerable instrument—as an instrument of control. There is now a restriction on the amount of help to be given to people who become unemployed and have a mortgage. No help will be given for the first nine months. The Chancellor's answer is that people should get insurance. Has he any idea of the cost of insurance? It can be as high as £7 for every £100 to be covered. 102 People in vulnerable occupations or who have been made redundant in the past may have to pay even more. Of course, the Chancellor did not say that when people take out insurance they will pay tax on top of the premiums. That is the double whammy for such people.
The second reason why the Budget is remarkable is that it raises a fundamental question—what are the Government for? What is their view of economic affairs? It seems to us and, I suspect, to a majority of the population, that their sole object is to be re-elected. Nothing else matters. The 1992 and 1993 Budgets increased taxes to record levels to pay for economic failure and to pay the bills that the Tories ran up to win the last election.
When the right hon. Member for Westmorland and Lonsdale (Mr. Jopling), who is not in his place, bemoaned the fact that some of the rebels would not come into line on the vote on VAT tomorrow night, as befits a former Chief Whip, he did not pause to reflect on the fact that one of the difficulties with VAT was that the Conservatives specifically said they would not increase the scope of VAT at the last election. They did not tell the truth. That is one of the reasons why the public are so unhappy about it.
We now move to phase 2 in a familiar cycle. Having raised taxes, the Conservatives plan to reduce them in 1995 so that the electorate will see the benefit of the reductions in 1996. The hon. Member for Corby (Mr. Powell), who is not here, said that Opposition Members were worried that the Conservatives might reduce taxes. No, we are not. The one thing that the Conservatives have blown once and for all is a matter of trust. People do not believe what the Conservatives say on tax or on anything else. They are not trusted. No political party can win an election unless it is trusted. So what are the Government for? Their sole purpose now is to buy votes, whatever the cost. The right hon. Member for Brent, North (Sir R. Boyson) was good enough to tell us that it was essential from the Tory party point of view to reduce taxes next year.
We have the absurdity that the Government are selling off Railtrack to raise funds to reduce taxes. As the Chancellor said, that was an integral part of the Tory calculations. That is not because there are any great benefits to the British public. Selling Railtrack will cost the taxpayer more from 1997 to 1998 because we shall have to pay increased subsidies to the operators to use the privatised rail track. Here we have an example of how the Government are going for short-term gain, which we the public and the taxpayers will have to pay for in the future.
There is no sign of stability. All that we have is great uncertainty. The Government's strategy of attempting to buy votes in 1996 will not work. A 5p reduction in the standard rate of income tax or the equivalent will not make up for the fact that, in the past two or three years, the Conservatives have introduced seven new taxes. That is equivalent to 7p in the pound. It will not work because people do not believe anything that the Government have to say.
Even in the past week, a new tax has been introduced. Value added tax is to be extended to certain travelߞpensioners travel, recreational travel and so forth—as my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) said. The people do not trust the Tories on tax and they never will.
103 The right hon. Member for Suttton Coldfield (Sir N. Fowler) spoke at the beginning of the debate. First, he had to take the precaution of reassuring the House that he supported the Government. It is a fine thing when a former Tory party chairman must start his speech with such reassurances. He wanted to stress that it was a mistake in political terms not to have introduced VAT on domestic fuel at the full rate. What a cynical approach. That is not the problem. Other Conservative Members identified what the problem is—the fact that they have introduced VAT rather than the fact that it was introduced in two parts. The right hon. Gentleman said that, for political purposes, it should have been introduced at one stroke because that would have made party management easier. That sort of cynical approach is one of the many reasons why people do not support the Government.
§ Mr. Darling
Despite the fact that I do not think that the hon. Gentleman has been in the Chamber all evening, I will give way.
§ Mr. Darling
The hon. Gentleman might be better informed if, first, he attended debates of this sort for their entire duration and secondly, if he cared to study our various policy statements.
The Government have no sense of direction or of the long term. Growth has been abysmally low throughout their full term in office—the past 15 years. Increasingly, as the Dudley by-election will show, the Government have lost touch with reality and with people the length and breadth of the country. The electorate are not looking for tax cuts designed to buy votes. No one likes paying tax, but if people are to be taxed they want to know that their taxes are going for some positive purpose. They look for a long-term improvement for themselves and their children. Increasingly, they worry about the future and they are afraid.
As the hon. Member for Rutland and Melton (Mr. Duncan) said, the Government face an electorate who are increasingly unsettled and suspicious. They are looking for a Government who are on their side and not on the side of privilege. The Government must not forget that people are faced with the prospect of VAT on fuel but see the chief executives of privatised industries, such as British Gas, getting huge pay increases, about which the Government do not even seem to care, let alone try to do anything. Is it any wonder that the people do not trust the Government and have no faith that they will act on their 104 behalf? So often they appear to be the Government of the vested interest and of privilege—the Government who have nothing to say for the vast majority of people.
§ Mr. Darling
I will give way to the spokesman for privilege and for those who have rather than have not.
§ Mr. Marshall
One is getting used to the hon. Gentleman's snide remarks. What would he do about the pay of the directors of privatised utilities? Is he in favour of a selective wages policy?
§ Mr. Darling
We pointed out that the regulator ought to have jurisdiction on such matters. As the hon. Gentleman raised the subject, I shall point out that the Prime Minister's formal call for restraint has been roundly rebuffed. I see that he has been considering alternatives, such as giving institutional investors, shareholders and others a greater say. At least the Government are beginning to recognise that there is a problem, which is a significant shift in the position that they took when the announcements were first made. We, on the other hand, are suggesting something positive.
People have every right to be afraid because, as my hon. Friend the Member for Warwickshire, North (Mr. O'Brien) and, I think, my hon. Friend the Member for Fulham (Mr. Carrington) said, if £6 billion is to be put back into the economy next year because of tax cuts, what will that do to inflation? The economy is growing. If the markets are to be reassured, the brakes will have to be applied hard after Christmas. There is a very real prospect of interest rate rises to slow down the economy after Christmas, to allow the Government to reduce taxes and buy votes. People will pay a double penalty. They have had high taxes and high interest rates, and they may have still higher interest rates to enable the Government to reduce taxes for the sole purpose of trying to win the next election.
Indeed, the problem of high interest rates is bound to strike fear into the hearts of many people, be they in business or elsewhere. Interest rate rises have been necessary so far because of the lack of capacity in the economy. That is because the Government will not accept that what is needed is investment in our economic capacity so that we can achieve sustainable non-inflationary growth. It is too early for the Government to start celebrating low inflation—the test for that will come in five or six years, and certainly after any election.
The Government have no purpose or direction and precious little philosophy left, but the Chancellor is trying to scramble to the middle ground, at least in part. However, the contradictions of the divided Government show through. Take the help—if I can call it that—for the long-term unemployed, the numbers of whom are growing at the rate of 350,000 a year. There is too little help, and why does it start only in April 1996? Does the year 1996 ring a bell? It may be an election year, and would not it be convenient if unemployment started to full in the summer before an autumn election? The Government know that there are very good social and economic reasons for tackling the problem of long-term unemployment, yet they are not prepared to do something about it until 1996.
Venture capital trusts are an example of a worthwhile idea which stands every chance of being undermined by becoming a major tax break for the few. I saw that one of 105 the professional magazines said that no one need pay capital gains tax again because of the 60 per cent. relief which is achieved when all of the reliefs are put together. If one is going to intervene and encourage people to save and invest—which we would certainly want to encourage—one should at least begin to point people in the right direction.
Where is the evidence that the Government want to point people to invest in those sectors that are not getting investment at present, such as high technology where there is a greater risk? Where is the guarantee that we shall not see a repeat of the business expansion scheme, where money was put into property and granny-farming, or into safe sectors in which people would probably have invested anyway?
If the Government want to read a critique of the business expansion scheme and all of its failures, they could do worse than to read a pamphlet written by the Secretary of State for National Heritage. The right hon. Gentleman is not in his place, perhaps because he suspected that I might mention the pamphlet. He wrote a very telling piece criticising the Government's policy on that scheme.
The Government are committed to intervention, despite what some of their right-wing adherents might say. The problem is that they do not yet know how to intervene in the public interest, although they know how to intervene in the private interest. [Interruption.] The Financial Secretary can fill in the Secretary of State for National Heritage, who has just arrived.
The Government have no sense of the long term. What about the reforms to the capital gains tax regime which we were promised? What happened to the review? In fact, the Secretary of State for National Heritage walked in right on cue. When he was still Financial Secretary, he was charged with reviewing the policy on the payment of dividends. He started the review, but Lord Hanson, who bankrolls the Conservative party—one of the few who still does—told the Prime Minister that the review would have to be stopped because the Financial Secretary seemed to be too much like a socialist.
The Prime Minister, full of resolution and strength, agreed to stop the review immediately and made an announcement to that effect. Then, more and more people said that the review was necessary and, according to today's Financial Times, the review has started again. I hope that the present Financial Secretary will tell us whether the review of the payment of dividends by companies started by his right hon. Friend has been started again, whether it is still on ice or whether it has been scrapped. Perhaps we should know.
We believe that a review of the corporate tax regime is absolutely essential, which is why we propose to establish a review committee examining the whole issue of dividends and other reforms to the corporate tax structure which we believe to be long overdue and which the Government should have done.
The Government also ought to review their competition policy in the light of Mercury's announcement today and, in particular, the announcement that Mercury pay phones are to be taken off the streets. Many of us believe that the Government's commitment to competition in the private sector does not run as deep as it should do.
106 The public have more sense than the Government think. They know that the Conservatives lied about tax in 1992, and about VAT, to which I shall return briefly. Many people do not make the connection between VAT and the British constitution, but it was significant that, in opening the debate this afternoon, the Secretary of State for National Heritage began by discussing the British constitution. It was also significant that, on Friday night, the Prime Minister defended the British constitution and suggested that no changes were necessary. The last time that he did that was when he thought that he was in political difficulty, and he has done it this time because he is in political difficulty. The only reason why the Conservatives have raised the issue of the constitution and criticised those who wish to amend parts of it, particularly those of us who want to see reform of the relationshipߞ
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. I am not clear that that falls within the remit of our present subject.
§ Mr. Darling
The Secretary of State for National Heritage first raised the matter and I am replying to the debate. To be fair to you, Madam Deputy Speaker, he was admonished for doing so and I was simply pointing out that the matter was raised to deflect attention away from the divisions on VAT and, of course, on Europe.
We need a Government who are committed to the long term. For example, the Government's track record on investment is poor. In the course of his Budget statement, the Chancellor said much about the finance initiative which his predecessor and then he announced some two years ago. Let us look at the facts. Of the 78 projects announced two years ago, only 12 have got off the ground. Although £5 billion of private money has been levered into those projects in the past two years, £4.5 billion has been cut from public spending. So there has been a net reduction in the amount of investment at the very time when we need it.
In the Budget, the Chancellor announced a cut in rail investment. We know the problems with a lack of a link between the channel tunnel and the rest of the rail network. We have had problems with the Northern line and there are problems with the Heathrow express, where the most visible sign of activity is parts of Heathrow slipping into the mud. We believe that the private finance initiative needs fresh impetus. The Treasury is now reviewing each and every project. Some of us believe that that will lead to greater delay, although there is certainly a need for more clarity and openness.
There is also an urgent need for the Government to make real proposals to tackle the problem of long-term unemployment, such as we have proposed. That is important for both economic and social reasons. We should spend some time—perhaps not tonight—reflecting on the more unpleasant changes in society that the Government have brought about. The Chancellor talked of his concern about a deprived underclass. Many Opposition Members and, I suspect, many Conservative Members know that that underclass is already here and has been here for some time. We should all be concerned about the fact that a second generation of unemployed people with no prospect of work is now appearing in towns and cities.
There have been lower living standards for a growing number of the population. It has been estimated that almost a third of the population has seen no increase in 107 standard of living for the past 14 years. Above all, there is a perceived lack of fairness from the Government. Many people believe that the true Tory instinct is not tax cutting—in fact, Tories increase taxation—but lack of fairness.
A minimum wage would begin to put right the problem that is now arising because the Government are driving down wages. We cannot compete with the developing world on low wages; we can compete on quality. To get quality, we need a highly skilled, highly motivated work force and anyone who fails to see that is doomed to economic failure. For society as a whole, what happens to our neighbour matters in a social and economic sense.
The Government need a positive attitude to Europe. What happened to the Prime Minister's slogan that we must be at the heart of Europe? We shall see in the next two or three days.
On education and skills, is it not astonishing that, with nearly 3 million people unemployed, many parts of the country have skills shortages because the Government will not face up to the fact that it is necessary to invest in education and skills if we are to compete with the rest of the world? We have had none of that. Instead, we are confronted by a Government party deeply divided—so divided that I see today that the Secretary of State for Social Security had to call on his faction to rally round the Prime Minister on the vote on VAT tomorrow night.
This year's Budget is fascinating because it reveals the Government's true problems—their divided philosophy and their uncertainty as to why they are there or what they want to do. They are united only in the interests of keeping themselves in power. They are torn between competing philosophies. They end up pleasing no one because they do not know which way to follow. They have no idea why they are in power other than the fact that they want to stay there. There is no purpose other than trying to be re-elected. Everything, it appears, is now pinned on tax reductions in 1996. That will not work, because the Government have lost the trust of the people, and no party will ever win unless people trust it.
The Government seem to have nothing else to say. They have no long-term view, no ideas for reform, no idea of social justice and no concept of society. The Government have run their course. They are out of touch; they are remote. People are looking for a change, and they will get that under Labour.
§ The Financial Secretary to the Treasury (Sir George Young)
The debate has been first class, and I shall try to answer the many points that hon. Members on both sides of the House raised.
I begin with what I thought was the saddest remark in the debate—a remark by the hon. Member for Thurrock (Mr. Mackinlay), who explained why he attended an Adjournment debate last week: "I never go home." Having answered more Adjournment debates in the House than any other Minister, I have to say to the hon. Gentleman that, confronted with the wide range of entertainment available in the capital, as outlined by my right hon. Friend the Secretary of State for National Heritage in his opening speech, to choose to attend an Adjournment debate in the House exhibits unparalleled 108 commitment. Looking around the Chamber tonight, I see that some other hon. Members are not confronted with the same problems that have confronted him.
I shall deal straight away with an issue mentioned by the hon. Member for Edinburgh, Central (Mr. Darling), on passenger transport. During the day, the Opposition have criticised the removal of VAT zero rating for transport provided as part of entertainment services. It is typical that they have concentrated on scaring people rather than putting forward the facts, and they talk about closing loopholes but oppose the Government when the Government do so. I want to put the record straight.
The measure that the Opposition have mentioned during the day restricts zero rating for passenger transport to what any reasonable person would call passenger transport and to what Parliament intended when the relief was first introduced, so it stops favourable tax treatment for trips in hot air balloons, round trips in Concorde over the bay of Biscay, and so on. Zero rating will continue for independent coach travel to football matches organised by supporters' clubs, mountain railways, steam train rides that are complete in themselves rather than, for example, part of the entrance to a museum, and so on. The tax treatment of canal boats—an issue that seems to have assumed dramatic proportions—should remain unchanged.
The attack on VAT on fuel made by the hon. Member for Islington, South and Finsbury (Mr. Smith) has been made less effective by the interview that he gave with Green Magazine in February 1993, when he said that Labour had been thinking of a number ofsmall but effective tax measureswhich includedincreasing VAT on environmentally unfriendly products".Then he was demolished by my right hon. Friend the Secretary of State for National Heritage when he started championing loopholes. My right hon. Friend pointed out—
§ Sir George Young
No. I will finish this point and then I will give way.
On loopholes, my right hon. Friend pointed out that the Labour party voted against a loophole on capital gains tax in last year's Budget—a loophole that the Government have closed, bringing in revenue of £300 million in a full year.
§ Mr. Smith
I think that the interview in Green Magazine has now been quoted about five times by Conservative Members in the House, and every time I give the same reply, because they do not appear to listen or understand. As I clearly said, we were talking about small matters, such as VAT on unleaded batteries. If the 109 right hon. Gentleman cannot tell the difference between a leaded and an unleaded battery and someone's fuel bill, he is even more stupid than I think he is.
§ Sir George Young
I have to say that that would be a rather ineffective response to the environmental challenge that I thought that the hon. Gentleman took seriously when he had an environmental responsibility.
However, the astonishing climax came at the end of the speech of the hon. Member for Islington, South and Finsbury, when he accused us of "paralysis". Four per cent. growth, the highest rate of growth in Europe, record exports, an 11 per cent. increase in business investment next year, unemployment falling—he calls that paralysis. We can be grateful that he chose a career in politics rather than in medicine.
We welcome my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) to the Government Back Benches and the liberation that that can bring with it. He rightly focused his remarks on the needs of pensioners and drew on his experience as Secretary of State for Social Services to stress that we must safeguard the interests of those who have retired in the context of the benefits of the recovery. I am sure that my right hon. Friend has noticed that in the Budget we have over-indexed age allowances in recognition of the very factors that he mentioned.
The hon. Member for Burnley (Mr. Pike) alleged that our plans are unsustainable because they rely on the proceeds of privatisation. If he studies table 4.5 on page 69 of the Red Book, he will find that next year privatisation will provide the resources for less than 1 per cent. of Government expenditure, falling to a third of one per cent. in 1998–99. There is no over-reliance on privatisation proceeds in our forward plans.
My right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling) focused on the cost of servicing the national debt. I know that he will welcome the £42 billion reduction in public expenditure over four years which has been achieved. My right hon. Friend will be interested to know that that will save over £3 billion a year at current long-term interest rates. He was good enough to compliment my right hon. and learned Friend the Chancellor of the Exchequer on achieving the goal of growth with low inflation.
The hon. Member for Bath (Mr. Foster) was rather condescending about part-time jobs. It is worth noting that a recent survey showed that 85 per cent. of those with part-time jobs wanted part-time jobs. The Liberal Democrats now oppose the imposition of value added tax on fuel, yet they produced a policy document entitled "Costing the Earth", in which they stated that theyadvocate as a first priority the imposition of a tax on energy … The UK is unusual amongst EC members in not applying even standard rates of VAT to domestic fuels … If it proved completely impossible to persuade our international partners to adopt energy taxes, we would nevertheless press forward, but phase them in at lower levels than otherwise—for example, by ending the anomalous zero-rate of VAT upon fuel".The hon. Member for Bath moved on to education and the revenue support grant statement that was made on Thursday by my right hon. Friend the Secretary of State for the Environment. My right hon. Friend said that there is always concern at this time of the year about the prospective reduction in the number of teachers for the 110 following year. He demonstrated, however, that such fears have proved groundless and that the number of teachers employed has increased from year to year.
My right hon. Friend the Member for Brent, North (Sir R. Boyson) said that the Government were too big and that there were too many Ministers. He will not expect a sympathetic response to that from the Government Front Bench. Of course, since my right hon. Friend left the Administration, more Ministers are required to do the same amount of work. He made an ingenious suggestion to exempt the elderly from VAT. There are some administrative difficulties in his suggested solution as well as scope for abuse. For example, an electricity account could be put in the name of a pensioner if a pensioner was a member of the household. My right hon. Friend's solution would not meet our requirements.
The hon. Member for Motherwell, South (Dr. Bray) made a serious speech, as one would expect from him. Instead of talking about this Budget, he talked about the next Budget. Not only that, he told us what would be in it. He then went on to tell us that we could not afford it. He forecast the date but not the result of the next general election.
The hon. Member for Motherwell, South wanted further steps taken to reduce unemployment. He will know that unemployment has been falling for some time. The Government's priority was to ensure that the welcome fall in unemployment reached those who, for whatever reason, had remained outside the job market over the past two years. As the hon. Gentleman knows, we have done that through a number of measures, with incentives for employers and employees. Some of those measures will be implemented next year, and one in April 1996. The measure to be introduced in 1996 will be relatively inexpensive compared with those that are to he implemented next year. The most expensive measure in terms of revenue forgone is the reduction in national insurance contributions, which will begin next April.
My hon. Friend the Member for Twickenham (Mr. Jessel) gave the debate a nautical flavour, introducing the theme of "Steady as she goes." Unusually for a Conservative Member, he made a plea for higher taxation—higher taxation on tobacco. As he knows, the Government are committed to real increases in the cost of tobacco, explicitly for the health reasons that he rightly mentioned. I shall write to him about the points he raised on auction houses.
The hon. Member for Warwickshire, North (Mr. O'Brien) made a rather grudging speech, recognising that things were looking slightly better but giving the Government no credit for that. Let me quote from the Co-operative bank's 1993 report: if the hon. Gentleman does not take it from me, he may take it from the bank. The report states:if the Government can continue to fund and reduce its borrowing requirement whilst maintaining low inflation, low interest rate environment and establishing steady growth, then the prospects for many of our UK customers will be better than at any time during the last five years.If that does not work, how about the annual report of MAI, a well-known public company with a well-known socialist as its chairman? Its 1994 annual report stated:All of the markets in which the group operates are characterised by great opportunity, rapid change and increasing competition … The outlook for television advertising, and motor car and information sales is encouraging.111 I see from that latest annual report, however, that the company's chairman made no political contribution in 1994.
Let me take up a technical point put to me by the hon. Member for Warwickshire, North about funding the public sector borrowing requirement. He is right: we have sold £18.7 billion worth of gilts already, and there are £10.5 billion to go.
My hon. Friend the Member for Hazel Grove (Sir T. Arnold) raised an important procedural point: how does the House monitor the expenditure incurred by the Government, and how does it monitor economic policy now that the Budget and the Queen's Speech are so close together? He will understand that replying to those questions goes way beyond my negotiating brief, but I know that my right hon. and learned Friend the Chancellor and the Leader of the House are aware of the issues, and that they are being discussed through the usual channels.
The hon. Member for Londonderry, East (Mr. Ross) reminded the House of the opportunities to promote further economic recovery in Northern Ireland on the basis of the welcome political stability that we are now seeing. He approved of nil PSBR, and of the measures that we have taken to balance our budget; however, he drew back from an important component of that strategy—the imposition of VAT on fuel—making it clear that he and his party had always resisted that measure.
My hon. Friend the Member for Beverley (Mr. Cran) put the Budget in a broader perspective, reminding us that internal discipline—getting a grip on public expenditure—was as important as the external discipline imposed, as he put it, by the exchange rate mechanism. He welcomed the determined and considered policies of my right hon. Friend the Secretary of State for Social Security to curb the rise in social security expenditure, and made it clear that he was against high taxation.
I listened with interest to the speech of the hon. Member for Birmingham, Northfield (Mr. Burden). As he said, I was a housing Minister, and spent some time in Birmingham taking a close interest in the problems that he described. He did not mention the extra help that his city is given through the housing action trust in Castle Vale, which means that the Government are directly bearing a responsibility that would otherwise have fallen on the shoulders of the city council. The area is also helped by city challenge, and by the work of the development corporation. As for housing, I am sure the hon. Gentleman knows that the Government have more than kept their manifesto commitment in regard to the number of new lettings.
My hon. Friend the Member for Corby (Mr. Powell) rightly pointed out that low interest rates could be as important as low tax rates. He then made what I am sure all who heard it would agree was a brave and honest speech, in which he shared his dilemma with the House. On one hand, he made it clear that he disliked the imposition of VAT on fuel; on the other, he recognised the wider implications for the Government that would follow if we did not proceed with the measure. He said that he would consider his position before tomorrow's vote. I hope that the wider implications for the Government as a whole will be at the forefront of his mind in coming to a decision.
112 The hon. Member for Lewisham, West (Mr. Dowd) brought some colour to an otherwise colourless speech by quoting from the Maples memorandum, a document about which we have heard even more than the interview of the hon. Member for Islington, South and Finsbury with Green Magazine. We move from the Maples memorandum to the Melton memorandum, an ingenious plug for a publication that my hon. Friend the Member for Rutland and Melton (Mr. Duncan) has recently produced. He put in a broader context, the context of what has been happening for decades, the Budget strategy of getting public funds on a sound basis and coming to terms with the economic cycle. He mentioned the disarray that could follow if the VAT on fuel decision were reversed. He also said that what is right is not always immediately popular. I think that all Conservative Members are conscious of that. I shall write to my hon. Friend about his specific point on widows' pensions.
The hon. Member for Southampton, Itchen (Mr. Denham) focused on the income support changes on mortgage interest. He was wrong to describe it as a new tax, because under the current system the taxpayer is funding over £1 billion of income support in the circumstances that he described. We are seeking to move from a tax to insurance, placing the liability where it rightly belongs. The hon. Gentleman will know that there is no change for existing claimants. For existing borrowers who claim in future, there are some modest changes which would add, on average, £600 to the amount of debt outstanding. I doubt that that would oblige any building society or bank to foreclose. A new regime which will come in next year is designed to promote a new market in insurance. As I have said, we propose to place the responsibility for insurance where it rightly belongs.
My hon. Friend the Member for Bury, South (Mr. Sumberg) made a courageous speech. He was the only hon. Member in the debate to focus on help for businesses through transitional relief. He was right to focus on that because it is one of the more generous measures in the Budget, albeit a one-year measure. It will be greatly welcomed by many small and large businesses. My hon. Friend made a constituency point, on which I know he feels strongly, when he mentioned the reduction in investment in roads and hoped that it would see the end of the road which I know he has strongly opposed in his constituency. He reluctantly concluded that he would be unable to support the Government in tomorrow's vote. His reason was that the policies have worked and he painted a rosy picture of economic prospects and used it to justify reversing the decision. But prospects are rosy precisely because we took difficult decisions last year to get the public finances in balance. We risk forgoing that rosy picture if we begin to unpick the foundations of the successful recovery.
My hon. Friend the Member for Hendon, South (Mr. Marshall) said that capital gains tax was too high and that he would like to see it reduced. He outlined measures to fund that reduction. I understand that he was supported by my hon. Friend the Member for Fulham (Mr. Carrington).
I regret missing the speech by the hon. Member for Motherwell, North (Dr. Reid), but I shall read it with interest, not least because he is my pair and I should like to know exactly what he is getting up to.
My hon. Friend the Member for Gravesham (Mr. Arnold), who has sat through more of the Budget debate than many other hon. Members, said that import prices 113 are buoyant. A year ago, import prices were rising faster than inflation and everybody thought that that would inevitably feed through to the retail prices index. In practice, that has not happened, partly because of competitive retail pressure, and we hope that that will continue. However, it is right to put down a marker. My hon. Friend made an important point about the tax treatment of married couples. A married couple will still pay less tax than two individuals with the same income, so there is an inbuilt bias in the system towards those who are married. My hon. Friend said that the reduction in the MCA has somewhat eroded that advantage over recent years.
There has been some inconsistency in Opposition speeches over the past four or five days. First, Opposition Members say that we have taxed too much and, secondly, they say that we spend too little. But taxes and spending are two sides of the same coin. When one presses Opposition Members they come up with a variety of solutions, such as windfalls, loopholes and the spending of capital receipts. I am bound to say that their arguments lack credibility. We cannot fund continuing revenue commitments with windfalls or one-off receipts. Even if we had the one-off receipts in year one, they would not pay for the revenue commitments in year two.
Listening to Labour Members trying to justify their spending aspirations by referring to windfalls and loopholes is like watching a very large lady trying to get into a small dress—there is simply inadequate cover for all the liabilities. Spending the capital receipts, which would not have even existed if we had listened to the Labour party, would lead to an increase in borrowing and public expenditure.
At some point during the five-day debate, in which nine Opposition spokesmen have taken part, the House is entitled to a few answers to some fairly basic questions. I do not mean the details given by my right hon. and hon. Friends in the "Financial Statement and Budget Report" but simply a rough idea of where the Opposition are going. As my hon. Friend the Member for Gravesham said, they can no longer hide behind the skirts of the Commission on Social Justice.
Would the Labour party spend more or less than a Conservative Government? Would it raise more or less in taxation? Would it borrow more or less? Would its inflation target be higher or lower? A party that can produce page after page of turgid, multisyllabic prose on contemporary economic theory should be able to answer, in a few monosyllables, the key questions that any responsible party should answer.
I want to say a word about the work incentives package, to which a number of my hon. Friends have referred. It is one of the exciting themes running through the Budget. As everyone has recognised, unemployment has fallen significantly as the recovery has gone from strength to strength. However, long-term unemployment is still too high. Our priority must be to help people who have been out of work for long spells to get back into work.
We want to ensure that no group is excluded from the benefits of recovery. That is why we are introducing a £680 million package of measures to improve the incentives for the unemployed to get back into work. It is an innovative, well-thought-out package, which has been well received by commentators on the Budget.
114 We arrived at the package by listening to the unemployed and to the employers. We discovered the real problems that deterred people from taking work and employers from offering them jobs. We have done more than listen; we have done something about it. We are encouraging employers to give the unemployed a further chance by making them cheaper to employ with the cut in national insurance contributions for the lower-paid and, eventually, a national insurance contributions holiday. We are also giving employers the chance to try out people in a job before deciding whether to take them on permanently.
We are ensuring that the unemployed are not temporarily left hard up for money when they leave benefit to start work. We are paying them the benefits to which they were entitled if they take a low-paid job. We are also giving them more help with initial work expenses, such as clothes and tools. We are giving help to the many unemployed people who say that they have to have a full-time job to meet their financial needs. We are giving people with children who work full time an extra £10 a week in family credit. We are introducing new incentives for people who have not been able to find a full-time job to use part-time jobs as a stepping stone to full-time work.
We will improve the chances of the unemployed to find a job by keeping them in touch with the world of work. We will be giving them work experience and advice on how to look for work effectively through community action. We are giving 18 to 24-year-olds intensive help in how to search for work. We are trying out new ways to help unemployed people who do not have children—the biggest group of people out of work for a year or more. We are piloting new benefits for people without children who take low-paid work. That is a major innovation in social policy.
§ Mr. Darling
Will the Financial Secretary answer my question about the review of dividend payments started by his predecessor? Is the report in today's Financial Times that the inquiry has restarted true? If so, who is conducting that review and when will the conclusions be published?
§ Sir George Young
My right hon. and learned Friend the Chancellor made it clear in his Budget statement that the industrial finance initiative underpinned a number of his Budget proposals, particularly in the provision of finance for small and medium enterprises. Finance for industry remains an important issue, as stressed in the competitiveness White Paper. As to dividends, my right hon. and learned Friend announced no change in the value of the tax credit or in the rate of advance corporation tax for 1995, but those items will, as usual, be kept under review.
More generally, the formal consultation associated with the industrial finance initiative has drawn to a close, but the results will inform Government decisions in future, and will be announced as and when appropriate.
§ Mr. Darling
I gained the impression from the press report that the consultation had restarted. Until now, the Government's official position has been that the review was scrapped because Lord Hanson told the Government to stop it. The Minister appeared to confirm that the whole consultation has finished, and that the results will not be published because they might be embarrassing.
§ Sir George Young
That should come as no surprise to the hon. Gentleman, because I announced that in Treasury 115 questions, and my right hon. and learned Friend the Chancellor made it clear in his speech to the Confederation of British Industry. There never was going to be a formal White Paper, but the consultation was a valuable exercise that will continue to inform Government decisions.
The Government are committed to reducing fraud and to improving compliance. We want to bring to book people who try to escape the true extent of their tax liability. If we are successful, that will benefit the wider tax-paying population. The Government's yield from compliance work in 1993–94 was equivalent to 2.5p in the basic rate of tax.
My right hon. and learned Friend's Budget statement mentioned that we have instituted a programme of closer working between the Inland Revenue and Customs and Excise. As part of that, those organisations will remove many of the restrictions that currently limit the flow of useful information between their local offices. That will allow tax officers in both organisations to enjoy a better overall picture of taxpayers' affairs and help them to combat non-compliance more effectively.
Although taxpayers are expected and encouraged to comply voluntarily with their tax obligations, some choose to pay less than their full duty or nothing at all. The Inland Revenue looks to investigating a wide spectrum of individuals, companies and businesses to maintain compliance across the board. More than 90 per cent. of cases taken up for investigation result in additional duties being assessed.
The Revenue's total compliance yield in 1993–94 amounted to £4.7 billion. That covers all aspects of its compliance work, from inquiries about the technical merits of an account to in-depth investigations. The Revenue, in the drive to improve its compliance activities, keeps resources under review, redeploys staff as and when necessary, and monitors the quality of investigation work. In the 1993 public expenditure survey, the Government arranged an increase in compliance work staffing equivalent to more than 100 fully trained inspectors.
The hon. Member for Edinburgh, Central asked about executive pay, board pay and the rest. My right hon. Friend the Prime Minister has made it clear that he does not agree with excessive and unjustified pay increases. He 116 made it clear also that prices charged by utilities are a matter for the regulators. Boardroom pay is a matter for shareholders, as in all companies.
Shareholders already have the ability to exercise influence by raising questions at annual general meetings or, in the case of institutional holdings, by exerting behind-the-scenes pressure. I welcome the reports of the National Association of Pension Funds, which is minded to take a more aggressive approach at AGMs, using its considerable voting power to ensure that any abuses are restrained.
Ministers are always ready to consider ideas for improving shareholders' powers and information. It was announced in the White Paper on competitiveness that the Government have been reviewing a number of aspects of company law, including directors' duties. Those and other matters fall within the remit of Cabinet Sub-Committees.
It is especially interesting that some hon. Members are clearly worried that taxes may, at some point, come down. As Labour has put so much energy into attacking any tax increases, I hope that we shall not have any nonsense from Labour Members if and when taxes come down. What this country now wants are solutions and not sound bites. What this country wants are policies and not pantomime. What this country wants are remedies and not rhetoric. What this country wants are goals and not gimmicks. What the people will get from the Conservatives are remedies, goals, policies and solutions. All they will get from the Opposition are sound bites, pantomime, rhetoric and gimmicks.
It being Ten o'clock, the debate stood adjourned.
Debate to be resumed tomorrow.