Ways and Means

HC Deb 13 December 1994 vol 251 cc790-893

Madam Speaker

Before I call the Chancellor of the Exchequer, I inform the House that I have selected amendments (a) and (b), standing in the name of the Leader of the Opposition.

4.27 pm

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

I beg to move,

Mr. Robert Sheldon (Ashton-under-Lyne)

Will the Chancellor explain one matter that he did not explain last Thursday? In the past 10 years, the average error in the public sector borrowing requirement has been £10.5 billion. He wants to raise £800 million. Why is he in such a hurry? Is he now a convert to fine tuning? Will the Pergau financing mean further increases in taxation? Why cannot he wait until February, during consideration of the Finance Bill, and make a decision in the light of further information?

Mr. Clarke

Confidence in policy requires clear consistency of purpose and determination to put that purpose into effect. I had a similar exchange with the right hon. Gentleman last week and explained that, of course, these are not exact forecasts or spot figures, but the best forecasts that we can make and that there is a variation around a median line.

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) was in the Treasury at a fairly terrible time—I think that he was there when the International Monetary Fund took over for a time because of the inability of the Government of the day to deliver healthy public finances. Even when he was in office, he did not take the view that £10 billion on the PSBR here or there was something that the Government would ignore. He and his colleagues published forecasts and missed them rather badly. The downward track on which we are setting the PSBR is essential to the restoration of confidence, as is our commitment to take no risks with inflation.

I think that we would all agree that the past week has been one of slightly greater than usual political turmoil. Fortunately, that has not shaken confidence here or abroad in Britain's ability to keep on course with its recovery. Many countries are going through substantial political crises. Usually, that has a knock-on effect on confidence in the Government's abilities to deliver their economic aims. That has not happened here, in part because of the prompt action that we took.

Mr. Tony Marlow (Northampton, North)

Is it possible that confidence was not dented because people think that the present solution is rather better than the one we had before? As we are talking about changes in solutions, and given the state of the housing market and the fact that mortgage interest relief at source is going down, why does my right hon. and learned Friend still think it wise to knock that market on the head again by making people insure their mortgages?

Mr. Clarke

That was as helpful as ever. Confidence was retained overnight not least because I had a monetary meeting and raised interest rates first thing the next morning. It was extremely important to do so to reconfirm the fact that political turmoil would not threaten our commitment to low inflation and to demonstrate that our policy of considering the economic evidence, looking forward and ensuring that, if inflation pressures are incipient, we act in good time and keep control of events remained unshaken. Confidence was retained before I proposed my package of measures on Thursday.

As I told the right hon. Member for Ashton-under-Lyne, a prompt reaction to events to put in place the Budget judgment was essential to keep us on course. In the short term, the interest rate change was never likely to be welcomed by people concerned about the housing market. The present difficulty is that our manufacturing economy is roaring ahead, with very strong growth, while the housing market remains distinctly flat. In the medium-term interests of anyone involved in the United Kingdom economy, it is essential that a low inflation climate is retained and that it lasts. People involved in the housing market probably realise more than anyone else in business the dangers of returning to boom and bust, and of the apparent prosperity that inflation brings and its effects thereafter.

Mr. David Winnick (Walsall, North)

Most people clearly have no confidence in the economic competence of the Government, and the Chancellor knows that. The Government's humiliating defeat on VAT undoubtedly dented them, but does the Chancellor accept that it has in fact reinforced the standing of the House of Commons? Letters to national newspapers and hon. Members have shown that the vote has almost reaffirmed people's faith in parliamentary democracy and the workings of the House of Commons. As a parliamentarian, I think that is excellent. Does the right hon. and learned Gentleman agree?

Mr. Clarke

I regard myself as a parliamentarian, and I am extremely glad about anything that raises confidence in this House, which needs raising by a quite considerable extent. I accepted the judgment of the House, which, although I will not labour the point this afternoon, was reached in an extraordinary way. The House, having confirmed the tax in four separate votes, changed its mind in circumstances where—the hon. Gentleman will concede—background events had a lot to do with the decision.

I have accepted the decision, and that is where we now are. I am explaining that it is necessary to proceed with the resolutions so that the key economic policy of low inflation and healthy public finances is dealt with properly by the Government with the support of the House.

Virtually every major economy in the western world faces serious problems with its public finances as it emerges from recession. The general level of deficits throughout the European Union and across the Atlantic is far too high for comfortable and sustained growth, and every Government is having, or trying, to take action to deal with that problem. I believe that the British Government are tackling the problem more effectively and more promptly than almost any of our competitors in the developed world. That is one reason why confidence in Britain is so high—not only in the financial community, but among the business men and industrialists upon whose confidence we depend to get investment going to sustain our current good performance.

We are doing better than anybody else at the moment. That is why the House must accept—if we accept the House's verdict, as we do—that, having lost potentially £1 billion of tax revenue in the next financial year and £1.5 billion worth in years two and three of the survey period, it is essential that it confirms the action necessary to fill that gap in the public finances.

Mr. Dennis Skinner (Bolsover)

I go back to the question of the interest rate increase. The Chancellor gave the impression that the increase was not as a result of the defeat in the House of Commons, but that it arose simply because he felt that the judgment had to be made at that time. Why, then, only a fortnight ago, when I asked him directly in the House whether there would be an increase in interest rates before Christmas, did he tell me that he had no plans for such an increase?

Mr. Clarke

With the greatest respect to the hon. Gentleman, I am quite certain that I never answer questions—either in the House of Commons or from journalists outside—about my intentions regarding interest rates. It would be totally irresponsible for any Chancellor to do that, as it would cause turmoil in the markets.

I have always explained my policy on interest rates, which is to ensure that we act in good time to keep control of events and to stop inflationary pressures building. The decision on interest rates to which the hon. Gentleman referred was taken the following morning, and not before, and it was taken on the basis of a judgment of the inflationary pressures. But, at the request of the Governor, we had brought forward the timing of the meeting so that, if we decided to raise interest rates, we would do so in good time before any turbulence in the markets after the decision of this House. I make my decisions on the evidence of the meetings that I hold, but the House must bear in mind the fact that those decisions, and their timing, have to include, among other things, the surrounding political events and the possible consequences of a defeat in the House of Commons the night before and the loss of a billion pounds worth of taxation.

Mr. Tony Banks (Newham, North-West)

The Chancellor said that the manufacturing economy was "roaring ahead" Will he tell us when we last had a balance of payments surplus on our trade in manufactured goods, and when he expects us to move into surplus again?

Mr. Clarke

It is a long time since we have had such a strong balance of payments recovery at a time of economic recovery. The hon. Gentleman knows that that is because the recovery is export-led: in volume terms, our exports are up 10 per cent. on a year ago and investment is beginning to press ahead. The course for our balance of payments is improving precisely because this is a competitive country. It is attracting inward investment because it the best place in western Europe in which to invest if one wants to manufacture modern products.

As I said in my statement last week, when it came to filling the gap in the Budget judgment, I turned first of all, instinctively, to public spending. It was obviously right to look at that side of the account. I know from last week's intervention from my hon. Friend the Member for Bridlington (Mr. Townend), as well as from his representations to me for about as long as I can remember in his capacity as chairman of the Conservative finance committee, that he wanted me to do just that.

As I explained, to make further changes in the public spending total for next year and the year beyond at this stage, after the end of the public spending round, was simply not practicable. I could not do that because of our enormous success in the two successive public spending rounds, which reduced general Government expenditure by at least £43 billion over the four years covered by those two public expenditure surveys. That sum was taken out of general Government expenditure without disturbing the Government's policy priorities and, so long as efficiency is maintained, without threatening the delivery of good, high-quality services.

I accept that a further adjustment to recover money out of those public spending totals may well have been attractive to a number of hon. Friends, as it was to me, but it would not have represented good competent government. It was too late in the year to make such a change. We had just settled the survey and health authorities, local authorities and Government Departments had made their plans on the basis of the figures that we had provided. If we had gone ahead, within 36 hours, to find areas of public spending from which we could have quickly recovered the money further required, it would have been damaging.

I know that my hon. Friend for Bridlington is not alone in making representations to me about public spending—my hon. Friend the Member for Chingford (Mr. Duncan Smith) and others have also done so. Because I was unable to go further on this year's public spending round, however, does not mean that we are lessening our determination to keep public spending under control. In years two and three we have already committed ourselves to filling the expenditure gap by £300 million. The tight public spending control of the kind that we are delivering is not a short-term, temporary Government policy; it is one of the hallmarks of Conservative government that we keep tight control of expenditure.

The resolutions deal with the need to raise taxation. We know that the ability to raise or to reduce taxation is directly linked to control of public spending. If one cannot control that spending, one has lost control of one's taxation policy. In future years we will stick to that principle, but this year, for purely practical reasons, we did not attempt to alter the public spending totals.

Mr. Malcolm Bruce (Gordon)

Does the right hon. and learned Gentleman accept, however, that choosing to recover money in taxes has had an inflationary effect of 0.4 per cent., which has meant indexing benefits to the tune of nearly £600 million? Surely he would have faced a much easier task if he had found the money elsewhere. When does he think that the borrowing level will be at a pitch where he will be able to justify reducing taxes? Can he tell us what the criteria would be?

Mr. Clarke

We looked at alternative packages, but one of the attractions of the package that I am commending to the House in the resolutions is that the impact on inflation is rather less than that of the taxes that it replaced. I accept that there are disadvantages in the new package, and, if I am pressed, I will explain why what I am now presenting is, as everyone realises, my second choice, starting from where we were before I prepared this year's Budget. Nevertheless, the substitute package has one advantage, because it slightly reduces the impact on inflation.

On the borrowing requirement, we published in the Red Book the public sector borrowing requirement that we now expect to be sustained. We published our expectation that general Government expenditure will fall as a proportion of gross domestic product. Judgments about taxation in future years must be made on the same basis as the judgments about taxation that I made this year and last. The lower one gets the PSBR, the more one gets public spending under control and the more one is able, when conditions begin to improve, to consider how far one can reduce taxes rather than increase them.

According to the Government, judgments about taxation must be made, and will always be made, on the basis of the health of the real economy. We are committed to industry, to jobs and to prosperity. Our past policy of declining to decide on low rates of marginal taxation was based on our belief that that stimulates a healthy economy. We will make changes in taxation only as and when we believe that it is in the interests of a healthy economy to do so.

Mr. Nigel Griffiths (Edinburgh, South)

The Chancellor may talk about judgments on taxation, but how can we trust his judgment to match what he has said about taxation? Before the election, he told us that there was no need to extend the scope of VAT and he made specific promises not to increase the rate of VAT. When he came back to the House, however, he offered proposals that went against everything that he had promised. What will happen on a wet night in Dudley tomorrow?

Mr. Clarke

Before the election, the hon. Gentleman and his hon. Friends campaigned on a policy of increasing taxation in order to increase public expenditure. They also ran a campaign suggesting that they had somehow done their calculations and discovered that the Conservative party would be obliged to raise the rate of VAT. We did not.

The hon. Gentleman has no quotations from me about VAT. He may, however, be referring to some remarks that I made during the election campaign, which were made at a time when his party and my party believed that the recession was over and that public finances would not fall into a worse state. The difference is that when, thank heavens, I am glad to say we found ourselves charged with the responsibility for turning the recession into the recovery, we took the necessary steps to deal with the deficit to get us back on course.

The hon. Gentleman's party opposed every increase in taxation and every spending reduction. Had the Labour party taken office, it would have put into effect the budget of the late John Smith, which would have meant increased taxation and increased public spending. The Opposition would obviously have turned a dangerous borrowing position into a catastrophic one. I recall that that is exactly what the Labour party did when it last took office in similar circumstances.

Mr. Gordon Brown (Dunfermline, East)

Did or did not the Prime Minister say that the Conservative party would not extend VAT? The truth is that he said just that. Will the Chancellor, just like the Prime Minister told us before the general election, now tell us that he will never extend VAT to food, travel, children's clothes, books and newspapers? Will he repeat the Prime Minister's promise?

Mr. Clarke

Did or did not the hon. Gentleman and his hon. Friends tell us that, if elected, the Labour party would put up child benefit and all retirement pensions? The Opposition would not have done that if they had been remotely responsible upon taking office and discovering that the PSBR was in crisis. The hon. Gentleman looks shocked at my response. He appears to be saying that if the electorate had made a mistake at the election, the Labour Government's reaction to discovering that public finances were in crisis would have been to raise public expenditure on those items by enormous amounts.

The hon. Gentleman has wrung that lemon of the old election quotations dry. As he asked me to give undertakings about the future, let me tell him that we have put in place a policy to match the occasion, which has dealt with the crisis and turned the recession into recovery. The hon. Gentleman cannot even come up with any proposals. Any question to him is waved away and he refuses to give any undertakings about any future Budget, which I hope he will never deliver.

Mr. Patrick McLoughlin (West Derbyshire)

I do not believe that we should take too many lessons from the Labour party. Is my right hon. and learned Friend aware that some time ago the hon. Member for Brent, East (Mr. Livingstone) said that those who pay tax on more than £50,000 should be taxed even more? According to press reports at the weekend, however, the hon. Gentleman's accountant has managed to do some clever tax fiddling for him.

Mr. Clarke

I will not comment on my hon. Friend's second point. We are beginning to quote the hon. Member for Brent, East (Mr. Livingstone) with approval; I have done it myself. There is no point in Opposition Members shrieking derision at their hon. Friend. He is almost the only Labour Member who attempts to make positive proposals. His hon. Friends do not say that they disagree with him: the inclination to go for higher taxation is not disowned. They are silent when we press them, and we shall press them again in the debate.

I shall now deal with the substitute indirect taxes to replace those that the House has rejected and with the increases in duty. The debate is sensible, certainly in the context of Conservative Members. We will support the resolutions but we will do so with some regret. When I was preparing my Budget I rejected those indirect taxes, because, although they raise the necessary revenue, they all present disadvantages which, until we had the vote, I had hoped to avoid.

The first issue is duty on alcohol, which I am obliged to raise to make a contribution to revenue. I received[ a large number of representations about the excise duty on alcohol before I prepared my Budget. I do not meet many of those who wish to speak to Ministers, but all Treasury Ministers meet deputations. I met representatives of the brewers and of the Scotch Whisky Association because, as hon. Members will recall, last year I reflected my concern for the situation that they faced following the opening of the single market and the ending of frontier controls.

One of the delegations was a powerful one and consisted of some of my hon. Friends. It was led by my hon. Friend the Member for Birmingham, Edgbaston (Dame J. Knight) who urged on me the importance to the British economy of the Scotch whisky industry and the need to ease its burden of duty. I accepted that case when I presented my Budget. I had hoped this year to repeat what I did last year—to freeze alcohol duties for the benefit of the British brewing industry and the Scotch whisky industry.

Unless one wants to load even more on the other chosen sources of revenue, it was impossible to stick to what would have been my preferred policy of repeating that freeze. I assure my hon. Friends who are interested in this matter, and certainly those who came to see me about it, that force majeure compels me to do this: it is not a change of policy. I continue to believe that in next year's talks we must explore the objective of approximation of duties across the European Union. That has been made even more urgent.

I assure the House that we shall sustain and strengthen our actions against the illegal importation of alcohol and tobacco. I am satisfied by recent evidence showing that we are becoming more effective in our operations against criminal gangs of smugglers. Since the ending of frontier controls, we have steadily strengthened the intelligence gathering part of our effort and are becoming steadily more successful.

Mr. William O'Brien (Normanton)

What items other than excise duties could the Chancellor have examined in his second look at the Budget? Is he aware of the jobs that will be lost in brewing and distilling and the effect that that will have on regional economies? Will there be less smuggling because of the increase in duty?

Mr. Clarke

I told the House a few days ago about the alternatives and I do not propose to go over them again. Those who argue for alternatives should face the fact that they are either increases in direct taxation by raising the rates or squeezing the allowances, increasing taxation on business in various ways or indirect taxation. That involves the possibility of raising the rate of VAT on its narrow base or indirect taxation in the form of increased duties. I shall not rehearse again the process by which I arrived at the decision. It had to be indirect taxation.

Mr. John Townend (Bridlington)

I am grateful to my right hon. and learned Friend for his efforts to stop smuggling. Of course, we could have put VAT on newspapers and I would have welcomed that. Does he accept that, inevitably, if we are to have any success on the approximation of duties with other countries, at some stage the Government will have to reduce our duties to the level of those in other countries? We cannot expect the problem to be solved by other countries putting their duties up to our level.

Mr. Clarke

That may be so, but I do not want to anticipate our negotiating position. I am grateful to my hon. Friend because, without going wider than the terms of the debate, he sometimes shows a slightly fuller understanding than other hon. Members of how European negotiations proceed. I am all too familiar with coming back from European negotiations and, unless I have received agreement to every last dot and comma of the negotiating position with which I set out, being accused of taking part in another humiliation for Britain. One must go to Europe with a negotiating position. Our position is strong, and we have chosen a perfectly legitimate area in which to raise revenue. We need approximation to make sure that revenue is not lost in one country and gained in another, and that trade is not distorted by goods going across borders.

We would be reluctant to lose that source of revenue altogether. It is perfectly legitimate to raise duties on alcohol, which some people welcome because they blame alcohol for crime and other problems. The difficulty is unlawful smuggling and the legal trade that is encouraged when people go shopping and take advantage of lower duty.

We must get the loss of duty in proportion. I sympathise with the argument that jobs and so on will be lost, and that sympathy has twice been demonstrated in my Budgets. Nevertheless, with the greatest respect to them, the brewers and the Scotch Whisky Association negotiate in the way that perhaps one negotiates in Europe—by slightly exaggerating the consequences. Changes in brewing have much to do with changes in custom, trade and consumer taste and changes in the industry.

The brewers are making healthy profits, as are manufacturers. I am extremely glad that, because of the recovery, sectors of our industry are showing a healthy recovery in profits. To put the matter in proportion, the best estimate by Customs and Excise of the current loss of duty from goods smuggled from across the channel is about £65 million a year. We must put in proportion the idea that we can simply afford to wave away all that revenue without recovering it elsewhere.

Mrs. Margaret Ewing (Moray)

rose—

Mr. Clarke

I give way to the hon. Lady, who is interested in the Scotch whisky industry.

Mrs. Ewing

The Chancellor will appreciate the importance of the industry to my constituency, which has more than 40 distilleries, in terms of direct and indirect employment. Essentially, I am concerned about how the Chancellor reconciles his decision to put 26p on a bottle of whisky with the reduction of 20p on a bottle of champagne. What kind of message will that send to the other members of the European Union, where 40 per cent. of our export market is based, when he argues for the reduction of discrimination against Scotch whisky?

Mr. Clarke

My statement last week put another 8p back on to sparkling wine, and that was in line with the way that we had based duty before. If one is scraping the barrel for arguments, the champagne thing is fun, but it is fairly irrelevant. The sparkling wines in question include champagne, but they also include many other sparkling wines that are manufactured in this country. The change about which so much fuss was made was a perfectly ordinary, common sense move to bring the duty on sparkling wines into line with that on fortified wines. There was no logical reason for different amounts. My corrigenda statement at the end of last week was to put another 8p on wines, which included Champagne.

The serious point about whisky is that I would have preferred to freeze duty. Scotch whisky is a major employer in the hon. Lady's constituency and in that part of Scotland; it is also one of our most successful industries. The Scotch whisky industry has been even more successful than the brewers in responding to pressures on the trade. It is a successful exporter and is building up its position in many important markets.

The best argument was made by the hon. Lady. In due course, when arguing about the approximation of duty, we shall encourage other countries not to discriminate against spirits in their pattern of duties, and perhaps to increase the duty on wine to reduce the distortion. This year, forced as I was to find the revenue, I have not been able to maintain the freeze, but I shall certainly address that key question in talks with our European partners against the background of the policy that I have described.

Mr. Quentin Davies (Stamford and Spalding)

Does my right hon. and learned Friend agree that, whatever impact personal imports under the single market may have on excise duty or on the trade of off-licences and supermarkets, there is no reason why the brewing industry or the distillers should suffer? It is no more difficult to ship British beer from Burton on Trent or from London to a hypermarket in Calais than it is to ship beer from Strasbourg, Amsterdam or Copenhagen. There is therefore no reason why there should be a negative impact on the volume of production by British distillers and brewers.

Mr. Clarke

I might, with caution, try out that argument on a brewer, but my hon. Friend should bear in mind the position of off-licence retailers and others who have no such protection against the trade.

I turn to the duties on petrol and diesel, which also will not be welcomed by many right hon. and hon. Members. Again, it was quite impossible to raise the necessary revenue without making a further addition to duty on petrol and diesel over and above that which I had previously resolved to impose. Nevertheless, even with the moves we have made, which have good environmental consequences and are welcomed by the environmental lobbies, petrol remains cheaper in real terms than it was 10 years ago. After both increases in duty, unleaded petrol will still be cheaper in Britain than in most of the major economies of western Europe, including Germany, France and Italy.

Tobacco is subject to many of the arguments that I deployed earlier. We are caught in a dilemma.

Mr. Harry Greenway (Ealing, North)

rose—

Mr. Clarke

I shall give way shortly to my hon. Friend, who has a constituency interest in the matter.

The Government are following a policy of raising taxation on tobacco to reduce consumption. That policy has been supported by hon. Members on both sides of the House for some time, so it is not possible to argue against the duty simply on the basis that it is damaging the tobacco industry. It is a positive act of policy to reduce sales and there is no point in shrinking away from it. However, it is never Government policy to damage British sales in favour of continental sales; therefore, the same point that I made about differing levels of duty on alcohol applies. Personally, I am in no doubt—and nor is my right hon. Friend the Secretary of State for Health—that European countries should follow our commendable health policy and raise their duties on tobacco to approximate with ours.

Mr. Harry Greenway

rose—

Mr. Clarke

My hon. Friend has many constituents who work in the tobacco industry, so no doubt he has a point of view.

Mr. Greenway

I know that the Labour party spokesman wants to go much further than my right hon. and learned Friend, but does he not realise that cigarettes are not only being imported from France and Germany, where duty is much lower, but smuggled too? Does he accept that that means jobs are being exported from Britain? In Gallahers in Northholt, 204 jobs have been lost within the week. My constituents' jobs are being exported to other countries. They cannot accept that, and why should they?

Mr. Clarke

I am sorry to hear about the loss of jobs at Gallahers. As the economy is recovering so strongly, and new jobs are being created, I hope that his constituents do not have to wait too long before resuming work in other jobs. My hon. Friend would find it difficult to maintain that the loss of jobs is directly related to my statement last Thursday. I doubt whether that was the critical decision-making factor. It is also by no means easy to demonstrate that it was a result of smuggling; it is a result of changing habits. The point of taxation policy is in part to discourage smoking. My remarks on smuggling remain. We must tackle smuggling ever more effectively and keep up pressure on other Europeans to raise their duties.

Mr. D. N. Campbell-Savours (Workington)

Will the Chancellor give way on that point?

Mr. Clarke

I must get on.

Mr. Campbell-Savours

I have waited patiently.

Mr. Clarke

Sooner or later, I shall have to refuse someone. I have not picked out the hon. Gentleman, but I shall certainly make him wait.

I have covered all the resolutions before the House bar one—the first resolution that the Opposition have sought to amend. I can tell from the amendments that they believe that they have read into the first resolution an intention to extend VAT to zero-rated goods. I hope that I am not cutting out a large part of the speech of the hon. Member for Dunfermline, East (Mr. Brown), but before he launches on that I should like to give him a reassurance and undertaking, as it looks like that when one first reads it.

The first resolution is a wholly technical resolution of a kind that has been tabled ever since VAT was introduced in Britain in 1972. It means merely that if, in the course of operating the duties on fuel at an intermediate level and the new ones I have announced—particularly those on fuel—it turns out that anomalies are creeping in and that the drafting is incorrect, that can be changed by order and would not require fresh primary legislation. I am advised that it is quite essential to the proper operation of a complicated tax such as VAT.

The argument has been made before; it is not original. If the hon. Gentleman pretends to read into it a tremendous intention to extend VAT to other zero-rated goods, I shall repeat the undertaking that has been given by all my predecessors since Tony Barber, because the drafting on the Order Paper is the same as that used by Labour Chancellors and not just by Conservative Chancellors. The Government have no intention and would never extend VAT to zero-rated goods without primary legislation. At the moment I have not thought about any future Budget and would not do so. To press the amendments, although they appear to be aimed at a serious political point, would impede the sensible operation of the tax and I hope that the Opposition will not do so.

I hope that the Labour party will turn instead to taking the third opportunity to try to produce a macro-economic policy of its own. If it plans to vote against any of the resolutions, it must have some germ of an alternative idea in mind about how it would tackle the problems.

I do not wish to ask difficult questions for which the Opposition are not yet ready; I have only straightforward fundamental questions. Is the level of public borrowing too high or too low? Is the general level of taxation we are proposing too high or too low? If the Opposition are unable to answer those questions, they are unable to make a serious contribution to an economic debate.

I hope that we do not hear any more about loopholes. There were £10 billion worth last year and there are none this year. The windfall tax is based on the assumption that when and if a sale of the national grid goes ahead, one taxpayer might be exposed to a particular sum of money replacing a stream of revenue. I shall not go into that again, but at the moment the Shadow Chancellor is putting forward policies that are so shadowy as to be invisible.

This evening the House will vote in a responsible way for resolutions that will deal with the gap in the public finances and, far more important, with the key issue: to back the Government's economic policy which has put Britain on course for recovery.

These resolutions keep intact the economic policy of the Government. That policy is a successful economic policy and is sustaining growth and bringing down unemployment. It must be kept on the road. It is the only sensible economic policy on offer in the House and is strongly supported by the business and financial community. These resolutions are consistent with strong and decisive action, which will give us a powerful manufacturing industrial economy again. I commend the resolutions to the House.

5.9 pm

Mr. Gordon Brown (Dunfermline, East)

I beg to move amendment (a), in line 7, leave out "for the time being".

This second debate on the Budget, like the mini-Budget last Thursday, arises because the Chancellor got it wrong over VAT on fuel. He got it wrong by going ahead with it in the first place. He then got it wrong by refusing to listen to the representations that were made before the Budget. He got it wrong a third time by refusing to rethink even when the strength of opposition became clear.

Events have already shown how right we were to defeat the Government last Tuesday. If the Chancellor gets it wrong on an issue as crucial as VAT, why should anybody believe that he can get anything else right? He has already made his views clear about VAT. He wanted VAT on fuel at 17.5 per cent.—not next April but this April. He has voted for VAT on children's clothes. He favours a principle, as he told a constituent, of going even further, and wants to extend VAT to other goods as well. He said at a by-election that not to extend VAT to items, including food, transport, books, newspapers and children's clothes, was "an anomaly". Therefore, we will need more from the Chancellor than the assurances that he gave at the end of the debate, about existing legislation and statutory orders, before we believe that it is not his long-term plan to extend VAT to other items.

I noticed when I raised the issue with the Chancellor this afternoon that, once again, he refused to give the promise that even the Prime Minister was prepared to give before the last election—that they would not extend VAT to those items.

Mrs. Jacqui Lait (Hastings and Rye)

I wonder whether the hon. Gentleman will confirm whether it is Labour party policy never to extend VAT to any of the zero-rated goods?

Mr. Brown

I have said on many occasions that it is not our proposal to do that. The question is whether the Chancellor will tell us his policy on these matters. The hon. Lady should think twice before she intervenes to ask about promises, because when she spoke to her constituents during the previous election, she said, "We need low taxes." She has been unable to deliver that, so perhaps an apology from her to her constituents would be in order before she proceeds to interrogate anybody else.

Mr. Kenneth Clarke

rose

Mr. Brown

I shall give way to the Chancellor if he will answer the question that I put to him earlier. Will he repeat the promise that was made by the Prime Minister, that the Government would not extend VAT to food, children's clothes, books and newspapers, and transport? Will he repeat that promise, yes or no?

Mr. Clarke

That is a bit rich considering that the hon. Gentleman just ducked, with no great elegance, the question that was asked by my hon. Friend the Member for Hastings and Rye (Mrs. Lait). He said that his party has no proposals to extend VAT to those items. We have no proposals to do so. He makes extended and distorted use of quotations that I have never considered.

I have said for years that, if we went back and started again, there is a case to be made for having a lower rate of VAT and fewer exemptions. But I have had a policy. I have not extended things. I have had two Budgets. Will the hon. Gentleman give—as he is making so much of this—the guarantee for which my hon. Friend asked? Will he get up and say—he should not if he ever wants to be Chancellor—that he will never extend VAT to any of those goods?

Mr. Brown

I notice—[HON. MEMBERS: "Yes or no?"]—very clearly that the Chancellor has given something away this afternoon that he will live to regret. He has said that he will not give the guarantee that he will not extend VAT to food, children's clothes, books and newspapers, and transport. The Chancellor is now on record in the House of Commons as saying that he refuses to give that guarantee. This is a very revealing afternoon for the House, and I believe that, if the Prime Minister were sitting next to him, he would be very angry indeed that his statement had been contradicted by the Chancellor.

Mr. Richard Ottaway (Croydon, South)

Will the hon. Gentleman give way?

Mr. Brown

I shall give way once more, but then I must move on.

Mr. Ottaway

I thank the hon. Gentleman for giving way. He is particularly keen on telling people what they have pledged and what they have not in elections. Is he aware that his own election address in 1992 for Dunfermline, East contained the pledge that Labour would be tough and protect the environment? It also said that the polluter must pay. What is that if it is not a carbon tax? Is it not just the same as VAT on fuel?

Mr. Brown

Those are precisely the sort of proposals that we have been making—for example, the proposal for a landfill levy, which I notice that the Chancellor is now prepared to support. But before we leave the question of VAT, perhaps the Chancellor will answer one question. He gave a guarantee to the House only a few minutes ago that he would not extend the coverage of VAT other than by primary legislation. Will he therefore withdraw the VAT transport order?

Mr. Clarke

I have been answering questions all afternoon. The hon. Gentleman is answering none, but I am happy to answer questions in his speech as well, if he likes.

The extension of the VAT transport order was done partly under these resolutions and partly under the Finance Bill as well. The VAT zero rating on transport is designed to protect passenger transport. It has now been extended to air balloon rides, funfair rides, to things inside theme parks. This legislation covers anomalies of that kind, but in this case a combination of an order and, I think, measures in the Finance Bill has been used as well.

The hon. Gentleman knows perfectly well what we are talking about. He comes out with a litany about children's clothes, food, and so on, but he has refused to give a guarantee this afternoon that he will not extend VAT to those as well.

Mr. Brown

The Chancellor made a promise that lasted for about three and a half minutes—that he would never proceed with extending VAT other than by primary legislation. The VAT transport order was laid by the Chancellor. Will he withdraw it and put the measure in the Finance Bill so that we may have a proper debate on the matter, or will he dishonour yet another promise? I think that the House knows exactly where the Government stand on issues such as VAT.

We must look at the Budget as a whole and look at its effect on the living standards of people throughout this country.

Mr. Quentin Davies

Will the hon. Gentleman give way?

Mr. Brown

I shall give way if the hon. Gentleman wants to ask me something that I have been talking about in the past few minutes.

Mr. Davies

Indeed. Before the hon. Gentleman moves on to other subjects and tries to bury this issue, will he or will he not give a guarantee to the House this afternoon that he would not extend VAT if ever he were Chancellor?

Mr. Brown

We judge the Conservatives by their actions. The hon. Gentleman has the gall to come to the House this afternoon and talk about promises on taxation. What did he say to his electorate in Stamford and Spalding? He said: We are absolutely committed to continuing to bring down taxes. Yet another promise has been broken by Conservative Members. [Interruption.]Conservative Members are clearly living up to the Maples memorandum this afternoon. They are behaving as though they want to disrupt the debate entirely, they are so embarrassed by the broken promises of two years' standing over the whole issue of taxation.

Mr. Nigel Evans (Ribble Valley)

Answer the question.

Mr. Brown

The hon. Gentleman asks me to answer a question that the Chancellor will not answer. The Chancellor made a promise five minutes ago and broke it five minutes later.

I want to look at the issues affecting the Budget in relation to living standards. Let us look at how it affects the home owner. Let us look at the Budget overall. Horne owners are faced with mortgage rises that have already come through since September and are facing likely mortgage rises from decisions on interest rates that were announced last week. The Chancellor must justify and explain to the House why the very same home owners are also being hit by the withdrawal of mortgage tax relief and the imposition of a home insurance tax. We have seen even in the social security statement—at a time of growing insecurity in the jobs market, which has been recognised by surveys and opinion polls only this week—the withdrawal of support for mortgages when people are unemployed.

Home owners have been hit by this Budget, as they were by previous Budgets. They have been hit with interest rate rises, the withdrawal of mortgage tax relief and home insurance tax. As they will tell Conservative Members—no doubt Thursday's by-election in Dudley will serve as a starting point—unemployed people are now hit by the withdrawal of mortgage tax relief.

How has the Budget hit motorists? We have often heard the Chancellor defend an increase in the cost of petrol; but let us examine the overall cost to the motorist. The price of petrol has now risen twice, a car insurance tax is being introduced and vehicle excise duty is being increased. It is no wonder that motoring organisations express worries about people's ability to hold on to their cars.

Let us consider the cumulative effect of Budgets on widows. The starting point at which a widow paid tax used to be £99; now, as a result of the changes made by the Chancellor, it is £93. The Chancellor tells us that we should not worry about his decision to cut duty on champagne, but I believe that people will observe the contrast between his ability to cut champagne duty and his ability to tax widows at the same time.

The Chancellor also defended his measures in relation to beer and spirits this afternoon, saying that last Thursday he raised the tax on champagne. What, however, is the final result? Beer is up by 1 p and whisky by 26p, while champagne is down by 19p.

Mr. John Townend

Does the hon. Gentleman really think it sensible to levy a higher tax on a bottle of claret costing £25 than on a bottle of cheap Australian sparkling wine costing £3? The previous position was an illogical anomaly that the Chancellor has put right. It is ridiculous to make out that we are trying to benefit the wealthy by cutting the price of champagne.

Mr. Brown

That shows the difference in the priorities of the parties. I regard it as an anomaly that widows who used to start paying tax at £99 are now starting to pay it at £93. I think the hon. Gentleman would agree that, in a Budget that raised everyone's taxes, it was not a priority for the Chancellor to cut duty on champagne for people who have enough money to afford it.

Two weeks ago, the Chancellor said that he had "listened to the concerns" of industry. He said: No Chancellor can remain unmoved in the face of this".— [Official Report, 29 November 1994; Vol. 250, c. 1096.] Let me ask the Chancellor and the Chief Secretary how many jobs they expect to be lost as a result of the rise in beer and whisky duties. If the Chancellor could not remain unmoved in the face of those concerns two weeks ago, will he now tell us how many jobs he expects to be lost?

The Chancellor presented a second argument. He said that he could have introduced no alternative measures that would not penalise middle or lower-income Britain. He gave us the impression that he had been as fair as possible. But what did Mr. John Spiers, of BESt Investment, say in the Financial Times only last week?

If we had written it ourselves we could not have come up with a better Budget for the tax shelter industry. Those are not my views; they are the expert views of people close to the industry, who do not usually speak highly of this aspect of Budgets.

Mr. Spiers went on: I cannot see why ever anyone should pay capital gains tax again. Commenting on the Budget, the Financial Times said: The scale of the incentives dangled by the Chancellor suggests sponsors and venture capitalists will be queueing round the block to launch venture capital trusts. That leads me to a statement issued by the journal of BESt Investment, entitled "Tax Shelter Service". The Chancellor had better be aware of the implications of the measures that he is asking us to approve. The company states: The Budget may have been regarded as boring … but for the tax shelter business it contained arguably the most exciting combination of measures ever seen. The Government is now offering up to 60 per cent. tax rebates on investments … Investors will have no less than four opportunities for sheltering tax … As a result we cannot see why anyone should choose to pay capital gains tax in future. Why is all that happening? Why is the Chancellor's Budget leading to the biggest ever boost for the tax avoidance industry? Far from ending tax abuses, as the Chancellor implied he was doing in his speech last week, he has opened up many more. Far from dealing with the criticisms of executive share options that have been put to him—not least by the vice-chairman of the Conservative party—he has cost himself much more money, and in the process has introduced more tax shelters for the capital tax avoidance industry.

Mr. Kenneth Clarke

rose—

Mr. Brown

I am happy to give way to the Chancellor, but I think he should explain why the tax shelter industry describes the Budget as the best boost that it has had for years.

Mr. Clarke

The hon. Gentleman keeps slipping between the words "tax shelter" and "tax abuse". What he describes are people trying to explain the tax advantages of investing in small, emerging, growing companies through the vehicle of venture capital trusts. It is new investment in new businesses and new jobs. It is absurd to describe those tax reliefs as a tax abuse; they are good for small industry and good for employment.

Mr. Brown

If the Chancellor were telling us the whole truth, he would mention the fact that he has extended the tax reliefs to the property industry. He has reopened all the abuses that made the closing down of the business expansion scheme necessary. Far from simply helping new manufacturing industry to get off the ground, as the Chancellor implies, the Budget—in two instances—extended the capital gains exemptions to the property industry. It is for that reason—the return of 60 per cent. tax relief, not the creation of jobs—that the tax avoidance industry is telling people about the great new opportunities that are available to them.

Last year, the Chancellor said that we would receive £1.3 billion from capital gains tax revenues. Now, in the Budget, he has downgraded the amount to £800 million. Despite all that he says about the boom in the economy, he has frozen the amount that he expects to receive next year at £800 million as well.

The Chancellor tells us that there is not a single alternative that he could consider, other than penalising middle and lower-income Britain, and that it would be wrong to end the tax privileges surrounding executive share options. In fact, the Chancellor's Budget has opened up even more opportunities for tax avoidance—opportunities available both to those who hold executive share options and to those who are prepared to avoid their capital gains tax liability throughout the 1990s and probably beyond.

I remind the Chancellor that it was not me alone who raised the question of capital gains tax abuses. The vice-chairman of the Conservative party put it thus: Although in the 1980s Conservative seemed to promise a classless society … the reality is now that the rich are getting richer on the backs of the rest who are getting poorer. Excessive pay packages especially in the privatised utilities cause real offence. Could we in future tax share options as income not capital gains and introduce some level of options above which tax would be charged as they rise in value not just when they are exercised? The Chancellor says that, by refusing to do that, he loses only £60 million. Indeed, he said in the House last week—the Chief Secretary nods—that the sum was only £50 million to £60 million. That is not an insubstantial amount; it could be used to defray the rising cost of dental treatment or eye tests, for instance. It could have given a better deal to many people who face tax rises. I do not see how the Chancellor can justify the loss—if it were so—of £60 million through this scheme. Even the Financial Times has said: the real joy of executive share options is that there is no risk of losing money. The Association of British Insurers and the National Association of Pension Funds have said that the schemes may not be in the interests of shareholders, the public or employees. All the research that has been carried out recently shows that two thirds of the schemes do not have performance targets. The all-party Select Committee that examines these matters—its members come from both sides of the Chamber, but it is dominated by Conservative Members—criticised the schemes and commented that they rewarded short-term performance and not the long-term needs of the economy. Yet the Government have refused, even though it has cost £370 million on their own figures, to deal with the problem.

If the Chancellor of the Exchequer examines carefully the Treasury's assumptions about the revenue that it loses as a result of executive share options—I do not believe that he has—he will find that the assumptions are wanting, and that the loss is substantially larger. Perhaps the Chief Secretary to the Treasury will do us the courtesy of responding to my arguments one by one when he replies later this evening.

The Chancellor of the Exchequer should understand that the estimated £60 million is based on some strange assumptions. Those who hold executive share options include Lord Young, Sir John Nott and other well-known Conservatives. It is assumed that those men, who are sophisticated in terms of financial markets, will buy shares other than at the best time for share values. It is then assumed that they will sell just about every share on the day that they buy them. It is further assumed that most of the capital gains tax exemption has been used in other ways and is not available to be set against share options. The next assumption is that none of the advantage is transferred to wives or spouses.

Mr. Kenneth Clarke

Will the hon. Gentleman give way?

Mr. Brown

I shall give way if the right hon. and learned Gentleman can correct what I have just said.

Mr. Clarke

I am advised that the figure that I used includes the possibility of transfers to spouses.

Mr. Brown

Why is it not stated in the assumptions underlying the proposals, especially as the Chancellor of the Exchequer promised at the beginning of the year that all the assumptions—the promise was based on a freedom-of-information gesture—would be explained to the House? In fact, the necessary statement has not been made. That is why we have a figure as low as £60 million. The Chancellor has been wrongly advised.

Why is it also assumed that men or women with executive share options will fail to perceive the advantage of defraying up to £200,000 of their capital tax liability by using the various schemes that the Chancellor has over time introduced, or by continuing to use the reinvestment relief that is available? It seems that the assumption behind the Treasury calculations is that the business acumen, flair and entrepreneurial spirit for which share option holders have been praised by the Government desert them on the day that they get hold of an executive share option. The Treasury's £60 million is based on a guesstimate that share option holders will act irrationally and against their interests when it comes to dealing with their own finances.

The main tax planning tool is the annual capital gains exemption—the spreading of disposals to wives. At the same time, it is assumed that shares will be bought 'when it is not the best time to buy them and when they do not represent best value. The Government's assumption will lose the Treasury substantial moneys.

As I have said, Lord Young has executive share options. He could pick up £1.1 million in profit on share options. Let us assume that he is granted them and decides not to sell in one go. He can then spread his capital gains tax liability over 10 or more years. He can transfer some of the shares to his spouse. He could take up a venture capital trust now. He could secure reinvestment relief and invest in property. As I have said, he could use up all his capital gains tax liability by means of such schemes. There is no reason why he or anyone else around him should have to pay CGT. None of these factors is properly taken into account in the Treasury's calculations.

If a few men in the privatised utilities can set against their share option liabilities—they run into £3 million for three top directors of PowerGen and £1 million for the top man at National Power—the various schemes to which I have referred, the moneys that will be received as a result of executive share options will be far less than assumed. The Government have not calculated the cost to the nation properly; they have not been serious about tackling the abuses which have arisen; and they are unaware of the anger throughout the country at the fact that they are prepared to penalise middle and lower-income Britain while allowing those who are extremely rich to go ahead and cash in their executive share options without paying a proper amount of tax.

Mr. Nick Hawkins (Blackpool, South)

Does the hon. Gentleman agree with his departing colleague, the right hon. Member for Islwyn (Mr. Kinnock), that those who fall into the so-called category of the undeserving rich are those earning less than £60,000 a year—I ask the question in the light of the hon. Gentleman's recent remarks—or does he feel that the figure should be pitched a little lower than that?

Mr. Brown

The hon. Gentleman has misread the remarks of my right hon. Friend the Member for Islwyn. I talked to my right hon. Friend about those remarks on the day he made them. He never mentioned "undeserving rich". He and I have made a distinction between those who create wealth, start businesses and provide jobs—they deserve rewards for doing so—and others who under the Government have been given, because of monopoly positions or other privileges accorded to them, unfair rewards that cannot be justified in any taxation arrangements that the Government may make for them. When a millionaire can avoid paying any income tax, there is something extremely wrong with the taxation system. The hon. Gentleman should put his question to the Chancellor of the Exchequer, not to me.

Mr. James Clappison (Hertsmere)

Will the hon. Gentleman give way?

Mr. Brown

I shall give way once more and then I wish to conclude my remarks.

Mr. Clappison

I am grateful to the hon. Gentleman, especially as he has said that he wants to bring his remarks to an end.

Perhaps the hon. Gentleman will consider his overall macro-economic strategy and say something about borrowing. Does he accept the Government's approach to borrowing, or would he be prepared to accept a higher level of borrowing? Which is it?

Mr. Brown

I have said on many occasions that the aim of policy that is directed towards the public sector borrowing requirement should be to enable us to fund consumption. Investment is justified in certain circumstances, as any company or family would invest. The golden rule to which I would adhere is that consumption should be funded over the cycle by revenues. In my view, investment justifies borrowing in certain circumstances. That is a far more prudent policy than the one that the Government pursued over the 1991–1993 period. Either they misled us about the real position of the economy or they have been entirely incompetent in implementing their policies.

The executive share option issue will not go away. We heard today that Mr. Maurice Saatchi of Saatchi and Saatchi is proposing at some stage to cash in share options that would be worth about £5 million. He obviously meant it when he said words to this effect, "Don't let Labour ruin it." I refer to the slogan for the 1987 election. The tax bombshell was for others; the tax bonanza was for him.

For people like Mr. Saatchi and those in the privatised utilities, there is a national lottery that does not involve scouring the country looking for the winner. Winners are known in advance. By naming those who occupy the boardrooms of privatised utilities, we can predict with precision those who are making the millions. It is a lottery in which the participants do not win once: they win every year under the Government. Indeed, many people have been winning for 15 years. They are the happy few. Many of them are part of a band of tax avoiders under a Cabinet whose members make promises to take good care of them.

We propose that the Government should consider levying a windfall tax on utilities. The Chancellor of the Exchequer said that he would not consider the proposal in detail because he rejected the concept of a windfall tax, despite the fact that one had been imposed on the banks by a Conservative Government in 1981.

Let us consider the facts; the House should be aware of them. Utilities have made profits of £45 billion during the recession, doubling their profits. The profits of electricity units increased by 250 per cent. Profits within the water industry have virtually doubled to £1.8 billion. National Power has trebled its profits during the same period. PowerGen has doubled its profits. In the past few days, it has been reported that Northern's dividends have increased in value by 30 per cent. while Eastern's and Southern's have increased by 25 per cent. and 24 per cent. respectively. The business is so lucrative that many electricity companies are buying back their own shares and making extra payments in dividends.

Is it not obvious—

Mr. Nick Hawkins (Blackpool, South)

They should cut prices.

Mr. Brown

The price cuts will be coming from next year. We must deal with the situation that has arisen this year and last year as a result of the excess profits that have been made.

Mr. Peter Rost, a former Conservative Member, who now represents the Major Energy Users Council, said: The right course is for the taxpayer to benefit. It is right to claim back the money and use it to pay for policies that benefit the economy as a whole. He speaks for a substantial body of opinion. Artificially created profits have resulted from the monopoly position that the Government have given to industries through privatisation and their profits have doubled during the recession when most ordinary industrial companies had no profits. That should be re-examined.

The Chancellor of the Exchequer should consider the position in relation to the national grid. Will he confirm that, for the purposes of sale, the national grid was valued at £1 billion or less when it was sold to the electricity companies and that it is now valued at nearly £4 billion—some people say £5 billion—that a windfall profit will be made as a result of its demerger, that the Government have a golden share in the national grid which they should use to extract the best benefit for the country, and that the electricity companies are even resisting a scheme that would give a substantial amount of the money to their customers? Is it not right that the public should share in the benefit from the windfall profit, which has accrued not because of the companies' good management but because the Government gifted them the resource?

If the Chancellor rejects the idea of a windfall tax, let him consider the comments of Sir Geoffrey Howe in 1981, who said that the business sector—this was his justification for the windfall tax—had largely been protected from the effects of recession. That has happened in relation to the utilities because of the monopoly position. When the Chief Secretary to the Treasury argues against that view this evening, he will be arguing against Lady Thatcher's position when a Conservative Government were in power. Sir Geoffrey Howe said that profits have increased sharply, both absolutely and by contrast with the experience of most other businesses. That has happened in relation to the utilities. He said that he could not avoid the conclusion that he should require banks to make a special fiscal contribution."—[Official Report, 10 March 1981; Vol. 1000, c. 772–73.1] If it was right for the banks with windfall profits to make a contribution, it is surely right for the utilities to do so, especially when we know about the profits to be made by the national grid.

The Chancellor says that he knows nothing about the taxation benefit that may accrue, but will he confirm that, the day after the Budget, a week before his mini-Budget, the President of the Board of Trade met the electricity companies to discuss the windfall that should come to the Treasury once the sale had taken place? The Chancellor looks as if he knows nothing about it. He should check what sources of revenue are available before he introduces new taxes on ordinary people.

The Chancellor prides himself on being tough on ambulance men, tough on prison officers, hard on the people that he has been up against, including teachers, and hard on doctors; but when it comes to the utilities and to people at the very top with substantial sums of money, he is a soft touch, and the Budget is increasingly viewed as unfair.

Let us apply the fairness test to the Budget. It is clear that income tax cuts were made between 1979 and 1992 for people at the very top—the top 1 per cent. received 30 per cent. of tax cuts and the top 5 per cent. received nearly 50 per cent. of tax cuts. However, the top 5 per cent. do not pay 50 per cent. of tax rises; at best estimates, they pay only about 10 per cent. That is not a fair approach, given the substantial benefits that they received throughout the 1980s, which even Mr. Maples has been forced to acknowledge.

What is the strategy behind the Budget statement and the follow-up statement that had to be made last Thursday? It is the only strategy that the Conservative party has left for the next election. It is not an economic strategy but simply an election strategy. There are no taxes that the Government will not be prepared to increase and no suffering that they will not be prepared to impose to create the scope for what they think is the election-winning card—a tax cut next year, running into an election next year or the year after. That is how the Prime Minister in particular views the position.

Let me tell the Chancellor the facts about taxation which will confront the electorate in 1996 or 1997. In 1992, £37 billion was paid in VAT. Next year, it will be £48 billion. Despite all the promises at the previous election, the amount taken in VAT has risen by £11 billion and much of that amount arises from increases announced by the Government.

The Chancellor went to the electorate with a pledge that he would lower income tax. Let us consider what has happened in relation to income tax and national insurance. In 1992, total income tax and national insurance paid amounted to £72 billion. Next year, it will amount to £90 billion. In 1992, £57 billion was paid in income lax. By next year, it will be £70 billion. Even if the Government were able to cut the basic rate of income tax by 5p in the pound, the overall tax bill would be higher in 1996 and 1997 than in 1992 when the election was fought.

As a result of all the tax rises that have taken place, next year the British people will pay £50 billion more in taxation than they paid in the 1990–1992 period. Even a cut of 5p in the basic rate of income tax will not undo the damage that is equivalent, as the Chancellor admits, to 7p in the pound. That is why Conservatives will be embarrassed in their explanations to the electorate in the next election campaign.

When we face the next election, we will have tax rises that have been real and lasting, that have happened all the time and that have hit the many most. That should be compared with tax cuts that people will realise are token, an attempt at a pre-electoral bribe and beneficial to the few most. An election year tax cut, contrived to obscure relentless increases in taxation, year after year, will not impress the British people, especially when it is clear from what we have said today that the biggest beneficiaries of the Budget and the mini-Budget statement will be people at the top who are able to shelter substantial capital gains through tax avoidance.

Where the Chancellor could have been fair, he has been unfair. Where he could have taxed excesses at the top, he has taxed the daily purchases of the vast majority. Where he could have closed tax shelters, he has opened them up. He has taxed beer but cut tax on champagne. He has even introduced new taxation on ordinary savers but given millionaires huge windfall help. A tiny minority of the people stand to benefit most as a result to his measures.

These are not the Budget measures of a caring or competent Government. These are the Budget measures of a Government who are out of touch with the British people. The House, by its actions and speaking on behalf of the public, stopped VAT on domestic fuel rising to 17.5 per cent. It is time for the House and the people of this country to stop the Government. What the people of Dudley, West will say on Thursday, the whole country will say at the earliest possible opportunity, and the Government will go.

5.47 pm

Mr. John Biffen (Shropshire, North)

I apologise to the House and, more particularly, to the Front-Bench spokesmen, that I have an unbreakable commitment that will keep me from the bulk of the debate, including the winding-up speeches. I assure the Whip, however, that I shall be here for the vote and I shall, I hope, compensate for my bad behaviour by making a short speech.

I always enjoy these occasions, not least because my right hon. and learned Friend the Chancellor of the Exchequer clearly revels in these exchanges. He revels in that good-natured bruising, rather like Brian Clough in happier days, as he berates his opponents and even, in more hilarious moments, his friends. I thought that I should get in with an early bid for his favour by saying how much I welcome his decision to present the Budget resolutions. It would have been ill-advised to take the implied advice of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and to allow the elasticity of the public sector borrowing requirement to cope with the statistical problem.

Similarly, I welcome my right hon. and learned Friend's decision not to place any further pressure on public spending, partly because it is often an illusory gesture that only rephases public spending commitments, but also because the local government settlement this year is extremely stringent.

I should like to reflect on the unique nature of the corrigendum, as my right hon. and learned Friend called it, to the original Budget statement. It has come about because of a taxpayers' revolt. Taxpayers did not exactly take to the streets, but they nevertheless made it known to Members of Parliament in the most powerful and genuine way imaginable that VAT on domestic fuel was inequitable and challenged a great many of the inherent value judgments about our taxation priorities. That is not a wholly novel experience, because almost exactly the same thing happened with the community charge.

My mind strayed back to the happy days before the 1979 general election, when Tory policy on taxation and public spending was reinforced by the experience of proposition 13 in California, where Howard Jarvis and Paul Gann pioneered a revolt on the streets to enforce tax discipline and, subsequently, public spending discipline. The movement that we are experiencing is subtly different.

There is no doubt that the pressures being put on us are against any disturbance of our inherited tax pattern. The community charge was a new tax and the extension of VAT to domestic fuel was an innovation involving an existing tax, but it was deemed to go beyond the original social objectives of VAT, which is what I shall dwell on for a moment.

I understand that my right hon. and learned Friend the Chancellor did not have much time to manoeuvre, but he responded to last week's events by reinforcing all the old traditional taxes. We have in fact diverged fractionally from our European Union partners as a result of this exercise, but I dare say that there will not be many damp handkerchiefs on that account.

The House must recognise the disciplines on it that are implicit in the strong public reaction against further taxation, especially in certain respects. The hon. Member for Dumfermline, East (Mr. Brown) is perfectly right to take up the cudgels against the extension of VAT. My right hon. and learned Friend the Chancellor responded fraternally, but it was a bit of a custard-pie exercise. I did not think that it was altogether real politics. Is it seriously supposed that any party wants to extend VAT to food, transport or housing? The hon. Member for Dumfermline, East points across the Chamber, but I would love to know what he thinks in his heart is the difference between his conditional stance and that of my right hon. and learned Friend.

Those are bound to be conditional stances because we do not conduct our fiscal policy in a vacuum. It is conducted with the advice, guidance and nudging of our European Union partners—and with the negotiating skills of which my right hon. and learned Friend feels that he is possessed. That brings us into a genuine confrontation with our European partners, not necessarily a bitter confrontation, but one that the House must recognise. Their taxation policies proceed from quite different social and economic backgrounds from ours.

We have always had a cheap food policy. Historically, it was based on free trade, but there are now social considerations in deciding to have a zero rate on food and travel and, until recently, on fuel. We know what storms are released when one begins to disturb that social pattern. It is a matter of great anxiety for Chancellors and shadow Chancellors that their tax manoeuvres are constrained in that way, but our experience of the past few months is that they are so constrained.

There is a European context to this debate. That is not the paranoia of a Tory Euro-sceptic, but the calm reflection of someone who tries to be tolerably well informed about what is happening around and about. One cannot talk about convergence, cohesion or a single currency without accepting that they have implications for a fiscal pattern that will have broad comparability across the European Union.

I watched Opposition Members this afternoon with an almost missionary zeal and I have to ask what the parliamentary Labour party's position is on Europe, or that of Labour Back Benchers. Originally I would have said, and will still say, that they are today's Trappists and tomorrow's sceptics. There is not a significant element in the Labour party that would trade in our present taxation pattern and social objectives expressed in our low or zero rates of tax over wider areas of the Community. For them, there is no merit in that. There may not be much merit in it for many others, but it becomes politically impossible to put taxes such as VAT on food, travel and housing if it is seen as part of a deal inspired by external agreement and force.

Dr. John Reid (Motherwell, North)

Surely the real comparison is not between the United Kingdom and other countries, but between the total taxation levied on the typical individual or family in Britain when the Government came to power and that levied 15 years later. As my hon. Friend the Member for Dumfermline, East (Mr. Brown) constantly points out, despite the fact that a central plank of the Government's programme was to reduce taxation, the average share of the typical family's gross income that goes in tax has gone up in 15 years from just over 32 per cent. to 36 per cent. That is the real comparison.

Mr. Biffen

I am happy to acknowledge the underlying shift in public spending that has occurred under the Conservative Government. I suspect that the hon. Gentleman will find that roughly the same has happened in other western European countries, because in many ways they have exactly the same social characteristics as us. They have the same population structures and the same demands from the elderly and the young, which all make for a powerful spending base for the Government.

My point is that we have come to finance that spending in accordance with our past social and economic judgments as to what were acceptable balances of taxation. We shall not find it easy to move away from that which will inevitably bring us into conflict with other economies that have different taxation patterns but which requires movement on our part in the light of common commitments within the European Union.

My thoughts on the matter were given a particular focus by The Times on Monday. At the Essen summit meeting, Mr. Kohl said that the Prime Minister's Euro-sceptic critics would be swept away by the wind of history, as they deserve". It is nice to be told to hitch up one's Lederhosen and get marching into the future, but it is not like that. The social and economic judgments that have created our tax policy and structure came about because our constituents put pressure on their Members of Parliament who, in due course, determined the system that we now have. It is not one that can be easily mortgaged to outside interests, and nor should it be.

5.58 pm

Mr. Malcolm Bruce (Gordon)

I always enjoy following the right hon. Member for Shropshire, North (Mr. Biffen), whose contributions are nothing if not individual. However, it is important to put it on record that this particular tax change was an entirely self-inflicted wound for the Government and did not originate in Brussels.

It is extraordinary that the turntable has revolved to such an extent in two weeks. We were told initially that the extension of value added tax on fuel was absolutely crucial to the Government's Budget requirements and that the £1.5 billion revenue that it would raise was irreplaceable but, within a fortnight, the Government came up with alternative measures and settled for almost half of what they had said was absolutely essential. They have settled for £750 million to £800 million instead of £1.5 billion.

We were also told that if the House of Commons were so foolish as to vote down the extension of VAT, it would have a catastrophic effect on interest rates, which would rise by 2 to 3 per cent. The Chancellor may, of course, have been simply trying to protect himself from what he saw as the future effect of his current economic policy. But, so far, there is no sign that any such emergency increase is anywhere in the wind.

Indeed, the Governor of the Bank of England, giving evidence to the Treasury and Civil Service Select Committee, of which I am a member, made it clear that, as far as he was concerned, although the outcome of the vote may have affected the timing of the increase—at his request, the meeting was brought forward to 8.45 am as opposed to 9.30 am—the increase was related to the overall economic situation and his judgment of what was required at the time and had nothing whatever to do with the changed circumstances resulting from the vote.

Just for the record, it was interesting that the Chancellor indicated that he decided to increase interest rates. Of course, technically that is absolutely true, but the Governor of the Bank of England made it clear that the increase was at the Governor's request. So there may have been a slight difference in perception of exactly who was making the decision.

The right hon. Member for Shropshire, North made an interesting point about taxation and the distribution and balance of taxation, which had not been made before in the debate. The Government and the Conservative party ought to address it. When Conservative Members set out a policy of cutting income tax in 1979, many naive souls thought that they meant just that; nothing else. Some people thought that if they voted Conservative, they would pay less income tax. Hooray! Hallelujah! Reassuring speeches continued throughout the past 15 years saying that that would be achieved without any cuts in education or health. The Conservatives said that there would be painful spending cuts in general, but when it came to the specifics, Ministers were always ready at the Dispatch Box to say that social security spending was being protected, health spending was being protected and education spending was being protected.

That was, of course, a fantasy world. The standard rate of income tax was reduced, but that reduction was more than compensated for in other taxes elsewhere, which fell more unevenly and more unfairly. The intervention of the hon. Member for Motherwell, North (Dr. Reid) was more about the burden that has fallen on the average family when it calculates its total tax payment than about the deductions at source on its income.

Mr. Nigel Evans

Is the hon. Gentleman trying to say that the Government tried to deceive the electorate by saying that income tax would come down, but that any shortfall would not have to be made up from expenditure taxes? That is not true. The hon. Gentleman must remember that we fought those general elections in that period on a manifesto which said that we would switch taxes away from income tax to expenditure taxes. That is exactly what we have done.

Mr. Bruce

I seem to recall that Lord Howe, as he now is, said that he had no intention, when challenged, of doubling the rate of VAT. Of course, he was right, since it has risen from 8 per cent. to 17.5 per cent. That statement was specific. Indeed, when pressed at the last election, the Prime Minister said, in a formula that we all now recognise, that the Conservatives had no plans to increase taxes. That phrase means, of course, that they will do whatever they please as and when the time arises. However, the public have learn to understand that formula.

When the Chancellor made his second Budget speech, I made the point that he seemed absolutely determined to ensure that he got the revenue for which he settled from the most painful and irritating taxes on consumers, which they would really feel. I described that as "the politics of pique". I believe that it is just that. I find it extraordinary that the Chancellor could have found the money in other ways, causing less irritation and, indeed, less inflationary pressure, to which I shall return, yet chose not to. In fact, in his Budget, he gave away just over £1 billion in tax reductions, which he clearly decided were more urgent and more important than responding to the public demand not to extend VAT on fuel.

Certainly, quite a number of those tax changes were not urgent, or required or necessary to any strategy, public or private, which had been declared or communicated to the electorate. If the Chancellor had been in touch at all with public opinion, he would have recognised that he had room to manoeuvre, and could have made a virtue of not going ahead with the second tranche and saved the Government from the embarrassment of being defeated in the House.

I agree that the Government's defeat in the House of Commons has had a beneficial effect on the public's belief that the House, perhaps, for a change, has some real control over the Executive. However, the Chancellor has done nothing to improve the credibility of the Government, of which he is a member. Indeed, he could have retrieved a little of that credibility if he had been only a little more sensitive and a little more in touch.

The pique has gone into taxes on drink and petrol. The Chancellor tried to say that it was all the Opposition's fault. From the Liberal Democrats' point of view, all I can say is that we clearly identified alternatives which would have provided the money that he now says is necessary and which would not have caused the irritation and inflationary pressure.

When I questioned the Chancellor in his opening speech on that inflationary pressure, he said—perhaps it was an understandable answer—that the new tax changes were slightly less inflationary than the extension of VAT on fuel. My understanding is that VAT on fuel would have put 0.4 per cent. on the retail prices index, and the subsequent changes announced will put 0.3 per cent. on the RPI. However, when we are working with inflation levels of 2 per cent. or thereabouts, those increases have significant impact, which one would have thought that the Chancellor would wish to take on board.

Of course, 0.1 per cent. on the retail prices index, as, indeed, the Chief Secretary to the Treasury was telling the Treasury and Civil Service Select Committee yesterday, has an immediate effect on the uprating of social security benefits. From reading the Chancellor's statement, I understand that social security charges rise by £160 million for every 0.1 per cent. on the retail prices index. In those circumstances, I put it to the Chancellor that, if he had not sought to get that money from putting up taxes at all, he would saved himself more than £600 million in social security uprating requirements. It seems strange that he did not take that opportunity.

I want to address the particular point of the extra duty on drink. A serious industrial issue arises, which the Chancellor has acknowledged and accepted. Indeed, I welcomed his response to the hon. Member for Moray (Mrs. Ewing), which implied that he was prepared to look at the issue again to see whether there could be an adjustment in the distribution of drink taxes that would be beneficial to the whisky industry and, incidentally, I suppose, to gin makers as well. The Chancellor said on 29 November that his reason for not putting duty on drink was that he recognised the industrial issue and the concerns over smuggling. He said: No Chancellor can remain unmoved in the face of this".— [Official Report, 29 November 1994; Vol. 250, c. 1096.] Having been moved then, a week later he had moved right back again. He has put pressure on the industry in ways that most of us who have a direct interest in the health of the Scotch whisky industry cannot understand. We have distilleries in our constituencies and therefore a real understanding of the industry's difficulty in the face of tax changes, which has been acknowledged in the past two Budgets.

Wine is relatively less taxed than whisky. With the greatest respect to a few vineyards in the south of England, wine is not one of the United Kingdom's great beverages that we produce in substantial quantities and not one of our great industries. On the other hand, Scotch whisky has a global market in which we are pre-eminent. It is clearly acknowledged by the industry that its health in the home market is a major determinant of its continuing ability to sustain a healthy export market. If the Chancellor were determined to take his money from alcohol, he should have gone for the wine market rather than for the whisky industry.

I find it puzzling that the Chancellor seems to be more concerned about the sensitivities of the wine and champagne industries, which are not British—we do not make those products in significant quantities—and rather less concerned about a major home-grown industry. I hope that he will address that concern in a radical fashion, which will give the industry some confidence and optimism in its future regime.

I am not alone in that view. The Institute for Fiscal Studies, referring to that point, stated: If the relevant measure of 'sin' is the alcoholic content of the drink, then there may be an argument for narrowing the 'tax per litre of alcohol' gap between spirits, and wines and beers. This would have the added benefit of lessening the current discrimination against a largely domestically produced good. I hope that the Chancellor will consider that recommendation seriously, because it would be extremely welcome. I take his response to the hon. Member for Moray as a sign that he might be prepared to do that.

The increase in tobacco duty seems to be widely recognised as an area in respect of which there is a clear and unarguable health problem and where tax is a reasonable way of dealing with that problem. However, in the Liberal Democrat alternative Budget, we would have used the money specifically for the national health service.

We are particularly cross about the petrol tax. The Government do not seem to have a strategy for transport. The lead story in The Guardian today refers to the completely shambolic state of railway privatisation and the lack of a transport strategy. People in rural areas know that we do not have the potential for significant public transport development. As a consequence, the Government have simply increased the cost of using a car, particularly in rural areas, without a corresponding reduction elsewhere.

The Liberal Democrats believe that the Government should have cut vehicle excise duty, at least on small fuel-efficient cars. That would have reduced the tax on car ownership. As a result of that, one could have justified increasing tax on petrol so that that was a tax on use rather than on ownership. Increasing petrol tax while increasing vehicle excise duty imposes a burden with no compensation for people living in rural areas.

The Chancellor could have found the money in other ways. Indeed, I sent him a letter in which I enclosed my suggestions for raising that money. At least £600 million worth of tax cuts in the Chancellor's original Budget were unnecessary. The savings in respect of social security uprating by not including it in taxes would have been about £600 million. There were other areas where waste could have been eliminated in Departments, and that would have provided more revenue than the Chancellor has raised.

Perhaps the Chief Secretary to the Treasury would care to answer a question to which I have not received a satisfactory answer. He suggested to me yesterday that there was no way of cutting public expenditure in the current year once the Budget is set. I do not accept that it is not possible on procurement strategies, about which the Chief Secretary knows something, to say that, as the inflation outturn is better than expected, one is looking for additional savings to come back. I do not believe that that could not or should not happen.

I also want to know why the Government have done nothing about the more than £500 million that they are spending on consultants when the civil service analysis suggests that they have produced only £10 million of material benefit. That is clearly an area in respect of which there is identifiable waste inside and outside the Government.

For the benefit of the House and the Chancellor, I say that Liberal Democrats accept the need for a disciplined approach to budgeting. The Chancellor wanted to know what level of borrowing is acceptable and whether it was too high or too low. We have been working on the convergence criteria as a reasonable base to work towards. Three per cent. of gross domestic product is about £22 billion.

When we approached our budgetary exercise this year, we were quite clear that as the public sector borrowing requirement was well above that level, we could not justify an increase in borrowing and our Budget was calculated within that framework. I hope that the Government will acknowledge that we have accepted that discipline and that we have included it in our calculations. As the finances improve, we shall be able to select different priorities and people will be able to debate the choices. However, in the present climate, the Government have left us with very little room for manoeuvre, although I believe that we have found some quite creative ways of manoeuvring.

In his response to me the other day, the Chancellor said that our suggestion for taxing benefits in kind that are paid to employers on employers' national insurance charges was administratively impossible. I have checked that and, frankly, the Chancellor was talking absolute nonsense. That is a perfectly routine matter.

The Chancellor knows perfectly well that, as the threshold has never been increased in living memory above £8,500 a year, and as form P11D is required for everyone who earns more than £8,500 a year, it is simply a matter of ensuring that benefits in kind are declared and that the tax is calculated. It is nonsense to suggest that that cannot be done.

The Government have rushed into a situation where they simply did not need to create such pain. They have caused the maximum amount of pain for the minimum amount of gain. That is a rather churlish exercise, which I believe was motivated by pique. It ignores many of the arguments that the Government had previously put forward.

That point has been noted outside this place. Roger Bootle of the Hong Kong and Shanghai Banking Corporation—which includes the Midland bank—has written: The Chancellor seems to have missed a trick. He surely could have raised the necessary money without increasing excise duties at all‖thereby saving a full 0.4 per cent. on the RPI. This would have helped the battle against inflation directly and would have minimised the danger of an increase in wage inflation. In addition, it would have helped to reduce public expenditure, not least on benefits which are tied to the RPI. It seems particularly odd to target alcoholic drinks which the Chancellor ostentatiously left alone in his Budget"— except for the cut in champagne. The City, like me, believes that the Chancellor has created irritation for no purpose.

Many of us are left with the belief that the Government have acted deliberately to try to get the message across to people that they had to increase taxes and that the Opposition forced them to raise those unpopular taxes. The truth is that the Government imposed those taxes on themselves. They have created the situation for themselves. They had enough disciplined means operating within their own constraints for raising such taxes. The Government are trying to get their hands on revenue so that they can give it back to people later and hope that they will be persuaded that that is great generosity resulting from the success of a Conservative Government.

Given that the Chief Secretary has already made it clear that the tax increases of the past two years were necessary and justified because of the potential borrowing requirement of £50 billion, will he tell us what level borrowing would have to be reduced to, to justify tax cuts, or at least will he tell us what the criteria would be to determine whether tax cuts were justified?

The House and the country are entitled to expect that the Government's argument that required tax increases should be the same argument that justifies tax cuts. If the Government have not been able to create the economic performance to justify that, they should not introduce cuts imprudently for purely political reasons when the economy cannot stand such cuts. If the Government are prepared to lecture Opposition parties about discipline, I hope that they will accept the constraints that their own discipline imposes on them.

6.18 pm

Mr. Roger Sims (Chislehurst)

I preface my remarks by declaring an interest as parliamentary adviser to the Scotch Whisky Association. I shall elaborate on some of the points made by the hon. Member for Gordon (Mr. Bruce) in connection with the industry.

I have never been a great enthusiast for VAT on fuel, but given the need for additional revenue I understand why my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) felt justified in introducing it. There is a perfectly valid argument to be made for it, not least that VAT on fuel applies in most European Union countries. Of course, in the case of most goods and services which attract VAT, the consumer can choose whether to purchase them. Fuel is a necessity.

That is not an argument against imposing VAT on fuel, but it is self-evident that it would be necessary to protect from its impact those on low incomes, particularly pensioners and others on social security benefits. I was one of several hon. Members who voiced concern on that score when the VAT proposals were announced in April 1993. I am bound to say that I was astonished that the need for a package of compensation was not recognised by Ministers and announced at the time of the April 1993 Budget, or at least soon after it. Instead, it was not until November last year that detailed proposals were announced. It was not surprising, therefore, that during those six or seven months a campaign against the tax built up a substantial head of steam. The campaign was never effectively countered, with the outcome that we saw a week ago—a case, I fear, of a defendable policy poorly presented.

Despite the fact that the first stage of VAT and the first stage of the compensation package were already operative, the House decided last week not to implement the second stage. That seemed to be an illogical, if not perverse, decision. However, the decision was clear, and my right hon. and learned Friend the Chancellor was right to accept it—indeed, he could not do otherwise. He was then forced to find alternative sources of revenue, and he spelled out the various possibilities that were open to him last Thursday and, to some extent, again today, and gave us his decisions.

The increase in respect of petrol is clearly unwelcome, but it is a well established source of revenue and should procure what the Chancellor wants. The House will not be surprised to know that I welcome the increase in tobacco duty. It is also a well established source of revenue and again should produce what my right hon. and learned Friend wants. I hope, too, that it will play a part in persuading smokers to reduce their consumption and in dissuading those who might be tempted to take up the habit from doing so. I am particularly concerned about the incidence of smoking among young girls.

If people choose to smoke, they should be free to do so, provided that they do not cause offence to others. However, given what we know of the effects of smoking, it is surely the duty of Her Majesty's Government to take every possible step to discourage the habit. It is clearly established that price is a factor, especially among the young.

Mr. Ottaway

My hon. Friend says that smoking should not be encouraged and refers to its detrimental effect. He says that the Government should intervene where relevant. I hope that my hon. Friend will not go as far as consultants at the Mayday university hospital in Croydon, who refuse to treat patients who habitually smoke. After all, they are civil servants whose duty is to serve the community and not to dictate the terms on which they are prepared to do so.

Mr. Sims

My hon. Friend the Member for Croydon, South (Mr. Ottaway) tempts me on that issue, not least because the Health Select Committee, of which I am a member, is currently considering priority setting and where funds should be most appropriately used. Much as I would like to launch into a dissertation on that interesting matter, you would rightly rule me out of order, Madam Deputy Speaker, but I certainly would not endorse the action that my hon. Friend has described.

Mrs. Lait

As my hon. Friend knows, I share many of his views about a policy of high taxation acting as an effective deterrent against smoking. Will my hon. Friend share his thoughts on the availability of cheap cigarettes, particularly to the young market, through illegal importation? Does my hon. Friend agree that that undermines our policy of high taxation?

Mr. Sims

Naturally I do, and I am very concerned about that matter. It must be tackled. We cannot let it continue. There are various other ways in which Government policy could reduce the incidence of smoking. For instance, I would like a more robust approach to tobacco advertising. Again, however, if I launched into that subject, I might try your patience, Madam Deputy Speaker.

The increased duty on alcohol is far from welcome in any quarter. Indeed, the reasons for that were spelt out by my right hon. and learned Friend himself in his original Budget statement. There is no doubt that the increase will exacerbate the problem of cross-channel traffic in alcohol, especially beer, and it will have an adverse effect on brewers and on off-licences. For the reasons that I have given, I am especially concerned at the effect of the increase on the fragile home market for whisky. That was recognised by the Chancellor in the past, by freezing the duty at existing levels in the previous two Budgets, but his present proposal to increase the cash differential between spirits on the one hand and beers and wines on the other can only harm the whisky industry.

The proposal will also affect European markets at a time when minimum rates in the Union are being discussed. We want to persuade our European partners to reduce discrimination against spirits. As the hon. Member for Gordon said, Britain is a large producer of spirits, whereas our European partners are wine producers. Increasing rates on spirits must surely weaken our Government's negotiating position.

Similarly, in overseas markets the Scotch whisky industry is constantly trying to overcome the high barriers of domestic duties which are erected against imported spirits and urging that they be reduced. How much more difficult its case will be made when our own Government increase the domestic level of duty on spirits.

Will the measure produce the increased revenue for which my right hon. and learned Friend the Chancellor is looking? The reason for freezing the level a couple of years ago was that the duty had reached the point of diminishing returns. After the 1992 uprating, the total Treasury take on whisky declined by £80 million. Last year, the duty remained unaltered, and that produced an extra £45 million, although it is still below the 1991 level.

The Treasury must be aware that whisky is a particularly price-sensitive product. Will the increase in duty produce any revenue gain at all? Certainly, I doubt whether it will do so to the extent that my right hon. and learned Friend hopes. Perhaps in winding up the debate my right hon. Friend the Chief Secretary will tell us what the Treasury forecasts as its yield from the increased duty on whisky and whether those expectations are well founded. The last time the duty went up, receipts went down. Why should that not happen again?

At 10 o'clock tonight I shall support my right hon. and learned Friend in the Lobby by voting to increase the tax on petrol and tobacco for the reasons that I have given. However, I fear that he is wrong about alcohol. First, his proposals will damage the whisky industry; secondly, they will weaken our negotiating stance in Europe; thirdly, they are unlikely to produce the revenue that he requires.

I have been critical of several of my hon. Friends who were sent to Parliament—as I was—to support our party, our Prime Minister and our Government and who chose to withhold their support for one or two specific matters despite being well aware of the possible consequences of their actions, on which I need not elaborate. I have no intention of being so self-indulgent: I refuse to put my Government at risk simply because I have doubts about a specific issue.

I shall follow my right hon. and learned Friend into the Lobby when we come to vote on the increase in tax on alcohol, but I shall do so with a heavy heart as I believe that it is a step which will prove to be ill considered both in principle and in practice.

6.31 pm

Mr. D. N. Campbell-Savours (Workington)

My remarks will be brief. I hoped to intervene during the Chancellor's speech, but he would not give way.

I think that Ministers of the Crown are completely out of touch in their handling of the increase in tax on tobacco and I think that they have made a major error of judgment. The right hon. Member for Thanet, South (Mr. Aitken) has some experience in his constituency of the matters to which I shall refer.

It is assumed that the increase in tobacco tax will reduce consumption. However, I argue that it will increase, for the reason given by the hon. Member for Hastings and Rye (Mrs. Lait). She is absolutely correct about what is happening in the marketplace. The reality is that one can buy black market cigarettes in any town in the United Kingdom. A huge secondary market has developed in cigarettes costing between £1.50 and £1.80 per packet or 15 per carton.

In Workington one can buy as many black market cigarettes as one wants. They are freely available, and the situation is the same all over the country because of the current tax regime. I do not smoke, so I shall not purchase black market cigarettes; indeed, even if I did smoke, I would not purchase them because I would be cheating the Revenue. Nevertheless, black market cigarettes are available anywhere in the United Kingdom because of the difference between the retail price of cigarettes and the price charged by black marketeers who sell them at substantially reduced prices.

It is wrong to assume that all cigarettes sold on the black market are imported cigarettes. Most of the cigarettes that are sold on the black market in the United Kingdom are made in Britain. All the major brands are available. One can purchase black market cigarettes from pubs, shops and social clubs in all parts of the country.

As a consequence of that thriving black market, the price of cigarettes will fall. The people who want to smoke—including young people—will purchase black market cigarettes. The Budget will not raise revenue in the way that the hon. Member for Chislehurst (Mr. Sims) imagines; it will reduce it. More cigarettes will be made available to young people at a lower price. Clearly, the Government have not taken that consequence into account.

Smokers—the people we are trying to target for health reasons—recognising that they will have to pay more for cigarettes each week, have a reason for finding and purchasing black market cigarettes. If the measure is carried, the Government can do nothing to prevent that development, except intervene in the area of smuggling. People are entitled to bring large numbers of cigarettes into the country, but many re-sell them within the United Kingdom.

The Government should start by looking at any United Kingdom port—such as Edinburgh, Newcastle and Hull—which trades with European ports. They are all routes by which large numbers of cigarettes are imported into the United Kingdom. People travel to Europe, fill their vans with cigarettes and return to the United Kingdom to sell them on the black market. Only last week in Wales some people were prosecuted for importing large numbers of cigarettes on a very organised basis—they were clearly running a business.

Many shopkeepers in the United Kingdom sell cigarettes, tax paid in full, across the counter. They, too, will suffer because their revenue will fall as a result of the Government's measure. We do not require extra technology to deal with the problem. The Government are mad if they are prepared to reduce the number of customs officers when hundreds of thousands of people are coming through British customs carrying cigarettes far in excess of their own requirements. In effect, the Government are inviting black marketeers to enter the market.

We should consider what has happened in other countries where high prices have created product shortages. In the Scandinavian countries, high prices for spirits led to the development of a black market in home-produced "hooch". In the end, those countries were required to liberalise the market and reduce duties and internal taxation so that the legitimate internal market in spirits and beer could take off. The Government's Budget measure will have unintended consequences, and that is very wrong.

The answer is harmonisation, but, due to the principle of subsidiarity, there are varying views as to whether it can be applied in these conditions. There has to be harmonisation of the tax regime for cigarettes throughout the European Community. That will mean a substantial increase in the rates of taxation in other European countries, but Ministers have a duty to press for that.

In the meantime, the Government must act to protect local retailers, who will lose business. They must also act to protect young people, who may be drawn into smoking as a result of the reduction in cigarette prices that I believe will occur throughout the United Kingdom.

6.39 pm

Mr. Richard Ottaway (Croydon, South)

I agree with much of what the hon. Member for Workington (Mr. Campbell-Savours) said about health, although not with his political arguments. I share his concerns about the dangers of young people being lured into smoking. That is a non-political view that hon. Members on both sides of the House share.

The pre-Budget submission that the Confederation of British Industry made to the Government was entitled, "kecovery in progress: do not disturb." That headline was appropriate before the Budget, was reflected by it and is still a good summary of the current state of affairs, despite the political upheavals of the past few weeks.

With unemployment of 11 per cent. in the south-east compared with 9 per cent. in the Rhondda valley—I thought that it would be a long time before a Conservative Member of Parliament for the south-east would be saying something like that, but there it is—in constituencies such as mine we are only too keenly aware of the need for a sustained recovery, which will lead to a rise in living standards.

While we want to encourage that sustained recovery and ensure that it is maintained, it is essential that we do not allow it to turn into a boom that is followed, as night follows day, by a bust. There is a danger of that happening.

The economy is showing the most superb set of performance figures. Underlying inflation is 2 per cent., which is its lowest level for a generation, especially over a sustained period. We all know that inflation is the enemy of investors—both commercial investors and the elderly person with savings trying to live off fixed interest. Inflation is the danger to them all. It is a credit to the Government that they have managed to get inflation down to their target. They set a range of between 1 and 4 per cent. and expressed a preference for getting it in the lower half of that bracket. The figure is wobbling on the edge of the bracket, but let us hope that the Government can keep it on target.

The OECD confirmed the second good set of performance figures—this year, the United Kingdom economy is predicted to be the fastest-growing major economy in the European Union. That should come as no surprise when one studies our export performance. One of the most exciting aspects of this recovery is that it is export-led. How many times have we had booms when all the surplus money generated simply went in house price increases and was wasted unproductively? This time, exports are leading the way and house prices are fundamentally stable. Our exports to the European Union are up 17 per cent. on a year ago, while the economies of the other member countries grew by only 5 per cent. It comes as no surprise, therefore, when commentators say that we are closing the trade gap.

It is also fair to say that inward investment is transforming our industrial practices, as ideas and concepts are imported from overseas to make ours a more efficient and productive economy.

Perhaps privatisation is a controversial subject, but it has been a fundamental success and is very much a part of our economic revival. As the Opposition are constantly saying, "That's not true," we must consider how we achieved it. Throughout the 1980s, productivity grew faster here than in any other European Union country. Since 1979, investment in plant and machinery has risen by 54 per cent. and business investment by 35 per cent.—

Dr. Reid

Growth was slower.

Mr. Ottaway

If the hon. Gentleman is patient, I will get to that issue in a moment.

Against that background, one is tempted to argue, "If it ain't broke, don't fix it." The Budget largely did that and it reflected the views of the CBI, with one notable exception. The measures contained in last year's Buclget show signs of fulfilment. The aim this year—rightly—is to continue the reductions in public expenditure that have partially been achieved by the tight control of inflation, while ensuring that public expenditure continues to decrease as a percentage of gross domestic product. This afternoon, the Chancellor put that succinctly when he talked of "filling the gap."

The net effect is a welcome and continuing decline in the public sector borrowing requirement, which is projected to go into surplus by the end of the decade. Given the way in which forecasts have constantly been beaten, and the growth in the economy, I predict that in his November 1996 Budget the Chancellor will be able to forecast a nil PSBR for 1997–98. Then, the challenge will be to start to reduce the national debt.

After all, the relatively small size of that debt has given us a competitive advantage over our rival economies, both in Europe and the world. As we have to pay a relatively small amount of interest each year, we have been placed in an enviable position when compared with other economies. That, coupled with the strong emphasis on private pensions that was brought about by the reforms of the past decade, means that we will be paying out much less in pensions to an aging population than other countries. Those two factors give us a highly competitive edge and bode well for the future.

I do not need to remind the House why we are here. Obviously, most people would demur when asked whether they supported the introduction of new taxes. If we carried out a survey on whether to introduce income tax, I am sure that the country would be emphatically against it. No one likes new taxes, but, as Oscar Wilde reminded us, the only two things in life that are certain are death and taxes.

We debated value added tax on fuel in two Budgets and on other occasions. My only concern was whether the people least able to pay would be unable to do so. Once the package of compensation for the unemployed, the old and those on low incomes was established, however, I had no personal quarrel with the increase. As the people with the largest houses would be the hardest hit, the proposal struck me as one that might have come from the Labour, rather than the Conservative, party.

What puzzled me about last Tuesday was the fact that the introduction of the second tranche was ultimately brought down by Members who voted for it on other occasions and I regret the fact that those Conservative Members involved seem to have an alternative agenda that has little to do with protecting the elderly and more to do with disrupting the Government. As the Conservative party braces itself for what I suspect will be a massive by-election defeat in Dudley, I hope that those Members will realise what they are doing to one of the oldest political parties in the world.

Mr. Campbell-Savours

Why does not the hon. Gentleman look at his hon. Friend the Member for Northampton, North (Mr. Marlow)?

Madam Deputy Speaker (Dame Janet Fookes)

Order. I remind hon. Members that the hon. Member for Croydon, South (Mr. Ottaway) was correctly looking at me, the person to whom he was addressing his remarks.

Mr. Ottaway

I am aware of the presence of other hon. Members in the Chamber, Madam Deputy Speaker.

I have no quarrel with the Chancellor's decision to make up the shortfall in funding by introducing excise duties, on which we will vote tonight. We have a growing problem with cross-border smuggling and I welcome his anti-smuggling proposals. He was right not to increase the duty on wines and spirits in his original Budget. His forced decision to raise that duty will do little to help the drinks trade, especially in the south-east of England.

During his short statement last week, my right hon. and learned Friend the Chancellor said that the introduction of excise duty on smokers would be a healthy deterrent. In my intervention on my hon. Friend the Member for Chislehurst (Mr. Sims), I asked whether it was appropriate for the medical profession to decide whom to treat. A serious problem at the Mayday university hospital in Croydon is a matter of some concern to me. If the duty is to be a deterrent, what do we say to drug addicts or alcoholics? We must remind ourselves that those who refuse to treat people who habitually smoke are there to serve the community, and not to dictate the terms on which they do it. I shall return to the motion before the House.

The decision of the Chancellor of the Exchequer to raise interest rates by 0.5 per cent. was particularly interesting. He was quite right to do so to maintain confidence in the global markets. Statements from the Chancellor and the Bank of England suggested that the rise was likely to happen anyway. It did, however, have a noticeable steadying effect on the markets, which have remained particularly stable in the aftermath of the decision of the House on Tuesday.

I found the Opposition's statement that the increase in interest rates was a major blow to the economy most concerning. One can only assume that if they had been in a similar position, they would not have introduced that interest rate increase. How they can reach that conclusion is beyond me.

Mr. Campbell-Savours

We would not have been in that position.

Mr. Ottaway

Is the hon. Gentleman saying that he would not have introduced an interest rate increase?

Madam Deputy Speaker

Order. There is a good reason why I deplore seated interventions.

Mr. Ottaway

I am happy to give way to the hon. Gentleman if he wants to say what he would have done. As I thought, he has nothing to say.

It is perfectly obvious to a moderately well-informed observer such as myself that inflation pressures are stoking themselves up in the economy. With output growing by 5.9 per cent., the dangers of those pressures reappearing are always close to the surface. It is possible that the Labour party believes that inflation is licked and that it does not have to bother about it. That would be to defy history where, in any economic cycle, inflation will rise and fall.

Confidence is growing, but employers are also complaining about skill shortages. The warning signs are clear for all to see. In my constituency, I recently received a report that the price of paper had risen by more than 20 per cent. in the past four months, and there was strong evidence that paper suppliers were acting in unison to force up the price.

Mr. Andrew Smith (Oxford, East)

indicated assent.

Mr. Ottaway

The Opposition spokesman, who frequently speaks a lot of sense, nods in agreement. Why, therefore, did he say that the interest rate rise was a danger to the economy?

The Governor, who has by far the best access to data in the economy, firmly believes that there are inflationary pressures. Under the circumstances, it would be plain folly not to raise interest rates as a warning shot to the economy.

The most depressing thing has been the lack of concise proposals from the Opposition. The Chancellor asked the hon. Member for Dunfermline, East (Mr. Brown) a simple question this afternoon—did the hon. Gentleman think that the Chancellor's expenditure and taxation plans were too high or too low? My right hon. and learned Friend got no reply.

The President of the Board of Trade put a similar question to his opposite number, the right hon. Member for Copeland (Dr. Cunningham), during the Budget debate last week. The reply was that the right hon. Gentleman could not say what the position would be in three years' time, so how could he say what the Opposition's economic proposals were? That was a perfectly reasonable position to take. However, the question my right hon. and learned Friend asked this afternoon was whether the hon. Member for Dunfermline, East thought the Government's figures were too high or too low. It is a sign of the paucity of arguments from the Opposition that the hon. Gentleman was unable to respond to that question.

The nearest we have seen to sound policy from the Labour party has been the Commission on Social Justice, which was set up by the late John Smith as a blueprint for a new economic strategy, no doubt designed to entice the middle-class voters the Labour party needs to win an election. It is a curious document, strong on rhetoric and weak on remedies. Not unsurprisingly, it attacks the Government's policies of cost-cutting, deregulation and privatisation, although I fail to see how that squares with the party's intention to scrap clause 4. The Labour party will have to try harder to convince my constituents when they argue that the reforms of the 1980s have made the economy less efficient.

The document makes the plea—often repeated by the hon. Member for Dunfermline, East—that our alleged economic failure has been due to a lack of investment. The flaw in that argument is that investment has not been particularly weak. From 1960 to 1990, investment in machinery and equipment as a percentage of GDP was well ahead of that of America and Canada, and only marginally behind that of Germany and France. Britain's investment shortfall is due mainly to exceptionally low levels of housebuilding. It is the quality, and not just the quantity of investment that matters. One need only look at the rusty investments of the steel industry in the 1970s to have that point underlined.

Finally, there is the question of what the Opposition would do to stimulate investment if they were in power. There are several ways in which they could do this. I can imagine a Labour Government proposing direct Government intervention by renationalisation, or another similar proposal.

Mr. Campbell-Savours

No.

Mr. Ottaway

No? Fair enough. A Labour Government could offer tax incentives to industry.

Mr. Campbell-Savours

Yes.

Mr. Ottaway

They could cut corporation tax.

Mr. Campbell-Savours

Yes.

Mr. Ottaway

Finally, they could encourage savings and discourage consumption. It is interesting that the Borrie commission rejected the final three proposals, and the only one which it was prepared to look at was renationalisation.

Mr. Campbell-Savours

We are the Labour party.

Mr. Ottaway

I know—

Madam Deputy Speaker

Order. I do not expect to have to remind Members twice of the same fault.

Mr. Campbell-Savours

On a point of order, Madam Deputy Speaker. I am sorry to intervene, but there must be a little give and take during a debate. You are excellent in the Chair, but I would ask for a little flexibility, as I am not in any way being discourteous to you.

Madam Deputy Speaker

We simply cannot conduct a debate on the basis of cross-Floor arrangements, simply because it is very confusing. At the very least, Members ought to think about the Hansard reporters.

Mr. Ottaway

We are deeply indebted to the Hansard reporters, and I apologise for the rapport that the hon. Member for Workington and I have been generating.

The point that I was trying to make was that, of the four proposals extolled by the Borne commission, the one it was most prepared to look at was renationalisation. As the hon. Member for Workington said—improperly, from a sedentary position—"We are the Labour party." He was implying that the Borrie commission was not binding on him. The Opposition have said that on a number of occasions, and that is fair enough.

If the Opposition want to have any chance of winning votes in the south-east of England and in the midlands—the battlefield of British politics—I suggest that they leave the commission proposals as a consultative document and not look at them at all. Otherwise, they will make absolutely no progress.

Mr. Campbell-Savours

I thank the hon. Gentleman for his advice.

Mr. Ottaway

I am always pleased to hand out advice to the Opposition, and I hope to continue to do so. I remember an occasion in the 1980s, when the late John Smith was a shadow trade and industry spokesman and I was a fairly green Member, when I was going on about the shipbuilding industry, and he asked what I would do about it. I felt rather flattered that an Opposition spokesman should ask me for my opinion, and yet again I am pleased to give the Labour party advice.

This debate has been brought about in difficult circumstances. Like my right hon. Friend the Member for Shropshire, North (Mr. Biffen), I do not mourn the loss of VAT on fuel. The circumstances in which that loss has been brought about are regrettable, but I do not believe that either the Budget or the Government has been blown off course by recent developments.

Mr. Marlow

On a point of order, Madam Deputy Speaker. As you know, there is to be an important debate tomorrow on fisheries. I understand that it is normal for Government motions to be put down by half past two, but, as of now, no motion has been put down. Many colleagues would like to table amendments which could strengthen the Government's position. I do not know whether this has anything to do with the authorities of the House, but it would be much appreciated if something could be done to get a motion put down quickly.

Madam Deputy Speaker

My understanding is that a motion can be put down at any time until the House rises. I have no doubt that the hon. Gentleman's point will be taken on board by those more able to deal with it than I.

6.58 pm

Mr. Mike O'Brien (Warwickshire, North)

Far be it from me to intrude on private grief, but while listening to the hon. Member for Croydon, South (Mr. Ottaway) attack his unwhipped colleagues I was struck by the thought that perhaps the hon. Gentleman and many of those Conservative Back Benchers who voted for 17.5 per cent. VAT on fuel would, in due course, thank those unwhipped rebels for saving them from having to defend that policy during a general election campaign.

Afterwards, I thought the better of that, because people will remember those Back-Bench Conservatives who wanted the 17.5 per cent. VAT to be imposed on fuel and who voted for it. They will also remember those Conservative Back Benchers who, when they stood for election in 1992, advocated tax cuts, but delivered the biggest tax hike in history in last year's Budget. When they go to the electorate next time, they will have to answer the question, "Why should we believe you this time when you did not tell us the truth last time?" The Chancellor's revised Budget is better than the original one, but that is not due to his decision, but because he could not convince enough of his own Back Benchers to stay with him, so they voted for the Labour amendment. The way in which the Chancellor sought to proceed with imposing 17.5 per cent. VAT on fuel demonstrated how out of touch he is with the reality of life for ordinary people. He never really understood the depth of anger that ordinary people felt at the imposition of VAT on fuel and the reasons for it.

That public anger was compounded not only by the reality of 8 per cent. VAT on fuel and the prospect of 17.5 per cent. VAT, but by the decision of companies like British Gas to charge people with bank accounts less than those who do not have them, because that latter group pay in a certain way. That decision angered an awful lot of pensioners, as did the 75 per cent. pay increase, equivalent to £740,000, paid to one British Gas boss. Although the Prime Minister said that he too felt that that increase was unjustified, he refused to condemn it. If workers had been asking for 2 per cent. pay rises instead of a 1.5 per cent. settlement, no doubt the Prime Minister would have pronounced them a danger to the country. The 75 per cent. increase was an appalling example of bosses following the dictum, "Do as I say, not as I do."

The Chancellor does not seem to have appreciated or understood the anger in the country caused by that pay increase and the proposed VAT increase. He paid the price for that misjudgment. The Chancellor and his colleagues should now not only admit that it was wrong to propose to increase VAT on fuel to 17.5 per cent., but they should urgently implement the Prime Minister's own wish to make a law to allow shareholders to control directors' salary increases. Perhaps they should go further by allowing shareholders to reduce directors' salaries at each annual general meeting if those directors have cut jobs or failed to make the company prosper.

The Government should also intervene to put an end to the British Gas wheeze of offering cheaper bills to those who hold bank accounts. That policy penalises the poor and pensioners who may never have had a bank account and who do not want one now. Many people feel angry about that decision because of its implications for civil liberties. A middle-aged business man came to my surgery the other day and said that he did not want a bank account because he paid his bills within seven days. He wanted to know why he should he penalised in that way.

Dr. Reid

I agree with my hon. Friend that the depth of the resentment felt against the direct debit discount offered by British Gas is far more widespread than that company and hon. Members appreciate. Can my hon. Friend think of any good reason why that discount should not be offered to all those who pay their bills on time rather than just to those who pay by a particular method, which is exclusive to certain sections of the community?

Mr. O'Brien

It is obvious that British Gas aims to increase its profits at the expense of poor people and those who do not have bank accounts. That is unacceptable and the Government should take action to prevent it.

Mr. William Ross (Londonderry, East)

Has the hon. Gentleman any evidence that British Gas pays all its bills within seven days of receiving them?

Mr. O'Brien

I have no evidence that it does and I suspect that it may not.

The compensation for the 8 per cent. VAT on fuel needs to be extended. As well as his package of tax rises, the Chancellor also cut the amount of help that he is giving to pensioners to compensate for that VAT. The right hon. and learned Gentleman's bribe on Tuesday night to the hon. Member for Brighton, Kemptown (Sir A. Bowden) seems to have been forgotten. He has also cut into the compensation package that he first announced in last year's Budget and which he confirmed last week. He attempted to take away any gains that pensioners might have received, because he could not raise VAT on fuel to 17.5 per cent.

From April 1995, single pensioners will receive just 20p instead of the 50p that they had been promised. The total compensation for a single pensioner will be 70p while pensioner couples will receive £1.05. The Chancellor's claim that that will be enough to compensate all pensioners completely ignores the fact that heating costs vary enormously both according to household type and by regions. The right hon. and learned Gentleman could and should have been more generous and kept his original promise to pensioners.

Many vulnerable people will receive no compensation for that 8 per cent. VAT on fuel, which remains unchanged. Low-paid workers, who get maximum help with housing benefit, will be offered no help with their gas and electricity bills. That will leave the poorest 20 per cent. of households 85p a week, and £44 a year, worse off as a result of VAT at 8 per cent. The compensation scheme also excludes many on unemployment benefit. Households headed by someone who is unemployed will be £1 a week—£52 a year—worse off. It also fails to address properly the needs of the disabled, because those on disability living allowance will not receive any compensation.

We must ask whether the increase in taxes on cigarettes, beer and car fuel was really necessary. Surely, as hon. Members have already said, £1 billion was within the margin of error in the Budget. Not only that, but as the Chairman of the Public Accounts Committee has already said, the margin of error in previous Budgets in the past decade averaged around £10 billion. The Chancellor had his own rather large margin of error in last year's Budget. He told us then that the PSBR deficit was £50 billion and that he needed to impose VAT at 8 per cent. on fuel to reduce the PSBR over the year to £38 billion. In fact, he had his figures wrong, because the PSBR was £46 billion—£4 billion less than forecast. The estimate for the outturn this year is not £38 billion but £34.5 billion. The loss of £1 billion was therefore well within the margin of error in this year's Budget.

The current Budget forecasts also gave the right hon. and learned Gentleman plenty of room for manoeuvre. For months the Chancellor has been trumpeting an on-going trend of lower unemployment. The Red Book cites an unemployment figure of 2.4 million people, spread over a number of years. That is the normal way in which the unemployment figures are recorded and I do not quarrel with that. The Budget Red Books do not try to estimate or predict our future levels of unemployment.

The departmental budgets have been set according to that Red Book figure. For most of the Departments that will cause few problems, but for unemployment-sensitive Departments, such as the Department of Social Security, it means that, according to table 6.5 on page 119 of the Red Book, the DSS budget will increase from £67 billion to £70 billion and up to £79 billion in 1997–98.

If the unemployment rate was to fall to 2 million during next year there would be plenty of room for the DSS budget to change. It is clear that that would have an impact on the overall PSBR. The £1 billion that the Chancellor was looking for would therefore be found easily.

I accept that other things might happen, for example, that inflation or interest rates may rise. We know from evidence to the Treasury and Civil Service Select Committee that there is leeway in the Red Book for interest rate rises in the future. There may also be inflationary pressures caused, for example, by the increasing cost of raw materials. There remains enough flexibility within the PSBR, however, to meet the targets within the margin of error without raising the extra £1 billion from new taxation.

The real gap is not in the PSBR, but in the Chancellor's credibility, to which he alluded in answer to a question from the Chairman of the PAC earlier today. The tax rises have been introduced to protect the rather ragged reputation for financial prudence that the Chancellor liked to have. Last week's defeat was a humiliation for the right hon. and learned Gentleman, but it is all the greater when we remember the spectacle in the closing stages of the debate.

Then, the right hon. and learned Gentleman tried desperately to buy off his the hon. Member for Kemptown with £120 million. He did that not because he believed that it should be done—or he would have done it himself earlier—but because he had been forced into it. He lost anyway. VAT on fuel was bad politics and bad economics, and pursuing it in the Budget showed the bad judgment of the Chancellor and the Prime Minister.

The City knows that the Chancellor and his Conservative predecessors cannot be trusted on the economy. That is not just because of the Lawson boom, the two harrowing recessions or withdrawal from the ERM but because of the pre-election tax cuts which went wrong after 1987 and 1992. That is why there were feverish midnight telephone calls to the Governor of the Bank of England after the Chancellor lost the vote.

Those calls were an attempt to bring forward by 45 minutes the meeting scheduled for the following morning, so as to get an interest rate rise announced as quickly as possible. The City had to be steadied by Steady Eddie in case it started to panic because it did not trust the Chancellor. Only that meeting with Steady Eddie George, the Governor of the Bank of England, and the raising of interest rates prevented severe problems.

Ordinary mortgage payers and businesses are paying higher interest and higher taxes because the Chancellor lost last week's vote through bad judgment and his ragged reputation had to be saved. Perhaps it would have been better if the person responsible for the bad judgment had gone and interest rates had not had to rise. The other reason for the Chancellor's decision to recover the £1 billion is that he secretly harbours fears for the economy. I share those fears, and the Governor of the Bank of England sees them as great difficulties.

The economy lacks capacity. It is coming out of recession quicker than expected and that brings its own problems. The damage that has been inflicted by two Tory recessions and the neglect of manufacturing over 15 years mean that its capacity for recovery is constrained. Unless investment rises sharply the capacity buffers will be hit some time next year or shortly thereafter, and inflation will take off. The hon. Member for Croydon, South (Mr. Ottaway) was right to say that inflation has not been licked and is always there. The Chancellor knows that, and that is the reason for his decisions.

Mr. Ottaway

Why did the hon. Gentleman's Front-Bench spokesman say that the increase in interest rates was a mistake?

Mr. O'Brien

It was increased at that time because of the Chancellor's error of judgment in trying to pursue the policy of increasing VAT to 17.5 per cent. He could not even convince his own Back Benchers. The rise need not have occurred at that time.

I understand that the minutes of the meeting before the one last week between the Chancellor and the Governor will be published in two weeks. At that time, the Governor foresaw difficulty in the economy and its capacity, and pointed out that it might be necessary to raise interest rates at some stage. However, the rush and the feverish phone calls before the vote and almost immediately after it to bring the meeting forward were caused exclusively by the Chancellor's misjudgment. That is why people are paying higher interest rates.

The recoveries in Canada, Australia and the USA started before our recovery. The USA is already hitting inflation problems despite interest rate rises and despite the fact that the recession there was not as bad as ours. The economy is ill prepared for recovery and the Bank of England has accepted that. The Governor said as much in giving evidence to the Select Committee on the Treasury and Civil Service.

The Governor voiced concern about a lack of capacity in the economy and pointed to survey evidence of business men who feel that they must be operating above normal capacity. That must be taken into account. He said that delivery times were direct evidence that capacity problems might be on the horizon; that the situation had to be closely monitored; and that it was a matter of feeling our way towards our capacity limits. The Governor was clearly concerned and warned that, if there were pre-election tax cuts next year, he would have to consider or perhaps demand interest rate rises. Conservative Members should be careful about thinking ahead and saying to themselves, "Perhaps the Chancellor has tax cuts up his sleeve to be announced just before the election," because the Governor gave fair warning that he would ask for interest rises to compensate for such cuts.

The Chancellor decided to damp down the recovery, and it seems that his objective was to prevent us from hitting the capacity buffers too soon. That was another reason for him pressing ahead with his tax rises. He realises that the economic news is not as good as it appears, that there are tangible dangers on the horizon, and that he may not be able to deliver tax cuts to his Back Benchers in the next Budget. He tried to damp down the recovery in this and the previous Budget, and the new tax increases on cigarettes, car fuel and alcohol have two main purposes. The first is to protect the Chancellor's battered reputation and the second is to slow down the economy to respond to weaknesses that have been caused by the failure of Government policy over the past 15 years.

The tax cuts are unjustified, and the way in which the Chancellor decided to raise money is open to question. Perhaps he can justify tax increases on cigarettes and petrol and perhaps even on wine, but the increase on beer and whisky is worrying. The Treasury and Civil Service Select Committee recently published a report about problems in the brewing industry. Although it did not advocate a reduction in duty, it warned of the serious problems caused by imports from abroad. The Chancellor's tax gift to smugglers could have been avoided. Even if he felt that there was no margin for error in the Budget, he could at least have recognised that the increase in the tax on beer and whisky would cost jobs and increase smuggling crimes.

There was some leeway, and the damage that the Chancellor has caused to an important sector of the economy and the effect of his measures on law and order could be considerable. To say that we will be more effective against smugglers while cutting Customs and Excise staff beggars belief. If those people were not made redundant but were employed in intelligence gathering, the Government's policy would be much more credible. The one Tory who got it right was the vice-chairman of the party, John Maples, who said: The Conservatives have let voters down, they have been in government too long, are complacent and have lost a sense of direction. They fail to fulfil promises, are clumsy at implementing policy and 'shoot themselves in the foot'. Shooting himself in the foot was precisely what the Chancellor did in his Budget. The Budget and the mini-Budget are not about Britain's future, but about attempting to salvage the Chancellor's reputation and the election prospects of the Conservative party. The price of that salvage operation will be paid by families who will have to meet the extra taxes that the Government will impose in the next year and by home owners who, because of restrictions in benefit, not only feel insecure about losing their jobs but fear that they will lose their homes as well. A price will also be paid by industry, which has been ignored for much too long by the Government.

Although they do not yet realise it, the real victims of the Budget, the mini-Budget and the Budget that preceded them are Conservative Members who will for ever be tagged with promising no tax rises and then voting for them, who promised prosperity but were prepared cynically to undermine it, and who hope to win the next election, but will lose it.

7.19 pm

Mr. Nigel Evans (Ribble Valley)

I am extremely grateful for the opportunity to take part in this evening's important debate. We all know the reasons for the second Budget. Sequels never measure up to original movies and the same applies to the second Budget, but one has to appreciate the fact that we never wanted a second Budget.

I found it peculiar to listen to Opposition Members saying how dreadful it was that the Government were raising taxes on fuel to 17.5 per cent. They condemned us for doing so and said that the compensation package was simply not enough. I looked through some old newspapers going back to May 1974, which reported shocking rises in electricity prices. On one occasion there was a 30 per cent. rise and an article in the business section of The Observer of 5 May 1974 stated that a 30 per cent. increase announced in the Budget speech by Mr. Denis Healey took account only of fuel price increases of 300 per cent. on oil and 45 per cent. on coal and ignored the uncomfortable fact that the industry was already heavily in the red even before the oil crisis and the miners' strike.

During the period 1974–79, electricity prices rose on average by 2 per cent. every six weeks. Electricity prices rose by 30 per cent. above the rate of inflation, which averaged 15.5 per cent. I tried to recollect what compensation package was in place for pensioners and those on fixed incomes during those bleak days. Of course there was none. Exactly the same applied to gas bills and other prices that pensioners and people on fixed incomes had to meet because of runaway inflation.

The position is very different today. I received a letter from NORWEB dated 9 December that mentions standing charges being reduced by £1.50 each quarter—or £6 a year—from 1 January 1995. It says that that decrease, on top of the decrease already announced earlier this year, was more than enough to offset the rise in VAT. People—certainly those in the north-west—have been more than compensated for VAT increases and there is additional compensation for many people on fixed and low incomes.

The hon. Member for Warwickshire, North (Mr. O'Brien) spoke about discounts for British Gas consumers who have standing orders, but not for those who pay their bills diligently. I agree with him, and I hope that British Gas moves quickly to ensure that many consumers who pay their bills on time are not penalised simply because they do not pay by direct debit. I hope that British Gas will soon announce that it will heed the voices of many hon. Members on both sides of the House on this issue.

Mr. Mike O'Brien

I am grateful to the hon. Gentleman for endorsing my view, which is shared by many hon. Members. Has he made representations to Ministers to ensure that they put as much pressure as possible on British Gas to make those changes? Will Ministers make public statements condemning these practices? It would weigh heavily with the shareholders and directors of British Gas if the Minister said exactly what the hon. Gentleman has just said.

Mr. Evans

I have already made representations to British Gas. It is not a party political matter; I am sure that all hon. Members have made representations on behalf of their constituents. I have received many letters, particularly from pensioners who are extremely keen to pay their bills as soon as they get them. They are not used to having reminders sent, as they pay their bills on time. I hope that will be recognised quickly by British Gas.

The Chancellor talked about the various alternatives for making up the shortfall because the second tranche of VAT on fuel would not be applied. He dismissed them one by one for various reasons. He then considered the three areas where the Chancellor decided the extra revenue was to be raised: tobacco, petrol and alcohol, which are targeted in every Budget.

I must declare an interest, as I have a retail business in Swansea that sells tobacco products. I am also an executive member of the all-party beer group. I have no interest to declare on petrol.

I understand that there is a hand-rolling tobacco product called Drum, which is the third best selling hand-rolling tobacco in the country. It is not sold legally anywhere in Britain for copyright reasons, as it would conflict with another brand called Duma, but it is coming into the country in large quantities. The Chancellor was quite right to recognise that specific problem, and no extra funds were sought from hand-rolling tobacco.

I also accept that the Chancellor has decided to raise extra revenue from tobacco products because of the health reasons, which have been listed time and again in the House. That is one reason why in the past I have raised the problem of the European Community subsidising tobacco production and I hope that sooner rather than later we can eradicate the subsidy to growing tobacco in the European Community. It seems quite absurd to pay people to grow tobacco products in other parts of the European Community and at the same time to impose taxes on British consumers to deter them from smoking it. I hope that we can do something about tobacco subsidies.

Mr. Bernard Jenkin (Colchester, North)

The story that my hon. Friend tells about tobacco growing in the European Community at the European taxpayers' expense is worse than he describes, because the tobacco we subsidise is of such low quality that nobody in the European Community smokes it; it is exported to third-world countries, where it poisons the lungs of much poorer people. We buy in much higher quality tobacco from elsewhere, which adds to the lunacy of the situation.

Mr. Evans

I can only agree with my hon. Friend. I do not believe that European taxpayers' funds should support social services in Greece and other countries that are in receipt of such funds to grow tobacco. Surely we should be looking to trying to get them away from growing tobacco if it is such a low grade as my hon. Friend says and get them doing something else.

The 21/2p rise in petrol imposed in the first Budget was quite substantial and will hit many motorists, particularly in rural areas such as my constituency. I do not particularly welcome the extra penny imposed by the second Budget. I have already received my first letter from a constituent who has a transportation company, who writes that the Budget measures are causing increases of over 221p for every mile a truck moves". It is not good news, not only for businesses but for people who live in rural areas who will have to find that extra money.

I shall make the bulk of my comments about alcohol. In an Adjournment debate on 11 May 1994, I raised the problem of alcohol being smuggled into Britain from the rest of the European Community. It was a problem then and it is a greater problem now, but the duties imposed on alcohol in the second Budget are neither here nor there. A penny on a pint of beer will not greatly exacerbate a problem that already exists.

The Chancellor commented on the existing problems of which he is aware. Obviously, the penny increase is not a move in the right direction. I believe that we must direct our attention to how we can eradicate smuggling, which costs the Exchequer money and, I believe, costs jobs in the brewing industry and in the retailing of alcohol in pubs.

The indicative level that is now set on various items of alcohol and tobacco and the single European market have presented Customs and Excise with a bit of a problem. Many people return to the country with very large amounts of alcohol—not so much tobacco, but certainly alcohol—and say that they are having parties, that Christmas is coming or that there is yet another wedding in the family. Customs and Excise is hard-pushed in many instances to say that those excuses are not real, so the problem will increase if we do not address it.

The industry proposed its own solution—a massive cut in the duty on beer. The Brewers and Licensed Retailers Association produced a document called "A Real Alternative", which I found quite compelling reading. It suggests that extra revenue would come from increases in food sales and from people using amusement machines in pubs and that extra employment in pubs would lead to people being taken off the dole, as a result of which the Exchequer would not be paying out money in social services and would, over three years, raise extra funds rather than lose revenue. I hope that the Exchequer will look at those proposals again.

I heard what my right hon. and learned Friend had to say about the harmonisation of duties, but I believe in subsidiarity and wish him well in trying to encourage the French to raise their duties on beer. If they do not wish to go down that route, it will be extremely difficult to push them. The differential on duty is so large—it is seven times higher here than in France—that it will take the French a long time to reach our level. If we do not address the problem of smuggling in the short term, we may find that, because so many jobs have been lost in the brewing industry, by the time we get to harmonisation it will be extremely difficult to make up those jobs again.

David Kay, a director of one of my own brewers, Thwaites, wrote to me the other day to express his fears about job losses in the north-west. I know that everybody thinks that the problem of smuggling means that beer just comes in and stays in the Kent area. That is not so. He suggested to me that as much as 18 per cent. of the beer that is coming in finds its way to the north-west. It is not just a problem for Kent.

Mr. Mike O'Brien

I agree with the hon. Gentleman that we need to deal with the problem of smuggling, but not by adopting the brewers' proposal of a 50 per cent. cut in excise duty on alcohol. The brewers suggested that there might be a greater return to the Exchequer if that were allowed, but that would come from an increased consumption of alcohol. That would put a greater burden, perhaps, on the health service—from people with health problems as a result of the increased consumption—and on the forces of law and order. Although I am not averse to some reduction, York university suggested that one of the main causes of beer price rises has been problems within the industry itself rather than simply excise duties. A lot can still be done within the industry and a lot can be done by the Government to deal with smuggling.

Mr. Evans

I understand fully what the hon. Gentleman is saying, but the industry is not simply trying to increase beer consumption in this country, which is already high. It is saying that 1 million pints of beer a day is being imported from France and that if we could only reclaim that share for the British market it would be a substantial boost to our brewing industry. If it means that people have to make more visits to the pub instead of drinking at home the beer that they brought back from Calais, and if they drank the same amount of alcohol, they would still be spending more money. Extra people would still be employed in the pubs and, instead of being closed, pubs would remain open. I hope that my right hon. and learned Friend will look at the proposals again.

Many other measures could help pubs. I was involved in the Committee that considered the Deregulation and Contracting Out Bill, as were many other hon. Members present. We tried to save the head on a pint of beer, and to prevent extra costs from being imposed on pubs. I am delighted that the Bill was enacted, but I hope that we shall look at licensing hours generally. That is one area on which I hope that we can harmonise further with the European Community, as it is quite absurd in this day and age that some pubs, particularly where they do not affect people around them, have to close at 11 o'clock, forcing people to go out to clubs where they have to pay an entry fee. It is absurd that we have such archaic and antique licensing laws. I hope that we can look at those matters to support some of our hard-pressed pubs.

Earlier this year I went on a trip to Calais to have a look at the problem that currently exists there. I visited some of the cash-and-carries to see for myself the scale of business for people who buy alcohol and bring it back. I went to a few of the well-known ones—EastEnders, Beers R Us—which display signs all over the place showing where they are. Even Sainsbury's has opened within one of the hypermarkets in Calais, trying to encourage the British shopper to buy beer and alcohol from it.

What disturbed me most was not the consumers going around with their trolleys buying beer and alcohol, but the heavy goods vehicles inside some of those cash-and-carries, which were being loaded up with beer by the pallet load. They had offloaded their various goods in France, Spain or wherever, and were loading pallets of beer before coming back to Dover. That beer was destined not only for Kent but, as the tarpaulin suggested, Scotland, north Wales, Yorkshire and the north-west. It is finding its way all over the country. I was quite shocked to see that such a business is going on.

Yesterday's papers reported what they called "Victory for the Bootlegger". They mentioned a big surge this weekend in illicit trading, with more than 100,000 Britons flooding across the channel to Calais to buy supplies from supermarkets and cash-and-carries. They say: Since European trade barriers came down two years ago, anyone can buy limitless amounts of cheap alcohol". Ian Brading, a senior purser on P and O's Pride of Burgundy, estimates that 80 per cent. of the 4,000 people he ferried to Calais on Saturday were travelling there only for the beer. He said: On some return trips we have 50 vans, all heavily loaded. That shows the extent of the problem, which will get worse. Many of those ferry companies are putting on cheap trips to Calais to try to encourage people to use them. As part of the enticement they spell out to people the gains that can be had from taking a visit across to Calais, buying some beer and bringing it back.

A few weeks ago I went to Dover and chatted with some Customs and Excise officers. I was able to see one of their warehouses. It was packed full of drugs that they had seized and tobacco and alcohol. I talked about the problem of HGVs and of Transit vans. I understand that it is difficult to hire a Transit for the weekend in Kent because they have already been taken for that business. If people are stopped and the vehicle is seized, they think that it is far better to have a hire vehicle seized rather than one's own vehicle. Smugglers are already learning that trick. Others are bringing their Transits across, driving some way out of Dover, loading the alcohol on to a larger van and then getting straight back on to the next ferry, thus ensuring that the larger vehicle is full before driving off to another part of the United Kingdom.

Only last week we witnessed the success of a Customs and Excise operation: 28 former Yorkshire miners were arrested for smuggling alcohol and then selling it on. I believe that that is just the tip of the iceberg. In the newspaper article from which I quoted, officers suggest that for every £1 worth of alcohol that they stop at ports of entry another £9 worth is getting through. As last week's case showed, organised groups are involved, but many individuals are giving it a go, having read in the newspapers about the amount of alcohol that can be brought back to this country.

Sometimes Customs and Excise officers come across the vehicles involved after police have stopped them just outside Dover because they are overloaded. People are so greedy that they fill the vans that they have hired, or their own Transits, with as much alcohol as possible.

I saw one boat arrive at Dover and watched the passengers disembark. Customs officers stopped two Transits, both of which were packed with alcohol. One driver trotted out the old excuse that it was "for Christmas", but all the alcohol was taken out of the van. I thought that I was generous and that my family liked to drink, but either that man's family consisted of about 200 people or he was very generous indeed, and his family would remain inebriated throughout the Christmas period and probably into March.

I did not accept that excuse, and neither did the Customs officers, but they did not have anything to go on until they found a shopping list in the van. It would otherwise have been difficult for them to prove that that person had not imported the alcohol for his own consumption. I think that they are doing a superb job, and would be loth to think that their numbers will be reduced at ports of entry.

Harmonisation of alcohol duties is a possible solution to the problem: it might remove the incentive to load up in France. I also support the idea—mentioned by the Chancellor—of initiating more high-tech methods of detection, such as profiling. As the authorities know what sort of people are smuggling alcohol, it should be possible to build up a dossier and subsequently to stop them from doing so.

We should, however, ensure that customs officers remain at the ports of entry. The channel tunnel now provides an extra route for those who wish to bring in alcohol, and officers will be switched to the tunnel to deal with that problem. More people than ever will travel to France—especially now that Christmas is coming—and I hate to hazard a guess at what may happen. If 1 million pints a day are coming in now, the amount will be that much more in 12 months' time unless we ensure that enough Customs officers are provided to prevent the current widespread smuggling.

We should also support the officers who are working in the United Kingdom, visiting pubs, clubs and car boot sales where they believe that trading is taking place. Some people have an image of an Arthur Daley type who nips across to Calais, brings back a bit of booze and sells it to his neighbours. There is nothing wrong with that, they think. But the problem is much larger.

Our Customs and Excise officers should liaise more with their French counterparts, sharing information, so that they can exercise more intelligence in stopping heavy goods vehicles that they see loading with pallets of alcohol. Obviously they cannot stop every vehicle, as I saw when I watched the flood of vehicles coming off that ferry, but I think that more should be stopped. If people thought that they had more chance of being stopped, they would be deterred.

Much has been said this evening about the Budget, and the second Budget. Some hon. Members believe that we are storing up tax cuts for the next Budget and the one after that. I hope that that is true, because in 1992 I was elected as a member of a Conservative party that supported low tax rates. I hope that, as the economy grows and we have the capacity to cut taxes, we shall do so. I shall look carefully to see which Lobby Opposition Members enter tonight, for that is the clear blue water that exists between the Labour party—and the Liberal Democrats—and the Conservatives: the Conservatives believe in lower taxes.

I hope that the Chancellor will consider the specific problem of Customs and Excise. We must say no to the bootlegger's charter and the stripping of Christmas beer money from British tills—indeed, to the stripping of that money at all times of the year. We must say no to the loss of brewing jobs. We must tackle the problem head on: we cannot allow it to continue for another 12 months.

7.46 pm

Dr. John Reid (Motherwell, North)

Following the speech of the hon. Member for Ribble Valley (Mr. Evans), I am tempted to say, "The case for the prosecution rests." I have never heard such a frank confession of what the Conservative party is up to. The hon. Gentleman made it absolutely plain that the Conservatives were taking money out of people's pockets in this year's Budget in order to give it back in next year's, in tax cuts. Let me say, with all respect to the hon. Gentleman, that as we approach Christmas I would not like to be a member of his family: I can imagine his children having their pocket money stopped in October or November, so that it could be given back to them on Christmas day in the guise of a generous gift.

I have come to treasure occasions such as this. Although the Chancellor shows the normal lack of substance and clarity, there are always one or two little jewels from Conservative Members for us to preserve in our memories for future reference. We heard two such gems today from the hon. Member for Croydon, South (Mr. Ottaway), who unfortunately is not present: I assume that he has gone to rest after his efforts to explain the Government's economic and fiscal strategy.

The hon. Gentleman said, "If it ain't broke, don't fix it." That was his comprehensive analytical explanation of the Government's failure to do anything in the Budget. I must say, again with all respect, that anyone who can look at the British economy—at the scattered ruins of our manufacturing industry, the piles of bodies on the unemployment register, the death of investment in all industry and the manufacturing deficit that has piled up for the first time in our industrial history—anyone who can look at those 15 years and say, "It ain't broke" will certainly not win first prize as observer of the year.

The second little gem from the hon. Gentleman took the form of advice. He quoted not the Chancellor, the Chief Secretary or the Prime Minister, but Oscar Wilde. He said, "As sure as eggs is eggs, only two things are certain under a Conservative Government." As predicted by Mr. Wilde, one was death and the other was taxation. Out of the mouths of the sucklings on the Conservative Benches comes the truth, dripped down to us in, perhaps, a moment of weakness or a sudden surge of honesty. Conservative Members are telling the British people that, as the next election approaches, if they want a prediction about taxation they should look not to a Prime Minister under pressure or the promises of a Chancellor, especially if it is raining and they are within 100 miles of Dudley, but to Oscar Wilde.

The Chancellor of the Exchequer has managed to combine fiscal ineptitude with political crisis. He has also led the Government into the worst political defeat over three decades of any Chancellor. In the face of that defeat, and against the background of the political mire through which he has dragged his already beleaguered leader, there was no hint of an apology this afternoon. There was no remorse. There was not even the cynical recognition that one would expect of a politician of the right hon. and learned Gentleman's depth of the political damage that he has done to himself and to his Prime Minister. Perhaps he does not regret the damage that he has done to the Prime Minister, but no doubt he regrets the political damage that he has done to himself.

The Chancellor seems not to understand how far he is distancing himself and the Conservative party from the majority of those outside the House. Even I am astonished at how the right hon. and learned Gentleman can turn a fiscal crisis into a political drama. Equally, I am astonished at how far he has separated himself from the British people, including his constituents.

I was surprised to receive a copy of last week's edition of the local newspaper in the Chancellor's constituency. With the indulgence of the House—the article is pertinent—I shall read the paragraph which is headed: No sign of boom for Rushcliffe's dressmakers. It will become obvious why dressmakers are the small traders who have been selected. The article reads: The owner of a dressmaking shop which faces closure after 20 years has accused Chancellor and Rushcliffe MP Kenneth Clarke of being out of touch with his own constituency. Even the dressmakers of Rushcliffe—not generally regarded as the most revolutionary vanguard of the proletariat—are apparently being forced towards protest in the local press by their own beloved Member, the Chancellor.

I am not sure of the relationship that the Chancellor has with dressmakers in Rushcliffe or why he has lost their confidence in particular, but it is a sign of how detached the right hon. and learned Gentleman is when his local newspaper is lambasting him on behalf of small business men and women and entrepreneurs, not industrial workers. I am talking of people who produce quality goods and artistic goods that the Chancellor deems to be a part of the centre of the dynamic new economy that he is creating.

I shall explain to the Chancellor why such a reaction comes from the dressmakers of Rushcliffe and from all thoughtful people throughout Britain to his political mistake over value added tax. Rejection was led by the Labour party, but it was fuelled, supported and sustained by people throughout the country of all political persuasions or of none because the Chancellor's proposals were unjust, because they did nothing to assist economic recovery and because they went entirely against the grain of the fair-mindedness of the British people.

The Budget and the appendix before us will do nothing to resolve the fundamental problems of the economy. That brings me again to the comment of the hon. Member for Croydon, South, that the economy "ain't broke".

What are the problems to which the Chancellor should have had regard in the Budget? They can be neatly summarised as the problem of the lack growth over the past 15 years—this year's growth will bring problems in its own wake—along with trade, tax, unemployment and investment problems over the same period.

It must be remembered that the Conservative party formed a Government 15 years ago, but the Chancellor speaks as if he had only recently inherited power. He suggests that all the problems of taxation that he has inherited were written in the Book of Revelations and had nothing to do with him or his predecessors. The Government came to power promising that they would lighten the burden of taxation on the British people. They claimed that it has been levied on the backs of the people by interfering socialists and that they would sort it.

What is the result? This year, we are facing a tax burden on the typical family in Britain in 1995–96 of 36.1 per cent. of gross income. Last year it was 35 per cent. When the Government came to power it was 32.1 per cent. under the dreadful high-taxing Labour Government. The gross proportion of tax taken from the average family has increased by 4 per cent., and 4 per cent. of the original 32 per cent. is, in absolute terms, a 12.5 per cent. increase. That is the burden that has been placed on the average family. That is the result of the Government's efforts.

What was set out in the Budget to deal with the increasing burden of taxation? The Chancellor retained VAT on fuel. He was forced under pressure from the Labour party, from people throughout the country and even from his fifth column—perhaps we should call it the eighth column—to abandon the proposed increase. As I have said, he retained the rate of VAT on fuel which was imposed last year. He pressed ahead with the seven new taxes that were introduced in last year's Budget. In addition to the already record levels and proportions of income that are taken in taxation—last year it was 35 per cent.—seven individual taxes were introduced, to increase the burden on the average family by £360 a year or about £7 a week. The VAT proposals in last year's Budget will add another £80 a year to the average tax burden.

When Conservatives take the advice of the hon. Member for Ribble Valley and steal this year from Peter to give back next year to Peter, they had better take things back to where they were. They will have to return the equivalent of 7p in the pound in direct taxation. The British people would still ask, "Has it all been worth it?" A financial system cannot be worked by mirrors, but that is what the Chancellor is trying to do.

A reallocation of taxation is taking place. The Chancellor is hooked on VAT; he is a VAT addict. He stood at the Dispatch Box agonising about the decisions that he had to take to increase taxation on the purchase of goods. We were deeply moved. The right hon. and learned Gentleman would have brought a tear to a glass eye. He told us how agonised he was. If, however, he were given the choice of taking agonising decisions on VAT increases or increasing indirect taxation by 1p, he would certainly take the first course. The right hon. and learned Gentleman's strategy is to build up a war chest of direct tax cuts, the contents of which will be funded by the moneys that he has taken from the British people in indirect taxation.

The Chancellor derided some of the suggestions that have been made by Opposition Members, yet he constantly asks us for suggestions. He constantly demands that my hon. Friend the Member for Dunfermline, East (Mr. Brown) produces solutions, only to deride them. He derided the suggestion that the Government should impose a windfall tax only this afternoon. I recall that two Budgets ago he derided my hon. Friend for talking about loopholes. It emerged implicitly, and sometimes explicitly, during his Budget statement this year that the closing of loopholes has saved the Exchequer over £3,000 million. The loopholes that he claimed did not exist or could not be closed when they were talked about by Labour Members have now been closed, with a saving of £3,000 million. He claims that that is a measure of his financial prudence. The Chancellor has done nothing about taxation.

What about unemployment, the second problem? Unemployment is not only a social blight but an economic problem. By referring to unemployment's economic effects, I do not mean to undermine in any way its social consequences. Unemployment cannot be described by a graph on an economist's wall or by a chart in a bureaucrat's office. It is a living tragedy. Many of us have lived among it for a decade or more and Conservative Members are seeing the problem among their constituents and in their constituencies. In addition, however, unemployment is an economic waste.

When the Government took office, there were about 1 million unemployed people. There are now more than 2 million, despite more than 30 changes in the way in which unemployment is calculated. Even more important, when the Conservatives came to power in 1979, there were 340,000 long-term unemployed people; there are now more than 1 million.

The Government tell us that they have created more than 400,000 jobs but if we consider the number of people in employment—this shows how the statistics have been fiddled—we find that, since the bottom of the recession four years ago, employment has not increased by 400,000 but decreased by 440,000. The Chancellor of the Exchequer's genius has created a large hole somewhere in the Treasury with the disappearance of 800,000 jobs—the Government say that 400,000 jobs have been created but employment has decreased by about 400,000 according to the figures.

The Government's response to that in the Budget was a national insurance rebate of less than £10 a week. That will not begin to tackle the sort of problems faced by the long-term unemployed. We suggested a rebate of about £75 for employers who were willing to take on the long-term unemployed. The Government therefore offered nothing on employment growth, which has not increased.

What about housing and homelessness, which are not only social problems but the dynamo of the economy, especially in relation to the construction industry? No other sector of the economy would have a more catalytic effect on the rest of the economy than the construction industry.

The Chancellor's main concern during the Budget was not the fact that people were homeless and that we were not building houses but that housing benefit was out of control. Let us assume that his supposition is correct. Does not the fact that the Chancellor and his Treasury team should be surprised that housing benefit has increased because rents have gone up illustrate their naivety? Does not the fact that rents have gone up as a direct consequence of Government action explain how out of touch they are with the real world?

First, the Government withdrew subsidies on social housing, as a result of which social housing rents, especially council housing rents, went up by two, three and four times the rate of inflation. Secondly, the Government deregulated the private housing market. Thirdly, they created the economic conditions whereby the building industry was decimated. The Government prevented either private sector building or social building by refusing to release the receipts of council house sales.

Surely the Government, who are full of Adam Smith fans—the intellectuals who have studied the market and who festoon the Conservative Treasury team—should be able to work out that, if one reduces the number of houses, withdraws the social housing rent subsidy and deregulates private sector rents, the excess of demand over supply would probably lead to an increase in rents and, therefore, housing benefits. The Labour party recognised and predicted it. Its much maligned non-marketeers predicted exactly would happen.

The Government's solution in the Budget is not to build more houses, to reduce the imbalance between supply and demand or to create a catalyst in the economy by allowing local authorities to build more houses, but to penalise the victims of high rents who are suffering from deregulation of the private sector and the dearth of housing in the first place. Those people are the homeless, the about-to-be homeless and those who depend on Government benefit in the first place. It is a scandal of the first order.

Today, we had yet another budget opportunity and yet another opportunity was lost. Today, the Chancellor could and should have introduced a system of fair taxation. He should have ended tax abuse. The Government told us that there is no public interest in that or any flagrant abuse of the system on the same day as one member of Saatchi and Saatchi stands to benefit by £5 million from a share option system. The Government have a great deal of work to do to convince the British public. We should remember that Saatchi and Saatchi has presumably been paid £5 million for its tremendous foresight in declaring that, if any party other than the Conservative party were elected, we could expect tax rises. That failure of foresight while reaping the benefits of a £5 million share option only adds insult to injury.

The Government should have diminished tax privilege, abolished the tax on fuel, introduced measures to tackle unemployment and encouraged local authorities to build homes with capital receipts by phasing them in. The Government should have reformed the benefit system to encourage employers to take on long-term unemployed people and introduced a meaningful national insurance rebate. They should have changed the 21-hour rule for the long-term unemployed. They should have offered incentives for that.

The Government should have followed the policy of incentives for action and investment proposed by Labour. They should have discussed, proposed and thought about new, improved initiatives for public-private partnership. They should have tackled the real challenges and opportunities for the Post Office by developing commercial freedom in public ownership. I think that the hon. Member for Ribble Valley said that he received a letter from Norway.

Mr. Nigel Evans

NORWEB.

Dr. Reid

I beg the hon. Gentleman's pardon. At least we all have the satisfaction of knowing that we paid for the postage on the letter. Presumably he received it yesterday, but he said that it was dated 9 December. Even at the peak Christmas season, the Post Office—that efficient, publicly owned service—is delivering letters to Conservative Members within three days. If "it ain't broke", why did the Government want to fix it? Why could they not develop commercial freedoms and allow the Post Office to live in balanced public ownership but with private investment?

The Government should have introduced proposals to help small businesses, to promote innovation and to improve regional investment. There was none of that in the Chancellor's speech and he has had not one but two goes at it this year alone. There is nothing constructive in the proposals. I return to the quotation to which I referred earlier—that jewel from the hon. Member for Croydon, South, who said, "If it ain't broke, why fix it?" That little gem was an attempt to justify what effectively has been a do-nothing Budget or, certainly, a do-nothing-good Budget.

In my previous speech, I mentioned that this was, in a sense, a Government in waiting. I said that the Foreign Secretary was waiting for his blessed retirement, that the President of the Board of Trade was waiting for the call and that the Secretary of State for Employment was waiting for his opportunity. That is how they have appeared throughout the whole economic shambles, paralysed by inaction and inventing a new ideology based not on Oscar Wilde, who was mentioned earlier, but probably on Dickens—a Majorism-Micawberism based on the principle that something will turn up. However, nothing has turned up or is likely to turn up. If the Government continue to wait, they will become the only Government in history to have stayed a Government-in-waiting after they have been elected.

The Government may wait but they will not suffer the effects of their inability to act and their lack of strategy and economic foresight. Nor is it Conservative Members who will suffer because they are guaranteed an income for as long as the Government continue in power—but no longer. The people who really suffer are those outside, not only the unemployed, the homeless and the socially deprived but the business men and women who are prepared to play their part by risking and investing their labour and their time if the Government were prepared to do the same.

Those people are being let down by the Government more than the House has been let down. For as long as the Government continue on that path, those people will ultimately be the judges, and I very much doubt that their judgment will be other than the harshest when the time comes.

8.10 pm

Mrs. Jacqui Lait (Hastings and Rye)

I listened to much of the debate on the Budget last week and the week before and to most of the debate this evening. The dominant impression that I received is that our public finances are in apple-pie order, so we can spend every ha'penny that we can get our hands on, a notion exemplified by many of the Opposition's contributions tonight. The Liberal party's spokesman, the hon. Member for Gordon (Mr. Bruce), seemed to think that we had plenty of money and he was planning to spend it on a range of usually woolly Liberal ideas. In fact, we have heard a list of ways to spend money that we do not have.

Only when we can make it clear to the Opposition parties that the whole purpose of the austerity that we have had to inflict in the past couple of years was to ensure that our economy grows and becomes a good solid basis for expansion will we be able to achieve what we happily admit is our goal—to cut taxes so that people have more choice as to how they spend their income. That is what we are all working very hard to achieve.

It was interesting to learn that the hon. Member for Dunfermline, East (Mr. Brown) clearly cannot differentiate between the increased income that is derived from income tax and value added tax in an expanding economy and increased rates of tax. That would disturb me greatly if he had any pretensions to becoming Chancellor of the Exchequer.

The hon. Gentleman set out to describe the perfect entrepreneur to be rewarded through our economic system. He said that it should be a man of vision, someone who creates jobs, is successful and who exports. He described perfectly Maurice Saatchi who, with his brother, set up and for many years ran the most successful advertising agency in the world. It went through a bad patch but has now recovered and that man should be rewarded and be able to reap the benefits of his own skills. That the Opposition are still censorious about such achievements gives me great cause for concern and reminds me of the famous saying about the Bourbons to the effect that they have forgotten nothing and learnt nothing.

One of the great strengths of the Budget this year and last year was the determination to ensure that inflation should never again ruin our economy. It has paid off. We have very low inflation and, consequently, an expanding export market and a recovery that many of us could only have dreamed of. The conditions are now parallel to those which allowed the German economy to become one of the strongest in the world after the second world war and the deutschmark to take over the dominant role in world trade once occupied by the pound. We have managed to create those conditions in the United Kingdom.

It was interesting to learn that at Essen at the weekend one of the Commission's officials said that, should we ever wish to adopt a single currency, on current projections only two countries would make it—one was Germany and the other was the United Kingdom, and our finances are in better nick than the Germans'. We have created the right conditions and we must hang on to them.

We must encourage our manufacturing and export sector. Many of our services also make a great deal of money from exports and should not be deprived of the opportunity to do so. We must ensure that that sector drives our economy and continues to keep it on course.

In the past, any expansion in our economy has come through the housing market. We have driven up housing prices and the demand for consumer durables, which have had to be imported. We have thereby drained any strength from our economic recovery. Sad and difficult though it might be, the housing market remains depressed. There are many reasons for that, but one that is rarely dealt with is the fundamental change in demography, which will in the long term ensure that house prices remain steady.

We have an aging population and most of us own our own homes. There is no longer such a demand for housing to buy. When parents die, the family house is no longer occupied and owned by the children, but goes on the market for sale and resale, thereby meeting the existing demand. That demand matches supply, so there will not be a significant increase in house prices for a long time. That may be difficult, but it is as it should be. It is another factor in the effectiveness of the German economy.

I am conscious of the fact that this is the second time that I shall have detained the House on the same topic, but smuggling concerns me greatly. I shall try not to repeat what I said in the Budget debate or what some colleagues and Opposition Members have said about it. I understand entirely why the Chancellor had to do what he has done but, as someone said on the radio, we have given smugglers a pay rise. I shall consider the issue under three headings.

First, I clearly have a constituency interest in smuggling. Any Member of Parliament with a constituency on the south coast who denies that there is a problem with smuggling is not in touch with his constituents. As hon. Members have said, smuggling extends beyond the south coast, but it is having an adverse effect on many small businesses there, some of which have been struggling to keep going.

The second reason why I am so concerned about smuggling is that it undermines the rule of law, and the third is related to health. Let me cite some examples, other than those that we have already heard, of the extent of smuggling.

The hon. Member for Workington (Mr. Campbell-Savours) gave a very elegant exposition of the problem as he sees it, and I cannot disagree with him. In one sense, I have some sympathy with the private enterprise shown by smugglers. There is a well-known character in my constituency who lives on social security benefits. Once a week he takes his backpack, gets on the ferry from Ramsgate to Belgium, goes to a tobacconist where his order is waiting for him, puts it in his rucksack, gets the same ferry home and makes a profit of £150 a week.

I do not blame him. We are handing people profits. In my heart, I find it very difficult to say that that man should not commit such an act. Indeed, there are many other cases where one has tremendous sympathy with the opportunity being presented. We wish to create a nation of entrepreneurs. We are doing it. Unfortunately, we are doing it through them having to break the law.

Mr. Thomas Graham (Renfrew, West and Inverclyde)

I do not wish to take up much of the hon.Lady's time, but is she aware that, in Scotland, we have a big coastline and, not long ago, smugglers trying to smuggle in cocaine and marijuana were found? Does she also realise that the Customs and Excise service is being cut, and we shall not have the same number of people trying to defend our coast from the smuggling of cocaine and other drugs?

Mrs. Lait

If the hon. Gentleman cares to listen to the rest of my speech, he will hear that I have reached the conclusion that, fundamentally, prevention of smuggling is not the answer.

When it comes to alcohol, many people have talked about the beer smuggling that goes on. In fact, Shepherd Neame, one of the Kent brewers, has told me that it is brewing an extra 1 million pints a year, which it sends to Calais—99 per cent. of which catches the next boat back. However sensible a commercial decision that is, there is something faintly ludicrous in Shepherd Neame doing that. The brewer, however, makes the sensible commercial point that, of course, its beer no longer stays in Kent. It is getting better known throughout the United Kingdom. So, commercially, Shepherd Neame is making a much bigger impact than it would if it remained a small regional brewer in Kent. However, is that the way in which we wish to go?

I am not aware that any hon. Member has mentioned that in the UK, especially in the south, there is an increasing number—there was an increasing number—of English vineyards making increasingly better wine, which is quite drinkable and very drinkable in many cases. Those vineyards were some of the very first businesses to be hit after the creation of the single market.

One of the areas in which they specialised was vineyard-gate sales. Those disappeared because people were going across to France. I accept that the making of English wine will never be a dominant industry as it is in France and Germany, but I applaud the English vineyards and I drink their wine. It is very hard for them to have to cope with the increased amount of wine that comes into the country and hits their market quite directly. In fact, I know that they, too, have tried to set up their own wine-selling operation in France to bring wine back.

We need to look at the practicality of what is happening in the smuggling world in a legal context. One of my fundamental worries, quite apart from my parochial concern, is about the undermining of the rule of law. We find that there is not a tobacconist, a newsagent, a pub owner, a restaurateur, or a café owner who has not had somebody knocking at the back door asking whether he or she wanted cheap tobacco and cheap alcohol. I admire those who have the guts to say no, because they are facing commercial death. However, I have great sympathy with those who say, "Yes, I'll take it." If one is offered alcohol and tobacco at prices that one cannot match anywhere else in a recession, it is a very great temptation. We all know that human nature is fallible.

The issue goes further than that. It is easy, very easy, for honest traders to fall into temptation as well. The more available cheap tobacco and alcohol is, the easier it is to fall. I know that some of the tobacco companies are trying to make their cigarette packs smuggle-proof.

Mr. Jimmy Wray (Glasgow, Provan)

Will the hon. Lady tell the House just what the solution to that problem is? The Government have had 16 years to do something about it, and they created the problem.

Mrs. Lait

I am afraid that the hon. Gentleman clearly has not been following the advent of the single market. The problem has arisen only in the past two years. If the hon. Gentleman bears with me, I shall get to the solution.

I do not think that hon. Members have yet appreciated the damage that smuggling is doing to the body politic and to the health of the nation. My hon. Friend the Member for Chislehurst (Mr. Sims) defended the high taxation of tobacco. I have every sympathy with that, as I pointed out to him at the time. I am a non-smoker. I loathe smoking and I find it exceedingly difficult when I address the problem.

I also find it very difficult when I deal with people in the health industry—I use that term in its wider sense—because I do not think that they have yet realised the nature of the problem. General practitioners have not yet seen the increase in the number of patients with respiratory diseases. It is too soon. They have not seen the increase in the number of patients with alcohol-related problems. Also, we are not yet finding schools picking up on youngsters who have access to cheap tobacco.

Research needs to be conducted in those areas. We need also to change the mindset, to take into account availability and the damage that, in the long run, could be done by the excessive provision of cheap tobacco and alcohol.

So one of the things that the Department for Education and the Department of Health should do is institute research plans to check where the effects of that excessive provision are evident. I am sure that it will not be long before we start to pick up through GP surgeries signs of greater access to cheap tobacco and alcohol. We need to work closely with the medical profession to ensure that its mind-set is changed to take into account the damage that is being done, because there is no point in having a policy of high taxation on tobacco if it is being undermined by easy access to much cheaper stuff.

Opposition Members have been encouraging me to come up with the answer. I have already told them that prevention does not work. I come from the historic smuggling area of the Romney marsh, and the figures from the 18th century that I have discovered so far showed that the cost of prevention far outweighed the cost of any of the goods captured. We are seeing precisely the same happening today, even with the recent successes in Eastbourne and with the South Yorkshire miners. Prevention is not the most cost-effective way in which to deal with the problem and, while every little helps, it does not answer the problem.

I also endorse the remarks about the European Union tobacco subsidies. I take issue—slightly—with my hon. Friend the Member for Colchester, North (Mr. Jenkin). We had a debate in the House about whether Community tobacco was even used. I have to tell him that 100,000 tonnes of tobacco produced in the Community is being smoked in the Community. As we are all agreed that it is pretty poor stuff, think of the lungs of the people who are smoking it. We cannot glibly say that we do not use that tobacco. We do use it and we are spending about £1 billion a year on subsidising its production. I was glad that, in Essen, it was agreed that the entire common agricultural policy should be looked at. I hope that the first thing that is done is to get rid of that tobacco subsidy.

We also must take into account the point made so effectively by my right hon. Friend the Member for Shropshire, North (Mr. Biffen) about the clash of cultures between ourselves and the other members of the European Union. We have always had a policy of high taxation on tobacco and alcohol and low taxation on food. The opposite has been the case on the continent. It is too easy to say that we must harmonise. Those of us who believe in subsidiarity would never suggest that harmonisation is the answer. My right hon. and learned Friend the Chancellor used the term "approximation". I would say, "Take the profit out of smuggling." That is the way forward.

I accept that that is a long-term business because we must persuade countries that cheap tobacco and alcohol are bad for their populations. The medical profession in this country must work much more closely with its colleagues on the continent to make them recognise the damage that is being caused to the lungs and livers of the populations of those countries. That is a long-term proposal because we all know how resistant the medical profession is to change. However, I believe that the medical profession has a real responsibility to work with its colleagues on the other side of the channel.

Will the Treasury please stop considering excise duty as the mulch cow from which it can solve any problem? For the reasons that I have cited, for my constituents and anyone on the south coast, for the rule of law and the continuing good health of our population, I urge the Treasury to take its responsibilities seriously and to stop using excise duty as a way of solving all its problems as that wrecks the health of more people than I, and many hon. Members, would wish to take responsibility for.

Mr. Graham

rose—

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)

I call the hon. Member for Londonderry, East (Mr. Ross).

8.31 pm

Mr. William Ross (Londonderry, East)

I apologise for speaking ahead of the hon. Member for Renfrew, West and Inverclyde (Mr. Graham), as I always like to listen to him. I promise to try to be around to hear what he has to say.

We are not constricted in this debate as we were in the last Budget debate when speeches were restricted to 10 minutes. For much of this afternoon, when I looked around the Chamber, I was reminded of the hymn which states: The tumult and the shouting dies; The Captains and the Kings depart". There is not the pressure to be present today to make our case. The bite has gone out of the debate. As a result, we have ventured into some very interesting highways and byways.

I listened to most folk this evening with a fair degree of interest. I was particularly interested in the Chancellor's comments. At one stage, he told us that the Government had taken the necessary steps to restore the nation's finances. When I think back to the absolute essential, which was September 1992, I recall that the Government were dragged kicking and screaming to the point where the necessary step was forced on them. Without that, we would still be in the dreadful situation that had pertained for a year or two before then.

I also listened with interest to the comments of Opposition Members. It appeared to me that, on occasion, there was a germ of convergence on the view that public debt had to be kept under control. When I think back to the debates to which I listened when I first became a Member, I believe that that convergence of view is very welcome.

This is a particularly interesting debate on the economy of the entire nation in view of what is happening in Belfast today and what is going to happen tomorrow with regard to the investment forum for Northern Ireland. I hope that that will have considerable effects down the years for my constituents.

I am grateful to the hon. Member for Redcar (Ms Mowlam), who kindly let me have a copy of the Labour party's views on what should be done in Northern Ireland. I assure her and her colleagues that we will read that document with great care. Whether or not we agree with it is a different matter, but we will read it with great care. The mere fact that we can think about such things is a sign that, even in Northern Ireland, we are approaching what passes for normal politics in the rest of the United Kingdom. That is a welcome change from that which normally gives us cause for concern.

With regard to the Northern Ireland economy, we are promised money from many sources in the coming months. My view is simple: those who call for that money to be spent on good works, community relations, training and all the rest of it should be told very quietly, "No, this is one off." When the money is spent, we want to see something on the ground. Whether that is a bridge, a new school or a new road is immaterial to me; we want something permanent in the infrastructure, or possibly in education in Northern Ireland, even at the level of primary or secondary schools, where much rebuilding is needed.

That money will not last. It is not normal government expenditure which will roll on for many years into the future. It is a short-term, one, two or three-year process and the money will then be gone. We want something permanent when the money is spent. We do not want it to be frittered away on projects which, no matter how worthy in themselves, should be met from normal government expenditure over a longer period. My party will give the Government its views on how those extra sums should be spent on very worthy things which should be done and which we believe should be carried into effect as speedily as possible.

In the first Budget debate, I referred to the consequences for rural dwellers of the rising cost of motoring. I suppose that I could do worse than repeat what I said then. However, I must add to what I said by saying that, as so many people have no real alternative and are absolutely stuck in their homes from morning to night if they do not have a vehicle and as the social and economic life of the countryside depends totally on the ownership of a car, and the more remote one is from a large conurbation the more essential that vehicle becomes, the further increase in the cost of transport fuel in this mini-Budget is most unwelcome.

Under the Rio convention, the Government have already committed themselves to steadily raising the cost of fuel for transport. That cannot be allowed to pass unchallenged and it cannot go on. If we allow it to continue, we will so damage the social fabric of our rural areas that social life as we know it will simply cease to exist. There is no alternative, whether we like it or not, to personal transport for much of the United Kingdom and for many millions of people who live here.

Where alternatives exist, such as the transport systems in large cities and suburban areas, let us by all means promote them and use them. Let us make them attractive to the people who use them and try to cut the number of personal vehicles that enter towns and cities every day. However, we must not forget the very real problems and concerns of rural dwellers in that respect.

The hon. Member for Hastings and Rye (Mrs. Lait) and others referred to some of the problems that have arisen as a result of the increase in duty on alcohol and tobacco. Our experience in Northern Ireland, especially with regard to the tobacco and cigarette manufacturing industry there, is that increases in taxation on tobacco have the unwelcome effect of sucking in legal imports, never mind the illegal imports which are exercising the minds of hon. Members who represent the south-east of England and further afield.

A balance must be struck in the new borderless Europe. The right hon. Member for Shropshire, North (Mr. Biffen) drew attention to the underlying reasons for some of the problems. However, we simply cannot go on allowing important sectors of the economy to be undermined or destroyed because we are so out of step with other countries. We need to exercise control over those matters to protect government revenue and the income and jobs of our constituents throughout the kingdom.

Much has been said about the smuggling of alcohol. I am one of those who believe that far too much alcohol is consumed in the western world, anyway, not least in the United Kingdom. Those of us who have encountered the effects of the excess consumption of alcohol and the utter misery that it has caused for many people would normally welcome the fact that it had become so pricey that most people could not afford it. I used to have a very simple view of pubs. I thought that they should be nationalised and then they would be bound to go broke and fail. Unfortunately, no Government have had the guts to go down that road, so a lot of people drink a lot of alcohol.

Mr. Graham

Hear, hear.

Mr. Ross

Scotland is infamous in that respect, but it is not the only place in the United Kingdom where alcohol is used to excess.

The subject of alcohol and tobacco smuggling draws my mind back a few years. I am sure that the Chief Secretary to the Treasury will recall the immense problem from which people in the car retail business in Northern Ireland have suffered for many years. I refer to the enormous problem of huge numbers of vehicles being imported from the Irish Republic on such a scale and for such a period as to wreck many legitimate businesses in Northern Ireland. The problem arose because of the manufacturers' pricing policy. They changed their prices to sell cars in each nation state. Different prices were paid for the same car in each nation state. Once one was able to import a car, one was able to reap the benefits. Manufacturers' pricing arrangements arose largely because of the different taxation arrangements.

The Government should explore whether they can persuade the manufacturers of beer and other alcoholic drinks to alter their prices in order to bring the matter under control. However, I suspect that, like the efforts to control the importation of cars and the resultant damage in Northern Ireland—they were quite ineffectual, and whatever the Government did was soon circumvented—anything that the Government do in respect of the importation and smuggling of alcohol and tobacco will be a waste of time.

The money is available, but, unless the Government are prepared to close the borders and to control them, they simply cannot control or destroy the trade which has been built up. The hon. Member for Hastings and Rye has told us the reason for that trade—there is money in it. Therefore, a lot of people will do it if there is a lot of money in it. Some of them must think that they have drawn six lottery numbers every Saturday, judging by the way that they are behaving.

The other matter to which I draw the attention of the Treasury team yet again is the tax on heavy fuel which is used for electricity generation. The Chief Secretary to the Treasury will recall that I mentioned previously that, until the Budget, Northern Ireland was paying 30 per cent. of the total tax on heavy fuel for electricity generation in the United Kingdom—£11.67 million last year. The increase in the Budget brought about an increase of £4.82 million, so we are now up to £17 million.

That is an extremely heavy burden on the small generation capacity in Northern Ireland. It must be dealt with, if not in the short term, certainly in the long term. I understand that that burden alone amounts to roughly 1p a unit on electricity in Northern Ireland. That is only one of two or three such measures in the pipeline.

Bearing in mind that there is a forum and various efforts to increase investment in Northern Ireland, when we tell people that electricity there is the dearest in the United Kingdom, it is a bit off-putting. The best interests of the United Kingdom are not served by such a burden on generation costs. Although I welcome the two interconnectors—one has been constructed and another is being constructed—they are only a help. In the long run, we must bring down our generation costs, and there is no short-term way of doing that other than by doing something about the tax on heavy oil.

The main matter is the amount of money that is raised by indirect taxation in the United Kingdom. The right hon. Member for Shropshire, North drew attention to the difference between our view and that of the rest of Europe. He said that there was a limit beyond which people simply would not go. I must tell the Treasury team that we have reached the limit of the money that we can extract from the population by means of indirect taxation. Indirect taxation is much beloved by the Conservatives, and one can understand why.

It is like a banker's order; once it is in place, it is very hard to remove, and one never thinks about it while paying it every day of one's life. But it is an onerous tax, because it applies to everyone. Of course, people on low incomes pay a larger proportion of their income in indirect taxation than do those on higher incomes. The Government have had to resort to increased benefits for those people, thereby increasing the social security bill.

I should have thought that it was self-evident that, whenever taxation reached the point at which the Government had to compensate from tax, something was going far wrong and it was time to go back to basics and take a long, hard look at how they were trying to raise tax. Therefore, we need to reconsider the relationship of high taxation to the social security benefit entitlement system; we might then discover that lowering such taxes will lead to a lower bill for social security benefits. That would always be a help.

In the previous debate on such matters, I drew attention to my party's view that, although we should be absolutely adamant that we will not tax essentials that people need every day—fuel is clearly regarded by the population as one of them—that is not the whole story. We have a high public sector borrowing requirement. It is coming down again. Much of the drop in the requirement this year is as a result of more people being back at work, the fall in inflation and the fall in interest rates. That is very welcome, because it lays a long-term, sound foundation. However, if there is a sudden large rise in the public deficit for a year or two, surely the only honest way to deal with that is to put up income tax. It is the most flexible tax of all.

If, instead of trying to put 17.5 per cent. VAT on fuel, the Government had stuck 3p on income tax, that would have been mighty unpopular, but it would have been honest. The Government would have received the revenue immediately, and that would have been welcome. The pain would have been felt immediately, and people would have said, "You are the lot who did it, and you promised not to do it." Perhaps that is a good reason for not doing it, but the alternative has turned out to be even worse. Furthermore, there would have been no recycling of the complaint; the matter would have been over and done with.

Surely one of the great lessons of VAT on domestic fuel is that, if the Government are going to tax, they should get it over and done with, instead of having six or seven bites at the bitter lemon. It does not get any nicer; it just allows people more time to think about how they will beat the Government, as they will eventually do. An increase in income tax is over and done with in one fell swoop and can be easily reversed when conditions allow.

I wonder whether the Government have pondered in the last week or two what the situation would have been if, instead of putting 3p on income tax to raise the £5 billion they need, they had put on 4p or 5p. They would have been in a wonderful position come next December. They could have taken 4p from income tax without being any worse off and they would have received the plaudits of the entire country for fulfilling their election promises by reversing unfortunate taxation measures.

The Government could have been in a much happier position in the run-up to the next general election. As a result of the decision taken in the House on VAT on fuel, the Chancellor was freed from that massive millstone. I suspect that, when he looks back in three months or six months, he will realise how fortunate the Government were to have been defeated. The matter will not return to haunt them.

Tax that is imposed to meet an immediate need should be able to be reversed easily and quickly. That leads me to question why the Government tried to increase VAT on fuel. It can only mean that they believe that they will need considerable revenue for a long time. They opted for a tax with long-term consequences which is difficult to reverse. For that reason, I fear that the Government do not expect to be out of the woods for some time; therefore, they are laying the foundations for sound public finances at the time of the next election. When that time comes, I hope that we will have seen a huge reduction in the PSBR, and that we will be close to repaying public sector debt.

8.51 pm

Mr. David Lidington (Aylesbury)

The test for this Budget is the extent to which it equips the British economy to cope with the dramatic and turbulent changes being experienced not just by the United Kingdom but by the entire industrialised world. The pressures on our economic policy making derive from two immensely powerful forces: technological change and international competition.

The hon. Member for Londonderry, East (Mr. Ross) began his speech by quoting from Kipling's "Recessional". If my memory serves me correctly, a later verse reads: Lo, all our pomp of yesterday Is one with Nineveh and Tyre. Western nations have become used to material prosperity, high personal living standards and a standard of public services of which our grandparents would scarcely have dared to dream. In the face of competition from the far east and Latin America, if we are not careful we shall find the expectations with which we have grown up undercut by a very harsh economic reality.

The second great force for change is technology, which affects not only the manufacturing sector but also service provision. There are constant reports of redundancies in banks and building societies. Big employers in my constituency, such as Equitable Life, grapple daily with the fact that machines can do jobs more efficiently and with fewer mistakes than people can.

Those pressures will not go away. The test of our economic policy must be whether, in the face of that turbulence, the policies announced by the Chancellor of the Exchequer will help British companies to sell their goods and services to customers in this nation and throughout the world. In the end, that is the only way to ensure sustained growth and secure jobs. It is the only way to provide high personal living standards and the wealth to spend on the schools, hospitals and railways that hon. Members on both sides of the House and thousands of our constituents want.

The Government must look wider than the Budget in addressing those problems. We do not have to accept entirely the analysis of an historian like Correlli Barnett to appreciate that the British economy has deep-rooted problems which must be tackled through a range of policies, and not solely by the economic levers available to a Chancellor of the Exchequer. I am convinced that our hopes of creating wealth and increasing living standards critically depend upon policies of sound money, low inflation and controls on Government borrowing and spending. Those economic measures alone will not be sufficient to achieve our aims, but they are necessary elements of our continued future prosperity.

That is why, whatever quibble I may have with the particulars of the Chancellor's package, he has my wholehearted backing for his top priority of getting public finances in order and keeping them in order—even if my colleagues and I must accept the necessity of following policies which in more propitious circumstances we would have preferred not to see enacted.

What I find depressing about Labour Members' speeches is that they fail to grasp the scale of the present problems confronting our country and to advocate persuasive, economically literate solutions to those problems. Unemployment in my constituency is still far too high, but it is falling. Manufacturing industry, particularly exporting businesses, has done well. In a depressed domestic market, the Hoselock company has thrived in overseas markets, winning new customers and bringing profits to this country.

Retailers, particularly small independent retailers, and construction businesses are also finding life very tough. The alternative strategies advocated by our critics produce specious, attractive-sounding measures which in practice would damage those sectors of the economy that they say they wish to assist. That can be seen most of all in their demands for spending. Usually, those demands are hidden because of the Labour Front-Bench team's efforts to keep them under some sort of control at least for a couple of years.

The pressures for additional spending and borrowing are there all the time, as we heard from the hon. Member for Motherwell, North (Dr. Reid), who mentioned the need to allow local authorities to spend more than their capital receipts. During the last general election campaign, even Labour party Treasury spokesmen admitted that such a policy change would inevitably bring about an increase in public borrowing. In today's circumstances, that would increase the present upward pressure on interest rates. Such pressure is potentially damaging for the retail and construction sectors, which are already the slowest to benefit from the economic recovery.

Despite the advocacy of the hon. Member for Londonderry, East (Mr. Ross), I am not persuaded of the need for further—

Mr. Wray

Does the hon. Gentleman agree that, under the Public Health Act 1897, local authorities have a responsibility to bring their houses up to a tolerable standard so that they can house people? How are we to clear the homeless queues if the Government will not allow those authorities to spend their capital receipts?

Mr. Lidington

The hon. Gentleman would benefit from studying the Conservative manifesto commitment on housing and the record. During the past two years, through our grants to housing associations, we have secured a greater increase in social rented housing provision than we thought possible at the last general election. That is the practical policy for securing better housing standards that the Conservative Government are pursuing.

The hon. Member for Londonderry, East said that an increase in income tax would be preferable to increases in direct taxation. I am not persuaded by his argument, for two reasons. First, the disincentives are obvious—especially for people with earnings around the tax thresholds—and we want to encourage people to take on work rather than rely on benefits. Secondly, in the longer term the labour market is moving towards more self-employment. More people will have a portfolio of occupations, rather than one job with one employer for 30 years. In those circumstances, it is even possible that income tax will become a less predictable and reliable source of revenue for the Treasury and Government spending. For those reasons, the Chancellor was right to avoid further increases in direct taxation last week.

On tobacco and petrol, I share the view of my hon. Friend the Member for Ribble Valley (Mr. Evans). It would be desirable for the European Union to phase out the indefensible subsidies for tobacco growing in southern Europe as quickly as possible.

I was less persuaded by the arguments of my hon. Friend the Member for Hastings and Rye (Mrs. Lait). As a non-smoker with 800 constituents who depend on the tobacco industry for their jobs, I take the view that smoking, to which I have never been attracted, is an activity that should be allowed to consenting adults in the privacy of their own homes. I therefore find myself unable to agree with my hon. Friend's ideas.

On road transport, I must mention to my hon. Friend the Chief Secretary the representations that I have received about excise duty and the changes in classification. I have received strong representations from farmers and the owners of small breakdown and road recovery businesses, saying that the way in which the changes have been framed bites hard on their businesses.

I hope that Ministers will be prepared to consider that matter again when the Finance Bill comes before Parliament.

On the principle that the increase in petrol duty forms part of a sensible strategy to restrain car use, I have no quarrel with the Government. It causes difficulty to individuals, but if we are honest about the need to restrain private car use and if we are in adult politics, that is surely one of the measures that we must employ.

9.3 pm

Mr. Thomas Graham (Renfrew, West and Inverclyde)

I have listened to a number of speeches tonight, and it is sad that none of them has touched on a real aspect of local government which the people of Scotland need desperately. For the past three days, I have spent my time in the turmoil of flooded homes. Nothing has come from the Chancellor today, except further cuts in public expenditure—the public expenditure that the people of Scotland so desperately need.

I was in an elderly woman's home today. It was a beautiful home, but it had been absolutely wrecked and ruined by flood damage. The raging torrent of a river had burst through into her house and devastated her lifelong possessions. She was devastated, and she asked me what I could do to help her. I said that I would raise the matter in Parliament tonight and ask the Government to release money so that the Chancellor of the Exchequer could take the decision to allocate funds to that desperate emergency situation.

I have mentioned many occasions when certain things have hurt me, and have made me feel sorry for my constituents. There are hundreds upon hundreds of people in Scotland tonight—some 800 families—who do not know what Christmas will bring to them. They will not get Santa Claus coming through the door with a big bag of presents, because they saw their presents floating out of the door the other night. Yet the Government stand idly by and say that they can do nothing. They say that there are emergency powers, and that the Bellwin formula states that the Government pay 85 per cent. while the district council pays the other 15 per cent.

If the Government are to make further cuts in public expenditure, how will local government deal with an emergency such as the flooding? I plead with the Chancellor to release money tonight to deal with the flood disaster in Scotland and to assure my people—the people of Scotland—that they can live in comfort and face the new year with the same decency that Ministers will enjoy. Ministers know that they can go back to a warm home. They are well provided for, because Ministers have plenty of money. My constituents tonight do not know what will happen to them. They expect the Government to govern, and to look after the people, but the present Government abandon them.

I had a go at the Chancellor for reducing the price of champagne by 19p—that is literally mind-boggling—and increasing the price of whisky by 26p. A lot of the people affected by the flood work in the whisky industry, so they might be facing not just flood damage but further unemployment as a result of the measures that the Chancellor has taken. In France, of course, people will be over the moon, because they will be getting the jobs.

I am quite sure that the Champagne Charlies in London will be well looked after. The Chancellor looks after his friends in the City and makes sure that they can bevvy champagne until it bubbles out of their earholes. But they keep punishing the workers and they create huge unemployment in Scotland and the rest of Britain.

I know Scotland well, but I also know England well. The rural communities in both countries are now to be punished by the increase in the price of petrol and diesel. The Government do not seem to think about that, despite the fact that they have destroyed rural bus services and are now destroying rural train services.

After nearly 16 years in power—the Chief Secretary should hang his head in shame—the Government have made the country nearly bankrupt, and they have destroyed businesses by the million.

Mr. Wray

The Government are bankrupt.

Mr. Graham

My hon. Friend is right. We are now approaching Christmas, but what a bleak Christmas it will be for millions of our people and for the pensioners facing the 8 per cent. VAT on fuel.

The other night—after pressure from Opposition Members and one or two abstentions—the Government had to drop the proposal to increase the VAT to 17.5 per cent. I was delighted that Members of the House combined to achieve that, but many hon. Members seem not to realise that the people we look after and represent—the elderly, the disabled, the unemployed and the low paid—demand that the 8 per cent. VAT on fuel should also be dropped. They want a sensible Budget which does not hurt the poor and which starts to take something off the immensely rich whom the Tory Government have created.

The Government have created a division so enormous that it is like the man in the moon. One individual has won £17.5 million in the lottery while hundreds of my constituents face a bleak and horrifying Christmas because the Prime Minister does not know whether to be Mr. Scrooge or Mr. Misery. He should take the opportunity to support the Opposition today and to become Santa Claus and give folk some hope for the future.

The best hope that we have is to burn 16 candles to mark the 16 years and ensure that there is a general election. I should be happy to burn all those candles and to see the end of the Government. I hope that 1995 will indeed see the end of this miserable—aye, very, very, miserable—Government.

9.10 pm

Mr. Andrew Smith (Oxford, East)

My hon. Friend the Member for Renfrew, West and Inverclyde (Mr. Graham) could, unfortunately, speak but briefly, but he more than compensated for that with the passion with which he pleaded for the sake of his constituents. Those constituents must be extremely proud of him for the way in which he has spoken up for Scotland, which has been affected so awfully by floods. Let us hope that his pleas have been heard by the Government.

The debate started with an extraordinary admission—perhaps it should not be surprising—from the Chancellor, who refused to give any guarantee to my hon. Friend the Member for Dunfermline, East (Mr. Brown) that he would not extend VAT further. He was pressed on that several times, but he absolutely refused to give that guarantee. All hon. Members will have heard his refusal.

He then offered us the assurance that VAT would not be extended without primary legislation. That promise lasted all of four minutes, because we were then confronted with the resolution on VAT on transport, now before the House, in which the right hon. and learned Gentleman proposes to do just that. The Opposition were unconvinced by the Chancellor's assurance, and we will press our amendment to a vote. That amendment would greatly improve the House's control over the Government's addiction to extending VAT.

One simple question has not been answered by the Government. If the measures before us are right, why were they not included in the original Budget? The Chancellor and the Prime Minister could have spared us a lot of bother by getting it right the first time. We could put that question round the other way. Before the hon. Member for Croydon, South (Mr. Ottaway) predicted a massive Conservative defeat at the Dudley, West by-election—his prediction is certainly accurate—he said that he believed that his hon. Friends preferred the original version of the Budget. Judging from the way in which they voted on Tuesday, it is clear that that majority preferred the original version—something that we will have cause to remind their electorate of between now and the next general election.

We must ask why the Prime Minister did not force the original Budget through, as he could have done, by making it a vote of confidence. Three possible explanations can be offered, each of which is profoundly damaging for the Government. The first is the cock-up theory, according to which those on the Government Treasury Bench were so incompetent that they thought all along that they had the vote on VAT in the bag. They did not believe that they had to use the confidence threat even when defeat stared them in the face.

They saw the danger too late and put the Chancellor up to the tawdry and ultimately self-defeating farce of Tuesday's winding-up speech when he brandished £100 million worth of baubles at his Back Benchers 10 minutes before the vote like some second-rate department store Santa Claus. That is no way to carry on with the nation's finances or to run a Government. The House will not forget the pathetic spectacle of the Chancellor casting around for prearranged interventions. He tried to appear clever, but it made him look all the more foolish when his cobbled-together last minute deal came thoroughly unstuck.

The second theory is that the Prime Minister feared that to make VAT a vote of confidence would not be enough to secure victory. If that is correct, his confidence in the Conservative party's will and ability to govern is beginning to match that of the country. I suppose one could say that, unlike the Chancellor, the Prime Minister did not underestimate the vindictiveness of some of his Back Benchers.

The third plausible and interesting theory is that, when the Prime Minister said that the vote on VAT would not be a vote of confidence, he was signalling that he could live with defeat on that. Having been turned over on it in Cabinet, he would let the House turn over the Chancellor. In view of all the talk about the Chancellor being strong and taking the lead over Europe, perhaps the Prime Minister thought that it was high time he had his come-uppance.

Whatever the reason, that was a humiliating defeat for the Government in general and for the Chancellor in particular. He was unable to deliver his side on what he had described only a week before as essential to the strategy of achieving economic recovery. The Government got into the mess because they simply did not listen. They thought that they could break their promises with impunity and that what people outside said did not matter.

The hon. Member for Chislehurst (Mr. Sims) said that the Chancellor's policy was defensible but poorly presented. I half agree with him: it was an indefensible policy poorly presented. One of the lessons of the past couple of weeks is that we must listen to what constituents say. I trust that Conservative Members will have heard at Christmas bazaars and senior citizens' dos what we have heard, but only a handful of them take any notice.

In his opening speech the Chancellor said that we are having a few too many Budget debates. I wonder whether he has had a bit more exposure over the past couple of weeks than is good for him and the Government. I was given a charming child's eye view of the Budget by a Conservative councillor who shall remain nameless. His small daughter came into the kitchen and said, "Mummy, mummy, there is something wrong with the television. The same man is on all the channels and I can't get rid of him." I think that the answer was, "Don't worry dear, we are working on it." People say that it is great news that the 17.5 per cent. VAT on fuel was defeated. However, it is typical of the Government that when they are forced to stop hitting the average punter with one tax increase they hit him with six others. I shall deal with some of those increases. The Chancellor speaks of an extra 1p on a pint of beer, but that is not what the customer will have to pay. By the time profit, VAT and higher transport costs resulting from the increase in diesel fuel are added, it is more likely to be 3p per pint of bitter. For higher strength beers and lagers, the increase may be as high as 5p.

Others have quoted what the Chancellor said in the first of his Budget speeches in the autumn, but it bears repetition. He said: one of the most widely publicised other effects of the single market has been the increase in legitimate cross-border shopping in alcohol and tobacco, and in smuggling. Both of these have inevitably meant some loss of duty to Exchequer, pressures on the British drinks industry and some damage to British business. No Chancellor can remain unmoved in the face of this".—[Official Report, 29 November 1994; Vol. 250, c. 1095–96.] He listened to the concerns of the industries, but, true to form for the present Government, it did not last. His listening was truly a nine-day wonder. Now he is back to putting up tax on beer. Let us make no mistake about it—it will be a jobs killer.

While there is room for argument over the magnitude of the effects, no one disputes that the present and growing extent of cross-channel shopping—both legal and illegal—is having a serious impact on the British drinks industry and in particular on distribution, off-licences, supermarkets and pubs where, in total, thousands of jobs may be at risk.

Let me repeat the challenge put earlier by my hon. Friend the Member for Dunfermline, East. Will the Chief Secretary in his reply say how many jobs will be lost as a consequence of the Chancellor putting up the duty on beer? Faced with that threat, Opposition Members believe—as the Chancellor said he did two weeks ago—that now is not the time to be putting up duty on beer and widening the differential with France, and we shall vote against that increase tonight.

Many of the same arguments that have been spelt out by my hon. Friends apply to spirits, particularly to whisky, which is so important to jobs in Scotland. We shall also vote against that increase. The hon. Member for Chislehurst (Mr. Sims) argued against the increases as being damaging to jobs and undermining Britain's negotiating position within the European Union. Although he is not in his place, perhaps he will consider voting in line with the arguments he put forward.

With the further increases in petrol duty, the Chancellor is hitting many individuals and families of modest means harder than they reasonably could have expected. Presumably, the whole point of indicating last year that road fuel duties would increase on average by 5 per cent. in real terms was to give people some warning, but on top of the 2½p per litre in his main Budget two weeks ago, the further 1p will increase petrol costs by 10 per cent., which will hit many people very hard—the Automobile Association estimates, by £51 a year.

The hon. Member for Londonderry, East (Mr. Ross) spoke with feeling about the effects of that on his rural constituents and about the particular effects of the increase in duty on heavy fuel, which is used for electricity generation in Northern Ireland.

I shall say something about tobacco. The Chancellor's proposed increase of 6p on a packet of cigarettes on top of the 10p he announced in the Budget is not a change we intend to vote against this evening, recognising the importance of tobacco taxation in helping to cut smoking and the consequent benefits to health, but there are limits to how far the Chancellor can go in hitting smokers.

As my hon. Friend the Member for Workington (Mr. Campbell-Savours) spelt out, smuggling is increasing at an alarming rate. The hon. Member for Ribble Valley (Mr. Evans), drawing on his own commercial experience, protested at the possible loss of front-line customs officers. With smuggling increasing at such a rate, what are the Government doing cutting 500 front-line customs officers? It is absolutely disgraceful.

The hon. Member for Ribble Valley must have been as pained as we were to hear the hon. Member for Hastings and Rye (Mrs. Lait) praising the entrepreneurial instincts of smugglers. Her approach to solving the problem seemed to be to condemn a little less, research as little as possible and do nothing at all. It was a very unpersuasive argument. We are debating a serious issue which the Chancellor recognised, to the extent that he did not increase the duty on hand rolling tobacco, which is particularly prone to smuggling.

I shall now touch on the important issue of equity in relation to tobacco taxation. Given the social distribution of smokers, banging tax on cigarettes is one of the most regressive forms of taxation. A study was carried out earlier this year—we would all do well to take note of it—for the Policy Studies Institute, by Alan Marsh and Stephen McKay, funded by the Health Education Authority. It showed just how severe the effects now are. Looking at low-income families with children, it found that nearly three quarters, for example, of council tenants receiving means-tested benefits smoke, spending, on average, more than 14 per cent. of their net disposable income, or £1 in every £7 on tobacco.

We must remember when we vote these increases in the House that giving up smoking, laudable, important and good for us though it is, is certainly not easy. We must remember, too, the particular difficulties for the people who are addicted to tobacco and who are under all the pressures that struggling along in poverty brings. The effect of the Budget will be to take an extra £2 a week out of the already meagre budget of the poorest families. There will come a point at which the poverty effect on children of such families will begin to exceed even the ill health effect of their parents' smoking.

Mr. Graham

My hon. Friend will realise that there are people in my constituency tonight who, because of poverty, because of their very low income, cannot afford to insure their houses, and their houses are now damaged. We will have to pay a fortune to try to put these folk on the right path. That is what poverty inflicts.

Mr. Smith

My hon. Friend speaks with deep knowledge of his constituency. As well as their insurance premiums, which are likely to go up, those people will also have to pay the insurance premium tax as well.

I hope that the Chief Secretary will agree that, with such a big tax increase and with such seriously regressive effects, the Government should act to ensure that help is given to people on low incomes to give up smoking and that the Government should act now to ban tobacco advertising.

Although some hon. Members argued that the mini-Budget measures might be less unfair than the original Budget measures, they are, as my hon. Friend the Member for Warwickshire, North (Mr. O'Brien) pointed out, still unfair.

As the Government's political credibility was on the line and, indeed, was so very fragile, we can understand why the £1 billion had to be found. But there were fairer and better alternative ways in which to raise the money, which the Labour party spelt out—for example, tightening up on executive share options, not going ahead with the venture capital trusts, ending the enterprise investment scheme, ending tax relief on private medical insurance and raising a levy on the windfall profits of the privatised utilities, as spelt out by my hon. Friend the Member for Dunfermline, East earlier. Those measures would have been much fairer and would have added next to nothing to the retail prices index, whereas the Chancellor's measures in both the mini-budget and the original Budget put it up.

As my hon. Friend the Member for Motherwell, North (Dr. Reid) said in his effective contribution, the Labour party would put in place employment measures now to get people back to work and to cut the cost of keeping people unemployed, whereas the national insurance rebate comes comes into effect for the long-term unemployed only in April 1996, when they will have been unemployed for so very much longer.

What of the Chief Secretary? Opening the Budget debate, he dismissed our VAT amendment as an "opportunistic wheeze." True Conservatives, he said, will not, I believe, cast their votes in the House to support Labour's procedural dirty tricks"—[Official Report, 30 November 1994; Vol. 250, c. 1238.] It is a fine irony, is it not, that our victory and the victory of the people of this country has forced hint to eat those words and come back to the House to lay in front of us measures to put in place the very proposals about which he was so dismissive just a week ago? We must ask him whether he agrees with the Chancellor's refusal to give any guarantee not to extend VAT in future to food, children's clothes, transport and books. Will he give a guarantee not to extend VAT?

The fact is that Labour spoke for Britain in defeating the VAT increase last week. What is more, together with everyone in the House and the country who supported us, we struck a blow for fairness in taxation. However much it can be argued that the measures we are now discussing improve on the Chancellor's original Budget, they still hit middle and lower-income Britain.

It should be remembered that people are still experiencing the biggest tax increase in British history. At a time when living standards are already falling and real personal disposable incomes are lower than they were, on average, at the last general election, taxes are rising by an average of £800 this year. Conservative Members' constituents will not forget that, however much the Chancellor attempts to bribe them next year.

Mortgage payments are rising; rents are rising; car tax and insurance are rising; holiday insurance, holiday flights, petrol, beer and spirits are all rising. Only the price of champagne is coming down. What an indictment of the Government: they are hitting people with taxes left, right and centre, but cutting the cost of champagne.

One way or another, ordinary families are being hit, while at the same time the Chancellor is unveiling new tax avoidance devices for the super-rich. It is all part of the price that people are being forced to pay for Conservative broken promises—for the Government's unerring instinct for unfairness, and their economic incompetence. With this Budget, people have further proof of why they can never trust the Government on tax again. Labour's message to the people is clear and unequivocal: "We are on your side." As with the whole VAT campaign, we do not just talk about it; we act to change things.

The Government are wrong to underestimate the British people's instinct for fairness and their longing for competence. The people know that they will get neither fairness or competence from this Government, with their "wet night in Dudley" broken promises. It is to the Labour party that the people look for good government; to the Labour party that they look for fairness; to the Labour party that they look for economic policies that work.

This week, the people of Dudley, West will have an opportunity to show the way forward for Britain with Labour. They will show the way forward for Britain with Labour, and they will show the way out for this failed and unfair Conservative Government.

9.32 pm

The Chief Secretary to the Treasury (Mr. Jonathan Aitken)

Far from eating any words, as the shadow Chief Secretary hopes, I am proud to stand by what I said last week. It is clear that the Opposition are still in a mood of opportunism and wheezing. My right hon. and learned Friend the Chancellor and I both regret the necessity for today's debate and are sorry that the package of measures introduced to remedy the hole that was blown in the public finances—

Mr. Andrew Smith

rose—

Mr. Aitken

No, I shall not give way. Opportunistic wheeze No. 1 will not succeed.

This is very much a package of second choices, but just as the Government have accepted the will of the House—

Mr. Smith

rose—

Mr. Aitken

Very well, I shall give way.

Mr. Smith

Is the Chief Secretary confirming that his first choice is still to impose VAT on fuel at 17.5 per cent?

Mr. Aitken

No; the Government have accepted the will of the House. Opposition Members would be wise to understand, however, that there is no such thing as a free rebellion on a Budget measure. That is the fundamental reason why the package contains second-choice measures that the Government would have preferred not to introduce, and it is why we have considerable sympathy with hon. Members on both sides of the House who have advanced arguments about aspects of the package. Other Ministers also originally sympathised with some of those arguments.

Mr. David Shaw (Dover)

Talking of sympathy, will my right hon. Friend confirm that he and I—as Members of Parliament representing port constituencies—are very concerned about the impact of the rises in alcohol and tobacco duties? Will he also confirm that he and his colleagues will instruct Customs and Excise to ensure that, at every opportunity, anyone who seeks to evade alcohol or tobacco duty is prosecuted and that prosecutions are pursued fully in the courts?

Mr. Aitken

I certainly confirm that vigorous measures are being taken by Her Majesty's Customs, about which I shall say something a little later.

As I have said, we have accepted the will of the House. I am, however, slightly in the mood of the Irishman who in the famous story was giving directions to a stranger. He ends by saying, "But if I were you, I would not have started from here." Perhaps it would have been best if we had not started from where we now find ourselves, but we have—[Interruption.]—and so I shall respond to the various remarks of hon. Members on both sides of the House.

It has been a curiously muted debate, but one would not think so with the sudden chorus of noise that has suddenly manifested itself. The Opposition Benches were until recently notable for the absence of Opposition Members, and consequently their silence. The hon. Member for Londonderry, East (Mr. Ross) got it right when he quoted Kipling's "Recessional", saying that it had been a question of whether the "tumult and the shouting" had died away and the "Captains and the Kings" had departed.

Most Labour Back-Bench Members departed for most of the afternoon, and it was a pretty soporific debate. The first soporific note was made in an intervention—not even a speech—by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who seemed not to want the £1 billion or £1.5 billion replaced. He seemed to think that it was not necessary to do so.

The right hon. Gentleman's intervention reminded me of the story of an American senator who—

Mr. Sheldon

Will the Minister give way?

Mr. Aitken

Very well.

Mr. Sheldon

I was making the point that the Chancellor seems to be addicted to fine tuning. As soon as he sees £800 million, he wants to correct it. He could have done it in February. He could have done it in February after he had received further information during the passage of the Finance Bill. He could have done it at his leisure with a greater understanding of what was happening in the economy.

Mr. Aitken

I understood the point the first time round. The right hon. Gentleman's solution would have been to do nothing for a while, to be patient, to wait and to snooze. That would have meant that the uncertainty created by the hole that was blown in the Budget arithmetic would not have been replaced by the certainty of the markets and by the sound and sensible measures that my right hon. and learned Friend the Chancellor introduced.

A great deal of concentration during the debate was focused on the drinks industry. The topic was introduced first by the hon. Member for Gordon (Mr. Bruce), who made an eloquent plea for the Scotch whisky industry, and it was echoed by my hon. Friend the Member for Chislehurst (Mr. Sims). I was somewhat underwhelmed by the hon. Gentleman's plea. He had written to my right hon. and learned Friend the Chancellor on 7 December suggesting various ways in which he could put back the lost revenue following the defeat on the levying of additional VAT on fuel. He did not suggest letting off the Scotch whisky industry. In the eighth paragraph he suggested cuts in the drinking duty, or that they should be put back. He wrote one thing on 7 December and reversed it on the 15th. It is typical Liberal policy to say one thing on one pavement and another thing on another pavement.

Mr. Malcolm Bruce

The Chief Secretary is misreading and misrepresenting my letter. I was saying that he should have reversed the cut in champagne duty, which was introduced in the first Budget. That the Chancellor has chosen not to do.

Mr. Aitken

The hon. Gentleman is quoting from a letter that he has not written. I have his letter. There is no mention of champagne and no mention of Scotch whisky. It reads: The Chancellor should review the cuts"— that is what the hon. Gentleman called them— in the drinking industry. Several of my hon. Friends have referred in some detail to the problems that are faced by the drinks industry, not only as a result of added taxes but because of cross-border shopping and smuggling.

I represent a constituency that includes many people who work in and around the two large channel ports of Dover and Ramsgate. I am under no illusion—nor are my hon. Friends, including my hon. Friend the Member for Hastings and Rye (Mrs. Lait)—about the severity of the effects of legal cross-border shopping and illegal smuggling rackets. The effects bear severely on many shops, pubs, wine markets and other businesses where livelihoods depend on alcohol and tobacco sales.

It is no great consolation for a small business man to be told that the loss of revenue to the taxpayer is lower than expected, but that happens to be true. The latest available figures to December 1993 suggest that a full year revenue loss estimated to be £250 million was running at only £200 million. There was a split of £130 million in taxes on alcohol and £70 million on tobacco. A loss of £65 million is estimated to be due to smuggling.

I do not underestimate the severity of the problem. I subscribe to the anecdotal evidence, but I have to deal with the factual and numerate evidence. Let us view the national picture. Revenue receipts from tobacco and alcohol sales—£6.5 billion for tobacco and £5 billion for alcohol—are up significantly, despite the losses from smuggling and cross-border shopping. The paradox is that the local publican, wine merchant and tobacconist are being hurt by the smugglers and cross-border shoppers—as are the vineyards to which my hon. Friend the Member for Hastings and Rye referred—even though national revenues are not so adversely affected.

Mr. John Townend

Will my right hon. Friend give way?

Mr. Aitken

No. I am sorry, but I have to press on because of the time.

The Government sympathise very much with those traders and that is why my right hon. and learned Friend's original Budget contained no proposals to increase duties on alcohol and provided for only small increases in duties on tobacco. We were forced, however, with great reluctance to impose the measures. I regret it, and my right hon. and learned Friend the Chancellor regrets it. We hope that perhaps one or two Opposition Members will start to regret it, too. We hope that all their scaremongering speeches about hypothermia deaths are recognised as falsehoods that cost jobs and cause business closures in the drinks and tobacconist sectors.

I should pick up on the point about solutions to the problem which were mentioned at various stages of the debate.

Mr. Alex Salmond (Banff and Buchan)

rose—

Mr. Aitken

On the whole, I do not give way to hon. Members who have not been present in the debate.

The hon. Member for Workington (Mr. Campbell-Savours) came up with a bright scheme for harmonisation of tax regimes. The trouble is that the cost in revenue of harmonisation with, say, French rates will amount to between £3 billion and £4 billion, which needs to be set against estimated bootlegging costs of some £65 million. Revenue loss of that magnitude would have to be made up elsewhere, with massive increases in other taxation.

My hon. Friend the Member for Croydon, South (Mr. Ottaway) made some good points on the need to be responsible in increasing interest rates. He said that it was right to increase them by 0.5 per cent., because the warning signs of inflation were there. There have been rises in the cost of raw materials and in commodity prices. My hon. Friend's view was that of my right hon. and learned Friend the Chancellor and that of the Governor of the Bank of England.

I deplored the speech of the hon. Member for Warwickshire, North (Mr. O'Brien), who said that the Chancellor had taken a complete panic measure, and that it was all due to Steady Eddie. The decision to raise interest rates on 7 December was taken on the basis of an assessment of the inflation outlook which had been considered carefully for some time. It reflected economic and political considerations. The Government are determined to take no risks with inflation. It was wrong for the hon. Gentleman to say what he did.

Mr. Mike O'Brien

I am grateful to the Chief Secretary for giving way. Is he trying to tell the House that the panic telephone calls just after the vote, whereby the meeting was brought forward by 45 minutes, had nothing to do with that vote? That beggars credibility. It was, of course, a panic measure and people are paying higher interest rates because the Chancellor made a bad judgment about being able to persuade the House to accept the proposal.

Mr. Aitken

The hon. Gentleman is talking ignorant nonsense. First, he should consider that, throughout the night after the vote, the international markets, including the Tokyo market, remained calm and steady because they were assured by my right hon. and learned Friend's statement at the Dispatch Box that evening. Secondly, the meeting was brought forward by some three quarters of an hour, but it was to do with an auction of gilts that was to take place at 10 o'clock. We wanted to make the announcement at the earliest possible time.

My hon. Friend the Member for Ribble Valley (Mr. Evans) concentrated on cross-channel smuggling and emphasised the need for a stronger and greater intelligence effort. I assure him that we shall increase the intelligence effort because, nowadays, the detection of smuggling is a game not of numbers of uniformed officers at ports but of impressive intelligence effort. That effort is already showing some good results and has achieved some considerable coups in catching smugglers. A major announcement was made only the other day.

I shall also respond to some points made by my hon. Friend the Member for Hastings and Rye, who produced a great deal of anecdotal evidence on smuggling. I was especially impressed by the story of her constituent who makes a regular £150 a week in that way. She said that she wished that the Government would not use excise duties as the milch cow. I assure her that we would much rather not have gone to those particular cows or those particular dairies, but there is no such thing as a free rebellion on a Budget vote and that is what we have to cope with.

I deal briefly with the speech of the hon. Member for Londonderry, East. I am glad that a voice from Northern Ireland was heard and that the hon. Gentleman mentioned the investment seminar on Northern Ireland, which was opened by my right hon. Friend the Prime Minister. The peace process grows steadily and quietly and, as it does so, the prosperity of Northern Ireland will grow with it. The inward investment record in Northern Ireland has already been good for many years. In the past five years, total inward investment from the United States has been £536 million. Some 10 per cent. of all employment in Northern Ireland is provided by American-owned companies, which shows that there is a good chance that the momentum will grow.

My hon. Friend the Member for Aylesbury (Mr. Lidington) made an excellent speech, in which he was right to warn us that international competition in technology could cause a revolution of falling expectations. He is right to alert us to the magnitude of these challenges but also to point out that we have record-breaking exports and inward investment and that we are a world trading nation and a world financial centre. These successes depend on sound financial judgment, our excellent supply side reforms and the growing success of Britain's economy, all of which are underpinned by the excellent Budget.

I deal now, as I have been longing to all evening, with the extraordinary speeches of the Opposition's spokesmen. As usual, at least half the speech made by the hon. Member for Dunfermline, East (Mr. Brown) was taken up with completely phoney proposals for taxes to fill the gap which he thinks could have been filled in a better way. We have already demolished his windfalls and his loopholes and I now want to do a demolition job on his share options proposal. He went on about tax avoidance and he attacked Lord Young, Sir John Nott and some poor man from PowerGen who had bought some share options in his company. I shall deal with Labour's continuous attack on share options, and the party might learn a thing or two.

The hon. Member for Dunfermline, East worked himself into a lather of indignation during his denunciation of share options. His thesis is that they are a scandal and a wicked windfall for the undeserving rich. He intends to raise £200 million in new taxation by abolishing them. I have three serious criticisms of the hon. Gentleman for his stance on share options.

The first criticism is the familiar one that the hon. Gentleman has got his sums completely wrong. He claims that £200 million could be saved by abolishing share options, which is a typical exaggeration. As my right hon. and learned Friend the Chancellor told the House on Thursday and today, the actual cost of such an abolition—even if one includes the spouses whom the hon. Gentleman invented—would be around £50 million, so he got his sums wrong by a multiplier of four, which is about par for the course for him and his voodoo mathematics.

My second criticism is that the hon. Gentleman has completely misunderstood his target. In any sensibly run company, share options are offered to and usually taken up by key employees at all levels, including clerical staff,secretaries and junior and middle executives as well as company directors.

Mr. Gordon Brown

I was talking about executive share options.

Mr. Aitken

The hon. Gentleman is going to learn a thing or two tonight. I am glad that he is encouraging me.

The fundamental point is that it is a good practice, because share options give employees the chance to have a stake in the business in which they work. If their company does well, perhaps a few years later they can make a profit on their options. They have to pay capital gains tax, and in some circumstances they might have to pay income tax on them, but it is a way for them to receive a reward for their contribution to making the company in which they work a success. The Conservatives fully support fair share options schemes of the type that I have described. It is typical of the politics of envy of the Labour party that so many of its Front-Bench spokesmen denounce them as a scandal.

That brings me to my third criticism of Labour's attack on share options, which is its barefaced hypocrisy and humbug. I am now going to reveal something to the House, something about some prominent Labour supporters, close friends and advisers to the Leader of the Opposition, who have done extremely nicely out of a certain share option scheme and who have used their profits from those options in an extremely nice political way for the benefit of the leader of the Labour party. I stress that I am talking here about extremely nice people. They appear in columns with headlines such as, "Who's who on the new Socialist social list?" More recently, they have been appearing under headlines such as, "Blair challenged to reveal source of his £79,000 leadership campaign," or as The Independent on Sunday headlined it, "How London Weekend Television men funded Tony."

Those reports, which I see are making Opposition Front-Bench spokesmen uneasy—

Mr. Gordon Brown

indicated dissent.

Mr. Aitken

—are all about three London Weekend Television men and their share options. First, there is Mr. Barry Cox, who is described in the press as "running the Blair show" and the "mastermind of fundraising". Secondly, there is the well-known broadcaster, Mr. Melvyn Bragg, who was quoted as saying, "It is quite flattering at my age to be called a Labour luvvie." Then there was Mr. Greg Dyke, who was last month's guest speaker at the annual dinner of Labour's Fabian Society.

Those three friends and advisers of the right hon. Member for Sedgefield (Mr. Blair), the leader of the Labour party, forked out most of the cash or fund-raised it to finance his £79,000 leadership election campaign. There is nothing wrong in that, although I can probably see somewhere a sour face being pulled by the right hon. Member for Derby, South (Mrs. Beckett), who had to run her leadership campaign on a shoestring budget of merely £17,000. The deputy leader had to run his campaign on an even shorter shoestring of £13,000. The one thing that those three former London Weekend Television executives have in common, besides, of course, being good, down-to-earth socialists and good Blair men, is that they made millions out of share option schemes.

Mr. Barry Cox, who, as I was saying, runs the Blair show, made a profit of £1.2 million on his share options. Mr. Melvyn Bragg, the "Labour luvvie", made a profit of £2.2 million on his share options. That Fabian socialist, Mr. Greg Dyke, made £5.3 million profit on his share options. No doubt the shadow Chancellor had such instant media millionaires in mind when he ranted at the Labour party conference in Blackpool and said: I am serving notice on executive share option scrounging, on the something-for-nothing elite … the undeserving rich, who in pursuit of short-term gain, largely for themselves, have starved the country". He may have added the words, if he had been truthful, "and they have fattened up the coffers of the Labour party".

But we Conservatives are not the party of the politics of envy, so we say, well, good luck to those instant media millionaires, even if their share option schemes seem to bear more than a passing resemblance to the national lottery. It brought them bigger and faster bucks than almost any other share option scheme in Britain because of some rather strange devices called golden handcuffs. Perhaps those golden handcuffs were the sort of thing—

Mr. Graham

Will the Minister give way?

Mr. Aitken

No.

Perhaps they were the sort of thing that the Leader of the Opposition had in mind when he replied—

Mr. Graham

Will the Minister give way?

Mr. Aitken

I hope someone will put some handcuffs on the hon. Gentleman. That would be helpful. Anyway, I am looking forward to seeing Labour's—[Interruption.]

Mr. Deputy Speaker (Mr. Michael Morris)

Order. The House must settle down a little. I know that it is—

Mr. Aitken

rose—

Mr. Deputy Speaker

Order. The right hon. Gentleman must obey the orders of the House as much as anybody and pay attention to the Chair.

Mr. Aitken

I can quite understand why the—

Mr. Salmond

On a point of order, Mr. Deputy Speaker. I am having—[Interruption.] I am having extreme difficulty in hearing. I could not make out whether the Minister was referring to the undeserving rich or the undeserving Ritz.

Mr. Deputy Speaker

That is not a matter for the Chair at all.

Mr. Aitken

I can see what the Labour party cannot stand about the interesting story that I have been telling about everyday Labour folk. It is what I think the House and the country cannot stand, either—the bare-faced humbug of a shadow Chancellor who has been trying to make a sanctimonious scandal out of share options. Fair and legal share option schemes that are acceptable to the friends of the Leader of the Opposition should also be acceptable to the working business people of Britain. So let us have no more double-talk and double standards on taxation gimmicks such as windfalls and loopholes and share option schemes. They will not work. Taxing them will not raise serious revenue.

Mr. Gordon Brown

Will the Chief Secretary simply confirm that it will not be Government policy at any time to tax executive share options as income?

Mr. Aitken

In certain circumstances, share options are already taxed under income tax. That just shows how little the hon. Gentleman knows about it.

Mr. Brown

Will the right hon. Gentleman give way?

Mr. Aitken

No, I shall not give way a second time.

Being thoughtful for a moment, these exchanges show that there are perhaps two fault lines running through British politics at the moment: the unity gap on the Conservative Benches and the credibility gap in the Labour party. Both gaps are bad for the country.

Mr. Graham

Will the right hon. Gentleman give way?

Mr. Aitken

In the long run, when the general election comes around in two years' time, it will be Labour's credibility gap that will prove to be the greater and more enduring liability. The greatest and most depressing feature of our six days of debates on the Budget resolutions has been the complete absence of answers, let alone serious alternatives and policies, from the Opposition Front Bench.

As The Sunday Times said in its editorial last Sunday, in words which must have chilled the Opposition: A 39.5 Labour opinion poll lead will not last long if it rests on a policy vacuum. What an incredible vacuum it is, and how cruelly Labour has been exposed in these debates. So much so that the national society for the prevention of cruelty to shadow Chancellors almost had to rush in the stretcher bearers last Thursday when my right hon. and learned Friend the Chancellor attacked the hon. Member for Dunfermline, East.

As everyone knows, my right hon. and learned Friend the Chancellor made mincemeat of the hon. Member for Dunfermline, East. He chopped him up into little pieces and finally held aloft to public ridicule the one and only remaining portion of his anatomy, which he called the hon. Gentleman's brass neck.

However, my right hon. and learned Friend understated his case. What we have on the Opposition Front Bench is not one brass neck, but a brass band of brass necks. They cannot play a tune. They do not understand the instruments of economic policy. Even their negative noises of discord fall into embarrassed silence whenever they are asked serious questions about the economy.

For example, we can ask the following questions: do the Opposition think that the present and planned levels of borrowing are too high or too low? Would they put taxes up or down? Do they think that public spending is too high or too low? Will they give a figure to define the full employment that they so glibly promise—

Mr. Graham

Will the right hon. Gentleman give way on that point?

Mr. Aitken

No, I shall not give way.

Mr. Graham

On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker

Order. The hon. Member for Renfrew, West and Inverclyde (Mr. Graham) has been leaping up and down for the past 12 minutes. It is clear that the Chief Secretary to the Treasury does not intend to give way.

Mr. Aitken

I have a couple more embarrassing questions. At what figure will the Opposition set the minimum weekly wage which they have undertaken to introduce? Will it be more or less than the £60 price of the Leader of the Opposition's haircut? What is their estimate of the number of jobs that will be lost as a result of what the deputy Leader of the Opposition euphemistically calls the "shake-out" in employment that the minimum wage policy will create?

We hear no answer to those questions. When we ask the shadow Chancellor those questions—he is not just soundbite man, he is soundbiteosaurus rex of the air waves—he becomes Dumbstruck of Dunfermline. That is why today's credibility gap in Labour's economic policy will become tomorrow's vote-losing chasm.

By contrast, this Government and this party are united in support for the commitment to sound finances of my right hon. and learned Friend the Chancellor. We are united in our determination to continue the reduction in public borrowing so that we can get back to our core belief of reducing taxation as soon as it is prudent to do so.

We are united in our determination to back a Budget that will sustain and strengthen Britain's growing recovery. That recovery is showing some of the most impressive signs and statistics seen in Britain for many years—inflation at 2 per cent.; unemployment coming down for the past 20 months, month after month; and 450,000 people have come off the register since December 1992.

What the hon. Member for Dunfermline, East said at the beginning of the debate on the 1993 Budget resolutions bears repeating: I make one Budget forecast—that, after the Budget, unemployment will rise this month, next month and for months afterwards."—[Official Report, 17 March 1993; Vol. 221, c. 289.] He was wrong that month, next month, the month after and the month afterwards. The unemployment figures fell by 45,000 in the month of October, they fell by 28,000 in the month of September, and they are coming down by 1,000 a day.

The feel-good factor might not be here yet, but the feel-safe factor is here. People feel safer because of my right hon. and learned Friend's excellent Budget, which will stand the test of time and sustain the recovery. I commend my right hon. and learned Friend's Budget to the House.

Question put, That the amendment be made:—

The House divided: Ayes 274, Noes 317.

Division No. 20]	[22.00 pm
AYES
Abbott, Ms Diane	Cummings, John
Adams, Mrs Irene	Cunliffe, Lawrence
Ainger, Nick	Cunningham, Jim (Covy SE)
Ainsworth, Robert (Cov'try NE)	Dafis, Cynog
Allen, Graham	Dalyell, Tam
Alton, David	Darling, Alistair
Anderson, Donald (Swansea E)	Davidson, Ian
Anderson, Ms Janet (Ros'dale)	Davies, Bryan (Oldham C'tral)
Armstrong, Hilary	Davies, Rt Hon Denzil (Llanelli)
Ashton, Joe	Davies, Ron (Caerphilly)
Austin-Walker, John	Davis, Terry (B'ham, H'dge H'I)
Banks, Tony (Newham NW)	Denham, John
Barnes, Harry	Dewar, Donald
Barron, Kevin	Dixon, Don
Battle, John	Dobson, Frank
Bayley, Hugh	Donohoe, Brian H
Beckett, Rt Hon Margaret	Dowd, Jim
Beith, Rt Hon A J	Dunnachie, Jimmy
Bell, Stuart	Dunwoody, Mrs Gwyneth
Benn, Rt Hon Tony	Eagle, Ms Angela
Bennett, Andrew F	Eastham, Ken
Bermingham, Gerald	Enright, Derek
Berry, Roger	Etherington, Bill
Betts, Clive	Evans, John (St Helens N)
Blunkett, David	Ewing, Mrs Margaret
Boateng, Paul	Fatchett, Derek
Boyes, Roland	Field, Frank (Birkenhead)
Bradley, Keith	Fisher, Mark
Bray, Dr Jeremy	Flynn, Paul
Brown, Gordon (Dunfermline E)	Foster, Rt Hon Derek
Brown, N (N'c'tle upon Tyne E)	Foster, Don (Bath)
Bruce, Malcolm (Gordon)	Foulkes, George
Burden, Richard	Fraser, John
Byers, Stephen	Fyfe, Maria
Callaghan, Jim	Galloway, George
Campbell, Mrs Anne (C'bridge)	Gapes, Mike
Campbell, Menzies (Fife NE)	Garrett,John
Campbell, Ronnie (Blyth V)	George, Bruce
Campbell-Savours, D N	Gerrard, Neil
Canavan, Dennis	Gilbert, Rt Hon Dr John
Cann, Jamie	Godsiff, Roger
Chidgey, David	Golding, Mrs Llin
Chisholm, Malcolm	Gordon, Mildred
Church, Judith	Graham, Thomas
clark, Dr David (South Shields)	Grant Bemie (Tottenham)
clelland, David	Griffiths, Nigel (Edinburgh S)
Clwyd, Mrs Ann	Griffiths, Win (Bridgend)
Cohen, Harry	Grocott, Bruce
Connarty, Michael	Gunnell, John
Cook, Frank (Stockton N)	Hain, Peter
Cook, Robin (Livingston)	Hall, Mike
Corbett, Robin	Hanson, David
Corbyn, Jeremy	Hardy, Peter
Corston, Jean	Harman, Ms Harriet
Cousins, Jim	Harvey, Nick
Cox, Tom	Hattersley, Rt Hon Roy

Henderson, Doug	Moonie, Dr Lewis
Heppell,John	Morgan, Rhodri
Hill, Keith (Streatham)	Morley, Elliot
Hinchliffe, David	Morris, Rt Hon Alfred (Wy'nshawe)
Hodge, Margaret	Morris, Rt Hon John (Aberavon)
Hoey, Kate	Mudie, George
Hogg, Norman (Cumbernauld)	Mullin, Chris
Home Robertson, John	Oakes, Rt Hon Gordon
Hood, Jimmy	O'Brien, Mike (N W'kshire)
Hoon, Geoffrey	O'Brien, Bill (Normanton)
Howarth, George (Knowsley N)	O'Hara, Edward
Howells, Dr. Kim (Pontypridd)	Olner, Bill
Hoyle, Doug	O'Neill, Martin
Hughes, Kevin (Doncaster N)	Orme, Rt Hon Stanley
Hughes, Robert (Aberdeen N)	Parry, Robert
Hughes, Roy (Newport E)	Patchett, Terry
Hutton, John	Pendry, Tom
Illsley, Eric	Pickthall, Colin
Ingram, Adam	Pike, Peter L
Jackson, Glenda (H'stead)	Pope, Greg
Jackson, Helen (Shef'ld, H)	Powell, Ray (Ogmore)
Jamieson, David	Prentice, Bridget (Lew'm E)
Janner, Greville	Prentice, Gordon (Pendle)
Jones, Barry (Alyn and D'side)	Prescott, John
Jones, Ieuan Wyn (Ynys Mon)	Primarolo, Dawn
Jones, Jon Owen (Cardiff C)	Purchase, Ken
Jones, Lynne (B'ham S O)	Quin, Ms Joyce
Jones, Martyn (Clwyd, SW)	Radice, Giles
Jones, Nigel (Cheltenham)	Randall, Stuart
Jowell, Tessa	Raynsford, Nick
Kaufman, Rt Hon Gerald	Reid, Dr John
Keen, Alan	Rendel, David
Kennedy, Charles (Ross,C&S)	Robertson, George (Hamilton)
Kennedy, Jane (Lpool Brdgn)	Robinson, Geoffrey (Co'try NW)
Khabra, Piara S	Roche, Mrs Barbara
Kilfoyle, Peter	Rogers, Allan
Kirkwood, Archy	Rooney, Terry
Lestor, Joan (Eccles)	Ross, Ernie (Dundee W)
Lewis, Terry	Rowlands, Ted
Liddell, Mrs Helen	Ruddock, Joan
Litherland, Robert	Salmond, Alex
Livingstone, Ken	Sedgemore, Brian
Lloyd, Tony (Stretford)	Sheerman, Barry
Llwyd, Elfyn	Sheldon, Rt Hon Robert
Loyden, Eddie	Shore, Rt Hon Peter
McAllion, John	Short, Clare
McAvoy, Thomas	Simpson, Alan
McCartney, Ian	Skinner, Dennis
Macdonald, Calum	Smith, Andrew (Oxford E)
McFall, John	Smith, Llew (Blaenau Gwent)
McKelvey, William	Soley, Clive
Mackinlay, Andrew	Spearing, Nigel
McLeish, Henry	Spellar, John
Maclennan, Robert	Squire, Rachel (Dunfermline W)
McMaster, Gordon	Steel, Rt Hon Sir David
McNamara, Kevin	Steinberg, Gerry
MacShane, Denis	Stevenson, George
McWilliam, John	Stott, Roger
Madden, Max	Strang, Dr. Gavin
Maddock, Diana	Straw, Jack
Mahon, Alice	Sutcliffe, Gerry
Mandelson, Peter	Taylor, Mrs Ann (Dewsbury)
Marek, Dr John	Taylor, Matthew (Truro)
Marshall, David (Shettleston)	Thompson, Jack (Wansbeck)
Marshall, Jim (Leicester, S)	Timms, Stephen
Martin, Michael J (Springburn)	Tipping, Paddy
Martlew, Eric	Turner, Dennis
Maxton, John	Tyler, Paul
Meacher, Michael	Vaz, Keith
Meale, Alan	Walker, Rt Hon Sir Harold
Michael, Alun	Wallace, James
Michie, Bill (Sheffield Heeley)	Walley, Joan
Michie, Mrs Ray (Argyll & Bute)	Wardell, Gareth (Gower)
Milburn, Alan	Wareing, Robert N
Miller, Andrew	Watson, Mike
Mitchell, Austin (Gt Grimsby)	Welsh, Andrew

Wicks, Malcolm	Wray, Jimmy
Wigley, Dafydd	Wright, Dr Tony
Williams, Rt Hon Alan (SW'n W)	Young, David (Bolton SE)
Williams, Alan W (Carmarthen)
Wilson, Brian	Tellers for the Ayes:
Winnick, David	Mr. Eric Clarke and
Worthington, Tony	Mr. Joe Benton.
NOES
Ainsworth, Peter (East Surrey)	Curry, David (Skipton & Ripon)
Aitken, Rt Hon Jonathan	Davies, Quentin (Stamford)
Alexander, Richard	Davis, David (Boothferry)
Alison, Rt Hon Michael (Selby)	Day, Stephen
Allason, Rupert (Torbay)	Deva, Nirj Joseph
Amess, David	Devlin, Tim
Arbuthnot, James	Dicks, Terry
Arnold, Jacques (Gravesham)	Dorrell, Rt Hon Stephen
Arnold, Sir Thomas (Hazel Grv)	Douglas-Hamilton, Lord James
Ashby, David	Dover, Den
Aspinwall, Jack	Duncan, Alan
Atkins, Robert	Duncan Smith, Iain
Atkinson, David (Bour'mouth E)	Dunn, Bob
Atkinson, Peter (Hexham)	Durant, Sir Anthony
Baker, Rt Hon K (Mole Valley)	Dykes, Hugh
Baker, Nicholas (Dorset North)	Eggar, Tim
Baldry, Tony	Elletson, Harold
Banks, Matthew (Southport)	Emery, Rt Hon Sir Peter
Bates, Michael	Evans, David (Welwyn Hatfield)
Batiste, Spencer	Evans, Jonathan (Brecon)
Bellingham, Henry	Evans, Nigel (Ribble Valley)
Bendall, Vivian	Evans, Roger (Monmouth)
Beresford, Sir Paul	Evennett, David
Biffen, Rt Hon John	Faber, David
Body, Sir Richard	Fabricant, Michael
Bonsor, Sir Nicholas	Fenner, Dame Peggy
Booth, Hartley	Field, Barry (Isle of Wight)
Boswell, Tim	Fishburn, Dudley
Bottomley, Peter (Eltham)	Forman, Nigel
Bottomley, Rt Hon Virginia	Forsyth, Michael (Stirling)
Bowden, Sir Andrew	Forsythe, Clifford (Antrim S)
Bowis, John	Forth, Eric
Boyson, Rt Hon Sir Rhodes	Fowler, Rt Hon Sir Norman
Brandreth, Gyles	Fox, Dr Liam (Woodspring)
Brazier, Julian	Fox, Sir Marcus (Shipley)
Bright Sir Graham	Freeman, Rt Hon Roger
Brooke, Rt Hon Peter	French, Douglas
Brown, M (Brigg & Cl'thorpes)	Fry, Sir Peter
Browning, Mrs. Angela	Gale, Roger
Bruce, Ian (Dorset)	Gallie, Phil
Budgen, Nicholas	Gardiner, Sir George
Burns, Simon	Garel-Jones, Rt Hon Tristan
Burt, Alistair	Garnier, Edward
Butcher, John	Gillan, Cheryl
Butler, Peter	Goodlad, Rt Hon Alastair
Butterfill, John	Goodson-Wickes, Dr Charles
Carlisle, John (Luton North)	Gorman, Mrs Teresa
Carlisle, Sir Kenneth (Lincoln)	Gorst, Sir John
Carrington, Matthew	Grant, Sir A (Cambs SW)
Carttiss, Michael	Greenway, Harry (Ealing N)
Cash, William	Greenway, John (Ryedale)
Channon, Rt Hon Paul	Griffiths, Peter (Portsmouth, N)
Churchill, Mr	Grylls, Sir Michael
Clappison, James	Gummer, Rt Hon John Selwyn
Clark, Dr Michael (Rochford)	Hague, William
Clarke, Rt Hon Kenneth (Ru'clif)	Hamilton, Rt Hon Sir Archibald
Clifton-Brown, Geoffrey	Hamilton, Neil (Tatton)
Coe, Sebastian	Hanley, Rt Hon Jeremy
Colvin, Michael	Hannam, Sir John
Congdon, David	Hargreaves, Andrew
Conway, Derek	Harris, David
Coombs, Simon (Swindon)	Haselhurst, Alan
Cope, Rt Hon Sir John	Hawkins, Nick
Cormack, Patrick	Hawksley, Warren
Couchman, James	Hayes, Jerry
Cran, James	Heald, Oliver
Currie, Mrs Edwina (S D'by'ire)	Heath, Rt Hon Sir Edward

Heathcoat-Amory, David	Neubert, Sir Michael
Hendry, Charles	Newton, Rt Hon Tony
Heseltine, Rt Hon Michael	Nicholls, Patrick
Hicks, Robert	Nicholson, David (Taunton)
Higgins, Rt Hon Sir Terence	Nicholson, Emma (Devon West)
Hill, James (Southampton Test)	Norris, Steve
Hogg, Rt Hon Douglas (G'tham)	Onslow, Rt Hon Sir Cranley
Horam, John	Oppenheim, Phillip
Hordem, Rt Hon Sir Peter	Ottaway, Richard
Howard, Rt Hon Michael	Page, Richard
Howarth, Alan (Strat'rd-on-A)	Paice, James
Howell, Rt Hon David (G'dford)	Patnick, Sir Irvine
Howell, Sir Ralph (N Nortolk)	Patten, Rt Hon John
Hughes, Robert G (Harrow West)	Pattie, Rt Hon Sir Geoffrey
Hunt, Rt Hon David (Wirral W)	Pawsey, James
Hunt, Sir John (Ravensbourne)	Peacock, Mrs Elizabeth
Hurd, Rt Hon Douglas	Pickles, Eric
Jack, Michael	Porter, Barry (Wirral S)
Jackson, Robert (Wantage)	Porter, David (Waveney)
Jenkin, Bernard	Portillo, Rt Hon Michael
Jessel, Toby	Powell, William (Corby)
Johnson Smith, Sir Geoffrey	Rathbone, Tim
Jones, Gwilym (Cardiff N)	Redwood, Rt Hon John
Jones, Robert B (W Hertfdshr)	Renton, Rt Hon Tim
Kellett-Bowman, Dame Elaine	Richards, Rod
Key, Robert	Riddick, Graham
King, Rt Hon Tom	Robathan, Andrew
Kirkhope, Timothy	Roberts, Rt Hon Sir Wyn
Knapman, Roger	Robertson, Raymond (Ab'd'n S)
Knight, Mrs Angela (Erewash)	Robinson, Mark (Somerton)
Knight, Greg (Derby N)	Roe, Mrs Marion (Broxbourne)
Knight, Dame Jill (Bir'm E'st'n)	Ross, William (E Londonderry)
Knox, Sir David	Rumbold, Rt Hon Dame Angela
Kynoch, George (Kincardine)	Ryder, Rt Hon Richard
Lait, Mrs Jacqui	Sackville, Tom
Lamont, Rt Hon Norman	Sainsbury, Rt Hon Tim
Lang, Rt Hon Ian	Scott, Rt Hon Nicholas
Lawrence, Sir Ivan	Shaw, David (Dover)
Legg, Barry	Shaw, Sir Giles (Pudsey)
Leigh, Edward	Shephard, Rt Hon Gillian
Lennox-Boyd, Sir Mark	Shepherd, Colin (Hereford)
Lester, Jim (Broxtowe)	Shepherd, Richard (Aldridge)
Lidington, David	Shersby, Michael
Lilley, Rt Hon Peter	Sims, Roger
Lloyd, Rt Hon Peter (Fareham)	Skeet, Sir Trevor
Lord, Michael	Smith, Sir Dudley (Warwick)
Luff, Peter	Smith, Tim (Beaconsfield)
Lyell, Rt Hon Sir Nicholas	Soames, Nicholas
MacGregor, Rt Hon John	Speed, Sir Keith
MacKay, Andrew	Spencer, Sir Derek
Maclean, David	Spicer, Sir James (W Dorset)
McLoughlin, Patrick	Spicer, Michael (S Worcs)
McNair-Wilson, Sir Patrick	Spink, Dr Robert
Madel, Sir David	Sproat, Iain
Maitland, Lady Olga	Squire, Robin (Hornchurch)
Malone, Gerald	Stanley, Rt Hon Sir John
Mans, Keith	Steen, Anthony
Marland, Paul	Stephen, Michael
Marlow, Tony	Stem, Michael
Marshall, John (Hendon S)	Stewart, Allan
Marshall, Sir Michael (Arundel)	Streeter, Gary
Martin, David (Portsmouth S)	Sumberg, David
Mates, Michael	Sweeney, Walter
Mawhinney, Rt Hon Dr Brian	Sykes, John
Mellor, Rt Hon David	Tapsell, Sir Peter
Merchant, Piers	Taylor, Ian (Esher)
Mills, Iain	Taylor, Rt Hon John D (Strgfd)
Mitchell, Andrew (Gedling)	Taylor, John M (Solihull)
Mitchell, Sir David (Hants NW)	Taylor, Sir Teddy (Southend, E)
Moate, Sir Roger	Temple-Morris, Peter
Molyneaux, Rt Hon James	Thomason, Roy
Monro, Sir Hector	Thompson, Sir Donald (C'er V)
Montgomery, Sir Fergus	Thompson, Patrick (Norwich N)
Moss, Malcolm	Thomton, Sir Malcolm
Needham, Rt Hon Richard	Thurnham, Peter
Nelson, Anthony	Townend, John (Bridlington)

Townsend, Cyril D (Bexl'yh'th)	Wells, Bowen
Tracey, Richard	Whitney, Ray
Tredinnick, David	Whittingdale, John
Trend, Michael	Widdecombe, Ann
Trimble, David	Wiggin, Sir Jerry
Trotter, Neville	Wilkinson, John
Twinn, Dr Ian	Willetts, David
Vaughan, Sir Gerard	Wilshire, David
Viggers, Peter	Winterton, Mrs Ann (Congleton)
Walden, George	Winterton, Nicholas (Macc'f'ld)
Walker, A Cecil (Belfast N)	Wolfson, Mark
	Wood, Timothy
Walker, Bill (N Tayside)	Yeo, Tim
Waller, Gary	Young, Rt Hon Sir George
Ward, John
Wardle, Charles (Bexhill)	Tellers for the Noes:
Waterson, Nigel	Mr. David Lightbown and
Watts, John	Mr. Sydney Chapman.

Question accordingly negatived.

Main Question agreed to.

Resolved,

c790
1. 1. VALUE ADDED TAX (FUEL AND POWER) 206 words
cc790-3
2. SCHEDULE A1 1,371 words
c879
3. 1. VALUE ADDED TAX (FUEL AND POWER) 208 words
cc879-81
4. SCHEDULE A1 1,084 words
cc881-6
5. 2. SPIRITS (RATE) 2,448 words, 1 division
cc886-90
6. 3. BEER (RATE) 2,410 words, 1 division
c890
7. 4. CIDER (RATE) 62 words
c890
8. 5. WINE AND MADE-WINE (RATES) (No. 2) 77 words
c890
9. 6. TOBACCO PRODUCTS (RATES) (No. 2) 69 words
cc890-3
10. 7. HYDROCARBON OIL (RATES) (No. 2) 1,485 words, 1 division
c893
11. SUPREME COURT OF ENGLAND AND WALES 37 words
c893
12. PRIVILEGES 13 words