Motion made, and Question proposed,
That is it expedient to amend the law with respect to the national Debt and public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
§ Mr. Tony Blair (Sedgefield)
I intend to deal with my response to the Budget in three parts: first, its effect on living standards; secondly, the degree to which it reduces social injustice and cuts unemployment; and, thirdly, its impact on the long-term economic strength of the country'.
We have seen the reaction—the cheers—from hon. Members on the Conservative Benches, but I suspect that there will be two distinct views on the Budget. One will be the Conservative politician's view and the other will be the view in the homes, workplaces and streets of this country, because whatever is said by the Chancellor, this Budget will go down in history as the VAT-on-fuel Budget.
Let me deal straight away—[Interruption.] It only shows how out of touch the Conservative party' is if Conservative Members do not think that the question that people are asking, and will be asking tonight, is, why did the Chancellor not take the chance to live up to his election promise.
Let me deal straight away with the Chancellor's compensation proposals. Let us just see how generous they really are. As I understand it, there are only two parts. First, there are the social fund cold weather payments, which will apply, of course, only when the temperature is very low and only to certain groups of people. There are many groups to whom that payment will not apply at all.
As for the home energy efficiency scheme, let us make it clear exactly how much it amounts to. It amounts to £10 million, to be set against the £2.7 billion that the Chancellor is raising from value added tax. Furthermore, he announced what he described as very generous retirement pension help. I think I am right in saying that that is only the normal indexation to the retail prices index, plus the compensation already announced. Even the extension of help for old-age pensioners which the Chancellor announced earlier amounts, on average, to about 10p a week, or £6 a year. How can that possibly compensate for the enormous rise in VAT?
Next April, everyone's fuel bills will increase by 10 per cent., on top of the price rises and the 8 per cent. VAT already levied. Let us remind Conservative Members—indeed, we will not cease to remind them—that they 1105 fought the last general election on a specific pledge that they would never raise VAT. They have broken that pledge, and they will never be trusted on tax again.
Let me tell Conservative Members that the Opposition will provide the House with a chance to speak for the people of this country. When we table an amendment allowing hon. Members to vote on the VAT rise, we will challenge all members of the Conservative party—both Conservative parties—to keep the promise to the electorate on which they were elected. If they break that promise, the country will have been warned that the Conservative party imposed VAT on fuel and power when it promised that it would not, and that it cannot be trusted not to impose VAT on food, children's clothing, books and papers if it is ever elected again.
That, however, is not the end of the tax rises that the Chancellor did not mention in his Budget. Next April, mortgage tax relief will be cut to 15 per cent., which is another breach of a specific manifesto pledge; moreover, the married couple's allowance is to fall. The Chancellor did not mention that either. Car and home insurance taxes are to rise—and all that will come on top of last year's and this year's taxes. In two years, the average British family will have experienced a "sting" amounting to nearly £1,000 a year—7p on the standard rate of income tax. That is the betrayal that the British people will never forget.
In many of the interviews that the Chancellor has given recently, in what used to be described as Budget purdah, he has been honest enough to confess that he has "delivered very little to Mr. and Mrs. Smith up and down the country." I believe that that is a reference to what Conservative central office calls "the elusive feel-good factor", which was mentioned in the now notorious Maples report.
I shall tell Conservative Members why there is no feel-good factor. I shall tell them why Mr. and Mrs. Smith do not feel good. Mr. and Mrs. Smith feel bad about what the Government have done. They feel bad because the mortgage tax relief has been cut by a Government who promised that it would not be cut; they feel bad because it costs more to drive, to insure their car or home and to take a holiday; they feel bad because they must pay the VAT on fuel, and they feel sickened that their elderly relatives must pay it, too.
There is a real world out there, and it is a mile away from what the Chancellor described. It is a world of mass unemployment, temporary contracts and enforced part-time working. That is the world in which people live, and these are the tax rises that will hit them next year. It is a world in which one job is often not enough to make ends meet—a world in which living standards will fall as a result of this Budget, in which crime and the fear of crime have risen, in which the transport system has ceased to serve people and in which the national health service has been sacrificed on the altar of the free market. As living standards have fallen, people have seen the results of social decay and injustice all around them.
Let me now deal with the Chancellor's so-called "Budget for jobs" measures. Let us analyse them, and see just how much they amount to when balanced with the problems. The Chancellor talked of a deprived underclass; I believe that many people hold the Government responsible for the 15 years in which that underclass has 1106 come into being. He claimed that his measures were very generous. Let me tell him that his national insurance holiday—after two years of unemployment—is what the Opposition asked for, but we asked for it to be granted after one year.
§ Mr. Blair
Of course we welcome it, but why did the Chancellor not adopt the other alternative that we proposed—a proper tax rebate on national insurance, and one for employers, which would have allowed us to return a substantial number of the long-term unemployed to work?
The Chancellor said that there had been a big expansion of community action. I understand that 57,000 people are involved in the scheme this year and that next year the number will be reduced to 40,000. The only increase is on last year's plans. Furthermore, I think I am right in saying that the unemployed people who will be assisted will be assisted from a reduced budget. A press release has just been issued by the Department of unemployment—I mean the Department of Employment—[Laughter.] That was, I think, an entirely justifiable slip. The press release states:We will increase the number of unemployed people who get jobs as a result of the programme from a reduced budget".The Chancellor's generous help does not appear, on analysis, to be quite as generous as he said. On any basis, the problem of the long-term unemployed will remain.
The Chancellor says that he cannot find more money to deal with that problem. Let me tell him one or two things that he could have done. He said today that he could deal with certain loopholes—the loopholes that he used to dismiss so abusively in years gone by. Now, he can suddenly find £1.5 billion over three years—I think that that was the figure.
Let me tell the Chancellor about some of the other loopholes that he could have closed. Why could he not act against the abuse of executive share options? Why could he not withdraw tax relief for private medical insurance, into which £100 million goes each year? Let me tell the Chancellor—this illustrates the choice that must be made between the two parties—that that in itself would have been enough to kick-start a proper programme such as the one that we have described for the long-term unemployed.
Because of offshore trusts and the abuse of inheritance tax, ordinary families are being penalised while those at the top of the income scale are not. The same applies to abuses in the privatised utilities. The national grid was valued at £1.5 billion; it is now worth £4.5 billion. That increase has not been earned. It is a windfall increase, of the same order as the current salary increases at the top of the income scale.
At the bottom of the heap, owing to long-term unemployment, are families with children who are becoming so poor that in certain areas mortality rates are rising. Some of our children are suffering from malnutrition. We believe that, while there exists a single possibility of raising money properly by ending abuses, it is intolerable for the Budget to leave gross abuses of the tax system unchecked, or to refuse to ensure that its burdens and advantages are more fairly distributed when families are living on or near the breadline.
1107 The injustice, however, is not just at the expense of the poor. One of the most interesting reports published in the past couple of weeks was produced by the Institute of Fiscal Studies, and it dealt with the impact of tax changes on ordinary families between 1985 and 1995. Using that period is being generous to the Government, because it leaves out the VAT increases that the Government introduced in 1979 in breach of their promise not to do so.
What is shown by the 10 years, 1985 to 1995? That is what we have made all the sacrifices for. It shows that the bottom 40 per cent. of the population have lost as a result of the tax changes and a further 20 per cent. have barely gained. So, a majority have either lost or stayed still and it is only the top 10 per cent. who have gained substantial sums of money. They have gained over five times the amount of the next percentage down. That is what has happened, despite the huge proceeds from the sale of oil and assets which, taken together, amount to £8,000 per family in Britain. That money could have been given to families and could have been put in the building society and they would have done better than they have done out of the Government.
What of the final test—the long-term economic strength of the country? It is true that some of the economic indicators look up. I must tell Conservative Members that I do not believe that anyone in the country gives them much credit for any recovery that there is, but even this Government could not keep the country in recession for ever.
It is true that borrowing is substantially down, but let us not forget who put us in financial chaos in the first place. Now is the time to look at the Government's record in perspective. After all, they have had nearly 16 years—not 16 weeks or 16 months—to get it right.
At the start of the 1980s, the Conservative party's economic promise was based on four elements: first, it would cut unemployment; secondly, it would deliver competent economic management; thirdly, it would improve public services through privatising and commercialising; and, fourthly, greater wealth at the top would trickle down to the rest and reduce poverty. Some Conservative Members still believe in that, but the country does not believe in it any more.
Sixteen years on, let me give the Government some inescapable facts—what might be called killer facts. Unemployment is up, we have had the two worst recessions in living memory, public services are weaker and people are fed up with privatisation. Although there have been massive gains for those at the top, middle income Britain faces a 7p rise in the basic rate of income tax, and poverty and inequality have hugely increased.
The economic strategy for the future is not that which they have pursued in the past. The real test of the Budget is how we rebuild our economy, equip our people and our industry and give them the security and confidence to prosper. The Budget was silent on how to invest in our people at school and at work, to motivate them, extend their potential and treat them fairly as proper partners in the enterprise.
We must expand and modernise our industry, renew our infrastructure, harness and use for all the country the benefits of new technology, regenerate economic activity in areas such as the inner cities, the coal communities and shipbuilding communities, which have been hit by 1108 structural change, reduce inequality and provide a more unified and cohesive society. That is the agenda of the 1990s. It is an agenda not of crude market dogma but of partnership for the future. That is what the people of the country want the Budget to do. They want help with the problems that they really face in the real world, not what Conservative politicians say.
We can now see ever more clearly the dividing lines on which the next election will be fought—Labour as the party of people against the Tories as the party of privilege; Labour as the party of investment against the Conservatives as the party of waste and high unemployment; Labour as the party of social justice against the Tories as the party of social decay; and Labour as the party of strong public services against the Conservatives as the party of privatised dogma. Those are the choices that the country faces and, after today's Budget, more than ever before people will turn to Labour.
§ Sir David Knox (Staffordshire, Moorlands)
I congratulate my right hon. and learned Friend the Chancellor on his second Budget speech. I am afraid that I cannot extend my congratulations to the Leader of the Opposition. At his party conference recently, he had a great deal to say about new Labour. This afternoon, we heard nothing more than old Bolsover from him. There is nothing very new about the right hon. Member for Sedgefield (Mr. Blair).
Like last year's speech, my right hon. and learned Friend's Budget speech was commendably brief. No doubt, to some extent his speech will be condemned by the media as rather dull, but I believe that it was right in the circumstances. I must confess that I like some of the measures that he introduced more than others. None the less, his basic Budget judgment has been right and is sound.
My right hon. and learned Friend announced further help with VAT for those on state benefits. That is the additional help that he promised last year. We will, of course, have an opportunity to look at the detail tomorrow, but as my right hon. and learned Friend said, it means that those at work will be paying VAT on fuel and the pensioners will not.
There has been great hypocrisy about this issue. The effect of VAT on domestic fuel has been grossly exaggerated. During the past 12 months, the retail prices index has increased by less than it has for many years and that index includes the effect of the increase of VAT on domestic fuel.
§ Mr. McCartney
The hon. Gentleman supports the Government's decision to impose VAT on fuel, but he is making no comment about the fact that VAT is imposed not just on the cost of the fuel but on the standing charges as well, which have been increasing dramatically. So, by paying VAT on the standing charge as well as on the cost 1109 of the fuel, pensioners are having to pay a double tax. That is leading to some pensioners having to pay more on standing charges and VAT than the cost of the fuel itself. What does the hon. Gentleman intend to do about that?
§ Sir David Knox
I gave way to the hon. Gentleman for an intervention, not for a speech. He knows as well as anyone else that it was always intended that VAT would be imposed on the whole bill. The hon. Gentleman also knows that, if it did not happen that way, the whole system would be open to abuse. We would probably find that if VAT had not been put on the whole bill, the standing charge would have comprised most of the cost on fuel bills.
Before being interrupted, I said that the effect of VAT on domestic fuel has been grossly exaggerated. I said that the retail prices index has gone up by less in the past year than it has for a long time and includes the effect of VAT on domestic fuel. I understand that the Labour party wants to impose some sort of tax on domestic fuel at some stage. I cannot really see the difference in effect between the Labour party's tax and VAT.
I was pleased to hear my right hon. and learned Friend's proposals to help the unemployed. I have always taken the view that the principal help for the unemployed is through sensible demand management. However, demand management is not enough on its own and other measures are undoubtedly needed, particularly to help the long-term unemployed who have specific problems in returning to work.
I welcome also the fact that my right hon. and learned Friend chose not to increase the duties on beer, wine and spirits. I should have preferred it if he had managed to reduce the duties. Many publicans and others in this country face real problems with people bringing in cheap alcohol from other European Union countries, creating unfair competition for British publicans and others. I hope, therefore, that European Union negotiations to equalise rates throughout the Union will be pursued with great vigour in the months ahead.
I am not so sure about the petrol duty increase which was announced by my right hon. and learned Friend the Chancellor. Like many other hon. Members, I represent a rural constituency and people there are heavily dependent on their cars. The constant upping of the petrol duty imposes a heavy burden on many of my constituents.
After the dust of the Budget has settled, it will be judged, not on its detailed proposals but on its effect on the British economy in 12 to 18 months' time. In my view, the eventual judgment on the Budget will be that my right hon. and learned Friend's caution was exactly right in the circumstances.
It is true that my right hon. and learned Friend has been able to present his Budget in more favourable economic circumstances than have obtained for a long time. Usually, a Chancellor faces a situation where either fast economic growth and falling unemployment are accompanied by rising inflation and a deteriorating balance of payments, or low inflation and an improving balance of payments are accompanied by low or negative growth and rising unemployment. Today, possibly uniquely, all the economic indicators point in the right direction. We have fast economic growth, falling unemployment, low inflation and an improving balance 1110 of payments. Although the present economic position is extremely good and the outlook is favourable, there is no room for complacency. As we have found out to our cost so often in the past, economic problems are never permanently solved.
It will be extremely difficult to keep economic growth, unemployment, inflation and the balance of payments moving in the right direction, ensuring that expansion neither gets out of hand nor slows down. In performing that balancing act, my right hon. and learned Friend the Chancellor is not helped by the media or by many commentators, particularly those from the monetarist school, whose views are dominated by the short term. I get tired of reading articles written by supposed economic experts who tell us that inflation has been cured and that, consequently, the Chancellor no longer needs to bother about it. We have heard that before. It has always been wrong before and it is wrong again today.
The consequences of any economic decision, be it of a monetary or a fiscal nature, take from 12 to 18 months to become effective. The task that faced my right hon. and learned Friend the Chancellor today was to introduce measures to deal with what he considered would be the position in 12 to 18 months' time. Because inflation is low today does not mean that it will be low early in 1996. A wrong decision in this Budget could well spark off a bout of inflation then. Indeed, it was because my right hon. and learned Friend considered that inflation might be a problem then that he rightly increased interest rates about two months ago.
In his Budget, my right hon. and learned Friend has taken further steps to reduce the public sector borrowing requirement to ensure that economic expansion does not get out of control. I have always believed that the Budget should be used in that way. In times of recession, the Budget deficit should be increased. In times of boom, the deficit should be reduced or even eliminated. That is sensible, counter-cyclical economics.
Of course, my right hon. and learned Friend will not get every economic decision right. No one ever has and no one ever will. After all, economic forecasting is a notoriously inexact science, as he said in the debate yesterday. By looking ahead to try to anticipate the situation, as he has done since he became Chancellor, and as he has done again today in his Budget speech, he has a much better chance of being right than any of his predecessors, whose policies have all too frequently been no more than a response to the current position.
More damage has been done to the British economy by responding to monthly or even quarterly economic statistics, which in any event are invariably wrong, than by anything else. My right hon. and learned Friend has broken clear of that. It is important that he should not revert to such bad habits, however tempting it may be and however strong the media pressure may be for instant action.
One of the great successes of the current economic recovery is that it is largely based on higher exports. At the depth of the recession, there was great concern that the recovery would be accompanied by a deterioration in the already serious balance of payments position. After all, a worsening balance of payments has been a feature of all past recoveries.
1111 This time, as we moved out of recession, exports have risen much faster than imports. As a result, there has been a considerable reduction in the deficit on the current account of the balance of payments. That improvement must continue, as we are still in substantial deficit. It can best be achieved by maintaining a competitive exchange rate without inflation, which means that interest rates must not be increased by too much and that fiscal policy as well as monetary policy should be used in the battle against inflation. Today's lower public sector borrowing requirement forecast is a step in the right direction.
I welcome the fact that my right hon. and learned Friend the Chancellor did not reduce taxes in the Budget. It would have been ridiculous to do so when some tax increases in the pipeline have yet to be effective. Moreover, tax cuts would have increased the PSBR and that would almost certainly have upset the financial markets and perhaps necessitated higher interest rates. The Budget will ensure that steady economic growth will continue. It is important that it should do so, for it will be possible to reduce unemployment to an acceptable level only if growth continues.
The reduction in joblessness of almost 500,000 in the past two years is welcome, but unemployment at about 2,350,000 is still much too high. I never cease to be amazed at the complacency throughout the country about the much higher level of unemployment that has obtained in the past 20 years. I emphasise the past 20 years because unemployment did not occur only under this Government. Throughout that period, unemployment has been more than 1 million. In the mid-1980s and early 1990s, it was around the 3 million mark.
Unemployment at those levels is not inevitable. From 1945 to 1974, we had full employment. The number of people out of work fluctuated, but it rarely exceeded 500,000. In 1955 and again in 1965, it was as low as 1.1 per cent. of the working population, about an eighth of what it is today. That shows how far we have moved from the high level of achievement in the 30 years after the war. We must aim to return to those days as soon as possible, for unemployment is a social scourge and is divisive. It is impossible to have one nation if one in 12 of the working population is out of work.
Unemployment is also economically wasteful. If we are not using all the available labour in the country, we are not maximising national output and that means that the nation is forgoing wealth that it could otherwise enjoy. The task facing my right hon. and learned Friend the Chancellor is, therefore, to ensure that demand is at such a level that the potential supply of labour, capital and enterprise is fully used. That will bring economic success and social harmony to our country and I know that that is my right hon. and learned Friend's aim.
§ Mr. Malcolm Bruce (Gordon)
The hon. Member for Staffordshire, Moorlands (Sir D. Knox) praised the Chancellor, but, in doing so, gave a magnificent indictment of the previous 15 years of Conservative government, although the Government have, apparently, at last got it right.
The Chancellor clearly wished to give the impression of solid caution, prudence and steadiness at the helm and that we are on the road to long-term recovery; the reality is that no one believed him. People know that he is taking more taxes out of our pockets today—seven additional 1112 taxes in the current financial year totalling more than £6 billion—and that he intends to hang on to them to cut tax in advance of the next general election. Today's prudence is to pave the way for financial profligacy before the election. The idea that it is laying the foundation for solid and sustained growth does not square with the Government's record of the past 15 years or with the Chancellor's attitude.
The hon. Member for Moorlands referred to inflation. Everyone welcomes the low inflation that we have had for 18 months, but most of the reduction in inflation had little or nothing to do with Government policies but more to do with a highly competitive economy clawing its way out of recession, the effect of world recession and low world commodity prices. Those factors are not under the Government's control and could always change direction. Indeed, as the world economy recovers, they are likely to do so. The Government could then want to introduce tax cuts just at a time when it would destroy sustained economic recovery. We all know what happens in those circumstances: money is clawed back immediately after the general election, once the public have been conned into voting a certain way. The people of Britain will not be taken in so readily again.
We are already hearing reports of capacity constraints in industry. Investment in industry, as a percentage of gross domestic product, is at a historical low. That is not the foundation for sustained, long-term recovery; it is an indication of a manufacturing base too much reduced to provide the platform on which growth must depend.
The Chancellor has reaffirmed his commitment to taking the extra tranche of value added tax on fuel, despite the fact that he had enough room to manoeuvre within the Government and gave back sufficient revenue to have wiped out that increase at no net cost to the Exchequer. He did not do so because he was determined not to give people the response that they were seeking—the recognition that it was an unfair tax—but instead to hang on to the money to finance future tax cuts.
Interestingly, however, the Chancellor did not take the same attitude when he suggested the possibility of a new tax—the landfill tax. He told us not to worry because it is an environmental tax that will immediately be ploughed back in tax cuts elsewhere but not, apparently, in respect of the imposition of VAT on fuel. That is testimony to the fact that VAT on fuel was not, is not and never will be an environmental tax; it is merely an unjustifiable raid on our pockets by the Chancellor. To tell those of us who live north of the border that the increase is not a burden when our heating bills are up to two thirds higher than average is to add insult to injury.
We need borrowing discipline, but the Chancellor should not expect us to be fooled by the fact that he was able to announce falling borrowing. Anyone who has presided over this particular stage of the economic cycle would expect borrowing to fall; it could only be the result of irresponsibility if it did not.
The Chancellor also suggested that he had made enormous savings, but he was able to do so only because he got the forecast wrong last year and the outturn has been better than anticipated. In those circumstances, the forecasts that he has made for the next three years are not to be relied on because, if anything goes wrong with the forecast of GDP, growth or inflation, he will be knocked off course and will not have the necessary money to play with.
1113 One or two of the Chancellor's proposals need clarification. There is no commitment to long-term investment, which the country needs to sustain the Government's commitments. Cuts have been made in the roads programme with no corresponding investment in, for example, public transport, as the Liberal Democrats would have wished. Cuts have also been made in the housing programme, despite the increasing problems of homelessness in many parts of the country, and in local government expenditure, and despite the fact that, at least in Scotland, local government is facing the cost of a reorganisation that nobody wanted. The Government are effectively passing the buck to local authorities, on whom they load more responsibility but from whom they expect more restraint.
The forecasts have been wrong in the past and they might be wrong in the future, so we need to investigate the claims that the Chancellor made in the Budget. He said that he hoped to secure £5 billion of extra investment under the private finance initiative, but he did not tell us how much of that £5 billion will come from the private sector. I think that we should be told. On the strength of the record to date, I suspect that it will not be very much, and it will not be very much unless the Government are prepared to offer a more attractive deal. It is a sensible way to unlock private funds, but not as practised by the Government to date.
Housing benefit reform is long overdue. The Government in effect provided private landlords with a charter to rip off the homeless and people who did not have access to the housing market or to local authority housing because it had been sold. Those landlords were paid out of taxpayers' money. Interestingly, the Government are now reintroducing rent control by the back door, and not before time.
Perhaps the biggest insult of all is to be found in that part of the speech where the Chancellor poured forth a profusion of words, which is always a sign of little substance. I refer to the part of his speech that contained a plethora of gimmicks and gizmos to deal with the problem of unemployment. In the end, it amounted to very little. The number of long-term unemployed might be reduced by 5,000, according to the Government's own forecast.
I cannot think of anything more insulting to someone who has been unemployed for two years than to be told that the Government have a plan for him that involves a national insurance holiday for his potential employer, which he will be able to claim in 18 months. The Government's commitment in this respect falls not within the framework of the present Budget but the one after. It is no solution at all. The Chancellor says that he has been able to tackle such problems, but he has not told us how.
In summary, the Budget contains nothing new. It is a standstill Budget from a Chancellor who is anxious to hang on to all the extra taxation that he can and who does not understand the meaning of the phrase "long-term investment". It must be recognised that stop-go cannot be sustained in the future any more than it has been in the past.
If we are to prevent inflation from taking off, and if we are to get people back to work and keep them there, we need to invest in industry now, but there is nothing in the 1114 Budget to promote investment now, when it is needed. If we fail to invest, and as the recovery continues and our competitors become sharper as their recovery begins to gather momentum, we shall find that the old problems of capacity constraints, skills shortages and rising inflation will take hold again.
We need to improve the skills of our people so that we can innovate and compete and ensure that we have the products and services that will enable this trading nation to pay people at a higher rate and sustain long-term tax cuts rather than short-term tax cuts intended to get one party through a general election. The Government got away with it once; they will not do so again. The Budget will fool no one. It does not provide the necessary investment now or the justification for tax cuts at any time before the next election.
§ Sir Anthony Grant (Cambridgeshire, South-West)
I am always glad to follow the hon. Member for Gordon (Mr. Bruce). I shall miss his presence on the Select Committee on Trade and Industry, of which he was an amiable and agreeable member. His speech, however, was strong on rhetoric, but a little thin and vague on detail. I am no wiser now about precisely what the Liberal Democrats would do than I was before. We shall, no doubt, hear more detail from Labour Front-Bench speakers.
The hon. Member for Gordon is a little cheeky to say that we have improved the competitiveness of industry, that the recession is over, that things are looking up and that we are coming out of the recession, but that it has nothing to do with the Government and is all to do with world events. Whenever we pointed out that the recession was a world recession, he would, say that it was not and that it was all the fault of this wretched Government. He cannot have it both ways.
I believe that it is sensible to join the Budget with the public expenditure round rather than to have them at different times, although that poses certain problems, which were well highlighted in an article in The House Magazine by my right hon. Friend the Member for Worthing (Sir T. Higgins). He pointed out the difficulties of getting representations properly made and considered before the Budget. What seems to happen nowadays is that we have a long recess, we then roar into the Queen's Speech and before we know where we are, we are engaged in the unified Budget. That probably provides insufficient time for people to make representations to us and for us to discuss fully with the Chancellor and his team what our views are.
I am still old-fashioned enough to believe in a period of purdah, which served this country well. The Chancellor and Treasury Ministers simply listened silently to what people said and then made up their minds, rather than initiating matters by flying kites all over the place, causing some uncertainty in the financial world. Having said all that, however, I think that we must stick with a unified Budget.
The Budget will be widely welcomed by those involved in the serious business and industry of this country. The one message that I got, more than anything else, was that, for heaven's sake, what we want is some degree of stability. We want to know where we stand on taxation. We hope that we have a stable currency. We want to know where we are on all the provisions made by the 1115 Government for business and industry, and we want reasonably stable interest rates. The Budget can be commended on those grounds.
Throughout my parliamentary life and before, I have taken an interest in Budgets on two particular grounds. First, I have been a long-term advocate of wider share ownership throughout our community. We have seen ups and downs. The reason why I have argued strongly for wider share ownership is that I believe that it is in the interests of freedom and democracy that people should own a stake in the country, whether in property or in shares in industry and business. I judge a Budget on those grounds as well and I commend the Chancellor for improving the PEP—personal equity plan—provisions. This has been a useful and helpful way in which to encourage savings.
Secondly, we should recognise that there are 1 million more small businesses than there were in 1979. They have probably suffered more than any other sector in the recession, but they are sufficiently resilient and they will recover most speedily. I welcome the measures taken to encourage small businesses through schemes such as the venture capital scheme. I also welcome the raising of the ridiculously low VAT threshold, which will now start at £46,000. I have always argued in favour of a higher level because small businesses do not have the time to fiddle around with endless bureaucracy and taxation. The Government are to be commended not only for that change, but for the Deregulation and Contracting Out Act 1994, which will be a very great help. Likewise, small businesses need stability and they need to be able to get on with their business.
There is some very good news all around. We have low inflation, low interest rates and rising exports. I point out to the hon. Member for Gordon that one of his distinguished colleagues, Lord Jenkins, introduced a Budget after another devaluation. One thing that he advocated more than anything else was that recovery should be export led. That is exactly what is happening now and it is extremely good news.
Today some of us on the Select Committee on Trade and Industry met construction industry exporters. The construction industry is having a difficult time at home, but exporters are doing extremely well and they are anxious to do better on Britain's behalf. They were critical of the Export Credits Guarantee Department provisions, especially in respect of new markets in third-world countries. They said that the present provisions were too tight and too bureaucratic, and compared unfavourably with the provisions in France, in Germany and elsewhere. I am glad that that has been recognised by my right hon. and learned Friend the Chancellor and I welcome and praise his provisions concerning the ECGD, which will make it more amenable to exporters. I hope that there will be good results from that.
Exports are up by 10 per cent., productivity is up by 5.5 per cent. and investment is up by 6 per cent. Altogether, it is good news, but why is that fact not percolating through to the ordinary man in the street? Why do our constituents not seem to see things in the same way as business and industry? Here, I give a note of caution to my right hon. and learned Friend.
I do not believe that the message will get through until there has been some recovery in the housing market. Negative equity and the absurd boom and bust we have suffered recently have left the worst possible taste in the 1116 mouths, minds and hearts of many people. The reason why they do not have the confidence to invest in property or to acquire property is the fear of unemployment and the fear of redundancy, which strike hard. On that score, I believe that we are moving in the right direction.
Unemployment went down by 400,000 last year. The concentration on small firms is immensely important because we shall not get new employment out of the great firms of this country; it is only through the growth of small firms that unemployment will be reduced. That growth will take quite a time and, meanwhile, we must make it clear that the housing market is stable and we must encourage the construction industry to develop.
Nobody wants to go back to the absurd situation of house prices going through the roof. People started up small businesses in the vague hope that the houses in which they lived would provide future capital. That is madness and we do not wish it to happen again; it should never happen again. We want, however, to get the housing market on the move again. I tell my right hon. and learned Friend the Chancellor that that depends on interest rates being reasonably stable and I hope that he will always have that in mind.
Inflation is, of course, a menace that must be watched all the time. As commodity prices have increased by about 25 per cent., I anticipate that further rises in interest rates may be necessary at some time in the future. Having said that, they must be carefully applied. I urge my right hon. and learned Friend the Chancellor always to recognise two factors: first, the need to contain inflation and, secondly, the need to restore confidence at all levels, from the lowest upwards. I am sure that my right hon. and learned Friend appreciates that because it is the most crucial matter for us to consider now and in the future.
I sum up by congratulating my right hon. and learned Friend on helping savings and on maintaining stability for industry. Industry wants stability and a period of calm. The Government have not gone berserk over taxation, and nobody wants that. I have not had a single letter asking for a reduction in taxation. The odd eccentric has asked for taxation to be put up—usually rather well-heeled eccentrics, and there are not many of them. By and large, business, industry and the public want stability so that they can plan for the future. On that ground, I believe that the Budget passes the test of the time and I very much commend it to the House.
§ Dr. John Marek (Wrexham)
The hon. Member for Cambridgeshire, South-West (Sir A. Grant) has been a Member of the House for many years. I distinctly remember him taking his part in cheering Mrs. Thatcher, as she then was when she was Prime Minister, during the period when easy money was flowing out of everybody's ears and bumping up the price of houses. Of course, the hon. Gentleman is reaping a bitter harvest as people are now acutely aware of what happens when, due to mismanagement of the economy by the Conservative party, interest rates shoot up to 14 or 15 per cent., as they did, plunging countless householders into negative equity. Indeed, many people are still in that situation.
§ Dr. Marek
I will give way to the hon. Gentleman as I mentioned him by name. It is true, however, that there 1117 was no dissent among Members on the Government Benches in 1985, 1986 and 1987 under Lord Lawson and Mrs. Thatcher, the then Prime Minister. The Conservative party now has to live with the fact that the electorate has rumbled it and will not vote for it again.
§ Sir Anthony Grant
I accept my responsibility for having supported Budgets and, indeed, encouraged the reduction in interest rates at the wrong time. But so did the Opposition, more so than I ever did. As I subsequently pointed out, the panic throughout the world after black Wednesday or Thursday or whenever it was in 1987, when everybody was in a panic and Finance Ministers all over the globe suddenly reduced their interest rates, was a very great mistake.
§ Dr. Marek
I accept the hon. Gentleman's generous comment as he takes his share of the blame in supporting Budgets in the 1980s, but he cannot say that Opposition Members did. I remember that we were incensed by some of the Budgets when free handouts were given to the very wealthy through executive option schemes and through a lower top rate of income tax—some of which was deserved although, of course, it has gone too far.
The problem with this Budget was not what the Chancellor said, but what he did not have to talk about at all—the decisions which were taken before and which will come into effect next year. Principally, of course, I am referring to VAT on fuel, which is going up by 9.5 per cent., as has already been mentioned. I do not apologise in any way for repeating the proposition that the public have rumbled the present Government. They will not vote for the Government again because they realise that the Government cannot be trusted. It was made very clear before 9 April 1992, by Government Members, the Prime Minister and everybody else, that they did not intend to impose value added tax on any of the tax-free sectors of goods. As soon as they won the election, of course, VAT on fuel was proposed.
The Budget was forecast to be dull and dreary, and to a large extent it was. Perhaps for that very reason, however, I found today's Budget less repulsive or repugnant than previous Budgets. Measures for job seekers are all right as far as they go, but they will not necessarily create the jobs needed. Industry has to create jobs. It is a subsidiary matter to ensure that the jobless are encouraged to apply for jobs and to train and retrain, and what the Chancellor announced in that area had my support. However, that will not create jobs in the first place.
I was disappointed about proposed measures for job creation as there is to be no change in corporation tax and no incentive to invest. I firmly believe—there is a clear difference between me and the Government here—that it is through investment that we shall create jobs. The Chancellor could have gone for taxing dividends, which would have been an incentive for companies to put more of their profit into investment rather than shelling it out as dividends. Unfortunately, there is nothing like that in the Budget and no changes in advanced corporation tax.
Business rates are to go up. The Chancellor made great play of that. They are to increase by up to 7.5 or 10 per cent. Business rates, which companies have to pay, are among the biggest banes of society. They are huge and they set our country apart from what goes on elsewhere 1118 in the European Union. The greater scope that the Export Credits Guarantee Department will have to cover, including different risks, will help. I am not sure about venture capital trusts, but no doubt a little help will be given there. It will cost £150 million only, which is not very much.
At the end of the day, the Budget will not create jobs and start the engine of the economy. It is only by starting the engine of the economy that we shall create jobs, more people will be able pay income tax and public expenditure will fall because fewer people will have to rely on the state through income support or family credit.
I would have been delighted for the country if I could have said that the Budget would create jobs, but I am sorry to have to say that it will not. Indeed, we shall be again stuck with public spending restrictions. Any real increases in the funding of the national health service will be illusory. No doubt, in the support rate, at which I have not had time to look, there will be efficiency savings in the own resources that the health service already has, which will be taken into account in the figures. Any half per cent. increase will be swallowed up, of course, because the rate of increase in funding demanded by the NHS is always higher than the retail prices index, for well-known reasons. The medical index is always higher.
The Chancellor took great pleasure in saying that overall savings will be £24 billion over the next three years. I do not understand that at all, because the country is crying out desperately for investment in our infrastructure. The railway service is falling to pieces. In my area, trains are regularly half an hour or 45 minutes late and today a train carrying some visitors of mine broke down at Crewe. Timetables are not integrated. There is no doubt whatever that the railway system is in desperate need of investment and new equipment. The sense of professionalism and morale, which the staff have always had, is under great strain.
The Government are not going to help that at all. They are more interested in privatising Railtrack, which I think that the Opposition will be able to thwart. When we form a Government, we shall be able to set maximum prices for access charges to Railtrack. If our Front-Bench spokesmen make it clear that we intend to do that and make it clear that we shall call in any planning applications for speculative development gain on city-centre railway car parks and not allow those gains to take place, I suspect that, with a little luck, we may save the nation from the disaster of Railtrack being sold to the private sector. Instead of infrastructure development and infrastructure renewal, however, we are to save a further £24 billion overall in the next three years.
The real Budget, of course, was the Budget that the Chancellor did not talk about—VAT on fuel being increased to 17.5 per cent., the married person's allowance being reduced, mortgage tax relief being reduced and the other taxes which have been introduced, such as that on insurance and travel by aeroplane. As my right hon. Friend the Member for Sedgefield (Mr. Blair) said, it is equivalent to an increase of 7p in the pound on income tax. That was what the Budget was about, but the Chancellor did not have to say a word about it because the increases had been announced previously, to take place in the 1995–96 financial year.
The Chancellor could have tackled tax abuses by increasing the number of tax inspectors and not sacking 4,000 Customs and Excise officials, which is the plan. A 1119 few years ago, each tax inspector collected about £77,000 in unpaid taxes and the figure is probably a lot higher now. Each tax inspector would be worth his or her weight three or four times over—not in discovering loopholes found by people who do not want to pay taxes, but simply in chasing unpaid taxes, which would be paid immediately the tax inspector called on the person who had not paid his or her taxes. Why did the Chancellor not mention that?
The Chancellor could have introduced a stamp duty on share transactions after 1996. That would have realised £1 billion. For dogmatic political reasons, however, the plan is still to get rid of stamp duty on share transactions, which will create the very type of economy that we had to suffer in the 1980s when Mrs. Thatcher was Prime Minister—short-termism. No one thought about what was going to happen tomorrow. If a company's analysts said, "Sell tomorrow", it did not matter if people were going to lose their jobs or what the company itself thought about what would happen when its pension fund or shares were sold. If the analyst said "Sell" in respect of the pension fund, that is what happened.
Our rip-roaring economy ended in disaster. We badly need a dose of long-termism and fiscal policies designed to make people think in the long term rather than the short term. Stamp duty on share transactions achieves that, of course, and it would keep £1 billion per annum, but for dogmatic reasons the Chancellor is prepared to do away with that.
I want to reflect on what has happened in 16 years of Conservative government. I shall not be able to mention all the statistics, but I will refer to a few. What happened to manufacturing output between 1979 and 1994?
§ Dr. Marek
I do not think that that is a proud record. Manufacturing output was just 9 per cent. higher in the second quarter of 1994 than it was in 1979. If the hon. Member for High Peak (Mr. Hendry) thinks that that is a record, it is a pretty poor one. In 16 years, we have been able to increase manufacturing output by only 9 per cent.
§ Mr. Hendry
I am sure that the hon. Gentleman noticed last week's announcement to the effect that manufacturing output is now at all-time record levels. Will he contrast the fact that manufacturing output has risen over the past 15 years with the fact that between 1974 and 1979 it actually declined?
§ Dr. Marek
Those points are well known. We had the oil crisis in 1975–76— [Interruption.] It certainly was not very funny when we had that crisis. I was talking about percentages. Of course the level will be the highest ever, because we are getting richer as a country, but our relative rate of becoming richer as a country is rather poor.
§ Dr. Marek
I will give way in due course, after I have responded to the hon. Member for High Peak. As a member of the European Union, our relative increase in manufacturing output is rather poor. As I said, the 1120 increase has been 9 per cent. over 16 years. That is not a record; it is a rather poor and dismal performance by anyone's standards.
§ Mr. Hawkins
The hon. Gentleman has not acknowledged the fact that manufacturing output declined between 1974 and 1979 as a result of trade union militancy, which all but wrecked manufacturing industry in this country. This Government's trade union reforms have allowed manufacturing output to rise to an all-time high, as my hon. Friend the Member for High Peak (Mr. Hendry) rightly pointed out.
§ Dr. Marek
I shall not repeat the point. Manufacturing output may be at an all-time high, but that has nothing to do with the Conservative party. It has to do with the general prosperity in western Europe, of which we have partaken to a much smaller extent than at least nine of the other 11 countries in the European Union.
The hon. Member for Blackpool, South (Mr. Hawkins) is aware that the Benelux countries, France and Germany overtook us years ago in terms of standard of living. Italy overtook us in that respect a few years ago and Spain is going to overtake us. I suspect that it will not be long before Greece, Portugal and Ireland overtake us.
Manufacturing output has increased by only 9 per cent. in 15 years, despite £123 billion of accumulated revenues from North sea oil. Has manufacturing output increased by only 9 per cent. because we have been paying for unemployment? The answer to that must be yes. Between 1974 and 1979, about 1 million people were claiming unemployment benefit. Since 1979, however, although the unemployment figure has gone up and down, it has never been below 1.5 million. The average has been about 2.5 million, and that is despite the 30 fiddles and changes to the statistics perpetrated by the Government.
The most telling point is revealed in the table of taxes as a percentage of gross domestic product. That table always appears in the Red Book and it is a nice big table this time. Between 1974 and 1979, the maximum tax as a percentage of GDP was 363/4. By 1981–82, it had risen to 391/4 and it was never been below 363/4 until 1992–93. That was the effect of our catastrophic recession.
Labour is the party of low taxation—[Hox. MEMBERS: "Oh."] If Conservative Members had been listening, they would realise that they cannot challenge my figures. The figures are probably in an annexe to chapter 4 of the Red Book. Before Conservative Members laugh, I respectfully urge them to examine the Red Book to see whether I am right. I believe that they will discover that my comments are pretty accurate.
United Kingdom manufacturing investment is still poor. It is about 80 per cent. of what it was in 1979. In addition, the Government have had getting on for £60 billion in privatisation receipts. A very interesting table of gross fixed capital formation gives the figures for 1979 through to 1992. For every year that the Government have been in office, in terms of gross fixed capital formation the United Kingdom has been below the Organisation for Economic Co-operation and Development average, below the average of the European states of the OECD and below the average of the European Union countries. That is telling. It is not just for one or two years: it is for every year from 1979 until the present day.
1121 The Government have been unable to increase investment to get our country going, to charge the engine of the economy and bring unemployment down. That has not been possible; nor do I think that the Government wanted to do it, despite what the Chancellor said earlier.
The Chancellor said that lorry duty rates will be unchanged while vehicle excise duty on cars is to increase by £5. That is very disappointing. It is no use having taxes on dumping rubbish in holes in the ground and trying to be environmental while being anti-environmental elsewhere by increasing not the price of petrol, but vehicle excise duty. I am also against the proposals because, by and large, according to the Government's figures, cars cover their track costs by two and a half times. Some lorries, however, and especially some of the big articulated lorries, do not cover their track costs even on the Government's own figures, which do not include environmental costs.
The Chancellor's proposals in that respect are very regressive. I accept that nothing can be done about it now that the Chancellor has made his announcement, but he cannot get away with being thought of as a green Chancellor or a Chancellor who worries about the environment. He has a long way to go and I suspect that he could probably take lessons from any Opposition Member in that regard.
My next point concerns duty on alcohol and tobacco. The Chancellor very carefully said that he was going to increase tobacco duty by 3 per cent. plus inflation so as to discourage smoking, as we all wish—there can be no doubt about that. However, he then said that a great deal of smuggling and bootlegging occurs across the channel and that, for that reason, he would not increase the duty on beer, wine or spirits. The problem is that tobacco produces the real gain for the bootlegger and smuggler because the volume is so much less. I suspect that the Chancellor was trying to pull the wool over our eyes when he made his comment. I will give a simple example. The Treasury and Civil Service Select Committee is considering this difficult subject at the moment and I do not pretend to have the solution. However, the Government have a problem. A packet of hand-rolling tobacco costs £1.78 in Belgium and £7 in the United Kingdom. That is a huge price difference. As a result, bootlegging or smuggling accounts for about 20 to 25 per cent. of the hand rolling tobacco market in the United Kingdom.
The Government must do something to remedy that situation. Yet there is nothing about it in the Budget speech. We need more Customs officers; yet the Government plan to sack 4,000 of them. Where is the sense in that? The only solution is long-term harmonisation. I understand that we face problems in this area because the tobacco industries in some European Union member states are state owned and, unlike the United Kingdom Government, their Governments do not get their cut from tobacco taxation. Nevertheless, I hope that the Government will adopt my suggestion: harmonisation is the only solution.
When I was shadow spokesman in this area, I remember Ministers and Paymasters General saying, "Oh no, we don't believe in harmonisation; we want nothing to do with it". But the chickens have come home to roost: 25 per cent. of the hand-rolling tobacco industry is already 1122 in the hands of bootleggers, there is criminal activity in the north-east of England, and bootleg cigarettes and, to a smaller extent, alcohol are making inroads in Government revenue. The Government have a chance to confront this problem now and they must take that chance.
The Budget does nothing for the average working man or woman and very little for the average unemployed man and woman. I have conceded that it contains a few measures which will make it easier for the unemployed to assess whether they will be better off in employment, but that will not create jobs. The Budget will not do anything of substance for the British people; it is an opportunity missed. That should not surprise Opposition Members because, at the end of the day, the Conservative party has always been the party of the rich and the privileged who feed off the rest of the country.
§ Mr. Nick Hawkins (Blackpool, South)
The hon. Member for Wrexham (Dr. Marek) exemplifies the old-fashioned failed politics of envy. Let us get back to the real issues of a strong Budget which will create jobs, cut unemployment and prioritise the expenditure of taxpayers' money on the national health service, the education system and law and order.
I was delighted with the Chancellor of the Exchequer's Budget, delivered this afternoon, and its stress on increasing resources for what the electors want: a strengthened health service, better resources for law and order and improved education facilities. I was particularly pleased that my right hon. and learned Friend drew attention to the underlying strength of the economy, which has allowed him to increase spending on those three priorities.
The figures show that British exports have grown by 8 per cent. and investment has grown by 5 per cent., while consumer demand has grown by only 2 or 3 per cent. It is particularly important to note that underlying inflation has fallen to its lowest level for a generation and that that strength has ensured a continuing fall in the level of unemployment— a decrease of 450,000 since December 1992. I have no doubt that our continuing economic strength over the next few years will mean that people will no longer need to look over their shoulders in fear of losing their jobs and that the feel-good factor will be restored to the economy.
As my right hon. and learned Friend the Chancellor said, we are the only country in western Europe in which unemployment has fallen in the past year. At the same time, according to the national employment survey, the number of people in employment has increased by 226,000.
My right hon. and learned Friend is correct to ensure that the Budget strategy continues to concentrate on keeping down the rate of inflation. We all remember the terrible economic disasters perpetrated by the last Labour Government. It is no use Labour Members trying to rewrite history and blame the oil crisis of the mid-1970s for their manifold sins and wickednesses. Trade union militancy destroyed the British manufacturing industry and it was Mrs. Thatcher's trade union reforms of the 1980s which secured our present record levels of manufacturing output. We shall maintain those reforms, and we have won the battle of ideas to such an extent that 1123 the Labour party now says that it will not try to reverse them. The measures are crucial to the Chancellor's continuing sensible economic management system.
§ Mr. Clive Betts (Sheffield, Attercliffe)
I thank the hon. Gentleman for giving way. In the face of that economic miracle, will he explain to the House why between 1948 and 1979— a Labour Government were in power for half that time— the British economy grew at a rate of 2.7 per cent., yet since 1979, the average growth rate has been 1.7 per cent., which is 1 per cent. lower than for the previous 30 years?
§ Mr. Hawkins
It is because previous Labour Governments were not quite as ridiculous in their economic mismanagement as the Labour Government of 1974 to 1979. The hon. Gentleman is the former leader of a city which, under his leadership, mismanaged its economy by wasting vast amounts of money on stupid ideas such as the world student games. One would think that the hon. Gentleman would have learned from his mistakes, but it appears that he has not.
The Chancellor is right to continue a policy of eliminating Government borrowing entirely by the end of the decade. It is essential that we concentrate on that valid objective.
I was particularly pleased that my right hon. and learned Friend announced extra help for pensioners. As the Member of Parliament with the greatest number of pensioner constituents, I know that the people of Blackpool, South will welcome the fact that my right hon. and learned Friend has been able to increase help for pensioners over and above indexing for inflation.
§ Mr. Hawkins
No. I have given way previously and we must make some progress in the debate. As a result of the Budget, pensioners in my constituency will see not only an increase in their benefits but a substantial increase in cold weather payments as well as further increases over and above the likely inflation rate to be introduced in April 1995 and 1996. Everyone who receives an old-age pension will get that additional help, which I have no doubt will be widely welcomed.
Further steps will be taken to expand the private finance initiative in future years, especially in transport. This will benefit the British people enormously. Private financing of rail projects will feed the future development of our transport infrastructure.
If the hon. Member for Wrexham wants to see proof of the success of private investment in transport, he should look to the United States and the development of station premises such as Union station in Washington DC, where private sector funding has provided much better facilities for the travelling public. He could look at similar examples in other countries which have involved the private sector in their transport infrastructure. In only a few years' time, he will see precisely the benefits of that policy to this country.
I sometimes wonder where Opposition Members think that investment in capital projects comes from. It comes from profits that are made by the private sector. It does not come from Government subsidy, which is an appalling waste of taxpayers' money and a mistake that Labour Governments have always made.
1124 I welcome the Government's steps to move from direct to indirect taxation. The move from taxes of compulsion to taxes of choice is widely welcomed by British taxpayers. Before the last election, the Opposition proposed to increase taxes of compulsion in excess of anything that we have seen from the Government, so it ill behoves them to criticise the Government for reluctantly imposing taxes. The Government will return to their tax-cutting tradition in years to come. Labour Members have learnt nothing and forgotten nothing. They will continue to put forward ever-greater plans for taxes of compulsion that they will waste on subsidies. That is the lesson that the Labour party will not accept.
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
The hon. Gentleman supports indirect taxation, which, in relative terms, bears much more heavily on the incomes of the poor. That is why successive British Governments have resisted VAT on vital items such as food and children's clothing. Is the hon. Gentleman aware that, when he lauds indirect taxation, he lauds a system of taxation which, in relative terms, hits the poor hardest?
§ Mr. Hawkins
I do not accept the hon. Lady's specious figures. I am very much in favour, and I will remain in favour, of taxes of choice rather than taxes of compulsion. I repeat what I have said: Labour Members will never learn the difference between the downside of taxes of compulsion and Government subsidy as opposed to taxes of choice. That is the mistake of political philosophy that they always make.
§ Mr. Hawkins
No. I have been generous in allowing hon. Members to intervene, but I must make progress, as many hon. Members want to speak.
I am particularly pleased that my right hon. and learned Friend has stressed the importance of spending not only on education but on training, especially for the young unemployed. I want an even more accelerated fall in the number of unemployed. I am concerned that, in the drive for greater efficiency, we should not allow disproportionately greater unemployment in certain areas such as my constituency and the surrounding area in the north-west.
I inject a note of caution. My right hon. and learned Friend correctly drives for greater efficiency in the civil service. However, there are areas, one of which is my constituency, where the civil service is an important part of the local economy. That point must be borne in mind when considering measures such as those that my right hon. and learned Friend has announced.
My constituents welcome the fact that my right hon. and learned Friend has been able to announce increases in resources available for the single regeneration budget. It is right for me to mention that my constituency has a bid under the single regeneration budget scheme, which I will discuss with my right hon. and hon. Friends in the next week or two and which I hope will succeed.
I have mentioned my interest in the increase in education provision. It is welcome that, under the Conservative Government, the rate of young people going on to university has increased from one in eight to one in three. It is important to continue to expand resources for education.
1125 I very much welcome the 3 per cent. increase in resources for the police in 1995–96. It will go down especially well with everyone that more police will be released for front-line duties and that chief constables will have greater freedom to decide the allocation of their resources.
I welcome many of the measures that my right hon. Friend has announced in relation to the various benefits that will be available to get people back into work, in particular the changes to family credit and the further measures which have followed the jobseeker's allowance. I take great pleasure in the further cut in national insurance contributions, which will help employers with small businesses.
Once again, I inject a slight note of caution in relation to my right hon. and learned Friend's concerns about the smuggling of tobacco and the different duties that apply in the United Kingdom and in continental European countries. I want those duty differentials brought down to zero. I want more measures to cut the smuggling of tobacco. It is a serious problem in my constituency, and large amounts of tobacco are being smuggled through Manchester airport. On behalf of my constituents, I recently had a meeting with my right hon. and hon. Friends in the Treasury about that matter.
Also, I wish to express some concern about the changes that my right hon. and learned Friend has announced in.relation to gaming duty. The last attempt to set gaming duty rates was several years ago. Nevertheless, the responsible nature of many amusement arcade owners has been shown by their great contributions to charities in recent years. I hope that my right hon. and learned Friend will be able to take account of the legitimate side of that industry while clamping down hard on rogue operators in years to come.
I broadly welcome the Budget as a Budget for jobs and a Budget which rightly concentrates priorities on matters that are important to the British people, such as education, law and order, help for pensioners and the NHS. I support the Budget.
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
Calling the Budget a Budget for jobs is like calling a vampire a blood transfusion expert. I suppose that the public should be grateful that the governing party has taken time off from its continuing civil war even to produce a Budget. Conservative Members have accused Opposition Members of propagating the politics of envy. On the contrary, the Conservative party is a slave to the politics of envy. Far too many members of the Cabinet envy the Prime Minister's job. We have a lacklustre, stand-still Budget presented by a Chancellor who is saving his money for cynical pre-election tax cuts and saving his energies for positioning himself to succeed the Prime Minister.
A Conservative Member said that ordinary people would not believe in the recovery unless there was an upturn in the housing market. That is absolutely true, especially in respect of London and the south-east, an area that I know well. However, the sad news is that an upturn 1126 in the housing market will not happen. I refer hon. Members to page 24 of the Red Book, the Government's own document, which states:Housing market turnover increased strongly in 1993 but has fallen back this year. House prices have moved erratically with no pronounced trend up or down. In October they were at much the same level as a year earlier.The Government should leave to one side all the things that they have inflicted on the British people—people have suffered from the housing boom and the reckless financial deregulation of the late 1980s. If no one else, the people in London and the south-east who are burdened with mortgages that they can hardly repay, who have been the victims of repossession and who are stuck with negative equity, will never forgive the Government for their economic incompetence. Conservative Members are right; people will not believe in the recovery, particularly in London and the south-east, unless there is an upturn in the housing market. The Government's figures, and their own statement, make it clear that such an upturn will not happen.
Of course, under the Conservative Government, the state of housing is a very sad story. For all their gimmicks and all their professed interest in homes and home ownership, the Government's record on building houses for the British people is deplorable. Since 1979, gross housing investment in England has fallen by 56 per cent. The victims of the Government's appalling record in the provision of private or public sector housing are ordinary people and the homeless.
The Budget will not turn matters round. The Red Book makes it clear that there will not be an upturn in the housing market. Home owners will be badly affected by cuts in mortgage interest tax relief. People looking for social housing or housing in the public sector will have their hopes dashed by the reduction in housing corporation capital provision.
Let me dwell for a minute on cuts in housing corporation finance. The Government, having savagely slashed local authorities' capacity to build social housing for rent, have made much of their commitment to the housing association sector. What they have done to that sector is particularly cruel. They have encouraged it to expand and encouraged new housing associations to develop, but many people in properties in those developments—particularly in London and the south-east—are dependent upon housing benefit. Cuts in the Housing Corporation budget have forced new associations to charge higher and higher rents, and they are less able to house the very people whom the housing association movement was meant to serve. The cuts in Housing Corporation capital provision are a tragedy for the housing association sector, and a betrayal of the hopes, which the Government encouraged, that that sector would provide social housing.
Then, of course, there are the cuts in housing benefit. It comes ill from a Government who took away rent controls to complain about landlords exploiting tenants. It also comes ill from a Government who have used housing benefit as a means of allowing people access to housing now to turn round and cut the benefit. We have yet to hear the details of the cuts in the benefit, but I believe that the consequence will be many more homeless people who are unable to gain access to housing and many more people in housing misery.
1127 We also see in the Budget that the housing revenue account subsidy provision is to be reduced, and that local authority credit approvals for housing renovation are to be cut. What is the Budget saying on housing? It is saying that the housing market will remain flat and that people who have a mortgage will have their tax relief cut. It is saying that housing associations will be forced to charge even higher rents, and that they will be unable to build more property. It is saying that councils will be unable to renovate their huge stocks, some of which are in an appalling condition.
The Budget is certainly not a Budget for jobs, and nor is it a Budget for housing. I represent one of the poorest areas in the country, and housing problems form 60 per cent. of my case load. Few things cause more misery and damage to family life—which the Government are supposed to be in favour of—than the misery of homelessness and poor housing. Far from doing anything about that, the Budget continues Government policies, which undermine people's access to decent housing, whether in the private sector, the housing association sector or the local authority sector.
A key feature of the Budget is that it is supposed to be a Budget for jobs. The Chancellor, with his normal bravura and bravado, listed a whole series of measures which we are supposed to believe are earth-shattering means of getting people back to work. The things which one must watch in this Budget, as in all, are the figures. We must look not at the grand descriptive phrases or at what the Budget is supposed to be about, but at what the Red Book says. It states that the Department of Employment's spending will go down. I want to know how, if the Budget represents a great leap forward in helping the unemployed back to work, the Department will help in that with less money.
What the Chancellor announced today is a whole series of gimmicks, many of which are not even new. They are old gimmicks which are proving to be not terribly effective. Family credit will be increased, payments of.housing benefit are to be accelerated—how the Government are going to accelerate payments of housing benefit when it is local authorities who are responsible for administering it I do not know—and family credit will be paid to people without children. There is also community action, work trial, jobfinder's grant, Workwise, 1–2–1, jobmatch and Workstart—a positive alphabet soup of gimmicky measures.
The unemployed want not gimmicks but a Government who are genuinely committed to the return of full employment, which this Government are not. Even in their own terms, there is something deeply unpleasant about the Government seeking to put people back to work by forcing them—whether by changes in disability allowances or by the increasingly stringent benefit arrangements—back into the labour market to work for poverty wages. If there is a theme to the gimmicky ideas for getting people back to work it is that they are about subsidising poverty wages.
1128 It is old fashioned, and Government Members will sneer, but I believe that if one does a decent week's work, one ought to be entitled to a living wage.
§ Mr. Stephen Day (Cheadle)
Is the hon. Lady saying that she would prefer that people stayed on benefit for the rest of their lives? I hardly think that that would be a happy experience for anybody.
§ Ms Abbott
The hon. Gentleman perhaps does not know that it is a burden on the economy to keep people unemployed. The level of unemployment is almost entirely responsible for the growth in the public sector borrowing requirement. [Interruption.] Perhaps the hon. Gentleman will let me finish—I did not interrupt him.
In the long run, it is better for individuals, for society and for the economy that people get a decent living wage from doing a week's work without having to be dependent on handouts and benefits. It is degrading for men and women who have worked for a full week still to have to look to the state for handouts. I believe that the Labour party's policy of a minimum wage—on which we fought the election and on which we shall sincerely fight and win the next election—is not just a humane policy, but one that tends towards social cohesion.
Why should women work in menial jobs, such as cleaning in the service industries or in supermarkets? [Interruption.] The House hears from the millionaire hon. Member for Welwyn and Hatfield (Mr. Evans). He does not care about people who are living on poverty wages—no doubt he made his money out of paying poverty wages.
The Government talk about putting people back to work, but they are concerned only with coercing people to work for poverty wages. That policy will not in the long run build a strong economy and create a cohesive society.
Although we heard the long list of schemes, and although the Chancellor tried very much to boost and promote his little package of gimmicks, we must look at the Red Book and at what the panel of independent forecasters have said. The panel is forecasting not a drop in unemployment but that unemployment at the end of this year will be 2.5 million, and that there may possibly be a drop in 1995 of about 250,000.
It is easy to forget that the figure of 2.5 million is a gross underestimate of the total who are unemployed. Since 1979, the Government have changed 12 times the way of counting the unemployed, to make people disappear off the employment figures. So when the independent advisors say that they are looking to levels of unemployment of 2.5 million in the near future, that is an underestimate of the level of unemployment with which people are living.
The shadow of unemployment haunts every family in the land, as well it might. It costs Britain £9,000 to keep someone unemployed for a year, and it costs every family £1,000 a year to keep somebody on the dole. The gap between the highest and the lowest-paid workers is larger than at any time since 1886, and more people in work are reliant on means-tested benefits than ever before. The Government ought to be ashamed of those facts, but they seem to think that they are some sort of benefit.
Since 1979, the number of long-term unemployed has more than doubled. It is a bit late for the Chancellor and his cohorts in the Treasury team to weep about the long-term unemployed. They are the Administration who have doubled long-term unemployment in their period in 1129 office. Let us be clear that long-term unemployment has not doubled following a fit of absent-mindedness on the part of politicians. Mass unemployment was a deliberate economic weapon of the Government to keep wages low and, as it transpired, to curb the trade unions. No one is fooled when the Chancellor and his colleagues belatedly express concern about high unemployment.
This is not a Budget for jobs, and it is certainly not a Budget for housing. It is a standstill Budget introduced while the Government bide their time until the appropriate moment to introduce what they believe will be election-winning tax cuts in the run-up to an election.
Of course, what worries people, particularly at this time of year as winter approaches, is the rise in VAT on fuel. Conservative Members claim to prefer indirect taxation, which they call taxes of choice, to direct taxation. I ask Conservative Members what choice pensioners have about turning on their gas fire or central heating when it gets cold. The problem with VAT on fuel and the reason why it strikes the public as particularly unfair is that most people have absolutely no choice about expenditure on heating. The rise in VAT is wrong because indirect taxation bears more heavily on the income of the poor. It is wrong that the poor, the disabled and people on benefits should have to bear the fiscal burden of the Government's economic incompetence.
The Budget offers no hope to the jobless or to my constituents in Hackney. I believe that it will be dismissed by the public as merely a blip, when the important story is the on-going civil war in the Conservative party. Ministers on the Treasury Bench should be ashamed when they look around them and see the destruction and human tragedy that they have wrought with their divisive and ultimately ineffective economic policies.
§ Mr. Julian Brazier (Canterbury)
I do not intend to follow the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) down all the many byways that she explored, but I shall make one observation to her. During the past generation, unemployment has risen throughout Europe. Wherever there are left-wing socialist Governments within the European Union, unemployment is much higher than in Britain. In socialist Spain, for example, almost a quarter of the work force is out of work. We have had five Labour Governments in the history of Britain. Unemployment has risen in all five. Nothing that the hon. Lady had to say convinced me that if we ever had the misfortune to have a sixth Labour Government, the same would not happen again.
I intend to spend three or four minutes on the fiscal position before devoting the main part of my speech to monetary policy. This was an excellent Budget. The overwhelming requirement was for the Government to tackle the overweening level of Government borrowing. That is exactly what the Budget has done so much to achieve. Borrowing is an evil which crowds out private sector investment and leaves a burden for future generations. It is remarkable that the colossal fall in borrowing has been combined with several well-targeted measures directed at those genuinely seeking work, the more vulnerable members of the community and, above all, small businesses, in which most new jobs are generated.
1130 In international terms, we are close to the bottom of the league of borrowing as a percentage of gross domestic product. Our total national debt represents only about six months' GDP. The Budget will go still further and move us, I hope before too long, from second place among the 20 countries listed in this morning's paper to the top.
We have been able to reduce Government borrowing, not because of fisticuffs behind the bike sheds between Treasury Ministers and spending Departments but because of a series of well-crafted policies. Many of us on the Conservative Benches were delighted to hear that the housing benefit scam, under which the landlord and the tenant can connive to take large sums of money from central Government, sometimes without the local authority even showing any concern, is to end.
It is right that we should crack down on mortgage benefit, although I hope that the Government will focus the policy firmly on people taking out new mortgages. Some people with existing mortgages who are in financial difficulties face distinct problems. The reduction in mortgage benefit is a good thing because it will discourage building societies and banks from lending to people at the margin who should not take on the commitment of a mortgage, with the taxpayer underwriting it. I also welcome, as I am sure all Conservative Members do, the greater involvement of private capital in capital projects, which again will help to ease the burden.
I have only one negative point to make on the fiscal side. It will not surprise my hon. Friends, but I feel bound to make it. Once again, we have seen a further squeeze on defence spending in the new third year of the programme. Even indexed against the retail prices index, which is not a realistic index for any form of Government spending, because wages and salaries follow living standards rather than the RPI, there has been another small 0.4 per cent. cut. We have much smaller armed forces now. We reduced them for a good reason, but we must provide them with the money to be adequately equipped and trained. Nevertheless, I commend my right hon. and learned Friend's Budget for achieving a remarkable balance between a massive and welcome cut in Government borrowing and a series of well-crafted policy changes.
That brings me to monetary policy. An interesting thing is happening in monetary policy at present. We have a clear divorce between the advice from the Bank of England which, even more strongly in its off-the-record briefings than in on-the-record material, is clearly in favour of another rise in interest rates and the clear advice of the independent panel of forecasters that we should hold steady for a while on interest rates.
I have an interest to declare once again. While other people have been rushing out to buy their lottery tickets, I have just doubled the bet that I have on the money market on interest rates. I firmly believe that the Government should hold interest rates for some time yet. Let me tell the House why.
§ Mr. Brazier
The question that the hon. Lady should ask is why I have just placed the bet. Only one serious economic danger faces us today. It is not a danger that we should underestimate. The danger is that we could underestimate how successful we have been in curbing 1131 inflation. First, if one compares this recovery with the three previous ones, the monetary profile is so different that it is difficult to exaggerate. Monetary growth in broad money as the last recovery developed was between 15 and 20 per cent. Monetary growth in broad money this year—calculated by annualising the past six months—is a mere 2.5 per cent. We have never before during this century had an economic recovery in which the banks have had serious difficulties lending their money.
§ Mr. Nicholas Winterton (Macclesfield)
Does my hon. Friend accept that the one thing that manufacturing industry in Britain does not want is another rise in interest rates, which would deter any further investment? Although there has been a rise in investment, it is from a low base. We want more investment in manufacturing industry. That certainly will not be achieved if there is another rise in interest rates.
§ Mr. Brazier
My hon. Friend has just anticipated almost my next sentence. The second major difference between this recovery and the last one is where recovery comes from. My right hon. and learned Friend the Chancellor alluded to the important role of exports in this recovery. Another major difference is the fact that the output of investment goods has grown so much more quickly than the output of consumer goods. Indeed, in the last quarter it has grown at double the rate of growth of output of consumer goods. Investment is occurring now. There is some difficulty in sorting out the figures. There are various different ways of measuring investment, but it is clearly there. As my hon. Friend the Member for Macclesfield (Mr. Winterton) rightly said, if interest rates rise further, investment could be jeopardised.
The fourth big difference between the current recovery and the previous one, to which several hon. Members alluded, is in the housing market. The fuel of our last three inflationary booms has overwhelmingly been monetary growth driven by large quantities of inflation and tax-assisted borrowing, driving up house prices. Today, house prices are, at most, level in money terms; they may even be falling in money terms, and the level of transactions is definitely falling.
As I represent an east Kent constituency, I am especially conscious of the fact that there is an enormous overhang of empty property in north-west France. Not only are second home owners selling their leafy cottages in my part of the world and, I suspect, in other parts of England, to buy cottages for a third of the price in France—now advertised by estate agents in England—but a growing number of retired people, including two sets of friends of mine in the past 12 months, are taking the opportunity to move to France and realise a huge capital gain.
All those factors illustrate how dramatically different the monetary profile of the current recovery is from the previous one. If we allowed officials in the Bank of England to persuade us to fight this war in the way that it was fought the last three times and increased interest rates now against the current background, we could seriously damage a tremendously healthy export-led and investment-led recovery.
I shall quickly dispose of the three opposing arguments produced principally by the Bank of England "school of thought". The first is the rapid growth in narrow money. I do not go quite as far as Professor Tim Congdon in 1132 believing that that measure is always a waste of time; it has some value. However, there is an especially good reason for distrusting it now.
If there is a big transfer of employment, resulting in a much greater proportion of people being in low-paid part-time work, and large numbers of people enter the work force for the first time who are low paid, many of those people are paid in cash, not simply because of the black economy but because they do not have bank accounts. That is bound to mean that the small proportion of the overall broad money figure that represents notes and coins increases. It does not have a macro-economic inflationary knock-on effect, however.
The second argument that is frequently mentioned is based on business surveys. Astonishingly, the most prominently mentioned of those is the dreadful purchasing managers' index. As a former statistician, I ask, how could anyone take an index that has operated for as short a time as three years—it has been in existence for less than half an economic cycle—as a serious measure showing which way the economy is going?
The third and final major argument concerns the capacity issue. As a monetarist, I am always inclined to be slightly suspicious of the capacity argument, because I believe that inflation is principally a monetary phenomenon, but capacity issues are, anyway, principally concentrated in manufacturing. Whereas the service sector is 60 per cent. of the economy, manufacturing is only about 20 per cent., and new capacity can be put in more quickly than it used to be a few years ago. We have a good level of manufacture of investment goods. Plenty of empty business property remains available. Factories can be equipped and brought on stream much more quickly than they used to be, and the greater use of shifts, and so on, can assist in doing that.
The current recovery is quite different from previous economic recoveries. I have put my money where my mouth is; instead of buying lottery tickets, I decided to invest a bit of the Brazier finances on a bet that we shall not need to increase interest rates as fast as the markets believe that we should.
The current recovery is different from the previous one. It is a healthy recovery; it is an export-led recovery; it is an investment-led recovery, and this is an excellent Budget to cap it.
§ Mr. William O'Brien (Normanton)
I do not intend to follow the hon. Member for Canterbury (Mr. Brazier) along the monetary theme that he developed, because many of my constituents do not have enough money to talk about betting on interest rates; they have problems finding the means to afford a reasonable standard of living.
I was interested to hear the Chancellor of the Exchequer say that he intended to lift the personal allowances for tax payments on some pensioners. Obviously, I shall wait with interest to discover how that will affect pensioners throughout the country, especially in my constituency.
Earlier this year, I received a letter from a pensioner couple who advised me that they were gettinga rent rise of £3 in April".That was the result of the Government's insistence that councils increased their rents greatly in excess of inflation—and I am speaking of properties for which 1133 people pay much more than the economic rent. At one time, Conservative Members used to say that people should pay an economic rent. Council house rents greatly exceed economic rents.
The couple advised me:At the same time our pensions are going up approximately £2.20p, so we shall be 80p worse off"—that is 80p worse off before value added tax was added to energy costs—as the prats in the government say we get £4 a week interest on every £1,000 over £3,000, that is 25 PER CENT",for which reason they receive less housing benefit than they should.
I wonder what the attitude of Conservative Members will be to that development, whereby pensioners who have savings to help them through their retirement are being told that on every £1,000 savings exceeding £3,000 it is estimated, for benefit purposes, that they receive 25 per cent. interest. Only fools would say that that is a fact, but that is what happens as regards interest payments on pensioners' savings.
I wish that the Chancellor would listen to some of the problems that many of the retired people throughout the country experience. Recently, a chap called Hunter, who lives in Sharlston in my constituency—you must know the district quite well, Mr. Deputy Speaker—came to my surgery. He received an increase in his British Coal pension of £1.55 per week. His housing benefit was reduced by £1.09 and his council tax by 50p per week. That pensioner, after receiving his pension increase, is £4 per week worse off. He also suffers from the increase in VAT on fuel.
I also know of a widow whose state pension increased by 15p per week. Her housing benefit was reduced by 26p per week. The lady says that that has happened for years—the increase in pension has been absorbed by the reduction in housing benefit. The Government's policy of reducing housing benefit when pensions increase is adversely affecting a substantial number of people who are on pensions and who rely on pension increases to try to improve their standard of living.
A family of three live in the area of Ossett in my constituency. The father and son are disabled; the son is physically disabled and incontinent. The mother and wife has to be the carer, looking after the two other members of her family. The son reached the age of 25. He has a mental age of eight, but the family lost £4 per week in housing benefit because he reached the age of 25. Government rules say that housing benefit is cut when a lodger reaches the age of 25, because Ministers allege that that person makes a contribution to the household.
There is no question of tolerance in such a position. There is nothing in the Budget to help the families whom I have described. There is nothing to help them to avoid the poverty trap. We are talking of the most vulnerable people in society—the mentally and physically disabled—yet the Government attack them by reducing their income and their benefits. During the Chancellor's lengthy speech, he made no mention of any help for them.
The people whom I have described have to pay the increase in VAT on fuel charges. Indeed, they will suffer the most from that increase. Age Concern, in a parliamentary briefing, said that it believed that 1134VAT on fuel should not be increased to 17.5 per cent. But, if the increase goes ahead, we are concerned with the way the compensation package will be implemented.Every hon. Member should share that concern.
The Government promised to compensate people on benefit for the increase in VAT. On 27 October, I put a question to the Paymaster General, who replied:The House decided to implement VAT on fuel bills in two stages. It did so in the knowledge that a generous compensation package gives extra help to all pensioners and widows, disabled people"—[Official Report, 27 October 1994; Vol. 248, c. 994.]—who qualify.
In the main, it is those who are in receipt of income support who qualify. Ministers—in this case, the Paymaster General—give misleading information. They seem to be under the impression that all pensioners receive the hand-out to compensate for VAT on fuel. That is not the case. When the Secretary of State for Social Security speaks in the Budget debates, he should clarify the position for those who are denied the extra benefit to compensate for VAT on fuel.
My right hon. Friend the Leader of the Opposition analysed the increase proposed by the Chancellor and showed that in real terms it would amount to about 10p a week for a single pensioner. I hope that there will be an opportunity for hon. Members to vote on such a pernicious tax. It shows beyond any shadow of doubt that those who will suffer and be hurt the most will be those who can ill afford the extra cost imposed by the Government.
The Chancellor missed the opportunity offered by the Budget to redress the problems faced by many pensioners. It is not just the cut in housing benefit or the VAT on fuel bills—in the early years of the Conservative Government, following the 1979 election, the Government took away the concessionary television licence from a substantial number of pensioners. That concession had been promoted by the Labour Government. I hope that Ministers will deal with that problem.
§ Mr. David Evans (Welwyn Hatfield)
Does the hon. Gentleman recall that the last Labour Government failed to pay the pensioners' Christmas bonus in two of their last four years in power?
§ Mr. O'Brien
I remind the hon. Gentleman that since 1979 this Government have not increased the Christmas bonus by the rate of inflation and are therefore denying pensioners £55.70. I shall take no lectures from the hon. Gentleman on the matter, because the bonus is £10 now and it was £10 some 15 years ago. Had it been uprated in line with inflation, it would now be worth £65.70.
I also remind the hon. Gentleman that in 1979 a single pensioner received a pension of £23.30 per week. In 1994, he is receiving £57.60 per week. Had the pension been uprated in line with inflation, it would now be worth £76.70. The hon. Gentleman should remember that pensioners have not been robbed just of their pension. He voted for VAT on fuel; he supported the withdrawal of concessionary television licences; and he supported the reduction of housing benefit. If he has any shame, he should feel ashamed of what has happened to pensioners since the Government came to power. When the opportunity arises for the hon. Gentleman and others to support the pensioners on the question of VAT on fuel, I hope they will join us in voting down the proposed increase. Last night, I presented a petition on behalf of 1135 1,000 of my constituents asking the House to vote down the increase to 17.5 per cent. next April. I hope that my constituents who signed that petition will receive the support of the House to stop the VAT increase.
Because of the Government's policies, in 1994 local housing authorities are making a profit, for the first time, for the Government from housing rents. Local authorities pay net housing subsidies to the Treasury. The Government have a new tax—on council house rents. We are all aware that the Government have increased rents well above the rate of inflation.
Now, council house and housing association rents are not economic rents but what we term "market rents". But the people who set the market rents are the Ministers who stand at the Government Dispatch Box. Councils are told what rent increases they must make, not because those increases will pay for other benefits for council house tenants but because the Government will benefit from them. It is another tax that people have to endure because of Government policy.
Again, the Chancellor had the opportunity to redress that situation and to be fair and honest with tenants about the levying of rents and housing benefits. For tenants not on housing benefit, the increase in rents above the rate of inflation is totally unfair. It is undemocratic because those people have no vote on the rent increases. For tenants on housing benefit, a rent increase above the rate of inflation drives them further into the poverty trap and becomes a greater and more serious problem. For tenants on a partial rebate, the rate of taxation is probably higher than in any other sector of the community.
The Chancellor of the Exchequer missed a golden opportunity today. He could have helped millions of people who are in the poverty trap, losing housing benefit and have no way of escaping the policies that the Government introduced. Local authorities and housing associations face tremendous difficulty in improving their properties and providing affordable housing. Because of the Government's restrictions, they may not spend their money to develop new housing and improve the housing stock. Some council houses have only one electric plug in the kitchen. Local authorities want to improve on that and carry out improvements, but because of the policies outlined by the Government, they are denied the opportunity to do so.
The Chancellor of the Exchequer referred to the home energy efficiency scheme, yet in properties in some local authorities, the heating is provided by boilers, and by other means, that are 20 years old. Those local authorities want to take out those old boilers to improve their heating efficiency, yet, because of Government policy, that is not permitted. Therefore, in addition to VAT on energy, many people are living in houses that are uneconomical because of the heating system.
I put it to the Ministers on the Treasury Bench that what we have witnessed today is an opportunity lost. The Chancellor of the Exchequer had the golden opportunity to bring into practice some of the policies that would have helped the people to whom I have referred.
§ Mr. Roger Stott (Wigan)
My hon. Friend is talking about local authorities and local government. If he just casts his eye around the Chamber this evening, he will see behind him our hon. Friend the Member for Coventry, South-East (Mr. Cunningham), the former leader of Coventry city council. In front, he will see our hon. Friend 1136 the Member for Sheffield, Attercliffe, (Mr. Betts), the former leader of Sheffield city council. On the Whips' Bench, he will see our hon. Friend the Member for Bootle (Mr. Benton), who was leader of his council. Will my hon. Friend just think for one moment about all the local authorities that dispose of their waste and put it in a big hole? The Chancellor of the Exchequer will tax every local authority in Britain that actually empties every dustbin. No local authorities incinerate their waste; they put it in a big hole.
§ Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)
Order. Interventions are supposed to be brief and to the point.
§ Mr. O'Brien
I appreciate the point made by my hon. Friend. The fact that we are threatened with a tax on waste for landfill sites in 1996 has not gone unnoticed. The Chancellor said that a consultative document would be published on that matter. We are waiting with bated breath to see what is in it.
It is true that we will witness a further tax on people who have no alternative but to have their waste disposed of by their local authorities. The Secretary of State for the Environment, in a written answer to a question which I tabled, said that no assistance is given by his Department to people who want to dispose of recycled materials. He said that it was for the market to decide.
As I said earlier, market rents do not help people on low incomes. They do not help the people whom I want the Minister to help. I hope that he will take that into consideration when he replies, and I hope that some amendments will be made to help the people who will suffer worst under this Budget.
§ Mr. Charles Hendry (High Peak)
I congratulate my right hon. and learned Friend on introducing a Budget for growth, recovery and sound finance.
It is profoundly depressing to listen to Opposition Members simply regurgitating old ideas from the past. We recognise that the debate must be very difficult for them,.because, increasingly, they are not allowed to talk about policies: their leader cannot decide whether he wants to have them or not. He will have one policy on one day and will trim and change it the next, according to what he thinks may be popular with the electorate. Opposition Members are left like some old record stuck in a groove, regurgitating the ideas that they have peddled in the past.
§ Mr. Hendry
I should like to make progress, but I will certainly give way later.
We heard from the hon. Member for Hackney, North and Stoke Newington (Ms Abbott)—sadly, she could not remain to hear the speech that followed her own—about how the housing recovery will not happen. It must be difficult for her to find things to be gloomy about these days. Not long ago, Opposition Members were telling us that the recovery would not happen and that it would not last. They then told us that inflation would not come down and that it would not stay down. They then told us that the trade deficit would not fall as we came out of 1137 recession. They kept on telling us that unemployment would not come down. They increasingly find that they are short of things to complain about.
§ Mr. Etherington
I hope that the hon. Gentleman appreciates that it is even more depressing for Opposition Members to hear Conservative Members constantly reiterate the benefits of policies which have failed for most of this century but which we keep on getting.
§ Mr. Hendry
The hon. Gentleman, sadly, did not recognise that manufacturing output and exports are now at their highest level. We have the most favourable circumstances in terms of inflation, interest rates and business confidence that I have seen in my lifetime. The hon. Gentleman may be a good number of years older than me, but it is a shame that he has not learnt a bit faster.
Conservative Members have to listen to Opposition Members peddling the same old mistruths about how things are bad, yet all round the country we find them getting better.
We listened, too, to the hon. Member for Wrexham (Dr. Marek), who talked about manufacturing industry. How sad, I thought, for businesses in his constituency, which are doing their very best to win new markets, to produce.the best goods at the best price and to train their workers,.to find their own Member of Parliament talking them down. Why cannot Labour Members be like my hon. Friends the Members for Cheadle (Mr. Day), for Macclesfield (Mr. Winterton) or other hon. Members who fight every inch for their manufacturing industries because they believe in manufacturing and want to help them to do better and win new markets?
We then had to listen to the hon. Member for Normanton (Mr. O'Brien). I fully accept his sincerity, but, as my hon. Friend the Member for Welwyn Hatfield (Mr. Evans) pointed out, the Labour Government not only did not pay the Christmas bonus twice, but did not index it according to inflation. Opposition Members still say that we should have done that.
Ours was not the party that delivered inflation at 27 per cent. and ours was not the party that cheated pensioners of their savings, which became less valuable every year because of the inflation rate. We take no lessons from the Labour party about pensions, given the way in which it has dealt with them.
§ Mr. Hendry
The hon. Member for Normanton has had his opportunity, but I happily give way to my hon. Friend the Member for Welwyn Hatfield.
§ Mr. Hendry
My hon. Friend is absolutely right.
Every Labour speaker has spoken of Labour's wish to cut £2.3 billion of Government revenue over the next year, but has any of them said how the cut should be paid for?
§ Mr. Hendry
Hear me out.
Have Labour Members proposed the imposition of a single tax? Have they proposed the saving of £2.3 billion elsewhere? We know that they will not do so. They are merely going for the media soundbite—the little slot on the six o'clock or the nine o'clock news and the opportunity to issue a little press release in their local newspapers. They have not the decency to tell the House how they would make up the shortfall that they would create.
§ Mrs. Jacqui Lait (Hastings and Rye)
I hate to contradict my hon. Friend, but one promise that Labour seems to have made is to tax higher earners. Perhaps my hon. Friend would like to tell us how much income we might expect that to produce. Would it cover the extra spending?
§ Mr. Hendry
It is always hard to tell. I imagine, however, that if we asked the Leader of the Opposition—who is married to a very high earner—he would be able to give us a good deal of information, and I hope that he will declare an interest when he comes to talk to us about that.
Let me return to the subject of pensioners. I particularly welcome the raising of thresholds for their payment of tax. In my submission to the Treasury, I stressed that I wanted those thresholds raised to make a bigger difference between those who have saved to contribute to their pensions throughout their lives and those on income support. The pensioners whom I find it hardest to talk to are those who have done all we that asked of them—who have saved in order to take up pensions, and who now find that if they had spent the money on an extra holiday or a slightly higher living standard they would be almost as well off. I commend my right hon. and learned Friend's decision to ensure that such people receive the benefits of their savings in their lifetimes.
I also commend the measures to encourage people to return to work. I declare an interest, as an unpaid director of a training charity dealing with young long-term unemployed people. I welcome the initiative to allow a year's break from national insurance contributions for employers of those who have been without work for two years or more, which will make it significantly easier to encourage them back into work and will make it a realistic possibility for them to take jobs.
I am pleased about the expansion of the constructive schemes. It is sad that the hon. Member for Hackney, North and Stoke Newington should describe those measures as gimmicky; they do not seem gimmicky to someone who is on such a scheme—someone who has been unemployed for some time, and then finds that the Government have introduced a scheme designed to help him to gain a new skill, try a new job and find a way back into work. That is not a gimmick; it is someone's life. It is demeaning and condescending in the extreme for Opposition Members to be so cruel and hurtful to people who are doing their best to return to work.
1139 I want to say a little about the Housing Corporation budget. I am joint chairman of the parliamentary all-party group on homelessness, and I know that any cut in Housing Corporation funding will be viewed with concern, but I think that we should look at the proposal in context. We must take into account a Conservative manifesto commitment to build 153,000 social houses for rent over the three years after the election—a target that will be comfortably met. We must also take into account the lower building costs produced by building companies that are anxious to find work, and the lower interest rates which mean that housing associations can borrow from the money markets.
We should, however, go further and make it possible for the Housing Corporation to give grants to private developers so that they can build social rented housing as well. Again, I declare an interest as chairman of a company that deals in private rented accommodation—not that it would benefit, but builders should be entitled to put in bids to show that they can build better and more cheaply, and let at lower rents, than many housing associations.
I hope that we shall also encourage housing associations to recycle their money by providing their tenants with a right to buy, and that we shall enable the smaller housing associations to have a bigger slice of the cake: they tend to be leaner, and more directly connected with the issues in their local communities. Above all, we must try to encourage the Housing Corporation to put its funds more directly into refurbishment. There are 700,000 empty houses in the country, and it is ridiculous to claim that every year we need to build 100,000 or 200,000 new houses.
Every time the Government build more houses, Shelter says, "That is not enough: we must have more." If the Government built the 100,000 houses that Shelter wanted last year, Shelter would say, "We did not want 100,000; we really wanted 200,000." Shelter is the only organisation that can call one month of bad figures a trend and, when presented with two years of declining homelessness figures, say that it is still too early to predict the true position. We must enable the Housing Corporation to make better use of existing stock.
This Budget is not about short-term solutions; it is about getting the long-term economic structure right. It proposes measures that will build on the recovery that is so clearly already in place. In my constituency, businesses that are working to gain new markets, employ new people and lower our local unemployment rate faster than the national average will welcome many measures in the Budget. They will be delighted by the measures to control the growth of business rates; they will be delighted by the proposed extension of the export credit guarantees; they will be delighted by measures that will help them to employ new people, especially those who have been unemployed for some time; and they will be delighted by my right hon. and learned Friend's commitment to a rescue culture.
For too long, we have been concerned about the fact that the banks seem ready to pull the plug before they have had a chance to see whether businesses might have a long-term viable future. As we emerge from recession, fewer companies will be in that position, but all Conservative Members will welcome the Budget initiative.
1140 This is a Budget for recovery, a Budget for sustained growth and a Budget that my constituents will welcome.
§ Mr. Jim Cunningham (Coventry, South-East)
I am interested by the litany that I have heard today from Conservative Members. I think, however, that. I should begin at the point where the Chancellor began. He said that inflation was last at its current level during a certain World Cup; but, as we know, a Labour Government were in power then.
Conservative Members have made much of the so-called misdemeanours and mismanagement of Labour Governments. Let me remind them that it was not a Labour Government, but a Tory Government, who created the three-day week. A Tory Government, too, could not manage the OPEC negotiations when oil and petrol prices started to rise.
§ Mr. Cunningham
I see that the hon. Gentleman is keen to intervene, but a Tory Government were undoubtedly involved. Their actions, certainly in the 1970s, led to a Labour Government eventually having to approach the IMF. Conservative Members keep throwing that at us, but would we not like to return to the days of Labour government in the 1960s and 1970s—the days when only about 300,000 people were unemployed? Would not we like to get back to the days when more houses were being built than ever before—that was considered a terrible record for a Labour Government—and when homelessness was at a minimum? Would not we like to get back to the days when more hospitals were being built and more doctors and nurses were being trained?
Conservative Back Benchers would like to brainwash us into believing that the Government's economic policies are working. I have heard Conservative Members say that this is the right Budget every time this Government have introduced a Budget, yet no Budget has been right.
I want to deal with the areas that concern me and my constituents. Some hon. Members have mentioned invalidity benefit, for which, under the new arrangements, about 200,000 people will not qualify. A vast number of people will lose out on the jobseeker's allowance. More important, if an individual is given a card to go for a job but does not get it, benefits officers can ring the employer to find out how he got on. If the employer says that the individual did not try very hard, he may lose his benefits.
I want to show how vindictive the Budget really is. Hon. Members have touched on housing benefit. Many families on the poverty line rely on housing benefit:. A short time ago, some Conservative Members said that housing benefits were being abused in Coventry. An investigation took place, but in only a few cases could any abuse be demonstrated.
The Government are reneging on their promise to first-time buyers. What happened to the Government's slogan about a home-owning democracy? Many young people who have taken out mortgages over the past two or three years will find themselves confronted once again with another reduction in the help available for mortgage repayment.
§ Mr. Duncan
Contrary to what the hon. Gentleman has just said, the way in which housing benefit has operated 1141 guarantees that private sector rents will rise to meet the level of housing benefit that is set. The greatest guarantee for someone wanting to start on the mortgage ladder is a regime of low interest rates, which we now have amidst the sustainable recovery that my right hon. and learned Friend the Chancellor outlined so well today.
§ Mr. Cunningham
It is not for me to defend the housing benefit system that the Government introduced, particularly in the context of the abolition of rent controls. The Government abolished rent controls on the basis that a fair rent should be charged and that market forces should determine its level. I am showing that the changes will have a regressive effect on the poorer members of society. They will affect many people in my constituency.
Once again, local government will have a sledgehammer taken to it. The Chancellor's speech emphasised the need for efficiency in local government. We all want to encourage efficiency in local government, and some of us do, but before the Government start preaching about efficiency in local government they should become more efficient and set a good example. I have not seen much efficiency from central Government.
The Government have made much of the fact that there will be a 3.5 per cent. increase in funding for the police. Let us look at what they have not funded. They have not put much money into funding for safer cities and they have cut legal aid. I could go on and on.
In reality, the Budget must be judged against last year's Budget. It is designed, once again, to make the poorer members of society pay for the Government's follies. It should have been based on need rather than greed. That is how I would sum up the Budget.
§ Mr. Graham Riddick (Colne Valley)
The headline in a Conservative party brief that I have just looked at suggests, in a rather defensive tone, that this may be a "steady as she goes" Budget. This has indeed been a "steady as she goes" Budget and I welcome that. It is exactly what we need at this stage. I welcome three particular aspects. There was help for the long-term unemployed, more help for small companies—we have done a great deal to help them in recent years—and a continued reduction in the level of public spending and public borrowing.
The experience of the Conservative Government in the early 1990s shows how difficult it is to keep public spending under proper control. We all know that Conservative Governments believe in keeping public spending down. Sadly, we allowed it to go up to unsustainable levels and that is one of the most important reasons why the Government have had some serious economic difficulties in the past few years. The key thing for this Budget was that the recovery should be nurtured and sustained.
The headline in a recent issue of CBI News said:Recovery in progress: Do not disturb.That probably sums up more than anything else what we needed from this Budget and that is exactly what we have got.
The Red Book shows that the Government are forecasting growth of about 4 per cent. in 1994 and of about 3.5 per cent. in 1995. The London Business School 1142 has forecast that manufacturing production will grow by an annual average of 4.3 per cent. between 1994 and 1998. That is extremely encouraging and I hope that the forecast is accurate.
Inflation is 2 per cent. now and in his speech my right hon. and learned Friend the Chancellor said that inflation will be going up next year. In years gone by we might have expected him to say that it would go up to 5 per cent., 10 per cent. or 15 per cent. What he said was that next year inflation is forecast to rise to 2.5 per cent.
§ Mr. Jimmy Wray (Glasgow, Provan)
Does the hon. Gentleman think that the damage has already been done with inflation? What about the thousands of people who have lost their homes or had to give up their jobs because of inflation? You have had 16 years to deal with inflation and you have inflicted misery and injustice on the people of this country. You will not be forgotten because you are still inflicting that misery with—
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. I remind the hon. Gentleman that he is addressing me.
§ Mr. Riddick
I know that you are a powerful figure, Madam Deputy Speaker, but I was not aware that you were responsible for all those things.
I accept the admonition of the hon. Member for Glasgow, Provan (Mr. Wray). It is deeply regrettable that we allowed inflation to get out of control and that at its height it reached 11 per cent. However, that contrasts with inflation of about 26 per cent.—
§ Mr. Riddick
Yes, as my hon. Friend said, inflation was 27 per cent. when the Labour party was last in office.
We must not forget that inflation went up to high levels in the early 1990s because of our involvement in the exchange rate mechanism and Lord Lawson's efforts to prove to the then Prime Minister that we should join the ERM. As a result of those efforts he lost control of monetary policy. The Labour party wanted us to join the ERM. At the time it was calling for interest rates to be lowered still further, which would have made the inflation problem even worse than it turned out to be.
Returning to today's economic position, interest rates are at competitive levels. As my right hon. and learned Friend the Chancellor said, investment in plant and machinery is increasing by about 5 per cent. British exporters are expanding in existing markets and winning new orders in new markets.
Earlier this year, I led an all-party delegation of Members of Parliament to India. Yesterday, I talked at a Sino-British trade fair in Harrogate. It is interesting that British companies are doing much more business in both those countries than they have done before. They are exporting more goods and services to India and China and to many other countries throughout the world. They are setting up companies in those two countries, in many cases joint venture companies. It is extremely good news that the recovery is export and investment led.
The most important point is that the fall in unemployment is the result of all those favourable economic indicators. Unemployment has fallen by 450,000 since the end of 1992. Last month, it fell by 330 in my constituency of Colne Valley—the biggest monthly 1143 fall in unemployment there for more than six years. The number of people who are unemployed in Come Valley is now at its lowest level since June 1991. That is obviously extremely good news, but more needs to be done. I hope that the downward trend in unemployment in my constituency and in the country will continue.
I welcome the specific measures in the Budget to help people who have been unemployed for a long time and the measures to help people on low pay. My right hon. and learned Friend the Chancellor has introduced measures that exempt employers from national insurance contributions for the first year and that cut the national insurance rate for employees earning less than £205 per week by 0.6 per cent.
My right hon. and learned Friend rather lost me when he talked about the expansion of job schemes to help people back into work. He talked about job finder's grants, work trials, Workstart, Workwise and 1–2–1 schemes. I am sure that all those schemes will play a useful part in helping the long-term unemployed. I welcome the fact that the Government have shown their terrific commitment to getting people back to work. I also welcome the extra help that my right hon. and learned Friend announced today for small businesses. The venture capital trust scheme will be useful in attracting new investment into small firms.
Exporters will welcome the extra cover that the Government will provide through the export credits guarantee scheme and the fact that guarantee premiums will be 10 per cent. lower. The Government, however, can only do so much in terms of specific measures to stimulate enterprise and to help generate wealth. They need to create the right economic environment. We have that now, as we had in the mid-1980s. It was a tragedy that, because Lord Lawson played around with interest rates to prove his point about the exchange rate mechanism, we lost control of the money supply and suffered from everything that flowed from that.
The right economic environment is now in place. Monetary policy is firmly under control. Inflation is low. Companies in this country want, more than anything else, long-term stability. That is what they need to have the confidence to plan for the future. Those plans must not be knocked off course by sudden changes in Government policy.
The Government must ensure that we have reasonable personal tax rates, so that people have incentives to work, and reasonable corporate tax rates, so that companies are encouraged to make profits. Where necessary, the Government must make supply-side changes, as they have done in the past. They reformed trade union law so that trade unions operated in a responsible way as opposed to the irresponsible way in which they operated in the 1960s and 1970s.
The Government have privatised a number of firms, including British Airways, British Gas and British Telecom. Many of those companies have improved their performance as a result of being taken away from the control of politicians and bureaucrats, which I welcome.
Deregulation is another matter on which the Government must act. We have made some strides on that front, but more must be done. Too much Brussels-inspired regulation is still being introduced and the Government must do all that they can to ensure that unnecessary regulation is resisted.
1144 I suppose that the most important point is that the Government must allow companies to run their businesses without unnecessary impediment. The British people are entrepreneurial, innovative and hard working. We should let them get on with it. In the past two years, they have gone out and done so because the Government have created the right economic conditions. As a result, those companies have gained market share, won export orders, generated more wealth and created more jobs.
Government can be destructive. Policies that harm British businesses and that destroy jobs may be introduced. I fail to understand why the Labour party continues to be so wedded to the social chapter and to the minimum wage, particularly when it hears clear evidence of the results of the minimum wage in other countries. Unemployment rates for young people and unskilled people are much higher in France and Spain than in this country as a direct result of the minimum wage.
It is interesting to compare job-creation achievements in the United States of America with those in the European Community. In the past 20 years, about 30 million new jobs have been created in the USA as against 5 million new jobs in the European Community. Most of the new jobs in the EC were created in the public sector. The reason for the gap is that the American companies operate in a much freer market system and labour market than do British and European companies, which are shackled in unnecessary regulation and bureaucracy. The key point is that continually improving productivity is crucial to companies retaining competitiveness.
A recent manufacturing bulletin published by the Confederation of British Industry shows clearly how productivity in this country has improved in the past 15 years. A graph in the bulletin shows that, since 1979, the British worker's average output has increased quite markedly compared with that of the German worker. In 1979, the British worker's output was about half that of the German worker. Now, however, it stands at about 90 per cent. of that of the German worker. More needs to be done, but that is a significant improvement that I obviously welcome.
Britain is now an attractive country with which to do business and in which to invest. As we know, inward investment has played a large part in creating new jobs here in recent years. In its recent annual report, Ihe Yorkshire and Humberside Development Association states that in 1993–94 38 overseas companies invested in the region, as a result of which nearly 6,000 jobs were created or safeguarded. Those companies would not have come to Britain if we had had all the regulation that the European Community wants us to impose on companies.
The British economy has made sound progress in the two years since we left the exchange rate mechanism. Further progress needs to be made so that we can get more people back to work and create more wealth so that our standard of living rises. The Budget has made an important contribution in that respect, and I am happy to give it a warm welcome.
§ Mr. Clive Betts (Sheffield, Attercliffe)
I shall deal with the three key issues in the Budget: the economic prospects for this country and the general economic situation; taxes; and public expenditure. They are the three issues on which the Chancellor also concentrated.
1145 Listening to the Chancellor and to the Conservative Members who have spoken since the Budget announcement, one could believe that there was nothing wrong with the British economy, that we have nothing but success and that everything is going in the right direction. I wonder whether Conservative Members talk to the majority of their constituents who have to face the problems of everyday life in Britain in 1994. Conservatives Members must be the only people in the country who believe that everything is going well; most of my constituents believe that the country is going rapidly downhill while the Government simply sit and watch and take no effective action to solve the problems that they are experiencing.
We have heard the Government praise themselves for how they have brought about economic recovery, a recovery from high inflation, from even higher unemployment and from a £46 billion public sector borrowing requirement. There is little mention of the fact that they created the problems in the first place. Indeed, having created problems of such dimensions, it is hardly a great achievement if they manage to make a modest improvement.
The Chancellor and Conservative Members give us a snapshot of the current situation, but we do not get a longer-term perspective on how the economy has been performing. Our economy went into recession sooner than that of our economic competitors in Europe; that recession was the deepest since the war; and Britain came out of recession first only because we went into recession first. It is, therefore, hardly surprising if, judging by some short-term and immediate indicators, we are currently seen to be performing better than some European countries. However, if one looks back over the past 15 years, a different picture emerges.
The Chancellor said that inflation was back to the level of the 1960s, but he did not say that unemployment was not back to the same level. It is hardly an economic miracle to get inflation down to 2.5 per cent. when unemployment still stands at around 2.5 million even on the Government's own figures, which they have adjusted so many times since 1979. Indeed, it would be a source of amazement if inflation had not come down, given the fact that the unemployed had paid the price for it.
What should surprise us is that while unemployment still stands at around 2.5 million the Government are already talking about the economy overheating. They are already admitting that there are bottlenecks in the economy and constraints of capacity, which mean that the recovery has to be slowed down to the point that interest rates are being increased. The reason is that productive capacity of the economy is now so small in relation to the number of people who want jobs that we cannot provide all the jobs that they require.
I have visited firms in my constituency and I admit that they now say that things are better than they were a year ago. Yes, there are more orders, one or two firms are taking on more employees and certainly those in the export markets have seen improvements, but I cannot visit the firms that no longer exist. Britain has lost many firms and jobs but not because those firms were bad and could not produce the goods. Many were squeezed because they had taken the initiative and invested only to find that, 1146 because of the lack of real opportunity for venture capital in this country, the price of borrowing increased and they went out of business.
§ Mr. Betts
I am saying that, in the 15 or 16 years that the Government have been in power, the failure of Britain's economic performance has been comparatively much greater than that of the developed economies in the European Union and elsewhere. I shall provide the hon. Gentleman with some figures if he will be patient for a moment.
One of our problems is our past failure to invest in our infrastructure and industry. Our failure to invest in our people has produced a shortage of capacity and a lack of skills, which is all too evident on the ground and shows in international comparisons.
§ Mr. Betts
That is incredible. It cannot be said that the north and Scotland did not suffer, but the reason why the south suffered more in the latest recession was that the recession hit the service sector hardest and that sector had developed to a greater extent in the south-east. That does not mean that constituencies such as mine and cities such as Sheffield have not suffered, too. We have lost manufacturing jobs in the past few years, but we also lost jobs in our service industries. The north suffered more in the recession of the early 1980s, but we were also hit by the recent recession, with the result that the capacity no longer exists for recovery. That is highlighted in the longer-term figures, although Conservative Members may want to dispute them.
The British economy grew by 2.7 per cent. in the 30 or so years between 1948 and 1979. The Labour party was in power for half that period. Since 1979, the economy has grown by 1.7 per cent., or 1 per cent. less. That is the reality of the economic miracle that Conservatives mention so often. They also talk about other economies having similar problems, but, on average, the economies of the Group of Seven countries grew by 2.4 per cent., or 0.7 per cent. more than the British economy. In other words, had the British economy grown at the same rate as those of our G7 competitors, we would have a 10 per cent. larger capacity than we currently have. Those figures highlight the failure of the past 15 years. They are not my figures; they are the official figures accepted by the Government.
It gets worse if we examine the current position. Let us not talk about the current 4 per cent. growth, which represents only a snapshot; let us talk about the fact that, in the five years from 1988–93, the British economy grew at a rate of 0.5 per cent. That is an abject failure by comparison with any of our overseas competitors. Investment as a percentage of GDP has fallen from 18 per cent. in 1979 to 15.5 per cent. today and investment in plant and machinery has fallen by 28 per cent. since 1990. They are the problems facing our economy, but the Budget does not contain one proposal to tackle them.
1147 The manufacturing capital stock of our country is 0.5 per cent. higher than it was in 1979–0.5 per cent. higher after 15 years of Tory Government. In France and the United States, the figure is 20 per cent. higher; in Japan, it is 65 per cent. higher. That is a great difference. How can we create decent jobs that pay decent wages with such a level of investment in our economy and such an economic performance?
Since 1979, we have lost 3 million jobs in manufacturing industry; one third of the jobs have gone. That is a higher percentage than is the case for our industrial competitors. Where are the Government's economic policies in the Budget to arrest that decline and do something to create the jobs that people want, certainly in my constituency? In reality, the jobs around are part-time jobs, often in the service industries, which pay far lower wages than the jobs we have lost in steel, engineering and coal. That means a lowering of living standards for many people. There are real problems for people which, again, the Budget did nothing to address.
The Government have talked about the 400,000 reduction in unemployment. In the same period, we have lost 400,000 jobs. There is a problem out there which has not been addressed. The 400,000 reduction in unemployment is not matched by an increase in jobs. There are real difficulties out there which, again, the Budget does nothing to address.
On the standards used by the world economic forum on competitiveness, Britain came 18th out of 23 OECD countries. It is no wonder that our living standards are falling and it is no wonder that people do not feel better off when, having had average living standards above those in the European Union in 1979, we are now only above Spain, Ireland and Greece. For how much longer will we remain above those countries?
There is a theory prevalent among Conservative Members—the Governor of the Bank of England reflects it on occasions—that all we have to do is to get inflation down. It is believed that somehow, by some miraculous process, higher growth and more investment will follow. I do not subscribe to that view. I do not think that the German economic miracle, to which Conservative Members constantly refer, shows that either. It is more the case that if one has constant, long-term growth, improvements in real living standards and increases in real wages and profits, one takes inflationary pressures out of the economy. By sorting out investment and growth, one will then deal with inflation. Dealing with inflation may be admirable in itself. However, if, as the Government have proved to us, it is done at the price of the unemployed and if there are no mechanisms for working from low inflation to growth, because it is believed that it will happen of its own accord, we shall get nowhere in improving our long-term prospects.
There were tax increases today. The increase was £10 a week for the average family in April and it will be another £7 a week next April. That is the tax increase in the pipeline. As my right hon. Friend the Leader of the Opposition rightly said, for the majority of people out there, the Budget will be remembered as the Budget that acknowledged and nodded through the second instalment of the imposition of VAT on fuel, unless Conservative Members have the courage to vote next week for an amendment that will give them an opportunity, once again, to reject the second increase and to do something 1148 for the pensioners, the disabled and the poor in our society. Those people will have to pay far more of the cost than is the case for other sections of society.
Today, the Chancellor announced help for people with the VAT increases. That was little short of misleading. He added the promises of compensation for pensioners already given into today's figures. There is no new money for pensioners in the overall compensation figures; the Chancellor merely restated what had been said before.
One of the only two new initiatives was the increase in cold weather payments, which only apply to some pensioners. The way in which they are administered leaves much to be desired and they are paid only if the weather is cold enough. They do not go to help with the general increase in fuel bills. The other new initiative, the home energy efficiency scheme to help people with their heating bills, amounted to £10 million out of a total tax take from VAT on fuel of £2.5 billion. That is little short of insulting to the people who will suffer the real damage from that VAT increase. There is no change there in Government policy, but there will be a real change next April in what ordinary families have to pay for their fuel. Damage will be done to their living standards.
The changes in mortgage tax relief next April, which had been announced previously, will hit living standards as well. I am in favour of the changes in mortgage tax relief. I would like that relief to be abolished and I do not believe that it does anything to improve housing conditions and living standards. However, I would have liked the money to have been used to deal with the real housing problems and not to have gone simply to fill the black hole that the Government have created through their problems with the public sector borrowing requirement.
The Government claim that they are all in favour of tax cuts and that the Conservative party is the party of tax cuts. Why do they not address the reality? In 1979, 34.3 per cent. of our gross domestic product went on tax; in 1995–96, the figure will be 37 per cent. Once again, a party that claims to be the party of tax-cutting has failed to deliver its promises. It has failed completely to address the real issues that have faced the country in the past few years.
We can recognise the basic unfairness of the tax increases that the Government have introduced. The people who benefited from the tax reductions at the end of the 1980s were the richest sections of our community. The people who have felt the biggest impact of the tax increases, especially VAT on fuel, are the poorest sections of our community. There have been broken promises on VAT and broken promises on the Government's overall tax take. It is no wonder that when we talk to people outside the Chamber, we find that they have no confidence in the Government. They are still frightened for their jobs and for their homes, and they are frightened because of the tax increases they have had and the tax increases still to come.
The Government's public spending record does not bear examination. The reality is that public spending is 44 per cent. of our GDP, which was exactly its level in the last year of the previous Labour Government. The difference, of course, is that social security spending has risen from 22 per cent. to 31 per cent. In return, investment in the public sector has fallen. The Government have transferred public sector investment in long-term benefits for this country into payments for the 1149 waste of unemployment. That is what has happened to public sector spending while the Government have been in power.
It is interesting, in view of his record of involvement with housing, that the Financial Secretary to the Treasury is now sitting on the Government Front Bench. He cannot be proud of a Government who have cut expenditure on housing in the public sector by 57 per cent. during their period of office. Social house building has fallen from 131,000 properties to 37,000, a cut of 72 per cent. The further reduction today in money for housing associations is a disgrace alongside the reduction in credit approvals for local authorities.
I do not know who comes to the surgeries of Conservative Members. I know that the biggest number of people who come to my surgery—other Labour Members have the same experience—are people who want housing and who cannot get a home. They include homeless families and young couples living with their parents and in-laws. The social tension that that causes is alarming. Conservative Members behave as if there were no problems there. They seem to believe that there would be enough houses if only we managed to get rid of vacant properties. Most vacant properties are in the private sector or are owned by Government Departments.
The cuts today are a disgrace, especially when set alongside the backlog of disrepair. The local authorities produced an excellent booklet last week in which they calculated a £50 billion backlog of disrepair, only £10 billion of which was in the local authority sector. The real disrepair is found in homes owned by the poor and the elderly, and in older housing. Even to deal with the mandatory grants currently lodged with local authorities would require £500 million extra spending each year for the next three years. That is the amount required to deal with the worst unfitness in the private sector, not the total backlog of disrepair. What do we have? We have more cuts in the credit approvals, which means even longer waits, even for the mandatory grants given according to the Government's own standards.
The Government's proposals on housing will seriously damage people in very real ways. Of course, the poverty trap needs attacking. Of course, the way in which housing benefits are withdrawn is wrong. At present, when people earn an extra pound, they lose 97p in council tax and housing benefit. The same applies to pensioners with a small occupational pension. That is a disincentive to work. However, the proposals today to leave people eligible for housing benefit for four weeks after they get a job does not address the fundamental problem. After those four weeks, many people will still lose because of the interaction of income tax increases and benefit loss. There is no proposal to date to deal with that. Instead, we have a further proposal to take money out of local authority rent accounts. In my view it is immoral to ask local authority tenants to pay for the benefits of other local authority tenants, when other benefits in our society, including benefits for private sector tenants, are paid for by all taxpayers. That is discrimination against one sector of the community, which is wrong. All that the Budget does is to worsen it.
It is surely the hallmark of the Government that they create problems for the community, then blame the community for those problems and introduce penalties to 1150 punish the community for those problems. That is exactly the position in the private housing sector, which the Government deregulated and encouraged to create market rents. Those rents have now risen and, due to people being on income support or housing allowances, the Government have seen the cost of funding those benefits rise. The Government then say that the people who are to blame are either the local authority staff who are administering the Government's own scheme of support to housing, or the tenants who are going into properties with such high rents. Why do not they accept that what is to blame is their deregulation of the housing market, which created those rent increases in the first place? It has not produced more homes to rent. It has forced rents up and the Government are paying the price. Their solution, of course, is to make local authorities or the tenants pay the price, either by the tenants losing their homes or by local authorities paying the cost, which means cuts for other services under finance capping. That is the reality of what the Government are proposing.
Then, there are measures relating to income support for people with mortgages. Again, what an appalling position in which to put people. Did not the Government recognise that some people on income support who have a mortgage will simply not be in a position, if they get a job, to take out insurance? It is quite possible that they will be denied insurance or that insurance will be at such a high premium that they will not be able to pay it. The people who I am thinking of are those who get a new mortgage today, when they are in a job. They may lose their jobs and go on to income support. They may then be offered the possibility of a temporary job, which are the norm for many people today when re-entering the labour market. Who would provide insurance for someone with a temporary job to insure their mortgage payments? No insurance company would give someone with a temporary job that sort of facility. What will happen is that the individual will say, "I am not going to go back into work on a temporary basis if it means that the next time I become unemployed, after losing my temporary job, I have no insurance and the Government will not cover, through income support, my mortgage payments. I might as well remain unemployed so that my mortgage payments are being covered." That is a major disincentive to people going back to work and it is time that the Government addressed it and halted the stupid proposal that they have made today.
The issues of real concern in the Budget include the local authority settlement—a 0.9 per cent. increase. It is not an increase of 2.2 per cent. because that includes the community care grant. For local authorities, that means cuts of more than 1 per cent. on top of the cuts that they have suffered, or their communities have suffered, in past years. All of us can see the real problems today in every local authority. There are increases in class sizes. Class sizes are up to 35 students—up to 38 in my constituency. We can all see the inadequate funding of community care. We can all see people coming out of institutions—rightly in most cases—to find that there is inadequate support to enable them to live in the community safely from their point of view, as well as that of their neighbours. The under-funding is chronic in local authorities of all political complexions.
The Budget will not address those problems. It will squeeze local authority spending further and it will increase class sizes. Conservative Members should not 1151 talk of increasing the education budget, because if local authorities have not got the money, it will not go into schools. It is as simple as that. The Government know it and they should stop being dishonest with the people of this country in pretending that it will. Once again, local authorities are being used as scapegoats because it is easier to pass the problem on to someone else.
Conservative Members should not lecture people about partnership initiatives. The Government can claim the credit for one or two initiatives, but local authorities invented partnership initiatives. That is where those initiatives began in the 1980s. Why have they stopped? They stopped because of part V of the Local Government and Housing Act 1989, which introduced so many restrictions on partnerships that it effectively killed them off. The Government are now having to bring in proposals to rectify the damage that they did to partnership initiatives through that legislation.
No doubt, next year, or perhaps the following year, the tax cuts will arrive as the bribe for the election to come. For every individual who will accept that those tax cuts, when they come, are the result of the Government's economic success, 10 people will see them for what they really are—a cheap election bribe, which the public have already paid for out of their own pockets. It will simply deepen the whole community's distrust in the Government.
On all the tests that the Government have set for themselves in improved economic competitiveness, there is not one figure over the past 15 years which justifies their claims. Claiming to be a party of taxation cuts, it has broken its promises since the previous election. Since 1979, taxes in this country have not been cut. They have been altered, they have been made more unfair, but they have not been cut. Conservative Members claim to belong to a party which cuts public expenditure. They have failed. They have cut investment and the real benefits to be gained from public expenditure. They simply transfer that expenditure on to the waste of subsidising the unemployment that they have created. They have failed to improve economic performance, they have failed to cut taxation, and they have failed to cut public spending. They have failed by their own tests and their own standards. The Government have failed the people of this country and it is time that they went.
§ Mr. Stephen Day (Cheadle)
Before I come to the main part of my speech, I must respond to some of the points made by the hon. Member for Sheffield, Attercliffe (Mr. Betts). He said an awful lot. His speech contained some very instructive comments if one listened carefully. The first half of his speech was a grave criticism of the Government for increasing taxation. He then went on to list a whole number of issues on which he thought that the Government should be spending more money. There lies a contradiction in the hon. Gentleman's thinking, which is at the heart of the Labour party's present difficulties. It is easy now, two years from an election, for Labour to hide behind that facade. Come the election, however, Labour Members will have to square that circle, and they will not be able to do it. Come the next election, it will be very different from what the hon. Gentleman seems to think will happen. If I were him, I would not count my chickens until they were hatched. I remember Labour politicians doing that before.
1152 We were also accused by the hon. Gentleman of being totally out of touch and of not speaking to our constituents. I certainly speak to my constituents as, I know, do the vast majority of my colleagues. I live right in the heart of my constituency, in the same sort of house as the vast majority of my constituents. I visit the local pub, I visit the local clubs, and I know the exact difficulties that people are facing. The question is how one deals with them.
This Budget is part of a long process of dealing with the problems felt by average people. I readily recognise that the Government, and therefore myself, are highly unpopular. But that does not mean that one should abandon the policies that one believes are right, just because one believes oneself to be unpopular. In politics, one should also have conviction, and it is my conviction that this is the right Budget for this country and this economy at the present time.
I shall comment on a couple of the main provisions in the Budget which I know will bring great joy to small businesses, certainly in my constituency—the constituency which has small businesses to which we never talk. Not far from my constituency in Knutsfordoutside the boundaries of Cheadle, but quite near—there is an organisation called the Forum of Private Business. A meeting was organised in the House last week, at which a large number of Conservative Members were present. We were briefed on the problems of small businesses, in relation especially to the question of insolvency and the way in which banks deal with small businesses in those circumstances. Indeed, I have met area management representatives of banks to plead with them to take a very different and more tolerant line towards many small businesses, especially in the depths of recession through which we have gone through and in which small businesses have suffered.
I am delighted that the Government have taken on board the problems experienced by small businesses. The 28-day moratorium will help deal with the problems that we debated in the meeting upstairs with the Forum of Private Business. These small companies, which are basically sound trading organisations, may well be in difficulty on a short-term basis because a larger company has not paid a bill on time. I am pleased that the Government have announced something that will help those businesses enormously.
I am also pleased about the proposals to help people back into work. Getting back into work is another of the problems that my constituents—who I never talk to—raise with me at my surgeries. A constituent recently told me that he could not afford to take a job simply because he would lose his benefit and would have to work a month without receiving any money. It is an obvious disincentive if someone is willing to work, and wants to work, but that person must experience a month in which he cannot cover his costs because he has no income until the monthly cheque arrives. The Government have accepted that difficulty, and the proposals will definitely help my constituents to ease themselves out of dependency on benefits and into a job. I welcome that as a practical step forward in terms of defeating the scourge of long-term unemployment.
The nation has had to address the Budget deficit in general, and I applaud the Government for the way in which they have addressed it and the speed with which they have brought the projected Budget deficit down.
1153 Despite the pressure, political problems and unpopularity that that has created for the Government, we have still managed—the Opposition never give credit for this—to increase funding for the national health service. We have done that year after year. I seem to recall that the amount of new money announced for the NHS a few years ago actually exceeded the amount that the Opposition were demanding, but even then they accused the Government of underfunding the NHS.
I take great pride in being able to say that I do not belong to a private scheme and rely totally on the NHS. I have been lucky enough to have good health and not to be a great burden on the NHS. However, many people are not so lucky as I am. Thank God, because of the success of the NHS many people are now alive who would not have been alive 10 years ago. Happily, people are walking around today who would not have been with us 10 years ago. They have had costly operations which have rightly been provided by the NHS.
The Government have never backed away from a commitment to increase NHS funding. No Labour Government ever matched the increase in NHS funding in real terms provided by this Government. I welcome the Government's continued commitment to the NHS by the further increase in funding. The hon. Member for Wrexham (Dr. Marek) said that he thought that the extra money would somehow be lost in efficiency savings, as though that was a crime. Why should we not have efficiency in the NHS? It is taxpayers' money that is being spent and they deserve to have it spent efficiently. So long as the money that is saved by removing inefficiency is directed to patient care, which is what has happened within the NHS under the stewardship of the present Government, we should welcome and applaud that. We should certainly not denigrate it, as the hon. Member for Wrexham did.
The Leader of the Opposition rounded off his speech in his usual way by saying how he felt that he identified with the feelings of the people. According to him, the people feel that the Government are not exactly their best friend. He agreed with that, and it was easy for him to do so. He recounted a list of things that he believed that people wanted. He said that they wanted fair taxation and a fair national health service. He always says things like that, but he never tells us how he would deliver such things. That brings me back to the point that I made to the hon. Member for Attercliffe. At some time in the future, those points must be addressed.
I took particular offence when the Leader of the Opposition said that the Conservative Benches represented privilege while the Opposition Benches represented the people. As one who was educated at a state school and proud of it, I find it hard to take someone who has had the privileges and advantages of a private school—and good luck to him—making such comments about my party and me, and many others like me on the Conservative Benches, who did not have the advantages that the right hon. Gentleman has enjoyed in life. As a general election approaches, the people will not accept such bland statements as proving the real differences between the two parties. Such statements are, indeed, manifest nonsense.
1154 We have also heard criticism of the Government's approach during their 15 years in power. In a way, I am glad that Opposition Members raised that point because, as they were allowed to raise it, I believe that I can respond to it. One does not often have an opportunity to talk about the 15 years of Conservative rule, of which I happen to be very proud. It will take more than a soundbite from the Leader of the Opposition to convince me that this country is anything other than far better off than it was when we came to power.
There are many reasons for that. I do not believe that everything that the Government have done is correct. No party could get everything right. Parties comprise human beings, and human beings make mistakes. On occasions, I have accused the Government of making mistakes—
§ Madam Deputy Speaker
Order. I should not have to repeat this more than once. I remind the hon. Gentleman again that he must address me and not direct his remarks directly to the hon. Member concerned.
§ Mr. Wray
Is the hon. Gentleman proud of all the people who lost their homes as a result of the high interest charges? The Government encouraged people to buy their homes when interest rates were at 7 per cent. and 8 per cent., but two years later people had to pay 16 per cent. and two years after that they lost all that they owned. Is the hon. Gentleman proud of that?
§ Mr. Day
The hon. Gentleman has referred to many things and I am very proud about the vast majority of what he listed. I will respond directly to his points.
With regard to the privatisation of the state industries, most of them have been a great success. No one can convince me otherwise. British Telecom is providing a service in competition with other companies. It has improved service to the consumer beyond recognition. British Steel used to employ many people, but unfortunately they were manufacturing steel which no one wanted and at the wrong price. Standing up, waxing lyrical and crying crocodile tears about people losing their jobs does not save those jobs or secure their future. What secured the future for the steel workers was creating a company in the private sector, which we are now proud to call British Steel, which sells steel around the world that people want and which provides real secure jobs. There may not be as many jobs as the hon. Member for Glasgow, Provan (Mr. Wray) and I would like. I would like to see more jobs in British Steel, but we shall not obtain such jobs by resorting to the old way of politicians—the last people in the world who should do so—deciding where money should be invested.
§ Mr. Day
I will give way in a moment. British Leyland is a classic example of why politicians should never be allowed to decide which companies receive investment. State control of British Leyland proved a disaster. The cars became a joke, no one wanted to buy them and the company was riven by strikes and restrictive practices. If the hon. Member for Provan is asking the country to go 1155 back to that state of affairs, I hope that he will say so regularly on public platforms up and down the country. If anyone is out of touch with the real issues, it is the hon. Gentleman.
§ Mr. Betts
My hon. Friend the Member for Glasgow, Provan (Mr. Wray) referred to the privatisation of various utilities. There are certainly steel firms in the private sector. One in my constituency of Sheffield is extremely successful. But the company has a big problem with the privatised monopoly in the electricity industry, which last year effectively increased prices to stainless steel producers by 20 to 40 per cent. The regulator proved powerless to stop those increases. Is that not a problem that the Government have created, but which they are doing nothing to resolve?
§ Mr. Day
The hon. Gentleman has reminded me that I want to talk about water, which was mentioned specifically. The privatisation of the gas and electricity industries has produced real benefits for the consumer. Gas prices have fallen. I am not trying to mislead anyone: I accept that the imposition of value added tax has wiped out the reduction in prices to a considerable extent, but a price advantage to the consumer remains even after VAT is imposed to the full limit. Both industries are far more responsive to customers' needs now than when they were state owned.
The Government are looking to introduce more competition in the supply of gas. That competition is overdue and should have been sought when we first privatised the industry. I would believe Opposition Members when they criticised the Government about privatisations if they also made the commitment to reverse them if, God forbid, they ever came to power. Despite their rhetoric, however, they will not reverse those privatisations because they know deep down that the benefits of privatisation are indisputable.
I recognise also that what I say is not accepted easily in the country—it is probably not recognised by many of my constituents, who would vociferously disagree with me—but I believe that what I say is right and it will take more than sniping from the Opposition to make me change my mind.
Water was mentioned specifically. The privatisation of water is unacceptable to many people because they believe that water is God-given and free. It is certainly God-given, but it was never free. Water must be supplied. Great benefits have accrued to the people of my constituency, and to Stockport borough in general, from the massive investment that has been made to replace lead pipes and to create a new sewerage system. The sewers in Stockport and south Manchester were collapsing because the public system had let the public down. We are now seeing long overdue investment. There is no point in Opposition Members grumbling about privatisation. When they were in power they did not provide the money to spend on those utilities. That is why the sewers in my constituency were crumbling. However, a private water company has invested money to provide the water service that we should have had years ago. That is the reality of the situation, whether the Opposition like it or not.
When hon. Members think about the Budget, they should consider how we have arrived at our present economic position, which the Opposition would love to inherit after a general election. But it will not be that easy. If Opposition Members came to power, they would find 1156 one of the best economic situations ever seen in this country. They know that that is true, but they will not get up and say so. As they will not say it, I have said it for them. It is what they think, but it is not what they say.
The Opposition cannot deny that this country's true economic situation is reflected by the magic figures of low inflation and greater inward investment. Whatever Opposition Members say, I do not believe that the British people will throw away those advantages at the next general election. If they were to elect the Labour party, its policies would destroy everything that has brought about our economic improvement.
The Labour party would immediately bring in a minimum wage and sign us up to the social chapter. It would immediately increase spending. When we look at the tax proposals in the Budget, I ask hon. Members to think—
§ Mr. Day
Exactly. I ask the whole country to think about where we would be if a Labour Government had been elected at the last election. In addressing the budget deficit, the Labour party would have increased taxes to the same extent as we have done. But they would have gone beyond that. The public would have been paying taxes to deal with the budget deficit, plus taxes to pay for all the spending promises that the Labour party made. Opposition Members talk about the Government's failure to deal with the budget deficit—that is nonsense in itself—but the idea that somehow the deficit would be smaller under a Labour Government is preposterous. That is at the heart of the difference between the Conservative and Labour parties.
I have no doubt that this Budget is right for this year. If the Government were playing politics with the finances of the nation and introducing tax cuts just to win favour with the populace before an election, it would be much easier to sustain the argument politically if we had cut taxes this year. Then Opposition Members could not have said, "Oh, you are cutting them just before the election so that you can get votes". That would have been the easy option. If we had done that, Opposition Members might have been right to say that we were playing politics with tax policy and the Budget. But we have not done that and they are wrong. I commend the Budget to the House.
§ Mr. Bill Etherington (Sunderland, North)
One of the problems with a debate such as this is that one does not have time to reflect on the Chancellor of the Exchequer's Budget statement before one is required to speak about it. On that basis, my speech may be a knee-jerk reaction. It is also good to read other people's views and widen one's knowledge on the subject before speaking in a debate, but that is not always possible.
Like many others, I welcome the economic recovery which the Chancellor graphically spelt out—at perhaps inordinate length—this afternoon. However, I do not welcome what I perceive to be the effect of the economic recovery on society in general.
There have been two recessions since 1979 and, therefore, there have been two economic recoveries. Both of those recoveries led to increased unemployment and a widening of the wealth gap between the rich and the poor.
1157 We are told that unemployment is decreasing—although there seems to be a problem with the equation, because as unemployment comes down, jobs are disappearing. As my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) has pointed out, that is a puzzle.
Although one welcomes a decrease in unemployment., what is not welcome is the nature of many of the jobs being created. I am not one of those who say, "Jobs at any cost" Since the Government came to office, the difference between wages in the north-east and those in other parts of the country has caused us to drop from third out of eight to second-last out of eight in wage rates. I commend my hon. Friend the Member for Darlington (Mr. Milburn) for obtaining those figures. One problem is that if reasonable, decent jobs are replaced by part-time low-paid jobs, although in numerical terms it might appear that there has been a decrease in unemployment, the relevant area loses revenue. That has knock-on effects for the whole region.
One thing that the Government cannot claim is that in this, or in any other Budget since 1979, they have done anything to eliminate regional disparities. There has been a total, absolute and dismal failure on that front, and nothing that I have heard today implies that that will change.
Much has been said today, as it has been for many weeks, about the problem of VAT on fuel. The matter relates mostly to pensioners and others on various forms of income support. I agree with my hon. Friends that the compensation on offer is inadequate. The Chancellor said that those people are not as badly off as they might have been because there have been price reductions in certain fuels or because prices have not gone up for four or five years. That was a poor argument, and unworthy of this place. Everyone has had that benefit, not just pensioners and others on income support.
Another group of people who receive scant mention in this Chamber are the relatively badly-off, who do not claim any benefits whatsoever and who are just above the poverty line. They will not receive relief from the increased VAT on fuel, and they represent many millions of people. Taking their families into account, they are a sizeable proportion of the population. They are being neglected. It is all very well the Chancellor pointing out what is being done for one section of the poor. He omitted to mention that nothing is being done for another section which is perhaps not quite as poor but is still very badly off.
On VAT in general, since 1979, the Government have systematically reduced direct taxation and systematically increased indirect or regressive taxation. Financial pundits call it regressive taxation because it redistributes wealth from the poor to the rich. That is the problem. I do not pretend to state present Labour party policy on the subject, but the country would have been better off and there would have been less inequality if income tax had been 7p in the pound more. The wealthy would then have made a more viable contribution to society. They obtain the most benefits from it, so it is only right that they should make the biggest contribution. Instead, we have had the reverse, which has led to many millions of people being made worse off. That problem promises to go on because there is nothing in the Budget to address it. There will be much of the same.
1158 We are told that everything is successful and that we shall continue to build on it. However, although I said that I welcomed the economic recovery, it was an economic recovery from a very low base. A 4 per cent. improvement sounds good, but 4 per cent. of what? It is certainly not as good as the relative figure for our European competitors. They started in a much healthier position than we did.
I was rather surprised at the way in which the Chancellor jumped from subject to subject. We are talking about a £5 increase in vehicle excise duties, but not for commercial vehicles. That was also the case last year. I take exception to that. I have long held the view that commercial vehicles are already heavily subsidised in several ways. That is why operators have been able to corner the goods market, and that is also why rail transport has had such a poor time, not just since 1979 but since the mid-1950s. I should have liked the vehicle excise duty to have been done away with altogether. It is a form of service charge. Why not impose that duty on fuel?
I am a great believer in the theory that those who use the roads the most should make the biggest contribution towards them. That can sometimes lead to some heart searching. I know people who live in rural areas, and the only way that they can travel to their work, which is not very well paid, is by way of an old banger—an old motor car—and an increase in duty will affect them. There will always be such anomalies.
It would be good if all taxation for transport were raised from fuel. Commercial operators who use great quantities of fuel, who use the roads 24 hours a day, seven days a week, would pay the proportion which they should pay for their use of the roads network. People will say that that will put up prices, but what about competition? The Government wax lyrical about competition, but, to be effective, competition must be fair. For almost half a century, our railway system has suffered from the disadvantage of having to fight a competitor which is being subsidised by motorists and taxpayers generally.
I trust that the Government—I hope that they are not in office long enough to make the decision—will consider the problem in the light of what was said in the recent report of the Royal Commission on pollution. Unless we do something, we shall end up with more environmental damage and more road crises. In the two and a half years since I was elected to Parliament, I have noticed that conditions from the north-east down to London have worsened dramatically.
The Chancellor's speech stresses doing everything for employers and relieving the burdens on them in every possible way, notwithstanding the fact that they are advantageously placed compared with employers in many of our European neighbours. Corporation tax is a good example of that. There was no mention of the people who need help—the deserving poor—whom the Government seem to have forgotten altogether. We hear about targeting benefits, but very little was said by the Chancellor about that group.
I give some guarded welcome to the proposed freeze on alcohol tax. I welcome what the Chancellor had to say about trying, in the next few years, to harmonise that tax with those of the European Union in general. That is fine, and no one would disagree that each country should compete on an even basis. I only hope that, in the few 1159 years that that is likely to take, we do not see a drastic reduction in our capacity. That is happening at the moment, and we are suffering from unfair competition.
I believe that the Chancellor of the Exchequer used the word "smuggling". It almost defies belief that the Government would allow people to take large vans over to France, fill them full of liquor and bring them back saying that it is for their own personal consumption. Presumably if they are caught again in five years, someone will ask questions. That situation seems to be rather ridiculous, and it is very much a case of bad legislation. We have seen much of that.
I am concerned about the proposals on tobacco tax. I do not think that there is any history of punitive taxation working. Most smokers will pay the extra tax, and I do not think that the proposals will do anything to cut consumption. That will result from education, public opinion and informing children of the disadvantages of smoking. I ask only one thing. I should like the extra revenue produced from that source to be used for the purposes that I have just mentioned, including educating people and preventing the advertising of tobacco. It is not a simple subject and it will require more than one initiative to bring about the change that I am sure the Chancellor is looking for.
As I have said, I believe that many of the Chancellor's proposals regarding help for employers will exacerbate the problems of part of the low-wage economy. Many proposals have been put forward encouraging employers to pay even less, and for many of them—particularly in my part of the country—that is the last encouragement that they need. They are quite capable of doing that anyway. As I said, that encouragement has disparate effects in different parts of the country.
I noticed that, as always, the Chancellor was lauding the benefits of privatisation. I ask the Government to consider how, in the long run, we are to benefit from cutting public expenditure and putting all the services in private hands when, in the end, those services have to be paid for from taxpayers' money. My view is that privatisation will come home to haunt the Tory Government because, eventually, only two things can happen—it will either cost more for the same services, or the services will need to be reduced. We are already beginning to see that in the railways, and I fear that we shall see it in many other utilities as time goes on.
The Chancellor also mentioned spending a small amount of money on improving the standard of insulation in houses. I do not want to be churlish, but that was always going to be too little, too late. The finest way to reduce carbon and other emissions from heating houses is by high standards of insulation. We do not have those high standards, and for many years we have lagged behind other countries with not dissimilar climates. A much larger sum of money, and much more urgency, is required on a project that would at least provide much-needed employment.
Much has been said about the housing benefit constraints. I spoke on this issue—not at any great length—last week and, although I do not wish to go over the same ground, some things need to be repeated. The Government's policy of reducing housebuilding—particularly social housebuilding—led to the private sector growing. If that is coupled with the deregulation of 1160 rents, one has on the one hand a shortage of housing and on the other a deregulated private landlord system, which is a recipe for rising rents.
Anyone could have seen that. One did not need the experience of Treasury Ministers and their financial advisors to understand it. A 10-year-old child at school could have understood it if it had been pointed out to him. Apparently, however, the Government do not understand. They say that they are paying too much in housing benefit, and that that must be curtailed.
As a matter of simple common sense, is there anyone in the Chamber—I am willing to give way—who actually believes that anyone who lives in rented accommodation is in a position to bargain with his landlord to get a reduction in rent? Does anybody believe that? There are no takers. The Chancellor said that that is what would happen, but, apparently, no Government Member is prepared to back him.
It is absolutely scandalous that we are moving in this direction in housing. We hear talk about keeping up with what was stated in the Conservative manifesto, but the number of houses being built is paltry. My hon. Friend the Member for Attercliffe mentioned the deteriorating state of the homes of the two thirds of the population who own their own homes. Somewhere along the line, that will have to be paid for, and there will then be a bigger housing shortage.
There has been much debate tonight about whether h on. Members listen to their constituents. I do not know what the position is among Government Members, but between 60 and 70 per cent. of the queries which I deal with in my constituency surgery, through correspondence and through telephone messages, involve problems of housing. Yet, according to the Government, we are building plenty of houses and there is no problem.
The problem has been exacerbated by the sale of council houses which have then not been replaced. That means that councils are struggling to deal with all the problems resulting from a reduced housing stock. The Housing Corporation and housing associations—admirably though they try—are unable to stem the tide.
§ Mr. Day
Since hon. Members began holding surgeries, has not housing always been one of the majority of subjects on which there are requests to see a Member of Parliament? I do not quite follow the point that the hon. Gentleman is making. Housing has always made up a big percentage of the matters with which hon. Members deal.
§ Mr. Etherington
I can only refer to the two and a half years that I have been a Member and to what I was told by the previous hon. Member representing my constituency. I must disagree with the hon. Gentleman. It may be the case in his part of the world—it may be the case generally—but it is certainly not the case within my constituency.
The point I am trying to make is that it is a worsening situation, and it is worsening because of the shortage of housing. One of the commonest problems now is where a family splits up, and the wife and children perhaps go to live with her parents. When they then try to get rehoused in their own right, they find great difficulty. With so many marriages breaking down, one would assume that those in power would understand that if that is not curtailed, there must be additional housing. There is no other answer to the problem.
1161 I was disappointed that we did not have much more radical transport policy proposals from the Chancellor. We have all read in recent weeks about various ideas which are being considered, and perhaps the Budget has come a little bit too early to include those things. The problem is not being properly addressed. As long as we say that we will allow market forces to prevail—when those market forces are not in equilibrium—we will never make progress, and we will never do anything to improve the environment or the quality of people's lives.
The Budget follows all Budgets that I have heard since 1979, in that everything is based on trying to curtail public expenditure so that eventually there will be adequate money for proper and adequate investment. There has been, as was pointed out, tremendous curtailment of public expenditure just to allow the social security budget to function and to deal with the unemployed. In real terms, if one takes the social security budget out, there has been a disastrous reduction in public expenditure.
As was pointed out, public expenditure remains at about 44 per cent. of GDP, but what is the GDP? Perhaps it is not as good as we have been led to believe. Over the past 15 years, all of the privation that has been created—all of the people who have been put under the European threshold of decency—has not brought about a significant increase in investment. There is a reluctance to invest. I should have thought that after 15 years when the Government's measures have been seen to have failed, the Government might tackle the problem and perhaps consider other methods of achieving proper investment in industry.
Although I am not a conspiracy theorist, I sometimes have a lurking suspicion that, as the Government are an extension of the City and financial interests—that is how I, and most of the public, see them—it suits them to have a low-wage, low-investment economy. Until such time as I start to see real change in this country, I shall continue to believe that. I sometimes think that there can be no other reason. Why are people in Britain less willing to invest than our European competitors? They get a good return on their investment—better than in most other places—but it seems that what comes first is short-term expediency, maximum return on capital in the shortest time and minimum investment of capital, as we have seen in the public utilities since they were privatised.
The Chancellor was proud to mention that one in three children now go on to some form of university education whereas one in eight did so in 1979. That is excellent news, but when such figures are quoted, it would be interesting to know what money was put into the university system in real terms and whether it had increased in line with the increase in the number of people educated. I am told by various people whom I know within the university industry, if I might call it that, that nowhere do the resources match the additional requirements placed on those who work in the system. When that happens, it is only a matter of time before the additional burden catches up and a crisis begins. I hope that we do not reach that stage.
The hon. Member for High Peak (Mr. Hendry), who has left his place and who kindly gave way to me earlier, said that he was pleased about the £430 rise in the tax threshold for old-age pensioners. I am not, and I shall explain why. My views on the subject are almost exactly 1162 the opposite of those of the hon. Gentleman. There are some wealthy pensioners. Many pensioners are fairly well off, but the majority are not. There is a great divide among pensioners. If anyone doubts that, admirable information is available from the Commons Library on the subject. Although it might be dated now, it impressed me a great deal when I read it about a year ago.
Three million pensioners will be better off as a result of the raising of the threshold. That means that 6 million will be either no better off or worse off. I suggest that they will remain in the same position. I accept that my calculation is rough because we do not have the figures before us. I assume that a single pensioner paying 40p in the pound tax will gain about £3.25 a week and a married couple will gain £6.50, and that a single pensioner on the standard rate of tax will gain about £2 a week. If the Government were so keen to help pensioners, rather than doing it in that way, why did not they do what they always say that they want to do and target resources to the poorest?
The Government have targeted resources to the best-off pensioners, who do not need help. Those who pay tax are usually reasonably well off. The vast majority-6 million—pay no tax. If money is available, why do not the Government make it available to those pensioners rather than using a populist measure which looks good and might impress a certain number of Tory voters among pensioners? That question needs to be asked and I look forward to hearing the answer, if there is one, in the reply to the debate.
The Chancellor also said that he intended to close tax loopholes. I am sure that everyone welcomes that. If one tenth of the effort that is expended on prosecuting people on social security benefits were directed at dealing with various tax frauds in high society and business, a fair amount of cash would come in. The Chancellor says in the document distributed following his speech that a number of artificial schemes for avoiding tax will be stopped. I understand that "a number" can mean anything. It can mean all, none or part. If the Chancellor had stated that artificial schemes for avoiding tax would be stopped, I would have had more faith. The written word tells it all.
One thing that the Chancellor did not mention, although I have no doubt that it will be mentioned later in the debate, was that extra funds for science and overseas aid would be made available. I can well understand that the Chancellor might not want to mention that, because every citizen should be ashamed of our foreign aid record. It is deplorable, and I can well understand that, as it is so insignificant, the Chancellor did not even consider it to be worth mentioning.
I am disappointed in the Chancellor's speech. It seems as though all the problems from which we have not learnt will continue, and there will be an ever-increasing gap between the wealthy and the poor. We have no guarantee that the economic recovery will do anything about the disparities in society, and in many ways I regard the Chancellor's statement as being as big a damp squib as I have ever heard.
§ 9.5 pm
§ Mr. Coe
I beg the hon. Gentleman's pardon.
I agree with one important thing that the hon. Member for Sunderland, North (Mr. Etherington) said—it is always difficult to comment shortly after a Budget. He is right to say that we must avoid knee-jerk reactions and slogans—the tabloid trail. I have long been aware that Budgets that have tended to end with Order Papers, bells and whistles have often taken a 180 deg. about-turn in the next 24 hours. This afternoon's Budget was a Budget of substance, and I believe that it will be seen in that light.
I disagree with the hon. Member for Sunderland, North on the subject of smoking. I think that hon. Members in the Chamber share the widespread anxiety about the growing incidence of smoking despite our health promotion strategies. The continuing resistance of some young women to getting the message about reducing smoking should worry hon. Members on both sides of the House.
However, I disagree with the hon. Member for Sunderland, North about one aspect. As a board member of the Health Education Authority for much of the 1980s, I have to say that punitive levels of taxation on cigarettes do have an effect: price increases have dramatically reduced smoking. There is information and evidence to support that in this country, throughout Europe and in the United States of America.
If I may digress for a moment, I should like to go a stage further. I should like changes with regard to generic packaging, and so on, and the hon. Member for Sunderland, North is right to mention the need for an educative programme. That is all part and parcel of it. Nevertheless, price increases have a significant effect and I know that the Health Education Authority, in its fight against smoking, will welcome the increase which was announced today.
I was interested in some of the comments of the hon. Member for Sheffield, Attercliffe (Mr. Betts), who is not in his place at the moment. He was a political inspiration to me in Sheffield. He and some of his colleagues who ran Sheffield city council during much of the 1970s and the greater part of the 1980s probably influenced me, more than any other single factor, to stand on the Conservative side of the Chamber. They used the city very much as a Stalinist experiment en route to greater things in this place, and I was interested to hear the new moderate tones, "all red-rosed and filofaxed". It was impressive. That is a terrific transformation.
I feel vaguely brave this evening, in opening my remarks, in welcoming the announcements this afternoon by my right hon. Friend the Secretary of State for National Heritage of generous support and funding for the arts. I feel especially brave in saying that because my hon. Friend the Member for Hayes and Harlington (Mr. Dicks) 1164 is not here to intervene on me at every moment in the next few minutes—he being one of the country's great arts patrons.
§ Mr. Ken Purchase (Wolverhampton, North-East)
The hon. Gentleman has seen his programmes on television.
§ Mr. Coe
I have, indeed, seen his programmes on television.
Sensible support of the arts was announced this afternoon—an extra £7 million in each of the next two years, made up of an increase of £5.15 million per year for the next two financial years. Also very welcome in that package is the increase of £750,000 in the business sponsorship incentive scheme, which has been so successful in matching private sector sponsorship in the arts. That will mean support amounting to about £1.5 million over the next two years.
I also welcome the maintenance of existing funding for the Sports Council over the next couple of years. That is allied to some structural changes at the Sports Council, such as upgrading the status of the regions where, frankly, they know best where to spend sporting money, whether it be on revenue funding or on capital programmes. There is to be an increase of 12 per cent. in the budget for the business sponsorship incentive scheme, from a planned £3.3 million to £3.7 million each year. That recognises how successful Sportsmatch has been in putting so much needed funding in place.
I should be remiss if I did not comment on something that slipped through my right hon. and learned Friend's speech without great comment. I have fond memories of sport, so I welcome his support for the Foundation for Sport and the Arts. His predecessor, our right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), reduced the pools betting duty by 2.5 per cent. on the basis that, at that time, the pools industry supported unsponsored art and sport by that amount. There cannot be an hon. Member in this Chamber tonight whose constituency has not had sponsorship in one form or another for either sport or the arts. I say that with some pleasure because, of the funding that has come to Cornwall, some 40 per cent. has found its way into my constituency. Right hon. and hon. Members should be pleased when former experiences serve them well when they come to the House.
My right hon. and learned Friend the Chancellor was right to flag the real and permanent advances made under his economic stewardship. I unashamedly take this opportunity to repeat and affirm them. We know that inflation is at its lowest level for a generation. The hon. Member for Sunderland, North referred to the difficulties faced by the elderly on low incomes. I remind him that there is no greater hardship for anyone on a low income than being confronted by inflation, which for many years was out of control. It is the most debilitating and destabilising economic phenomenon to confront any community.
§ Mr. Peter Butler (Milton Keynes, North-East)
Does my hon. Friend accept that in 1989 some 1 million pensioners were in receipt of supplementary assistance from the state wholly by virtue of the fact that the value 1165 of their savings, and therefore their subsequent income, had been wiped out by years of high inflation under the Labour Government at the end of the 1970s?
§ Mr. Coe
My hon. Friend is right and he makes a salient point. Contemporary history and some of the points of conflict throughout the century show us that a destabilised economy fuelled by inflation has led to many issues which, as a European nation, we never want to confront again.
I also welcome the serious reduction in the level of unemployment, particularly in the past year. I come from a constituency where unemployment is still too high and where there are deep pockets of resistance. The package of measures announced this afternoon by my right hon. and learned Friend meets the needs of many of my constituents. It probably would not excite some areas in the United Kingdom where the job market is relatively flexible, but where people are unfortunate enough to be unemployed, they manage to get back into employment remarkably quickly.
Unfortunately, there are still areas in my constituency where being unemployed for a year and a half or two years is not that uncommon. The moratorium on national insurance contributions for employers taking on the long-term unemployed must be welcomed, as must the general reduction in national insurance contributions for employers taking on extra labour.
My right hon. and learned Friend was also quite right to mention experiences that he has had in his surgeries and in discussions up and down the country. He knows, as do hon. Members on both sides of the House, that, on far too many occasions, we are confronted by constituents who look us straight in the eye and say, "It doesn't pay me to work. It is easier for me to be on benefits." Some of the transitional proposals about which we heard this afternoon, including the £10 family credit to encourage people to go into full-time jobs rather than into the part-time sector, are absolutely vital. It is not surprising that hon. Members look at those parts of the Budget that impact and impinge on their constituencies and their constituents in greatest measure.
The health and vibrancy of the Falmouth and Camborne constituency are based on the small business sector. In the whole of Cornwall, we have only one multinational company. The largest employer, aside from the docks in Falmouth, is Compair Holmans in the north of the constituency, which employs some 350 people. The overriding pattern of employment in my constituency is of small groupings. That is why I welcome—I know that the small business men to whom I speak regularly will welcome them—the package of measures that my right hon. and learned Friend put to the House this afternoon. If he has done little else, he has obviously listened to the needs and aspirations of the small business community, because I know that many of their wish lists—we all have wish lists before Budgets—were met, and in full.
Let me mention some of the issues that will confront the House in the next year. We know from previous speeches this evening, and certainly from the bulk of my right hon. and learned Friend's speech this afternoon, that if I, or any hon. Member, had talked in the Chamber a year ago about a growth rate in the economy of 4 per cent. and said that inflation would be at its lowest level in a 1166 generation—for 13 consecutive months it has been under 3 per cent., matched, I believe, only before 1964—and said that interest rates would remain stable for so long, and if I had talked about the dramatic increase in exports and said that they would not be matched by a dramatic rise in the number of imports, which has been the bête noire of our manufacturing base for so many years, with reasonable rationale, Opposition Members would have intervened and questioned my sanity.
We have had a remarkable transformation in the fortunes of our economy in the past year, and that has been under the steady, enlightened stewardship of my right hon. and learned Friend the Chancellor. There was nothing dramatically exciting in his speech, but it had three important qualities: it was considered, thought through and of substance. In days to come, as hon. Members on both sides of the Chamber debate some of those measures, they will recognise that.
§ Mr. Jimmy Wray (Glasgow, Provan)
I have listened carefully to Conservative Members. From their speeches, it would be thought that the present Opposition had caused the problems, but let us not allow them to get away with having made a mess of the country for 16 years, creating instability and poverty. They talk of 4 per cent. growth—what a price to pay!
If hon. Members go down the road, they will see people living in cardboard boxes. That is the society that the Government have created. While Conservative Members sit in their consultancies receiving two or three wages as well as their parliamentary salaries, my constituency remains one of the poorest in Britain. I hoped that the Chancellor would do something for the poor and would alleviate the misery that the Government have created.
Let us consider what the Government have done to the national health service, to the homeless and to students who receive loans, not grants. Young people aged 16 or 17 are begging on the streets because the Government took away their benefits. No, we cannot allow the Government to get away with it: they must be put out, and the sooner that happens, the happier I shall be.
I regularly visit my "elderly forum" in my capacity as a constituency Member of Parliament. When I last did so, those elderly people asked me whether I thought that the Chancellor would show sympathy for the old and the poor and remove the VAT on fuel. Who suffers from that VAT? The poor, the unemployed and the disabled, who must stay at home a wee bit longer than the able-bodied.
We have watched Conservative Members weep crocodile tears, but we do not accept what they have said. We wanted constructive action that would clear up the mess, but we were given nothing of that kind today. I hoped that some of the children in the deprived part of Glasgow that I represent would be given an opportunity. I thought that education might be given a substantial lift, so that children in deprived areas could be given the verbal stimulus that would allow them to take their place in society. They have suffered, seeing only the closure of schools.
Plowden said—I heard an Education Minister repeat it one day in the Chamber—that we must give priority to children in deprived areas, because their fathers and mothers before them had suffered and were living in terrible housing conditions, with some 600 or 800 people 1167 to the acre. They suffered, and now their children are suffering in educational terms; they suffered through unemployment, and now their children are suffering.
I have never seen the like of the crime that is now being committed in the streets. It is like Dodge City in my constituency. People have guns, and every weekend people are killed; the number of drug addicts makes the morgue a commonplace. Is the Chancellor giving those people a chance? No—he does not even know what is happening.
Yesterday, I heard the Chancellor talk of fraud in Europe. He blamed the media and Opposition Members for the bogus figure of £6 billion. I was a member of the European Legislation Committee. I went to Luxembourg and asked the Commissioner at the Court of Auditors how much fraud there was. I was told that £6 billion was a conservative figure. That is where the figure came from, not from Opposition Members. It was reported back to the House at that time by the Committee Chairman. We asked the Chancellor to do something about the fraud because of concerns about the payments being made. The Chancellor said that only seven inspectors were looking after the 12 member states.
When we visited Customs and Excise, we discovered that the people working there had no training in the subsidies going to other countries. One ship that was at sea had a cargo of what was supposedly prime beef with a subsidy of £2.5 million. When we asked the person in Customs and Excise about that, he said that there was a subsidy of £5,000 to £7,000. That is what the Government have allowed to happen. It must not continue. We must get the Government out.
The Government tell us that the country is in the best state that it has been in for decades. They talk about 4 per cent. growth. Think about all the poor people. Many people were encouraged by every Tory local authority up and down the land to buy their own homes. They were told that it would give them security. When they bought their own homes, interest rates were 6, 7 or 8 per cent. but, two years later, they rose to 16 per cent. Those people are still paying and still suffering. They lost their homes and their cars. They lost everything. Do not tell Opposition Members about the 4 per cent. growth because it will never clear up the mess that the Government have left behind. That is the annoying thing. The biggest percentage of growth has been in the electrical industry and engineering, but the Government have destroyed the construction and manufacturing industries.
The Government have some training schemes. They train youngsters and then throw them back on the dole. The restart schemes simply involve asking stupid questions. Men of 40 have to spend an hour in a room with about 15 other people, many of whom are smoking. It is even unhealthy.
The Government think that privatisation is really working and that worries me. One of the Conservative Members talked about water privatisation. Surely, the Government should have learnt the lessons from the privatisation of water in England. The parasites took away public land and set up subsidiary companies. They sold off all the prime land and property and cut off the water from thousands of people. The profits they made from the high charges imposed on the poor were never invested in water or drains, but were invested in building, cars, insurance and many other things.
1168 We will not listen to this trash about private enterprise making everything in the garden rosy. We do not want any privatisation or any water being cut off in Scotland. The people of Scotland will let the boards know what to do. The pro-fluoridation crowd has been subsidised by the Government. We have had a referendum in Scotland which has said that we do not want the fluoridation of public water supplies because we are right and they are wrong. The Government have spent millions of pounds. They even introduced the Water (Fluoridation) Act 1985 to breach the civil liberties of the individual.
Under the Water Act 1945, directors of water companies and of public local authorities are employed to treat water and to make it wholesome for drinking. They are not employed to treat people who drink the water. It is said that there is nothing wrong with the substance that the capitalists and the drug companies want to put in water to make a profit of about £3 million or £4 million and to get rid of poisonous waste, which is expensive to dump. The Government should be looking at waste and other issues.
I am going a meeting tomorrow to combat the pro-fluoridation campaign of Dr. Beal. I have always said that, if fluoride is a medicinal product, why does not it go before the Committee on Safety of Medicines? Section 130 of the Medicines Act 1968 defines a medicinal product as a substance that is mixed with another substance and given to an animal or a human being, irrespective of the way in which it is given. I am concerned about that sort of issue. The Government are not worried about the waste of money and they continue to do the things that they do.
The state of the health service that the Government have created should be looked at. Fundholding practices are another mistake. Our people, the people most in need, are suffering. I am worried that the leprosy of fundholding practices in England, where semi-companies have been set up which sell medical instruments to themselves, will contaminate Scotland. We do not want fundholding practices. We want people to go to their practices and to be treated for their disease. We do not want the practitioner to think that he will not make a quick buck if he spends a lot of money and runs out of funds.
Compulsory competitive tendering is another disaster—we have seen that time after time in local authorities up and down the country. It is easy for a rogue firm to put in a cheap tender when it pays cheap wages. We need the minimum wage to stop those parasites. Some Conservative Members are consultants for those companies, which pay wages as low as £1 an hour. We want that to be eradicated.
I am concerned about the gas and electricity industries where someone can receive a wage of £470,000. I would not make such a person a member of a community council. That is the sort of issue that we are worried about. All those big bucks think that they are a wee bit better than the rest of us, but the people down below are suffering hard and fast. They are dying for lack of attention, lack of compassion and lack of care from an uncaring Government.
The Prime Minister has lost his credibility. He should resign and take all his Cabinet along with him. I shall be happy when we get socialism back in this country, for the people, of the people and by the people.
§ Mr. George Mudie (Leeds, East)
I fear that I shall sound rather downbeat after my hon. Friend the Member for Glasgow, Govan (Mr. Wray). Anyone who speaks five hours after the Chancellor has sat down deserves a medal—some would say for courage, but I think for foolhardiness.
The hon. Member for Falmouth and Camborne (Mr. Coe) rightly said that Budgets might be greeted with great applause on the day, but after a few days, when the newspapers have been read and the Red Books examined, they might turn out to be something different. Having qualified my remarks with that defence, I shall proceed to take up only a few moments of the House's time.
The hon. Member for Falmouth and Camborne said that it was a steady, no-surprise Budget, which fitted in with the comments of the hon. Member for Blackpool, South (Mr. Hawkins). He said that he broadly welcomed the Budget, which I regard as a qualified response—the Chancellor might appreciate the Budget being "warmly welcomed" but "broadly welcomed" has ominous undertones or overtones.
I do not have the time or the inclination to follow the train of thought of the hon. Member for Cheadle (Mr. Day), who refought the political battles of the past 15 years. It would be easy to fill in time refighting those battles—who was to blame for what and how good or how bad things were in the 1970s—but that is not the issue here. The fact is that the Budget is very disappointing. In fact, I would say that it is a bad Budget for many people. That can sometimes be necessary, but I am not sure that it was today.
The Red Book shows that the economic situation has improved dramatically in terms of Government receipts and expenditure. Here again, we could refight an old political battle. The Chancellor said that exports were very good but did not mention the disastrous retreat from the exchange rate mechanism. We could argue about whose party supported the ERM at the time, but there is no point in doing so.
Financially, things are good, or at least improving, but it still seems wrong to spend money on certain things. We see from the September increase in interest rates that the Governor of the Bank of England and the Chancellor are worried, even at this stage, about the economy overheating. One can sympathise with the Chancellor not being willing to spend but it is clear that he has money to spend, so, we have to ask, why is he not spending it sensibly on things that will not cause overheating or inflation?
The answer lies in the speeches made today by my right hon. Friend the Member for Sedgefield (Mr. Blair), and by my hon. Friend the shadow Chancellor during the debate on the Queen's Speech. They charged the Prime Minister and the Government with putting the Conservative party before the country. The serious issue is whether the Chancellor is being dull and steady this year because it is the right thing to do or because he wants to take no chances and save all that he possibly can so that he can have a marvellous tax-cutting Budget a few months before a general election in the hope—the vain hope—that the country will have forgotten his party's promises on tax at the previous election.
1170 I know that at least one other hon. Member wishes to speak so I shall quickly deal with three issues on which I believe the Chancellor could and should spend money, although to do so would not cost anything. We are about to balance the books more quickly than was foreseen last year. Last year, the judgment would have been that we would come in on a slightly longer plane. I guarantee that when we read the figures next year, we shall find that they have changed anyway. Against that background, the Chancellor will wish not to spend in some areas although he will be willing to spend in others.
The first area with which I shall deal does not come under the heading of expenditure, but under the heading of receipts. What is unforgivable for people throughout the country is the increase in VAT. There is no financial reason, as the Red Book proves, for the second tranche of VAT being necessary. If I were a Conservative Member, I would contrast the cowardice of the present Chancellor of the Exchequer in dealing with the political albatross of VAT on fuel with the courage and political sure-footedness of the previous Chancellor and the present Prime Minister in dealing with the political albatross of the poll tax. The previous Chancellor and the Prime Minister moved quickly, whatever the cost, to remove the poll tax.
The Government have not moved to remove VAT on fuel despite the fact that they have the money. I think—and I am sure that you do, too, Mr. Deputy Speaker—of the harm that the Government are causing, especially to pensioners. If the Chancellor thinks for one second that the compensation that he has put on the table is enough, he obviously does not understand how pensioners in particular respond to quarterly fuel bills. The Chancellor cannot have been in pensioner households, as I have, for if he had he would know of the fear that the quarterly fuel bill causes in them.
I remember a pensioner constituent of mine whose gas was cut off because of some damage to his fire. I got him an electric fire and I went back the next day to make sure that everything was all right. I found him in bed, covered with blankets. I thought that the fire was not working. It was working, but the pensioner thought, "I am taking no chances. I cannot not afford to use the electric fire." He stayed in bed, covered in blankets. If the Chancellor does not understand how the VAT increase will affect the lives of elderly people on the estates who are petrified by fuel charges, he is totally out of touch.
There was no reason and no financial need for the increase. The Chancellor could have stopped the imposition of the second tranche. We shall watch the efforts of the Government, who have to cope with parties within their party, to find constitutional reasons to prevent us from tabling a motion next week that will enable us to vote on the VAT increase. We will table such a motion and we shall see whether a Conservative rebellion is like sunshine in winter.
Other areas about which a sensible, long-sighted and caring Chancellor should be concerned are training and employment. The Chancellor made great play of the training schemes and said that this was a Budget for jobs. From looking at the press release, it is clear that training for work has been not so much increased as focused more sharply. The Government focused invalidity benefit more sharply, which meant that the benefit was stopped for 1171 thousands of people. If unemployed people are being promised that training for work will be focused more sharply, they should look for cover.
The Chancellor referred to Community Action. Is there an increase? My right hon. Friend the Member for Sedgefield dealt with that point in his speech. There is no increase. The scheme is a continuation of a programme that the Government had intended to end this year, as is admitted in the press release from the Department of Employment.
I am sure that the note for editors on work trials will have them filling their front pages with news about work trials. Do hon. Members know how long the work trials last? They last for three weeks. In three of the four wards in my constituency, there is unemployment of 28 per cent. to 30 per cent. The unemployed are hardly going to be chuffed about work trials that give them three weeks' work. The trials will cover 150,000 people and the small print of the press release states that they will be phased in over three years.
The key to this caring, considerate, long-sighted Chancellor is in the financial figures. In cash terms in the previous year, the Budget represented £3,461 million; next year, this Budget for work, this Budget for unemployed people will represent £3,483 million—an increase of £22 million.
That would be good news if it were true, but the press release states that those are real-terms figures. In other words, this year the Government will spend £3,286 million and next year, under this Budget for the unemployed, they will spend £3,227 million—about £60 million less. Why is the Chancellor not spending more money in the Department that is responsible for employment training?
The same sleight of hand is evident in education. I should like editors of the financial papers to look closely at the figures. Apparently, a 4 per cent. increase is proposed, but it is really a 1 per cent. increase in real terms. Apparently, £470 million is to be spent on education in cash terms, but in real terms the figure is £80 million. That £80 million is to be spent among all our universities, further education colleges and schools.
I suggest that Treasury Ministers should visit a school or further education college and meet those who have no skills but who we are trying desperately to train so that they can compete. The problem can be traced back to the classes of 30 pupils, to the lack of books, to the inadequate resources and to the state of school buildings. I shudder at the thought of sending children in my constituency to such buildings. That is the reality of education nowadays, yet the Government are spending £80 million on additional funding, spread across the country and including funding for their dogmatic schemes for colleges and so on, under which they take money from the state sector to give to their friends in other sectors. It is a disgrace.
We face skills shortages and it is feared that we shall not be able to sustain a recovery because we shall run out of skilled people. The Government have money available, which they dare not give away in this Budget, and one would have thought that they would sensibly invest it in areas that would allow us to make that sustained recovery a thing of the future, but they have not done so. One has 1172 to ask why. Do they not care? I should have thought that the answer was self-evident from the past 15 years, if I may be allowed to enter this political-historical war.
Yesterday, someone quoted the words of T. S. Eliot, who wrote:it is the greatest treason to do the right thing for the wrong reason.Are the Government saving money because it has to be saved? No, they are doing so because they want to try to hoodwink people at the next election, as they did at the previous one.
§ Mrs. Jacqui Lait (Hastings and Rye)
I begin by reassuring the hon. Member for Leeds, East (Mr. Muclie) that I, indeed, warmly welcome the Budget. I congratulate him, because, of the many hon. Members to whom I have listened, he seemed to be the only one who had the vaguest grasp of what the Chancellor had achieved and was planning to do. It was a shame that, thereafter, he proceeded to spoil all that knowledge by going back down the old-fashioned line of all the old socialists by suggesting increasing public expenditure—not recognising that the key to this Budget is, in fact, our success in controlling public expenditure, which will mean that the economy will grow and be infinitely stronger than it has been. I will not go into the arguments of the past 15 years.
The other thing that amazed me while listening to the speeches of Labour Members was that they never appeared to move past last year's Budget. No Opposition Member grasped what we were saying today. No one had any feel for the achievements created by last year's Budget which have allowed us to build on that for the coming year. In that respect, I warmly congratulate the Chancellor on the help that he is giving to small businesses and people in long-term unemployment.
Persuading people of the value of the sound money that we now have will be a lengthy process. I am reminded of "The Forsyte Saga" and Old Jolyon complaining about 5 per cent. on consuls. That was about the last time that we could rely on sound money for any great length of time. Sound money brings with it a completely different attitude to spending and saving. It provides a much stronger base on which to build an economy. As a result of the many generations in respect of which we built in an inflation psychology, we must still explain to people the virtues of sound money.
The supply-side measures, which will help small businesses enormously, are too numerous and have been welcomed by too many of my colleagues for me to repeat them. However, I particularly commend the moves towards improving conditions for venture trusts. Many of us have faced business people in our constituency surgeries who were desperate to find investment of between £50,000 and £500,000. That is the missing amount of equity. The venture trusts will fill that gap very well and I am pleased that the Chancellor has gone down that road, particularly by encouraging business angels.
It is also helpful that the Chancellor is moving the thinking in insolvency business from loan debt to equity as a way of stabilising businesses. The more we can encourage businesses to concentrate on equity as a means of investment, the more we will be able to get away from the debilitating reliance on overdrafts which has caused so many problems in recent years.
1173 I very much welcome the simplification of the loan guarantee scheme, which has been a nightmare. It was very difficult for businesses to benefit from that scheme. Businesses will also be grateful for the changes in PAYE and national insurance payments from a monthly to a quarterly basis, for annual VAT returns and for the changes in the uniform business rate, quite apart from the pleasure—we hope—of getting the Inland Revenue, Customs and Excise and the Contributions Agency working together instead of, as so often happens, against each other.
An area of immense hope for the south-east in particular was the change in the emphasis on roads building. The hon. Member for Sunderland, North (Mr. Etherington) told us of the problems that he faces when he drives down from the north-east to London. He probably completes that journey marginally quicker than. I travel down to Hastings. I do not want to repeat a very old argument, but we have a great need for better infrastructure and better roads. If the Department of Transport begins to move towards investment in smaller projects in respect of which accidents and congestion are the criteria, I would welcome that for my constituency.
The subject that I would like to talk about at great length is that of smuggling. Coming from the constituency of Hastings and Rye, which has been historically notorious for smuggling, I am conscious that the re-emergence of the problem is causing tremendous difficulty, not just in the south-east but throughout the country.
Although the actual evidence is difficult to find, I have anecdotal evidence—many of the representations from Customs and Excise to the Treasury and Civil Service Select Committee back this up—that the areas around ports, the big cities and, increasingly, the smaller towns are being affected by the ease with which one can buy smuggled alcohol and tobacco. A constituent told me of buying from a tobacco kiosk in central London a packet of cigarettes which came without polythene wrapping and without a health warning, indicating clearly that it was smuggled tobacco. It was not even sold by the back door; it was on sale to the public in the centre of London.
The proprietors of every pub, restaurant and cafe and every tobacconist in my constituency say that someone has knocked on their back door and offered them cheap alcohol and tobacco. Local tobacconists tell me— this is borne out by figures from Rizla, which is the principal supplier of paper for hand-rolled tobacco— that sales of tobacco paper have shot up, while sales of tobacco have disappeared. Rizla says that, while there has been an 11 per cent. decline in hand rolling tobacco sales, its sales have increased by 16 per cent. over the past five years. That is an indication of the scale of hand rolling tobacco imports.
Tesco has produced evidence to show that Kent, London, Anglia, south-western Wales, the midlands and Yorkshire— the geography is interesting— have been affected by a loss of beer sales. It is accepted that there has been a long-term decline in the sale of many alcohol and tobacco products, but the scale of that decline is quite dramatic.
1174 I personally abhor tobacco. I am not a smoker and I would not do anything to encourage the industry. I have always believed that there should be a very high tax on tobacco. However, as I come from an area where smuggling was prevalent in the 17th, 18th and 19th centuries, I have done some research into how smuggling came to an end in that part of the world.
While prevention played a part, the history of the end of smuggling was tied entirely to a reduction in duty. In 1745, the duty on tea was four shillings per pound and the product was smuggled heavily. When Lord Pelham reduced the duty to one shilling per pound, the trade disappeared. I wish to quote from a very useful book entitled "The Smugglers", which says:When commodities in great demand with all classes were weighted with duties so heavy that few persons could afford to purchase those that had passed through His Majesty's custom-houses, two things might have been foreseen: that the regularised imports would, under the most favourable circumstances, inevitably decrease; and that the smuggling which had already been notoriously increasing by leaps and bounds for a century past would be still further encouraged to supply those articles at a cheap rate, which the Government's policy had rendered unattainable by the majority of people".I would not for a moment say that we cannot afford to buy alcohol and tobacco, but when products are offered at a fraction of the price at which they appear on our shop shelves it is very tempting to buy them.
I turn to the cost of prevention. In the 18th century, the cost of prevention was considerably more than the cost of the articles that were recovered. The answer that I received to my parliamentary question on the subject said that approximately 240 staff— most of them excise verification officers— are employed in the area of prevention. Their annual employment costs are about £30,000, which makes a total of £7.2 million. The revenue value of seized goods in the 20 months to August 1994 was approximately £4 million. It seems to me that, yet again, prevention is not working and we need to consider very closely how we will deal with the excise case. I accept, of course, that we cannot and would not wish to reduce excise duty in the Budget; that would be most inappropriate. However, we cannot rely on our European Community partners raising their duties to our level. We need to make the practice unprofitable. I hope that, in the long run, the Treasury will deal not with the harmonisation but with the closeness of excise duties so that the problems of smuggling can be brought to an end.
It being Ten o'clock, the debate stood adjourned.
Debate to be resumed tomorrow.