§ Mr. Gordon Brown (Dunfermline, East)Yesterday, in what has become known as the VAT-on-fuel Budget, the Chancellor confirmed his plan to double VAT on fuel in April. That plan will mean an average 10 per cent. rise in fuel bills and it will hit the housebound, the old and the disabled. In total, the plan will mean £2 a week on pensioners' fuel bills.
The VAT rise is unfair, unacceptable and totally wrong. Hon. Members' first response to the Budget is that the Chancellor should think again. If he will not think again, the House should force him to do so. I believe that a majority of hon. Members wish to stop the increase to 17.5 per cent and that that majority should be allowed to express itself. The Government should be ashamed of the fact that they told the electorate that they would not impose VAT on fuel and are now determined to impose it at 17.5 per cent. from April.
Why are Ministers so out of touch with public opinion that they think that they can get away with breaking election promises on VAT? Why are they so out of touch that they think that they can fob off millions of pensioners with a grossly inadequate compensation scheme? The Conservative party is so much the party of privilege that the Government are prepared to tax pensioners in poverty for their fuel while refusing to tax millionaire directors of privatised utilities on their executive share options—even when Conservative Members advise them that the system is indefensible.
Why is the Conservative party so much the party of the boardroom rather than the party of the people? The Government charge pensioners £2 a week more by way of VAT even as they refuse to criticise a £200,000-a-year rise for the chairman of British Gas. How do the Government think that they can ever soften the blow with the Chancellor's announcement of £1 a week more under 1226 the cold weather compensation scheme? Do they think that that is in any way adequate compensation for the anger and sense of betrayal felt by British people?
The scheme excludes 8.75 million pensioners from even the ability to claim. It is available only to pensioners who are on income support, and normally for only two or three weeks in the year. It is available only if temperatures fall below zero for seven days a week. Six days of freezing weather are not enough: a pensioner ends up with no help at all. The scheme demands that, in addition to being old, one must also be penniless and freezing before a penny can be claimed. Kafka would have been proud to invent that scheme. For British pensioners it is cold comfort indeed. Pensioners cannot heat their homes with false Government promises.
Why did the Chancellor not tackle the taxation of private medical insurance, executive share options, inheritance tax abuses and offshore trusts before contemplating his tax offensive on pensioners? He is so out of touch with public opinion that he is not a reluctant convert to VAT on fuel: he is, unfortunately, an enthusiastic advocate of it. Far from wanting to leave VAT at 8 per cent. next year, he wanted it to be 17.5 per cent. this year.
The Chancellor is so out of touch that he favours in principle putting VAT on books and newspapers as well. He has voted in the House for VAT on children's clothes and has already told us that not putting it on food and transport is an anomaly. A few months ago he was unable to deny the letter that he wrote to a constituent in which he said that he had always thought that in this country we exempt too many goods and services from VAT.
The Chancellor has a dependency on VAT and he moves from one VAT high to another. He cannot explain his craving for it and under pressure he seeks to deny it, particularly at election times. But like any addict he keeps coming back to it. There is no hope for this man other than to be completely removed from the temptation by an enforced period of abstinence—by a period of years in opposition.
The Government are out of touch in what they say about VAT, and they are out of touch in talking about tax cuts when everybody knows that they are imposing tax rises. They are out of touch with the effects that their economic policies have had on millions of British people. But I do not need to explain the impact on people. John Maples, who is a vice-chairman of the Conservative party, stated last week in his memorandum to the Prime Minister that living standards would fall again in 1995 and 1996. He went on:
We have to see this rise in living standards soon or we will have had four or even five years of recovery with no rise in Lying standards.Mr. Maples is fearful that under this Government we could move from recession to recession without an intervening period of prosperity for millions of people. In offering his advice to the Government, he says that there will be no prosperity this year or next.Many companies are going out of business, and that has been the experience under Conservative Governments not just since 1979 but since 1970. The effect on British industry can be summed up by saying that there have been four recessions and that thousands of companies have been buried. The damage to manufacturing is great because of the third of manufacturing jobs that have been lost.
What about the effect on living standards of the Budgets that the Chancellor and his predecessors have introduced? There have been seven tax rises in six 1227 months. Mortgage tax relief has been cut even as mortgages are rising, costing the average family £122 a year. The married couple's allowance has been cut, costing the typical family £96 a year. There is a new tax on household insurance of £7 and on car insurance of £10, VAT on fuel and an airport tax which will amount to another £10 for the typical family.
Take the case of the widow already hit by VAT on fuel, hit by the insurance tax for her home, then hit by cuts in mortgage tax relief if she owns her own home. In April, she will be hit yet again by cuts in the widow's tax allowances. Before this year she started to pay tax at £99 a week. From April, shamefully, she will start paying tax at only £93 a week. The Government have taken the widow's mite yet they ask us to believe that the Conservatives are the party of low taxation.
We have had the biggest tax rise in history—20 tax rises in two years. We have had tax rises amounting to £500 last year and £350 in the year to come. I tell Conservative Members that the total cumulative tax increase under Conservative Government since the election, as recorded in the Red Book yesterday, amounts to extra taxes not of £1 billion, £2 billion or £3 billion but of £50 billion by 1997.
At the last election, Conservative Members said that to pay for public spending plans, Labour would take more than £30 billion in taxes. The Conservatives have taken £50 billion in taxes because of their economic failure. What do they say now, after the biggest tax rise in history? Unable to say that they are cutting tax; with no record of achieving cuts in tax; with tax higher now than it was in 1979; with no specific Budget proposals to cut tax for millions of people who are hard hit because, for most of them, taxes are to rise; with the Chancellor unable even to repeat in his Budget the promise that the Conservatives are the low-tax party—as he used to say—in the medium term, because the Budget statement shows taxes continuing to rise, what do they say now? Yesterday the Chancellor said:
Conservative Members are tax cutters by instinct."—[Official Report, 29 November 1994; Vol. 250, c. 1102.]Having been betrayed on action over promises, we are now asked to believe that we should trust the Government's instincts on tax. When we cannot believe what they do or what they say, we are asked somehow to believe in their instinct.The Chancellor had chances in the Budget. He had a reduced public sector borrowing requirement. He had the option of taxing executive share options. He had the option of cutting public spending on private medical insurance. He had the option of cutting into waste. But his instinct was clear. His instinct was not to cut tax for millions of pensioners, but to raise it from 8 per cent. to 17.5 per cent. That was his instinct—not to cut taxes but to raise them for millions of people.
The Prime Minister says, in his own inimitable language, that more must be done to get back to our instinct of cutting taxes. We will treat such statements with the contempt that they deserve. So were they all men of sound instincts. After 15 years, we have a Cabinet in long retreat, from deed to intention to instinct, which cannot now talk about its achievements, only about intermittent and occasional instincts.
1228 What would the Home Secretary or the Prime Minister have said about the repeated offender asking for one more chance, on the strength of his instinct, to do better? Would the Home Secretary or the Prime Minister say, "Let us trust the instincts of these men"? Or would they not say, as they have, "We should condemn a little more and understand a little less"? The Home Secretary said, "The critics say give them chance after chance. I say, what about the victims?" In this sorry tale of repeated multiple tax offences, there are 50 million victims and 300-plus Tory Members of Parliament responsible. Again in the words of the Home Secretary, "We should have no truck with trendy theories on this. Those who are responsible should be held to account for their actions and punished accordingly." It would take a cut of 7p on the basic rate of income tax today just to undo the damage of the tax rises that the Chancellor and his predecessor have introduced.
The Government are so out of touch with the British people that while they talk of tax cuts they are bringing in tax rises. Not only that—they try to persuade us that they have a strategy for attacking unemployment when their proposals do not even begin to measure up to the problem.
Consider what the Secretary of State for Employment called "the Budget for jobs". The community action programme was not increased, but cut from 55,000 places to 40,000 places—not doing more for the unemployed next year but doing less. The training budget was not increased but cut—not doing more but doing less. Far from investing more in helping the unemployed, the Government propose cuts in the employment budget which will mean that £500 million less—not more—is paid out next year. The claim of the Chancellor and the Secretary of State for Employment that this was a Budget for jobs is a travesty of the truth.
The main measure for the unemployed announced yesterday—the national insurance holiday for people unemployed for more than two years—is not on offer until April 1996. If a man or woman has been unemployed for two years or more, why should he or she have to wait three and a half years before the Government begin to act? If it is right to take action, why did not the Chancellor take action yesterday rather than postponing it for 16 months? But is that not typical of the Government? They have been forced by events to admit that for 16 years they have not done enough to help the long-term unemployed. They have now had to accept the principle that action must be taken to avoid the threat to social cohesion. They have adopted one, but only one, of Labour's measures in a desperate attempt to give the impression of acting. But they cannot measure up to the problem and they take another 16 months to act.
Who will benefit from the scheme? Why has the date of April 1996 been chosen? Which redundant people are likely to be calling on the services of the scheme? Conservative Members should be interested. Will Kleinwort Benson apply for a national insurance holiday if it chooses to employ the ex-Chancellor? Does the Secretary of State for Employment merit a work trial of three weeks free of charge to let, as his statement says, a future potential employer draw conclusions about his propensity to work? If the Chief Secretary were to seek employment, no doubt abroad, would the job finder's 1229 grant be enough to keep him in the style to which he would like to be accustomed? What of the great scheme called workstart?
§ Mr. John Butterfill (Bournemouth, West)I am sorry to interrupt the hon. Gentleman's jokey line, but does he think that, if we pursued the socialist policies that he would advocate in dealing with the unemployed, we would be any better off than the French or the Spanish, who have much higher rates of unemployment and rates which are rising while ours is falling? Does he not think that we have it right here and that his remedies would not work?
§ Mr. BrownThe workstart scheme is specifically designed for the hon. Gentleman. I will come to the measures that we would adopt to deal with unemployment. The workstart scheme is designed specifically to cover employer prejudice against any group of people. When the time comes, perhaps all Conservative Back Benchers will be eligible for the scheme.
Let me tell the hon. Member for Bournemouth, West (Mr. Butterfill) what we would do about unemployment. We would release the capital receipts to local authorities in a phased way and let local authorities build. The hon. Gentleman, with his expertise in these areas, should be supporting us. We would expand the small business grant scheme and let small businesses employ. We would create an environmental task force and let young people have hope again. We would give employers not £6 a week under the scheme that the Chancellor proposed but a realistic figure of £75 a week to get the long-term unemployed back to work.
§ Mr. Butterfillrose—
§ Mr. BrownI shall not give way to the hon. Gentleman again.
If the Chancellor wants to know how he can pay for the first year costs of measures that would eventually save the Exchequer money, let him look at the privatised utilities. Let him look at the £1.5 billion windfall tax allowances given to the water companies, at the allowances that he is to give to the privatised British Rail, at the £3 billion windfall from the demerger of the national grid and at the excess profits among the £45 billion that the privatised utilities have made during the recession. At a time when 1 million people under 25 are out of work and more than 1 million people have been unemployed for more than one year, it is our duty to be more ambitious in our policies to help the unemployed.
§ Mr. David Shaw (Dover)Does the hon. Gentleman accept that his proposal to tax privatised utilities would mean taxing the savings, pension funds and life assurance companies of the 16 million savers in this country who own 50 per cent. of the shares of privatised utilities? Is not the hon. Gentleman proposing the biggest theft of pension fund money since Robert Maxwell—another socialist?
§ Mr. BrownIf privatised utilities can afford to pay their chief executives salary increases of up to 75 per cent., they can afford to pay a windfall tax to the Treasury on their excessive profits. I would think more of the hon. Member for Dover (Mr. Shaw) if he sought to explain to 1230 his constituents why he has reneged on his manifesto for the last general election, which told them that there were two vital messages to remember:
David lives locally … David Shaw supports lower income tax.I gather that the hon. Gentleman has kept one of his promises, but he will pay dearly for breaking the other promise when he faces his electorate again.What of the long term for industry, skills and training, and investment? Public investment will be cut 9 per cent. next year and more the year after. The Government cannot help industry, improve skills or aid investment through the Department of Trade and Industry because they are divided from top to bottom. The industry budget was cut because the President of the Board of Trade and the Chief Secretary to the Treasury went to war over the cuts that were necessary, resulting in the budget being halved. We will soon find out whether regional incentives, support for small businesses, or research and development funding have been placed at risk as a result.
The employment budget was cut because, although the Chancellor may want to act, the Secretary of State for Employment doubts whether there should be a Department of Employment at all.
As to the review of dividends and savings, we know from press cuttings that Lord Hanson blocked the Chancellor. There is no long-term policy because the people who fund the Tory party are no longer interested in Britain's long-term prospects. The Government can do nothing for industry, employment or skills because the Conservative party is divided from top to bottom and cannot begin to agree the action to be taken—as with the Post Office. The Government have no strategy, policy, direction or leadership, and few followers.
A letter to Conservative supporters sent by Conservative Central Office states:
Dear expatriate,It is now 15 years since the general election victory in 1979.The recipient is asked to consider registering to vote at the next general election. But a problem arises in the penultimate paragraph, with which I will acquaint the House. It states:If you want to vote Conservative and do not have a relative or friend on whom you can completely rely to follow your wishes, tear off part 2 of the form and discard it, and fill in a 'Find me a proxy' request form, sending it to us. The Conservative Party will then suggest to you a reliable Conservative who will agree to be your proxy.To whom was that letter sent? Mr. Nadir in northern Cyprus and Mr. Bottna in Switzerland? Mr. Thatcher in Dallas—can he no longer trust his mother to exercise his proxy?—or Mr. Patten in Hong Kong? Is there no one on whom he can rely? The letter ends:Please be as generous as you can. It will be an investment with a real return.The Tory party is so divided that its mind is not on the Budget, the state of the economy or even solving the VAT problem but on the war raging within it.The Chancellor broke a number of other promises in yesterday's Budget. In the run-up to the general election, the Prime Minister said:
If we were going to cut public expenditure, we would have done it before, and I don't believe it is economically right … I see no reason why we should not meet our promises … We have seen these concerns in the past and it has not been necessary to change plans.1231 What has happened since the general election, and what happened yesterday?
§ Mr. ButterfillThere was a recession.
§ Mr. BrownThe one thing that we did know about was the recession, which was raging before the general election. That is hardly an excuse for not keeping public spending promises. On transport, the Conservatives said:
Over the next three years, we are committed to the biggest investment in Britain's infrastructure.The Government will slash the transport budget 30 per cent. next year and 23 per cent. in 1997–98, and will slash London Transport's spend by £40 million next year and £165 million the year after. That is what promises mean to the Conservatives. They said also:We believe that the railways can play a bigger part in responding to Britain's growing transport needs.The Budget cuts spending on the railways by £521 million.The Conservatives promised:
We will continue to give the police the support and resources they need to carry out their duties effectively on behalf of the public.The Budget will cut Home Office spending by £200 million over the next two years. All that from a Government who said that they stood by their public expenditure figures, that there would be no cuts and that such cuts were not economically necessary.After hearing today's statement by the Secretary of State for Social Security, we are clearly seeing the dismantling of vital parts of the welfare state that have been accepted by both political parties for 40 years, since the second world war. Sickness pay has been transferred to employers, there have been cuts in invalidity benefit, there will be cuts in mortgage help to the unemployed, and there will be a ceiling on help for the bereaved with funeral expenses—even when the Government are in a position to reclaim those expenses from the estate of the deceased.
Why do not the Government deal with problems of bed-and-breakfast accommodation and find a far better way of investing in this country's housing? They cut, cut and cut again. They have failed to act against offshore trusts, abuse of non-domicile and non-resident taxation facilities, privatised utilities and their tax arrangements, and abuse of corporation and capital gains tax. The Government are prepared to make the unemployed, sick, disabled and pensioners suffer instead of imposing the changes necessary for fairness in our society.
Eighteen months ago, the Chancellor made an analysis of the problems facing the Government and the country. He said:
We are in a hole. We are in a dreadful hole.He identified the problem precisely. His difficulty now is that, 18 months later, we are even further from a solution. The Chancellor identified urgent action. He said that there had to be agreement in the Conservative party, yet it is even more split than it was. The Chancellor said that a medium-term view had to be taken, and there is none. He said that there must be a sense of purpose, but where is that now? The Chancellor said that the Government must have an agenda for the next two years. They had Post Office privatisation for a day or two, but then dropped it.1232 What does the Chancellor tell us now? In an interview a few days ago he talked about what he called a "slightly hysterical political atmosphere", which is no doubt a reference to Cabinet meetings under the present Prime Minister. He said:
The key thing for the party is not to panic".There we have it—the Tory strategy is "Don't panic, don't panic," with the Chancellor as the Corporal Jones of the embattled rerun of "Dad's Army" but without any of the resolve, organisation, leadership or popularity of the original.Let us describe the Government's problem in terms that Conservative Members will understand. The Government now have all the hallmarks of a business on its last legs. As we saw in the Budget yesterday, they have no new ideas and there is no innovation from the Cabinet. Decisions are made not for the future but just to get through the day. They have lost credibility, exploited all the assets and wasted them for no long-term benefit. They have run out of credit; they are now divided and paralysed by a board that is split. They ignore all the problems and challenges facing us in the future and have ceased to operate as a viable entity—they are bankrupt in all but name. They are wasteful, divisive and incompetent; they are in need of liquidation and being wound up.
There is one final point of which the House should be aware. The Dudley by-election takes place in a few days. The Conservative manifesto in Dudley at the previous election was very clear. It rejected what the Conservatives called
the disastrous pathway of higher taxation and national insurance contributions taking money out of your earnings",but the Conservatives went on to do precisely what they had promised the electorate they would not do. The Chancellor said that promises made in Dudley do not matter. Let us remember the election manifesto—[Interruption.] Oh yes, the Chancellor not only said it in the Press Gallery but repeated it in the House. The manifesto issued at the last election contained words that will haunt the Conservative party throughout this campaign. It stated:You can depend on John Major".But the voters of Dudley will never trust the Conservative party on taxation again.The Budget is unfair. It cannot unite Britain and does nothing for Britain's long-term economic future. What people will remember above all about this Budget is that, when the Government had the opportunity to think again, they still decided to impose VAT on fuel. That is why Conservative Members should use the next few days to wrestle with their conscience. They should look again at the election manifestos that they signed and which the Conservative party issued; they should reconsider what they said immediately on the imposition of VAT some months ago and then vote with us to defeat the Government next Tuesday.
§ The Chief Secretary to the Treasury (Mr. Jonathan Aitken)This is supposed to be a debate about this year's Budget, but instead the hon. Member for Dunfermline, East (Mr. Brown) treated us to a vintage Uncle Grumpy performance, during which he complained bitterly, mainly about measures that were not in this year's Budget but in last year's.
1233 The hon. Gentleman's speech was an absolutely characteristic mixture. He could not bear to say a single good word about the excellent health and success of the British economy but indulged in ludicrous exaggeration and made uncosted public expenditure pledges, such as that in his throwaway line about the £6 billion capital receipts, which would add massively to the public sector borrowing requirement. We witnessed his over-reliance on pantomime humour and his over-confidence in his personal infallibility as a prophet of doom on the British economy.
§ Mr. Gordon BrownWill the Chief Secretary begin by apologising for breaking promises on VAT on fuel?
§ Mr. AitkenIf it comes to breaking promises, I have a rather more up-to-date example of the hon. Gentleman's own activities in that department. I was very amused when, as a rehearsal for his pantomime performance today, he became so over-confident at the weekend that he made a rather embarrassing appearance in the News of the World. There he was, on page three in a full-frontal photograph, holding up Mr. Gladstone's famous Budget Dispatch Box outside No. 11 Downing street. Someone might have warned him of the danger of such a Prince Hal-like performance, trying on a crown before he is entitled to it—it can sometimes bring bad luck because pride comes before a fall.
Even worse than the presumptuous photograph was the preposterous prediction in the opening words of the article—
§ Mr. AitkenThe hon. Gentleman says that he was not there so I am sure he will have great sympathy with me over forgeries by newspapers. If he was in a compromising position for the News of the World, he should have used the famous exit line of that newspaper and made his excuses and then left.
The hon. Gentleman is trying to get out of the embarrassing situation to which I was referring, which was the preposterous prediction in the first words of the article. They were:
Nobody should look to Kenneth Clarke for new hope for the unemployed when he presents Tuesday's Budget.As we now know, the hon. Gentleman yet again got it hopelessly wrong, because one of the most important and much-praised features of the Budget—even The Guardian praised it—was the £680 million package of measures to help the unemployed back into work. I shall say quite a bit more about that later.No one should be surprised that the hon. Gentleman got everything so wrong in the News of the World last Sunday. Whenever Uncle Grumpy talks about unemployment, he defies the law of averages and always gets it wrong. It is worth reminding the House of what he said in the debate on the spring 1993 Budget resolutions. He said:
I make one Budget forecast—that, after the Budget, unemployment will rise this month, next month and for months afterwards."—[Official Report,17 March 1993; Vol. 221, c. 289.]No sooner had the hon. Gentleman opened his mouth than unemployment fell steadily month after month. It has dropped by more than 450,000 from its peak and continues to fall at a rate of more than 1,000 a day.1234 As we have now firmly established the hon. Gentleman's credentials as an economic forecaster—he is in a rather less reliable category than the astrologer in the News of the World—we can perhaps deal with more serious matters.
§ Dr. John Reid (Motherwell, North)I know that the Chief Secretary's memory does not stretch back 15 years but I remind him that, when the Conservative party came to power, there were 340,000 long-term unemployed people; there are now more than 1 million, or three times as many. Why?
§ Mr. AitkenAs that statistic comes from a member of a party that, whenever it has been in power, has left unemployment much higher than when it took office, I do not regard it as reliable.
Instead of my following the Uncle Grumpy pantomime line, I thought that the House would expect the Chief Secretary to make a serious speech about what the Budget means to the fundamentals of our economy—[Interruption.] I know that Labour Members do not like to be told home truths or the good news about the economy, but the country at least will wish to hear the facts, seriously presented.
§ Mr. Nigel Griffiths (Edinburgh, South)If the action to help unemployed people is so important, and if the Chief Secretary and the Chancellor are so proud of it, why do we have to wait 16 months before it is implemented?
§ Mr. AitkenSome of the measures are in trial schemes that are already in place. Let us not lose sight of the fact that unemployment is coming down—by 28,000 in September, by 46,000 in October and by more than 1,000 a day. My right hon. Friend the Secretary of State for Social Security has introduced a package of measures that will accelerate that downward trend, and all credit to him. [HON. MEMBERS: "Why wait?"' Those who were listening to my right hon. Friend the Secretary of State for Social Security will know that some DSS schemes take a Little time to introduce, which is fair enough.
Let me now return to the serious speech about what the Budget means to the fundamentals of the economy, about how our policies will be seen after the Budget by international markets and about the public spending programme of priorities and reductions for the next three years.
§ Mr. Derek Enright (Hemsworth)Will the Chief Secretary please, before he leaves the subject, explain in words that even I can understand why it takes so long to put the measures in place?
§ Mr. AitkenThere are not always instant solutions to long-term problems. My right hon. and learned Friend the Chancellor's measures complement measures that are already in place. Some of the schemes, which have been piloted for some time, are now being built on and extended at considerable cost, quite rightly, to the taxpayer. This criticism of the timing is not well merited. What really matters is whether unemployment will come down, as it is coming down now, and whether it will continue to come down, which is what will happen.
I was trying to tell the House how the Budget relates to a number of important areas and, above all, how it relates to the ordinary and understandably anxious people who are having to learn to live with the consequences 1235 of a global economic environment that is in a period of astonishing change. It is not surprising that new measures on unemployment or on anything else have to be tailored to cope with a fast-changing world.
§ Mr. Clive Betts (Sheffield, Attercliffe)The Chief Secretary has drawn international comparisons. Does he accept that on every comparison—the growth of the economy, manufacturing capacity, manufacturing investment or the loss of manufacturing jobs—this country has done worse since 1979 than has every other one of the G7 countries? If he disputes that, will he give us one indicator on which we have done better than any of the other G7 countries?
§ Mr. AitkenThis is the old game of selective statistics. Let us get back to the hard facts of what is going on today. We have had two and a half years of steady growth and falling unemployment. Our economy is now growing at more than 4 per cent., easily the fastest rate of growth for any of the major economies in Europe. Underlying inflation is at 2 per cent. and my right hon. and learned Friend the Chancellor has kept inflation below 3 per cent. for more than a year. The last time we saw a performance as good as that, the hon. Member for Dunfermline, East was 13 years old. In those days, good news for Britain may have made him a great deal more cheerful than he was this afternoon.
§ Mr. Tim Sainsbury (Hove)My right hon. Friend could go further. Far from the situation being as the hon. Member for Sheffield, Attercliffe (Mr. Betts) described it, in the 1960s and the 1970s, this country finished bottom of the league of the G7 countries in productivity, exports and output growth. In the 1980s, we did not just move right up the league, but went right to the top of the G7 countries. That performance is quite contrary to the one described by the hon. Member for Attercliffe.
§ Mr. AitkenI am grateful to my right hon. Friend for reminding the House of the old terrors of a Labour Government, which were much more extensive even than those he has mentioned. The average rate of inflation, for example, during Labour's years of power was 15 per cent.; today, we have inflation at 2 per cent. The Chancellor has kept it below 3 per cent. for more than a year, as I have just said.
Let us give credit today to the remarkable performance of Britain's companies, which are creating a great turn-around in our national trading performance. Today, our visible exports are at record levels, with a growing contribution of invisible exports. My right hon. and learned Friend the Chancellor forecasts that our balance of payments on the current account will improve by about £7 billion this year overall. In fact, some independent forecasters are going further and saying that next year we shall actually be in trade surplus. After all those locust years of Labour, in which we had huge trade deficits, this turn-around in our economic performance deserves some congratulation.
§ Mr. AitkenI will take one more intervention and then I must get on.
§ Mr. Campbell-SavoursAre the growth assumptions on which the public sector borrowing requirement for 1236 1997–98 calculations are made the same as the growth assumptions on which our contributions to the European Community are made?
§ Mr. AitkenI am sure that the Treasury is consistent in these forecasts and I have no reason to think otherwise.
§ Mr. Denzil Davies (Llanelli)rose—
§ Mr. AitkenI shall take one last intervention and then I shall say something about interruptions.
§ Mr. DaviesThe right hon. Gentleman mentioned the current account and the balance of payments. I do not have the Red Book in front of me, but I seem to remember that for the non-oil visible account, the forecasts show deficits of about £12 billion for the next three years. How does that accord with the great manufacturing upsurge about which the Chancellor spoke yesterday?
§ Mr. AitkenI will send the right hon. Member a copy of the lecture I gave only two nights ago on Britain's trade performance. It shows how well we are doing in both the invisible sectors and the non-oil sectors. We are having a success in exports which we have not seen in the country's recent history.
I have now been interrupted about seven times in 10 minutes. In the speech made by my right hon. and learned Friend the Chancellor yesterday, the shadow Chancellor, the hon. Member for Dunfermline, East, interrupted seven times and was like a jack-in-the-box on pep pills. I draw the attention of the House to a thought from the Father of the House, my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath). We should reflect on what he said if we are to be a serious debating Chamber. He said:
We sit in the Chamber, and we jump up constantly. Nobody on the Front Bench can any longer deliver a speech, as there are an enormous number of interventions. Hon. Members who intervene are not trying to find a solution, but are trying to find some way of knocking the other chap down … I hope, therefore, that we can perhaps give some thought to the way in which we behave in the Chamber. People want to hear what ideas we have".—[Official Report, 23 November 1994; Vol. 250, c. 637.]
§ Mr. Gordon BrownWill the Chief Secretary now take this opportunity to condemn Mr. John Maples and his memorandum, which suggested that Conservative Members should shout down the Labour leader?
§ Mr. AitkenI do not agree with everything that every private memorandum says. If I were the hon. Member for Dunfermline, East, I would be a little quieter than he has been. The Maples memorandum, warts and all, was at least written in English whereas the Balls memorandum, on which the hon. Gentleman based a major speech, was incomprehensible and was written in jargon, such as endogenous growth zones, which needed a translator. The hon. Gentleman's intervention shows only that he does not want to listen to serious debate and serious argument. He was not in the endogenous zone, but in the dodgy zone. This afternoon, he dodged all mention of the public sector borrowing requirement and certain key features.
There are two important things about the Budget. First, it enhanced our international competitiveness. We are determined to stick to our supply-side reforms. No social chapter, no minimum wage legislation and no interfering socialist quangos of the kind that spew out from the Labour party with great regularity will destroy jobs or 1237 scare away the great inward investment surge which is coming into this country as long as this Government are in power.
Secondly, the key element in our approach is the commitment to sound public finances. I sometimes think that the Labour party does not even understand what the term means; it thinks only in terms of soundbite public finances. We want none of the pantomime sideshows in which more public expenditure can be promised without any payment from the taxpayer and in which it is assumed that full employment can be produced by the wave of a wand—[Interruption.] My right hon. and learned Friend the Chancellor—[Interruption.]
§ Madam Deputy Speaker (Dame Janet Fookes)Order. The House knows my views on seated interventions. My view is even stronger on what I call a seated running commentary.
§ Mr. AitkenI am grateful to you, Madam Deputy Speaker. I appealed to the wise words of the Father of the House because the country sometimes wants to listen to serious arguments and serious speeches.
I was making the point that my right hon. and learned Friend the Chancellor lives in the real economic world. He has set out a sensible Budget to reduce our debt. Some of the things that the hon. Member for Dunfermline, East advocated this afternoon would simply increase our debts automatically. He needs, of course, to ensure that our standing in the international markets of the world is maintained because that is important in terms of judgments on our interest rates and our currency rates.
Last year, the Government borrowed more than £45 billion, or 7 per cent. of gross domestic product. This year, on the revised forecasts in my right hon. and learned Friend's Budget, we are set to borrow £34.5 billion, which is more than £25 a week of borrowing for every household, or 5 per cent. of GDP. We forecast for next year a PSBR of £21.5 billion, or 3 per cent. of GDP. That means that in two years of steadfast policies, we shall have more than halved our borrowing, and that is real progress.
Even at those levels of borrowing, no prudent domestic or international observer of the British economy should have expected to see tax cuts in this Budget. My right hon. and learned Friend was absolutely right to signal that clearly some months ago because in the real world, where sound public finances are the litmus test by which a nation's economic status is judged, it is far more important for the British Chancellor of the Exchequer to be right than to be popular. That is why he has not played to the gallery or taken any fast and loose risks with the British economy and premature tax cutting.
The hon. Member for Dunfermline, East did his best to reopen last year's Budget by concentrating on VAT on fuel. While we are on the subject, I should refer to tax cuts because I know that the Labour party has tabled a procedural amendment to seek to reopen the debate on the second tranche. Indeed, it is getting so desperate in its quest for support that its finance Whip, the hon. Member for Ashfield (Mr. Hoon), is sending unsolicited mail to Conservative Members asking whether they will join the Labour party in the Lobby. I think that the hon. Member for Dunfermline, East, who likes to make noises about the Maples memorandum, should be a little careful about the 1238 Hoon memorandum and the Balls memorandum. He seems to have more skeletons in the cupboard than we have.
The amendment tabled by the Opposition is entitled "Amendment of the law"—an appropriate title, since Parliament has now approved this tax in both its stages and four votes by clear majorities. The procedural amendment is an opportunistic wheeze, but the Opposition spokesman who appeared on "Newsnight" last night did not seem to know whether he wanted to repeal one stage of VAT on fuel or not—a sort of half-pregnant position.
The one thing that the Labour party does know is that to proceed with its procedural machinations, it has to ensnare the support of at least a dozen or so of my hon. Friends—hence the Ashfield or Hoon letter, which tries to wheedle my hon. Friends into the Lobby on Labour's side.
§ Mr. Phil Gallie (Ayr)Will my right hon. Friend note that not only the hon. Member for Ashfield but the shadow Chief Secretary to the Treasury, the hon. Member for Oxford, East (Mr. Smith), seems to be sending letters? It seems to be a developing habit in the Labour party, and I wonder why.
§ Mr. AitkenIt is getting like St Valentine's day cards at school. One sends out messages from Cupid to people who do not know, in the hope that an arrow will strike here or there.
I should like to say a friendly word to my hon. Friend the Member for Ayr (Mr. Gallie) and to one or two others who I know have sincere reservations about the second stage of the imposition of VAT on fuel. Perhaps they may listen to me with some sympathy because, although my official title in the Government these days is Chief Secretary, for a good many of my 18 years on the Back Benches I am told that my unofficial title in the Government Whips' Office was "chief rebel".
From the vantage point of that somewhat unusual parliamentary qualification, the first point that I would like to make to some of my hon. Friends is that serious rebellions should be kept for big votes on great issues of confidence and principle. Voting with the Labour party to support opportunistic and disruptive procedural motions is a cop-out, not just from party discipline but from the Queensberry rules of rebellion. True Conservatives do not, I believe, and will not, I believe, cast their votes in this House to support Labour's procedural dirty tricks letters and department.
§ Mr. AitkenI said that I would not give way for a little while and that I would make progress.
Secondly, and perhaps more important, anyone thinking of following the siren voices of the Labour party on this matter has to come up with the answer to one vital question. If they are to support a Labour game plan to blow a £1.5 billion hole in the Budget arithmetic and damage the strategy of sound public finances that my right hon. and learned Friend Chancellor has created—at the admitted cost of doing what is right rather than what is popular—the question that they must answer is, where will Labour find the extra £1.5 billion in revenue that 1239 would be lost by not going ahead with stage two of the imposition of VAT on fuel? Will it find it by supporting increases in taxation, in which case, which taxation?
§ Mr. Winnickrose—
§ Mr. AitkenI shall give way to the hon. Gentleman, but it will be the last intervention that I shall take for some time.
§ Mr. WinnickWith regard to conscience and great issues, presumably the Chief Secretary himself was party to the Cabinet decision to exert much pressure on and, indeed, intimidate Conservative Members of Parliament to vote as the Cabinet wanted them to on Monday. Does he agree that, if there were a free vote on a motion that VAT should be applied at the full rate on domestic fuel, it would be overwhelmingly defeated? That would reflect the feeling in the country. Hardly any other issue at the moment is more unpopular than the Government's intention to impose the full rate of VAT on domestic fuel. That is why the House should be given an opportunity to reflect the opinion of the people.
§ Mr. AitkenThe hon. Gentleman made a speech rather than an intervention, but I shall briefly try to respond. I utterly reject his charges of intimidation by the Cabinet. We thought that it was absolutely right for last Monday's vote to be a confidence issue because it was an international obligation into which we had entered freely and because we should stick to our word, as Britain always should in international matters.
The hon. Gentleman's second point about free votes is a case of the pot calling the kettle black. If we had had a free vote on Monday night, the Labour party and the Liberal Democrats, who have supported the financing of the European Community and the Edinburgh agreement, would have been in the Lobby with the Government—so much for free voting. We do not want too much hypocrisy and humbug on that matter.
I shall return to the serious question of thinking, as some of my hon. Friends are, of blowing a hole in the Budget arithmetic with a reversal of stage two on fuel. Where would the £1.5 billion be found—by increasing taxation, and, if so, which taxes? Or would it be found by cutting spending, in which case, which public spending? Those questions will have to be answered.
§ Mr. AitkenI said that I was not giving way any more.
§ Mr. StevensonGive us the answer.
§ Mr. AitkenI am going to give the answer. They are serious questions, but one of the reasons why I will not give way to the hon. Gentleman is that his party has already answered them, but in the most frivolous and lightweight of ways.
In his so-called shadow Budget last week, the hon. Member for Dunfermline, East proposed one of his many pantomime solutions: that all Labour's extra spending plans, as well as the plan to drop VAT on fuel, could be paid for by new taxes on what he calls loopholes and windfalls. If the legendary Canon Spooner were still alive and were to describe those two new Labour taxes as loopfalls and windholes, he would be no more credible or 1240 incredible than the shadow Chancellor. Whatever terminology is used, those two proposals are simply not serious or workable measures for raising that taxation.
§ Mr. StevensonWill the right hon. Gentleman give way?
§ Mr. AitkenNo, I said that I would not give way.
Labour's proposed new windfall tax would be a tax not on windfalls, as my hon. Friend the Member for Dover (Mr. Shaw) has pointed out several times, but on the earnings of certain utility companies, which are already paying £2 billion a year in corporation tax. They pay those earnings out as dividends to shareholders such as pension funds, which are in turn paying them out as taxed income to occupational pensioners. It would also be a tax on the investment programmes that those companies undertake, such as new telephone lines for BT, or new gasfields and gas pipelines for British Gas. In effect, the windfall tax would be an extra tax on investment, an increase in corporation tax and some form of double taxation on pensioners and shareholders. It would hit all customers by undermining quality of service, raising prices, or both. So much for the windfall tax.
The loopholes that the hon. Gentleman talks about, at least on the scale that he is thinking of, simply do not exist. Of course there are loopholes in the tax system. The Inland Revenue tries to find them every year and my right hon. and learned Friend the Chancellor has closed some down in this Budget, as Chancellors of all parties do every year. However, the bonanza of which the hon. Gentleman is dreaming is simply a fantasy. Some of these loopholes are, in fact, tax reliefs designed to encourage businesses to invest and create wealth. Labour would not be closing loopholes, but closing business. Do not take my word for that. Howard Davies of the CBI said that Labour is proposing
a massive increase in business taxation.So, whether we are in the world of Canon Brown or Gordon Spooner, those phoney taxes do not add up or make sense as a fiscal panacea to pay for VAT on fuel. My advice to the hon. Gentleman, if he has loop-fallen into a windhole, is to stop digging and, instead, come clean with the British electorate about how he will really pay for Labour's expensive and ever-expanding high public spending programme, including the cancellation of the second stage of VAT on fuel.
§ Mr. WallaceThe right hon. Gentleman said that if we were not to increase VAT on fuel to 17.5 per cent., it would blow a hole in the Government's public finances, yet his right hon. and learned Friend the Chancellor has accepted that, at some stage, he would like to cut taxation. At that stage, would it be a priority to reduce VAT on domestic fuel or to seek cuts in direct taxation?
§ Mr. AitkenI cannot anticipate my right hon. and learned Friend the Chancellor's next or future Budgets. He will cut taxes, in whatever direction, only when it is prudent to do so. It is certainly not prudent to do that with public finances recovering as they are and with the present high level of borrowing. All the Labour party wants to do is to add to borrowing, which is about the most irresponsible of policies that anyone can think of.
I want now to consider the important subject of the Government's public spending programme. In parenthesis, may I say, in this age of leaks and leaked 1241 memoranda, that this year's public spending round and the public spending totals that it produced were, on the whole, remarkably leak-free? Virtually no commentator envisaged that what we would achieve were reductions in public spending that would total £28 billion over the next three years, with £24 billion off the control total. The ratio of public spending to GDP is projected to fall from 43.5 per cent. this year to 41 per cent. by 1997–98.
There have been no quick fixes or conjuring tricks. There are genuine reductions in our previous spending plans across virtually all Departments. They show the strength of the new arrangements for determining public spending created by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), to whom I pay tribute for that innovation.
§ Mr. David Nicholson (Taunton)May I take this opportunity to compliment my right hon. Friend the Chief Secretary on the same skill and achievement in handling this year's public spending round that he showed when he was at the Ministry of Defence in handling the successful "Front Line First" exercise? In particular, may I thank him and the Chancellor for listening to the representations that a number of my hon. Friends and I made, and in particular my right hon. Friend the Minister for Agriculture, Fisheries and Food, for not cutting the hill livestock compensatory allowance this year?
§ Mr. AitkenI am grateful for my hon. Friend's very kind remarks. I can confirm that HLCA spending will remain constant at, from memory, £105 million.
I want now to consider the way in which we have been guided in the public spending round. We have been helped by lower inflation and the private finance initiative. Many of the sweeping criticisms made by the hon. Member for Dunfermline, East completely missed the fact that billions of pounds—the latest estimate is £5 billion—are coming into spending on public projects through co-operation with private sources. That was a most important part of the speech by my right hon. and learned Friend the Chancellor.
I want to concentrate on the priorities in public spending and improving efficiency. One of the great divides in British politics is about priorities in public spending. That great icon of the Labour party, Nye Bevan, once said:
The language of priorities is the religion of Socialism.If Nye Bevan were around today, he would be amazed that his modern heirs and successors have become Trappist monks on the fundamental questions.On the fundamental question—is public spending too high or too low?—the hon. Member for Dunfermline, East resolutely refuses to give an answer. When my hon. Friend the Member for Chingford (Mr. Duncan Smith) asked the hon. Gentleman that question in the economic debate during the debate on the Queen's Speech, Garrulous Gordon, the great gusher of soundbites, suddenly fell silent and became Dumbstruck of Dunfermline.
However, at least one member of the shadow Treasury team was allowed briefly to escape from the Trappist nunnery to say something about priorities on public spending when she gave a long press conference. The hon. Member for Peckham (Ms Harman) introduced a bizarre new dimension to the argument by saying that the new modern Labour party would separate public spending into 1242 new categories, the first of which was rescue spending. In the language of "1066 and All That", that was a "Bad Thing". The second category was renewal spending, which was a "Good Thing".
I said that those categories were bizarre. For example, rescue spending—a "Bad Thing"—included spending on the unemployed, the poor and the police. That last line should change the slogan of the Leader of the Opposition to "tough on crime, soft on paying the bills for the crime fighters".
The row about renewal and rescue spending was quite enough to set the brothers and sisters of old Labour at the throats of the new yuppie Islington economists, because old Labour finds it very hard to see how lower rescue spending on the poor and the unemployed can possibly be reconciled with the Labour party's long-standing commitment to high welfare state spending.
I do not want to intrude too much on private grief in that respect, because I candidly admit that we Conservatives, ever since the time of Disraeli, have also been trying to identify and deliver the right priorities in public spending. From time to time, we have not been entirely averse to borrowing good ideas from Opposition parties. I offer a quotation from Disraeli to illustrate my point. He said that we
caught the Whigs bathing, and walked away with their clothes. We left them in the full enjoyment of their Liberal position while we are the strict Conservatives of their garments.There is an echo of that in the spending round today. It would perhaps be a little unchivalrous of me to use Dizzy's quotation while the hon. Member for Peckham was still up to her neck in the muddied waters of Labour's confused thinking on public expenditure priorities, but now she has moved on to higher ground I can certainly tell the remaining members of the shadow Treasury team that public expenditure is now running in a sound and Conservative direction.While we have reduced the public spending totals by £28 billion over the next three years, we have also given priority to several key areas, of which I want to highlight two or three, and some of which Labour likes to treat as its own private fiefdoms. For example, with regard to health, we now plan to spend £1.3 billion more in 1995–96 than this year on the national health service. That is an increase of 1 per cent. in real terms over and above this year's 3.75 per cent. growth in real terms. That demonstrates once more this Government's commitment to improving the NHS. By next year, spending will be 70 per cent. higher in real terms than in 1979—an extra £12.5 billion at today's prices.
When asked, the Labour party is quite unable to say whether it would spend more or less public money on health. Perhaps Dumbstruck of Dunfermline needs a course of speech therapy at his local NHS hospital and I am sure that he would receive very good treatment there.
My right hon. and learned Friend the Chancellor also introduced an imaginative and far-reaching package of new spending to help the unemployed. The national insurance contribution changes will make a significant difference to those who benefit from them. It was interesting that the Leader of the Opposition could find nothing to criticise yesterday among our plans to help the unemployed.
I recognise that if we are to have priority areas of public spending, some programmes must be trimmed. Perhaps the most interesting aspect of the public spending round 1243 that we have just been through is the quiet revolution that we have initiated in that unglamorous area of public spending—administrative efficiency, cost reductions and improving the output of public services without a commensurate increase in the input of taxpayers' money.
Soon after I arrived at the Treasury, I was rather startled to discover that the running costs of Whitehall were £15 billion a year. That is approximately £13 a week in taxation for every household in the land. We have been tough on those plans. The new plans announced in yesterday's Budget represent a 10 per cent. reduction in real terms over three years in the cost of running central Government. Despite increasing work loads, for example in social security, that is quite an achievement. The public sector is increasing its efficiency while continuing to deliver high-quality services to the taxpayer.
The size of the civil service is falling. There are 10,000 fewer civil servants now than in April, and the numbers have fallen by 40,000 since the last election. The civil service is now at its smallest since Neville Chamberlain was in power in 1939, and the plans introduced in the Budget will ensure that that trend continues.
Service to the public is our priority, but we can still serve the public's needs without having to squeeze their pockets. In each area of government, that involves asking questions to ensure that we are doing the right things and doing them as efficiently as we can. That is why we started the programme of fundamental expenditure reviews in each Department. They are improving the cost-effective delivery of front-line services on all fronts. The Ministry of Defence defence cost study, to which my hon. Friend the Member for Taunton (Mr. Nicholson) was kind enough to refer, produced annual savings of £750 million and enhanced operational capability.
That trend continues. The NHS will reduce central bureaucracy by 21 per cent. The Department of Transport is increasing efficiency by a fifth and the Treasury is consulting on the recommendations of its fundamental review, which could lead to savings in senior posts of more than a quarter while improving its performance as an Economics Ministry.
A new round of reviews is now starting that will include reviews into spending on agriculture, the environmental programmes of the Department of the Environment, on the Department of National Heritage and on the Office of Public Service and Science. All those rather unglamorous reforms are, nevertheless, fundamental to our target of keeping the costs of Government under control and reducing the public sector borrowing requirement.
Of course I recognise that a Budget, the centrepiece of which is its success in reducing public spending totals by £28 billion, is hardly likely to be greeted with immediate celebrations or dancing in the streets, but let me say a word about the so-called feel-good factor—a phrase much beloved of journalists, but which does not exactly resonate around the hearths and homes of Britain at the present time. Indeed, I have some doubt whether it is within the power of politicians to make people suddenly feel good. Certainly, in the pubs of Ramsgate in my constituency, nobody raises his glass and says, "Oh, I see that GDP growth has now reached 4.2 per cent.—cheers!" or, "I see that manufacturing production is now up by 6 per cent. this year. I feel good; I'll have another half." Human 1244 nature simply does not work like that. People feel good because of much deeper and more personal factors in their lives.
I was rather struck by speeches in the economic debate on Wednesday and by the words of my right hon. Friend the Member for Old Bexley and Sidcup, whose thoughts were also echoed by my hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd)—I hope that I can still call him my hon. Friend, despite his newly independent status. In their different ways, my right hon. and hon. Friends made a point that the Government have not missed—that we are living through a revolution of changing expectations, in which many of the old economic certainties of life are vanishing.
People are having to adjust to uncomfortable changes such as the loss of expectation of lifelong employment in any one job. Quite naturally, they are worried about their employment prospects, their debts and their pensions, even when national economic statistics are cheerful. We should sympathise with such feelings and respond wisely to them, because man certainly cannot live by economic data alone.
There are difficulties, too, in adjusting to what might be called the problems of success—the new world of low inflation that my right hon. and learned Friend the Chancellor has created, for that, too, means a shift in expectations, particularly for those who lived through the fool's paradises of artificial booms followed by all too real busts. My right hon. and learned Friend has shown consistently in the Budget and in his many speeches that he is absolutely determined to avoid the phenomenon by his steady steering for a low-inflation and real-growth course.
I believe that, sooner or later, the electorate will see what many commentators have already seen—that my right hon. and learned Friend's Budget responds to the anxiety and insecurity factors that I have mentioned, because it is a courageous, cautious and correct Budget. People who do not relate now to a good economic statistic such as the current 10 per cent. annual growth in exports might start to feel rather less anxious when the firm or factory in which they work starts to increase its production because it wins a big export order.
That is happening throughout the country because of Britain's spectacular success in the export sector. The people who are not rejoicing now about 2 per cent. inflation might start to recognise their better fortune when their pension or weekly wage holds its value and buys the same amount of goods in the shops month after month because prices are not rising, as a result of my right hon. and learned Friend's determination to keep inflation down.
Let us consider another category of people for whom the Budget might start to ease anxiety and insecurity factors—the unemployed. Let me again repeat the good news, which the Opposition Treasury team cannot bear to hear. Unemployment has been falling for nearly two years. The level is 450,000 lower than its peak. During the past few months, more than 1,000 people per day have been coming off the unemployment register.Incidentally, that is good news for public spending, too. Every 100,000 people who come off the unemployment count save the public purse £365 million a year.
1245 We want to see more and more unemployed people going back into work, so we have been listening carefully to what unemployed people tell us are the main things that make them hesitate in deciding whether to take work if a job is on offer. Unemployed people tell us that the three things that make them hesitate are insecurity about how to manage between leaving benefit and receiving the first wage, uncertainty about being able to meet the rent and uncertainty about whether they really are better off in work or on benefit.
My right hon. and learned Friend's package has tackled all three issues in an imaginative way. It builds substantially on all the work that the Department of Social Security and the Department of Employment have been doing to encourage unemployed people effectively to search for jobs and to keep in touch with the marketplace. My right hon. and learned Friend's work incentives package includes substantial measures targeted at precisely the very obstacles and barriers that I have mentioned, which hinder unemployed people in taking up jobs, and the lack of incentives or reward for working harder or for working longer hours.
The package provides especially powerful incentives for employers to take on unemployed people, particularly those who have been out of work for long spells and who might have lost confidence in their ability to hold down a job. Those people need extra assistance and encouragement, and that is what we have provided them with.
My right hon. and learned Friend's package proves that, above all, the Government listen carefully to what the unemployed tell us are their real problems. Those problems have been addressed positively and imaginatively, with a large package of small, tightly targeted, relevant work-incentive reforms.
When we consider the great sweep of the Budget, with its emphasis on sound public finance and on maintaining credibility in international markets, the public spending totals and the effect on the lives of ordinary people, it is greatly to the credit of my right hon. and learned Friend the Chancellor that he has introduced an austere, prudent, responsible and, already, well-respected Budget. He has certainly not taken the soft and easy pathways of personal and political popularity. Perhaps in footwear terms he is thinking of exchanging his famous Hush Puppies for some long-distance walking boots, for he has embarked on a long, steady, strategic march, the results of which will take time to achieve. If the results could be achieved by an overnight miracle, we would be back in boom and bust territory.
§ Mr. Ken Livingstone (Brent, East)Will the right hon. Gentleman give way?
§ Mr. AitkenNo, I will not give way.
Good management of the economy requires not only resolution from the Chancellor but some patience and resolution from our own supporters, particularly when we are only just past the halfway mark in the life of this Parliament. Sometimes, I think that the patience of politics is better understood by the electorate than by journalists and politicians who work in the fevered hothouse atmosphere of Westminster. My right hon. Friend the Prime Minister made a good point recently, when he highlighted the yawning gulf between the 1,000 1246 or so active politicians and their media camp followers and the rest of the 50 million or so who are our fellow countrymen.
Britain gives its judgments slowly and thoughtfully, and certainly on a different time scale from that of the shadow Chancellor, a man whose vision is limited to tomorrow's headlines or to tomorrow morning's "Today" programme soundbite. By contrast—it is well recognised by today's media—my right hon. and learned Friend the Chancellor, who is variously described as cool Clarke, cautious Clarke, calm Clarke and canny Clarke, has a much longer, more profound and more substantial agenda.
The Guardian, which is not always my favourite newspaper, got it right when it headlined yesterday's statement as a
slow burner of a Budget".The Budget will gradually thaw out the chill winds of personal economic anxiety in the country. Its warm measures on work incentives will encourage a fall in unemployment. Above all, the Budget will stoke the fire of our already successful national economic recovery. I commend it to the House.
§ Mr. James Wallace (Orkney and Shetland)Slow burners can sometimes have the heat turned up on them later. Many of us suspect that that is what is proposed in the longer-term strategy to which the Chief Secretary to the Treasury referred. We have a Budget for the short term. The right hon. Gentleman said that the shadow Chancellor's horizons are tomorrow's newspapers, but, for the Chancellor and his team, the short term appears to be the interests of the Conservative party and the next general election.
The country needed a Budget for the longer term, to secure the long-term well-being of the economy and the growth that can last well beyond the next general election. We needed a Budget for investment in jobs and industry and for investment in our infrastructure, and in particular in the talents and skills of our people. Instead, we have a missed opportunity.
Twenty-four hours on, we have an opportunity to consider some of the fine print of the Budget and some of the accompanying departmental press statements. What dismal reading they make. Perhaps the House will recall that, yesterday, the Chancellor highlighted education as one of the priority spending sectors for the Government, with a budgeted increase of 1 per cent. in real terms next year. One then reads the press statement from the Department for Education, and, when one looks beyond next year, one finds a control total budget which, in real terms, is 1 per cent. less in 1997–98 than it is this year.
The Chancellor highlighted the Home Office budget—it has been earmarked for growth—but the true nature of the Government's approach to unacceptable crime levels can be found in the Home Office press release. 'The budgeted sum, we are told by the Secretary of State for the Home Department,
is fully sufficient to enable the present numbers of officers to be maintained across the country if chief officers … choose to do so.The significant word is "maintained". When chief constables have requested additional police officers, they have been told that, by squeezing other parts of their budget, they might just have enough to keep the numbers that they already have.1247 While the hon. Member for Taunton (Mr. Nicholson) seemed to think that it was a matter for congratulations that hill livestock compensatory allowances would not be cut in the agriculture budget, he must know that maintaining them at present levels will mean a real cut in allowances. The Government, who used rising farm incomes as an excuse to cut HLCAs in previous years, now refuse to follow the logic of their argument and increase HLCAs when farm incomes are falling. Our rural communities will have to tighten their belts even more and sustain farming and related service enterprises with reduced support in real terms.
This will impact particularly hard on the more remote communities where essential car use and haulage costs will be penalised by the imposition of higher duty on petrol and diesel, without any relief from the compensatory measures which were proposed by my right hon. and hon. Friends. In my constituency a difficult position is exacerbated by the Government's withdrawal of freight subsidies and the reduction of subsidies in the export of livestock.
The Chancellor said that more would be done in the area of health, and made the somewhat platitudinous statement that the Government would deliver even better standards of patient care. I doubt whether that will bring much comfort to the long-term frail elderly or young people with acute disabilities who are told that there is no longer any room for them in the health service and that they must place themselves in the hands of local authorities whose cash runs out halfway through the year.
With the number of health service administration staff in Scotland rising by 45 per cent. in the five years from 1988 to 1993, what guarantee do we have that additional funding will not be taken up by administrative costs?
§ Mr. ButterfillOn the point about cash running out, will the hon. Gentleman confirm that the Isle of Wight council, which is run by the Liberal Democrats, had a substantial increase in resources and still ran out of money?
§ Mr. WallaceIt ran out of money while trying to deliver a service. It was given that responsibility and it may have had an increase in resources, but quite clearly the increase was not sufficient. It has always been acknowledged that the provision of proper packages of care for individuals who are now the responsibility of local authorities is expensive. If an authority runs out of money halfway through the year, it has clearly received insufficient funding.
The press release from the Overseas Development Administration proudly proclaims that Britain's aid programme is to be increased. But when one analyses the small print, one finds that there will be a £116 million reduction in real terms between this year's estimated figure and the planned expenditure for 1997–98. At a time when the Chancellor boasts that we have easily the fastest growth rate of any of the major European economies, as a country we seem incapable of sharing any of the fruits of that increase with those who struggle to survive in the developing world.
Closer to home, the Scottish Office budget is set to fall by £590 million in real terms over the next three years. The Secretary of State for Scotland has made it clear that 1248 local authorities will bear the large burden of those cuts. Local authorities have been obliged to cut back more and more over the past 18 years. In addition to trying to contain tight budgets even more, they are being asked in the next year or two to deal with a reorganisation of local government which no one wants. They will have to undertake even more community care, and they face ever-increasing repair and maintenance bills for schools.
There is no fat left to cut away and our councils are now being asked to hack away at the backbone of local public services. That is hardly an auspicious start to the promised era of democracy, with new councils coming into being in 1996. The elections of these unitary authorities will take place next year. They may well serve a useful purpose, because the timing will not be lost on the people of Scotland, coming five days after the 17.5 per cent. VAT on domestic fuel is to take effect.
The House, through the amendments on the Order Paper, will have the opportunity next week to make the Chancellor rethink the increase in VAT on domestic fuel. My right hon. and hon. Friends will certainly take the opportunity to make him think again.
§ Mr. GallieI thank the hon. Gentleman for giving way. How can he ask the Chancellor to step back from the increase in VAT when he has demanded increases in public expenditure in many areas? It does not add up.
§ Mr. WallaceI thought that the hon. Member for Ayr wanted the Chancellor to back away from the VAT increase. The Budget measure which extended the band of the 20 per cent. income tax rate goes a long way to achieving the same result as increasing VAT to 17.5 per cent. The Chancellor should rethink his decision, and I hope that the hon. Gentleman will have the courage of his convictions and vote for the Chancellor to think again when he has the opportunity to do so next week. If the House does not vote that way, the people of Scotland have an opportunity to give their verdict on the VAT increase on 6 April next year.
§ Mr. David NicholsonI am grateful to the hon. Gentleman for giving way, as he mentioned me early in his speech. His long list of points amounts to the Liberal party trying to have it both ways as usual, but I want to probe him about petrol taxation. Is the Liberal party opposed to an increase in petrol taxation? I know that it is in favour of the expansion of public transport infrastructure, and that may be desirable, but in most rural and semi-rural areas people depend on cars to get around.
§ Mr. WallaceI am grateful to the hon. Gentleman for giving me the opportunity to comment on that. The Government have increased petrol duty without any compensation to people in rural areas who, as the hon. Gentleman says quite rightly, need to use cars and to whom cars are not a luxury.
I draw the hon. Gentleman's attention to the proposals in our alternative budget. We said that any increase in petrol duty should be accompanied by a decrease—not the increase that we have seen—in vehicle excise duty, with the biggest decreases going to those vehicles which are the most fuel efficient. A number of examples have shown that that would benefit motorists in rural areas. We acknowledge that it is a problem. We have faced up to it and we are trying to deal with it.
1249 The Conservative party used scare tactics in most rural constituencies in the run-up to the last general election by speculating as to the amount that the Liberal Democrats would increase tax on fuel. The Government have put up the tax on fuel even more than they suggested in their propaganda against us, and they have not introduced any of the compensatory measures which we have always said would be part and parcel of any increase.
The measures that the Government have introduced to compensate for the VAT on fuel are inadequate because they are calculated to help those who will have an average increase in their fuel bills. However, because it is an average, inevitably for some the burden will be above average.
That will be the case not just in Scotland—although the 1993 family expenditure survey showed that, while average weekly household expenditure on fuel, light and power was 4.8 per cent. of a family's total budget, in Scotland the figure was 5.1 per cent—but in areas such as the north-east and west midlands, Wales and Northern Ireland where the percentage was higher still. People in these areas with above-average fuel bills will continue to suffer.
The Government have asked us to accept that the most vulnerable members of our community will have to suffer because of the Government's past economic mismanagement which has led them to impose such measures. The Chief Secretary could not say what will happen in the future. If there is an opportunity to cut taxation, he would not say whether he would reduce this particularly punitive tax or whether he would take the opportunity to give a handout to those who are better off already.
The Government's short-termism is demonstrated by its cutting expenditure and obtaining revenue from measures such as the VAT on domestic fuel. They want to tax today and hand back tomorrow in the run-up to the general election. It is short-termism which makes the Budget such a wasted opportunity.
It is time that we encouraged industry to invest in the future. I accept that the Budget contains a range of measures that will particularly benefit small businesses. That is very welcome. I welcome in particular the increase in the VAT threshold. A significant measure which will be of most immediate help is the transitional rating relief which will ease the pain of revaluation for many small businesses.
When I wrote to the Secretary of State for Scotland in the summer warning him of the potential damage that the revaluation could do to small businesses, he suggested that the concerns had been overstated. However, I am pleased to see that in Scotland, as in the rest of the United Kingdom, proper attention has been given to the issue and that significant funds have been made available to cushion the impact of revaluation.
In the longer term, investment in our country's future will require both public and private investment. At a time when rail and urban networks are ill equipped to deal with a modern industrial economy, the Government are cutting their capital expenditure even further. We have heard talk in successive Budgets about public and private partnerships, which in general my right hon. and hon. Friends support. The lack of a high-speed link to the channel tunnel is not exactly a glowing testimony to the success of those projects to date.
1250 I often think that the contrast between the link between Calais and Paris and the link between Folkestone and London is a fitting example of the Government's much-vaunted policy of a two-speed Europe. Liberal Democrats believe that there is an important place for joint public-private ventures, but the Government should recognise the importance of the public sector priming the pumps.
Considering what the Chancellor said yesterday, perhaps my most doom-laden comment must be about the obvious cuts in the training budget. We are not exactly in the position that there is so much training in Britain or that we have so few people unemployed that we can afford to cut our training budget. That is particularly so when we compare what we have achieved, or not achieved, in training with what our main competitors have achieved.
The inadequacy of our training provision and achievement was well documented in the report of the Confederation of British Industry Scottish manufacturing group entitled, "Manufacturing Matters", which was published earlier this year. It pointed up the absence of any training strategy for Scotland and drew attention to the report of the Policy Studies Institute, which showed that almost half of all employees had not received any training in the previous three years.
The CBI report highlighted the low rate by employers of the promotion of vocational qualifications. Too often, employers see training as a cost rather than an investment. Yet if we are to be a competitive economy and if employees are to remain employable throughout their working life in an ever-changing global economy, training and retraining will have to become part and parcel of tomorrow's work patterns. That will require a change in attitude and culture. It is one that the Government should promote rather than stifle.
It will cost money to increase the training budget and provide incentives for training, but what is the cost today of failure in the past to invest in training? Already, at this stage of the recovery, 2.5 million people are unemployed yet industry is hitting skills shortages. The managing director of an electronics firm which I visited earlier this month in central Scotland, which has relatively high unemployment, explained to me his difficulties in finding employees who had the necessary skills for his company's work. He pointed out that the company's sister company in France received support to allow nine weeks full-time training of new employees. That is the contrast between the attitudes on different sides of the channel. That is the measure of an approach to training which is qualitatively different to ours.
Investment in training and investment in research and development are long-term projects which have a long-term payback so we find that they are off the Government's agenda. The Government have their horizon at the ballot box. Tax levels with cuts in expenditure are to be used to provide fuel for the all-too-familiar pre-election tax bribes. We should be using the opportunities and revenues created by our recovery to invest now for the future. We are paying today for yesterday's failure to invest. We shall pay tomorrow for today's failure to invest.
§ Mr. Tim Sainsbury (Hove)It is perhaps appropriate that I resume my contributions to our affairs from the 1251 Back Benches, after a short interval of 111/2 years, in an economics debate, after spending some time at the Department of Trade and Industry.
Following the hon. Member for Orkney and Shetland (Mr. Wallace) takes us from the northern extremities of our country to the south coast. The challenges that our economy faces are the same whether we are in Orkney and Shetland or Hove. Those challenges are not met by vague suggestions of more expenditure here or there or less tax here or there, which are characteristic of the speeches of not only the hon. Gentleman but of Liberal Democrat Members in general. If I may say so, my speech will move from the woolly world to the real world.
My right hon. Friend the Chief Secretary to the Treasury gave us perhaps too short a taste of his ability for knockabout stuff, but I particularly welcomed his reference to the need to enhance our competitiveness and to the long-term approach to the problems and challenges in our economy that the Budget represents, and which he reflected fully in his speech.
I should be overlooking an opportunity if I did not make some reference to the speech by the hon. Member for Dunfermline, East (Mr. Brown). When he was shadow spokesman on trade and industry, I spent some time sitting opposite him on the Front Bench. I listened carefully, as I did today, to many of his speeches. That was when I developed my admiration for his fluent style and his skill in using—and, not infrequently, abusing—statistics. Most of all, I constantly developed an amazement at the inaccuracy of his predictions. Every time that he spoke from the Opposition Dispatch Box he predicted doom, gloom and disaster for our economy.
As my right hon. Friend the Chief Secretary has already pointed out, every time—or, to be fair to the hon. Gentleman, almost every time—he was entirely wrong. He became a master at finding a cloud for every silver lining. It appears that a change of portfolio has not changed that part of his skill. His speech today, rather like the speech by the right hon. Member for Sedgefield (Mr. Blair) yesterday, put me in mind of an article in yesterday's Financial Times. The article referred to the skills of French diplomats from the Quai d'Orsay. The article said that they were particularly good
at striking rhetorical poses that bear little relation to reality".That is an admirable summary of the speeches of both the hon. Member for Dunfermline, East and the right hon. Member for Sedgefield.The hon. Member for Dunfermline, East went a little further. The article also attributed to French diplomats the skill of
holding two almost irreconcilable positions at once.We heard the hon. Member for Dunfermline, East—it is a characteristic not only of his party but of the Liberal Democrats—at the same time demand more spending practically anywhere one cared to ask and demand lower taxes.I sometimes wonder whether Opposition Members recognise any connection between taxes and spending. I have to tell them that the Government do. I welcome what my right hon. and learned Friend the Chancellor of the Exchequer was able to announce about the public sector 1252 borrowing requirement. The importance of maintaining and building on improvements in the public finance is paramount if we are to have a successful economy.
That reminds me that this is not only my first speech from the Back Benches after a short gap but almost exactly the 21st anniversary of my maiden speech, which was also in a debate on the economy. It was in fact what one could call a Budget or mini-Budget debate—the sort of debate to which we had become too accustomed under Governments of both parties, but never more often than during Lord Healey's period as Chancellor. If he did not introduce two or three Budgets a year, he was slipping. We had many of those extra debates. We unhappily became familiar with them in the 1970s.
It is generally accepted everywhere except among Opposition Members that our economy did badly compared with our main industrial competitors in the G7 during the 1960s and 1970s. We did much better in the 1980s.
§ Ms Hilary Armstrong (Durham, North-West)indicated dissent.
§ Mr. SainsburyIn view of the hon. Lady's sedentary comment, it will perhaps be instructive if I remind the House of some of the background facts and figures for 1973.
In the three years preceding the economic debate in which I first participated, the increase in the retail prices index had been 7.6 per cent. When we came to 1979, after a period of unhappy Labour government in the three years before 1979, the average increase in the RPI had been 18.8 per cent. In the three years preceding this year, the average increase was 3.7 per cent. My hon. Friends on the Treasury Bench think, as I do, that that is too high, but today it is 2.2 per cent.
Economic growth was very strong in 1973, but negative—the output of the economy declined—in four of the following nine years. The growth rate recovered to something approaching our present rate only in 1983.
I hope that the hon. Member for Durham, North-West (Ms Armstrong) accepts that productivity is a very important factor if we are going to generate wealth and jobs. In 1973, productivity in manufacturing, to which the Opposition rightly attach great importance, was only 54 per cent. of the level that we have achieved. Five years later—after five years of Labour misgovernment—it had hardly improved and had crept up to only 56 per cent. of the present level. During the 1970s, it hardly grew, but it grew strongly throughout the 1980s and I am happy to be able to say that it is still growing strongly now.
The growth in productivity contributed to unemployment. As we all know, unemployment is a problem that is common throughout the developed world, and it is much worse in most European countries. I am glad that my right hon. and learned Friend the Chancellor of the Exchequer sensibly tackled it in his Budget in two ways: first, through his detailed proposals to encourage investment in business, especially the small and medium-sized enterprises that are so important in our economy. They make an particularly vital contribution these days as so many of the larger firms assemble components and sub-assemblies produced by smaller companies. If the latter are not efficient and productive, the efficiency and productivity of the larger companies are bound to be damaged. They also contribute as 1253 innovators and companies that can respond flexibly and fast to changes in their market. Most of all, they contribute as job creators.
Another comparison with 21 years ago shows that small and medium-sized enterprises employed only 27 per cent. of the work force in manufacturing at that time. Five years later, under Labour, it had crept up to only 30 per cent., whereas it is now about 40 per cent. Those small businesses will greatly welcome the further help given to them in the Budget.
§ Mr. WallaceIs not one explanation for that increase the fact that many big businesses have been destroyed and, therefore, from sheer mathematical analysis we may deduce that more people are employed in small and medium-sized enterprises? As the right hon. Gentleman is so fond of comparisons, is he proud of the comparison that the World Economic Forum made with other countries? It found that in Britain fewer young people between the ages of 17 and 22 were in full-time education and training than in almost every other industrialised country and we came 37th out of 41 for total gross domestic investment. Is he proud of that comparison?
§ Mr. SainsburyI am very proud of the fact that, when a Conservative Government came to power in 1979, one in eight of our young people went on to higher and further education—a lower proportion than had done so in 1973—and that that it is now one in three. I am sure that the hon. Gentleman is well aware of the major steps that we have taken to improve vocational training, and I am also proud of those.
The second important way in which the Budget contributes to solving unemployment is by maintaining macro-economic stability, low inflation and low interest rates. Unless we maintain that stability, we cannot hope to achieve the investment that we all want and that is necessary to maintain and enhance the competitiveness of our economy and to create jobs. I know from my business experience that investment decisions, especially those involving a long time scale to fruition, are difficult to make and require difficult judgments. Invariably, they are taken in the absence of all the information that the investor would like. If they have to be taken against a background of macro-economic instability—with high and varying rates of inflation and interest rates jumping all over the place from 6 per cent. to 20 per cent. or whatever—it will make those decisions much more difficult and be much more damaging to the most important investment decisions.
We must maintain that macro-economic stability and I think that my right hon. Friend the Financial Secretary would agree that that was one of the ingredients that was missing from the otherwise successful record of the 1980s. It was the one area in which we did not achieve the necessary improvement on the dismal record of the 1970s. We now have that stability.
§ Ms ArmstrongI did not want to intervene before as I hope to have my opportunity to speak later, but the hon. Gentleman should at least try to be consistent when quoting the statistics. Is he proud of the fact that investment as a proportion of our gross domestic product is nearly 3 per cent. lower than it was in 1979? Should he not move on from some of the other statistics that he quoted and recognise that, far from everything being as 1254 good as he is trying to paint it, investment is lower than it was in that awful year of 1979 that he keeps talking about?
§ Mr. SainsburyThe hon. Lady is worried not so much about my consistency as about what she might consider to be my selectiveness when quoting the statistics, but the one to which she referred must be considered in the light of two factors. One factor that the Opposition have consistently ignored is that what matters about investment is its quality and not merely the quantity. When the private sector and private enterprises choose investment, we can be sure that it is of better quality.
§ Mr. SainsburyI shall not give way. I have not finished responding to the hon. Member for Durham, North-West.
The second factor of statistical importance is that investment must be considered in relation to the proportion of manufacturing industry in the economy and, as in all advanced economies, that has been declining. I refer the hon. Lady to an answer that I received earlier this week, however, which pointed out that, merely by transferring certain functions of industry to sub-contracted firms—whether in transport, catering, cleaning, laundry or anything else—the activities are now carried out by companies that are classified among the service industries, which has made a difference of about 750,000 in the number of people employed in manufacturing.
§ Mr. Connartyrose—
§ Mr. SainsburyIf the hon. Gentleman will excuse me, my right hon. Friend the Chief Secretary to the Treasury has already reminded us that we should try to develop our arguments instead of constantly giving way to interventions, especially when other hon. Members are waiting to speak.
We now have the stability that I said was so important to investment in our economy and I congratulate all my hon. and right hon. Friends on the Treasury Bench on that achievement. I congratulate them even more on their determination to maintain that stability. Added to the other reforms, gains and changes that we have made since 1979—industrial relations laws, personal and corporate taxation, the advantages of privatisation, progress with deregulation, market opening and especially the single market and our success in attracting into this country the lion's share of inward investment from Japan and America—they have given us a better opportunity of achieving steady and sustainable growth than we have had for decades.
I strongly support my right hon. Friend the Chief Secretary to the Treasury in his determination to avoid the illusory boom that leads inevitably to a painful bust. I support his commitment to the virtuous circle of improved competitiveness, rising productivity, economic growth, low inflation and more jobs. This Budget will help us to stick to that virtuous path.
§ Mr. Robert Ainsworth (Coventry, North-East)The speech of the Chief Secretary, who opened the debate for the Government, gave us a clear example of how out of touch are the Government. His rather weak appeals to us not to talk about VAT on fuel because it was in last year's 1255 Budget suggested that he is not aware of what people up and down the country are talking about. They are not talking about the changes that have been made to certain aspects of public finances in this year's Budget. They are talking about the cruel and unnecessary imposition of the second half of VAT on fuel, which the Chancellor decided to go ahead with. That is what I want to speak about, as it is what my constituents are speaking, and worrying, about.
When talking about a potential rebellion by Government Members, the Chief Secretary said that he did not consider the imposition of VAT on fuel to be an issue of great consequence. I must tell him that for many people it is an issue of great consequence. The figures for 1993 show that 141 people died directly from hypothermia, and that 13,457 people died of pneumonia. Help the Aged estimates that 30,000 deaths a year are related to heating and fuel poverty.
It is a serious issue, but it does not have to be so. Such figures are not repeated in other countries. A 1991 survey shows that the average number of deaths in January rises by 16 per cent. above the annual average in Scotland and by 19 per cent. in England and Wales. The comparative figures for Sweden and Germany are 7 and 4 per cent. respectively. Despite the crueller winter climates in those countries, their increase in winter deaths due to fuel-related poverty is smaller.
There is very little doubt about that, and yet the Chancellor of the Exchequer decided to go ahead and impose the second increase of VAT on fuel. Help the Aged estimates that, as a direct result, the increase will rob people of 19 days of heating. That will still apply after the compensation package, which has not improved at all on what was suggested last year.
The only fig leaf of cover which the Government have for the imposition is the £10 million increase in the allocation for the home energy efficiency scheme. I have to say that that is a drop in the ocean. We started off with a home energy insulation scheme costing about £35 million in the Budget. That was increased to £70 million, and now to £80 million. It is estimated that it will take more than 25 years to get around to all the homes where energy efficiency work is needed. Despite the numbers of people who are suffering the consequences of the astronomical rises in their fuel bills, it will be 25 years before the Government's scheme will give them any relief.
I resent the hype and the deliberate misinformation that is put about by the Government about the consequence of the package of compensation. Those who will receive it—those who are suffering from the imposition of the first half of VAT on fuel—know that the package is totally and utterly inadequate. There are poor families and people who will not receive any compensation and who will face the consequences of the imposition of VAT who think that, in some way, pensioners are being protected. However, pensioners are being given totally inadequate protection, and families none at all.
So when the Chief Secretary quotes the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), he ought to remember that the most telling thing that the right hon. Member said last week was that there was far too much fear in the country and it was about time that the Government started to tackle that fear. He was talking 1256 about employment issues, but I suggest to Government Members that there is a lot of fear about the appalling imposition of VAT on fuel, and they ought to be prepared to do something about that. We can have all of the cliches for the Chancellor, such as "Cool" Clarke, but I suggest that we ought to be talking about "Cruel" Clarke.
The Budget raises transport and environment issues. I heard the Secretary of State for the Environment, supposedly quoting Friends of the Earth, saying that the Chancellor was the greenest Chancellor we have ever had. I do not know whether Friends of the Earth said that—if it did, it, not we, must live with that.
The imposition of a landfill tax instead of a landfill levy—where the money raised from its imposition on landfill sites would be used to treat contaminants and enhance the environment—is a sign that the Government are interested only in taking revenue from those situations, and that they are not really interested in that aspect of the environment.
I shall speak now on what are probably the more important issues of the transport-related decisions that have been taken. I have been brought to a position where I now agree that there is no justification, as I understand it, for a differential in taxation on diesel and on unleaded fuel. I accept that that difference should be levelled in the way in which the Chancellor proposes, but I must ask why he has done nothing about super unleaded fuel. There is absolutely no justification for giving a tax advantage to a type of fuel that has been proven to contain higher levels of volatile organic compounds—particularly benzine—does nothing for the environment and is by and large used in cars without catalytic converters. Yet we continue to give tax incentives for people to use super-unleaded fuel. There is no justification for that, and the Chancellor should have taken the opportunity do something about it in the Budget.
Overall, the Chancellor's transport decisions cannot be considered to be green in any way. Increases in petrol taxes have been combined with huge cuts in the road programme, but with even bigger cuts in railway expenditure, which has been slashed by £521 million. We all know that we shall see the attacks on local government expenditure which, combined with deregulation, will make absolutely sure that we cannot develop and maintain a public transport system that provides people with alternatives to their cars.
Clearly, it is not an environmentally friendly strategy to have motorways jammed with cars and lorries which do not necessarily have to be on them. That is not good for the environment or for jobs. We need a decent infrastructure, we need investment in our transport infrastructure and, yes, we need to be concerned about the environment when making those investments. The Chancellor's proposals have done nothing about that at all.
The Chancellor called it a Budget for jobs. As an hon. Member representing a constituency that contains areas of some deprivation, I welcome the right hon. and learned Gentleman's attempts to get the long-term unemployed off the register, but they are hardly adequate when we are talking about people who have been unemployed for two years. By then, it is already considerably more difficult to get those people back into work than it needs to be. Why have the Government not done something about those 1257 who have been unemployed for one year? Why have they not done something about the long-term unemployed now, instead of in April 1996?
The Government may talk about getting the long-term unemployed back into the labour market, but why have they slashed the training programme? They set up the training and enterprise councils, the TECs, but even before they started to operate properly the Government cut their programmes and their budgets to a shadow of what they had been promised. The Government are now taking another £115 million off the budgets of the TECs and £500 million from the Department of Employment's budget in total.
Hardly anything in what the Government propose is designed to do anything serious to overcome the problems of unemployment. However, the Government's attempt to ensure that the long-term unemployed are as fairly treated by employers as those who are unemployed for a short time is welcome as far as it goes. I am slightly concerned, however, because a few years ago, before the flexibility and deregulation in the employment market that the Government have introduced, employees were in a better position to ensure that they could not be deliberately put out of work just to enable employers to pick up the incentives, such as those now offered to get the long-term unemployed into jobs. I fear that the employment practices that the Government have encouraged may result in the worst employers trying to do exactly that to their existing workers.
The Government have identified the increasing concern about unemployment and they want to pretend to do something about that. We have not heard much about the long-term problems in the economy. We are, supposedly, at that point in the recovery when things should start to get better. However, as recently as 17 November, the Engineering Employers Federation issued a document which analysed the employment prospects in the engineering sector. It concluded:
Employment in the sector … After falling 20 per cent. over the last four years … will fall by 18,000"—a further 18,000 jobs—in the next 12 months to reach 1.66 million by the second half of 1995.Even though we are in a recovery, the engineering industry has lost 20 per cent. of its existing jobs and employment in that industry is continuing to fall. I suggest that any reasonable person would accept that, by the middle of 1995, when we reach the end of the recovery, such as it is, we shall then have to face whatever downturn may hit the economy with an engineering industry offering far fewer jobs than it does even now.
§ Mr. GallieWhat levels of investment has the engineering industry received during that time? Can the hon. Gentleman estimate the proportion of the labour force that has been lost as a direct result of investment in new technology?
§ Mr. AinsworthSome investment has been made in the engineering industry but jobs have not been created. I do not know how Conservative Members think that the country can be run on the basis of a policy, pursued for such a long time, that has deliberately created and maintained a pool of unemployed people.
Different types of employers operate within the engineering industry. Some employers still believe that they should run their companies using exploitation and 1258 divisive employment practices, but the most successful companies are run by those employers who have come to recognise that the only way to be successful is by getting everyone working together in the same direction. They recognise that everyone should be rewarded appropriately. That is what makes those companies successful. Why do the Government not recognise that our country would be successful if they brought everyone on board and ensured that we all work in the same direction? Instead, the Government have deliberately pursued an utterly unfair taxation policy and other divisive policies that have created and maintained unemployment.
The basic issue is that our manufacturing base is too small, because such a massive proportion of it was lost in the early 1980s. The recovery will be choked off because of that fundamental lack unless and until the Government invest in our future. Small businesses should be given capital allowances so that they can offer new jobs, but the Chancellor has deliberately refused to do that.
I should like some answers about what has happened to the single regeneration budget, but I would not be surprised if I did not get any, because, despite all my studies, the bundle of information that we received on the Budget is absolutely beyond me. Tucked in that bundle was a press release from the Department of the Environment claiming a £800 million increase in the single regeneration budget. It claimed that that was a huge increase in that fund, but the figures contained in the Budget tables reveal a cut in the figures that were supplied to me in answer to a parliamentary written question in April. I do not know how the £800 million has been created. In some way, every penny of new spending on the single regeneration budget, not just for one year but for each year in a given four years, plus a little bit more, has been lumped together to round the figure up to £800 million.
The Government are pretending that there has been a big increase in regeneration money, but they have cut the budget. The Government originally created that budget from a number of budget heads of a number of Departments and, in doing so, they managed to inflict a massive cut in the available funds. Now the Budget figures reveal yet another cut in the money available for that single regeneration budget.
It is clear from the Budget that the Government are continuing to implement the huge tax increases announced last year. They are treading water while the British people continue to pay higher than necessary taxes just so that those taxes can be cut, cynically, before the next election. They have failed to address the appalling unfairness of the tax system. They have failed to address the long-term need to invest in our future. The Government have divided our country and they are divided themselves. As we know, a house divided always falls, so let us hope that the Government fall before they do irreparable damage to our economy and our society.
§ Sir Andrew Bowden (Brighton, Kemptown)The hon. Member for Coventry, North-East (Mr. Ainsworth) made great play of fuel costs in relation to deaths. Perhaps he has forgotten, or was lucky enough to be too young to remember, the days of the previous Labour Government when electricity prices went up by 2 per cent. a month, month after month. The hon. Gentleman is therefore on dangerous ground.
1259 I welcome the great bulk of the proposals in the Chancellor's Budget. I am particularly glad about the active steps that have been taken to help the long-term unemployed and I know that they are also welcomed by people throughout the country. Before I discuss pensioners and some of the problems that they face, I must mention tax on alcohol.
I feel that my right hon. Friend has not been quite as imaginative as he might have been. Unfair competition is being created as a result of the competition in Europe, and the ease with which many thousands of people can travel to Europe and obtain large quantities of cheap drink. Jobs are being lost in my constituency in Brighton, and throughout the country, as a result of the massive quantities of alcoholic refreshment that enter Britain month after month.
I know that the Chancellor will not increase the duty on beer and wine. I would have preferred a positive cut, because there continues to be a massive gap between the prices of those drinks in Britain and the prices a few miles across the water, or under the channel tunnel. That does not provide fair competition for the industry.
On pensioner issues, the Budget contains good news and some not so good news. I welcome the approach by the Chancellor to clamp down on the misuse of housing benefit, which happens in far too many places, but I urge that that be done carefully. We must not create a position whereby older people who are new claimants of housing benefit may be penalised for living in high-cost housing when they have nowhere else to go, or for living in districts where they may have spent most of their lives, with their families and friends nearby, when it would be difficult and unwise for them to move far from the district where they have their roots. We need to be flexible and careful in framing those regulations.
I warmly welcome the Chancellor's announcement of an increase in tax allowances for pensioners. Indeed, I wrote to him, with my fellow officers of the all-party parliamentary group for pensioners, on 7 October, when we used the following words:
we feel strongly that tax allowances should not be frozen for a third year. Some pensioners have actually been brought into taxation by the freezing of allowances even when their income has only kept pace with inflation. A continued freeze on allowances will affect the least well off taxpayers, many of whom are pensioners.Therefore, that increase is very much welcomed by retired people.To give two examples, a pensioner aged between 65 and 74, with an income of only £5,000 a year, will, in the next 12 months, be better off to the extent of £86 less tax. If that pensioner has an income of £8,000, he or she will be better off to the tune of £118. That was a splendid move by the Chancellor, which I am sure that the whole House will welcome.
The cold weather payments are the most generous and the best that we have ever had. The increase to £8.50 per week brings those payments near to meeting the average fuel bill of the average single pensioner. It will mean that, if that pensioner is in the financial category of entitlement to cold weather payments, he will be able to spend, in a very cold week, nearly double the amount that he would otherwise.
1260 Another of the important reforms that the Government have already implemented is that no longer will pensioners who are entitled to a cold weather payment have to apply for it—it will be paid automatically. In the past, many pensioners who were entitled to the payment did not, for one reason or another, apply for it, and did not receive it.
§ Mr. ConnartyI know of the hon. Gentleman's work on behalf of pensioners, but does it not strike him as odd that the payment is made only after the event, and that the Government have rejected the concept of a cold weather credit so that people can have the money in advance? The problem is that often they cannot afford to heat their homes when the cold snap comes.
§ Sir Andrew BowdenIf the hon. Gentleman thinks through what he said, he will realise that it would be difficult to pay cold weather payments in advance because one would not know when the cold weather was coming. For example, we have had a very mild November this year. The object of cold weather payments is to give additional help in exceptionally low temperatures.
As the payment will be paid automatically, it will quickly come through the social security system. In the past, it did not, because the person concerned had to fill in forms to apply for the payment and the application had to be considered and checked. Now all that has gone, and the arrangement works much more smoothly than it has ever done before.
§ Mr. SainsburyI am sure that my hon. Friend shares my welcome for the generous improvement to the home energy efficiency scheme, which I know has helped many older people in his constituency, as in mine—they are close together. We need to do all that we can to give more publicity to that excellent scheme, which reduces costs to pensioners at all times of the year and in all weather conditions.
§ Sir Andrew BowdenI endorse what my right hon. Friend has said. That help must be concentrated on people who do not have the financial resources to protect and insulate their homes properly. The great bulk of the nation's householders must invest in ensuring that their homes are heat-efficient and have double glazing and proper insulation in the roofs or elsewhere.
Let me return to cold weather payments. I continue to be worried about the group of pensioners who have a small income that slightly exceeds the income support level. That group is not eligible for cold weather payments. I urge the Government and my Front Bench colleagues to consider carefully whether they can find a way to help that group next year, because many of our pensioners whose incomes marginally exceed the income support level are worse off than pensioners who are in receipt of income support. That is not just.
I must now discuss a subject that leads me, I fear, to criticise Government action somewhat—value added tax on fuel. When the tax was proposed and announced by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), I did not oppose VAT on fuel in principle, although no one likes new taxes. However, I believed that, if we were to introduce that tax, it was essential that significant help was given to pensioners and people on low incomes.
1261 I am pleased to have played what I believe was a significant part in the campaign to persuade the Government to help, not simply pensioners in receipt of income support or other state benefits, but all pensioners. That is not because I believe, broadly speaking, in universal benefits—I do not. About 3 million pensioners pay tax, some even paying tax at the rate of 40 per cent., but I could envisage no way in which it would be possible to help the 3 million pensioners who have only a comparatively small amount—£5, £10 or £15 a week—more than income support levels, without giving that help on VAT on fuel bills to all pensioners.
I am delighted that the Government accepted that suggestion, and took action to implement it. That is the first time ever that a Government have increased the basic pension to help towards the costs of a specific tax that they have brought into operation.
The House will recall that, this April, the specific increase was 50p a week for single pensioners and 70p a week for married couples, on top of the basic pension and in addition to the increase for inflation in that basic pension in the previous year. That was clearly a separate increase for all pensioners. It was widely believed, certainly by me and I think by many hon. Members, that next April that would happen again, and there would be an additional 50p and 70p for single and married pensioners, plus the increase for inflation.
In last year's social security uprating statement my right hon. Friend the Secretary of State for Social Security said:
I was also determined to help those who have worked, saved and earned modest pensions, and who normally get no extra help. So, from next April, on top of uprating for inflation, all pensions will be increased by 50p a week for single pensioners and 70p a week for couples. The following year, extra help for VAT on fuel will be £1 a week for single pensioners and £1.40 for couples."—[Official Report, 1 December 1993; Vol. 233, c. 1039.]From that statement I concluded that that increase would be implemented in the same way as the additional 50p and 70p for this April. In his broadcast last night, my right hon. and learned Friend the Chancellor said:By next April, a single pensioner will have an extra £52 a year, and a couple an extra £73 a year, put into everybody's pension, on top of the normal pension increase.I am extremely disappointed at the way in which the increase will be applied. It will be applied on the basis that in the year September to September, inflation went up by 2.2 per cent. As the House knows, that automatically means that the following April the basic pension will increase by 2.2 per cent. But within that 2.2 per cent., 0.4 per cent. was inflation caused by VAT on fuel. The Government now say that that means that for the single pensioner, that is worth approximately 25p a week, and that they will reduce the 50p increase on the overall basic pension to only 25p and that there will be a proportionate decrease for married couples. I deeply regret that decision, which will be extremely difficult to explain to our 10.5 million pensioners.Because of the way that the Government intend to apply this increase, I am afraid that it is true that the average fuel bill for a pensioner will leave that person with a net loss from April on of 56p a week. That is not a fair deal for millions of pensioners, and especially for those who have only a small amount above the level of income support. I ask the Chancellor and the Government to think again about that.
1262 I am not asking for a massive sum. I want to support the Government on the second wave of VAT on fuel, not because I like it, but because we have to deal with the PSBR, and the money has to come from somewhere. The vast majority of our people can pay VAT on fuel without hardship, but many pensioners cannot. The Government should implement what they proposed last April—a separate 50p for the single pensioner and 70p for the married couple. That would cost a maximum of £130 million, but there would be a considerable tax clawback from the 3 million pensioners who pay tax.
The House must never forget that today's pensioners are from the second world war generation. They made enormous sacrifices and suffered great hardship during that war. Some pensioners are still with us from the first world war. The great majority of those people had little chance to save, and by today's standards had relatively low incomes. They deserve, and should receive, a more generous slice of the national cake.
§ 7.5 pm
§ Mr. Ken Livingstone (Brent, East)The Government owe a great debt to their former Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont). The press have described the Budget as boring, and most press comment has been about jam tomorrow and about how the Chancellor has not taken any risks. But if the former Chancellor had not announced in advance two years' worth of tax increases, and those increases, which people will begin to pay at the start of this financial year, had been announced yesterday, the country would be in uproar.
The reduction of mortgage interest relief alone would have dominated our debate and Conservative Members, as much as Opposition Members, would have been expressing doubts about that and worrying about its impact on middle-class household incomes. If out of the blue yesterday the Chancellor had announced that he was more than doubling VAT on fuel, there would also have been uproar. It might have been like the time when Nigel Lawson announced the reduction of the top rate of tax to 40 per cent. On that occasion the uproar in the House was so bad that the sitting had to be adjourned until order was restored.
However, because measures have been trailed and debated for months, most people think that this was rather a dull Budget. I nodded off because the beginning of the Chancellor's statement was so mind-numbingly dull. At least Nigel Lawson gave a view of what was happening in the world economy and said what he thought would happen. Yesterday's Budget statement was largely a party political speech that was geared to domestic politics and looked no further than the next general election.
I was surprised at the absolute unanimity, even among newspapers that give blanket support to the Conservative party, that everything has been put off until next year's Budget. In that Budget the basic rate of tax will be reduced to 20 per cent. so that some time in the summer of 1996, at about the time of the intergovernmental conference on Europe, money will be feeding its way into the pockets of ordinary families and voters. That is when the Government will make their dash to try to get re-elected and will run a Europhobic campaign about how we do not want to be dominated by the Germans. It is clear that that is the strategy, and it is completely out of keeping with Britain's needs.
1263 Because of the way in which the Budget has been managed in public relations terms, its reception has been favourable, but the Budget is disastrous for the reconstruction of the economy. It is deeply flawed. I am used to people on the left delivering fairly savage critiques of the Government's economic policies, but I am surprised that there has not been more comment about the recent analysis by The Economist.
It is not news when members of the Labour party, Tribune or The New Statesman slag off the Government for economic incompetence, or warn that disaster is coming. But when The Economist—which, year by year, has supported the Government and their economic policies totally, giving the most widespread and consistent support for all their economic measures, such as financial deregulation and privatisation, being almost a generator of many of the ideas that have been taken up by the Conservative party in government—published its predictions for the British economy for next year in a book that is now on sale on the bookstands, I assumed that it would back the Government and say that they were broadly right, but I was amazed because I thought that I had picked up a copy of one of my articles in the Socialist Economic Bulletin.
I shall read what The Economist says in order to put it on the record. It is a damning indictment of the Government. I put it down as an early-day motion and the usual suspects all signed it. However, I want it to have a wider circulation. This is the expectation of The Economist about what will happen to the British economy and it is in complete and stark contrast to much of the misinformed waffle in the media yesterday.
The Economist says:
Believe it or not, the best is over for Britain. The economy will decelerate in 1995, living standards will slip and 1994's sharp falls in unemployment will slow to a crawl. There will be no return to recession nor will there be any kind of inflationary explosion. But humiliatingly for John Major, who has become accustomed to bragging about Britain's place at the head of the European league of economic performance, the country will slide back to its traditional place near the bottom of the international pile.Coming from The Economist, that has much more force than any complaints from Labour Members, particularly when one remembers that this book of predictions is edited by a Conservative Member of Parliament, the hon. Member for Kensington (Mr. Fishburn). If that is what the hon. Gentleman believes, he should be joining those who are now sitting unwhipped on the Conservative Benches, withdrawing his support from the Government who are presiding over this economic mess.The Economist does not take the view that this is all some international problem; it nails the blame exactly where it lies—with Government incompetence. Referring to the time since we were evicted from the exchange rate mechanism, leading to the boost to the British economy that we have seen in the past year, it states:
What has gone wrong since those happy days? The answer is simple—government policy. Kenneth Clarke, the chancellor of the exchequer, quite rightly undertook a drastic tightening of fiscal policy, announcing the biggest round of tax increases in post-war history for 1994 and 1995. But he failed to counterbalance this with a corresponding monetary relaxation. The result was bound to be a slowdown in the economic recovery. This was just becoming 1264 apparent in the late summer with the weakening of consumer spending, car sales and housing, when the Bank of England bizarrely piled on the monetary pressure with a half-point increase in rates"—that is, interest rates.
This masochistic mix of monetary and fiscal tightening, combined with the sharp increase in long-term interest rates caused by the worldwide collapse of bond markets and the Bank of England's misguided warnings about inflation, is sufficient to explain Britain's deteriorating prospects. With macroeconomic incompetence like this, there will be no need to look for sob stories in the alleged deficiencies of the economy's supply-side—deficiencies like low skills, inadequate training or unwillingness by industrialists to invest for the long term.The Economist, which has supported the Government more loyally than any other economic organ during the past 15 years, is not saying that the problem is an international one, but that it is the incompetence of the Chancellor and the Bank of England that will lead to the deterioration in living standards next year.It would be easy for Opposition parties to say that that is good news, because, just as the Government are trying to sneak their way into the 1996 election, people might see that the economy is turning down again. But I know what that means in my constituency where, effectively, one person in four is out of work. The Economist article sums it all up perfectly with its heading, "A lost last chance". Already, the Government's incompetence in handling the period since our eviction from the exchange rate mechanism and the way in which they have lost the opportunities presented to them will lock us into the next recession.
Hon. Members should consider where we are in the economic cycle. We know that we have a business cycle. This is the high point. This is the boom between the recession of 1990 and the recession of the late 1990s. That is what is so depressing. If one compares where we are on the economic upswing today, since the end of the recession in mid-1992, with the last time that we came out of recession in the early 1980s after the Government's first real severe recession, we are in an equivalent position to the end of 1983. In 1983 people thought that there was a feel-good factor. They were confident. They were taking on bigger mortgages. They were expanding their personal consumption because they thought that they could see real growth.
When one compares the situation then and now one realises how much more weak and fragile has been the recovery from this recession and how much shorter and insubstantial it will be. When one considers the past 25 years of economic history in Britain and removes the distortion of the great bonus of North sea oil, one sees a consistent pattern of decline, with each recession biting deeper and longer than the one before and each subsequent boom shallower and less substantial, leaving a weaker economy than before. That is why I find this depressing.
Had we had policies that encouraged investment, we should now see the increase in exports being built much more strongly into our economy. But how many businesses will go for a sustained expansion of investment when they have already seen a 0.5 per cent. increase in interest rates and when the overwhelming assumption is that that will be followed by another 0.5 per cent. and another 0.5 per cent? The markets are telling us that they expect inflation to rise in the long term. That is why 1265 long-term borrowing is so expensive. The Government have not convinced the markets that we have broken free of the cycle.
There is much talk of us being in a uniquely good position and that we can see the prospect of export-led growth and low inflation stretching ahead, but that view is not shared by the markets or the economists. But people are talking themselves into that belief and I find that worrying because we are missing an opportunity.
The Economist accuses the Chancellor of macro-economic incompetence. We have been bubbling along with inflation at 2 per cent., but inflation is still the overwhelming obsession of Conservative Members. But the most frightening prospect for the British economy is the fact that our investment has collapsed.
For the past 20 years I have been used to seeing those interesting analyses of what proportion of GDP in each of the G7 countries goes on investment. We all know the pattern. Japan has 30 per cent. or 35 per cent. year by year, most of continental Europe has between 20 per cent. and 25 per cent., and Britain has 15 per cent. or, if we are lucky, up to 18 per cent. The only country investing less than us has been America, with about 14 per cent. For the first time, we have sunk below America's pattern of investment. We are now at the bottom of the G7 pile for investment.
That means that, in the Government's failure to create a climate in which business feels that it can plan its own investment, and when the Government have savaged their own investment programme year by year so that our infrastructure is a disaster in comparison with that of modern European nations such as Germany, Holland or Sweden, we have lost an opportunity and our competitors will pull further ahead of the British economy. In Japan, Germany and France, industries with their higher investment will be a greater threat in terms of competition in the export markets. Their people will see a higher degree of skilled labour building up as it matches the investment pattern. We are already locked into a further qualitative decline between ourselves and our major competitors. Conservative Members are slapping themselves on the back for a cunning strategy, but the Government are preparing a grim and depressing inheritance for the next Administration.
Whether the next Government are the lot opposite, having conned their way back to power with a little chicanery, or whether my poor right hon. and hon. Friends will be left to clear up the mess, they will find, immediately they assume office, declining productivity and export markets relative to our competitors. International investment will be looking elsewhere, and the new Government will be confronted with all the usual economic crises that flow from that situation.
I am not interested just in slagging off the Government—I have been critical of my own party on more than one occasion. I want to examine what should be done. The Economist is not a magazine that I usually invoke in my arguments, but the final paragraph of its article on developments at the time of the next general election is equally revealing:
Britain will become more prone to inflation in the long run. This malady will again be more threatening from 1996 onwards, when the government suddenly takes its foot off the monetary brakes and steps on the fiscal accelerator ahead of the general election. That 1266 would have been the right time for the authorities to put on the brakes against a traditional boom-bust cycle. But when did the Bank of England or the Treasury ever do the right thing at the right time?The next Government will not find it easy to take that inheritance on board. My party should be thinking now what should be done to break out of the trap. Although inflation has been a problem in the past, it is not the immediate problem. The overwhelming difficulty facing the British economy is lack of investment and of a skilled work force who can fully utilise high investment.The Labour party has published a series of proposals, which I completely support, to increase work force skills, improve education spending and increase training. I should be more than happy to see a fairer system of taxation, to restore many of the inequalities of the past 15 years. If it were up to me, the Budget would include a top rate of tax of 55 per cent. for anybody earning more than £50,000 per annum, and of 48 per cent. for anybody earning more than £40,000. That group, which accounts for 4 per cent. or 5 per cent. of society, has done well out of the Government, and in attempts to rebuild the economy, it must make the greatest contribution.
Low-income and middle-class families are already taxed more severely than in any period outside wartime, and no one could seriously propose major increases in the burden of taxation on them. The people who should make the greatest contribution are those who have done best over the past 15 years. I much regret that my party is not saying that loudly, and persuading the public that we shall increase tax rates for that group. Once one has spelt out the point in the wealth structure at which taxes will be increased, one can make a firm commitment to taxpayers below that point that they will not pay a penny more under Labour. I want a firm commitment to taxing people who have done best, but to protecting those already squeezed by the Conservatives.
If possible, some of the increased taxation on those earning more than £40,000 a year could be used to relieve the tax burden on ordinary working-class and middle-class families. That would redress the redistribution of wealth, which has been going the wrong way in recent years.
The two tax increases that I propose would produce another £3 billion. It would be for the Government of the day to decide whether to redistribute that revenue to people on pensions or benefits, or to remove part of the tax burden on lower-income groups. It might have to be used further to reduce the PSBR or to fund an investment programme.
Nevertheless, no one believes that £3 billion from the richest in society could solve the problems facing the British economy. A much more vast sum is needed. If Britain is to match German investment levels, it must look elsewhere than the taxation of private income—to the City of London. The operation of Britain's financial sector is like something from "Alice's Adventures in Wonderland".
Not everybody knows this, but I grew up as a working-class Tory in a working-class Tory household. I was the first person from either side of my family not to vote for the crooks opposite. It was traumatic. I was not allowed to tell my ailing grandmother that I had become a Labour supporter in case the shock killed her. My information came from the Daily Express, so I do not know how I ended up on the Labour Benches. Nothing in my early childhood led me to question the usual assumptions.
1267 I grew up believing in capitalism. I understood that, when there was a boom, companies made a profit, shareholders received dividends and workers enjoyed wage increases. I understood also that in a slump, companies did not make a profit, shareholders did not receive dividends and the poor old workers were kicked on to the dole. The simple, raw logic of capitalism has been replaced by a system whereby when there is a boom, profits are made, dividends are paid and workers enjoy a pay increase—but when the boom ends and there is recession, companies do not make a profit but dividends are increased, often while workers are laid off.
The year 1986 is generally thought to have been one of Mrs. Thatcher's best years. I remember Nigel Lawson saying that Britain was on track to replace Germany as the strong economy of Europe. That is a bit of a laugh now, but in those days people thought that we were living a boom and had broken out of the cycle of boom and bust. People began to believe Tory party propaganda. At that time, good dividends were paid but today, after all the pain of the past few years, dividend values have doubled in real terms. On what basis can one justify paying today twice the dividends that were available during the Thatcher boom of the 1980s?
The effect of doing so is to squeeze out investment, because the first call on company profits will be increased dividends. There is nothing in this squalid little Budget to challenge that. Where is there any encouragement, in terms of tax concessions, for companies to increase their investment? That should have been the centrepiece of the Budget and would have had the support of Labour Members. Instead, the Budget contains piddling little measures against a crisis of under-investment.
The Labour party will be failing in its duty if, when it takes office, it does not pass legislation or use the tax system to reduce dividends to a reasonable level. I am not proposing anything revolutionary—I just want the Budget to return to the situation that existed in Mrs. Thatcher's heyday. Why not cream off the extra money that is paid in dividends and return it to what it was in 1986 in real terms? If there were a tax mechanism to do that, £11.96 billion would be released this year and every other year for investment—the sort of sum needed to match German investment levels and research and development. At present, that money is siphoned off and taken out of the City and paid as dividends.
Company law is so structured that virtually everybody running a major company in Britain has as his first concern not investment or capturing new markets, but that a shark such as Hanson will make a vast bid, shareholders will sell out, and Hanson will immediately make a quick profit and destroy the industry by asset stripping and dumping its workers on the dole, so that another productive part of our economy is lost. That is how the British economy is functioning, and nothing in the Budget will shift those priorities. Unless we shift them, we shall continue to fail in comparison with Germany, Japan and the more successful industrial nations.
A couple of years ago, I was invited to open an extension to a factory in my constituency. There are not many factories left in my constituency because, like most of the core of outer London which used to be a manufacturing heartland, it has been destroyed by the first and second Thatcher and Major recessions. The factory is 1268 small but competent. It was the last in Britain to produce the wall sockets into which one plugs electrical appliances; every wall socket not produced by that company is imported.
The factory had bought the most modern high-tech machinery and plant, which Germany and Japan have. Its work force was drawn from the locality and comprised many who had failed in or been failed by the education system. They may not have had great skills, but the firm ensured that they were offered day release and training to improve their skills so that they could fully utilise new equipment.
I said that I was surprised to have been invited to open the extension because I had expected the factory to ask El Presidente—the Secretary of State for Trade and Industry—or one of his juniors. I was told that Ministers were not welcome there because they had never lifted a damned finger to help such companies.
It soon became obvious to me that the company was successful because it had no shareholders. It was owned by two brothers, which meant that, at the end of the year, they could make their own calculations. They could work out their profits and decide how much to invest. The investment decision was the first to be taken.
Until we change our company law and, therefore, the pattern of investment, we shall continue to fall behind other nations. That means that the next Labour Government will have to tackle the City with a major programme of taxation and general reform to shift the balance. If the next Labour Government do not do that, they will fail just as the previous two Labour Governments failed. I desperately want my party's Front-Bench spokesmen to start to spell out in detail, as I have tried to do in my small contribution to the debate, precisely what it is going to do to reverse the decline in the economy.
We can all slag off the Tories; it is wonderful stuff. Having listened to their speeches, one cannot fail to slag them off. However, I am in the Labour party because I know that the Tories are useless. I want to be told what we are going to do and I want us to tell the British people so that there is no doubt or illusion.
Whichever party wins the next election will face a long period of pain. No one can turn the economy around without a major adjustment, without many people having to change their employment and be retrained and without a great change in the way in which the City of London operates. Unless we are prepared to stand up and tell the people that in advance, I greatly fear that we shall be vulnerable to some of the distortions that we have witnessed in previous election campaigns.
I have not the slightest hesitation in saying that I condemn the Budget and the Chancellor to the oblivion which they so richly deserve and to which they are condemning the British economy and the British people. However, it is not enough to oppose the Conservative party; we have to spell out what we will do, how it will be better than what the Conservatives have done, who will pay the price and who will benefit. Until we do that, people will continue to doubt us, and the Conservative party, with its skilled electoral machine and its supporters in the media, will seize on every doubt, just as it did during the previous election, to distort reality.
1269 It is in the Labour party's interests to spell out the truth and tell people that there is pain to come, whoever governs Britain, but that we would ensure that it was fairly spread and that, at the end of that period of pain, we would emerge as a modern European economy.
§ Mr. John Butterfill (Bournemouth, West)While I was listening to yesterday's debate, I looked across to the Opposition Front Bench and saw the grinning features of the right hon. Member for Kingston upon Hull, East (Mr. Prescott) and the mournful features of the shadow Chancellor, the hon. Member for Dunfermline, East (Mr. Brown). I was reminded inexorably of "Hancock's Half Hour" with Sidney James and Tony Hancock. However, the big difference was that Tony Hancock was a good deal less gloomy than the hon. Member for Dunfermline, East. I am sorry that he is not in his place at the moment. His speech today reminded me rather of "Four Weddings and a Funeral" because he is the only man who, by his very presence, can make a wedding seem like a funeral.
The gloomy way in which the shadow Chancellor approached our economy was matched only by the incompetence of his suggested remedies for reducing, for example, unemployment. His big idea was to release local authorities' capital receipts to be spent in the economy. He thought that that was the secret to reduce unemployment. Of course, he does not realise that most of the councils that he was talking about, especially those run by Labour, have no cash but enormous debts. Indeed, some of the fiefdoms controlled by Labour have debts so large that the majority of the taxes paid by their residents are going to pay for the servicing of that debt rather than the provision of services.
§ Dr. Lynne Jones (Birmingham, Selly Oak)I hope that the hon. Gentleman is not suggesting that housing debts are being paid from council tax receipts. As he will be aware, the housing revenue account is ring-fenced and it is the tenants and their rents who pay those debts. If councils were allowed to raise capital and then invest in their housing stock, they could generate more rents, invest further and give tenants what they really want and, at the same time, put people back to work.
§ Mr. ButterfillThe hon. Lady should know that if some Labour councils collected their rents they might be considerably better off. However, the fact is that some, although not all, are enormously indebted. There are a few, exclusively Conservative councils, I believe, that have some money in the bank and do not have enormous debts. If the hon. Member for Bristol, South (Ms Primarolo) would care to name a Labour council that does not have enormous debts, I should be happy to give way to her. I see that she is not anxious to respond.
Dorset county council was controlled by the Conservatives and had £20 million in the bank. Unfortunately, the Liberals took over at the previous local election and, in a very few months, they have spent nearly all of it. Some councils are debt-free, but not the vast majority. The shadow Chancellor's proposition would merely add to the public sector borrowing requirement. My right hon. Friend the Chief Secretary suggested that it would add about £6 billion when we are radically trying to reduce it.
§ Mr. ConnartyIs the hon. Gentleman suggesting a model for industry—it should not invest and take on 1270 indebtedness and, therefore, not grow? Is that the model that he is planning for the economy—just like the local authorities that he admires, it should have no debts and therefore no investment?
§ Mr. ButterfillNo, I am suggesting that the level of debt should be reasonable and appropriate to balance the budget and ensure decent housekeeping. That is why I commend the Budget of my right hon. and learned Friend the Chancellor. He has ensured that we shall have sound finances and he has laid the foundations for a growing economy—the fastest growing in western Europe at the moment. That is the right thing to do. In the process, he has of course had to reduce some aspects of Government expenditure.
I commend the Chancellor on the fact that, within a policy of general spending restraint, he has found substantial additional money for the national health service and education and has found enough to increase police expenditure by 3 per cent. while cutting Home Office expenditure as a whole. That shows that he has his priorities right. It is the right way to run the economy. All the commentators whom I have read certainly believe that to be so.
I now turn to VAT on fuel, which is, of course, a controversial item. I greatly respect my hon. Friend the Member for Brighton, Kemptown (Sir. A. Bowden), who made a passionate plea on behalf of pensioners. I also have many pensioners in my constituency and I know that many of them find great difficulty in meeting their fuel bills. However, we can exaggerate the problem.
A constituent came to my advice centre earlier this month and she showed me her fuel bills. She said that she was very worried about her ability to meet them if we increased the level of VAT to the full 17.5 per cent. The interesting thing was that she thought that she was currently worse off as a result of the previous increase than she had been before. She spends a small amount—about £37 a quarter—on fuel.
When we went through her bills, we discovered that far from being worse off, even with only the 50p increase we have given this time, she was better off by a few pounds a year than she would have been without the changes we have made. If we take into account the reductions in fuel costs in the past two years, she was actually significantly better off. It is wrong to alarm all pensioners, as the Opposition have done, because although some of them will undoubtedly be a little worse off, the great majority of them will have their bills met and some of them will, as I have illustrated, be better off.
I am especially pleased that we have found more money for home insulation. The £10 million proposed means that many pensioners will be able to spend about £300 per house on insulation. The most vulnerable will, of course, be eligible for the large increase in cold weather payments that the Chancellor has been able to make, and I am very grateful to him for that.
I made a number of representations to the Chancellor before the Budget and I especially drew to his attention the predicament of those who, because they have small savings or a modest occupational pension, are just outside the level at which they can obtain benefits. It is true, of course, that they have had an especially difficult time during the recession. I was especially pleased, therefore, that the Chancellor was able to raise the level of personal allowances, which most benefits those on the lowest 1271 incomes. I was pleased in particular that he was able to raise the age allowance by £430, which is a considerable sum and will certainly be of great assistance to my pensioners who have modest incomes from a source other than the state retirement pension.
The increase in the number of people paying the lower rate of income tax is also especially welcome and is something that I urged on my right hon. and learned Friend. About one in five of all taxpayers now pay at only the 20 per cent. rate. That is something on which we should and, I hope, will continue to build.
The other matter that gave me particular pleasure was the help that we have given on business rates. When we passed the Local Government Finance Act 1988, I tabled an amendment urging the Government to keep any increase to a maximum of 10 per cent. At that time, the Government did not feel able to go that far, but they met my concerns by agreeing to a maximum of 15 per cent. I am especially pleased that now, with things getting a little better and with a revaluation coming up once again, the Government have recognised that the impact of sudden and unexpected changes in business rates can be very disruptive, especially for small businesses. The restriction of any increase on a transitional basis to a maximum of 10 per cent., with a maximum of 7.5 per cent. for small businesses, is therefore especially welcome and will give great heart to that sector of the economy, which is so vital in securing our economic recovery.
The changes that we made in national insurance will not only help many of the unemployed back into work, but will be of great benefit to many small businesses. All in all, this is a good Budget for small businesses. The encouragement of the provision of capital other than through bank borrowing—through business angels or venture capital trusts, for example, where we have made important improvements—is another aspect of trying to recreate a more secure capital base for business and I greatly welcome the Chancellor's action in that respect.
I am also pleased that the Chancellor has given help for personal equity plans, PEPS, by widening their investment criteria, thus enabling many people to invest more widely—perhaps sometimes more wisely in the present climate—than they have been able to do hitherto. The roll-over that the Chancellor has given to tax-exempt special savings accounts—TESSAs—will mean that some of the schemes will not have to close down and that these important savings areas will be safeguarded.
TESSAs are very important. I point out to the hon. Member for Brent, East (Mr. Livingstone), who talked about lack of investment, that, historically, the problem in this country has been that our savings ratio has been so much lower than that of our competitors—lower than that in almost any nation except the United States. The encouragement of savings produces the funds for investment, so it is vital that we continue to encourage saving as against giving incentives for borrowing or spending. That is the path on which the Government have been embarked for a considerable period and I hope that they will continue on it.
On a personal note, last year I tabled a new clause to the Finance Bill in which I asked the Government to exempt from tax liability the indemnities that companies give directors and other employees against claims being made against them in the performance of their duties; 1272 those indemnities are called directors' and officers' insurance. I am delighted to note that the assurances given to me by the Financial Secretary at the time have borne fruit and that the Government have announced this year, in the document IR6 from the Inland Revenue, that all my representations on that subject will be met in full. In future, this important safeguard for companies, employees and the public at large will be secure.
I am a little sorry that the Government have not been able to reform the capital gains tax regime; we may be able to debate that further in Committee. In terms of encouraging saving and investment, it cannot be right that a man who has spent 10 years of his life building up a business is taxed on its disposal at the same marginal rate as applies to somebody who makes an overnight, speculative gain on the currency markets. We must do something to encourage more long-term investment. At the moment, it pays people to strip the money from companies through dividends and exorbitant salaries, which we should all like to discourage, rather than to leave the money in the company, thereby helping it to grow. I hope that, in the fulness of time, the Government will look at that area.
I also hope that the Government will look at the impact of inheritance tax on small businesses. I hope that they will look in particular at some of the inheritance tax concessions, such as gifts on marriage or gifts to an overseas-domiciled spouse—we purport to support the family—and will realise that it is important that they are indexed. Many of them have not been increased in line with inflation since inheritance tax came in. I hope that the Government will look at that matter at some time in the future.
Having said all that, I believe that this is a prudent Budget. It has clearly been welcomed in all quarters. The financial markets have given a favourable verdict on it. It has kept Britain on its course—and strengthened its position—as the fastest-growing economy in the whole of the European Union. I congratulate my right hon. and learned Friend on a thoroughly prudent and well-judged Budget.
§ Mr. Michael Connarty (Falkirk, East)I appreciate the problems that Chancellors have in budgeting. I remember that when I was a university student studying economics in the late 1960s, the Labour Government had problems and were forced to bring in what seemed to me to be draconian cuts in public services to keep the International Monetary Fund happy. I remember that the sum was £3 billion, which seemed like a very large sum. I have since read Lord Healey's excellent book "The Time of My Life", in which he explains that when the outturn figures were eventually presented to him two or three years later, he discovered that the £3 billion which he was supposed to have as a deficit was in fact not a deficit, and that the balance of the Budget would have been fine in that year.
Lord Healey was, of course, driven by the statisticians. He recounts a story about the time when he was in the Army and was asked to check the people going to and from a railway station—people getting on trains and off trains, transferring to other places. He bribed the guards on each train to give him a figure and he bribed the chap on the gate to give him the figure for the gate. When he eventually left the station, they all had a little celebration and he said, "You were quite accurate with your figures. 1273 How did you manage to count all those people?" They replied, "We just made up figures and added them together." Every one of them made up a separate figure and all the errors balanced out and it became quite an accurate account of the people who went through the station. Lord Healey realised that he should have drawn on that experience when looking at the statistics which were presented to him in relation to the Budget.
Let us consider the public sector borrowing requirement figures presented in the economic indicators in the House of Commons Library—the latest of which were for 28 November. There is absolutely no doubt that the figures for the United Kingdom show a very stark difference between 1988–89 and 1992–93—and, in fact, 1993–94. There is no doubt that the Government had got themselves into such a mess with a £45.95 billion deficit in the public sector borrowing requirement that they had to do something very serious.
What they have done is very serious, all right. It is very serious for the people of this country because the Government's plan, as announced by the Chancellor in the latest Budget, is to take another £24 billion off public spending. That is not just about money being lopped off bank balances and deals being done with the Bank of England: it means £24 billion off services.
Given that the Government have been in power for 15 years, those services must initially have been set by them—albeit perhaps reluctantly. They may not have wanted to provide them because they had a different philosophy—but they seemed to think that they had to respond to the people and provide services. Now they are slashing those services and selling off assets and they are still having to cut the public sector borrowing requirement by cutting public services further. It is not a fiddle or a Healeyite statistical error: it is a real attack on people's services.
The second thing that the Government felt that they had to do—it is important to return to this as everyone mentions it in the debate—was to attack the poorest in the country by putting a tax on yet another unavoidable use of resources: full VAT on fuel. People have been asking why Labour does not find another tax. There is nothing wrong with the idea of taxing people who received share options when they were senior officials of privatised industries—often, the same officials as those in charge when the industries were public. They got large salary hikes and, on top of that, share options. Those share options have become valuable—some of those officials are millionaires.
It is very strange that those same people were running the industry when this Government were saying how inefficient it was but that when they became private sector chief executives or chairmen or whatever they suddenly became extremely competent and talented entrepreneurs deserving of large salaries and very large slices of the available shares. Why not tax them?
I am told that taxing the share options and other gifts to those people in the privatised industries alone would raise enough money to enable us to keep VAT on fuel at 8 per cent. That seems to be a perfectly adequate transfer of responsibility away from those who are struggling to those who have made large amounts of money.
§ Mr. Butterfillrose—
§ Mr. ConnartyI noted that the hon. Gentleman said, in contradiction to his hon. Friend the Member for Brighton, 1274 Kemptown (Sir A. Bowden), the chairman of the all-party pensions group, that most people would not be worse off. His hon. Friend the Member for Kemptown said that most people would be 56p per week worse off even with the Government's compensation scheme.
§ Mr. ButterfillI wanted to explore with the hon. Gentleman the idea of taxing options at the time at which they are granted. Of course, shares can go up or down, as he will appreciate. Suppose that the hon. Gentleman raised a tax on a gain which has not yet been realized—in other words, charged somebody up front before that person dispensed with the shares. Would the hon. Gentleman give him a rebate, with interest, if those shares were subsequently sold at a loss?
§ Mr. ConnartyThe theory would be to tax people on the realisation of the asset. If people receive share options, after a certain number of years, they can capitalise on them. Those shares then have a value. Those people have share options which they can take up. They are taking up those options at the price that was offered on the market when the private sector got its hands on public assets. As we know, the Government's incompetence has meant that every privatised industry has been sold vastly under the market value on day one but that its value has increased very quickly—and then, over the years, has increased massively.
In fact, those taking up share options are getting the value of the share as it stands in the market when it is taken up by the chief executive or whoever was bribed with the offer, compared with the value at which the Government sold it. So in a sense such a tax would not only be a windfall tax: the Government would be taxing their own incompetence, which would be quite valuable.
§ Mr. Butterfillrose—
§ Mr. ConnartyI do not wish to get into a dialogue with the hon. Gentleman, but he obviously wishes lo intervene.
§ Mr. ButterfillI am puzzled by what the hon. Gentleman said. He said that the tax would be levied when the asset was realised. Of course, that is what happens now: we do not tax the gain until somebody gels the money by selling the shares. But I understand the hon. Gentleman and some of his hon. Friends to be saying that they would levy a tax up front on a notional gain, before the asset was realised. In other words, a theoretical gain would be taxed.
Where would people get the money to pay such a tax, because they would not have it from the realisation of the shares? And what would happen if the share value went down subsequently? Would Opposition Members then repay the tax with interest?
§ Mr. ConnartyAlthough it is a very interesting theoretical debate, the question what the word "realises" means is worth looking at. If the share option is offered at, say, 100p a share, and three or four years later when people are allowed to take it up, it is worth 500p a share, that is the point at which those people would be taxed. Yes, that would mean that they would have to realise some of their vast windfall asset to pay their tax burden. There seems to be no unfairness in that at all.
1275 It would appear that the Government do not care that a pensioner knows that he or she cannot afford to pay VAT on fuel without cutting something else—without cutting expenses on food or other expenses, which are meagre at the moment. That does not seem to bother the Government or their supporters. Is it because the burden is spread among so many millions of pensioners that the Government do not have to look them in the eye and see the pain? I know that the hon. Member for Ayr (Mr. Gallie), who is present, has told the pensioners that he sees their pain and is distressed about it. I hope that that pain is carried with him to the day on which we vote against the Government next week.
I received a delegation from Scotland yesterday and the day before, led by Mrs. Ina Craig, a retired nurse, whom I would wish to commend. She is the secretary of a local pensioners group. The members of that delegation spoke eloquently to members of the Scottish parliamentary Labour group, and to others who wished to be present about the real hardships that pensioners will face and the choices that they will have to make between putting the heating on or putting a cooker on.
It is a strange world. I was told by one of them that things have got so bad in the world of social security benefits under this Government that a cooker is now not considered to be an essential item of household furniture if one lives in an urban environment where fast-food shops are round about. People cannot even get a social fund loan for a cooker. But if people do have a cooker, they will have to choose whether to cook food or put on the heating because they will have to find extra money.
According to the figures given by the chairman of the all-party group on pensions, a Conservative Member, the deficit per pensioner per week will be 56p even after the compensation schemes. The deficit will be up to £3 per week for a pensioner couple, even with the compensation. Pensioners are having to take real-life decisions. They do not have to take theoretical decisions about how many millions of pounds or hundreds of thousands pounds they will have after their share options are realised and have to be taxed. Instead, they are having to worry about where they get the money for food and heating when the Government take VAT from them.
As I turn to the Chancellor, I am reminded of the story of the person who once asked whether Hitler was a bad or a good man and was told that he was good at the job he set himself. The Chancellor is good at his job. He wants to bring down the public sector borrowing requirement; he wants to cut expenditure; he wants to bring down inflation. There is some movement in that—there is no doubt about it. He cut £8 billion last year and is on for a target of £28 billion.
In that environment, why did the right hon. and learned Gentleman not say that we could be softer on the elderly sector of the community? Is it because the Government have another agenda? Do the Front-Bench spokesmen have to be tougher that anybody else in the Conservative party now to get any support for any future position? It would have been sensible and politically adept of the Chancellor to relax in this Budget—not to have put the 17.5 per cent. VAT on fuel; to have worked out another taxation strategy; even to have let borrowing go up slightly. The cost would not be so fantastic that it would affect the Government's calculation over the longer 1276 period. I do not understand why they did not do it. Is it because they are determined to go down in a suicide pact on one vote or another?
On the question of taxes, I had thought that the Conservative ranks always looked for the support of the middle income person. In fact, every analysis of the tax burdens placed on such people in the previous two Budgets and this year's Budget shows that Mr. and Mrs. Average will be hit. Some of the figures struck me as very interesting. Someone earning £14,000 a year will be £9.52 a week worse off under this Government. Someone earning £19,500, which is roughly what Mr. and Mrs. Average earn in the community in which I live, where we have quite high average earnings because of the petrochemical industry, would be £12.52 a week worse off.
Getting closer to the Mr. Average who socialises with Members of Parliament, someone earning £29,000—which is about what Members earn—would be £21.58 worse off a week. That sort of salary is usually a joint income in my community. Someone earning £40,000, a potential Conservative voter in most parts of the country other than in Scotland where people's income does not take away their social conscience, would be £26.74 a week worse off. Someone earning £60,000 would be £32.50 a week worse off. On earnings of £80,000, someone would be £38.26 worse off. Even someone earning £100,000—which must be natural Conservative-voter territory—would be £44.02 worse off.
Not only are the Conservatives attacking each other, which seems to be their favourite sport this season; they are attacking the people who have given them their present mandate and the mandate that they have held for the past two Parliaments. Tax is not something in respect of which the Chancellor is doing the Government any favours.
§ Mr. GallieThe hon. Gentleman has just referred to someone earning £100,000 a year. I suggest that that person is considerably well off and certainly does not move in the circles in which I move. The hon. Gentleman referred to the high levels of tax that such individuals are charged. In the past, the hon. Gentleman said that the Conservative party has not hit such people with high tax bills, but he is now arguing the reverse. There seems to be some confusion.
§ Mr. ConnartyWhen the hon. Member for Ayr speaks, there is always confusion—not just sometimes. The elements of tax are income tax, national insurance, VAT and other indirect taxes. There is no voter in the country who does not know that this Conservative Government are the Government of high taxation. All voters have got the message that indirect taxes have substituted for direct taxes and that we are carrying a higher and more unreasonable tax burden than our neighbours in Europe.
We are talking about incompetence. If the tax burden was meant to lead to investment in manufacturing to reclaim our manufacturing industry given that it has been almost destroyed by Conservative ideology, we would not mind. People would put up with that. However, people are fed up with paying high taxes because of the Government's failure and the fact that 5 million people who want to work are languishing on benefits or the dole—[HON. MEMBERS: "What?"] If hon. Members want to challenge my figure, they can do that later. I am interested in employment. I am carrying out a task for the 1277 parliamentary Labour party in Scotland which has made me look closely at employment and unemployment figures. We can debate whether unemployment is at a certain level and whether investment is at the level that the Government claim it is or whether it is heading in the direction in which everyone else says it is heading, but the Government are not listening.
According to the Scottish analysis, a single parent will be £5 a week worse off. On average, a pensioner couple will be £2 a week worse off. A low-paid family will be £2.20 a week worse off and a higher-paid family will be £3.80 worse off. An average family on an average wage will be £1.15 a week worse off. A single person will be £2 a week worse off.
That is the result of this Budget. That is what the Conservatives have done in the Budget to the people whom I—perhaps falsely—thought they were trying to win round. The Conservatives must know that they have to win the people round because the Conservative party is not the electors' favourite party. The electorate will not wait long enough for the Government to get their act together and get the economy going.
I want to consider the real economy. The Chancellor has done something about inflation. My Opposition Front-Bench colleagues may not want to jump up and down about this because that could have created the headline: "Opposition Front Bench commends Chancellor". However, I believe that controlling inflation is a good thing. Inflation is not necessarily generated by the United Kingdom Government. It is created mainly by world forces and those who control oil prices and the prices of the raw materials that we used to get so cheaply when we exploited the world as our playground and as a source of cheap raw materials. When fair prices began to be charged, the British economy could not cope with that and we have been paying the price ever since.
There is an investment debate in respect of the real economy and I want to consider some of the statistics provided by the Government in their "Financial Statement and Budget Report". I presume that the Government did not put the statistics together on one side while they drew up the Budget. They must have collected the statistics at the same time as they drew up the Budget.
The most important point is the level of fixed investment in the economy. That is the measure of our ability not just of coping at the moment or taking advantage of the world upturn or the trade cycle or Germany's recovery from its depression and from its problem of overheating when it took in East Germany. According to page 27 of the Red Book, business investment was only 1.25 per cent. higher than it was a year ago. That is not enough to put our economy on an upward growth path. It is enough for us to turn over and take some advantage of the trade cycle, but until the upturn reaches 3 per cent., we will not be able to say that we are investing enough to be on a growth path.
As my hon. Friend the Member for Brent, East (Mr. Livingstone) said earlier, we are slightly hiccuping up on a continuously downward trend. That is clear if we consider the statistics over a considerable period. There is clearly a downward trend in investment in this country. Chart 3.11 on page 27 of the Red Book shows that there has been a decline from 1989. According to that chart, the estimates suddenly take a sharp upturn for 1994 to 1996. However, there is no evidence that that is happening.
1278 I attended a briefing with the Engineering Employers Federation a couple of weeks ago. The federation makes it clear that, in terms of investment,
The 24 per cent. reduction in fixed investmentby volume in the manufacturing industry since 1990 is a very significant trend. If we cannot get our manufacturing investment up, we can only eke out our spare capacity in the upturn. We must take the next step and jump out of the trough and begin to grow. There is no evidence that that is happening so far.According to the federation's table on fixed investment in manufacturing and non-manufacturing, it is clear that engineering fell steadily from the third quarter of 1989. The latest figures available, that is for the first quarter of 1994, show the same downward trend. In engineering and non-manufacturing, there is a bit of a turn up after 1992.
What element has caused that? It may be a positive element. It may be possible to say, "Yes, we are doing something. Our manufacturing industry is turning up." However, that is actually happening in housebuilding. It is the same old trap for the Conservative party that was in evidence during the Lawson boom when the Government pumped up the economy which pumped up the housing sector. At the end of the day, after the Lawson boom, it went down like a deflated balloon.
Page 28 of that wonderful document, the Red Book, shows that Government fixed investment rose by 5.25 per cent. in 1993. Despite themselves, the Government are way ahead in percentage terms in investment in comparison with the rest of the economy, so what are the Government going to do? The Chancellor said that he was going to cut several hundred million pounds off the roads programme.
When that element of the roads programme switches to private investment, that will not be investment in new projects. It will be investment in exactly the same projects for which the Government should have been responsible. However, if they ever come off, it will be called new investment. I have never quite managed to work out why the Government are so pleased when they can do that. It is the same investment and it has the same result for the real economy.
What can we do? It is important that we consider what could have been done in the Budget to get out of the trough and to leap beyond that turnover percentage. The Engineering Employers Federation did an excellent job by making recommendations for the Government but the Government did not seem to pay much attention to them.
The EEF sent us all a brief and I have kept in touch with the federation in Scotland and in England for some time and I believe that the federation should have been listened to. The Engineering Employers Federation said:
Inflation indexation of existing capital allowances for plant and machineryshould have been brought in. It also suggested a100 per cent. capital allowances for the initial £200,000 of plant and machinery investment".The Chancellor and others often talk about quality investment. They would leave it to companies: they are not given incentives so they pick the best projects in which to invest. That is rich coming from a Government who brought in the business expansion scheme, which was supposed to be the last marvellous incentive for industry. It brought about a massive, pumped-up level of housing investment. It did not create many more houses, 1279 but it created massive inflation in house prices. That was caused by a Government who were badly tailoring, badly guiding and badly constraining an investment package. The bubble burst. I bought a flat in London which was worth almost £20,000 less than was paid for it two years earlier. People could not get their equity back. They had to abandon their homes because their mortgage debts were worth more than their properties.All that we needed to achieve quality investment was for the Chancellor to heed the suggestion of the Engineering Employers Federation and say that the proposal would apply only to plant and machinery and only to things that can be sold. Things that should have been done were not done, and things that should not have been done were done.
The Chancellor made much of employment levels. I was in the House in October when the right hon. and learned Gentleman said that we should not take account of people on benefit because there was a problem with that. We had statistics showing that 500,000 new people were on category E income support—that is, for disability, single parenthood and sickness—and that 2 million people were receiving that category of benefit who did not register as unemployed. We were told, "Don't look at that, look at the work force count."
I always like to consider matters that the Chancellor recommends, on the basis that he thinks that he is an intellectual, as my colleagues say, because he wears Hush Puppies. I have never liked Hush Puppies, but the Chancellor obviously favours them. I do not think that they are the mark of an intellectual. Perhaps they are the sign of someone who is locked in an era before people wore sensible shoes. However, the Chancellor told us to look at the employment count, so I have been looking at the employment count in the House of Commons research documents.
The 1994 figures show that there are 1,992,300 fewer people in the work force. That includes people in employment, the self-employed, Her Majesty's forces, and people on work-related Government training programmes. There are almost 2 million fewer people in employment now than there were in 1990 at the previous peak in unemployment in England and Wales. According to the Scottish statistics, there are 55,000 fewer people in employment in Scotland than there were in 1991.
The Chancellor says, "I don't mean that you should look at the work force count. I was only kidding. You should look at something in this wonderful document that the Government have produced." At page 31 of the "Financial Statement and Budget Report" we find that the labour force survey is mentioned. Much to my amazement, the right hon. and learned Gentleman told us in his Budget statement that there are 334,000 more people in employment in 1994 than there were in 1992–93.
We are always told that employers are closer to the Government and that they are the people whom the Government should consider. Their statistics are almost the same as those in the research documents of the House of Commons, which show that almost 2 million fewer people are employed in our economy. The balance of two to one is against the Chancellor. We must seriously consider how his policies and those of past Chancellors have affected employment. We have a £40 billion to £50 1280 billion deficit in the public sector borrowing requirement because people are not employed. They are not contributing in taxation. They must live on benefits and other support. That is the crux of the problem in our economy, and it is closely linked with the statistics relating to investment levels in the United Kingdom economy.
Some of the employment measures that the Chancellor mentioned are deeply offensive. Once or twice, he mentioned the encouragement of low-paid employment—saying that we should actually encourage people to take low-paid employment. I do not see the virtue in that. I see a virtue in work and in employment. The Chancellor seems to be fixated on the idea that there should not be a national minimum wage. The Government wave Euro-banners which they hope will frighten the public and stampede them into voting for the Conservative party.
There is no evidence around the world that jobs are lost if people are paid a decent wage. I believe that Winston Churchill said that if we do not have wages councils and minimum wages, we will have poor employers at the cost of good employers. We have a strange system in which family credit means that poor employers who pay low wages are supported by taxpayers. Employees are paid low wages to keep them at an adequate standard of living, not a decent standard of living, while the employer is commended by the Government for creating low-paid employment. It is a very strange country indeed.
We heard the Chancellor say that exports are turning up. Nothing from the Engineering Employers Federation confirms that. Its analysis of exports and imports is that imports are increasing faster and staying ahead of exports in manufacturing. As the analysis is that fixed investment in manufacturing is not increasing in the productive and non-building sectors at the required speed, we will soon run out of capacity to compete with imports. We will suck in imports so that we can fulfil suppliers' demands even from our local economy. Certainly, in respect of products that we send to other countries, there will be a greater percentage of foreign input. That is the consequence of not getting back on a manufacturing track. The Chancellor stands rightly condemned for that.
The Engineering Employers Federation candidly says that, in 1993–94, we are having the benefit of a once-and-for-all effect of the devaluation of the pound in the autumn of 1992. When we are on a level playing field, we will fall badly behind our European and other world competitors.
There has been a sharp increase in electronic imports and an exceptionally high level of aerospace equipment imports. That is not to be commended, because they are supposed to be at the sharp end of high technology.
I shall give another statistic on the problem of fixed investment, as I want to place on the record the matters that the Government have failed to address. In 1971, more than 10 per cent. of our net domestic product was in net fixed investment. We are now talking about 5 per cent. The trend is clearly downward. There are little blips, but there is mostly a continually decreasing trend.
Having dealt with several points of interest to the economy, I shall refer to one or two matters that I found rather offensive. In fact, I probably shouted from a sedentary position yesterday, because it seemed that the Chancellor's housing benefit amendments attacked people at the poorest level. We know the rents that people must 1281 bear. I place the statistics on the record because they are very important. Average local authority rents have risen by 35 per cent. since 1988. Housing association rents have doubled in the same period. Private sector rentals have risen so rapidly that the mean assured rent was £53.65 a week in 1993–94. Government pressure mounts to cut the housing benefit bill.
When I was the leader of a council, we went through the trauma of the Government switching support from bricks and mortar, to which everyone then had access, to support only for people who could prove that they were on low incomes. I always found it rather odd that, if I wished to buy a house, I could get mortgage interest tax relief on up to £30,000. People who had to pay rent had to prove that they were very poor before they could receive any state subsidy. I personally look forward to the day when there is no mortgage tax relief, because I believe that it should be replaced by a housing benefit for everyone. Those in the private and public sectors should gain some support for the principle of having a roof over people's heads. They should not be discriminated against on the basis of whether they are poor or not.
There have been eight amendments to eligibility for housing benefit to take people out of housing benefit. It is becoming more and more difficult to get an adequate level of housing benefit, and the latest attack will make it more difficult for more people.
I do not know why the Conservatives are doing what they are doing if they are looking to win an election. They appear to be attacking people who, at this moment, are in great difficulty anyway. If people with a mortgage become unemployed or are made redundant, it is a difficult trauma because they obviously thought that their standard of living was rising and thus went into the private sector.
The Chancellor announced that he is going to find a way of cutting support for such people, so from October 1995, if they take out a mortgage they will lose everything if they are made redundant. Those people will not get support from the Government in the way that others do at the moment. I think that that is a foolish move and one that will obviously deeply offend many of the people that the Government are looking to for support.
The Government have not managed to deal with the problem that they created with the explosion of the Lawson boom. A total of 160,000 people are in serious mortgage arrears in 1993–94 as a carry-over consequence of the Government's responsibilities in that period.
I want to make one or two comments about the effect on Scotland, because it seems to me that, as usual, Scotland will bear the brunt of the Government's attacks. The Scottish budget will go up by only £220 million to £14.3 billion—a rise of 1 per cent. That means in fact that the Scottish budget will be seriously cut.
That budget will be wholly inadequate in providing housing in Scotland. It means that—I know that the hon. Member for Ayr understands this—the effect of the local government reorganisation and transition costs added to that will cut available moneys for public services very severely.
The effect of the care in the community programme will not be paid for by the rise in funds available for councils in Scotland. There will be massive cuts in services in other areas so that community care can be brought in.
1282 I want to make one special plea in relation to something about which the Chancellor has failed to do anything. I represent the port of Grangemouth. It received a very good submission from the National Union of Marine, Aviation and Shipping Transport Officers about the Budget, which presumably went to the Chancellor as well but about which nothing was done.
The figures in the NUMAST submission show that in 1976 there were 1,614 ships under United Kingdom ownership. We are down to 258 ships in 1994. The age of those ships is now an average of 15.4 years, and only one fifth of our fleet are under 10 years old. The average in the world is one third of fleets 10 years old or less. We are not the great seafaring nation that we were. We are not looking seriously at the needs of those who work in shipping and exporting and those who get the added value.
Currie Line, the firm at the port that I know best, has to lease German shipping in order to ship materials from the United Kingdom. That is the pattern now. Germany has put in place a financing method whereby small investors can get together to form a consortium, buy into shipping and then lease it out to the world. The British—the great sailing nation of the world—now have to rent German ships in order to export British goods. That has become a shame on this Government and they must look at that matter very seriously.
§ Mr. Eddie Loyden (Liverpool, Garston)My hon. Friend has raised a very important point which, as far as I can see, the Government continue to ignore. Future projections regarding shipping investment are tremendous and the increases in investment in shipping that will be made over the next decade will mean that this country will be left far behind the rest of the world. We are a maritime nation and rebuilding the British merchant fleet will not only mean a great deal to Britain's economy but will improve the viability of shipyards in Tyneside, Merseyside and Clydeside. The skills that they have accrued over many years could be adapted to future shipbuilding to give this country a great role to play in the industry's future. My hon. Friend has raised a very important point.
§ Mr. ConnartyI am very grateful to my hon. Friend.
I do not represent anything that could be called a shipbuilding area; as he represents Liverpool, Garston, my hon. Friend obviously has a greater knowledge of the industry than I do.
As a Scot, I can plead one unique statistic to quote. The largest passenger-carrying fleet in Britain today is the MacBrayne fleet, which plies its trade between the islands of Scotland. It was always seen as a joke by the great liner and shipping companies of the past but it has now become the single largest passenger-carrying fleet in Britain. That is a shameful indictment of the Government.
I conclude by saying to the Conservatives that the Budget did not help anyone. It was not a boring Budget; I am prepared to be bored by someone who is being rational and is showing a little sensitivity. Often when people talk about responsive policies they do not do so in histrionic terms. It was a Budget which showed that the Government did not really care about anything apart from their own wish to be re-elected and to store up some goodies in the cupboard to dish out before the next election.
1283 I think that the public have twigged that. They took the pill last time; they said, "We'll give them one more chance," and they have been seriously let down. They have been betrayed on the promises about VAT and they have been betrayed on all the promises about the economy. It is no longer enough to stagger along; if Britain wishes to recover, it needs to get off its knees. I am afraid that the Chancellor did not in any way give us the incentive to do that.
§ Mr. Paul Marland (Gloucestershire, West)I was absolutely shocked by the speech of the shadow Chancellor of the Exchequer. I have never heard such a shallow, ill-thought-out sham from someone who poses as the chief economic spokesman of the Labour party.
In fairness to the hon. Member for Falkirk, East (Mr. Connarty), at least he tried to put a constructive argument together. However, it was heavy going following much of what he said. When he talked about a housing subsidy for everyone, I am afraid that he lost me completely.
I agree with the hon. Member for Brent, East (Mr. Livingstone)—it would have been very nice to hear a little more about what the shadow Chancellor has in mind for the economy. Instead, we heard something—it is a pity that you were not hear to listen to it, Mr. Deputy Speaker—which was more like a musical turn than a serious speech. He failed to recognise that the economy does not stand still and that circumstances and conditions change. Instead he bleated about the Government not having made these changes years ago. The fact is that conditions change.
The hon. Gentleman suggested that we should plunder funds from the sale of council houses. He said that this was the great salvation: everyone will be in work if we dig into that money. That is utterly ludicrous. He does not seem to realise that the money is invested to keep down the rate of council tax. What will happen to council taxes if we spend all the money which has been squirrelled away from the sale of council houses?
The hon. Member for Coventry, North-East (Mr. Ainsworth) said that there was fear in the countryside. I believe him. I think that people are frightened by the horrendous thought that the hon. Member for Dunfermline, East (Mr. Brown) might one day take the place of my right hon. and learned Friend the Chancellor of the Exchequer, who has just come into the Chamber.
Thoughtful commentators recognise the value of my right hon. and learned Friend's Budget. Large employers and many other people have commented that it is quite a dull Budget, with nothing much for the larger employers. Today when larger companies invest, information technology means that they invest in plant and machinery rather than in people. But I have heard small employers say on the radio—it is rather refreshing to hear favourable comments about the Budget on the radio—that my right hon. Friend's measures will help to create more jobs for the long-term unemployed.
So I welcome my right hon. and learned Friend's speech. What he has achieved by sticking to principles is excellent. I believe that principles in political life are essential. We have principles in the Conservative party and we stick by them. They include opportunity, 1284 ownership, low direct taxation, helping those who are in need and promoting and endorsing the principle that the user should pay through value added tax. I agree with that.
In recent years, whenever VAT has been discussed, we have been reminded that food, rent, fares and children's clothes are zero-rated. We always took some pride in the fact that fuel for domestic heating was also zero-rated. I applauded that. I am sorry at this stage to have to sound a note of discord. To me, VAT on domestic heating and lighting costs goes against the grain. Heat and light are essential. Every family in the land is affected by the tax. People have no way of choosing to avoid it. I like indirect taxation because, if people do not want to pay the tax, they do not spend the money in the first place. They can save it. With VAT on heating, there is no way of avoiding paying.
I applaud the extra money that has been made available for the insulation of homes. It costs a lot to insulate homes, yet, I am sad to say, those who live in rented accommodation may not have an opportunity to make use of the money that has been made available. Much of the rented accommodation that needs to be insulated is in Labour-controlled boroughs. Those authorities will not make money available to take advantage of the opportunity to conserve energy in such homes.
§ Mr. ConnartyThe hon. Gentleman knows more about farming and investing in Lloyd's than running public authorities. As a former vice-chair of the Convention of Scottish Local Authorities, I assure him that the heatwise, heatsave and energy saving schemes came from local authorities. They did not come from central Government Departments. They were all introduced by local authorities, which have asked for funding. They asked not for a piffling £10 million a year but for a great deal more to get up to the speed of the rest of the continent.
§ Mr. MarlandI have already commented on the hon. Gentleman's belief that everyone should receive a housing benefit, so I regard with some scepticism his point that the idea of insulating homes came from local authorities. I am sure that they would like to join in with that, but the point that I made and which I stick by is that the landlord has to make a contribution if people who want to insulate their home live in rented accommodation.
Sadly, as we heard earlier from my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), too many Labour-controlled local authorities have large debts and cannot come up with the money to pay their share of the cost of insulating their properties. That is a disgrace. It is a fair indication of the way in which the Labour party, whether potentially in national government or in local government, talks a great deal but effects poor stewardship of our affairs.
I approve of the aim and ambition of my right hon. and learned Friend the Chancellor of the Exchequer to hand back considerable sums of money to help pensioners and those on income support with their heating costs. However, I am worried about those who struggle to earn whatever money they can and are just above the threshold. They are on low incomes, but their income puts them just above the threshold. They will receive no help with the extra cost of heating.
In my constituency, pay levels are pretty modest. I would have liked the Budget to keep everyone in the Forest of Dean warm on cold winter nights. Furthermore, massive rebates go against the principles of a Government 1285 who believe in deregulation. Rebates are well intended but costly. There will be some winners and an awful lot of losers.
The proposal reminds me of selective employment tax, which was a muddle created by the Labour party. I remember wrestling with it when I was trying to run my farm—to which the hon. Member for Falkirk, East referred. Selective employment tax was a muddle and a mess. We should not go down that path.
I have found in my constituency that there is a considerable problem with communication about increases in the pension to compensate for VAT on heating costs. If the proposals go ahead, which I am sure they will, and increases in pensions are given, the Government should make more effort to ensure that pensioners understand precisely what proportion of their increase comes from the compensation package to give them more help with their heating costs.
The only people who will be genuinely pleased with the system of enormous rebates are those who will administer them. I believe that we have far too many administrators already and not enough people adding value and creating wealth. We have too many people redistributing other people's efforts. We have learnt that the economy is going much better than forecast. That is a great credit to my right hon. and learned Friend's stewardship of our affairs.
However, it is high time that we demonstrated to the citizens of Britain that we want them to share in the success of this Administration. It is a great shame that it has not been possible to drop the second tranche of VAT so that a little warmth could flow into every home in the land and people could share our success.
My right hon. and learned Friend the Chancellor rightly asked where those who suggested that the second tranche should be dropped would get the money. I made some inquiries this morning in the statistical section of the House of Commons Library. I was told that the revenue from the second tranche would amount to £1,500 million. That is the figure that my right hon. and learned Friend has used on the radio. From that we have to deduct the refunds to pensioners and others, which amount to £600 million. That leaves a net gain of £900 million. From where could we obtain that amount?
The increase in road fuel tax will yield £1.33 billion. I believe that we should have put another penny per litre on road fuel tax and let pensioners and everyone else share in the recovery of our economy. The rest of the money could have been mopped up from the general economic recovery. That is what I suggested that we should do. I hope that by now I have made clear my view on the imposition of the second tranche of VAT.
I should like to move now from one struggle to another. This struggle involves small businesses and modest property owners. The problem that I want to bring to the attention of my hon. Friend the Paymaster General is highlighted in a small town in my constituency called Cinderford. I make no apology for being parochial because the town demonstrates the problem. Sometimes things are easier to understand if a real example is put before us.
Cinderford was once the busiest town in the Forest of Dean. All the local activity revolved around it. However, over time other towns in the district—Lydney, Coleford 1286 and Newent—have flourished while Cinderford has declined. That small town now has far too many empty shops and offices. It looks rather dreary.
In order to do something about the problem, the mayor of Cinderford, Mr. Graham Morgan, and I have put together a task force of local business men and wealth creators. Graham Morgan is a socialist. He and I have decided that we will put our party differences to one side and work together for the benefit of the citizens of Cinderford. It may interest hon. Members, especially Labour Members, to know that Graham Morgan's peer group in the Labour party in the Forest of Dean is extremely cross with him for working with the wealth creators and me to solve the problems of the town. I get the impression that too often they would rather leave the town in its current difficult circumstances and do little about them.
So poor Graham Morgan has been criticised by his peer group. I respect him for standing up to that criticism and doing what he can to help out.
§ Mr. ConnartyMay I suggest, to assist the hon. Gentleman, that he should go to Stirling and talk to people there? It has a Conservative council because of a strange quirk of the electoral dice. He will find a pattern through the 1980s similar to the one that he describes. He might find some good examples in which there was no antagonism between the parties because the purpose was local wealth creation.
§ Mr. MarlandI thank the hon. Gentleman for that suggestion. I appreciate it, but I shall now stay with my speech and I shall not give way again.
I do not see why what I suggest for Cinderford should not work for Stirling as well. One of the biggest problems that has emerged during the past five years is the fact that 50 per cent. of the uniform business rate is payable on empty shops and offices after three months.
The charge represents a huge drain on the owners, many of whom are people of modest means who saved like mad to buy the property, but find that instead of being an asset it is turning into a millstone around their necks. They have no money to paint the shop front, to do it up inside or to promote their premises and attract a new tenant. The uniform business rate is such a drain on their resources that they often find that they must dig into other savings accumulated during their working lives so that they do not get into trouble with the local authority. Banks now regard shop premises not as the asset that they should be but as a possible liability that may drag them and the person who borrowed money to buy them into considerable trouble.
We must encourage small business people. The imposition of 50 per cent. of the uniform business rate on shops and offices that have been empty for more than three months is a disgrace. Local authorities have no discretion over the rates and the situation is causing much resentment.
When I took the matter up with the Department of the Environment, I was told that owners of such premises had to pay 50 per cent. of the rate in case they wanted to call out the fire brigade or the police force. That might happen in some unfortunate circumstance, but it seems over the top to charge 50 per cent. of the UBR in case someone 1287 has to call out the fire brigade. I should have thought that 5 per cent., or a maximum of 10 per cent., would be much more in order.
The anger of shop and office owners is compounded when they discover that the owners of empty factories and warehouses do not have to live by the same rules. They do not have to pay any uniform business rate if their premises are empty for more than three months. It is utterly wrong that one proprietor should have to pay when the other does not. What happens if an empty factory is vandalised or catches fire? Would their owners not call the fire brigade? The owners of empty factories should pay the same as shop owners, or better still, those who own empty shops should pay nothing at all.
In Cinderford, to give the town a boost and make the high street look busier, the owners of empty shops are willing to let other traders dress their shop windows. It gives the town a better look as they try to stimulate business in their shops. That is a generous and a good idea, but there is a problem. The full amount of uniform business rate becomes payable if the windows are dressed. The local authority has little or no discretion in the matter. If it did and the district auditor found out, he would pounce.
A little local initiative is being strangled at birth and a shop owner who once thought of his or her property as an asset has found that it has turned into a liability. I am sure that a similar problem exists in Stirling.
Will my hon. Friend the Paymaster General reflect on what I said about the UBR and its impact on the local business community? We want businesses both large and small to flourish, but we are seriously penalising those citizens who have made a commitment, saved up to buy their commercial property and find that it has turned into a millstone. Will my hon. Friend discuss that scourge—UBR on empty premises—with his right hon. Friend the Secretary of State for the Environment to find out whether they can come up with something practical and instant between them to help our small businesses?
§ Mr. George Stevenson (Stoke-on-Trent, South)First, I congratulate the Chancellor of the Exchequer—Conservative Members may be a little surprised about that, but I congratulate him on his sheer brass neck.
We are witnessing a classic Conservative strategy: first create the problems and then claim the credit when they begin to be less of a problem. The Conservative party and the Government would love people to forget the past 15 years and to concentrate on what is happening now. The Government talk about reducing unemployment and give statistics and figures that everyone knows are massaged out of existence, but they want the people to forget that they trebled unemployment. We are here to ensure that they do not.
The Government want the country to forget that they murdered 30 per cent. of our manufacturing industry and that—as we heard from my hon. Friends—they are continuing the policies that did that. Conservative Members continually talk about manufacturing industry, but they have only to look at the statistics to realise that, in spite of what the Chancellor said, our manufacturing industry continues to decline.
1288 The Government create the problem, hope that the country will forget that fact, and then claim some credit for any marginal improvement that may take place. There has been an improvement, they are taking the credit for it, and saying that it is a result of deliberate Government policy. They want the country to forget what happened on black Wednesday and the fact that that selfsame Government deliberately kept to a policy that slaughtered our economy and destroyed whole tranches of our manufacturing base year in and year out, until they were thrown out of the exchange rate mechanism. Of course, we know what happened after that.
We are looking at a blip, but the trends are there for us to see. We do not intend to allow the Government to get away with it. We do not intend to allow them to con the people into thinking that the past 15 years do not matter and that the only thing that does matter is what the Chancellor said yesterday. The Government know what they are about and have put their case subtly and ably. They want to concentrate on the here and now and they want the country to forget what has happened in the past 15 years. I believe that the people understand that.
I listened with great interest to the hon. Member for Gloucestershire, West (Mr. Marland) when he talked of principles. I happen to agree. I know the hon. Gentleman well and was glad that he raised that issue. Where was the principle in a Government who told the country, "We have no intention of raising taxes"? Where was the principle when the Prime Minister, when challenged, deliberately told the people that there would be no extension of, or increase in, value added tax?
The hon. Member for Gloucestershire, West and his right hon. and hon. Friends preach to us and to the country about principles, but they should examine theirs first. If they did, I am sure that we would hear no more lectures about principles. We remember January and March 1992, when the Prime Minister gave commitments to the people on taxation and VAT. We shall continue to remind them of those commitments and to ram them down the throats of the Conservatives at every possible opportunity, so we want no lectures from Conservative Members about principles.
I wish to refer to a comment made by the hon. Member for Bournemouth, West (Mr. Butterfill), which was probably a part of the Conservative party's strategy to convince the country that everything in the garden is rosy. The hon. Gentleman said that pensioners would be better off as a result of the VAT increase. I do not know where the hon. Gentleman gets his figures, but no statistic can justify that statement.
Let us take that logic a bit further. When the Chancellor extends VAT to passenger fares, books, children's clothes and possibly food—as I predict that he will—presumably hon. Members such as the hon. Member for Bournemouth, West will tell pensioners and the British public not to worry because, although the Government are imposing extra taxes, they will be better off.
The Government have failed to understand, and continue to do so, that pensioners and the low-paid do not believe them when they talk about taxation and about the meagre compensation package with which they try to alleviate the effects of VAT increase. They do not believe the Government—not because of how much VAT that compensation package may offset in their bills—but because you told untruths. [Interruption.] I nearly did say 1289 the dreaded word. They do not believe the Government because you went to the country and gave promises which you cynically broke at the first opportunity.
§ Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)Order. I hesitate to intervene, but the hon. Gentleman keeps referring to "you". The Chair is responsible for none of the things of which the hon. Gentleman is speaking. He should refer to Conservative Members.
§ Mr. StevensonI apologise, Mr. Deputy Speaker. I am still on a learning curve, and I apologise if I gave offence to any right hon. or hon. Member.
I return to what is a very important point. The people do not trust the Government, not because they have produced a compensation package which they keep pushing, but because the Government broke their promises. That is why people are angry, and that is the reason why the Government will never again be trusted, particularly when they talk about taxation.
Another element of the imposition of VAT which is a real source of anger is that, of all the taxes that the Government could have chosen to reduce the PSBR, they chose the most regressive tax. They chose the tax that will hit pensioners and the low-paid worst.
The Opposition have been challenged by the Government to talk about alternatives. The hon. Member for Gloucestershire, West pointed to one alternative, and there are many others. So let us have no more talk from Government Members about there being no alternatives. Hon. Members know that there are alternatives—what is missing is the political will to address them.
I shall give the House an example of a matter which the Government have not yet addressed, but which I hope that they will address during the debate. When the electricity companies were privatised, they were given the national grid, which was valued at £1 billion. They are now about to dispose of it, and its value is about £4.5 billion. What are the Government doing about that? Are they simply going to wring their hands and say—as the Prime Minister often says—"It is nothing to do with us"?
The national grid was a public asset which was cynically given away by the Government. The people who are in charge of that ex-public asset are about to get a massive windfall. Are not the Government even prepared, in the public interest, to look at that windfall to see what can be done with it? Nobody in the regional electricity companies has done anything for it—the windfall will be a gift to them from the Government. Christmas is coming early for the regional electricity companies.
The Government and the Chancellor have made their usual attack on public expenditure. I was interested to hear the Chancellor talking about how public expenditure would be cut, and I remembered that that was the same Chancellor who sent a letter saying that, between now and the end of the decade, the European Union budget was to increase in volume terms by 16 per cent. There we have the hypocrisy of the Government and the Chancellor. On the one hand, public expenditure is to be cut drastically in this country. On the other, the Government are perfectly prepared to increase the European Union budget in volume terms by 16 per cent.
Where will those cuts fall? Housing is one example. In my constituency, the waiting list for social housing increased by 12 per cent. last year, and the housing investment programme submitted by Stoke-on-Trent 1290 showed that it needs to double its provision of social housing to meet the demand. There is no chance of that at all. People, including young couples, who are waiting for housing will get no joy at all from the Government.
If I have one major criticism of the Budget, it is that I did not hear the Chancellor, or any of his hon. Friends, address chronic short-termism. It is a fact that we suffer from short-termism. Banks and financial institutions want their returns quick and high. If one tries to invest over a period of five years, one is not likely to get any positive response from them. Short-termism is rife, and the Budget does not address it at all.
Share dividends are going up, and average dividends have risen by between 8 and 10 per cent., yet investment has dropped to levels equivalent to those of 1979. We have billions of pounds which could be used in positive way, but they are not being used in that way because of short-termism. The Chancellor of the Exchequer did not address that issue at all. One can conclude only one of two things—he does not recognise the problem or he is not bothered about it. If the Chancellor has taken either of those two views, the Budget will fail the country for that, if for no other, reason. Unless we get to grips with short-termism, we shall not get the economy moving in the way in which we want it to.
I shall conclude by making a few remarks about the Government's frustration at the lack of the feel-good factor. I know why that factor does not exist in my constituency or in the midlands region—Severn Trent Water has just announced another 750 job losses, and job losses in our manufacturing capacity are affecting people in my constituency. They do not have the feel-good factor because the Government's policies—in spite of what we are told—are simply not working in a way that will positively affect the ordinary people of this country. They still believe that their jobs are not secure and that their children and other young people have no future.
The Budget has done nothing to address those fundamental issues and until the Government do so there will be no feel-good factor, no matter how hard their propaganda machine tries to convince people that they should feel good. The Government cannot continue to tell people that; they can only produce the policies to engender that feeling. For years the Government have failed to deliver such policies and, as a result of the Budget, they will continue to fail to do so.
§ Mr. Nicholas Winterton (Macclesfield)I have been listening with considerable interest to the hon. Gentleman, who represents an area where manufacturing industry is important. I accept that there is a lack of a feel-good factor and that the Chancellor has done very little to help the manufacturing industry. He also failed to discourage short-termism. Does the hon. Gentleman accept, however, that there are many good economic indicators? For example, unemployment has fallen by nearly 500,000, the rate of inflation is at a 27-year low and our growth rate, at 4 per cent., is the highest in Europe. Surely those indicators herald well for the future.
§ Mr. StevensonI can tell the hon. Gentleman quite openly that I do not accept the unemployment figures because they are false. I said earlier, however, that some improvements are apparent in the economy, but as I pointed out, they have nothing to do with Government 1291 policy. The Government have benefited from them almost by accident and the hon. Gentleman knows that as well as anyone else.
We could make a start on improving the economy if, next Tuesday, right hon. and hon. Members of the Conservative party joined us in voting down the second stage of the VAT increase. That would force the Government to rethink their strategy and perhaps we could then make a start on getting the country back to work.
§ Mr. Barry Legg (Milton Keynes, South-West)Budget days are great occasions in the parliamentary year, but in any modern economy people would be wise not to overestimate the effects that a Chancellor or a Finance Minister can have upon the economy in the short term, or even the degree of accuracy that may be attributed to any forecasts that are given. The summer economic statement, which the Chancellor presented to the House only four months ago, offers an admirable example of the difficulty of forecasting with accuracy. He forecast that growth in the current year would run at 2.5 per cent., but in the Budget statement that he produced yesterday that forecast had been revised to a growth expectation of 4 per cent. for the current year.
I certainly accept that bad Chancellors and bad Governments can harm an economy, but I believe that the best Chancellors work with the grain of the domestic economy and take into account global economic developments.
There is some pessimism in the country about Britain's prospects, but I think that we have a great deal to be optimistic about, because Britain's performance has improved markedly. The world is moving in Britain's direction, because the policies that we advocated in the 1980s, based on free markets and privatisation, are the very policies that are creating success across the global economy. Free markets are working well; 10 years ago just 1 billion people worked in the global free market system, but now that number has risen to 5 billion people. The global economy has changed markedly, but it has done so in the United Kingdom's direction and to our advantage.
I welcome the Chancellor's efforts to reduce the Budget deficit projections for the coming years. I also welcome the fact that he has endeavoured to cut increases in public expenditure. In the five years to March 1994, public expenditure in the United Kingdom increased by £96.1 billion. If hon. Members take note of that figure they will appreciate that taxes have had to be increased to pay for that substantial increase in public expenditure. I do not remember any Opposition Member, be it the hon. Member for Dunfermline, East (Mr. Brown), or whoever, arguing against those public expenditure increases.
I welcome the reductions that the Chancellor has made in future public expenditure plans. I note in particular that that expenditure is set to reduce, according to next year's forecast, by £8 billion. My right hon. and learned Friend is now projecting a reduction in public expenditure of 0.8 per cent. in real terms next year. That sounds like a pretty tough Budget, but I would draw the attention of hon. 1292 Members to last year's Red Book, in which the Chancellor predicted a reduction in the control total of 1.3 per cent. in real terms for the current year.
This year's Red Book shows that the control total for the current year has increased by 1.4 per cent. in real terms. On public expenditure, there has been a 2.7 per cent. swing between what the Chancellor forecast and what has been delivered. That difference accounts for about £6 billion. Therefore, scope remains for ensuring that departmental budgets are drawn more tightly, and that expenditure is firmly controlled.
I welcome the comments of the Chancellor about reducing the running costs of Government; that is a sector in which a great deal of effort needs to be made, and in which the number of civil servants has expanded quite a lot over the years. The Chancellor has set a flat Budget for running costs in the coming years. I think that he should go further, to ensure that projections are achieved and running costs fall. It is essential that Government Departments and agencies produce projections for their manpower levels for the coming three or four years, and that the Government ensure that those manning reductions are achieved. Much needs to be done to improve the Government's management techniques, and to ensure that that is carried through to the agencies.
The rate of growth in the economy for the current year is estimated to be 4 per cent. That is very strong growth for the UK economy. The Chancellor yesterday said that he would adopt a "neutral" budget stance. I think that neutrality may not always be enough and that, when growth in the British economy is so strong, further tightening on the public expenditure front in addition to what is in the Red Book would have been welcome.
In the past two years, monetary policy has been one of our outstanding economic successes. The Chancellor and his predecessor, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), have established a domestic monetary framework that will ensure that we can achieve low inflation in the United Kingdom. Hon. Members will remember that one of the reasons that was advanced for our membership of the exchange rate mechanism was that we could not achieve an effective domestic monetary framework—that we needed an external guide to achieve low inflation. We have now shown that we can do that in our domestic economy, and we should be proud of it.
Floating exchange rates have worked well in the past two and a half years. They worked extremely well from 1979 to 1986, a period of great economic success for the Conservative Government, and I think that, as long as we hold true to floating exchange rates, economic success for the Conservative Government will prevail.
§ Mr. Nicholas WintertonMy hon. Friend referred to a monetary policy that has been extremely effective. Does he agree that the Chancellor said that he might have to increase interest rates again? Is he aware that the inflationary pressures in the economy are not domestic pressures on the economy but external pressures resulting from the price of raw materials, over which we have no control? Does he accept that it would be devastatingly damaging for manufacturing industry if interest rates were increased again?
§ Mr. LeggI think that inflationary pressures in the economy are well subdued, and that significant increases 1293 in interest rates should not take place. As I said earlier, a tighter fiscal stance would probably have helped to achieve that.
The Red Book has plenty of good economic news in it, especially on the export side. In the current year, exports have increased by about 8.25 per cent. It is extremely good news that export-led growth is emerging.
The report of the Panel of Independent Forecasters, submitted to the Chancellor in November, reflects that dramatic growth in exports. The panel noted that, in July and August 1994, the volume of exports to countries outside the European Community was about 10.2 per cent. greater than the comparable level in 1993, and about 21.1 per cent. greater than the 1992 averages. We are achieving good increases in export volumes. Paragraph 3.53 of the Red Book shows that invisible exports are also growing strongly, and that there was a sharp increase to a surplus of £3.5 billion in the first half of this year.
Earnings from overseas investments are at a record level of more than £4 billion a year. That shows the British economy at its best. Britain is a global trading nation and a global investor, and the changes in the world economy are going Britain's way. We are able to invest successfully in the fastest-growing economies and are directing our exports to those economies. I welcome the changes in Export Credits Guarantee Department cover because they are in line with the endeavours of private manufacturers to strengthen Britain's economy.
I congratulate the Chancellor on reducing public expenditure compared with GDP. It is to come down from 43 per cent. in the current year to 41 per cent. by the end of this Parliament. Public spending under each expenditure heading is being kept flat, is reducing or is increasing by less than the rate of growth in the economy as a whole. The economy is growing at 4 per cent., and, with one notable exception, public expenditure under every heading is increasing by less than that. That exception is the UK contribution to the European Community. The Government have committed themselves, and consider it a high priority to make payments to the EC in excess of the rate of growth in our economy.
Overall, public expenditure is moving in the right direction. The Chancellor had little scope for taxation measures, but those on national insurance contributions and personal allowances are welcome. I was encouraged by his comments on simplification of the tax system, and I endorse the remarks of my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) who pleaded for a root and branch reform of capital gains with, hopefully, a tapering system replacing the present complication and confusion.
The Chancellor has provided the right framework, with tighter control, and an unequivocal acceptance of Britain's global economic interests, which should deliver prosperity and success to the British people.
§ Mr. David Congdon (Croydon, North-East)I think that it was Harold Wilson who said that a week is a long time in politics. A year in politics is a lifetime, and it is easy for hon. Members to forget last year's Budget in which the Chancellor had two key requirements. The first was to reduce the enormous deficit and the second was to 1294 ensure that any taxation changes did not harm the recovery. At that time many people were concerned about whether the Budget judgment would prove right.
It is pleasing to note, and we should never forget, that the past 12 months have been a period of economic success. In that time the economy has turned round. Growth has been 4 per cent. and although some people think that is a little too high, I do not. The public finances have been brought into much better shape. Therefore, last year's Budget was a great success. Likewise, this time next year this Budget will have proved to be a great success.
Last year the Chancellor was rightly tough on public spending when he reduced planned growth. I say that deliberately because my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) rightly said that when politicians talk about cuts in public spending they mean cuts in proposed increases which, of course, are much easier to make than real cuts. This time last year taxes were put up to try to put Britain's budget on an even keel. Therefore, this year, it was obviously right also to try to keep public spending on a tight rein.
It is easy for Opposition Members to suggest that we should increase spending here or not have this tax there, but we should not forget that the public sector borrowing requirement planned for next year will still be £21 billion and be increasing our national debt. Therefore, we cannot take a relaxed view of the PSBR. Quite rightly, the Chancellor judged, and I am sure that most would agree with him, that it would not be appropriate to reduce taxes when public finances are in their present situation.
The Budget provides the opportunity to continue to build on the strong foundation that has now been laid for our future prospects. We have low inflation and we have growth, and for two years running growth will be higher than the level of inflation, a situation that we rarely achieve in the management of the economy.
My right hon. Friend the Member for Hove (Mr. Sainsbury) rightly pointed out that the Government's key role is to create a stable macro-economic framework which enables businesses to get on with their job, which is to produce the goods and services that people wish to buy here and overseas.
Opposition Members talk a lot about investment, but the reality is that businesses invest only if they believe that there is an opportunity to sell more goods arid services. They do not invest simply because Governments or Opposition Members say that investment is a good thing; they invest if they know that they are likely to sell what they produce.
As was pointed out earlier, there is a double edge to the sword of investment. In many areas, more investment will lead to more of the product being produced but with a reduced labour force. It does not necessarily follow that increased investment leads to increased employment. That is one of the problems for all modern industrial economies.
The key is for Governments to keep out of the way and let businesses produce their products. That is why all the initiatives, such as deregulation and freeing up the labour market, are important, but equally important is the need to ensure that the tax burden on businesses is not too 1295 great. Last year's Budget went a long way towards helping businesses and that is one reason for the growth in the economy during the past year.
§ Dr. Robert Spink (Castle Point)Will my hon. Friend give way?
§ Mr. CongdonI would very much like to, but I am short of time.
This year's Budget rightly took the view that something had to be done about the revised business rates and that has led to £600 million of extra expenditure there. I am pleased to see that that threshold has increased and that various other measures have been taken.
At one stage it was predicted that the Budget deficit would be £50 billion in 1993–94. We now understand that it reached a level of about £45 billion. Much has been said about how we arrived at that situation, much of it wrong. Of course, a lot was the result of the recession which meant that some expenditure on cyclical social security rose. But equally importantly, tax revenues were down by £20 billion in real terms between 1990–91 and 1993–94.
It is equally fair to point out that about half of that deficit was the result of growth in spending which was welcomed by all hon. Members. We did not hear many Opposition Members complain when spending on health was increased in real terms by £4 billion, on education by £3 billion and on Scotland, Northern Ireland and Wales by £4 billion. We have never ever heard from Opposition Members where they would cut public spending because, in reality, they would like to see it increased continually.
The trend for public expenditure has been continually to increase. One only has to look at page 134 of the Red Book to see that it normally increases year on year. It rose vastly from the late 1980s, but initially that growth was masked by buoyant tax revenues. Once they declined, there was a high deficit. It is critical that we never find ourselves in that situation again, which is why I welcome the determination of my right hon. and learned Friend, despite the difficulties, to rein back public expenditure.
Despite the tight settlement, I am pleased to see growth in key areas. Much has been said about the health service, but few people have commented that as a result of not clawing back the excess provision made for inflation, which was lower than forecast, NHS expenditure this financial year will grow 3.75 per cent. in real terms. That follows significant growth in 1991–92 and 1992–93.
The Budget provides for another 1 per cent. growth in the next financial year, and in education as well. That is the way to frame a Budget—rein back less necessary expenditure, such as that on administration to which my hon. Friend the Member for Milton Keynes, South-West referred. That will provide the freedom to provide growth in areas where it will be most useful. The NHS has a good record of expenditure growth—70 per cent. in real terms since 1979, and significant increases since 1991.
It ill behoves Opposition Members to complain, particularly in respect of community care, of a shortage of funds when social service departments throughout the country have enjoyed more growth than ever before. It is about time that they got their act together.
1296 I warmly support the Budget and look forward to saying next year that it embodied the right judgment. I am sure that Britain will enjoy continued growth in future years.
§ Ms Hilary Armstrong (Durham, North-West)It is interesting to sit through a large part of a debate and hear different ideas of reality. Several hon. Members claimed to deal with the real world, but their worlds seemed far from those that our constituents face.
The hon. Members for Croydon, North-East (Mr. Congdon) and for Milton Keynes, South-West (Mr. Legg) said how pleased they were that civil service administration is being cut. Their speeches seemed to be based mainly on press releases and they did not seem to have examined the fine detail. Red Book figures for the health service show anything but a real increase in spending of any note this year, and there will be a decrease next year. That is another broken election pledge.
In so many ways, the Budget is dishonest. It is aimed at a short-term fix for the Chancellor and his troubled party, rather than at devising long-term solutions for the economy and the British people. Whatever the Government may like to think, the electorate have not been fooled and will not be fooled. A former Conservative Member of Parliament who now holds a senior post in the Conservative party said:
What we are saying is completely at odds with their experience.There have been too many broken promises and wasted opportunities and too much public money has been squandered.We have had many lectures from the Conservatives about our wish for more public spending but, in the past year, we have identified many spheres where public money has been squandered on the Government's ideological fantasies. Their latest escapade involves a private sector hospital in Scotland, which has not been bailed out although the Government intend to put a further £30 million into it to try to rescue something. It is a waste of money that could and should have been spent elsewhere.
The Budget gave the Government the opportunity to remedy some of their worst errors. The Chancellor was pressed to think again by some Conservative Back Benchers about what people regard as his most heinous crime—his failure to cancel the proposed increase in VAT on domestic fuel from 8 per cent. to 17.5 per cent. Instead, he claimed that he was introducing a wonderful rise in the compensation available but, if one examines the figures, one finds that there is no such rise. The amount that pensioners will receive is no more than they should have expected last week; there is to be no rise over and above what they had already been told.
The hon. Member for Brighton, Kemptown (Sir A. Bowden) has made it clear that he finds the compensation package inadequate. I hope that the Paymaster General will prove that he is listening to what Back Benchers are saying but I am confident that he will not. I therefore hope that the hon. Member for Kemptown will join us in our genuine attempt—[HoN. MEMBERS: "Genuine?"] Yes, genuine. I hope that the hon. Gentleman will join us in our efforts to ensure that the Government learn to listen to people outside.
1297 The Government offered no new money. Instead, the Chancellor gave us a cynical publicity stunt, of which he should be ashamed. Whatever he may think about that stunt, he should realise that it will not work because people do not trust the Government any more. However, at least he did not try to follow the example of his predecessor, who first announced the new tax and tried to tell us that it was a green tax imposed in response to the Rio summit. I suppose that we should be grateful for that.
The increase in support for insulation schemes is so derisory that it will probably create more problems than it will solve. The Chancellor announced that he was making available an additional £10 million for the scheme, which, I understand, will, on current costings, insulate approximately 60,000 more homes. There are already 90,000 homes on the waiting list, and in some areas there is a six-month backlog.
The reality is that, far from being a wonderful effort to help people to pay the increase in VAT, the Chancellor's action will merely raise people's expectations. People will apply for the grant but the organisations that will deal with it tell me that their credibility will be undermined when they have to push people back down the queue. It is no surprise that people just do not believe what the Government say.
Let us think again. It is important to remember what the Government have said—I know that they do not like us to do this—and then to see how they have done something quite different. The Conservatives have, again and again, yesterday and today, proclaimed themselves to be the party of low taxation. They obviously did not like hearing the words of my hon. Friend the Member for Dunfermline, East (Mr. Brown)—[HoN. MEMBERS: "Yes we did."] I hope that Conservative Members enjoyed them and that they learned from them, too.
The Conservatives cannot continue to say, in whatever way they want, that their instinct is for low taxation and then take no notice of their instincts, their words or anything else. The Conservative party said in its manifesto:
We are the only party that understands the need for low taxation.This Government have raised taxes by more than any other Government this century and they have ensured that the typical family is paying £840 more in taxes as a result of their changes over the past two years.If I was being generous, I could imagine, I suppose, that the writer of the manifesto simply did not have time in the rush before the election to finish the sentence. Perhaps it should have read, "We are the only party that understands the need for low taxation the year before an election and the need for very high taxation in the intervening years."
The Government proclaim themselves as a Government of opportunity and a Budget is always a time for a new opportunity, yet this Budget is limited in the new opportunities it gives. Public expenditure cuts—real cuts—will mean job losses in the construction industry and in the civil service. Last night, Customs and Excise unions were told that 4,000 jobs were to be cut, including jobs in the front line of tackling drug smuggling. Yesterday, the Prime Minister told the House that this was simply an efficiency measure which would not affect the detection of smuggling. I do not believe that, and neither do drug officers or those who have been caught smuggling drugs at ports of entry.
1298 The Budget was supposed to offer new opportunities for those seeking to get back into work and those seeking to equip themselves to get back into work. However, one of the meanest measures of the Budget deeply affects those who are seeking new opportunities for learning in their later lives. Yesterday, the Chancellor announced a mean measure to phase out the means-tested allowance for mature students. That will mean the loss of about £1,000 a year for the students over 29 who are least able to make the move back into education.
From my experience of training mature students before I came to the House, I know that before they take the decision to go back into education and training, they consider every option. The last thing that they want to do is to make life even more difficult for their families, so they work out in detail exactly how they will sort things out. The loss of an extra £1,000 for those who can least afford it—those who are means-tested—is penny-pinching and mean. More than that, it is an incredible disincentive for the very people whom we should ensure get back into learning, into reskilling and into developing their talents so that they can change their careers and get back into work.
Today, the Chief Secretary to the Treasury spoke about the effort that the Government had made to listen to unemployed people and to understand the barriers that they faced in getting back to work. I agreed with the right hon. Gentleman on the three points that he made, but he missed another two critical points. First, many people have become unemployed because their skills have become redundant.
The men who have been made redundant at Swan Hunter, who should have been kept on, are now having to think about a change in their work pattern. That will not be solved by the sort of scheme that will give them three weeks' trial in a work trial. That will not be sorted out by giving them the sort of short-term measures that the Government seem to be proposing in this Budget. They need good-quality retraining opportunities, they need to be able to afford to take those opportunities and they need to be able to find those opportunities in the area where they live.
§ Mr. AitkenIf the hon. Lady would, just for a moment, look at this problem of Swan Hunter employees from the point of view of an employer from that area, she may see it from a completely different perspective. I think that I know the Swan Hunter work force quite well from my days as Minister of State for Defence Procurement. I had long talks with the convenor, Mr. Eddie Darke. One of the problems facing all the admirable men at Swan Hunter, who finished ships to the highest quality, will be finding a new job because all employers will doubt whether a man who has been on the employment register for a certain length of time is back in the habit of work and should be taken on.
Surely the scheme that my right hon. and learned Friend the Chancellor has proposed is good because it offers a trial work scheme and a range of measures that will make it easier for the employer to take such good 1299 people on. The hon. Lady is leaving out of her calculation what employers may think of the admirable schemes that my right hon.—
§ Mr. Deputy SpeakerOrder. That was a very long intervention.
§ Ms ArmstrongI understand the anxiety that the right hon. Gentleman feels in trying to get to the heart of the problem. I agreed with his three points, I give him that. Those measures will meet some people's needs, but I am dealing with a different problem. One cannot, with those measures, sort out the needs of people who need proper reskilling and proper retraining. If his measures are the only measures on offer to the men who have been made redundant at Swan Hunter, they will join the ranks of the long-term unemployed before they get another chance. That is the problem. We want them to get jobs now. We want them to have other opportunities of proper reskilling and proper training. Instead, savage cuts have been made in the training programme, showing that the Government have no serious intention of reskilling the work force.
The second point that the Chief Secretary missed is that jobs need to be created to get those who are unemployed back into work. Those men from Swan Hunter are not the only people on Tyneside or in Wearside who are looking for jobs. Thousands and thousands of people are looking for jobs who will not be re-employed until new jobs are created in the economy. The Budget has provided no new incentives for manufacturing investment, it has provided no incentives for business start-ups, and, if anything, opportunities have been reduced. The enterprise allowance, for example, will be all but extinct. Certainly, it will be extinct in my area because the single regeneration budget does not include the enterprise allowance scheme.
The Government have been in the habit of boasting that unemployment has fallen by more than 400,000 since the end of 1993; but they have neglected to mention that total employment has also fallen by a little under 440,000 since the middle of 1992 through the recession. Of the jobs which have been created since 1992, 90 per cent. are part-time. We want to see a flexible labour market so that people have the choice to work full or part-time. Instead, we have an economy in which employment opportunities have shrunk and those opportunities that are available tend to be limited far too much to low-paid, low-skilled and part-time work.
The Government have taken no steps in the Budget to increase the capacity of the economy. That limits our competitiveness and growth in employment. The Government's short-sighted approach is most apparent when we consider the building industry. My hon. Friend the Member for Dunfermline, East explained earlier how that problem could be tackled. We have spelt out clearly how we could have a decent welfare-to-work programme. We have acknowledged the importance of providing individual support and the importance of that for social cohesion. We could have got many more people back into work.
The programme offered nothing for women. There was no incentive for women with children to take up opportunities for child care. From our previous exchanges, the Chancellor is aware that I know that that can be achieved in partnership with local authorities in ways that 1300 improve the quality of opportunity for the child and give parents a decent choice about their career and development.
In all ways, the Government have failed to meet the opportunities that were available to them yesterday. The Secretary of State for Education promised 10 days ago that there would be new money for nursery education, but no money was included in the Budget yesterday for nursery education: what a betrayal and a lost opportunity.
We had a Budget yesterday that Conservative Back Benchers cheered. We should be used to that. Even in my short time in the House, I recall the way in which they cheered Nigel Lawson and I remember the real problems that the economy faced after that. I remember how Conservative Back Benchers cheered the present Chancellor's predecessor and how quickly his Budget unravelled.
Order Papers were waved yesterday. Perhaps for once Conservative Members were really being honest. The speech made by the Chancellor yesterday was meant to satisfy Conservative Members that the Government's craving for short-term, short-fix income tax cuts in next year's Budget are what is really on the Chancellor's agenda.
However, those cheers hide the stark reality for the British people this year. They hide the reality of the new taxes that they will face. They hide the reality of the increase in VAT on fuel and the attack on living standards. They hide the increasing divisions in this country.
The Government have thrown away the major opportunities to change and give this country long-term growth and opportunity. They are out of touch and, at the next general election, we will make sure that they are out of office.
§ The Paymaster General (Mr. David Heathcoat-Amory)The background to this debate is one of a steadily strengthening economy in which all the main economic indicators are favourable. We heard a note of desperation creeping into some of the speeches made by Opposition Members today as they searched Europe for countries outperforming us in one sector or another. As they found fewer and fewer of them, they tended to go global in their search for economies which, allegedly, are outperforming us. However, if they found such a country, they would discover that the policies pursued by that country would have very little to offer the Labour party.
The point that was brought home in the debate by Conservative Members was that that transformed economic outlook still requires discipline, particularly over the public finances, and a continuing and sustained drive to reduce the deficit, which still exists, between what we are raising in taxation and what we are spending. That was one of the messages spelt out by my right hon. Friend the Member for Hove (Mr. Sainsbury) who made a speech—I do not think that we could exactly call it a maiden speech—which relaunched him on a new phase in his career as an elder statesman. [Interruption.] Perhaps I should rephrase that and call my right hon. Friend a statesman. In due course, he will become elder as well. My right hon. Friend made well the powerful point that the indispensable element in the recovery and in the 1301 Government's achievement over the past few years is the creation of macro-economic stability, which has eluded almost all Governments since world war two.
In the past, we had a good combination of growth and low inflation, but the tendency has been to watch with increasing exasperation how inflation tends to rise and how prices and assets start to take off. After three or four years, the bright economic outlook runs into the sands of yet another macro-economic hitting of the buffers. As my right hon. Friend said, this time we have the fundamentals in place. All that we hear from the Opposition is how they would add to public expenditure and relax taxation.
§ Mr. LivingstoneWill the hon. Gentleman give way?
§ Mr. Heathcoat-AmoryThe hon. Gentleman has made his contribution. I hope to respond to one or two of his points.
The easy part of politics is to spend other people's money. The difficult part of politics is to restrain public expenditure and, where necessary, to put up taxes to cover the deficit. By history and by nature, the Labour party is the party of public expenditure, whether it is good or bad, efficient or inefficient, affordable or unaffordable. For Labour Members, the state, almost by definition, is better than the individual when it comes to making decisions.
§ Dr. SpinkIs my hon. Friend aware that the right hon. Member for Kingston upon Hull, East (Mr. Prescott) is even calling for inefficient public expenditure at the moment?
§ Mr. Heathcoat-AmoryYes, we have noticed that. Instead of modernising and reforming the public service, Opposition Members want to load it with excess labour, against the wishes of the organisations involved.
We heard the voice of the past from the hon. Member for Durham, North-West (Ms Armstrong), when she bemoaned the prevalence of part-time jobs. She has not understood a recent labour force survey showing that 85 per cent. of people in part-time work are quite happy to have that part-time work. The world has changed since the Labour party was in office.
Despite Opposition Members' efforts to update their economics—the so-called new Labour economics—we still hear the authentic voice of the Labour party from the hon. Member for Brent, East (Mr. Livingstone), who tried to intervene. I listened carefully to his speech. Not for him the new Labour gloss. He gives us a more authentic voice of a Labour party which might be past but which is not unrepresented in the House. Labour Members still believe in the power of officialdom over the power of the market. They always will, and, to some extent, they always should. At the election, people should choose between that philosophy of the economy and the one which we offer.
On taxation, we had again the two new Labour friends, loophole and windfall. That is not a tax policy, it is an illusion. It gives a glimpse of what a future Labour Government would be like, running around looking for loopholes and windfalls, instead of taking clear, if difficult, decisions on how to run the economy.
We had the shadow Labour Budget last week. It was certainly a shadow, but it was not a Budget. There was no precision in it, no figures, and nothing was costed. It was another appeal to their new friends, loophole and windfall. The Government believe in picking up and 1302 blocking loopholes where they exist. This Budget, like the ones before it, protects revenue against potential loss from real loopholes where they are identified.
I will not weary the House with technical and complex details, but I will give hon. Members an idea of one loophole. There is a perfectly good commercial practice of lease and lease-back. However, businesses which are exempt from VAT—particularly those in the insurance and banking sectors—have been exploiting this practice to spread their VAT over 2,000 years. We are all in politics for a long time, but we wish to see VAT on transactions made today at least recouped in our own lifetime, even if not in the present Parliament.
We have closed that genuine loophole. The value of that and other measures on the indirect taxation side—which is my particular concern—amounts to £340 million. They are real anti-avoidance measures, which have been properly and precisely targeted, in contrast with the broad political sideswipe attempted by the Labour party.
The subject of VAT on fuel was raised again. No Conservative Government like to increase taxes, but the VAT on fuel is an indispensable element in the package of tax-raising measures announced in last year's Budget. The value of that package has been demonstrated in getting national finances under control and creating real growth with low inflation. Now is not the time to relax our discipline and knock away the very foundations of the economic recovery.
Fuel is a rather sensible commodity to tax. That is why all other countries in the European Union impose VAT on fuel—most of them at standard rates. The four Nordic countries, many of which are considerably colder even than Scotland, tax fuel at rates of either 22 per cent. or 25 per cent. It makes environmental sense to tax a commodity which is so directly related to environmental concerns such as the build-up of carbon dioxide in the atmosphere, which leads to the greenhouse effect.
§ Mr. Robert Ainsworthrose—
§ Mr. Heathcoat-AmoryI am answering the point raised by the hon. Member for Orkney and Shetland (Mr. Wallace). In front of other audiences, the hon. Gentleman and his hon. Friends have constantly argued for environmental taxes, including a carbon tax. One of the Liberal party's slogans from a few years ago was "Think globally, act locally". That has now been changed to "Tax globally, but not specifically". The Liberal Democrats are very keen on the idea of environmental taxes, but when measures are brought forward to tax fuel, of course they oppose them.
§ Mr. Wallacerose—
§ Mr. Heathcoat-AmoryI hope that the hon. Gentleman will forgive me, but I must press on as I have to respond to a number of other points which were raised during the debate.
Sensible environmental pressure groups like Friends of the Earth have agreed that a tax on fuel is a sensible measure.
§ Mr. Wallacerose—
§ Mr. Heathcoat-AmoryI will not give way because I need to make some other points.
1303 Of course, fuel tax must be allied with other measures in order to protect the most vulnerable. That is why the Government have provided substantial help to pensioners, widows and the disabled. Assistance is also given to other poorer households, such as to those on income support.
I want to pick up the point made by my hon. Friend the Member for Brighton, Kemptown (Sir A. Bowden), whose work for pensioners and pensioner organisations is well known and much appreciated on both sides of the House. He understands not just the problems of pensioners, but the solutions to those problems.
He was generous in his praise of the raising of the age allowance. I am therefore particularly concerned to examine the figures that he brought to the House and the worries that he has about uprating. If I cannot answer his questions decisively this evening, I will write to him about the matter. I believe that there is a genuine misunderstanding about the effect of the uprating on this year's pensioner figures. I can assure my hon. Friend that next year there will be a full 50p uprating for a single person. It will amount to that in April of next year. I hope that, with the uprating that takes place in any case of the rest of the pension, that meets the concerns that my hon. Friend raised.
§ Mr. Robert AinsworthWill the Minister give way?
§ Mr. Heathcoat-AmoryI am sorry. The hon. Member for Durham, North-West (Ms Armstrong) who answered the debate for the Labour party has left me extremely short of time and I have a number of points to make.
My hon. Friend the Member for Gloucestershire, West (Mr. Marland) made the valid point that pensioners are often not aware of the help that they are receiving. I have no doubt that we shall have to return to that issue. He made the specific suggestion that we should drop the second tranche of VAT and instead put a penny on road fuel tax. I have to tell him that a penny would not be enough. An extra 2p a litre on fuel would be required. I ask him to consider the consequences that would flow from doing that. My hon. Friend and I both represent rural constituencies. Motorists in rural areas would begin to find such an increase, on top of the extra 5 per cent., not simply taxation but penal taxation. As the fuel cost would also feed through into the costs of hauliers, there is a competitiveness argument to be answered, too.
I shall have to get back to my hon. Friend on his point about the uniform business rate. I wish to make some further points about the compensation package for VAT on fuel that we have put in place. The home energy efficiency scheme has been mentioned several times. The funding for the scheme has been more than doubled in the past two years. It provides grants, usually at 100 per cent., for insulation, draught-proofing and so on. More than a million homes will have been treated by early next year and we expect another million homes to be grant-aided in the next three years.
Cold weather payments were the subject of some disparaging remarks from Labour Members. I remind them that, when the Labour party was last in office, there were no such things as cold weather payments. All the cold winters that we remember in the 1960s and 1970s happened without cold weather payments going to anyone.
1304 The other point about VAT on fuel is on prices. Some Labour Members talk as if energy prices have risen continually. Perhaps they remember the days of the last Labour Government. Since the utilities have been privatised, prices have fallen substantially in real terms. Even with the addition of VAT this year, gas and electricity prices are 1 per cent. lower in real terms than they were two years ago. If one adds the compensation package to that, one can see that, arithmetically, many people must be better off.
I draw the attention of the House to another feature of the energy industries. We all agree that one of the criteria that we use in judging a supplier company or industry is the way in which it treats its customers who get into trouble with debt and face disconnection. Does the company reach for the disconnection switch or help the customer manage the debt? The old state-owned domestic utilities presided over by the right hon. Member for Chesterfield (Mr. Benn)—I see that he is in his place—when he was Secretary of State for Energy reached for the disconnection switch far more frequently than today's privatised utilities.
I can give the figures to the House. Since privatisation, the electricity companies have reduced their disconnections by a remarkable 98 per cent. British Gas has reduced its disconnections—I have the precise figures with me—from more than 45,000 in 1986 to just more than 16,000 in 1993. That is a reduction of two thirds. All that the Opposition parties want to do is reduce the wages of the chief executive. We have reduced prices—or the companies have—and the incidence of disconnection. Those old, cosy, state-run utilities were far more brutal with the old and the cold than the private sector companies are today.
The debate has shown up the natural sharp divisions between both sides of the House, but it is increasingly recognised that the Budget is building on firm foundations. The recovery is based on production, investment and exports and builds on the supply-side reforms of the 1980s, which turned those sluggish domestic utilities into world-class companies. It is not a recovery based on consumer expenditure, or on an asset boom. For that reason it may not get the quick—
It being Ten o'clock, the debate stood adjourned.
Debate to be resumed tomorrow.