§ Amendments made: No. 56, in page 343, column 3, leave out lines 20 to 24.
No. 53, in page 343, line 53, column 3, leave out 'paragraphs 1(9) and' and insert 'paragraph'.
No. 77, in page 345, line 23, column 3 at end insert— 'Section 678(7).'.
No. 15, in page 346, line 11, at end insert—
| '(8A) STOCK LENDING | ||
| Chapter | Short title | Extent of repeal |
| 1988c. 1. | The Income and Corporation Taxes Act 1988 | In section 129(1), the words "has contracted to sell securities, and to enable him to fulfil the contract, he".'. |
| 'In Schedule 9, in paragraph 27(4) the words from "who is required" to the end.' |
Order for Third Reading read.
7.40 pm§ The Chief Secretary to the Treasury (Mr. Jonathan Aitken)I beg to move, That the Bill be now read the Third time.
The Bill consolidates the Budget strategy of my right hon. and learned Friend the Chancellor of the Exchequer, which is to sustain and strengthen Britain's growing economic recovery. That is now moving ahead powerfully across a broad and virtuous front of low inflation, high exports, rising investment, falling unemployment and solid growth.
That picture is confirmed by last week's publication by the Central Statistical Office of the national accounts, which showed that Britain's national output rose by about 4 per cent. in 1994 as a whole—the highest rate for six years. Britain's is now the fastest growing major economy in Europe, and is forecast to remain so.
That growth has been led by exports, which increased in 1994 by 14 per cent. by volume and by 9 per cent. by value. Those are record-breaking achievements, and they will be helped to power ahead by several clauses in the Bill, which give exporting companies easier access to new sources of capital.
Our exporters are already doing spectacularly well not only in Europe but in the growing markets of the wider world. For example, last year our exports to Brazil increased by 27 per cent., to Singapore by 28 per cent., to South Korea by 28 per cent., to eastern Europe by 21 per cent. and to Malaysia by 35 per cent. The Confederation of British Industry survey published in March shows that the orders in British industry's export order books are at their highest point since records began.
Behind those excellent export figures lie many other success stories. Exports, of course, consist of visibles and invisibles. Invisibles have been consistently strong for many years, and they are now becoming stronger. They will be strengthened further by new clause 12, which was moved by my hon. Friend the Minister of State yesterday and which will establish a gilt repo market, and by schedule 8, which will make it easier for British insurers to do business in Europe and across the world.
As for visible exports, the success story that I can report to the House is the revitalisation of Britain's manufacturing industry exports. Britain is on its way back to being one of the successful workshops of the world, and manufacturing industry is playing a starring role in the recovery.
Output rose by more than 4 per cent. in 1994—the fastest rate of growth since 1989. Manufacturing investment is up by more than 8 per cent. and manufacturing productivity by 4.5 per cent. Manufacturing industry employment increased by 40,000 in the past three months—the best increase for more than 15 years—and unit wage costs in manufacturing industry fell last year, thus making our industry increasingly competitive in the world marketplace.
1601 The clear message from business surveys and forecasters is that with the help of the measures in the Bill the strong performance by our manufacturing industry is expected to continue, just as we expect the surge in inward investment by overseas investors to continue. Many inward investors will be encouraged to come here by clause 35, which again sets Britain's rate of corporation tax as the lowest main CT rate in Europe.
I know that the Opposition rather like to make dismissive and pessimistic noises about inward investment. For example, on 9 May last year the deputy leader of the Labour party was rash enough to say:
After 15 years of this deregulation I don't see much inward investment flooding in".As we know, the right hon. Gentleman's memory is a little defective sometimes. If he had to enlist the assistance of the constabulary to recognise his own Jaguar car, no wonder he finds it hard to recognise the great car factories that are springing up in Wales, Sunderland, Scotland and in the midlands as a result of inward investment. Perhaps the most appropriate response to that characteristically lugubrious forecast by Labour's deputy leader 11 months ago, would be the refrain from the old folk song, "Oh, no John, no John, no John, no."The facts of inward investment are so positive and so good for Britain that what we should all be saying enthusiastically is, "Oh, yes Toyota, yes Nissan, yes Samsung, yes Ford Motor Company, yes we welcome you here." As about 635,000 jobs have resulted from inward investment, clearly one of the driving forces behind the welcome expansion of Britain's industrial base has been the simple fact that foreign investors are giving a huge vote of confidence to Britain's economy.
That is a remarkable contrast to the Opposition's vote of no confidence in the Bill that does so much to strengthen Britain's economy. It is a pretty sad reflection on the Labour party that it still takes the old neanderthal socialist view that a profit should be without honour in our own country.
Talking of prophets, I am sorry that the Opposition's in-house Cassandra, the hon. Member for Dunfermline, East (Mr. Brown) cannot be with us today. I understand that he is in Scotland—no doubt striving to stir up gloom and despondency there over the 18 per cent. annual productivity growth north of the border between 1990 and 1995, the 14.6 per cent. surge in Scottish manufacturing exports in 1993, and the 100 inward investment projects a year—two per week—currently coming into Scotland. I wonder whether he is even managing to sound gloomy about the BSkyB inward investment project that is creating up to 1,000 full-time equivalent new jobs in his constituency.
Conservatives will not let the doomwatcher from Dunfermline forget the most incompetent forecast of this Parliament, which he made on 17 March 1993:
1 make one Budget forecast—that, after the Budget, unemployment will rise this month, next month and for months afterwards."—pfficia/ Report, 17 March 1993; Vol. 221, c. 289.]1602 What actually happened is that ever since the hon. Gentleman made his false prophecy unemployment fell—that month, next month and month after month for two years. Not since the Labour Government appointed a Minister for drought—
§ Mr. AitkenI think that the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) will remember that time. Not since the Labour Government appointed a Minister for drought has a Front Bencher's forecast been proved so resoundingly wrong.
§ Mr. SheldonSurely the biggest forecast of all was the 2.95 deutschmark, which failed miserably. The signal mark of the Government is that they failed to keep us in the exchange rate mechanism; the results of that failure of policy are around us now.
§ Mr. Alan Duncan (Rutland and Melton)It was a success.
§ Mr. AitkenI am finding it difficult to follow the point that the right hon. Member for Ashton-under-Lyne is making. Interest rates are not the subject of forecasts; we are not wise enough—or wild enough—to do any such thing. Certainly, compared with the forecast made by the hon. Member for Dunfermline, East, we have made no mistakes at all.
Unemployment has fallen by 600,000 since that prediction was made, and it is still falling steadily at a rate of 1,000 a day. So the employment news, like the export news, the manufacturing industry news, the low inflation news and the economic growth news, is all good news. The good headlines about what is really happening in the economy will be helped considerably by the small print in the Bill and by the accompanying measures announced by the Chancellor in his Budget.
Work incentives, savings incentives and investment incentives are key ingredients of the Bill. The Government have recognised the cardinal importance of low rates of income tax to preserve work incentives, and the Bill takes a significant step towards our long-term aim, reaffirmed by the Prime Minister in his excellent speech in Birmingham on Saturday—a basic rate of income tax of 20p in the pound. Clause 33 widens the 20p band to £3,200—twice the increase necessary for indexation. That means that one in five of all taxpayers will now pay tax only at the lowest rate of 20p.
Just as employees are being encouraged by incentives to take on work, employers are being encouraged to offer work to new employees. From the day after tomorrow—6 April—employer national insurance contributions will be cut by 0.6 per cent. for employees earning less than £205 a week.
The Bill is doing its best to get more people back to work, by means of the incentives that I have mentioned, but we have not neglected those who are too old to work. The Bill increases the income limit for the age-related personal tax allowance by £430—well above the inflation indexation rate. In a full year, the measure hands back £200 million to nearly 3 million pensioners.
This is a Finance Bill for savers. It extends the very popular tax-exempt special savings accounts—TESSAs—by allowing those who have built up a nest egg in a TESSA to reinvest all or part of the capital that they have accumulated in a new TESSA up to a limit of £9,000 as 1603 soon as their account matures. It also widens the scope of personal equity plans, the enterprise investment scheme and the venture capital trust scheme to enhance the availability of finance and investment for industry, which is an important objective for the Government. The Bill's measures that achieve that should be widely welcomed by all those who understand how a modern economy works.
The Government have grave doubts about whether the Opposition understand how a modern economy works. In our debates, their main preoccupation has not been with Britain's soaring exports, falling unemployment or increasing investment and economic growth. They seem to have an incorrigible aversion to mentioning the good news that is strengthening Britain as a successful world trading nation. That good news includes the fact that we had a £2 billion current account surplus in the second half of last year.
Instead, the Opposition showed an obsession with tax loopholes, share option schemes and executive pay. The Bill has done a great deal to combat tax evasion but the great divide between the Government and the Opposition on the rewards for hard work and enterprise can be simply stated: we are against the abuses of commercial success, but the Opposition are against the rewards of commercial success.
Good rewards are the lifeblood of an enterprise and export-led culture. It is a sign of success when many good businesses, some good business leaders and many good employees get well rewarded as a result of their successful efforts. Such people do not deserve to be described as "fat cats" by Opposition Members. They are simply hard-working people who have earned their rewards because they have contributed to successful businesses.
We are determined to ensure that all Britain's wage and salary earners keep as much of their earnings as possible in their own pockets, and have to pay income tax only at a rate that is as low as we can fairly and prudently keep it. As my right hon. and learned Friend the Chancellor made clear in his speech at the weekend, the time when we can start cutting taxes again is coming closer. When we talk about cutting taxes as soon as it is prudent to do so, let us never forget that sound public finances are a precondition for low taxation, and that sound public finances are what the Government are steadily delivering as we put the world recession behind us.
Although we had to make some unpopular tax increases and painful expenditure cuts, we are forecast to halve the nation's overdraft, or public sector borrowing requirement, between 1993–94 and this year. We plan to eliminate the PSBR and balance the budget by the end of the decade. Such good housekeeping is central to the Finance Bill and to the Budget, but it seems to be terra incognita to Opposition Front Benchers. All they seem to know about good housekeeping is the magazine of that name.
Whenever we try to pin down the Opposition about serious good housekeeping issues, they perform their unconvincing imitation of the three notorious monkeys—see no policy, speak no policy, have no policy. By contrast to those three monkeys, a central thrust of the Government's policy is that we continue to maintain a constant downward pressure on public expenditure. That is why the Chancellor's Budget contained the 1604 announcement that we were cutting £29.5 billion off the planned public expenditure totals during the next three years. The Bill continues that process.
I commend to the House the new clauses so ably moved yesterday by my hon. Friend the Minister of State in relation to the introduction of an open market in the sale and repurchase of Government securities. That sounds a technical subject, but the results are far from technical. As my hon. Friend explained, the arrangements introduced by the new clauses should result in significant savings for the taxpayer on the £20 billion debt interest bill.
The Opposition do not have any serious proposals for controlling or reducing public expenditure. If one probes behind the Front-Bench monkeys' posture of see no policy, speak no policy, have no policy, one discovers pork barrel after pork barrel of ill-concealed public expenditure increases. For example, Opposition Front Benchers kept quiet about their policies on pensions when we debated clauses 56 to 59, which relate to pensions. It was with surprise that one picked up The Observer on 12 March to read the headline
Pensions for anyone of 60 says Labour".The story went on:
Under plans to be unveiled by the Labour party this week…the proposals would mean that people could get a pension five years earlier than under government plans for a retirement age of 65".The article reported that the shadow Social Security Secretary had persuaded Labour's Treasury team that his new policy would be cost-neutral. I hope that we can now be told the truth by the hon. Member for Oxford, East (Mr. Smith), and that he will unveil his miraculous cost-neutral policy that offers to pay pensions five years ahead of schedule. One estimate is that such a policy might cost the taxpayer £13 billion. We would all like to hear how it could possibly be cost-neutral, and the hon. Gentleman could also explain why he did not unveil that miraculous new policy during debates on the Bill. I think we should be told.That is not the only explanation that we want. Veiled in the semantic obscurity of bland buzz words that are almost incomprehensible in their cost implications to the man on the Clapham omnibus, one will hear time and time again—especially in the speeches of the hon. Member for Dunfermline, East—expensive new Labour mantras such as "greater use of capital receipts", which is worth some £6 billion, "new regional assemblies and development agencies", "the introduction of a defence conversion agency", "a growth strategy for Europe"—[HoN. MEMBERS: "Hear, Hear.] Opposition Members are cheering, but they should wait until they hear the price tags. Reference is also made to "increased investment in economics and social fabric" and "an emergency employment programme to get people back to work", not to mention the notorious "post neo-classical endogenous growth theory".
What the artful dodgers on the Opposition Front Bench must face up to is that those high-falutin' plans add up to a number of public spending promises, and promises have prices. The real price that will have to be paid for such departures from the foundations of sound public finances on which this Bill is built is higher taxation.
The Opposition Front Benchers do not dare admit it, but the cat has been let out of the bag by the Labour party's most influential eminence rouge on its Back Benches, the former deputy leader and shadow Chancellor, the right hon. Member for Birmingham, 1605 Sparkbrook (Mr. Hattersley). His words in one of his many columns—this time in The Guardian on 13 March—will live in political infamy as they are quoted up and down the country in the coming months. He said:
Labour now has a clear choice. It can either be the Party of higher taxation and proud of it, or the Party of higher taxes which it is ashamed to describe, afraid to admit and incapable of calculating with any accuracy. It cannot be the low taxation Party.Amen to that. The candid right hon. Gentleman has poured egg over the faces of the Opposition's Front-Bench team.The Opposition like higher taxation, and they are proud of it. They will inevitably have to increase the PSBR to the point where the initials stand for plunder, spend, borrow and raid. They now want to oppose the policies in the Bill and the Budget which are underpinning sound public finances, improving exports, encouraging investment, reducing unemployment, creating the best growth record in Europe and offering the British people higher real disposable incomes. We are on the right track, and the Bill will keep us there. I commend it to the House.
§ Mr. Andrew SmithUnlike the Chief Secretary to the Treasury, I shall talk mainly about the Finance Bill. First, let me dismiss what comprised 90 per cent. of his speech. I should have thought that the right hon. Gentleman would be the first person not to take too much notice of what he reads in the newspapers, whether it be our plans or on other matters.
The right hon. Gentleman made claims about the state of the economy and the achievements of our exporters, but if he believes that the Labour party will let this Government, after all they have done, walk off with the credit for the hard graft of our exporters, workers and managers, he is a bit too arrogant and complacent and he does not understand the British people. They know the mess that the Government's failures have got this country into. They know about the huge and irresponsible borrowing that the Government have stacked up, and they know that the Government broke every promise they made before the election.
We hear talk from Conservative Back Benchers and from the chairman of the Conservative party, which the Chancellor is frantically trying to damp down, about tax cuts being on the way. That comes a bit rich from a Government who have not yet finished driving through all 20 of their tax increases since the election, which have added £812 extra in tax burden, year-on-year, to a typical family. All that, when living standards fell last year and are falling this year. That extra tax burden, which is in breach of every promise that the Chief Secretary and his hon. Friends made at the last general election, is what people will remember. I think that that takes care of 90 per cent. of the right hon. Gentleman's speech, and now to the Finance Bill.
The first thing to report is that this is a very different Bill from the one that confronted us on 17 January on Second Reading. The fact that it is so different is a great tribute to the work of my hon. Friends, the arguments that they mounted and the campaign that they undertook. Labour, assisted on occasion by some Conservative Members and rather less often by the Liberal Democrats, has forced substantial changes on the Government.
1606 We started with the Government's momentous defeat on value added tax on fuel on the Floor of the House—we did not hear much about that from the Chief Secretary. In Committee, they were also defeated on the tax simplification proposal of the hon. Member for Beaconsfield (Mr. Smith). I understand that that was the first time in the memory of the Clerks that a new clause tabled by anyone other than the Government had been added to a Finance Bill.
Labour has mounted effective pressure in the country on the matters covered by the Bill, which forced the Government to back down, for example, on the extension of tax privileges for executive share options to part-time directors, when even Ministers had to recognise that what they were advocating was indefensible. There is a string of other changes, from vehicle excise duty to the level of pools betting duty, where the Government have been made to change their position, whether by the force of votes or public opinion, or the force of argument.
It is worth running through the changes that make this such a significantly different Bill: the Government's defeat on VAT on fuel on the Floor of the House, when we held it at 8 per cent; the forced withdrawal of the Government proposal to extend tax breaks on executive share options to part-time directors; the prevention, or at least the damage limitation exercise as my hon. Friend the Member for Western Isles (Mr. Macdonald) described it, of the imposition of vehicle excise duty on carriers on the Scottish islands and the Scilly Isles; the fact that we stopped the Tories increasing vehicle excise duty on farm vehicles, which was set to increase to a maximum of £5,000; the fact that we forced a cut in proposed vehicle excise duty on recovery vehicles, from the Government's proposed maximum of £5,000 to £750; the fact that, earlier today, we secured concessions on the tax treatment of capital borrowing from the Government for housing associations and universities; the fact that we defeated the Government in Committee, with the help of the hon. Member for Beaconsfield, to secure examination of the simplification of the tax system; the fact that we successfully proposed taxation changes to assist settlements for accident and injury victims; the concessions that we won for disabled drivers of company cars; the exemption from duty for non-prize amusement machines; and the 5 per cent. reduction of pools betting duty, to 32 per cent. It is a formidable list.
§ Mr. AitkenThe hon. Gentleman is using the royal "we" so wildly that I feel I must be listening to the film, "The Madness of King George". Not one Labour amendment was carried and so the idea that all that was due to Labour's influence is rubbish. My hon. Friends and I rightly listened carefully to representations from industry and others, but the notion that Labour should get one ounce of credit shows that power has gone to the hon. Gentleman's head.
§ Mr. SmithThe biggest concession of all, on VAT on fuel, was forced on the right hon. Gentleman and the Government Front Bench.
§ Mr. Heathcoat-Amoryrose—
§ Mr. SmithThe fact that we have been so successful on this Bill is obviously getting to Ministers and is bringing them to the Dispatch Box. They are worried that we have been an effective channel for public opinion on 1607 the issues in the Bill and that, one way or another, we have helped to secure so many changes; clearly, that upsets them.
§ Mr. Heathcoat-AmoryIf the hon. Gentleman was so against the imposition of value added tax on domestic fuel and power, why did not the Labour party support the amendment tabled by another Opposition party to reduce the rate from 8 per cent. to 5 per cent?
§ Mr. SmithBecause everyone knew that that was an opportunist amendment—[HON. MEMBERS: "Ah!"] Conservative Members know that is true. That amendment could have resulted in the loss of the change in VAT to 8 per cent. It could have forced it back to 17.5 per cent., which is where the Conservative party wanted it. Having won that victory, we were determined that we would do nothing to put the rate at risk, nor will we do anything this evening that would put it at risk, but more of that later.
I was surprised to hear the Chief Secretary claim a share of the glory on the Government side for what has happened to the Finance Bill because he had little to do with it in Committee. On one visit, we saw him reading Will Hutton's book, which resulted not in radical amendments to the Bill but in a rather acerbic review in The Sunday Times in which he conceded that
British businesses are still finding it difficult to adjust to the new economic environment"—that is one way of putting it. He continued:Successful competitiveness can be uncomfortable.That obvious reference to his rivalry with the Secretary of State for Employment, the right hon. Member for Enfield, Southgate (Mr. Portillo), who is going to lead the Conservative party from the right in opposition, prompted me to compare their contributions to Finance Bill proceedings. I am sorry to say that it is not all good news for the present Chief Secretary, who has not been doing enough to display his talents. The sad truth is that his right hon. Friend the Secretary of State for Employment, when he was Chief Secretary last year, had spoken more after eight days of the Committee stage than this Chief Secretary did during the entire proceedings. The former Chief Secretary made three times as many speeches in total, five times as many interventions and managed to be present for 87 per cent. of the sittings, as compared to the present Chief Secretary's 44 per cent.We have heard a good deal in this Finance Bill on performance-related pay. It seems that the matter is in the Chief Secretary's hands and that a bonus will shortly be transferred from the present occupant of the office to his predecessor, perhaps with a well-earned cut for the Financial Secretary, the Minister of State and the Paymaster General, who worked hard on the Bill, as we would all agree.
It would not be fair for me to refer to the work accomplished on the Bill without drawing the attention of the House and the country to the performance of the Liberal Democrats because it was an incredible record. Between them, they were present for barely half the time. They were missing for our crucial tied vote on pools betting duty, their representatives on the Finance Bill Committee are not even here this evening, and they did not turn up in Committee to move their new clauses on child care. It will not escape the notice of the country that, when it comes to action on child 1608 care or anything else for that matter, people can look with confidence to the Labour party, not to the Liberal Democrats. We have taken our opportunities to improve this Bill where they have relinquished theirs.
As a consequence, there is much in the Bill that is better than when it started. Areas of concern remain, however. Even with the small amendments to the regime on venture capital trusts, allowing a larger proportion of non-voting shares, which the Government conceded yesterday and which responded in part to points that my hon. Friend the Member for Dudley, West (Mr. Pearson) and I made earlier, we remain concerned that the venture capital trusts and enterprise investment scheme provisions in the Bill may do more to attract savings into property-backed, lower-risk investments than into the higher-risk, higher-tech areas intended, but we shall see what happens as the scheme proceeds.
As we said yesterday, we remain concerned, too, that the introduction of self-assessment in taxation contains some big hostages to fortune on which, as we enter a general election period, the Chief Secretary and his hon. Friends may yet have cause to regret opposing our proposed postponement.
When people look at the Bill, they will see that its most outstanding political aspect is the Government's defeat over the rate of VAT on fuel. People will remember that, when the Conservatives were banging through tax increase after tax increase—20 in total, adding up to an extra £812 imposed on a typical family—the only tax cut was in the prospective rate of VAT on fuel. They will remember that Labour's campaigning and votes, along with those of the smaller parties and a handful of Conservative rebels, won that tax cut for the general public. The Bill incorporates that victory, which is one of its most important features.
As I said in Committee on the Floor of the House, the Opposition intend to put neither that VAT victory nor their other gains at risk. That is why we shall not divide the House against giving the Bill a Third Reading tonight. No one should suppose, however, that this Bill is enough. Britain needs effective action for jobs, investment and partnership to create a truly dynamic economy and a fair society. For that, we need a different Finance Bill and a different Government.
§ Mr. FormanAt the end of our debate on this Finance Bill, which has, on the whole, been good humoured, I can strike agreement with the hon. Member for Oxford, East (Mr. Smith) on one point: his strictures on the Liberal party. I have personal experience of coping with the Liberals in my constituency, and his point was well made.
The Finance Bill, and the two Budgets of which it is the legislative consequence, are the latest welcome instalment of the Chancellor's prudent and successful fiscal policy. It is prudent because it has sought to restrain public expenditure by some £24 billion over three years, off the control total. It has also sought to achieve a broadly neutral fiscal adjustment for 1995–96. It is successful because it has contributed to greater confidence in the financial markets, measures to improve the supply side of the economy and the continuing economic recovery based on non-inflationary growth, which, as my right hon. Friend the Chief Secretary said, is helping to reduce unemployment by about 1,000 a day and to create new wealth and jobs.
1609 The nature of that recovery and how we are prospering here and overseas has many interesting aspects. One of the more interesting facts that was not picked up in the Sturm and Drang of parliamentary questions to the Chancellor on Thursday was the point that he made in answer to a question about trade with the far east. He pointed out that
we have now restored the old level of investment that Britain used to have before its past portfolio went during the wars, and the flows into this country are extremely valuable—as valuable as visible trade to the well-being of this country."—[Official Report, 30 March 1995; Vol. 257, c. 1172.]The importance of both inward investment, which is often debated in the House, and remittances, which is the point that the Chancellor was making, can be underestimated. In a global economy, we must all pay more attention to those valuable aspects of our income flows. Overseas assets can be beneficial to this country, as other countries such as Japan are finding. It is not just a matter of retaining confidence here to attract inward investment; it is also a question of creating a fiscal and monetary structure within which our firms, many of which are now multinational, can prosper and invest successfully overseas. This country can see the benefits of that repatriated income later on.In those satisfactory circumstances, it would be folly for the House to follow any of the Opposition's economic advice. The House and the country should note that, in this respect, both the Labour and Liberal parties are, by instinct and tradition, high-spending parties.
§ Mr. Peter Ainsworth (Surrey, East)The Liberals have gone.
§ Mr. FormanYes, I see that they have gone.
If the Labour and Liberal parties are high-spending parties, they are unavoidably parties of high taxation and borrowing. I remind the House that the last Labour Government—that seems a long time ago—introduced the highest marginal rates of tax on income in peacetime history. The present Labour party has voted against nearly every income tax cut made by this Government over the past 15 or 16 years. Furthermore, records show that Labour Governments tend to borrow more than Conservative Governments. For example, the 1974 to 1979 Labour Government borrowed, on average, nearly 7 per cent. of national income a year whereas, since 1979, in spite of the difficulties of two recessions, we have borrowed on average 2 per cent. a year.
Not the least important point about that broad contrast between the two sides of the House is that the views that I now put to the House are largely shared by the unsentimental and realistic British public, particularly as represented in a recent MORI poll published in The Times. It showed that 62 per cent. of the middle classes expected a future Labour Government, were there to be one, to increase the burden of income tax; 23 per cent. thought that their standard of living would decline rather than improve under a Labour Government; 21 per cent. thought that a future Labour Government would not keep their promises; and 38 per cent. doubted—indeed, disputed—the idea that a future Labour Government would keep inflation under control. If the current political scene is a battle for the hearts and minds of the middle class and middle England, we can see that those people have 1610 already understood, perhaps more clearly than we sometimes give them credit for, exactly where the national advantage and their own advantage lie.
§ Mr. BettsIn response to the hon. Gentleman's comment that 21 per cent. of the middle class would not expect a future Labour Government to keep their promises, has he any idea what percentage of middle England would expect a Conservative Government to keep their promises, given what we have seen in the past few years?
§ Mr. FormanI would need notice of that question, because the poll on which I draw focused principally on the Labour party's struggle to convince the middle class.
In case people are tempted to think that Liberal policy is anything more than what I believe it to be, which is a dilute version of Labour policy, they need only look at Liberal policy in areas of the country where, temporarily, the Liberals control local authorities to see the extent to which their spending policies are irresponsible and even feckless as they do not give correct priority to sensitive areas such as education.
I commend my right hon. Friends on the Front Bench for the various parts that they have played in this Finance Bill, and I commend the Chancellor and the Government as a whole on introducing yet another prudent and successful Budget.
§ Mr. SheldonI rise only briefly to express my appreciation of the work of the Opposition Front Bench and the way in which they have handled this Finance Bill.
We are in the shadow of the consequences of black Wednesday. The Government pledged themselves to maintain a deutschmark at 2.95 and failed miserably when the crunch came. We now have a deutschmark at 2.20 or 2.34 and a dollar at 1.60. For the first time in my 30 years in the House, I feel that the exchange rate is about right. Until now, it has always been wrong. It is the English genius to achieve things through mistakes, and that is how the Government have brought about a proper and defensible exchange rate. I would not like it to go any lower. Every time that I have made this sort of speech, I have said that I wanted lower exchange rates to encourage investment and our manufacturing exports. Now we have it about right, so will the Government please just leave it alone and let it continue to provide the wealth that the country needs?
The Government will now make the great mistake of talking about future tax changes. They should understand that the Chancellor of the Exchequer needs flexibility. One cannot decide those things two years in advance; surely the reversal of the decision on VAT on domestic fuel showed that. One must make a judgment at the time. It is wrong to limit the Chancellor in any way.
I would draw attention to the fine tuning that we now have using interest rates. Conservative Governments in the past always opposed fine tuning. Now they talk about quarters of a per cent. in those matters.
The monthly meeting of the Chancellor of the Exchequer and the Governor of the Bank of England is one of the worst decisions of all. Denis Healey used to say to the Governor of the Bank of England, Gordon Richardson, "I wish I had your job." Today, the Governor 1611 of the Bank of England has much more power than he ever had then. I am pretty sure that the present Chancellor of the Exchequer would like to change jobs, too.
Finally, I congratulate my hon. Friends on the Labour Front Bench on achieving one of the great reverses, on VAT on fuel. That will be something for which they will be long remembered and long appreciated.
§ Mr. John Townend (Bridlington)Never in my parliamentary life have we debated the Finance Bill against such a favourable economic background; yet the hon. Member for Oxford, East (Mr. Smith) says that we are in a mess. Underlying inflation 1.8 per cent. last month, exports soaring—we are in a mess. The balance of payments in balance—we are in a mess. Unemployment coming down month by month—and the hon. Gentleman says that we are in a mess.
The French level of unemployment is now—
§ Mr. Andrew SmithWill the hon. Gentleman give way?
§ Mr. TownendNo; I have only four minutes.
The French level of unemployment, with a socialist President, is now 50 per cent. more than ours. The Spanish level of unemployment, with a Socialist Government, is treble ours. The budget deficit is decreasing and we have a budget deficit reduction plan that will bring us into balance by the end of the decade.
My only regret is that to bring that budget deficit under control we have had to accept tax increases, the last of which are in the Budget. I broadly approve of the Government's strategy, but everyone knows that I always prefer to cut public expenditure instead of increasing taxes. I welcome the fact that the Government now appear to have accepted that, henceforth, our first priority must be to cut public expenditure.
I say to my right hon. and hon. Friends on the Government Front Bench that we need to launch a crusade against overmanning, extravagance and waste in the public sector. Wherever one looks in the public sector, at local government level or at national Government level, one can find glaring examples of the taxpayer's money being unnecessarily spent. I have about 20 examples here. Time will not allow me go into them, but I shall take them up in due course with my right hon. Friend the Chief Secretary to the Treasury.
The public sector is bloated. If one questions that point of view, one has only to consider the privatised industries. Who would have believed that they could slim down their work force so much while improving the service to the customer and reducing charges in real terms? Indeed, their great success is one of the reasons why we have been embarrassed by the profits made and the share options given. No one dreamed that the nationalised industries were so overmanned.
If we could achieve only 50 per cent. of the savings in manpower that the privatised industries have made or that every private firm that had to slim down during the recession has achieved, we would have no difficulty in cutting taxes substantially.
1612 I hope that this Finance Bill marks the end of an era in two respects. First, never again should we have a Finance Bill as long as this. It shows, in my opinion, that the Inland Revenue is out of control. It is obsessed with the minutiae of tax avoidance and benefits in kind. The Institute of Chartered Accountants described the Bill as "another dose of obscurity" and protested about the complexity in drafting style. I therefore welcome the Treasury's proposals to consider giving the work of drafting future Finance Bills to the private sector.
I hope that the Bill before us will be the last Finance Bill for many, many years in which the overall burden of taxation is increased. I can assure the Chancellor that he will have all my support in achieving those aims. I am sure that, with our present Chief Secretary to the Treasury, after the spending round this year, when we come to the Budget in November, we shall see the start of many, many Conservative Budgets when the burden on the taxpayer is reduced.
The Conservative party is the party whose philosophy is that we should leave as much money as possible in the wage earner's pocket, because we believe that he can take decisions about the way to spend his money better than the Government can. The Opposition believe that they should take as much money out of the wage earner's pocket as possible, because they believe that the state can take decisions better than the individual. That is the big difference between us. That is the blue water.
I commend my right hon. and hon. Friends on the Government Front Bench for all their efforts to reduce public spending.
§ Mr. Denis MacShane (Rotherham)The economic illiteracy that we have just heard, and that we heard in the opening speech, is great even by the standards of the Conservative Benches. The plain fact is that, when the Conservatives entered office in 1979, Britain stood fourth or fifth in per capita gross domestic product in Europe; we now stand 1 lth, sinking down the world league tables of growth and distribution. No economic legerdemain can reduce that fact.
I shall return to the Bill, because that is what we are here to debate, Mr. Deputy Speaker. First, it is an extraordinarily regressive Bill. In spite of the great victory won last November, when the proposal for VAT at 16 per cent. was defeated, nearly every measure proposed in the Bill—we do not have time to go through the clauses—has been regressive.
Secondly, where I do agree with the hon. Member for Bridlington (Mr. Townend) is that, at 351 pages, the Bill is far too long.
Thirdly, the Bill is absurdly complex—more complex than any comparable legislation for any other Organisation for Economic Co-operation and Development country of the same size.
Fourthly, it is a remarkably insular, inward-looking Bill. An amendment to clause 123, in which there was a suggestion of examining ways in which we might consider taxation internationally, was thrown out in Committee.
Fifthly, it is an extraordinarily short-term Bill. Thank goodness the hon. Member for Eastbourne (Mr. Waterson) was successful in moving his amendment on shipping, with our support, and the Government finally accepted 1613 that, because that measure extended slightly the time scale to back the tax relief necessary for our shipbuilding industry. However, for every other measure, the continual refrain was of resistance to the development of what one might call patient capitalism.
Sixthly, without question, it was a Bill designed in the Ritz and very much for the Ritz. Treasury Ministers made their
proper prostrations to the Gods of the market-place",but underlying the focus of the Bill is a shift from a wage-earning to a rentier society. That should worry anyone who believes that income should be related to hard work, not to turning up now and then to sign off, or not as the case may be, on arms exports to a country under ban from the United Nations.Seventhly, in the handling of the Bill there was some arrogance on the part of the Treasury Ministers. What does one expect from three Old Etonians and one Old Harrovian, all at Oxford? It was old England, which, thank goodness, was able to take some advice from new Labour. However, in spite of their politeness, their courtesy—which I acknowledge, because that is the class from which they come—there was a haughty disregard for any of the arguments made by Conservative Members, their colleagues. I ask for no pity or consideration for our opinions, but when their own side made sensible and helpful suggestions—of course very few of them coming from the Old Etonian and Old Harrovian gang—they were knocked back.
Eighthly, this is a profoundly anti-manufacturing Bill. I defy the Financial Secretary, in replying, to identify more than five clauses that will genuinely help industry. Last week, I had the honour of hosting a visit in the House from the Rotherham chamber of commerce. Those on the visit talked about education, skills and the lack of demand. There is nothing in the Bill that helps the manufacturing sector in a concrete way. I was particularly disappointed that the amendment on employee share ownership plans, which was moved by the hon. Member for Carshalton and Wallington (Mr. Forman) and supported by me, was so scornfully rejected.
Ninthly, the Bill is for rentiers, not wage earners. Tax-exempt special savings accounts and personal equity plans have been mentioned. But we must be careful, because we shall face problems in the future if we focus only on unearned income and unearned rents instead of creating a society in which value is added by people's work and income comes more directly from that work.
Tenthly, taxation is more than a contract between Government and the governed. It is the definition of the duties and responsibilities that society accepts in exchange for the freedom to make and spend money as it wishes. It is the equilibrium which is so tragically lacking in our two-nation society. We live in a society of two unbalanced halves, which fiscal policy should seek to connect, one to the other.
We need a major reform of our taxation system. With this Finance Bill, the Conservatives have shown that theirs is the party of high taxation and low lies. Only a new Treasury Front-Bench team can put that right.
§ Mr. Alistair Darling (Edinburgh, Central)I am sorry that we did not hear more from the Chief Secretary to the Treasury during the passage of the Finance Bill. He read 1614 his speech with feeling and we enjoyed it to some extent, but it was thoroughly unconvincing and demonstrated why the Government face difficulties.
It is not surprising that the Chief Secretary did not speak much about the Finance Bill, as he was not present in Committee very often. The only thing that can be said about him is that he was present on slightly more occasions than the Liberal Democrats, who were hardly there at all. One was bound to wonder why they asked for places on the Standing Committee on the Finance Bill—perhaps that is something that the Committee of Selection might want to take into account next year. [Interruption.]
Even as I speak, the Liberal Democrats cannot stand the heat and have withdrawn from the Chamber. The Liberal Democrat Benches now remain empty. I hope that those who sometimes pick up their press releases will ask them exactly how much time they spend in the Chamber when they are given the opportunity to talk about their economic policies or anything else.
My hon. Friend the Member for Oxford, East (Mr. Smith) mentioned that the Chief Secretary was hardly ever in Committee. His absence lends some credibility to his claim that when he was the director of a certain company he did not spend much time there. Clearly, not attending meetings and not being there seems to be a trade mark of the Chief Secretary.
My hon. Friend the Member for Oxford, East also said that the Chief Secretary spent some time reading Will Hutton's excellent book, which was indirectly plugged by my hon. Friend the Member for Rotherham (Mr. MacShane). I also noticed that for some time the Chief Secretary was reading a book entitled "The Law of Islam". I do not know why he was reading it, but perhaps, sooner or later, we will find out what he was so interested in.
The Chief Secretary's speech was unconvincing. He talked about success, but the truth is that people do not feel that they live in a successful country. They do not believe that they are being successful themselves and they do not believe that Britain is successful. The people feel cheated and deceived. They were promised tax cuts in 1992, but they got tax increases—there have been 20 different tax increases since 1993 alone. A typical family is paying ?800 a year more in tax.
The hon. Member for Bridlington (Mr. Townend) talked about the instincts and philosophy of the Government and the Conservative party. We know the Government's instincts—to say one thing during the election campaign and to do completely the opposite thereafter. The Government said that they would reduce taxes year on year. Instead, they have increased taxes year on year. It is no wonder that people do not trust the Conservatives on tax or anything else.
It would have been interesting if, when the hon. Member for Carshalton and Wallington (Mr. Forman) reviewed the opinion poll in The Sunday Times, he had told us its conclusion. If I am not mistaken, despite what he said, the majority of people, no matter where they stand—whether they are on middle incomes, lower incomes or no income—are becoming increasingly disillusioned with the Government and do not believe one word that the Government say about taxation or anything else.
Just last weekend, we were told that there would be a Tory relaunch. We saw the Prime Minister appearing on the Anne and Nick show to announce his relaunch. The 1615 relaunched Tory party is the party that we have known for the past 16 years. It is the party that is prepared to say anything to get elected and do the opposite once given power.
Over the weekend, the Tory party chairman said that he backed a proposal for a rolling programme of tax cuts. He said that that was an excellent idea. A few hours later, the Secretary of State for Employment said that he was not so sure. Tonight, the Chancellor told the Tory Back Benchers to dampen their expectations as there was no guarantee that the Government could deliver.
The Government strategy for relaunching themselves has fallen apart after three days. The truth is that the Government are bankrupt of ideas and have no idea about what to do with this country. What we see now is the Government's desperate attempt to cling to power by holding out the vague hope that there might be something better some time in the future.
We have had 20 tax rises since 1992. The Government may say that their instinct is to cut taxes, but their action shows something different. The only tax cut that we have had in 1995 has been a Labour tax cut, when VAT on domestic fuel was cut from 17.5 per cent. to 8 per cent. That is not all—as my hon. Friend the Member for Oxford, East said, the Opposition have won a string of victories over the Government.
One victory seems to sum up what is wrong with the Government. We heard about it from the hon. Member for Bridlington and the Chief Secretary when they talked about executive share options. This afternoon, the Government were forced to amend a proposal in the Finance Bill to ensure that part-time directors could not exploit the provisions relating to executive share options. What the Government said was instructive. The Chief Secretary to the Treasury seemed to extol the idea that people should be given executive share options without reference to the company's success. That was in stark contrast to the Prime Minister who, at the outset of the Finance Bill, said that nothing could be done, it was nothing to do with the Government and all to do with private companies. But half way through the spring of this year, in the midst of the Finance Bill, the Prime Minister suddenly arrived in the Chamber and said that the granting of share options and huge salary increases in privatised utilities could not be justified. He executed a complete U-turn, which was followed by another one two days later, when it seemed to be suggested that nothing could be done about it.
The Government's attitude to the unwarranted and excessive executive pay options and excessive pay rises in privatised utilities seems to sum up all that is wrong with the Government's tax policy—a complete and utter lack of fairness. They show a complete disregard for fairness, which should be installed within any tax system. Their attitude towards share options and the unjustified pay increases taken by the bosses of privatised utilities sums up everything that is wrong with the Government's approach to tax and fairness.
We welcome good news when we see it, but we criticise the problems that the country still has—the lack of manufacturing capacity, the lack of industrial policy and, above all, the lack of confidence in the Government. We are unimpressed by the casual promises being made 1616 by the Chancellor, the Prime Minister and other members of the Conservative party. People do not trust the Tories on tax or anything else.
We will not oppose the Bill tonight because it contains one crucial benefit for the majority of people in this country: the reduction of VAT to 8 per cent. That is what people will remember about the 1994–95 Finance Bill. They will remember that the Labour party brought the one tax cut for those who face so much hardship and misery.
We shall continue to hound the Government for their failures. We welcome any good news, but the Government have no answers and no suggestions about what we should do in future. The country has lost confidence in the Government. Later this week and at the beginning of next month the electorate in England and Wales will show that they have no confidence in the Government. It will not be long before the electorate turn to a party that has the answers and enjoys the confidence of the people in this country.
§ Sir George YoungI am grateful to my hon. Friends who spoke in the brief Third Reading debate for reminding the House of the positive measures in the Budget and the positive good news. Underlying inflation is below 3 per cent.—something we have not seen since 1961 for such a sustained time—unemployment is falling by 1,000 a day and the current account is in broad balance. We have inward investment, jobs and an economy that is growing and strengthening.
The hon. Member for Rotherham (Mr. MacShane) was unable to tell his local business men what was in the Budget to help businesses. One of the largest measures, involving some £600 million, was actually for businesses. It was the transitional relief scheme for the business rates—something that had escaped his memory.
The Opposition failed to remind us of some of their new clauses, such as the one which, for the first time, would have provided tax breaks for tax planning. It had all the accountants in the country with their mouths watering. It proposed for the first time tax concessions for tax avoidance.
We heard nothing from the Opposition about this week's reductions in national insurance contributions—something that they overlooked—in addition to cuts in the previous Budget. The cost of hiring someone on half average earnings has fallen from £710 a year in 1993–94 to £610 in 1995–96.
The Opposition mentioned tax increases, but, for an average household, this week's tax increase amounts to no more than the price of a lottery ticket and is dwarfed by the £5 a week by which we expect households to be better off on average after tax and inflation.
There is, indeed, one party that has not come clean with this country on its tax policy—the Labour party. For five months, when the Finance Bill was in Committee, we asked Labour Members time and again basic economic questions. Will they spend more or less than a Conservative Government? Will they tax more or less than a Conservative Government? Will they borrow more or less than a Conservative Government? That is when the sound bites end and the air bites begin. Labour Members have no right to be taken seriously as a party until they come clean on their economic policy.
1617 Nothing has looked so contrived as the Labour party's recent claim to be the taxpayer's friend. Could one imagine Labour Back Benchers piling into a room on the Committee corridor and giving the shadow Chancellor advice on how to reduce public expenditure and the burden of taxation? If they offered such advice, could one imagine him taking it?
The contrast between the advice that the Opposition receive and the advice that the Government receive could not be more stark. I note from today's DailyMail that, whereas my colleagues talk to the Chancellor about reducing taxation, union leaders have been stridently reminding the Leader of the Opposition of their expectations. Not only do Labour Members portray themselves unconvincingly as the taxpayer's friends; they have also sought to represent themselves as standing up for the values of middle England. If they want to play political poker with the Conservative party on traditional values, we will take them on. When they have run out of chips, the Conservative party will have plenty left.
Question put and agreed to.
Bill read the Third time, and passed.