HC Deb 25 January 1994 vol 236 cc169-261

[Relevant document: Second Report from the Treasury and Civil Service Committee on The November 1993 Budget (House of Commons Paper No. 87)]

Order for Second Reading read.

Madam Speaker

I have selected the amendment standing in the name of the Leader of the Opposition.

4.4 pm

The Chief Secretary to the Treasury (Mr. Michael Portillo)

I beg to move, That the Bill be now read a Second time.

The Finance Bill begins its passage through the House today. The House will know that managing the Bill each year requires co-operation between the parties. In the interests of good government, we must ensure that each of the inevitably complicated matters in the Bill is given time for discussion and that outside interests are given plenty of time to comment. We have always been able to do that in the House on the basis of sensible arrangements between the parties for orderly debate, but this year the Labour party will not co-operate. I have written to the hon. Member for Peckham (Ms Harman)—my opposite number—setting out a sensible scheme for consideration of the Bill and proposing the clauses to be taken on the Floor of the House and a reasonable timetable to which we can all work to ensure that the Bill can be given full consideration by the Easter recess.

That the hon. Lady has refused to enter into any understanding with me I regard as most unreasonable. The matters in the Bill are very important, and people outside the House expect us to give them careful consideration. It is extraordinary of the Labour party to block the most common-sense arrangements for doing our business. Today, I once again reiterate my appeal to the hon. Lady to reconsider her position and to make an arrangement in the interests of orderly business in the House.

The Government bring their Bill to the House because we are committed to align what the Government spend with what they receive in tax. The Bill is crucial if we are to have sound public finances. Sound public finances are essential to our national prosperity. What is more, the Government believe that it would be ethically indefensible for the Government to plan consistently to live beyond their means when every family and business in the country has had to make the sacrifices necessary to bring income and expenditure into line.

The Government have therefore set out their economic policies with great care. Over the past 18 months, we have set out our monetary policy, we have put in place the transparent arrangements that determine the considerations that lead to our decisions on interest rates; the markets can be confident about what they are. We have set out a medium-term spending strategy. We did that first in the autumn statement 1992 with the new top-down approach. We produced figures then. We followed that up in the Budget introduced by my right hon. and learned Friend the Chancellor in November with new figures that came in below the public spending ceilings that we had set the year before.

People know the limits of what the Government will spend. They know that the Government will stick within those limits. In the most recent spending round, we demonstrated our determination not only to hold down public spending but to reduce the plans for public spending that we had made. For 1994–95, we have made, in successive autumn statements, two reductions totalling more than £8 billion off the plans for the coming year. We have a medium-term spending strategy, and a medium-term taxation strategy. The markets know exactly how the Government will raise the revenue that is needed. They know that they can have confidence that the Government's borrowing will be reduced sharply. That confidence is reflected in today's low level of interest—the lowest since 1977.

I now want to make a statement which will, I believe, deeply shock the Labour party, as most statements of the obvious do. There is an unbreakable link between what Governments spend and what they must raise in taxes. At the last election, the contest was between a Conservative party whose every instinct is to control spending and reduce taxation and a Labour party that is dedicated to extending the role of the state through increased public spending and, therefore, to raising taxes in order to pay for that. Nothing that has happened since the last election has changed the validity of the choice that was put before the British people then, or the validity of the decision that the British people made on that point.

Ms Harriet Harman (Peckham)

The Chief Secretary has just been telling the House about ethics. Will he admit to the House that he misled the country on taxes at the last general election?

Mr. Portillo

The Government gave a pledge that they would uphold sound public finances, and we have responded in the difficult circumstances that we have faced since then in order to fulfil that pledge. I do not believe that Chancellor Kohl promised the German people that there would be a 9 per cent. reduction in industrial production. I do not believe that Mr. Gonzales promised that there would be a 22 per cent. rate of unemployment in Spain.

Governments have to cope with the circumstances that they find, and if they are good Governments they do so in accordance with their principles. The principle of this Government is that we will have sound public finances. What the Government raise and what the Government spend will be brought into line with one another.

Ms Harman

What this Government did was promise to cut taxes. Will the Chief Secretary admit that he misled the country in the last general election because he promised to cut taxes?

Mr. Portillo

We gave the most solemn pledge to the country that we would deliver sound public finances. That is what we stand by today. The hon. Lady knows perfectly well that the Conservative party's every instinct is to cut taxation, but our principle to establish sound public finances comes first. We have principles. We have priorities. We know what those priorities are and that is why we deliver policies in which people can have confidence.

Mr. Clive Betts (Sheffield, Attercliffe)

Does the Chief Secretary remember that in the Budget debate he said that he and his colleagues did not say at the time of the election that taxes would go up because We thought that the recession was coming to an end in early 1992."—[Official Report, 1 December 1993; Vol. 233, c. 1072.] How does the right hon. Gentleman square that statement with the statement made by the Chancellor in the same Budget debate? He said: It is now clear that the recovery started in the first half of 1992".—[Official Report, 30 November 1993; Vol. 233, c.1919.] If the recovery started in the first half of 1992, why did he not manage to anticipate that during the general election and make the clear commitments on taxation that obviously he did not make at that time?

Mr. Portillo

I congratulate the hon. Gentleman. He has had a couple of months to think out that question. There is the small matter of the pace at which the recovery was taking place, and the hon. Gentleman was as wrong as anybody else in thinking that the recovery had begun at a rapid pace during the early part of 1992. Alas, we were disappointed, but the Government have not been afraid to take the action that is necessary.

Nothing has changed about the Labour party. Nothing has changed in the series of promises that it will spend more money, which it gives day after day. In recent times, we have heard promises from the Labour party that local councils will spend another £6 billion from the money that is rightly set aside against their indebtedness. We have heard that it will increase overseas aid by £2.5 billion. We have heared that it will increase health spending, which it wants to take up to 7 per cent. of national income. That would mean another £6 billion. We have heard that it wants to equalise the state pension age at 60 instead of 65, and the additional cost of that would be £12 billion.

There is no accounting from the Labour party to show how all those promises will be paid for, and no Labour spokesman has the self control to get up in a debate in the House or to give a radio interview and last the five minutes necessary without making some new promise about public spending. On Friday evening, I took part in "Any Questions" with the hon. Member for Oldham, West (Mr. Meacher). We had not got five minutes into the programme before he was promising us a new and highly expensive house building programme. Even the shadow Chief Secretary suffers from that marked lack of public expenditure control. One searches in vain through the wilderness of her speeches for any sign that she urges restraint on her colleagues, any sign of the cuts that she believes will be necessary. No such promises are to be found from the hon. Lady.

From top to bottom, the Labour party is characterised by its public-spending incontinence. If spending today, as a proportion of national income, is higher than we would wish, and it is, we can rely on this: it would be much higher under Labour. If the taxes that we require today, at the end of a recession, to balance the books are higher than we would like them to be, and they are, we can count on this: they would be higher still under Labour.

Let me put it plainly. Labour spends more; Labour borrows more; Labour would tax more. Come rain or come shine, Labour would tax, borrow and spend more than we do. The House need not take my word for it. In "On the Record", the hon. Member for Dunfermline, East (Mr. Brown) said: The Budget decisions that the Conservatives made in the 1980s were completely unacceptable. What does that mean? It means that the hon. Gentleman disagrees with the reduction in income tax from 33p to 25p in the pound; it means that he disagrees with the reduction in corporation tax from 52 per cent. to 33 per cent. Those were changes that we introduced in the 1980s, and the hon. Gentleman disagrees with both of them.

There is one honest man on the Labour Benches, although he is too honest to be on the Front Bench. I refer to the hon. Member for Dagenham (Mr. Gould), who, in that same programme, said: I think the Labour party ought to accept that we will always be likely to have a higher tax burden than our opponents, because we believe in public spending. Bravo! The hon. Gentleman spoke the simple truth. Here is a man who is not afraid of the truth—a man with whom it is a joy to have lunch. The Labour party has changed in only one respect. In the good old days of the Labour party—the days when it was led by the right hon. Member for Islwyn (Mr. Kinnock)—it used to produce a shadow Budget that showed that it would need to raise higher taxes to pay for all its promises of higher spending. Where is that old Welsh honesty that we all miss so much? It has gone out of the window.

In this Bill, the Government recognise that business cannot prosper and jobs cannot be created if public finances are under strain. That is why we have taken decisive steps to bring our finances into balance, tackling both spending and taxing: spending levels determine tax levels, so spending must be tackled.

Several hon. Members


Mr. Portillo

As my hon. Friends know, part of our deficit results from the large increases in what we have spent on health, education and social security. In each of the three years preceding 1992–93, we were spending an extra 5.5 per cent. in real terms on the health service. Did the Labour party ever say that that was too much? No: Labour, disgracefully, used individual cases to lead the public to believe that we were spending too little. Conservative Members well remember the party's scandalous, shameful behaviour over Jennifer's ear.

Several hon. Members


Mr. Portillo

Given that the Government have spent so much on health, would Labour spend more? Labour Members say that they would. Over the past five years, we have increased our spending on education by 25 per cent. in real terms. Did Labour tell us that that was too much? Did they tell us to cut back? No; they were too busy promising the earth and more. Would they now wish to spend more on education? They tell us that they would.

Mr. George Howarth (Knowsley, North)

Will the Chief Secretary give way?

Mr. Portillo

So the question for the hon. Member for Peckham to answer in her speech is this: what would Labour cut?

Mr. Howarth

Will the Chief Secretary give way? Mr. Portillo: What would Labour—[Interruption.]

Mr. Andrew Faulds (Warley, East)

On a point of order, Madam Speaker. I think that you would endorse my view, and the view of many hon. Members who are present, that it is most unusual for a senior Minister, having given us this prepared gibberish, not to yield to hon. Member after hon. Member when there are valid points to be made. Would you occasionally reprimand the Chief Secretary, Madam Speaker, or ask him kindly to observe the parliamentary courtesy of giving way when an hon. Member wishes to intervene?

Madam Speaker

Order. The hon. Gentleman is a long-standing Member of the House—[HON. MEMBERS: "Too long."] That may be the opinion of some people but it is not mine. He happens to be my constituency neighbour so I have to be very careful. As he knows, it is up to the hon. Member who had the floor to decide whether to give way. I am sure that the Minister has taken that into consideration.

Mr. Portillo

Indeed, I choose to give way often and have done so several times in this debate. I gave way twice to the hon. Member for Peckham and once to another hon. Member.

I want to ask the hon. Member for Peckham where the Labour party is to make the cuts. Her party says that taxes and borrowing are too high but it has promised extra spending on education, health and overseas aid, so where are the cuts to be made? I want to know. Are they to be made in social security? The hon. Lady and her friends are opposing the Bills that would reduce social security spending. Will the cuts be in transport, in housing, in defence or in training? The hon. Lady must tell us, and if she wants to, I should be happy to give way to her. She does not want to tell us. I genuinely thought that she would get up and make her usual, fatuous commitment that the Labour party will cut unemployment.

Mr. Peter Mandelson (Hartlepool)

Why is it fatuous?

Mr. Portillo

How will the Labour party cut unemployment? It is committed to the social chapter, which we know destroys jobs. Employers across Europe want to locate their businesses in Britain because we have the lowest non-wage costs in Europe. The Labour party wants the social chapter and wants to destroy jobs.

The Labour party says that it wants to stimulate investment but what plans does it have to do so? It wants to levy a special penal rate of tax on the utilities, which are some of the biggest investors in the British economy, and that would also destroy employment. Labour says that it will put more people into work, but how? By spending more on job creation schemes, I suppose—and how would they be financed? By more taxes? The Labour party tells us that taxation is already too high, so is it going to borrow? It tells us that borrowing is also too high. If it borrowed more, it would lose the confidence of the financial markets and we should have higher interest rates, slower recovery and fewer jobs, which is why I say that the Labour party's claim is fatuous. It is not only fatuous; it is misleading, it is dishonest and it is basically ignorant.

The Liberals—

Mr. George Howarth

Perhaps the Chief Secretary could throw some light on a subject that is worrying many hon. Members and people outside. During the general election campaign, either the Government knew what lay ahead in terms of public finance and they therefore misled the electorate or they did not know what was to happen, in which case how can we believe the figures that they are using now?

Mr. Portillo

We believed, as investment analysts, banks, other Governments, commentators and politicians in the Labour party believed, that the recovery was well under way around the time of the election. If we were wrong, the analysts, the banks, other Governments and people in the hon. Gentleman's party were wrong. If we made an error, it was an error and not a matter of dishonesty. The Labour party is presenting a dishonest policy and the Liberals are not much better—

Mr. A. J. Beith (Berwick-upon-Tweed)

I am sorry, but the Government did not make an error; they forecast a public sector borrowing requirement of £28 billion. It surely followed that they must already have had an idea that some tax increases would be necessary for a Government whose first priority, as the Chief Secretary has said, was to bring their taxes into line with their spending.

Mr. Portillo

The PSBR that we forecast at £28 billion turned out to be £37 billion. We did not foresee a PSBR of £50 billion.

The measures that the Government have had to take are accounted for by the differences between those figures. The hon. Gentleman knows well that the Government's policy has been to balance spending and income over time. We have recognised that we have run a PSBR when we were in recession, in the same way as we ran a surplus when we were at the peak of the recovery. The hon. Gentleman knows perfectly well, therefore, that it was consistent to run a policy of sound public finances and to tolerate a PSBR at the very trough of the recession. That trough turned out to be deeper than we thought and we are taking the corrective action that is in the Bill.

Mr. Paul Flynn (Newport, West)

The Chief Secretary is obviously suffering from repetitive taxing strain. Does he recall telling the country that he promised to provide —his words—an ultra-low-tax economy? Having now presided over the highest tax hike in our history, will he now resign?

Mr. Portillo

My aim is an ultra-low-tax economy and I believe that the British people will believe that the Conservatives are directed towards that. What should worry the hon. Gentleman is that the British people will never believe that that is the ambition of the Labour party. Members of the Labour party think that they are very clever whipping up this tax row. They think that they will make people disaffected with the Conservative Government. Well, perhaps they will, but when the Labour party has succeeded in convincing the British people that they are paying too much tax, and then the Labour party goes to the electorate and puts before the British people its plan to spend more and to tax more, I wonder whether its members will feel so clever then. I very much doubt it.

The Liberal party is not very much better. It does at least admit that it is its policy to spend more and borrow more. It gets some marks from me for frankness for that. At a time when the Government are already borrowing £1,000 million a week, however, what serious political party can propose that the solution to our problem is to borrow more money? The way to establish the low-tax economy that I and my hon. Friends want is to underpin the recovery with prudent fiscal policies. Our recovery will depend on clear, sustained determination to take difficult decisions now to provide a basis for longer-term prosperity. No one will look to the Labour party for that type of determination or that type of responsibility.

Mr. Mandelson

If the newspaper is not too undeferential for his tastes, has the Chief Secretary read The Sun today? Very properly, it asks why borrowing is so high. Is not the answer that borrowing is so high because unemployment is costing the country £26 billion a year? Is not the reason why we have such high taxation in Britain that we have such a low level of economic success as a result of the Government's policies?

Mr. Portillo

We had the highest growth in the European Community in 1993 and in 1994. I gave the explanation about unemployment. The hon. Gentleman was too busy squawking, "fatuous" from a sedentary position to listen to what I was saying. I did read the leader in The Sun this morning, which made it perfectly clear that it would be worse under a Labour Government That has been the thesis throughout my speech.

The Government have received the extremely interesting report from the Treasury and Civil Service Select Committee. We shall want to respond to it in due course, but I express my gratitude to the Select Committee. I welcome its conclusion that the Chancellor was right to tighten the fiscal position further, and that not to have done so would have had adverse economic consequences—that, remember, from an all-party Committee. I am pleased, too, that the Select Committee expects expenditure restraint. I know that my hon. Friends will be interested that the Committee expects expenditure restraint to contribute significantly towards the Government's objective of reducing public spending as a proportion of national income. That is the objective of Conservative Members. That has been underlined by the Select Committee. It is not, I believe, the objective of the Labour party. Without our determination to control state spending, the tax rises that we would need would be much higher than those in the Bill.

Mr. Giles Radice (Durham, North)

I am sure that the Minister is aware that two amendments, supported by all the Opposition Members in the Committee, were tabled, expressing concern about the scale of the tax hikes and saying that they could put our recovery at risk. In view of his new worries about the institutions of the House, I am sure that the right hon. Gentleman would not wish to mislead the House.

Mr. Portillo

My interest in the institutions of the House is not new found. As I said, we shall give a considered reply to the Committee's report. It is the judgment of my right hon. and learned Friend the Chancellor of the Exchequer, and my judgment too, that the recovery is strong enough. It is broadening and sustainable, and it will be proof against the increases in taxation this year. Both our forecasts and the independent forecasts for the coming year take into account the tax increases in the Bill, and those in the previous Finance Act.

Mr. Alex Salmond (Banff and Buchan)

Presumably the Chief Secretary acknowledges that in colder areas of the country vulnerable groups in the community have to pay more for their fuel, and will therefore be forced to pay more VAT. Why is that fact of life for those vulnerable groups not reflected in the compensation scheme?

Mr. Portillo

It is not reflected because there are variations in what people spend on all sorts of goods, depending upon where they live. Some people in city areas have more expensive lives to lead than people in country areas, and so on. It is simply not possible to adjust social security arrangements to take account of each and every different factor, many of which tend to cancel each other out.

The hon. Member for Banff and Buchan (Mr. Salmond) has led me on to the subject of VAT on fuel and power. That has been the most difficult decision for my right hon. and hon. Friends, yet they have supported the Government, and I thank them very much for that. I believe that our announcement that we would extend VAT to fuel and power, unpopular though it was, clearly underlines our determination to deal with the borrowing problem.

We were under no illusions about the unpopularity of the measure. It is not the Conservative party that needs convincing that increasing taxes is unpopular, and is to be avoided whenever possible. The fact that, none the less, we decided to extend the scope of VAT made it clear beyond doubt that we were absolutely serious, and that we would take the necessary action to bring the public finances under control. As a result of that confidence, both short-term and long-term interest rates fell in 1993, and the recovery gained pace, because the markets were convinced that we were in earnest about dealing with public spending and borrowing.

Several hon. Members


Mr. Portillo

I shall make a little more progress.

The amendment that has been tabled on VAT surprises me. I had assumed that by now the Labour party had given up its opposition to the extension of VAT to fuel and power. If Labour Members were concerned about that, surely the natural time to introduce an amendment was at the end of the Budget debate. That would have been a timely occasion on which to debate the issue. I cannot understand why the Labour party did not table such an amendment then. Of course, I assume that whatever the reason was, it was not just plain incompetence on the part of the Labour party.

Because of the prudent decisions that we have taken, and because of the measures in the Bill, we shall not build up such a large burden of debt to pass to our children. Without that action, the interest rate burden would have mounted inexorably, and high debt interest would have required a permanently higher rate of taxation to pay for it. We have arrested that process in time. By taking steps now to bring our public finances into balance, we have created the prospect of lower taxes in years to come. Without the firm action we have taken, and the action that we propose today, we would have been increasing taxes every year, just to pay the interest on the Government's overdraft.

Any sensible Chancellor of the Exchequer would take action to avoid that. Only one has acted otherwise—a Labour Chancellor, Lord Healey. When he was faced with a mounting debt and a mounting burden of interest, he chose to cut taxes and to leave public spending and borrowing increasing inexorably. That was irresponsible in the extreme. That action by Lord Healey—cynical and irresponsible as it was—taken in 1978–79 as the general election approached, was the starting point for all the comparisons that the Labour party makes about the burden of taxation under its Government and under the Conservative Government. It was a year of shame and the Labour party ought to be happy to forget all about it.

The essential difference between the Labour party and the Conservative party is highlighted by our different attitudes to what has been described as the growth dividend. As the economy grows, the Labour party commits itself to squander that dividend on higher public spending. On the other hand, our commitment is to control spending and to pass that dividend to those who earned the money in the first place—the taxpayers. There remains today a huge gulf between the two parties in that respect. It is the same divide that faced the nation at the last general election. It is the same choice between the Labour party, which believes that the state should do more, spend more, tax more, and the Conservatives, who believe in sound public finance, the control of public spending and the shrinking of the state. My right hon. and hon. Friends—

Mr. Faulds

On a point of order, Mr. Deputy Speaker. Is there, in "Erskine May", any restraint of solo recitation?

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)

I am sure that the hon. Gentleman realises that that is not a point of order. I have no doubt that if there is such a restraint, he will go and find it.

Mr. Portillo

The Labour party has raised the stakes on taxation. It has convinced the people of the country that high taxation is something that it does not want. Labour Members think that they are sitting pretty today. I predict that they will rue the day. Come the next general election, no one will believe that the Labour party will reduce taxes. People will vote for the party that stands for the reduction of taxation, and the Conservative party believes in that.

The Budget and the Finance Bill provide the means of controlling public spending and setting our public finances on a sound footing. The Bill gives effect to the measures in the Budget, and I commend it to the House.

4.36 pm
Ms Harriet Harman (Peckham)

I welcome the Chief Secretary to the debate about taxes, because, while the whole country has been talking about taxes over the weekend and since then, the Chief—

Mr. Deputy Speaker

Order. May I draw it to the attention of the hon. Lady that she should move the amendment?

Ms Harman

I beg to move, That this House believes that the Finance Bill is not an acceptable and effective measure because it fails to make any proposal to repeal section 42 of the Finance Act 1993, which imposed value added tax on domestic fuel. [Interruption.]

Mr. Deputy Speaker

Order. There is not much point in asking the hon. Lady to move the amendment if I cannot hear her.

Ms Harman

I welcome the Chief Secretary to the debate about taxes, because, while the whole country has been talking about taxes over the weekend and since then, the right hon. Gentleman has been noticeably absent. While the Chancellor and the Financial Secretary to the Treasury have been running around television studios trying, unsuccessfully, to rescue the tattered reputation of the Government, the Chief Secretary, uncharacteristically, has been nowhere to be seen. It seems that he is ever available to make speeches to right-wing groups of Conservatives.

Sir Peter Hordern (Horsham)

On a point of order, Mr. Deputy Speaker. I understood that the hon. Lady was going to move the amendment.

Mr. Deputy Speaker

I have already pointed out to the hon. Lady that she should move the amendment and I would be obliged if she would.

Ms Harman

May I point out to the right hon. Member for Horsham that the amendment—[Interruption.]

Mr. Deputy Speaker

Order. We shall have order, whether I take points of order or not. The Chair will decide whether or not the hon. Lady is in order or out of order. That decision can safely be left to the Chair.

Mr. Robert Sheldon (Ashton-under-Lyne)

On a point of order, Mr. Deputy Speaker. You will know that, of course, it is perfectly in order to move the amendment at any time during the speech.

Mr. Deputy Speaker

The right hon. Gentleman is quite right.

Mr. Ian Taylor (Esher)

On a point of order, Mr. Deputy Speaker. Is it not in order that you remind the hon. Member for Peckham (Ms Harman) to move the amendment, because she forgot to table it last time? [Interruption.]

Mr. Deputy Speaker

We will have less frivolity, and get down to serious business.

Ms Harman

People outside the House of Commons are not interested in procedural points to disrupt debate; they are interested in the increases in taxes that they will face from this lying, hypocritical Government, and they are interested in the VAT which the Government have insisted on. The hon. Member for Esher (Mr. Taylor) will have an opportunity to vote with his constituents against VAT on gas and electricity.

Although the Chief Secretary to the Treasury is ever available to make speeches to right-wing groups, he has been available nowhere, it seems, to talk about the Finance Bill. He could hardly bring himself to discuss the contents of the Bill today. While his colleagues prepare for the next day's battering from a now furious Tory press, he has been watching his back in preparation for the next leadership election. That is why he has been so silent. It is no wonder he has not wanted to be seen talking about the Finance Bill: the Bill destroys once and for all the Conservatives' central claim that theirs is the party of low tax.

That is the claim that was presented to the British people as the principal reason for voting Tory at the previous election. That claim is now dead, for now the very same party has imposed 12 major tax increases in just one Bill, 20 tax rises in 20 months, and the largest tax demand in peacetime history. It is no wonder Tory Back-Bench Members are worried—taxes to the left of them, taxes to the right of them, into the valley of taxes Ministers are leading them.

Within two hours of the supposedly tax-cutting Chancellor making his Budget speech on 30 November, taxes began to rise—this year, next year, the year after, the year after that and the year after that as well. The Tories' five-year plan is tax upon tax, year after year.

As the claim to be the party of low tax is destroyed, so too is any claim to the trust of the British people. The Conservative manifesto invited the electorate to trust the Tories as the only party that understands the need for low taxation". But now the Government have been forced to admit that, whether it is tax on what one earns or tax on what one spends, one will pay more. The Prime Minister promised the British people that he could be trusted not to increase VAT, but the Government have been forced to admit that people are already paying twice as much VAT as they paid in 1979. He promised not to put VAT on gas and electricity, and now he intends to do just that. The Prime Minister promised that he could be trusted to make reductions in the rate of tax, year on year. But, in a parliamentary answer that the Financial Secretary gave me, the Government have been forced to admit that taxes on income have not only been raised but are now higher than they were in 1979.

Mr. Simon Burns (Chelmsford)

Does the hon. Lady accept that it is quite extraordinary to many people both in the House and outside that she should be lecturing on credibility and trust, given the economies with the truth and the innuendos and smears that she practised as shadow health spokesperson in the previous Parliament?

Ms Harman

That is a disgraceful diversion, and an attempt to distract attention from what the Government are doing to the hon. Gentleman's constituents on taxation. The hon. Gentleman is too cowardly to stand up and protect them against what the Government are doing.

Mr. Nigel Forman (Carshalton and Wallington)

I am trying to follow the hon. Lady's argument on tax matters, which is central to her speech. If she really is sincerely complaining about rates of tax under the Government, which rates of tax would her party cut if it were in office?

Ms Harman

I am complaining about tax increases from a Government who promised to cut tax, tax increases to pay for high unemployment, and tax which hits hardest those who can least afford it.

Perhaps the hon. Member for Carshalton and Wallington (Mr. Forman) should be reminded of what he said in his election address to his constituents, and perhaps he will vote with us against the Finance Bill. He said: The burden of income tax has been reduced and only the Conservatives promise further reductions"— [HON. MEMBERS: "Which taxes would you cut?"] We would stop VAT on gas and electricity.

Several hon. Members


Ms Harman

I shall not give way for a while.

Several hon. Members


Mr. Deputy Speaker

Order. The hon. Lady has made it quite clear that she is not giving way. These are not the football terraces.

Ms Harman

The Chief Secretary claimed last year—the right hon. Gentleman could confirm the point: Over time, we have shifted the tax burden away from direct taxes".—[Official Report, 26 April 1993; Vol. 223, c. 734.] But that is not what they have done. They have put up direct as well as indirect tax. The tax bill on the earnings of a typical family will be higher from April than it was in 1979. The Chief Secretary still refuses to own up to that deceit. Instead, he lectures us about morality and ethics. Perhaps we should not be surprised.

Mr. Rod Richards (Clwyd, North-West)

Will the hon. Lady give way?

Ms Harman

I will not give way.

The Chief Secretary has a history of brazening out extravagant claims, for it is he who promised the British people that he was committed not just to a low-tax economy—that was not good enough—not even to a very low-tax economy, but to an ultra-low-tax economy. With an unbridgeable gap between what he says and what he is doing—that is the real gap at issue—perhaps you should turn off the television cameras, Mr. Deputy Speaker, so that the country cannot see what is going on.

Mr. Quentin Davies (Stamford and Spalding)

As the hon. Lady now wishes to present herself as a champion of low taxes, does she regret that the Labour party opposed all the reductions in direct tax rates, income tax and corporation tax which we have brought about over the past 15 years? Will she apologise for the Labour party opposing those reductions?

Ms Harman

The hon. Gentleman should remember that we did not vote against widening the 20 per cent. ban when we considered the previous Finance Bill, but I am grateful for his intervention, because it allows me the opportunity to remind his constituents and his colleagues of what he said in his own election address. It was a good one. He said: We are absolutely committed to continuing to bring down taxes. What garbage. It is no wonder Conservative Members want to end the televising of Parliament. Having been exposed for putting up VAT and putting up national insurance, the Government continue to claim—one last claim—that theirs is the party of low income tax.

Mr. Graham Riddick (Colne Valley)

Will the hon. Lady give way?

Ms Harman

I am going to press on. [HON. MEMBERS: "He is on the list".] As my hon. Friends say, the hon. Gentleman is on the list.

In his new year message, after the Budget, the Prime Minister said: The Conservative party remains … the party of low income tax. Last Tuesday, in the House of Commons, he contradicted my right hon. and learned Friend the Leader of the Opposition and said: standard rates of tax under the Conservative party have dropped dramatically since the Opposition were in government".—[Official Report, 18 January, 1994; Vol. 235, c. 703.] But the Treasury's own figures, which were given to me in a parliamentary answer from the Financial Secretary—the hon. Gentleman will agree with me—show that the income tax bill for a family with a mortgage will be higher from April than it was in 1979. We know what the Government have done. They have reduced headline income tax rates, but they have cut tax allowances, and that is how they have put up tax bills. So their claim to be the party of low income tax is now exposed as being as fraudulent as all the other claims.

After all the broken promises and the betrayal of trust, the Prime Minister, the Chancellor and the Chief Secretary offer not a word of apology to the people of this country. What they offer is only evasion and excuses—the same kind of evasion and excuses which they have been dishing out since the election: "The recession went on longer than we expected," or, "Well, it depends what you call a political promise," or, "It is all outside our control." When confronted with the Treasury's own figures on tax increases, the Chancellor brazens it out and calls it "piffle".

With that record, the Chief Secretary's speech 10 days ago when he was whingeing about cynicism was a disgrace. Despite that record of betrayal, he demands respect from the British people. He believes that he and his colleagues are blameless victims of that terrible cynicism. The Chief Secretary tells us that it is all the fault of the British people—the new enemy within. It is all of them —all the British people. The public, he says, lack moral fibre. The Government do not lack moral fibre—not this honourable Government!

Mr. Riddiclk

Will the hon. Lady give way?

Ms Harman

I will not give way to the hon. Gentleman on moral fibre. I do not think that he has anything to tell the House about that.

The Chief Secretary says that leaders should be afforded respect whatever they do. Otherwise, he tells us, the country will not work so well. He wants us to turn off the television cameras so that the ignorant electorate cannot jump to so many wrong conclusions. The discredited and dishonest electorate have betrayed a decent and upstanding Government. The Tory party is not the party of low tax —it is the party of low excuses.

Mr. Portillo


Ms Harman

Here comes another excuse.

Mr. Portillo

No, not at all. I have listened to what the hon. Lady has said about my speech. Not a single comment that she made was accurate, and every one was a distortion. I do not want to get into a great discussion with her now, but the hon. Lady would be on stronger ground if she quoted what I said and argued against that, rather than parodying what I said. It shows her to be on weak ground, not strong ground.

Ms Harman

I must apoligise, as clearly I have been very hurtful to the Chief Secretary.

The Tory party is not the party of low tax—it is just the party of low excuses. In the case of the Chief Secretary, the excuses are not just low, but ultra-low. As the Government run out of excuses, all they can say—the Chief Secretary said it again this afternoon—is that they did not intend to put up taxes.

The Prime Minister says, "I very much regret that we had to put up taxes," and, "It was not our intention," and, "I did not wish to do it." The Chancelloor tells us about his instincts, but I am not sure that I want to know about them. He tells us that his instincts are for low taxes. The Chief Secretary tells us that the Conservative party believes in low taxes.

Those people who hold the great offices of state can offer nothing but their instincts and their aspirations. Ministers of the Crown have opened their hearts and told us of their hopes. This is truly, as the former Chancellor of the Exchequer, the right hon. Member for Kingston upon Thames (Mr. Lamont) said, a Government in office but not in power. A party which has been in government for 14 years begs to be judged not on its record but on its instincts. However, no one will take those instincts seriously and they count for nothing, because the Tories cannot deliver on their promises. They cannot deliver on their pledge of low tax, because they have failed on the economy.

After 14 years, the Tory economics of leaving everything to the markets have failed. Their economic failure has torpedoed their tax plans. They have presided over 14 years of our economy falling behind and of low growth. They have allowed our economy to sink into the deepest and longest recession since the war. They have presided over the destruction of one third of this country's manufacturing employment. They have landed Britain with a deficit in manufacturing trade for the first time in history. The party which says it stands for sound finance —whatever that means from this Government; the Chief Secretary has said it again today—is borrowing more than any other Government since the war.

It is in the face of that failure that the Government are putting up taxes in the Finance Bill. The higher taxes are not for better hospitals—they are cutting capital investment in the health service. The higher taxes are not for better railways—they are cutting investment in British Rail. The higher taxes are not for better training—they are cutting employment programmes.

The higher taxes are to pay the price of economic failure, and they are to deal with the cost of nearly 3 million unemployed people. With £9,000 being spent for every one person who is unemployed, that means that this country is spending £25 billion of public money a year on unemployment—two and a half times more than it was under Labour in 1979. That is where the money goes.

Mr. Portillo

What would the Opposition cut?

Ms Harman

The Chief Secretary asks what we would cut. We would cut unemployment. We want a nation at work, not a nation on benefits.

The higher taxes are to deal with the problems of high unemployment and low growth that the Government have created. The taxes are the price that the country is paying for a Government who believe that unemployment is a "price worth paying". The tax rises will not solve Britain's economic problems—they will just take the Government's economic failure one step further. The Government have raised taxes because of their economic failure, but the tax rises threaten to make the problem worse.

Even Ministers are admitting that the tax rises will slow the recovery, and that the recovery will be checked. Instead of a panic Budget which put up taxes, there should have been a Budget which took immediate action to address the real causes of the deficit that the Government have created. The Budget should have taken action to promote growth and cut unemployment, and to encourage investment in our industry, our infrastructure and our people.

The Chief Secretary thinks that cutting unemployment would be "fatuous". We wanted a Budget which would have released the £4 billion of capital receipts from council house sales. It is not fatuous to put building workers back to work and to take them off the dole. We wanted a Budget which gave an incentive to firms to hire the long-term unemployed. It is not fatuous to put the long-term unemployed back to work. We wanted an extended capital allowance to help industry with investment, and we wanted genuine action to modernise our infrastructure. We did not get that, and in consequence we will continue to have a weak economy.

Having been driven off its claim to be the party of low tax, the Conservative party cannot resist one further fundamental Tory instinct. Government Members have not been talking about that instinct tonight, but it is the real Tory instinct—the instinct for unfairness. Tonight, we ask the House to vote against VAT on gas and electricity because it breaks a clear election promise and because it hits hardest those who can least afford it.

The compensation scheme is wholly inadequate. All Government Members will find that even their poorest pensioners will have to pay some of this new tax. Is that what they want? Is that what they promised their constituents? Is that fair?

The hon. Member for Gloucestershire, West (Mr. Marland) wrote in a letter to one of his constituents that he would vote against VAT on gas and electricity if only he had the chance. Tonight he has that chance. His constituents will notice that he is not in the Chamber. But he has the chance to vote tonight.

The choice for Conservative Members is this: they can vote with these discredited Ministers or they can vote to honour the promises that they made to their constituents and the pledges that their Prime Minister made to the country. If they do not take the chance tonight to get rid of VAT on gas and electricity, their constituents will never forgive them.

To add to the unfairness of VAT on gas and electricity, the new taxes on spending are grossly unfair. The tax on insurance hits hardest people who live in poor, high-crime areas. They will have to pay up to seven times more of this tax than people in affluent areas.

Let us take the airport tax—the tax on holidays. It is neat, is it not, that the Conservatives have made an exemption for small aircraft? The Chancellor presented it as an exemption for the Scottish islands, yet 90 per cent. of those who go to, from and between the Scottish islands do not travel on planes which qualify for the exemption. Only 10 per cent. of them will escape the tax. It is a badly targeted exemption if it fails to help 90 per cent. of those who travel to the Scottish islands.

My hon. Friends suspect that there is another group who can expect not to pay the airport tax. It is not Scottish farmers or crofters, but millionaires with private jets. Who are the people who will be exempted? They are people such as John Latsis, Li Ka Shing and Asil Nadir—if he ever flew back to this country: all Tory donors, all private jet owners, all exempt from the tax.

The truth is that the Chancellor's exemption is not protection for crofters but protection for Tory donors. There is one thing that demoralised Conservative Members of Parliament can still hold to. There is one thing that we can rely on Tory Chancellors for. We can rely on them, when they put up taxes, always to ensure that there are loopholes for their friends.

The Tories have also increased direct taxes in the most unfair way possible. A family on half average earnings will pay more tax after April. They will spend more than they would have done in 1979. A family on average earnings will pay more tax after April than now and more than they paid in 1979, but a family on £100,000 will pay £1,000 a week less tax than in 1979.

Even as the Finance Bill imposes new unfair tax increases, it fails to end tax abuses by the wealthiest. The truth is that this is a Government who look to the most wealthy when they want to give away tax cuts but turn to ordinary people and their families when they put taxes up.

We shall oppose the Finance Bill, not only because it breaks election promises but because it is deeply unfair. The Chief Secretary complains about the cynicism that he says bedevils Britain. That cynicism has not arrived from nowhere. It has not arrived from outer space. It is not some virus or some new British disease, as the Chief Secretary calls it. It is the Tory Government who have made people cynical about politics. It is the Prime Minister who has brought shame on No. 10 Downing street. It is Tory Chancellors who have brought contempt on No. 11 Downing street.

No wonder that a Tory activist confided to The Daily Telegraph: When you go out and canvass you are hampered by the fact that everyone thinks the Prime Minister is … slippery". The Sun described the Prime Minister as weak and mediocre, surrounded by unprincipled spivs and chancers. I agree with the Chief Secretary on one thing. The deceit and duplicity of the Tories have taken their toll. People are demoralised. They have lost confidence. It is not that the Chief Secretary has discovered it: his Government have created it.

As the events of the past few days have shown, the Finance Bill marks an historic moment in British politics. Let us make no mistake about it: it is a decisive turning point against the Conservative party. The pledge of tax cuts has been betrayed. The promises of low taxes have been broken. The integrity of the Conservative party lies in tatters. It has nothing left. No one will believe it if it ever says again that it is a party of low tax. No one will ever trust the Tories on tax again.

Mr. Michael Stern (Bristol, North-West)

On a point of order, Mr. Deputy Speaker. I listened carefully to the speech of the hon. Member for Peckham (Ms Harman). [HON. MEMBERS: "He was not here."] I have been here throughout. [Interruption.]

Mr. Deputy Speaker

Order. How can I be expected to deal with a point of order if I cannot hear it?

Mr. Stern

I deliberately refrained from intervening in the speech of the hon. Member for Peckham so that I could hear her speech more clearly. Despite your invitation at the beginning of her speech, and despite Madam Speaker's selection of the Opposition amendment, I genuinely believe that at no point was that amendment moved.

Mr. Deputy Speaker

That is a matter for the Chair. The Chair was satisfied.

5.6 pm

Mr. John Biffen (Shropshire, North)

The hon. Member for Peckham (Ms Harman) formidably indicted practically every clause in the Finance Bill. She made it clear that in her experience it was one of the most unacceptable pieces of legislation that she had ever encountered. If that it true—I take her words—the prospect of the Bill being fiercely debated in Committee is assured. It is a Bill of massive proportions. My right hon. and hon. Friends in the Government owe it to the public outside and to the parliamentary process, if it seems that the Bill will be filibustered or impeded so that it will not receive proper consideration from beginning to end, to table an early timetable motion. That is the only way in which there can be proper consideration of the Bill in circumstances which are not of the making of my right hon. Friends, but which are certainly detrimental to the public interest in our affairs.

Finance Bill debates are always occasions for going down memory lane. Today has been no exception. Practically all the debate has concentrated on what has happened in the past. Not much has been said about what will happen in the period between now and the next election. The Bill marks the beginning of a phase of consideration of the economy that will dominate the next two or three years and will be central to what will be debated and resolved at the next general election.

I should like to share with the House a passing thought inspired by the speech of my right hon. Friend the Chief Secretary. He talked about the Denis Healey Budget of 1974, which cut taxes in a situation in which that was clearly damaging—[HON. MEMBERS: "1978."] I am sorry, 1978.

Dame Elaine Kellett-Bowman (Lancaster)

It was just before the election.

Mr. Biffen

That is right. I remember it well. Whatever the year, it was before an election.

The events are clearer in my imagination than the pedantry of dates. The Budget came after a narrow Labour victory and portended a somewhat enhanced Labour victory. I remember it well because it bore all the hallmarks of the measures against which my right hon. Friend has reacted. But the Opposition of the time did not oppose it; they thought that it was not the time to be seen to oppose tax cuts. It was left to my hon. Friend the Member for East Lindsey (Sir P. Tapsell) and to me—like two rednecks below the Gangway—to divide the House, earning ourselves the irritation of the Whips and an approving editorial in The Times. It was a sort of morning star of Maastricht to come. I say that to emphasise that we would be unwise to assume that there is a puritanical attachment to truth and analysis in connection with Budgets during the heady days leading up to elections.

Having said that, I hope that we have learnt something from the events of the past two or three years. It is now clear that my right hon. and learned Friend the Chancellor of the Exchequer has presented a Budget that includes massive increases in taxation. Nobody disputes that. Those increases are wholly merited, and I would have gone even further. The increases are wholly merited because they mark a very substantial reduction in the borrowing requirement, which I believe is my right hon. and learned Friend's utmost priority. From now on, as we begin to take advantage of the recovery—which of course will be affected by the tax increases, but which is reasonably well established and which my instinct tells me will continue —one question will increasingly characterise the political situation: how should the political world use the resources that are created by the recovery? Without doubt, our first priority should be to continue to reduce borrowing.

Thereafter, we shall have to make the tantalising choice between reducing taxation and accommodating further public expenditure increases.

I hope that my right hon. and learned Friend will not become too enthusiastic about any one of the courses that are available to him. Although we are discussing a combined spending and revenue-raising arrangement in a new form of debate, it is spending that determines taxation rather than vice versa. Of course, there is an interplay between the two, but hon. Members would be profoundly foolish if they though that they could walk away from dealing with the prime importance of accepted and legitimate public expenditure and the undertaking of collective responsibilities that are accepted by the ' Conservative party and many of its opponents. One always looks for an opportunity to reduce spending, but between now and the next election the underlying thrust of expenditure, certainly in health and education, is likely to be sustained and to intensify rather than to diminish.

I make that point as a check on rhetoric about what is available for tax cuts. Of course, one would like tax cuts, but my experience of them over many years is that they are tax redistributions. Revenue has increased in almost every sector except income tax, where it has been reduced. That has become the flagship of fiscal policy. I can understand the political attraction of that, but it seems to me that, when it came to the point of increasing the poll tax so that it would yield more than the local government taxes that it replaced—again, as part of the master strategy to reduce income tax—a certain amount of political misjudgment was involved; I put it no higher than that. Such realities will control us over the next two or three years.

Welfare spending is of enormous significance in our total budget. I believe that, sooner or later, changes in welfare spending will be forced on the House by the Borrie report or some other mechanism. Those changes will have to be made on the basis of the private sector being able to take over the running of a substantial part of a service which would otherwise and historically have been the responsibility of public expenditure. We have achieved that with retirement pensions and there are other sectors where it can be achieved. In my view, however, we are talking about a developing, almost Fabian-style policy, not one of substantial cuts delivered in a short time.

We should take pride in the fact that we have been successful in eliminating great sectors of expenditure on industry from the Budget. The most important part of that policy has been the privatisation of various public utilities so that their programmes are privately, and not Exchequer, financed. If expenditure on those programmes were superimposed on today's levels of public spending, that would present a formidable challenge.

I say to my hon. Friends and to my right hon. and learned Friend the Chancellor in particular that we need to be very careful to ensure that the idea of public sector involvement in industrial activity does not return via an unexpected route—Brussels. I have no hesitation in, and feel no shame about, putting the proposition that the growth in our European Union budget sits ill alongside the constraints that we try to place on our domestic economy. That creates new centres of fiscal patronage, which are then tapped, usually by local authorities, outside what ought to be the overriding determination of a national Treasury. I see that on the horizon as something that could become a factor in adding to the difficulty of ensuring prudent financial control in the years to come.

As we come to the next general election, I have no doubt that we are now moving back into a position from which a Conservative Government can move forward by encouraging a relationship between spending, revenue and borrowing that is defensible and can be properly understood by the public. When the parties are compared, the issue will be not about the promises of the past but about the promises for the future and the extent to which the Opposition parties will try to cap spending, make other alterations or relate the consequences of their policy on the known national budget.

Above all, the comparison of the parties will revolve around the extent to which politicians preach easy options. The easiest option is economic growth. That is the option that is reminiscent of the 1960s. The election of 1964 was fought on the belief that, through the national plan and the centralised allocation of resources, we could claim a much higher performance than would otherwise be the case. The events of the 1960s showed the shortcomings of that policy.

I feel, and live with, great charity towards the Opposition, especially the shadow Treasury team. I am sad that they are still trapped in the time warp of the 1960s. The hon. Member for Dunfermline, East (Mr. Brown) is a great proponent of economic growth, saying that we would be able to do away with unemployment that is created by a Tory Government—by which he means, created by a low level of economic activity. That is reminiscent of the past. The hon. Gentleman has much charm, but being a child of flower power and the 1960s is no guarantee of effectiveness at No. 11.

5.18 pm
Mr. Robert Sheldon (Ashton-under-Lyne)

Of course the right hon. Member for Shropshire, North (Mr. Biffen) views the 1960s differently from me. He lost an election in the 1960s and I won one. I think that that has coloured his attitude to that time.

I find it rather surprising that the Chief Secretary to the Treasury hardly mentioned the Bill, even though it is the largest Finance Bill that I have ever seen, running to two volumes. There seems to be an inverse relationship between the size of the Finance Bill and the amount of time that the Chief Secretary spends in explaining it.

The Bill includes two new taxes—on air passengers and on insurance premiums—but they did not get a mention. It is rare that a Chancellor of the Exchequer or Chief Secretary comes to the House with two new taxes but fails to mention them. When I was a Treasury Minister, I made it a principle that new taxes should be introduced at a low rate. That was a sensible policy. One ought to get the structure right and then jack it up. If a rate is low now, we must not be under the misapprehension that what we have is some minor tax about which we do not need to bother too much. In fact, it will be fertile ground for future Chancellors of the Exchequer seeking to raise money for the Treasury.

What we have been discussing repeatedly is tax rates —a very limited issue. In 1991 and 1992 the Conservative party captured the agenda. The issue at the last election should have been—indeed, the issue at any election should be—the future development of the country, a society caring for its weaker members and the prosperity of the people. At the last election the issue was no such thing. It was not even the economy, not even general taxation. It was the small difference in income tax as applied to certain people. We were talking about pence or, sometimes, a very few pounds, and 90 per cent. of people were not going to be affected very much.

What we are seeing now is the nemesis. It has come late, but it has come certain. The views of the Chancellor of the Exchequer and of the Conservative party are now being explained away because of their problems.

We ought not to be talking about expenditure against tax. That is not the only way of looking at the situation. Even less should we be concerned with tax rates against expenditure. What we ought to be talking about is revenue against expenditure. It is true, of course, that expenditure has to be covered by revenue. But revenue includes a multitude of things. It involves growth, investment and the cost of unemployment as well as tax rates. These are the matters that ought to have concerned the Chancellor in his preparation of the Budget, and ought to have concerned us all at the time of the last election and thereafter.

I hope that the Chancellor of the Exchequer is not satisfied with the increasing value of the pound against the deutschmark. He ought to be concerned not just about exporters but about the whole of manufacturing industry. I believe that he manifests some slight movement away from the hostility towards manufacturing industry that clearly existed throughout the 1980s. The right hon. and learned Gentleman seems to have a slightly more open mind, and I congratulate him on that.

Manufacturing industry must be given a chance. I can hardly ever make a speech without mentioning the 30 per cent. of middle-sized manufacturing firms that were lost to my constituency as a result of the problems that arose between 1979 and 1981. What we have lost can never be recovered, but the Chancellor could deal with some of the problems by doing more for manufacturing industry. My hon. Friend the Member for Peckham (Ms Harman), whose speech hon. Members—at least, Opposition Members—enjoyed, dealt very adequately with this matter.

In the 19th century, income tax—this single aspect of the taxation system—was regarded as the great engine of revenue. Historically, however, income tax was a tax on the middle classes. It was based on taxable capacity and was raised on income after the exclusion of certain expenditures. The most important of those expenditures was the cost of maintaining a wife. Until the 1930s, women gave up their jobs when they got married. Their reliance on their husbands' support was acknowledged through the married woman's allowance. The children's tax allowance was in exactly the same category. It acknowledged that the family's expenditure had changed seriously upon marriage. The justification was that it applied to the middle classes. A working-class woman in my constituency left her child with her mother and went to the mill. In the case of the middle classes, the birth of a child resulted in a distinct drop in income as the woman ceased working.

In the case of family allowance, Beveridge excluded the first child. Why? Because the first child does not cost very much: it does not eat very much, and it does not need extra housing. But that was a middle-class concept. The working-class concept now, as it was shortly after Beveridge, is that the first child results in an enormous drop in the family's income. This is the reason for the children's tax allowance, and it is the reason for child benefit. These benefits are crucial to people whose income has undergone such change. It has always been accepted that expenditure such as that to which I have been referring is part of the cost of running a family.

As people are given personal allowances, so they should receive allowances for essential expenditure. In addition to the cost of keeping a wife and a child, there is the cost of earning a living. Here we have seen fundamental changes. Earning a living now involves costs that people did not have to meet in the past. There was a time when people in my constituency and elsewhere earned their living in the mill down the road or in the pit down the street. A man would dress up in his muffler and take a butty with him. The cost was either zero or negligible.

Things are different now. Making a living now costs a great deal of money. Many people live 20 or 30 miles from their places of work and have to meet the cost of transport. People in my constituency often travel on the motorway in order to earn their living. Many must have motor cars. Of course, sensible people try to modify their expenditure, but their costs are still very high. They can no longer turn up in a muffler and looking dirty; they must look presentable. They may work in dirty situations, but they clean up before going home. Also, extra expenditure is involved in the provision of clothing and meals.

The tax system makes no provision for such costs. As someone who has dealt with these matters, I understand why. The Inland Revenue's fear is that if the dam were to burst, the flood could not be stopped. However, these matters can be dealt with, and this is something that we need to think about.

There is no doubt that the Exchequer could not go into too much detail in this respect, but something could be done. For the best part of 100 years we had the earned-income allowance—a concept rather different from what we know today. Anyone with unearned income has capital, providing security. It is very comforting for a person to know that there will always be income derived from that capital. Thus it was that unearned income resulted in higher tax than was paid by a person in danger of losing his job next week. This was a very reasonable arrangement.

After the second world war, people had the benefit of knowing that their jobs would be secure for a very long time. But, parallel to that, there were high levels of inflation, and capital security was not as great as it had been. It was in those circumstances and with that justification that the Government removed the earned-income allowance. However, the time has come to restore it in some way, as capital has enormous advantages again. The security of income arising from capital is very great indeed, as is the insecurity of earning a living—quite apart from all the costs.

The restoration of the earned-income allowance in some form would also be a great advantage to the Department of Social Security as earning a living is so expensive. It costs a person so much to be in a job 30 miles away that it is better for that person to draw whatever benefits are available. This is why I suggest the provision of some allowance against working expenses.

There is no doubt that most of this country's taxes are regressive. We have flat-rate duties on petrol, tobacco, and so on. People pay the same amount of tax regardless of their earnings. There have been two main exceptions. One is value added tax, which, generally, has been neutral as a result of zero rating but has probably been slightly regressive. The other is income tax. There is no question but that was the true, great, progressive tax. One does not need to believe, as I happen to believe, in greater levels of social equality to appreciate that there are certain reasons for that tax. The people with the broadest shoulders should carry the broader burden. That was accepted not just by Labour, Conservative and Liberal Governments, but by the people, who understood that theory. Now the Government are trying to reduce that one progressive tax—the fair tax. Their policy is a disgraceful error and it is shameful. The rate of the income tax will always be politically divisive, but the principle behind that progressive tax should not be subject to party-political argument.

When it was introduced, VAT was something near to a neutral tax, but it will become a regressive one. That, too, is wrong. My hon. Friend the Member for Peckham was right to launch her attack on that tax. It is the most important aspect of the changes introduced in the Bill, and I hope that it will be reconsidered.

Under the Government, the incentive effects of reductions in the higher rate of income tax have been held sacrosanct. I happen to believe that those effects are nonsense. If one goes to extremes, I accept that such an effect might result, but within the limits of 40 per cent. or 60 per cent. rates, it is hard to tell whether there is any incentive effect.

If one offers someone an incentive to work, he will work for a year or two, but he will then get used to the incentive offered. It is hard to prove that incentive effects go on and on working. We have had a number of trial runs at producing such an effect. In 1962, the higher income tax rate was reduced precisely to bring about those incentive effects, but none were forthcoming. I remember Tony Barber telling us in 1972 about the great incentive effects that would result from his decision. Another recent Chancellor of the Exchequer, now Lord Lawson, also told us about the enormous advantages that would be gained from the incentive effects. We saw none. If there had been any, we would not be discussing the Bill.

Mr. Ian Taylor

Surely it is not so much the incentive effect but the disincentive effect and disclosure effect that are important. The right hon. Gentleman will remember that the problem in the 1970s, given the high rates of marginal tax that were paid at the top end, was that many people found attractive schemes to avoid paying any taxes. Since the tax rate has come down, people have disclosed their income and therefore the take from the top level of taxpayers has risen.

Mr. Sheldon

I do not disagree that more people will declare their income for tax purposes when the rate is lower, but I am talking about incentive effects. Academics and others argue that when people are subject to a higher level of tax, they must work harder in order to obtain the same take-home pay. There is some validity in that argument as well as in the incentive argument. The jury has never come to any conclusion. To base a political philosophy, let alone an economic one, on such an argument is of little use.

Mr. Quentin Davies (Stamford and Spalding)

I am afraid that the right hon. Gentleman's argument that marginal rates of taxation have no effect on investment, risk taking or incentives to work will carry no conviction with any hon. Member who has any experience of business or the way in which investment decisions are taken. Has he noticed that in the past 15 years 1 million more businesses have been created, a net gain above those businesses that have disappeared, than were created in 1979 or 1980? Does he not appreciate that tax reform is a major element of that considerable achievement?

Mr. Sheldon

I am surprised at the hon. Gentleman for falling for that one. Surely he knows that the companies that go under tend to be rather bigger than those that are created. That important factor is slid over by many people. The hon. Gentleman must know that the effects of taxation will work both ways. If one is not succesful, the tax relief on losses are equal to the profits that will be made.

I have been responsible for substantial investments in my time and I do not know of anyone who was put off from making an investment because of the taxation involved. We now have low levels of taxation, but what is the level of investment today? Perhaps the hon. Gentleman will think about that. I had hoped that the Chancellor would do something about investment allowances.

The right hon. Member for Shropshire, North is right in believing that we all have an aversion to taxes, and quite right too. That is natural, basic, right and proper. At the same time as we are thinking about the problems involved in taxing people, however, we should also understand that if we want to carry the people with us, the essential thing is to decide to opt for fair taxes. My hon. Friend the Member for Peckham was right to highlight that.

Anyone who has served in the Treasury will know that hypothecation is an unmentioned word. The Treasury does not like hypothecation because, once it gets the money in, it cannot spend it as it would wish. We all know the lesson of the road fund licence. It was supposed to be spent on building roads, but when the then Chancellor of the Exchequer finally got hold of it he said, "Look here, this is nonsense. Roads are only one item that we need to spend on." I agreed with that argument then and I agree with it now.

There is one difference today, however, because the financing of the national health service will inevitably continue to rise. That expenditure will increase in the next century and, who knows, beyond that. We will spend more and more of our resources on it. On that basis, there is a case for arguing that if one makes an exception for a service as important as the NHS, perhaps hypothecation would be the best way to finance it. That argument should be considered. Although I was strongly against hypothecation, in the current circumstances and for as far as one can see, it must be looked at afresh. I look forward to that being done.

My hon. Friend the Member for Peckham was right to draw attention to the important issues. I hope that we will be treated to a better consideration of the details than has been offered hitherto. The Chief Secretary spoke about the way in which the Finance Bill would proceed, and I hope that he will not proceed with it in the manner that he adopted in his speech. He should deal with the details in the manner to which we have been accustomed over the years.

5.37 pm
Sir Terence Higgins (Worthing)

Given that the Opposition failed to table an amendment on VAT on fuel in the earlier Budget debates, it is extraordinary that the hon. Member for Peckham (Ms Harman) resolutely refused to move the Opposition amendment on VAT today. Despite being prompted by you, Mr. Deputy Speaker, several times, she failed—

Mr. Terry Lewis (Worsley)

The right hon. Gentleman is challenging the Chair.

Sir Terence Higgins

No, I am not. I accepted your ruling, Mr. Deputy Speaker, that the amendment had been moved.

The fact is that the hon. Lady could not bring herself to utter the words, "I beg to move the amendment in the name of my right hon. and learned Friend" and so on. There is a good reason why she might not wish to move that amendment, because linked to VAT on fuel are the compensatory arrangements that my right hon. and learned Friend the Chancellor has made. The reality is that the tax will fall across the population, but nearly half of the revenue will be redistributed to just 15 million people. It is, to a great extent, what one might fairly describe as a socialist measure.

If the Opposition amendment was carried this evening, many of my constituents, particularly pensioners, would find that they suffered considerably, because those compensatory payments would be lost. That is an interesting point.

In one sense, the Bill can be described literally as a monster. We have never had a two-volume Finance Bill. It is twice the size of the average Finance Bill and, in terms of the number of pages, three times the size of many previous ones. That gives considerable cause for concern. Whatever the Opposition's attitude, it will be difficult for the Bill's many clauses to be properly considered in Committee.

A Procedure Committee that I chaired about 12 years ago made a recommendation that has been repeated by successive Procedure Committees—that there is an overwhelming case for isolating the main political measures in the Budget, and then presenting a separate taxes management Bill.

When the Procedure Committee suggested that to the Leader of the House, he had three objections. First, he said that it was not a simple matter to separate the technical details from substantive tax changes. But it would not be difficult to remove from this massive document a large percentage of purely technical items that could reasonably be included in a separate Bill that would not be subject to timetable restraints.

Secondly, the Leader of the House said that two Bills would need extra time for Second Reading and consideration. But that is not a great time constraint. Thirdly, he said that a taxes management Bill might not be given sufficient priority. If sufficient priority could not be given to it, there is a good case for not having it anyway. The Leader's three objections were not valid, and there is a strong case for splitting future Finance Bills. There might even be a case for dividing the present Bill, even at this late stage. I shall say more about procedure later.

It is clear that the recovery is under way. I congratulate the all-party Select Committee on the Treasury and Civil Service, which analysed the Budget in considerable detail. I have great doubts about the timing of the Budget measures. The recovery is at an early stage, and we cannot yet say that demand should be reined back by tax increases.

There are two worrying matters. First, the previous Chancellor and the present one have developed a tendency to announce tax changes in advance, anticipating tax increases at some time in the future. We all know perfectly well that forecasting in the Treasury and elsewhere is so bad that no one can tell what the situation will be at the point in the future for which we are now seeking to legislate tax changes.

While the changes may be good in themselves, the timing is certainly doubtful. It is also true that the Chancellor would have been much better placed next spring to judge the situation and decide what needed to be done than he was at the time of the unified Budget at the end of last year.

The tax increases will inevitably put some brake on the recovery, although they may not stop it. Perhaps it will accelerate again, but it is difficult to see the case for a recovery, slow-down, recovery scenario. The problems arising from that should be considered.

However, some factors will be stimulating the recovery as the tax increases are being introduced. The fact that the Government are not fully funding the borrowing requirement should stimulate the recovery, although the passage in paragraph 10 in the report from the Select Committee on the Treasury and Civil Service on the issue of funding is obscure.

Perhaps the Financial Secretary will tell us whether, on the true definition of funding—that is to say, the deficit that is being financed from the non-bank public—the Government are proposing to overfund or underfund, because that is not at all clear. I hope that at this stage we are somewhat underfunding, and producing an additional stimulus.

All forecasters, Government or otherwise, tend to underestimate turning points in the economy—whether it is going up or down. At every successive cycle, the error has been greater. Therefore, as we have now passed a turning point, there is every reason to suppose that the recovery will be stronger than expectations. That has happened even since the Budget. There is now a general feeling that the recovery is faster than it was then. In view of those two factors, I am hopeful that the recovery will accelerate.

As the recovery proceeds, pay restraint will come to the fore. It was in the headlines this morning and on the 1 o'clock news. In "The World at One", Mr. James Naughtie came up with the old question, "Why aren't Members of Parliament setting an example?" The press grossly misrepresented what happened after the debate on Members' pay a short time ago. Over the period 1992–95, our pay has not gone up faster than inflation, although the press have represented the increase at about three times the rate of inflation.

It is said that we should set an example, but an interesting statistic arises from the long-term view. I have been in the House for a long time, for about 30 years, and throughout that time, in real terms, Members' pay has been below what it was when I first came here. It is now approaching that level, following the recent decision of the House.

In real terms, we are now in almost exactly the position that we were in 30 years ago. Meanwhile, average earnings for the population as a whole have gone up 19 times in cash terms and 90 per cent. in real terms. That gives some idea of the extent to which Members of Parliament have set an example. I hope that, when Mr. Naughtie and others in the media deal with this matter, they will remember that, although I do not expect the example that we have set to be followed.

Mr. Jeff Rooker (Birmingham, Perry Barr)

I am anxious that we do not appear to be engaged in special pleading. One of the best examples that we could set would be for more than 55 of the 651 hon. Members to join the charity payroll giving scheme that is operated by the Fees Office.

Sir Terence Higgins

Hon. Members may join that scheme, but the hon. Gentleman's intervention does not in any way undermine my main point about the relative rates of pay of the population as a whole and of hon. Members. Increasingly, that issue will become relevant as the recovery proceeds, despite the considerable changes in the structure of the economy over the past 12 years.

As the recovery proceeds, British industry should have a fair deal in relation to its competitors. I am increasingly worried by our tendency to set an example with EC directives. We are proud of the fact that Britain is the first country to implement this or that directive, hoping that everybody else will immediately follow, but we know that that does not happen and that there is often such time lags. There is a strong case for a mechanism by which directives are implemented simultaneously. British industry is often placed at a disadvantage by that time lag.

Last year, we debated at length, on two specific amendments, the British shipping industry. One amendment was about 100 per cent. capital allowances, and the other was about roll-over relief. Most hon. Members recognise that this is a difficult and special issue that could be ring-fenced. I hope that the Government will pay more attention to that in Committee and on Report.

It was said last year that, if we took action, we would not be setting an example to the other European countries, and that we must try to get them to get rid of their subsidies. In the meantime, those countries have either greatly extended their subsidies or introduced new ones. The competitive position of British industry must be taken into account in international negotiations. Let us have a level playing field. I have no doubt that, if we had a level playing field, the British shipping industry would be competitive. We must take a broader view of such issues.

Finally, I want to say a few more words about procedure. Before the last election, it was clear from a number of Committee reports that there should be great consultation before moving to a unified Budget. We then had the election and everyone forgot about it. The next thing we knew was that my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the former Chancellor, announced, with no consultation whatsoever, that we were to have a unified Budget.

It is important that both sides of the House should clearly agree what the financial programme of the House should be in future. We used to have financial debates on three occasions during the year: the autumn statement, the public expenditure White Paper and the Budget. We are now down to just the Budget and a Second Reading debate on taxation issues.

We are told that there may be a two-day debate on public expenditure in the summer, but we still have no discussion on public expenditure as part of the unified Budget. In many respects, it would be better to have a debate on specific public expenditure items in addition to the usual estimates days, which fulfil a useful function in the parliamentary process.

A unified Budget should cover public expenditure as well as tax. Such debates on the Floor of the House might be more helpful than further debates on taxation, which gets extensive scrutiny.

I hope that, despite the present breakdown in communications, the Opposition will realise that this is not simply an opportunity for sorting out our financial programme during the year; it is the responsibility of both sides of the House. We do not want the extent of parliamentary debate on such matters to be restricted as a result of moving to a unified Budget. It is an important matter for the House, and we need to sort out the procedures.

Having said that, the Bill is extremely complex. We have not yet had a chance to go into detail, and when we do, we shall find a number of aspects which need careful consideration or reconsideration. The Bill contains a series of proposals which need to be put into proper context, and the present procedures for analysing, discussing and amending them cannot be regarded as satisfactory.

5.52 pm
Mr. A. J. Beith (Berwick-upon-Tweed)

We have heard two interesting speeches from the Government Back Benches. I agree with the wise words of the right hon. Member for Worthing (Sir T. Higgins) on matters of procedure, on the British shipping industry and on the uncertainties of the projections from either side of the House about the speed of recovery and the difficulty of making judgments on the effect of tax measures so far ahead.

The right hon. Member for Shropshire, North (Mr. Biffen) brought to the debate his usual candour to such an extent that I began to realise why he had not been used more prominently in the election campaign in which the tax promises figured. I am sure that he would have wanted to qualify them as appropriately as he qualfied much of what he said today.

For the most part, it is hon. Members who have served on Finance Bill Committees who have commented on the enormous size of the Finance Bill. It is a two-volume edition or serial publication. When the Chief Secretary referred to the need to give it orderly consideration, he failed to recognise that the Bill is scarcely capable of orderly consideration by the normal procedures of the House. That is why its division into a taxes management Bill and a Bill dealing with more controversial items would have been appropriate. I have often felt that some aspects of Select Committee procedure, as used in Special Standing Committees, would be appropriate to some of the detail of a taxes management Bill.

I have often watched or participated in exchanges where neither the Minister nor the hon. Member knew what they were talking about and each had to be refreshed by notes from elsewhere before replying to questions. That is such a frequent occurrence with the more technical parts of Bills in Standing Committee that I would wish to see it replaced by technical questions being answered by someone who actually knew the answers. That is a procedural development which would be widely welcomed.

In the current climate, the Chief Secretary has made it clear that he proposes to guillotine the Finance Bill. We need to see that guillotine. Now, partly as a result of the current climate, we are getting "Jopling minus"—the proposals of the right hon. Member for Westmorland and Lonsdale (Mr. Jopling) without some of the safeguards and qualifications which the right hon. Gentleman and other members of the Committee on which I served considered to be necessary and appropriate. It is time that we had the whole package instead of automatic timetabling. We should consider any proposals from the Chief Secretary against that background.

Mr. Stern

As a member of the Jopling Committee, may I say that my understanding is that we are not getting the Jopling proposals, which I still support, because the two or three Front Benches have been totally unable to agree on their implementation.

Mr. Beith

The hon. Gentleman is partly correct. There are objections from two Front Benches but certainly not from three. We were, and are, in favour of the Jopling proposals. I understand that Labour Front-Bench Members have become more critical than they were initially. Whether that is in any way related to perceptions that they will be in opposition for longer and that government is not beckoning is not for me to say. The atmosphere appears to have changed from initial welcome to increasing hostility.

As a result of how the Labour party legitimately chooses to exercise its tactics in the House, we may end up with one side of the Jopling proposals without their important safeguards. There is no reason why that should be so; if the Government wish to proceed they should proceed with the safeguards. We shall test that when we see the Chief Secretary's proposals. That is the procedural and political background to the Bill.

The economic background is the deficit of which the Prime Minister did not seem fully aware when he said how readily he could achieve tax cuts when the Conservatives won the election. That was the phraseology he was using.

The deficit was created by the Government because of the boom-bust sequence which produced the length and depth of the recession. That is the background to the measure. What has made the recession so damaging to public finances and made the gap between what the Government spend and what they raise so large? It is of course the scale of unemployment, the number of people who are receiving benefits instead of paying tax and the lower levels of tax paid by people and companies because of the effects of the recession.

Throughout the recession we have argued that it would have been appropriate to engage in greater public capital spending to get more people back to work and thereby contribute to hastening recovery. It would give us assets that we will need in future if our industry is to be more competitive, such as better public transport and education.

Although at some future time public finances may be in a relatively healthy state, it might then be inappropriate to engage in large-scale public capital expenditure for fear of creating the very overheating of the economy which has occurred previously under Governments of both parties.

I also believe that the Chancellor has overdone the scale of the tax increases and that his judgment about what the tax increases are likely to do to demand in the economy is not correct. There was obviously a hint of that fear in the speech of the right hon. Member for Worthing. The country has been through a severe recession. People who have money are frightened that they will soon not have much of it and feel that they should not risk spending it. Many more people borrowed and are now in great difficulties. Negative equity and disaster in the housing market are leading people to be very cautious.

I recall when the effect of a previous Chancellor warning of and indeed recommending future tax cuts was to encourage people to spend. If people see large tax cuts coming, they are likely to be more cautious about spending, particularly against the background of their experience of the recession and that of their friends and relatives.

I am not one who actually seeks a consumer-led recovery; I would much rather see an investment-led recovery, hence the policy proposals that I described a moment ago. I do not think that we will get a consumer-led recovery against the background of fear about the effect of these tax cuts. What I say about capital expenditure is borne out in what the Treasury and Civil Service Committee said. I am not praying the Committee as a body in aid of the whole of what I argued a moment ago. Indeed, there were differences of view in the Committee on the Budget judgment, which are expressed in the various amendments that were moved.

In paragraph 90, the Committee collectively and without dissent said: We believe that the reduction in the level of capital expenditure announced in the November 1993 Budget reflects the relative ease with which such cuts can be made. We recommend that a proper priority should be given to capital expenditure in future spending rounds. In the preceding paragraph we cast doubt on the Government's optimism about their private sector initiatives—not hostility, but doubt about how the Government can rely on major private sector contributions to public works projects after all the experience of the Jubilee line and crossrail, and the difficulty of assembling that mix without the public sector taking on the risks that turn it into public borrowing.

That weakness in capital expenditure will lead to shortages of capacity and weaken our competitive capacity for the future. That applies not only to the physical investment in, for example, the transport system, but to our investment in education.

Mr. Ian Taylor

In searching for clarity in what the right hon. Gentleman is saying, may I say that it appears that he does not want the tax increases to come in, because he is worried about the recovery, and that he does not want to cut public expenditure. The consequence of that must have been the increase in borrowing, which could well have caused other problems for the economy. Where is he prepared to make the changes?

Mr. Beith

I did not say that there should never be any cuts in public expenditure. If the hon. Gentleman looks at the Treasury and Civil Service Committee report and the amendment in it that I moved, he will see that it is clear that I wanted a different mix of fiscal tightening and public capital expenditure. That recognises that one would not be able to project from that the achievement of as great a reduction in the borrowing requirement through tax increases, but one could hope to secure reductions in the borrowing requirement through the taxes paid by the people who would then be in work as a result of the public investment, and the reductions in the benefits that would need to be paid out to those people.

That is a judgment that the Chancellor has made. I disagreed with his judgment about the scale of the tax increases and its effect on recovery and about how reasonable it would be to allow in the borrowing for some more capital expenditure. The Committee pointed out that all this talk about ending the public finance problem "once and for all"—the words that the Chancellor used—betrays an assumption of reliability and certainty in the whole process, which is foreign to anybody and everybody's experience of those matters. We are all talking about judgments. I am arguing for a different judgment.

Mr. Forman

In his argument about getting more people back into work and so increasing revenue, does the right hon. Gentleman not recognise that there is bound to be a first year public expenditure cost in doing that, and therefore that the deficit will worsen before it improves? If he is intending to take the strain on borrowing, he must realise that there are implications for monetary policy in allowing full reign to the use of capital receipts by local authorities, which is, I believe, part of his party's policy.

Mr. Beith

The answer to both questions is yes. That is why I argued that it would have been better if we had done that earlier. The effects would then have come through now. There is, of course, a monetary policy implication in what we are all talking about today. If the Government's measures have too severe an effect on demand and growth, the pressure will be on the Chancellor to relax monetary policy to offset the effects of his fiscal policy. Let us be in no doubt that that is what lies at the back of this. It puts pressure on the Chancellor and on monetary policy, which might be inappropriate given all the other things that he must take into account, as long as it is he and not the central bank who determines that policy.

The range and scale of the tax increases are considerable. There is the VAT increase on domestic fuel —not just 8 per cent. this year, but 17.5 per cent. next year. That does not address the question of where many of the problems about global warming and carbon dioxide emissions lie. It does nothing about transport and the huge contribution that private transport makes to that. Nor does it address the issues of energy savings, about which I shall seek to direct the House when I introduce a Bill a week on Friday. I hope for much Government support for it, particularly as they are putting up people's fuel bills on such a considerable scale.

There is also the matter of 1p on national insurance contributions. It is not mentioned in the Bill. It is the equivalent of a penny on income tax for all but the higher levels of income. That is what is so unfair about it. It is done for straightforward tax and fiscal reasons, yet the Government stick it on national insurance so that they can go on saying that they have not put up the basic rate of tax —not that anybody is impressed by the story that the Government have not put up the basic rate when they have managed to put up income tax by every other possible means.

The failure to index personal allowances and the defiance of the Rooker-Wise amendment—I can say this in the presence of the hon. Member for Birmingham, Perry Barr (Mr. Rooker) who moved that amendment—brings 400,000 more people into tax. I cannot count the occasions when I have heard Ministers rejoice in the number of people whom they have taken out of tax by indexing the personal tax allowance, year after year. This year I have not heard any of them mention that they are taking 400,000 more people into tax as a result of this.

Then there is the interesting case of mortgage interest tax relief. In the election campaign the Liberal Democrats were lambasted constantly by the Government on this issue. We argued that it was not a good idea and that we should look for ways of phasing it out because it involved a considerable subsidy from people who were not well off to people who were a great deal better off. On countless occasions, I have seen leaflets and have been at meetings where Conservatives challenged the incorrectness of such a course and used it as a means of attacking us. They are actually doing it by steady stages and will eventually complete the process if they are in power long enough. Let us have no more of their criticisms of us.

Conservatives were saying the same thing about petrol tax. They attacked us on the petrol tax increases that we proposed, which are smaller than the increases that they have introduced. The Government will pay a penalty for trying to hide their tax intentions and, having done that, to hide the scale of the tax increases. Most of what has been discussed in the press and on television in the past few days about their scale has been known since the Budget, and a large part of it since the preceding Budget. The Government will have to change their rhetoric and their way of describing things if they are ever to convince people that tax increases on this scale can be justified.

The Government are introducing two new taxes. What about all those Budgets in which another tax was abolished? Some of them were taxes of which we had never heard. But now the Government have managed to introduce two taxes that we have heard of. One, an insurance tax, is not a good idea, especially in the light of the experience of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who correctly pointed out the Treasury approach—"Bring it in low and you can always increase it later." The insurance tax may look low at the moment, but it can be steadily increased. It will not appeal to those whose insurance premiums are right at the margin of their spending, particularly pensioners in areas where there is a lot of crime, or fear of it, many of whom do not insure, or surrender insurance polices as premiums increase. It is not a good idea, particularly in relation to the revenue that it raises.

I do not have the same fundamental criticism of the airport tax, but I am worried about the impact that it will have on remote communities who are dependent on air communication. They have little alternative and will not be effectively safeguarded by the Government's attempts to make an exception that relates to the size and number of seats on the aircraft. That will not help many of the island communities in Scotland who will be affected by the tax, and also the remote communities on the mainland of Scotland who are dependent on air travel for any form of rapid communication across the country.

Mr. Salmond

The right hon. Gentleman listened, as I did, to the speech on Budget day—on St. Andrew's day —and heard the Chancellor give what apparently was a clear commitment that those people would be protected. But in the detail of the measure, as the right hon. Gentleman well knows, the vast bulk of island travellers will have to pay the airport tax. Is not it a matter of honour as well as a matter of finance that the Chancellor now changes his mind?

Mr. Beith

Indeed. I am giving the Chancellor the credit of assuming that he wants to exempt remote communities. That is why he talked about limitation on the number of seats on the aircraft, providing a tax exemption. If that is his intention, he will have to do much better to achieve the object. I am therefore tabling amendments designed to do that. I hope that Ministers will either come up with their own or be sympathetic to what we propose, if that is the Government's intention. It will hit people who have to travel frequently by air services and who are dependent on those services, rather in the way that Ministers get in cars to make journeys, or others of us get on trains or buses for regular and frequent journeys.

I was interested to hear the right hon. Member for Ashton-under-Lyne talking about hypothecation and his experience of the arguments about it in the Treasury. We have argued the hypothecation case in proposing at the previous election that a specific additional 1p of income tax should be used for added educational expenditure. The issue of hypothecation is worth examining. The Liberal Democrats are examining it as a party.

We have reached the point—if we have not already we shall certainly have done so after these increases—where the general public ask what all this is for. When they are confronted with massive tax increases designed to bail out previous economic failures, they are bound to say that they pay taxes in order to obtain certain benefits. If that is so, it is reasonable for the public to demand that we should look at ways of tying the tax more clearly to the benefit that they seek. That gives the Government less flexibility, but it might put more power in the hands of the people.

My general conclusion is that the Chancellor has put on too much by way of tax increases; that by their nature, in many cases those tax increases are unfair, for example, the national insurance contribution; they are not spent on or dedicated to the things that are most needed in the way of investment, and they represent a broken promise.

Ministers talk as if they are obliged to impose painful taxation measures to clear up the mess left by an irresponsible Government with whom they have no connection whatever. They seek to give us the impression that they are left with a painful task that they carry out rather as the headmaster used to carry out corporal punishment on the basis that "This hurts me more than it hurts you", as a direct result of taking over the reins of Government from a lot of incompetent scoundrels who must have been holding them for the previous 14 years. Yet they are part and parcel of that Government. They have held office in it at every conceivable level. That excuse simply will not wash.

The new Government line is that it is all right to introduce huge tax increases as long as they are to bail out their own crass incompetence and not to pay for better schools, better public transport or better benefits for disabled people. That will not wash either. The Government say, "Never mind our policies. Never mind our record. Our instincts are all right. Our instinct is to cut taxes." Well, the Government's economic instincts were wrong because they gave us the boom and then the bust, and their political instinct was not to tell the voters what they intended to do about it.

6.11 pm
Mr. John Watts (Slough)

I have a great deal of sympathy with the argument advanced by my right hon. Friend the Member for Worthing (Sir T. Higgins) and supported by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) for a technical Finance Bill to separate the purely technical issues from those which have mainline economic and political importance.

I listened with interest and amusement to the right hon. Member for Berwick-upon-Tweed when he talked of hon. Members putting questions that they did not quite understand to Ministers who did not quite understand the answers that they were giving based upon slips of paper from officials advising them. I wondered whether the right hon. Gentleman had in mind an incident some years ago when my noble Friend Lord Hayhoe was a Treasury Minister and we were dealing with some extremely arcane aspects of the tax code. In the spirit of great co-operation that reigned in those days, my noble Friend said, "I must tell the Committee that I do not fully understand the answer that I am giving, but I can assure it that it is right." That was accepted.

Almost in the same category comes the passage on funding in the report of the Treasury and Civil Service Select Committee to which my right hon. Friend the Member for Worthing referred. I believe that all members of the Committee concluded that what we had agreed to there was right, but it was based more upon confidence and trust in our advisers than on any great depth of understanding.

Sir Terence Higgins

I think that my hon. Friend will agree that it would be helpful if the Financial Secretary, in replying, could say whether, on the old definition of fully funding, we are underfunding or overfunding at the moment.

Mr. Watts

It would be enlightening for all of us.

My right hon. Friend the Chief Secretary referred to the Treasury and Civil Service Select Committee's report, as did the right hon. Member for Berwick-upon-Tweed. The House will be relieved to learn that I do not intend to go through its conclusions in great detail. I hope that hon. Members find it informative and useful. It reviews monetary policy and inflation prospects and, in paragraph 17, we conclude: It would appear that the short term prospects for inflation are good. The report then moves on to examine economic prospects and, in paragraph 40, we conclude that there is still a significant output gap which will ensure that the economy continues to operate at below full capacity for some years to come and therefore: Notwithstanding the scale of the fiscal tightening announced in the March arid November Budgets, the degree of monetary easing already seen, together with a recovery in world markets, existing spare capacity estimates and an improved trade position, suggest that average annual growth of 3 per cent. over the medium term is a reasonable central projection. Clearly there will always be doubts surrounding any forecast, but, on the balance of the evidence that we received and the judgments that we reached, that central forecast is reasonable and attainable.

My right hon. Friend the Chief Secretary referred specifically to the Select Committee's conclusion in paragraph 46 of its report on fiscal policy. It is probably that part of the report that is most germane to the Finance Bill. Our conclusion referred back to the Select Committee's report on the March 1993 Budget in which we concluded that further increases in taxation or reductions in public expenditure would be required if the Government was to eliminate the structural Budget deficit. The Select Committee then went on to say: We welcome the fact that the Chancellor has tightened fiscal policy further. The balance between fiscal and monetary policy has been dramatically adjusted over the past year and this is very welcome for medium term prospects for the economy. We agree with the Chancellor that if further action had not been taken to redress the fiscal position, this would have had adverse economic consequences. That was a considered view reached by the Committee, and not without or before consideration of other possible strategies. The hon. Member for Durham, North (Mr. Radice) and the right hon. Member for Berwick-upon-Tweed referred to amendments that were moved during our deliberations on the report. The one that was moved by the right hon. Member for Berwick-upon-Tweed and supported by the hon. Member for Durham, North and other Labour members of the Committee expressed concern about the size of the fiscal adjustment and the possible impact that it would have, and sought a different mix between fiscal tightening and capital expenditure. The right hon. Gentleman argued that there should perhaps have been more room for greater capital expenditure, notwithstanding the constraints, to go alongside the fiscal tightening.

That was not in the end the overall view of the Committee, but the proceedings show that the balance, at 5:4, was fairly close and that the Committee as a whole had some sympathy with the view that capital expenditure in this Budget had received a rather low priority than, in particular, in the autumn statement of November 1992. We recommended that a proper priority should be given to capital expenditure in future years.

That shows that, when these matters are considered calmly and rationally, a less partisan overall view of strategy can be struck. There is no doubt in my mind that my right hon. and learned Friend the Chancellor was entirely correct in his view that borrowing could not be allowed to continue at existing levels unchecked, and that, as we enter a period when we anticipate substantial and sustained growth, that is precisely the right time to conclude that part of that growth can be taken in the medium term in higher taxes in order to reduce borrowing so as to lay the foundations for sustainable growth into the future and the aspiration of Conservative Members that that will lead to opportunities to get direct taxes lower in future.

Mr. Stern

Does my hon. Friend also agree that many of us hope to return to the heady days of the late 1980s, when the public sector borrowing requirement was eliminated and replaced by a public sector debt repayment?

Mr. Watts

I believe that my right hon. and learned Friend the Chancellor has set out a sensible and credible strategy to bring the public finances back towards balance within the foreseeable future, and that that will provide us with a real opportunity to look at options, as my right hon. Friend the Member for Shropshire, North (Mr. Biffen) argued.

If we are in that happy position, we can make choices about whether the burden of taxation should be reduced or expenditure be allowed to increase. But while finances are not in balance and are not in vigorous health, those chances do not present themselves to my right hon. and learned Friend or any Chancellor in future years.

Much has been made of the possible comparison between the burdens of taxation imposed on an average earner by Conservative and Labour Governments. In the past week or so, the most popular comparison has been between the proportion of average earnings taken in direct taxation—income tax and national insurance contributions —in 1978–79, and the proportion that is taken now.

Before making such crude comparisons, however, hon. Members should bear in mind the fact that, under the last Labour Government, the real net income of an average earner rose by only 0.6 per cent. The real net income of that same person—given that he has continued to enjoy average earnings throughout the period of Conservative government—has risen by more than 40 per cent., or £80 a week.

A parliamentary answer last week reveals that today's average earner pays a slightly higher proportion of his income in direct taxes than did someone on average earnings in 1978–79. If that is true, it tells us only that, over the intervening period, although personal tax allowances have been increased by more than inflation—more than would be required by the Rooker-Wise amendment—they have not been increased as rapidly as earnings. In arguing against the consequences of the facts, the Labour party seems to be arguing against the principles of progressive taxation on which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) waxed so eloquent.

The right hon. Gentleman pointed out that the highest marginal tax rates had been reduced under the present Government, but did not appear to take on board the stark fact—presented by my hon. Friend the Member for Esher (Mr. Taylor)—that the top 10 per cent. of income earners today contribute 45 per cent. of the total income tax take. In 1978–79, when marginal tax rates were very much higher, that same 10 per cent. contributed only 34 per cent. of the total take.

Even by the right hon. Gentleman's definition, the reforms that we have made to income tax rates over the years have made the income tax system much more progressive: those with higher incomes are contributing a higher proportion of the overall revenue raised by the tax.

There are, however, other bases on which to make comparisons. Rather than comparing the proportion of average 1978–79 earnings absorbed in direct taxation with today's proportion, we should consider a different, perhaps fairer, proposition. If the last Labour Government's income tax policies had continued—if personal allowances had been increased only in line with inflation, which I understand to have been Labour's policy at that time, and if the same marginal tax rates of between 33 per cent. and 83 per cent. on earned income and 98 per cent. on savings income had continued to apply—what would be the proportion of an average earner's income taken in tax in 1994–95?

The answer is interesting. In 1994–95, the average earner would be paying 21.9 per cent. of his income in direct tax as a result of the policies of my right hon. and learned Friend the Chancellor; under a Labour regime, with the index that I have described, that same person would be paying 25.4 per cent.—an extra £13. a week.

I could, of course, make assumptions about how the policy might have changed, but I think most of them would be unfair to the Labour party. I might have assumed, for example, that Labour would want expenditure to increase year on year, and might have chosen to pay for that increase by raising taxes rather than by continuing to increase borrowing. Such assumptions, however, would not have been favourable; I am trying to be as fair to the Labour party as I possibly can.

On Third Reading of the last Finance Bill, I spoke of the need for what I described as "son of BES". The business expansion scheme, in its existing form, was being phased out; I saw a need for replacement measures to encourage equity investment in small businesses. I welcome the package of measures contained in the Budget and the Bill, which is designed to encourage such investment—in particular, capital gains tax reinvestment relief, the enterprise investment scheme and venture capital trusts. I shall be especially happy to speak about those measures when, along with others wading through this enormous Bill, I debate them in Committee.

I also welcome the new regime to assist the unit trust industry to improve its export performance in the European Community, and to grab back some of the vast amount of business currently managed from Luxembourg. That regime was introduced following an assurance given by my hon. Friend the Financial Secretary during the passage of the last Finance Bill. Both those measures deal with interests that I have consistently espoused.

The changes contained in the Bill will play a vital role in improving our public finances, reinforcing the foundations for sustainable growth on which our ability to lower taxes again in the future—we retain that as our central objective, unlike the Opposition parties—must depend. I wholeheartedly support the Bill.

6.26 pm
Mr. Jeff Rooker (Birmingham, Perry Barr)

I support the Opposition amendment—which I distinctly heard my hon. Friend the Member for Peckham (Ms Harman) move: there can be no doubt about that. In fact, I heard much of what was said as I resumed my seat after the intervention.

The huge tax hike contained in the Bill has clearly been caused by the deficit. That is apparent both from our discussions here, and from other discussions that have taken place in recent months. It is also accepted, certainly by Opposition Members, that the prime cause of that deficit is mass unemployment.

The overall Budget package that we are debating again —I am grateful for the Chair's forbearance in that regard —may even add further to the number of unemployed people: that is the paradox inherent in it. Certainly it will not enable unemployment to fall even to what might be termed an acceptable level. Because of the Government's refusal to run our economy in a more intelligent fashion, we are storing up massive problems for future generations.

Unless we begin to accept the proposition that work is the foundation of human endeavour and well-being, and that a nation's greatest asset is the capacity and willingness of its people to work, we are in real trouble: we shall be heading towards social disintegration. However, we do not seem to be accepting that proposition at present.

We have a choice, of course. According to Professor Colin New of Cranfield university—whom I would term an engineering thinker—by the early part of the next century, we may either have 15 million people working 40 hours a week and 15 million on the dole, or have 30 million people working 20 hours a week. One option, says Professor New, spells social disaster; the other spells social equity.

That is the choice that is facing this and other industrialised western nations.

Mr. Keith Mans (Wyre)

Am I right in thinking that the hon. Gentleman is advocating more part-time work—which, as far as I know, is not Labour party policy?

Mr. Rooker

I am not advocating anything of the kind, but I am saying that, unless we accept the idea that work is important to individuals—[Interruption.] Conservative Members clearly do not accept it. If they did, we should not be creating a scrap heap of mass unemployment which means the loss of hope for millions of people.

No attempt has been made to manage the situation. If we do not manage it, we shall find that half the population is fine and in secure jobs while the other half constitutes a virtual no-hope economy. That spells social disaster. I do not like the direction in which the Government are heading; nor do I think that the Bill is heading in the right direction.

As has been said, the Government have lost the people's trust. Trust is a key factor for political parties and political leaders. It has been a missing ingredient for a long time in this country, but it has taken the Government a long time to lose it. I am certain that they can regain the people's trust, but the problem is that it will take them as long to regain it as it took them to lose it and, in the intervening period, they will have to meet the electorate at a general election. For the first time in a decade and a half, they will meet the electorate having lost their trust and without being in a position to regain it. That will be the difference between the next election and those of 1992, 1987 and 1983.

Judging from experience, it seems that the British public do not take too kindly to being ambushed with new policy ideas—whether financial or social—during general elections. There is abundant evidence that people's minds are made up well in advance of the white heat of an election campaign. That process is now under way—people are making up their minds about what they will do when the election comes, whenever it may be. The process cannot be reversed. It is therefore crucial that those of us who oppose the Government lay the groundwork well in advance.

For a so-called mature democracy, we have incredibly immature popular mass media, so it is even more important to articulate the foundations of a different way of running the country. For the sake of our fellow citizens, there has to be a better way of running the country than that which we have seen in the past 15 years.

That way has to be presented not only at the general election but in the months and years before. The Government will unashamedly steal good ideas. They will steal every good idea they come across, but this time they will do so having lost the trust of the people. That will work to the advantage of those who propagate a better way forward.

I have heard Tory Members on television and on the wireless—or the radio, as it is more popularly called—calling for their supporters to stand firm "at this trying time". In the Chamber, the Prime Minister and the Chancellor can look behind them and see that they have a majority in the House. No one denies that that, is the case, in the Division tonight or in those that will come in the summer. Being able to see their support is their parliamentary comfort factor.

However, when they go outside to face the people, things are rather different. When they leave here and look behind for their supporters "at this trying time", they will realise that they received only 42 per cent. of the votes in the ballot box and the support of only 33 per cent. of the British electorate in 1992. They do not have a legitimate majority in Parliament to drive through their policies. They received the support of only one third of the total electorate at the previous general election. That is a fact that cannot be denied.

Mr. Forman

Will the hon. Gentleman give way?

Mr. Rooker

I do not want to be diverted, but that point needs to be stressed constantly.

Mr. Forman

On an historical point, surely the hon. Gentleman realises that, if one applies that test to our system of government, one has to go back to 1935 to find a Government who received the votes of more than 50 per cent. of the qualified electorate. Surely he is using an outdated argument.

Mr. Rooker

I am in favour not only of a modern economy but of a more modern electoral system. I believe that people's views should be represented here according to the votes cast. The Tory party is over-represented in terms of votes in the ballot box, which is why it is in trouble now and why it is wholly bewildered by the fact that the country is up in arms not in support of its policies but against them. The Tories did not have a majority to start with, but I do not want to get diverted. [Laughter.] I should be happy to debate the issue at length, but you would rule me out of order if I were to do so, Madam Deputy Speaker.

I and some of my colleagues from Birmingham were not present for the presentation of the Budget in November and December. We were otherwise occupied at a three-day inquiry into parliamentary boundaries in Birmingham. I therefore paid more attention than usual to the press reports, some of which I re-read this morning.

I picked up one newspaper dated 1 December and read four headlines: "Hidden tax will bite in spring"; "Double whammy of Lamont and Clarke costs family £430"; "Recovery for the Tories and for the country"—that was the headline of the leader column—and "Clarke masters the art of invisible taxation". They are rather different from the headlines this morning and those of the past few days.

We no longer read about the "master of invisible taxation", because the Tories have been rumbled—the public have rumbled what has happened, not only in this Budget but for the past decade and a half. Now that their taxation policies have been rumbled, panic has set in, and the simplistic reaction of many Conservatives is to call for more cuts in services.

Their dilemma is that the public are already receiving fewer services for more taxes. The Government cannot justify the extra taxes, because they have not promised corresponding extra services. That is their dilemma, not ours, and we shall seek to exploit it and ram it home at every opportunity.

Not all the challenges to our services will be financial but I shall dwell on the financial aspect for the moment. There will be an attack on the benefits system. I wish to make it clear that I am in favour of maintaining universal benefits for the elderly and for the youngest in order to ensure maximum take-up by those who are dependent on them, but I also favour clawing back payments from those who clearly do not depend on them. That must be a fairer way in which to proceed. We must ensure universal take-up by the oldest and the youngest, because we know that enormous numbers of people do not collect their non-universal benefits.

I do not mean, however, that we should pay benefits willy-nilly and irrespective of resources to the richest in the land. I cite one example. I see no justification for the fact that a low-paid worker earning £60 or £65 a week—too little to pay income tax—should have to pay more than £5 a month in national insurance to help to pay for the current state retirement pension of someone who is receiving a substantial private pension, when the recipient has not paid for the state pension but has paid for the private pension. The pay-as-you-go system for the state pension is nonsense if we are calling on the very lowest paid to fund the state pension for people with substantial private pensions. There ought to be a clawback mechanism for that, to bring in some equity and fairness. The same ought to operate, on the grounds of equity, for the youngest.

I want universal child benefit. I would like it to be properly indexed and fully funded to meet the costs of bringing up children, bearing in mind what my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said earlier about the reason why we abolished the income tax allowances related to the children in the family and merged them with family allowance all those years ago. Families have been ripped off terribly in recent years, because the benefit has not been properly indexed and was never set at a level sufficient to meet the costs of bringing up children.

Universality is the key to ensuring that we do not miss out the vulnerable, but that does not mean that we do not have a mechanism for clawing it back from the wealthiest in the country, who obviously do not need it in terms of dependency.

Sir Terence Higgins

Is the hon. Gentleman saying that the national insurance pension should be means-tested?

Mr. Rooker

No. The right hon. Gentleman has been here much longer than I have, and has also been a Treasury Minister. The national insurance pension is getting smaller as a proportion of pensioners' incomes, and it will continue to get smaller proportionately.

One of the reasons is that the Government are committed to freezing it in real terms. Because it increases only in line with prices and not with earnings, the pension is frozen in real terms, and has been frozen in real terms for more than a decade. It has cost a married couple of pensioners more than £20 a week, because it has been frozen in real terms. There is no extra benefit for those pensioners.

The pension ought not to be frozen in real terms for the generality of the population. It is based on pay-as-you-go. It is not a funded system. I cannot see the benefit, however, in ensuring that the pay-as-you go system operates for the millionaires and the wealthiest people in the country, who could give up what is a pittance to them, which they do not need and—what is more—they have not paid for because by then they are not paying national insurance contributions. One can therefore bring in a clawback mechanism on the wealthiest people in the country.

I see nothing in social justice against that. However, the national insurance pension has to be a universal benefit, available to every citizen in the land. Otherwise, acceptable changes, based on equity, would not be passed by the House.

I shall suggest three and a half new taxes before I conclude. It behoves the Opposition to do a little bit of free thinking, because we do not like the unfairness of the taxation system and the way in which it has been rigged against the poorest in the country during the past few years, as I will show using the Government's figures.

There are many taxes in the Bill. I lost count whether there were 12 at this stage or 20 if one counts the two Finance Bills put together. Some we oppose; others we support. I have not heard anyone speak—I do not expect that anyone will—against the extra increase in tobacco duty in excess of the rate of inflation.

I cannot believe that any sensible Member of the House would not vote for that tax. Every all-party Committee, from the Public Accounts Committee to the Health Select Committee, has called for increases in tobacco duty on the grounds of improving the health of the nation, which has a by-product in reducing the financial burden on the national health service. In my view, probably 3 per cent. is not enough. I declare myself a non-smoker, but that is not the point.

Smoking is the cause of the biggest killer in this country —coronary heart disease, which kills 300,000 people a year. It is a tragic loss of life, and it is heavily based on the people's propensity to smoke. Although I would not wish to ban smoking—that would be crazy—we may be able to use the price mechanism to price people into good health. There is nothing wrong with that. It is a tax increase that we can support. [HON. MEMBERS: "Hear, hear."]

I do not want to go into the highways and byways of the insurance surcharge. I understand that it is a new tax. My right hon. Friend the Member for Ashton-under-Lyne is right to say that it is outrageous that the Chief Secretary came to the House to promote a Finance Bill with new taxes, a Bill which is large by any standards—I do not complain about that, as I shall not be serving on the Committee—and did not refer to those taxes. I should have thought that one would be proud that one was bringing forward new taxes to broaden the tax base. People have tried to broaden the tax base for a long time, although it can be done in unacceptable ways—VAT on fuel was an example.

The insurance surcharge does not relate to crime, although I think that it is a crime prevention measure. It is, in effect, a surcharge on motor vehicle insurance, which is one of the biggest causes of crime in the country as a result of the irresponsible ownership of motor vehicles that are left empty and not parked properly, wasting much police time. However, the imposition of a surcharge, effectively, on motor insurance will lead to people cutting corners by cutting the cover they pay for.

The insurance surcharge will not assist pollution. It will not reduce overcrowding on the roads. It would have been much more effective to make the provision of free parking by employers a taxable benefit in urban areas, including this place. I am happy to suggest that and get it in the neck, if necessary.

That would cut overcrowding on the roads. That would cut pollution. That would be a worthwhile new tax to consider. It would have the benefit of raising money, and it would assist public transport and have the other spin-off effects that I have mentioned. That would be a much more effective way of bringing in a new tax. It is not intended to bash the motorist. I simply take it as an extension.

When people challenged me, as a Member of Parliament, about all the perks we have, the only two perks that I have ever been able to mention since I have been a Member of the House are permanent 24-hour, 365-day parking free of charge in the centre of Birmingham and in the centre of London.

We have the peculiar arrangement that people have to pay to park cars. The parking of cars uses up space. That in itself is a cost, and in some ways it can be met. Some people know what the costs are, whether it is commercial parking or not. It would have been more effective, in terms of pollution and overcrowding on the roads, to make the provision of such parking a taxable benefit than to bring in a surcharge on motor vehicle insurance.

The Finance Bill could also have been a vehicle—that was not an intended pun—for securing proper funding of the national health service. That is why I was delighted with the speech of my right hon. Friend the Member for Ashton-under-Lyne. We could have used the Finance Bill to introduce a special tax for the health service, made up of an income and expenditure element.

I see no problem about setting aside, and I have called it a set-aside tax. If we can have set-aside for land, I am sure that we can have a set-aside of part of income tax or a set-aside of one of the expenditure taxes, to be hypothecated, to use the technical term, as a way of funding the national health service. It is the single area, at national level, where a specific task to run a service would be acceptable. I think that it would even be popular.

I also think that we should fund part of our compulsory education service—I emphasise, the compulsory years—from local education bonds. We ought to consider that seriously. I know that my local authority in Birmingham is making inquiries and considering the issue. It would require changes in the law. Local people need to know that there is some transparency in the provision of their services and the way in which they pay for them.

Hypothecation for health at a local level and for the compulsory part of education would be useful because it would be transparent. It would ensure that the services were provided. People would see what they were getting for the cash. It would enable the services to be ring-fenced. There would be a defence from the constant simplistic calls of people who demand cuts. The cuts always fall on the wrong elements of our social wage. I also think that the transparency of that type of tax would enhance value for money. The only downside is less Treasury control and I for one can live with that.

I shall not recite the figures on the tax burden increases, which were so well illustrated earlier by the excellent speech of my hon. Friend the Member for Peckham.

I have to confess that I had a moment of inner pleasure on Sunday as I heard my noble Friend Lord Healey taking apart Lord Parkinson on the non-indexation of personal allowances. The freezing of personal allowances will create, from April, 600 or more new low-paid taxpayers in every constituency in the country. I hope, that hon. Members are proud of that. If anyone thinks that 600 is not very many, 24 Conservative Members have majorities of fewer than 1,200 and 13 have majorities of fewer than 600.

We are at the margin, it is true, but the Budget is creating almost half a million new low-paid taxpayers. It is a thundering disgrace that the lowest-paid people in the country should be asked to put their shoulders to the wheel in that fashion to pay for the Government's economic mess.

The most telling point that I have come across in recent months shows that the Conservative party has not simply happened to come up with this year's Budget, or last year's Budget. My example proves that increasing taxes on the low-paid and on average earners is not a mistake, or a one-off incident that the Government can put away in aberration or get out of in the next couple of years, before the general election. The tax increases in this Budget and in the spring 1993 Budget are part and parcel of a long-run process of shifting wealth, income and the tax burden in this country.

My example comes from the Government's own publication, the 1993 edition of "Social Trends". Table 518 shows that, between 1979 and 1989, real net incomes for the poorest fifth of the population, after housing costs had been taken into account, remained exactly constant, whereas for the middle fifth they increased by 23 per cent., and for the wealthiest part of the population, the top fifth, they increased by no less than 40 per cent. There is the contrast.

That did not happen because of one incident in one Finance Bill; it has been part of a long-run process ever since 1979, when the Conservatives came into office. In Budget after Budget, we can detect the shift. All in all, it is making our society more unequal and more polarised than ever. The Bill will only make matters worse.

6.51 pm
Mr. Matthew Carrington (Fulham)

I do not propose to follow up the intriguing suggestions of the hon. Member for Birmingham, Perry Barr (Mr. Rooker) about free parking in Birmingham, not to mention the means-testing of universal benefits. However, I agree with him that the Finance Act is not popular legislation. Nobody likes paying increased taxes or welcomes the need for the state to take more money out of the economy, but there are times when that is necessary, and I strongly believe that this is one of them. The measures in the Bill are entirely justified.

At some £50 billion, the budget deficit is unsustainable and it had to be tackled, for good reasons. If the deficit continued at £50 billion, an increase in interest rates would inevitably and rapidly follow, and soon after that, curiously enough, there would be a short-term increase in the exchange rate. As the deficit continued, that would end and the exchange rate would collapse, which would lead to further interest rate rises. Almost inevitably, lenders would then refuse to provide more money for the Government to finance their deficit.

We have been there before. That is precisely what happened in the mid-1970s, and it led to what happened to the Labour Government—the coming of the International Monetary Fund and the forcing of savage cuts in the budget of this country. So the problem had to be tackled. There was no question but that the deficit was unfundable in the long term. In tackling the deficit we have two choices, and I am glad to say that the Government have taken them both. The first is cutting Government expenditure, and I believe that that has been done as far as is possible at this stage. In yesterday's debate we heard how difficult it is to limit the growth in Government expenditure, let alone to cut it. My right hon. Friend the Chief Secretary to the Treasury told the House earlier that we shall cut about £8 billion from expenditure over the next few years. That is welcome, but it is by no means enough to bring our finances back into balance. That inevitably means that, even with all the reductions in public spending, we still need tax increases.

The increases have to be large. We cannot limit them to a level that we hope will be sufficient, but that may prove insufficient. One of the principal reasons for increasing taxes at this stage, and showing that we are doing something about our budget deficit, is not only to ensure a rapid reduction in the deficit but to make certain that the financial markets have considerable confidence in the Government's determination to reduce it. That confidence will allow lenders to continue to provide the Government with the money needed to carry them over a period during which the borrowing requirement is bound to remain high, and, unfortunately, may even increase, as it tends to in a period of recovery from recession. We must boost the confidence of the markets that the Government propose to tackle our fundamental problems.

Of course, the tax increases proposed in the Bill, which I believe are right, may turn out to be too high and, in a shorter time than some people suppose, we may find that the Government have raised too much tax. Then we shall be faced with the happy prospect of having to decide where to cut taxes. That time will come rather sooner than some pessimists think. It will come; the signs of the recovery of our economy are strong. We have heard that estimates of economic growth have increased from 2.5 per cent. at the time of the Budget to almost 3 per cent., and even that may underestimate how rapidly the economy is growing.

That rapidity of economic growth may mean that the tax paid to the Exchequer increases more rapidly than we projected; in fact, it is certain to do so. We may find that the Budget deficit is brought down more rapidly than we expect. That will not happen this year, but the signs may start to appear next year. Certainly, in three years' time we shall start to see significant effects of a sustained economic growth at those levels of recovery. So I hope that we shall soon see more pleasant Finance Bills.

The speed of recovery itself can cause problems, especially if it gets out of control, so one of the benefits of the tax increases will be their effect in slowing down the historic tendency of our economy to overheat. Taxes may provide the necessary damper. If our economy grows too fat, we risk returning to our historic problem of the conflict between interest rates and foreign exchange rates. As our economy recovers, the pound tends to increase rapidly in value. Historically, that problem has been tackled by reducing domestic interest rates, which continues the overheating of the economy, and foreign exchange rates increase even further. We then end up in a boom-bust cycle, as we did most notably in 1988. That in itself is undesirable, and the problem needs to be tackled. I hope that the Treasury is watching carefully the strength of our economic recovery, and will ensure that it does not get out of control.

Mr. Salmond

Given the current state of our balance of payments, is the hon. Gentleman not concerned about the possibility that we may currently be in a bust-bust cycle?

Mr. Carrington

The hon. Gentleman must not be watching the economic indicators or keeping in touch with the many constituencies in which business and economic activity is growing visibly and fast, and where activity is showing encouraging signs of sustainable and rapid recovery.

That recovery raises the question of whether interest rates need to be cut to enable the stimulation of the economy, as is often suggested. Interest rates should not be cut. There would be little benefit from doing so. Interest rates are at an historically low level and cutting them will not encourage investment. Investment decisions are less dominated by interest rate levels and much more dominated by the ability to sell the goods and services. What drives the recovery of the economy is investment decisions, not the cost of the money necessary to provide that investment. Little would be gained from cutting interest rates and if the Government did that, they would run the risk of over-heating the economy.

Foreign exchange strength, especially against the deutschmark as we have seen in recent weeks, is not something to worry about. Such strength is unfortunate for exporting industries, especially those exporting in Europe, and will undoubtedly dampen our export-led recovery, but it will also right itself, because recovery in the German economy has begun. As soon as that recovery in the German economy has gone beyond a certain stage and there is great confidence in it, the rate of the deutschmark will rise again and sterling will depreciate against the deutschmark.

I welcome the Finance Bill. It is unpleasant medicine, but I believe that it is the right medicine at the right time. The measures in the Bill provide the possibility of sustained, non-inflationary growth in our economy, a possibility that we have not seen for many years and one that we should go for with full confidence.

7.1 pm

Mr. Barry Jones (Alyn and Deeside)

I support the Opposition amendment, which I, too, clearly heard my hon. Friend the Member for Peckham (Ms Harman) move. I interpreted the prospect of a tax overshoot, instanced by the hon. Member for Fulham (Mr. Carrington), as a general criticism of the proposed high taxes. If it was not that, it was indeed a sophisticated speech.

The Chief Secretary's speech was brief—much briefer than his usual speeches—brash and aggressive and it seemed to be a diversion, a ruse—

Mr. Salmond

It was brazen.

Mr. Jones

The hon. Gentleman says that the speech was brazen and I also attach that epithet to the Chief Secretary's singular performance. I heard the right hon. Gentleman ask plaintively where all the Welsh honesty had gone. I resisted the temptation to intervene but, in his absence, I say that he has one honourable Welsh Member in me, one who is honest and makes an honest observation of the Bill. The people of Wales will totally reject what he has proposed. I can honestly say to the House that, in Wales, the proposal for value added tax on domestic fuel is greatly, bitterly and angrily rejected. There is no case for it to persuade the people of Wales.

The Chief Secretary made his speech flanked by what I thought were anxious-looking Ministers. Later, I noticed that the Chancellor left the Front Bench and took up a position on the Back Benches beside the hon. Member for Slough (Mr. Watts). What the subject of their collusion was, I do not know. In Wales, we describe the Chancellor as "Ken the tax" and that is an honest report from Wales.

I have a letter from the regional electricity board, which was addressed to me as a resident of north Wales and is headed "Introduction Of VAT On Domestic Fuel". It said to me, as a householder: As you may be aware from recent press coverage, supplies of domestic fuel may continue to be zero rated where an advance payment has been credited to your electricity account by 31-3-94. I found that surprising, but when I held my surgery days later in the town of Buckley, one of my constituents, Mr. Tasker, came to me with a similar letter and told me of his anger and disgust at the letter because, he said, the proposition was unfair. He did not have spare money to make a payment in advance. He saw the letter as an invitation to those who were well off to take advantage and he instanced the predicament of his fellow constituents who found it hard to make ends meet over this financial year and could find no money to put aside for the year after that.

There is an injustice at the heart of the Bill. Imposing VAT on domestic fuel is an unjust measure that brings forth a doubtful proposition. The indignation and anger of my constituent was real and I put it to the House, and specifically to Government Front Benchers, that they should concede the case that is made in our amendment.

It is helpful to hon. Members to be accessible to their constituents and to live among them. I hold nearly 50 surgeries a year and on Friday in Buckley some 54 people consulted me. It took me more than three and a half hours to interview them. Throughout the consultation, their anxiety about not being able to make ends meet was repeatedly raised. The Bill will make the predicament of my constituents worse.

A residents association in my constituency was determined to consult me about the residents' problems in meeting fuel bills.

Mr. Jim Cunningham (Coventry, South-East)

Does my hon. Friend agree that not only the imposition of VAT but the proposals for cuts in benefit in general terms suggest that the Government are making people who are caught in the poverty trap and who are already some of the poorest members of society pay for the mismanagement of the economy, specifically through the measures that they have introduced over the past 14 years?

Mr. Jones

I agree with my hon. Friend. The important word is poverty. It is a growing poverty and it is a fuel poverty. My surgery attracted people who were anxious about the future, their fuel poverty and their housing problems. They find the going tough. Heating their homes adequately through the winter is difficult and their domestic budgets are strained to the limit, yet we are discussing a measure that will make their problems greater.

One constituent from Penycoed told me that she had arthritic joints and had a ventilator for asthma and that her daughter had a heart condition and was also epileptic. She had extreme difficulty in carrying buckets of coal, so she had a coal bag in her kitchen. When I inquired about the specific problem in buying fuel, she told me that she used two to three bags of coal a week; bags of coal are £6.50 each. She said that she often used an electric fire and that she also often used hot-water bottles. She said that she paid £10 to £15 a week on her electricity bill.

Those are the raw facts of people—ordinary, honest, decent people such as my constituents who are already up against it. This unjust measure proposes hardship. The Bill was arrogantly presented by a Cabinet Minister, without addressing its contents. That is an honest observation by an hon. Member from Wales. The House has not considered such an unjust measure for many years. On behalf of my constituents, I protest in the knowledge that, so far, the measure has not a shred of support.

Another constituent was similarly affected. She said that she had to retire from work because of a severe back complaint. She had arthritis in her shoulders, neck and spine, and it was necessary for her to keep warm. She said that, each week, she used three bags of coal at £6.50 each. She said also that her electricity bill was about £16 a week. She bought logs to keep her fire going.

Wales is not noted for high wages. I am sorry to say that Wales is top of the low wages league. People on low wages already find the going tough in terms of their domestic fuel budget. I remind the House that, for about 10 days in November, in anticyclonic weather, temperatures dropped greatly. At that time, the houses of those who were not wealthy and of those who could not afford perpetually to feed the electricity meter became very cold. I had a series of petitions from householders, mainly those on council estates. I made it my business to meet those people in their own homes. There was a meeting of about 12 or 14 people, including some of those who had signed a petition.

Mr. Richards

If the hon. Gentleman is so concerned about the cost of electricity, will he tell his constituents why he voted against the proposal to build a gas-fired power station at Connah's Quay in his constituency, which would have produced cheaper electricity?

Mr. Jones

I should like the hon. Gentleman to meet the people whom I have met and explain to them why he is prepared to support an unjust measure which will put domestic budgets under greater pressure.

When I met one group of householders, the person who made her home available to her fellow signatories and me said that it was her usual practice to light her fire, the sole source of heat in her home, late in the day. For the purposes of the meeting that I attended, she lit the fire early. Mothers told me of their worry that in such weather there was only one warm room. Some mothers said that it was too cold upstairs for their children to sleep and that there were icicles on blankets. I believe that, because some residents in that street had recorded the temperature in their homes in the dead of night.

One way to help to relieve my constituents' predicament and that of several million others is to modernise houses and make them draughtproof and warm. The benefit of modernising a house is that work could be found for six or eight people, thereby making inroads into high unemployment. It would also make people happy and healthier. The Government are hellbent on imposing another unjust tax. First, there was the poll tax; now there is value added tax on domestic fuel. It will hit those on low wages but above benefit level very severely. The Government cannot begin to expect a pennyworth of acceptance from the nation if they propound unjust measures. At its heart, the Bill is very unjust. If the Government want the nation to pull together to overcome our economic problems, just and fair measures will be required. VAT on domestic fuel is most unjust. The nation yearns for a programme for national recovery which proposes fair measures. The Government do not have the respect of our people. The Government are neither wisely led nor decisively led. Many aspects of the measures go against the grain of a national sense of fair play. I therefore hope that the Government's proposal is defeated.

7.16 pm
Mr. Quentin Davies (Stamford and Spalding)

I begin by declaring my interests, as set out in the Register of Members' Interests, as an adviser to NatWest Securities, a director of Dewe Rogerson Consultants and an adviser to the Institute of Taxation. I need hardly say that none of those institutions has the faintest idea of what I propose to say.

In the six years in which I have been a Member, there has not been an occasion on which we have debated the Finance Bill on Second Reading against the background of such lively public interest in the issue of taxation. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) is right to laugh at that. There is no doubt that, over the past few days, the Labour party has been making the running. I hope that the hon. Gentleman has enjoyed the experience, because it will be very short. I am confident that this debate will mark the point in the public discussion of the issue throughout the country at which the tide turns. I am confident of that for two precise and specific reasons.

The hon. Member for Peckham (Ms Harman) notably failed to take the obvious opportunity of saying how she would achieve the essential prerequisite to reduce the burden of taxation of which she complains by reducing public expenditure. Over and again the question was put to her, and over and again she characteristically avoided it.

The people of this country are not fools. They will draw their own conclusions from the hon. Lady's evasive answers. From running household budgets, running the budgets of industry and business, small and large, and running the businesses of clubs, voluntary bodies and charities, they know that it is profoundly frivolous and puerile to dispute one side of a budget without being prepared to take into account the consequences for the other side. It is frivolous to the point of being farcical—and it goes way beyond the normal irresponsibility with which we associate the Labour party in these matters—for the Labour party to say that the Government are raising too much money by means of taxation without being prepared to say how the Government should be spending less, so as to balance the Budget at a lower level.

Mr. Robert Ainsworth (Coventry, North-East)

On the subject of answering questions, will the hon. Gentleman tell us whether he intends to vote for the new tax rises and for the imposition of VAT on fuel? Will he also give the House a short resume of what he told his constituents about tax at the election?

Mr. Davies


Madam Deputy Speaker (Dame Janet Fookes)

Order. It ought to be clear to the House that the imposition of VAT on domestic fuel supplies is already the law of the land.

Mr. Davies

Having made my strictures about the evasion of difficult questions, I am sure, Madam Deputy Speaker, that you would not want me to be subsequently and unjustly accused of a similar evasion because you have ruled a question out of order. I am only too anxious to respond to the hon. Gentleman. I said at the election with conviction, and I repeat it now, that the party for which I have the honour to stand is the party of low taxation. The Conservative party is the party which delivered in the 1980s and is most likely to deliver in the future the lowest possible rates of taxation with the lowest possible burden of public spending and borrowing.

I shall vote this evening, as I have said in my constituency, and with all the conviction at my disposal for the increases in taxation and for the extension of VAT to domestic fuel. I believe that that was the right and thoroughly responsible measure for the Government to take in the present circumstances.

The second reason why I believe that the debate will turn during the evening is the Labour party's attempt to depict the Conservative Government as a high taxation Government on the basis of the statistical fact that taxation as a proportion of national income is slightly higher at present than it was at a particular time in the late 1970s. The attempt to depict the Conservative party as a taxation party on the basis of that statistic is based on an optical illusion. That statistical fact conceals a reality which is thoroughly creditable to the Government.

If taxation is slightly higher as a proportion of national income and as a proportion of public expenditure, that is because borrowing is lower both as a proportion of national income and as a proportion of public expenditure than it was when the Labour party was in power. Here again, the Labour party underestimates the intelligence of our voters. Our voters know perfectly well—whether or not the Labour party is willing or able to acknowledge the fact —that borrowing is merely deferred taxation. If we borrow more money today, we will have a higher interest charge tomorrow and we shall have to meet that higher interest charge either by raising taxation or by further cutting public expenditure tomorrow.

That is the salient statistic. Public expenditure as a proportion of national income—current plus deferred taxation as a proportion of national income—is substantially lower than it was in the 1970s. Indeed, the figures are set out incontrovertibly on page 115 of the Red Book for all to see. At present, public expenditure as a proportion of national income is about 44 per cent. Let us look back to 1974–75, when the proportion was 48.75 per cent., or 1975–76, when the proportion was 49.25 per cent.

In the 1970s, the Labour party actually had a level of current and deferred taxation, or aggregate taxation, that was five percentage points higher than at present. That is the optical illusion which will not survive its exposure during the debate tonight.

Mr. Malcolm Chisholm (Edinburgh, Leith)

Is not the hon. Gentleman being too simple-minded in just talking about tax and borrowing? Is there not the question of other receipts? In the 1970s, about 10 per cent. of income came from other receipts. Were not those industries which have now been privatised a major factor in that? Would they not have provided a continuing source of income to the Government, which has now been lost?

Mr. Davies

The hon. Gentleman's intervention was based not so much on an optical illusion, or an attempt to put the wrong gloss on the facts, as on something more elemental—a misunderstanding of the facts. During the 1970s, the nationalised industries turned in an aggregate net loss to the country. They included a large number of industries which, now that they have been privatised, are generating considerable sums of money for the Exchequer by paying corporation tax. The figures in relation to that have been so often quoted in the House that I do not need to detain it on that subject.

It is because of my analysis that what counts is the total amount of public expenditure which has to be met by either current or deferred tax that I particularly pay tribute to the courage of my right hon. and hon. Friends on the Front Bench. They have cut public expenditure by more than £4 billion below the level of the rigorous control totals which they had previously set. In the difficult world of politics, I know how easy it is for Back Benchers to urge my right hon. and hon. Friends to cut public expenditure further, which I regularly do. However, I recognise that cutting £4 billion from the control totals was a major political achievement, and I think we should give them the credit which they are undoubtedly due.

I shall turn to one of the other major issues which have been thrown up by the Budget and by the Bill, on which the right hon. Member for Berwick-upon-Tweed (Mr. Beith) spoke earlier. That is the fear which has been expressed in some quarters that the fiscal retrenchment—the reduction in public expenditure and the increase in taxation which the Bill brings in—will have a negative impact on the growth potential of this country and, therefore, on our hopes to get unemployment down further. The fear is that that will act as an excessive check on growth.

I believe that that concern—which I understand theoretically—is misconceived in practice for this reason: we must remember that the economy has received considerable stimulus during the past two or three years. During the past three or so years, nominal interest rates have fallen from a base rate of 15 per cent. to a base rate of 5.5 per cent,—in other words, nominal rates have fallen by about 66 per cent., a considerable reduction over a brief time, by any historical standards.

During the past 15 months, the base rate has fallen from 10 per cent. to 5.5 per cent. The time lag in such matters means that a great deal of the stimulus that derives from those reductions in interest rates is still in the pipeline. It will still hit the economy in terms of its impact on borrowing, the creation of money, the increase in demand and, therefore, the potential increases in investment, output and employment. I have no doubt that those increases will come through.

On top of that, there has been the devaluation. Despite some rise in the sterling parity during recent months, the pound is still of a parity 10 per cent. lower on a trade-weighted basis than it was in September 1992. That again is a considerable measure of stimulus and, again, not all its effects will have come through.

Finally, we have had the considerable fiscal expansion which preceded this responsible Budget in which we went from a fiscal surplus to a public sector borrowing requirement of about £50 billion on an annual basis. That is a considerable stimulus.

Against the background of all those stimuli, a lot of us would have been worried if some fiscal or other retrenchment had not come through at this stage. We would have been worried that we would overdo it and head into the inflationary problems that have beset the British economy so often and so unfortunately in the past. So, far from being worried about it, I am greatly relieved by the element of fiscal restraint that my right hon. and learned Friend's Budget introduces.

The other factor that we cannot ignore is the international context. Foreign trade accounts for about 40 per cent. of our gross domestic product. We know that our continental trading partners in the rest of the European Union, which represents about 60 per cent. of our overseas trade, are not growing at all. Last year, they had an average growth rate of between minus 1.25 per cent. and minus a little more than 1 per cent., whereas we have enjoyed a positive growth rate of about 2 per cent. That is already a three percentage point differential between our growth rate and those of our major trading partners. The whole of economic history makes it clear that one cannot sustain a substantial differential in growth rates without running into balance of payments problems or inflationary problems, or a combination of both.

Therefore, it is reassuring in the present circumstances —even though I hope that our continental competitors, for all our sakes, will begin to show some positive growth next year—that the reasonable assumption was made that there were natural limits to the extent to which we could drive up the growth rate in the short term. Again, I endorse and welcome the courageous judgments—I use that word advisedly—of my right hon. and hon. Friends.

Now, my right hon. Friend the Paymaster General may have been relatively gratified by some of the observations that I have made so far. However, I have to tell him frankly that, if I applaud, welcome and admire the substance of the Budget and the fiscal judgment that lies behind the Finance Bill, including the brave decisions to set up new taxes, such as the airport tax and the insurance tax, and the extension of VAT to domestic fuel—all of which are the subject of great controversy—I utterly abhor the form of the Bill. I regard the text of the Bill which has been presented to us tonight in an unprecedented two volumes and 400 pages of proposed tax law as an abomination and an example of how we should not legislate.

The Bill is a disgraceful comment on the work that has been performed by the parliamentary draftsmen who have the nerve to present it to the House. It is far too long. I was always brought up to believe that the lazy and easy thing to do was to write at great length; the difficult thing to do and the test of one's drafting was how succinct one could be. The parliamentary draftsmen who produced the Bill have not even heard of that principle, let alone tried to implement it.

Not only is the Bill far too long, far too prolix—a simple ad valorem duty on insurance comes out at 18 pages—but it shows all sorts of evidence of sloppy thinking and drafting, such as definitions produced way after the terms are first brought into the text. It simply is not good enough.

I began my speech by declaring an interest as an adviser to the Institute of Taxation. I hope that I shall still have that interest tomorrow. Perhaps I will not, after my remarks have been reported to it. The fact is that if one group of people will benefit from this appalling piece of drafting, it is the professional tax advisers. The other side of that is, of course, that the cost of compliance to the taxpayer will increase and, even more crucially, the clarity of the law will be diminished. Parliament and democracy will thereby suffer.

I wonder whether I could leave my right hon. Friend the Paymaster General with a thought. I applaud the Government's initiative in introducing into the civil service an element of competition from the private sector through the principles of contracting out and market testing. I beg him to put right at the top of the priority list for market testing and contracting out the future drafting of the Finance Bills presented to the House.

7.34 pm
Ms Tessa Jowell (Dulwich)

I wish to speak in support of the amendment and to take this opportunity to examine the effect of the Budget on charities and other voluntary organisations. In doing so, I should like to register my interest as an adviser to a community care project supported by the Joseph Rowntree Foundation, whose community care programme I ran before my election to Parliament.

The National Council for Voluntary Organisations expressed its disappointment in restrained terms. It said that the Chancellor's Budget had proved to be a "missed opportunity" and that several aspects of it would further increase the tax burden on charities and voluntary organisations and to produce the perverse effect of deterring people from volunteering.

It is important to set the charitable sector in its context as a significant player in the economy of Britain. It is a sector worth about £16 billion a year. It directly employs almost a quarter of a million people. It is larger than the United Kingdom motor industry. Despite that, charities are still uniquely penalised by the present VAT system. They currently pay more than £335 million a year in irrecoverable VAT. They pay more in tax than commercial organisations or local authorities, which do not have to pay VAT on expenditure associated with the services that they provide. Those services are increasingly exactly the same as the services provided by charities.

A clear example is domiciliary care. Local authority home care services are exempt from VAT. However, the community care rules set by Ministers at the Department of Health require local authorities to spend 85 per cent. of their community care grant in the independent sector. When a private care agency acts as principal—that is, provides staff to care for people in their own home—it is liable for VAT. That increases its costs and obviously, in turn, the costs to the elderly or disabled people to whom the agency provides services. Meanwhile, care services provided in registered residential homes are VAT exempt. The position is a mess of inconsistencies.

A core aim of the community care legislation was to remove what the Audit Commission called "the perverse incentive"—that was a financial incentive that positively encouraged people through the social security system to enter residential nursing homes rather than to remain cared for in their own home. The imposition of VAT on care services in people's own homes, while care services in institutions are exempt from VAT, perpetuates the financial inequalities and, in turn, the perverse incentive.

I now turn to VAT on domestic fuel. The Chancellor has announced inadequate measures of help for pensioners with the additional costs of VAT on domestic fuel. However, he has failed to acknowledge the position of charities which provide residential care for elderly or disabled people. Estimates of the additional burden on charities range from about £30 million to £50 million. Many smaller organisations are seriously considering reducing their services.

The Government may be happy to deal with elderly people's fear that they will be unable to meet their heating bills by telling those who live in their own homes to turn their heating down, put on an extra sweater and knit a woolly hat. But the manager of a residential care home cannot turn down the heating. Such staff will have to make a choice—a choice that many voluntary organisations and charities now face—between cutting another service and asking their friends, supporters and volunteers to undertake still more fund raising. Does the Chancellor really believe that it is a proper use of volunteers and other workers who support charitable effort that they should spend more time rattling cans and running jumble sales to help their organisations to meet VAT bills?

A further aspect of increased taxation is the increased costs resulting from the new tax on insurance premiums. The National Council for Voluntary Organisations has reckoned that the imposition of a 3 per cent. duty on a general insurance premium will represent an additional cost to the charitable sector of about £4.5 million. The obvious fear is that that will prove to be a disincentive to charities' taking out adequate insurance cover against the risks involved in the day-to-day provision of their services.

I should like to quote from the letter that the Charities Tax Reform Group sent to the Chancellor when the Budget proposals were being drawn up. The letter from that very large consortium, which represents all the major charities and charitable voluntary organisations, states: In spite of ministerial assurances to the contrary, we are beginning to wonder precisely what value the Government places on the voluntary sector. Charities are not the icing on the cake of state provision. In many areas, such as life boats and rehabilitation services for the newly blind, they are the only provisions. There is no limit to the fine words that the Government will deploy in their apparent support for the work of voluntary organisations and charities up and down the country, but voluntary organisations and charities are increasingly sceptical about the Government's will to do anything to sort out the increasing burden that they have to bear in serving their communities. They are asking the Government to listen to their well-argued and reasoned case for reform of charitable taxation.

7.42 pm
Mr. Nigel Forman (Carshalton and Wallington)

I do not wish to take the line of the hon. Member for Dulwich (Ms Jowell), as I do not know anything like as much about the subject as she obviously does. However, I shall read the report of her speech in Hansard and think more closely about it.

I should like to begin by concentrating on a procedural point that has been well made by hon. Members on both sides of the House. It concerns the size of this Finance Bill and the opacity of its language. I agree with my right hon. Friend the Member for Worthing (Sir T. Higgins), the right hon. Member for Berwick-upon-Tweed (Mr. Beith) and others who have pointed out forcefully that this is a very powerful argument for splitting future Finance Bills, and preferably this one, into a technical measure, which could perhaps be dealt with through a semi-Select Committee procedure, and a political measure, which would attract debate such as we have had today, especially at an earlier stage.

I hope that my right hon. Friend the Paymaster General and the Whip who is on duty will take note of the fact that very few hon. Members on either side of the House have expressed disagreement with that view. I hope that, for once, the business managers will be made aware, through the usual channels, of the feelings in the House, and will take those feelings into account.

Mr. Nicholas Brown (Newcastle upon Tyne, East)

When we were talking to each other, the Opposition offered this option to the Treasury team, but it was turned down.

Mr. Forman

I am sorry to hear that. I hope that my right hon. and hon. Friends will have second thoughts about the matter in relation to this measure, and certainly in relation to future Finance Bills.

I should like to make a few points about the speech of the hon. Member for Peckham (Ms Harman), whom I am delighted to see in the House, if not exactly in her own place. In opening for the Opposition, she made great play of the Labour party's alleged new credentials as the taxpayers' friend and the tax-cutting party.

I have been in the House since 1976, but this is something unusual for me to hear. When some of my hon. Friends and I asked where and how the hon. Member would cut taxation if her party were in office, we were told that she would not extend value added tax to domestic fuel and power. That comes as no surprise, as it is the subject of the Labour party's amendment today.

If the Labour party—this Johnny-come-lately of the tax-cutting cause—is to be taken more seriously, the hon. Lady and her right hon. and learned Friend the Leader of the Opposition ought to demonstrate some commitment to cutting levels and rates of income tax, and similar commitment in the sphere of corporation tax and, perhaps, in the sphere of national insurance contributions, all of which ordinary electors tend to regard as taxation. I am telling the hon. Lady gently—and I shall give way if she wishes to intervene again—that her party's record does not indicate very powerful tax-cutting credentials. This is something of which the electorate should take note.

With regard to the Labour party's position in relation to public expenditure savings—the other side of the account —the hon. Lady, in answer to questions from Conservative Members, was able only to make comments that were rather fatuous. In saying so, I am turning the adjective against her. Her fatuous answer was that a future Labour Government would cut unemployment.

As I pointed out in an intervention during the course of the speech of the right hon. Member for Berwick-upon-Tweed, cutting unemployment—if the process is to be state-led—inevitably involves some initial extra public expenditure, which in turn is likely to increase the deficit, encourage extra public borrowing, and possibly even put upward pressure on interest rates—or there may be a combination of all those things.

I cannot see that, in the short term—politicians have to deal with the short term as well as the long—it is enough simply to parrot that the Labour party would cut unemployment.

Mr. Peter L. Pike (Burnley)

Does the hon. Gentleman accept that our greatest concern about the Conservative Government's taxation policy, as demonstrated in the Budget, the Finance Bill and the direction in which the country is going, is that freezing personal allowances has affected people at the lower end of the income scale far more than the wealthy? Indeed, wealthy people have benefited from Conservative tax policies since 1979. The people at the bottom are losing considerably as a result of the freezing of personal allowances.

Mr. Forman

I understand what the hon. Gentleman is saying, but I believe that, if he looks at the tax tables in the Red Book and in the Inland Revenue's press releases, he will see that income at all levels is affected by the Chancellor's adjustment of allowances. It is true that, relatively speaking, the effect may be greater on those in low-paid work. However, I am very keen that, on the social security side, we should boost such things as family credit, which is designed to assist the low-paid in a cost-effective manner.

Were we to put much faith in the Labour party's new-found position—it has taken the Opposition about 15 years to reach this point—it would be rather like putting Dracula in charge of the blood bank, as my right hon. Friend the former Member for Bath, who is now the Governor of Hong Kong, used to say. That is how the electorate ought to treat what the Opposition is saying.

In spite of the fact that this Finance Bill is the product of the first unified Budget in modern times, it is still public spending that creates the need to borrow and the need to tax. The need to borrow and the need to tax do not drive public spending. I wish it were otherwise, but that is the reality.

Because it would have been wholly impracticable to make large cuts in public expenditure in one year—something that could not sensibly be done by a responsible Government—and because it would have been wholly irresponsible of the Chancellor not to seek to reduce the level of public borrowing over several years, as his Budget measures are intended to do, my right hon. and learned Friend had no responsible alternative to a substantial increase in taxation through this Bill. That is something that his predecessor did in the Budget of last March, and Governments of different political hues throughout the European Union are doing likewise almost as we speak.

Such an approach to public finances is obviously unwelcome to everyone who pays tax, whether direct taxpayers, indirect taxpayers or corporate taxpayers. The alternative to such fiscal responsibility would either have been punished by the markets, if the level of unchecked borrowing had brought on a funding crisis, which would have been the worst possible outcome, or, in less dramatic circumstances, would have led to the monetisation of public debt—in other words, another bout of severe inflation. That is something which this country, in a highly competitive global economy, could do with like a hole in the head.

As Martin Wolf put it in the Financial Times on Monday: The proper start for discussion of the fiscal burden is not with taxation, but spending. In the short term governments may borrow, rather than tax. In the long term, revenue will have to be raised, either to service debt or in the form of the inflation tax. Those of us with long memories will know that inflation is the most insidious form of taxation and that it affects this country more than most, or used to, because of the consequences of so-called fiscal drag.

Conservative Members were greatly relieved that the Chancellor and his immediate predecessor grasped the nettle of deficit reduction this year as the main priority of fiscal policy. With the economic recovery now healthily under way and a structure of taxation which, at least in terms of corporate tax and income tax, is now much more responsive to the economic cycle than it used to be—that is one of the positive legacies of my right hon. and noble Friend Lord Lawson—it should be possible to reduce PSBR relatively quickly as the recovery gathers pace. At any rate, it should be possible to reduce it to a safely low level by the end of this Parliament, which I understand to be the objective of the Red Book.

Once the PSBR reduction is achieved via the mechanism of this Budget and subsequent ones, I urge my right hon. Friends on the Treasury Bench to adhere to two broad principles of fiscal policy in future Finance Bills and Budgets.

First, they should recognise that the right approach to tax policy requires continuing, endless tax reform, especially by making sustained efforts to broaden the base of taxation, so that lower rates of tax in all categories can be achieved without loss of revenue. The figures that have been quoted in the debate relating to the impact of the personal tax changes in 1988, in particular, reveal the way in which one can broaden the base, lower the rates and get in more revenue. The same was true during the period of growth in the 1980s, in relation to corporation tax following the 1984 reforms.

In that context, I greatly welcome clauses 73 and 77, which progressively restrict to 15 per cent., in 1995–96, the tax relief available via the married couple's allowance and mortgage interest relief. It is the right decision to phase out those allowances gradually and to drive towards a situation where we can emulate Hong Kong, which has a standard rate of tax of about 15 per cent.

Such action by the Chancellor will increase the effective rate of tax, but it should leave the way open for future reductions in the marginal rates of tax, and steady progress towards making 20 per cent. the standard rate of income tax. Perhaps 15 per cent. is too much to ask for in the foreseeable future, but it should be feasible to broaden the 20 per cent. band as part of broadening the base of tax. That is something for which the Chancellor should strive.

My second point of principle is that we shall only achieve those lower rates of tax on income, which we must have if our economy is to remain internationally competitive, if we also move gradually, over the years ahead, towards more of an expenditure-based tax system. That implies lower rates of tax on income and capital, with the burden of providing extra revenue borne more by VAT and excise duties.

I therefore support the extension of VAT to domestic fuel and power, even though it is an unpopular move, which was contained in the Finance Act 1993. It forms a logical part of a longer-term thrust of policy, with a broader base for VAT. This could enable the Chancellor, perhaps next year, to reduce the standard rate of VAT to 15 per cent. and to introduce a lower starting rate on the real essentials at perhaps 7 per cent. or 8 per cent., as happens elsewhere in the European Union. That is not an outlandish suggestion, and it would offer a net contribution to the overall revenue according to runs on the Treasury model that I have seen. I set out those broad arguments in my speech during the Budget debate, so I will not weary the House by repeating the consequentials tonight.

The House will know that I am the parliamentary adviser to the Institute of Chartered Accountants. Having declared that interest, I should like to put down markers on two further points which arise out of the Finance Bill and which cause some concern to the accountancy profession.

The first point has already been raised by the president of the institute in a letter to the Chancellor. There is little point in introducing "simplified assessment" clauses in a Bill of this kind if their effect is to be vitiated by the tortuous style of parliamentary draftsmen. That point has already been underlined by my hon. Friend the Member for Stamford and Spalding (Mr. Davies).

It might have been better to allow the profession and all taxpayers to get used to the current year basis of assessment in the cause of simplification, which was brought in initially last year, before introducing the far-reaching changes of self-assessment, which are planned to be fully introduced before the current year basis of assessment is fully running.

Secondly, many in the profession have grave reservations about clause 241, which appears to allow the Inland Revenue extensive powers to obtain papers relating to people's personal tax position, subject simply to the consent of a special commissioner. I do not know enough about the technicalities of this matter because I am not an accountant, but it has been brought to my attention that it would be well worth Treasury Ministers reconsidering the issue to ensure that they have got it right.

The Bill is necessary. It is the legislative expression of but one part of a responsible unified Budget. It takes some useful steps towards a more broadly based and buoyant tax system, and I hope that further steps will be taken by the Chancellor in subsequent years.

I must end by offering the House the rather sad reminder that the overall burden of taxation can only be lowered, at any stage in the economic cycle, if the burden of public expenditure is reduced. That is likely to mean going further with the deliberate reduction in the scope and responsibilities of the state. Big government is always likely to mean high taxation.

To escape from that universal dilemma, which affects all societies, we must continue to privatise, to contract out and to reassess and reduce the role of the state. That way lies greater freedom and prosperity, and that is the path that we should follow.

7.57 pm
Mr. Alex Salmond (Banff and Buchan)

I begin, uncontroversially, by accusing the Government of racial incitement. I do not believe that I can possibly interpret the actions of the Chancellor as anything other than that, given that he decided to launch his Budget on St. Andrew's day and now has its Second Reading on Burns night. I suppose that I should be grateful that the House was not recalled on Hogmanay to debate some other part of this miserable Budget. I detect a plot to ruin Scotland's great national days with debates on this depressing Bill.

There is no doubt that the Cabinet would benefit from some Burns—

Mr. Cynog Dafis (Ceredigion and Pembroke, North)


Mr. Salmond

No doubt that will come to them all in due course. In this earthly life, however, the Cabinet would benefit from some quotes from Robert Burns. Earlier today the Prime Minister dared to accuse another hon. Member of speaking in cliches. The Prime Minister obviously has not encountered O wad some Pow'r the giftie gie us To see oursels as others see us! I certainly believe that if the Cabinet, collectively, had read "Holy Willie's Prayer" they would never have embarked on a "back to basics" policy. If Rabbie was silently and mockingly listening to our proceedings tonight—who knows, perhaps he is—he might get the imspiration to go off and pen, "The De'il's awa wi' th' Vatman."

The Chief Secretary earlier said that it was not possible to target the compensation scheme for VAT on domestic fuel to allow those vulnerable groups in the coldest areas of the country, who will suffer most, to benefit from some extra compensation package. The Chief Secretary told me in grand terms that it was not possible to target fiscal measures in such detail. I went to the Library and discovered that it had been possible specifically to target huge tax handouts. Almost £14,000 million was given away in tax handouts over four years starting from the 1988 Budget—£12,516 for each high-rate taxpayer. The geographical split for those tax handouts was 58.7 per cent. for the south-east of England, about twice its population share, and 4 per cent. for Scotland, which is about half its population share. The Government were clearly capable of targeting that fiscal initiative but are somehow incapable of targeting a compensation scheme to allow some additional benefit to those who will suffer first and foremost from the imposition of VAT on domestic fuel.

The present level of fuel poverty is totally unacceptable. It is well documented that there are 3,000 to 5,000 deaths in Scotland every winter because of the rigours of the Scottish climate. On 28 October a debate on cold climate allowance was initiated by hon. Friends in Plaid Cymru and the SNP. That debate had two remarkable features. After the debate I received a letter of apology from a social security Minister, the first time that I have had such a letter following a debate, in which he apologised for inadvertently misleading the House on some statistics. That is a cautionary tale for Ministers who suggest that the cold climate of Scotland does not translate into higher fuel bills. The Minister led himself into trouble by trying to disprove that obvious fact.

The second remarkable feature about the debate was that only 33 hon. Members voted in favour of a cold climate allowance. To their eternal discredit, Labour's Front-Bench spokesmen sat on their hands during the vote. If my memory serves me correctly, only eight Scottish Labour Members were prepared to defy their party's instruction and voted in favour of the allowance. The deplorable attitude of Labour Front Benchers on that occasion has certainly not gone unnoticed by the many organisations representing pensioners and other vulnerable groups in Scotland. That debate was designed to highlight the fact that fuel poverty is utterly unacceptable. The imposition of VAT on domestic fuel will inevitably cause more suffering to more people in those groups.

I enjoyed the speech of the hon. Member for Alyn and Deeside (Mr. Jones). He capably showed, by using individual examples, that it was nonsense to believe that the compensation scheme would be adequate in real terms for his constituents. The best guess is that for vulnerable groups the compensation scheme will meet about half the VAT imposition. In broad figures, I calculate that over the next three years an extra £500 million will be taken out of the Scottish economy by VAT on domestic fuel. The rebate by way of the compensation scheme will be about £130 million, or about 25 per cent. of the total tax yield. That averages an additional £75 a head over those three years for every man, woman and child in Scotland.

The heaviest additional burden will fall on the vulnerable groups who are already unable to pay fuel bills. The Under-Secretary of State for Scotland, the hon. Member for Edinburgh, West (Lord James Douglas-Hamilton), has joined us in the Chamber. I should like to see some semblance of a sign that there is a Scottish dimension to this policy. Even at this stage, Scottish Office Ministers should attempt to persuade their Treasury colleagues that the cold climate problem needs to be addressed and not made worse by the Bill. Scots suffer the paradox of fuel poverty amid energy plenty.

The hon. Member for Alyn and Deeside said that it will be possible, at least for a time, for some people to escape VAT on domestic fuel. Helpfully and carefully, some electricity companies, one of which is the Hydro Board in Scotland, are putting in a readable place in electricity bills the information that, if bills are paid in advance, VAT can be avoided. That is because VAT is charged at the point of sale and not at the point of use. I am informed by my accountancy friends that those who have the money to pay their electricity bills for the next three years could get a much higher return than is available from any bank or building society.

For those who have £2,000 or £3,000 in the bank, such knowledge is useful, but once again those who will be hit hardest by the measure will be totally unable to finance even that sort of temporary tax avoidance. I do not begrudge people the loophole, but I would like to see it widened so that it could be used by vulnerable groups who most need such relief. But, more than that, I should like to see a properly funded cold climate scheme, such as the one suggested many times in the House by my hon. Friend the Member for Moray (Mrs. Ewing). That would tackle the problem at its source.

Because of the Government's repeated failure to raise allowances when that is inconvenient for the Treasury, people on depressing and disgracefully low incomes will now be expected to pay income tax. A person on the princely annual income of £3,445, or £66.25 a week, will have to pay it. That compares with a £124 a week tax threshold in France. If the Government were prepared to consider the raising of allowances by 15 per cent., financed perhaps by the raising of the ceiling on national insurance contributions—which is approximately a pound for pound exchange involving no additional cost to the Treasury—it would be possible to raise the level at which people pay tax to £4,033 a year, or £77 a week, which is hardly a prince's ransom. I hope that most hon. Members agree that, in terms of equity, that would be a much more reasonable level at which to expect low-paid workers to come into the taxation net than the current depressing £66 a week.

At the last election the Labour party suggested the raising of the national insurance ceiling. In a sea of nonsense, that was an island of common sense in Labour's proposals, and I wish that the Treasury would consider the trade-off that I put forward because it would be of enormous benefit to low-paid workers.

There has been little notice taken and, as yet, little comment on a specific tax incentive in the Bill. In a Budget that was awash with taxation increases for a huge number of people, many of whom will be totally unable to meet these imposts, there was a significant taxation concession. It was not announced by the Chancellor in his Budget speech, but it is in Inland Revenue press release No. 23 on petroleum revenue tax, one of the many attendant on the Budget details. That tax concession was extraordinarily specific. In an earlier speech in the House I said that if it had been an income tax concession, it would have been rather like the Chancellor announcing a concession for people called Clarke, whose first name was Kenneth, who happened to be Chancellors of the Exchequer, who wore Hush Puppy shoes and who dressed in a dishevelled manner.

The tax concession on petroleum revenue tax is drawn in quite remarkably specific terms and is for a single pipeline system in the North sea. It is not for all pipeline systems, but for one called the Central Area Transmission System—CATS. It was already the beneficiary of some £200 million of public finance in terms of offsets against petroleum revenue tax to enable it to be established. The Treasury now believes that it should benefit from an additional tax inventive of £20 million over the next few years.

I should like some explanation from the Financial Secretary of how a Budget which increased taxation across the board could find an additional £20 million to respond to the no doubt intense lobby from British Gas, Amoco and other oil companies which make up the CATS consortium.

Significantly, from a Scottish viewpoint, the pipeline from the central North sea to Tayside is currently suctioning Scottish gas out of Scottish waters with no economic benefit whatsoever to the Scottish economy. As a result of the tax subsidy to the CATS pipeline, Scotland has become the first country in history to pay a consortium of international oil companies to take away one of our most valuable natural resources.

The message from the Finance Bill is clear: even when times are tough, the Government look after their own. That is very clear indeed from the lack of equity in the taxation proposals. Even at a time of financial stringency, another £20 million could be found to bung to the companies in the CATS consortium to enable them to continue the process of denuding Scotland of its natural resources.

The Budget which was introduced on St. Andrew's day and which has its Second Reading on Burns night is resplendent with anti-Scottish measures, from VAT on domestic fuel to extra subsidies to the Central Area Transmission System. Such a Budget is inflicted on Scotland, a country which has huge amounts of energy but is desperately in need of power.

8.11 pm
Mr. Barry Legg (Milton Keynes, South-West)

Earlier this evening, I had the rather unusual experience of hearing my parliamentary representative, my hon. Friend the Member for Stamford and Spalding (Mr. Davies), speaking on the Bill. I am the only hon. Member in the House who is a member of the Institute of Taxation and my hon. Friend is our parliamentary representative. At the end of his speech, he questioned whether he would still have a job tomorrow. I shall certainly be contacting the institute in the morning to discuss his future.

As several hon. Members have said, the Bill is quite a substantial document. I have not yet had the opportunity to read it. I doubt whether anyone has read it all and it will be some time before anyone will be able to cross reference the Bill to various sections of existing tax legislation.

Like my parliamentary representative, I have some concerns about the form and scope of the Bill, which runs to 419 pages. I have conducted a short exercise on its contents. Altogether, it raises about£billion in extra tax. I have found that measures accounting for around £6.9 billion—more than 90 per cent. of the tax raised—are contained in 51 pages of the Bill, so the other 370 pages do not appear to deal with significant tax-raising measures. There may be some merit in the argument that we have heard today from some of our colleagues, including my right hon. Friend the Member for Worthing (Sir T. Higgins) and my hon. Friend the Member for Slough (Mr. Watts), that it may be time to decide whether some of the technical aspects of the Bill can be considered separately.

The Bill provides a particular challenge to hon. Members in terms of scrutiny. There has been criticism in recent years that various Acts have not been adequately scrutinised. Although the Bill will not affect everyone in Britain, it contains provisions that will affect many businesses and companies and may create difficulties.

The Bill should also be a monument to one of the tax strategies of the Labour party. The hon. Member for Dunfermline, East (Mr. Brown) is for ever saying that, if only we could close up all the tax loopholes, we would raise much more revenue. I am sure that the Bill's 419 pages contain many measures aimed at closing so-called loopholes, but I suspect that they will raise very little revenue. That illustrates the paucity of the argument that the hon. Gentleman advances on behalf of the Labour party.

Before this evening's debate, I spent some little while trawling through the columns of Hansard trying to ascertain Opposition Front Bench policy on the budget deficit. Despite studying many column inches and listening to the hon. Member for Peckham (Ms Harman) this afternoon, I found very little information on what Opposition Front-Bench Members think about the budget deficit and whether the Labour party advocates any policy changes.

If one trawls through Hansard, one finds comments such as that from the Leader of the Opposition on Budget day when he declared that the deficit is the symptom, not the cause."—[Official Report, 30 November 1993; Vol. 233, c. 943.] I wonder what he means by that. Does he mean that it is a symptom of recession and that the whole budget deficit is cyclical? I can find very little economic basis for that. I am aware of only one economist in the United Kingdom—Professor Patrick Minford—who believes that the entire budget deficit is cyclical and that, if we had sufficient growth, it would disappear. Professor Minford's particular brand of free market economics supports the view that there has been a supply-side revolution in the United Kingdom and that an upturn in growth will lead to the elimination of the budget deficit.

Coupled with those vague phrases from the Opposition, one often comes across statements referring to investment, jobs and skills. There may be an implication that the way to solve the budget deficit is to spend more to make the deficit bigger and it will then get smaller.

We heard a little more of that view tonight from the hon. Member for Peckham, who implied that Labour's answer to the budget deficit was to abolish unemployment. She did not tell us what policies she would put in place to do that, but those policies seem to have escaped her socialist colleagues who were in office in France and those still in office in Spain. Somewhere in the Labour party there seems to be some magic solution to do away with unemployment: at a stroke and to make substantial inroads into the budget deficit.

My right hon. and learned Friend the Chancellor was wise to reject siren voices advocating that the budget deficit would either cure itself or could be cured by greater helpings of public expenditure. In his Budget on 30 November, he wisely and rightly set about balancing the budget. He made it clear that unless the deficit were tackled, the recovery could not be sustained, low inflation could not be maintained and British industry would not be able to compete effectively in the world.

Since the Budget, we have seen a marked upturn in confidence. We have seen signs of that from the CBI yesterday and in the financial markets. Since the Budget on 30 November, the equity markets have risen by some 11 per cent., demonstrating that investors—who include millions of people in Britain—have confidence in the future of British industry and believe that there are opportunities for increased profitability and success. Furthermore, gilt-edged securities have risen in value and their yields have fallen.

The long-term rate of interest has fallen some 0.5 per cent. since Budget day. That is a significant development. Long-term gilt-edged securities are now yielding around 6.5 per cent. That is the lowest level that gilt-edged securities have reached in the experience of most hon. Members.

One would have to go back quite a long way in British economic history to find long-term gilts at 6.5 per cent. If the Labour party is keen for an investment-led recovery, it should welcome that development, because long-term interest rates, the rate that Government have to pay for borrowing money, determine in turn the rate that industry and businesses have to pay to borrow money, build successful businesses and invest for the future. That is a most welcome development.

That economic environment in the United Kingdom gives us much about which we should be cheerful. The prospects for the remaining years of this Parliament are good. There can be above-trend growth of the order of 3 to 4 per cent. a year, and low inflation. We have what economists call quite a large output gap in the United Kingdom and substantial unused resources, which, in a recovery, can be brought back into play. The prospects for the rest of this Parliament are: continuing low inflation, running at 2 per cent., above-trend growth of 3 per cent. plus and falling unemployment.

If one looks at that background and at what is likely to happen economically over the next three years, one can understand something of the frenzy of the Labour party's current reckless attack. To pose as the party of low taxation is nothing but humbug. What the Opposition will have to witness over the next three years as they sit on the Opposition Benches is month after month of good inflation figures, good growth figures and falling unemployment. That is not a happy political prospect for them.

It is strange that the Opposition are opposing tax rises at the moment when in the past they argued that the recovery should be investment-led. Some of the tax increases that are coming through will help to change the balance of the recovery more towards business and industry. Business and industry are in a strong position for the future. The ratio of corporate liquidity is at its highest level since 1988. Orders for construction and investment are increasing sharply; up some 6 per cent. in the first 10 months of 1993. Stock building, an important component of recovery, is also likely to rise in the coming year.

Furthermore, export markets are much better for the United Kingdom. The figures released in November by my hon. Friend the Minister for Trade show that, in the three months to August, exports to non-EC markets had increased by some 14 per cent. We can have a recovery, and one that is not just consumer-led but driven by industry, investment and exports. That is a much healthier outlook than we have had in prospect in the United Kingdom economy for some while.

Some hon. Members may criticise some elements of my right hon. and learned Friend's Budget. Against the economic task that he had to undertake, it would have been difficult for him to keep everybody happy. Overall, he has completed the process of rebalancing the economy—a task that we set ourselves over the past 18 months. He had the courage to address the budget deficit. Let us remember that there were many voices—in the House and outside—who urged him before the Budget to do nothing. By addressing the budget deficit, he has set us on the road to a sustainable recovery and sustainable low inflation.

I believe that later tonight the House will reject unequivocally the Opposition's attempt to set us on some rake's progress. I believe that the House will reject the concept that we should run huge deficits and increase public spending. I believe that we shall vote for policies to eliminate the deficit, to facilitate cheap capital, to enable British industry to revive and to ensure that we have a balanced and successful recovery over the remaining years of this Parliament.

8.20 pm
Mrs. Anne Campbell (Cambridge)

I should like to begin by reading out a letter that I received from one of my constituents. It was sent to the Chancellor of the Exchequer. I think that it is unlikely that he will read it out, so I shall have great pleasure in reading it for him. It says: Dear Mr. Clarke, I write to protest at what I regard as the inequity of the new tax measures introduced in your recent budget. While I can appreciate the Government's need for raising extra revenue, I can see no reason whatsoever for increasing the tax burden on those least able to pay it. I felt shocked and deeply betrayed to find today that my Additional Personal Allowance, for which I qualify as a mother of two young school-age children separated (unwillingly) from her husband, had been cut by £340. For me, despite working full-time as a teacher, this reduction in allowances means facing the unavoidable threat of forgoing some of those activities which I regard as necessary for my children's full development, such as out-of-school activities, which include swimming, music and sports lessons. How can it be right that they should suffer such deprivations when another family, more fortunately positioned than mine, could meet this burden without noticing the extra weight? Perhaps this is one true interpretation of that phrase that seems to be on all Government Ministers' lips, "Back to Basics"—i.e., do without, do without. The real inequity is the way in which the Government have cheated the British people with remarks such as, "We have no plans and no need to extend the scope of VAT", which was said by the Prime Minister just a few days before the 1992 general election. Is it any wonder that people regard Tory politicians with such scepticism? It is not just me who says that; one has only to look at the opinion polls and the tabloids, which are such good reflectors of public opinion these days.

It has been said even by Ministers that no one expects what politicians say immediately before an election. I suggest that the Conservative party gets back to real basics such as telling everyone what will happen and not trying to con the voters into believing that something will not happen when they know that it cannot be avoided.

It is now obvious that the Tory party must have been expecting that it would not be in office, and therefore not held accountable for the tax rises which it knew were inevitable. Just think what its fickle friends in the tabloid newspapers would have said if the Labour party had had to deal with the shambolic mess in which the Tories left the economy in April 1992.

It is true that ordinary people are suffering from the tax rises that the Chancellor is imposing, not the people who benefited from Nigel Lawson's largesse in the previous Tory Government when he abolished the highest rate of tax. Pensioners, students, people on disability benefit and low-income families with children will suffer the most. Lloyd's is trying to bail out rich Tory Members of Parliament. Overseas aid is financing arms sales to Tory backers. Westminster council is turfing out homeless people so that their homes can be sold to Tory voters. It is a case of, "We'll look after our own, and the rest of you will pay for it."

In answer to questions that I asked the Chancellor, he told me that, under his and his predecessors' Budgets, those in the lowest 10 per cent. income group will be just over 1 per cent. worse off. He also told me that if he had taken the money by raising the rate of income tax, the bottom 10 per cent. would not have seen any change in their income. Therefore, not only does the Chancellor take away from people more money than ever before; he chooses to take it from those who can least afford it.

All Opposition Members agree that the most unfair tax of all is VAT on fuel. According to the Institute of Fiscal Studies, the poorest households spend 13.25 per cent. of their incomes on fuel, and that is before VAT. They are the people who will not be able to save energy by turning down their heating because they already run only a minimum level of heating—the pensioners on basic state incomes, students living in rented accommodation and the unemployed.

Many people are already afraid to turn on their heating when they feel cold because they know that at the end of the day they will not be able to pay their bills, so they have no room to cut back any further on heating and VAT. The proportion of their incomes spent on fuel will increase to 15.5 per cent. and that will go up to 20 per cent. in April 1995 when the full rate of VAT is imposed.

People who work in the public sector, such as the health workers to whom I spoke yesterday, will find their living standards particularly hard hit. As well as having to pay the extra tax, they will suffer from a public sector pay freeze during the next three years.

Yet at the other end people on high incomes, earning £800 a week or more, spend only 2.25 per cent. of their incomes on fuel compared with 13.25 per cent. for those on low incomes. When VAT is imposed, that figure will increase to only 2.75 per cent.—hardly noticeable to a person on an income at that level.

Throughout the Tory agenda there is the same message —"If you are old, poor or helpless, expect nothing from us. If you are already well off, this Tory Government will protect you." It is a strange philosophy that taking money away from those on low incomes will make them work harder but that those on high incomes have to be rewarded to produce the same effect.

We have heard something about small businesses from the hon. Member for Milton Keynes, South-West (Mr. Legg), who is no longer in the Chamber. The Budget will do little for the small high-tech businesses that we are relying on to get us out of the recession. A recent survey carried out among small businesses in my constituency revealed that, despite the fact that they are new businesses, only one in three have borrowing facilities with banks. Banks are widely distrusted and have a major public relations problem. Only 6 per cent. had obtained a small firms loan under the guarantee scheme. Interestingly enough, less than a third thought that interest rates affected their businesses. I regret that the good news that the Government have been pouring out will not affect their businesses.

The firms themselves regarded traditional venture capitalists as expensive and they were perceived as having little idea about technology-based business. About 60 per cent. of the investments made by venture capitalists are in management buy-outs. A management buy-out on cheap terms is considered to be small business finance. The most widely used method of raising equity funds outside immediate family and friends was corporate funding.

That leaves small firms with the potential to create hundreds of thousands of jobs with totally inadequate means of expansion and development. Banks and venture capitalists tell us that plenty of money is available, but they usually claim that the proposals themselves are not good enough. In fact, that probably shows poor judgment on the part of the banks and faulty risk assessment techniques.

St. John's innovation centre in Cambridge, which has about 150 small firms under its roof, is sometimes asked for help by its tenant companies which have already approached the bank and been refused help. The requirement is usually short term, about six to nine months, so it may not be considered appropriate for equity or loan finance. But in the past couple of years, out of 30 firms that have been helped in that way, in only two cases was the decision to provide help incorrect. Those are firms that should have been helped by the banks to which they turned first but which turned them down as being a poor bet. But 28 out of those 30 firms were helped from another source.

The survey raises questions about whether traditional providers of finance can any longer evaluate risk. What seems to have emerged in Cambridge is the growth of a black economy for funding as traditional sources are unwilling or unable to meet demands. That leaves a major problem for those businesses in my constituency that are not lucky enough to be in St. John's innovation centre or those that need equity, where the nature of their businesses does not lead to corporate venturing.

In case it sounds as though I am just another disgruntled person hitting out at the banks and the venture capitalists, let me say that what I am trying to do is to express my profound concern about the relationship between the financial institutions and the industrial sector. The hon. Member for Milton Keynes, South-West regaled us with wonderful stones about the way in which the financial markets were doing extremely well at the moment. But the real problem is the relationship between the financial institutions and the industrial sector. The financial sector does not seem to be helping industrial productivity in Britain in the best possible way. We are seeing a long-term damaging effect on industrial productivity in Britain. That can lead only to the continuation of our well-documented industrial decline.

That is not because we do not have the people or the ideas—we have both in great abundance in Britain; it is because the financial sector is geared to the non-productive quick-buck merchants who could not care less about Britian's future, only about their own personal gain.

I do not know whether that is what the Government mean by the entrepreneurial spirit, standing on one's own feet or providing for oneself and one's family. But the only way forward is to restructure our financial institutions so that they support British business rather than send it headlong into terminal decline.

The measures proposed in the Bill are inadequate. They only tinker with the problem. I hope that Tory Members who care about small businesses and VAT on fuel will join Opposition Members in the Division Lobby tonight.

8.37 pm
Mr. Michael Stern (Bristol, North-West)

I found the comments of the hon. Member for Cambridge (Mrs. Campbell) most interesting, not least because they seemed to lead us towards something which was for many years an essential part of Labour party policy—the partial or complete nationalisation of the banks and the financial institutions. But the problem that the hon. Lady defined will be solved by greater competition between financial institutions rather than less, and will certainly not be solved by the state stepping in and telling the financial institutions that they must lend whether or not they consider the proposition a good one.

I want to spend the time allotted to me talking purely about some of the technical aspects of this large Bill. In my maiden speech, nearly 11 years ago—I apologise for repetition, but I promise not to come back to the subject for at least another 10 years—I pointed out that the standard work recording all the law on income tax, corporation tax and capital gains tax, published by Butterworth, which the late and much lamented Lord Ridley referred to in that debate as the "Butterworth mountain", had, 1,017 pages in 1978, and by 1983 had increased to 1,266 pages. Therefore, within five years it had increased by roughly 20 per cent. By the end of 1993—before the enactment of this Bill—it had increased to 3,940 pages. Such an acceleration rate would be much admired in a space vehicle, but I am not sure that it is entirely to be welcomed in complex legislation.

As several speakers have pointed out, it is alarming that a Finance Bill should be so long that it must be produced in two volumes. I hope that I shall be forgiven if I cite the observations of that excellent magazine Taxation, on whose editorial board I happen to sit. Every year, the Treasury responds to representations from numerous bodies about whether certain necessary legislation should be included in the Finance Bill by saying that it would be difficult to make the Bill any longer. The editor of Taxation points out that it may be a little difficult in future to argue that this year's Bill had to have no more than 417 pages, that last year's had to have no more than 296, and so on.

I wish to defend my hon. Friend the Financial Secretary in one respect. One reason for the length of the Bill is clear to those of us who have read it: instead of incorporating numerous amendments to individual sections of the existing legislation, the draftsmen chose to introduce the major reforms in the Bill by replacing whole sections of that legislation. The effect is especially clear in the clauses introducing the current year basis of assessment, and those enabling a change to a self-assessment taxation system.

It is possible that the legislation repealed by the Bill is at least as long as that which replaces it. I hope that my hon. Friend the Financial Secretary will clarify the matter in due course; I also hope that the Bill will not be much longer than 417 pages by the end of its Committee stage. I have long urged the Treasury not to add unnecessary clauses in Committee, and I hope that it will stick to that policy. We may well not be faced with an additional 417 "net" pages of legislation.

I warmly welcome some measures in the Bill. It includes the first instalment of legislation to replace the previous year basis of assessment with current-year assessment. That reform has been urged on the Treasury for as long as I have practised as a chartered accountant —and I started in practice in 1964.

In the past, it was considered too difficult; but we are well rid of a relic of the past which—like, for instance, our Sunday trading legislation—the rest of Europe viewed as quaint. It was felt that we were living in the previous century. I also welcome the provision to formulate the rules for corporate membership of Lloyd's: that institution clearly needs corporate membership, and it needs tax legislation to match it.

What I do not welcome is not so much the purpose of the Bill as the esoteric and—as others have pointed out —unnecessarily prolix way in which it is being introduced. It is all too easy to cite examples from the raw and unstudied Bill, but is it really necessary to use the language exemplified by schedule 7(7)(5)(8A)(1)(a), which states: where the whole of the accounting period to which any insurance premium tax is attributable falls within the period of six months next before the relevant date ('the relevant period'), the whole amount of that tax shall be referable to the relevant period"? I am sure that the Financial Secretary will be given an opportunity to explain that and many similar phrases. I am equally sure that he will not be expected to understand his explanation for more than 10 minutes after he has given it, and that many lawyers will disagree with that interpretation of the legislation at the time when it is presented, 10 minutes before and 10 minutes after. We really can do better than the abortion of the English language that is being served up on us.

Like many others who have spoken, I hope that future Bills can be split into two parts. Unfortunately, it is too late to do so with this Bill. One part would consist of a financial Bill dealing with the raising and spending of money; the other would comprise a tax management Bill dealing with the method of doing that. I would welcome such a move, not least because it would give us the chance to consider the detail of the legislation longer. Moreover—this is perhaps a slightly controversial constitutional point—it would allow us to designate a tax management Bill as a non-money Bill, thus gaining the advantage of double consideration of some of the more detailed wording, which could be debated in the other place.

As I said in an earlier intervention, I was a member of the Jopling Committee, which recommended that all major Bills should be timetabled at the outset. Towards the end of this complex Bill, a great deal of legislation requires detailed consideration. If we engage in the standard practice of holding lengthy debates on timetabling and on the first few clauses, and endlessly debating the economic policy that lies behind the Bill, there is a danger that the important work of the Committee will be done badly—if, indeed, it is done at all.

My fear is heightened by something that was said by the hon. Member for Newcastle upon Tyne, East (Mr. Brown).

Mr. Nicholas Brown

It is nothing to do with me.

Mr. Stern

In the 13 January edition of Accountancy Age, the hon. Gentleman is quoted as saying: This year's debates on the bill are going to look like the Battle of the Somme. It will be parliamentary trench warfare. That may well be good politics, but the one thing of which we can be sure is that it will enable the House to produce bad legislation.

Mr. Andrew Smith (Oxford, East)

That is up to your side, not ours.

Mr. Stern

In the past, responsible Oppositions have considered it part of their task to assist the Government to produce slightly better legislation than was served up to them. It is a shame that the current Opposition do not adopt the same approach.

In view of the declaration of war issued by the hon. Member for Newcastle upon Tyne, East (Mr. Brown), the only way in which to secure proper, detailed consideration of all aspects of the Bill is to ensure that, on Monday, when the Committee stage begins, we begin with a timetable motion for the entire Bill.

The clauses relating to the introduction of current year assessment, for instance, will be implemented—in theory —in 1996. Many businesses that start their operations after 5 April, or whose accounting date falls shortly thereafter, will be affected by those provisions before Report; hopefully, the provisions will have been considered in Committee.

It is therefore crucial that at least one Committee has the opportunity to consider the provisions before they become effective in practice. In view of the length of the Bill, I urge my hon. Friend the Financial Secretary to consider carefully giving all parts of it a fair wind by means of an early guillotine motion.

8.49 pm
Mr. Cynog Dafis (Ceredigion and Pembroke, North)

On the day that the Government announced that sustainable development must henceforth be the touchstone of all their policies, and on which they also published four important documents as a follow-up to the Rio summit, I thought that it would be appropriate to consider the imposition of value added tax on domestic fuel, in relation to which an amendment has been tabled, from an environmental perspective.

The Government have claimed that VAT is in part an environmental tax. In the document on climate change, they list VAT on domestic fuel as one of the instruments for reaching the target of reducing carbon dioxide emissions to 1990 levels by the end of the century. They suggest that the target can be reached through the more thrifty use of domestic fuel which will result from the instrument.

The document speaks of a reduction of 1.5 million tonnes in carbon dioxide emissions. That is 1 per cent. of all carbon dioxide emissions from all forms of energy use. It may not sound a great deal, but it is 15 per cent. of the 10 million tonnes reduction in CO2 emissions that the Government need in order to reach their stabilisation target by 2000. The Government's intention may be fulfilled, but the reduction is to be brought about in a grossly inequitable way. That point has already been mentioned, and I shall cite one further set of statistics to prove it.

On average, bills will increase by £108 for the bottom 10 per cent. of households in terms of level of income, but by only £135 for the top 10 per cent. There will therefore be a gross disparity in the Bill's effect. Any compensation package will be a blunt and inadequate instrument. I stress that it should be a fundamental principle that environmental taxation must take account of equity.

In moving towards sustainability, as we must—the Government have today stated that there is a terribly urgent need to do so—we must proceed in a socially equitable manner. The geographical inequity caused by the imposition of VAT on domestic fuel can be seen in a comparison between Wales and the United Kingdom as a whole.

In Wales, the full rate of VAT on domestic fuel will take up 0.9 per cent. of usual disposable income, compared to 0.7 per cent. in the United Kingdom as a whole. I dare say that one could find the same disparity between the north and south of England. It proves yet again that a taxation system that punishes low-income groups also punishes the regions where average incomes are low.

That is a general point to be made against the Budget and the Bill. Taxation that punishes low-income groups redistributes wealth by taking it from the less prosperous areas, impoverishing them still further. The first principle is therefore that we must move towards sustainability while taking account of social equity.

A related principle is that a large proportion of the proceeds from any environmental taxation should be invested, first, to maximise the environmental gain that it is intended to bring about and, secondly, to prevent the taxes from being inequitable. In other words, environmental taxation should be recycled in the form of action to maximise environmental gain.

A self-evident way of adhering to both principles would be to introduce a comprehensive energy efficiency package aimed, in the first instance, at lower-income groups. It is perfectly feasible and should be clearly set out as part of the package if we are to take seriously the Government's claim that VAT on domestic fuel is an environmental tax.

Domestic energy consumption produces 41 million tonnes of CO2 a year, which is 27 per cent. of total emissions from energy use. It is a very substantial contribution. A 20 per cent. reduction through an energy efficiency programme in homes is perfectly feasible, and would in turn produce a saving of 8 million tonnes a year. It would, of course, take several years to complete such a programme, but we could be well on the way by the end of the century. It would be a far more effective contribution towards the task of reaching the target in 2000 than the use of VAT as one of the instruments for that purpose.

Energy efficiency must surely become a major investment priority if we are to take seriously the rhetoric of the Government's documents, and their rhetoric is very strong. I cannot understand why energy efficiency has not become a central priority. I believe that the total investment in energy efficiency measures is currently well under £100 million a year. We need to be far more ambitious.

The Government have used the introduction of VAT on domestic fuel as an argument against agreeing to the European Union proposal for a Europe-wide carbon tax. I heard the Paymaster General use that argument when I attended a sitting of European Standing Committee B. He said that we did not need to agree to the European demand for a carbon tax because we had our own instrument, and this was it.

A carbon tax would be far preferable as an instrument for achieving that aim. It would apply across all sectors, not the domestic sector only. It would apply to commerce and to transport, which is especially important, and those are sectors where, as we all know from observation, energy use is often profligate. I believe that it is profligate in the retail sectors especially. Huge quantities of energy are wasted by overheating and by constantly opening doors. A carbon tax would tackle that waste. It would be more effective and far more equitable.

A carbon tax would also discriminate in favour of renewables. However, one should note that the European proposal is for a carbon and energy tax—a combination —so it is not quite as effective in that way. That combination was suggested because the European Community does not wish to act strongly against coal and oil, and it does not wish to support nuclear energy. However, a carbon tax would discriminate in favour of renewables, as it should if we are serious about the environmental issue.

I hope that I have made my few arguments clearly. I hope that I have said enough to show the way in which the Government claim about the tax as an instrument of environmental policy is unsustainable and the way in which they get the process of environmental taxation off on the wrong foot by not associating it with the other fundamental and essential principles. I hope that I have completely justified our decision to vote for the amendment and against the Bill.

8.58 pm
Mr. Peter Ainsworth (Surrey, East)

Hon. Members would not thank me, I suspect, if I followed the hon. Member for Ceredigion and Pembroke, North (Mr. Dafis) too far down that route. I believe that the extension of VAT to domestic fuel has an important role to play in reflecting the true cost of energy consumption in our society. The hon. Gentleman did not mention several aspects—the enormous unparalleled package of help to those people who will most need it, the fact that fuel prices are falling, the massive expansion of the home energy efficiency scheme, and so on. I could go on, but I shall not.

I was listening to the radio yesterday morning when the dulcet tones of the hon. Member for Dunfermline, East (Mr. Brown) reached my ear. He was speaking about tax. The thrust of his remarks was that he did not think much of the tax proposals in the Bill. He expressed himself with some vigour—so much vigour, in fact, that one might have thought that he would be rather more certain about his position—yet he remained curiously unwilling or unable, under questioning, to confirm whether, had a Labour Government been elected in 1992, taxes would have been higher or lower than is proposed in the Bill. He did say that it did not matter very much because, if there had been a Labour Government, the taxes raised would have produced money to be spent on what he said were "sensible things". On that basis, he justified the theory that Labour taxes are good and Conservative taxes are bad.

The hon. Member for Dunfermline, East did not, as one might expect, spell out what "sensible things" he had in mind, but all Conservative Members know that there is an extensive shopping list. Not much of it appears very sensible from our point of view. There is no doubt—we have heard something about that this evening—that there would be an attempt to spend a way into full employment.

I have thought hard about that. If one of the principal reasons we have a budget deficit is that we have spent too much money as a Government, I simply do not understand how spending more will help—even if, as he seemed to argue, and as the hon. Lady the Member for Peckham (Ms Harman) seemed to reiterate, the excessive element of spending arises only in respect of unemployment benefit. That seemed to me a curious allegation. It brings me to my next argument.

Obviously, all hon. Members want unemployment to continue to fall and spending on unemployment to fall, but singling out the increase in unemployment as the reason for the deficit shows a failure not only to grasp the difference between cyclical and structural spending patterns—which is quite serious in someone who aspires to be a Chancellor of the Exchequer—but to understand the way in which the deficit has accumulated and where the money is spent. Spending on unemployed people has undoubtedly increased in recent years. It has increased throughout the developed world, for reasons which Opposition Members do not seem to understand. The recession that the world has been experiencing has been international. The United Kingdom is pulling out of it now, happily—much of the rest of the world is not yet.

I have examined the figures. Opposition Members seem to have gone to The Sun for their figures on the subject. I went to a combination of the Red Book, the excellent document "The Growth of Social Security" and the Library. Spending on unemployed people in 1993–94 is put at £10.4 billion. That is a great deal of money.

Of course it is important to get unemployment down, not only for fiscal reasons but for social reasons, but it is important to understand that £10.4 billion represents about 13 per cent. of the total social services bill and less than 3.5 per cent. of Government spending. To pin the blame for the deficit on an item of expenditure representing less than 3.5 per cent. of Government spending is arrant nonsense, but it happens to be convenient nonsense because it obscures the need to confront the real issue, which I will discuss in a minute.

The other reason why the talk about unemployment being the root cause of the deficit is nonsense is that unemployment is one of the few areas of Government spending that goes down of its own accord, as well as up. For example, between 1986–87 and 1988–90 spending on unemployment fell by 50 per cent. in real terms. In addition, as the House will know, unemployment has been falling sharply in recent months—it fell by 223,000 in 1993.

That is no thanks to Opposition Members, who, as well as paying scant regard to the good news when it comes through, do their best to moan about British industry at every possible opportunity. We have heard some of that this evening. When Opposition Members do that, I wonder whether they understand that they are criticising not the Government but ordinary men and women, from the shop floor to the board room, who have been straining every sinew through an extremely difficult recession to improve the productivity and profitability of their businesses. As a result of those efforts, productivity and exports are at record levels, profitability is on the up and Britain is growing faster than any other European country. The CBI survey published yesterday confirms that positive trend. My hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) mentioned the encouraging figures for corporate liquidity.

The last thing that people in industry want is gloomy lectures from the Opposition, half-baked statements about how life under Chancellor Denis Healey was somehow better than it is today, and adherence to the Euro-socialist action programme, which would add £5 billion to the cost of British industry and send the unemployment figures soaring. It is not good enough for the shadow Chancellor to pin the blame for higher taxes on increased spending on unemployment benefit. That is another fatuous strand in the series of fatuous arguments that we have heard from the Opposition. In the light of their employment policies, it is also hypocritical and shoddy.

I shall now answer a question that was asked earlier. There are two clear underlying reasons why there is a deficit—the after-effects of the recession, which obviously reduced Exchequer income, and the recent levels of Government spending across the board. As my right hon. Friend the Chief Secretary to the Treasury said, over the past five years the Government have increased spending on education by 25 per cent. in real terms, and since 1992–93 alone, spending on health has risen by 5.5 per cent., investment in British Rail has been trebled and spending on law and order has increased dramatically. Amazingly, at every point the Opposition criticised the Government for spending too little in all those vital areas.

That brings me to the vital question that my right hon. Friend the Chief Secretary asked the hon. Member for Peckham. Perhaps over-optimistically, I look forward to getting an answer where he failed. The Opposition must come clean. If they criticise the Government for the tax increases, will they say where they would have made the savings necessary to restore sound national finances? The silence is almost Pinteresque. Spending restraint does not appear to feature in the Opposition's vocabulary. It did not do so in the 1970s, either—at least not until it was too late, and Denis Healey, whom Opposition Members now seem to revere as a paragon of fiscal probity, had to go cap in hand to the International Monetary Fund, having cut Government spending in crucial areas such as health.

Of course nobody likes to pay increased taxes. The Government, unlike the Opposition parties, do not like having to ask for them. But it is one thing to return to the impoverishing cycle of tax and spend to which the Opposition parties tacitly or overtly still adhere and quite another to raise taxes against a background of tight spending restraint. Let us remember that my right hon. and learned Friend the Chancellor has announced that more than £8 billion is being taken out of the control total over the next three years.

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) spoke about fair taxes. Those start when Government spending comes under scrutiny. Fair taxes start on the premise that there is no such thing as Government money, only other people's money which Governments take away and spend in different ways. That is the basis for fair taxation.

I hope that my right hon. Friend the Chief Secretary will understand that it is in no way a criticism of him when I say that I cannot find it in my heart to give an enormous cheer for the tax increases in the Bill. However, in common with other Conservative Members, I understand why they are necessary. I agree with those Conservative Members who have expressed confidence that the tax increases proposed in the Bill will not unduly impact on the recovery.

There is a great deal to welcome in the Bill besides the effective action being taken to reduce the deficit, which is clearly its primary purpose. I especially welcome the measures for business, as somebody who has spent 10 years in the equity markets and who now has a consultancy for the SG Warburg Group, the investment bank. I especially welcome those parts of the Bill which are designed to help businesses and to help stimulate equity investment.

I was sorry that the hon. Member for Cambridge (Mrs. Campbell) felt that the new enterprise investment scheme, which would replace the business expansion scheme, was inadequate and was not able to welcome it. It has a great deal to offer for those smaller companies that we know will lead recovery and will lead the whole process of job creation. For far too long, smaller companies have laboured under inadequate access to equity investors and have had to rely, sometimes excessively, on debt. I have long been a great believer in spreading equity investment and ownership and anything that is done to promote that robust type of long-term finance is to be warmly welcomed.

I also welcome the proposals for capital gains reinvestment relief and the venture capital trusts. I would add only that it is a pity that the proposals to restrict the indexation allowance on capital gains to prevent it creating or increasing a tax loss are likely to act as a disincentive to investment, especially in unquoted companies. I know that my right hon. and learned Friend will listen carefully to the concerns expressed by individual investors and by market practitioners on that point.

With an economy which has become fundamentally stronger, more competitive and more productive under the Government, Britain is well placed to sustain economic growth at a rate that can only improve as the international recession lifts. The Finance Bill underpins that opportunity by securing the foundations for national prosperity and deserves the whole-hearted support of the House.

9.13 pm
Mr. Malcolm Chisholm (Edinburgh, Leith)

I have only five minutes so I shall have to curtail my remarks, but as I spoke for half an hour in the Budget debate, I cannot complain.

The Bill is important because, as my hon. Friend the Member for Peckham (Ms Harman) said in her brilliant demolition of the Conservative party, it could well represent a turning point in modern political history and certainly in the reputation of the Conservative party. The Bill has exposed the Conservative party as the party of tax trickery, tax unfairness, tax dishonesty and tax lies. The Government may be forgiven by some of the British people for putting up taxes, but they will certainly not be forgiven for promising the opposite and for cheating their way to election victory through their fraudulent claims.

Secondly, the Bill is significant because behind that tax rise is the economic incompetence of the Government. The Labour party has alway known about that, and now the British people will realise it. Thirdly, the Bill makes it clear that the Conservative party represents only a small section of society—the rich. Middle-income and low-income earners are clobbered by the Bill. Those groups will unite and throw out the Conservative party at the next election.

Taxes should be increased, but only for the rich, such as the top 1 per cent. of the population, who have benefited to the tune of £3.2 billion a year since 1988. Tax increases certainly should not have been targeted at middle-income people, and especially not at low-income people. Coupled with public expenditure cuts, we have the most massive piece of discretionary deflation since the 1930s. With a very weak recovery, that is exactly what the British economy does not want. Opposition Members oppose the Bill because it will knock that recovery on the head and make further recovery far more difficult, and because of its devastating effect on millions of middle-income earners, people on low pay and people on no pay.

Many measures will affect people on low pay. About 500,000 people will have to pay more in national insurance contributions, although they are not even in the income tax net. The Government have targeted the increase at them. Also, 400,000 people will be brought into tax for the first time. Allowances—for example, the married couple's allowance and the single parent's allowance—have been affected.

In the Budget, the Government boasted of what they were doing for low-income women through their child care allowance. However, yesterday I received a written answer that showed that only 10 per cent. of people presently on family credit could get the full benefit of that measure. Many measures will hit the low-paid, particularly low-paid women, who constitute a disproportionate number of the low-paid.

One matter that has not been mentioned much is the public sector pay freeze, which is actually a public sector pay cut.

As for people on no pay, the main criticism is that the Bill will do nothing to relieve the mass unemployment that still afflicts the country. We all know that the official figures show unemployment coming down, but the labour force survey shows that far more people are out of work and are looking for jobs. That figure is not only large but increasing.

There is to be a vote on the VAT amendment. VAT on domestic fuel will punish not only the people whom I have mentioned but those who are on benefit and whom the Government boast that they are helping with a compensation package worth £1.3 billion. Only half of that is discretionary, and the other half is automatic uprating because of inflation. People on income-related benefits will gain by 0.4 per cent. A person with a partner and two children will gain 45p a week. A single person will gain far less. That is the only compensation. In future, the payment will be the normal uprating.

On pensions, the Government boasted of the extra 50p, but we must remember that a single pensioner will receive a derisory increase of £1 next year. Pensioners will still suffer as a result of the measure. I appeal to Conservative Members to join us in the Lobby.

9.17 pm
Mr. Nicholas Brown (Newcastle upon Tyne, East):

Like my hon. Friend the Member for Cambridge (Mrs. Campbell), I wonder whether we would have heard Conservative Members speaking in favour of fiscal rectitude if the Labour party had won the previous general election. It is not long ago that Conservative Chancellors boasted that they had dealt with the public sector borrowing requirement, reduced taxation and increased essential public expenditure. In fairness, they did not say that they had dealt with the deficit "once and for all", but the debate has moved on rather a long way since those heady days.

Now, the Conservative party not only acknowledges that tax increases are necessary but rather irritably says, "So what?" when asked whether the tax rise is equal to 7 percentage points on the basic rate of income tax. The issue has moved on from whether taxes should rise to which taxes should rise and who will bear the burden. The tax cutting of the late 1980s reduced the tax bills of the richest. The tax rises of the post-election period are much more evenly spread. Taking the 1988 cuts and the more recent increases together, all but the very wealthy are worse off.

Last year, I suggested that the then Chancellor—after his inevitable dismissal—might end up with a job lecturing on demand management at the London School of Economics. This, I now appreciate, was very unfair to the right hon. Member for Kingston-upon-Thames (Mr. Lamont) and I unreservedly apologise. He should, of course, have sought a post lecturing on the new post-Keynesian economic theory—one which is unique to the British Conservative party—known as demand mismanagement.

It takes a peculiar kind of short-sighted greed combined with enormous arrogance to manage demand in such a way as to take a pro-cyclical rather than a counter-cyclical fiscal stance, and exacerbate rather than offset the economic cycle. That also belies talk of automatic fiscal stabilisers. This is not the Conservative party's first foray into demand mismanagement. The policy that it has adopted is entirely consistent with the way in which the 1981 Budget's tax rises were put into place in the depth of a recession.

The folly of the short-term tax cuts of the late 1980s is bluntly exposed by the Budget speech and the accompanying measures included in the Bill. The Chief Secretary told us earlier that his party's "every instinct" is to cut taxes. Having heard that, it is hard to believe that there are £2.5 billion worth of tax increases contained in the Bill for the financial year 1994 to 1995, rising to £4.8 billion worth for the financial year 1996 to 1997.

Altogether, the Budget increases almost entirely reverse the tax cuts which were made in the late 1980s and they exceed anything enacted by Labour Governments. They hit the poor hard and middle-income families the hardest. The tax burden rose from 34.75 per cent. of GDP in 1978 to 1979 to a peak of 39.25 per cent. in 1981 to 1982. It fell to 37.25 per cent. in 1988 to 1989, largely as a result of cuts in the top rate of income tax.

The Conservatives ask what Labour would do. They might at least give the Labour party credit for what it did at the time. It voted against those cuts, and warned that the reduction was unsustainable. At the same time, there was the ideological divide which still exists between the two parties. If it is possible to make tax reductions, it is the Labour party's view that those reductions should go to the very poorest in society and not to the very wealthiest.

Mr. Richards

Will the hon. Gentleman give way?

Mr. Brown

I am sorry, but I do not have much time. I would like to make a little more progress, but I will give way to the hon. Gentleman later.

In 1993 to 1994, the tax burden fell to 34.25 per cent. of GDP, partly as a result of the cumulative effect of the tax reductions of the late 1980s, but mostly as a result of the effects of the recession on Government revenues.

By the time all of the tax rises come in, and allowing for some recovery, the tax burden is projected to rise to 38.5 per cent. of GDP. That more than offsets the previous tax cuts, although the new taxes are not being paid by the same people who benefited from the reductions. The wealthiest I per cent. of our fellow citizens received about £3.2 billion from the 1988 tax cuts. They will pay about £300 million after the tax rises next year. That is a saving of £2.9 billion for them, and yet the tax take for the economy is almost up to its peak of 1981 to 1982.

Mr. Richards

What does the hon. Gentleman now say that the top rate of direct taxation should be?

Mr. Brown

I am addressing myself to the measures in the Finance Bill which is before the House today. It is not my intention to introduce my own tax and spending package, even though I am sure that the hon. Gentleman would rather debate that than the package which the Government have brought before the House today.

The journey back to massive tax increases has been accompanied by the most extraordinary series of climbdowns and U-turns. The journey has been accompanied by the sort of incoherence and double standards which would make even the most well-motivated observer of the Government's management of the economy a little cynical.

I can remember the present Prime Minister denouncing the Labour party at a Welsh Conservative conference a few years ago for planning to peg the married couple's allowance and mortgage tax relief to the basic rate of income tax at 25 per cent. Having alleged that that was our plan, he denounced us thoroughly for it. He then went on to implementing it, engendering not a little cynicism on the way. There was more to follow. Both those tax reliefs are now pegged to the 20 per cent. band.

At least it could be said for the previous Chancellor that he has a tax band to peg the reliefs to. The present Chancellor has not even gone through the usual form of introducing a lower band and accusing the Labour party of secretly planning to undermine two important tax allowances. He has arbitrarily introduced a new 15 per cent. rate for the allowances without reference to any other part of the tax system.

One of the key features of the Chancellor's Budget and the accompanying Finance Bill is its complete opportunism. It is the sort of opportunism that might induce cynicism. Presumably, next year's Chancellor will have the job of tidying it up. In the past, Conservative Chancellors have boasted that they have regularly abolished yet another tax, even if on closer examination it turns out to be the duty on matches and mechanical lighters or something of the sort. The present Chancellor is not bothered with any of that. He has introduced two new taxes, not to broaden the tax base but simply to introduce new taxes. He has done it because he needs the money.

Mr. Stephen Milligan (Eastleigh)

Will the hon. Gentleman give way?

Mr. Brown

On the subject of needing the money, yes of course.

Mr. Milligan

The hon. Gentleman is making a detailed attack on Government policy. In the spirit of his speech, may I ask him to give one detail about the Labour party's policy? If Labour had won the election, would public expenditure today be higher or lower?

Mr. Brown

As I said before, I have not come to the House to present my tax and spending plans. The fault of the Labour party—I suppose that the hon. Gentleman is right to refer to it—was to put its tax and spending plans candidly and truthfully before the electorate. The Conservatives put before the electorate a version of events that turned out not to be the truth about either our tax and spending plans or their tax and spending plans. I have to inform the hon. Member for Eastleigh (Mr. Milligan) that, although it may be possible to deceive the electorate once, I doubt whether the Conservative party will ever be trusted on these matters again.

The Bill contains an astonishing series of deceits and U-turns. Direct tax allowances are again frozen. That is an effective increase in income tax—something which the hon. Member for Eastleigh no doubt promised his electorate that he would not do. The reduced rate band again turns out to be a device for reducing the value of tax allowances instead of reducing the rate of income tax.

The life cycle of the business expansion scheme is remarkable. It has gone through introduction, praise, exploitation, abuse, denunciation, abolition and now resurrection as the enterprise investment scheme. What do we make of clause 89, which reneges on Chancellor Lawson's arrangement for the indexation of capital losses? Is the Conservative party united behind that measure? I suspect not. The clause will reduce the incentive to invest in risky ventures—something that the enterprise investment scheme is supposed to encourage. I see that the clause is listed in the Red Book as an anti-avoidance measure which blocks a loophole. If the Chancellor thinks that that is a loophole, he would not know a loophole if it hit him in the face.

The Budget is incoherent. Its hallmark is fiscal opportunism. There is a further problem. The question of the deficit—

Dame Elaine Kellett-Bowman (Lancaster)

On a point of order, Mr. Deputy Speaker.

Mr. Brown

The hon. Lady ought to be interested in the deficit.

Dame Elaine Kellett-Bowman

Could this be described as copious reference to notes, or is the hon. Gentleman simply reading his speech?

Mr. Deputy Speaker (Mr. Michael Morris)

That is not a point of order for the Chair. The hon. Gentleman is making a valid speech.

Mr. Brown

I shall not disappoint the hon. Lady. I shall do my best to keep her entertained as well as well informed. However, I certainly would not want to misquote the Chief Secretary or the Financial Secretary.

There is a further problem when discussing the Budget. It is the deficit. The Chancellor has said that it will be dealt with "once and for all". Let us give him the benefit of the doubt. That ought to cheer up the hon. Member for Lancaster (Dame E. Kellett-Bowman): we are giving the Chancellor the benefit of the doubt. Let us assume that he is not planning to do a flit next door and leave the debt and the bad credit rating to the new tenant of No. 11. Let us assume that that will not be another broken Conservative promise and that he means what he says. I have to say that the spending targets that he has set are very tight. The control total for the non-cyclical elements of public expenditure allows for growth of only 3.8 per cent. between 1992–93 and 1998–99. Under Baroness Thatcher's Government—and Baroness Thatcher was no slouch when it came to dealing with public expenditure—the comparable figure at the same stage of the economic cycle was 12.5 per cent. We are dealing, therefore, with extraordinarily tight parameters for public expenditure.

In the unified Budget process, we are supposed to consider tax and spending together and there are a number of questions to which the House should address itself. Can the public sector pay freeze hold as private sector earnings increase? It is also right to ask whether it is fair that it should hold. Even though the Chancellor's dodge with the contingency reserve is a genuine cut in spending, I do not see how it can be repeated.

What happens if there is a real contingency that cannot be met from within Departments' budgets? Will the savings drawn this year from the environment and transport budgets be repeated? I think not. How far will the Government say to local authorities that they are going to cut their budgets and how sustainable will that policy be? Is not the heart of the matter that the Chancellor, to reach his tight public expenditure targets, will have to reduce the civil service by about 10 per cent.?

Are the Government confident about their legislation? I do not entirely think that they are. I have a briefing note provided by Mr. Ian Gambles for the Chief Secretary, the Financial Secretary—and myself. Mr. Gambles draws the Chief Secretary's attention to a number of points. He starts by saying: You are responsible for piloting the Finance Bill through the House. It is just as well that the Chief Secretary has Mr. Gambles to point that out to him. One could not possibly have drawn that conclusion from the Chief Secretary's speech today. Mr. Gambles, who is a shrewd man and clearly has a future under the next regime, goes on to say: Life is likely to be made more difficult this year by the Opposition. Revealing the Government's true intentions, he says: Committee of the Whole House is arguably rather pointless … It may be worth floating the idea of dispensing with it … But it is very unlikely that they —meaning the parliamentary Labour party— will be in a mood to be so co-operative on this occasion. That certainly captures the spirit of these exchanges.

Mr. Gambles goes on to say—and this is the very good advice— Assuming we do have Committee of the Whole House, it would be very odd not to debate there the two short clauses introducing new taxes. He is referring to air passenger duty and insurance premium tax. The Chief Secretary is extraordinarily lucky to have such an adviser. I listened to the Chief Secretary's speech and I did not hear him mention air passenger duty or insurance premium tax, so it is just as well that there are good civil servants to remind him of the contents of the Bill.

This trusty aid goes on to say: It is also hard to see how you can avoid having at least one, and probably two debates on the floor of the House relating to income tax and the restriction of MIR"— mortgage interest relief. But good advice follows. Mr. Gambles says: On the former, it might be better to go for clause 72 (personal allowances) rather than clause 73 (restriction of the married couples allowance)", pertinently going on to say, where there will be linkages with 'Back to basics' and Child Support Agency issues. Why would the Chief Secretary want to avoid discussion of "back to basics"? I leave that to the House to ponder.

Mr. Gambles, a good and faithful servant, draws our attention to one more matter that will certainly be of interest to hon. Members—including, perhaps, the hon. Member for Lancaster, whose attention I see I am almost holding: who will have to serve in Committee? The question to which we all like to address ourselves is, "Who is going to do the work?" It is made clear in the document that it will not be the Chief Secretary. Those of us who were responsible for the untimely interruption or at least the revealing of the right hon. Gentleman's holiday in Barbados two years ago during the passage of a Finance Bill will sense a certain irony in that.

The document says: I attach a list of Finance Bill clauses with an illustrative division of responsibilities between yourself and your colleagues. It is based on the following assumptions: you take a small number of high-profile clauses". It is only fair that I should treat the House to the final carve-up. The Paymaster General will be responsible for 67 clauses and six schedules of this mammoth volume. The Economic Secretary to the Treasury gets 64 clauses and is trusted with one schedule—someone clearly having followed last year's proceedings quite closely. The Financial Secretary is entrusted with the overwhelming bulk of the Bill—perfectly fairly, as he does these things very well. He gets 102 clauses and 14 schedules. Let us hope that we can deal with all this expeditiously upstairs. The Chief Secretary to the Treasury, leading his men from the front, gets six clauses and two schedules. So much for the fair division of labour in the Conservative party.

Much has been said about the imposition of value added tax on domestic fuel. The Opposition contend that the House should have a further chance to consider this matter. The reasons are very clear.

Dame Elaine Kellett-Bowman

The Opposition forgot about it the last time.

Mr. Brown

The hon. Lady really is showing some enthusiasm. I shall do my best to deal with all the points that she has raised from a sedentary position. However, I am not sure that I shall succeed if she keeps firing questions.

It is our contention that VAT is a regressive tax. Indeed, of all the zero-rated goods and services that the Government could have picked on, fuel is the most regressive one to tax. We believe that the compensation package is inadequate. Most pensioners will get only half of what they need, and the same is true of families on income-related benefits. The tax hits standing charges as well as fuel consumed, undermining its credibilty as an environmental measure. My hon. Friends the Members for Dulwich (Ms Jowell) and for Alyn and Deeside (Mr. Jones) made the point that it will hit charities, costing them an extra £35 million over the next two years. And there is further transitional injustice inasmuch as those with money can pay in advance and avoid the early imposition.

It has been said repeatedly, but is worth pointing out again, that before the last general election the Conservative party promised that it would not increase the rate of VAT or extend the scope of the tax. This was stated clearly, firmly and repeatedly, but it has been reneged on.

I wish, in my concluding remarks, not just to make the case against this tax but also to make the case for further consideration by the House. When the tax was introduced the House was not made aware of the other tax rises imposed in the autumn Budget. Nor was it made aware of the latest growth forecast. We were not given a chance to assess the impact of this tax increase on economic recovery. When the tax was introduced, the House had no knowledge of the details of the compensation measures that were supposed to offset the effects of this imposition on the poorest of our fellow citizens. The compensation package has been bludgeoned through the House. Surely it is reasonable that the House be given a further opportunity to consider it in the light of the inadequacy of the compensation package.

Why are the Government failing to take public opinion into account before the tax comes into effect? The Chief Secretary might find that the public would be less cyncial about Parliament if, just occasionally, some notice were taken of their opinions.

Is not the House supposed to be considering a unified Budget process which is supposed to bring together tax decisions and spending decisions? Northing of the kind has happened. This is a complete sham.

I urge the House to reassert the principle of annual scrutiny of Government tax measures and to reassert its right annually to refuse supply. It is perfectly possible for Conservative Members to vote for our amendment without ultimately opposing the Bill. [HON. MEMBERS: "No."] They can do so without, untimately, opposing the Bill.

Parliament should think about the imposition of VAT on domestic fuel. It should support our amendment, because we are more than just a rubber stamp for the Cabinet's decisions. The right to refuse supply on an annual basis should be a fundamental part of the British constitution, if it is not already.

I do not believe that Parliament has been treated so roughly since the reign of Charles I. It is worth hon. Members remembering his fate. He fell because he was disloyal to his closest associates, chief of whom he got rid of in an effort to save his own skin. He was given to saying one thing and doing another. He told lies and induced cynicism. He was not up to the job and was given to petulance. He might have been described by Andrew Rawnsley as "Richard Nixon, played by Brian Rix." In the 17th century, Parliament stood up for itself, and we should do the same.

9.40 pm
The Financial Secretary to the Treasury (Mr. Stephen Dorrell)

I am sorry to tell the House that I do not have a minute from Mr. Gambles to read out, although I enjoyed listening to that minute, and some of the text was familiar.

I must start by commenting briefly on the length of the Bill and on what several of my right hon. and hon. Friends said about that. The Government are aware of the fact that a Bill running to more than 240 clauses and published in two volumes causes concern to both sides of the House, and, in particular, to some of my right hon. and hon. Friends. Its length is not a source of pride to us but, none the less, my hon. Friend the Member for Bristol, North-West (Mr. Stern) drew attention to some of the reasons for its length. We can return to that subject in Committee.

I listened with respect to the views expressed by my right hon. Friend the Member for Worthing (Sir T. Higgins), by my hon. Friends the Members for Slough (Mr. Watts) and for Carshalton and Wallington (Mr. Forman) and by the right hon. Member for Berwick-upon-Tweed (Mr. Beith). They set out their concern that the Bill contains substantial chunks of technical tax legislation which they believe could be as adequately dealt with in a separate taxes management Bill. My hon. Friends and the House will be aware that that has been proposed more than once by the Procedure Committee. The Government always listen with respect to its views, but we have set out clearly the reasons why we do not espouse the cause of a separate taxes management Bill.

In recent years, in order to deliver better quality tax legislation, we have ensured that, as far as possible, advance consultation has taken place on the technical aspects of Finance Bills. The Bill is no exception, because roughly half of its clauses have already been subject to consultation. I hope that that will lead to better-informed consideration in Committee.

All those comments underline the importance of the first point raised by my right hon. Friend the Chief Secretary about the importance of an orderly consideration of the Bill during its passage through Parliament. I very much hope that the official Opposition will see fit to assist in the orderly discussion of the important issues. I hope that the Bill does not become the victim of parliamentary guerilla tactics that deny us the opportunity to give it proper parliamentary consideration.

The debate has presented the House with a certain difficulty, because for as long as any of us can remember there has always been a clear distinction between the Labour party and the Tory party when it comes to the consideration of economic matters. The Labour party has consistently argued for extra money for public services. Today, that cause was maintained in a distinguished fashion by the hon. Member for Birmingham, Perry Barr (Mr. Rooker). His speech, however, seemed to be more directed in code to those on his own Front Bench than to members of the Government Front Bench.

The tradition has been that Labour argues for more money for public services while we recognise the need to restrain ambitions for the public services without an affordable tax burden. The House has been asked to believe that during the past week there has been an important event —it might be described as a seismic event—in British politics. We have been asked to believe that Opposition Front-Bench spokesmen have changed sides in the argument and have suddenly become more concerned about the tax burden than about increases in public expenditure. We have the rather touching prospect of the hon. Member for Peckham (Ms Harman) and my right hon. Friend the Chief Secretary marching shoulder to shoulder to control the tax burden and deliver the taxpayer from increased taxes.

Not surprisingly, the prospect of this unexpected alliance has aroused some interest in the media. It is right for them to be interested because if it were true that the Opposition had changed sides in the argument, it would be rather like Martin Luther calling off the Reformation. The key phrase is "if it were true". Every hon. Member knows that Labour's claim to be the party of low tax simply does not stand up to five minutes' serious examination.

Labour appears to believe that it will be allowed to conduct two separate but parallel debates—one on tax and one on spending—and that no voter anywhere in the country will make the link between its advocacy on one day of extra public expenditure and on the next of control of the tax burden, and that those two unrelated debates are carried on in hermetically sealed units.

Let us look at what happened last week on the issue of tax and expenditure—one week in the life of the Labour party. On Monday, the hon. Member for Monklands, West (Mr. Clarke), the Opposition spokesman on overseas aid, railed against reductions in official development assistance. On Tuesday, I did not have to read far through Hansard to find the hon. Member for Rother Valley (Mr. Barron) because he asked the first question at 2.35, and joined his hon. Friends the Members for Liverpool, Walton (Mr. Kilfoyle) and for Leeds, East (Mr. Mudie) in railing against alleged reductions in grant aid to the Health and Safety Executive.

On Wednesday during Environment questions it was the turn of my parliamentary neighbour, the hon. Member for Leicester, East (Mr. Vaz), who railed against what he called the inability and unwillingness of my right hon. Friend the Chief Secretary to provide extra money for public expenditure on London. On Thursday, the hon. Member for Sheffield, Brightside (Mr. Blunkett), who makes the others look like amateurs, was asked by my hon. Friend the Member for City of Chester (Mr. Brandreth) —[Interruption.] My hon. Friend is an excellent Member and he asked a pertinent question. He asked the hon. Gentleman why he opposed compulsory competitive tendering, which is producing £130 million extra for patient care. The response by the hon. Member for Brightside was informative. He dismissed my hon. Friend's perfectly correct question with the comment "brass neck".

The real spending commitment of the hon. Member for Brightside was not made in the House last week: it was made, as is often the case with Opposition spokesmen, to the lobby group that they wanted to buy off. It was made through the columns of Public Finance and Accountancy. In that journal, the hon. Gentleman made the commitment to take Britain into the 7 per cent. club of countries that spend more than 7 per cent. of gross domestic product on health care.

That commitment would cost £6 billion and still the Labour party expects us to take it seriously as the party committed to controlling the tax burden.

Mr. Chisholm

Will the Minister give way?

Mr. Pike

Will the Minister give way?

Mr. Dorrell

No. I have not finished the story of last week in the Labour party.

Last Saturday, against the background of the spending concerns and commitments that had been rolling out of Labour Front-Bench spokesmen for the whole of last week, the hon. Member for Dunfermline, East (Mr. Brown) and the hon. Member for Peckham sought to persuade the British people that Labour would tax less. That is the politics of make-believe.

The hon. Member for Peckham cut a sorry figure today. She was charged by her Front Bench with making a speech arguing the case for lower tax. So deeply ingrained were her own habits that she could not resist the opportunity of implying that we needed to spend more on health and transport. The hon. Lady's habit of advocating extra public expenditure is so deeply ingrained that she does not seem to have noticed that it is inconsistent with her new-found interest in controlling the tax burden.

I agree with my hon. Friend the Member or Stamford and Spalding (Mr. Davies). The Opposition Front Bench are playing a dangerous game in front of their own goal. By stressing the importance of tax as an issue, they are creating the opportunity for the Government to show the importance of expenditure restraint if we are to deliver the low tax burden, and that is precisely what I and my hon. Friends intend to do.

Mr. Ian Taylor

As my hon. Friend was discussing the hon. Member for Peckham (Ms Harman), did he notice that she was so modest in moving the motion in the name of the Leader of the Opposition that hardly anyone in the House heard her move it? That reinforced the fact that she forgot to table the amendment in the Budget debate.

Mr. Dorrell

It is within the memory of every hon. Member that the reason why the amendment is on the Order Paper today is that somebody on the Opposition Front Bench forgot to move the relevant amendment at the end of the Budget debate. It is the hon. Lady's good fortune that the First Deputy Chairman of Ways and Means was in the Chair to prompt her today. Perhaps she regrets that that friendly prompt was not there at the end of the Budget debate.

Labour Members have no credibility whatever on those issues. By arguing the case for low tax, they demonstrate why they sit on the Opposition Benches and will continue to sit there. They show that they are unselective and cannot resist a populist cry, never mind that it is inconsistent with the argument that they presented last week or even a few hours before. They have no strategy and cannot resist a sound bite.

I agree with my right hon. Friend the Chief Secretary that the best sound bite on the subject of the Labour party and tax came from the hon. Member for Dagenham (Mr. Gould). I quote him with respect as I always do. He is a former tutor of mine, who, quite rightly, said: I think the Labour party ought to accept that we will always be likely to have a higher tax burden than our opponents because we believe in public spending. That is the truth about the Opposition. It is the truth about what they want to do and, furthermore, it is the truth about what they did. They cannot escape the fact that, when they were in government and had the opportunity to deliver their aspirations, between 1974 and 1979 the average share of national income taken in public expenditure was 46 per cent. That was the average for the five years they were in office.

During the current cycle, public expenditure will peak at 45 per cent. of national income and we have published in the Red Book firm plans to reduce the share of national income taken by public expenditure from 45 to 41 per cent.

The fact is that the Labour party spends more. It wants to spend more. It is because it spends more that it is inevitably committed to tax more.

Mr. Pike

Does the Financial Secretary recognise one important factor? It would have helped them in their attempts to spend money and avoid taxation increases if the Government had not destroyed such a large part of the British economy and employment by trying to maintain the pound at an artificially high value when it was in the exchange rate mechanism.

Mr. Dorrell

That was the policy espoused by the Labour party. What the hon. Gentleman overlooks is that, over the past 12 months, the year in which the hon. Member for Dunfermline, East projected continued increases in unemployment, we have delivered a reduction of 225,000 in the unemployment queue and a growth rate of 2 per cent. against an almost equivalent recession rate in the former West Germany. The recession rate last year in West Germany was 2 per cent. whereas there was 2 per cent. growth in this country under this Government.

There is, of course, an escape route for the Members on the Opposition Front Bench. It is just as well that the hon. Member for Dunfermline, East spotted it in advance. It is the escape route that they used last time. "Oh, no," they said, "we do not need to raise the tax burden. We can pump up expenditure. There is always another way of squaring the circle. We can borrow it." That is what they did the last time. The borrowing requirement of national income was 7 per cent. between 1974 and 1979. That was the average deficit. I agree with my right hon. Friend the Member for Shropshire, North (Mr. Biffen). The key difference between the parties in the debate this evening is that, when we commit ourselves to expenditure plans, we accept that it follows that we must finance those plans responsibly.

We saw between 1974 and 1979 what happens when Governments do not do that. They deliver instead 15 per cent. inflation, economic decline and a cycle of disappointed expectations. We shall not allow that to happen. The reason for the Bill is that we are committed to put in place the tax plans that are necessary to deliver responsible finance of our expenditure proposals, because that is what underwrites and will sustain the recovery in the medium and long term. That is the key difference. That is the essential priority that the Bill represents. It underwrites the recovery. That is not only our view; virtually every independent commentator has agreed with the Government's view that it is necessary to close the budget deficit, and to do that by reducing public expenditure and raising revenue.

Sir Donald Thompson (Calder Valley)

Is my hon. Friend not being a bit unkind? Surely there is one Department—just one—where the Labour party would spend less.

Mr. Dorrell

My hon. Friend would no doubt have his own candidate for that. The one Department that the Labour party usually regards as the milch cow, the one that can always be safely reduced, and whose future one can gamble away, is the Ministry of Defence. Whatever the figure, the Labour party always says, "You can spend less."

The Government are determined to deliver key economic disciplines. We shall continue to deliver the improvement in living standards for the British people that we have seen since the Conservatives took office. The vote at the end of the debate is about whether the House is prepared to take the necessary action to deliver the key economic disciplines. It is a straight choice between the responsible finance of the Conservatives and the Opposition's public services on the never-never. It is a straight choice between sound money and a return to the Opposition's borrowing and inflation.

Mr. Nicholas Brown

Will the Minister give way?

Mr. Dorrell


It is a straight choice between sustainable growth and the stagflation of the Opposition. It is a straight choice between the Government improving living standards and a return to the cycle of despair of the Opposition.

My hon. Friends understand that choice and the British people understand that choice. That is why the House will accept the Bill tonight and why, more importantly, the Bill will underwrite the re-election of the Government when the time comes.

Question put, That the amendment be made:—

The House divided: Ayes 304, Noes 321.

Division No. 90] [10 pm
Abbott, Ms Diane Dixon, Don
Adams, Mrs Irene Dobson, Frank
Ainger, Nick Donohoe, Brian H.
Ainsworth, Robert (Cov'try NE) Dowd, Jim
Allen, Graham Dunnachie, Jimmy
Alton, David Dunwoody, Mrs Gwyneth
Anderson, Donald (Swansea E) Eagle, Ms Angela
Anderson, Ms Janet (Ros'dale) Eastham, Ken
Armstrong, Hilary Enright, Derek
Ashdown, Rt Hon Paddy Etherington, Bill
Ashton, Joe Evans, John (St Helens N)
Austin-Walker, John Ewing, Mrs Margaret
Banks, Tony (Newham NW) Fatchett, Derek
Barnes, Harry Faulds, Andrew
Barron, Kevin Field, Frank (Birkenhead)
Battle, John Fisher, Mark
Bayley, Hugh Flynn, Paul
Beckett, Rt Hon Margaret Forsythe, Clifford (Antrim S)
Beggs, Roy Foster, Rt Hon Derek
Beith, Rt Hon A. J. Foster, Don (Bath)
Bell, Stuart Foulkes, George
Benn, Rt Hon Tony Fraser, John
Bennett, Andrew F. Fyfe, Maria
Benton, Joe Galbraith, Sam
Bermingham, Gerald Galloway, George
Berry, Dr. Roger Gapes, Mike
Betts, Clive Garrett, John
Blair, Tony George, Bruce
Blunkett, David Gerrard, Neil
Boateng, Paul Gilbert, Rt Hon Dr John
Boyes, Roland Godman, Dr Norman A.
Bradley, Keith Godsiff, Roger
Bray, Dr Jeremy Golding, Mrs Llin
Brown, Gordon (Dunfermline E) Gordon, Mildred
Brown, N. (N'c'tle upon Tyne E) Gould, Bryan
Bruce, Malcolm (Gordon) Graham, Thomas
Burden, Richard Grant, Bernie (Tottenham)
Byers, Stephen Griffiths, Nigel (Edinburgh S)
Caborn, Richard Griffiths, Win (Bridgend)
Callaghan, Jim Grocott, Bruce
Campbell, Mrs Anne (C'bridge) Gunnell, John
Campbell, Menzies (Fife NE) Hain, Peter
Campbell, Ronnie (Blyth V) Hall, Mike
Campbell-Savours, D. N. Hanson, David
Canavan, Dennis Hardy, Peter
Cann, Jamie Harman, Ms Harriet
Carlile, Alexander (Montgomry) Harvey, Nick
Chisholm, Malcolm Hattersley, Rt Hon Roy
Clapham, Michael Henderson, Doug
Clark, Dr David (South Shields) Heppell, John
Clarke, Tom (Monklands W) Hill, Keith (Streatham)
Clelland, David Hinchliffe, David
Clwyd, Mrs Ann Hoey, Kate
Coffey, Ann Hogg, Norman (Cumbernauld)
Cohen, Harry Home Robertson, John
Connarty, Michael Hood, Jimmy
Cook, Frank (Stockton N) Hoon, Geoffrey
Corbett, Robin Howarth, George (Knowsley N)
Corbyn, Jeremy Howells, Dr. Kim (Pontypridd)
Cousins, Jim Hoyle, Doug
Cox, Tom Hughes, Kevin (Doncaster N)
Cryer, Bob Hughes, Robert (Aberdeen N)
Cummings, John Hughes, Roy (Newport E)
Cunliffe, Lawrence Hughes, Simon (Southwark)
Cunningham, Jim (Covy SE) Hume, John
Cunningham, Rt Hon Dr John Hutton, John
Dafis, Cynog Illsley, Eric
Dalyell, Tam Ingram, Adam
Darting, Alistair Jackson, Glenda (H'stead)
Davidson, Ian Jackson, Helen (Shef'ld, H)
Davies, Bryan (Oldham C'tral) Jamieson, David
Davies, Rt Hon Denzil (Llanelli) Janner, Greville
Davies, Ron (Caerphilly) Jones, Barry (Alyn and D'side)
Davis, Terry (B'ham, H'dge H'l) Jones, Ieuan Wyn (Ynys Môn)
Denham, John Jones, Lynne (B'ham S O)
Dewar, Donald Jones, Martyn (Clwyd, SW)
Jones, Nigel (Cheltenham) Prentice, Ms Bridget (Lew'm E)
Jowell, Tessa Prentice, Gordon (Pendle)
Kaufman, Rt Hon Gerald Prescott, John
Keen, Alan Primarolo, Dawn
Kennedy, Charles (Ross,C&S) Purchase, Ken
Kennedy, Jane (Lpool Brdgn) Quin, Ms Joyce
Khabra, Piara S. Radice, Giles
Kilfoyle, Peter Randall, Stuart
Kinnock, Rt Hon Neil (Islwyn) Raynsford, Nick
Kirkwood, Archy Redmond, Martin
Leighton, Ron Reid, Dr John
Lestor, Joan (Eccles) Rendel, David
Lewis, Terry Richardson, Jo
Litherland, Robert Robertson, George (Hamilton)
Livingstone, Ken Robinson, Geoffrey (Co'try NW)
Lloyd, Tony (Stretford) Robinson, Peter (Belfast E)
Llwyd, Elfyn Roche, Mrs. Barbara
Loyden, Eddie Rogers, Allan
Lynne, Ms Liz Rooker, Jeff
McAllion, John Rooney, Terry
McAvoy, Thomas Ross, Ernie (Dundee W)
McCartney, Ian Rowlands, Ted
McCrea, Rev William Ruddock, Joan
Macdonald, Calum Salmond, Alex
McFall, John Sedgemore, Brian
McGrady, Eddie Sheerman, Barry
McKelvey, William Sheldon, Rt Hon Robert
Mackinlay, Andrew Shore, Rt Hon Peter
McLeish, Henry Short, Clare
Maclennan, Robert Simpson, Alan
McMaster, Gordon Skinner, Dennis
McNamara, Kevin Smith, Andrew (Oxford E)
Madden, Max Smith, C. (Isl'ton S & F'sbury)
Maddock, Mrs Diana Smith, Rt Hon John (M'kl'ds E)
Maginnis, Ken Smith, Llew (Blaenau Gwent)
Mahon, Alice Smyth, Rev Martin (Belfast S)
Mallon, Seamus Snape, Peter
Mandelson, Peter Soley, Clive
Marek, Dr John Spearing, Nigel
Marshall, David (Shettleston) Spellar, John
Marshall, Jim (Leicester, S) Squire, Rachel (Dunfermline W)
Martin, Michael J. (Springburn) Steel, Rt Hon Sir David
Martlew, Eric Steinberg, Gerry
Maxton, John Stevenson, George
Meacher, Michael Stott, Roger
Meale, Alan Strang, Dr. Gavin
Michael, Alun Straw, Jack
Michie, Bill (Sheffield Heeley) Taylor, Mrs Ann (Dewsbury)
Michie, Mrs Ray (Argyll Bute) Taylor, Rt Hon John D. (Strgfd)
Milburn, Alan Taylor, Matthew (Truro)
Miller, Andrew Tipping, Paddy
Mitchell, Austin (Gt Grimsby) Trimble, David
Molyneaux, Rt Hon James Turner, Dennis
Moonie, Dr Lewis Tyler, Paul
Morgan, Rhodri Vaz, Keith
Morley, Elliot Walker, A. Cecil (Belfast N)
Morris, Rt Hon A. (Wy'nshawe) Walker, Rt Hon Sir Harold
Morris, Estelle (B'ham Yardley) Wallace, James
Morris, Rt Hon J. (Aberavon) Walley, Joan
Mowlam, Marjorie Wardell, Gareth (Gower)
Mudie, George Wareing, Robert N
Mullin, Chris Watson, Mike
Murphy, Paul Welsh, Andrew
Oakes, Rt Hon Gordon Wicks, Malcolm
O'Brien, Michael (N W'kshire) Wigley, Dafydd
O'Brien, William (Normanton) Williams, Rt Hon Alan (Sw'n W)
O'Hara, Edward Williams, Alan W (Carmarthen)
Olner, William Wilson, Brian
O'Neill, Martin Winnick, David
Orme, Rt Hon Stanley Wise, Audrey
Paisley, Rev Ian Worthington, Tony
Parry, Robert Wray, Jimmy
Patchett, Terry Wright, Dr Tony
Pendry, Tom Young, David (Bolton SE)
Pickthall, Colin
Pike, Peter L. Tellers for the Ayes:
Pope, Greg Mr. Jack Thompson and Mr. Jon Owen Jones.
Powell, Ray (Ogmore)
Ainsworth, Peter (East Surrey) Douglas-Hamilton, Lord James
Aitken, Jonathan Dover, Den
Alexander, Richard Duncan, Alan
Alison, Rt Hon Michael (Selby) Duncan-Smith, Iain
Allason, Rupert (Torbay) Dunn, Bob
Amess, David Durant, Sir Anthony
Ancram, Michael Dykes, Hugh
Arbuthnot, James Eggar, Tim
Arnold, Jacques (Gravesham) Elletson, Harold
Arnold, Sir Thomas (Hazel Grv) Emery, Rt Hon Sir Peter
Ashby, David Evans, David (Welwyn Hatfield)
Aspinwall, Jack Evans, Jonathan (Brecon)
Atkins, Robert Evans, Nigel (Ribble Valley)
Atkinson, David (Bour'mouth E) Evans, Roger (Monmouth)
Atkinson, Peter (Hexham) Evennett, David
Baker, Rt Hon K. (Mole Valley) Faber, David
Baker, Nicholas (Dorset North) Fabricant, Michael
Baldry, Tony Fenner, Dame Peggy
Banks, Matthew (Southport) Field, Barry (Isle of Wight)
Banks, Robert (Harrogate) Fishburn, Dudley
Bates, Michael Forman, Nigel
Batiste, Spencer Forsyth, Michael (Stirling)
Bellingham, Henry Forth, Eric
Bendall, Vivian Fowler, Rt Hon Sir Norman
Beresford, Sir Paul Fox, Dr Liam (Woodspring)
Biffen, Rt Hon John Fox, Sir Marcus (Shipley)
Blackburn, Dr John G. Freeman, Rt Hon Roger
Bonsor, Sir Nicholas French, Douglas
Booth, Hartley Fry, Sir Peter
Boswell, Tim Gale, Roger
Bottomley, Peter (Eltham) Gallie, Phil
Bottomley, Rt Hon Virginia Gardiner, Sir George
Bowden, Andrew Garel-Jones, Rt Hon Tristan
Bowis, John Garnier, Edward
Boyson, Rt Hon Sir Rhodes Gill, Christopher
Brandreth, Gyles Gillan, Cheryl
Brazier, Julian Goodlad, Rt Hon Alastair
Bright, Graham Goodson-Wickes, Dr Charles
Brooke, Rt Hon Peter Gorman, Mrs Teresa
Brown, M. (Brigg & Cl'thorpes) Gorst, John
Browning, Mrs. Angela Grant, Sir A. (Cambs SW)
Bruce, Ian (S Dorset) Greenway, Harry (Ealing N)
Budgen, Nicholas Greenway, John (Ryedale)
Burns, Simon Griffiths, Peter (Portsmouth, N)
Burt, Alistair Grylls, Sir Michael
Butcher, John Gummer, Rt Hon John Selwyn
Butler, Peter Hague, William
Butterfill, John Hamilton, Rt Hon Sir Archie
Carlisle, John (Luton North) Hamilton, Neil (Tatton)
Carlisle, Kenneth (Lincoln) Hampson, Dr Keith
Carrington, Matthew Hanley, Jeremy
Carttiss, Michael Hannam, Sir John
Cash, William Hargreaves, Andrew
Channon, Rt Hon Paul Harris, David
Churchill, Mr Haselhurst, Alan
Clappison, James Hawkins, Nick
Clark, Dr Michael (Rochford) Hawksley, Warren
Clarke, Rt Hon Kenneth (Ruclif) Hayes, Jerry
Clifton-Brown, Geoffrey Heald, Oliver
Coe, Sebastian Heath, Rt Hon Sir Edward
Colvin, Michael Heathcoat-Amory, David
Congdon, David Hendry, Charles
Conway, Derek Hicks, Robert
Coombs, Anthony (Wyre For'st) Higgins, Rt Hon Sir Terence L.
Coombs, Simon (Swindon) Hill, James (Southampton Test)
Cope, Rt Hon Sir John Hogg, Rt Hon Douglas (G'tham)
Cormack, Patrick Horam, John
Couchman, James Hordern, Rt Hon Sir Peter
Cran, James Howard, Rt Hon Michael
Currie, Mrs Edwina (S D'by'ire) Howarth, Alan (Strat'rd-on-A)
Curry, David (Skipton & Ripon) Howell, Rt Hon David (G'dford)
Davies, Quentin (Stamford) Howell, Sir Ralph (N Norfolk)
Davis, David (Boothferry) Hughes Robert G. (Harrow W)
Day, Stephen Hunt, Rt Hon David (Wirral W)
Deva, Nirj Joseph Hunt, Sir John (Ravensbourne)
Devlin, Tim Hunter, Andrew
Dickens, Geoffrey Hurd, Rt Hon Douglas
Dicks, Terry Jack, Michael
Dorrell, Stephen Jackson, Robert (Wantage)
Jenkin, Bernard Richards, Rod
Jessel, Toby Riddick, Graham
Johnson Smith, Sir Geoffrey Rifkind, Rt Hon. Malcolm
Jones, Gwilym (Cardiff N) Robathan, Andrew
Jones, Robert B. (W Hertfdshr) Roberts, Rt Hon Sir Wyn
Jopling, Rt Hon Michael Robertson, Raymond (Ab'd'n S)
Kellett-Bowman, Dame Elaine Robinson, Mark (Somerton)
Key, Robert Roe, Mrs Marion (Broxbourne)
King, Rt Hon Tom Rowe, Andrew (Mid Kent)
Kirkhope, Timothy Rumbold, Rt Hon Dame Angela
Knapman, Roger Ryder, Rt Hon Richard
Knight, Mrs Angela (Erewash) Sackville, Tom
Knight, Greg (Derby N) Sainsbury, Rt Hon Tim
Knight, Dame Jill (Bir'm E'st'n) Scott, Rt Hon Nicholas
Kynoch, George (Kincardine) Shaw, David (Dover)
Lait, Mrs Jacqui Shaw, Sir Giles (Pudsey)
Lamont, Rt Hon Norman Shephard, Rt Hon Gillian
Lang, Rt Hon Ian Shepherd, Richard (Aldridge)
Lawrence, Sir Ivan Shersby, Michael
Legg, Barry Sims, Roger
Leigh, Edward Skeet, Sir Trevor
Lennox-Boyd, Mark Smith, Sir Dudley (Warwick)
Lester, Jim (Broxtowe) Smith, Tim (Beaconsfield)
Lidington, David Soames, Nicholas
Lilley, Rt Hon Peter Speed, Sir Keith
Lloyd, Rt Hon Peter (Fareham) Spencer, Sir Derek
Luff, Peter Spicer, Sir James (W Dorset)
Lyell, Rt Hon Sir Nicholas Spicer, Michael (S Worcs)
MacGregor, Rt Hon John Spink, Dr Robert
MacKay, Andrew Spring, Richard
Maclean, David Sproat, Iain
McLougnlin, Patrick Squire, Robin (Hornchurch)
McNair-Wilson, Sir Patrick Stanley, Rt Hon Sir John
Madel, Sir David Steen, Anthony
Maitland, Lady Olga Stephen, Michael
Major, Rt Hon John Stern, Michael
Malone, Gerald Stewart, Allan
Mans, Keith Streeter, Gary
Marlow, Tony Sumberg, David
Marshall, John (Hendon S) Sweeney, Walter
Marshall, Sir Michael (Arundel) Sykes, John
Martin, David (Portsmouth S) Tapsell, Sir Peter
Mates, Michael Taylor, Ian (Esher)
Mawhinney, Rt Hon Dr Brian Taylor, John M. (Solihull)
Mayhew, Rt Hon Sir Patrick Taylor, Sir Teddy (Southend, E)
Mellor, Rt Hon David Temple-Morris, Peter
Merchant, Piers Thomason, Roy
Milligan, Stephen Thompson, Sir Donald (C'er V)
Mills, Iain Thompson, Patrick (Norwich N)
Mitchell, Andrew (Gedling) Thornton, Sir Malcolm
Mitchell, Sir David (Hants NW) Thurnham, Peter
Moate, Sir Roger Townend, John (Bridlington)
Monro, Sir Hector Townsend, Cyril D. (Bexl'yh'th)
Montgomery, Sir Fergus Tracey, Richard
Moss, Malcolm Tredinnick, David
Needham, Richard Trend, Michael
Nelson, Anthony Trotter, Neville
Neubert, Sir Michael Twinn, Dr Ian
Newton, Rt Hon Tony Vaughan, Sir Gerard
Nicholls, Patrick Viggers, Peter
Nicholson, David (Taunton) Waldegrave, Rt Hon William
Nicholson, Emma (Devon West) Walden, George
Norris, Steve Walker, Bill (N Tayside)
Onslow, Rt Hon Sir Cranley Waller, Gary
Oppenheim, Phillip Ward, John
Ottaway, Richard Wardle, Charles (Bexhill)
Page, Richard Waterson, Nigel
Paice, James Watts, John
Patnick, Irvine Wells, Bowen
Patten, Rt Hon John Wheeler, Rt Hon Sir John
Pattie, Rt Hon Sir Geoffrey Whitney, Ray
Pawsey, James Whittingdale, John
Peacock, Mrs Elizabeth Widdecombe, Ann
Pickles, Eric Wiggin, Sir Jerry
Porter, Barry (Wirral S) Wilkinson, John
Porter, David (Waveney) Willetts, David
Portillo, Rt Hon Michael Wilshire, David
Powell, William (Corby) Winterton, Mrs Ann (Congleton)
Redwood, Rt Hon John Winterton, Nicholas (Macc'f'ld)
Renton, Rt Hon Tim Wolfson, Mark
Wood, Timothy Tellers for the Noes:
Yeo, Tim Mr. David Lightbown and Mr. Sydney Chapman.
Young, Rt Hon Sir George

Question accordingly negatived.

Main Question put forthwith, pursuant to Standing Order No. 60 (Amendment on Second or Third Reading):

The House divided: Ayes 327, Noes 296.

Division No. 91] [10.17 pm
Ainsworth, Peter (East Surrey) Cope, Rt Hon Sir John
Aitken, Jonathan Cormack, Patrick
Alexander, Richard Couchman, James
Alison, Rt Hon Michael (Selby) Cran, James
Allason, Rupert (Torbay) Currie, Mrs Edwina (S D'by'ire)
Amess, David Curry, David (Skipton & Ripon)
Ancram, Michael Davies, Quentin (Stamford)
Arbuthnot, James Davis, David (Boothferry)
Arnold, Jacques (Gravesham) Day, Stephen
Arnold, Sir Thomas (Hazel Grv) Deva, Nirj Joseph
Ashby, David Devlin, Tim
Aspinwall, Jack Dickens, Geoffrey
Atkins, Robert Dicks, Terry
Atkinson, David (Bour'mouth E) Dorrell, Stephen
Atkinson, Peter (Hexham) Douglas-Hamilton, Lord James
Baker, Rt Hon K. (Mole Valley) Dover, Den
Baker, Nicholas (Dorset North) Duncan, Alan
Baldry, Tony Duncan-Smith, Iain
Banks, Matthew (Southport) Dunn, Bob
Banks, Robert (Harrogate) Durant, Sir Anthony
Bates, Michael Dykes, Hugh
Batiste, Spencer Eggar, Tim
Beggs, Roy Elletson, Harold
Bellingham, Henry Emery, Rt Hon Sir Peter
Bendall, Vivian Evans, David (Welwyn Hatfield)
Beresford, Sir Paul Evans, Jonathan (Brecon)
Biffen, Rt Hon John Evans, Nigel (Ribble Valley)
Blackburn, Dr John G. Evans, Roger (Monmouth)
Bonsor, Sir Nicholas Evennett, David
Booth, Hartley Faber, David
Boswell, Tim Fabricant, Michael
Bottomley, Peter (Eltham) Fenner, Dame Peggy
Bottomley, Rt Hon Virginia Field, Barry (Isle of Wight)
Bowden, Andrew Fishburn, Dudley
Bowis, John Forman, Nigel
Boyson, Rt Hon Sir Rhodes Forsyth, Michael (Stirling)
Brandreth, Gyles Forsythe, Clifford (Antrim S)
Brazier, Julian Forth, Eric
Bright, Graham Fowler, Rt Hon Sir Norman
Brooke, Rt Hon Peter Fox, Dr Liam (Woodspring)
Brown, M. (Brigg & Cl'thorpes) Fox, Sir Marcus (Shipley)
Browning, Mrs. Angela Freeman, Rt Hon Roger
Bruce, Ian (S Dorset) Fry, Sir Peter
Budgen, Nicholas Gale, Roger
Burns, Simon Gallie, Phil
Burt, Alistair Gardiner, Sir George
Butcher, John Garel-Jones, Rt Hon Tristan
Butler, Peter Garnier, Edward
Butterfill, John Gill, Christopher
Carlisle, John (Luton North) Gillan, Cheryl
Carlisle, Kenneth (Lincoln) Goodlad, Rt Hon Alastair
Carrington, Matthew Goodson-Wickes, Dr Charles
Carttiss, Michael Gorman, Mrs Teresa
Cash, William Gorst, John
Channon, Rt Hon Paul Grant, Sir A. (Cambs SW)
Chapman, Sydney Greenway, Harry (Ealing N)
Churchill, Mr Greenway, John (Ryedale)
Clappison, James Griffiths, Peter (Portsmouth, N)
Clark, Dr Michael (Rochford) Grylls, Sir Michael
Clarke, Rt Hon Kenneth (Ruclif) Gummer, Rt Hon John Selwyn
Clifton-Brown, Geoffrey Hague, William
Coe, Sebastian Hamilton, Rt Hon Sir Archie
Colvin, Michael Hamilton, Neil (Tatton)
Congdon, David Hampson, Dr Keith
Conway, Derek Hanley, Jeremy
Coombs, Anthony (Wyre For'st) Hannam, Sir John
Coombs, Simon (Swindon) Hargreaves, Andrew
Harris, David Molyneaux, Rt Hon James
Haselhurst, Alan Monro, Sir Hector
Hawkins, Nick Montgomery, Sir Fergus
Hawksley, Warren Moss, Malcolm
Hayes, Jerry Needham, Richard
Heald, Oliver Nelson, Anthony
Heath, Rt Hon Sir Edward Neubert, Sir Michael
Heathcoat-Amory, David Newton, Rt Hon Tony
Hendry, Charles Nicholls, Patrick
Hicks, Robert Nicholson, David (Taunton)
Higgins, Rt Hon Sir Terence L. 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
Hordern, 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, Irvine
Howell, Sir Ralph (N Norfolk) Patten, Rt Hon John
Hughes Robert G. (Harrow W) Pattie, Rt Hon Sir Geoffrey
Hunt, Rt Hon David (Wirral W) Pawsey, James
Hunt, Sir John (Ravensbourne) Peacock, Mrs Elizabeth
Hunter, Andrew Pickles, Eric
Hurd, Rt Hon Douglas Porter, Barry (Wirral S)
Jack, Michael Porter, David (Waveney)
Jackson, Robert (Wantage) Portillo, Rt Hon Michael
Jenkin, Bernard Powell, William (Corby)
Jessel, Toby Redwood, Rt Hon John
Johnson Smith, Sir Geoffrey Renton, Rt Hon Tim
Jones, Gwilym (Cardiff N) Richards, Rod
Jones, Robert B. (W Hertfdshr) Riddick, Graham
Jopling, Rt Hon Michael Rifkind, Rt Hon. Malcolm
Kellett-Bowman, Dame Elaine Robathan, Andrew
Key, Robert Roberts, Rt Hon Sir Wyn
Kilfedder, Sir James Robertson, Raymond (Ab'd'n S)
King, Rt Hon Tom Robinson, Mark (Somerton)
Kirkhope, Timothy Roe, Mrs Marion (Broxbourne)
Knapman, Roger Rowe, Andrew (Mid Kent)
Knight, Mrs Angela (Erewash) Rumbold, Rt Hon Dame Angela
Knight, Greg (Derby N) Ryder, Rt Hon Richard
Knight, Dame Jill (Bir'm E'st'n) Sackville, Tom
Kynoch, George (Kincardine) Sainsbury, Rt Hon Tim
Lait, Mrs Jacqui Scott, Rt Hon Nicholas
Lamont, Rt Hon Norman Shaw, David (Dover)
Lang, Rt Hon Ian Shaw, Sir Giles (Pudsey)
Lawrence, Sir Ivan Shephard, Rt Hon Gillian
Legg, Barry Shepherd, Richard (Aldridge)
Leigh, Edward Shersby, Michael
Lennox-Boyd, Mark Sims, Roger
Lester, Jim (Broxtowe) Skeet, Sir Trevor
Lidington, David Smith, Sir Dudley (Warwick)
Lightbown, David Smith, Tim (Beaconsfield)
Lilley, Rt Hon Peter Smyth, Rev Martin (Belfast S)
Lloyd, Rt Hon Peter (Fareham) Soames, Nicholas
Luff, Peter Speed, Sir Keith
Lyell, Rt Hon Sir Nicholas Spencer, Sir Derek
MacGregor, Rt Hon John Spicer, Sir James (W Dorset)
MacKay, Andrew Spicer, Michael (S Worcs)
Maclean, David Spink, Dr Robert
McLoughlin, Patrick Spring, Richard
McNair-Wilson, Sir Patrick Sproat, Iain
Madel, Sir David Squire, Robin (Hornchurch)
Maginnis, Ken Stanley, Rt Hon Sir John
Maitland, Lady Olga Steen, Anthony
Major, Rt Hon John Stephen, Michael
Malone, Gerald Stern, Michael
Mans, Keith Stewart, Allan
Marlow, Tony Streeter, Gary
Marshall, John (Hendon S) Sumberg, David
Marshall, Sir Michael (Arundel) Sweeney, Walter
Martin, David (Portsmouth S) Sykes, John
Mates, Michael Tapsell, Sir Peter
Mawhinney, Rt Hon Dr Brian Taylor, Ian (Esher)
Mayhew, Rt Hon Sir Patrick Taylor, John M. (Solihull)
Mellor, Rt Hon David Taylor, Sir Teddy (Southend, E)
Merchant, Piers Temple-Morris, Peter
Milligan, Stephen Thomason, Roy
Mills, Iain Thompson, Sir Donald (C'er V)
Mitchell, Sir David (Hants NW) Thompson, Patrick (Norwich N)
Moate, Sir Roger Thornton, Sir Malcolm
Thurnham, Peter Wells, Bowen
Townsend, Cyril D. (Bexl'yh'th) Wheeler, Rt Hon Sir John
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)
Waldegrave, Rt Hon William Winterton, Nicholas (Macc'fld)
Walden, George Wolfson, Mark
Walker, A. Cecil (Belfast N) Yeo, Tim
Walker, Bill (N Tayside) Young, Rt Hon Sir George
Waller, Gary
Ward, John Tellers for the Ayes:
Wardle, Charles (Bexhill) Mr. Timothy Wood and Mr. Andrew Mitchell.
Waterson, Nigel
Watts, John
Abbott, Ms Diane Cox, Tom
Adams, Mrs Irene Cryer, Bob
Ainger, Nick Cummings, John
Ainsworth, Robert (Cov'try NE) Cunliffe, Lawrence
Allen, Graham Cunningham, Jim (Covy SE)
Alton, David Cunningham, Rt Hon Dr John
Anderson, Donald (Swansea E) Dafis, Cynog
Anderson, Ms Janet (Ros'dale) Dalyell, Tam
Armstrong, Hilary Darling, Alistair
Ashdown, Rt Hon Paddy Davidson, Ian
Ashton, Joe Davies, Bryan (Oldham C'tral)
Austin-Walker, John Davies, Rt Hon Denzil (Llanelli)
Banks, Tony (Newham NW) Davies, Ron (Caerphilly)
Barnes, Harry Davis, Terry (B'ham, H'dge H'l)
Barron, Kevin Denham, John
Battle, John Dewar, Donald
Bayley, Hugh Dixon, Don
Beckett, Rt Hon Margaret Dobson, Frank
Beith, Rt Hon A. J. Donohoe, Brian H.
Bell, Stuart Dowd, Jim
Benn, Rt Hon Tony Dunnachie, Jimmy
Bennett, Andrew F. Dunwoody, Mrs Gwyneth
Benton, Joe Eagle, Ms Angela
Bermingham, Gerald Eastham, Ken
Berry, Dr. Roger Enright, Derek
Betts, Clive Etherington, Bill
Blair, Tony Evans, John (St Helens N)
Blunkett, David Ewing, Mrs Margaret
Boateng, Paul Fatchett, Derek
Boyes, Roland Faulds, Andrew
Bradley, Keith Field, Frank (Birkenhead)
Bray, Dr Jeremy Fisher, Mark
Brown, Gordon (Dunfermline E) Flynn, Paul
Brown, N. (N'c'tle upon Tyne E) Foster, Rt Hon Derek
Bruce, Malcolm (Gordon) Foster, Don (Bath)
Burden, Richard Foulkes, George
Byers, Stephen Fraser, John
Caborn, Richard Fyfe, Maria
Callaghan, Jim Galbraith, Sam
Campbell, Mrs Anne (C'bridge) Galloway, George
Campbell, Menzies (Fife NE) Gapes, Mike
Campbell, Ronnie (Blyth V) Garrett, John
Campbell-Savours, D. N. George, Bruce
Canavan, Dennis Gerrard, Neil
Cann, Jamie Gilbert, Rt Hon Dr John
Carlile, Alexander (Montgomry) Godman, Dr Norman A.
Chisholm, Malcolm Godsiff, Roger
Clapham, Michael Golding, Mrs Llin
Clark, Dr David (South Shields) Gordon, Mildred
Clarke, Tom (Monklands W) Gould, Bryan
Clelland, David Graham, Thomas
Clwyd, Mrs Ann Grant, Bernie (Tottenham)
Coffey, Ann Griffiths, Nigel (Edinburgh S)
Cohen, Harry Griffiths, Win (Bridgend)
Connarty, Michael Grocott, Bruce
Cook, Frank (Stockton N) Gunnell, John
Corbett, Robin Hain, Peter
Corbyn, Jeremy Hall, Mike
Cousins, Jim Hanson, David
Hardy, Peter Milburn, Alan
Harman, Ms Harriet Miller, Andrew
Harvey, Nick Mitchell, Austin (Gt Grimsby)
Hattersley, Rt Hon Roy Moonie, Dr Lewis
Henderson, Doug Morgan, Rhodri
Heppell, John Morley, Elliot
Hill, Keith (Streatham) Morris, Rt Hon A. (Wy'nshawe)
Hinchliffe, David Morris, Estelle (B'ham Yardley)
Hoey, Kate Morris, Rt Hon J. (Aberavon)
Hogg, Norman (Cumbernauld) Mowlam, Marjorie
Home Robertson, John Mudie, George
Hood, Jimmy Mullin, Chris
Hoon, Geoffrey Murphy, Paul
Howarth, George (Knowsley N) Oakes, Rt Hon Gordon
Howells, Dr. Kim (Pontypridd) O'Brien, Michael (N W'kshire)
Hoyle, Doug O'Brien, William (Normanton)
Hughes, Kevin (Doncaster N) O'Hara, Edward
Hughes, Robert (Aberdeen N) Olner, William
Hughes, Roy (Newport E) O'Neill, Martin
Hughes, Simon (Southwark) Orme, Rt Hon Stanley
Hume, John Paisley, Rev Ian
Hutton, John Parry, Robert
Illsley, Eric Patchett, Terry
Ingram, Adam Pendry, Tom
Jackson, Glenda (H'stead) Pickthall, Colin
Jackson, Helen (Shef'ld, H) Pike, Peter L.
Jamieson, David Pope, Greg
Janner, Greville Powell, Ray (Ogmore)
Jones, Barry (Alyn and D'side) Prentice, Ms Bridget (Lew'm E)
Jones, Ieuan Wyn (Ynys Môn) Prentice, Gordon (Pendle)
Jones, Lynne (B'ham S O) Prescott, John
Jones, Martyn (Clwyd, SW) Primarolo, Dawn
Jones, Nigel (Cheltenham) Purchase, Ken
Jowell, Tessa Quin, Ms Joyce
Kaufman, Rt Hon Gerald Radice, Giles
Keen, Alan Randall, Stuart
Kennedy, Charles (Ross,C&S) Raynsford, Nick
Kennedy, Jane (Lpool Brdgn) Redmond, Martin
Khabra, Piara S. Reid, Dr John
Kilfoyle, Peter Rendel, David
Kinnock, Rt Hon Neil (Islwyn) Richardson, Jo
Kirkwood, Archy Robertson, George (Hamilton)
Leighton, Ron Robinson, Geoffrey (Co'try NW)
Lestor, Joan (Eccles) Robinson, Peter (Belfast E)
Lewis, Terry Roche, Mrs. Barbara
Litherland, Robert Rogers, Allan
Livingstone, Ken Rooker, Jeff
Lloyd, Tony (Stratford) Rooney, Terry
Llwyd, Elfyn Ross, Ernie (Dundee W)
Loyden, Eddie Rowlands, Ted
Lynne, Ms Liz Ruddock, Joan
McAllion, John Salmond, Alex
McAvoy, Thomas Sedgemore, Brian
McCartney, Ian Sheerman, Barry
McCrea, Rev William Sheldon, Rt Hon Robert
Macdonald, Calum Shore, Rt Hon Peter
McFall, John Short, Clare
McGrady, Eddie Simpson, Alan
McKelvey, William Skinner, Dennis
Mackinlay, Andrew Smith, Andrew (Oxford E)
McLeish, Henry Smith, C. (Isl'ton S & F'sbury)
Maclennan, Robert Smith, Rt Hon John (M'kl'ds E)
McMaster, Gordon Smith, Llew (Blaenau Gwent)
McNamara, Kevin Snape, Peter
Madden, Max Soley, Clive
Maddock, Mrs Diana Spearing, Nigel
Mahon, Alice Spellar, John
Mallon, Seamus Squire, Rachel (Dunfermline W)
Mandelson, Peter Steel, Rt Hon Sir David
Marek, Dr John Steinberg, Gerry
Marshall, David (Shettleston) Stevenson, George
Marshall, Jim (Leicester, S) Stott, Roger
Martin, Michael J. (Springburn) Strang, Dr. Gavin
Martlew, Eric Straw, Jack
Maxton, John Taylor, Mrs Ann (Dewsbury)
Meacher, Michael Taylor, Matthew (Truro)
Meale, Alan Tipping, Paddy
Michael, Alun Turner, Dennis
Michie, Bill (Sheffield Heeley) Tyler, Paul
Michie, Mrs Ray (Argyll Bute) Vaz, Keith
Walker, Rt Hon Sir Harold Wilson, Brian
Wallace, James Winnick, David
Walley, Joan Wise, Audrey
Wardell, Gareth (Gower) Worthington, Tony
Wareing, Robert N Wray, Jimmy
Watson, Mike Wright, Dr Tony
Welsh, Andrew Young, David (Bolton SE)
Wicks, Malcolm
Wigley, Dafydd Tellers for the Noes:
Williams, Rt Hon Alan (Sw'n W) Mr. Jack Thompson and Mr. Jon Owen Jones.
Williams, Alan W (Carmarthen)

Question accordingly agreed to.

Bill accordingly read a Second time.

Ordered, That Clauses 28, 46, 72 and 77 be committed to a Committee of the whole House; That the remainder of the Bill be committed to a Standing Committee; That, when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee— [Mr. Dorrell]

Committee tomorrow.