Budget Resolutions and Economic Situation

HC Deb 06 December 1994 vol 251 cc159-250

Madam Speaker

I must tell the House that I have selected the amendment in the name of the Leader of the Opposition to the first Ways and Means motion. It may be convenient if, at this stage, I also announce that I have selected the amendment in the name of the Leader of the Opposition to the motion on public expenditure, which is being debated together with the Budget resolutions.

4.24 pm

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

The economic policies of the Chancellor, of which this Budget is an essential part, are long term. The first priority for a successful industrial and commercial policy is to establish economic conditions within which enterprise can flourish. The single most important part Government can play in fostering growth and improving competitiveness is to provide a stable macro-economic background.

The Government's' overall economic objective is to promote sustained economic growth and higher living standards. Last week, my right hon. and learned Friend the Chancellor presented the Government's taxation and spending plans for the next three years, enshrining those guiding principles. This was a Budget that concentrated on securing a healthy, lasting recovery. This was a Budget to reduce long-term unemployment and to get us out of debt. It offers the best prospect that the British people have faced for decades to enjoy the benefits of growth which does not pass through illusory boom to painful bust.

Overhauling the tax system every year can often make good newspaper headlines, but it can also have an unfortunate effect on the economy. Our priority is, as it must be, to ensure sustained, low-inflationary growth, which is our best chance of delivering the higher living standards that our people expect and deserve. Low inflation and sound public finances are an essential prerequisite for a successful and expanding economy. They are not optional extras.

A stable macro-economic environment is vital to give business the confidence it needs to invest in the future. Inflation is the enemy of investment; it erodes profits and encourages safety-first, short-term attitudes. That is why the Chancellor set a target for underlying inflation of 1 per cent. to 4 per cent. and aimed for the bottom half of that range. Underlying inflation is, at 2 per cent., at its lowest level for a generation. It has been below 3 per cent. for 13 consecutive months, the longest run since 1964.

Our public finances are firmly on track to be in balance by 1998 and in surplus by the end of the decade. Total Government spending is set to fall by £28 billion over the next three years. That is not just the effect of low inflation, welcome though that is. It involves real spending cuts to reduce further the amount of national income taken by the state.

Mr. William Cash (Stafford)

Does my right hon. Friend agree that the gas and fuel tax is being imposed largely because the time that we spent in the exchange rate mechanism when we should have got out led to a massive increase in our public sector borrowing requirement? It went up to £50 billion with the accumulated social security and other costs. In fact, this new tax, which amounts to a breaking of our tax pledges in the manifesto in terms of both tax and public expenditure, is being imposed simply to retrieve the mistakes made as a result of remaining stubbornly in the exchange rate mechanism when we should have come out.

Mr. Heseltine

I am afraid that I must say that many of my hon. Friend's speeches are fairly repetitious. One would think that the whole of human history started and ended with our leaving the exchange rate mechanism.

The Chancellor has explained clearly the overall balance that his judgment in the Budget is intended to achieve. I am now setting out what I believe to be the important background to that. That background, coupled with the continued flow of good economic forecasts, provides one of the most optimistic scenarios for industry and commerce that many of us can remember.

The House is all too familiar with obligatory attempts by the Opposition to undermine any announcement or statement that portrays this country in a favourable light. What the Opposition cannot ignore is the massive vote of confidence from the outside world when it confirms its judgments about what is actually happening in the British domestic economy. The Organisation for Economic Co-operation and Development predicts that the UK economy will be the fastest-growing major economy in the European Union this year. Our exports have soared to all-time record levels, inward investment is transforming our older, more traditional, workplaces and nation after nation is copying the ideas developed here to privatise our industries and deregulate our practices. It is this that gives the lie to the Leader of the Opposition's assertion in his opening speech on the Budget that we have no long-term strategy.

It is clear for all who want to see that we are delivering a strong and prosperous economy. What is more, we are putting in place the conditions to ensure that it remains that way. The Labour party simply cannot understand that the UK's economy has been transformed over the past decade.

Mr. Thomas Graham (Renfrew, West and Inverclyde)

In Strathclyde, since the Tories came to power, we have lost more than half our manufacturing jobs—more than 166,000 jobs. In the first half of 1990, we lost 30 per cent. of manufacturing investment. In 1994, we have lost 30 per cent. of manufacturing investment in Britain. Is the Minister saying that the glory hole is round the corner? We have heard that, yet the Tories are going on and on with their mismanagement of our manufacturing base.

Mr. Heseltine

The way in which the hon. Member seeks constantly to run down the achievements of the Scottish people is immensely dispiriting. The Scottish people are attracting massive inward investment from some of the world's most advanced high-technology companies. Anybody who goes to Scotland and sees what is happening in Glasgow and Edinburgh, to the central belt and to silicon glen, knows perfectly well that the Scotland depicted by Labour Members is far divorced from the reality of what is being achieved north of the border.

It is clear, for all who have their eyes open enough to see, that we are delivering a strong and prosperous economy. What is more, we are putting in place the conditions to ensure that we keep it that way. The hard reality is that the Labour party simply cannot understand the way in which we have brought about that remarkable transformation and improvement.

Mr. Graham

We are not strong and prosperous in Scotland.

Mr. Heseltine

Let me explain—

Mr. Graham

Go on, explain.

Mr. Heseltine

Let me explain, for the benefit of Labour Members, exactly what it is that has so—

Madam Deputy Speaker (Dame Janet Fookes)

Order. The hon. Member for Renfrew, West and Inverclyde (Mr. Graham) must restrain himself. He has made one intervention.

Mr. Heseltine

Let me explain to the Labour party exactly what has so transformed our economy over the past decade and a half.

In the 1980s, productivity grew faster in this country than in any other major industrialised country. Investment in plant and machinery has risen by 54 per cent. since 1979. Business investment has risen by 35 per cent. over the same period. Wherever one travels outside the country, people pay tribute to the transformation that has taken place in British economic performance. Our industrial and commercial managers know just how exciting a prospect that is for their products and their services out there in the world markets. Here in the United Kingdom, the Opposition, day after day, undermine and underplay our achievements and our resolve to build on them.

Mr. Michael Connarty (Falkirk, East)

The Engineering Employers Federation report before the Budget showed that manufacturing investment by volume had fallen by 24 per cent. since 1990 and that engineering investment had fallen in every quarter since the last quarter of 1989. In fact, Mr. Tim Melville Ross of the Institute of Directors said that the Budget was a missed opportunity, that it merely tinkered at the edges of business and that it did not deal with the fundamental long-term growth needs of our manufacturing industry.

Mr. Heseltine

It is obvious that the hon. Member has not followed the latest surveys of industrial confidence, which tell a totally different story. We have, in fact, a fast-growing, low-inflation economy with a competitive currency. The challenge for the Chancellor is to keep in place the disciplines that have brought that about. The Budget has been widely praised precisely because he has achieved that objective.

The Chancellor has added to the comprehensive improvements in our export credit arrangements in a further set of changes to enable our companies to compete overseas. He has announced changes in our insolvency law which will encourage a rescue culture in the United Kingdom. At the same time he has made some constructive improvements to help with incentives that will encourage the availability of finance for small businesses. He has raised the value added tax threshold for small businesses and helped them also by reducing employers' national insurance contributions for low earners. He has eased administrative burdens on 100,000 small businesses by increasing the threshold for making quarterly returns to the Inland Revenue. In addition, he has introduced a £600 million package of transitional relief for uniform business rates, which again will be of special benefit to smaller companies.

Perhaps the most unexpected and particularly welcome development in economic policy has been the growing awareness that, unlike all earlier economic revivals in this country, we are now enjoying an improvement that is based on export growth. We can add to that the latest CBI forecast of investment intentions, which shows that companies expect to see a growth of over 11 per cent. in manufacturing investment next year. The House will recognise why we have the economic background for which we have so long striven but hitherto failed to achieve and good grounds for believing that the exciting trends that are now under way will continue.

Perhaps the most interesting example is that a year ago commentators were confidently predicting a widening trade deficit as imports were sucked in as a result of a consumer-led surge in activity. Consumer demand has risen by 2.3 per cent. over the past 12 months. But while total imports have increased by 4 per cent., exports have risen by 11 per cent. The current account deficit is expected to halve this year and to continue falling next year. Our underlying exports to the European Union are up 17 per cent. on a year ago, although the European economies have grown by only 5 per cent. in nominal terms. The upturn in economic activity in Europe means expanding markets and opportunities for our exports. Consequently, as the recovery has strengthened, growth has come increasingly from exports.

The markets of the Pacific include many with consistently high economic growth rates. It is especially encouraging to see that our exports to China grew by 47 per cent. between 1992 and 1993. More recently, our exports to Malaysia in the year so far have grown by 42 per cent., to South Korea by 31 per cent. and to Singapore by 22 per cent. It is in competition with others that we can really see whether we are making progress. For decades, our world share of manufactured exports by volume fell back. We halted that decline by the mid-1980s. Since then our share of manufactured exports has broadly held.

Recently our exporters have been able to take advantage of the pick-up in activity. Our market share for manufactured exports is set to increase this year, and it is expected to do so again the year after. Manufactured exports are expected to rise by nearly 10 per cent. in 1994 and by 8 per cent. in 1995.

Mr. Michael Fabricant (Mid-Staffordshire)

My right hon. Friend referred to exports to China. Does he agree that the measures taken in the Budget to strengthen ECGD support to China, Indonesia and other countries will assist exports in that direction?

Mr. Heseltine

My hon. Friend is absolutely right. My right hon. and learned Friend the Chancellor of the Exchequer has been extremely helpful to our exporters by consistently improving the competitive terms of ECGD. That is a fact that has been widely admired and praised by the companies on which our exports depend.

Mr. Barry Sheerman (Huddersfield)

The right hon. Gentleman might like to know that many of us recently met representatives of the Engineering Employers Federation from Yorkshire. They are not entirely critical of the Government, but they are extremely concerned that the Budget did not deliver much help to those engaged in the engineering world. They are extremely worried that a rather neutral Budget will be coupled with an increase in interest rates, which would be damaging to what they might see as any improvement.

Mr. Heseltine

The hon. Gentleman makes a selective point. He fails to reflect on the confidence that is being indicated. I mentioned the CBI's survey and quoted figures that appear in it. Confidence is felt by British exporters across a wide area. If the hon. Gentleman cares to examine the record that is being achieved by British exporters in manufacturing and engineering, he will see that that is one of the most exciting backgrounds that we have had for many a long year.

Mr. Ian Bruce (South Dorset)

My right hon. Friend has rightly pointed to the expansion in manufacturing in this country and to our exports. However, that is only part of the picture. If we consider the most successful economies of Japan and America, it is clear that the number of people employed in manufacturing industry is shrinking rapidly. They are being replaced by people in knowledge-based services and industries which are related to manufacturing. If we look only at investment in manufacturing, we do not look at the whole picture. The strength of our economy is that we have knowledge-based industries coming through.

Mr. Heseltine

My hon. Friend is perfectly right and that is why I referred to business investment. As anyone who studies these matters is fully aware, the reclassification that is taking place as manufacturing companies out-source their procurement into the service industries is making a mockery of much of the historical figure base. The important aspect is to consider the overall position in the economy.

The Hong Kong economy, one of the most dynamic economies in the world, is now down to 15 per cent. manufacturing because the whole basis of manufacturing has shifted to the southern province of China. No one would question the vibrancy of the Hong Kong economy. We must take the broad view. There is no doubt that in our economy today we are losing jobs in manufacturing, but a very exciting future is on offer to us as we attract throughout the United Kingdom a larger and larger proportion of the investment into the European Union.

Our manufacturing exports are rising and are on a rising trend which is likely to improve our position in world trade. Our exporters have earned that success by keeping their costs down and by raising their productivity. Over the past year, manufacturing productivity has risen by 6 per cent., far outstripping the growth in earnings. As a result, unit wage costs have actually fallen by nearly 1.5 per cent. That is the biggest fall since records began in 1970.

Our manufacturers have also succeeded in improving their performance in domestic markets so that while exports continue to rise, imports are little changed. Our current account deficit has fallen sharply this year. In the last quarter, it stood at less than £0.7 billion compared with £3.1 billion for the same period a year ago. An improving balance of payments is remarkable at a time when the economy is growing so strongly.

In support of that, the Government have put in place the most comprehensive export support strategy that we have ever seen in this country. That has been done in partnership with the private sector. There are now 108 middle managers seconded by Britain's leading companies into my Department to support our exporters across our 80 principal markets. We are now recruiting another 70 experienced exporters to bring the rapidly growing chain of Business Links into direct contact with our overseas markets.

It is no wonder that today the commentators are talking of closing the balance of payments gap. It is particularly satisfying that all those trends that I have described are now feeding through into the employment market.

Mr. Dennis Skinner (Bolsover)

The President said that all the trends are in the right direction. Why, then, do we need the extra percentage of VAT on fuel?

Mr. Heseltine

Because the Government are determined to maintain the disciplines that have enabled the Chancellor to produce a Budget which has gained the confidence of the markets and which are essential prerequisites to maintaining the growth upon which future prosperity depends. That is in stark contrast to the policies that the hon. Member for Bolsover (Mr. Skinner) has advocated and supported all his life.

The clearest sign that things are beginning to work as the whole House would wish is that unemployment has been falling for nine successive months and is now more than 300,000 lower than a year ago. It is nearly 500,000 lower than two years ago. The United Kingdom is the only major economy in Europe where unemployment has fallen over the past year. The welcome measures that my right hon. and learned Friend the Chancellor announced in his Budget last week to help the long-term unemployed back to work will ensure that that rapidly improving picture continues to improve further.

There has been much debate over the past few days about energy prices. I should like to set the debate in context. The Opposition have always said that there was no way of freeing the utilities from state control. They said that they were "natural monopolies" and that there was no alternative to public ownership. As usual, they were wrong.

We have introduced competition wherever possible. There are now 36 companies supplying electricity—twice the number before privatisation. Forty companies now supply natural gas. There was only British Gas before privatisation. Where competition was not possible, we introduced tough and transparent regulation to replicate market pressures.

Let us consider the results. Productivity in the industries has leapt. The electricity generators have increased their labour productivity by more than 50 per cent. since 1990. Improved efficiency has led to higher rates of return. Before privatisation, the regional electricity companies were accustomed to rates of return on their capital employed as low as 1 per cent. to 2 per cent. Last year, they earned a rate of return of 20 per cent. As a result, investment has shot ahead.

Real investment in the electricity industry has increased by more than 10 per cent. since privatisation. That can be compared with the record of the last Labour Government when the investment programmes were cut by 25 per cent. between 1974 and 1979.

No one has any doubt about the fact that they would rather not see price increases, but let us get the issue into perspective. Under the Labour Government, electricity prices in real terms rose by 22 per cent. in five years. Under the Conservatives, and allowing for the full impact of VAT, the equivalent figure today would be about 17.5 per cent. in 15 years.

The improvements are not restricted to electricity. Between 1974 and 1979, real industrial coal prices rose by 30 per cent. Between 1979 and 1994, they fell by nearly 50 per cent. Between 1974 and 1979, domestic coal prices increased by 18 per cent. Since we came to power, they have been held broadly stable in real terms.

British Gas has increased its level of investment by 200 per cent. in real terms since privatisation. Customers, too, have seen major improvements, with falling prices and improved service quality. The average gas consumer has benefited from a fall in real prices since privatisation of 23 per cent. before VAT.

Let me demonstrate what that means. A rough calculation shows that the average domestic gas bill in the last year before privatisation was £422 in today's money. Including the full effects of VAT, today that average bill would be £382 and that is before any discount under the new direct debit proposal.

Industrial customers have also benefited. Their real gas prices have fallen by 35 per cent. since privatisation. Between 1974 and 1979, far from falling by 35 per cent., their prices rose by 75 per cent. What does that mean? It means that faced with the increased prices under a Labour Government with a nationalised industry, Labour tried to hide the fact that prices were going up by making the industries bear the heaviest burden and pass the price increases on to their customers. Industry took the blame as opposed to the Labour Government. However, that did not make the slightest difference because the prices had to be paid by the consumer. That is the stark difference between what has happened under this Government and what happened under the previous Labour Government.

Mr. Andrew Mackinlay (Thurrock)

While the President is taking us on this tour of the public utilities which have been privatised, will he respond to his Parliamentary Private Secretary, the hon. Member for Croydon, South (Mr. Ottaway)—Tarzan's monkey—who, a few nights ago in the Chamber, criticised the greed of the East Surrey water company for its high profits and high prices? Will the right hon. Gentleman note that his own Parliamentary Private Secretary criticised the greed of privatised water companies and their excessive charges, and that he criticised Ofwat for doing nothing? What is the right hon. Gentleman going to do about those excessive charges for water, gas and electricity?

Mr. Heseltine

I shall tell the hon. Gentleman why we have seen increases in water prices. It is because, from 1976 to 1979, the Labour party slaughtered the capital investment programmes of the water industry, not because it wanted to but because it got the economy into such a mess that international bankers did it. In the same way, it cut electricity capital investments, because it had no choice. They were public sector programmes, and they were cut to ribbons. I am fascinated to see that Opposition Members think that that is funny. We are now seeing expanding investment programmes in the water industry to make good the deficiencies left behind by the Labour party.

Dr. Robert Spink (Castle Point)

Does my right hon. Friend welcome the decision of the chairman of British Gas to bring forward the direct debit discount scheme, which makes gas even cheaper for my constituents? Will he call on the chairman of British Gas to extend that discount scheme to all prompt payers, not just those who pay by direct debit?

Mr. Heseltine

I am extremely grateful to my hon. Friend, who brings me precisely to the point that I now make. British Gas is shortly, as the House knows, to be affected by legislation which has been promised in the Gracious Speech, and we are going to introduce yet further competitive pressures into that industry. In fact, the private sector, which of course will seek the opportunities that that will make available, is talking not about price increases in a few years but about price reductions, and in terms of prices 10 per cent. lower than we would otherwise see. My hon. Friend is absolutely right, but British Gas has already said that, some time toward the middle of next year, it intends to extend the direct debit benefits for prompt payers into a much wider category of people. Once again, we can see that gains are being distributed between customers, shareholders and taxpayers and, in the case of water and electricity, among those who care about the quality of the environment as well.

Having listened to the speech of the Leader of the Opposition last week, I was amazed at the lack of integrity that underlay the case that he put forward. At no stage were his standards lower than when he spoke about regenerating economic activity in our inner cities, coal communities and steel communities. I remember Labour's inner-city policies of 1979. They consisted of a slush fund at the discretion of the Secretary of State for the Environment which was used to add to the public expenditure programmes that were already in place—a little more on this road scheme, a little more on that school programme or on a minor environmental project.

The long-term decline that characterised our older inner cities or industrial areas had been completely ignored by the Labour party. The tinkering at the edges of the programmes that I have mentioned was actually tinkering with programmes which themselves were part of the reason for the long-term decline of urban areas.

Dr. John Cunningham (Copeland)

Almost by accident, the right hon. Gentleman has stumbled on one of the issues of the debate, which is integrity. What about the integrity of himself and his right hon. and hon. Friends—the promise of the Prime Minister in the House, the promise of the Prime Minister to the British people in the general election campaign, and the promise of the previous Chancellor of the Exchequer, the right hon. Member for Kingston upon Thames (Mr. Lamont), not to increase VAT or to extend its scope? Was there any integrity in those promises?

Mr. Heseltine

I shall come to the question of integrity—(Interruption.] I shall refer, three pages on, to integrity, and then we will have a few questions to ask about the Leader of the Opposition, what he believes in and what he stands for.

Dame Elaine Kellett-Bowman (Lancaster)

Does my right hon. Friend accept that more than one third of the national health service budget goes on pensioners and that the increase in VAT almost exactly mirrors the increased spending on the national health service? Does my right hon. Friend accept that, taking also into account the fact that pensioners will receive substantial assistance with the payment of bills, pensioners, above all, will benefit from the increase in VAT, regardless of what they have been led to believe by the Labour party?

Mr. Heseltine

My hon. Friend is right to express concern. The whole House will be preoccupied to make sure that we have the most successful and fastest-growing economy that we can afford, because that is the only way in which we will be able to enhance the living standards of our pensioners.

Mrs. Margaret Ewing (Moray)

Will the right hon. Gentleman give way?

Mr. Heseltine

No.

The Leader of the Opposition sought to suggest that, in some way, the Labour Government were preoccupied with the regeneration of our inner cities. The truth is that, within our inner cities today, a transformation of historic proportions is under way.

London's east end is home to one of the biggest urban regeneration projects to be found anywhere in the world. The banks of the Mersey, the Tyne and the Tees, and the centres of Birmingham, Leeds, Salford, Manchester and many other cities are being transformed as the Government's philosophy of creating partnerships between the public and private sectors brings new life and new investment into our most hard-pressed areas. All the ideas that have made that transformation possible have been introduced by Conservative Governments—for example, the derelict land grant, urban development corporations, enterprise zones, city challenge, regional challenge, housing action trusts or English partnerships. All of them and more are replacing the inertia and inadequacy of Labour councils with a new dynamism and new hope.

The Leader of the Opposition was at his most revealing when he said that people are fed up with privatisation. What an extraordinary admission. He is the man who is trying to persuade his party to repeal clause 4, all for a cause with which he now concludes that the people are fed up. I say to the Leader of the Opposition: if people are so fed up, why does he not stick to the principles that he has espoused all his life, and take those industries back into state ownership?

If there is a great yearning for the triumphant recapture of the commanding heights of the economy, why is the right hon. Gentleman burning the text books, hauling down the flags and preparing his own children for the heady world of competitive selection? Dreary egalitarianism may be good enough to feed the boyos in Bolsover, but the closer the leaders of the left get to the pinnacles of power, the more they yearn to turn their children into tiny Tory tots.

Anyway, just suppose for one instant that the people are fed up, which I wholly reject: does that constitute the standard by which political leadership should be judged? Have the fearless leaders of yesterday's socialism now been replaced by a leader so much reduced by their failures that he casts about to determine which way the crowd is running so that he can dash in front and shout, "Follow me"? It certainly looks like it. The Leader of the Opposition is so ashamed that he denies that he ever was a member of CND. He spent the 1980s arguing that we should get out of Europe. By the 1990s, he has become so mesmerised by the social chapter and the minimum wage that he cannot sell out to Europe fast enough. What a story. On privatisation, grant-maintained schools and clause 4—a veritable Henry V. Yesterday, he was urging his dear friends once more into the breach. Today, he is stuffing the holes in the wall with all that is left of his dumped convictions.

I tell the Leader of the Opposition and the Labour party that privatisation has brought about one of the most successful industrial revolutions in the country's history. It has turned producer-dominated monopolies into world-class companies. It has opened up competition, created choice, brought down prices and stimulated investment. It has broken up London-dominated monopolies and restored power to the provinces. It has led to vast improvements in productivity. It has played a part in leading British exports to the highest levels that we have ever known. It has led to a worldwide revolution in attitudes in virtually every significant country in the world. But all that the Leader of the Opposition can say is that "people are fed up".

The truth is that the only people with cause to be fed up with the success of privatisation are the trade unions, which have seen their power base destroyed as the prop of taxpayers' money was pulled from under them. The only people with cause to be fed up with privatisation are Opposition Members, because they have lost the industrial playthings which they manipulated and mismanaged so grossly. In the process, they have sat for 16 years where they naturally belong—on the Opposition Benches. This Budget will play its part in keeping them there.

5 pm

Dr. John Cunningham (Copeland)

I beg to move amendment (a), in line 4, after 'tax' insert `other than in respect of value added tax on fuel and power for domestic or charity use'. It is quite clear that, whatever the President of the Board of Trade came to the Chamber to do today, he did not come to defend the Chancellor of the Exchequer's decision to impose 17.5 per cent. value added tax on people's fuel bills. Indeed, had it not been for my intervention, he probably would not have touched on the subject at all.

Claims about the impact of Tory Budgets often look forlorn, if not foolhardy, in retrospect. This year's Budget looked tawdry from the start. We have had enough Tory Budgets—17 in 16 years—to make a long-term judgment on that score.

Last week the Chancellor set out his priorities: keeping the economy on track, job creation and greater prosperity, and the prevention of the emergence of a deprived underclass—I wonder where he has been for the past 16 years—in order to strengthen the economy in the longer term. Fairness was not one of his priorities; clearly, self-delusion was.

We have heard those claims before. In 1983, Lord Howe said: This is a Budget for that recovery".—[Official Report, 15 March 1983; Vol. 39, c. 157.] In 1986 Lord Lawson said: these are…routes to more jobs, and jobs that last." —[Official Report, 18 March 1986; Vol. 94, c. 166.] However, they did not. The President's claim in his speech this afternoon that the British economy has been "transformed" has a rather jaded ring because that is exactly what Lord Lawson said in his Budget speech in 1988. He said: The plain fact is that the British economy has been transformed."—[Official Report, 15 March 1988; Vol. 129, c. 993.] He went on to claim an economic miracle, and of course then came the crash. The right hon. Gentleman is making the same mistake.

In 1992, the right hon. Member for Kingston upon Thames (Mr. Lamont) claimed: This year's Budget is a Budget for recovery". He went on to say: Over the past decade our belief in low taxation has brought unparalleled growth".—[Official Report, 10 March 1992; Vol. 205, c. 745–61.] They were bogus claims of economic miracles by false prophets which, in reality, did not stand the test of time.

Far from lowering taxes, the Tories have literally created a tax mountain out of a molehill. From last week's Budget we know that in 1996–97, taxes will take up a record 36.3 per cent. of the average earnings of a couple with two children. That is how far the Government have got with lowering taxes. When Labour left office, the comparable figure was 32.2 per cent.

Having created their tax mountain, Tory Budgets have devastated manufacturing industry—indeed, here Tory policies have made a molehill from a mountain. Their bust-boom-bust policies have reduced the contribution of manufacturing to gross domestic product by a staggering seven percentage points since 1979. The manufacturing contribution has decreased from 28.5 to 21.7 per cent. of GDP—a 25 per cent. reduction. Manufacturing output is barely above what it was 20 years ago. So much for the President's "transformation".

Manufacturing investment fell by 30 per cent. between the first half of 1990 and the first half of this year. Manufacturing investment was at an all-time low as a proportion of GDP in the first half of this year according to Professor Godley, one of the Chancellor's seven wise men. Even the most optimistic Tory Members must face reality some time—or, as their party vice-chairman, Mr. John Maples, would have it, "face the killer facts".

Mr. Gyles Brandreth (City of Chester)

rose—

Dr. Cunningham

How can I refuse the star of Ally Pally?

Mr. Brandreth

The hon. Gentleman is quite right: no party is complete without me. I am grateful to him for giving way. He spoke about reality. In my part of the world, the reality is yearly growth of 4 per cent., productivity up by 6 per cent. and exports up by 8 per cent. The hon. Gentleman obviously deplores the increases in taxation. Before he leaves that subject, will he explain to the House, if it were his Budget, which taxes and which elements of public expenditure he would cut or increase? Can he be specific about that?

Dr. Cunningham

The hon. Gentleman is so amusing that if I live long enough to celebrate my 25 years in the House next year perhaps I will invite him to do a star turn at that party, too. I assure him that I do not intend to leave the subject of taxation for a considerable time.

The hon. Gentleman must know that his constituents' living standards are falling. As for alternatives, and since he has asked me, my hon. Friend the Member for Dunfermline, East (Mr. Brown) has made it quite clear that we advocate a number of steps which would cover the cost of abandoning VAT. The money can come from tightening up the treatment of executive share options. Does the hon. Gentleman agree with that? It can come from part of the proceeds of a windfall levy on privatised utilities similar to that which Lady Thatcher charged the banks. The money can come from the proceeds of ending tax relief for private medical insurance. It can come from steps to end commercial avoidance of stamp duty.

In future years, the money can come from the decision to draw on some of the gains of retaining the stamp duty charge on share transactions, which the Red Book says will be dropped. Let us not forget about dropping the VAT increase, which would reduce slightly our contribution to the European Union. In this Budget, the Chancellor is reducing the duty on champagne. Why does he feel that that is so essential to the well-being of the British economy at the same time as he imposes VAT on the fuel bills of pensioners?

Taxes are higher under the Tories. Total social security payments are higher, not because of greater generosity but because of the huge increase in the number of claimants. The public sector borrowing requirement is higher at £46 billion—7 per cent. of GDP. Government expenditure as a share of GDP is higher. All the Tory party's old shibboleths and their claims about the effectiveness of their economic policies are as dust when set beside the "killer facts", as Mr. Maples would have it.

Sir Teddy Taylor (Southend, East)

Will the Minister give way?

Dr. Cunningham

I know that the hon. Gentleman is nervous, but that is a little presumptuous.

Sir Teddy Taylor

I am very confused today. Does the hon. Gentleman agree that the Chancellor made it quite clear that he cut the tax on champagne and sparkling wine only because he was obliged to do so under an international agreement— and the hon. Gentleman knows where that agreement came from. In order to avoid all this nonsense, will he tell the people the score? If Labour is returned to power, will he give a commitment to cut VAT on fuel and power from 17.5 per cent. to the present level? Would that not clarify the situation?

Dr. Cunningham

The hon. Gentleman asks a fatuous question. He knows that we do not know what the Chancellor will have in his Budget next year, so why should we announce now what we will do in a Budget in two or three years' time? I am happy to have the hon. Gentleman's comforting support in assuming that there will be a Labour Government after the next general election. I am sorry to disappoint him, but I do not agree that the tax on champagne was cut because of the dreadful European Union. It occurred because of an international agreement which the Chancellor of the Exchequer accepted voluntarily, but it was not because of the European Union.

The boastfulness of the President's speech was reminiscent of the boastfulness of the Thatcher-Lawson-Major-Lamont years, which have been exposed as so much waste, so much unfairness and so much failure. What of Britain in the world? The President is fond of talking about the need for world-class performance. He is correct in that at least, but has that happened as the result of 17 Tory Budgets? No—indeed, the reverse is true. Britain is falling behind. Our country has been undermined by Tory incompetence, as comparisons make only too clear. While Britain's manufacturing base has shrunk, those of Germany, Japan and the United States of America have grown.

Our country has gone down the league table of the seven largest economies in the world and has been overtaken by Italy. In output per capita, Britain has been overtaken by Hong Kong and Singapore. Britain had a £4 billion trade deficit with the European Union last year. We have trade deficits with 10 of the richest nations in the world and trade surpluses with 10 of the poorest.

The President boasts of export-led growth, but our performance, even now, is no better than that of the United States of America or than that of the European Union average. No matter how he presents the figures, the fact remains that Britain's share of world trade fell from 5.4 per cent. in 1979 to 5.1 per cent. in 1993.

Mr. James Clappison (Hertsmere)

Will the right hon. Gentleman give way?

Dr. Cunningham

No, I will not give way for the moment.

Between 1979 and 1993, despite the benefits of North sea oil, Britain's average annual growth rate lagged behind that of every member of the G7 and every member of the European Union except Denmark and Greece. Inequalities have grown after the Tory Budgets. By 1990, 11.5 million people had an income less than half the national average. In the 1970s, the figure was half that. Similarly, the number—

Mr. Clappison

Will the right hon. Gentleman give way now?

Dr. Cunningham

No, I am not giving way for the moment.

The number of children living in families with incomes below the poverty line has trebled from 1.4 million to 4.1 million. According to the Equal Opportunities Commission, as many as 4 million women—more than one third of the female work force in Britain—earn less than two thirds of the median of male weekly earnings. Those are some of the international comparisons, some of the indicators and some of the killer facts about the record on 17 Tory Budgets.

The record is no better on training. The United Kingdom ranks 21st out of 22 countries in the OECD skills league tables—second bottom. We have the second-lowest proportion of 18-year-olds in full-time education, yet Government investment in training is to be cut by 5.1 per cent. next year, following cuts of £400 million since 1990–91.

After such an unprecedented period in office—16 Tory years and 17 Tory Budgets—the Prime Minister claims to want to create a nation at ease with itself, yet the rich get richer and the gap between top earners and the rest widen year by year. Do not take my word for that. Hon. Members should listen to Mr. John Maples, vice-chairman of the Conservative party, who said: The reality is now that the rich are getting richer on the backs of the rest who are getting poorer. The gap between the highest and the lowest paid worker is larger now than at any time since records began in 1886. It is no good the Prime Minister, the President of the Board of Trade or the Chancellor protesting. As Mr. Maples said in his candid memorandum: What we are saying is at odds with their experience which leads them to conclude we are 'out of touch', 'lying', 'don't care'. Of course, I could not possibly say that the President of the Board of Trade and the Government are lying, but Mr. Maples could— [Interruption.] Oh yes he did. That is what he implied.

It is no wonder that people are angry when chairmen, chief executives and directors make free with company cash, bonuses, share options and incredible salary increases. There is no control, no accountability, no shame and no justification—except, apparently, from the President. None of his Cabinet colleagues have supported him in that. He talks of world-class companies, yet such abuse and greed are not seen or thought necessary in Germany or Japan—which, in truth, do have world-class economies. Nor are domestic private sector monopolies comparable with truly international companies, which inevitably have to compete in global markets.

Mr. Clappison

rose—

Dr. Cunningham

No, I am not giving way.

We all know that in water, electricity arid gas companies, grotesque personal rewards—based not on merit or performance but on self-interest—in shares, bonuses and salaries have been commonplace. Where are the Government's checks, where are the regulators? For example, the chairman of Midland Electricity was earning £68,000 a year before privatisation. He now earns more than £231,000. Of course, on top of that he is estimated to have had more than £900,000 total share option profits. Profits and salaries are just as lucrative for the chairmen of the other 11 regional electricity companies that the President was so keen to praise in his speech.

Inevitably, the chief executive of British Gas took his turn. Observing the free-for-all, he did not just say, "Me too", he said, "Me two hundred thousand." The President agreed, approved and supported the £4,000 a week rise. He did nothing to prevent it, just as he has done nothing in other cases.

Mr. John Evans (St. Helens, North)

Does my right hon. Friend agree that it is contemptible for the President to defend the chief executive of British Gas getting a £4,000 a week rise, while at the same time he denounces the proposition that a low-paid worker should have a wage of £150 a week? Is that not disgraceful and contemptible?

Dr. Cunningham

I absolutely agree with my hon. Friend.

Why did the President proclaim his support for such extravagant and unmerited pay awards? Well, they are his friends, his appointees and supporters of the Tory party. We might say that they are all the President's men. Why does he believe that chief executives, part-time chairmen and directors need world-class salaries and perks to make them perform well, when he imposes third-class pay and conditions on the vast majority of men and women in Britain to encourage them to work well? He is denying the social chapter benefits to our people while allowing his friends and supporters carte blanche to rip off consumers and make themselves rich.

The Secretary of State for Social Services, at least, deserves one cheer. He, if no one else in Government, has recognised—here I quote from his speech in Belfast a few days ago—that there has been a "widening of earnings differentials" during the last 16 years in Britain. He acknowledged that inequalities had increased. He said: This lies behind many of our social problems…It may play a major part in the break-up of families…and a growing welfare dependency…It may even play a part in explaining delinquency and crime. The right hon. Gentleman said all that in his speech, but typically he claimed that none of it has anything to do with the Government and Government policies. He dismisses the minimum wage as a contribution to a solution and instead presses on with policies that increase dependency on social security and subsidise bad employers and poverty pay. He says that more skills are the answer, yet the Budget slashes the training programme by several hundred million pounds. Is it any wonder, to quote again John Maples on the Tory party, that the electorate "think we are stupid"?

There is nothing in the Budget to promote and sustain significant long-term investment in the British economy. There is nothing to encourage and direct more profit away from dividends and into capital investment. The Heritage Secretary wanted change and, so we were told, did the Chancellor—but Lord Hanson did not. He leant on the Prime Minister who, predictably, caved in and the industrial finance initiative was dead.

The Budget has cut Government investment by 17.7 per cent. in real terms; it contains a 16.6 per cent. real cut in local authority investment and next year there will be a 10.8 per cent. cut in public investment. There is no long-term strategy—simply vague claims of private finance making up the difference, and we are entitled to doubt that given previous performances. My hon. Friend the Member for York (Mr. Bayley) pointed out that the Government said some time ago that they needed to prevent a hiatus in railway investment pending privatisation, yet the. Budget contradicts Government statements and announces a cut in such investment. Nothing could be more bizarre than the Government contradicting their own objectives for their own privatisation—which is not necessary anyway—and damaging the future of the railways in the process.

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

The right hon. Gentleman is in danger of straying back to the subject of this year's Budget, to which he has made passing reference. In so far as the right hon. Gentleman touched on the Budget, he mentioned his desire to reduce taxation. He has also spoken, on a number of programmes, of his desire to increase expenditure. As no Labour Front-Bench spokesman has put a figure on those aspirations, will the right hon. Gentleman say by how much overall taxation would be reduced in a Labour shadow Budget, and by how much overall spending would be increased, and give his view of the correct level of public borrowing and the impact that that would have on the industrial recovery? Will the right hon. Gentleman move to the point instead of meandering through bits of the Red Book?

Dr. Cunningham

The right hon. and learned Gentleman is right, because the Red Book is full of very odd bits. I will not respond to that rambling intervention. I remind the Chancellor of something that he once said: Only the Conservatives believe in keeping taxation down, to give incentives to enterprise and investment. Only the Conservatives will keep the country's finances on a sound footing. That, with a £46 billion borrowing requirement. The Chancellor said also: Public borrowing under the Conservatives has averaged 2 per cent. of GDP. It is 7 per cent. now.

The Government are also half-hearted about help for the long-term unemployed, even though each such person costs the country £9,000 per annum in income support and lost revenue. A self-financing scheme was spelt out by hon. Friend the Member for Dunfermline, East.

Mr. Kenneth Clarke

Will the right hon. Gentleman give way?

Dr. Cunningham

No.

Mr. Clarke

I ask the right hon. Gentleman to give way, if he is not afraid of losing his place.

Dr. Cunningham

The right hon. and learned Gentleman flatters himself if he thinks that I have lost my place. He knows as well as anyone in the House—no more so than other Ministers—that asking me to spell out the contents of a future Labour Budget two and a half years from now is a fatuous intervention. The Chancellor will not tell us the contents of his Budget for next year, so that is the best answer to his intervention.

The Chancellor has given us another Budget for the short-term benefit of the Tory party, but to the long-term disadvantage of Britain and the British people. Burdens are heaped on those least able to bear them. Value added tax is a classic example. On 28 January 1992, the Prime Minister said: We have no plans to increase value-added tax… There will be no VAT increase." —[Official Report, 28 January 1992; Vol. 202, c. 308.] On 27 March 1992, the Prime Minister said: I have made it clear, we have no plans and no need to extend the scope of VAT. When the Prime Minister gives his word to the European Union, his word must be kept, even to the point of a vote of confidence—but when he gives his word to the House and to the British people, he is apparently not concerned about keeping it. It seems that that does not matter.

The President of the Board of Trade mentioned integrity. Where is the integrity in that behaviour? We are told that the Government must keep their word because they have an international obligation to do so—but that the Government do not have to keep their word when their obligation is to the British people. That sums up the hypocrisy resident on the Treasury Bench.

Mr. Clarke

The right hon. Gentleman quoted my election address commitment to healthy public finances. He fought the last election on a policy of increasing taxes and public spending. Of course the right hon. Gentleman cannot spell out a shadow Budget, but will he give a sign of his commitment to health public finances? Does he believe that we should be reducing taxes, increasing public spending and allowing borrowing to rise—or does he, in the midst of all this blather, have no view of those critical issues?

Dr. Cunningham

The blather is all coming from the right hon. and learned Gentleman. This debate is about not a Budget in three years' time but his Budget now. It is also a debate about the Prime Minister's promises to the British people. The Government do not want to answer. They do not want to face the fact that they have ratted on their promises about VAT. That is the reality of the position in which the right hon. and learned Gentleman and his colleagues find themselves.

The public and Parliament were given clear, unambiguous promises, and those promises have been broken. Many Conservative Members made similar promises in speeches, interviews and personal election addresses during the 1992 campaign. A few of them, to their credit, have announced their intention to abstain or to vote with us tonight, to prevent the VAT abuse contained in the Budget. Those Conservative Members know that they made a commitment to their constituents and believe that they should keep their promises—unlike the Chancellor, the Prime Minister and the President of the Board of Trade.

Mr. Iain Duncan Smith (Chingford)

I accept that the right hon. Gentleman may find it difficult to answer my right hon. and learned Friend the Chancellor, but perhaps I may ask him a simple question. Does he think that public expenditure now is too high or too low?

Dr. Cunningham

Public expenditure is too high and all in the wrong direction. A sum of £40 billion is being spent on social security and the hon. Gentleman asks for our views. Public expenditure is paying the price of the failure of 17 Tory Budgets. There is too little investment, too much social security, too much consumption and not enough for the long term.

Mr. Richard Ottaway (Croydon, South)

rose—

Dr. Cunningham

I shall not give way again for the moment.

In arguing about their responsibilities and commitments, Conservative Members have an unusual ally—none other than the President of the Board of Trade, who made his position clear in Bournemouth on 13 October. Reflecting on 16 years of Tory Government, he entitled his speech "Tomorrow's Yesterday". That was really forward looking. He clearly anticipated another Budget similar to the previous 16—unfair, long on the short term and short on the long term, and devoid of any coherent strategy. The Chancellor did not let him down.

Value added tax at 17.5 per cent. is to be imposed on pensioners, people with disabilities, the housebound, and people with low pay or no pay. It is to be imposed on all those for whom heating costs account for a much higher proportion of household expenditure than those who are better off. This winter, thanks to the Budget, many thousands of people in Britain will be cold, hungry and afraid to use their heating.

Is the Tory party proud of that? Are Conservative Members proud of offering a pensioner 25p and a pensioner couple 30p above the statutory uprating to cope with VAT on their energy bills? Are they content to support that squalid unfairness at a time when Cabinet Ministers give their approval to rises of £4,000 per week to executives?

In "Tomorrow's Yesterday", the President of the Board of Trade told us, prophetically: There is more to Conservative thought than just free markets. Laissez-faire economies expose a risk of cruelty and social extremes that no Tory could countenance. So once again for tomorrow's journey we look back to traditional Tory faith in duty and obligation. It is at the heart of Tory tradition. Back to Shaftesbury and Disraeli, to share a concern for those less fortunate than ourselves…The success and dynamism of a confident society will be led and determined by those who are strong and self reliant. But we have never lost sight of those in society to whom such opportunities are for whatever reason denied. Well he certainly seems to have gone blind between 13 October and Budget day. Or is he is suffering from convenient amnesia? Did he mean what he said in Bournemouth? Does he stand by what he said then? We shall see. Today, he will be put to the test. If he stands by his views and commitments, he will vote with us. If he does not—[Interruption.] Of course he will not stand by what he said in Bournemouth, just as the Conservatives are not prepared to stand by what they said in the general election campaign. We know, of course, that he will not stand by what he said and therefore he will very well merit the description of that other Disraeli quotation: A Tory Government is an organised hypocrisy.

Mr. Mike Hall (Warrington, South)

What the President of the Board of Trade said at the Tory party conference in October and what he does today demonstrates quite clearly the gap between the rhetoric and practice of Tory Cabinet Ministers.

Dr. Cunningham

My hon. Friend is absolutely right.

In his Budget speech., the Chancellor said that the present conditions have to be sustained if they are to deliver higher living standards and secure jobs. But as the record shows, Tory Governments have never sustained those conditions. They have never been consistent. They have never looked to the long term in 16 years and 17 Budgets. Last night, the Governor of the Bank of England is reported to have said in Frankfurt: The economy is growing faster than can be sustained. Stripped of all their grandiose claims, the fabrications about their record and intentions, the Government's policy for Britain is clear: cut taxes before elections and put them up again much more afterwards. Reward the strong, the highly paid, the powerful, at the expense of those least able to help themselves.

That is why Conservatives will never be trusted on tax again. That is why the House should vote for the amendment tonight. It gives us an opportunity to reject this unjust proposal and to oblige the Chancellor to think again.

5.32 pm

Mr. John MacGregor (Norfolk, South)

As one who for 15 years sat on the Front Bench listening to speeches from hon. Members on the Back Benches, I know how selective one must be in the issues that one raises and the points that one makes. I shall therefore not repeat the many points made in the debate and outside.

I begin by stating my total support for the general strategy in the Budget and the measures contained in it, and especially the concentration on controlling public expenditure and getting public sector borrowing down. Those of us who are connoisseurs of Budget speeches know that the key point of the Budget is always there in the peroration, and I thought that it was right for my right hon. and learned Friend the Chancellor to put the emphasis this year on those two points in his peroration, and how important they are. I should just say in parentheses, and perhaps rather quietly and modestly, that the Budget brief which has been circulated to all of us contains a table showing public borrowing since 1971–72 as a percentage of money gross domestic product. I note that one of the lowest levels of public borrowing as a proportion of money GDP was in the two years during which I had the great privilege of being Chief Secretary to the Treasury, and the plans that I hope that we laid then came through even more in the years afterwards.

That also means that I know how difficult it is to control public expenditure, and I pay a warm tribute to my right hon. Friend the current Chief Secretary for the way in which he has carried out his responsibilities through the year—in stark contrast with the Opposition, who are now attacking us for the level of taxation generally. They claim that they are not now a party of high public expenditure, but their amendment to today's public expenditure motion, particularly the last six lines, is absolutely riddled with new commitments to public expenditure as it condemns the current levels in so many important areas of Government expenditure.

During the exchanges on the statement by my right hon. Friend the Secretary of State for Scotland, just about every Opposition Member who spoke violently attacked the statement for not announcing enough public expenditure—every one of them, right across the board, in all the different areas. It really is not good enough for the hon. Member for Copeland (Dr. Cunningham) —

Dr. Cunningham

Right honourable.

Mr. MacGregor

I beg the right hon. Gentleman's pardon—I frequently get that wrong.

It is not good enough for the right hon. Gentleman to say that we must wait two years to know his party's position on these matters; he can state it today. All that we have to go by is the statement that he makes in the amendment and the statements that we hear so often from Opposition Members, including the hon. Member for Hamilton (Mr. Robertson), the Opposition spokesman for Scotland, whom we heard today. We must therefore conclude that they would substantially increase expenditure in many areas.

Nor is it good enough for the right hon. Gentleman to say that he will make savings on the social security budget. He attacked it and said that it was the one area in which the Labour party might make compensating savings. He knows perfectly well that it contains substantial increases for the disabled—something of which I am particularly proud—and a whole range of worthy groups who have nothing to do with the levels of unemployment. He also knows perfectly well that under his policies unemployment would rise, so it is totally false for him to suggest that savings can be made there, unless he intends to cut some of the areas of social service expenditure. If that is the case, we should be interested to know where those areas are. On public expenditure, therefore, the right hon. Gentleman and his party have demonstrated once again that theirs is a high-spending party, although it claims not to be.

I listened carefully to the right hon. Gentleman's proposals to save taxes. I notice that he has not quantified them. I have a great deal of doubt about a number of those proposals. I will take the example that he started with—the one so often mentioned by the Labour party—about share option schemes. I am puzzled as to just what he expects to do about them and where he expects to get a revenue saving, as he must be well aware that the gain on those schemes is already taxed at 40 per cent. in virtually every case, or at least in very many cases. I believe that there is a great yawning gap in the policy position of Labour Members in relation to the Budget: they would spend a great deal more, but they cannot find tax savings to compensate for the tax proposals to which they object.

I do not want to repeat all the points that were made about the underlying strength of the economy, which were so well put by my right hon. Friend the President of the Board of Trade, although I totally agree with them. In particular, the many illustrations that he gave and the impressive figures about the benefits brought about by privatisation really demonstrated the strength of that case. They were met, however, by incomprehension and lack of interest on the faces of Members on the Opposition Front Bench. I well understand now why the Labour party has not yet committed itself to reversing any of the privatisations, because at heart it recognises the benefits. I do not think that it is yet fully aware of the real benefits that have come through. I particularly welcome the fact that we now have low inflation, which I believe can be sustained, as well as export-led and now investment-led recovery.

Mr. Fabricant

Before privatisation, were not those industries costing the Exchequer £50 million a week? Since privatisation, the Exchequer—and that means hospitals and schools, for instance—has benefited, through corporation tax, by £60 million a week.

Mr. MacGregor

Indeed, the Exchequer is now benefiting considerably from the revenue generated by corporation tax. I will go a step further The right hon. Member for Copeland said that some privatisations had "ripped off' consumers, but he must know very well that that has not happened. Prices have fallen in real terms—a great benefit that has resulted from privatisation.

Mr. Derek Enright (Hemsworth)

Will the right hon. Gentleman give way?

Mr. MacGregor

I do not want to give way too often, because others wish to speak, but I will give way briefly.

Mr. Enright

I am grateful to the right hon. Gentleman.

If the benefits of privatisation are as massive as the hon. Member for Mid-Staffordshire (Mr. Fabricant) suggested, why do we have to raise taxes so much?

Mr. MacGregor

That has nothing to do with privatisation as such. Privatisation has resulted in a great improvement in the performance of businesses, which is very much to the advantage of the economy generally.

If there is indeed an underlying strength in the economy, why is the feelgood factor not yet in evidence? I shall make two points about the feelgood factor, but in so doing I want to move away from immediate issues.

As both my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) and my right hon. Friend the Chief Secretary to the Treasury have recently said in the House, the impact of technological change on employment—when combined with increasing international competition—is undoubtedly an issue that will face all Governments for some time. When I was Secretary of State for Education, at the prize-givings at which I had to speak I constantly used as a theme the need for pupils to realise that from now on they would have to change not just jobs three or four times in their lifetime, but careers—hence the importance of securing a strong education and skills base before setting out in the job market.

We are seeing that clearly now in many industries. The privatised utilities, for example, have undoubtedly been able to make themselves much more efficient—egged on by the spur of being in the private sector—as a result of technological advance. They have taken the opportunity to gain from it. The same is evident in the financial sector—in banks and building societies, for instance. Technological change must be undertaken, or businesses will become uncompetitive; but the impact on jobs, including what used to be regarded as traditionally secure jobs, is often considerable.

We are seeing the same effect in central Government. One of the figures in the Red Book relates to the Department of Transport's running costs. I am having to pay a good deal of attention to those running costs; they are to fall from £423 million this year to £374 million by 1996–97. Taken across the board, that means substantial savings in central Government which can then be applied at the "front end".

Those savings will be achieved partly because we can now take advantage of the effects of technological change, but partly because Government and Ministers must be driven by the same impulse as those in the private sector to ensure that they are as efficient as possible, and that both the activities and the people involved add value. I think it reasonable for those in the private sector who have been through the process of becoming much more efficient and competitive in the past few years to expect Government to do the same. I also think that there is a message for large local authorities: if we can demonstrate that we have recently been through that process, they can be expected to do the same, and to review their administration and other activities.

In both the public and private sectors, that will introduce an underlying element of uncertainty about what used to be regarded as totally secure jobs. All political parties must now recognise such uncertainty as a permanent feature of our economic life, driven by technical change and international competition. The question for the electorate is which party is most likely to gain the benefits of technological change for the country and to meet the demands of the international competition. Nothing in Labour's policy and approach—the minimum wage, the social chapter and a raft of other measures—suggests that they understand that.

I am thinking not least of the right hon. Member for Kingston upon Hull, East (Mr. Prescott), who suggested recently that one way of dealing with employment was to keep jobs in the public sector which are not really required and not efficient, simply to avoid unemployment. That is not a sensible suggestion and it is no way of continuing to achieve a competitive economy. Nothing in Labour's approach indicates that it can offer a better alternative.

The second point about the feelgood factor is the need to become accustomed again to inflation between 2 per cent. and 3 per cent. As I go around the country, I note that when inflation is at between 2 per cent. and 2.5 per cent. but salary increases are at 3 per cent. —in some instances, interest rates are lower because interest rate payments are falling—people do not understand that they are in a better position in real terms with a 3 per cent. pay increase and 2 per cent. inflation, or interest rate payments at 5 per cent. and 2.5 per cent. inflation. The cash figure looked bigger before. It is vital for us to overcome that problem and ensure that the low-inflation culture is properly established.

During the 1980s, we made considerable progress in that respect—massive progress compared with the general level of inflation under the last Labour Government, when the average was about 15 per cent. and the level went as high as 27 per cent. In the 1980s we came a long way, but not far enough. I remember engaging in debates in 1986–87 and trying to get across the point that, given the tax reductions that average earners were receiving and the current low inflation, it was better to have a 3 per cent. salary increase and keep costs down. That meant a real gain, but the message still had not got through. During the period when house prices rose substantially—[Interruption.] I am trying to make a serious point. During that period, many people felt that they were better off although in fact it was a paper gain.

It is important for us to establish that. I believe that as a result of a strategy which has been pursued for a long time, but particularly now, we are achieving those "mind set" adjustments to inflation. It is vital that we maintain the downward pressure and persuade people—people at work, pensioners, home owners and employers—of the "feelgood" benefits of a low-inflation era. If we persist, I believe that we can do that and that it will greatly benefit our competitiveness.

Mr. William McKelvey (Kilmarnock and Loudoun)

When travelling through the country, does the right hon. Gentleman never come across people who are discontented because they are getting a 2 per cent. pay increase—or a nil increase—while inflation is running at 2.7 per cent. and others are awarding themselves increases of 300 per cent.? Does that not cause the right hon. Gentleman any unhappiness?

Mr. MacGregor

I have always made clear my belief that salary increases of that kind, which are not directly earned through improvements in the performance of companies or productivity improvements, are unjustified and unrealistic at present and give the wrong signals. I also believe, however, that it is important for people to be able to gain the benefits of the productivity improvements that they have undertaken and that they should receive performance bonuses, provided that the performance targets are good and realistic.

That brings me to the question of VAT on fuel. I shall make just two points, as so much has already been said. First, I believe that public comment—this may be our own fault to some extent—has not made enough of one of the two elements which led to the original introduction of VAT on fuel. I refer to the environmental aspects of the proposal. [Interruption.] The hon. Member for Moray (Mrs. Ewing) laughs, but it is a hollow laugh from a member of one of the parties which argue for a carbon tax.

Mrs. Ewing

rose—

Mr. MacGregor

I should like to develop my point. In all letters to my constituents and in all my remarks, I have always stressed the importance of that aspect. We have the Rio targets to meet; if we are to meet them and to secure energy conservation at the same time, all sectors of the economy—including households—must play their part in conserving fuel and using less of it. Given the real reduction in fuel prices since privatisation, that is at least a modest contribution to our goal.

Mrs. Ewing

rose—

Mr. MacGregor

I hope that the hon. Lady will not mind if I do not give way. I am anxious not to speak for too long.

I should be happy to elaborate my point about the environment, but I have time to speak only very briefly.

My right hon. and learned Friend the Chancellor is absolutely right to warn about the consequences of the measure not going through. It would not be easy to find £1 billion plus of further expenditure saving. It would be difficult and painful in some areas and the Labour party would almost certainly oppose each and every suggestion. It would therefore have to be done with other tax measures which would involve many difficulties. Given that pensioners and other vulnerable groups are protected by the additional Government commitments and given the environmental aspects, where is the sense in that? Above all, it must not be done by adding to public sector borrowing. That could only have, an upward effect on interest rates and I have found no support for that in the building industry or in small businesses or from anyone to whom I have talked.

Had there been time, I would have said more about interest rates. It is worth pointing out—it is in the Red Book—that Government gross debt interest next year will be £24.5 billion and rising. That is the consequence of high public sector borrowing and it would be added to if interest rates rose. That figure is exceeded by only four Government spending Departments. It is another reason why it is so important to bear down on inflation, interest rates and public sector borrowing.

I strongly support the Chancellor in what he said overnight and what he is doing in the Budget and I beg the minority of my hon. Friends who are still considering the matter to consider carefully the consequences that would follow their actions.

I want to raise three specific points about the future. Inevitably, I have had to be very selective. The Budget contains a number of measures to promote saving. In the past, I have played my part in the development of a number of schemes such as the business expansion scheme and schemes to encourage saving and investment. Each succeeding Chancellor wants to have a scheme that is attached to one Budget and I think that there is a danger of a proliferation of such schemes. Having watched them all during the past 15 years and analysed their effect, I doubt whether in the long run it is the best way to create a climate of encouragement for savings and investment and a savings-owning democracy.

We must look carefully at how much additionality in savings is provided by each scheme, and we must be mindful of the administrative and other costs. Therefore, one of the Budget measures about which I am a little doubtful is the proposal to continue the £9,000 investment in the tax-exempt special savings accounts. It will not add much in terms of additional saving and I doubt whether it will affect the amount of saving going into the institutions that currently have TESSAs.

There is perhaps a case for looking overall at how to encourage savings and whether the schemes are the best way of doing it, and perhaps concentrating instead on a low-tax regime and a change in capital gains tax to encourage longer-term saving. I have always felt that the tapering of capital gains tax, leading eventually to no tax being paid after a number of years, is the best way forward.

A Bill dealing with agricultural tenancy was announced in the Queen's Speech. I took through the House the last Bill dealing with that matter and I felt then that it was a fairly modest measure which would not achieve the result that we all seek of encouraging more agricultural tenancies. We now have agreement in the agricultural community for a much stronger measure, but I am concerned that it will not achieve its possibilities unless it is accompanied in due course by changes in taxation. I have in mind in particular the inheritance tax rules, which allow only 50 per cent. relief on land that the owner does not take in hand within a 12-month period, and also capital gains tax. I hope that my right hon. and hon. Friends will keep a careful watch on that and be prepared to bring the treatment of let land into line with that of occupied land for inheritance tax and allow capital gains tax roll-over relief on let land. That is the way to make sure that the new Bill will work.

With regard to spending on transport and the road programme, as Secretary of State for Transport I was keen to switch as much traffic as possible from road to rail, although I was well aware of the difficulties of doing so and of the limitations of the likely ultimate effect. I believe that I did as much as anyone to promote the private finance initiative, which I strongly support. However, I am concerned at the considerable reduction in public spending on roads in the next three years. I do not believe that it will be possible to achieve a substantial switch to public transport without a cost level that we cannot contemplate. My right hon. Friend the current Secretary of State for Transport said that the £140 million spent on the Manchester metrolink has resulted in a reduction in traffic in Manchester of around 0.3 per cent. —[Official Report, 31 October 1994; Vol. 248, c. 1287.] On the basis of that and other research, it appears that on those figures a transfer of just 10 per cent. of car journeys nationally from road to rail would require an investment of £140 billion. Even if that is too much, it would require a massive investment to achieve a switch to public transport which would not quickly be taken up by two, three or four years' growth on roads.

However much we want to encourage the transfer to rail and public transport, it is important to continue a substantial road programme. The design, build, finance and operate schemes will take some time to come into effect. Five or 10 years from now we would regret it if we had allowed the road programme to run down because it would result in increased congestion and frustrating delays.

Dr. Cunningham

The hon. Gentleman has returned to the subject of investment in road and rail. Far from making any improvement, the Government have cut investment for Railtrack. Not only that, they are cutting investment in such a way as to threaten jobs at ABB York carriage works and the Hunslet, Leeds-based rolling stock manufacturers. Those manufacturers are running out of orders and laying people off. There is no sense of improving investment in the rail network: the Government are cutting it.

Mr. MacGregor

I do not think that the Government are cutting investment in Railtrack. There is the private finance initiative on the Northern line, which will lead to considerable investment in rolling stock. The right hon. Gentleman should take account of the fact that there has been substantial investment in rolling stock in the past eight to 10 years and much of it is very modern. Much of the investment in railways is now needed in the track and infrastructure, which is where the bulk of it is going.

I do not want to elaborate on the roads programme now as there will be other opportunities to do so: I just wanted to put down a marker.

Overall, my right hon. and learned Friend the Chancellor was absolutely right to take a cautious, tough and courageous line in the Budget. I totally support the strategy and I hope that all my right hon. and hon. Friends will support him on the issue of VAT on fuel.

5.57 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. Member for Norfolk, South (Mr. MacGregor) and many others talked about the possible dangers if the Government were to lose the vote on VAT on fuel. The right hon. Gentleman will recall, as I do, a Labour Government who were defeated on a tax amendment involving a much larger sum than this. I hope to show the consequences of that and to explain how these matters can be dealt with.

I want to make some general points. I had hoped that, belatedly, the Government might address some of the real problems. Over the past 15 years of this Administration we have seen a terrible catalogue of errors. I shall select about four of them to show some of the ways in which they went wrong and how they might have done things better and might yet be able to make amends in some of those areas.

First, we know that the Government started off with a belief in theoretical monetarism—the intellectual nonsense that devastated my constituency and that led to the loss of one third of the companies in my region. They were the small, medium-sized and medium-tech firms that exist in every country in the world, including Germany, Japan and the United States of America. That particular dedication to a dogma caused immense damage, not only to my constituency, but to many others.

Secondly, the Government set up an uncontrollable boom—the housing and spending explosion, the consequences of which are still with us. At that time a few years ago, people felt that it made sense to sell their houses and to buy more expensive ones. Trading up was seen as an investment rather than as a consumption. With the rise in prices, people felt a spurious prosperity that encouraged further indebtedness. That was a major scandal and we are still suffering from it, with a number of people having negative equity in their homes.

The Government's third serious error involved bringing about the second major recession of our time, when industry suffered once again. It led to us leaving the exchange rate mechanism on Black Wednesday. We seem to forget that that probably cost this country about £5 billion—an immense amount of money that was in foreign exchange, which we could have used in many other ways. Those events led to the industrial recovery, of a sort, that has arisen since.

The fourth indictment has been the waste of North sea oil, which hon. Members know about. Who is there in the House who believes that that accretion of sudden wealth has been handled for the good of our country? No one believes it. It was a disgraceful episode. We could have used that great resource to modernise our industry, to prepare us for the difficult times ahead, to revive our cities and to invest in infrastructure. Instead, we squandered it.

We are coming out of recession.

Mr. John Evans

My right hon. Friend has mentioned four points in relation to waste in the 15 years of Tory Government. Will he mention the fifth one: the £14 billion wasted on the poll tax?

Mr. Sheldon

No one can doubt that. The matter involves not only waste of money, although that is extremely serious. Local government finance has been ruined. Today, local government is different from what it was 15 years ago. It has never had sufficient finance to deal with the problems that it has faced, but it was able to contain the problems. The large proportion of money that it needs from central Government has distorted local government decisions. It cannot decide to spend money in a certain way because it costs so much more than it used to in the reduction of Government grants.

We are coming out of recession, but we still have a balance of payments deficit and a public sector deficit. At any rate, a chance exists to make some amends. The Government's main task is to create investment in both industry and people. I am delighted that my hon. Friend the Member for Dunfermline, East (Mr. Brown) has put that at the forefront of the Labour party's aims—it should be there and he is right to do that.

There is a difference in the time scale involving investment in training and the time scale involving investment in plant and machinery. Investment in plant and machinery can often get a return in months. In education and training, investment success needs a number of years. There was one exception to that. The wartime training scheme created engineers for the war effort who produced large numbers of trainees ready for the factories. The difference between then and now is that jobs existed that could immediately be filled. The Government could, therefore, undertake training but they need to find ways of making use of it. The lesson from that is that training is best undertaken when demand is higher than it is now. Further investment in training and education is essential, but the results will be long term.

To achieve necessary investment in industry, incentives must be given. As I say again and again, a 25 per cent. investment incentive is not an incentive at all. It is a disincentive because so many items of plant and machinery are not worth 75 per cent. of their value at the end of the first year and they are not worth the amount by which they are allowed to depreciate over succeeding years. Already, the Chancellor of the Exchequer and the Governor of the Bank of England are telling us of their worries about an overheating economy. It is clear that severe capacity constraints exist due to the failure to invest.

The Chancellor of the Exchequer told us that investment incentives will "distort investment decisions." Of course they will. That is what they are all about. Such incentives are needed when investment is inadequate. The Chancellor distorted tax allowances to provide up to £290 million for venture capital trusts. He distorted them to produce a development that is far less important than investment. Venture capital trusts will receive £290 million, but the amount of incentive for plant and machinery will not change. Far more important than those trusts is the need to encourage investment in manufacturing industry.

Investment in manufacturing industry will not produce all that many jobs. Efficiency will translate into higher production rather than much higher employment. The whole purpose of investment in manufacturing industry is to provide wealth. That is what we need from industry. It allows us to export more and to reduce imports. That wealth is required and it will translate into higher expenditure and more jobs in other parts of the economy.

Another reason exists for the low level of investment: the way our corporation tax system works. The maintenance of dividends in bad times as well as good is a peculiarity and it makes it difficult to invest. The Secretary of State for National Heritage began an examination of short-termism and dividend excesses. It is wrong that outside influences, or whatever influences there were, have cut short that necessary examination. We are entitled to know the circumstances and the reasons behind the cancellation of that valuable initiative.

Retentions of profits are the most frequent and most reliable source of finance for investment. Of course, the use of outside capital is sensible, but, for many firms, the cost is high and uncertain. As well as that, a difficulty exists in convincing lenders where their technical understanding is fairly low. There are limitations, therefore, in going to the market for money. Those limitations do not apply if one is able to reinvest from one's own resources. After all, most investment comes from that source. Capital allowances should have been changed to allow for that.

There is a certain irony in saying that the failure to obtain £1.5 billion from VAT on heating will mean that the Budget will be "holed below the waterline." The Government predict that, if the amendment is carried, there will be dire consequences. That is nonsense; it is all rubbish. The Government scorned fine tuning, but this is fine tuning to the amount of 0.5 per cent., or even less, of Government spending. Why should the Budget judgment of the Chancellor of the Exchequer be sacrosanct? Iain Macleod used to scorn that view. The Chancellor of the Exchequer of the day used to say, "This is my Budget judgment and this is all set." Iain Macleod would say "nonsense" to that, and he was right.

I had the advantage of taking part in the consideration of many Finance Bills with lain Macleod. It was a great privilege to sign, with, I think, only one other hon. Member now present, a plate that commemorated Iain Macleod on his life's work. The right hon. Member for Horsham (Sir P. Hordern) was the other signee. It was a privilege to have been recognised in that way. Iain Macleod scorned that fine tuning and he was right to do so.

The interesting thing is that the Red Book states that, in the past 10 years, the average error in spending has been £10.5 billion. We are talking about £1 billion now. Who do the Government think they are? They have such certainty about the future when the average error in the past 10 years—not the error for just one year—has been so great.

I, like the right hon. Members for Norfolk, South and for Worthing (Sir T. Higgins), remember when the Rooker-Wise amendment to index personal allowances was moved. It was supported by Nigel Lawson and cost about £1 billion in 1977. At the time, the Chancellor claimed—as all Chancellors claim—that the Budget judgment cannot be altered because it hangs together so well; it is so perfectly constructed that to take away one brick would mean the collapse of the whole thing. That, of course, is rubbish.

In 1977, the £1 billion was readily absorbed within the margins of error, but it is now claimed that the amendment would introduce such a fundamental change that everything would collapse if it were accepted. The present margins of error have become much greater and the cost is lower.

Chancellors of the Exchequer have a touch of the confidence trickster about them—they do not inform their Cabinet colleagues about the Budget until it is too late for them to do anything about it. The secrecy surrounding the Budget was because certain information could be used to enable those in the know to make large fortunes, but much of that has gone. The abolition of purchase tax and the introduction of value added tax mean that advance notice must be given and, in any event, the Chancellor himself leaks so many details that much secrecy is no longer possible.

The Budget is about raising money in taxation; it is not about the course of the economy but about how much the Chancellor can give away in income tax reductions the following year. However, I am not sure that it will have the same effect in 1996 as it did in the past because VAT is becoming ever more unpopular, and for very good reason.

VAT is a regressive tax which hits the worst off hardest. It used to be only a slightly regressive tax. Indeed, when the right hon. Member for Worthing introduced it, it was claimed that it was broadly neutral. I always believed that it was slightly regressive but recent changes have altered that, none more so than the latest.

Today, income tax is our only progressive tax. It is a major tragedy that we have lost what was once common ground between our parties. We believed in the need for "progressivity" in the tax system. We may have argued about the scale of progressivity—we wanted more progressivity than the Conservatives—but progressivity itself was taken to be a good thing. Now, however, we no longer have that general accord, which is a great pity because it was an advantage when dealing with such matters.

Conservatives Members should not be fooled into believing in the sacred nature of Budget totals. They should not deny themselves the opportunity to go through the sensible Lobby this evening. The Treasury can easily rewrite the figures, just as the Chancellor can easily rewrite his speeches following a wet night in Dudley. It is the House that must decide supply, now every bit as much as it has in the past.

6.12 pm

Sir Terence Higgins (Worthing)

It is always a great pleasure to follow the right hon. Member for Ashton—under-Lyne (Mr. Sheldon) as I have done so many times. I wish immediately to take up his point about this evening's Division although I shall deal with it in more detail later. We are not considering whether the Budget is sacrosanct or the sum of money involved—although even these days £1.5 billion can scarcely be regarded as peanuts—but whether the Government can get their business through. I must point out to the right hon. Gentleman that we do not know what the effect on markets would be tomorrow morning if the Opposition amendment were carried.

I shall concentrate on three main points: value added tax on fuel; what I regard as the myth of the unified Budget; and the question of a single currency and whether we should have a referendum on it. All three points in different ways form part of what one might call the "Lamont legacy". I shall comment on each in turn, but I have a further issue to raise.

It is not usual to examine the nitty-gritty of the Budget resolutions but I seek clarification on one. I must declare an interest in that I am the chairman of a company pension fund. Although I do not quite follow the argument, there seems to be a discrepancy between the resolutions—especially No. 35—and what appears on the Order Paper today. Is it merely a misprint? I should appreciate some clarification.

The Financial Secretary to the Treasury (Sir George Young)

I commend my right hon. Friend on his observation. He is right to point out that since the resolution was published last week the text has been amended so that it more closely reflects the text of the clause to which it relates. In a nutshell, it will ensure that tax relief for pension contributions is correctly applied.

Sir Terence Higgins

I am grateful to my right hon. Friend. We shall no doubt try to work out later what that means and whether it is a good or bad thing. At any rate, it certainly seemed odd that the two texts did not tie up.

The Opposition's amendment to the resolution to amend the law relates to a procedure that I introduced 20 years ago and which has stood the test of time. I am, therefore, not keen for the Opposition to muck around with it. The right hon. Member for Ashton-under-Lyne will remember that one year we debated whether every possible item—from sanitary towels to antiques—should be zero-rated or exempt. Amendment after amendment was debated but, clearly, we could not continue in that way every year, so I devised the current form of words.

The Opposition, for the first time in 20 years, are seeking to amend that form of words in one specific case, namely VAT on fuel, so that it can be debated. I resent my form of words being mucked around and I shall certainly support the Government this evening. In one sense, I have perhaps more reason to object to VAT on fuel than anyone else because, as the right hon. Member for Ashton-under-Lyne said, I and the late lain Macleod had the task of devising VAT in Opposition and I steered it through the nitty-gritty of the Finance Bill.

We believed that two main factors should form the basis of VAT in this country, which would make it fairer than anything in Europe. First, we took the view that the most essential items of consumer expenditure of importance to those on low incomes should be zero-rated and, secondly, that there should be only a single positive rate of tax. By way of mitigation, I should point out that we abolished at the same time the selective employment tax, which was incredibly unpopular, and purchase tax. The disadvantage of the purchase tax was that there were huge gradations between what were luxury items, semi-luxury items and those which were not quite so luxurious. We decided to scrub that system and introduced zero-rating for the largest items of consumer expenditure of importance to low-income families. Other than that, it was left up to people to decide on what they spent their money. The single rate of tax was 10 per cent., which is lower than it is now.

If the Opposition were to succeed this evening, and if it were subsequently decided to leave the rate of VAT on fuel where it is, we would effectively have a multiple-rate system and I do not doubt that before long many more multiple rates would be introduced. That would be a retrograde step and, for that reason, I am not inclined to support the Opposition.

Let us consider the effect of VAT on fuel on pensioners and those on low incomes. We are in an extraordinary position. If we go ahead and raise VAT on fuel to 17.5 per cent. and continue with the compensation arrangements, the gross yield from the tax—something like £2.9 billion—will give a net yield of only £1.6 billion while the relief will amount to £1.3 billion. To put it in simpler terms, more than 44 per cent. of the yield of this tax, which is imposed on the country as a whole, will be used to offer relief to pensioners, the disabled and those on income support. One might reasonably claim that that, as it has now been developed, is rather a socialist measure, and I am puzzled as to why the Opposition are not supporting it.

However, what I said when the idea was first mooted two years ago is still true: if we were to compensate people 10 times over they still would not believe us. That is the political reality. But the economic reality is that compensation is now very great.

The right hon. Member for Copeland (Dr. Cunningham), who spoke for the Opposition, suggested alternative forms of tax that he would impose, but he made no attempt whatever to quantify them in relation to the revenue that would be lost if VAT on fuel were not increased to 17.5 per cent.

As the Prime Minister said the other day, since the tax was first mooted electricity and gas prices have fallen, so even allowing for VAT as it is now to be imposed, gas and electricity prices have still declined. Again, that effect is very different from that presented—even, alas, by some of my hon. Friends who have not studied the matter as closely as they might have done. I hope that the Government will succeed in rejecting the Opposition amendment, and anyone who has really studied the subject will hope so, too.

My next point is about another part of the Lamont legacy—the so-called unified Budget. From the Committees that examined the idea before it was announced, it was clear that we should not adopt it without carefully examining the procedural implications. That warning should have been heeded. I have spelt out both in an article in The Times and last week in The House Magazine the fact that instead of having three annual opportunities for debate—we have always debated both sides of the equation, expenditure and taxation—the whole thing is concertinaed into the period between the State Opening and the Christmas recess.

Of course, there will be a Finance Bill later, which will have a Second Reading, but that is about it. Last year, for more than seven months the Chancellor of the Exchequer did not make a speech in the House. That represents a serious deterioration in parliamentary accountability. Moreover, it means that there is a very short period within which representations may be made to the Chancellor about what he has announced in the Budget. The fact that the Christmas recess intervenes tightens the timetable considerably. We must reconsider the whole business from a procedural point of view, and I am glad that, as I understand it, the present Chairman of the Treasury Select Committee proposes to do so.

One possible way of solving the problem might be to leave the unified Budget in its present form but to move it to the spring. That would require a fairly radical change in the Treasury's internal proceedings, but it would avoid the difficult concertinaed programme that we now have. The difficulty has been exacerbated by the Opposition, who insist on an economic debate on the Queen's Speech a week before the Budget, when the latest forecasts are available and the Chancellor could not say anything substantive.

Mr. Andrew F. Bennett (Denton and Reddish)

Would it not be better to reform the parliamentary year completely, and get away from the nonsensical arrangements whereby we are away for such a long period from July until the end of October?

Sir Terence Higgins

Perhaps, but that would raise different issues, rather than how the various items of Government business should be spread throughout the year. Presumably there will eventually be some reaction to the report of the Jopling Committee, and I believe that there is a strong case for having, in addition to the estimates days, which fulfil a useful function, a certain number of specific days devoted to public expenditure.

The House has never really had serious debates on public expenditure, because the estimates were totally incomprehensible to almost everyone, and bore no relation to the real subject of the debate. That is not now the case. As a result of the work of the Treasury Select Committee and of the Treasury under my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), people can now tell what the estimates are all about, and we could have an intelligent debate on the basis of the departmental reports.

The Select Committees can now examine those and the Departments can scrutinise expenditure. Perhaps on some sort of biannual cycle—with four days, or eight half days, of debate—we could then discuss particular Departments' expenditure plans. The Select Committees have the responsibility of scrutinising policy, expenditure and administration, but, for reasons that I have explained, they have not done a very good job on expenditure. Now there is an opportunity for them to put that right.

If that happens at least we shall have gained something from the change to a unified Budget—although in my view the whole idea is a myth. The reality is that because of our Standing Orders we can only reduce expenditure and taxation; we cannot increase either. So there is no question of the House saying, "We shall have a unified Budget, and trade off higher spending on the health service for an increase in income tax." In that sense, there can be no real unified Budget.

As I have said elsewhere, that applies even to the Government. The Secretary of State for Health does not go to the Chancellor and say, "I want more for the health service, so you must put up income tax." She has to haggle with the Chancellor about how much will be spent on the health service, then he separately decides what should happen to taxation. So there is no genuine unified Budget either in the House or within the Government. None the less, in deference to the idea, accountability in the House has been seriously eroded.

The Opposition have failed in their task by not bringing that fact out, especially when the confusion arose last year involving the withdrawal of pairing and the general breakdown in communications. The Opposition should then have negotiated better arrangements for financial matters.

Finally, I shall say a word or two about the single currency—and here I pay tribute to my right hon. Friend the Member for Kingston upon Thames who was much involved in negotiating the opt-out clause, and so on. The single currency is a difficult issue, but I am deeply concerned about the proposals now being made by some of my right hon. and hon. Friends and others who want a referendum on it. It is a paradox that Members on both sides of the House who argue that the sovereignty of the House is being eroded by Brussels and by the European Union should seek to offset that process by resorting to the technique of referendums, which are alien to our system of representative democracy.

On that subject we always risk the accusation of being elitist, but it is not likely that one could get a sensible response from a referendum on a single currency. If one asked people outside what the difference was between a single currency and a common currency—it is a fundamental difference—I doubt whether one in 10, or even one in 50, would give you an intelligent answer.

Mr. Duncan Smith

Or people on either side of the House.

Sir Terence Higgins

That may be true. Indeed—and I am sorry to say this in his absence—the shadow Chancellor, the hon. Member for Dunfermline, East (Mr. Brown), mixes up not only a single currency and a common currency, but exempt and zero-rated VAT status. But that is by the way.

My main argument is that all appeals for a referendum on a single currency are really appeals on the broader European issue. The idea that a referendum should be held at all is wrong, and the idea that we should have one on a single currency—unless we added a few supplementary questions, such as what do people think about the convergence issue and what size deficit they favour—is bizarre. It is also fundamentally incompatible with our system of representative parliamentary democracy.

I make one exception on referendums, and that relates to Northern Ireland. When it is a question of which country people are to belong to—

Mrs. Ewing

Why not the Scots?

Sir Terence Higgins

I would describe what might happen there more in terms of a border plebiscite. I believe that that is distinguishable from what might reasonably be called a referendum. I very much hope that we shall not go down that road.

Despite what was said by the right hon. Member for Copeland, I believe that my right hon. and learned Friend the Chancellor's Budget judgment generally is about right. Inflation is at a remarkably low level and unemployment is coming down month by month. The rate of economic growth may be a little too fast at this stage, but until we get closer to the capacity ceiling, that growth must be to everyone's benefit. The balance of payments is remarkably resilient, investment is going up and consumer expenditure is not likely to get out of control.

The only real problem is the size of the deficit. I am a little wary of those who say that we shall have tax increases now, but that we shall have tax reductions later. Such reductions seem likely to be envisaged at a stage in the economic cycle when they will be least appropriate. The deficit being forecast two or three years out is still too high. That being so, not to go along with this Chancellor's and the previous Chancellor's proposals on VAT on fuel at this stage would be the height of folly. On that basis, I shall support the Government this evening. I congratulate my right hon. and learned Friend the Chancellor on what is, in all the circumstances, an entirely satisfactory Budget.

6.30 pm

Mr. Matthew Taylor (Truro)

Budget debates are sometimes rather something and nothing affairs. They are something in that they address one of the most important issues in the running of the state—the building of a strong and fair economy, and the balancing of state and personal finances to achieve that end. They are nothing in that the inbuilt majority of the party of government normally guarantees that, despite all the debate, the essentials of the Chancellor's programme, right or wrong, are seen through. The Opposition may oppose, but they cannot dispose.

I hope that tonight, things may prove rather different. Tonight, there appears to be the real prospect that the Chancellor will not have it all his own way. Tonight, if all those who know in their hearts that the proposed further increase in VAT on fuel is not only a broken tax promise, but wrong-headed and unjust vote with their consciences and their constituents, the Chancellor will be defeated. Such a defeat would undoubtedly be welcomed by the country. There is overwhelming opposition among all our constituents to this tax. The Government should already have started to listen to what the people are saying. If it takes some Conservative Back Benchers of courage and integrity to make the Government listen by joining the Opposition in voting against VAT tonight, in the long run, those Conservative Members will do the country and their party a service.

Why is the tax so unpopular? First, it is unpopular because the British people, rightly, feel that they have been deceived by the Government. As we heard earlier, Conservative Ministers and the Prime Minister himself made the specific pledge at the general election that we have no need and no plans to extend the scope of VAT. Rightly, people cannot believe that those who were running the economy before and during the election were so ignorant of the true state of public finances that the need for big tax rises was not revealed to them until shortly after the election. Those tax rises were forced through in the March 1993 Budget.

Secondly, the tax is unpopular because it falls so harshly on the old and the cold. The tax asks those who struggle to afford to keep warm in winter, rather than those who can afford it and who have been the major beneficiaries of previous tax cuts, to bail out the Government financially to allow tax cuts next year. The Chancellor argued last week that adequate compensation measures would be introduced to help alleviate the burden on the elderly. This week, a report by Age Concern shows that the compensation is simply not enough. Many single pensioners will expect to receive an extra 50p a week to help offset VAT on fuel. In fact, they will get only an extra 30p, the other 20p being incorporated in the annual uprating. On average, single pensioners and pensioner couples who are mainly dependent on state pensions will be 56p a week worse off after the VAT increase.

A card that came in my postbag today raises a further point and sums up the horror that elderly people feel at the prospect of a 9.5 per cent. hike in VAT on domestic fuel. The writer said: I do not have a full stamp record so do not receive a full pension. Last year I only got a percentage of the fuel increase. Is the same to be done to the new £52 a year? SHAME. Meanwhile, according to the social policy research unit at York university, lone parents with young children receive only 25 per cent. compensation and low-paid families who have children, but who are not on benefit, will get no extra help at all.

Furthermore, the compensation takes no account of regional variations in heating costs. In my area of the south-west, people pay some of the highest fuel bills in the country, largely because of the introduction under privatization—about which the President of the Board of Trade boasted so much—of extra distribution costs for those living in remote areas far from generators. That comes on top of the highest water bills in the country and rising unemployment in an area where the benefits of such recovery as there is are not showing through to the businesses to which I talk. Indeed, unemployment has gone up at a time when it is falling elsewhere. As there are especially large numbers of elderly people living in the south-west, I am amazed that, as yet, no south-west Conservative Members have said that they will have the courage and decency to back their constituents on the issue. It is high time that Conservative Members in the south-west voted for their constituents rather than for the maintenance of their Government.

Thirdly, the tax is unpopular because everyone knows that it is being hiked up now so that the Chancellor can introduce tax cuts later. Taking money out of people's pockets to give some of it back to them as election bribes and raising VAT now to cut income tax next year is a pretty cheap trick by the Government, but a rather expensive trick for those on the receiving end. It is especially unfair to those on low incomes, some of whom may not benefit at all from direct tax cuts.

What are the Government's excuses for the tax? First, they say that the finance is necessary. Given that the Chancellor talks of tax cuts as early as next year, it is hard to be entirely convinced by that argument. Even if we accept the Chancellor's judgment that he needs the finances now, there is no need for this especially unfair tax. The Chancellor believes that the money is vital to the nation's economy, but there are various other ways in which the money could have been raised.

In the Budget, the Chancellor introduced new tax cuts totalling £1 billion, exactly the amount needed to hold VAT on fuel at 8 per cent., allowing for the compensation measures. The Government could have avoided the rise because they had the money, but they chose not to. I shall give a few other examples of ways in which the Chancellor could have met his target. He could have introduced the tax reforms outlined in the Liberal Democrats' alternative Budget, including extending employers' national insurance contributions to benefits in kind, and reforming inheritance tax and performance-related pay. That would raise £1 billion.

Sir Terence Higgins

The hon. Gentleman is saying that instead of raising VAT, the Chancellor should have abandoned the other tax changes he made. Those changes include, of course, hiking the threshold for tax on pensioners. Is the hon. Gentleman saying that he is not in favour of that?

Mr. Taylor

I am outlining a series of different ways in which the Chancellor could have met his target. One would have been to abandon the tax cuts made which happen to exactly equal the cost of abandoning VAT on fuel. Another way is the series of tax reforms that I have just mentioned and I shall outline some others. We outlined what we would do in our alternative Budget, which included rather more substantive changes to employers' national insurance contributions.

I am addressing the Chancellor's claim that he had no alternative. That simply is not true. Indeed, it is pretty obviously not true because we all know that the Chancellor is choosing between a large range of alternatives and using his judgment about which is best. He cannot claim anything other than that it is his judgment. Although he says otherwise, he would not privately argue that very strongly.

The Chancellor could have reduced the 1995–96 contingency reserve by £1 billion, leaving a substantial £2 billion which would have risen to £5 billion by 1996–97 on his figures.

Secondly, the Government seek to justify the tax by arguing that it is green; a tax to save the planet. Never was there such a wolf in such inadequate sheep's clothing. In fact, the tax falls on all energy use equally, polluting or not. It is a tax on electricity from clean wind power as well as from polluting coal, on electricity from clean hydro-electric as well as from polluting gas. The whole point about shifting tax from the "polluter pays" principle is to target the polluter not the good guy. This tax notably fails to do so.

Mrs. Ewing

Does the hon. Gentleman therefore regard it as a double insult that, in many areas of Scotland, where the bulk of our power is produced by hydro-electric power, our consumers will suffer most because they also live in the coldest climatic conditions in the whole of the UK?

Mr. Taylor

I agree with the hon. Lady. I know that that matter has been especially controversial in her area. The truth that the tax has nothing to do with the environment and everything to do with raising revenue is revealed most clearly by the fact that it is set to fall on standing charges as well as consumption. There is nothing in that which is green, but there is plenty in it which is regressive for those on low incomes. Moreover, the funds from this so-called green tax are not being used to invest in energy compensation. Just £10 million out of £1,000 million raised is going into the home energy efficiency scheme, helping the environment and those struggling to pay the bills. Nor is the tax a shift towards the "polluter pays" principle because it is not replacing another tax, but being used purely to raise further revenue. That is not the point of the shift for which we have argued—shifting taxes on to polluters.

Of course, Conservative Members of Parliament are briefed by Ministers and told that we, as Liberal Democrats, looked at extending VAT to fuel ourselves. So we did and we concluded that it was the wrong approach for all the reasons that I have given. We were honest enough to say that we considered it and bright enough to rule it out. In contrast, the Government were bright enough to rule it out during the run-up to the last election and dishonest enough to implement it afterwards.

It is true that the Liberal Democrats have long advocated a carbon energy tax—I shall not duck the issue—to address the need for energy conservation. In the early years of its adoption, it would raise similar revenue to that raised by VAT, but there are crucial differences. Unlike VAT, a carbon energy tax would target polluting industries. That means that there would be a far smaller burden on domestic users than is presently the case with VAT on fuel. Unlike VAT, it targets the raw material going into the power stations, encouraging more efficient energy production and, therefore, lower costs to customers, rather than putting up bills willy-nilly. Many power stations are currently only 30 to 40 per cent. efficient—a good starting point for improvement. Unlike VAT, we would recycle the revenue from the carbon tax into reducing employers' national insurance contributions, the tax on jobs, which returns to the point made earlier. So it would shift the burden from NI contributions, which currently puts people and keeps people out of work, and place it on the pollution of our environment, which is widely acknowledged as needing to be capped.

Unlike Labour, we do not run away from our policies, nor do we propose targets for cutting greenhouse gases without explaining how we would achieve them.

Mr. Fabricant

Does the hon. Gentleman accept that so-called clean producers of electricity—he talked about wind power and about hydro-electric power, which was also emphasised by the hon. Member for Moray (Mrs. Ewing) —represent a very small proportion of the total mechanisms used for generating electricity in the country? At the end of the day, has the hon. Gentleman calculated the total cost to pensioners and, indeed, any consumer of electricity, of his carbon tax, albeit, as he points out, that it is a tax on polluting producers of electricity?

Mr. Taylor

First, let us remember that we are talking about giving back with one hand the tax that we are collecting with the other in the same process, rather than giving it back later as tax bribes. So, we are not talking of increasing the overall burden on the economy. Secondly, the hon. Gentleman must remember that the more efficient and cleaner energy producers, those which are not destroying the environment, will be penalised equally by the imposition of VAT on fuel as those which are dirty. That will not be of any benefit.

The hon. Member for Mid-Staffordshire (Mr. Fabricant) is wrong. One of the ways in which we clean up our environment is to make those who burn carbon fuels burn them more efficiently and get better returns on energy. At the moment, whichever power station we are talking about, the same burden of VAT on fuel will apply and the customer will see no benefit from it. However, if fuels were used intelligently to generate electricity, we would see a direct return in the profits of the company and in the prices to consumers under the carbon tax. That is the specific point of the adoption of that tax. That is why environmentalists are united on it and why the European Community also sees it as the best way forward.

The third reason that Ministers give their Back Benchers for supporting VAT is loyalty to the party. They say that the measure is a central part of Conservative Government policy, so Conservative Members should vote for it as a matter of duty, that they were elected as Government Members of Parliament and that they should stand or fall with their Chancellor, right or wrong. That is a new constitutional theory to me and not one, I fancy, for which many of us in the House have time. Members of Parliament are elected to represent and stand up for their constituents, not back a Government who are so out of touch.

Let us look instead at what defeat for the Government will tells us and what it will achieve. First, it will tell us that the Government will not only have lost their majority tonight. It will confirm that they have effectively become a minority Government. They will have got there not only because of defeats by Liberal Democrats in by-elections, but because they ceased to listen to the people who elected them or even to those elected to represent them on the Back Benches. The Cabinet has become so unwilling to listen to others that it can no longer even command the confidence of its own Back Benchers. A defeat for the Government will tell us that the time of this Government is drawing to a close, that the Prime Minister has neither the authority nor the ability to see through his policies, and that his is a Government buffeted and rocked by dissent and confusion.

Far more important is what the defeat will achieve. Whatever the technical status of the amendment, its success tonight will force the Government to abandon their plans for the second-stage increase in VAT on fuel—a result which would be welcomed by people across the country. Even more important, perhaps defeat can persuade the Government to stop listening to their ideologues and start listening to the country. It will be clear that the Government must start to build a more open-minded, a more consensual and a more honest approach to governing Britain. If they do not, it will be clear that neither the Prime Minister nor the Government deserve to survive.

Most important of all, a defeat will show that the Government can no longer get away with deceiving the electorate and that they cannot win the next election, as they did the previous election, on the back of promises that they had no intention of keeping. The bluff is called, the disguise uncovered. Their time is up.

6.47 pm

Mr. Iain Duncan Smith (Chingford)

After all the days of the Budget debate and having looked through some of speeches, I am fully aware that I will probably be repeating everything that has been said. However, I shall repeat it regardless because this, after all, is a secret that we are keeping in here. I know that nobody up there in the Press Gallery is bothering to report any of it anyway. I shall try all the same.

The Budget, which has been clearly presented to us tonight, falls very much into the context of what we have been doing over the past 15 years, and I shall review a little of that. It has been produced against the backdrop of the particularly successful economic regeneration that is going on at the moment. It is quite interesting to look back through the reforms made to the supply side during the 1980s, because one can see that some of the key areas of success, such as businesses being able to take up extra employment early and therefore producing new jobs for people, are mostly due to those hard decisions. It has meant that businesses are now much more flexible and much more able to compete. Essentially, they are able to take up those extra bits of slack in the economy. I emphasise manufacturing, which did not go through a boom period in the late 1980s, but which, with restructuring all the way through, has come out of the recession remarkably well and is now competing worldwide.

We forget at our cost the change in labour relations which we have undertaken over the past 15 years. Often, not one word is said about that. Back in the 1970s, a Labour Prime Minister was telling trade union bosses to get their tanks off his lawn because they were so threatening and were demanding so many things. We do not hear comments such as that any more because today the trade unions do not have any tanks. All the breast-beating before 1979 about the problems of days lost through strikes has disappeared. Not a word is said about that by Opposition Members, simply because it no longer exists. The concerns and worries that ran up to 1979 have gone, with the result that there has been a major and beneficial change to our economic prospects. The United Kingdom is in the vanguard of trade union reform. Fewer days are lost through strikes in this country than pretty well anywhere else in the western world.

We have talked about the exchange rate mechanism almost endlessly, so I do not intend to make it a great issue this evening. I merely say that our adherence to the ERM must be a lesson for us all. We find greater success through floating exchange rates than fixed exchange rates that peg us to currencies that relate to economies with which only a tiny proportion of our trade is conducted.

I welcomed our departure from the ERM. Much of our success and growth since then has stemmed from our leaving it. Those Opposition Members who speak as if they had been talking constantly about departure should carefully rethink their position. Earlier they were arguing that we should stay within the ERM regardless of the cost. They advocated upping interest rates. In effect, they were saying that we should find anything that would allow us to stay in. On that basis, they would take no credit from our departure. Indeed, they would still be in the ERM now, and we would see no growth.

We are in a period of sustained low inflation with strong export-led growth. We would have given our eye teeth for such a state of affairs 15 years ago. I remember over the years the growth that moved into consumer expansion, which led to inflation and everyone gritting their teeth and saying, "Up interest rates." We are not, thankfully, in that position. We are in a near-perfect position at the present stage of growth in the economy. It is export-led growth and consumers are not spending at rates that they cannot afford.

We have about 8.25 per cent. growth in exports with 2.5 per cent. growth in the level of consumer spending, which does, however, lead to some problems.

Mr. Clappison

My hon. Friend is going to the heart of the debate, which was conspicuously missed earlier by the right hon. Member for Copeland (Dr. Cunningham), who spoke from the Opposition Front Bench. I am talking about sustainable growth. We have heard nothing from Opposition Members about how they would improve our present prospects.

My hon. Friend has made comparisons between now and the 1970s, and Opposition Members have produced a welter of selective economic comparisons. Does my hon. Friend recall a time under any Labour Government when growth was as high as at present and inflation was as low, and it looked as though things would stay like that for a long time?

Mr. Duncan Smith

I cannot remember such a period. I dare say that Opposition Members are unable to refer me to one.

Conspicuously absent from the speeches of Opposition Members is the fact that we have a strong level of growth in the economy. As I have said, there is 8.25 per cent. growth in exports, which is something that we have wished for over the past 30 years. At the same time, there is a lower level of growth in consumer spending. The two levels of consumer growth are the same as they were last year, and the predictions are that they will not rise by very much next year. That produces a strong level of growth and a strong base for the economy, but it is a situation that will lead to problems.

The current problem between consumers and businesses is that the businesses that will satisfy the consumers are in a 2.5 per cent. trap, which means that they do not necessarily recognise the growth that we are talking about. They do not see it to quite the same extent as it exists. We must try to explain much more clearly that in the long term a low level of inflation with export-led growth will be beneficial and that it will not lead to higher levels of inflation.

We are in a period of instability because of the shake-outs that have been taking place in manufacturing industry and the service sector over the past 15 years. For the first time, we find a great deal of instability among white-collar workers. Most white-collar workers succeeded in passing through many previous recessions without experiencing too many personal problems. They now find that jobs that they might have anticipated keeping for long periods will not necessarily be available to them. They are in the same position as many others in looking much more frequently for jobs. They change their jobs more frequently and consequently are more often looking for new employment than hitherto. The concept of people entering industries and staying within them for their entire working lives has gone. It is a cultural shake-up that has had a major effect on the views that are taken on levels of growth within the economy.

It is excellent that we have low inflation and a good level of growth, but we must understand that outside the House it will take some time for people to recognise, for example, that the value of their houses will not increase massively and that they will not be able to borrow against increased property values. They will not experience wage settlements that bring them a great deal more money. In the short term, they will not think that they are better off. There is a cultural change taking place outside the House. Unfortunately, the Opposition continue to carp. They suggest that they would wave a magic wand and change everything. That is not possible and we must see through the change from an old, manufacturing society to a modern society that is based on knowledge and the employment of people in the selling of knowledge. Those will be the key factors. The change will be better for people in the long run.

We have a growing economy within which there is no real pressure from consumer spending. Against that background, I do not think that the Bank of England is right about pressures on inflation. It went on about them the other day and it is still doing so. If we take account of levels of consumer spending and project them over next year, however, and at the same time bear in mind M4, the broad money measure, which is low for the historical level of upturn within the economy—over the past two months or so M4 has reflected a decrease—the position is worrying. I take that view because the figures reveal that the amount of money in the economy is not as great as it perhaps should be at this stage. At the same time, there is no real pressure on inflation. I wish that people would stop talking about interest rate rises. We have yet to see the results of the most recent interest rate rises.

Mr. Fabricant

Will my hon. Friend give way?

Mr. Duncan Smith

I shall not because I am conscious that I must get on. Others wish to speak.

I welcome the Budget because it demonstrates that we can set a domestic monetary framework that works. We do not have to worry too much about the way in which others are behaving with their exchange rates. We take the right decisions, which are based on floating exchange rates and targets for inflation. Floating exchange rates worked for us in the early 1980s and they are working again for us now. I do not accept the arguments for the adoption of a single currency. Those who advance them suggest that there is a better approach that is based on re-pegging our currency to a fixed exchange rate. I do not agree. I hope that my right hon. and hon. Friends will take that on board over the next six months, when a decision will need to be taken on whether to go into a single currency.

I am concerned to note that my right hon. and learned Friend the Chancellor of the Exchequer has predicted from the Red Book that there will be a reduction of about 0.8 per cent. in public expenditure next year. That is a pretty tough target given our record. I am concerned because the Red Book figures tell us that we forecast a reduction, ultimately, of about 1.3 per cent. last time round and ended up with an increase of about 1.4 per cent. There has been an overall increase of about 2.7 per cent. from where we projected we would be. That could mean expenditure of up to £6 billion more than we expected. I raise a note of concern. Had we adhered to the figures that were forecast we would be in an even better public expenditure position than at present. The contents of page 10 of the Red Book show clearly that we need to make a greater effort to adhere to our public expenditure programmes. If we say 0.8 per cent., I urge my right hon. and hon. Friends to adhere to that and even to do better.

When the right hon. Member for Copeland was asked by several hon. Members, and finally by me, whether public expenditure was too high or too low, he said that it was too high. He went further and said that social security spending was too high. Let us ask the right hon. Member for Copeland and his hon. Friends, in particular the hon. Member for Oxford, East (Mr. Smith), who is to reply to the debate on behalf of the Opposition, which element of social security spending they are going to cut. Where is the axe going to fall?

I was amazed by that clear statement made by the right hon. Member for Copeland. I would like to follow it up to discover what it means. If public expenditure is not to be cut, which element of taxation is to rise to support higher levels of public expenditure?

Given the figures to which I referred earlier, and the fact that even under huge pressure to keep public expenditure down it has actually risen in real terms, we do not have scope to fiddle around with VAT on fuel this time round. Following a point made by one of my colleagues earlier, it is clear that we do not want to end up with a differentiated level of VAT. We must decide whether we want that tax altogether or not.

Some people may think that we do not want it. I accept that some hon. Members do not want it. However, in present circumstances, where else will they find the money if it does not come from higher public expenditure? There must be a level of taxation and they must want a higher level.

Mrs. Ewing

I must make it clear that I am not responding on behalf of the official Opposition. The City made it very clear that it anticipated a Budget based on a £23 billion public sector borrowing requirement while the Chancellor produced one with a £21.5 billion PSBR. The difference is exactly the amount of money that will be raised from VAT on fuel. Therefore, the City did not see the necessity for the tax on fuel. As Conservatives usually support the City, why does not the hon. Gentleman listen to the City?

Mr. Duncan Smith

I always listen to the City. If the hon. Lady looks at the figures carefully, she will discover that public expenditure this year is higher than was originally forecast in real terms. The question that we must ask, and which has not yet been answered, is that if the Opposition want to get rid of the uprating to 17.5 per cent. VAT on fuel, where will they find the extra money? We are already talking about £3.5 billion more than was forecast last year. As I said earlier, if we consider the original forecast, the figure is £6 billion higher. The Opposition have not faced that fact.

I must tell my right hon. and hon. Friends on the Government Front Bench that I am concerned about the fact that, although the increase in VAT on fuel is an important part of the Finance Bill, a week ago, in relation to the European budget, the issue became a matter of confidence and the measure was passed on that basis. Whether or not that measure had been approved, money still would have flowed, as the Paymaster General is aware, to the European Community—although not necessarily at the higher level.

However, if there is a problem further down the road with regard to the Finance Bill, money does not flow to the Government and they cannot finance their operations. It would therefore be wholly legitimate for my Government to say that the increase in VAT on fuel is a matter of supreme confidence in them, but we find that it is not. I am somewhat bewildered by the fact that it seems to be more important to make a matter of confidence out of moneys not being stopped going to Europe, while a serious measure of taxation does not have the same importance attached to it. I hope for an explanation about that.

Those who talk about the effects on poorer people and pensioners have not studied the figures and the package of measures. As was pointed out earlier, the package of measures has wiped out almost half the revenue that will be taken as a result of VAT on fuel. Pensioners across the board, regardless of income, will find themselves—in some cases—even better off. The Opposition say that those people are going to suffer, but that point has not been proved.

The public who are by and large on low incomes, and pensioners, are not suffering because of the measure. There has been a huge amount of largesse from the Government Front Bench in getting rid of a great deal of the money that the Government would have taken from the measure. The figures speak louder than anything else and those who try to avoid that point are avoiding reality. The figures show that we take far less than we might have done in respect of VAT on fuel simply because we are handing so much of it back.

Figures from 1988 to the end of 1993–94 show that there was an increase of between £90 billion and £100 billion in public expenditure. That point was made by my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) in an earlier debate. That increase in public expenditure is the culprit in respect of VAT on fuel. In those four to five years we took our eye off the ball on public expenditure. The biggest lesson must be that we cannot do that again. That is what has caused the pain and hardship.

Another culprit can be found in the people who, on the one hand, refer to public expenditure while on the other they fight hard to exempt certain things. It is impossible to argue both sides of the argument. Public expenditure must be controlled. I believe that we have not controlled it sufficiently, but we are controlling it now and that is welcome.

Some people say that the Budget falls between last year's Budget and next year's Budget and that it does nothing. I believe that the contrary is the case. Some people have missed the point that we are in the process of restoring finances. It was therefore wise of my right hon. and learned Friend the Chancellor not to complete the changes to the taxation system which were started by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) at this stage.

It is remarkable that so few commentators have picked up the fact that we are seeing a fairly major process of change to taxation. There is a general move, by and large, from direct taxation to indirect taxation. That has been a process of Government thinking for the past 15 years, but it was given greater impetus by my right hon. Friend the Member for Kingston upon Thames and it is being pursued now, quite rightly, by my right hon. and learned Friend the Chancellor in this Budget and his previous Budget. That is a very good area of reform and it is one that Conservatives should be pleased about as it shifts the burden and leaves the element of choice.

Mr. Graham

Will the hon. Gentleman give way?

Mr. Duncan Smith

I will not give way because others wish to speak and I have already given way on several occasions.

The success of the changes in taxation will be seen only when we drag the base rate of income tax down to 20p for all and force the level of overall taxation down much further. The key is that the overall burden of taxation must be reduced as a total package. That is what we must get back to. There has been a blip in that regard over the past two or three years. It must now go down as it would remain unfair if we left it simply as moving towards indirect taxation.

My right hon. and noble Friend the former Member for Blaby, Lord Lawson, said: The history of the 1980s demonstrates beyond a shadow of a doubt that unique political potency of cutting the basic rate of income tax. I fully support that. Our economy is clearly now showing that it is a global economy—as it always has been. Most of our exports are outside the European Community, not inside it. The latest figures revealed in the Red Book show that 43.5 per cent. of our exports, including financial services, go to the European Community. It is clear that we will be influenced by the changes taking place outside the Community. We will affected by the massive changes in the far east and north America, which are big markets for us. We should be proud about that. We should not pretend that such growth is an accident.

Our business men are voting with their feet. They are exporting more every year to the far east and to north America and they do not want to be hidebound with restrictions, taxation and other forms of Government interference which the European Community seems to want to dump on us and which, in essence, comprises a smaller part of our exports.

I am tired of the constant gripe about manufacturing industry when not one word is said about the service sector. Financial services in this country are the main exporters. We have the third-largest surplus in financial trade in the world—a £16 billion surplus each year—which is beaten only by America and Switzerland. As one industrialist said the other day, our financial services skills are similar to the skills of which the German engineering sector has been proud for many years. We should trumpet that fact because people are beating a path to our door to employ people with those financial services skills.

In that light, I welcome the venture capital trust scheme, the industrial financial initiative, and the £600 million package of transitional support on business rates—they will go a long way to demonstrate our support for business activity—as well as the changes to the Export Credits Guarantee Department that were proposed in the Budget.

Opposition Members say that they will sort out the share options scheme and drag lots of money back to the Exchequer on that basis. They are in cloud cuckoo land, just as they are in respect of the loopholes that they will close and the tax that they will drag back to us in that way. It is easy for them to say that, but it does not hold water when we consider the finances.

We are moving in the right direction. At last, we are getting a grip on public expenditure. We are looking to bring down taxation, and we must bring down the overall burden of taxation. We must never let what happened to us in the four years to 1994 happen again. The Budget, seen in the light of the past 15 years, is exactly right. All that I ask for now is that we make certain that we hold tight on public expenditure so that we may deliver a lower burden of taxation to the British people in future.

7.10 pm

Mr. John Evans (St. Helens, North)

I have listened to several Tory speeches since the Chancellor of the Exchequer opened the debate, and I have listened to the President of the Board of Trade, in particular. Nothing in the Tory party has changed since, more than a century ago, Disraeli described the Tory party as an organised hypocrisy.

It was interesting to hear the hon. Member for Chingford (Mr. Duncan Smith) refer to the situation in the labour markets and the fact that we have no industrial problems. One reason, if not the principal reason, for that state of affairs is the fear that now exists throughout British industry. That fear was created by the Government's use of mass unemployment as a weapon in their economic policy.

Tories like to tell us that 2.5 million people are unemployed. Of course, that figure is utterly meaningless. There are 2.5 million unemployed people who are claiming benefit. The operative words are "claiming benefit". It is estimated that between 1.5 million and 2 million people are economically inactive, without work, but not claiming benefit. About 4 million people are without employment. One reason for the enormous drain on the public purse is that people who could work and contribute to the national Exchequer in national insurance contributions and income tax are in receipt of benefits of one form or another.

Another reason for the situation that the hon. Member for Chingford regards as so wonderful is that the average British worker has less legislative cover than workers in almost every other European country, including many in the former eastern bloc. The British employee is exposed to the depredations of some of the worst employers in Europe.

I draw the hon. Gentleman's attention to two early-day motions. Early-day motion 166 refers to trade union representation and the fact that several organisations and companies refuse employees the right to trade union recognition. Early-day motion 166 states that G. R. Scott Ltd. of Wakefield has sacked four employees with 60 years' service between them because they sought trade union recognition. Early-day motion 178, which relates to Badgerline and the Eastern National bus company, states: That this House regrets that employees of Eastern National Bus Company, based in Chelmsford have been dismissed whilst lawfully contemplating industrial action in furtherance of a trade dispute; notes that not a single employee was on strike at the time the sackings took place". Many British workers find themselves in that situation today. I hope that the hon. Member for Chingford will bear that in mind before he makes another such speech.

The Budget has been described in a variety of ways. The Tories generally say that the Budget is good. Most Opposition Members describe it as bad. I describe it as a typical Tory Budget. It is the sort of Budget that I have witnessed since 1979, when the Tories took office from the previous Labour Government. As usual, it is a Budget that protects and promotes the interests of the wealthy and denigrates and downgrades the interests of the poor, the elderly, the low-paid, the sick and the unemployed. That is what one expects and gets from Tory Budgets.

The Budget reinforces the point that was rammed home by the memorandum that was so expertly leaked from Tory central office, from Mr. John Maples, deputy chairman of the Conservative party. That memorandum has caused many problems for the Tory party and great amusement and interest for the rest of the country. Mr. Maples struck the note exactly right when he said that the general opinion of Tory voters is that the rich are getting richer on the backs of the rest, who are getting poorer".

In the Budget, once again, the rich are getting richer through the full uprating of inheritance tax, the venture capital trust scheme, which undoubtedly will be another scam for higher-rate taxpayers, and the extension of relief for investors in personal equity plans and tax-exempt special savings accounts. It is remarkable that, next year, holders of TESSAs—in many instances, they will be husbands and wives—at the culmination of their five-year TESSAs, will be able to reinvest £18,000 tax free for at least another five years.

We know that the poor are getting poorer, because VAT will increase from 8 per cent. to 17.5 per cent. if the Government get their way tonight. That will cost the average family an additional £80 a year. We know that, from the previous Budget, seven new Tory taxes will cost the average family another £7 a week. We have seen the freezing of the married couple's allowance, the freezing of the blind person's allowance, the ending of mortgage interest payments for the unemployed and, of course, the continuing tax on ordinary savings.

The increase in VAT on domestic fuel from 8 per cent. to 17.5 per cent. lies at the heart of the controversy surrounding the Budget. No one should be allowed to forget that, at the previous election, the Prime Minister, the Chancellor and the Tory party said that there would be no need for any VAT on fuel. That was a specific statement to the country. We now see how worthless that promise was. The VAT increase is undoubtedly one of the most unpopular measures that have ever been perpetrated.

In St. Helens town centre, voluntary organisations and the Labour party organised a petition against the increase in VAT on domestic fuel. People were prepared to stand in a queue for half an hour to sign that petition. Thousands of people almost rushed to add their names to the petition for Members of Parliament to present to the House.

Sir Teddy Taylor

Was the hon. Gentleman able to assure those people who felt so strongly, that a future Labour Government would reduce the rate from 17.5 per cent. to its present level?

Mr. Evans

The hon. Gentleman and I share many views about the European Community. As far as I am aware, once value added tax is applied at a particular level, it cannot be reduced or removed. No doubt the hon. Gentleman will tell me if I am wrong. If it were possible, I would certainly like to see VAT removed from fuel. I hope that that satisfies the hon. Gentleman.

Sir Teddy Taylor

I assure the hon. Gentleman that it would be possible to reduce VAT on gas and electricity—although there might be legal action— but not on other fuel items, such as wood.

Mr. Evans

I am sure that the hon. Gentleman does not wish to argue with me as we share similar views on the subject. I stress that, as far as I am aware, once VAT is imposed it cannot be reduced or removed.

The Tory party is the party of value added tax. It introduced VAT and has doubled the rate of VAT since 1979. A typical family will pay more than £1,250 in VAT next year, which is £715 more in real terms than it paid under the previous Labour Government.

I believe that the Tories intend to extend the imposition of VAT to other goods and services in successive Budgets. The Chancellor of the Exchequer has made it quite clear that he strongly favors switching from direct to indirect taxation. We all know how unfair that would be. The imposition of VAT on domestic fuel is both a regressive and retrograde step, which will hit hardest the elderly, the unemployed and the low-paid. It is certainly a bigger impost on the poorer sections of the community than it is on those who are better off.

All hon. Members who vote on the motion should bear it in mind that if there is a severe winter this year, a number of elderly people will die of hypothermia as a result of the increase in VAT. Elderly people died last year of hypothermia, and this year the Government have imposed an even bigger charge that will hit the low-paid—who will not qualify for any of the Chancellor's so-called benefits—particularly hard.

Mr. Fabricant

I sympathise with the hon. Gentleman on several points, but is not it the case that people died of hypothermia last year and the year before that? People were dying of hypothermia long before VAT on fuel was ever dreamt of.

Mr. Evans

That is the point that I was making: there will be more deaths from hypothermia this year—particularly if it is a severe winter— than occurred in the last three winters, which were not particularly severe. Many weather forecasters are predicting a severe winter. Conservative Members should bear that in mind when they enter the Lobby to vote with the Chancellor of the Exchequer tonight.

Tory Members and Ministers constantly proclaim—as the President of the Board of Trade did in his speech today—what a wonderful situation the Government have created in Great Britain. They constantly extol the benefits of the growth in exports, the control of inflation, the fall in the public sector borrowing requirement and the decrease in unemployment. They say that we have the strongest economy in western Europe.

In the light of those comments, we are entitled to ask: why cannot the elderly, many of whom do not have long to live, share in that wonderful prosperity? Why has VAT on domestic fuel doubled from 8 per cent. to 17.5 per cent.? Apart from food, the absolute necessities of life for the elderly are heating and lighting.

I am a little sceptical about the rebellion that we may see tonight. I would not like to count all the rebellions in the Tory party that have almost taken place about issue after issue since 1979. While I hope that the Government are defeated tonight—and I hope that the Chancellor of the Exchequer will then resign—my instincts tell me that when the vote is counted, we shall see once again that Tory Members have failed to put their vote where their mouth has been in the past three or four weeks. We shall wait and see.

I now refer to an issue that has hardly been mentioned in the debate—indeed, it was skipped over almost completely in the Budget speech. Public expenditure took up barely two columns of the Chancellor's rather lengthy speech. He said that the Government will maintain "tight control" over public expenditure. That statement can be interpreted as a promise of massive cuts in public expenditure.

That is certainly what has happened with local government. It is remarkable that an area of public expenditure that has been pruned so ruthlessly in the past few years was not mentioned in the Budget speech. We had to wait for the statement by the Secretary of State for the Environment to learn precisely what was about to happen in that area.

According to calculations made by the metropolitan authorities local government committee, some 316 English councils face substantial spending cuts if they are to stay within the Government's new capping levels. Some 217 of those councils will be restricted to an expenditure increase of 0.5 per cent. The Chancellor's inflation forecast for 1995–96 is 2.5 per cent., which represents a substantial cut in local government finance.

Once again, the Government have cynically walked away from the results of their actions. It is obvious that they will refuse to fund any agreed national wage increases for local authority workers. When one considers that a 1 per cent. increase in teachers' wages will cost English local authorities £1 billion, which they do not possess, one can appreciate the burden that will be placed on local authorities.

The authority in St. Helens—I am tired of returning time and again to the theme of St. Helens' revenue support grant settlement—has been treated worse than the national average. Its standard spending assessment of £131.9 million this year has been reduced to £129.7 million—a reduction of £2.2 million or 1.7 per cent. of the total.

The capping level for 1994-95 is £138.5 million, and for 1995-96 it will be £139.2 million—an addition of £700,000 or 0.5 per cent. The reduction in the standard spending assessment in real terms means that St. Helens will lose £2.2 million in grant and that council taxes will have to rise by £45 for a band D property—or 7.7 per cent— in order to compensate for that loss.

The increased cap allows for an increase of only 0.5 per cent. on the existing budget. That falls far short of current inflation levels and means that the Government will again fail to fund any pay awards that St. Helens council may face. As a result of that reduction and the Government's failure to fund correctly in 1994-95, St. Helens borough council will need to make a £6 million cut in its already stricken budget.

One can make an amazing comparison of the treatment of St. Helens with that of Westminster city council—which I have done on many occasions— an authority of a similar size, with a similar population. Whereas St. Helens' standard spending assessment has been reduced by £2.2 million, unbelievably and incredibly, Westminster's standard spending assessment has increased by £5.5 million. The permitted increase in St. Helens' budget is 0.5 per cent., but the permitted increase for Westminster is an incredible 15.3 per cent. What does Westminster have on the Tory Government that allows it to get away with such largesse being showered upon it while St. Helens receives such drastic treatment?

We had a meeting upstairs this afternoon with members of the Merseyside fire and civil defence authority, whose budget has been slashed. They told us that they would probably have to ask the five local authorities of Merseyside for a 22 per cent. increase in the precept merely to stand still financially. On top of all the other tax increases that have been imposed on the people of St. Helens, they now face a further substantial hike in their council tax. The upshot will be that social services and education will have to be cut again.

Indeed, I suspect that most local authorities will have to make further savage cuts in their care in the community programmes. I shudder to think what yesterday's High Court judgment will mean. It granted judicial review to two pensioners in Gloucester, who can now take their council to court for cutting expenditure on community care. If councils are forced to meet the costs of community care in full, that can only mean further savage reductions, especially in the education budget.

The combination of ever-increasing taxation and constantly reducing public services, together with the widespread fear of unemployment, supports what the former Transport Secretary, the right hon. Member for Norfolk, South (Mr. MacGregor), said about the lack of a feelgood factor. There is no feelgood factor because, as we know, even the middle classes are bitterly resentful of Tory incompetence and Tory sleaze. Every time people pick up a newspaper or turn on the television, they hear of all sorts of companies and all sorts of industries shedding hundreds and sometimes thousands of workers.

A good example of that can be found in St. Helens. Earlier this year, SmithKline Beecham announced an increased profit of £1.2 billion. At the same time, it announced the closure of Beecham's factory at St. Helens, with the loss of 500 jobs. That factory, which stands on a site in the town centre, has not suffered from even one industrial dispute in more than 30 years. It ceased production last week. The spectacle of the privatised utilities paying their directors large salaries and share options nauseates millions of people. There is no feelgood factor; there is only contempt for the Tories. Next week's by-election at Dudley, West will show that.

One matter in the Budget speech which offended me greatly was the Chancellor's casual reference to the emergence of a deprived underclass, excluded from the opportunity to work and dependent on welfare."—[Official Report, 29 November 1994; Vol. 250, c. 1079.] Who has created that underclass? Who has been in government for 15 years? Who has presided over the enormous growth in unemployment and the enormous rise in the number of people in receipt of benefit? It is the Tory party; the Tory Government.

I remind Tory Members that in 1979 many of those people had jobs—in many instances, skilled jobs—in factories that were producing goods that were exported all over the world. Many of those factories, especially in places such as Merseyside, have been closed and demolished. The work forces have dissipated and many people have been out of work almost since 1979. In case Tory Members have forgotten, I remind them that millions of young people—working-class sons and daughters—obtained skilled apprenticeships and went on to produce for and serve their country. Apprenticeships have virtually disappeared in Great Britain and it is now a nation of low-skilled people. Yet what have the Government done? They have cut the unemployment budget by a further £500 million over the next three years.

Tax increases, public expenditure cuts, average families hugely worse off over the past few years—what is the purpose of the Budget strategy? It is to create a situation that will allow the Tories to go to the country at the next general election resting on a 5 or 6 per cent. cut in the standard rate of income tax. They sold that pup to the country in 1992. They will never sell it again because no one with an ounce of intelligence will ever again believe a Tory when he talks about taxation.

7.35 pm

Mr. Michael Fabricant (Mid-Staffordshire)

We are coming to the end of five days of debate on the Budget. The hon. Member for St. Helens, North (Mr. Evans) made an interesting speech, although he raised a couple of points which begged a few questions. First, he spoke of what he called the litany of Tory tax rises; yet he did not refer to his party's position at the last general election, when it pledged additional spending of £13 billion. He did not say what tax rises there would have been had a Labour Government been in power trying to make that additional expenditure.

The hon. Gentleman also referred to the "feelgood factor". The reason why there might not be one is the negative equity suffered by so many home owners. Of course, one reason for there being negative equity is that we have not fallen into the trap of encouraging inflation. In fact, currently the United Kingdom is enjoying growth and low inflation—a position which, as many hon. Members have pointed out over the past five days, is virtually unique.

In rising to take part in this debate on the Budget, I broadly welcome the initiative taken by my right hon. and learned Friend the Chancellor, although I deeply regret the fact that he has inherited one particular tax measure from an earlier Budget. However, I shall say more about that later. Over the past few days, my hon. Friends have highlighted the fact that it is a balanced Budget. It not only serves to build on a firm fiscal base by reducing spending and offering new tax initiatives, but it takes steps to improve employment prospects for the long-term unemployed. That is something that even the Leader of the Opposition was forced to welcome in his response to my right hon. and learned Friend—[Interruption.] although only because Conservative Members shouted at him, "Do you welcome it?" and he had to admit that he did.

I would not want to adopt the policy of my hon. Friend the Member for Chingford (Mr. Duncan Smith), who said that he would reiterate all the excellent points in the Budget. Instead, I shall concentrate on just two measures which have not attracted the headlines and have not been mentioned much over the past few days, but which deserve recognition. I also intend to deal with the question of VAT on fuel, about which I have the deepest misgivings.

Before becoming a Member of Parliament, I built up a business with clients in some 52 countries. Some were developed nations and others were developing nations. In the business that I was in, the multi-million-pound contracts tended to be in the developing world where high premiums were paid for western—nay, British—expertise. That gives the lie to Labour Members who constantly denigrate the level of expertise in this country.

The Opposition also denigrate the service industry. My hon. Friend the Member for Chingford referred to the financial services industry. I remind the House that Britain is also one of the world leaders in computer software. That is another important service industry.

I and other British exporters often faced overwhelming competition from France., Germany, Japan and the United States, as a result of a price differential arising from the support that our competitors received from their Governments. HERMES, the German equivalent of our Office of Economic Co-operation and Development, offered particularly aggressive facilities and rates to domestic manufacturers—aiming to encourage exports to markets which have less than an A1 credit rating, but which are among the most lucrative markets for UK exporters. While I sweated in hot and humid climates, I saw Siemens and Bosch winning while we lost out.

Building on the initiatives of the past couple of years, my right hon. and learned Friend the Chancellor has wisely directed his attention to manufacturing and to the Export Credits Guarantee Department in particular. By reducing premiums by 20 per cent. for exporters to Argentina, Brazil, the Philippines, Egypt and to what in my view is "the economy most likely to succeed"—Vietnam—costs have been reduced substantially, enabling the UK to compete advantageously with our competitors.

In addition, a further £300 million of cover was announced last week for the so-called amber zone markets—China, South Africa and Indonesia—to which my right hon. Friend the President of the Board of Trade referred. They are all areas where I have traded in the past and which offer Britain huge export potential.

With a stronger ECGD and one of the lowest rates of corporation tax in Europe, with rates lower than in Japan or the United States, low inflation and lower national insurance premiums for employers, British manufacturers have the springboard to take a deeper plunge into world markets.

Not every company can survive. Many can fail despite a full and profitable order book. Overtrading can induce cash flow difficulties, and banks and the Inland Revenue may be unsympathetic. I therefore welcome the second initiative that I wish to highlight—the 28-day moratorium for insolvent companies. Bankers and tax collectors are often different animals from the entrepreneurs working in small and medium-sized businesses. Too often, they foreclose without exploring opportunities. I look forward to the Green Paper, heralded in the Budget, which my right hon. Friend the President of the Board of Trade plans to issue.

Chapter 11 has worked reasonably well in the United States. There are companies trading today which would have been bankrupt without chapter 11, which protects the creditor while allowing many companies to trade out of difficulty and to keep many people employed. I hope that the DTI initiative will include many of the best features of that legislation.

I was bitterly opposed to the imposition of value added tax on domestic fuel, and I am disappointed that the improvement in the economy has not allowed my right hon. and learned Friend the Chancellor to maintain it at 8 per cent.—an international treaty makes it difficult for us to lower it. I oppose that measure on three grounds—compensation levels, the effect on my party, and the very principle behind the tax.

The elderly spend three times as much on fuel as ordinary households. They feel the cold more. They are often at home during the day, particularly when it is cold outside, when others are at work and have their heating switched off. The elderly also often live in badly insulated houses, so I welcome the Government's initiative on home insulation in the Budget.

Other hon. Members have spoken at length about the shortfalls in the Government's compensation package. I refer the House to the excellent speech by my hon. Friend the Member for Brighton, Kemptown (Sir A. Bowden). Despite the £2.5 billion for compensation announced in the Budget, which should not be underestimated, pensioners with little spare cash will be slightly worse off—and many hard-up people will receive no help at all.

My right hon. and learned Friend the Chancellor is wrong if he thinks that the hostility to VAT on fuel—a tax measure which he inherited—will blow over. It will not. I almost wonder whether this issue could be the final straw, as other hon. Members and the media have suggested. As I told the hon. Member for St. Helens, North, elderly people die of hypothermia every year. They have always done so and they always will. Often such deaths have nothing to do with the cost of fuel or with taxation, but for every foreseeable winter from now on the Opposition will be cynically blaming the Conservative Government for the deaths that will occur this winter and the next and the next—and the press will take up their cry. Neither we nor the electorate will be allowed to forget. The staggered introduction of VAT on domestic fuel has made things still worse for my party.

Mr. Jack Thompson (Wansbeck)

Does the hon. Gentleman agree that over the year the average temperature in the north of England is more severe than in the south? Elderly parents in my constituency are a cause of concern for their children who, for economic reasons, have moved to the south. In such instances, two families are affected by the imposition of VAT on domestic fuel.

Mr. Fabricant

The hon. Gentleman makes a valid point. The Government are giving extra assistance in the form of cold weather payments, but they will not help in every case.

My most important objection is to the principle behind the introduction of VAT on domestic fuel, which is fundamentally wrong. In the 1980s, we shifted from direct to indirect taxation, to extend choice and encourage a savings culture that had been enjoyed by Germany for many years. That country has had historically low interest rates, resulting partly from low inflation and a high savings ratio—something that we have not enjoyed. But how much choice is there in purchasing fuel for the home? Such choice as there is certainly does not extend to 17.5 per cent. of the cost, even taking into account the compensation available to some sectors of the community.

Privatisation has brought a significant lowering in the cost of fuel, as was admirably pointed out by my right hon. Friend the President of the Board of Trade earlier today. Why can we not keep VAT on fuel at 8 per cent? I intend to demonstrate that we could do so and remain within our public sector borrowing requirement target. The solution might even have satisfied the carbon tax lobby on the Opposition Benches.

Other countries have multiple VAT rates. France, our nearest neighbour, has four: zero, 2.1 per cent., 5.5 per cent. and 18.6 per cent. If we maintained VAT on fuel at 8 per cent.—an amount over which everyone can exercise some choice—we could broaden the tax base to include other commodities in that band which are currently zero-rated all in one step and without prolonging our political misery. That might be politically difficult, but not so politically difficult as putting VAT on fuel at 17.5 per cent.

The Government's thrust has rightly been to wean people off state benefits. Yet at a stroke we have succeeded in alienating more of our natural supporters while trawling still more into state dependency. This House is sometimes referred to as the palace of enchantments. At times, it is also the palace of empty gestures and rhetoric. If the Opposition amendment before us today would keep VAT on fuel at 8 per cent., I would vote for it. But it does not. And abstention is deplorable. Because the Opposition amendment would not result in keeping VAT on fuel at 8 per cent. and would, I believe, simply serve to destabilise the economy—[Interruption.] I invite Opposition Members to intervene and correct my argument if I have it wrong.

Mr. Bennett

rose—

Mr. Andrew Smith (Oxford, East)

rose—

Mr. Fabricant

The hon. Member for Denton and Reddish (Mr. Bennett) stood up first.

Mr. Bennett

Does the hon. Gentleman accept that it is normal practice in the House to have to have paving amendments and then the follow-up amendments, and that if the paving amendment is not passed it is very difficult to vote for the follow-up amendment? I invite the hon. Gentleman to vote for the paving amendment today and then, as soon as we get the opportunity on the Finance Bill, to vote to ensure that VAT on fuel does not go up to 17.5 per cent.

Mr. Fabricant

The hon. Gentleman raises an interesting point. I could refer to some paving motions in the past that I would have liked to avoid altogether, because they were not always necessary. However, I digress.

This amendment is a paving motion to disaster, because the hon. Gentleman knows as well as I do that the international markets would say that a fundamental element of Government legislation—[Interruption.] The hon. Member for Walsall, North (Mr. Winnick) interrupts from a sedentary position, but makes no sensible points. I shall finish the point raised by the hon. Member for Denton and Reddish. I shall then be happy to allow the hon. Member for Walsall, North to intervene.

If the paving motion fails, the international markets will say, quite correctly, that a fundamental pillar of Government legislation has failed. I believe that there will be pressure on the pound and that that will put interest rates up, which will be detrimental not only to householders, but to pensioners ,and the unemployed, because the growth in our economy will stagger to a halt and slowly slip backwards. There can be no doubt about that. So when I vote tonight, I shall be voting with a heavy heart, but I shall be voting for the better of two evils.

Mr. David Winnick (Walsall, North)

Why does the hon. Gentleman not simply say that although he is totally opposed to what the Government intend to do he has not got the bottle to follow his conscience and vote, as he should, with the Opposition? He is betraying his constituents. All the weasel excuses that he is making cannot alter the fact that he has surrendered to the Whips instead of listening to his constituents.

Mr. Fabricant

The hon. Gentleman does not know me. He thinks that he does, but he does not. If he knew me as well as the Whips do, he would know damned well that I would not surrender to them or to anyone else. He can sit there in Opposition and come up with weasel words and points that he thinks will score, but I tell him this: if the Government fail tonight, my constituents—and his—will suffer more than the 17.5 per cent. on fuel, which I still believe is iniquitous.

I am a Conservative because I wish to see no ceiling on anyone's aspirations or opportunities, but our safety net must be of a fine mesh to minimise the number of those who might slip through. I believe that it is time that we took a long, hard look into what we stand for as a party and reassess our programme for the future. It is not just about privatising the Post Office, which I would have supported vigorously, subject to the safeguards of which my right hon. Friend the President of the Board of Trade has already spoken. It is about supporting libraries, parks, the monarchy, care in the community, the police and a variety of other institutions—a whole social environment of which we can all be proud, including those who might not normally be this Government's natural supporters.

We need a sound economy. The Government have already won us that. But we need to remember that the boundaries of the state can be rolled back only so far. Too little, as Opposition Members would like, and initiative would be stifled, leading to economic and social ruin. Too much, and the Prime Minister's promise of "a nation at ease with itself' would become ever more hollow. We need to regain the trust of the people, of those decent, ordinary people who are our natural supporters. We need to revisit the values which respect firm governance and respect for our institutions, tempered with security for the weak and assistance for the vulnerable. Those values are not at variance with a sound economy: they should be the very aims of a sound economy—an economy based on respect for the law, low taxation, free trade and a balanced budget.

7.54 pm

Mr. Thomas Graham (Renfrew, West and Inverclyde)

I have found some of the speeches tonight so pathetic, so unbelievably wrong. I heard the hon. Member for Mid-Staffordshire (Mr. Fabricant) showing his anger about VAT, yet he is not prepared to support the elderly, the disabled, the unemployed and the low-paid. He is not prepared to walk through the Lobby and put a stop to the increase in VAT on fuel increase. We will stop it tonight only if Tory Members are prepared to do that.

I heard the President of the Board of Tears—sorry, Trade—start the debate tonight. I have never heard him so weak. I have never heard him deliver such a pathetic speech—a speech that lacked any guts. He is normally at the Dispatch Box jumping, shouting and knocking his speech into us. Tonight, his speech was knocking into the elderly, the disabled and the unemployed. His Government created a situation in which the 17.5 per cent. VAT was a result of their total mismanagement of local councils. Lo and behold we had the poll tax, which was a disaster, then the increase in VAT to 17.5 per cent. The poor are paying for the absolute mismanagement of the Government. They are paying through their fuel—badly needed fuel which allows them to live in their homes.

We hear the members of the Government painting a rosy picture. Are they deaf? Do they not read the newspapers? Have they not travelled around the country? Can they not see what the opinion polls say? Are they not listening to the ordinary men and women who have said, "enough is enough"? The other day, when there was a possibility of a general election if the Government had been brought down, millions of people in the country were praying for just that. Millions would have turfed Tory Members into the place where they belong—the Opposition Benches.

I heard the President of the Board of Trade tonight. I felt as though I was in Disneyland and hearing "The Jungle Book", a kid's film. But that is not the world that I live in. It is no Disneyland where Tommy Graham comes from. I live in a community where the people have to pay the price of the Government's failures, and that price costs lives. Undoubtedly, people will die because of the Government's VAT policies. I will go further. I have heard rumours that the Chancellor, if he does not win the vote tonight, will savagely reduce public expenditure. Public expenditure has already been reduced, for 15 years.

I heard the hon. Member for Mid-Staffordshire talk about public expenditure. Where has he been? The number of home helps has been slashed. Bus services have been deregulated. Communities have been isolated. Bus services have been ruined. Train services look as though they will go the same way. We have seen the wholesale slaughter of private and nationalised industries. We have seen companies go bankrupt and go out of business. Millions of people are unemployed. I remember 1979. I had a job. My neighbours had jobs. The people of Linwood had jobs. Do they have jobs now? No, after 15 years, millions of people are unemployed and the Government have the audacity to tell us that they have the policies to make Britain good again. It is not on.

It is obscene that tonight the Chancellor was smiling away when my right hon. Friend the Member for Copeland (Dr. Cunningham) told him that he had made champagne cheaper. He gave us a lovely bubbly smile. Yes, the rich too are bubbling with cheer; but the ordinary men and women—the poor, the unemployed—are bubbling with tears because of the measures that the Government will force through tonight.

I spoke to a number of constituents before I came here tonight. One, Rose Templeton, has worked as a sister in NHS hospitals all over Britain. Last week, she told me that the imposition of VAT on fuel would cause shivering in the homes of the elderly. Let us make no bones about it: the hospitals will be full of elderly people suffering from the effects of trying to keep their homes warm. Other aspects of their lives will suffer, such as their dietary habits, and they will end up queuing for the doctor or even a hospital bed. The country will pay dearly for that.

Sir Teddy Taylor

Was the hon. Gentleman able to assure Rose that a possible future Labour Government would bring fuel costs down again?

Mr. Graham

If I were leader of the next Labour Government, I would give an assurance that I would look after the people of Britain far better than the present Government. I would ensure that the elderly could live and die comfortably, and that the young folk had a decent and healthy future. I would create a single system for us all, not a separate system for the rich. We would give the poor a chance to live and breathe. From small seeds grow great trees, but only if the Government are prepared to provide the seeds, and the present Government have no hope of doing that.

In a letter to me, the chairman of Renfrew district council wrote: I sincerely urge you to take up the issues against an increase to fuel costs … There is clear evidence that the fabric on housing stock is damaged and rot sets in if houses are not well insulated but especially if they are not properly heated. Local authority public expenditure will then be needed to make the houses habitable. The council chairman pleaded with the Government not to increase VAT on fuel.

I also received a letter from Age Concern, which represents many elderly people. One says: I dread this tax as I must have heat; I will need to forfeit other things including bathing and washing clothes. This is what VAT on fuel means to elderly men and women: It means making flasks of tea for hot drinks rather than making a fresh brew each time. It would be nice to be allowed to live in comfort and dignity in our old age … I pray we have a mild winter … I am proud to say I have always paid whatever I have been asked for but God knows what the future holds. After 15 years of the Tory Government, taxes on basic necessities are taxes on life. It is scandalous. The pensioners say: Like the comedy on TV, I'll be Waiting for God … I'll hibernate for the winter … I'll have to sit in the shopping centre … This takes us back to the war years when sacrifices were made to help everyone. This is not required now—hardship should be a thing of the past. I could go on, but I feel that I am speaking to a heartless bunch, and also that I am speaking to a number of Conservative Members who will not be here at the next general election.

Let me tell the hon. Member for Mid-Staffordshire about a wee note sent to me by Dr. Brenda Boardman, of Oxford university's environmental change unit. She has estimated that VAT at 8 per cent. will cause 5,000 extra winter deaths, and that VAT at 17.5 per cent. will double the number.

Mr. Fabricant

rose—

Mrs. Ewing

Will the hon. Gentleman deny that?

Mr. Fabricant

I am grateful to the hon. Member for Renfrew, West and Inverclyde (Mr. Graham) for giving way to me. I have no doubt that the 17.5 per cent. rate of VAT on fuel may produce some detrimental effects; as for the 8 per cent. rate, prices have fallen over the past two years. The net effect of that is that the charge for most fuel is now the same as it was two years ago. Are not Dr. Boardman's figures flawed?

Mr. Graham

I think that every hon. Member has been inundated with letters, data and other information about the bad effects of VAT on fuel. I do not know of a single hon. Member who has received a letter supporting it—not even a Conservative Member. I am, however, more prepared to believe that woman than to believe any Conservative Member. That is what has happened in the country: we do not believe Conservative Members. We have lost our faith and trust in their ability to govern the country well. There is no possibility that I would believe the hon. Member for Mid-Staffordshire in this context.

There is no doubt that VAT is the Tories' favourite tax. How many times have the present Government conned the public? They have made such statements as: We have no plans to increase value added tax … There will be no VAT increase."—[Official Report, 28 January 1992; Vol. 202, c. 808.] In March 1992, in a Westminster press conference, the Prime Minister said: I have made it clear that we have no plan and no need to extend the scope of VAT. Less than a year later, his Government announced the imposition of VAT on fuel.

Since 1979, the Government have extended the scope of VAT 14 times. The Chancellor is clearly out of touch with the public in whole-heartedly supporting VAT, which he describes as "a perfectly fair tax". He has said: I think it was a very sensible decision to impose VAT on fuel. I plead with the House to listen, and to stop the imposition of VAT on fuel. I plead with hon. Members to allow 10,000 people to live, and to allow 10 million people to take part in the democratic process and vote the Government out. It is time for a change of direction, to ensure that everyone in the country can live comfortably and heat his or her house, eat in that house and enjoy living in Britain. I hope that the Minister will change his mind and support our amendment.

8.7 pm

Mr. David Porter (Waveney)

It is always a pleasure to follow the hon. Member for Renfrew, West and Inverclyde (Mr. Graham): to do so shows that he has finished speaking.

Mrs. Ewing

He spoke sincerely.

Mr. Porter

He did; he often speaks with great sincerity. I hope that the hon. Lady will accept that I will speak with equal sincerity in representing my part of the country.

Last week I felt that the Budget represented a small sticking plaster for the wounds inflicted on the party last Monday night. It was welcome in that regard. A Budget that is criticised for being a Budget without fireworks and praised for being a "no headlines" Budget must be quite good, especially at this point in the economic and political cycle. A Budget for business—especially small business—for jobs, for the unemployed and the low-paid, which cuts borrowing yet increases targeted public expenditure is just what we need.

The fact that the Budget is a part of a coherent economic policy, a strategy for long-term stability and growth, seems to have escaped many Opposition Members. The fact that it is possible to have this strategy of low inflation, sound finance, deregulation and supply-side reform is due in large measure to our departure from the ghastly exchange rate mechanism. That fact has not escaped my hon. Friends even if they do not talk about it in those terms. We all know that the holy grail of growth that is steady and sustained cannot be put at risk for short-term popularity.

Just before the Budget, the Confederation of British Industry, eastern region sent a letter to East Anglian Members of Parliament presenting a picture of a fragile recovery, a modest improvement in most sectors, cautious investment plans and some reluctance to take on extra employees. I should have thought that the Budget addressed all those concerns directly.

My right hon. and learned Friend the Chancellor referred to the strategy of letting the flow of new jobs come. That will always be required to replace the old jobs eroded by technology and competition. That point is at the heart of many of the problems in my constituency.

In Waveney, serious problems with declining industries seem to get worse as the recession visibly ends in other parts of East Anglia. We are not helped by a perception of remoteness of the area, by poor transport infrastructure or by Great Yarmouth, which is next door, being given assisted area status. The Government did not listen to the argument that giving assisted area status to one location may compound the problems of another just 10 miles away.

Not all businesses like being in assisted areas or having objective 5b status. They would rather pay less tax so that such artificial subsidies were unnecessary. They will welcome the tax changes and the small business measures. Some businesses do not find it helpful to hear an area being criticised or run down in the way that Waveney district council often does. It is controlled by an unmodernised Labour party which attempts to blame the Government for everything that moves. None the less, parts of Waveney now have approval for objective 5b funding.

In one of the copious press releases in our Budget information files there is one from the Ministry of Agriculture, Fisheries and Food which confirms that in a reduced public borrowing environment parts of Waveney will benefit from extra spending. In so doing we can test the claims of two different arguments. The first is that extra funding of that sort can stimulate jobs and the second is that partnerships between public and private funding are the best way forward. The experiment in public funding will test both those absolutely.

Another press release tucked in the pile is from the Overseas Development Administration telling us that Britain's aid programme is to be increased. Few will argue with that, particularly where the ODA guarantee of tying aid to sound economic policies and good government is invoked. However, I must tell my right hon. and hon. Friends on the Front Bench that I have had a small number of letters from constituents, particularly elderly people, who feel that we give too much overseas aid and that more should be spent at home. They find it particularly galling that, for example, money goes to the former communist bloc. It is a view and it should be recognised as such, particularly in a tight financial settlement.

The big resentment comes over the overseas aid we pour into Europe. The press release says: British contributions to multilateral agencies, especially to the European Community, are planned to increase sharply. I know that we are talking about money for genuine aid in third-world countries and countries in transition, but to most people in Britain, our net contribution to the European Union's budget is a glorified way of giving British taxpayers' money in overseas aid to Spain, Portugal, Greece and Italy, to allow many of those countries to put our people out of work. I did not hear my right hon. and learned Friend justify such a big payment out of the nation's account for that.

Mr. Jimmy Wray (Glasgow, Provan)

Will the hon. Gentleman consider reimbursing the people who have lost their homes and thousands of pounds and are still paying the debt that the Government created for them? Will he consider giving them something back?

Mr. Porter

Given that I am not a member of the Government and that I am criticising them in a small way, that is a hypothetical question.

I know that we are not addressing the European Communities (Finance) Bill now, but it is hard to separate that from the tax and spend debate. One aspect of policy which, mercifully, is still free from European diktat is education. The 1 per cent. increase in real terms in education spending is very good news. It will allow for student numbers in further and higher education to grow still further, it will allow the curriculum reforms to bed down and it will allow some capital works spending. I presume that it will also allow for spending on the first steps towards the nursery and pre-school education that has been announced. Perhaps we shall have to wait for next year's Budget to hear the details.

I have already mentioned the roads in my area. In transport, a partnership between public and private sectors is obviously the best provision. As the Chancellor said, privatisation and private finance for capital investment are increasingly the chosen method for raising the quality of public service. That system works with the Department of Transport's policy of supporting a wide variety of smaller schemes. I remind the Government that the A12 Ipswich to Lowestoft dualling plans are already in five manageable bites, each one different. They range from rural dualling and village bypasses to a new bridge at Lowestoft. I commend all five parts to the Government as being economically essential and environmentally helpful to the quality of life.

The Department of the Environment has announced that standard spending assessment methodology is to be changed. It currently calculates the SSA by looking at social, demographic and other factors which affect an authority's need to spend and it applies those to the individual circumstances of each authority. I should like to see each authority that is left after the local government review raise what it likes in local taxes and then answer for it each year at the ballot box. That would be real local government accountability. Until then, we have SSAs and all that paraphernalia. I hope that the Department will review the rural deprivation element in the SSA and the extent to which local economic bases can diversify and adapt to increasing competition and technology.

The package of transitional support on business rates, the investment encouragement in growing firms and the reduction in costs for taking on new staff are not only welcome but essential and they should make big inroads into unemployment numbers. When those are coupled with the measures to help individuals back to work they should assist in keeping the United Kingdom at the forefront of Europe in achieving a sound and balanced economy.

For all the sweeping statements and visions of national changes benefiting individuals, the VAT issue remains a principal concern. I shall not rehearse all the arguments yet again because I do not believe that we shall change any minds in the Chamber. I suspect that the changing of minds is going on in Rooms outside this place. I wish that the media and some politicians would give equal space and hot air to the fact that 15 million people are receiving above-inflation help with VAT and that there is extra help from April 1995 and April 1996, which is in permanent addition to the benefit rates and will be uprated in the normal way. My right hon. Friend the Secretary of State for Social Security told the House last week that information on all that would be included in all benefit books and I welcome that.

Twenty years ago no one would have predicted that tourism would have been the biggest job creator in Britain in the 1980s and 1990s. We cannot predict everything that lies ahead. The challenges of the next century are enormous and unpredictable. We know that the technological revolution has only just begun and what is coming will make what has happened so far seem like a teddy bears' picnic. The advances in medicine, life style, communications and entertainment will be mind boggling for us. We know that the threats from drug abuse, organised crime and disaffected people are terrifying and real. We know that pollution and the environmental tasks ahead will stretch our brains, our ingenuity and our pockets to the limit. We know that demands to live longer with more material possessions and in better health will be relentless. That future is inevitable. We owe it to those who will follow us to take on that challenge, to give there a stable financial bedrock and we have to do it now. That is why I support the thrust of the Budget.

8.17 pm

Mrs. Audrey Wise (Preston)

The Labour amendment talks about the Budget leaving increasing numbers of fellow citizens in poverty. It will do that and many of those fellow citizens will be children. It should be seen as a national scandal that one third of our children are now growing up in poverty. Many of those fellow citizens will be pregnant women. I notice that statutory maternity pay has been frozen at £52.50. Not many people remark on that. Somehow, pregnant women do not grab the headlines. The freezing of statutory maternity pay is a disgrace. Statutory sick pay and statutory maternity pay were linked for technical reasons, and now statutory maternity pay is suffering because of that link. It shows the Chancellor's lack of concern for pregnant women, but there is worse.

In 1992, the Select Committee on Health report on maternity services suggested that family credit should be extended to families during pregnancy so that preparation could be made for a healthy birth and a healthy child. Still, family credit does not extend to pregnancy.

We recommended that pregnancy age discrimination should be abandoned, but there is no mention in the Budget of the hardship suffered by our youngest mothers and mothers-to-be. Under-16s do not receive any financial support and 16 and 17-year-olds receive no income support for the first 29 weeks of pregnancy unless they can show severe hardship.

Ministers say complacently that pregnancy is not a qualification for income support. They are asking 16 and 17-year-old pregnant girls, therefore, to suffer severe hardship before they receive the sort of help that is available to older women. Income support, if they receive it, is at the rate available to 18 to 24-year-olds—still substantially lower than that available to 25-year-olds.

The Government have given no convincing explanation as to why pregnant women aged under 25 need less money than pregnant women aged 25 and over. The reason why they receive a lower rate is that the Government consider that they have fewer household responsibilities. Pregnancy should at least be a cure for that assumption. It would cost peanuts to institute such a change in the Budget. Even though a majority of the members of the Select Committee are from the Conservative party, .the Government still ignore its recommendations.

As the Department of Health and Social Security noted as long ago as 1977: An inadequate diet before and during pregnancy may impair growth of the baby and put at risk the health of both mother and child". The Select Committee said: We do not believe that all the difficulties faced by mothers in feeding themselves during pregnancy result from lack of knowledge about good food, rather we believe that major difficulties arise from poor material circumstances and low income. The Select Committee, which has a majority of Tory Members, went on to say: Our view is broadly no different to that expressed by one of the earliest commentators. In his report on poverty in York in 1899, Rowntree observed that if York was typical, 'then the impediment to the rearing of healthy children is not the ignorance of the mothers so much or nearly so much as that the conditions of modem life do not enable them to supply their children with sufficient sustenance.' That applies not only in 1899 but, unfortunately and disgracefully, in 1994. We seem to have spent 100 years coming full circle. The Budget does nothing to remedy the problem. The Government, therefore, have left young poor women on income support in a position where, as is widely acknowledged, they cannot receive adequate nourishment because they cannot pay for it.

The babies of those women are likely to be smaller. In later life, smaller babies are more likely to suffer heart trouble, diabetes and other problems. They will then call on the national health service, if it still exists, which is not certain with the machinations of the Conservative party. This matter affects not only women during pregnancy, but the entire life of the babies to whom they give birth.

The poorest mothers might apply for a maternity grant from the social fund. It has been frozen again at £100. The poorest mothers can receive only £100 to help them to pay for all their babies' necessities. Women on supplementary benefit in April 1987, when the Government were in power, could receive a grant of £187. In December 1991, it would have been worth £249. The maternity grant level for the poorest mothers would, I think, now be about £270 if it were-based in the same way as the 1987 grant. Instead, they receive a measly £100 and it is frozen. No wonder Opposition Members talk about leaving our fellow citizens in poverty.

Government policy affects not only the food of the poorest mothers. Children born into poor families are likely to live in inadequate housing. Those families will suffer greatly from VAT on fuel. I agree with everything that has been said about the plight of the elderly, but it is not the whole story. Poor families with children also suffer from VAT on fuel. Children in poor, inadequately heated homes are contributing to the positive epidemic of respiratory illness among children.

The Government's response is not to improve those families' housing. They do not take any constructive steps in that regard. They make threats to reduce housing benefit. Hon. Members can read the gobbledegook of the Secretary of State for Social Security in Hansard. In one paragraph, he says: Rent officers determine whether rents are within reasonable market levels and help"— that is help from housing benefit— is not usually available above that. He said that people could receive help above the market rent in their region and went on to say: But in many areas, the market level is largely determined by those on housing benefit. In the next paragraph, the Secretary of State says: New claimants and those moving home will be entitled to housing benefit for the full rent up to the average rent for similar properties in the area"—[Official Report, 30 November 1994; Vol. 250, c. 1206.] In the previous paragraph, however, he said that that was the existing position. All I can conclude from that is that the Government are waving threats about while they consider how to carry them out.

Many Opposition Members have regular experience of the fact that people on housing benefit in the private rented sector frequently have the utmost difficulty in receiving the full rent. They are told that it is too expensive. I always challenge the housing benefit office to find accommodation at a lower rent than that being charged to the person whose case I am dealing with.

Usually I win the argument, but many people in my constituency receive less in housing benefit than they should. Gobbledegook is the best that the Secretary of State for Social Security can contribute to the housing problem.

We will find that people who need income support will receive no help on paying mortgage interest for the first nine months. They are told to insure against not being able to pay. Many people cannot afford their mortgage payments now and the Government want to add a mythical insurance, which people may not even be able to get. They seem completely to ignore the fact that their policy is likely to result in bigger debts and more homelessness. Even people with current loans will find that for the first two months during which they get income support they will receive no help with mortgage interest. The four months during which half of it will be paid will then begin. That is incredible when, as of June 1994, there were 485,000 households in Britain with mortgage arrears of three months or more.

Many people are already unable to pay interest on their mortgages having fallen on hard times. That is causing them the utmost distress but also leads to huge numbers of repossessions—200,000 properties were repossessed between 1991 and 1993—which necessitates more public spending because those people become homeless. Many finish up in bed-and-breakfast accommodation at huge public expense. The Government's policy is not only heartless but stupid.

The social rented sector—I hate that term but we know what it means—has shrunk by more than 1 million homes since 1981. The central problem is not fecklessness or even profiteering by private landlords—landlords would not be able to profiteer if there were not such a housing shortage presided over by the Government. The effects of the shrinking social rented sector are evident from a letter from my borough council. It states: The key factors locally in Preston are that there are 2,300 applicants registered on the council's waiting list … 181 homeless families in temporary accommodation for periods up to eight months … it would cost an estimated £170 million to bring all the private sector housing stock up to full modern standards of repair and facilities and £90 million for the council's own stock … and there has been a cut of 60 per cent. in real terms in the council's borrowing approvals for housing over the last 10 years. The Government have presided over all that. The council now expects that the Budget will lead to a reduction in spending on improvements to existing council stock, higher council rents and further reductions in renovation grants in the private sector and in area-based improvements in such renewal areas. That is no way to run a country.

Our fellow citizens live in such poverty that it is just as well that the curious conventions of the House allow the Prime Minister himself, the Chancellor of the Exchequer and their immediate colleagues to "congratulate Her Majesty's Government" because one thing is certain—the population in general will not.

8.32 pm

Sir Teddy Taylor (Southend, East)

I wish to draw attention to a simple fact, not to make a political point. During this debate, I asked the Labour party's Front Bench spokesmen and two Back Benchers a simple question: if there were ever a Labour Government, would they abolish the 17.5 per cent. rate of value added tax? Unfortunately, I have not yet received a clear yes.

The hon. Member for Renfrew, West and Inverclyde (Mr. Graham), in a delightful speech, argued strongly about how filthy Tory policies are and how splendid the Labour party's are, and I am sure that he believes that. However, I am going to Renfrew town hall on Sunday to make a point that I shall make now. It is time that the House woke up to the fact that we are kidding the people of Britain if we pretend that a change of Government will dramatically change what can be done about VAT. It is a horrible message, but we must tell people that this now pathetic Parliament can do hardly anything about VAT or many other things.

The hon. Member for Renfrew, West and Inverclyde talked about some of his poor friends whom he mentioned by name. He referred particularly to a lady who was having to pay more for her water, but what power do the Government have to reduce the VAT? The hon. Gentleman also talked about telephones; I am sure that many people, including his delightful Rose, are worried about paying this horrible VAT on their telephone bills. However, what the blazes could a Scottish Nationalist Government, a Labour Government or a real Conservative Government do about such matters? As the hon. Gentleman knows, the answer is nothing. That is not a matter for debate; it is a fact.

As we know, the freedom of our country to decide our taxation disappeared back when it all started in 1987 when Madame Scrivener proposed that there should be no provision for a zero rate. There was some flexibility but a series of decisions meant that Britain had to tax most of its goods at a basic rate within a certain band and a minority of its goods at the lower rate. Special provisions for gas and electricity meant that we could levy the lower rate but I am confused about one issue, which I hope that the Government will clarify.

It seems that gas and electricity are the only items on which we could reduce the 17.5 per cent. rate if the Government changed their mind or if there were a change of Government. However, I am led to believe that we could not reduce the rate on some items of fuel and power, such as fuel oil, coal, peat and coke. Furthermore, if the European Community decided that there had been a distortion of the rules of competition among the various forms of fuel it could take legal action. We are in a terrible mess.

I hope that hon. Members will appreciate the fact that, although the Tories and the present Government are blamed for levying VAT on certain items, we did not decide to do so. For example, I remember a great hoo-ha about the imposition of VAT on the construction of buildings; and there was a huge upsurge in complaints about VAT on sewerage and water services, but we did not take the relevant decisions. They were taken by something called the European Court of Justice and we had to comply. The same applies to fuel and power other than domestic fuel.

I wish that we would wake up to the fact that, no matter which party is in power, we are landed with a foul tax which is nasty for the poor, offensive and causes great hardship. As we know, the sad fact is that the people who suffer from the manipulation of VAT are those on low and medium incomes. The Government are kind and always try hard to help people, but it does not matter how hard they try.

Any extra money given to pensioners is taken into account in their housing benefit and, of course, some pensioners also pay tax. Let us assume that I had a very wealthy mother, which I do not, and that she received an increase in her pension—she would have to pay tax on it. The unpleasant fact is that, if one has saved nothing, one could now be better off.

Given that the Government's powers have almost disappeared, that democracy is almost dead and that there is virtually nothing we can do in this instance, would not it be sensible for the Chancellor to wait until he was forced to do something about VAT? Everyone knows that VAT on fuel and power is horribly unpopular, and understandably so. People have no choice about it. The imposition of VAT will not affect people like me because Members of Parliament have lots of money, but those with little money will not be able to get involved in savings schemes and the installation of various pieces of equipment.

During a debate on 12 April 1993, I made a little speech pointing out that VAT on fuel and power was filthy and that it was unkind to everyone. However, because the Government were in a horrific mess, having a deficit of £50 billion, one was inclined to say that anything was better than nothing. Because of the Government's magnificent attitude and because we fell out of the exchange rate mechanism, things are better and we now have more scope and opportunity, so I wonder whether it is wise to go ahead with the second tranche of VAT on fuel and power.

I believe that, as the Government are unpopular because of VAT decisions many of which have been nothing to do with us, it might be wise and prudent for us to say that we shall wait until we are told what to do, rather than take the initiative to put more taxes on fuel and power ourselves. I hope that people will wake up to the fact that on most of those VAT issues our freedom of action is basically nil. I also hope that the Government will agree on reflection that there may be a case for putting off the second stage of VAT on fuel and power. It is very unpopular and it appears very unfair.

Things have changed somewhat since the previous debate. It is a mistake for the Government to go on paying so much money to the EC to be wasted on fraud and mismanagement, and then to make a proposal that will hit people so hard. My feeling is that in those circumstances it is best to express no opinion—and that is what I shall do tonight. None the less, the measure is a mistake.

Unfortunately, the Labour party is playing games and trying to pretend that things would be infinitely better if it were in power. It would be better if Labour Members woke up to the fact that our powers are extremely limited. Therefore, if there is a vote I shall not vote for an extension of VAT on fuel and power; on the other hand, in loyalty to the views that I hold, and as the Labour party is playing silly political games and pretending that it would have powers that it would not, I shall certainly not vote with Labour Members.

8.40 pm

Mrs. Margaret Ewing (Moray)

Tempting though it is to take up the issues raised by the hon. Member for Southend, East (Sir T. Taylor) in the context of the various European Community directives on VAT and the qualifications placed on exemptions, reductions, derogations and so on, the hon. Gentleman will understand that, because of pressure of time and the fact that many Opposition Members have been here for the debate and wish to register their own opinions about the vote facing us, I cannot. I simply say to him that he is not the sole expert nor the fount of all wisdom on European directives and legislation. Many debates could no doubt arise from what he has said.

It may surprise Ministers that I shall start with a small congratulation to the Government on the Budget—I may add that that is the only congratulation that I shall offer them. I am glad to see that they have followed my advice in early-day motion 950, dated 24 March this year, to allow flexible arrangements on annuities. I welcome that measure in the Budget, but perhaps one of the Treasury Ministers will tell me why it is subject to an upper age limit of 75. That limit is regarded as arbitrary, and I believe that it should be removed. It would be nice to hear an answer on that point.

The second aspect of the Budget that I shall mention concerns the excise levels on DERV and fuel. Excise paid by the owners of vehicles in the United Kingdom is now the highest in the European Union, and fuel accounts for 21 per cent. of the operating costs of Scottish businesses. That is especially disastrous for my area and for many other rural constituencies.

In Moray we export fish, food, whisky and timber, and the additional cost is one that my local businesses cannot sustain. It will harm the local economy. Over the weekend various organisations representing business interests and people who work in local businesses made clear to me their anger at facing yet again the prospect of additional fuel costs, which make such a crucial difference in remote areas.

In Scotland we already have petrol differentials; petrol is more expensive there. In rural areas cars are not a luxury; they are a necessity for employment. I add a special word on behalf of the disabled, for whom access to a car is especially important. We greatly resent the fact that we are again having additional costs added for the use of our vehicles.

Because of the exigencies of time I may not be able to get through all the points that I wish to make to the Chancellor and the Government. My main argument is, of course, about VAT on fuel. Since the mid-1970s I have spoken in the House on the issue of fuel poverty, yet it still exists. In an energy-rich country such as Scotland it is appalling that fuel poverty continues, as indeed it does throughout the United Kingdom.

The vote tonight on VAT on fuel will be critical. The issue is one of life and death to many of our people. During a recent debate in Scotland I was told that the Conservatives were driving a nail into their coffin north of the border by going ahead with the second tranche of VAT on domestic fuel. I do not give a tuppenny scone for the future of the Conservative party in Scotland or anywhere else in the United Kingdom, nor for the future of the Conservative Government. But I care deeply about the well-being and the lives of the people whom I have been asked to represent, and about the thousands and thousands of people on low incomes—people who are disabled, pensioners and young families—all of whom are being severely affected by that Government policy.

I have met representatives of the disabled and the elderly in my constituency, and I can tell the Chancellor that their anger about the measure cannot be contained. They are shivering, but they are also shaking with temper. They read articles in the Sunday press about the Chancellor relishing his curry in a Pimlico restaurant, with his pint and his cigars, while they are frightened to order a bag of coal or to switch on their gas or electric fires.

Today the Secretary of State for the Environment, aided and abetted by the right hon. Member for Norfolk, South (Mr. MacGregor), told us that VAT on fuel is a wonderful environmental tax, being imposed in the interests of green policy. Does that mean the 569,876 cold, damp and mouldy houses in Scotland? Is that the environment that we are talking about? Are we talking about the environment of our elderly, and of the disabled and other vulnerable people—the people who have watched £90 billion worth of revenues from North sea oil and gas flow to Westminster, while they still feel cold in 1994?

An article by Dorothy Grace Elder that appeared in Scotland on Sunday reflects the views of people in Scotland: From the team which brought you The Sleaze, now comes The Freeze, with almost 4,000 funerals and no weddings. It is wrong to call the Budget 'boring'; VAT on fuel isn't boring—unless you count an additional 800 elderly Scots being bored to the point of death. Additional? That is because we already have around 3,000 cold-related deaths every year; the worst winter death rate in Europe within a country which has the greatest fuel bonanza in Europe". Earlier speeches in the debate revealed that there is a dispute about excess winter deaths. Yet the Prime Minister himself, as long ago as 1986, admitted that there were excess winter deaths and that the figure was much higher in the United Kingdom than in the United States of America or in Sweden.

The Energy Action Group in Scotland has produced scientific statistics about excessive winter deaths in Scotland. To discover how many excess winter deaths there are we must compare the number of deaths per 10,000 of population in the first quarter of the year, from January to March, with those in the third quarter, from July to September. Studies for England and Wales show an average excess winter mortality of 20 per cent. The comparable figure for Scotland between 1977 and 1990 is 27 per cent.

The Energy Action Group's report also shows that countries such as Sweden, Denmark, Norway and Finland, which have more severe climatic conditions than ours, have far fewer excess winter deaths.

It is argued that the problem of winter deaths will not be exacerbated by the imposition of VAT on domestic fuel. The reality is that it will be exacerbated. The Government should talk to social workers or people involved in voluntary organisations. They should go into a pensioner's house where only one room is heated, where it is too cold to go to the toilet and where it is too cold to go to bed at night. People live, eat and breathe in the one room that they think they can afford to heat. That problem will be exacerbated.

People had the insult of seeing that the chief executive of British Gas had been given a 75 per cent. pay increase. That is ludicrous. We see headlines saying that the 75 per cent. rise for the gas chief is too little and that he should have more. Yet people are literally freezing to death in our country.

I received today a letter from the Charities Tax Reform Group which has complimented my party on the fact that it has mentioned charities in its amendment. The group has pointed out that the burden of VAT on fuel will add £13 million to the bill of charities. The group says that that may be small change in public expenditure terms, but that it could mean the difference between closing a residential home or leaving it open.

The Cancer Relief Macmillan Fund, to which we are all indebted, pays one third of its grant to people with cancer to help them meet the higher fuel costs they incur as a result of their illness. Residential care providers are required by law to maintain temperatures at a specific level. Reducing consumption is, therefore, difficult. In fact, I would say that it is well-nigh impossible.

I ask the Chancellor of the Exchequer to take up the invitation that was issued to him on 1 December by a pensioner in Dingwall, in the constituency of Ross, Cromarty and Skye. I know that the hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) will not mind my quoting this. This lady says: I'm just a pensioner and my electricity bill was over £200 last winter, so heaven knows what it'll be in years to come … I'd really like Kenneth Clarke to come and live in my house for a week in mid-winter so that he could see reality. The reality is that people are frightened. They are living with fuel poverty. Whatever compensation deal the Government may argue about, it is not adequate to deal with the realities of the temperatures that we consistently experience in the north of Scotland.

Anyone who believes in social justice should be with us in the Lobby tonight, opposing the Government and giving us the opportunity to eradicate fuel poverty in our society. I ask Conservative Members this question. Will they be able to live with their consciences tomorrow?

8.52 pm

Mr. Andrew F. Bennett (Denton and Reddish)

I am pleased to follow the hon. Member for Moray (Mrs. Ewing) and to echo her views. I want to deliver two messages. My constituents are bitterly disappointed that the Prime Minister has broken one promise and they anticipate being bitterly disappointed when he breaks a second. The Prime Minister promised that he would not put VAT on fuel. He also promised that the Government would deliver their commitment to the Rio reductions in emissions, especially carbon dioxide emissions. From the evidence of the Budget, the Government will renege on that commitment as well.

To hear the rant by the President of the Board of Trade, one would have thought that this country could have difficulties if we did not go ahead with this increase in VAT. I do not believe a word of what he said because the evidence is all there. The right hon. Gentleman, however, insists that the increase is necessary. I suggest to the Government that there is no problem this year in avoiding the increase. Almost all my constituents would far prefer to see no increase in VAT next year instead of having the tax cuts at which the Chancellor is hinting.

What really concerns me is that there is no economic justification for VAT. The only thing that the Government have ever claimed is that there is a green argument for VAT on fuel. All the evidence I have shows that the green argument is equal nonsense. The Government said that to meet the Rio commitments, they had to reduce carbon dioxide emissions by 10 million tonnes. The claim is that by putting VAT up, 15 per cent. of that target will be produced.

I have done a little bit of checking in my constituency to find out what people on average and above average incomes are doing about VAT on fuel. All of them are just accepting the VAT as another Government tax. It is not changing behaviour in any way. It is not persuading those people to use less fuel or to make their homes energy-efficient. I made further checks. There is no increase in the number of people trying to get wall insulation and no increase in the number of people ordering loft insulation or taking other similar measures. People who have the chance to borrow money to invest in energy efficiency measures are taking no action at all.

The hard-up in my constituency—the elderly and those with children—cannot afford to spend money on energy efficiency schemes. They are making their contribution to the Rio targets by going without and by suffering. One can see pensioners talking to each other about how they can move from a luncheon club to somewhere else, such as a library, so that they can use someone else's heat rather than having to heat their homes during the winter. For those with children, it is almost impossible to move around to use other people's heat. There is real hardship. Those people cannot improve their dwellings. Many of them are in rented property and they cannot persuade their landlords to take energy efficiency measures, whether they are in the public or the private sector.

The Government have said, "Ah well, we have got the home energy saving scheme." Last week, many hon. Members were out publicising that scheme. It is a very worthwhile scheme; how much extra did the Government put in? They put in £10 million. What does that actually mean? In Stockport, there is now a waiting list of more than six weeks to get the work done. If that pittance in the Budget was allocated across the whole country, six extra homes could have the energy saving schemes installed. If the Government really have a commitment to the Rio targets, they must come up with real money for energy saving. If they do not, they are not only betraying pensioners and young children, but betraying our commitment to the global strategy to stop global warming and to ensure that we look after our planet.

I now turn to the Energy Saving Trust; Lord Moore is supposed to be in charge of it. The Government say that it is intended to provide 35 per cent. of the achievement of the Rio targets. It has set up a whole series of schemes for energy saving so that we can achieve our Rio targets, ensure that people have better, warmer homes and stop the problems of damp and other problems. There is no money for the schemes. The gas regulator said that there would be no money from British Gas. The Government are now looking for £1 billion to finance the Energy Saving Trust and its targets. The trust is not mentioned at all in the Budget.

I am bitterly disappointed that on VAT, the Government will hit the poorest in our country. They are totally failing in their commitment to Rio. That is a disgrace. I certainly hope that the Government are defeated tonight.

8.57 pm

Mr. William McKelvey (Kilmarnock and Loudoun)

I have two issues to raise on the question of fuel and I shall do so as briefly as I can. I thank the hon. Member for Moray (Mrs. Ewing) and my hon. Friend the Member for Denton and Reddish (Mr. Bennett) for their brevity. I shall try to match their brevity, but I do not know whether I can match their excellence.

One of the most important fuels that we have in Scotland is, of course, Scotch whisky. The Chancellor missed a marvellous opportunity to redress the imbalance of taxation, levied not only on Scotch whisky, but on spirits in general. He should have done something to harmonise taxes on spirits, wines and beers and, especially, he should have given a message to our continental friends because our products are being discriminated against to our detriment. While this country is being flooded by cheap booze from the continent, it can only be to the detriment of the Chancellor's coffers, because, as he is bound to see, the amount of cheap booze now entering the country is considerable.

The Lamont legacy in certain areas of the Budget was referred to earlier. The one Lamont trait that I appreciated was that he had a glass of Highland Park as he announced his Budget. I am not sure what the present Chancellor was drinking, but it looked like whisky.

Mr. Kenneth Clarke

indicated assent.

Mr. McKelvey

I do not know the product brand name, but, whatever it was, it was certainly a couple of million quid to the company and the industry and long may it continue.

The other serious issue, has, of course, already been described by my colleagues: VAT on fuel. At the outset, I echo the comments of the Braemar coal merchant, Mr. Alan Clark, who was quoted in today's edition of The Guardian. He said: VAT was supposed to be for luxuries". He then asked: Since when was fuel a luxury? The answer, of course, is that fuel has been a luxury since the years of economic mismanagement and rash income tax promises to their supporters have led the Government to shift the burden of taxation on to those least able to shoulder it. The hon. Member for Moray and my hon. Friend the Member for Denton and Reddish outlined exactly the difficulties that people will suffer in their areas.

My comments should alert the House to the fact that I am implacably opposed to any VAT on fuel. As one of my hon. Friends said earlier, if we were to take office and I were the leader of my party, I would say here and now that we would rescind, wherever we could under the European legislation, imposition of VAT on fuel.

Even the best compensation packages designed to help the sections of the community who are most disadvantaged by the introduction of 17.5 per cent. VAT will be bound to leave out many thousands of vulnerable adults and children—those who do not qualify because of their age or because they have a few pence too much. In assessing income, 5p too much can knock somebody off income support and therefore devalue the opportunity of compensation.

The VAT on fuel compensation scheme is not, however, one of the best compensation packages by any measure of judgment. Indeed, it is appalling. First, it treats the British Isles as an amorphous mass and one cannot do that. It deals in averages, which take no account whatever of regional variations. The eligible pensioner or family in John o'Groats receives exactly the same as the eligible pensioner or family in Lands End, but their climates could not be more different.

I shall use figures which have been extracted from the Ministry. Over 10 years, the hon. Member for Moray has tenaciously tried to extract figures from it. I gave up 10 years ago. I asked the then Secretary of Scotland about compensation for colder climates in Scotland and I was told blandly from the Dispatch Box that there was no difference between the climate in Scotland and the climate in England, which showed how few visits he had made to Scotland. By the Department of the Environment's own reckoning, it costs 41 per cent. more to heat a typical semi in Aberdeen than it does in Bristol and it costs 66 per cent. more in Braemar, yet every pensioner in Bristol is entitled to the same compensation and will receive the same as every pensioner in Kilmarnock, Aberdeen, John o'Groats and Braemar. The princely sum of £52 per annum has been calculated by the Treasury as adequate compensation for 17.5 per cent. VAT on fuel for those who qualify.

Age Concern produced some interesting tables which showed that the compensation package benefits only those with fuel bills below £300, which takes into account £80 standing charges. I doubt very much if there is a pensioner in Bristol, let alone Braemar, who boast bills so low over the year. Again, today's article in The Guardian said that a retired nurse in Braemar, with a two-roomed flat, pays £700 a year on heating. Another villager, a former Tory voter, pays £1,100 a year to heat his five-roomed house. I know that those figures are not too dissimilar to those paid by pensioners and families in my constituency.

The Right to Warmth campaign demonstrates that a couple on income support with two children will pay, on average, an extra £135 per annum. Again, that is an average which must be taken into account to get the picture of the problems which will face young families in Scotland on income support. When people cannot pay to keep warm, their health suffers. These figures suggest that almost no one benefits from this meagre compensation. Scottish pensioners and families on income support will suffer disproportionately.

A new report "Ice Cold" from Age Concern shows than an estimated 3 million—one third of all pensioners—live in indoor temperatures at or below 16 deg. Celsius, 61 deg. Fahrenheit, in the winter. Contrast that with the advice of the Department of the Environment that the elderly and the sick should have an indoor temperature of 21 deg. Celsius, which is 70 deg. Fahrenheit. The same advice is given by the Institute of Housing and the Institute of Architects and Surveyors. It is sound advice, but it falls on the deaf ears of those who cannot afford to heat their homes accordingly.

It should be remembered that shops and offices are obliged to close if the indoor temperature drops to 16 deg. centigrade. The House might share my view that the elderly, the poor and the sick are already at considerable risk. A survey conducted by Age Concern found that 95 per cent. of pensioners interviewed expected to cut back on heating if VAT increased again.

Deaths as a result of hypothermia increased by 20 per cent. in Scotland last year. I am not producing fictitious figures or figures that are designed to scaremonger. These are real figures. The numbers of winter-time deaths among the elderly in this country provide a stark comparison with the figures of our continental neighbours. Given our record, can any sane people, including Members of this place, justify the imposition of VAT on fuel? For that matter, can any sane person or conscientious Member afford not to vote with us, the Opposition, to save elderly people from their fate?

I see that the hon. Member for Lancaster (Dame Elaine Kellett-Bowman) is shaking her head. Perhaps her conscience bothers her, or perhaps she thinks that the figures to which I have referred were drawn from the air. As I have said, they are real figures. People will die of hypothermia in Scotland and elsewhere. The hon. Lady need not shake her head because I have stated a fact. My assertion is backed by Government figures.

Dame Elaine Kellett-Bowman

Will the hon. Gentleman give way?

Mr. McKelvey

No, I shall not. The hon. Lady has not been in her place for more than five minutes. I have been in the Chamber since 3 o'clock.

Should we not be considering ways of reducing hypothermia deaths, especially undertaking additional insulation work to give extra help to those who live in the coldest and remotest parts of Britain? It is every citizen's right, irrespective of his income, to have proper housing that is windproof, waterproof and adequately heated. That is a basic right that surely even Conservatives would have to accept.

There is no reason for those who have pontificated on the horrors of the imposition of more VAT on fuel to be in the House to abstain in person. That is nonsensical. Equally, hon. Members should not keep away from the House this evening. Conservative Members should add their votes to those of Opposition Members to defeat the increased burden of an obnoxious and unwanted tax.

9.7 pm

Mr. Andrew Smith (Oxford, East)

The Opposition's charge against the Budget is that it is out of touch with the needs of the country and disregards the views of the British people. We needed a Budget for investment, jobs and fairness, and instead we have a Budget that does next to nothing for investment. The Government have acted too late and done too little to increase employment. They have confirmed the greatest tax rise in history, which perpetuates the injustice of imposing value added tax on fuel. It is significant that, with the exception of the right hon. Member for Norfolk, South (Mr. MacGregor), no Conservative Member has sought to justify the increase in VAT on fuel on its merits, or on any merits that Conservative Members suppose that it has.

The Government's argument seems to be that they can bring national finances into order only by measures such as increasing VAT, which is manifestly unfair. We say that sound finances, a strong economy and fairness must go hand in hand.

The hon. Member for Chingford (Mr. Duncan Smith) sought to give us a history lesson on the past 15 years. He would have done well to remember, as would his hon. Friends, that when the Conservatives secured their route to power in 1979, they did so because they were seen as helping people to get on and to make the most of their chances, and helping Britain make the most of its potential. As my hon. Friend the Member for Renfrew, West and Inverclyde (Mr. Graham) so ably argued, all the Conservatives' claims have been betrayed. Living standards have fallen since the general election, as the latest edition of "Economic Trends" shows, with a fall in personal disposable income. What is more, the Chancellor of the Exchequer and the Prime Minister seem not to understand how far they are seen now as holding people back and holding Britain back, where we are urging that people should have the chance to get on.

In his characteristically well-argued speech, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) spelt out how, to secure prosperity, Britain needs investment in business, in infrastructure and in people. As he said, everyone in Britain should be alarmed at the very low present level of investment. Not only is it at a very low level, but it has actually fallen in the past two quarters. Not only is it still lower in real terms than the level that the Conservatives inherited 15 years ago, but the real net capital stock available to British manufacturers is barely higher now than in 1979.

British firms must attempt to compete with 30 per cent. less investment per worker than in Germany and France and 65 per cent. less investment per worker than in Japan. In those circumstances, is not it staggering that the Chancellor did so very little in the Budget to stimulate investment? While, of course, growth in current output is one stimulus, on its own it may well not be enough.

We all note that the Red Book forecast is for private investment to grow next year by 11 per cent. Let us hope that that forecast is right, but such a figure is notoriously difficult to predict. It would be a triumph of hope over experience not to imagine that the now likely prospect of rising interest rates will not have an impact on that.

Mr. Fabricant

Does the hon. Gentleman believe—and he will probably say no, so I would like him to justify his negative response—that if the Opposition amendment was successful tonight, interest rates would rise still further?

Mr. Smith

It would be interesting to know whether, on the basis of my answer, the hon. Gentleman is seriously considering changing his mind to honour what he said to his constituents. However, if our amendment is successful, of course the Chancellor will make a statement. We have set out the measures, which I shall spell out in greater detail later, to raise the revenue. There is no reason why interest rates should rise tomorrow. We shall wait and see whether, on the basis of the discussions that the Chancellor has had with the Governor of the Bank of England, interest rates will rise anyway.

We believe that the Chancellor should have done more to stimulate investment in industry and that he should have acted on the representations that he received from the seven largest manufacturing associations. We noted with interest the suggestion of the right hon. Member for Norfolk, South about tapered capital gains taxation for longer-term holdings. We also believe that that is worth considering.

The new venture capital tax in the Budget will not address the shortcomings to which I referred. My hon. Friend the Member for St. Helens, North (Mr. Evans) was right to say that that scheme is much more likely to create another tax loophole than to generate investment in the high-tech, high value added businesses that Britain needs. Similarly, the extended tax reliefs for the enterprise investment scheme remove the restrictions on investment in land and buildings and are thereby likely to open up the way for it to operate as a business expansion scheme mark 2, encouraging investment in low-risk, low value added schemes rather than in the high-risk, high value added schemes that Britain needs.

We believe that the Chancellor is out of touch with the need for business investment. We must ask why he allowed the industrial finance initiative, launched by the former Financial Secretary, to run into the sand. We have all heard about the letter from Lord Hanson. If that is not the only reason why the Chancellor backed off, he should give us the real reason, because we were promised much more extensive statements in this Budget than anything that has been forthcoming on the private finance initiative.

We argue that the Government are out of touch with the public on housing and the need for housing investment. With 160,000 families recorded as homeless last year; with 1.5 million homes deemed unfit for human habitation; with 59,000 homes repossessed; and with more than 1 million home owners trapped in negative equity, the public will be outraged that this Budget will make housing problems worse, not better.

According to the National Federation of Housing Associations, the 10 per cent. real cut in housing expenditure next year will mean that the number of housing association rented homes being built will be reduced by more than 10,000, the lowest level since world war 2. At the same time, council rents are being forced up by the squeeze on local authority budgets, by 6 per cent. on average next year, which is three times the rate of inflation. We say that those cuts, too, will damage people's chances of getting on and will make Britain a poorer place.

The Chancellor's measures on long-term unemployment represent a belated recognition of a crisis on which we have been campaigning for years. Like my hon. Friend the Member for St. Helens, North, I was amazed at the breathtaking claim in the Chancellor's Budget speech, when he said: We must combine greater prosperity for the majority of our people with measures to prevent the emergence of a deprived underclass, excluded from the opportunity to work and dependent on welfare. I repeat: to prevent the emergence of a deprived underclass".— [Official Report, 29 November 1994; Vol. 250, c. 1079.] Where have the Chancellor and his right hon. and hon. Friends been for the past 15 years? Nothing demonstrates more clearly how out of touch he and the Government are with the reality facing people throughout the country.

Let the Chancellor tell us, too, why his proposed national insurance rebate scheme will bring help only in April 1996. We say that the long-term unemployed need help now, and the Government should provide that help now.

Of the many measures in the Budget that hold people back, none is more mean or unjust than the little measure to phase out means-tested allowances for over 26-year-olds who are studying. As the hon. Member for Chingford said, in a modern competitive economy, people need to re-educate and retrain throughout their working lives. How can it be right then to take away one component of the student support system which is specifically designed to help older people returning to education and training? On average, that measure will take £1,000 from students who would otherwise have expected that help, and it will hit especially hard older students who are either ineligible for or find it difficult to obtain support from the Student Loans Company.

Of all the measures in this Budget of missed opportunities, as hon. Members have said, nothing will be more widely resented than or as well remembered as the Chancellor's decision to persevere with the increase in VAT on fuel. Many of my hon. Friends, such as my hon. Friends the Members for St. Helens, North, for Renfrew, West and Inverclyde, for Preston (Mrs. Wise), and for Kilmarnock and Loudoun (Mr. McKelvey), and the hon. Member for Truro (Mr. Taylor)—[Interruption.] I include the hon. Member for Moray (Mrs. Ewing); I apologise. Hon. Members of all parties put forward powerful arguments on why the increase is wrong. It hits family budgets hard and gratuitously, especially the budgets of the elderly, the disabled and the housebound. It will add an average of £2.30 a week to fuel bills. As my hon. Friend the Member for Denton and Reddish (Mr. Bennett) pointed out, that has everything to do with the financial mess that the Government got themselves into, and nothing whatever to do with Rio or the environment.

The VAT compensation that the Chancellor announced added nothing to what he offered last year. It will come as cold comfort to pensioners that the Secretary of State for Social Security now tells us that he is to insert a note into pension books explaining why the extra cash that they will receive this year is just 25p for a single pensioner and 30p for a couple over and above the inflation uprating. If I know pensioners at all, they will look at that note in their pension books every week and they will be enraged at what the Government have done to them. It will be a reminder every week that they cannot trust the Government ever again.

Contrary to what the right hon. Member for Worthing (Sir T. Higgins) and the hon. Member for Chingford said about largesse having been given to pensioners, based on the official family expenditure survey figures, even after compensation has been paid, including the compensation buried in the inflation uprating, the average pensioner couple will be £42 a year worse off. As many hon. Members have pointed out, the picture will be much worse for those who need to stay at home for longer periods, for those who need more heat and for those who live in colder parts of Britain.

Sir Terence Higgins

Is not it the case that more than 44 per cent. of the proceeds of VAT on fuel will be given in compensation?

Mr. Smith

The average pensioner facing an average fuel bill will still be worse off, and those facing higher bills will suffer even more. Many hon. Members have said that the increase is wrong in principle and wrong in practice and that it is a total breach of faith with the electorate for the Government to forge on regardless. People will not forget that. As the hon. Member for Mid-Staffordshire (Mr. Fabricant) said, the Conservative party will pay a very high price at the polls—not only in Dudley, but in future polls—if the Government persist with the VAT increase.

I commend all honourable Members who oppose the increase. I do not underestimate the pressure which, even now, may be being brought to bear on Conservative Members who want to keep faith with what they have told their constituents.

One cannot help but wonder whether there are some in the Government who want to lose the vote. How else do we explain the Environment Secretary's tactics in writing to potential opponents of VAT? The Prime Minister may have cause to consider whether that was a wise move. The Environment Secretary wrote that he wanted to reduce bills rather than increase them, and said that that was a real possibility in most households. He said that falling unit energy prices since the mid-1980s had reduced the incentive to invest in saving energy, but the imposition of VAT re-established that incentive in a sensible and moderate manner. There we have it: people have been missing the point. They have not realised that VAT is a "sensible and moderate" measure. The Environment Secretary says that it is an "incentive"; better still, it saves people money. I think that the Environment Secretary has been eating a few too many beefburgers.

As well as the contradictions in the Environment Secretary's letter, Conservative Members should remember that the Prime Minister—I am pleased that he has joined us—said that tonight's vote is not a matter of confidence. He clearly entertains the possibility of the Chancellor being asked to reconsider the issue. He has been supported in that view by the Secretary of State for Employment, who said on the radio this morning that winning the vote was not the "be all and end all of everything" and that it was "not Armageddon".

I ask those Conservative Members who have doubts about the measure—I respect those who have expressed many sincere and honest doubts—to stand firm tonight and resist the increase in VAT on fuel. The Chancellor has no mandate to increase VAT and, as Conservative Members know, it goes completely against what the Conservative party promised at the last general election.

In the past half hour, all sorts of rumours have circulated Westminster about panic, last-minute compensation packages that have been cobbled together in an attempt to buy a vote here or a vote there. Nothing demonstrates more clearly that in Britain we now have government by shambles: the Government are not in control of events.

Before we vote on the motion, we should be clear about what the Opposition's amendment says. It says simply that in considering the Finance Bill, hon. Members must not be prevented from discussing VAT on fuel for domestic and charity use. Our amendment says that we should be able to discuss the matter during Finance Bill proceedings. That is an essential step in giving the House the opportunity to reconsider the fuel increase. At the same time, it raises an important matter of principle for the Chamber to consider. When the Government announced tax rises in advance and in the 1993 Finance Bill drove through measures that would take effect only in April 1995, they were trying to make one Parliament's decisions binding on its successors.

Surely it is right that this House of Commons should now have the chance to re-examine the VAT increase. Our amendment would simply give the House the opportunity to look at it again and to vote on it in the circumstances of today. When the Chancellor replies, he must tell us why he wants to deny the House the right even to consider the question as a separate issue, as that is what voting against the amendment would do. The Government appear to be staggering from one panic to another and cannot even expose themselves to rational debate through the normal processes of the Finance Bill.

Labour has made its position clear on where the money would come from to replace the increase in VAT on fuel for domestic and charity purposes. I shall tell the Chancellor where in the Budget the money could come from. We have advocated a number of steps that would more than cover the cost of abandoning the VAT increase. The money could come from tightening up the treatment of executive share options—[Interruption.] Before Conservative Members shout too loudly, they might care to remember that that is a step advised by their own vice-chairman of the Conservative party. The money could come from part of a windfall levy on the privatised utilities, similar to that which Lady Thatcher levied on the banks in 1981. It could come from ending tax relief on private medical insurance. It could come from steps to end the commercial avoidance of stamp duty. For future years, we would also look to draw on some of the gains from retaining the stamp duty charge on share transactions that the Government intend to drop.

Let us not forget—I am sure that the hon. Member for Southend, East (Sir T. Taylor) will not forget—that dropping the VAT increase would reduce slightly our contributions to the European Union. It would cut the measure of gross national product at market prices used in calculating the third and fourth reductions—

Mr. David Shaw (Dover)

How much?

Mr. Smith

An £8 million saving on the contributions to the European Union.

There is something else that the Chancellor could do—he could abandon his proposal to cut the duty on champagne. How much more out of touch could the Government get than to cut the cost of champagne while our pensioners shiver? I emphasise that the right hon. and learned Gentleman has other choices open to him, such as those suggested to him during the Budget debate by his hon. Friends the Members for Gloucestershire, West (Mr. Marland), for Macclesfield (Mr. Winterton) and for Mid-Staffordshire.

Hon. Members may recall that when the increase was first put forward 21 months ago in March 1993, the Government justified it as being necessary to bring down the public sector borrowing requirement for 1995-96 to £39 billion. Without that increase, on present projections the PSBR for 1995–96 would be £22.3 billion. We believe that the Chancellor is right to get down the PSBR, which is why we are proposing alternative revenue-raising measures. The figures that I have given show the House how very much circumstances have changed since the increase was first proposed.

The point that I want to stress, in a genuinely non-partisan spirit, is that if the amendment is carried and a subsequent change to the Finance Bill made, the Chancellor has choices—whether he takes our advice, that of his hon. Friends or develops alternatives of his own. If the amendment is carried tonight, the responsible thing for the right hon. and learned Gentleman to do would be immediately to make a statement to the House indicating how he would raise the money. Let there be no mistake: choices can be made which leave the Budget's policy balance intact—a point that I know is of great concern to a number of Conservative Members. I understand that the Chancellor acknowledged that after the ECOFIN meeting, when he said that if he were defeated over VAT on domestic fuel, he would find other ways to raise the money.

The Chancellor has choices, but only one choice is open to pensioners struggling to pay their bills—they go cold or they go broke. Here and now, the House faces a clear choice—whether to allow this extremely unfair and bitterly resented tax increase to be implemented without challenge, or to assert the right of the House to question the Executive's revenue-raising powers and to call the Government to account for betraying their election promises.

I urge right hon. and hon. Members in all parts of the House to vote for the right and the duty of the House to speak for constituents, pensioners and the country. The people of Britain, whatever their views on the rest of the Budget, want the VAT increase on domestic fuel stopped. Let their voice be heard in the Division Lobby tonight.

9.30 pm

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

We have debated the Budget for five days. Most right hon. and hon. Members have participated in many such debates, but this one had an unusual quality. A large number of right hon. and hon. Members, particularly on the Opposition Benches, devoted a high proportion of their speeches to last year's Budget and the Budget before that. They devoted a large part of their speeches also to next year's Budget.

The Opposition want to revisit last year's Budget—that is the point of their main motion. They criticise us for raising taxation and invite the House to reverse it. They anticipate and guess at next year's Budget, and criticise it because they believe that the Government intend to reduce taxation.

The issue on which the Opposition want to vote results from last year's Budget and the imposition of VAT on domestic fuel. The main subject of the speech of the hon. Member for Oxford, East (Mr. Smith), like those of other right hon. and hon. Members, was the decision taken in last year's Budget to impose VAT on fuel. Are the Opposition concerned about the effect of higher fuel prices on people in this country and on energy conservation? I think not.

In a case that can be perfectly evenly balanced, we heard the most melodramatic interpretations. No one listening to speeches this evening about people dying from hypothermia would realise that fuel prices had fallen. Even after the imposition of the first stage of VAT on domestic fuel, prices have fallen 1 per cent. in real terms over the past two years—even taking account of the first stage of VAT, but taking no account of the compensation package for all pensioners and those on benefits.

Even when the full rate of VAT is imposed, gas prices will be 6 per cent. lower in real terms than before privatisation. The level of disconnections for non-payment of domestic fuel bills has never been lower. I will give way to the hon. Member for Moray (Mrs. Ewing); then perhaps I shall be allowed to talk about this year's Budget, the measures that I have taken this November, and what that bodes for the British economy and for our prospects over the next year or two.

Mrs. Ewing

Does the right hon. and learned Gentleman deny that people die from cold-related illnesses in this country?

Mr. Clarke

Of course I do not deny that, but as my right hon. Friend the President of the Board of Trade said, fuel prices have been falling in real terms in recent years. Over the past two years, they fell 1 per cent., even taking into account VAT at 8 per cent. already imposed, and compensation has taken the price lower for pensioners and those on benefits receiving compensation. I realise that politics is more often about perception than about reality, but the underlying reality to what we are doing with VAT on fuel is that fuel prices are coming down, that they will continue to come down, that since privatisation far fewer people now have their supplies disconnected, and that we have a generous measure of further compensation for vulnerable groups, for all pensioners, for those on benefit, which I shall return to in due course.

Before we get to VAT on fuel, and I am sure that we will, I insist on reminding people of the Budget strategy to which the Opposition have totally failed to address themselves with the slightest seriousness at all. I set myself three objectives this year: keeping the economy on track for steady and sustainable growth; tackling the problem of long-term unemployment; and strengthening the economy in the medium term by introducing a package of measures to help businesses.

This Budget does have measures to cut long-term unemployment, and everyone has welcomed them. The only point that they can produce is to point out that a minority of the measures and the expenditure start in 1996, for perfectly obvious and practicable reasons. There is a package of measures to help small businesses and, so far as I am aware, no one has directly opposed the package of measures—the tax incentives or the deregulatory measures—that I proposed. The policies on taxation, particularly the cuts in public spending and borrowing, are of the scale necessary to keep confidence in our recovery.

Over the vast bulk of the five days of the Budget debate—the Budget has been particularly welcomed by all concerned with business, with our manufacturing base, with recovery and outside this country—there has been very little criticism from Opposition Members for the particular measures that I announced last week when I presented the Budget. What has most significance for our recovery in the Budget is the very firm action that we have taken to get Government borrowing down. The hon. Member for Oxford, East made a passing, apparently favourable, reference to that, but every speech made by almost every Opposition Member, be he or she on the shadow Treasury Bench or behind, by implication seeks to undermine that.

In the 1993 Budget, faced as we had been with the prospect of a £50 billion borrowing requirement after the recession, we effectively reduced public borrowing. We looked to the spending side of the account first--from listening to the Labour party, it is quite plain that that is something that it would never do—and we still had to increase taxes. Of course, Opposition Members heard us as clearly as my right hon. and hon. Friends did, before we even reached the Budget, that, this year, it was not practicable, if we were to put our recovery, prosperity and jobs first, to ease taxation, except for vulnerable groups.

I raised tax allowances for pensioners, above inflation. I raised the 20p band above inflation for the one fifth of all taxpayers who pay tax at the very lowest rate. Further tax reductions, including the tax reduction by going back on last year, for which the Labour party is pressing, are impracticable if we are to get borrowing down. I was able to be neutral on taxation, apart from those beneficial changes, then tackle spending, as only a Conservative Government can and as a Labour Government or Liberal Government never would.

Last year, I reduced Government spending by £15 billion over three years. This year, my right hon. Friend the Chief Secretary and I have been able to reduce Government spending by another £28 billion over the next three-year period. What is more, as we have managed to find savings, we have done so in so competent and effective a way in pursuing our priorities that we are able to increase real resources for key public services such as the national health service and the police. By improving efficiency, we make sure that the public get better public services for less public money, and we tackle the overheads of Government. Therefore we can produce those results and still build on the improvements which mean that the NHS treats 1 million more patients a year than it did in 1979, and that one in three young people will go on to higher education compared with 15 years ago.

Those measures represent a strategy, unlike the pathetic ramblings of Opposition Members. They represent a strategy that has not only put our borrowing on course but, as a result, has given us a recovery—real growth in the economy, a real increase in our production, rising manufacturing output, falling unemployment, a great productivity record, level unit wage costs, a record level of exports and a record level of retail sales. From beginning to end of this Budget debate, those developments simply have not registered in the speeches of Opposition Members who claimed to be talking about the economy.

Conservative Members recognise the link between public spending and taxes, public borrowing and helping public finances, enabling recovery to be sustained and riot turned into boom followed by bust. Labour would put all that at risk. Last year Labour Members voted against our spending reductions, and they are plainly resisting spending reductions again. Last year they opposed our measures to raise revenue, and they would do so again.

Opposition Front Benchers avoid such words, but we need only listen to every Back Bencher to hear them. I sat and listened to Scottish Members questioning this year's Scottish local government settlement. When my right hon. Friend the Secretary of State for Scotland answered questions, every Scottish Labour Member demanded more spending on one service or another—more for their local authorities. [Interruption.] The hon. Member for Renfrew, West and Inverclyde (Mr. Graham) cheers on behalf of Scotland, but what he wants is not on behalf of Scotland. He is denied by the rest of the Opposition Front Bench.

The new Opposition Front Bench is semi-detached from the hon. Gentleman, who sits urging public spending that will be the ruin of economic recovery in Scotland.

Mr. Graham

rose—

Mr. Clarke

I hope that the hon. Gentleman will forgive me if I do not give way.

If Labour Members do not like the contrast between my measures and their approach, let them look at the shadow Budget. [Interruption.] If I may say so, the revival in Scotland is getting a little carried away. I think that the hon. Member for Falkirk, West (Mr. Canavan) agrees with at least one measure that I took for Scottish industry.

Labour presented a draft Budget outside the House—[Interruption.]

Madam Speaker

Order. Let us have some order in the House.

Mr. Clarke

May I address the Scottish Front Bench? The hon. Member for Dunfermline, East (Mr. Brown) only produced a draft Budget outside the House. A draft Budget worthy of the name should have at least three components—spending plans, tax plans and borrowing plans. The so-called shadow Budget had none of those components; as a document on economic policy, it was about as much use as a used bus ticket.

There were spending commitments. The shadow Budget referred to a regional development agency, allowing local councils to spend their capital receipts and a small business fund. Today, at one point in his speech, the right hon. Member for Copeland (Dr. Cunningham) began to go on about what he regarded as terrible reductions in transport spending; he implied that he might reverse them, although our level of transport investment is much higher than it was 10 years ago. A moment ago, the hon. Member for Oxford, East criticised the savings that we had made in housing expenditure, although we are well ahead of our manifesto commitments on social housing. The Opposition slink into spending commitments without spelling them out or costing them; then they try to address the question of how they would raise the taxation, talking of loopholes and windfalls. The loopholes that they are talking about are unspecified and are not spelled out. Last year, they put a bold figure of £10 billion on loopholes that they would close. In the shadow Budget this year—it is almost an identical document—the £10 billion has vanished because not a single independent tax commentator believed that they could raise anything like that amount.

What does the hon. Member for Dunfermline, East regard as loopholes? Last year, the Opposition voted against a measure in the Finance Bill that blocked the device of paying salaries in gold and coffee beans in order to avoid national insurance. This year, the hon. Member for Dunfermline, East has been publicly criticising the ending of transport zero rating for things such as theme park rides, which have been taking advantage of a loophole. The hon. Gentleman's loopholes are non-existent and he knows that. Howard Davies has been quoted repeatedly in the debate to describe those loopholes as a massive increase in taxation on genuine business.

What is the one-off windfall tax that the Opposition hold out? In fact, it would penalise the success of those who now own the national grid and are improving its performance. That improved performance allows the national grid to reduce charges on electricity bills by 3 per cent. in real terms every year. The Opposition claim that there is a great pot of money to be had by reversing that. In fact, they would be penalising success, damaging prospects for investment and damaging electricity prices.

Right at the end of the debate the hon. Member for Oxford, East mentioned the tax on champagne. He knows that for legal reasons we are closing an anomaly whereby sparkling wine is taxed at a higher level than loopholes—[Interruption.] I mean fortified wine. Unlike some hon. Members who will be voting this evening, I have not been partaking of either. The correction of the anomaly on sparking wine will help many sparkling wines made in this country, not just champagne. Champagne socialists may believe otherwise. It produces a princely sum of £5 million if the legal challenge is defied by the Labour party. That leaves £1,495 million to go to give some credibility to its policy on VAT on fuel.

The hon. Member for Oxford, East said that we should reduce our VAT contribution to Europe. That would be another £8 million. It is fatuous as a taxation policy. It is fatuous at the end of a speech in which the hon. Gentleman had already talked gaily about capital allowances being restored, thereby giving great tax exemptions to all investment across all business.

The hon. Member for Oxford, East was attracted by tapered capital gains tax. The Labour party is attracted by every increase in public spending and every reduction in taxation that is put before it by any interest group, or any opportunistic lobby group. That is not a sensible economic policy.

Mrs. Teresa Gorman (Billericay)

On the subject of anomalies, can my right hon. and learned Friend explain why he can find almost three quarters of a billion pounds to give to Europe, but he cannot find a similar sum to do away with the increase in VAT which is awfully unpopular? [Interruption.]

Mr. Clarke

That was the biggest support yet shown to my hon. Friend. With respect to her, the figure is £75 million. That is not three quarters of a billion pounds, but she is getting nearer the total of £1.5 billion than the Labour party has remotely got so far—I concede that much to her.

I shall be coming to a subject in which I know my hon. Friends are interested: VAT on fuel. Before I leave the Labour party, however, I should point out that it is not just my view in the debate that the Labour party is putting forward waffle instead of policy: it is the view of the hon. Member for Brent, East (Mr. Livingstone), my sworn political enemy for as many years as I have known him, although my personal relations with him are good. He would be pleased with the first description as he is a man of principle in a party that has been robbed of principles by its Front-Bench spokesmen and I quote him with approval talking of his Front-Bench spokesman. He said that it is not enough to oppose the Conservative party; we have to spell out what we will do, how it will be better than what the Conservatives have done, who will pay the price and who will benefit. Until we do that, people will continue to doubt us".—[Official Report, 30 November 1994; Vol. 250, c. 1268.] Until the Labour party does that, anyone with the long-term interests of the British economy in mind should not just doubt the Labour party but reject it for trying to fob us off with such nonsense, as it has done for the past five days.

I had to take the necessary steps. I have explained that the strategy is to keep on course with a reduction in public borrowing, which I think most commentators did not believe possible last year, which we are on course to achieve and which is the principal explanation for the high level of confidence in the future of British industry and in the prospects for jobs and prosperity. Although public spending is the main contribution opposed by the Labour party, the taxation in the pipeline from past Budgets, including VAT on fuel, is a sensible, integral part of our tax policy. At this stage, it would be reckless for the House, having been taken so far on the road to lasting recovery, suddenly to decide that it cannot stay the course, that it will overturn what we have done and go back on the decision last year.

Mr. Harry Greenway (Ealing, North)

rose—[Interruption.]

Madam Speaker

Order. Is the Chancellor of the Exchequer giving way? Apparently so.

Mr. Greenway

As my right hon. and learned Friend returned to VAT on fuel, may I ask him this? Is he aware that, in a constituency like mine, pensioners' heating bills are much higher than they would be if their homes were properly insulated? The reduction in heating bills would probably be as much as 30 per cent. Will he do something about improving home insulation grants, in particular, to pensioners and poor people?

Mr. Clarke

I am surprised that a murmur of discontent broke out from the Labour party when my hon. Friend intervened to press the case for improved insulation of pensioners' homes which, as he rightly said, reduces bills. Loft insulation, for example, takes an average £70 off heating bills. The hon. Member for Moray pressed the same case upon me.

I say to my hon. Friend the Member for Ealing, North (Mr. Greenway) that the tax of VAT on fuel, which I think is defensible for reasons that I shall give in a moment, has to be combined with efforts to protect the vulnerable, particularly pensioners and those people on benefit. Also, it has to be combined with measures that really deliver the fuel efficiency that led the Liberal party to propose it and Friends of the Earth to support it. I should say to my hon. Friend that, last year, I doubled the home energy efficiency scheme budget. As a result, nearly 1 million people have already benefited from it. I added a further £10 million in my Budget speech last week. My hon. Friend, however, has been pressing this case. So have other hon. Members—including the hon. Member for Moray who, with respect, is trying to intervene on me now—who have pointed out the arrears that are built up under the scheme. I am, therefore, prepared to add another £20 million to the home energy efficiency scheme.

Sir John Gorst (Hendon, North)

Will my right hon. and learned Friend say whether he has given any thought to imposing VAT on a less vulnerable community, namely the press?

Mr. Clarke

I have thought about it frequently but decided not to do it. The Labour party would have opposed it as it opposes all taxation and the further broadening of the VAT base is not necessary if we stick to the course that we are on and reduce public spending as we are doing.

As I have already announced, I have increased the cold weather payments to £8.50 a week in 1995 compared with £6 a week last year. I set out in the Budget help for the least well off, especially pensioners—all pensioners—and vulnerable groups. By April 1995, help for pensioners and vulnerable groups will be worth £52 a year for individuals and £73 a year for couples. From April 1996, the permanent increase in benefits due to VAT on fuel will be worth around £68 a year for individuals and £96 for couples.

Sir Andrew Bowden (Brighton, Kemptown)

Will my right hon. and learned Friend confirm that the increase for pensioners next April will be on exactly the same basis as this year, namely that there will be a full uprating of 2.2 per cent. for inflation, including the 0.4 per cent. as a result of VAT on fuel, plus an additional 50p for all single pensioners and 70p for all married pensioners?

Mr. Clarke

For as long as my hon. Friend has been in the House, he has pursued the cause of pensioners with very considerable effectiveness and skill. Ever since I announced the package of measures in the Budget, which I believe implement to the full what we said about compensation for all pensioners and vulnerable groups, he and I have been disputing whether the figure that I have given carries the commitment that I have given—certainly the package produces the figures that I have just given. [Interruption.] I believe that every statement that I have made is consistent with the figures that I have given but I do not wish there to be any doubt about our commitment to compensating pensioners and those on benefit. Therefore, to resolve the anomaly which has at times become a matter of semantics, when the second stage of VAT goes ahead I shall indeed make the changes to the uprating statement to meet the terms that my hon. Friend requests.

Mr. Gordon Brown (Dunfermline, East)

rose—

Mr. Clarke

Is the hon. Gentleman going to oppose it?

Mr. Brown

Will the Chancellor confirm that he is this evening offering not a penny more for families with children, the unemployed, the disabled or invalids and that the 25p a week more that he is offering for pensioners must be set against their average £505 fuel bill? If this scheme, which I estimate is worth only £100 million, is not enough to satisfy the country, it should not be enough to satisfy Tory Members.

Mr. Clarke

I am spelling out what we are doing for pensioners and vulnerable groups. If the Opposition win their amendment the principal beneficiaries will be people of working age who do not receive means-tested benefits, and people in larger houses, who pay the largest bills—obviously they will make the greatest savings if the Opposition have their way. But if the Government succeed we shall have VAT at a lower level than Scandinavian countries, on prices that are dropping in real terms because of privatisation. We shall be on course for a successful recovery—[Interruption.] The howls from the Labour party at what I am saying are howls of rage and disappointment at the fact that a successful economic strategy is being pursued.

Mr. Brown

rose—[Interruption.]

Madam Speaker

Order.

Mr. Brown

rose—[Interruption.]

Madam Speaker

Order. It is 9.59. Mr. Brown.

Mr. Brown

Madam Speaker—

Mr. Greg Knight

(Treasurer of Her Majesty's Household)rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That the amendment be made:—

The House proceeded to a Division:

Madam Speaker

Order. Before this vote is declared, Members at the Bar will remove themselves behind the Bar. Members in the central aisle will resume their seats before the vote is declared. It is perfectly all right to sit in the aisles or to sit on someone's knee.

The House having divided: Ayes 319, Noes 311.

Division No. 7]	[22.00 pm
AYES
Abbott, Ms Diane	Caborn, Richard
Adams, Mrs Irene	Callaghan, Jim
Ainger.Nick	Campbell, Menzies (Fife NE)
Ainsworth, Robert (Cov'try NE)	Campbell, Mrs Anne (C'bridge)
Allen, Graham	Campbell, Ronnie (Blyth V)
Alton, David	Campbell-Savours, D N
Anderson, Donald (Swansea E)	Canavan, Dennis
Anderson, Ms Janet (Ros'dale)	Cann, Jamie
Armstrong, Hilary	Carlile, Alexander (Montgomry)
Ashdown, Rt Hon Paddy	Carttiss, Michael
Ashton, Joe	Chidgey, David
Austin-Walker, John	Chisholm, Malcolm
Banks, Tony (Newham NW)	Church, Judith
Barnes, Harry	Clapham, Michael
Barron, Kevin	Clark, Dr David (South Shields)
Battle, John	Clarke, Eric (Midlothian)
Bayley, Hugh	Clarke, Tom (Monklands W)
Beckett, Rt Hon Margaret	Clelland, David
Beggs,Roy	Clwyd, Mrs Ann
Beith, Rt Hon A J	Coffey, Ann
Bell, Stuart	Cohen, Harry
Benn, Rt Hon Tony	Connarty, Michael
Bennett, Andrew F	Cook, Frank (Stockton N)
Benton, Joe	Cook, Robin (Livingston)
Bermingham, Gerald	Corbett, Robin
Berry, Roger	Corbyn, Jeremy
Betts, Clive	Corston, Jean
Blair, Rt Hon Tony	Cousins, Jim
Blunkett, David	Cox, Tom
Boateng, Paul	Cummings, John
Boyes, Roland	Cunliffe, Lawrence
Bradley, Keith	Cunningham, Jim (Covy SE)
Bray, Dr Jeremy	Cunningham, Rt Hon Dr John
Brown, Gordon (Dunfermline E)	Dafis, Cynog
Brown, N (N'c'tle Tyne E)	Dalyell.Tam
Bruce, Malcolm Gordon	Darling, Alistair
Burden, Richard	Davidson, Ian
Byers, Stephen	Davies, Bryan (Oldham C'tral)

Davies, Ron (Caerphilly)	Jamieson, David
Davies, Rt Hon Denzil (Llanelli)	Janner, Greville
Davis, Terry (B'ham, H'dge H'I)	Johnston, Sir Russell
Denham, John	Jones, Barry (Alyn and D'side)
Dewar, Donald	Jones, leuan Wyn (Ynys Mon)
Dixon, Don	Jones, Jon Owen (Cardiff C)
Dobson, Frank	Jones, Lynne (B'ham S O)
Donohoe, Brian H	Jones, Martyn (Clwyd, SW)
Dowd, Jim	Jones, Nigel (Cheltenham)
Dunnachie, Jimmy	Jowell, Tessa
Dunwoody, Mrs Gwyneth	Kaufman, Rt Hon Gerald
Eagle, Ms Angela	Keen, Alan
Eastham, Ken	Kennedy, Charles (Ross, C&S)
Enright, Derek	Kennedy, Jane (Lpool Brdgn)
Etherington, Bill	Khabra, Piara S
Evans, John (St Helens N)	Kilfedder, Sir James
Ewing, Mrs Margaret	Kilfoyle, Peter
Fatchett, Derek	Kinnock,Rt Hon Neil(Islwyn)
Faulds, Andrew	Kirkwood, Archy
Field, Frank (Birkenhead)	Lestor, Joan (Eccles)
Fisher, Mark	Lewis, Terry
Flynn, Paul	Liddel, Mrs Helen
Forsythe, Clifford (Antrim S)	Litherland, Robert
Foster, Don (Bath)	Livingstone, Ken
Foster, Rt Hon Derek	Lloyd, Tony (Stretford)
Foulkes, George	Llwyd, Elfyn
Fraser, John	Loyden, Eddie
Fyfe, Maria	Macdonald, Calum
Galbraith, Sam	Mackinlay, Andrew
Galloway, George	Maclennan, Robert
Gapes, Mike	MacShane, Denis
Garrett, John	Madden, Max
George, Bruce	Maddock, Diana
Gerrard, Neil	Maginnis, Ken
Gilbert, Rt Hon Dr John	Mahon, Alice
Godrnan, Dr Norman A	Mallon, Seamus
Godsiff, Roger	Mandelson, Peter
Golding, Mrs Llin	Marek, Dr John
Gordon, Mildred	Marland, Paul
Graham, Thomas	Marlow, Tony
Grant Bernie (Tottenham)	Marshall, David (Shettleston)
Griffiths, Nigel (Edinburgh S)	Marshall, Jim (Leicester, S)
Griffiths, Win.(Bridgend)	Martin, Michael J (Springburn)
Grocott, Bruce	Martlew, Eric
Gunnel, John	Maxton, John
Hain, Peter	McAllion,John
Hall, Mike	McAvoy, Thomas
Hanson, David	McCartney, Ian
Hardy, Peter	McCrea, Rev William
Harman, Ms Harriet	McFall.John
Harvey, Nick	McGrady, Eddie
Hattersley, Rt Hon Roy	McKelvey, William
Henderson, Doug	McLeish, Henry
Hendron, Dr Joe	McNamara, Kevin
Heppell, John	McWilliam.John
Hill, Keith (Streatham)	Meacher, Michael
Hinchliffe, David	Meale, Alan
Hodge, Margaret	Michael,Alun
Hoey,Kate	Michie, Bill (S'field Heeley)
Hogg, Norman (Cumbernauld)	Michie, Mrs Ray (Argyll & Bute)
Home Robertson, John	Milburn,Alan
Hood, Jimmy	Miller, Andrew
Hoon, Geoffrey	Mitchell, Austin (Gt Grimsby)
Howarth, George (Knowsley N)	Molyneaux, Rt Hon James
Howells, Dr. Kim (Pontypridd)	Moonie, Dr Lewis
Hoyle, Doug	Morgan, Rhodri
Hughes, Kevin (Doncaster N)	Morley, Elliot
Hughes, Robert (Aberdeen N)	Morris, Estelle (B'ham Yardley)
Hughes, Roy (Newport E)	Morris, Rt Hon Alfred (Wy'nshawe)
Hughes, Simon (Southwark)	Morris, Rt Hon John (Aberavon)
Hume, John	Mowlam, Marjorie
Hutton,John	Mudie, George
Illsley, Eric	Mullin, Chris
Ingram, Adam	Murphy, Paul
Jackson, Glenda (H'stead)	O'Brien, Bill (Normanton)
Jackson, Helen (Shef'ld, H)	O'Brien, Mike (N W'kshire)

O'Hara, Edward	Smyth, Rev Martin (Belfast S)
O'Neill, Martin	Snape, Peter
Oakes, Rt Hon Gordon	Soley, Clive
Olner, Bill	Spearing, Nigel
Orme, Rt Hon Stanley	Spellar, John
Paisley, The Reverend Ian	Squire, Rachel (Dunfermline W)
Parry, Robert	Steinberg, Gerry
Patchett, Terry	Stevenson, George
Pendry, Tom	Stott, Roger
Pickthall, Colin	Strang, Dr. Gavin
Pike, Peter L	Straw, Jack
Pope, Greg	Sumberg, David
Prentice, Bridget (Lew'm E)	Sutcliffe, Gerry
Prentice, Gordon (Pendle)	Taylor, Matthew (Truro)
Prescott Rt Hon John	Taylor, Mrs Ann (Dewsbury)
Primarolo, Dawn	Taylor, Rt Hon John D (Strgfd)
Purchase, Ken	Thompson, Jack (Wansbeck)
Quin, Ms Joyce	Timms, Stephen
Racdice, Giles	Tipping, Paddy
Randall, Stuart	Trimble, David
Raynsford, Nick	Turner, Dennis
Redmond, Martin	Tyler, Paul
Reid, Dr John	Vaz, Keith
Rendel, David	Walker, A Cecil (Belfast N)
Robertson, George (Hamilton)	Walker, Rt Hon Sir Harold
Robinson, Geoffrey (Co'try NW)	Wallace, James
Robinson, Peter (Belfast E)	Walley, Joan
Roche, Mrs Barbara	Wardell, Gareth (Gower)
Rogers, Allan	Wareing, Robert N
Rooker, Jeff	Watson, Mike
Rooney, Terry	Welsh, Andrew
Ross, Ernie (Dundee W)	Wicks, Malcolm
Ross, William (E Londonderry)	Wigley, Dafydd
Rowlands, Ted	Williams, Rt Hon Alan (Sw'n W)
Ruddock, Joan	Williams, Alan W. (Carmarthen)
	Wilson, Brian
Salmond, Alex	Winnick, David
Sedgemore, Brian	Winterton, Mrs Ann (Congleton)
Sheerman, Barry	Winterton, Nicholas (Macc'f'ld)
Sheldon, Rt Hon Robert	Wise, Audrey
Shepherd, Richard (Aldridge)	Worthington, Tony
Shore, Rt Hon Peter	Wray, Jimmy
Short, Clare	Wright, Dr Tony
Simpson, Alan	Young, David (Bolton SE)
Skinner, Dennis
Smith, Andrew (Oxford E)	Tellers for the Ayes:
Smith, Chris (Isl'ton S & F'sbury)	Mr. Ray Powell and
Smith, Liew (Blaenau Gwent)	Mr. Gordon McMaster.
NOES
Ainsworth, Peter (East Surrey)	Bonsor, Sir Nicholas
Aitken, Rt Hon Jonathan	Booth, Hartley
Alexander, Richard	Boswel, Tim
Alison, Rt Hon Michael (Selby)	Bottomley, Peter (Eltham)
Allason, Rupert (Torbay)	Bottomley, Rt Hon Virginia
Amess, David	Bowden, Sir Andrew
Ancram, Michael	Bowis, John
Arbuthnot, James	Brandreth, Gyles
Arnold, Jacques (Gravesham)	Brazier, Julian
Arnold, Sir Thomas (Hazel Grv)	Bright, Sir Graham
Ashby, David	Brooke, Rt Hon Peter
Aspinwall, Jack	Brown, M (Brigg & Cl'thorpes)
Atkins, Robert	Browning, Mrs. Angela
Atkinson, David (Bour'mouth E)	Bruce, Ian (Dorset)
Atkinson, Peter (Hexham)	Budgen, Nicholas
Baker, Nicholas (Dorset North)	Burns, Simon
Baker, Rt Hon K (Mole Valley)	Burt, Alistair
Baldry, Tony	Butcher, John
Banks, Matthew (Southport)	Butler, Peter
Banks, Robert (Harrogate)	Butterfill, John
Bates, Michael	Carlisle, John (Luton North)
Batiste, Spencer	Carlisle, Sir Kenneth (Lincoln)
Bellingham, Henry	Carrington, Matthew
Bendall, Vivian	Cash, William
Beresford, Sir Paul	Channon, Rt Hon Paul
Biffen, Rt Hon John	Churchill, Mr

Clappison, James	Hawkins, Nick
Clark, Dr Michael (Rochford)	Hawksley, Warren
Clarke, Rt Hon Kenneth (Ru'clif)	Hayes, Jerry
Clifton-Brown, Geoffrey	Heald, Oliver
Coe, Sebastian	Heath, Rt Hon Sir Edward
Colvin, Michael	Heathcoat-Amory, David
Congdon, David	Hendry, Charles
Conway, Derek	Heseltine, Rt Hon Michael
Coombs, Anthony (Wyre For'st)	Hicks, Robert
Coombs, Simon (Swindon)	Higgins, Rt Hon Sir Terence
Cope, Rt Hon Sir John	Hill, James (Southampton Test)
Cormack, Patrick	Hogg, Rt Hon Douglas (G'tham)
Couchman, James	Horam, John
Cran, James	Hordern, Rt Hon Sir Peter
Critchley, Julian	Howard, Rt Hon Michael
Currie, Mrs Edwina (S D'by'ire)	Howarth, Alan (Strat'rd-on-A)
Curry, David (Skipton & Ripon)	Howell, Rt Hon David (G'dford)
Davies, Quentin (Stamford)	Howell, Sir Ralph (N Norfolk)
Davis, David (Boothferry)	Hughes, Robert G (Harrow W)
Day, Stephen	Hunt, Rt Hon David (Wirrral W)
Deva, Nirj Joseph	Hunt, Sir John (Ravensbourne)
Devlin, Tim	Hunter, Andrew
Dicks, Terry	Hurd, Rt Hon Douglas
Dorrell, Rt Hon Stephen	Jack, Michael
Douglas-Hamilton, Lord James	Jackson, Robert (Wantage)
Dover, Den	Jenkin, Bernard
Duncan Smith, Iain	Jessel, Toby
Duncan, Alan	Johnson Smith, Sir Geoffrey
Dunn, Bob	Jones, Gwilym (Cardiff N)
Durant, Sir Anthony	Jones, Robert B (W Hertfdshr)
Dykes, Hugh	Jopling, Rt Hon Michael
Eggar, Tim	Kellett-Bowman, Dame Elaine
Elletson, Harold	Key, Robert
Emery, Rt Hon Sir Peter	King, Rt Hon Tom
Evans, David (Welwyn Hatfield)	Kirkhope, Timothy
Evans, Jonathan (Brecon)	Knapman, Roger
Evans, Nigel (Ribble Valley)	Knight, Dame Jill (Bir'm E'st'n)
Evans, Roger (Monmouth)	Knight, Greg (Derby N)
Evennett, David	Knight, Mrs Angela (Erewash)
Faber, David	Knox, Sir David
Fabricant, Michael	Kynoch, George (Kincardine)
Fenner, Dame Peggy	Lait, Mrs Jacqui
Field, Barry (Isle of Wight)	Lamont, Rt Hon Norman
Fishburn, Dudley	Lang, Rt Hon Ian
Forman, Nigel	Lawrence, Sir Ivan
Forsyth, Michael (Stirling)	Legg, Barry
Forth, Eric	Leigh, Edward
Fowler, Rt Hon Sir Norman	Lennox-Boyd, Sir Mark
Fox, Dr Liam (Woodspring)	Lester, Jim (Broxtowe)
Fox, Sir Marcus (Shipley)	Lidington, David
Freeman, Rt Hon Roger	Lilley, Rt Hon Peter
French, Douglas	Lloyd, Rt Hon Peter (Fareham)
Fry, Sir Peter	Lord, Michael
Gale, Roger	Luff, Peter
Gardiner, Sir George	Lyell, Rt Hon Sir Nicholas
Garel-Jones, Rt Hon Tristan	MacGregor, Rt Hon John
Garnier, Edward	MacKay, Andrew
Gillan, Cheryl	Maclean, David
Goodlad, Rt Hon Alastair	Madel, Sir David
Goodson-Wickes, Dr Charles	Maitland, Lady Olga
Gorst, Sir John	Major, Rt Hon John
Grant, Sir A (Cambs SW)	Malone, Gerald
Greenway, Harry (Ealing N)	Mans, Keith
Greenway, John (Ryedale)	Marshall, John (Hendon S)
Griffiths, Peter (Portsmouth, N)	Marshall, Sir Michael (Arundel)
Grylls, Sir Michael	Martin, David (Portsmouth S)
Gummer, Rt Hon John Selwyn	Mates, Michael
Hague, William	Mawhinney, Rt Hon Dr Brian
Hamilton, Neil (Tatton)	Mayhew, Rt Hon Sir Patrick
Hamilton, Rt Hon Sir Archibald	McLoughlin, Patrick
Hampson, Dr Keith	McNair-Wilson, Sir Patrick
Hanley, Rt Hon Jeremy	Mellor, Rt Hon David
Hannam, Sir John	Merchant, Piers
Hargreaves, Andrew	Mills, Iain
Harris, David	Mitchell, Andrew (Gedling)
Haselhurst, Alan	Mitchell, Sir David (Hants NW)

Moate, Sir Roger	Spicer, Michael (S Worcs)
Monro, Sir Hector	Spicer, Sir James (W Dorset)
Montgomery, Sir Fergus	Spink, Dr Robert
Moss, Malcolm	Spring, Richard
Needham, Rt Hon Richard	Sproat, Iain
Nelson, Anthony	Squire, Robin (Hornchurch)
Neubert, Sir Michael	Stanley, Rt Hon Sir John
Newton, Rt Hon Tony	Steen, Anthony
Nicholls, Patrick	Stephen, Michael
Nicholson, David (Taunton)	Stern, Michael
Nicholson, Emma (Devon West)	Stewart, Allan
Norris, Steve	Streeter, Gary
Onslow, Rt Hon Sir Cranley	Sweeney, Walter
Oppenheim, Phillip	Sykes, John
Ottaway, Richard	Tapsell, Sir Peter
Page, Richard	Taylor, Ian (Esher)
Paice, James	Taylor, John M (Solihull)
Patnick, Sir Irvine	Temple-Morris, Peter
Patten, Rt Hon John	Thomason, Roy
Pattie, Rt Hon Sir Geoffrey	Thompson, Patrick (Norwich N)
Pawsey, James	Thompson, Sir Donald (C'er V)
Peacock, Mrs Elizabeth	Thornton, Sir Malcolm
Pickles, Eric	Thurnham, Peter
Porter, Barry (Wirral S)	Townend, John (Bridlington)
Porter, David (Waveney)	Townsend, Cyril D (Bexl'yh'th)
Portillo,Rt Hon Michael	Tracey, Richard
Rathbone, Tim	Tredinnick, David
Redwood, Rt Hon John	Trend, Michael
Renton, Rt Hon Tim	Trotter, Neville
Richards, Rod	Twinn, Dr Ian
Riddick, Graham	Vaughan, Sir Gerard
Rifkind, Rt Hon Malcolm	Viggers, Peter
Robathan, Andrew	Waldegrave, Rt Hon William
Roberts, Rt Hon Sir Wyn	Walden, George
Robertson, Raymond (Ab'd'n S)	Walker, Bill (N Tayside)
Robinson, Mark (Somerton)	Waller, Gary
Roe, Mrs Marion (Broxbourne)	Ward, John
Rowe, Andrew (Mid Kent)	Wardle, Charles (Bexhill)
Rumbold, Rt Hon Dame Angela	Waterson, Nigel
Ryder, Rt Hon Richard	Watts, John
Sackville, Tom	Wells, Bowen
Sainsbury, Rt Hon Tim	Wheeler, Rt Hon Sir John
Scott, Rt Hon Nicholas	Whitney, Ray
	Whittingdale, John
Shaw, David (Dover)	Widdecombe, Ann
Shaw, Sir Giles (Pudsey)	Wiggin, Sir Jerry
Shephard, Rt Hon Gillian	Willetts, David
Shepherd, Colin (Hereford)	Wilshire, David
Shersby, Michael	Wolfson, Mark
Sims, Roger	Wood, Timothy
Skeet, Sir Trevor	Yeo, Tim
Smith, Sir Dudey (Warwick)	Young, Rt Hon Sir George
Smith, Tim (Beaconsfield)
Soames, Nicholas	Tellers for the Noes:
Speed, Sir Keith	Mr. David Lightbown and
Spencer, Sir Derek	Mr. Sydney Chapman.

Question accordingly agreed to.

Main Question, as amended, agreed to.

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

1. (a) for zero-rating or exempting any supply, acquisition or importation;
2. (b) for refunding any amount of tax;
3. (c) for varying any rate at which that tax is at any time chargeable; or
4. (d) for relief other than relief applying to goods of whatever description or services of whatever description.

10.23 pm

The Lord President of the Council and Leader of the House of Commons (Mr. Tony Newton)

On a point of order, Madam Speaker. I think that it would be for the convenience of the House to know that my right hon. and learned Friend the Chancellor of the Exchequer will seek to catch your eye to give an indication of his intentions at the conclusion of any further votes on these resolutions.

Mr. Gordon Brown

Further to that point of order, Madam Speaker. The House of Commons has now spoken for the country against a Government who are both discredited and no longer in control of events. Will you insist, Madam Speaker, that when the Chancellor makes his statement to the House, he withdraws the proposal to put up VAT to 17.5 per cent?

Madam Speaker

The Chancellor of the Exchequer will give an indication of his intentions to the House. I am now required to put the remaining questions.

Mr. Malcolm Bruce (Gordon)

Further to that point of order, Madam Speaker. The Leader of the House has indicated that the Chancellor of the Exchequer will make his position clear. Will the Chancellor of the Exchequer acknowledge that the House has said quite clearly that that tax must be removed and that what we want is a motion to remove it?

Madam Speaker

Order. These are now becoming bogus points of order.

I have to put the remaining motions on the Budget resolutions. I am now required, under Standing Order No. 50, to put successively, without further debate, the motions on each of the Ways and Means motions, Nos. 2 to 64, and on the motions on procedure and finance, on all of which the Bill is to be brought in. After that, I will put the Questions necessary to dispose of proceedings on the motion entitled "Public Expenditure". Instead of reading out each motion in extenso—[interruption.] Order. Do listen to what is going on in the House. I propose to follow the procedure used in recent years. That is to say, I will first state the title of the motion and then put simply the Question that the motion be agreed to. We start with motion No. 2, and that is "Low-strength alcohol".

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

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1. 2. LOW-STRENGTH ALCOHOL 211 words